As filed with the Securities and Exchange Commission on June 30, 2003


                                          1940 Act File No. 811-21235


                             SECURITIES AND EXCHANGE COMMISSION
                                   Washington, D.C. 20549

                                          FORM N-2


REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940      X

    Amendment No.   10  ....................................         X

                          FEDERATED PREMIER MUNICIPAL INCOME FUND

                     (Exact Name of Registrant as Specified in Charter)

                                 Federated Investors Funds
                                    5800 Corporate Drive
                             Pittsburgh, Pennsylvania 15237-7000
                          (Address of Principal Executive Offices)

                                       (412) 288-1900
                              (Registrant's Telephone Number)

                                  Leslie K. Ross, Esquire
                                       Reed Smith LLP
                                 Federated Investors Tower
                                    1001 Liberty Avenue
                            Pittsburgh, Pennsylvania 15222-3779
                          (Name and Address of Agent for Service)
                     (Notices should be sent to the Agent for Service)

                                         Copies to:

Matthew G. Maloney, Esquire
Dickstein Shapiro Morin & Oshinsky, LLP
2101 L Street, N.W.
Washington, D.C.  20037




It is proposed that this filing will become effective immediately upon filing.




                                  

                                   CROSS-REFERENCE SHEET
                                       PARTS A AND B



ITEM NO.    CAPTION                 LOCATION IN PROSPECTUS

1.          Outside Front Cover Page            Outside Front Cover Page
2.          Inside Front and Outside Back       Inside Front and Outside Back
3.          Fee Table and Synopsis              Prospectus Summary
4.          Financial Highlights                Financial Highlights (unaudited)
5.          Plan of Distribution                Outside Front Cover Page; Prospectus Summary;
                                                Underwriting
6.          Selling Shareholders                Not Applicable
7.          Use of Proceeds                     Use of Proceeds; The Fund's Investments
8.          General Description of the          Outside Front Cover Page; The Fund's
            Investments;
            Registrant                          Risks; Description of the AMPS
9.          Management                          Management of the Fund
10.         Capital Stock, Long-Term Debt Description of the AMPS; Description of Common
            and Other Securities                Shares; Certain Provisions in the Agreement and
                                                Declaration of Trust; Tax Matters
11.         Defaults and Arrears on Senior      Not Applicable
            Securities
12.         Legal Proceedings                   Not Applicable
13.         Table of Contents of SAI            Table of Contents (SAI)
14.         Cover Page of SAI                   Cover Page (SAI)
15.         Table of Contents of SAI            Table of Contents (SAI)
16.         General Information and             Cover Page (SAI)
            History
17.         Investment Objective and            Fundamental Investment Objective, Policy
and Policies                      Limitations; Non-fundamental Investment
Limitations
18.         Management                         Management of the Fund (SAI)
19.         Control Persons and Principal Management of the Fund (SAI)
            Holders of Securities
20.         Investment Adisory and Other  Management of the  Fund (SAI)
            Services
21.         Brokerage Allocation and Other      Brokerage Transactions (SAI)
            Practices
22.         Tax Status                    Tax Matters
23.         Financial Statements          Financial Statements (SAI)










                          FEDERATED PREMIER MUNICIPAL INCOME FUND


                            STATEMENT OF ADDITIONAL INFORMATION


     Federated  Premier  Municipal  Income  Fund  (the  "Fund")  is  a  recently
organized, diversified, closed-end management investment company. This Statement
of Additional Information relating to the Fund's Auction Market Preferred Shares
Series A (the "AMPS") does not  constitute a  prospectus,  but should be read in
conjunction  with the prospectus  relating thereto dated February 13, 2003. This
Statement of  Additional  Information  does not include all  information  that a
prospective  investor  should  consider  before  purchasing  AMPS, and investors
should obtain and read the prospectus  prior to purchasing  such AMPS. A copy of
the prospectus may be obtained without charge by calling 1-800-341-7400. You may
also obtain a copy of the prospectus on the Securities and Exchange Commission's
web site  (http://www.sec.gov).  Capitalized  terms used but not defined in this
Statement of Additional  Information  have the meanings  ascribed to them in the
prospectus.





























                                     TABLE OF CONTENTS
                                                                     Page
Use Of Proceeds........................................................5
Investment Strategies..................................................5
Fundamental Investment Objective, Policy And Limitations...............5
Non-Fundamental Investment Limitations.................................6
Investment Securities..................................................8
Management Of The Fund................................................15
Brokerage Transactions................................................22
Additional Information Concerning
The Auctions For AMPS.................................................23
Description Of Common Shares..........................................25
Repurchase Of Common Shares...........................................25
Tax Matters...........................................................27
Experts...............................................................32
Additional Information................................................32
Independent Auditors' Report..........................................33
Financial Statements..................................................32
Appendix A Statement Of Preferences Of Auction Market ..............AA-1
Appendix B Investment Ratings.......................................BB-1


This Statement of Additional Information is dated February 13, 2003
(revised June 30, 2003).


                                             49
                                      USE OF PROCEEDS

     Pending investment in tax exempt securities that meet the Fund's investment
objective  and  policies,  the net proceeds of the offering  will be invested in
high-quality,  short-term tax exempt money market  securities or in high-quality
tax exempt  securities with relatively low volatility,  such as pre-refunded and
intermediate-term  bonds,  to the  extent  such  securities  are  available.  If
necessary to invest fully the net proceeds of the offering immediately, the Fund
may also purchase, as temporary investments,  short-term taxable investments the
income on which is subject to federal  regular  income tax,  and  securities  of
other open- or  closed-end  investment  companies  that invest  primarily in tax
exempt securities of the type in which the Fund may invest directly.

                                   INVESTMENT STRATEGIES

     Under  normal  circumstances,  the Fund  will  maintain  a  dollar-weighted
average  portfolio  maturity  of 15 to 30 years  and a  dollar-weighted  average
duration of 7 to 13 years.

     The Fund's average  portfolio  maturity  represents an average based on the
actual stated  maturity  dates of the debt  securities in the Fund's  portfolio,
except  that:  (1)  variable-rate  securities  are  deemed to mature at the next
interest-rate   adjustment  date,  unless  subject  to  a  demand  feature;  (2)
variable-rate securities subject to a demand feature are deemed to mature on the
longer of the next interest-rate  adjustment date or the date on which principal
can be recovered  through  demand;  (3)  floating-rate  securities  subject to a
demand  feature are deemed to mature on the date on which the  principal  can be
recovered through demand; and (4) securities being hedged with futures contracts
may be deemed to have a longer  maturity,  in the case of  purchases  of futures
contracts,  and a shorter maturity,  in the case of sales of futures  contracts,
than they would otherwise be deemed to have. The average  portfolio  maturity of
the Fund is dollar weighted based upon the market value of the Fund's securities
at the time of calculation.



     The  Fund  cannot  accurately  predict  its  portfolio  turnover  rate  but
anticipates  that its annual  portfolio  turnover rate will not exceed 100%. The
Fund generally will not trade securities for the purpose of realizing short-term
profits,  but it will  adjust its  portfolio  as it deems  advisable  in view of
prevailing  or  anticipated  market  conditions  to  accomplish  its  investment
objective.  Other  than for  consideration  of tax  consequences,  frequency  of
portfolio  turnover  will not be a  limiting  factor  if the Fund  considers  it
advantageous to purchase or sell securities.


                  FUNDAMENTAL INVESTMENT OBJECTIVE, POLICY AND LIMITATIONS

     The following fundamental investment objective,  policy and limitations may
not be changed by the Fund's  Board  without  the  approval  of the holders of a
majority of (1) the outstanding  Common Shares and AMPS and any preferred shares
that may in the  future  be  issued  voting  together  as a  class,  and (2) the
outstanding  AMPS and any  preferred  shares  that may in the  future be issued,
voting as a separate class.  When used with respect to particular  shares of the
Fund,  "majority of the outstanding" means (a) 67% or more of the shares present
at a meeting,  if the  holders  of more than 50% of the  shares  are  present or
represented by proxy, or (b) more than 50% of the shares, whichever is less.

Investment Objectives

     The Fund's  investment  objective is to provide  current income exempt from
regular federal income tax.

Investment Policy

     The Fund will  invest its assets so that at least 80% of the income that it
distributes will be exempt from federal income tax, including AMT.

Investment Limitations

     Concentration.  The Fund will not make  investments that will result in the
concentration of its investments in the securities of issuers  primarily engaged
in the same  industry,  but may  invest  more  than 25% of its  total  assets in
securities of issuers in the same economic sector.

     Diversification of Investments.  With respect to securities  comprising 75%
of the value of its total assets,  the Fund will not purchase the  securities of
any one issuer (other than cash, cash items,  securities issued or guaranteed by
the  government  of the United States or its agencies or  instrumentalities  and
repurchase  agreements  collateralized by such U.S. government  securities,  and
securities  of other  investment  companies)  if as a result more than 5% of the
value of its total assets would be invested in the securities of that issuer, or
it would own more than 10% of the outstanding voting securities of that issuer.

     Underwriting.  The Fund will not underwrite any issue of securities, except
as it may be deemed to be an  underwriter  under the  Securities  Act of 1933 in
connection  with the  sale of  securities  in  accordance  with  its  investment
objective, policy and limitations.

     Investing  in Real  Estate.  The  Fund  will not buy or sell  real  estate,
although  it may  invest in tax  exempt  securities  secured  by real  estate or
interests in real estate.

     Investing  in  Commodities.  The Fund  may not  purchase  or sell  physical
commodities,  provided that the Fund may purchase  securities of companies  that
deal  in  commodities.   For  purposes  of  this  restriction,   investments  in
transactions  involving futures contracts and options,  swap  transactions,  and
other  financial  contracts  that settle by payment of cash are not deemed to be
investments in commodities.

     Lending.  The  Fund  will not  make  loans,  but may  acquire  publicly  or
non-publicly  issued  tax  exempt  securities  as  permitted  by its  investment
objective, policies and limitations.

     Borrowing Money and Issuing Senior  Securities.  The Fund may borrow money,
directly or  indirectly,  and issue  senior  securities  to the  maximum  extent
permitted under the Investment Company Act of 1940 (the "1940 Act").

     For purposes of applying the  concentration  limitation,  securities of the
U.S. government, its agencies or instrumentalities, and securities backed by the
credit of a  governmental  entity are not  considered  to represent  industries.
However,  obligations backed only by the assets and revenues of non-governmental
issuers  may for this  purpose  be deemed to be issued by such  non-governmental
issuers. Thus, the 25% limitation would apply to such obligations.

     For   the   purpose   of   applying   the   concentration   limitation,   a
non-governmental  issuer will be deemed the sole  issuer of a security  when its
assets and  revenues  are  separate  from other  governmental  entities  and its
securities are backed only by its assets and revenues. Similarly, in the case of
a  non-governmental  issuer,  such as an industrial  corporation  or a privately
owned or  operated  hospital,  if the  security is backed only by the assets and
revenues of the non-governmental issuer, then such non-governmental issuer would
be  deemed  to be the  sole  issuer.  Where a  security  is also  backed  by the
enforceable  obligation of a superior or unrelated  governmental or other entity
(other than a bond  insurer),  it will also be included  in the  computation  of
securities owned that are issued by such  governmental or other entity.  Where a
security is guaranteed by a governmental entity or some other facility,  such as
a bank guarantee or letter of credit, such a guarantee or letter of credit would
be  considered  a  separate  security  and would be  treated as an issue of such
government, other entity or bank.
















                           NON-FUNDAMENTAL INVESTMENT LIMITATIONS

     The  Fund is  also  subject  to the  following  non-fundamental  investment
limitations, which may be changed by the Board without shareholder approval.


Short Sales

     The Fund will not make any short sale of  securities  except in  conformity
with  applicable  laws,  rules and regulations and unless after giving effect to
such sale, the market value of all securities  sold short does not exceed 25% of
the value of the Fund's total assets and the Fund's  aggregate  short sales of a
particular  class of  securities  does not  exceed  25% of the then  outstanding
securities of that class.

Investing in Other Investment Companies

     The Fund may  purchase  securities  of  open-end or  closed-end  investment
companies  in  compliance  with the 1940 Act or any  exemptive  relief  obtained
thereunder.

Exercise of Control

     The Fund will not  purchase  securities  of  companies  for the  purpose of
exercising control.

                                   INVESTMENT SECURITIES

     The  following  information   supplements  the  discussion  of  the  Fund's
investment securities that are described in the prospectus.

Fixed Income Securities

     Fixed income  securities  pay  interest,  dividends or  distributions  at a
specified rate. The rate may be a fixed  percentage of the principal or adjusted
periodically.  In addition, the issuer of a fixed income security must repay the
principal amount of the security, normally within a specified time. Fixed income
securities  provide more regular  income than equity  securities.  However,  the
returns on fixed income securities are limited and normally do not increase with
the issuer's  earnings.  This limits the potential  appreciation of fixed income
securities as compared to equity securities.

     A security's  yield  measures the annual  income  earned on a security as a
percentage of its price. A security's yield will increase or decrease  depending
upon whether it costs less (a discount) or more (a premium)  than the  principal
amount. If the issuer may redeem the security before its scheduled maturity, the
price and yield on a discount  or  premium  security  may change  based upon the
probability of an early redemption.  Securities with higher risks generally have
higher yields.

     The Fund may invest in tax exempt  securities,  which pay interest  that is
not subject to regular income taxes, including AMT. Typically, states, counties,
cities  and other  political  subdivisions  and  authorities  issue  tax  exempt
securities.  The market  categorizes  tax exempt  securities  by their source of
repayment.

     Following is a description of non-principal  tax exempt securities in which
the Fund may invest.

     Variable Rate Demand Instruments.  Variable rate demand instruments are tax
exempt  securities that require the issuer or a third party, such as a dealer or
bank, to repurchase the security for its face value upon demand.  The securities
also pay interest at a variable rate  intended to cause the  securities to trade
at their face value. The Fund treats demand instruments as short-term securities
because  their  variable  interest rate adjusts in response to changes in market
rates, even though their stated maturity may extend beyond 13 months.

     Municipal Notes. Municipal notes are short-term tax exempt securities. Many
municipalities  issue  such  notes  to  fund  their  current  operations  before
collecting  taxes or other  municipal  revenues.  Municipalities  may also issue
notes to fund capital  projects prior to issuing  long-term  bonds.  The issuers
typically  repay the notes at the end of their fiscal  year,  either with taxes,
other revenues or proceeds from newly issued notes or bonds.

     Tax Increment  Financing  Bonds.  Tax increment  financing  (TIF) bonds are
payable  from  increases  in taxes or other  revenues  attributable  to projects
financed  by the  bonds.  For  example,  a  municipality  may issue TIF bonds to
redevelop a  commercial  area.  The TIF bonds  would be payable  solely from any
increase in sales taxes  collected  from  merchants in the area. The bonds could
default if merchants' sales, and related tax collections,  failed to increase as
anticipated.

     Municipal  Mortgage Back Securities.  Municipal  mortgage backed securities
are special revenue bonds the proceeds of which may be used to provide  mortgage
loans for single  family  homes or to  finance  multifamily  housing.  Municipal
mortgage  backed  securities  represent  interests  in pools of  mortgages.  The
mortgages that comprise a pool normally have similar interest rates,  maturities
and other terms.  Municipal  mortgage  backed  securities  generally  have fixed
interest rates.

     PACS.  PACs  (planned  amortization  classes) are a  sophisticated  form of
mortgage backed security issued with a companion class.  PACs receive  principal
payments and prepayments at a specified rate. In addition, PACs will receive the
companion  classes'  share  of  principal  payments,  if  necessary,  to cover a
shortfall in the prepayment rate. This helps PACs to control prepayment risks by
increasing the risks to their companion classes.



Credit Enhancement

     Common types of credit enhancement include  guarantees,  letters of credit,
bond insurance and surety bonds.  Credit enhancement also includes  arrangements
where  securities  or other  liquid  assets  secure  payment  of a fixed  income
security. If a default occurs, these assets may be sold and the proceeds paid to
a security's  holders.  Each form of credit enhancement  reduces credit risks by
providing another source of payment for a fixed income security.

Structured Notes

     The Fund may invest in "structured"  notes, which are privately  negotiated
debt obligations  where the principal and/or interest is determined by reference
to the  performance  of a  benchmark  asset,  market or interest  rate,  such as
selected  securities,  an index of securities or specified interest rates or the
differential  performance of two assets or markets,  such as indices  reflecting
taxable and tax exempt bonds.  Depending on the terms of the note,  the Fund may
forgo all or part of the  interest  and  principal  that  would be  payable on a
comparable conventional note.

     The rate of return on  structured  notes may be  determined  by  applying a
multiplier to the  performance  or  differential  performance  of the referenced
index(es) or other assets(s). Application of a multiplier involves leverage that
will serve to magnify the potential for gain and the risk of loss.

     The Fund currently intends that any use of structured notes will be for the
purpose of reducing the interest rate  sensitivity of the Fund's  portfolio (and
thereby decreasing the Fund's exposure to interest rate risk) and, in any event,
that the  interest  income on the notes will  normally  be exempt  from  federal
income tax. The Fund will only invest in structured  notes if it has received an
opinion of counsel for the issuer or the advice of another authority believed by
the Adviser to be reliable that the interest  income on the notes will be exempt
from federal income tax. Like other sophisticated strategies,  the Fund's use of
structured notes may not work as intended;  for example,  the change in value of
the structured notes may not match very closely the change in the value of bonds
that the structured notes were purchased to hedge.

Derivative Contracts

     Derivative contracts are financial  instruments that require payments based
upon changes in the values of designated or underlying  securities,  currencies,
commodities,  financial indices or other assets or instruments.  Some derivative
contracts such as futures,  forwards and options require payments  relating to a
future trade involving the underlying asset. Other derivative  contracts such as
swaps  require  payments  relating to the income or returns from the  underlying
asset or instrument.  The other party to a derivative contract is referred to as
a counterparty.

     Many   derivative   contracts  are  traded  on  securities  or  commodities
exchanges.  In this case, the exchange sets all the terms of the contract except
for the price.  Investors  make payments due under their  contracts  through the
exchange.  Most exchanges  require investors to maintain margin accounts through
their brokers to cover their potential  obligations to the exchange.  Parties to
the contract make (or collect) daily payments to the margin  accounts to reflect
losses  (or  gains) in the value of their  contracts.  This  protects  investors
against potential defaults by the counterparty. Trading contracts on an exchange
also allows  investors to close out their  contracts by entering into offsetting
contracts.

     For example, the Fund could close out an open contract to buy an asset at a
future date by entering  into an  offsetting  contract to sell the same asset on
the same date. If the offsetting  sale price is more than the original  purchase
price,  the Fund  realizes  a gain;  if it is less,  the Fund  realizes  a loss.
Exchanges may limit the amount of open contracts permitted at any one time. Such
limits may prevent the Fund from closing out a position.  If this  happens,  the
Fund will be required to keep the  contract  open even if it is losing  money on
the contract,  and to make any payments  required  under the contract even if it
has to sell portfolio  securities at unfavorable  prices to do so.  Inability to
close out a contract could also harm the Fund by preventing it from disposing of
or trading  any assets it has been  using to secure  its  obligations  under the
contract.

     The Fund may also  trade  derivative  contracts  over-the-counter  (OTC) in
transactions  negotiated  directly  between the Fund and the  counterparty.  OTC
contracts do not  necessarily  have standard  terms,  so they cannot be directly
offset  with  other  OTC  contracts.   In  addition,  OTC  contracts  with  more
specialized terms may be more difficult to price than exchange traded contracts.

     Depending upon how the Fund uses derivative contracts and the relationships
between the market value of a derivative  contract and the  underlying  asset or
instrument, derivative contracts may increase or decrease the Fund's exposure to
interest rate risks, and may also expose the Fund to liquidity, leverage and tax
risks.  OTC  contracts  also expose the Fund to credit risks in the event that a
counterparty defaults on the contract.

     The Fund may trade in the following types of derivative contracts,  as well
as combinations of these  contracts,  including,  but not limited to, options on
futures contracts, options on forward contracts and options on swaps.

     Futures  Contracts.  Futures  contracts  provide for the future sale by one
party and purchase by another party of a specified amount of an underlying asset
or instrument at a specified price,  date and time.  Entering into a contract to
buy an underlying asset is commonly  referred to as buying a contract or holding
a long  position in the asset.  Entering  into a contract to sell an  underlying
asset is commonly  referred to as selling a contract or holding a short position
in the asset.  Futures  contracts  are  considered  to be  commodity  contracts.
Futures contracts traded OTC are frequently referred to as forward contracts.

     The Fund may buy or sell the  interest  rate  futures  contracts  and index
financial futures contracts.  The Fund may also buy or sell futures contracts on
tax exempt securities and U.S. government and agency securities.

     Options.  Options  are  rights  to buy  or  sell  an  underlying  asset  or
instrument for a specified price (the exercise price) during,  or at the end of,
a specified  period. A call option gives the holder (buyer) the right to buy the
underlying  asset or instrument  from the seller  (writer) of the option.  A put
option gives the holder the right to sell the underlying  asset or instrument to
the  writer of the  option.  The writer of the  option  receives  a payment,  or
premium,  from the buyer, which the writer keeps regardless of whether the buyer
uses or exercises the option.  If the Fund writes options on futures  contracts,
it will be subject to margin  requirements  similar to those  applied to futures
contracts.

     Swaps.  Swaps are  contracts  in which two parties  agree to pay each other
(swap) the returns derived from underlying  assets or instruments with differing
characteristics. Most swaps do not involve the delivery of the underlying assets
or  instruments  by either  party,  and the parties  might not own the assets or
instruments underlying the swap. The payments are usually made on a net basis so
that, on any given day, the Fund would receive (or pay) only the amount by which
its payment under the contract is less than (or exceeds) the amount of the other
party's  payment.  Swap agreements are  sophisticated  instruments that can take
many different forms, and are known by a variety of names including caps, floors
and collars. Common swap agreements that the Fund may use include:

     Interest  Rate Swaps.  Interest rate swaps are contracts in which one party
agrees to make regular payments equal to a fixed or floating interest rate times
a stated,  notional principal amount of fixed income  securities,  in return for
payments  equal to a different  fixed or floating  rate times the same  notional
principal amount,  for a specific period.  For example, a $10 million LIBOR swap
would require one party to pay the equivalent of the London Interbank Offer Rate
of interest  (which  fluctuates)  on $10 million  notional  principal  amount in
exchange  for the right to  receive  the  equivalent  of a stated  fixed rate of
interest on $10 million notional principal amount.

     Caps and Floors. Caps and floors are contracts in which one party agrees to
make  payments  only if an  interest  rate or index  goes  above  (cap) or below
(floor) a certain level in return for a fee from the other party.

     Total Return  Swaps.  Total  return swaps are  contracts in which one party
agrees  to make  payments  of the  total  return  from the  underlying  asset or
instrument  during the specified period, in return for payments equal to a fixed
or floating rate of interest or the total return from another  underlying  asset
or instrument.

     Municipal  Market Data Rate Locks. The Fund may purchase and sell Municipal
Market Data Rate Locks ("MMD Rate Locks").  An MMD Rate Lock permits the Fund to
lock in a specified  municipal  interest  rate for a portion of its portfolio to
preserve a return on a particular  investment or a portion of its portfolio as a
duration management technique or to protect against any increase in the price of
securities to be purchased at a later date.  The Fund will  ordinarily use these
transactions  as a hedge  or for  duration  or risk  management  although  it is
permitted  to enter into them to enhance  income or gain.  An MMD Rate Lock is a
contract  between the Fund and an MMD Rate Lock  provider  pursuant to which the
parties  agree to make payments to each other on a notional  amount,  contingent
upon whether the Municipal Market Data AAA General  Obligation Scale is above or
below a specified level on the expiration date of the contract.  For example, if
the  Fund  buys an MMD Rate  Lock  and the  Municipal  Market  Data AAA  General
Obligation  Scale is below  the  specified  level on the  expiration  date,  the
counterparty  to the  contract  will  make a  payment  to the Fund  equal to the
specified level minus the actual level, multiplied by the notional amount of the
contract. If the Municipal Market Data AAA General Obligation Scale is above the
specified  level on the  expiration  date,  the Fund will make a payment  to the
counterparty equal to the actual level minus the specified level,  multiplied by
the notional amount of the contract. In entering into MMD Rate Locks, there is a
risk that  municipal  yields will move in the  direction  opposite the direction
anticipated by the Fund.

Short Sales

     The  Fund  may  make  short  sales  of  securities  as part of its  overall
portfolio management strategy and to offset potential declines in long positions
in securities in the Fund's  portfolio.  A short sale is a transaction  in which
the Fund sells a security it does not own in anticipation  that the market price
of  that  security  will  decline.  Although  short  sale  transactions  are not
currently  available  with  respect to municipal  bonds,  the Fund may engage in
short sales on taxable bonds and on futures  contracts with respect to Municipal
Bonds and taxable bonds.

     When the Fund makes a short sale on a security, it must borrow the security
sold short and deliver it to the  broker-dealer  through which it made the short
sale as collateral for its obligation to deliver the security upon conclusion of
the sale. The Fund may have to pay a fee to borrow particular  securities and is
often obligated to pay over any accrued  interest and dividends on such borrowed
securities.

     If the price of the security sold short  increases  between the time of the
short sale and the time the Fund replaces the borrowed  security,  the Fund will
incur a loss; conversely, if the price declines, the Fund will realize a capital
gain. Any gain will be decreased,  and any loss  increased,  by the  transaction
costs  described  above.  The  successful  use of short selling may be adversely
affected by imperfect correlation between movements in the price of the security
sold short and the securities being hedged.

     To the  extent  that  the Fund  engages  in short  sales,  it will  provide
collateral to the broker-dealer. A short sale is "against the box" to the extent
that the Fund  contemporaneously  owns,  or has the  right to obtain at no added
cost,  securities  identical  to those sold  short.  The Fund may also engage in
so-called  "naked"  short sales  (i.e.,  short sales that are not  "against  the
box"), in which case the Fund's losses could theoretically be unlimited in cases
where the Fund is unable for  whatever  reason to close out its short  position.
The Fund has the flexibility to engage in short selling to the extent  permitted
by the 1940 Act and rules and interpretations thereunder.

Investing In Securities Of Other Investment Companies

     The  Fund may  invest  its  assets  in  securities  of  other  open-end  or
closed-end  investment   companies,   including  the  securities  of  affiliated
investment  companies,  as an  efficient  means of carrying  out its  investment
policies and managing its uninvested cash.

Temporary Defensive Investments

     The Fund may make temporary defensive  investments in the following taxable
securities:

     Treasury  Securities.  Treasury  securities  are direct  obligations of the
federal government of the United States.

     Agency Securities.  Agency securities are issued or guaranteed by a federal
agency  or other  government  sponsored  entity  ("GSE")  acting  under  federal
authority.  The United States supports some GSEs with its full faith and credit.
Other GSEs receive support through federal subsidies, loans or other benefits. A
few GSEs have no explicit financial support,  but are regarded as having implied
support because the federal government sponsors their activities.

     Bank Instruments.  Bank instruments are unsecured interest bearing deposits
with banks. Bank instruments include bank accounts, time deposits,  certificates
of deposit and banker's acceptances.

     Corporate  Debt  Securities.  Corporate  debt  securities  are fixed income
securities issued by businesses.  Notes, bonds,  debentures and commercial paper
are the most prevalent types of corporate debt securities.

     Commercial  Paper.  Commercial  paper  is an  issuer's  obligation  with  a
maturity of less than nine months. Companies typically issue commercial paper to
pay for current  expenditures.  Most issuers constantly reissue their commercial
paper and use the  proceeds  (or bank  loans) to repay  maturing  paper.  If the
issuer cannot continue to obtain liquidity in this fashion, its commercial paper
may default.  The short maturity of commercial paper reduces both the market and
credit risks as compared to other debt securities of the same issuer.

     Repurchase Agreements.  Repurchase agreements are transactions in which the
Fund buys a security  from a dealer or bank and agrees to sell the security back
at a mutually agreed upon time and place.  The repurchase price exceeds the sale
price, reflecting the Fund's return on the transaction. This return is unrelated
to the  interest  rate on the  underlying  security.  The Fund will  enter  into
repurchase   agreements   only  with  banks  and  other   recognized   financial
institutions, such as securities dealers, deemed creditworthy by the Adviser.

     The Fund's custodian or subcustodian will take possession of the securities
subject to repurchase  agreements.  The Adviser or subcustodian will monitor the
value of the  underlying  security  each  day to  ensure  that the  value of the
security always equals or exceeds the repurchase price.

      Repurchase agreements are subject to credit risks.

                                   MANAGEMENT OF THE FUND

Board of Trustees

     The Board is responsible for managing the Fund's  business  affairs and for
exercising all the Fund's powers except those reserved for the shareholders. The
following  tables  give  information  about  each  Board  member  and the senior
officers of the Fund. Where required,  the tables  separately list Board members
who are "interested persons" of the Fund (i.e.,  "Interested" Board members) and
those who are not (i.e.,  "Independent" Board members).  Unless otherwise noted,
the address of each person  listed is Federated  Investors  Tower,  1001 Liberty
Avenue,  Pittsburgh,  PA. The Federated  Fund Complex  consists of 44 investment
companies (comprising 138 portfolios). Unless otherwise noted, each Board member
oversees all portfolios in the Federated Fund Complex;  serves for an indefinite
term;  and also serves as a Board  member of the  following  investment  company
complexes: Banknorth Funds--five portfolios; CCMI Funds--two portfolios; Regions
Funds--nine portfolios;  Riggs Funds--eight portfolios;  and WesMark Funds--five
portfolios.

Interested Trustees Background And Compensation


                                                                       
---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
Name Birth Date  Principal Occupation(s) for Past Five Years,     Aggregate    Total
Address          Other Directorships Held and Previous Positions  Compensation Compensation
Positions Held                                                    From         From
with Fund                                                         Fund +       Fund and
                                                                               Federated
                                                                               Fund
                                                                               Complex
                                                                               (past
                                                                               calendar
                                                                               year)

---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
John F.          Principal Occupations: Chairman and Director or  $0         $0
Donahue* Birth   Trustee of the Federated Fund Complex; Chairman
Date: July28,    and Director, Federated Investors, Inc.;
1924 CHAIRMAN    Chairman, Federated Investment Management
AND              Company, Federated Global Investment Management
TRUSTEE(1)(2)    Corp. and Passport Research, Ltd. Previous
                 Positions: Trustee, Federated Investment
                 Management Company and Chairman and Director,
                 Federated Investment Counseling.

J. Christopher   Principal Occupations: President and Chief       $0         $0
Donahue* Birth   Executive Officer of the Federated Fund
Date: April11,   Complex; Director or Trustee of some of the
1949 PRESIDENT   Funds in the Federated Fund Complex; President,
AND              Chief Executive Officer and Director, Federated
TRUSTEE(1)(2)    Investors, Inc.; President, Chief Executive
                 Officer and Trustee, Federated Investment
                 Management Company; Trustee, Federated
                 Investment Counseling; President, Chief
                 Executive Officer and Director, Federated
                 Global Investment Management Corp.; President
                 and Chief Executive Officer, Passport Research,
                 Ltd.; Trustee, Federated Shareholder Services
                 Company; Director, Federated Services Company.
                 Previous Position: President, Federated
                 Investment Counseling.

Lawrence D.      Principal Occupations: Director or Trustee of    $0         $148,500.00
Ellis, M.D.*     the Federated Fund Complex; Professor of
Birth Date:      Medicine, University of Pittsburgh; Medical
October11, 1932  Director, University of Pittsburgh Medical
3471 Fifth       Center Downtown; Hematologist, Oncologist and
Avenue Suite     Internist, University of Pittsburgh Medical
1111             Center. Other Directorships Held: Member,
Pittsburgh, PA   National Board of Trustees, Leukemia Society of
TRUSTEE(1)(2)    America. Previous Positions: Trustee,
                 University of Pittsburgh; Director, University
                 of Pittsburgh Medical Center.

     *Family  relationships and reasons for "interested" status: John F. Donahue
is the  father  of J.  Christopher  Donahue;  both are  "interested"  due to the
positions  they  hold  with  Federated  Investors,  Inc.  and its  subsidiaries.
Lawrence D. Ellis,  M.D. is "interested"  because his son-in-law is employed by,
Federated Securities Corp., a subsidiary of Federated Investors, Inc.

     + Board  members  will not  receive  compensation  from the Fund during the
Fund's first fiscal year. Thereafter,  the Fund will be subject to a base charge
of $250 per quarter;  the  remainder of the "Total  Compensation"  in column two
will be allocated to each fund in the  Federated  Fund Complex  based on the net
assets of each such fund.

Independent Trustees Background And Compensation

---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
Name Birth Date   Principal Occupation(s) for Past Five Years,    Aggregate    Total
Address           Other Directorships Held and Previous           Compensation Compensation
Positions Held    Positions                                       From         From
with Fund                                                         Fund         Fund and
                                                                  (past        Federated
                                                                  fiscal       Fund
                                                                  year)+       Complex
                                                                               (past
                                                                               calendar
                                                                               year)
---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
Thomas G.         Principal Occupation: Director or Trustee of    $0         $163,350.00
Bigley Birth      the Federated Fund Complex. Other
Date:             Directorships Held: Director, Member of
February3, 1934   Executive Committee, Children's Hospital of
15 Old Timber     Pittsburgh; Director,  University of
Trail             Pittsburgh. Previous Position: Senior Partner,
Pittsburgh, PA    Ernst & Young LLP.
TRUSTEE(1)(2)


John T. Conroy,   Principal Occupations: Director or Trustee of   $0         $163,350.00
Jr. Birth Date:   the Federated Fund Complex; Chairman of the
June23, 1937      Board, Investment Properties Corporation;
Grubb &           Partner or Trustee in private real estate
Ellis/Investment  ventures in Southwest Florida. Previous
Properties        Positions: President, Investment Properties
Corporation       Corporation; Senior Vice President, John R.
3838 Tamiami      Wood and Associates, Inc., Realtors;
Trail North       President, Naples Property Management, Inc.
Naples, FL        and Northgate Village Development Corporation.
TRUSTEE(1)(2)

Nicholas P.       Principal Occupation: Director or Trustee of    $0         $163,350.00
Constantakis      the Federated Fund Complex; Previous
Birth Date:       Position:  Partner, Andersen Worldwide SC.
September3,       Other Directorships Held: Director, Michael
1939 175          Baker Corporation (engineering and energy
Woodshire Drive   services worldwide).
Pittsburgh, PA
 TRUSTEE (1)(2)

John F.           Principal Occupation: Director or Trustee of    $0         $148,500.00
Cunningham        the Federated Fund Complex. Other
Birth Date:       Directorships Held: Chairman, President and
March5, 1943      Chief Executive Officer, Cunningham & Co.,
353 El Brillo     Inc. (strategic business consulting); Trustee
Way Palm Beach,   Associate, Boston College. Previous Positions:
FL TRUSTEE(1)(2)  Director, Redgate Communications and EMC
                  Corporation (computer storage systems);
                  Chairman of the Board and Chief Executive
                  Officer, Computer Consoles, Inc.; President
                  and Chief Operating Officer, Wang
                  Laboratories; Director, First National Bank of
                  Boston; Director, Apollo Computer, Inc.

Peter E. Madden   Principal Occupation: Director or Trustee of    $0         $148,500.00
Birth Date:       the Federated Fund Complex; Management
March16, 1942     Consultant.
One Royal Palm    Other Directorships Held: Board of Overseers,
Way 100 Royal     Babson College
Palm Way Palm
Beach, FL         Previous Positions: Representative,
TRUSTEE(1)(2)     Commonwealth of Massachusetts General Court;
                  President, State Street Bank and Trust Company
                  and State Street Corporation (retired);
                  Director, VISA USA and VISA International;
                  Chairman and Director, Massachusetts Bankers
                  Association; Director, Depository Trust
                  Corporation; Director, The Boston Stock
                  Exchange.

Charles F.        Principal Occupations: Director or Trustee of   $0         $163,350.00
Mansfield, Jr.    the Federated Fund Complex; Management
Birth Date:       Consultant; Executive Vice President, DVC
April10, 1945     Group, Inc. (marketing, communications and
80 South Road     technology) (prior to 9/1/00). Previous
Westhampton       Positions: Chief Executive Officer, PBTC
Beach, NY         International Bank; Partner, Arthur Young &
TRUSTEE(1)(2)     Company (now Ernst & Young LLP); Chief
                  Financial Officer of Retail Banking Sector,
                  Chase Manhattan Bank; Senior Vice President,
                  HSBC Bank USA (formerly, Marine Midland Bank);
                  Vice President, Citibank; Assistant Professor
                  of Banking and Finance, Frank G. Zarb School
                  of Business, Hofstra University.

John E. Murray,   Principal Occupations: Director or Trustee of   $0         $178,200.00
Jr., J.D.,        the Federated Fund Complex; Chancellor and Law
S.J.D. Birth      Professor, Duquesne University; Consulting
Date:             Partner, Mollica & Murray. Other Directorships
December20,       Held: Director, Michael Baker Corp.
1932              (engineering, construction, operations and
Chancellor,       technical services). Previous Positions:
Duquesne          President, Duquesne University; Dean and
University        Professor of Law, University of Pittsburgh
Pittsburgh, PA    School of Law; Dean and Professor of Law,
TRUSTEE(1)(2)     Villanova University School of Law.

