As filed with the Securities and Exchange Commission on October 5, 1999
Securities Act File No. 333-
Investment Company Act File No. 811-08349
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------
FORM N-14
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------------
|_| Pre-Effective Amendment No.
|_| Post-Effective Amendment No.
(Check appropriate box or boxes)
------------------------------
MuniHoldings Florida Insured Fund
(Exact Name of Registrant as Specified in Its Charter)
------------------------------
(609) 282-2800
(Area Code and Telephone Number)
------------------------------
800 Scudders Mill Road
Plainsboro, New Jersey 08536
(Address of Principal Executive Offices:
Number, Street, City, State, Zip Code)
------------------------------
Terry K. Glenn
MuniHoldings Florida Insured Fund
800 Scudders Mill Road, Plainsboro, New Jersey 08536
Mailing Address:
P.O. Box 9011, Princeton, New Jersey 08543-9011
(Name and Address of Agent for Service)
------------------------------
Copies to:
Frank P. Bruno, Esq. Michael J. Hennewinkel, Esq.
Brown & Wood LLP Merrill Lynch Asset Management, L.P.
One World Trade Center 800 Scudders Mill Road
New York, NY 10048-0557 Plainsboro, NJ 08536
------------------------------
Approximate Date of Proposed Public Offering: As soon as practicable after
the Registration Statement becomes effective under the Securities Act of 1933.
------------------------------
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
================================================================================
<TABLE>
<CAPTION>
Proposed Proposed
Maximum Maximum Amount of
Amount Being Offering Price Aggregate Offering Registration
Title of Securities Being Registered Registered (1) Per Unit (1) Price (1) Fee(3)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Shares ($.10 par value) 25,262,717 $ 13.49 $340,780,562 $ 95,419
- -------------------------------------------------------------------------------------------------------------------
Auction Market Preferred Shares, Series C 3,440 $25,000 (2) $ 86,000,000 $ 22,905
- -------------------------------------------------------------------------------------------------------------------
Auction Market Preferred Shares, Series D 2,160 $25,000 (2) $ 54,000,000 $ 15,012
- -------------------------------------------------------------------------------------------------------------------
Auction Market Preferred Shares, Series E 3,340 $25,000 (2) $ 83,500,000 $ 23,213
===================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the filing fee.
(2) Represents the liquidation preference of a share of preferred stock after
the reorganization.
(3) Paid by wire transfer to the designated lockbox of the Securities and
Exchange Commission in Pittsburgh, Pennsylvania.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
================================================================================
<PAGE>
MUNIHOLDINGS FLORIDA INSURED FUND
MUNIHOLDINGS FLORIDA INSURED FUND II
MUNIHOLDINGS FLORIDA INSURED FUND III
MUNIHOLDINGS FLORIDA INSURED FUND IV
P.O. BOX 9011
PRINCETON, NEW JERSEY 08543-9011
----------------------------
NOTICE OF ANNUAL MEETINGS OF SHAREHOLDERS
----------------------------
TO BE HELD ON DECEMBER 15, 1999
TO THE SHAREHOLDERS OF
MUNIHOLDINGS FLORIDA INSURED FUND
MUNIHOLDINGS FLORIDA INSURED FUND II
MUNIHOLDINGS FLORIDA INSURED FUND III
MUNIHOLDINGS FLORIDA INSURED FUND IV
NOTICE IS HEREBY GIVEN that the annual meetings of shareholders (the
"Meetings") of MuniHoldings Florida Insured Fund ("Florida Insured"),
MuniHoldings Florida Insured Fund II ("Florida Insured II"), MuniHoldings
Florida Insured Fund III ("Florida Insured III") and MuniHoldings Florida
Insured Fund IV ("Florida Insured IV") will be held at the offices of Merrill
Lynch Asset Management, L.P., 800 Scudders Mill Road, Plainsboro, New Jersey on
Wednesday, December 15, 1999 at 9:45 a.m. Eastern time (for Florida Insured II),
10:00 a.m. Eastern time (for Florida Insured), 10:15 a.m. Eastern time (for
Florida Insured III) and 10:30 a.m. Eastern time (for Florida Insured IV) for
the following purposes:
(1) To approve or disapprove an Agreement and Plan of Reorganization (the
"Agreement and Plan of Reorganization") contemplating (i) the acquisition of
substantially all of the assets and the assumption of substantially all of the
liabilities of Florida Insured II by Florida Insured, in exchange solely for an
equal aggregate value of newly-issued common shares of beneficial interest
("Common Shares") of Florida Insured ("Florida Insured Common Shares") and
shares of a newly-created series of auction market preferred shares ("AMPS") of
Florida Insured to be designated Series C ("Florida Insured Series C AMPS") and
the distribution by Florida Insured II of such Florida Insured Common Shares to
the holders of Common Shares of Florida Insured II and such Florida Insured
Series C AMPS to the holders of Series A and Series B AMPS of Florida Insured
II; (ii) the acquisition of substantially all of the assets and the assumption
of substantially all of the liabilities of Florida Insured III by Florida
Insured, in exchange solely for an equal aggregate value of newly-issued Florida
Insured Common Shares and shares of a newly-created series of AMPS of Florida
Insured to be designated Series D ("Florida Insured Series D AMPS") and the
distribution by Florida Insured III of such Florida Insured Common Shares to the
holders of Common Shares of Florida Insured III and such Florida Insured Series
D AMPS to the holders of Series A and Series B AMPS of Florida Insured III; and
(iii) the acquisition of substantially all of the assets and the assumption of
substantially all of the liabilities of Florida Insured IV by Florida Insured,
in exchange solely for an equal aggregate value of newly-issued Florida Insured
Common Shares and shares of a newly-created series of AMPS of Florida Insured to
be designated Series E ("Florida Insured Series E AMPS") and the distribution by
Florida Insured IV of such Florida Insured Common Shares to the holders of
Common Shares of Florida Insured IV and such Florida Insured Series E AMPS to
the holders of Series A and Series B AMPS of Florida Insured IV. A vote in favor
of this proposal also will constitute a vote in favor of the liquidation and
dissolution of each of Florida Insured II, Florida Insured III and Florida
Insured IV and the termination of their respective registration under the
Investment Company Act of 1940;
(2) To elect a Board of Trustees of each of Florida Insured, Florida
Insured II, Florida Insured III and Florida Insured IV to serve for the ensuing
year;
(3) (a) For the shareholders of Florida Insured and Florida Insured II
only: To consider and act upon a proposal to ratify the selection of Deloitte &
Touche LLP to serve as independent auditors of each of Florida Insured and
Florida Insured II for the respective Fund's current fiscal year; and
<PAGE>
(b) For the shareholders of Florida Insured III and Florida Insured IV
only: To consider and act upon a proposal to ratify the selection of Ernst
& Young LLP to serve as independent auditors of each of Florida Insured III
and Florida Insured IV for the respective Fund's current fiscal year; and
(4) To transact such other business as properly may come before the
Meetings or any adjournment thereof.