Marjorie P.       Principal Occupations: Director or Trustee of   $0         $148,500.00
Smuts Birth       the Federated Fund Complex; Public Relations/
Date: June21,     Marketing Consultant/Conference Coordinator.
1935 4905         Previous Positions: National Spokesperson,
Bayard Street     Aluminum Company of America; television
Pittsburgh, PA    producer; President, Marj Palmer Assoc.;
TRUSTEE(1)(2)     Owner, Scandia Bord.

+ Board  members will not receive  compensation  from the Fund during the Fund's
first fiscal year. Thereafter, the Fund will be subject to a base charge of $250
per quarter;  the  remainder of the "Total  Compensation"  in column two will be
allocated to each fund in the Federated  Fund Complex based on the net assets of
each such fund.



---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
Name Birth Date   Principal Occupation(s) for Past Five Years,    Aggregate    Total
Address           Other Directorships Held and Previous           Compensation Compensation
Positions Held    Positions                                       From         From
with Fund                                                         Fund         Fund and
                                                                  (past        Federated
                                                                  fiscal       Fund
                                                                  year)+       Complex
                                                                               (past
                                                                               calendar
                                                                               year)
---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
John S. Walsh     Principal Occupations: Director or Trustee of   $0         $148,500.00
Birth Date:       the Federated Fund Complex; President and
November28,       Director, Heat Wagon, Inc. (manufacturer of
1957 2604         construction temporary heaters); President and
William Drive     Director, Manufacturers Products, Inc.
Valparaiso, IN    (distributor of portable construction
 TRUSTEE(1)(2)    heaters); President, Portable Heater Parts, a
                  division of Manufacturers Products, Inc.
                  Previous Position: Vice President, Walsh &
                  Kelly, Inc.





             
OFFICERS**

---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
Name Birth       Principal Occupation(s) and Previous Positions
Date Address
Positions Held
with Fund
---------------------------------------------------------------------------------------
John W.          Principal Occupations: Executive Vice President and Secretary of the
McGonigle        Federated Fund Complex; Executive Vice President, Secretary and
Birth Date:      Director, Federated Investors, Inc. Previous Positions: Trustee,
October26,       Federated Investment Management Company and Federated Investment
1938 EXECUTIVE   Counseling; Director, Federated Global Investment Management Corp.,
VICE PRESIDENT   Federated Services Company and Federated Securities Corp.
AND SECRETARY

Richard J.       Principal Occupations: Treasurer of the Federated Fund Complex;
Thomas Birth     Senior Vice President, Federated Administrative Services. Previous
Date: June17,    Positions: Vice President, Federated Administrative Services; held
1954 TREASURER   various management positions within Funds Financial Services
                 Division of Federated Investors, Inc.

Richard B.       Principal Occupations: President or Vice President of some of the
Fisher Birth     Funds in the Federated Fund Complex; Vice Chairman, Federated
Date: May17,     Investors, Inc.; Chairman, Federated Securities Corp. Previous
1923 VICE        Positions: Director or Trustee of some of the Funds in the Federated
PRESIDENT        Fund Complex; Executive Vice President, Federated Investors, Inc.
                 and Director and Chief Executive Officer, Federated Securities Corp.

William D.       Principal Occupations: Chief Investment Officer of this Fund and
Dawson III       various other Funds in the Federated Fund Complex; Executive Vice
Birth Date:      President, Federated Investment Counseling, Federated Global
March3, 1949     Investment Management Corp., Federated Investment Management Company
CHIEF            and Passport Research, Ltd.; Director, Federated Global Investment
INVESTMENT       Management Corp. and Federated Investment Management Company;
OFFICER          Portfolio Manager, Federated Administrative Services; Vice
                 President, Federated Investors, Inc. Previous Positions: Executive
                 Vice President and Senior Vice President, Federated Investment
                 Counseling Institutional Portfolio Management Services Division;
                 Senior Vice President, Federated Investment Management Company and
                 Passport Research, Ltd.

Mary Jo Ochson   Mary Jo Ochson is the Portfolio Manager of the Fund. She is Vice
Birth Date:      President of the Fund.  Ms. Ochson joined Federated in 1982 and has
September 12,    been a Senior Portfolio Manager and a Senior Vice President of the
1953 SENIOR      Fund's Adviser since 1996. From 1988 through 1995, Ms. Ochson served
VICE PRESIDENT   as a Portfolio Manager and a Vice President of the Fund's Adviser.
                 Ms. Ochson is a Chartered Financial Analyst and received her M.B.A.
                 in Finance from the University of Pittsburgh.



     + Board  members  will not  receive  compensation  from the Fund during the
Fund's first fiscal year. Thereafter,  the Fund will be subject to a base charge
of $250 per quarter;  the  remainder of the "Total  Compensation"  in column two
will be allocated to each fund in the  Federated  Fund Complex  based on the net
assets of each such fund.

(1)  After a Trustee's  initial term,  each Trustee is expected to serve a three
     year term concurrent with the class of trustees for which he or she serves:

--   Messrs. John F. Donahue, Thomas G. Bigley, John T. Conroy, Jr., and John S.
     Walsh,  as Class I trustees,  are expected to stand for  re-election at the
     Fund's 2004 meeting of shareholders.

--   Messrs.  J.  Christopher  Donahue,   Nicholas  P.  Constantakis,   John  F.
     Cunningham,  and Majorie P. Smuts,  as Class II  trustees,  are expected to
     stand for re-election at the Fund's 2005 meeting of shareholders.

--   Messrs. Lawrence D. Ellis, M.D., Peter E. Madden, Charles F. Mansfield, Jr.
     and John E. Murray,  Jr., J.D, S.J.D., as Class III trustees,  are expected
     to stand for re-election at the Fund's 2006 meeting of shareholders.


**    Officers do not receive any compensation from the Fund.

     Thomas R. Donahue,  Chief Financial Officer, Vice President,  Treasurer and
Assistant Secretary of Federated  Investors,  Inc. and an officer of its various
advisory and underwriting subsidiaries, has served as a Term Member on the Board
of Directors of Duquesne  University,  Pittsburgh,  Pennsylvania,  since May 12,
2000.  Mr. John E. Murray,  Jr., an Independent  Trustee of the Fund,  served as
President of Duquesne from 1988 until his retirement from that position in 2001,
and became  Chancellor  of Duquesne on August 15, 2001.  It should be noted that
Mr.  Donahue  abstains on any matter  that comes  before  Duquesne's  Board that
affects Mr. Murray personally.



                                                                      
Committees of the Board
 --------------------------------------------------------------------------------------
 Board     Committee        Committee Functions                                Meetings
 Committee Members                                                             Held
                                                                               During
                                                                               Last
                                                                               Fiscal
                                                                               Year
 --------------------------------------------------------------------------------------
 --------------------------------------------------------------------------------------
 Executive John F.          In between meetings of the full Board, the         None
           Donahue John     Executive Committee generally may exercise all
           E. Murray,       the powers of the full Board in the management
           Jr., J.D.,       and direction of the business and conduct of the
           S.J.D.           affairs of the Fund in such manner as the
                            Executive Committee shall deem to be in the best
                            interests of the Fund. However, the Executive
                            Committee cannot elect or remove Board members,
                            increase or decrease the number of Trustees,
                            elect or remove any Officer, declare dividends,
                            issue shares or recommend to shareholders any
                            action requiring shareholder approval.

 Audit     Thomas G.        The Audit Committee reviews and recommends to      One
           Bigley John T.   the full Board the independent auditors to be
           Conroy, Jr.      selected to audit the Fund's financial
           Nicholas P.      statements; meets with the independent auditors
           Constantakis     periodically to review the results of the audits
           Charles F.       and report the results to the full Board;
           Mansfield, Jr.   evaluates the independence of the auditors,
                            reviews legal and regulatory matters that may
                            have a material effect on the financial
                            statements, related compliance policies and
                            programs, and the related reports received from
                            regulators; reviews the Fund's internal audit
                            function; review compliance with the Fund's code
                            of conduct/ethics; review valuation issues;
                            monitors inter-fund lending transactions;
                            reviews custody services and issues and
                            investigate any matters brought to the
                            Committee's attention that are within the scope
                            of its duties.



     Board  Ownership  of  Shares  in the Fund and in the  Federated  Family  of
Investment Companies as of December 31, 2002

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


                                Aggregate
                      Dollar    Dollar
                      Range     Range of
                      of        Shares
 Interested Board     Shares    Owned in
 Member Name          Owned     Federated
                      in Fund   Family of
                                Investment
                                Companies
 --------------------------------------------
 --------------------------------------------
 John F. Donahue      $0        Over
                                $100,000
 J. Christopher       $50,001-100 Over
 Donahue                        $100,000
 Lawrence D. Ellis,   $0        Over
 M.D.                           $100,000

 Independent Board
 Member Name
 Thomas G. Bigley     $0        Over
                                $100,000
 John T. Conroy, Jr.  $0        Over
                                $100,000
 Nicholas P.          $0        Over
 Constantakis                   $100,000
 John F. Cunningham   $0        Over
                                $100,000
 Peter E. Madden      $0        Over
                                $100,000
 Charles F.           $0        $50,001 -
 Mansfield, Jr.                 $100,000
 John E. Murray,      $0        Over
 Jr., J.D., S.J.D.              $100,000
 Marjorie P. Smuts    $0        Over
                                $100,000
 John S. Walsh        $0        Over
                                $100,000

     The  Trustees and  Officers of the Fund  beneficially  and as a group owned
less than 1% of the outstanding Shares of the Fund as of January 31, 2003.

Code of Ethics

     As required by SEC rules,  the Fund,  its Adviser and the Fund's  principal
underwriters have adopted codes of ethics.  These codes permit personnel subject
to the codes to invest in securities, including securities that may be purchased
or held by the Fund.  These codes can be reviewed  and copied at the  Securities
and Exchange Commission's Public Reference Room in Washington,  D.C. Information
on the  operation  of the Public  Reference  Room may be obtained by calling the
Securities and Exchange  Commission at  1-202-942-8090.  The codes of ethics are
available on the EDGAR  Database on the Security and Exchange  Commission's  web
site  (http://www.sec.gov),  and copies of these  codes may be  obtained,  after
paying a duplicating fee, by electronic request at the following e-mail address:
publicinfo@sec.gov,  or by writing the Security and Exchange Commission's Public
Reference Section, Washington, D.C. 20549-0102.

Investment Adviser

     The Adviser conducts investment research and makes investment decisions for
the Fund.

      The Adviser is a wholly owned subsidiary of Federated.

     Pursuant to an investment  management agreement between the Adviser and the
Fund,  the Fund has  agreed  to pay for the  investment  advisory  services  and
facilities provided by the Adviser a fee payable monthly in arrears at an annual
rate equal to 0.55% of the average daily value of the Fund's Managed Assets (the
"Management  Fee"). The Adviser has  contractually  agreed to waive receipt of a
portion of its  Management Fee in the amount of 0.20% of the average daily value
of the Fund's Managed  Assets for the first five years of the Fund's  operations
(through  December 31, 2007), and for a declining amount for an additional three
years (through December 31, 2010).  Managed Assets means the total assets of the
Fund including any assets  attributable to any AMPS, any other preferred  shares
that may be issued in the future or borrowings  that may be  outstanding,  minus
the sum of accrued liabilities other than indebtedness attributable to financial
leverage.  The liquidation preference of AMPS or any other preferred shares that
may be issued in the future is not a liability.

     The Adviser shall not be liable to the Fund or any Fund shareholder for any
losses that may be sustained in the purchase, holding or sale of any security or
for anything done or omitted by it, except acts or omissions  involving  willful
misfeasance,  bad faith,  gross  negligence or reckless  disregard of the duties
imposed upon it by its contract with the Fund.

     As required by the 1940 Act, the Board has  reviewed the Fund's  investment
advisory contract.  During its review of the contract, the Board considered many
factors, among the most material of which are: the Fund's investment objectives;
the Adviser's management  philosophy,  personnel and processes;  the preferences
and  expectations of Fund  shareholders and their relative  sophistication;  the
continuing state of competition in the mutual fund industry;  comparable fees in
the mutual fund industry; the range and quality of services provided to the Fund
and its  shareholders  by the Federated  organization  in addition to investment
advisory services;  and the Fund's  relationship to other funds in the Federated
Fund family ("Federated Funds").

     The Board also  considered the  compensation  and benefits  received by the
Adviser.  This includes fees to be received for services provided to the Fund by
other  entities  in the  Federated  organization  and  research  services  to be
received by the Adviser  from  brokers  that  execute  Fund  trades,  as well as
advisory  fees.  In this  regard,  the Board is aware that  various  courts have
interpreted  provisions  of the 1940 Act and have  indicated in their  decisions
that the  following  factors may be relevant to an adviser's  compensation:  the
nature and  quality of the  services  provided  by the  adviser,  including  the
performance  of the fund;  the adviser's  cost of providing  the  services;  the
extent to which the adviser may realize  "economies  of scale" as the fund grows
larger;  any indirect benefits that may accrue to the adviser and its affiliates
as a result  of the  adviser's  relationship  with  the  fund;  performance  and
expenses of  comparable  funds;  and the extent to which the  independent  Board
members are fully informed about all facts bearing on the adviser's services and
fee. The Fund's Board is aware of these  factors and has taken them into account
in its review of the Fund's advisory contract.

     The  Board  considered  and  weighed  these  circumstances  in light of its
accumulated  experience  in working with  Federated  on matters  relating to the
Federated  Funds,  and  was  assisted  in its  deliberations  by the  advice  of
independent  legal counsel.  In this regard,  the Board requested and received a
significant  amount of information  about the Fund, the Federated  Funds and the
Federated  organization.  Thus,  the Board's  evaluation of the Fund's  advisory
contract included an analysis of reports covering such matters as: the Adviser's
investment  philosophy,  personnel  and  processes;  the  short-  and  long-term
performance  of  other  Federated  Funds  (in  absolute  terms  as  well  as  in
relationship to their particular  investment  programs and certain competitor or
"peer  group"  funds) and  comments on the reasons for  performance;  the Fund's
proposed  expenses,  including  the advisory fee itself and the overall  expense
structure of the Fund,  both in absolute  terms and  relative to similar  and/or
competing  funds,   with  due  regard  for  contractual  or  voluntary   expense
limitations;  the possible use and allocation of brokerage  commissions  derived
from  trading  the  Fund's  portfolio  securities;  the nature and extent of the
advisory  and other  services  to be provided to the Fund by the Adviser and its
affiliates;  compliance and audit reports concerning the Federated Funds and the
Federated  companies that service them; and relevant  developments in the mutual
fund industry and how the  Federated  Funds and/or  Federated are  responding to
them.

     The Board also received  financial  information about Federated,  including
reports  on  the   compensation   and  benefits   Federated   derives  from  its
relationships  with the Federated  Funds.  These reports cover not only the fees
under the advisory contracts, but also fees received by Federated's subsidiaries
for providing  other services to the Federated  Funds under  separate  contracts
(e.g., for serving as administrator  and transfer agent to the Federated Funds).
The reports  also  discuss any indirect  benefit  Federated  may derive from its
receipt of research services from brokers who execute fund trades.

     The Board based its decision to approve the Fund's advisory contract on the
totality of the circumstances and relevant factors,  and with a view to past and
future  long-term  considerations.  The  Board did not  consider  any one of the
factors and  considerations  identified above to be  determinative.  Because the
totality of circumstances  included considering the relationship of each Fund to
the  Federated  Funds,  the Board did not approach  consideration  of the Fund's
advisory contract as if that were the only Federated Fund.




Custodian

     State Street Bank and Trust Company,  Boston,  Massachusetts,  is custodian
for the securities and cash of the Fund.

Independent Auditors

     The  independent  auditor  for the Fund,  Ernst & Young LLP,  conducts  its
audits in accordance with auditing  standards  generally  accepted in the United
States of  America,  which  require it to plan and perform its audits to provide
reasonable assurance about whether the Fund's financial statements and financial
highlights are free of material misstatement.

                                   BROKERAGE TRANSACTIONS

     When  selecting  brokers  and  dealers to handle the  purchase  and sale of
portfolio instruments,  the Adviser looks for prompt execution of the order at a
favorable price. The Adviser will generally use those who are recognized dealers
in specific portfolio  instruments,  except when a better price and execution of
the order can be obtained  elsewhere.  In selecting among firms believed to meet
these  criteria,  the Adviser may give  consideration  to those firms which have
sold or are selling shares of the Fund and other funds under common control with
the Fund.  The Adviser  makes  decisions on portfolio  transactions  and selects
brokers and dealers subject to review by the Fund's Board.

     Investment  decisions  for the Fund are made  independently  from  those of
other  accounts  managed by the Adviser.  When the Fund and one or more of those
accounts invests in, or disposes of, the same security, available investments or
opportunities  for sales will be allocated among the Fund and the accounts(s) in
a manner  believed by the Adviser to be equitable.  While the  coordination  and
ability to  participate  in volume  transactions  may  benefit  the Fund,  it is
possible that this procedure could  adversely  impact the price paid or received
and/or the position obtained or disposed of by the Fund.

                             ADDITIONAL INFORMATION CONCERNING
                                   THE AUCTIONS FOR AMPS

General

     Securities Depository. The Depository Trust Company ("DTC") will act as the
Securities  Depository  with respect to the AMPS. One certificate for all of the
AMPS will be registered in the name of Cede & Co., as nominee of the  Securities
Depository.  Such  certificate  will  bear a  legend  to the  effect  that  such
certificate is issued subject to the  provisions  restricting  transfers of AMPS
contained in the Statement of Preferences of Auction  Market  Preferred  Shares.
The Fund will also issue  stop-transfer  instructions  to the transfer agent for
AMPS.  Prior to the  commencement  of the  right of  holders  of AMPS to elect a
majority  of  the  Fund's  trustees,  as  described  under  "Description  of the
AMPS--Voting Rights" in the prospectus,  Cede & Co. will be the holder of record
of the AMPS and  owners of AMPS will not be  entitled  to  receive  certificates
representing their ownership interest in such shares.

     DTC, a New York-chartered limited purpose trust company,  performs services
for its participants,  some of whom (and/or their  representatives) own DTC. DTC
maintains lists of its participants  and will maintain the positions  (ownership
interests) held by each such participant in shares of AMPS,  whether for its own
account or as a nominee for another person.

Concerning the Auction Agent

     The  auction  agent  will act as  agent  for the  Fund in  connection  with
auctions.  In the absence of bad faith or  negligence  on its part,  the auction
agent will not be liable for any action  taken,  suffered  or omitted or for any
error of judgment made by it in the  performance of its duties under the auction
agency  agreement  between the Fund and the auction agent and will not be liable
for any error of  judgment  made in good  faith  unless  the  auction  agent was
negligent in ascertaining the pertinent facts.

     The  auction  agent may rely upon,  as evidence  of the  identities  of the
holders of AMPS,  the  auction  agent's  registry  of  holders,  the  results of
auctions and notices from any  Broker-Dealer  (or other person,  if permitted by
the Fund) with  respect to  transfers  described  under "The  Auction--Secondary
Market  Trading and  Transfers of AMPS" in the  prospectus  and notices from the
Fund. The auction agent is not required to accept any such notice for an auction
unless it is received by the auction agent by 3:30 p.m.,  New York City time, on
the business day preceding such auction.

     The auction agent may terminate its auction agency  agreement with the Fund
upon notice to the Fund on a date no earlier than 45 days after such notice.  If
the auction  agent  should  resign,  the Fund will use its best efforts to enter
into an  agreement  with a  successor  auction  agent.  The Fund may  remove the
auction  agent  provided  that prior to such removal the Fund shall have entered
into such an agreement with a successor auction agent.

Broker-Dealers

     The  auction   agent  after  each   auction  for  AMPS  will  pay  to  each
Broker-Dealer,  from funds  provided by the Fund, a service charge at the annual
rate of 1/4 of 1%,  in the case of any  auction  before a rate  period  of seven
days, or a percentage agreed to by the Fund and the Broker-Dealer in the case of
any auction  before a special  rate period,  of the  purchase  price of the AMPS
placed by such  Broker-Dealer at such auction.  The Fund may request the auction
agent to terminate one or more  Broker-Dealer  agreements at any time,  provided
that at least one Broker-Dealer agreement is in effect after such termination.

     The Broker-Dealer  agreement  provides that a Broker-Dealer,  other than an
affiliate of the Fund,  may submit  orders in auctions for its own account.  Any
Broker-Dealer  that is an affiliate  of the Fund may submit  orders in auctions,
but only if such orders are not for its own account. If a Broker-Dealer  submits
an order for its own account in any  auction,  it might have an  advantage  over
other bidders  because it would have knowledge of all orders  submitted by it in
that auction;  such Broker-Dealer,  however,  would not have knowledge of orders
submitted by other Broker-Dealers in that auction.


                                DESCRIPTION OF COMMON SHARES

     A  description  of Common Shares is contained in the  prospectus.  The Fund
intends to hold annual meetings of shareholders so long as the Common Shares are
listed on a national  securities  exchange  and such  meetings are required as a
condition to such listing.

Other Shares

     The  Board,  subject  to  applicable  law  and  the  Fund's  Agreement  and
Declaration  of Trust,  may  authorize an offering,  without the approval of the
Common Shareholders or holders of AMPS, of other classes or series of shares, as
it  determines  to be necessary,  desirable or  appropriate,  having such terms,
rights, preferences,  privileges, limitations and restrictions as the Board sees
fit. The Fund currently does not expect to issue any other classes of shares, or
series of shares, except for the Common Shares and the AMPS.

                                REPURCHASE OF COMMON SHARES

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

     Notwithstanding the foregoing,  at any time when AMPS are outstanding,  the
Fund may not  purchase,  redeem or  otherwise  acquire any of its Common  Shares
unless (1) all accrued AMPS dividends have been paid and (2) at the time of such
purchase, redemption or acquisition, the NAV of the Fund's portfolio, determined
after deducting the acquisition  price of the Common Shares, is at least 200% of
the liquidation  value of the outstanding AMPS (the original  purchase price per
share plus any accrued and unpaid dividends thereon).  Any service fees incurred
in  connection  with any tender offer made by the Fund will be borne by the Fund
and  will  not  reduce  the  stated   consideration  to  be  paid  to  tendering
shareholders.

     Subject to its investment restrictions,  the Fund may borrow to finance the
repurchase  of shares or to make a tender offer.  Interest on any  borrowings to
finance share repurchase transactions or the accumulation of cash by the Fund in
anticipation of share  repurchases or tenders will reduce the Fund's net income.
Any share  repurchase,  tender offer or borrowing  that might be approved by the
Fund's Board would have to comply with the  Securities  Exchange Act of 1934, as
amended, the 1940 Act and the rules and regulations thereunder.

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

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

     In addition,  a purchase by the Fund of its Common Shares will decrease the
Fund's  Managed  Assets  which would  likely have the effect of  increasing  the
Fund's  expense  ratio.  Any purchase by the Fund of its Common Shares at a time
when  AMPS  are  outstanding  will  increase  the  leverage  applicable  to  the
outstanding Common Shares then remaining.

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

                                        TAX MATTERS

     The following is a description of certain  federal income tax  consequences
to a  shareholder  acquiring,  holding and  disposing  of AMPS.  The  discussion
reflects  applicable  tax  laws  of the  United  States  as of the  date of this
prospectus,  which tax laws may be changed or subject to new  interpretations by
the courts or the Internal Revenue Service retroactively or prospectively.

     The Fund  intends  to elect to be  treated  and to qualify to be taxed as a
regulated investment company under Subchapter M of the Code. In order to qualify
as a regulated  investment company,  the Fund must satisfy certain  requirements
relating  to the  source  of its  income,  diversification  of  its  assets  and
distributions of its income to its shareholders.  First, the Fund must derive at
least 90% of its  annual  gross  income  (including  tax exempt  interest)  from
dividends,  interest,  payments with respect to securities loans, gains from the
sale or other disposition of stock or securities or foreign  currencies or other
income  (including  but not limited to gains from  options,  futures and forward
contracts)  derived  with  respect to its  business of  investing in such stock,
securities or currencies  (the "90% gross income test").  Second,  the Fund must
diversify  its  holdings  so that,  at the close of each  quarter of its taxable
year,  (1) at least 50% of the value of its total  assets is  comprised of cash,
cash items, United States government  securities,  securities of other regulated
investment companies and other securities,  limited in respect of any one issuer
to an amount  not  greater  in value  than 5% of the value of the  Fund's  total
assets and to not more than 10% of the  outstanding  voting  securities  of such
issuer and (2) not more than 25% of the value of the total assets is invested in
the securities of any one issuer, other than United States government securities
and securities of other  regulated  investment  companies or two or more issuers
controlled  by the Fund and  engaged in the same,  similar or related  trades or
businesses.

     As a regulated  investment company, the Fund will not be subject to federal
income tax on income  and gains that it  distributes  each  taxable  year to its
shareholders,  provided that in such taxable year it distributes at least 90% of
the sum of (1) its "investment  company taxable income" (which  includes,  among
other items,  dividends,  taxable interest,  taxable original issue discount and
market discount income,  income from securities lending,  net short-term capital
gain in excess of net long-term  capital loss and any other taxable income other
than  "net  capital  gain" (as  defined  below)  and is  reduced  by  deductible
expenses)  determined without regard to the deduction for dividends paid and (2)
its net tax exempt  interest (the excess of its gross tax exempt interest income
over certain disallowed deductions).  The Fund may retain for investment its net
capital gain,  which  consists of the excess of its net  long-term  capital gain
over its net  short-term  capital  loss.  However,  if the Fund  retains any net
capital gain or any investment company taxable income, it will be subject to tax
at regular  corporate rates on the amount retained.  If the Fund retains any net
capital  gain, it may designate  the retained  amount as  undistributed  capital
gains in a notice to its  shareholders  who, if subject to federal income tax on
long-term  capital gains,  (1) will be required to include in income for federal
income  tax  purposes,   as  long-term   capital  gain,   their  share  of  such
undistributed  amount and (2) will be  entitled  to credit  their  proportionate
shares of the tax paid by the Fund against their federal income tax liabilities,
if any, and to claim refunds to the extent the credit exceeds such  liabilities.
For federal income tax purposes,  the tax basis of shares owned by a shareholder
of the Fund will be  increased  by the  amount of  undistributed  capital  gains
included in the gross income of the shareholder  less the tax deemed paid by the
shareholder  under  clause (2) of the  preceding  sentence.  The Fund intends to
distribute at least annually to its shareholders all or substantially all of its
net tax  exempt  interest  and any  investment  company  taxable  income and net
capital gain.

     Treasury  regulations permit a regulated investment company, in determining
its investment company taxable income and net capital gain, to elect,  unless it
has made a special  taxable year  election for excise tax purposes) to treat all
or part of any net  capital  loss,  any net  long-term  capital  loss or any net
foreign  currency loss  incurred  after October 31 as if it had been incurred in
the succeeding year.

     Distributions  by the Fund of investment  company taxable  income,  if any,
whether received in cash or additional  shares,  will be taxable to shareholders
as ordinary  income,  to the extent of the current or  accumulated  earnings and
profits of the Fund and generally  will not qualify for the  dividends  received
deduction in the case of corporate  shareholders.  Net  long-term  capital gains
realized  by the Fund and  distributed  to  shareholders  in cash or  additional
shares will be taxable to shareholders as long-term  capital gains regardless of
the length of time investors have owned shares of the Fund. Distributions by the
Fund  that  do  not  constitute   ordinary   income   dividends,   capital  gain
distributions or exempt-interest dividends (as defined below) will be treated as
a return of capital to the extent of, and in reduction of, the shareholder's tax
basis in his or her shares.  Any excess will be treated as gain from the sale of
his or her shares, as discussed below.

     The Fund intends to invest in  sufficient  tax exempt  securities to permit
payment  of  "exempt-interest  dividends,"  as  defined  in the Code.  Except as
provided  below,  exempt-interest  dividends  paid to  holders  of AMPS  are not
includable in the holder's gross income for federal income tax purposes.

     If the Fund engages in hedging transactions involving financial futures and
options,  these transactions will be subject to special tax rules, the effect of
which may be to accelerate  income to the Fund,  defer the Fund's losses,  cause
adjustments in the holding periods of the Fund's  securities,  convert long-term
capital  gains into  short-term  capital  gains and convert  short-term  capital
losses into long-term  capital losses.  These rules could  therefore  affect the
amount, timing and character of distributions to holders of AMPS.

     Prior to  purchasing  shares  in the Fund,  an  investor  should  carefully
consider the impact of dividends which are expected to be or have been declared,
but not paid.  Any  dividend  declared  shortly  after a purchase of such shares
prior to the  record  date will have the  effect of  reducing  the per share net
asset value by the per share amount of the dividend.

     Although  dividends  generally  will be treated as  distributed  when paid,
dividends  declared in  October,  November  or  December,  payable to holders of
common  shares of record on a  specified  date in one of those  months  and paid
during the following January,  will be treated as having been distributed by the
Fund and received by the holder of common shares on December 31.

     The  Internal  Revenue  Service's  position in a published  revenue  ruling
indicates that the Fund is required to designate distributions paid with respect
to its  Common  Shares and its AMPS as  consisting  of a portion of each type of
income  distributed  by the Fund.  The  portion  of each  type of income  deemed
received  by the holders of each class of shares will be equal to the portion of
total Fund  dividends  received by such  class.  Thus,  the Fund will  designate
dividends  paid as  exempt-interest  dividends in a manner that  allocates  such
dividends  between Common  Shareholders and holders of AMPS in proportion to the
total  dividends  paid to each such class  during or with respect to the taxable
year, or otherwise as required by  applicable  law.  Capital gain  dividends and
ordinary income dividends will similarly be allocated between the two classes.

     Exempt-interest dividends are included in determining what portion, if any,
of  a  person's  Social  Security  and  railroad  retirement  benefits  will  be
includable in gross income subject to federal income tax.

     Although  exempt-interest  dividends generally may be treated by holders of
AMPS as items of interest excluded from their gross income,  each holder of AMPS
is advised to consult his tax advisor  with  respect to whether  exempt-interest
dividends  retain  their  exclusion  if the  shareholder  would be  treated as a
"substantial  user,"  or a  "related  person"  of a  substantial  user,  of  the
facilities  financed with respect to any of the tax exempt  obligations  held by
the Fund.

     Federal income tax law imposes an  alternative  minimum tax with respect to
both  corporations  and  individuals  based on certain items of tax  preference.
Interest  on  certain  "private  activity  bonds"  is an item of tax  preference
subject to the  alternative  minimum tax on  individuals  and  corporations.  In
addition,  for corporations  alternative  minimum taxable income is increased by
75% of the  difference  between  an  alternative  measure  of income  ("adjusted
current  earnings") and the amount  otherwise  determined to be the  alternative
minimum  taxable  income.   Interest  on  municipal  bonds,  and  therefore  all
exempt-interest  dividends  received from the Fund,  are included in calculating
adjusted  current  earnings.  Accordingly,  investment  in the Fund could  cause
holders of AMPS to be subject to or result in an increased  liability  under the
AMT.  The Fund will  annually  supply  holders of AMPS a report  indicating  the
amount and nature of amounts distributed to them.

     The  redemption,  sale or exchange of AMPS  normally will result in capital
gain or  loss to  holders  of  AMPS  who  hold  their  AMPS as  capital  assets.
Generally,  a holder of AMPS gain or loss will be long-term capital gain or loss
if the shares have been held for more than one year even though the  increase in
value in such preferred shares is attributable to tax exempt interest income. In
addition,  gain  realized  by the Fund  from  the  disposition  of a tax  exempt
security  that is  attributable  to accrued  market  discount will be treated as
ordinary  income rather than capital  gain,  and thus may increase the amount of
ordinary income  dividends  received by holders of AMPS.  Present law taxes both
long- and short-term  capital gains of corporations  at the rates  applicable to
ordinary income. For non-corporate taxpayers,  however,  long-term capital gains
will be taxed at a maximum rate of 20% (or 18% for capital assets that have been
held for more than five years and whose holding periods began after December 31,
2000),  while short-term  capital gains and other ordinary income will currently
be taxed at a maximum  rate of 38.6%1.  Because of the  limitations  on itemized
deductions and the deduction for personal exemptions applicable to higher income
taxpayers, the effective tax rate may be higher in certain circumstances.

     All or a portion of a sales charge paid in purchasing  AMPS cannot be taken
into account for purposes of determining gain or loss on the redemption, sale or
exchange of such Shares  within 90 days after their  purchase to the extent AMPS
or shares of another fund are  subsequently  acquired without payment of a sales
charge  pursuant to the  reinvestment  or exchange  privilege.  Any  disregarded
portion of such charge will result in an increase in the shareholder's tax basis
in the shares subsequently acquired. In addition, no loss will be allowed on the
redemption,  sale or exchange of AMPS if the holder of AMPS purchases other AMPS
of the Fund (whether through  reinvestment of distributions or otherwise) or the
shareholder  acquires or enters into a contract or option to acquire shares that
are  substantially  identical  to AMPS of the Fund  within  a period  of 61 days
beginning  30 days  before and ending 30 days  after  such  redemption,  sale or
exchange.  If  disallowed,  the loss will be reflected in an  adjustment  to the
basis of the shares  acquired.  Further,  any losses realized on the redemption,
sale or exchange of AMPS held for six months or less will be  disallowed  to the
extent of any exempt-interest  dividends received with respect to such AMPS and,
if not  disallowed,  such losses will be treated as long-term  capital losses to
the extent of any  capital  gain  dividends  received,  or amounts  credited  as
undistributed capital gains, with respect to such AMPS.

     In order to avoid a 4% federal  excise tax, the Fund must  distribute or be
deemed to have  distributed  by December 31 of each  calendar year the sum of at
least 98% of its  taxable  ordinary  income for such  year,  at least 98% of its
capital  gain net income  (the  excess of its  realized  capital  gains over its
realized capital losses,  generally computed on the basis of the one-year period
ending on October 31 of such year) and 100% of any taxable  ordinary  income and
capital gain net income for the prior year that was not distributed  during such
year and on which the Fund paid no  federal  income  tax.  For  purposes  of the
excise tax, a  regulated  investment  company  may reduce its  capital  gain net
income  (but not below its net capital  gain) by the amount of any net  ordinary
loss for the calendar  year.  The Fund intends to make timely  distributions  in
compliance with these  requirements  and  consequently it is anticipated that it
generally will not be required to pay the excise tax.

     If in any tax year the Fund should fail to qualify  under  Subchapter M for
tax treatment as a regulated  investment company, the Fund would incur a regular
corporate  federal  income  tax upon its  taxable  income  for  that  year,  and
distributions to its  shareholders  would be taxable to shareholders as ordinary
dividend  income for  federal  income tax  purposes  to the extent of the Fund's
earnings and profits.

----------

1    The Economic Growth and Tax Relief  Reconciliation  Act of 2001,  effective
     for taxable  years  beginning  after  December 31,  2000,  creates a new 10
     percent income tax bracket and reduces the tax rates applicable to ordinary
     income over a six year phase-in period. Beginning in the taxable year 2006,
     ordinary income will be subject to a 35% maximum rate,  with  approximately
     proportionate   reductions   in  the  other   ordinary   rates.   The  Bush
     Administration  has  announced a tax proposal  which would  accelerate  the
     changes in tax rates and apply the maximum 35% tax rate in 2003.

---------

     The Fund is required to withhold  tax at a rate equal to the fourth  lowest
rate applicable to unmarried individuals  (currently,  30%) on taxable dividends
and certain  other  payments  paid to  non-corporate  shareholders  who have not
furnished to the Fund their correct taxpayer  identification number (in the case
of individuals, their Social Security number) and certain certifications, or who
are  otherwise  subject  to backup  withholding.  Backup  withholding  is not an
additional tax and any amount  withheld may be refunded or credited  against the
shareholder's federal income tax liability, provided the required information is
furnished to the Internal Revenue Service.

     If at any time when the Fund's AMPS are  outstanding the Fund fails to meet
the Preferred  Shares Basic  Maintenance  Amount or the  Investment  Company Act
Preferred  Shares  Asset  Coverage,   the  Fund  will  be  required  to  suspend
distributions to holders of its Common Shares until such  maintenance  amount or
asset  coverage,  as the case  may be,  is  restored.  See  "Description  of the
AMPS--Dividends   and  Rate   Periods-Restrictions   on   Dividends   and  Other
Distributions" in the prospectus. This may prevent the Fund from distributing at
least an amount equal to the sum of 90% of its investment company taxable income
(determined  without  regard to  dividends  paid) and 90% of its net tax  exempt
income, and may therefore  jeopardize the Fund's qualification for taxation as a
regulated  investment  company or cause the Fund to incur a tax  liability  or a
non-deductible 4% excise tax on the undistributed taxable income,  including net
capital  gain,  or  both.  Upon  failure  to meet  the  Preferred  Shares  Basic
Maintenance  Amount  or  the  Investment  Company  Act  Preferred  Shares  Asset
Coverage,  the Fund will be  required  to redeem  AMPS in order to  maintain  or
restore  such  maintenance  amount  or asset  coverage  and  avoid  the  adverse
consequences  to the  Fund and its  shareholders  of  failing  to  qualify  as a
regulated investment company. There can be no assurance,  however, that any such
redemption would achieve such objectives.

     The Fund  may,  at its  option,  redeem  AMPS in  whole or in part,  and is
required to redeem AMPS to the extent required to maintain the Preferred  Shares
Basic Maintenance  Amount and the Investment  Company Act Preferred Shares Asset
Coverage.  Gain or loss,  if any,  resulting  from a redemption  of AMPS will be
taxed as gain or loss from the sale or exchange of AMPS under Section 302 of the
Code rather than as a dividend,  but only if the redemption  distribution (a) is
deemed  not to be  essentially  equivalent  to a  dividend,  (b) is in  complete
redemption  of an  shareholder's  interest  in the  Fund,  (c) is  substantially
disproportionate  with  respect  to the  shareholder  or (d) with  respect  to a
non-corporate  shareholder,  is in  partial  liquidation  of  the  shareholder's
interest in the Fund.  For purposes of (a), (b) and (c) above,  a holder of AMPS
ownership of Common Shares will be taken into account.

     Based  in part on a lack of  present  intention  on the part of the Fund to
redeem the AMPS at any time in the future, the Fund intends to take the position
that under present law the AMPS will constitute  stock,  rather than debt of the
Fund. It is possible,  however,  that the Internal  Revenue Service could take a
contrary  position  asserting for example that the AMPS  constitutes debt of the
Fund. If that position was upheld, distributions in the AMPS would be considered
interest,  taxable as ordinary income  regardless of the taxable earnings of the
Fund.

     The foregoing is a general and abbreviated summary of the provisions of the
Code and the Treasury  Regulations  presently in effect as they directly  govern
the  taxation  of the  Fund  and  its  shareholders.  For  complete  provisions,
reference   should  be  made  to  the  pertinent   Code  sections  and  Treasury
Regulations.  The Code and the  Treasury  Regulations  are  subject to change by
legislative  or  administrative  action,  and any such change may be retroactive
with respect to Fund transactions.  Holders of AMPS are advised to consult their
own tax advisers for more detailed  information  concerning  the federal  income
taxation  of the Fund and the income tax  consequences  to its holders of Common
Shares.

                                          EXPERTS

     The financial statements of the Fund at December 16, 2002 appearing in this
Statement  of  Additional  Information  have been  audited by Ernst & Young LLP,
independent  auditors,  as set forth in their report thereon appearing elsewhere
herein,  and are included in reliance upon such report given on the authority of
such firm as experts in accounting and auditing.



                                   ADDITIONAL INFORMATION

     A  registration  statement  on  Form  N-2,  including  amendments  thereto,
relating  to the  shares  offered  hereby,  has been  filed by the Fund with the
Securities  and Exchange  Commission,  Washington,  D.C. The prospectus and this
Statement of Additional  Information do not contain all of the  information  set
forth in the  registration  statement,  including  any  exhibits  and  schedules
thereto. For further information with respect to the Fund and the shares offered
hereby, reference is made to the registration statement. Statements contained in
the prospectus  and this Statement of Additional  Information as to the contents
of any contract or other document  referred to are not necessarily  complete and
in each  instance  reference  is made to the  copy  of such  contract  or  other
document filed as an exhibit to the registration statement,  each such statement
being  qualified in all respects by such reference.  A copy of the  registration
statement  may  be  inspected  without  charge  on  the  EDGAR  Database  at the
Commission's  website at  http://www.sec.gov  or 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.

                                INDEPENDENT AUDITORS' REPORT

Report of Ernst & Young LLP, Independent Auditors

To the Shareholders and
Board of Trustees of
Federated Premier Municipal Income Fund

     We have audited the  accompanying  statement of assets and  liabilities  of
Federated Premier Municipal Income Fund (the Fund) as of December 16, 2002. This
financial  statement  is  the  responsibility  of  the  Fund's  management.  Our
responsibility is to express an opinion on this financial statement based on our
audit.

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

     In our opinion,  the financial  statement referred to above present fairly,
in all material respects,  the financial position of Federated Premier Municipal
Income Fund at December 16,  2002,  in  conformity  with  accounting  principles
generally accepted in the United States of America.


                       [GRAPHIC OMITTED][GRAPHIC OMITTED]

Boston, Massachusetts
December 16, 2002










                                    FINANCIAL STATEMENTS

STATEMENT OF ASSETS AND LIABILITIES December 16, 2002

Assets:
Cash                                                        $ 100,003
Deferred Offering Costs                                       200,000

Total Assets                                                  300,003

Liabilities:
            Offering Costs Payable                           (200,000)

            Total Liabilities                                (200,000)

Net Assets (6,981 shares of $0.01 par value shares of beneficial interest
     issued and outstanding; unlimited authorized shares)    $100,003

Net Asset Value Per Share                                     $14.33
Maximum Offering Price Per Share (100/95.50 of $14.33)        $15.00

NOTES TO FINANCIAL STATEMENTS

1.    Organization

     Federated  Premier  Municipal  Income Fund ("the Fund") was  organized as a
Delaware  Statutory Trust on October 16, 2002. The Fund has had no operations to
date other than  matters  relating to its  organization  and  registration  as a
diversified,  closed-end  management  investment  company  under the  Investment
Company  Act of  1940,  as  amended,  and the  sale and  issuance  to  Federated
Investment  Management  Company  ("the  Investment  Adviser"),  a  wholly  owned
subsidiary of Federated Investors,  Inc., of 6,981 shares of beneficial interest
at an aggregate purchase price of $100,003.

2.    Accounting Policies

     The  preparation  of financial  statements  in  accordance  with  generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions  that  affect  the  amounts  of assets,  liabilities,  expenses  and
revenues reported in the financial statements.  Actual results could differ from
those estimates.

3.    Investment Adviser and Related Parties

     The  Fund  has  entered  into  an  Investment   Management  Agreement  (the
"Agreement") with the Investment  Adviser to serve as investment  manager to the
Fund. Pursuant to the Agreement,  the Fund pays the Investment Adviser an annual
management  fee,  payable  daily,  at the  annual  rate of 0.55 % of the  Fund's
average daily net assets.

     In order to reduce fund expenses,  the Investment Adviser has contractually
agreed to waive a portion of its  management  fee at the annual rate of 0.20% of
the  Fund's  average  daily  net  assets,   not  inclusive  of  any  net  assets
attributable to any preferred  shares that may be issued,  from the commencement
of operations  through December 31, 2007, and for a declining amount  thereafter
through December 31, 2010.

     Federated  Services Company ("FServ"),  under the  Administrative  Services
Agreement, provides the Fund with administrative personnel and services. The fee
paid to FServ is based on a scale  that  ranges  from  0.150%  to  0.075% of the
average  aggregate  daily net  assets of all funds  advised by  subsidiaries  of
Federated  Investors,  Inc.,  subject to a $125,000  minimum per  portfolio  and
$30,000 per each additional class.

4.    Organization Expenses and Offering Costs

     Based on an  estimated  Fund  offering of  5,850,000  shares,  organization
expenses and offering costs are estimated to be $461,114. The Investment Advisor
has agreed to pay i) all  organizational  costs; and ii) the amount by which the
aggregate  of all of the Fund's  offering  costs  (other than sales load) exceed
$0.03 per share.  Such amount to be paid by the Investment  Adviser is $285,614.
The Fund will pay offering costs  estimated at $175,500 from the proceeds of the
offering.  Offering  costs paid by the Fund will be charged  as a  reduction  of
paid-in capital at the completion of the Fund offering.

5.    Federal Income Taxes

     The Fund  intends to comply with the  provisions  of the  Internal  Revenue
Code, as amended, applicable to regulated investment companies and to distribute
to  shareholders  each year  substantially  all of its income.  Accordingly,  no
provision  for  federal  tax  is  necessary.   In  addition,   by   distributing
substantially  all of its ordinary  income and long-term  capital gains, if any,
during each calendar  year, the Fund intends not to be subject to federal excise
tax.

6.    Contingent Receivable from Investment Adviser

     In the event  that the  public  offering  of the Fund does not  occur,  the
Investment Adviser has agreed to reimburse the Fund for all offering costs.










FEDERATED PREMIER MUNICIPAL INCOME FUND
FINANCIAL HIGHLIGHTS
(For a Common Share Outstanding Throughout the Period)


Period Ended February 3
(Unaudited)                       2003 1
Net Asset Value, Beginning of    $14.32
Period

Income From Investment
Operations:
Net investment income              0.06 2
Net realized and unrealized
loss on investments               (0.04 )
Total from investment
operations                         0.02
Capital charge with respect to
issuance of common shares         (0.03 )
Net Asset Value, End of Period   $14.31
Market Value, End of Period      $14.55
Total Investment Return3          (3.00 )%


Ratios to Average Net Assets:
Expenses                           0.55 %
Net investment income              3.81 %
Expense waiver/reimbursement4      0.35 %

Supplemental Data:
Net assets, end of period (000  $87,421
omitted)
Portfolio turnover                   16 %

(1)  Reflects  operations for the period from December 20, 2002 (commencement of
     investment operations) to February 3, 2003.

(2)  Calculated using average shares outstanding.

(3)  Total investment return is calculated  assuming a purchase of common shares
     at the  current  market  price on the first  day and a sale at the  current
     market  price  on the  last  day  of the  period  reported.  Dividends  and
     distributions,  if any, are assumed for purposes of this  calculation to be
     reinvested at prices obtained under the Fund's dividend  reinvestment plan.
     Total  investment  return does not reflect  brokerage  commissions or sales
     charges. Returns for a period less than one year are not annualized.

(4)  This  voluntary  expense  decrease is reflected in both the expense and the
     net investment income ratios shown above.

See Notes which are an integral part of the Financial Statements













PORTFOLIO OF INVESTMENTS



--------------------------------------------------------------------------------
Federated Premier Municipal Income Fund
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
February 3, 2003 (Unaudited)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Principal Amount                                                          Value
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                 LONG-TERM MUNICIPALS - 103.0%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                 Alabama - 4.6%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
      $2,000,000 Alabama Water PCA, Revolving Fund Loan           $   1,992,180
                 Revenue Bonds (Series 2003A), 4.80% (AMBAC
                 INS)/(Original Issue Yield: 4.90%), 8/15/2022
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                 Jefferson County, AL Sewer Revenue Bonds
       2,000,000 (Series 2002D), 5.25%, 2/1/2026                      2,062,600
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                 TOTAL
                                                                      4,054,780
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                 Arizona - 2.6%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                 Salt River, AZ Agricultural Improvements and
       1,500,000 Power System Distribution, Electric System           1,513,365
                 Revenue Bonds (Series 2002A), 5.00% (Salt
                 River Project), 1/1/2031
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                 Tempe, AZ IDA, Senior Living Revenue  Bonds
         750,000 (Series A), 6.75% (Friendship Village of               717,360
                 Tempe), 12/1/2030
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                 TOTAL
                                                                      2,230,725
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                 California - 8.6%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                 California State Department of Water
       2,000,000 Resources Power Supply Program, Power Supply         2,040,900
                 Revenue Bonds (Series A), 5.375% (Original
                 Issue Yield: 5.48%), 5/1/2022
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                 California State Public Works Board,
       3,000,000 Department of General Services, Revenue              3,001,170
                 Bonds, 5.000%, 12/1/2027
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                 Golden State, CA Tobacco Securitization
       2,000,000 Corp., Tobacco Settlement Revenue Bonds              1,950,880
                 (Series 2003A1), 6.75%, 6/1/2039
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                 La Verne, CA, Revenue Certificates of
         500,000 Participation (Series 2003B), 6.625%                   494,845
                 (Brethren Hillcrest Homes)/(Original Issue
                 Yield: 6.70%), 2/15/2025
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                 TOTAL
                                                                      7,487,795
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                 Colorado - 1.1%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                 Colorado Health Facilities Authority, Revenue
       1,000,000 Bonds (Series 2002A), 6.125% (Covenant                 998,520
                 Retirement Communities, Inc.)/(Original Issue
                 Yield: 6.40%), 12/1/2033
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                 Connecticut - 3.2%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                 Connecticut State Transportation
       2,750,000 Infrastructure Authority, Transportation             2,826,148
                 Infrastructure Special Tax Revenue Bonds
                 (Series 2002B), 5.00% (AMBAC INS), 12/1/2022
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                 District of Columbia - 2.7%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                 District of Columbia, (Series 2000) Weekly
       2,500,000 VRDNs (Public Welfare Foundation,                    2,399,300
                 Inc.)/(SunTrust Bank LOC)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                 Florida - 4.4%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                 Capital Trust Agency, FL, Revenue Bonds
       1,000,000 (Series 2001), 10.00% (Seminole Tribe of             1,028,230
                 Florida Convention and Resort Hotel
                 Facilities), 10/1/2033
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                 Citrus County, FL Hospital Board Revenue
       1,490,000 Bonds, 6.375% (Citrus Memorial Hospital),            1,472,373
                 8/15/2032
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                 Harbor Bay, FL Community Development
       1,320,000 District, Special Assessment Revenue Bonds,          1,320,330
                 6.75%, 5/1/2034
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                 TOTAL
                                                                      3,820,933
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                 Georgia - 3.6%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                 Athens, GA Housing Authority, Lease Revenue
       1,500,000 Bonds, 5.25% (University of Georgia-East             1,556,460
                 Campus)/(AMBAC INS), 12/1/2023
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                 Athens, GA Housing Authority, Student Housing
       1,500,000 Lease Revenue Bonds , 5.25% (University of           1,572,060
                 Georgia-East Campus)/(AMBAC INS), 12/1/2021
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                 TOTAL
                                                                      3,128,520
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                 Hawaii - 1.1%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                 Hawaii State Department of Budget and
       1,000,000 Finance, Special Purpose Revenue Bonds                 983,420
                 (Series 2003A), 8.00% (Kahala Nui Project),
                 11/15/2033
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                 Illinois - 2.3%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                 Chicago, IL Special Assessment , Improvement
       1,000,000 Revenue Bonds , 6.75% (Lakeshore East                  997,960
                 Project)/(Original Issue Yield: 6.769%),
                 12/1/2032
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                 Illinois Educational Facilities Authority
       1,000,000 Revenue Bonds (Series 2003A), 5.70%                    974,920
                 (Augustana College), 10/1/2032
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                 TOTAL
                                                                      1,972,880
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                 Kentucky - 2.3%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                 Kentucky Economic Development Finance
       2,000,000 Authority, Health System Revenue Bonds               2,051,380
                 (Series 2000A), 6.625% (Norton Healthcare,
                 Inc.), 10/1/2028
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                 Massachusetts - 4.7%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                 Commonwealth of Massachusetts, Construction
       3,000,000 Loan LT GO Bonds (Series 2002E), 5.25% (FGIC         3,135,450
                 INS), 1/1/2022
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                 Commonwealth of Massachusetts, Development
       1,000,000 Financing Agency Revenue Bonds, 5.75%                  969,250
                 (Pharmacy & Allied Health Sciences), 7/1/2033
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                 TOTAL
                                                                      4,104,700
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                 Michigan - 2.3%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                 Cornell Township, MI Economic Development
       2,000,000 Revenue Bonds, 5.875% (Meadwestvaco-Escanaba         2,002,760
                 Project), 5/1/2018
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                 Missouri - 1.1%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                 Missouri State Finance Board, Infrastructure
       1,000,000 Facilities Revenue Bonds (Series 2003A),             1,000,290
                 5.50%, 12/1/2032
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                 Mississippi - 2.6%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                 Lowndes County, MS Solid Waste Disposal and
       2,000,000 Pollution Control Revenue Bonds, 6.70%               2,236,140
                 (Weyerhauser Co. Project), 4/1/2022
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                 North Carolina - 1.2%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                 Haywood County, NC Industrial Facilities and
       1,000,000 Pollution Control Financing Authority,               1,009,980
                 Revenue Bonds, 6.00% (Champion International
                 Corp. Project), 3/1/2020
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                 North Dakota - 2.3%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                 Ward County, ND Health Care Facilities
       2,000,000 Revenue Bonds, 6.25% (Trinity Obligated              2,012,960
                 Group), 7/1/2026
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                 Pennsylvania - 5.1%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                 Allegheny County, PA HDA, Health System
       1,000,000 Revenue Bonds (Series 2000), 9.25% (West Penn        1,099,770
                 Allegheny Health System)/(Original Issue
                 Yield: 9.70%), 11/15/2030
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                 Cumberland County, PA Municipal Authority,
       1,295,000 Retirement Community Revenue Bonds (Series           1,268,103
                 2002A), 7.25% (Wesley Affiliated Services,
                 Inc. Obligated Group)/(Original Issue Yield:
                 7.50%), 1/1/2035
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                 Pennsylvania State Higher Education
       2,000,000 Facilities Authority, Revenue Bonds, Series          2,064,880
                 A, 6.00% (UPMC Health System)/(Original Issue
                 Yield: 6.16%), 1/15/2031
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                 TOTAL
                                                                      4,432,753
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                 South Carolina - 5.2%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                 South Carolina Jobs-EDA, Health System
       2,500,000 Revenue Bonds (Series A), 5.625% (Bon Secours        2,478,925
                 Health System)/(Original Issue Yield: 5.84%),
                 11/15/2030
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                 South Carolina State Public Service
       2,000,000 Authority, Refunding Revenue Bonds (Series           2,067,040
                 2002D), 5.00% (FSA INS), 1/1/2020
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                 TOTAL
                                                                      4,545,965
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                 Tennessee - 7.8%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                 Johnson City, TN Health and Educational
       2,000,000 Facilities Board, Hospital Revenue Bonds,            2,169,300
                 7.50%,7/1/2025
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                 Knox County, TN Health Education & Housing
       1,500,000 Facilities Board, Revenue Bonds , 6.375%             1,527,615
                 (Baptist Health System of East
                 Tennessee)/(Original Issue Yield: 6.50%),
                 4/15/2022
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                 Knox County, TN Health Education & Housing
       1,000,000 Facilities Board, Revenue Bonds , 6.50%              1,021,170
                 (Baptist Health System of East
                 Tennessee)/(Original Issue Yield: 6.50%),
                 4/15/2031
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                 Shelby County, TN Health Education & Housing
       2,000,000 Facilities Board, Revenue Bonds , 6.50%              2,112,940
                 (Methodist Healthcare)/(Original Issue Yield:
                 6.60%), 9/1/2026
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                 TOTAL
                                                                      6,831,025
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                 Texas - 7.6%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                 Leander, TX Independent School District,
       1,900,000 Refunding UT GO Bonds  , 5.375% (PSFG INS),          2,048,314
                 8/15/2017
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                 North Central Texas Health Facilities
       1,000,000 Development Revenue Bonds (Series 1999A),            1,020,420
                 7.50% (Retirement Facilities, Northwest
                 Senior Housing), 11/15/2029
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                 Spring Branch, TX Independent School
       2,000,000 District, Refunding LT GO Bonds , 5.20% (PSFG        2,076,800
                 INS)/(Original Issue Yield: 5.23%), 2/1/2020
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                 Texas State University System, Refunding
       1,500,000 Revenue Bonds , 5.00% (FSA INS), 3/15/2020           1,540,260
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                 TOTAL
                                                                      6,685,794
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                 Utah - 6.2%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                 Emery County, UT Pollution Control Revenue
       3,400,000 Bonds, Daily VRDNs (Pacificorp                       3,400,000
                 Project)/(AMBAC INS)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                 Utah Transit Authority, Sales Tax Revenue
       2,000,000 Bonds (Series 2002A), 5.00% (FSA INS),               2,011,640
                 6/15/2027
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                 TOTAL
                                                                      5,411,640
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                 Virginia - 3.8%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                 Hampton, VA Convention Center, Revenue Bonds,
       1,280,000 5.125%, 1/15/2028                                    1,308,198
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                 Peninsula Ports Authority, VA, Residential Care Facilit972,870
       1,000,000 Revenue Bonds, 7.375% (Virginia Baptist Homes), 12/1/2032
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                 Richmond, VA, UT GO Bonds (Series 2002A),
       1,000,000 5.00% (FSA INS), 7/15/2019                           1,047,670
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                 TOTAL
                                                                      3,328,738
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                 Washington - 9.7%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                 Everett, WA, LT GO Refunding Bonds, 5.00%
       1,000,000 (MBIA Insurance Corp. INS), 12/1/2020                1,029,280
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                 Seattle, WA Municipal Light & Power,
       3,915,000 Improvement & Refunding Revenue Bonds ,              3,956,616
                 5.125% (FSA INS)/(Original Issue Yield:
                 5.30%), 3/1/2026
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                 Tobacco Settlement Authority, WA, Tobacco
       1,500,000 Settlement Asset Backed Revenue Bonds ,              1,452,780
                 6.625% (Original Issue Yield: 6.875%),
                 6/1/2032
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                 Washington State, UT GO Bonds (Series B),
       2,000,000 5.00% (FSA INS)/(Original Issue Yield:               2,042,460
                 5.05%), 1/1/2021
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                 TOTAL
                                                                      8,481,136
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                 Wisconsin - 6.9%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                 Wisconsin State HEFA, Health Facilities
       4,000,000 Revenue Bonds (Series A), 5.25% (Ministry            4,041,560
                 Health Care)/(MBIA INS)/(Original Issue
                 Yield: 5.38%), 2/15/2032
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                 Wisconsin State HEFA, Health Facilities
       1,000,000 Revenue Bonds, 6.00% (Synergyhealth,                   992,620
                 Inc.)/(Original Issue Yield: 6.100%),
                 11/15/2023
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                 Wisconsin State HEFA, Health Facilities
       1,000,000 Revenue Bonds, 7.25% (Community Memorial               978,910
                 Hospital, Inc. Project)/(Original Issue
                 Yield: 7.45%), 1/15/2033
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                 TOTAL
                                                                      6,013,090
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                 TOTAL LONG-TERM MUNICIPALS (IDENTIFIED COST $90,272,90,051,372
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                 The cost of investments for federal tax purposes amounts to
               1 $90,272,010.  The net unrealized depreciation of investments
                 on a federal tax basis amounts to $220,638 which is comprised
                 of $158,065 appreciation and $378,703 depreciation at
                 February 3, 2003.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Note: The categories of investments are shown as a percentage of net assets
($87,420,823) at February 3, 2003.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
The following acronyms were used throughout this portfolio:
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
AMBAC            --American Municipal Bond Assurance Corporation
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
EDA              --Economic Development Authority
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
FGIC             --Financial Guaranty Insurance Corporation
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
FSA              --Financial Security Assurance
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
GO               --General Obligation
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
GTD              --Guaranteed
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
HDA              --Hospital Development Authority
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
HEFA             --Health and Education Facilities Authority
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
IDA              --Industrial Development Authority
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
INS              --Insured
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
LOC              --Letter of Credit
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
LT               --Limited Tax
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
MBIA             --Municipal Bond Insurance Association
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
PCA              --Pollution Control Authority
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
UT               --Unlimited Tax
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
VRDNs            --Variable Rate Demand Notes
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

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



FEDERATED PREMIER MUNICIPAL INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
February 3, 2003  (Unaudited)

Assets:
Total investments in securities, at value         $
(identified cost $90,272,010)                                    90,051,372
Cash                                                                  7,787
Receivable for investments sold                                   1,244,348
Income receivable                                                 1,052,814
  Total assets                                                   92,356,321
Liabilities:
Payable for investments purchased                   4,899,838
Accrued expenses                                       35,660
  Total liabilities                                               4,935,498
Net assets for 6,106,981 shares outstanding                      87,420,823
Net Assets Consist of:
Paid in capital                                                  87,268,792
Net unrealized depreciation of investments                         (220,638)
Accumulated net realized loss on
investments                                                          (4,072 )
Undistributed net investment income                                 376,741
  Total Net Assets                                               87,420,823
Net Asset Value Per Share
$87,420,823 / 6,106,981 shares outstanding                           $14.31
Market Value Per Share                                               $14.55

See Notes which are an integral part of the Financial Statements

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

FEDERATED PREMIER MUNICIPAL INCOME FUND
STATEMENT OF OPERATIONS
Period Ended February 3, 2003 (Unaudited)  (1)

Investment Income:
Interest                                                431,031

Expenses:
Investment adviser fee                                   54,290
Administrative personnel and
services fee                                             14,726
Custodian fees                                              543
Transfer and dividend
disbursing agent fees and
expenses                                                  3,455
Auditing fees                                             2,122
Legal fees                                                  987
Portfolio accounting fees                                 5,430
Printing and postage                                      1,974
Insurance premiums                                          148
Miscellaneous                                             5,083
  Total expenseS                                         88,758
Waivers and Expense Reduction:
Waiver of investment adviser fee        (19,742 )
Waiver of administrative
personnel and services fee              (14,726 )
  Total waivers and expense
  reduction                                             (34,468 )
Net expenses                                                            54,290
Net investment income                                                  376,741
Realized and Unrealized Gain
(Loss) on Investments:
Net realized loss on
investments                                                            (4,072)
Net change in unrealized
depreciation of investments                                          (220,638)
Net realized and unrealized
loss on investments                                                  (224,710)
Change in net assets resulting
from operations                                                       152,031

(1)  Reflects  operations for the period from December 20, 2002 (commencement of
     investment operations) to February 3, 2003.


See Notes which are an integral part of the Financial Statements









FEDERATED PREMIER MUNICIPAL INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS


                                                        Period
                                                         Ended
                                                       February
                                                        3, 2003
                                                          (1)
                                                       Unaudited
Increase (Decrease) in Net Assets
Operations:
Net investment income                                     376,741
Net realized loss on investments                           (4,072 )
Net change in unrealized depreciation of
investments                                              (220,638 )
  Change in net assets resulting from operations          152,031
Distributions to Shareholders:
Distributions from net investment income                       --
Share Transactions:
Net proceeds from the issuance of common shares        87,268,792
Change in net assets                                   87,420,823
Net Assets:
Beginning of period                                            --
End of period (including undistributed net
investment income of $376,741)                         83,420,823

(1)  Reflects  operations for the period from December 20, 2002 (commencement of
     investment operations) to February 4, 2003.


See Notes which are an integral part of the Financial Statements



Federated Premier Municipal Income Fund
NOTES TO FINANCIAL STATEMENTS
February 3, 2003 (Unaudited)

ORGANIZATION

     Federated  Premier  Municipal  Income Fund (the "Fund") was  organized as a
Delaware  statutory  trust on  October  16,  2002 and is  registered  under  the
Investment  Company  Act of 1940,  as  amended  (the  "Act")  as a  diversified,
closed-end  management  investment company. The investment objective of the Fund
is to provide current income exempt from federal  regular income tax,  including
alternative minimum tax.

     Prior to  commencing  operations  on  December  20,  2002,  the Fund had no
operations  other than matters  relating to their  organization and registration
and the  sales  and  issuance  of 6,981  shares  of  common  stock to  Federated
Investment  Management Company. The Fund issued 5,850,000 shares of common stock
in its initial public offering on December 20, 2002. These shares were issued at
$15.00 per share before underwriting discount of $0.68 per share. Offering costs
of $175,709  (representing  $0.03 per share) were offset against proceeds of the
offering and have been charged to paid-in  capital.  The Investment  Adviser has
paid all  offering  cost  (other than sales  load) and  organizational  expenses
exceeding $0.03 per share of the Fund. An additional  250,000 shares were issued
on February 3, 2003 at $15.00 per share.


     SIGNIFICANT  ACCOUNTING  POLICIES The following is a summary of significant
accounting policies  consistently followed by the Fund in the preparation of its
financial  statements.  These policies are in conformity with generally accepted
accounting principles ("GAAP") in the United States of America.

     Investment  Valuation  Municipal bonds are valued by an independent pricing
service,  taking into  consideration  yield,  liquidity,  risk,  credit quality,
coupon,  maturity,  type of issue,  and any  other  factors  or market  data the
pricing service deems relevant.  Short-term  securities are valued at the prices
provided by an independent pricing service. However,  short-term securities with
remaining maturities of 60 days or less at the time of purchase may be valued at
amortized cost, which  approximates  fair market value.  Securities for which no
quotations are readily  available are valued at fair value as determined in good
faith using methods approved by the Board of Trustees (the "Trustees").

     Investment Income,  Expenses and Distributions Interest income and expenses
are accrued daily. All  discount/premiums are  accreted/amortized  for financial
reporting   purposes  as  required.   Dividend  income  and   distributions   to
shareholders are recorded on the ex-dividend date.  Non-cash  dividends included
in dividend income, if any, are recorded at fair value.

     Federal Taxes It is the Fund's policy to comply with the  provisions of the
Internal  Revenue  Code,  as amended,  (the  "Code"),  applicable  to  regulated
investment  companies and to distribute to shareholders each year  substantially
all of its income. Accordingly, no provision for federal tax is necessary.


     When-Issued  and  Delayed  Delivery  Transactions  The Fund may  engage  in
when-issued  or delayed  delivery  transactions.  The Fund  records  when-issued
securities  on the  trade  date  and  maintains  security  positions  such  that
sufficient  liquid  assets will be available to make payment for the  securities
purchased.  Securities  purchased on a when-issued or delayed delivery basis are
marked to market daily and begin earning interest on the settlement date. Losses
may occur on these  transactions  due to  changes  in market  conditions  or the
failure of counterparties to perform under the contract.

     Restricted Securities Restricted securities are securities that may only be
resold upon registration under federal securities laws or in transactions exempt
from such registration.  In some cases, the issuer of restricted  securities has
agreed to register such  securities for resale,  at the issuer's  expense either
upon demand by the Fund or in connection with another registered offering of the
securities.  Many restricted securities may be resold in the secondary market in
transactions  exempt  from  registration.  Such  restricted  securities  may  be
determined to be liquid under  criteria  established  by the Trustees.  The Fund
will not incur any registration  costs upon such resales.  The Fund's restricted
securities are valued at the price  provided by dealers in the secondary  market
or, if no market prices are  available,  at the fair value as determined in good
faith using methods approved by the Trustees.

     Use of Estimates The preparation of financial statements in conformity with
GAAP requires  management  to make  estimates  and  assumptions  that affect the
amounts of assets, liabilities,  expenses and revenues reported in the financial
statements. Actual results could differ from those estimated.

Other
        Investment transactions are accounted for on a trade date basis.



CAPITAL STOCK

     At  February  3, 2003,  there is an  unlimited  number of par value  shares
($0.01 per share)  authorized.  Of the 6,106,981  common shares  outstanding  at
February 3, 2003, the advisor owned 6,981 shares.


INVESTMENT ADVISER FEE AND OTHER TRANSACTIONS WITH AFFILIATES

     Investment  Adviser Fee The Fund has entered into an Investment  Management
Agreement (the "Agreement")  with the Federated  Investment  Management  Company
(the  "Adviser")  to serve as  investment  manager to the Fund.  Pursuant to the
Agreement, the Fund pays the Adviser an annual management fee, payable daily, at
the annual rate of 0.55% of the Fund's managed assets.

     In order to reduce fund expenses,  the Adviser has contractually  agreed to
waive a portion of its investment adviser fee at the annual rate of 0.20% of the
averaged daily value of the Fund's managed  assets,  not inclusive of any assets
attributable to any preferred  shares that may be issued,  from the commencement
of operations  through December 31, 2007, and for a declining amount  thereafter
through December 31, 2010.

     Administrative  Fee  Federated   Services  Company  ("FServ"),   under  the
Administrative  Services  Agreement,   provides  the  Fund  with  administrative
personnel  and  services.  The fee paid to FServ is based on a scale that ranges
from  0.150% to 0.075% of the  average  aggregate  daily net assets of all funds
advised by  subsidiaries  of Federated  Investors,  Inc.,  subject to a $125,000
minimum  per  portfolio  and  $30,000  per  each  additional  class.  FServ  may
voluntarily  choose  to waive  any  portion  of its fee.  FServ  can  modify  or
terminate this voluntary waiver at any time at its sole discretion.

Transfer and Dividend Disbursing Agent Fees and Expenses

     EquiServe Trust Company, N.A. ("EquiServe") serves as transfer and dividend
disbursing  agent for the Fund.  The fee paid to EquiServe is based on the size,
type and number of accounts and transactions made by shareholders.

Portfolio Accounting Fees

     FServ maintains the Fund's accounting  records for which it receives a fee.
The fee is based on the level of the  Fund's  average  daily net  assets for the
period, plus out-of-pocket expenses.

Interfund Transactions

     During the period ended  February 3, 2003, the Fund engaged in purchase and
sale  transactions  with  funds  that  have  a  common  investment  adviser  (or
affiliated  investment  advisers),   common  Trustees/Trustees,   and/or  common
Officers.  These purchase and sale  transactions  complied with Rule 17a-7 under
the Act and amounted to $36,477,250 and $55,960,000, respectively.

General

     Certain of the Officers and  Trustees of the  Corporation  are Officers and
Trustees or Trustees of the above companies.

INVESTMENT TRANSACTIONS

     Purchases and sales of investments,  excluding  short-term  securities (and
in-kind contributions), for the period ended February 3, 2003, were as follows:

------------------------------------------------------------------
Purchases                                            $ 98,863,982
------------------------------------------------------------------
------------------------------------------------------------------
Sales                                                $ 11,974,404
------------------------------------------------------------------





                                         APPENDIX A

                          FEDERATED PREMIER MUNICIPAL INCOME FUND
                                STATEMENT OF PREFERENCES OF
                              AUCTION MARKET PREFERRED SHARES
                                          ("AMPS")


                                     TABLE OF CONTENTS

Definitions.............................................................. AA-2
Part I................................................................... AA-19
1. Number of Authorized Shares........................................... AA-19
2. Dividends............................................................. AA-19
3. Gross-up Payments..................................................... AA-23
4. Designation of Special Rate Periods................................... AA-24
5. Voting Rights......................................................... AA-26
6. Investment Company Act Preferred Shares Asset Coverage................ AA-30
7. Preferred Shares Basic Maintenance Amount............................. AA-30
8. Reserved.............................................................. AA-31
9. Restrictions on Dividends and Other Distributions..................... AA-32
10.............................................Rating Agency Restrictions AA-33
11.............................................................Redemption AA-38
12.....................................................Liquidation Rights AA-41
13..........................................................Miscellaneous AA-42
Part II.................................................................. AA-43
1. Orders................................................................ AA-43
2. Submission of Orders by Broker-Dealers to Auction Agent............... AA-45
3. Determination of Sufficient Clearing Bids, Winning Bid Rate and        AA-47
   Applicable Rate.......................................................
4. Acceptance and Rejection of Submitted Bids and Submitted Sell Orders
   and Allocation of Shares.............................................. AA-49
5. Notification of Allocations........................................... AA-51
6. Auction Agent......................................................... AA-51
7. Transfer of AMPS...................................................... AA-52
8. Global Certificate.................................................... AA-52
Exhibit A................................................................ AA-54

     FEDERATED  PREMIER  MUNICIPAL INCOME FUND, a Delaware  statutory trust (the
"Fund"), certifies that:

     First:  Pursuant to authority  expressly vested in the Board of Trustees of
the Fund by Article VI of the Fund's  Agreement  and  Declaration  of Trust,  as
amended and restated  (which,  as hereafter  restated,  amended and supplemented
from  time  to  time  is,  together  with  this  Statement,  herein  called  the
"Declaration"),  the  Board of  Trustees  has,  by  resolution,  authorized  the
issuance  of shares  of the  Fund's  authorized  preferred  shares,  liquidation
preference  $25,000 per share,  having such  designation or  designations  as to
series as is set  forth in  Section 1 of  Exhibit  A hereto  and such  number of
shares per such series as is set forth in Section 2 of Exhibit A hereto.

     Second: The preferences,  rights, voting powers, restrictions,  limitations
as to dividends,  qualifications, and terms and conditions of redemption, of the
shares of each series of preferred shares now or hereafter  described in Section
1 of Exhibit A hereto  ("AMPS") are as follows (each such series being  referred
to herein as a series of AMPS,  and shares of all such series being  referred to
herein individually and collectively as AMPS).