If the proposed Reorganization is approved by the shareholders at the
Meeting and effected by the Funds, any shareholder (1) who files with the
applicable Fund before the taking of the vote on the approval of such Agreement
and Plan of Reorganization, written objection to the proposed Reorganization
stating that he or she intends to demand payment for his or her shares if the
Reorganization takes place and (2) whose shares are not voted in favor of such
Agreement and Plan of Reorganization has or may have the right to demand in
writing from Florida Insured, within twenty days after the date of mailing to
him or her of notice in writing that the Reorganization has become effective,
payment for his or her shares and an appraisal of the value thereof. Florida
Insured and any such shareholders shall in such cases have the rights and duties
and shall follow the procedure set forth in sections 88 to 98, inclusive, of
chapter 156B of the General Laws of Massachusetts. See "The
Reorganization--Agreement and Plan of Reorganization--Appraisal Rights" in the
Proxy Statement, particularly with respect to the intention of Florida Insured
to petition a court to determine whether this right of appraisal has been
superseded by a rule of the Securities and Exchange Commission, in the event
that any stockholder elects to exercise such right.
The Boards of Trustees of Florida Insured, Florida Insured II, Florida
Insured III and Florida Insured IV have fixed the close of business on October
20, 1999 as the record date for the determination of shareholders entitled to
notice of, and to vote at, the Meetings or any adjournment thereof.
A complete list of the shareholders of Florida Insured, Florida Insured II,
Florida Insured III and Florida Insured IV entitled to vote at the Meetings will
be available and open to the examination of any shareholder of Florida Insured,
Florida Insured II, Florida Insured III or Florida Insured IV, respectively, for
any purpose germane to the Meetings during ordinary business hours from and
after December 1, 1999, at the offices of Florida Insured, 800 Scudders Mill
Road, Plainsboro, New Jersey 08536.
You are cordially invited to attend the Meetings. Shareholders who do not
expect to attend the Meetings in person are requested to complete, date and sign
the enclosed form of proxy applicable to their fund and return it promptly in
the envelope provided for that purpose. The enclosed proxy is being solicited on
behalf of the Board of Trustees of Florida Insured, Florida Insured II, Florida
Insured III or Florida Insured IV, as applicable.
By Order of the Boards of Trustees
WILLIAM E. ZITELLI, JR.
Secretary of MuniHoldings Florida Insured
Fund, MuniHoldings Florida Insured Fund II and
MuniHoldings Florida Insured Fund IV
ALICE A. PELLEGRINO
Secretary of MuniHoldings Florida Insured Fund III
Plainsboro, New Jersey
Dated: , 1999
<PAGE>
- --------------------------------------------------------------------------------
The information in this prospectus is not complete and may be changed. We may
not use this prospectus to sell securities until the registration statement
filed with the Securities and Exchange Commission is effective. This prospectus
is not an offer to sell these securities and is not soliciting an offer to buy
these securities in any State where the offer or sale is not permitted.
- --------------------------------------------------------------------------------
SUBJECT TO COMPLETION
PRELIMINARY PROXY STATEMENT AND PROSPECTUS DATED OCTOBER 5, 1999
PROXY STATEMENT AND PROSPECTUS
MUNIHOLDINGS FLORIDA INSURED FUND
MUNIHOLDINGS FLORIDA INSURED FUND II
MUNIHOLDINGS FLORIDA INSURED FUND III
MUNIHOLDINGS FLORIDA INSURED FUND IV
P.O. Box 9011, Princeton, New Jersey 08543-9011
(609) 282-2800
-----------------------
ANNUAL MEETINGS OF SHAREHOLDERS
-----------------------
DECEMBER 15, 1999
This Joint Proxy Statement and Prospectus is furnished to you as a
shareholder of one of the funds listed above. An Annual Meeting of the
shareholders of each of these funds will be held on December 15, 1999 to
consider several items that are listed below and discussed in greater detail
elsewhere in this Proxy Statement and Prospectus. The Board of Trustees of each
of the funds is requesting its shareholders to submit a proxy to be used at the
Annual Meeting to vote the shares held by the shareholder submitting the proxy.
The proposals to be considered at the Annual Meetings are:
1. To approve or disapprove an Agreement and Plan of Reorganization among
the funds;
2. To elect a Board of Trustees for each of the funds;
3. To ratify the selection of the independent auditors of each of the
funds; and
4. To transact such other business as may properly come before the Annual
Meetings or any adjournment thereof.
The Agreement and Plan of Reorganization that you are being asked to
consider involves a transaction that will be referred to in this Proxy Statement
and Prospectus as the Reorganization. The Reorganization involves the
combination of four funds into one. The four funds are:
MuniHoldings Florida Insured Fund ("Florida Insured"), which will be
the surviving fund
MuniHoldings Florida Insured Fund II ("Florida Insured II")
MuniHoldings Florida Insured Fund III ("Florida Insured III")
MuniHoldings Florida Insured Fund IV ("Florida Insured IV")
Florida Insured II, Florida Insured III and Florida Insured IV are
sometimes referred to herein collectively as the "Acquired Funds" and, together
with Florida Insured, as the "Funds."
In the Reorganization, Florida Insured will acquire substantially all of
the assets and assume substantially all of the liabilities of each of the
Acquired Funds solely in exchange for Common Shares, par value $.10 per share,
and shares of newly-created series of its Auction Market Preferred Shares
("AMPS"), with a par value of $.10 per share and a liquidation preference of
$25,000 per share. The Acquired Funds will distribute the Common Shares and AMPS
received in the Reorganization to their respective shareholders and will then
liquidate and dissolve and terminate their registration under the Investment
Company Act. Florida Insured will continue to operate as a registered closed-end
investment company with the investment objective and policies described in this
Proxy Statement and Prospectus.
In the Reorganization, Florida Insured will issue its Common Shares and
AMPS to each of the Acquired Funds based on the value of the assets transferred
to Florida Insured by that Acquired Fund. These shares will then be distributed
by each Acquired Fund to its shareholders based on the value of the shares held
by each shareholder just prior to the Reorganization. A holder of Common Shares
of an Acquired Fund will receive
<PAGE>
Common Shares of Florida Insured and a holder of AMPS of an Acquired Fund will
receive shares of one of the newly-created series of AMPS of Florida Insured.
This Proxy Statement and Prospectus serves as a prospectus of Florida
Insured in connection with the issuance of Florida Insured Common Shares and
three newly-created series of Florida Insured AMPS in the Reorganization.
-----------------------
The Securities and Exchange Commission has not approved or disapproved
these securities or passed upon the adequacy of this Proxy Statement and
Prospectus. Any representation to the contrary is a criminal offense.
-----------------------
The date of this Proxy Statement and Prospectus is ________, 1999.
The Proxy Statement and Prospectus sets forth information about Florida
Insured, Florida Insured II, Florida Insured III and Florida Insured IV that
shareholders of the Funds should know before considering the Reorganization and
should be retained for future reference. Each of the Funds has authorized the
solicitation of proxies in connection with the Reorganization solely on the
basis of this Proxy Statement and Prospectus and the accompanying documents.
The address of the principal executive offices of Florida Insured, Florida
Insured II, Florida Insured III and Florida Insured IV is 800 Scudders Mill
Road, Plainsboro, New Jersey 08536, and the telephone number is (609) 282-2800.
The Common Shares of each of the Funds is listed on the New York Stock
Exchange (the "NYSE") under the symbols "MFL" (Florida Insured), "MUF" (Florida
Insured II), "MFD" (Florida Insured III) and "MFR" (Florida Insured IV).
Subsequent to the Reorganization, Florida Insured Common Shares will continue to
be listed on the NYSE under the symbol "MFL." Reports, proxy materials and other
information concerning any of the Funds may be inspected at the offices of the
NYSE, 20 Broad Street, New York, New York 10005.
2
<PAGE>
TABLE OF CONTENTS
PAGE
----
INTRODUCTION ............................................................ 5
ITEM 1: THE REORGANIZATION ............................................. 6
SUMMARY .............................................................. 6
RISK FACTORS AND SPECIAL CONSIDERATIONS .............................. 15
Florida Municipal Bonds ........................................... 15
Interest Rate and Credit Risk ..................................... 15
Non-diversification ............................................... 15
Rating Categories ................................................. 15
Private Activity Bonds ............................................ 15
Portfolio Insurance ............................................... 15
Leverage .......................................................... 15
Inverse Floating Obligations ...................................... 16
Options and Futures Transactions .................................. 17
Antitakeover Provisions ........................................... 17
Ratings Considerations ............................................ 17
COMPARISON OF THE FUNDS ................................................. 18
Financial Highlights ................................................. 18
Florida Insured ................................................... 18
Florida Insured II ................................................ 19
Florida Insured III ............................................... 20
Florida Insured IV ................................................ 21
Investment Objective and Policies .................................... 23
Portfolio Insurance .................................................. 24
Description of Florida Municipal Bonds and Municipal Bonds ........... 26
Special Considerations Relating to Florida Municipal Bonds ........... 26
Other Investment Policies ............................................ 27
Information Regarding Options and Futures Transactions 28
Investment Restrictions .............................................. 31
Rating Agency Guidelines ............................................. 32
Portfolio Composition ................................................ 32
Portfolio Transactions ............................................... 34
Portfolio Turnover ................................................... 35
Net Asset Value ...................................................... 35
Capital Shares ....................................................... 36
Management of the Funds .............................................. 38