                                        DEFINITIONS

     Except as otherwise specifically provided in Section 3 of Exhibit A hereto,
as used in this Statement, the following terms shall have the following meanings
(with terms defined in the singular having comparable  meanings when used in the
plural and vice versa), unless the context otherwise requires:

     (1) "'AA' FINANCIAL  COMPOSITE  COMMERCIAL PAPER RATE," on any date for any
Rate Period of shares of a series of AMPS, shall mean (i) (A) in the case of any
Minimum  Rate  Period or any  Special  Rate  Period of fewer than 49 Rate Period
Days, the interest  equivalent of the 30-day rate;  provided,  however,  that if
such Rate  Period is a Minimum  Rate  Period  and the "AA"  Financial  Composite
Commercial  Paper Rate is being used to determine the Applicable Rate for shares
of such series when all of the Outstanding  shares of such series are subject to
Submitted Hold Orders,  then the interest equivalent of the seven- day rate, and
(B) in the case of any  Special  Rate Period of (1) 49 or more but fewer than 70
Rate Period Days, the interest equivalent of the 60-day rate; (2) 70 or more but
fewer  than  85  Rate  Period  Days,  the  arithmetic  average  of the  interest
equivalent of the 60-day and 90-day rates; (3) 85 or more but fewer than 99 Rate
Period Days,  the  interest  equivalent  of the 90-day rate;  (4) 99 or more but
fewer  than 120  Rate  Period  Days,  the  arithmetic  average  of the  interest
equivalent of the 90-day and 120-day  rates;  (5) 120 or more but fewer than 141
Rate Period Days,  the interest  equivalent of the 120-day rate; (6) 141 or more
but fewer than 162 Rate Period  Days,  the  arithmetic  average of the  interest
equivalents of the 120-day and 180-day rates; and (7) 162 or more but fewer than
183 Rate Period Days, the interest  equivalent of the 180-day rate, in each case
on commercial  paper placed on behalf of issuers whose corporate bonds are rated
"AA" by S&P or the equivalent of such rating by S&P or another rating agency, as
made available on a discount basis or otherwise by the Board of Governors of the
Federal Reserve System  ("Federal  Reserve") for the Business Day next preceding
such date; or (ii) in the event that the Federal Reserve does not make available
any such  rate,  then the  arithmetic  average  of such  rates,  as  quoted on a
discount  basis or  otherwise,  by the  Commercial  Paper Dealers to the Auction
Agent for the close of business on the Business Day next preceding such date. If
any Commercial Paper Dealer does not quote a rate required to determine the "AA"
Financial  Composite   Commercial  Paper  Rate,  the  "AA"  Financial  Composite
Commercial  Paper  Rate shall be  determined  on the basis of the  quotation  or
quotations  furnished by the  remaining  Commercial  Paper Dealer or  Commercial
Paper  Dealers  and  any  Substitute   Commercial  Paper  Dealer  or  Substitute
Commercial  Paper Dealers selected by the Fund to provide such rate or rates not
being supplied by any Commercial  Paper Dealer or Commercial  Paper Dealers,  as
the case may be, or, if the Fund does not select any such Substitute  Commercial
Paper Dealer or Substitute Commercial Paper Dealers, by the remaining Commercial
Paper Dealer or Commercial Paper Dealers.  For purposes of this definition,  the
"interest  equivalent" of a rate stated on a discount basis (a "discount  rate")
for  commercial  paper of a given days'  maturity shall be equal to the quotient
(rounded  upwards  to the next  higher  one-thousandth  (.001) of 1%) of (A) the
discount rate divided by (B) the difference between (x) 1.00 and (y) a fraction,
the  numerator  of which  shall be the  product of the  discount  rate times the
number of days in which such  commercial  paper matures and the  denominator  of
which shall be 360.

     (2)  "ACCOUNTANT'S  CONFIRMATION"  shall  have  the  meaning  specified  in
paragraph (c) of Section 7 of Part I of this Statement.

     (3)   "AFFILIATE"   shall  mean,   for  purposes  of  the   definition   of
"Outstanding,"  any Person known to the Auction  Agent to be  controlled  by, in
control of or under common  control with the Fund;  provided,  however,  that no
Broker-Dealer controlled by, in control of or under common control with the Fund
shall be  deemed  to be an  Affiliate,  nor  shall  any  Person,  or any  Person
controlled  by, in control of or under common  control with such Person,  one of
the trustees,  directors or executive officers of which is a Trustee of the Fund
be deemed to be an Affiliate solely because such trustee,  director or executive
officer is also a Trustee of the Fund.

     (4) "AGENT  MEMBER" shall mean a member of or participant in the Securities
Depository that will act on behalf of a Bidder.

     (5)  "AMPS"  shall  have the  meaning  set forth on the first  page of this
Statement.

     (6) "APPLICABLE  RATE" shall have the meaning specified in subparagraph (e)
(i) of Section 2 of Part I of this Statement.

     (7)  "AUCTION"  shall  mean each  periodic  implementation  of the  Auction
Procedures.

     (8) "AUCTION AGENCY  AGREEMENT"  shall mean the agreement  between the Fund
and the Auction Agent which provides, among other things, that the Auction Agent
will follow the Auction  Procedures for purposes of  determining  the Applicable
Rate for shares of a series of AMPS so long as the Applicable Rate for shares of
such series is to be based on the results of an Auction.

     (9) "AUCTION AGENT" shall mean the entity appointed as such by a resolution
of the Board of Trustees or the Executive  Committee of the Board of Trustees in
accordance with Section 6 of Part II of this Statement.

     (10)  "AUCTION  DATE,"  with  respect  to any Rate  Period,  shall mean the
Business Day next preceding the first day of such Rate Period.

     (11) "AUCTION PROCEDURES" shall mean the procedures for conducting Auctions
set forth in Part II of this Statement.

     (12) "AVAILABLE AMPS" shall have the meaning  specified in paragraph (a) of
Section 3 of Part II of this Statement.

     (13)  "BENCHMARK  RATE"  shall  have the  meaning  specified  in  paragraph
(b)(iii) of Section 3 of Part II of this Statement.

     (14) "BENEFICIAL  OWNER," with respect to shares of a series of AMPS, 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 such series.

     (15)  "BID" and "BIDS"  shall have the  respective  meanings  specified  in
paragraph (a) of Section 1 of Part II of this Statement.

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

     (17)  "BOARD OF  TRUSTEES"  shall mean the Board of Trustees of the Fund or
any duly authorized committee thereof.

     (18) "BROKER-DEALER" shall mean any broker-dealer, commercial bank or other
entity permitted by law to perform the functions  required of a Broker-Dealer in
Part II of this  Statement,  that is a  member  of,  or a  participant  in,  the
Securities Depository or is an affiliate of such member or participant, has been
selected by the Fund and has entered into a Broker-Dealer Agreement that remains
effective.

     (19) "BROKER-DEALER  AGREEMENT" shall mean an agreement among the Fund, the
Auction Agent and a Broker-Dealer pursuant to which such Broker-Dealer agrees to
follow the procedures specified in Part II of this Statement.

     (20)  "BUSINESS  DAY" shall mean a day on which the New York Stock Exchange
is open for trading and which is neither a Saturday, Sunday nor any other day on
which banks in The City of New York, New York, are authorized by law to close.

     (21) "CODE" means the Internal Revenue Code of 1986, as amended.

     (22)  "COMMERCIAL  PAPER  DEALERS"  shall mean Merrill  Lynch Money Markets
Inc.,  Lehman  Brothers  Inc.  and  Goldman  Sachs  Group,  Inc.,  and any other
commercial  paper dealer selected by the Fund as to which Moody's,  Fitch or any
substitute  rating  agency then rating the AMPS shall not have  objected  or, in
lieu of any thereof,  their respective affiliates or successors,  if such entity
is a commercial paper dealer.

     (23) "COMMON  SHARES" shall mean the common shares of beneficial  interest,
par value $.01 per share, of the Fund.

     (24) "CURE DATE" shall mean the  Preferred  Shares Basic  Maintenance  Cure
Date or the Investment Company Act Cure Date, as the case may be.

     (25) "DATE OF ORIGINAL  ISSUE," with respect to shares of a series of AMPS,
shall mean the date on which the Fund initially issued such shares.

     (26)  "DECLARATION"  shall have the meaning  specified on the first page of
this Statement.

     (27) "DEPOSIT  SECURITIES" shall mean cash and Municipal  Obligations rated
at least P-1, MIG-1 or VMIG-1 by Moody's, or F1 by Fitch.

     (28) "DISCOUNTED  VALUE," as of any Valuation Date, shall mean, (i)(a) with
respect to a Moody's  Eligible  Asset that is not currently  callable as of such
Valuation Date at the option of the issuer  thereof,  the quotient of the Market
Value thereof divided by the applicable  Moody's  Discount  Factor,  or (b) with
respect  to a Moody's  Eligible  Asset  that is  currently  callable  as of such
Valuation  Date at the option of the issuer  thereof,  the  quotient  of (1) the
lesser  of the  Market  Value or next call  price  thereof,  including  any call
premium,  divided by (2) the applicable  Moody's Discount Factor,  and (ii) with
respect to a Fitch  Eligible  Asset that is not  currently  callable  as of such
Valuation Date at the option of the issuer  thereof,  the quotient of the Market
Value thereof  divided by the  applicable  Fitch  Discount  Factor,  or (b) with
respect  to a  Fitch  Eligible  Asset  that  is  currently  callable  as of such
Valuation  Date at the option of the issuer  thereof,  the  quotient  of (1) the
lesser  of the  Market  Value or next call  price  thereof,  including  any call
premium, divided by (2) the applicable Fitch Discount Factor.

     (29)  "DIVIDEND  PAYMENT DATE," with respect to shares of a series of AMPS,
shall mean any date on which  dividends  are  payable  on shares of such  series
pursuant  to the  provisions  of  paragraph  (d) of  Section 2 of Part I of this
Statement.

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

     (31) "EXISTING  HOLDER," with respect to shares of a series of AMPS,  shall
mean a Broker-Dealer  (or any such other Person as may be permitted by the Fund)
that is listed on the records of the Auction Agent as a holder of shares of such
series.

     (32)  "EXPOSURE  PERIOD"  shall  mean  the  period  commencing  on a  given
Valuation Date and ending 49 days thereafter.

     (33)  "FAILURE  TO  DEPOSIT,"  with  respect to shares of a series of AMPS,
shall mean a failure  by the Fund to pay to the  Auction  Agent,  not later than
12:00 noon,  New York City time,  (A) on the  Business  Day next  preceding  any
Dividend  Payment  Date for shares of such  series,  in funds  available on such
Dividend  Payment Date in The City of New York, New York, the full amount of any
dividend (whether or not earned or declared) to be paid on such Dividend Payment
Date on any share of such series or (B) on the Business Day next  preceding  any
redemption  date in funds  available on such  redemption date for shares of such
series in The City of New York,  New York,  the  Redemption  Price to be paid on
such  redemption date for any share of such series after notice of redemption is
mailed  pursuant  to  paragraph  (c) of Section 11 of Part I of this  Statement;
provided,  however,  that the foregoing clause (B) shall not apply to the Fund's
failure to pay the  Redemption  Price in respect of AMPS when the related Notice
of Redemption  provides that redemption of such shares is subject to one or more
conditions  precedent  and any such  condition  precedent  shall  not have  been
satisfied  at the time or times and in the manner  specified  in such  Notice of
Redemption.

     (34) "FEDERAL TAX RATE  INCREASE"  shall have the meaning  specified in the
definition of "Fitch Volatility Factor" and "Moody's Volatility Factor."

(35)  "FITCH" shall mean Fitch Ratings and its successors.

     (36) "FITCH  DISCOUNT  FACTOR" shall mean, for purposes of determining  the
Discounted  Value of any Fitch  Eligible  Asset,  the  percentage  determined by
reference to the rating on such asset and the shortest Exposure Period set forth
opposite  such rating that is the same length as or is longer than the  Exposure
Period, in accordance with the table set forth below.

                                         RATING CATEGORY

Exposure Period        AAA*     AA*      A*     BBB*     F1**   UNRATED***
7 weeks..............  151%     159%    166%    173%     136%      225%
8 weeks or less but
greater than 7 weeks.  154%     161%    168%    176%     137%      231%
9 weeks or less but
greater than 8 weeks.  158%     163%    170%    177%     138%      240%
___________

     * Fitch  rating (or, if not rated by Fitch,  see the  definition  of "Fitch
Eligible Asset" below).

     ** Municipal  Obligations rated F1 by Fitch (or, if not rated by Fitch, see
the definition of "Fitch Eligible  Asset" below),  which do not mature or have a
demand  feature at par  exercisable in 30 days and which do not have a long-term
rating.

     *** Municipal Obligations rated less than BBB by Fitch (or, if not rated by
Fitch, see the definition of "Fitch Eligible Asset" below) or unrated.

     Notwithstanding the foregoing, (i) the Fitch Discount Factor for short-term
Municipal  Obligations  will be 115%, so long as such Municipal  Obligations are
rated at least F2 by Fitch (or, if not rated by Fitch,  rated  MIG-1,  VMIG-1 or
P-1 by  Moody's  or at least  A-1+ or SP-1+ by S&P) and  mature or have a demand
feature at par exercisable in 30 days or less, and (ii) no Fitch Discount Factor
will be applied to cash or to Receivables for Municipal Obligations Sold.

     (37) "FITCH  ELIGIBLE  ASSET" shall mean cash,  Receivables  for  Municipal
Obligations Sold or a Municipal  Obligation that (i) pays interest in cash, (ii)
does not have its Fitch rating, as applicable,  suspended by Fitch, and (iii) is
part of an issue of Municipal  Obligations  of at least  $10,000,000.  Municipal
Obligations issued by any one issuer and rated BB or lower or not rated (for the
purposes of this definition only, "Other  Securities") may comprise no more than
4% of total Fitch Eligible Assets; such Other Securities,  if any, together with
any Municipal  Obligations  issued by the same issuer and rated BBB by Fitch may
comprise no more than 6% of total Fitch Eligible  Assets;  such Other Securities
and  BBB-rated  Municipal  Obligations,  if any,  together  with  any  Municipal
Obligations issued by the same issuer and rated A by Fitch, may comprise no more
than 10% of total Fitch Eligible Assets; and such Other Securities,  and BBB and
A-rated Municipal  Obligations,  if any, together with any Municipal Obligations
issued by the same issuer and rated AA by Fitch,  may  comprise no more than 20%
of total Fitch Eligible Assets.  For purposes of the foregoing  sentence (i) any
Municipal  Obligation  backed by the  guaranty,  letter  of credit or  insurance
issued by a third  party shall 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  Municipal  Obligation;  and (ii) any  Municipal  Obligation  for which the
nominal  issuer is a conduit for a third party the  obligations of which are the
sole source of revenues for the payment of such  Municipal  Obligation  shall be
deemed to be issued by such  third  party.  Other  Securities  issued by issuers
located  within a single  state or  territory  may  comprise no more than 12% of
total Fitch Eligible Assets;  such Other  Securities,  if any, together with any
Municipal  Obligations  issued  by  issuers  located  within  the same  state or
territory  and rated BBB by Fitch,  may comprise no more than 20% of total Fitch
Eligible Assets; such Other Securities, BBB-rated Municipal Obligations, if any,
together with any Municipal  Obligations  issued by issuers  located  within the
same state or territory  and rated A by Fitch,  may comprise no more than 40% of
total  Fitch  Eligible  Assets;  and such Other  Securities  and BBB and A-rated
Municipal Obligations, if any, together with any Municipal Obligations issued by
issuers  located  within the same state or territory and rated AA by Fitch,  may
comprise  no more than 60% of total  Fitch  Eligible  Assets.  For  purposes  of
applying the foregoing  requirements  and applying the applicable Fitch Discount
Factor, if a Municipal  Obligation is not rated by Fitch but is rated by Moody's
and S&P, such Municipal Obligation (excluding short-term Municipal  Obligations)
will be deemed to have the Fitch  rating  which is the lower of the  Moody's and
S&P  rating.  If a  Municipal  Obligation  is not rated by Fitch but is rated by
Moody's  or S&P,  such  Municipal  Obligation  (excluding  short-term  Municipal
Obligations)  will be deemed to have such  rating.  For the purposes of applying
the foregoing percentage test requirements,  Eligible Assets shall be calculated
without  including cash; and Municipal  Obligations rated F1 by Fitch or, if not
rated by  Fitch,  rated  MIG-1,  VMIG-1 or P-1 by  Moody's;  or, if not rated by
Moody's,  rated  A-1+/AA  or  SP-1+/AA  by S&P  shall  be  considered  to have a
long-term rating of A. When the Fund sells a Municipal  Obligation and agrees to
repurchase such Municipal Obligation at a future date, such Municipal Obligation
shall be valued  at its  Discounted  Value for  purposes  of  determining  Fitch
Eligible  Assets,  and the  amount  of the  repurchase  price of such  Municipal
Obligation  shall be included as a liability  for  purposes of  calculating  the
Preferred  Shares  Basic  Maintenance  Amount.  When the Fund  purchases a Fitch
Eligible Asset and agrees to sell it at a future date, such Fitch Eligible Asset
shall be  valued  at the  amount  of cash to be  received  by the Fund upon such
future date,  provided that the  counterparty to the transaction has a long-term
debt  rating  of at least A by Fitch and the  transaction  has a term of no more
than 30 days;  otherwise,  such  Fitch  Eligible  Asset  shall be  valued at the
Discounted Value of such Fitch Eligible Asset.

     Notwithstanding  the  foregoing,  an asset will not be  considered  a Fitch
Eligible  Asset  for  purposes  of  determining   the  Preferred   Shares  Basic
Maintenance  Amount  to the  extent  it is (i)  subject  to any  material  lien,
mortgage,   pledge,   security  interest  or  security  agreement  of  any  kind
(collectively,  "Liens"), except for (a) Liens which are being contested in good
faith by  appropriate  proceedings  and which Fitch (if Fitch is then rating the
AMPS) has  indicated  to the Fund will not  affect the status of such asset as a
Fitch Eligible  Asset,  (b) Liens for taxes that are not then due and payable or
that can be paid  thereafter  without  penalty,  (c) Liens to secure payment for
services rendered or cash advanced to the Fund by the Fund's investment adviser,
custodian or the Auction Agent, (d) Liens by virtue of any repurchase agreement,
and (e) Liens in connection with any futures margin  account;  or (ii) deposited
irrevocably  for the payment of any  liabilities for purposes of determining the
Preferred Shares Basic Maintenance Amount.

     (38)  "FITCH  HEDGING  TRANSACTIONS"  shall have the meaning  specified  in
paragraph (b)(1) of Section 10 of Part I of this Statement.

     (39) "FITCH VOLATILITY FACTOR" shall mean, as of any Valuation Date, (i) in
the case of any Minimum Rate  Period,  any Special Rate Period of 28 Rate Period
Days or fewer,  or any Special  Rate  Period of 57 Rate  Period Days or more,  a
multiplicative  factor equal to 275%,  except as otherwise  provided in the last
sentence of this definition; (ii) in the case of any Special Rate Period of more
than 28 but fewer than 36 Rate Period  Days,  a  multiplicative  factor equal to
203%;  (iii) in the case of any  Special  Rate  Period of more than 35 but fewer
than 43 Rate Period Days, a multiplicative factor equal to 217%; and (iv) in the
case of any  Special  Rate  Period of more than 42 but fewer than 50 Rate Period
Days, a multiplicative  factor equal to 226%; and (v) in the case of any special
Rate Period of more than 49 but fewer than 57 Rate Period Days, a multiplicative
factor equal to 235%.  If, as a result of the  enactment of changes to the Code,
the  greater  of  the  maximum  marginal  Federal  individual  income  tax  rate
applicable to ordinary income and the maximum marginal Federal  corporate income
tax rate  applicable  to ordinary  income will  increase,  such  increase  being
rounded up to the next five percentage points (the "Federal Tax Rate Increase"),
until the effective date described in (i) above in this definition instead shall
be determined by reference to the following table:

           Federal Tax Rate Increase       Fitch Volatility Factor
                      5%                             295%
                      10%                            317%
                      15%                            341%
                      20%                            369%
                      25%                            400%
                      30%                            436%
                      35%                            477%
                      40%                            525%

     (40) "FORWARD  COMMITMENTS"  shall have the meaning  specified in paragraph
(a)(iv) of Section 10 of Part I of this Statement.

     (41)  "FUND"  shall  mean  the  entity  named  on the  first  page  of this
Statement, which is the issuer of the AMPS.

     (42)  "GROSS-UP  PAYMENT"  means  payment  to a Holder of AMPS of an amount
which, when taken together with the aggregate amount of Taxable Allocations made
to such Holder to which such Gross-up Payment relates, would cause such Holder's
dividends in dollars (after Federal income tax consequences)  from the aggregate
of such  Taxable  Allocations  and the related  Gross-up  Payment to be at least
equal to the dollar  amount of the  dividends  which would have been received by
such  Holder  if the  amount  of such  aggregate  Taxable  Allocations  had been
excludable from the gross income of such Holder.  Such Gross-up Payment 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 Taxable  Allocation  and each Gross-up  Payment  (except to the extent
such Gross-up Payment is designated as an exempt-interest dividend under Section
852(b)(5) of the Code or successor  provisions) would be taxable in the hands of
each Holder of AMPS at the maximum  marginal regular Federal  individual  income
tax rate  applicable to ordinary  income or net capital gain, as applicable,  or
the maximum  marginal  regular Federal  corporate  income tax rate applicable to
ordinary  income or net capital gain, as  applicable,  whichever is greater,  in
effect at the time such Gross-up Payment is made.

     (43) "HOLDER,"  with respect to shares of a series of AMPS,  shall mean the
registered  holder of such shares as the same appears on the record books of the
Fund.

     (44) "HOLD  ORDER" and "HOLD  ORDERS"  shall have the  respective  meanings
specified in paragraph (a) of Section 1 of Part II of this Statement.

     (45)   "INDEPENDENT   ACCOUNTANT"   shall  mean  a  nationally   recognized
accountant,  or  firm  of  accountants,  that is  with  respect  to the  Fund an
independent  public accountant or firm of independent  public  accountants under
the Securities Act of 1933, as amended from time to time.

     (46)  "INITIAL  RATE  PERIOD,"  with respect to shares of a series of AMPS,
shall  have the  meaning  specified  with  respect  to shares of such  series in
Section 5 of Exhibit A hereto.

     (47) "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.

     (48)  "INVESTMENT  COMPANY  ACT" shall mean the  Investment  Company Act of
1940, as amended from time to time.

     (49) "INVESTMENT COMPANY ACT CURE DATE," with respect to the failure by the
Fund to maintain the Investment  Company Act Preferred Shares Asset Coverage (as
required by Section 6 of Part I of this  Statement)  as of the last Business Day
of each month, shall mean the last Business Day of the following month.

     (50)  "INVESTMENT  COMPANY ACT PREFERRED  SHARES ASSET COVERAGE" shall mean
asset coverage, as defined in Section 18(h) of the Investment Company Act, of at
least 200% with respect to all outstanding  senior  securities of the Fund which
are shares of beneficial interest, including all outstanding AMPS (or such other
asset  coverage  as may in the future be  specified  in or under the  Investment
Company Act as the minimum asset coverage for senior securities which are shares
or  stock  of a  closed-end  investment  company  as a  condition  of  declaring
dividends on its common shares or stock).

     (51) "KENNY INDEX," shall mean the Kenny S&P 30 day High Grade Index or any
successor  index  (provided,  however,  that any such  successor  index  must be
approved  by Moody's (if Moody's is then rating the AMPS) and Fitch (if Fitch is
then rating the AMPS)),  made available by Kenny S&P Evaluation  Services or any
successor  thereto,  based upon 30-day yield  evaluations  at par of  short-term
bonds the  interest  on which is  excludable  for  regular  Federal  income  tax
purposes under the Code of "high grade" component  issuers selected by Kenny S&P
Evaluation  Services 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."

     (52) "LATE CHARGE" shall have the meaning specified in subparagraph (e) (1)
(B) of Section 2 of Part I of this Statement.

     (53)  "LIQUIDATION  PREFERENCE,"  with  respect to a given  number of AMPS,
means $25,000 times that number.

     (54)  "MARKET  VALUE" of any asset of the Fund  shall be the  market  value
thereof  determined  by J.J.  Kenny or any other  pricing  service  or  services
designated by the Board of Trustees of the Fund,  provided that the Fund obtains
written  assurance from Moody's and Fitch,  if Moody's and Fitch are then rating
the AMPS, and from any  substitute  rating agency then rating the AMPS that such
designation  will not impair the rating then assigned by Moody's,  Fitch or such
substitute  rating agency to the AMPS (the "Pricing  Service").  Market Value of
any asset shall include any interest accrued thereon.  The Pricing Service shall
value  portfolio  securities at the mean between the quoted bid and ask 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  obligations 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.  If the  Pricing
Service  fails to provide the Market  Value of any  Municipal  Obligation,  such
Municipal  Obligation shall be valued at the lower of two bid quotations (one of
which shall be in writing) obtained by the Fund from two dealers who are members
of the National Association of Securities Dealers,  Inc. and are making a market
in such  Municipal  Obligations.  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 as determined by the Pricing  Service or if
the Pricing Service is not able to value such instruments,  they shall be valued
at fair value on a consistent  basis using  methods  determined in good faith by
the Board of Trustees.

     (55) "MAXIMUM  POTENTIAL  GROSS-UP PAYMENT  LIABILITY," as of any Valuation
Date, shall mean the aggregate amount of Gross-up  Payments that would be due if
the Fund were to make Taxable  Allocations,  with  respect to any taxable  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
Gross-up Payments are fully taxable.

     (56) "MAXIMUM RATE," for shares of a series of AMPS on any Auction Date for
shares of such series, shall mean:

(i)  in the case of any Auction Date which is not the Auction  Date  immediately
     prior to the first day of any proposed  Special Rate Period  designated  by
     the Fund pursuant to Section 4 of Part I of this Statement,  the product of
     (A) the  Reference  Rate on such  Auction  Date for the next Rate Period of
     shares of such  series  and (B) the Rate  Multiple  on such  Auction  Date,
     unless  shares of such series have or had a Special Rate Period (other than
     a Special  Rate  Period of 28 Rate  Period Days or fewer) and an Auction at
     which  Sufficient  Clearing Bids existed has not yet occurred for a Minimum
     Rate Period of shares of such series after such  Special  Rate  Period,  in
     which case the higher of:

(A)  the dividend rate on shares of such series for the then-ending Rate Period;
     and

(B)  the  product of (1) the higher of (x) the  Reference  Rate on such  Auction
     Date for a Rate Period  equal in length to the  then-ending  Rate Period of
     shares of such series,  if such then-ending Rate Period was 364 Rate Period
     Days or fewer,  or the  Treasury  Note Rate on such Auction Date for a Rate
     Period  equal in length to the  then-ending  Rate  Period of shares of such
     series, if such then-ending Rate Period was more than 364 Rate Period Days,
     and (y) the Reference  Rate on such Auction Date for a Rate Period equal in
     length to such  Special  Rate  Period of  shares  of such  series,  if such
     Special Rate Period was 364 Rate Period Days or fewer, or the Treasury Note
     Rate on such Auction Date for a Rate Period equal in length to such Special
     Rate Period, if such Special Rate Period was more than 364 Rate Period Days
     and (2) the Rate Multiple on such Auction Date; or

(ii) in the case of any Auction Date which is the Auction Date immediately prior
     to the first day of any proposed Special Rate Period designated by the Fund
     pursuant to Section 4 of Part I of this  Statement,  the product of (A) the
     highest of (1) the  Reference  Rate on such  Auction Date for a Rate Period
     equal in length to the then-ending Rate Period of shares of such series, if
     such  then-ending  Rate Period was 364 Rate  Period  Days or fewer,  or the
     Treasury  Note Rate on such  Auction Date for a Rate Period equal in length
     to  the  then-ending  Rate  Period  of  shares  of  such  series,  if  such
     then-ending  Rate  Period  was  more  than 364 Rate  Period  Days,  (2) the
     Reference  Rate on such  Auction Date for the Special Rate Period for which
     the  Auction is being held if such  Special  Rate Period is 364 Rate Period
     Days or  fewer  or the  Treasury  Note  Rate on such  Auction  Date for the
     Special  Rate  Period for which the  Auction is being held if such  Special
     Rate Period is more than 364 Rate Period Days,  and (3) the Reference  Rate
     on such Auction Date for Minimum Rate Periods and (B) the Rate  Multiple on
     such Auction Date.

     (57) "MINIMUM RATE PERIOD" shall mean any Rate Period  consisting of 7 Rate
Period Days.

     (58)  "MOODY'S"  shall mean  Moody's  Investors  Service,  Inc., a Delaware
corporation, and its successors.

     (59) "MOODY'S  DISCOUNT FACTOR" shall mean, for purposes of determining the
Discounted  Value of any Moody's  Eligible Asset,  the percentage  determined by
reference to the rating on such asset and the shortest Exposure Period set forth
opposite  such rating that is the same length as or is longer than the  Exposure
Period, in accordance with the table set forth below:

                                         RATING CATEGORY

Exposure Period    Aaa*  Aa*  A*   Baa* Other**(V)MIG-1***SP-1+**** UNRATED*****
7 weeks........... 151%  159% 166%  173% 187%   136%       148%      225%
8 weeks or less
but  greater than  154%  161% 168%  176% 190%   137%       149%      231%
7 weeks...........
9 weeks or less
but  greater than  158%  163% 170%  177% 192%   138%       150%      240%
8 weeks...........
___________
*     Moody's rating.

**   Municipal Obligations not rated by Moody's but rated BBB by S&P.

***  Municipal  Obligations rated MIG-1 or VMIG-1, which do not mature or have a
     demand  feature  at par  exercisable  in 30 days  and  which  do not have a
     long-term rating.

**** Municipal  Obligations not rated by Moody's but rated A-1+ or SP-1+ by S&P,
     which do not mature or have a demand feature at par  exercisable in 30 days
     and which do not have a long-term rating.

*****Municipal  Obligations  rated less than Baa3 by Moody's or less than BBB by
     S&P or not rated by Moody's or S&P.  These  Municipal  Obligations  may not
     exceed 10% of Moody's Eligible Assets.

     Notwithstanding  the foregoing,  (i) the Moody's Discount Factor for short-
term Municipal  Obligations will be 115%, so long as such Municipal  Obligations
are rated at least  MIG-1,  VMIG-l or P-1 by Moody's and mature or have a demand
feature at par  exercisable in 30 days or less or 125% as long as such Municipal
Obligations  are rated at least  A-1+/AA or SP-1+/AA by S&P and mature or have a
demand  feature  at par  exercisable  in 30  days or less  and  (ii) no  Moody's
Discount  Factor  will  be  applied  to  cash or to  Receivables  for  Municipal
Obligations Sold.

     (60) "MOODY'S  ELIGIBLE  ASSET" shall mean cash,  Receivables for Municipal
Obligations Sold or a Municipal  Obligation that (i) pays interest in cash, (ii)
does not have its Moody's rating, as applicable, suspended by Moody's, and (iii)
is part of an issue of Municipal Obligations of at least $10,000,000.  Municipal
Obligations  issued by any one  issuer  and rated BBB or lower by S&P,  or Ba or
lower by  Moody's  or not  rated by S&P or  Moody's  (for the  purposes  of this
definition  only,  "Other  Securities")  may  comprise  no more than 4% of total
Moody's  Eligible  Assets;  such Other  Securities,  if any,  together  with any
Municipal Obligations issued by the same issuer and rated Baa by Moody's or A by
S&P, may comprise no more than 6% of total Moody's Eligible  Assets;  such Other
Securities,  Baa and A-rated  Municipal  Obligations,  if any, together with any
Municipal  Obligations issued by the same issuer and rated A by Moody's or AA by
S&P, may comprise no more than 10% of total Moody's  Eligible  Assets;  and such
Other Securities,  Baa, A and AA-rated Municipal  Obligations,  if any, together
with any Municipal Obligations issued by the same issuer and rated Aa by Moody's
or AAA by S&P, may comprise no more than 20% of total Moody's  Eligible  Assets.
For purposes of the foregoing  sentence (i) any Municipal  Obligation  backed by
the  guaranty,  letter of credit or  insurance  issued by a third party shall 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 Municipal  Obligation;  and
(ii) any Municipal  Obligation  for which the nominal  issuer is a conduit for a
third party the  obligations  of which are the sole  source of revenues  for the
payment of such Municipal  Obligation shall be deemed to be issued by such third
party.  Other  Securities  issued by issuers  located  within a single  state or
territory may comprise no more than 12% of total Moody's Eligible  Assets;  such
Other  Securities,  if any,  together with any Municipal  Obligations  issued by
issuers located within the same state or territory and rated Baa by Moody's or A
by S&P, may comprise no more than 20% of total  Moody's  Eligible  Assets;  such
Other Securities,  Baa and A-rated Municipal Obligations,  if any, together with
any Municipal  Obligations  issued by issuers  located  within the same state or
territory  and rated A by Moody's or AA by S&P, may comprise no more than 40% of
total Moody's Eligible Assets;  and such Other  Securities,  Baa, A and AA-rated
Municipal Obligations, if any, together with any Municipal Obligations issued by
issuers  located  within the same state or territory  and rated Aa by Moody's or
AAA by S&P, may comprise no more than 60% of total Moody's Eligible Assets.  For
purposes of applying the foregoing requirements, a Municipal Obligation shall be
deemed  to be  rated  BBB by S&P if  rated  BBB-,  BBB or BBB+  by S&P,  Moody's
Eligible  Assets shall be  calculated  without  including  cash,  and  Municipal
Obligations  rated  MIG-1,  VMIG- 1 or P-1 or,  if not rated by  Moody's,  rated
A-1+/AA or SP-1+/AA by S&P, shall be considered to have a long-term rating of A.
When the Fund  sells a  Municipal  Obligation  and  agrees  to  repurchase  such
Municipal Obligation at a future date, such Municipal Obligation shall be valued
at its Discounted Value for purposes of determining Moody's Eligible Assets, and
the  amount  of the  repurchase  price  of such  Municipal  Obligation  shall be
included as a liability for purposes of calculating  the Preferred  Shares Basic
Maintenance  Amount. When the Fund purchases a Moody's Eligible Asset and agrees
to sell it at a future date,  such Eligible  Asset shall be valued at the amount
of cash to be  received  by the Fund upon such future  date,  provided  that the
counterparty  to the transaction has a long-term debt rating of at least A2 from
Moody's and the transaction has a term of no more than 30 days; otherwise,  such
Eligible Asset shall be valued at the Discounted Value of such Eligible Asset.

     Notwithstanding  the  foregoing,  an asset will not be considered a Moody's
Eligible Asset to the extent it is (i) subject to any material  lien,  mortgage,
pledge,  security  interest or  security  agreement  of any kind  (collectively,
"Liens"),  except  for (a)  Liens  which are being  contested  in good  faith by
appropriate  proceedings  and which  Moody's has  indicated to the Fund will not
affect the status of such asset as a Moody's Eligible Asset, (b) Liens for taxes
that  are not  then  due and  payable  or that  can be paid  thereafter  without
penalty,  (c) Liens to secure payment for services  rendered or cash advanced to
the Fund by the Fund's investment  adviser,  custodian or the Auction Agent, (d)
Liens by virtue of any repurchase  agreement or (e) Liens in connection with any
futures margin  account;  or (ii) deposited  irrevocably  for the payment of any
liabilities for purposes of determining the Preferred  Shares Basic  Maintenance
Amount.

     (61) "MOODY'S  HEDGING  TRANSACTIONS"  shall have the meaning  specified in
paragraph (a)(i) of Section 10 of Part I of this Statement.

     (62) "MOODY'S  VOLATILITY FACTOR" shall mean, as of any Valuation Date, (i)
in the case of any  Minimum  Rate  Period,  any  Special  Rate Period of 28 Rate
Period Days or fewer, or any Special Rate Period of 57 Rate Period Days or more,
a multiplicative  factor equal to 275%, except as otherwise provided in the last
sentence of this definition; (ii) in the case of any Special Rate Period of more
than 28 but fewer than 36 Rate Period  Days,  a  multiplicative  factor equal to
203%;  (iii) in the case of any  Special  Rate  Period of more than 35 but fewer
than 43 Rate Period Days,  a  multiplicative  factor equal to 217%;  (iv) in the
case of any  Special  Rate  Period of more than 42 but fewer than 50 Rate Period
Days, a multiplicative  factor equal to 226%; and (v) in the case of any Special
Rate Period of more than 49 but fewer than 57 Rate Period Days, a multiplicative
factor equal to 235%.  If, as a result of the  enactment of changes to the Code,
the  greater  of  the  maximum  marginal  Federal  individual  income  tax  rate
applicable to ordinary income and the maximum marginal Federal  corporate income
tax rate  applicable  to ordinary  income will  increase,  such  increase  being
rounded up to the next five percentage points (the "Federal Tax Rate Increase"),
until the effective date of such increase,  the Moody's Volatility Factor in the
case of any Rate Period described in (i) above in this definition  instead shall
be determined by reference to the following table:

                                        Volatility
            Federal Tax Rate Increase     Factor
            5%.........................    295%
            10%........................    317%
            15%........................    341%
            20%........................    369%
            25%........................    400%
            30%........................    436%
            35%........................    477%
            40%........................    525%

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

     (63)..  "MUNICIPAL  INDEX"  shall have the meaning  specified  in paragraph
(a)(i) of Section 10 of Part I of this Statement.

     (64) "MUNICIPAL  OBLIGATIONS"  shall mean any and all instruments  that pay
interest or make other distributions that are exempt from regular Federal income
tax and in which the Fund may invest consistent with the investment policies and
restrictions  contained in its  registration  statement on Form N-2 (333-102033)
("Registration Statement"), as the same may be amended from time to time.

     (65)  "NOTICE OF  REDEMPTION"  shall mean any  notice  with  respect to the
redemption  of AMPS  pursuant to  paragraph  (c) of Section 11 of Part I of this
Statement.

     (66) "NOTICE OF SPECIAL RATE PERIOD"  shall mean any notice with respect to
a Special Rate Period of AMPS  pursuant to  subparagraph  (d)(i) of Section 4 of
Part I of this Statement.

     (67) "ORDER" and "ORDERS" shall have the respective  meanings  specified in
paragraph (a) of Section 1 of Part II of this Statement.

     (68)  "OUTSTANDING"  shall  mean,  as of any Auction  Date with  respect to
shares of a series of AMPS,  the  number  of shares of such  series  theretofore
issued by the Fund except,  without  duplication,  (i) any shares of such series
theretofore  cancelled  or delivered to the Auction  Agent for  cancellation  or
redeemed by the Fund, (ii) any shares of such series as to which the Fund or any
Affiliate  thereof  shall be an  Existing  Holder  and (iii) any  shares of such
series  represented by any  certificate in lieu of which a new  certificate  has
been executed and delivered by the Fund.