Code of Ethics ....................................................... 39
Voting Rights ........................................................ 39
Shareholder Inquiries ................................................ 40
Dividends and Distributions .......................................... 40
Automatic Dividend Reinvestment Plan ................................. 41
Mutual Fund Investment Option ........................................ 43
Liquidation Rights of Holders of AMPS ................................ 43
Tax Rules Applicable to the Funds and their Shareholders ............. 43
Florida Taxation of the Fund ......................................... 48
AGREEMENT AND PLAN OF REORGANIZATION .................................... 49
General .............................................................. 49
Procedure ............................................................ 50
Terms of the Agreement and Plan of Reorganization .................... 50
Potential Benefits to Shareholders of the Funds as
a Result of the Reorganization ...................................... 52
Surrender and Exchange of Share Certificates ......................... 53
Tax Consequences of the Reorganization ............................... 54
Appraisal Rights ..................................................... 55
Capitalization ....................................................... 56
3
<PAGE>
ITEM 2: ELECTION OF TRUSTEES ........................................... 57
To Be Elected by Shareholders of Florida Insured, Florida
Insured II, Florida Insured IV ...................................... 57
To be Elected by Shareholders of Florida Insured III ................. 58
Committee and Board Meetings ......................................... 59
Compliance with Section 16(a) of the Securities Exchange Act of 1934 . 59
Interested Persons ................................................... 60
Compensation of Trustees ............................................. 60
Officers of the Funds ................................................ 60
ITEM 3: SELECTION OF INDEPENDENT AUDITORS .............................. 61
INFORMATION CONCERNING THE ANNUAL MEETINGS .............................. 61
Date, Time and Place of Meetings ..................................... 61
Solicitation, Revocation and Use of Proxies .......................... 61
Record Date and Outstanding Shares ................................... 62
Security Ownership of Certain Beneficial Owners and Management ....... 62
Voting Rights and Required Vote ...................................... 62
ADDITIONAL INFORMATION .................................................. 63
Year 2000 Issues ..................................................... 64
CUSTODIAN ............................................................... 64
TRANSFER AGENT, DIVIDEND DISBURSING AGENT AND REGISTRAR ................. 64
LEGAL PROCEEDINGS ....................................................... 64
LEGAL OPINIONS .......................................................... 65
EXPERTS ................................................................. 65
SHAREHOLDER PROPOSALS ................................................... 65
INDEX TO FINANCIAL STATEMENTS ........................................... F-1
EXHIBIT I INFORMATION PERTAINING TO EACH FUND ....................... I-1
EXHIBIT II AGREEMENT AND PLAN OF REORGANIZATION ...................... II-1
EXHIBIT III ECONOMIC AND OTHER CONDITIONS IN FLORIDA .................. III-1
EXHIBIT IV RATINGS OF MUNICIPAL BONDS AND COMMERCIAL PAPER ........... IV-1
EXHIBIT V PORTFOLIO INSURANCE ....................................... V-1
EXHIBIT VI SECTIONS 86 THROUGH 98 OF CHAPTER 156B OF THE
MASSACHUSETTS GENERAL LAWS (THE MASSACHUSETTS
BUSINESS CORPORATION LAW) ............................... VI-1
4
<PAGE>
INTRODUCTION
This Proxy Statement and Prospectus is furnished in connection with the
solicitation of proxies on behalf of the Boards of Trustees of Florida Insured,
Florida Insured II, Florida Insured III and Florida Insured IV for use at the
Meetings to be held at the offices of Merrill Lynch Asset Management, L.P.
("MLAM"), 800 Scudders Mill Road, Plainsboro, New Jersey on December 15, 1999,
at the time specified for each Fund in Exhibit I to this Proxy Statement and
Prospectus. The mailing address for each of the Funds is P.O. Box 9011,
Princeton, New Jersey 08543-9011. The approximate mailing date of this Proxy
Statement and Prospectus is November ___, 1999.
Any person giving a proxy may revoke it at any time prior to its exercise
by executing a superseding proxy, by giving written notice of the revocation to
the Secretary of Florida Insured, Florida Insured II, Florida Insured III or
Florida Insured IV, as applicable, at the address indicated above or by voting
in person at the appropriate Meeting. All properly executed proxies received
prior to the Meetings will be voted at the Meetings in accordance with the
instructions marked thereon or otherwise as provided therein. Unless
instructions to the contrary are marked, proxies will be voted "FOR" each of the
following items: (1) to approve the Agreement and Plan of Reorganization among
Florida Insured, Florida Insured II, Florida Insured III and Florida Insured IV
(the "Agreement and Plan of Reorganization"); (2) to elect a Board of Trustees
of each Fund to serve for the ensuing year; and (3) to ratify the selection of
independent auditors for each of the Funds for its current fiscal year.
With respect to Item 1, assuming a quorum is present at the Meetings,
approval of the Agreement and Plan of Reorganization will require the
affirmative vote of shareholders representing (i) a majority of the outstanding
Florida Insured Common Shares and Florida Insured AMPS, voting together as a
single class, and a majority of the outstanding Florida Insured AMPS, Series A
and B, voting together as a single class, (ii) a majority of the outstanding
Florida Insured II Common Shares and Florida Insured II AMPS, voting together as
a single class, and a majority of the outstanding Florida Insured II AMPS,
Series A and B, voting together as a single class, (iii) a majority of the
outstanding Florida Insured III Common Shares and Florida Insured III AMPS,
voting together as a single class, and a majority of the outstanding Florida
Insured III AMPS, Series A and B, voting together as a single class and (iv) a
majority of the outstanding Florida Insured IV Common Shares and Florida Insured
IV AMPS, voting together as a single class, and a majority of the outstanding
Florida Insured IV AMPS, Series A and B, voting together as a single class.
Because of the requirement that the Agreement and Plan of Reorganization be
approved by shareholders of all four Funds, the Reorganization will not take
place if shareholders of any one Fund do not approve the Agreement and Plan of
Reorganization.
With respect to Item 2, holders of AMPS of each of the Funds are entitled
to elect two Trustees of that Fund, and holders of AMPS and Common Shares,
voting together as a single class, are entitled to elect the remaining Trustees
of that Fund. Assuming a quorum is present at the Meetings, election of the two
Trustees of each Fund to be elected by the holders of AMPS, voting separately as
a class, will require the affirmative vote of a plurality of the votes cast by
the holders of a Fund's AMPS, represented at the Meeting and entitled to vote;
and election of the remaining Trustees of each Fund will require the affirmative
vote of a plurality of the votes cast by the holders of that Fund's Common
Shares and AMPS, represented at the Meeting and entitled to vote, voting
together as a single class.
With respect to Item 3, assuming a quorum is present at the Meetings,
approval of the ratification of the selection of independent auditors of a Fund
will require the affirmative vote of a majority of the votes of Common Shares
and AMPS of that Fund represented at the Meeting in person or by proxy, and
entitled to vote, voting together as a single class.
The Board of Trustees of each of the Funds has fixed the close of business
on October 20, 1999 as the record date (the "Record Date") for the determination
of shareholders entitled to notice of, and to vote at, the Meetings or any
adjournment thereof. Shareholders on the Record Date will be entitled to one
vote for each share held, with no shares having cumulative voting rights. At the
Record Date, each Fund had outstanding the number of Common Shares and AMPS
indicated in Exhibit I. To the knowledge of the management of each of the Funds,
no person owned beneficially more than 5% of the respective outstanding shares
of either class of capital shares of any Fund at the Record Date.
The Boards of Trustees of the Funds know of no business other than that
discussed in Items 1, 2, and 3 above that will be presented for consideration at
the Meetings. If any other matter is properly presented, it is the intention of
the persons named in the enclosed proxy to vote in accordance with their best
judgment.
5
<PAGE>
ITEM 1: THE REORGANIZATION
SUMMARY
The following is a summary of certain information contained elsewhere in
this Proxy Statement and Prospectus and is qualified in its entirety by
reference to the more complete information contained in this Proxy Statement and
Prospectus and in the Agreement and Plan of Reorganization attached hereto as
Exhibit II.
In this Proxy Statement and Prospectus, the term "Reorganization" refers
collectively to (i) the acquisition of substantially all of the assets and the
assumption of substantially all of the liabilities of Florida Insured II by
Florida Insured and the subsequent distribution of Florida Insured Common Shares
and Florida Insured Series C AMPS to the holders of Florida Insured II Common
Shares and Florida Insured II AMPS, Series A and Series B, respectively; (ii)
the acquisition of substantially all of the assets and the assumption of
substantially all of the liabilities of Florida Insured III by Florida Insured
and the subsequent distribution of Florida Insured Common Shares and Florida
Insured Series D AMPS to the holders of Florida Insured III Common Shares and
Florida Insured III AMPS, Series A and Series B, respectively; (iii) the
acquisition of substantially all of the assets and the assumption of
substantially all the liabilities of Florida Insured IV by Florida Insured and
the subsequent distribution of Florida Insured Common Shares and Florida Insured
Series E AMPS to the holders of Florida Insured IV Common Shares and Florida
Insured IV AMPS, Series A and Series B, respectively; and (iv) the subsequent
deregistration and dissolution of each of Florida Insured II, Florida Insured
III and Florida Insured IV.
At meetings of the Boards of Trustees of each of the Funds, the Board of
Trustees of each of the Funds unanimously approved the Reorganization. Subject
to obtaining the necessary approvals from the shareholders of each of the Funds,
the Board of Trustees of each Acquired Fund also deemed advisable the
deregistration of the Fund under the Investment Company Act of 1940, as amended
(the "Investment Company Act") and its termination under the laws of the
Commonwealth of Massachusetts. The Reorganization requires approval of the
shareholders of each of the four Funds. The Reorganization will not take place
if the shareholders of any one Fund do not approve the Agreement and the Plan of
Reorganization.
Each of the Funds seeks to provide shareholders with current income exempt
from Federal income tax and the opportunity to own shares whose value is exempt
from the Florida intangible personal property taxes. Each of the Funds seeks to
achieve its investment objective by investing primarily in a portfolio of
long-term, investment grade municipal obligations, the interest on which, in the
opinion of bond counsel to the issuer, is exempt from Federal income tax and
which enables shares of the Funds to be exempt from Florida intangible personal
property tax. At least 80% of each Fund's total assets will be invested in
municipal obligations with remaining maturities of one year or more that are
covered by insurance guaranteeing the timely payment of principal at maturity
and interest.
Each of the Funds is a non-diversified, leveraged, closed-end management
investment company registered under the Investment Company Act. If the
shareholders of the Funds approve the Reorganization, (i) Florida Insured Common
Shares and Florida Insured Series C AMPS will be issued to Florida Insured II in
exchange for the assets of Florida Insured II; (ii) Florida Insured Common
Shares and Florida Insured Series D AMPS will be issued to Florida Insured III
in exchange for the assets of Florida Insured III; (iii) Florida Insured Common
Shares and Florida Insured Series E AMPS will be issued to Florida Insured IV in
exchange for the assets of Florida Insured IV; and (iv) Florida Insured II,
Florida Insured III and Florida Insured IV will distribute these shares to their
respective shareholders as provided in the Agreement and Plan of Reorganization.
After the Reorganization, each of Florida Insured II, Florida Insured III and
Florida Insured IV will terminate its registration under the Investment Company
Act and its organization under Massachusetts law.