     (69)  "PERSON"  shall mean and  include an  individual,  a  partnership,  a
corporation,  a trust, an unincorporated  association,  a joint venture or other
entity or a government or any agency or political subdivision thereof.

     (70)  "POTENTIAL  BENEFICIAL  OWNER," with respect to shares of a series of
AMPS, shall mean a customer of a Broker-Dealer that is not a Beneficial Owner of
shares of such series but that wishes to purchase shares of such series, or that
is a  Beneficial  Owner  of  shares  of such  series  that  wishes  to  purchase
additional shares of such series.

     (71) "POTENTIAL  HOLDER," with respect to shares of a series of AMPS, shall
mean a Broker-Dealer  (or any such other person as may be permitted by the Fund)
that is not an  Existing  Holder of shares of such series or that is an Existing
Holder of shares of such  series that  wishes to become the  Existing  Holder of
additional shares of such series.

     (72) "PREFERRED SHARES BASIC MAINTENANCE AMOUNT," as of any Valuation Date,
shall  mean the  dollar  amount  equal to the sum of (i)(A)  the  product of the
number of AMPS  outstanding on such date multiplied by $25,000 (plus the product
of the number of shares of any other series of preferred  shares  outstanding on
such date  multiplied by the  liquidation  preference of such shares),  plus any
redemption  premium  applicable  to the AMPS (or other  preferred  shares)  then
subject to  redemption;  (B) the  aggregate  amount of dividends  that will have
accumulated  at the  respective  Applicable  Rates  (whether  or not  earned  or
declared) to (but not including) the first respective Dividend Payment Dates for
the AMPS  outstanding that follow such Valuation Date (plus the aggregate amount
of dividends,  whether or not earned or declared,  that will have accumulated in
respect of other outstanding  preferred shares to, but not including,  the first
respective  dividend  payment  dates for such  other  shares  that  follow  such
Valuation  Date); (C) the aggregate amount of dividends that would accumulate on
shares  of each  series  of the AMPS  outstanding  from  such  first  respective
Dividend  Payment Date therefor  through the 49th day after such Valuation Date,
at the Maximum Rate  (calculated as if such Valuation Date were the Auction Date
for the Rate Period commencing on such Dividend Payment Date) for a Minimum Rate
Period of shares of such  series to  commence  on such  Dividend  Payment  Date,
assuming,  solely for purposes of the foregoing,  that if on such Valuation Date
the Fund shall have  delivered  a Notice of Special  Rate  Period to the Auction
Agent pursuant to Section  4(d)(i) of this Part I with respect to shares of such
series,  such  Maximum  Rate shall be the higher of (a) the Maximum Rate for the
Special  Rate  Period of shares of such  series  to  commence  on such  Dividend
Payment  Date and (b) the  Maximum  Rate for a Minimum  Rate Period of shares of
such  series to  commence  on such  Dividend  Payment  Date,  multiplied  by the
Volatility Factor applicable to a Minimum Rate Period, or, in the event the Fund
shall  have  delivered  a Notice of Special  Rate  Period to the  Auction  Agent
pursuant to section 4(d)(i) of this Part I with respect to shares of such series
designating a Special Rate Period consisting of 56 Rate Period Days or more, the
Volatility  Factor  applicable to a Special Rate Period of that length (plus the
aggregate amount of dividends that would accumulate at the maximum dividend rate
or rates on any other preferred shares outstanding from such respective dividend
payment dates through the 56th day after such Valuation  Date, as established by
or pursuant to the respective statements  establishing and fixing the rights and
preferences of such other  preferred  shares) (except that (1) if such Valuation
Date occurs at a time when a Failure to Deposit  (or,  in the case of  preferred
shares  other than the AMPS,  a failure  similar to a Failure  to  Deposit)  has
occurred that has not been cured, the dividend for purposes of calculation would
accumulate at the current dividend rate then applicable to the shares in respect
of which such  failure  has  occurred  and (2) for those days  during the period
described in this  subparagraph  (C) in respect of which the Applicable  Rate in
effect  immediately  prior to such  Dividend  Payment Date will remain in effect
(or, in the case of preferred  shares  other than the AMPS,  in respect of which
the  dividend  rate or  rates in  effect  immediately  prior to such  respective
dividend  payment  dates will remain in effect),  the  dividend  for purposes of
calculation would accumulate at such Applicable Rate (or other rate or rates, as
the case may be) in  respect  of those  days);  (D) the  amount  of  anticipated
expenses of the Fund for the 90 days  subsequent to such Valuation Date; (E) the
amount of the Fund's Maximum Potential  Gross-up Payment Liability in respect of
AMPS (and similar amounts payable in respect of other preferred  shares pursuant
to  provisions  similar  to  those  contained  in  Section  3 of  Part I of this
Statement) as of such  Valuation  Date;  (F) the amount of any  indebtedness  or
obligations  of the Fund  senior in right of  payment  to the AMPS;  and (G) any
current liabilities as of such Valuation Date to the extent not reflected in any
of (i)(A)  through  (i)(F)  (including,  without  limitation,  any  payables for
Municipal  Obligations  purchased as of such Valuation Date and any  liabilities
incurred  for the purpose of  clearing  securities  transactions)  less (ii) the
value (i.e., for purposes of current Moody's guidelines, the face value of cash,
short-term  Municipal  Obligations  rated MIG-1,  VMIG-1 or P-1, and  short-term
securities that are the direct  obligation of the U.S.  Government,  provided in
each case that such securities  mature on or prior to the date upon which any of
(i) (A) through (i) (G) become payable,  otherwise the Moody's Discounted Value)
of any of the Fund's assets irrevocably deposited by the Fund for the payment of
any of (i)(A) through (i)(G).

     (73) "PREFERRED  SHARES BASIC  MAINTENANCE  CURE DATE," with respect to the
failure by the Fund to satisfy the Preferred Shares Basic Maintenance Amount (as
required  by  paragraph  (a) of Section 7 of Part I of this  Statement)  as of a
given  Valuation  Date,  shall mean the  seventh  Business  Day  following  such
Valuation Date.

     (74) "PREFERRED SHARES BASIC MAINTENANCE REPORT" shall mean a report signed
by the  President,  Treasurer or any Senior Vice  President or Vice President of
the Fund which sets forth,  as of the related  Valuation Date, the assets of the
Fund,  the  Market  Value and the  Discounted  Value  thereof  (seriatim  and in
aggregate), and the Preferred Shares Basic Maintenance Amount.

     (75) "PRICING  SERVICE" shall have the meaning  specified in the definition
of "Market Value" above.

     (76)  "QUARTERLY  VALUATION  DATE" shall mean the last Business Day of each
February,  May,  August and  November of each year,  commencing  on the date set
forth in Section 6 of Exhibit A hereto.

     (77) "RATE  MULTIPLE,"  for a series of AMPS on any  Auction  Date for such
series, shall mean the percentage,  determined as set forth in the columns below
(depending  on whether the Fund has notified the Auction  Agent of its intent to
allocate income taxable for Federal income tax purposes to shares of such series
prior to the  Auction  establishing  the  Applicable  Rate for  such  series  as
provided  in this  Statement)  based on the lower of the  prevailing  ratings of
shares of such  series by Moody's or Fitch in effect at the close of business on
the Business Day next preceding such Auction Date:

         PREVAILING RATING             APPLICABLE       APPLICABLE PERCENTAGE
                                       PERCENTAGE-                -
                                     NO NOTIFICATION         NOTIFICATION
       MOODY'S         FITCH
    Aa3 or higher  AA- or higher          110%                   150%
      A3 to A1        A- to A+            125%                   160%
    Baa3 to Baa1    BBB- to BBB+          150%                   250%
     Ba3 to Ba1      BB- to BB+           200%                   275%
      Below Ba3      Below BB-            250%                   300%

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

     If such shares are rated by only one such  rating  agency,  the  prevailing
rating will be  determined  without  reference to the rating of any other rating
agency.  If neither  Moody's nor Fitch shall make such a rating  available,  the
Rate Multiple shall be based on the  equivalent  rating or ratings by S&P and/or
another nationally  recognized  statistical rating organization (as that term is
used in the rules and  regulations  of the  Securities  and Exchange  Commission
under the  Securities  Exchange Act of 1934, as amended from time, to time) that
acts as a substitute  rating  agency in respect of the AMPS of such series,  and
the Fund shall  take all  reasonable  action to enable at least one such  rating
agency to provide a rating for the AMPS.

     (78) "RATE PERIOD," with respect to shares of a series of AMPS,  shall mean
the Initial Rate Period of shares of such series and any Subsequent Rate Period,
including any Special Rate Period, of shares of such series.

     (79) "RATE PERIOD DAYS," for any Rate Period or Dividend Period,  means the
number of days that would constitute such Rate Period or Dividend Period but for
the  application  of paragraph  (d) of Section 2 of Part I of this  Statement or
paragraph (b) of Section 4 of Part I of this Statement.

     (80)  "RECEIVABLES FOR MUNICIPAL  OBLIGATIONS SOLD" shall mean for purposes
of calculation of Moody's  Eligible  Assets and Fitch Eligible  Assets as of any
Valuation Date, no more than the aggregate of the following:  (i) the book value
of receivables for Municipal  Obligations  sold as of or prior to such Valuation
Date if such  receivables  are due within five business  days of such  Valuation
Date, and if the trades which generated such receivables are (x) settled through
clearing  house firms with respect to which the Fund has received  prior written
authorization  from  Moody's  (if Moody's is then rating the AMPS) and Fitch (if
Fitch is then  rating  the  AMPS) or (y) with  counterparties  having a  Moody's
long-term  debt rating of at least Baa3 (if Moody's is then rating the AMPS) and
a Fitch  long-term  debt  rating of at least BBB (if  Fitch is then  rating  the
AMPS);  and (ii) the  Discounted  Value of Municipal  Obligations  sold as of or
prior to such Valuation Date which generated  receivables,  if such  receivables
are due within five business days of such  Valuation Date but do not comply with
either of the conditions specified in (i) above.

     (81)  "REDEMPTION  PRICE"  shall  mean  the  applicable   redemption  price
specified in paragraph (a) or (b) of Section 11 of Part I of this Statement.

     (82)  "REFERENCE  RATE"  shall  mean  (i)  the  "AA"  Financial   Composite
Commercial  Paper Rate in the case of Minimum  Rate  Periods  and  Special  Rate
Periods of fewer than 183 Rate Period Days;  and (ii) the Treasury  Bill Rate in
the case of Special  Rate  Periods of more than 182 Rate  Period  Days but fewer
than 365 Rate Period Days.

     (83)  "REGISTRATION  STATEMENT" has the meaning specified in the definition
of "Municipal
Obligations."

     (84) "S&P" shall mean Standard & Poor's Ratings Group, and its successors.

     (85)  "SECURITIES  DEPOSITORY"  shall mean The Depository Trust Company and
its successors and assigns or any other  securities  depository  selected by the
Fund which  agrees to follow the  procedures  required  to be  followed  by such
securities depository in connection with the AMPS.

     (86) "SELL  ORDER" and "SELL  ORDERS"  shall have the  respective  meanings
specified in paragraph (a) of Section 1 of Part II of this Statement.

     (87)  "SPECIAL  RATE  PERIOD,"  with respect to shares of a series of AMPS,
shall have the meaning specified in paragraph (a) of Section 4 of Part I of this
Statement.

     (88) "SPECIAL  REDEMPTION  PROVISIONS"  shall have the meaning specified in
subparagraph (a)(i) of Section 11 of Part I of this Statement.

     (89) "SUBMISSION DEADLINE" shall mean 1:30 P.M., New York City time, on any
Auction Date or such other time on any Auction Date by which  Broker-Dealers are
required to submit Orders to the Auction Agent as specified by the Auction Agent
from time to time.

     (90)  "SUBMITTED  BID" and  "SUBMITTED  BIDS"  shall  have  the  respective
meanings specified in paragraph (a) of Section 3 of Part II of this Statement.

     (91)  "SUBMITTED  HOLD ORDER" and  "SUBMITTED  HOLD ORDERS"  shall have the
respective  meanings  specified in paragraph (a) of Section 3 of Part II of this
Statement.

     (92)  "SUBMITTED  ORDER" and  "SUBMITTED  ORDERS" shall have the respective
meanings specified in paragraph (a) of Section 3 of Part II of this Statement.

     (93)  "SUBMITTED  SELL ORDER" and  "SUBMITTED  SELL ORDERS"  shall have the
respective  meanings  specified in paragraph (a) of Section 3 of Part II of this
Statement.

     (94)  "SUBSEQUENT RATE PERIOD," with respect to shares of a series of AMPS,
shall mean the period from and  including  the first day  following  the Initial
Rate Period of shares of such series to but excluding the next Dividend  Payment
Date for shares of such series and any period  thereafter from and including one
Dividend  Payment  Date for  shares  of such  series to but  excluding  the next
succeeding Dividend Payment Date for shares of such series;  provided,  however,
that if any  Subsequent  Rate Period is also a Special  Rate  Period,  such term
shall mean the period  commencing  on the first day of such  Special Rate Period
and ending on the last day of the last Dividend Period thereof.

     (95)  "SUBSTITUTE  COMMERCIAL PAPER DEALER" shall mean any commercial paper
dealer selected by the Fund as to which Moody's,  Fitch or any substitute rating
agency then rating the AMPS shall not have  objected;  provided,  however,  that
none of such entities shall be a Commercial Paper Dealer.

     (96) "SUBSTITUTE U.S.  GOVERNMENT  SECURITIES  DEALER" any U.S.  Government
securities  dealer  selected  by the  Fund as to  which  Moody's,  Fitch  or any
substitute rating agency then rating the AMPS shall not have objected; provided,
however,  that  none of such  entities  shall  be a U.S.  Government  Securities
Dealer.

     (97)  "SUFFICIENT  CLEARING  BIDS"  shall  have the  meaning  specified  in
paragraph (a) of Section 3 of Part II of this Statement.

     (98) "TAXABLE  ALLOCATION" shall have the meaning specified in Section 3 of
Part I of this Statement.

     (99)  "TAXABLE  INCOME"  shall  have the  meaning  specified  in  paragraph
(b)(iii) of Section 3 of Part II of this Statement.

     (100) "TREASURY BILL" shall mean a direct obligation of the U.S. Government
having a maturity at the time of issuance of 364 days or less.

     (101) "TREASURY BILL RATE," on any date for any Rate Period, shall mean (i)
the bond equivalent  yield,  calculated in accordance  with prevailing  industry
convention,  of the rate on the most  recently  auctioned  Treasury  Bill with a
remaining  maturity closest to the length of such Rate Period,  as quoted in The
Wall Street  Journal on such date for the Business Day next preceding such date;
or (ii) in the event  that any such  rate is not  published  in The Wall  Street
Journal,  then  the  bond  equivalent  yield,   calculated  in  accordance  with
prevailing  industry  convention,  as calculated by reference to the  arithmetic
average of the bid price quotations of the most recently auctioned Treasury Bill
with a  remaining  maturity  closest  to the  length  of such  Rate  Period,  as
determined  by bid price  quotations as of the close of business on the Business
Day immediately preceding such date obtained from the U.S. Government Securities
Dealers to the Auction Agent.

     (102)  "TREASURY  FUTURES"  shall have the meaning  specified  in paragraph
(a)(i) of Section 10 of Part I of this Statement.

     (103) "TREASURY NOTE" shall mean a direct obligation of the U.S. Government
having a maturity  at the time of  issuance  of five years or less but more than
364 days.

     (104) "TREASURY NOTE RATE," on any date for any Rate Period, shall mean (i)
the yield on the most recently auctioned Treasury Note with a remaining maturity
closest to the length of such Rate Period,  as quoted in The Wall Street Journal
on such date for the Business Day next preceding such date; or (ii) in the event
that any such rate is not published in The Wall Street  Journal,  then the yield
as calculated by reference to the arithmetic average of the bid price quotations
of the most recently  auctioned  Treasury Note with a remaining maturity closest
to the length of such Rate Period,  as determined by bid price  quotations as of
the close of  business  on the  Business  Day  immediately  preceding  such date
obtained from the U.S.  Government  Securities  Dealers to the Auction Agent. If
any  U.S.  Government  Securities  Dealer  does  not  quote a rate  required  to
determine the Treasury  Bill Rate or the Treasury  Note Rate,  the Treasury Bill
Rate or the Treasury Note Rate shall be determined on the basis of the quotation
or quotations  furnished by the remaining U.S.  Government  Securities Dealer or
U.S. Government Securities Dealers and any substitute U.S. Government Securities
Dealers selected by the Fund to provide such rate or rates not being supplied by
any U.S. Government  Securities Dealer or U.S. Government Securities Dealers, as
the case may be,  or,  if the Fund  does not  select  any such  Substitute  U.S.
Government  Securities Dealer or Substitute U.S. Government  Securities Dealers,
by the remaining U.S. Government Securities Dealer or U.S. Government Securities
Dealers.

     (105)  "U.S.   GOVERNMENT  SECURITIES  DEALER"  shall  mean  Merrill  Lynch
Government Securities, Inc., Salomon Smith Barney Inc., UBS Warburg LLC, and any
other U.S. Government securities dealer selected by the Fund as to which Moody's
(if Moody's is then rating the AMPS) or Fitch (if Fitch is then rating the AMPS)
shall not have objected or their  respective  affiliates or successors,  if such
entity is a U.S. Government securities dealer.

     (106) "VALUATION DATE" shall mean, for purposes of determining  whether the
Fund is maintaining  the Preferred  Shares Basic  Maintenance  Amount,  the last
Business Day of each month.

     (107) "VOLATILITY FACTOR" shall mean, as of any Valuation Date, the Moody's
Volatility Factor and the Fitch Volatility Factor.

     (108) "VOTING PERIOD" shall have the meaning  specified in paragraph (b) of
Section 5 of Part I of this Statement.

     (109) "WINNING BID RATE" shall have the meaning  specified in paragraph (a)
of Section 3 of Part II of this Statement.

     Any additional definitions specifically set forth in Section 4 of Exhibit A
hereto shall be incorporated herein and made part hereof by reference thereto.


                                          PART I.


1.  Number of Authorized Shares.

     The number of authorized shares  constituting a series of the AMPS shall be
as set forth with respect to such series in Section 2 of Exhibit A hereto.


2.  Dividends.

     (a) Ranking. The shares of a series of the AMPS shall rank on a parity with
each other,  with shares of any other  series of the AMPS and with shares of any
other series of preferred shares as to the payment of dividends by the Fund.

     (b) Cumulative Cash  Dividends.  The Holders of any series of AMPS shall be
entitled to receive,  when, as and if declared by the Board of Trustees,  out of
funds  legally  available  therefor  in  accordance  with  the  Declaration  and
applicable  law,  cumulative cash dividends at the Applicable Rate for shares of
such series,  determined as set forth in paragraph (e) of this Section 2, and no
more  (except to the  extent set forth in Section 3 of this Part I),  payable on
the  Dividend  Payment  Dates with  respect to shares of such series  determined
pursuant  to  paragraph  (d) of this  Section  2.  Holders  of AMPS shall not be
entitled to any dividend, whether payable in cash, property or shares, in excess
of full cumulative  dividends,  as herein provided, on AMPS. No interest, or sum
of money in lieu of  interest,  shall be  payable  in  respect  of any  dividend
payment or payments on AMPS which may be in arrears,  and,  except to the extent
set forth in  subparagraph  (e)(i) of this Section 2, no additional sum of money
shall be payable in respect of any such arrearage.

     (c)  Dividends  Cumulative  From Date of Original  Issue.  Dividends on any
series of AMPS shall accumulate at the Applicable Rate for shares of such series
from the Date of Original Issue thereof.

     (d) Dividend  Payment Dates and Adjustment  Thereof.  The Dividend  Payment
Dates  with  respect  to shares of a series of AMPS  shall be as set forth  with
respect to shares of such  series in  Section 7 of  Exhibit A hereto;  provided,
however, that:

     (i) if the day on which  dividends  would otherwise be payable on shares of
such series is not a Business Day, then such dividends  shall be payable on such
shares on the first Business Day that falls after such day;  provided,  however,
that if the day on which  dividends would otherwise be payable is not a Business
Day because the New York Stock  Exchange  is closed for  business  for more than
three  consecutive  normal trading days due to an act of God, natural  disaster,
act of war, civil or military disturbance, act of terrorism,  sabotage, riots or
a loss or malfunction of utilities or communications  services,  or the dividend
payable on such date cannot be paid for any such reason, then:

     (A) the Dividend Payment Date for the affected  Dividend Period will be the
next  Business  Day  (determined  without  regard to the closure of the New York
Stock  Exchange)  on which the Fund and its paying  agent,  if any,  can pay the
dividend;

     (B) the affected  Dividend  Period will end on the day it  otherwise  would
have ended; and

     (C) the next  Dividend  Period  will begin and end on the dates on which it
otherwise would have begun and ended; and

     (ii)  notwithstanding  Section  7 of  Exhibit  A  hereto,  the  Fund in its
discretion  may establish  the Dividend  Payment Dates in respect of any Special
Rate Period of shares of a series of AMPS consisting of more than 28 Rate Period
Days;  provided,  however,  that such dates  shall be set forth in the Notice of
Special Rate Period  relating to such  Special Rate Period,  as delivered to the
Auction  Agent,  which  Notice of Special  Rate  Period  shall be filed with the
Secretary of the Fund; and further  provided that (1) any such Dividend  Payment
Date shall be a Business Day and (2) the last  Dividend  Payment Date in respect
of such Special Rate Period shall be the Business Day immediately  following the
last day thereof,  as such last day is determined in accordance  with  paragraph
(b) of Section 4 of this Part I.

     (e) Dividend Rates and Calculation of Dividends.

     (i)  Dividend  Rates.  The dividend  rate on AMPS of any series  during the
period from and after the Date of Original Issue of shares of such series to and
including the last day of the Initial Rate Period of shares of such series shall
be equal to the rate per annum set forth with  respect to shares of such  series
under  "Designation  as to Series"  in  Section 1 of Exhibit A hereto.  For each
Subsequent Rate Period of shares of such series thereafter, the dividend rate on
shares of such series  shall be equal to the rate per annum that results from an
Auction  for  shares of such  series on the  Auction  Date next  preceding  such
Subsequent Rate Period; provided, however, that if:

     (A) an  Auction  for any such  Subsequent  Rate  Period is not held for any
reason other than as described below, the dividend rate on shares of such series
for such  Subsequent  Rate Period  will be the  Maximum  Rate for shares of such
series on the Auction Date therefor;  provided,  however,  that if the day which
would  otherwise  be an Auction  Date is not a Business Day because the New York
Stock  Exchange is closed for  business for more than three  consecutive  normal
trading  days  due to an act of God,  natural  disaster,  act of war,  civil  or
military disturbance, act of terrorism, sabotage, riots or a loss or malfunction
of  utilities  or  communications  services,  then the  Applicable  Rate for the
Subsequent  Rate Period will be the Applicable  Rate  determined on the previous
Auction Date;

     (B) any Failure to Deposit  shall have  occurred  with respect to shares of
such series during any Rate Period  thereof  (other than any Special Rate Period
consisting of more than 364 Rate Period Days or any Rate Period  succeeding  any
Special Rate Period  consisting of more than 364 Rate Period Days during which a
Failure to Deposit occurred that has not been cured),  but, prior to 12:00 Noon,
New York City time, on the third Business Day next  succeeding the date on which
such Failure to Deposit occurred,  such Failure to Deposit shall have been cured
in accordance  with paragraph (f) of this Section 2 and the Fund shall have paid
to the Auction  Agent a late charge ("Late  Charge")  equal to the sum of (1) if
such Failure to Deposit  consisted  of the failure  timely to pay to the Auction
Agent the full amount of dividends  with  respect to any Dividend  Period of the
shares  of such  series,  an  amount  computed  by  multiplying  (x) 200% of the
Reference  Rate for the Rate Period during which such Failure to Deposit  occurs
on the Dividend  Payment Date for such  Dividend  Period by (y) a fraction,  the
numerator of which shall be the number of days for which such Failure to Deposit
has not been cured in accordance with paragraph (f) of this Section 2 (including
the day such  Failure to Deposit  occurs and  excluding  the day such Failure to
Deposit is cured) and the  denominator  of which shall be 360,  and applying the
rate obtained  against the aggregate  Liquidation  Preference of the outstanding
shares of such  series  and (2) if such  Failure  to  Deposit  consisted  of the
failure timely to pay to the Auction Agent the  Redemption  Price of the shares,
if any, of such  series for which  Notice of  Redemption  has been mailed by the
Fund pursuant to paragraph (c) of Section 11 of this Part I, an amount  computed
by  multiplying  (x) 200% of the Reference Rate for the Rate Period during which
such Failure to Deposit  occurs on the  redemption  date by (y) a fraction,  the
numerator of which shall be the number of days for which such Failure to Deposit
is not cured in accordance  with  paragraph (f) of this Section 2 (including the
day such Failure to Deposit occurs and excluding the day such Failure to Deposit
is cured) and the  denominator  of which  shall be 360,  and  applying  the rate
obtained against the aggregate Liquidation  Preference of the outstanding shares
of such series to be  redeemed,  no Auction will be held in respect of shares of
such series for the  Subsequent  Rate Period  thereof and the dividend  rate for
shares of such series for such  Subsequent  Rate Period will be the Maximum Rate
for shares of such series on the Auction Date for such Subsequent Rate Period;

     (C) any Failure to Deposit  shall have  occurred  with respect to shares of
such series during any Rate Period  thereof  (other than any Special Rate Period
consisting of more than 364 Rate Period Days or any Rate Period  succeeding  any
Special Rate Period  consisting of more than 364 Rate Period Days during which a
Failure to Deposit occurred that has not been cured),  and, prior to 12:00 Noon,
New York City time, on the third Business Day next  succeeding the date on which
such Failure to Deposit  occurred,  such Failure to Deposit  shall not have been
cured in accordance  with  paragraph (f) of this Section 2 or the Fund shall not
have paid the applicable  Late Charge to the Auction  Agent,  no Auction will be
held in respect of shares of such  series for the first  Subsequent  Rate Period
thereof  thereafter (or for any Rate Period thereof  thereafter to and including
the Rate Period  during which (1) such Failure to Deposit is cured in accordance
with paragraph (f) of this Section 2 and (2) the Fund pays the  applicable  Late
Charge to the Auction Agent (the condition set forth in this clause (2) to apply
only in the event  Moody's is rating such shares at the time the Fund cures such
Failure to Deposit),  in each case no later than 12:00 Noon, New York City time,
on the  fourth  Business  Day  prior to the end of such  Rate  Period),  and the
dividend  rate for shares of such  series for each such  Subsequent  Rate Period
shall be a rate per annum equal to the Maximum Rate for shares of such series on
the Auction Date for such Subsequent Rate Period (but with the prevailing rating
for shares of such series,  for purposes of determining such Maximum Rate, being
deemed to be "Below "Ba3"/BB-"); or

     (D) any Failure to Deposit  shall have  occurred  with respect to shares of
such series  during a Special Rate Period  thereof  consisting  of more than 364
Rate Period Days, or during any Rate Period thereof  succeeding any Special Rate
Period  consisting  of more than 364 Rate Period Days during  which a Failure to
Deposit  occurred that has not been cured,  and,  prior to 12:00 Noon,  New York
City time,  on the fourth  Business Day  preceding the Auction Date for the Rate
Period  subsequent  to such Rate Period,  such Failure to Deposit shall not have
been cured in accordance  with  paragraph (f) of this Section 2 or, in the event
Moody's is then rating such shares,  the Fund shall not have paid the applicable
Late  Charge to the  Auction  Agent  (such Late  Charge,  for  purposes  of this
subparagraph  (D),  to be  calculated  by  using,  as the  Reference  Rate,  the
Reference Rate  applicable to a Rate Period (x) consisting of more than 182 Rate
Period Days but fewer than 365 Rate Period Days and (y)  commencing  on the date
on which the Rate Period during which Failure to Deposit occurs  commenced),  no
Auction  will be held in  respect of shares of such  series for such  Subsequent
Rate Period (or for any Rate Period thereof thereafter to and including the Rate
Period  during  which (1) such  Failure to Deposit is cured in  accordance  with
paragraph (f) of this Section 2 and (2) the Fund pays the applicable Late Charge
to the Auction  Agent (the  condition set forth in this clause (2) to apply only
in the event  Moody's  is rating  such  shares at the time the Fund  cures  such
Failure to Deposit),  in each case no later than 12:00 Noon, New York City time,
on the  fourth  Business  Day  prior to the end of such  Rate  Period),  and the
dividend  rate for shares of such  series for each such  Subsequent  Rate Period
shall be a rate per annum equal to the Maximum Rate for shares of such series on
the Auction Date for such Subsequent Rate Period (but with the prevailing rating
for shares of such series,  for purposes of determining such Maximum Rate, being
deemed to be "Below  "Ba3"/BB-")  (the  rate per  annum at which  dividends  are
payable on shares of a series of AMPS for any Rate Period  thereof  being herein
referred to as the "Applicable Rate" for shares of such series).

     (ii) Calculation of Dividends. The amount of dividends per share payable on
shares of a series of AMPS on any date on which  dividends  shall be  payable on
shares of such series shall be computed by multiplying  the Applicable  Rate for
shares of such series in effect for such Dividend Period or Dividend  Periods or
part thereof for which dividends have not been paid by a fraction, the numerator
of which shall be the number of days in such Dividend Period or Dividend Periods
or part  thereof  and the  denominator  of which  shall be 365 if such  Dividend
Period  consists of 7 Rate Period Days and 360 for all other  Dividend  Periods,
and applying the rate obtained against $25,000.

     (f) Curing a Failure to Deposit. A Failure to Deposit shall have been cured
(if such Failure to Deposit is not solely due to the willful failure of the Fund
to make the  required  payment to the Auction  Agent)  with  respect to any Rate
Period of a series of AMPS if, within the respective  time periods  described in
subparagraph  (e)(i) of this  Section 2, the Fund shall have paid to the Auction
Agent (A) all accumulated and unpaid  dividends on shares of such series and (B)
without duplication, the Redemption Price for shares, if any, of such series for
which Notice of Redemption has been mailed by the Fund pursuant to paragraph (c)
of Section 11 of Part I of this Statement; provided, however, that the foregoing
clause (B) shall not apply to the Fund's failure to pay the Redemption  Price in
respect of AMPS when the related  Redemption  Notice provides that redemption of
such  shares  is  subject  to one or more  conditions  precedent  and  any  such
condition  precedent  shall not have been  satisfied at the time or times and in
the manner specified in such Notice of Redemption.

     (g) Dividend  Payments by Fund to Auction Agent.  The Fund shall pay to the
Auction  Agent,  not later than 12:00 Noon,  New York City time, on the Business
Day next preceding each Dividend Payment Date for shares of a series of AMPS, an
aggregate  amount of funds available on the next Business Day in The City of New
York,  New York,  equal to the  dividends to be paid to all Holders of shares of
such series on such Dividend Payment Date.

     (h) Auction Agent as Trustee of Dividend  Payments by Fund. All moneys paid
to the  Auction  Agent for the payment of  dividends  (or for the payment of any
Late Charge) shall be held in trust for the payment of such  dividends  (and any
such Late Charge) by the Auction Agent for the benefit of the Holders  specified
in  paragraph  (i) of this  Section 2. Any moneys paid to the  Auction  Agent in
accordance  with the  foregoing  but not  applied  by the  Auction  Agent to the
payment of dividends (and any such Late Charge) will, to the extent permitted by
law,  be repaid  to the Fund at the end of 90 days  from the date on which  such
moneys were so to have been applied.

     (i) Dividends  Paid to Holders.  Each dividend on AMPS shall be paid on the
Dividend  Payment Date therefor to the Holders  thereof as their names appear on
the record books of the Fund on the Business Day next  preceding  such  Dividend
Payment Date.

     (j) Dividends  Credited Against Earliest  Accumulated but Unpaid Dividends.
Any dividend  payment made on AMPS shall first be credited  against the earliest
accumulated but unpaid  dividends due with respect to such shares.  Dividends in
arrears  for any past  Dividend  Period  may be  declared  and paid at any time,
without  reference to any regular Dividend Payment Date, to the Holders as their
names appear on the record books of the Fund on such date, not exceeding 15 days
preceding the payment date thereof, as may be fixed by the Board of Trustees.

     (k) Dividends  Designated as Exempt-Interest  Dividends.  Dividends on AMPS
shall be designated as exempt-interest  dividends up to the amount of tax-exempt
income of the Fund, to the extent permitted by, and for purposes of, section 852
of the Code.


3.  Gross-Up Payments.

     Holders of AMPS shall be entitled to receive,  when,  as and if declared by
the Board of Trustees,  out of funds  legally  available  therefor in accordance
with the  Declaration  and applicable  law,  dividends in an amount equal to the
aggregate Gross-up Payments as follows:

     (a) Taxable  Allocation Without Notice. If, but only if, the Fund allocates
any net capital gain or other income  taxable for Federal income tax purposes to
a dividend  paid on AMPS without  having  given  advance  notice  thereof to the
Auction  Agent as  provided  in  Section  5 of Part II of this  Statement  (such
allocation being referred to herein as a "Taxable  Allocation"),  whether or not
by reason of the fact that such allocation is made  retroactively as a result of
the redemption of all or a portion of the outstanding AMPS or the liquidation of
the Fund,  the Fund  shall,  during the Fund's  fiscal year in which the Taxable
Allocation was made or within 90 days after the end of such fiscal year, provide
notice  thereof to the Auction Agent and direct the Fund's  dividend  disbursing
agent to send such  notice and a Gross-up  Payment to each Holder of such shares
that was  entitled  to such  dividend  payment  during  such fiscal year at such
Holder's address as the same appears or last appeared on the record books of the
Fund.

     (b) Reserved.

     (c) No Gross-Up Payments in the Event of a Reallocation. The Fund shall not
be required to make  Gross-up  Payments with respect to any net capital gains or
other taxable income  determined by the Internal Revenue Service to be allocable
in a manner different from that allocated by the Fund.


4.  Designation of Special Rate Periods.

     (a) Length of and Preconditions  for Special Rate Period.  The Fund, at its
option, may designate any succeeding  Subsequent Rate Period of a series of AMPS
as a Special Rate Period  consisting  of a specified  number of Rate Period Days
evenly  divisible  by seven and not more than 1,820,  subject to  adjustment  as
provided in  paragraph  (b) of this Section 4. A  designation  of a Special Rate
Period shall be effective  only if (A) notice  thereof  shall have been given in
accordance with paragraph (c) and subparagraph  (d)(i) of this Section 4, (B) an
Auction  for  shares of such  series  shall have been held on the  Auction  Date
immediately  preceding  the first day of such  proposed  Special Rate Period and
Sufficient  Clearing  Bids shall have  existed in such  Auction,  and (C) if any
Notice of  Redemption  shall have been mailed by the Fund  pursuant to paragraph
(c) of Section 11 of this Part I with respect to any shares of such series,  the
Redemption  Price with respect to such shares shall have been deposited with the
Auction  Agent.  In the  event  the Fund  wishes  to  designate  any  succeeding
Subsequent Rate Period for a series of AMPS as a Special Rate Period  consisting
of more than 28 Rate Period Days,  the Fund shall notify  Moody's (if Moody's is
then  rating such  series)  and Fitch (if Fitch is then  rating such  series) in
advance of the  commencement of such Subsequent Rate Period that the Fund wishes
to  designate  such  Subsequent  Rate Period as a Special  Rate Period and shall
provide  Moody's (if Moody's is then rating such  series) and Fitch (if Fitch is
then rating such series) with such documents as it may request.

     (b)  Adjustment  of Length of Special Rate Period.  The length of a Special
Rate  Period for any series of AMPS shall be subject to  adjustment  as provided
for such series in Section 8 of Exhibit A.

     (c)  Notice of  Proposed  Special  Rate  Period.  If the Fund  proposes  to
designate any succeeding Subsequent Rate Period of shares of a series of AMPS as
a Special Rate Period pursuant to paragraph (a) of this Section 4, not less than
20 (or such  lesser  number of days as may be agreed to from time to time by the
Auction  Agent)  nor more than 30 days  prior to the date the Fund  proposes  to
designate as the first day of such Special Rate Period  (which shall be such day
that would otherwise be the first day of a Minimum Rate Period), notice shall be
(i)  published  or caused to be  published by the Fund in a newspaper of general
circulation to the financial  community in The City of New York, New York, which
carries financial news, and (ii) mailed by the Fund by first-class mail, postage
prepaid,  to the Holders of shares of such series.  Each such notice shall state
(A) that the Fund may exercise  its option to designate a succeeding  Subsequent
Rate Period of shares of such series as a Special  Rate Period,  specifying  the
first day thereof and (B) that the Fund will, by 11:00 A.M., New York City time,
on the second  Business Day next  preceding  such date (or by such later time or
date,  or both,  as may be agreed to by the  Auction  Agent)  notify the Auction
Agent of  either  (x) its  determination,  subject  to  certain  conditions,  to
exercise  such  option,  in which case the Fund shall  specify the Special  Rate
Period designated, or (y) its determination not to exercise such option.