Based upon their evaluation of all relevant information, the Trustees of
each of the Funds have determined that the Reorganization will potentially
benefit the holders of Common Shares of that Fund. Specifically, after the
Reorganization, shareholders of each of the Acquired Funds will remain invested
in a closed-end fund with an investment objective and policies substantially
similar to the Acquired Fund's investment objective and policies and that uses
substantially the same management personnel. In addition, it is anticipated that
common shareholders of each of the Funds will be subject to a reduced overall
operating expense ratio based on the anticipated pro forma combined total
operating expenses and the total combined assets of the surviving fund after the
Reorganization. The Board also considered the relative tax positions of the
Funds' portfolios. It is not anticipated that the Reorganization will directly
benefit the holders of shares of AMPS of any of the Funds; however, the
Reorganization will not adversely affect the holders of shares of any series of
AMPS of any of the Funds and the expenses of the Reorganization will not be
borne by the holders of shares of AMPS of any of the Funds.
6
<PAGE>
If all of the requisite approvals are obtained, it is anticipated that the
Reorganization will occur as soon as practicable after such approval, provided
that the Funds have obtained prior to that time a favorable private letter
ruling from the Internal Revenue Service (the "IRS") concerning the tax
consequences of the Reorganization as set forth in the Agreement and Plan of
Reorganization or an opinion of counsel to the same effect. Under the Agreement
and Plan of Reorganization, however, the Board of Trustees of any Fund may cause
the Reorganization to be postponed or abandoned in certain circumstances should
such Board determine that it is in the best interests of the shareholders of
that Fund to do so. The Agreement and Plan of Reorganization may be terminated,
and the Reorganization abandoned, whether before or after approval by the Funds'
shareholders, at any time prior to the Exchange Date (as defined below), (i) by
mutual consent of the Boards of Trustees of all of the Funds or (ii) by the
Board of Trustees of any Fund if any condition to that Fund's obligations has
not been fulfilled or waived by such Fund's Board of Trustees.
Pro Forma Fee Table for Common Shareholders of Florida Insured,
Florida Insured II, Florida Insured III, Florida Insured IV and
the Combined Fund as of June 30, 1999 (Unaudited)(a)
<TABLE>
<CAPTION>
Actual
---------------------------------------------
Florida Florida Florida Florida Pro Forma
Insured Insured II Insured III Insured IV Combined
------- ---------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Common Shareholder Transaction Expenses
Maximum Sales Load (as a percentage of
offering price) ................................ None(b) None(b) None(b) None(b) None(c)
Dividend Reinvestment Plan Fees .................. None None None None None
Annual Expenses (as a percentage of net assets
attributable to Common Shares at
June 30, 1999)(d)
Investment Advisory Fees(e) ...................... 0.92% 0.93% 0.90% 0.92% 0.92%
Interest Payments on Borrowed Funds .............. None None None None None
Other Expenses ................................... 0.36% 0.39% 0.46% 0.39% 0.27%
------- ---------- ----------- ---------- ---------
Total Annual Expenses(e) ........................... 1.28% 1.32% 1.36% 1.31% 1.19%
======= ========== =========== ========== =========
</TABLE>
- ---------------
(a) No information is presented with respect to AMPS because no Fund's
operating expenses or expenses of the Reorganization will be borne by the
holders of AMPS of any of the Funds. Generally, AMPS are sold at a fixed
liquidation preference of $25,000 per share and investment return is set at
an auction.
(b) Common Shares purchased in the secondary market may be subject to brokerage
commissions or other charges.
(c) No sales load will be charged on the issuance of shares in the
Reorganization. Common Shares are not available for purchase from the Funds
but may be purchased through a broker-dealer subject to individually
negotiated commission rates.
(d) The pro forma annual operating expenses for the combined fund are
projections for a 12-month period.
(e) Based on average net assets of each Fund and the combined fund, excluding
assets attributable to AMPS. If assets attributable to AMPS are included,
the Investment Advisory Fee for each Fund and the combined fund would be
0.55% and the Total Annual Expenses would be 0.77%, 0.78%, 0.83%, 0.78% and
0.71%, respectively.
Example:
Cumulative Expenses Paid on Common Shares
for the Periods Indicated:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------ ------ -------
<S> <C> <C> <C> <C>
An investor would pay the following expenses on a $1,000
investment, assuming (1) the operating expense ratio for each
Fund (as a percentage of net assets attributable to Common
Shares) set forth in the table above and (2) a 5% annual return
throughout the period:
Florida Insured $13 $41 $70 $155
Florida Insured II $13 $42 $72 $159
Florida Insured III $14 $43 $74 $164
Florida Insured IV $13 $42 $72 $158
Combined Fund* $12 $38 $65 $144
</TABLE>
- -------------
* Assumes that the Reorganization had taken place on June 30, 1999.
7
<PAGE>
The foregoing Fee Table is intended to assist investors in understanding
the costs and expenses that a common shareholder of each of the Funds will bear
directly or indirectly as compared to the costs and expenses that would be borne
by such investors taking into account the Reorganization. The Example set forth
above assumes that Common Shares were purchased in the initial offerings and the
reinvestment of all dividends and distributions and uses a 5% annual rate of
return as mandated by Securities and Exchange Commission (the "SEC")
regulations. The Example should not be considered a representation of past or
future expenses or annual rates of return. Actual expenses or annual rates of
return may be more or less than those assumed for purposes of the Example. See
"Comparison of the Funds" and "The Reorganization - Potential Benefits to Common
Shareholders of the Funds as a Result of the Reorganization."
Business of Florida Insured .......... Florida Insured was organized as a
business trust under the laws of the
Commonwealth of Massachusetts on
September 8, 1997 and commenced
operations on September 26, 1997.
Florida Insured is a non-diversified,
leveraged, closed-end management
investment company whose investment
objective is to provide shareholders
with current income exempt from Federal
income tax and the opportunity to own
shares the value of which is exempt from
Florida intangible personal property
tax. Florida Insured seeks to achieve
its investment objective by investing
primarily in a portfolio of long-term
investment grade obligations, the
interest on which, in the opinion of
bond counsel to the issuer, is exempt
from Federal income taxes and which
provide shareholders with the
opportunity to own shares the value of
which is exempt from Florida intangible
personal property tax ("Florida
Municipal Bonds"). Under normal
circumstances, at least 80% of Florida
Insured's total assets will be invested
in municipal obligations with remaining
maturities of one year or more that are
covered by insurance guaranteeing the
timely payment of principal at maturity
and interest. See "Comparison of the
Funds - Investment Objectives and
Policies."
Florida Insured has outstanding Common
Shares and two series of AMPS,
designated Series A and Series B, which
shall be referred to herein collectively
as "Florida Insured AMPS." As of August
31, 1999, Florida Insured had net assets
of $254,144,708.
Business of Florida Insured II ....... Florida Insured II was organized as a
business trust under the laws of the
Commonwealth of Massachusetts on
November 17, 1997 and commenced
operations on February 25, 1998. Florida
Insured II is a non-diversified,
leveraged, closed-end management
investment company whose investment
objective is to provide shareholders
with current income exempt from Federal
income tax and the opportunity to own
shares the value of which is exempt from
Florida intangible personal property
tax. Florida Insured II seeks to achieve
its objective by investing primarily in
a portfolio of Florida Municipal Bonds.
Under normal circumstances, at least 80%
of Florida Insured II's total assets
will be invested in municipal
obligations with remaining maturities of
one year or more that are covered by
insurance guaranteeing the timely
8
<PAGE>
payment of principal at maturity and
interest. See "Comparison of the
Funds--Investment Objectives and
Policies."
Florida Insured II has outstanding
Common Shares and two series of AMPS,
designated Series A and Series B, which
shall be referred to herein collectively
as "Florida Insured II AMPS." As of
August 31, 1999, Florida Insured II had
net assets of $204,543,604.
Business of Florida Insured III ...... Florida Insured III was organized as a
business trust under the laws of the
Commonwealth of Massachusetts on June
10, 1998 and commenced operations on
October 1, 1998. Florida Insured III is
a non-diversified, leveraged, closed-end
management investment company whose
investment objective is to provide
shareholders with current income exempt
from Federal income taxes and the
opportunity to own shares the value of
which is exempt from Florida intangible
personal property tax. Florida Insured
III seeks to achieve its investment
objective by investing primarily in a
portfolio of Florida Municipal Bonds.
Under normal circumstances, at least 80%
of Florida Insured III's total assets
will be invested in municipal
obligations with remaining maturities of
one year or more that are covered by
insurance guaranteeing the timely
payment of principal at maturity and
interest. See "Comparison of the Funds -
Investment Objectives and Policies."
Florida Insured III has outstanding
Common Shares and two series of AMPS,
designated Series A and Series B, which
shall be referred to herein collectively
as "Florida Insured III AMPS." As of
August 31, 1999, Florida Insured III had
net assets of $133,570,974.
Business of Florida Insured IV ....... Florida Insured IV was organized as a
business trust under the laws of the
Commonwealth of Massachusetts on
November 25, 1998 and commenced
operations on January 29, 1999. Florida
Insured IV is a non-diversified,
leveraged, closed-end management
investment company whose investment
objective is to provide shareholders
with current income exempt from Federal
income taxes and the opportunity to own
shares the value of which is exempt from
Florida intangible personal property
tax. Florida Insured IV seeks to achieve
its investment objective by investing
primarily in a portfolio of Florida
Municipal Bonds. Under normal
circumstances, at least 80% of Florida
Insured IV's total assets will be
invested in municipal obligations with
remaining maturities of one year or more
that are covered by insurance
guaranteeing the timely payment of
principal at maturity and interest. See
"Comparison of the Funds - Investment
Objectives and Policies."
9
<PAGE>
Florida Insured IV has outstanding
Common Shares and two series of AMPS,
designated Series A and Series B, which
shall be referred to herein collectively
as "Florida Insured IV AMPS". As of
August 31, 1999, Florida Insured IV had
net assets of $201,151,597.
Comparison of the Funds .............. Investment Objectives and Policies. The
Funds have substantially similar
investment objectives and policies. All
four Funds seek to provide current
income exempt from Federal income tax
and to provide shareholders with the
opportunity to own shares the value of
which is exempt from Florida intangible
personal property tax. Florida Insured
seeks to invest at least 65% of its
assets in Florida Municipal Bonds.
Florida Insured II, Florida Insured III
and Florida Insured IV seek to invest
substantially all (at least 80%) of
their respective assets in Florida
Municipal Bonds except where there is an
insufficient supply of Florida Municipal
Bonds at suitable prices. See
"Comparison of the Funds -- Investment
Objectives and Policies."
Capital Shares. Each Fund has
outstanding both Common Shares and AMPS.
The Common Shares of each of the Funds
are traded on the NYSE. As of August 31,
1999, (i) the net asset value per share
of Florida Insured Common Shares was
$13.84 and the market price per share
was $12.75; (ii) the net asset value per
share of Florida Insured II Common
Shares was $13.41 and the market price
per share was $12.375; (iii) the net
asset value per share of Florida Insured
III Common Shares was $12.87 and the
market price per share was $12.0625; and
(iv) the net asset value per share of
Florida Insured IV Common Shares was
$12.89 and the market price per share
was $12.0625. The AMPS of each of the
Funds have a liquidation preference of
$25,000 per share and are sold
principally at auctions. See "Comparison
of the Funds--Capital Shares."