     (d) Notice of Special Rate Period.  No later than 11:00 A.M., New York City
time,  on the second  Business Day next  preceding the first day of any proposed
Special Rate Period of a series of AMPS as to which notice has been given as set
forth in paragraph  (c) of this Section 4 (or such later time or date,  or both,
as may be agreed to by the Auction Agent), the Fund shall deliver to the Auction
Agent either:

     (i) a notice  ("Notice of Special Rate  Period")  stating (A) that the Fund
has determined to designate the next  succeeding Rate Period of such series as a
Special Rate  Period,  specifying  the same and the first day  thereof,  (B) the
Auction Date immediately prior to the first day of such Special Rate Period, (C)
that such Special Rate Period shall not commence if (1) an Auction for shares of
such  series  shall not be held on such  Auction  Date for any  reason or (2) an
Auction  for  shares  of such  series  shall  be held on such  Auction  Date but
Sufficient  Clearing  Bids shall not exist in such  Auction,  (D) the  scheduled
Dividend Payment Dates for shares of such series during such Special Rate Period
and (E) the Special Redemption Provisions,  if any, applicable to shares of such
series in respect of such Special Rate Period,  such notice to be accompanied by
a Preferred  Shares  Basic  Maintenance  Report  showing  that,  as of the third
Business Day next preceding such proposed Special Rate Period,  Moody's Eligible
Assets (if  Moody's is then rating such  series) and Fitch  Eligible  Assets (if
Fitch is then rating such  series) each have an  aggregate  Discounted  Value at
least equal to the Preferred Shares Basic Maintenance Amount as of such Business
Day  (assuming for purposes of the  foregoing  calculation  that (a) the Maximum
Rate is the Maximum Rate on such  Business Day as if such  Business Day were the
Auction Date for the proposed Special Rate Period,  and (b) the Moody's Discount
Factors  applicable to Moody's  Eligible  Assets and the Fitch Discount  Factors
applicable  to Fitch  Eligible  Assets are  determined by reference to the first
Exposure  Period longer than the Exposure Period then applicable to the Fund, as
described  in the  definitions  of Moody's  Discount  Factor and Fitch  Discount
Factor herein); or

     (ii) a notice  stating  that the Fund has  determined  not to exercise  its
option to  designate a Special Rate Period of shares of such series and that the
next  succeeding  Rate Period of shares of such series  shall be a Minimum  Rate
Period.

     (e) Failure to Deliver Notice of Special Rate Period.  If the Fund fails to
deliver either of the notices  described in  subparagraphs  (d)(i) or (d)(ii) of
this Section 4 (and, in the case of the notice described in subparagraph  (d)(i)
of this Section 4, a Preferred Shares Basic Maintenance Report to the effect set
forth in such subparagraph (if either Moody's or Fitch is then rating the series
in  question))  with respect to any  designation  of any  proposed  Special Rate
Period to the  Auction  Agent by 11:00 A.M.,  New York City time,  on the second
Business Day next  preceding the first day of such proposed  Special Rate Period
(or by such  later  time or date,  or both,  as may be agreed to by the  Auction
Agent), the Fund shall be deemed to have delivered a notice to the Auction Agent
with respect to such Special Rate Period to the effect set forth in subparagraph
(d)(ii) of this Section 4. In the event the Fund delivers to the Auction Agent a
notice described in subparagraph  (d)(i) of this Section 4, it shall file a copy
of such notice with the  Secretary of the Fund,  and the contents of such notice
shall be  binding on the Fund.  In the event the Fund  delivers  to the  Auction
Agent a notice  described  in  subparagraph  (d)(ii) of this Section 4, the Fund
will  provide  Moody's (if Moody's is then  rating the series in  question)  and
Fitch (if Fitch is then rating the series in question) a copy of such notice.


5.  Voting Rights.

     (a) One  Vote Per  Share  of AMPS.  Except  as  otherwise  provided  in the
Declaration  or as  otherwise  required by law, (i) each Holder of AMPS shall be
entitled to one vote for each AMPS held by such Holder on each matter  submitted
to a vote of  shareholders  of the Fund,  and (ii) the  holders  of  outstanding
preferred  shares,  including the AMPS, and of Common Shares shall vote together
as a single class;  provided,  however, that, at any meeting of the shareholders
of the Fund held for the  election  of  Trustees,  the  holders  of  outstanding
preferred shares,  including the AMPS, represented in person or by proxy at said
meeting,  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 Fund, to
elect two  Trustees  of the Fund,  each  preferred  share  entitling  the holder
thereof to one vote.  Subject to paragraph (b) of this Section 5, the holders of
outstanding  Common Shares and  preferred  shares,  voting  together as a single
class, shall elect the balance of the Trustees.

      (b)  Voting for Additional Trustees.

     (i) Voting Period.  Except as otherwise  provided in the  Declaration or as
otherwise  required  by law,  during  any period in which any one or more of the
conditions  described in subparagraphs  (A) or (B) of this  subparagraph  (b)(i)
shall exist (such period  being  referred to herein as a "Voting  Period"),  the
number of 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,  including  the AMPS,  would
constitute a majority of the Board of Trustees as so increased,  and the holders
of preferred shares, including the AMPS, shall be entitled, voting as a class on
a  one-vote-per-share  basis  (to the  exclusion  of the  holders  of all  other
securities and classes of shares of beneficial  interest of the Fund),  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:

     (A) if at the close of business on any dividend  payment  date  accumulated
dividends  (whether  or not earned or  declared)  on any  outstanding  preferred
shares, including the AMPS, equal to at least two full years' dividends shall be
due and unpaid and sufficient cash or specified  securities  shall not have been
deposited with the Auction Agent for the payment of such accumulated  dividends;
or

     (B) if at any time holders of preferred  shares,  including  the AMPS,  are
entitled under the Investment Company Act to elect a majority of the Trustees of
the Fund.

     If the Fund shall  thereafter pay, or declare and set apart for payment (or
in  the  case  of the  AMPS  deposit  with  the  Auction  Agent)  all  dividends
accumulated on all outstanding preferred shares, including the AMPS, through the
most recent payment date therefor, then such Voting Period shall terminate. Upon
the  termination  of a  Voting  Period,  the  voting  rights  described  in this
subparagraph  (b)(i) shall cease,  subject always,  however, to the revesting of
such voting  rights in the Holders  upon the  further  occurrence  of any of the
events described in this subparagraph (b)(i).

     (ii) Notice of Special Meeting. As soon as practicable after the accrual of
any right of the  holders of  preferred  shares,  including  the AMPS,  to elect
additional  Trustees as described in subparagraph  (b)(i) of this Section 5, the
Fund shall  notify the  Auction  Agent and shall call a special  meeting of such
holders  by  mailing a notice of such  special  meeting  to such  holders,  such
meeting  to be held not less  than 10 nor more  than 30 days  after  the date of
mailing of such  notice.  If the Fund fails to send such  notice to the  Auction
Agent or does not call  such a  special  meeting,  it may be  called by any such
holder on like notice.  The record date for determining the holders  entitled to
notice of and to vote at such special  meeting shall be the close of business on
the fifth Business Day preceding the day on which such notice is mailed.  At any
such  special  meeting  and at each  meeting  of holders  of  preferred  shares,
including  the AMPS,  held during a Voting  Period at which  Trustees  are to be
elected,  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 Fund),  shall be  entitled  to elect the number of  Trustees  prescribed  in
subparagraph (b)(i) of this Section 5 on a one-vote-per-share basis.

     (iii)  Terms of Office  of  Existing  Trustees.  The terms of office of all
persons who are Trustees of the Fund 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
Fund.

     (iv) Terms of Office of Certain  Trustees to Terminate Upon  Termination of
Voting Period. Simultaneously with the termination of a Voting Period, the terms
of office of the additional Trustees elected by the Holders and holders of other
preferred  shares  pursuant  to  subparagraph  (b)(i)  of this  Section  5 shall
terminate,  the remaining Trustees shall constitute the Trustees of the Fund and
the voting  rights of the  Holders  and such other  holders to elect  additional
Trustees pursuant to subparagraph  (b)(i) of his Section 5 shall cease,  subject
to the provisions of the last sentence of subparagraph (b)(i) of this Section 5.

     (c) Holders of AMPS to Vote on Certain Other Matters.

     (i)  Increases  in  Capitalization;  Bankruptcy.  So long as any  AMPS  are
outstanding,  the Fund shall not, without the affirmative vote or consent of the
Holders of at least a majority of the AMPS outstanding at the time, in person or
by proxy,  either in writing or at a meeting,  voting as a separate  class:  (a)
authorize,  create or issue any class or series of shares ranking prior to or on
a parity  with  the  AMPS  with  respect  to the  payment  of  dividends  or the
distribution  of assets  upon  dissolution,  liquidation  or  winding  up of the
affairs of the Fund,  or  authorize,  create or issue  additional  shares of any
series of AMPS (except that,  notwithstanding the foregoing,  but subject to the
provisions  of  paragraph  (c)(ii)  of  Section  10 of this Part I, the Board of
Trustees,  without the vote or consent of the Holders of AMPS,  may from time to
time authorize and create, and the Fund may from time to time issue,  additional
shares of any  series of AMPS or  classes  or series of other  preferred  shares
ranking on a parity with AMPS with respect to the payment of  dividends  and the
distribution  of assets  upon  dissolution,  liquidation  or  winding  up of the
affairs of the Fund if the Fund receives written  confirmation  from Moody's (if
Moody's is then rating the AMPS) and Fitch (if Fitch is then rating the AMPS) or
any substitute  rating agency (if such agency is then rating the AMPS) that such
authorization,  creation and issuance  would not impair the rating then assigned
by such rating agency to the AMPS; and if, in any event,  the Fund would,  after
giving effect thereto, continue to maintain the Investment Company Act Preferred
Shares  Asset  Coverage;  or (b) amend,  alter or repeal the  provisions  of the
Declaration or this Statement, whether by merger, consolidation or otherwise, so
as to  adversely  affect  any  preference,  right or  power of such  AMPS or the
Holders thereof;  provided,  however,  that (i) none of the actions permitted by
the exception to (a) above will be deemed to affect such preferences,  rights or
powers,  (ii) a  division  or  split  of AMPS  will be  deemed  to  affect  such
preferences,  rights  or  powers  only if the  terms of such  division  or split
adversely affect the Holders of AMPS and (iii) the  authorization,  creation and
issuance of classes or series of shares  ranking junior to the AMPS with respect
to the payment of dividends  and the  distribution  of assets upon  dissolution,
liquidation  or winding up of the affairs of the Fund,  will be deemed to affect
such  preferences,  rights or powers only if Moody's or Fitch is then rating the
AMPS and such issuance would, at the time thereof, cause the Fund not to satisfy
the  Investment  Company Act  Preferred  Shares Asset  Coverage or the Preferred
Shares Basic Maintenance  Amount. So long as any AMPS are outstanding,  the Fund
shall not,  without the affirmative vote or consent of the Holders of at least a
majority of the AMPS  outstanding at the time, in person or by proxy,  either in
writing  or  at a  meeting,  voting  as  a  separate  class,  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.

     (ii) Investment Company Act Matters. Unless a higher percentage is provided
for in the  Declaration,  (A) the affirmative vote of the Holders of a "majority
of the  outstanding"  (as such term is defined in the  Investment  Company  Act)
preferred  stock of the Fund,  including the AMPS,  voting as a separate  class,
shall be  required to approve  (A) any plan of  reorganization  (as such term is
used in the Investment Company Act) adversely  affecting such shares and (B) any
action  requiring a vote of security  holders of the Fund under Section 13(a) of
the  Investment  Company Act. In the event a vote of Holders of AMPS is required
pursuant to the provisions of section 13(a) of the  Investment  Company Act, the
Fund  shall,  not later than ten  Business  Days prior to the date on which such
vote is to be taken,  notify  Moody's  (if  Moody's is then rating the AMPS) and
Fitch (if Fitch is then  rating  the AMPS) that such vote is to be taken and the
nature of the action  with  respect to which such vote is to be taken.  The Fund
shall,  not later  than ten  Business  Days after the date on which such vote is
taken,  notify  Moody's (if Moody's is then rating the AMPS) and Fitch (if Fitch
is then rating the AMPS) of the results of such vote.

     (d) Board May Take Certain Actions Without Shareholder Approval.  The Board
of  Trustees,  without the vote or consent of the Holders of the AMPS,  may from
time to time amend,  alter or repeal any or all of the  definitions of the terms
listed below, or any provision of this Statement viewed by Moody's or Fitch as a
predicate for any such definition, and any such amendment,  alteration or repeal
will not be deemed to affect  the  preferences,  rights or powers of AMPS or the
Holders  thereof;   provided  that  the  Board  of  Trustees   receives  written
confirmation  from  Moody's  (if  Moody's is then rating the AMPS) and Fitch (if
Fitch is then  rating the AMPS) that any such  amendment,  alteration  or repeal
would not impair the ratings then assigned to the AMPS by such rating agency:

Accountant's Confirmation                 Maximum Potential Gross-up Payment
                                          Liability
Deposit Securities                        Moody's Discount Factor
Discounted Value                          Moody's Eligible Asset
Exposure Period                           Moody's Hedging Transactions
Fitch Discount Factor                     Moody's Volatility Factor
Fitch Eligible Asset
Fitch Hedging Transactions                Municipal Index
Fitch Volatility Factor                   Preferred Shares Basic Maintenance
                                          Amount
Forward Commitments                       Preferred Shares Basic Maintenance
                                          Cure Date
                                          Preferred Shares Basic Maintenance
                                          Report
Independent Accountant                    Quarterly Valuation Date
Investment Company Act Cure Date          Receivables for Municipal Obligations
                                          Sold
Investment Company Act Preferred Shares   Treasury Futures
   Asset Coverage                         Valuation Date
Market Value                              Volatility Factor


     (e) Rights Set Forth Herein Are Sole Rights.  Unless otherwise  required by
law or otherwise provided in the Declaration, the Holders of AMPS shall not have
any relative  rights or  preferences  or other  special  rights other than those
specifically set forth herein.

     (f) No Preemptive  Rights or Cumulative  Voting.  The Holders of AMPS shall
have no preemptive rights or rights to cumulative voting.

     (g) Voting for Trustees Sole Remedy for Fund's Failure to Pay Dividends. In
the event that the Fund fails to pay any  dividends on the AMPS,  the  exclusive
remedy of the Holders  shall be the right to vote for  Trustees  pursuant to the
provisions of this Section 5.

     (h)...Holders  Entitled to Vote. For purposes of determining  any rights of
the  Holders  to vote on any  matter,  whether  such  right is  created  by this
Statement, by the other provisions of the Declaration,  by statute or otherwise,
no Holder  shall be  entitled to vote any AMPS and no AMPS shall be deemed to be
"outstanding"  for the  purpose  of voting or  determining  the number of shares
required to  constitute a quorum if, prior to or  concurrently  with the time of
determination of shares entitled to vote or shares deemed outstanding for quorum
purposes, as the case may be, the requisite Notice of Redemption with respect to
such shares shall have been mailed as provided in paragraph (c) of Section 11 of
this Part I and the  Redemption  Price for the  redemption  of such shares shall
have been  deposited in trust with the Auction Agent for that  purpose.  No AMPS
held by the Fund or any  affiliate  of the Fund  (except  for  shares  held by a
Broker-Dealer that is an affiliate of the Fund for the account of its customers)
shall have any voting rights or be deemed to be outstanding  for voting or other
purposes.




6.  Investment Company Act Preferred Shares Asset Coverage.

     The Fund shall maintain, as of the last Business Day of each month in which
any AMPS are  outstanding,  the  Investment  Company Act Preferred  Shares Asset
Coverage.


7.  Preferred Shares Basic Maintenance Amount.

     (a) So long as AMPS are  outstanding,  the  Fund  shall  maintain,  on each
Valuation Date, and shall verify to its  satisfaction  that it is maintaining on
such Valuation Date (i) Moody's  Eligible Assets having an aggregate  Discounted
Value equal to or greater than the Preferred Shares Basic Maintenance Amount (if
Moody's  is then  rating  the AMPS) and (ii)  Fitch  Eligible  Assets  having an
aggregate  Discounted  Value equal to or greater than the Preferred Shares Basic
Maintenance Amount (if Fitch is then rating the AMPS).

     (b) On or before 5:00 P.M., New York City time, on the seventh Business Day
after a Valuation  Date on which the Fund fails to satisfy the Preferred  Shares
Basic  Maintenance  Amount,  and on the seventh Business Day after the Preferred
Shares Basic Maintenance Cure Date with respect to such Valuation Date, the Fund
shall  complete  and  deliver to Moody's  (if  Moody's is then rating the AMPS),
Fitch  (if Fitch is then  rating  the AMPS)  and the  Auction  Agent (if  either
Moody's or Fitch is then rating the AMPS) a Preferred  Shares Basic  Maintenance
Report as of the date of such failure or such Preferred Shares Basic Maintenance
Cure Date,  as the case may be,  which will be deemed to have been  delivered to
the Auction  Agent if the Auction  Agent  receives a copy or telecopy,  telex or
other electronic transcription thereof and on the same day the Fund mails to the
Auction  Agent for delivery on the next Business Day the full  Preferred  Shares
Basic Maintenance  Report.  The Fund shall also deliver a Preferred Shares Basic
Maintenance  Report as of the last  Business  Day of each  month to the  Auction
Agent (if either Moody's or Fitch is then rating the AMPS),  Moody's (if Moody's
is then  rating  the AMPS) and  Fitch (if Fitch is than  rating  the AMPS) on or
before the seventh Business Day after such Valuation Date. A failure by the Fund
to deliver a Preferred Shares Basic Maintenance Report pursuant to the preceding
sentence shall be deemed to be delivery of a Preferred Shares Basic  Maintenance
Report  indicating the Discounted  Value for all assets of the Fund is less than
the Preferred  Shares Basic  Maintenance  Amount,  as of the relevant  Valuation
Date.

     (c) Within ten  Business  Days after the date of  delivery  of a  Preferred
Shares Basic Maintenance Report in accordance with paragraph (b) of this Section
7 relating to a Quarterly  Valuation  Date, the Fund shall cause the Independent
Accountant  to confirm in writing  to  Moody's  (if  Moody's is then  rating the
AMPS), Fitch (if Fitch is then rating the AMPS) and the Auction Agent (if either
Moody's or Fitch is then rating the AMPS) (i) the  mathematical  accuracy of the
calculations  reflected in such Report (and in any other Preferred  Shares Basic
Maintenance Report,  randomly selected by the Independent  Accountant,  that was
prepared  by the Fund  during the  quarter  ending on such  Quarterly  Valuation
Date),  (ii) that, in such Report (and in such randomly  selected  Report),  the
Fund determined in accordance with this Statement  whether the Fund had, at such
Quarterly  Valuation  Date (and at the Valuation Date addressed in such randomly
selected  Report),  Moody's Eligible Assets (if Moody's is then rating the AMPS)
and Fitch  Eligible  Assets (if Fitch is then  rating the AMPS) of an  aggregate
Discounted Value at least equal to the Preferred Shares Basic Maintenance Amount
(such confirmation being herein called the "Accountant's  Confirmation"),  (iii)
with  respect to the Fitch  ratings on Municipal  Obligations,  the issuer name,
issue  size  and  coupon  rate  listed  in such  Report,  that  the  Independent
Accountant  has sought to verify such  information  by  reference  to  Bloomberg
Financial  Services or another  independent  source approved in writing by Fitch
(if Fitch is then rating the AMPS), and the Independent Accountant shall provide
a listing in its letter of any  differences,  (iv) with  respect to the  Moody's
ratings on Municipal  Obligations,  the issuer name,  issue size and coupon rate
listed in such Report, that the Independent Accountant has sought to verify such
information by reference to Bloomberg  Financial Services or another independent
source approved in writing by Moody's (if Moody's is then rating the AMPS),  and
the  Independent  Accountant  shall  provide  a  listing  in its  letter  of any
differences,  (v) with  respect  to the bid or mean  price (or such  alternative
permissible  factor  used in  calculating  the  Market  Value)  provided  by the
custodian of the Fund's assets to the Fund for purposes of valuing securities in
the Fund's  portfolio,  the Independent  Accountant has traced the price used in
such  Report to the bid or mean price  listed in such  Report as provided to the
Fund and verified that such  information  agrees (in the event such  information
does not agree, the Independent  Accountant will provide a listing in its letter
of such  differences) and (vi) with respect to such  confirmation to Moody's (if
Moody's is then  rating the AMPS) and Fitch (if Fitch is then  rating the AMPS),
that the Fund has satisfied the requirements of Section 10 of this Part I.

     (d) Within ten  Business  Days after the date of  delivery  of a  Preferred
Shares Basic Maintenance Report in accordance with paragraph (b) of this Section
7  relating  to any  Valuation  Date on which  the Fund  failed to  satisfy  the
Preferred Shares Basic Maintenance  Amount, and relating to the Preferred Shares
Basic  Maintenance  Cure  Date with  respect  to such  failure  to  satisfy  the
Preferred Shares Basic Maintenance  Amount, the Fund shall cause the Independent
Accountant to provide to Moody's (if Moody's is then rating the AMPS), Fitch (if
Fitch is then rating the AMPS) and the Auction Agent (if either Moody's or Fitch
is then  rating  the AMPS) an  Accountant's  Confirmation  as to such  Preferred
Shares Basic Maintenance Report.

     (e) If any Accountant's Confirmation delivered pursuant to paragraph (c) or
(d) of this Section 7 shows that an error was made in the Preferred Shares Basic
Maintenance  Report for a particular  Valuation Date for which such Accountant's
Confirmation  was  required  to be  delivered,  or shows that a lower  aggregate
Discounted Value for the aggregate of all Moody's Eligible Assets (if Moody's is
then  rating the AMPS) or Fitch  Eligible  Assets  (if Fitch is then  rating the
AMPS),  as the  case  may be,  of the Fund  was  determined  by the  Independent
Accountant, the calculation or determination made by such Independent Accountant
shall be final and  conclusive  and shall be binding  on the Fund,  and the Fund
shall  accordingly  amend and deliver the  Preferred  Shares  Basic  Maintenance
Report to Moody's (if Moody's is then rating the AMPS),  Fitch (if Fitch is then
rating  the AMPS) and the  Auction  Agent (if  either  Moody's  or Fitch is then
rating the AMPS)  promptly  following  receipt by the Fund of such  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 any AMPS,  the Fund  shall  complete  and
deliver to Moody's  (if  Moody's is then rating the AMPS) and Fitch (if Fitch is
then  rating the AMPS) a Preferred  Shares  Basic  Maintenance  Report as of the
close of business on such Date of Original Issue.

     (g) On or before 5:00 p.m., New York City time, on the seventh Business Day
after either (i) the Fund shall have redeemed Common Shares or (ii) the ratio of
the Discounted Value of the Moody's Eligible Assets or the Fitch Eligible Assets
to the Preferred Shares Basic  Maintenance  Amount on any Valuation Date is less
than or equal to 105%, or (iii) whenever requested by Moody's or Fitch, the Fund
shall  complete  and  deliver to Moody's (if Moody's is then rating the AMPS) or
Fitch (if Fitch is then rating the AMPS), as the case may be, a Preferred Shares
Basic Maintenance Report as of the date of such event.

8.    [Reserved].




9.  Restrictions on Dividends and Other Distributions.

     (a)  Dividends  on Shares  other than the AMPS.  Except as set forth in the
next sentence,  no dividends  shall be declared or paid or set apart for payment
on the  shares of any class or series of shares of  beneficial  interest  of the
Fund ranking, as to the payment of dividends,  on a parity with the AMPS for any
period  unless full  cumulative  dividends  have been or  contemporaneously  are
declared  and paid on the  shares of each  series of the AMPS  through  its most
recent  Dividend  Payment  Date.  When  dividends  are not paid in full upon the
shares of each series of the AMPS through its most recent Dividend  Payment Date
or upon the shares of any other class or series of shares of beneficial interest
of the Fund  ranking on a parity as to the  payment of  dividends  with the AMPS
through  their most recent  respective  dividend  payment  dates,  all dividends
declared  upon  the  AMPS and any  other  such  class or  series  of  shares  of
beneficial interest ranking on a parity as to the payment of dividends with AMPS
shall be declared pro rata so that the amount of dividends declared per share on
AMPS and such other class or series of shares of  beneficial  interest  shall in
all cases bear to each other the same ratio that accumulated dividends per share
on the AMPS and such other class or series of shares of beneficial interest bear
to each other (for purposes of this sentence,  the amount of dividends  declared
per share of AMPS shall be based on the  Applicable  Rate for such share for the
Dividend Periods during which dividends were not paid in full).

     (b) Dividends and Other  Distributions  with Respect to Common Shares Under
the Investment Company Act. The Board of Trustees shall not declare any dividend
(except a dividend payable in Common Shares), or declare any other distribution,
upon the Common Shares, or purchase Common Shares, unless in every such case the
AMPS have, at the time of any such  declaration  or purchase,  an asset coverage
(as defined in and  determined  pursuant to the  Investment  Company  Act) of at
least 200% (or such other asset coverage as may in the future be specified in or
under the  Investment  Company  Act as the  minimum  asset  coverage  for senior
securities  which are shares or stock of a  closed-end  investment  company as a
condition of declaring  dividends on its common shares or stock) after deducting
the amount of such dividend, distribution or purchase price, as the case may be.

     (c) Other Restrictions on Dividends and Other Distributions. For so long as
any AMPS are  outstanding,  and  except  as set forth in  paragraph  (a) of this
Section 9 and paragraph (c) of Section 12 of this Part I, (A) the Fund shall not
declare,  pay or set apart for payment any dividend or other distribution (other
than a dividend or  distribution  paid in shares of, or in options,  warrants or
rights to subscribe  for or purchase,  Common  Shares or other  shares,  if any,
ranking  junior to the AMPS as to the payment of dividends and the  distribution
of assets upon dissolution,  liquidation or winding up) in respect of the Common
Shares or any other shares of the Fund ranking junior to or on a parity with the
AMPS  as to  the  payment  of  dividends  or the  distribution  of  assets  upon
dissolution, liquidation or winding up, or call for redemption, redeem, purchase
or  otherwise  acquire  for  consideration  any Common  Shares or any other such
junior  shares  (except by  conversion  into or exchange  for shares of the Fund
ranking  junior to the AMPS as to the payment of dividends and the  distribution
of assets  upon  dissolution,  liquidation  or winding  up),  or any such parity
shares  (except by  conversion  into or exchange  for shares of the Fund ranking
junior  to or on a parity  with  AMPS as to the  payment  of  dividends  and the
distribution of assets upon dissolution,  liquidation or winding up), unless (i)
full  cumulative  dividends  on shares of each  series of AMPS  through its most
recently ended Dividend  Period shall have been paid or shall have been declared
and sufficient  funds for the payment  thereof  deposited with the Auction Agent
and (ii) the Fund has redeemed  the full number of AMPS  required to be redeemed
by any provision for mandatory  redemption  pertaining thereto, and (B) the Fund
shall  not  declare,  pay or  set  apart  for  payment  any  dividend  or  other
distribution  (other  than a dividend or  distribution  paid in shares of, or in
options, warrants or rights to subscribe for or purchase, Common Shares or other
shares,  if any,  ranking  junior to AMPS as to the payment of dividends and the
distribution of assets upon  dissolution,  liquidation or winding up) in respect
of Common  Shares or any other shares of the Fund  ranking  junior to AMPS as to
the  payment  of  dividends  or the  distribution  of assets  upon  dissolution,
liquidation or winding up, or call for redemption, redeem, purchase or otherwise
acquire for  consideration  any Common  Shares or any other such  junior  shares
(except by conversion  into or exchange for shares of the Fund ranking junior to
AMPS  as to the  payment  of  dividends  and the  distribution  of  assets  upon
dissolution,   liquidation  or  winding  up),  unless   immediately  after  such
transaction the Discounted  Value of Moody's Eligible Assets (if Moody's is then
rating the AMPS) and Fitch  Eligible  Assets (if Fitch is then  rating the AMPS)
would each at least equal the Preferred Shares Basic Maintenance Amount.


10.  Rating Agency Restrictions.

      (a)  If Moody's is rating any AMPS, then:

     (i) For so long as any AMPS are rated by Moody's,  the Fund will not buy or
sell  futures  contracts,  write,  purchase  or sell  call  options  on  futures
contracts  or purchase  put options on futures  contracts  or write call options
(except covered call options) on portfolio securities unless it receives written
confirmation  from Moody's that engaging in such  transactions  would not impair
the ratings  then  assigned  to such AMPS by  Moody's,  except that the Fund may
purchase  or sell  exchange-traded  futures  contracts  based on the Bond  Buyer
Municipal Bond Index (the  "Municipal  Index") or United States  Treasury Bonds,
Bills or Notes ("Treasury Futures"), 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:

     (A) the Fund  will only  engage in  Moody's  Hedging  Transactions  for the
purpose  of  hedging  against  changes  in the  value  of the  Fund's  portfolio
securities  due to anticipated  changes in interest rates or market  conditions;
the amount  hedged will vary from time to time and may involve the  purchase and
sale of futures  contracts based on the Municipal  Index or Treasury  Futures to
reduce or eliminate the amount hedged;

     (B) the Fund will not engage in any Moody's Hedging Transaction which would
cause  the  Fund,  at the  time of such  transaction,  to own or have  sold  net
outstanding futures contracts having an aggregate Market Value exceeding 33 1/3%
of the aggregate Market Value of assets owned by the Fund; and

     (C) the Fund will not enter  into an option  unless,  after  giving  effect
thereto,  the Fund  would  continue  to have  Moody's  Eligible  Assets  with an
aggregate  Discounted  Value equal to or greater than the Preferred Shares Basic
Maintenance Amount.

     (ii) For  purposes of  determining  whether  the Fund has Moody's  Eligible
Assets with an aggregate  Discounted  Value that equals or exceeds the Preferred
Shares Basic Maintenance Amount, the Discounted Value of Moody's Eligible Assets
which the Fund is  obligated  to deliver or receive  pursuant to an  outstanding
option shall be as follows:

     (A)  assets  subject to call  options  written by the Fund 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:

     (I) Discounted Value and

     (II) the exercise price of the call option written by the Fund;

     (B) assets  subject to call  options  written by the Fund not  meeting  the
requirements of clause (A) of this sentence shall have no value;

     (C) assets  subject to put  options  written by the Fund shall be valued at
the lesser of:

     (I) the exercise price and

     (II) the Discounted Value of the subject security; and

     (D) 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.

     (iii) For  purposes of  determining  whether the Fund has Moody's  Eligible
Assets with an aggregate  Discounted  Value that equals or exceeds the Preferred
Shares Basic Maintenance  Amount, the following amounts shall be subtracted from
the aggregate Discounted Value of the Moody's Eligible Assets held by the Fund:

     (A) 10% of the exercise price of a written call option;

     (B) the exercise price of any written put option;

     (C) the  settlement  price of the underlying  futures  contract if the Fund
writes put options on a futures contract; and

     (D) 105% of the Market  Value of the  underlying  futures  contracts if the
Fund writes call options on a futures  contract and does not own the  underlying
contract.

     (iv) For so long as any AMPS are rated by Moody's,  the Fund may enter into
contracts  to  purchase  securities  for a fixed  price at a future  date beyond
customary settlement time ("Forward Commitments"), provided that:

     (A) the Fund will maintain in a segregated account with its custodian cash,
cash equivalents or short-term, fixed-income securities rated P-1, MTG-1, MIG-1,
or Baa or higher by Moody's or, if not rated by Moody's, rated A1+/AA, SP-1+/AA,
A or AA or  higher  by S&P,  and  maturing  prior  to the  date  of the  Forward
Commitment  with a Market  Value that equals or exceeds the amount of the Fund's
obligations  under  any  Forward  Commitment  to which it is from time to time a
party or long-term  fixed income  securities  with a Market Value that equals or
exceeds the amount of the Fund's  obligations  under any Forward  Commitment  to
which it is from time to time a party; and

     (B) the Fund will not enter into a Forward Commitment unless,  after giving
effect thereto,  the Fund would continue to have Moody's Eligible Assets with an
aggregate  Discounted  Value equal to or greater than the Preferred Shares Basic
Maintenance Amount.

     For purposes of determining  whether the Fund has Moody's  Eligible  Assets
with an aggregate  Discounted  Value that equals or exceeds the Preferred Shares
Basic Maintenance  Amount,  the Discounted Value of Forward  Commitments will be
the Discounted  Value as calculated by applying the respective  Moody's Discount
Factor.

     (b) If Fitch is rating any AMPS, then:

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

     (A) the Fund will only engage in Fitch Hedging Transactions for the purpose
of hedging against changes in the value of the Fund's  portfolio  securities due
to anticipated changes in interest rates or market conditions; the amount hedged
will vary from time to time and may  involve  the  purchase  and sale of futures
contracts  based on the  Municipal  Index  or  Treasury  Futures  to  reduce  or
eliminate the amount hedged;

     (B) the Fund will not engage in any Fitch Hedging  Transaction  which would
cause  the  Fund,  at the  time of such  transaction,  to own or have  sold  net
outstanding futures contracts having an aggregate Market Value exceeding 33 1/3%
of the aggregate Market Value of assets owned by the Fund; and

     (C) the Fund will not enter  into an option  unless,  after  giving  effect
thereto, the Fund would continue to have Fitch Eligible Assets with an aggregate
Discounted Value equal to or greater than the Preferred Shares Basic Maintenance
Amount.

     (ii) For purposes of determining whether the Fund has Fitch Eligible Assets
with an aggregate  Discounted  Value that equals or exceeds the Preferred Shares
Basic  Maintenance  Amount,  the Discounted Value of Fitch Eligible Assets which
the Fund is obligated to deliver or receive  pursuant to an  outstanding  option
shall be as follows:

     (A)  assets  subject to call  options  written by the Fund 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:

     (I) Discounted Value and

     (II) the exercise price of the call option written by the Fund;

     (B) assets  subject to call  options  written by the Fund not  meeting  the
requirements of clause (A) of this sentence shall have no value;

     (C) assets  subject to put  options  written by the Fund shall be valued at
the lesser of:

     (I) the exercise price and

     (II) the Discounted Value of the subject security; and

     (D) 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.

     (iii) For  purposes  of  determining  whether  the Fund has Fitch  Eligible
Assets with an aggregate  Discounted  Value that equals or exceeds the Preferred
Shares Basic Maintenance  Amount, the following amounts shall be subtracted from
the aggregate Discounted Value of the Fitch Eligible Assets held by the Fund:

     (A) 10% of the exercise price of a written call option;

     (B) the exercise price of any written put option;

     (C) the  settlement  price of the underlying  futures  contract if the Fund
writes put options on a futures contract; and

     (D) 105% of the Market  Value of the  underlying  futures  contracts if the
Fund writes call options on a futures  contract and does not own the  underlying
contract.

     (iv) For so long as any AMPS are  rated by Fitch,  the Fund may enter  into
Forward Commitments, provided that:

     (A) the Fund will maintain in a segregated account with its custodian cash,
cash  equivalents or  short-term,  fixed-income  securities  rated F-1 or BBB or
higher by Fitch (or, if not rated by Fitch, rated P-1, MTG-1 or MIG-1, or Baa or
higher 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 Fund's obligations under
any  Forward  Commitment  to which it is from time to time a party or  long-term
fixed income securities with a Market Value that equals or exceeds the amount of
the Fund's  obligations under any Forward Commitment to which it is from time to
time a party; and

     (B) the Fund will not enter into a Forward Commitment unless,  after giving
effect  thereto,  the Fund would continue to have Fitch Eligible  Assets with an
aggregate  Discounted  Value equal to or greater than the Preferred Shares Basic
Maintenance Amount.

     For purposes of determining whether the Fund has Fitch Eligible Assets with
an aggregate  Discounted Value that equals or exceeds the Preferred Shares Basic
Maintenance  Amount,  the Discounted  Value of Forward  Commitments  will be the
Discounted Value as calculated by applying the respective Fitch Discount Factor.

     (c) For so long as any AMPS are outstanding and Moody's or Fitch or both is
rating  such  shares,  the  Fund  will  not,  unless  it  has  received  written
confirmation from Moody's or Fitch or both, as applicable,  that any such action
would not impair the rating then  assigned by such rating agency to such shares,
engage in any one or more of the following transactions:

     (i) borrow money,  except that the Fund may, without  obtaining the written
confirmation   described  above,  borrow  money  for  the  purpose  of  clearing
securities transactions if

     (A) the  Preferred  Shares Basic  Maintenance  Amount would  continue to be
satisfied after giving effect to such borrowing and

     (B) such borrowing

     (I) is privately arranged with a bank or other person and is evidenced by a
promissory  note or other  evidence of  indebtedness  that is not intended to be
publicly distributed or

     (II) is for  "temporary  purposes,"  is evidenced  by a promissory  note or
other evidence of indebtedness and is in an amount not exceeding 5% of the value
of the total assets of the Fund at the time of the  borrowing  (for  purposes of
the  foregoing,  "temporary  purposes"  means that the borrowing is to be repaid
within sixty days and is not to be extended or renewed);

     (ii)  except as  provided  in  Section 5 of this Part I,  issue  additional
shares of any series of AMPS or any class or series of shares  ranking  prior to
or on a parity  with  AMPS with  respect  to the  payment  of  dividends  or the
distribution of assets upon dissolution,  liquidation or winding up of the Fund,
or reissue any AMPS previously purchased or redeemed by the Fund;

     (iii) engage in any short sales of securities;

     (iv) lend securities;

     (v) merge or consolidate into or with any other corporation or entity;

     (vi) change the Pricing Service; or

     (vii) enter into reverse repurchase agreements.

     In the event any AMPS are  outstanding  and  another  nationally-recognized
statistical rating  organization is rating such shares in addition to or in lieu
of Moody's or Fitch, the Fund shall comply with any restrictions imposed by such
rating agency,  which restrictions may be more restrictive than those imposed by
Moody's or Fitch.


11.  Redemption.

      (a)  Optional Redemption.

     (i) Subject to the  provisions of  subparagraph  (v) of this paragraph (a),
AMPS of any series  may be  redeemed,  at the option of the Fund,  as a whole or
from time to time in part,  on the second  Business Day  preceding  any Dividend
Payment Date for shares of such series, out of funds legally available therefor,
at a redemption price per share equal to the sum of $25,000 plus an amount equal
to accumulated but unpaid dividends  thereon (whether or not earned or declared)
to (but not including) the date fixed for redemption;  provided,  however,  that
(1) shares of a series of AMPS may not be redeemed in part if after such partial
redemption fewer than 300 shares of such series remain  outstanding;  (2) unless
otherwise provided in Section 9 of Exhibit A hereto,  shares of a series of AMPS
are  redeemable  by the Fund during the Initial Rate Period  thereof only on the
second  Business  Day next  preceding  the last  Dividend  Payment Date for such
Initial Rate Period; and (3) subject to subparagraph (ii) of this paragraph (a),
the Notice of Special Rate Period relating to a Special Rate Period of shares of
a series of AMPS, as delivered to the Auction Agent and filed with the Secretary
of the Fund,  may provide  that shares of such  series  shall not be  redeemable
during the whole or any part of such Special Rate Period  (except as provided in
subparagraph (iv) of this paragraph (a)) or shall be redeemable during the whole
or any part of such  Special  Rate Period only upon  payment of such  redemption
premium  or  premiums  as  shall  be  specified  therein  ("Special   Redemption
Provisions").

     (ii) A Notice of Special Rate Period relating to shares of a series of AMPS
for a Special Rate Period thereof may contain Special Redemption Provisions only
if the Fund's Board of Trustees,  after  consultation  with the Broker-Dealer or
Broker-Dealers for such Special Rate Period of shares of such series, determines
that such Special Redemption Provisions are in the best interest of the Fund.

     (iii) If fewer than all of the  outstanding  shares of a series of AMPS are
to be redeemed pursuant to subparagraph (i) of this paragraph (a), the number of
shares  of such  series  to be  redeemed  shall be  determined  by the  Board of
Trustees,  and such shares shall be redeemed pro rata from the Holders of shares
of such series in proportion to the number of shares of such series held by such
Holders.

     (iv) Subject to the provisions of  subparagraph  (v) of this paragraph (a),
shares of any series of AMPS may be  redeemed,  at the option of the Fund,  as a
whole but not in part,  out of funds legally  available  therefor,  on the first
Business Day following  any Dividend  Period  thereof  included in a Rate Period
consisting of more than 364 Rate Period Days if, on the date of determination of
the  Applicable  Rate for  shares  of such  series  for such Rate  Period,  such
Applicable Rate equaled or exceeded on such date of  determination  the Treasury
Note Rate for such Rate Period, at a redemption price per share equal to the sum
of $25,000  plus an amount equal to  accumulated  but unpaid  dividends  thereon
(whether or not earned or  declared) to (but not  including)  the date fixed for
redemption.

     (v) The Fund may not on any date mail a Notice of  Redemption  pursuant  to
paragraph (c) of this Section 11 in respect of a redemption  contemplated  to be
effected  pursuant  to this  paragraph  (a) unless on such date (a) the Fund has
available  Deposit  Securities  with maturity or tender dates not later than the
day preceding the  applicable  redemption  date and having a value not less than
the amount  (including any applicable  premium) due to Holders of AMPS by reason
of the redemption of such shares on such  redemption date and (b) the Discounted
Value of Moody's  Eligible Assets (if Moody's is then rating the AMPS) and Fitch
Eligible  Assets (if Fitch is then  rating  the AMPS)  each at least  equals the
Preferred  Shares  Basic  Maintenance  Amount,  and  would  at least  equal  the
Preferred  Shares  Basic  Maintenance  Amount  immediately  subsequent  to  such
redemption if such  redemption were to occur on such date. The Fund shall not be
required to have available Deposit Securities as described in clause (a) of this
subparagraph (v) in respect of a redemption of any shares of AMPS, as a whole or
in part,  contemplated  to be effected  pursuant to  paragraph  11(a) where such
redemption is subject to the issuance of shares of any other series of preferred
stock of the Fund.  For purposes of  determining  in clause (b) of the preceding
sentence  whether  the  Discounted  Value of Moody's  Eligible  Assets and Fitch
Eligible Assets at least equals the Preferred Shares Basic  Maintenance  Amount,
the Moody's Discount Factor  applicable to Moody's Eligible Assets and the Fitch
Discount  Factor  applicable  to Fitch  Eligible  Assets shall be  determined by
reference to the first  Exposure  Period  longer than the  Exposure  Period then
applicable  to the Fund,  as described in the  definitions  of Moody's  Discount
Factor and Fitch Discount Factor herein.

     (b)  Mandatory  Redemption.  The Fund shall redeem,  at a redemption  price
equal to  $25,000  per share  plus  accumulated  but  unpaid  dividends  thereon
(whether or not earned or declared) to (but not including) the date fixed by the
Board of Trustees for redemption, certain of the AMPS, if the Fund fails to have
either Moody's  Eligible Assets or Fitch Eligible Assets with a Discounted Value
greater than or equal to the Preferred Shares Basic Maintenance  Amount or fails
to maintain the  Investment  Company Act  Preferred  Shares Asset  Coverage,  in
accordance  with the  requirements  of the rating agency or agencies then rating
the AMPS, and such failure is not cured on or before the Preferred  Shares Basic
Maintenance  Cure Date or the Investment  Company Act Cure Date, as the case may
be.  The number of AMPS to be  redeemed  shall be equal to the lesser of (i) the
minimum  number of AMPS,  together with all other  preferred  shares  subject to
redemption or retirement,  the  redemption of which,  if deemed to have occurred
immediately  prior to the  opening  of  business  on the Cure  Date,  would have
resulted in the Fund's having Moody's  Eligible Assets and Fitch Eligible Assets
with a  Discounted  Value  greater than or equal to the  Preferred  Shares Basic
Maintenance  Amount or maintaining the Investment  Company Act Preferred  Shares
Asset Coverage,  as the case may be, on such Cure Date (provided,  however, that
if there is no such  minimum  number  of AMPS and  other  preferred  shares  the
redemption  or  retirement  of which would have had such  result,  all AMPS 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 in accordance
with the  Declaration and applicable law. In determining the AMPS required to be
redeemed in accordance  with the  foregoing,  the Fund shall allocate the number
required to be redeemed to satisfy the Preferred Shares Basic Maintenance Amount
or the Investment  Company Act Preferred Shares Asset Coverage,  as the case may
be, pro rata among AMPS and other  preferred  shares (and,  then, pro rata among
each series of AMPS) subject to redemption or retirement.  The Fund shall effect
such redemption on the date fixed by the Fund therefor,  which date shall not be
earlier than 20 days nor later than 40 days after such Cure Date, except that if
the Fund does not have funds legally  available for the redemption of all of the
required  number of the AMPS and other  preferred  shares  which are  subject to
redemption  or  retirement  or the Fund  otherwise  is  unable  to  effect  such
redemption  on or prior to 40 days after such Cure Date,  the Fund shall  redeem
those  AMPS and  other  preferred  shares  which it was  unable to redeem on the
earliest  practicable  date on which it is able to effect  such  redemption.  If
fewer than all of the outstanding  shares of a series of AMPS are to be redeemed
pursuant  to this  paragraph  (b),  the  number of  shares of such  series to be
redeemed shall be redeemed pro rata from the Holders of shares of such series in
proportion to the number of shares of such series held by such Holders.

     (c) Notice of  Redemption.  If the Fund shall  determine  or be required to
redeem  shares  of a series of AMPS  pursuant  to  paragraph  (a) or (b) of this
Section 11, it shall mail a Notice of Redemption with respect to such redemption
by first-class mail, postage prepaid, to each Holder of the AMPS to be redeemed,
at such Holder's  address as the same appears on the record books of the Fund on
the record date established by the Board of Trustees.  Such Notice of Redemption
shall be so  mailed  not less  than 20 nor more  than 45 days  prior to the date
fixed for  redemption.  Each such  Notice of  Redemption  shall  state:  (i) the
redemption  date; (ii) the number of AMPS to be redeemed and the series thereof;
(iii) the CUSIP number for shares of such series; (iv) the Redemption Price; (v)
the place or places where the  certificate(s) for such shares (properly endorsed
or assigned  for  transfer,  if the Board of  Trustees  shall so require and the
Notice of Redemption  shall so state) are to be  surrendered  for payment of the
Redemption Price; (vi) that dividends on the shares to be redeemed will cease to
accumulate on such redemption  date; and (vii) the provisions of this Section 11
under  which such  redemption  is made.  If fewer than all shares of a series of
AMPS held by any Holder are to be redeemed,  the Notice of Redemption  mailed to
such  Holder  shall  also  specify  the  number of  shares of such  series to be
redeemed  from such  Holder.  The Fund may  provide in any Notice of  Redemption
relating to a redemption  contemplated to be effected  pursuant to paragraph (a)
of this  Section 11 that such  redemption  is subject to one or more  conditions
precedent  and that the Fund shall not be  required  to effect  such  redemption
unless each such condition shall have been satisfied at the time or times and in
the manner specified in such Notice of Redemption.

     (d)  No  Redemption  Under  Certain   Circumstances.   Notwithstanding  the
provisions  of  paragraphs  (a) or (b) of this  Section 11, if any  dividends on
shares of a series of AMPS  (whether or not earned or declared)  are in arrears,
no shares of such series shall be redeemed unless all outstanding shares of such
series are simultaneously redeemed, and the Fund shall not purchase or otherwise
acquire any shares of such series;  provided,  however, that the foregoing shall
not prevent the purchase or acquisition of all outstanding shares of such series
pursuant  to the  successful  completion  of an  otherwise  lawful  purchase  or
exchange  offer  made on the same  terms to,  and  accepted  by,  Holders of all
outstanding shares of such series.

     (e)  Absence of Funds  Available  for  Redemption.  To the extent  that any
redemption  for which Notice of Redemption has been mailed is not made by reason
of the  absence of legally  available  funds  therefor  in  accordance  with the
Declaration  and  applicable  law,  such  redemption  shall  be  made as soon as
practicable  to the extent such funds become  available.  Failure to redeem AMPS
shall be deemed to exist at any time after the date  specified for redemption in
a  Notice  of  Redemption  when the  Fund  shall  have  failed,  for any  reason
whatsoever, to deposit in trust with the Auction Agent the Redemption Price with
respect  to any  shares for which such  Notice of  Redemption  has been  mailed;
provided,  however, that the foregoing shall not apply in the case of the Fund's
failure to deposit in trust with the  Auction  Agent the  Redemption  Price with
respect  to any  shares  where (1) the  Notice of  Redemption  relating  to such
redemption  provided that such  redemption was subject to one or more conditions
precedent and (2) any such condition  precedent shall not have been satisfied at
the time or times and in the  manner  specified  in such  Notice of  Redemption.
Notwithstanding  the fact that the Fund may not have  redeemed  AMPS for which a
Notice of Redemption has been mailed, dividends may be declared and paid on AMPS
and shall include those AMPS for which a Notice of Redemption has been mailed.

     (f) Auction  Agent as Trustee of  Redemption  Payments by Fund.  All moneys
paid to the Auction Agent for payment of the Redemption Price of AMPS called for
redemption  shall be held in trust  by the  Auction  Agent  for the  benefit  of
Holders of shares so to be redeemed.

     (g)  Shares  for Which  Notice of  Redemption  Has Been Given Are No Longer
Outstanding.  Provided  a Notice  of  Redemption  has been  mailed  pursuant  to
paragraph  (c) of this Section 11, upon the deposit  with the Auction  Agent (on
the  Business  Day  next  preceding  the date  fixed  for  redemption,  in funds
available on the next  Business Day in The City of New York,  New York) of funds
sufficient to redeem the AMPS that are the subject of such notice,  dividends on
such shares shall cease to accumulate  and such shares shall no longer be deemed
to be outstanding  for any purpose,  and all rights of the Holders of the shares
so called for  redemption  shall cease and  terminate,  except the right of such
Holders to receive the  Redemption  Price,  but  without  any  interest or other
additional  amount,  except as provided in  subparagraph  (e)(i) of Section 2 of
this Part I and in Section 3 of this Part I. Upon  surrender in accordance  with
the  Notice  of  Redemption  of the  certificates  for any  shares  so  redeemed
(properly  endorsed or assigned for transfer,  if the Board of Trustees shall so
require and the Notice of Redemption shall so state), the Redemption Price shall
be paid by the Auction  Agent to the Holders of AMPS subject to  redemption.  In
the case that fewer than all of the shares  represented by any such  certificate
are redeemed,  a new certificate  shall be issued,  representing  the unredeemed
shares,  without  cost to the  Holder  thereof.  The Fund shall be  entitled  to
receive from the Auction Agent,  promptly  after the date fixed for  redemption,
any  cash  deposited  with the  Auction  Agent in  excess  of (i) the  aggregate
Redemption  Price of the AMPS  called for  redemption  on such date and (ii) all
other  amounts to which Holders of AMPS called for  redemption  may be entitled.
Any  funds so  deposited  that are  unclaimed  at the end of 90 days  from  such
redemption  date shall,  to the extent  permitted by law, be repaid to the Fund,
after which time the Holders of AMPS so called for  redemption  may look only to
the Fund for payment of the Redemption Price and all other amounts to which they
may be entitled.  The Fund shall be entitled to receive, from time to time after
the date fixed for redemption, any interest on the funds so deposited.

     (h) Compliance with Applicable Law. In effecting any redemption pursuant to
this  Section  11,  the Fund  shall  use its best  efforts  to  comply  with all
applicable   conditions   precedent  to  effecting  such  redemption  under  the
Investment  Company Act and any  applicable  Delaware  law,  but shall effect no
redemption  except  in  accordance  with  the  Investment  Company  Act  and any
applicable Delaware law.

     (i) Only Whole AMPS may be Redeemed. In the case of any redemption pursuant
to this Section 11, only whole AMPS shall be redeemed, and in the event that any
provision of the Declaration would require redemption of a fractional share, the
Auction  Agent  shall be  authorized  to round up so that only whole  shares are
redeemed.


12.  Liquidation Rights.

     (a)  Ranking.  The shares of a series of AMPS  shall rank on a parity  with
each other, with shares of any other series of AMPS and with shares of any other
series of preferred  shares as to the  distribution of assets upon  dissolution,
liquidation or winding up of the affairs of the Fund.

     (b) Distributions  Upon Liquidation.  Upon the dissolution,  liquidation or
winding up of the affairs of the Fund,  whether  voluntary or  involuntary,  the
Holders of AMPS then outstanding shall be entitled to receive and to be paid out
of the assets of the Fund available for distribution to its shareholders, before
any payment or  distribution  shall be made on the Common Shares or on any other
class of  shares  of the Fund  ranking  junior  to the  AMPS  upon  dissolution,
liquidation or winding up, an amount equal to the  Liquidation  Preference  with
respect to such shares plus an amount equal to all dividends thereon (whether or
not earned or declared)  accumulated  but unpaid to (but not including) the date
of final distribution in same day funds,  together with any payments required to
be made pursuant to Section 3 of this Part I in connection  with the liquidation
of  the  Fund.  After  the  payment  to the  Holders  of the  AMPS  of the  full
preferential  amounts provided for in this paragraph (b), the Holders of AMPS as
such shall have no right or claim to any of the remaining assets of the Fund.

     (c) Pro Rata  Distributions.  In the event the assets of the Fund available
for  distribution to the Holders of AMPS upon any dissolution,  liquidation,  or
winding up of the affairs of the Fund,  whether voluntary or involuntary,  shall
be  insufficient  to pay in full all amounts to which such  Holders are entitled
pursuant to paragraph (b) of this Section 12, no such distribution shall be made
on  account  of any  shares of any other  class or  series of  preferred  shares
ranking on a parity  with the AMPS with  respect to the  distribution  of assets
upon  such   dissolution,   liquidation  or  winding  up  unless   proportionate
distributive  amounts  shall  be  paid  on  account  of the  AMPS,  ratably,  in
proportion  to the full  distributable  amounts  for which  holders  of all such
parity shares are respectively  entitled upon such  dissolution,  liquidation or
winding up.

     (d) Rights of Junior Shares. Subject to the rights of the holders of shares
of any series or class or classes  of shares  ranking on a parity  with the AMPS
with respect to the  distribution  of assets upon  dissolution,  liquidation  or
winding up of the  affairs of the Fund,  after  payment  shall have been made in
full to the Holders of the AMPS as provided in paragraph (b) of this Section 12,
but not prior  thereto,  any other series or class or classes of shares  ranking
junior to the AMPS with respect to the distribution of assets upon  dissolution,
liquidation  or winding  up of the  affairs  of the Fund  shall,  subject to the
respective  terms and  provisions  (if any)  applying  thereto,  be  entitled to
receive any and all assets remaining to be paid or distributed,  and the Holders
of the AMPS shall not be entitled to share therein.

     (e) Certain Events not Constituting Liquidation. Neither the sale of all or
substantially  all the  property  or  business  of the Fund,  nor the  merger or
consolidation of the Fund into or with any business trust or corporation nor the
merger or  consolidation  of any business trust or corporation  into or with the
Fund shall be a dissolution,  liquidation  or winding up,  whether  voluntary or
involuntary, for the purposes of this Section 12.


13.  Miscellaneous.

     (a)  Amendment  of  Exhibit  A to Add  Additional  Series.  Subject  to the
provisions  of  paragraph  (c)(ii)  of  Section  10 of this Part I, the Board of
Trustees may, by resolution duly adopted,  without shareholder  approval (except
as otherwise  provided by this Statement or required by applicable  law),  amend
Exhibit  A hereto  to (1)  reflect  any  amendments  hereto  which  the Board of
Trustees is entitled to adopt  pursuant to the terms of this  Statement  without
shareholder  approval or (2) add additional  series of AMPS or additional shares
of a  series  of AMPS  (and  terms  relating  thereto)  to the  series  and AMPS
theretofore  described  therein.  Each  such  additional  series  and  all  such
additional shares shall be governed by the terms of this Statement.

     (b) Exhibit A Incorporated  by Reference.  Exhibit A hereto is incorporated
in and made a part of this Statement by reference thereto.

     (c) No Fractional Shares. No fractional shares of AMPS shall be issued.

     (d) Status of AMPS Redeemed,  Exchanged or Otherwise  Acquired by the Fund.
AMPS which are  redeemed,  exchanged  or  otherwise  acquired  by the Fund shall
return  to the  status of  authorized  and  unissued  preferred  shares  without
designation as to series.

     (e) Board may Resolve  Ambiguities.  To the extent  permitted by applicable
law,  the Board of  Trustees  may  interpret  or adjust the  provisions  of this
Statement  to resolve any  inconsistency  or  ambiguity  or to remedy any formal
defect, and may amend this Statement with respect to any series of AMPS prior to
the issuance of shares of such series.

     (f) Headings not  Determinative.  The headings  contained in this Statement
are for  convenience  of  reference  only and shall not  affect  the  meaning or
interpretation of this Statement.

     (g) Notices.  All notices or communications,  unless otherwise specified in
the By-Laws of the Fund or this  Statement,  shall be  sufficiently  given if in
writing and delivered in person or mailed by first-class mail, postage prepaid.


                                          PART II.


1.  Orders.

     (a) Prior to the  Submission  Deadline on each Auction Date for shares of a
series of AMPS:

     (i) each  Beneficial  Owner of  shares  of such  series  may  submit to its
Broker-Dealer by telephone or otherwise information as to:

     (A) the number of Outstanding  shares,  if any, of such series held by such
Beneficial Owner which such Beneficial Owner desires to continue to hold without
regard to the Applicable  Rate for shares of such series for the next succeeding
Rate Period of such shares;

     (B) the number of Outstanding  shares,  if any, of such series held by such
Beneficial  Owner which such  Beneficial  Owner offers to sell if the Applicable
Rate for shares of such series for the next  succeeding Rate Period of shares of
such series shall be less than the rate per annum  specified by such  Beneficial
Owner; and/or

     (C) the number of Outstanding  shares,  if any, of such series held by such
Beneficial  Owner which such  Beneficial  Owner offers to sell without regard to
the  Applicable  Rate for the next  succeeding  Rate  Period  of  shares of such
series; and

     (ii)  one or more  Broker-Dealers,  using  lists  of  Potential  Beneficial
Owners,  shall in good faith for the purpose of conducting a competitive Auction
in a commercially  reasonable  manner,  contact Potential  Beneficial Owners (by
telephone or otherwise),  including  Persons that are not Beneficial  Owners, on
such lists to determine the number of shares,  if any, of such series which each
such Potential  Beneficial  Owner offers to purchase if the Applicable  Rate for
the next  succeeding Rate Period of shares of such series shall not be less than
the rate per annum specified by such Potential Beneficial Owner.

     For the  purposes  hereof,  the  communication  by a  Beneficial  Owner  or
Potential  Beneficial  Owner to a  Broker-Dealer,  or by a Broker-Dealer  to the
Auction Agent, of information referred to in clause (i) (A), (i) (B), (i) (C) or
(ii)  of  this  paragraph  (a) is  hereinafter  referred  to as an  "Order"  and
collectively as "Orders" and each Beneficial Owner and each Potential Beneficial
Owner placing an Order with a Broker-Dealer,  and such Broker-Dealer  placing an
Order with the Auction  Agent,  is  hereinafter  referred  to as a "Bidder"  and
collectively as "Bidders;" an Order  containing the  information  referred to in
clause (i)(A) of this paragraph (a) is hereinafter referred to as a "Hold Order"
and collectively as "Hold Orders;" an Order containing the information  referred
to in clause (i)(B) or (ii) of this paragraph (a) is hereinafter  referred to as
a "Bid" and  collectively  as "Bids;" and an Order  containing  the  information
referred to in clause (i)(C) of this paragraph (a) is hereinafter referred to as
a "Sell Order" and collectively as "Sell Orders."

     (b) (i) A Bid by a  Beneficial  Owner or an Existing  Holder of shares of a
series of AMPS  subject to an Auction on any Auction  Date shall  constitute  an
irrevocable offer to sell:

     (A) the number of Outstanding  shares of such series  specified in such Bid
if the Applicable Rate for shares of such series determined on such Auction Date
shall be less than the rate specified therein;

     (B) such number or a lesser number of Outstanding  shares of such series to
be  determined as set forth in clause (iv) of paragraph (a) of Section 4 of this
Part II if the  Applicable  Rate for shares of such  series  determined  on such
Auction Date shall be equal to the rate specified therein; or

     (C) the number of Outstanding  shares of such series  specified in such Bid
if the rate  specified  therein shall be higher than the Maximum Rate for shares
of such series, or such number or a lesser number of Outstanding  shares of such
series to be determined as set forth in clause (iii) of paragraph (b) of Section
4 of this Part II if the rate specified therein shall be higher than the Maximum
Rate for shares of such series and  Sufficient  Clearing Bids for shares of such
series do not exist.

     (ii) A Sell Order by a Beneficial  Owner or an Existing Holder of shares of
a series of AMPS subject to an Auction on any Auction Date shall  constitute  an
irrevocable offer to sell:

     (A) the number of Outstanding  shares of such series specified in such Sell
Order; or

     (B) such number or a lesser number of Outstanding  shares of such series as
set  forth in  clause  (iii) of  paragraph  (b) of  Section 4 of this Part II if
Sufficient  Clearing  Bids for  shares of such  series do not  exist;  provided,
however,  that a  Broker-Dealer  that is an Existing Holder with respect to AMPS
shall not be liable to any Person for failing to sell such shares  pursuant to a
Sell Order  described in the proviso to paragraph  (c) of Section 2 of this Part
II if (1) such shares were  transferred by the Beneficial  Owner thereof without
compliance by such Beneficial  Owner or its transferee  Broker-Dealer  (or other
transferee person, if permitted by the Fund) with the provisions of Section 7 of
this Part II or (2) such  Broker-Dealer  has informed the Auction Agent pursuant
to  the  terms  of  its   Broker-Dealer   Agreement  that,   according  to  such
Broker-Dealer's  records,  such  Broker-Dealer  believes it is not the  Existing
Holder of such shares.

     (iii) A Bid by a  Potential  Beneficial  Holder  or a  Potential  Holder of
shares of a series of AMPS  subject  to an  Auction  on any  Auction  Date shall
constitute an irrevocable offer to purchase:

     (A) the number of Outstanding  shares of such series  specified in such Bid
if the Applicable Rate for shares of such series determined on such Auction Date
shall be higher than the rate specified therein; or

     (B) such number or a lesser number of Outstanding  shares of such series as
set forth in clause  (v) of  paragraph  (a) of  Section 4 of this Part II if the
Applicable Rate for shares of such series  determined on such Auction Date shall
be equal to the rate specified therein.

     (c) No Order for any number of AMPS other than whole shares shall be valid.


     2. Submission of Orders by Broker-Dealers to Auction Agent.

     (a) Each  Broker-Dealer  shall submit in writing to the Auction Agent prior
to the Submission  Deadline on each Auction Date all Orders for AMPS of a series
subject to an Auction  on such  Auction  Date  obtained  by such  Broker-Dealer,
designating  itself  (unless  otherwise  permitted  by the Fund) as an  Existing
Holder in respect of shares subject to Orders  submitted or deemed  submitted to
it by Beneficial  Owners and as a Potential  Holder in respect of shares subject
to Orders submitted to it by Potential Beneficial Owners, and shall specify with
respect to each Order for such shares:

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

     (ii) the aggregate  number of shares of such series that are the subject of
such Order;

     (iii) to the extent  that such  Bidder is an  Existing  Holder of shares of
such series:

     (A) the number of shares,  if any, of such series subject to any Hold Order
of such Existing Holder;

     (B) the number of shares, if any, of such series subject to any Bid of such
Existing Holder and the rate specified in such Bid; and

     (C) the number of shares,  if any, of such series subject to any Sell Order
of such Existing Holder; and

     (iv) to the  extent  such  Bidder is a  Potential  Holder of shares of such
series, the rate and number of shares of such series specified in such Potential
Holder's Bid.

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

     (c) If an Order or Orders covering all of the Outstanding  AMPS of a series
held by any Existing  Holder is not  submitted to the Auction Agent prior to the
Submission  Deadline,  the  Auction  Agent  shall deem a Hold Order to have been
submitted  by or on  behalf  of such  Existing  Holder  covering  the  number of
Outstanding  shares of such series held by such Existing  Holder and not subject
to Orders submitted to the Auction Agent; provided, however, that if an Order or
Orders  covering  all of the  Outstanding  shares  of  such  series  held by any
Existing  Holder is not submitted to the Auction  Agent prior to the  Submission
Deadline  for an Auction  relating to a Special Rate Period  consisting  of more
than 28 Rate Period Days, the Auction Agent shall deem a Sell Order to have been
submitted  by or on  behalf  of such  Existing  Holder  covering  the  number of
outstanding  shares of such series held by such Existing  Holder and not subject
to Orders submitted to the Auction Agent.

     (d) If one or more Orders of an Existing Holder is submitted to the Auction
Agent covering in the aggregate  more than the number of  Outstanding  AMPS of a
series subject to an Auction held by such Existing Holder,  such Orders shall be
considered valid in the following order of priority:

     (i) all Hold Orders for shares of such series  shall be  considered  valid,
but only up to and including in the aggregate the number of  Outstanding  shares
of such series held by such Existing Holder, and if the number of shares of such
series subject to such Hold Orders  exceeds the number of Outstanding  shares of
such series held by such Existing  Holder,  the number of shares subject to each
such Hold  Order  shall be reduced  pro rata to cover the number of  Outstanding
shares of such series held by such Existing Holder;

     (ii) (A) any Bid for shares of such series shall be considered  valid up to
and including the excess of the number of Outstanding shares of such series held
by such Existing  Holder over the number of shares of such series subject to any
Hold Orders referred to in clause (i) above;

     (B) subject to  subclause  (A), if more than one Bid of an Existing  Holder
for shares of such series is submitted  to the Auction  Agent with the same rate
and the  number of  Outstanding  shares of such  series  subject to such Bids is
greater  than  such  excess,  such  Bids  shall  be  considered  valid up to and
including  the amount of such  excess,  and the number of shares of such  series
subject to each Bid with the same rate  shall be  reduced  pro rata to cover the
number of shares of such series equal to such excess;

     (C) subject to subclauses  (A) and (B), if more than one Bid of an Existing
Holder  for  shares of such  series  is  submitted  to the  Auction  Agent  with
different  rates,  such Bids shall be considered valid in the ascending order of
their respective rates up to and including the amount of such excess; and

     (D) in any such event, the number,  if any, of such  Outstanding  shares of
such series  subject to any portion of Bids  considered not valid in whole or in
part under this  clause (ii) shall be treated as the subject of a Bid for shares
of such  series  by or on  behalf  of a  Potential  Holder  at the rate  therein
specified; and

     (iii) all Sell Orders for shares of such series shall be  considered  valid
up to and  including  the  excess of the  number of  Outstanding  shares of such
series  held by such  Existing  Holder  over the sum of  shares  of such  series
subject  to valid  Hold  Orders  referred  to in clause (i) above and valid Bids
referred to in clause (ii) above.

     (e) If more  than one Bid for one or more  shares  of a  series  of AMPS is
submitted to the Auction  Agent by or on behalf of any  Potential  Holder,  each
such Bid  submitted  shall be a separate  Bid with the rate and number of shares
therein specified.

     (f) Any Order  submitted  by a Beneficial  Owner or a Potential  Beneficial
Owner to its Broker-Dealer, or by a Broker-Dealer to the Auction Agent, prior to
the Submission Deadline on any Auction Date, shall be irrevocable.


     3.  Determination  of  Sufficient  Clearing  Bids,  Winning  Bids  Rate and
Applicable Rate.

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

     (i) the excess of the number of Outstanding  shares of such series over the
number of  Outstanding  shares of such series  subject to Submitted  Hold Orders
(such excess being hereinafter referred to as the "Available AMPS");

     (ii) from the Submitted Orders for shares of such series whether:

     (A) the number of  Outstanding  shares of such series  subject to Submitted
Bids of Potential  Holders  specifying  one or more rates equal to or lower than
the Maximum Rate for shares of such series;

            exceeds or is equal to the sum of:

     (B) the number of  Outstanding  shares of such series  subject to Submitted
Bids of Existing  Holders  specifying  one or more rates higher than the Maximum
Rate for shares of such series; and

     (C) the number of  Outstanding  shares of such series  subject to Submitted
Sell Orders

     (in the event such excess or such  equality  exists (other than because the
number of shares of such series in subclauses  (B) and (C) above is zero because
all of the  Outstanding  shares of such  series are  subject to  Submitted  Hold
Orders),  such Submitted Bids in subclause (A) above being hereinafter  referred
to collectively as "Sufficient Clearing Bids" for shares of such series); and

     (iii) if  Sufficient  Clearing  Bids for shares of such series  exist,  the
lowest rate specified in such Submitted Bids (the "Winning Bid Rate") which if:

     (A) (I) each such Submitted Bid of Existing Holders  specifying such lowest
rate and (II) all other such Submitted Bids of Existing Holders specifying lower
rates were rejected,  thus  entitling such Existing  Holders to continue to hold
the shares of such series that are subject to such Submitted Bids; and

     (B) (I) each such Submitted Bid of Potential Holders specifying such lowest
rate and (II) all other such  Submitted  Bids of  Potential  Holders  specifying
lower rates were accepted;

     would result in such  Existing  Holders  described  in subclause  (A) above
continuing  to hold an  aggregate  number of  Outstanding  shares of such series
which,  when  added to the  number of  Outstanding  shares of such  series to be
purchased by such  Potential  Holders  described in subclause  (B) above,  would
equal not less than the Available AMPS of such series.

     (b) Promptly after the Auction Agent has made the  determinations  pursuant
to paragraph  (a) of this Section 3, the Auction  Agent shall advise the Fund of
the Maximum  Rate for shares of the series of AMPS for which an Auction is being
held on the Auction Date and, based on such  determination  the Applicable  Rate
for  shares of such  series  for the next  succeeding  Rate  Period  thereof  as
follows:

     (i) if Sufficient  Clearing Bids for shares of such series exist,  that the
Applicable  Rate for all  shares of such  series  for the next  Succeeding  Rate
Period  thereof shall be equal to the Winning Bid Rate for shares of such series
so determined;

     (ii) if  sufficient  Clearing  Bids for shares of such  series do not exist
(other than because all of the Outstanding  shares of such series are subject to
Submitted Hold Orders),  that the Applicable  Rate for all shares of such series
for the next  succeeding  Rate Period thereof shall be equal to the Maximum Rate
for shares of such series; or

     (iii) if all of the  Outstanding  shares  of such  series  are  subject  to
Submitted Hold Orders,  that the  Applicable  Rate for all shares of such series
for the next  succeeding Rate Period thereof shall be equal to the lesser of the
Kenny Index (if such Rate Period consists of fewer than 183 Rate Period Days) or
the product of (A)(I) the "AA" Financial Composite Commercial Paper Rate on such
Auction  Date for such Rate Period,  if such Rate Period  consists of fewer than
183 Rate Period Days;  (II) the Treasury Bill Rate on such Auction Date for such
Rate  Period,  if such Rate Period  consists of more than 182 but fewer than 365
Rate Period Days;  or (III) the Treasury Note Rate on such Auction Date for such
Rate  Period,  if such Rate  Period is more than 364 Rate  Period Days (the rate
described in the foregoing  clause (A)(I),  (II) or (III), as applicable,  being
referred to herein as the "Benchmark Rate") and (B) 1 minus the maximum marginal
regular Federal  individual income tax rate applicable to ordinary income or the
maximum  marginal  regular  Federal  corporate  income  tax rate  applicable  to
ordinary income, whichever is greater;  provided,  however, that if the Fund has
notified the Auction Agent of its intent to allocate to shares of such series in
such Rate  Period any net  capital  gains or other  income  taxable  for Federal
income tax purposes ("Taxable  Income"),  the Applicable Rate for shares of such
series for such Rate Period  will be (i) if the  Taxable  Yield Rate (as defined
below) is greater than the Benchmark  Rate,  then the Benchmark Rate, or (ii) if
the Taxable  Yield Rate is less than or equal to the  Benchmark  Rate,  then the
rate equal to the sum of (x) the lesser of the Kenny  Index (if such Rate Period
consists  of fewer than 183 Rate Period  Days) or the  product of the  Benchmark
Rate multiplied by the factor set forth in the preceding  clause (B) and (y) the
product of the  maximum  marginal  regular  Federal  individual  income tax rate
applicable to ordinary income or the maximum marginal regular Federal  corporate
income tax applicable to ordinary  income,  whichever is greater,  multiplied by
the Taxable Yield Rate. For purposes of the foregoing,  Taxable Yield Rate means
the rate  determined by (a) dividing the amount of Taxable Income  available for
distribution per such share of AMPS by the number of days in the Dividend Period
in respect of which such Taxable Income is contemplated  to be distributed,  (b)
multiplying the amount determined in (a) above by 365 (in the case of a Dividend
Period of 7 Rate Period Days) or 360 (in the case of any other Dividend Period),
and (c) dividing the amount determined in (b) above by $25,000.


     4. Acceptance and Rejection of Submitted Bids and Submitted Sell Orders and
Allocation of Shares.

     Existing  Holders  shall  continue  to hold the AMPS  that are  subject  to
Submitted  Hold  Orders,  and,  based on the  determinations  made  pursuant  to
paragraph  (a) of Section 3 of this Part II, the  Submitted  Bids and  Submitted
Sell Orders  shall be accepted or rejected by the Auction  Agent and the Auction
Agent shall take such other action as set forth below:

     (a) If  Sufficient  Clearing  Bids for shares of a series of AMPS have been
made,  all Submitted  Sell Orders with respect to shares of such series shall be
accepted  and,  subject  to the  provisions  of  paragraphs  (d) and (e) of this
section  4,  Submitted  Bids with  respect  to shares  of such  series  shall be
accepted or rejected as follows in the following order of priority and all other
Submitted Bids with respect to shares of such series shall be rejected:

     (i) Existing  Holders'  Submitted Bids for shares of such series specifying
any rate that is higher  than the  Winning  Bid Rate for  shares of such  series
shall be accepted,  thus  requiring  each such Existing  Holder to sell the AMPS
subject to such Submitted Bids;

     (ii) Existing Holders'  Submitted Bids for shares of such series specifying
any rate that is lower than the Winning Bid Rate for shares of such series shall
be rejected,  thus entitling  each such Existing  Holder to continue to hold the
AMPS subject to such Submitted Bids;

     (iii)  Potential   Holders'  Submitted  Bids  for  shares  of  such  series
specifying  any rate that is lower than the  Winning Bid Rate for shares of such
series shall be accepted;

     (iv)  each  Existing  Holder's  Submitted  Bid for  shares  of such  series
specifying  a rate  that is equal to the  Winning  Bid Rate for  shares  of such
series shall be rejected,  thus  entitling  such Existing  Holder to continue to
hold the AMPS subject to such  Submitted  Bid,  unless the number of Outstanding
AMPS subject to all such Submitted Bids shall be greater than the number of AMPS
("remaining shares") in the excess of the Available AMPS of such series over the
number of AMPS subject to Submitted  Bids described in clauses (ii) and (iii) of
this paragraph  (a), in which event such  Submitted Bid of such Existing  Holder
shall be  rejected  in part,  and such  Existing  Holder  shall be  entitled  to
continue to hold AMPS subject to such Submitted Bid, but only in an amount equal
to the  number of AMPS of such  series  obtained  by  multiplying  the number of
remaining  shares by a fraction,  the  numerator of which shall be the number of
Outstanding  AMPS held by such Existing Holder subject to such Submitted Bid and
the  denominator  of which shall be the  aggregate  number of  Outstanding  AMPS
subject to such Submitted Bids made by all such Existing  Holders that specified
a rate equal to the Winning Bid Rate for shares of such series; and

     (v)  each  Potential  Holder's  Submitted  Bid for  shares  of such  series
specifying  a rate  that is equal to the  Winning  Bid Rate for  shares  of such
series  shall be accepted but only in an amount equal to the number of shares of
such series  obtained by  multiplying  the number of shares in the excess of the
Available  AMPS of such series over the number of AMPS subject to Submitted Bids
described in clauses (ii) through (iv) of this paragraph (a) by a fraction,  the
numerator  of which  shall be the  number of  Outstanding  AMPS  subject to such
Submitted  Bid and the  denominator  of which shall be the  aggregate  number of
Outstanding  AMPS  subject  to such  Submitted  Bids made by all such  Potential
Holders  that  specified a rate equal to the Winning Bid Rate for shares of such
series.

     (b) If  Sufficient  Clearing  Bids for  shares of a series of AMPS have not
been made (other than because all of the  Outstanding  shares of such series are
subject to Submitted Hold Orders), subject to the provisions of paragraph (d) of
this Section 4, Submitted  Orders for shares of such series shall be accepted or
rejected as follows in the following  order of priority and all other  Submitted
Bids for shares of such series shall be rejected:

     (i) Existing  Holders'  Submitted Bids for shares of such series specifying
any rate  that is equal to or lower  than the  Maximum  Rate for  shares of such
series shall be rejected,  thus entitling  such Existing  Holders to continue to
hold the AMPS subject to such Submitted Bids;

     (ii) Potential Holders' Submitted Bids for shares of such series specifying
any rate  that is equal to or lower  than the  Maximum  Rate for  shares of such
series shall be accepted; and

     (iii)  Each  Existing  Holder's  Submitted  Bid for  shares of such  series
specifying  any rate that is higher  than the  Maximum  Rate for  shares of such
series and the Submitted  Sell Orders for shares of such series of each Existing
Holder shall be accepted,  thus entitling each Existing Holder that submitted or
on whose behalf was submitted any such  Submitted Bid or Submitted Sell Order to
sell the shares of such series  subject to such  Submitted Bid or Submitted Sell
Order, but in both cases only in an amount equal to the number of shares of such
series  obtained by  multiplying  the number of shares of such series subject to
Submitted Bids described in clause (ii) of this paragraph (b) by a fraction, the
numerator of which shall be the number of Outstanding shares of such series held
by such Existing  Holder  subject to such  Submitted Bid or Submitted Sell Order
and the denominator of which shall be the aggregate number of Outstanding shares
of such series subject to all such Submitted Bids and Submitted Sell Orders.

     (c) If all of the  Outstanding  shares of a series of AMPS are  subject  to
Submitted  Hold Orders,  all  Submitted  Bids for shares of such series shall be
rejected.

     (d) If, as a result of the  procedures  described  in clause (iv) or (v) of
paragraph  (a) or clause (iii) of paragraph  (b) of this Section 4, any Existing
Holder would be entitled or required to sell, or any  Potential  Holder would be
entitled or required to  purchase,  a fraction of a share of a series of AMPS on
any Auction Date, the Auction Agent shall,  in such manner as it shall determine
in its sole discretion, round up or down the number of AMPS of such series to be
purchased  or sold by any Existing  Holder or  Potential  Holder on such Auction
Date as a result of such procedures so that the number of shares so purchased or
sold by each Existing  Holder or Potential  Holder on such Auction Date shall be
whole AMPS.

     (e) If, as a result of the procedures  described in clause (v) of paragraph
(a) of this  Section 4, any  Potential  Holder  would be entitled or required to
purchase  less than a whole share of a series of AMPS on any Auction  Date,  the
Auction  Agent  shall,  in  such  manner  as it  shall  determine  in  its  sole
discretion, allocate AMPS of such series for purchase among Potential Holders so
that only whole shares of AMPS of such series are purchased on such Auction Date
as a result of such procedures by any Potential Holder,  even if such allocation
results in one or more Potential  Holders not purchasing  AMPS of such series on
such Auction Date.

     (f) Based on the  results of each  Auction  for shares of a series of AMPS,
the Auction Agent shall determine the aggregate  number of shares of such series
to be purchased and the aggregate  number of shares of such series to be sold by
Potential  Holders and  Existing  Holders and,  with  respect to each  Potential
Holder and Existing  Holder,  to the extent that such aggregate number of shares
to be purchased and such aggregate number of shares to be sold differ, determine
to which other Potential  Holder(s) or Existing Holder(s) they shall deliver, or
from which other Potential  Holder(s) or Existing  Holder(s) they shall receive,
as the case may be, AMPS of such series.  Notwithstanding  any  provision of the
Auction  Procedures  to the  contrary,  in  the  event  an  Existing  Holder  or
Beneficial  Owner of a  series  of AMPS  with  respect  to whom a  Broker-Dealer
submitted a Bid to the Auction  Agent for such shares that was accepted in whole
or in part,  or submitted  or is deemed to have  submitted a Sell Order for such
shares that was accepted in whole or in part, fails to instruct its Agent Member
to deliver such shares against payment therefor, partial deliveries of AMPS that
have been made in respect of Potential Holders' or Potential  Beneficial Owners'
Submitted  Bids for shares of such series that have been accepted in whole or in
part shall  constitute  good  delivery to such  Potential  Holders and Potential
Beneficial Owners.

     (g)  Neither  the Fund nor the Auction  Agent nor any  affiliate  of either
shall have any  responsibility  or  liability  with respect to the failure of an
Existing Holder, a Potential Holder, a Beneficial Owner, a Potential  Beneficial
Owner or its respective Agent Member to deliver AMPS of any series or to pay for
AMPS of any series  sold or  purchased  pursuant to the  Auction  Procedures  or
otherwise.


5.  Notification of Allocations.

     Whenever the Fund intends to include any net capital  gains or other income
taxable for Federal  income tax purposes in any dividend on AMPS,  the Fund may,
but shall not be required  to,  notify the Auction  Agent of the amount to be so
included not later than the Dividend  Payment  Date next  preceding  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,  it will be
required in turn to notify each Broker-Dealer,  who, on or prior to such Auction
Date, in accordance with its Broker-Dealer Agreement, will be required to notify
its Beneficial Owners and Potential  Beneficial Owners of AMPS believed by it to
be  interested  in submitting an Order in the Auction to be held on such Auction
Date.

6.  Auction Agent.

     For so long as any AMPS are outstanding,  the Auction Agent, duly appointed
by the Fund to so act, shall be in each case a commercial bank, trust company or
other financial  institution  independent of the Fund and its affiliates  (which
however may engage or have engaged in business transactions with the Fund or its
affiliates)  and at no time shall the Fund or any of its  affiliates  act as the
Auction Agent in connection  with the Auction  Procedures.  If the Auction Agent
resigns or for any reason its  appointment is terminated  during any period that
any AMPS are  outstanding,  the Board of  Trustees  shall  use its best  efforts
promptly thereafter to appoint another qualified  commercial bank, trust company
or  financial  institution  to act as the Auction  Agent.  The  Auction  Agent's
registry of Existing Holders of a series of AMPS shall be conclusive and binding
on the Broker-Dealers.  A Broker-Dealer may inquire of the Auction Agent between
3:00 p.m. on the Business Day preceding an Auction for a series of AMPS and 9:30
a.m. on the Auction Date for such  Auction to ascertain  the number of shares of
such series in respect of which the Auction  Agent has  determined  such Broker-
Dealer  to be an  Existing  Holder.  If such  Broker-Dealer  believes  it is the
Existing  Holder of fewer  shares of such series than  specified  by the Auction
Agent in response to such  Broker-Dealer's  inquiry,  such  Broker-Dealer may so
inform the Auction Agent of that belief.  Such  Broker-Dealer  shall not, in its
capacity  as Existing  Holder of shares of such  series,  submit  Orders in such
Auction in respect of shares of such series  covering in the aggregate more than
the number of shares of such series  specified by the Auction  Agent in response
to such Broker-Dealer's inquiry.


7.  Transfer of AMPS.

     Unless  otherwise  permitted by the Fund, a Beneficial Owner or an Existing
Holder may sell,  transfer or otherwise dispose of AMPS only in whole shares and
only pursuant to a Bid or Sell Order placed with the Auction Agent in accordance
with the procedures  described in this Part II or to a Broker-Dealer;  provided,
however,  that (a) a sale, transfer or other disposition of AMPS from a customer
of a  Broker-Dealer  who is listed on the records of that  Broker-Dealer  as the
holder  of such  shares  to  that  Broker-Dealer  or  another  customer  of that
Broker-Dealer  shall not be deemed to be a sale,  transfer or other  disposition
for purposes of this Section 7 if such Broker-Dealer remains the Existing Holder
of the shares so sold,  transferred or disposed of immediately  after such sale,
transfer or disposition and (b) in the case of all transfers other than pursuant
to Auctions,  the  Broker-Dealer  (or other Person, if permitted by the Fund) to
whom such transfer is made shall advise the Auction Agent of such transfer.


8.  Global Certificate.

     Prior to the  commencement  of a Voting Period,  (i) all of the shares of a
series of AMPS  outstanding from time to time shall be represented by one global
certificate  registered in the name of the Securities  Depository or its nominee
and (ii) no registration of transfer of shares of a series of AMPS shall be made
on the books of the Fund to any Person other than the  Securities  Depository or
its nominee.

     IN WITNESS  WHEREOF,  FEDERATED  PREMIER  MUNICIPAL INCOME FUND, has caused
these  presents to be signed in its name and  attested on its behalf by its duly
authorized  officers as of February  13,  2003.  Said  officers of the Fund have
executed this Statement as officers and not  individually,  and the  obligations
and rights set forth in this  Statement are not binding upon any such  officers,
or the Trustees or shareholders of the Fund, individually,  but are binding only
upon the assets and property of the Fund.

FEDERATED PREMIER MUNICIPAL INCOME FUND


By:       /s/ Mary Jo Ochson
Name:   Mary Jo Ochson
Title:        Vice President

ATTEST:


         /s/ Nelson W. Winter
Name: Nelson W. Winter
Title:      Assistant Secretary



                                                                       EXHIBIT A


                          FEDERATED PREMIER MUNICIPAL INCOME FUND


                                         SECTION 1

Designation as to Series.

     SERIES A: A series of 2,147  AMPS,  par value $.01 per  share,  liquidation
preference  $25,000 per share, is hereby  designated  "Auction Market  Preferred
Shares,  Series A." Each of the 2,147 shares of Series A AMPS issued on February
18, 2003 shall, for purposes hereof,  be deemed to have a Date of Original Issue
of February 18, 2003;  have an Applicable Rate for its Initial Rate Period equal
to 1.05% per annum;  have an initial Dividend Payment Date of February 28, 2003;
and  have  such  other  preferences,   rights,   voting  powers,   restrictions,
limitations  as  to  dividends,  qualifications  and  terms  and  conditions  of
redemption,  in addition to those required by applicable law or set forth in the
Declaration,  applicable to preferred shares of the Fund, as set forth in Part I
and Part II of this  Statement.  Any shares of Series A AMPS  issued  thereafter
shall be issued on the first day of a Rate Period of the then outstanding shares
of Series A AMPS, shall have, for such Rate Period,  an Applicable Rate equal to
the Applicable  Rate for shares of such series  established in the first Auction
for shares of such series  preceding the date of such  issuance;  and shall have
such other preferences,  rights, voting powers, restrictions,  limitations as to
dividends, qualifications and terms and conditions of redemption, in addition to
those required by applicable law or set forth in the  Declaration  applicable to
preferred  shares  of the  Fund,  as set  forth  in  Part I and  Part II of this
Statement.  The Series A AMPS shall  constitute a separate series of AMPS of the
Fund,  and each share of Series A AMPS shall be identical  except as provided in
Section 11 of Part I of this Statement.


                                         SECTION 2


Number of Authorized Shares Per Series.

      The number of authorized shares constituting Series A AMPS is 2,147.


                                         SECTION 3


Exceptions to Certain Definitions.

     Notwithstanding the definitions  contained under the heading  "Definitions"
in this  Statement,  the following  terms shall have the following  meanings for
purposes of this Statement:

      Not applicable.


                                         SECTION 4


Certain Definitions.

     For  purposes  of this  Statement,  the  following  terms  shall  have  the
following  meanings  (with  terms  defined  in the  singular  having  comparable
meanings when used in the plural and vice versa),  unless the context  otherwise
requires:

      Not applicable.


                                         SECTION 5


Initial Rate Periods.

     The  Initial  Rate  Period  for shares of Series A AMPS shall be the period
from and including the Date of Original Issue thereof to but excluding  February
28, 2003.


                                         SECTION 6


     Date for Purposes of the Definition of "Quarterly Valuation Date" Contained
Under the Heading "Definitions" in this Statement.

      May 30, 2003


                                         SECTION 7


Dividend Payment Dates.

     Except as  otherwise  provided in  paragraph  (d) of Section 2 of Part I of
this  Statement,  dividends shall be payable on shares of Series A AMPS, for the
Initial Rate Period on February 28, 2003, and on each Friday thereafter.


                                         SECTION 8


Adjustment of Length of Special Rate Period.

     In the event the Fund wishes to designate a Subsequent  Rate Period for any
Series  A AMPS as a  Special  Rate  Period,  but the day  following  what  would
otherwise  be the last day of such Special Rate Period is not a Friday that is a
Business Day, then the Fund shall  designate  such  Subsequent  Rate Period as a
Special  Rate  Period  consisting  of the  period  commencing  on the  first day
following  the end of the  immediately  preceding  Rate Period and ending on the
first  Thursday  that is followed by a Friday that is a Business  Day  preceding
what would otherwise be such last day.


                                         SECTION 9


Redemption Provisions Applicable to Initial Rate Periods.

      Not applicable.














                                         APPENDIX B
                                     Investment Ratings

Standard and Poor's Long-Term Debt Rating Definitions

     AAA--Debt  rated AAA has the highest rating  assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.

     AA--Debt  rated AA has a very  strong  capacity to pay  interest  and repay
principal and differs from the higher-rated issues only in small degree.

     A--Debt rated A has a strong  capacity to pay interest and repay  principal
although it is somewhat more  susceptible  to the adverse  effects of changes in
circumstances and economic conditions than debt in higher-rated categories.

     BBB--Debt  rated BBB is  regarded  as having an  adequate  capacity  to pay
interest and repay principal.  Whereas it normally exhibits adequate  protection
parameters,  adverse  economic  conditions  or changing  circumstances  are more
likely to lead to a weakened  capacity to pay interest and repay  principal  for
debt in this category than in higher-rated categories.

     BB--Debt  rated BB has less near-term  vulnerability  to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse  business,   financial  or  economic  conditions  which  could  lead  to
inadequate  capacity to meet timely  interest  and  principal  payments.  The BB
rating  category  is also  used for debt  subordinated  to  senior  debt that is
assigned an actual or implied BBB rating.

     B--Debt  rated B has a greater  vulnerability  to default but currently has
the  capacity  to meet  interest  payments  and  principal  repayments.  Adverse
business,  financial  or  economic  conditions  will likely  impair  capacity or
willingness to pay interest and repay  principal.  The B rating category is also
used for debt  subordinated to senior debt that is assigned an actual or implied
BB or BB- rating.

     CCC--Debt rated CCC has a currently identifiable  vulnerability to default,
and is dependent upon favorable  business,  financial and economic conditions to
meet timely  payment of interest  and  repayment of  principal.  In the event of
adverse business, financial or economic conditions, it is not likely to have the
capacity to pay interest and repay  principal.  The CCC rating  category is also
used for debt  subordinated to senior debt that is assigned an actual or implied
B or B- rating.

     CC--The rating CC typically is applied to debt  subordinated to senior debt
that is assigned an actual or implied CCC debt rating.

     C--The  rating C typically is applied to debt  subordinated  to senior debt
which is assigned an actual or implied CCC debt rating. The C rating may be used
to cover a  situation  where a  bankruptcy  petition  has been  filed,  but debt
service payments are continued.

Moody's Investors Service Long-Term Bond Rating Definitions

     Aaa--Bonds  which are rated Aaa are judged to be of the best quality.  They
carry the smallest  degree of investment  risk and are generally  referred to as
"gilt edged." Interest  payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change,  such changes 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 Ba are  judged  to have  speculative  elements;  their
future cannot be considered  as well assured.  Often the  protection of interest
and  principal  payments may be very  moderate and thereby not well  safeguarded
during  both  good  and bad  times  over the  future.  Uncertainty  of  position
characterizes bonds in this class.

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

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

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

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

Fitch Ratings Long-Term Debt Rating Definitions

     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.

     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 imminent default in payment of interest or principal.

Moody's Investors Service Commercial Paper Ratings

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

     Prime-2--Issuers rated Prime-2 (or related supporting  institutions) have a
strong capacity 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.

Standard and Poor's Commercial Paper Ratings

     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.

Fitch Ratings Commercial Paper Rating Definitions

     FITCH-1--(Highest  Grade) Commercial paper assigned this rating is regarded
as having the strongest degree of assurance for timely payment.

     FITCH-2--(Very Good Grade) Issues assigned this rating reflect an assurance
of timely payment only slightly less in degree than the strongest issues.

Addresses

federated PREMIER municipal INCOME FUND
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA  15237-7000

Underwriter
Merrill Lynch, Pierce, Fenner & Smith Incorporated
4 World Financial Center
New York, NY 10080

Investment Adviser
Federated Investment Management Company
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Custodian
State Street Bank and Trust Company
P. O. Box 8600
Boston, MA  02266-8600


Independent Auditors
Ernst & Young LLP
200 Clarendon Street
Boston, MA  02116-5072










CUSIP 31423P207
















PART C.    OTHER INFORMATION.

Item 24.    Financial Statements and Exhibits.

            Financial Statements:

Part A: Financial Highlights (unaudited) dated February 3, 2003

Part B: Audited  Statement  of Assets and  Liabilities  dated  December 16, 2002
     Financial  Highlights  (unaudited)  dated  February  3, 2003  Portfolio  of
     Investments  (unaudited)  dated  February 3, 2003  Statement  of Assets and
     Liabilities  (unaudited)  dated  February 3, 2003  Statement of  Operations
     (unaudited)  dated  February  3, 2003  Statement  of  Changes in Net Assets
     (unaudited) dated February 3, 2003

            Exhibits:

(a)   (i) Copy of Amended and Restated Declaration of Trust of the Registrant;
          (3)
      (ii)Conformed copy of Amended and Restated Certificate of Trust of the
          Registrant; (4)
    (iii) Copy of Statement of Preferences of the Registrant (incorporated
          by reference to Appendix A of Registrant's Statement of Additional
          Information;
(b)   Copy of Amended and Restated By-Laws of the Registrant; (3)
(c)   Not applicable;
(d)   Form of Stock Certificate of the Registrant; (3)
     (i) Form of Preferred Shares certificate of the Registrant; (6)
(e)   Copy of Registrant's dividend reinvestment plan; (3)
(f)   Not applicable;
(g)   Conformed copy of Investment Management Agreement of the Registrant; (3)
____________________________________________________________
+     All exhibits are being filed electronically.

3.   Response is incorporated to Registrant's  Pre-Effective  Amendment No. 3 to
     its  Registration  Statement  filed on Form N-2 on December  17, 2002 (File
     Nos. 333-100605 and 811-21235).

4.   Response is incorporated to Registrant's  Pre-Effective  Amendment No. 4 to
     its  Registration  Statement  filed on Form N-2 on December  19, 2002 (File
     Nos. 333-100605 and 811-21235).

6.   Response is incorporated to Registrant's  Pre-Effective  Amendment No. 3 to
     its Registration Statement (Preferred Shares) filed on Form N-2 on February
     12, 2003 (File Nos. 333-102033 and 811-21235).




(h)  Conformed Copy of Master Agreement Among Underwriters; (3)
     (i)  Conformed copy of Purchase Agreement (Common Shares); (6)
     (ii)Form of Standard Dealer Agreement of Merrill Lynch and Co.; (3)
     (iii)Conformed copy of Additional Compensation Agreement; (6)
     (iv)Form of Purchase Agreement (Preferred Shares); (6)
(i)   Not applicable;
(j)   Conformed copy of custodian agreement; (3)
      (i)Copy of Global Custody Fee Schedule; (3)
      (ii)  Copy of Addendum to Global Custody Fee Schedule; (3)
      (iii) Copy of Portfolio Recordkeeping Fee Schedule; (3)
      (iv)  Copy of Domestic Custody Fee Schedule; (3)
(k)   Conformed copy of Amended and Restated Agreement for Fund Accounting
      Services, Administrative Services, Transfer Agency Services and Custody
      Services Procurement; (3)
      (i)Conformed copy of Indemnification Agreement
      (Common Shares) between the Registrant and the Adviser; (6)
      (ii)Conformed copy of Transfer Agency Agreement of the Registrant;
      (6)
      (iii)Form of Auction Agency Agreement; (6)
      (iv)Form of Broker/Dealer Agreement; (6)
      (v)Form of Indemnification Agreement (Preferred Shares) between the
      Registrant and the Adviser; (6)
      (vi) Form of Depository Trust Company Letter of Representations; (6)
(l)   Conformed copy of Opinion and Consent of Counsel as to legality of
      shares being registered; (5)
(m)   Not applicable;
(n)   Conformed copy of Consent of Independent Auditors; (5)
(o)   Not applicable;
(p)   Form of Letter Agreement between the Registrant and the Adviser to
      Purchase Shares; (4)
(q)   Not applicable;
(r)   The Registrant hereby incorporates the conformed copy of the Code of
      Ethics for Access Persons from Item 23(p) of the Federated Managed
      Allocation Portfolios Registration Statement on Form N-1A filed with the
      Commission on January 25, 2001.  (File Nos. 33-51247 and 811-7129).
(s)   Conformed copy of the Power of Attorney of the Registrant. (3)

Item 25.    Marketing Arrangements


Reference is made to the Master  Agreement Among  Underwriters  filed as exhibit
(h) to Pre-Effective Amendment No. 3 on December 17, 2002.

________________________________________________________
+     All exhibits are being filed electronically.

3.   Response is incorporated to Registrant's  Pre-Effective  Amendment No. 3 to
     its  Registration  Statement  filed on Form N-2 on December  17, 2002 (File
     Nos. 333-100605 and 811-21235).

4.   Response is incorporated to Registrant's  Pre-Effective  Amendment No. 4 to
     its  Registration  Statement  filed on Form N-2 on December  19, 2002 (File
     Nos. 333-100605 and 811-21235).

5.   Response is incorporated to Registrant's  Pre-Effective  Amendment No. 2 to
     its Registration Statement (Preferred Shares) filed on Form N-2 on February
     10, 2003 (File Nos. 333-102033 and 811-21235).

6.   Response is incorporated to Registrant's  Pre-Effective  Amendment No. 3 to
     its Registration Statement (Preferred Shares) filed on Form N-2 on February
     12, 2003 (File Nos. 333-102033 and 811-21235).


Item 26.    Other Expenses of Issuance and Distribution*

            Registration Fee:                    $4,938.10
            Rating Fees:                         $65,000.00
            Printing:                            $5,000.00
            Legal fees and expenses:             $110,000.00

            *Estimated


Item 27.    Persons Controlled by or Under Common Control with the Fund:

            None




Item 28.    Number of Holders of Securities

As of June 13, 2003, set forth below is information concerning record holders of
the Fund's securities:


            Title of Class                            Number of Record Holders

            Common Shares                             32

            AMPS                                      1


Item 29.    Indemnification:

Indemnification is provided to Officers and Trustees of the Registrant  pursuant
to Article V of  Registrant's  Declaration of Trust.  The Investment  Management
Agreement  between the Registrant and Federated  Investment  Management  Company
("Adviser")  provides  that, in the absence of willful  misfeasance,  bad faith,
gross negligence,  or reckless  disregard of the obligations or duties under the
Investment  Management  Agreement on the part of Adviser,  Adviser  shall not be
liable to the  Registrant or to any  shareholder  for any act or omission in the
course of or connected in any way with rendering services or for any losses that
may be sustained in the purchase, holding, or sale of any security. Registrant's
Trustees and Officers are covered by an  Investment  Trust Errors and  Omissions
Policy.  The  Purchase  Agreement  between the  Registrant,  the Adviser and the
Underwriters  named therein provides for  indemnification of the Underwriters by
the  Registrant  and the Adviser and of the Registrant and the Adviser and their
officers and trustees for certain liabilities and also provides for contribution
under  certain   circumstances.   The  Indemnification   Agreement  between  the
Registrant and the Adviser  provides for  indemnification  of the Registrant and
its officers and trustees for certain liabilities.

Insofar as indemnification  for liabilities  arising under the Securities Act of
1933 may be permitted  to Trustees,  Officers,  and  controlling  persons of the
Registrant by the Registrant  pursuant to the Declaration of Trust or otherwise,
the  Registrant  is aware that in the  opinion of the  Securities  and  Exchange
Commission,  such  indemnification  is against public policy as expressed in the
Act  and,  therefore,   is  unenforceable.   In  the  event  that  a  claim  for
indemnification  against  such  liabilities  (other  than  the  payment  by  the
Registrant of expenses incurred or paid by Trustees),  Officers,  or controlling
persons of the Registrant in connection with the successful  defense of any act,
suit, or  proceeding)  is asserted by such  Trustees,  Officers,  or controlling
persons in connection  with the shares being  registered,  the Registrant  will,
unless in the opinion of its counsel the matter has been settled by  controlling
precedent,  submit to a court of appropriate  jurisdiction  the question whether
such  indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issues.

Insofar as indemnification  for liabilities may be permitted pursuant to Section
17 of the Investment Company Act of 1940 for Trustees, Officers, and controlling
persons of the Registrant by the Registrant pursuant to the Declaration of Trust
or  otherwise,  the  Registrant is aware of the position of the  Securities  and
Exchange Commission as set forth in Investment Company Act Release No. IC-11330.
Therefore,  the  Registrant  undertakes  that in addition to complying  with the
applicable  provisions of the Declaration of Trust or otherwise,  in the absence
of a final  decision  on the  merits by a court or other body  before  which the
proceeding was brought, that an indemnification  payment will not be made unless
in the absence of such a decision, a reasonable determination based upon factual
review has been made (i) by a majority  vote of a quorum of  non-party  Trustees
who are not interested  persons of the  Registrant or (ii) by independent  legal
counsel in a written  opinion that the  indemnitee  was not liable for an act of
willful  misfeasance,  bad faith,  gross  negligence,  or reckless  disregard of
duties.  The Registrant further undertakes that advancement of expenses incurred
in the defense of a proceeding  (upon  undertaking  for  repayment  unless it is
ultimately  determined that  indemnification is appropriate) against an Officer,
Trustee or  controlling  person of the  Registrant  will not be made  absent the
fulfillment  of at least one of the  following  conditions:  (i) the  indemnitee
provides  security for his  undertaking;  (ii) the Registrant is insured against
losses arising by reason of any lawful advances; or (iii) a majority of a quorum
of disinterested  non-party  Trustees or independent  legal counsel in a written
opinion  makes a factual  determination  that  there is reason  to  believe  the
indemnitee will be entitled to indemnification.



Item 30. Business and Other Connections of Investment Adviser:

For a  description  of the other  business of the  investment  adviser,  see the
section entitled  "Management of the Fund" in Part A. The affiliations  with the
Registrant  of four of the Trustees  and one of the  Officers of the  investment
adviser are included in Part B of this Registration  Statement under "Management
of  the  Fund"  The  remaining  Trustees  of  the  investment  adviser  and,  in
parentheses,   their  principal  occupations  are:  Thomas  R.  Donahue,  (Chief
Financial Officer, Federated Investors,  Inc.), 1001 Liberty Avenue, Pittsburgh,
PA,  15222-3779  and Mark D.  Olson (a  principal  of the firm,  Mark D. Olson &
Company,  L.L.C.  and Partner,  Wilson,  Halbrook & Bayard,  P.A.), 800 Delaware
Avenue, P.O. Box 2305, Wilmington, DE 19899-2305.

The remaining Officers of the investment adviser are:

Vice Chairman:                                  J. Thomas Madden

President/ Chief Executive Officer
and Trustee:                                    Keith M. Schappert

Executive Vice Presidents:                      Stephen F. Auth
                                                William D. Dawson, III

Senior Vice Presidents:                         Joseph M. Balestrino
                                                David A. Briggs
                                                Jonathan C. Conley
                                                Christopher F. Corapi
                                                Deborah A. Cunningham
                                                Linda A. Duessel
                                                Mark E. Durbiano
                                                James E. Grefenstette
                                                Robert M. Kowit
                                                Jeffrey A. Kozemchak
                                                Susan M. Nason
                                                Mary Jo Ochson
                                                Robert J. Ostrowski
                                                Frank Semack
                                                Richard Tito
                                                Peter Vutz

Vice Presidents:                                Todd A. Abraham
                                                J. Scott Albrecht
                                                Randall S. Bauer
                                                Nancy J.Belz
                                                G. Andrew Bonnewell
                                                David M. Bruns
                                                Robert E. Cauley
                                                Regina Chi
                                                Ross M. Cohen
                                                Fred B. Crutchfield
                                                Lee R. Cunningham, II
                                                Alexandre de Bethmann
                                                Anthony Delserone, Jr.
                                                Donald T. Ellenberger
                                                Eamonn G. Folan
                                                John T. Gentry
                                                David P. Gilmore
                                                Curtis R. Gross
                                                Marc Halperin
                                                John W. Harris
                                                Patricia L. Heagy
                                                Susan R. Hill
                                                Nikola A. Ivanov
                                                William R. Jamison
                                                Constantine J. Kartsonas
                                                Nathan H. Kehm
                                                John C. Kerber
                                                J. Andrew Kirschler
                                                Steven Lehman
                                                Marian R. Marinack
                                                Natalie F. Metz
                                                Thomas J. Mitchell
                                                Joseph M. Natoli
                                                John L. Nichol
                                                Mary Kay Pavuk
                                                Jeffrey A. Petro
                                                John P. Quartarolo
                                                Ihab L. Salib
                                                Roberto Sanchez-Dahl, Sr.
                                                Aash M. Shah
                                                John Sidawi
                                                Michael W. Sirianni, Jr.
                                                Christopher Smith
                                                Timothy G. Trebilcock
                                                Leonardo A. Vila
                                                Stephen J. Wagner
                                                Paige M. Wilhelm
                                                Richard M. Winkowski, Jr.
                                                Lori A. Wolff
                                                George B. Wright

Assistant Vice Presidents:                      Lori Andrews
                                                Catherine A. Arendas
                                                Nicholas P. Besh
                                                Hanan Callas
                                                David W. Cook
                                                James R. Crea, Jr.
                                                Karol M. Crummie
                                                David Dao
                                                Richard J. Gallo
                                                Kathyrn P. Glass
                                                Igor Golalic
                                                James Grant
                                                Anthony Han
                                                Carol B. Kayworth
                                                Angela A. Kohler
                                                Robert P. Kozlowski
                                                Ted T. Lietz, Sr.
                                                Monica Lugani
                                                Tracey L. Lusk
                                                Ann Manley
                                                Theresa K. Miller
                                                Karl Mocharko
                                                Bob Nolte
                                                Rae Ann Rice
                                                Jennifer G. Setzenfand
                                                Diane R. Startari
                                                Kyle D. Stewart
                                                Mary Ellen Tesla
                                                Nichlas S. Tripodes
                                                Michael R. Tucker
                                                Mark Weiss

Secretary:                                      G. Andrew Bonnewell

Treasurer:                                      Thomas R. Donahue

Assistant Secretaries:                          Jay S. Neuman
                                                Leslie K. Ross

Assistant Treasurer:                            Denis McAuley, III

The  business  address  of each of the  Officers  of the  investment  adviser is
Federated  Investors  Tower,  1001  Liberty  Avenue,  Pittsburgh,   Pennsylvania
15222-3779.  These individuals are also officers of a majority of the investment
advisers to the investment  companies in the Federated Fund Complex described in
Part B of this Registration Statement.



Item 31.  Location of Accounts and Records:

All  accounts  and records  required to be  maintained  by Section  31(a) of the
Investment  Company  Act of 1940  and  Rules  31a-1  through  31a-3  promulgated
thereunder are maintained at one of the following locations:

           Registrant                     Reed Smith LLP
                               Investment and Asset Management Group (IAMG)
                                          Federated Investors Tower
                                          12th Floor
                                          1001 Liberty Avenue
                                          Pittsburgh, PA 15222-3779
                                          (Notices should be sent to the
                                          Agent for Service at above
                                          address)

                                          Federated Investors Funds
                                          5800 Corporate Drive
                                          Pittsburgh, PA  15237-7000

           EquiServe Trust Co., N.A.      P.O. Box 43011
           ("Transfer Agent and Dividend  Providence, RI 02940-3011
           Disbursing Agent")

           Federated Services             Federated Investors Tower
           Company                        1001 Liberty Avenue
           ("Administrator")              Pittsburgh, PA  15222-3779
(((
           Federated Investment           Federated Investors Tower
           Management Company             1001 Liberty Avenue
           ("Adviser")                    Pittsburgh, PA  15222-3779

           State Street Bank and          P.O. Box 8600
           Trust Company                  Boston, MA  02266-8600
           ("Custodian")

Item 32.  Management Services:            Not applicable.

Item 33.  Undertakings:

The Registrant undertakes to suspend the offering of shares until the prospectus
is  amended  if  (1)  subsequent  to the  effective  date  of  its  registration
statement, the net asset value declines more than ten percent from its net asset
value as of the effective date of the registration statement.

          The Registrant undertakes that:

(a)  for purposes of determining any liability under the Securities Act of 1933,
     the information  omitted from the form of prospectus  filed as part of this
     registration  statement in reliance  upon Rule 430A and contained in a form
     of prospectus filed by the Registrant  pursuant to Rule 424(b)(1) or (4) or
     497(h)  under  the  Securities  Act  shall  be  deemed  to be  part of this
     registration statement as of the time it was declared effective.

(b)  for the purpose of  determining  any liability  under the 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.

     The  Registrant  undertakes  to send by first  class  mail or  other  means
designed to ensure equally prompt  delivery  within two business days of receipt
of  a  written  or  oral  request,  the  Registrant's  Statement  of  Additional
Information.



                                   SIGNATURES

     Pursuant  to  the  requirements  of the  Securities  Act of  1933  and  the
Investment  Company Act of 1940, the  Registrant,  FEDERATED  PREMIER  MUNICIPAL
INCOME  FUND,  has duly caused this  Registration  Statement to be signed on its
behalf by the undersigned,  thereto duly  authorized,  in the City of Pittsburgh
and Commonwealth of Pennsylvania, on the 30th day of June, 2003.

                          FEDERATED PREMIER MUNICIPAL INCOME FUND

                  BY: /s/ Leslie K. Ross
                  Leslie K. Ross, Assistant Secretary
                  Attorney in Fact for John F. Donahue
                  June 30, 2003

     Pursuant  to  the   requirements  of  the  Securities  Act  of  1933,  this
Registration  Statement  has been signed  below by the  following  person in the
capacity and on the date indicated:

    NAME                            TITLE                         DATE

By: /s/ Leslie K. Ross            Attorney In Fact          June 30, 2003
    Leslie K. Ross                For the Persons
    ASSISTANT SECRETARY           Listed Below

    NAME                            TITLE

John F. Donahue*                  Chairman and Trustee

J. Christopher Donahue*           President and Trustee
                                  (Principal Executive Officer)

Richard J. Thomas*                Treasurer
                                  (Principal Financial Officer)

William D. Dawson, III*           Chief Investment Officer

Thomas G. Bigley*                 Trustee

John T. Conroy, Jr.*              Trustee

Nicholas P. Constantakis*         Trustee

John F. Cunningham*               Trustee

Lawrence D. Ellis, M.D.*          Trustee

Peter E. Madden*                  Trustee

Charles F. Mansfield, Jr.*        Trustee

John E. Murray, Jr.*              Trustee

Marjorie P. Smuts*                Trustee

John S. Walsh*                    Trustee


*by power of attorney