Auctions generally have been held and
will be held every seven days for each
series of AMPS of each of the Funds
unless the applicable Fund elects,
subject to certain limitations, to have
a special dividend period. In connection
with the Reorganization, a holder of
AMPS of an Acquired Fund may receive
Florida Insured AMPS with a dividend
payment date and an auction date that
fall on days of the week that are
different from the schedule of the AMPS
of the Acquired Fund. See "Comparison of
the Funds--Capital Shares."The following
table provides information about the
dividend rates for each series of AMPS
of each of the Funds as of a recent
auction.
10
<PAGE>
Auction Dividend
Date Fund Series Rate
-------------------- ------------------- ------ --------
September 14, 1999 Florida Insured A 3.40%
September 10, 1999 Florida Insured B 3.29%
September 13, 1999 Florida Insured II A 3.30%
September 8, 1999 Florida Insured II B 3.31%
September 14, 1999 Florida Insured III A 3.30%
September 10, 1999 Florida Insured III B 3.30%
September 9, 1999 Florida Insured IV A 3.30%
September 13, 1999 Florida Insured IV B 3.20%
Advisory Fees. The investment adviser
for each of the Funds is Fund Asset
Management, L.P. ("FAM"). FAM is an
affiliate of MLAM, and both FAM and MLAM
are owned and controlled by Merrill
Lynch & Co., Inc. ("ML & Co."). The
principal business address of FAM is 800
Scudders Mill Road, Plainsboro, New
Jersey 08536. The Asset Management Group
of ML & Co. (which includes FAM) acts as
investment advisers for over 100 other
registered investment companies and also
offers portfolio management and
portfolio analysis services to
individuals and institutional accounts.
FAM is responsible for the management of
each Fund's investment portfolio and for
providing administrative services to
each Fund. Robert A. DiMella and Robert
D. Sneeden serve as the portfolio
managers for each of these Funds and
will continue to serve as the portfolio
managers for the combined fund after the
Reorganization.
Pursuant to separate investment advisory
agreements between each Fund and FAM,
each Fund pays FAM a monthly fee at the
annual rate of 0.55% of such Fund's
average weekly net assets, including
assets acquired from the sale of AMPS.
Subsequent to the Reorganization, FAM
will continue to receive compensation at
the rate of 0.55% of the average weekly
net assets, including assets acquired
from the sale of AMPS, of the combined
fund. See "Comparison of the Funds -
Management of the Funds."
Other Significant Fees. The Bank of New
York is the custodian, transfer agent,
dividend disbursing agent and registrar
for the Common Shares of Florida Insured
and Florida Insured II. State Street
Bank and Trust Company is the custodian,
transfer agent, dividend disbursing
agent and registrar for the Common
Shares of Florida Insured III and
Florida Insured IV. The Bank of New York
is the transfer agent, registrar and
auction agent for each Fund's AMPS. The
principal business addresses are as
follows: The Bank of New York, 90
Washington Street, New York, New York
10286 (for its custodial services) and
101 Barclay Street, New York, New York
10286 (for its transfer agency auction
agency
11
<PAGE>
services); and State Street Bank and
Trust Company, One Heritage Drive, P2N,
North Quincy, Massachusetts 02171 (for
its custodial services) and 225 Franklin
Street, Boston, Massachusetts 02110 (for
its transfer agency services). See
"Comparison of the Funds - Management of
the Funds."
Overall Expense Ratio. As of June 30,
1999, the overall annualized operating
expense ratio for Florida Insured was
1.28%, based on average net assets of
approximately $156.2 million excluding
AMPS, and 0.77%, based on average net
assets of approximately $261.0 million
including AMPS; the overall annualized
operating expense ratio for Florida
Insured II was 1.32%, based on average
net assets of approximately $125.0
million excluding AMPS, and 0.78%, based
on average net assets of approximately
$211.0 million including AMPS; the
overall annualized operating expense
ratio for Florida Insured III was 1.36%,
based on average net assets of
approximately $84.1 million excluding
AMPS, and 0.83%, based on average net
assets of approximately $138.1 million
including AMPS; and the overall
annualized operating expense ratio for
Florida Insured IV was 1.31%, based on
average net assets of approximately
$124.3 million excluding AMPS, and
0.78%, based on average net assets of
approximately $207.8 million including
AMPS. If the Reorganization had taken
place on June 30, 1999, the overall
operating expense ratio for the combined
fund on a pro forma basis would have
been 1.19%, based on average net assets
of approximately $489.6 million
excluding AMPS, and 0.71%, based on
average net assets of approximately
$817.8 million including AMPS.
Purchases and Sales of Common Shares and
AMPS. Purchase and sale procedures for
the Common Shares of each of the Funds
are identical, and investors typically
purchase and sell Common Shares of the
Funds through a registered broker-dealer
on the NYSE, thereby incurring a
brokerage commission set by the
broker-dealer. Alternatively, investors
may purchase or sell Common Shares of
the Funds through privately negotiated
transactions with existing shareholders.
Purchase and sale procedures for the
AMPS of each of the Funds also are
identical. Such AMPS generally are
purchased and sold at separate auctions
conducted on a regular basis by IBJ
Whitehall Bank & Trust Company, as the
auction agent for each Fund's AMPS (the
"Auction Agent"). Unless otherwise
permitted by the Funds, existing and
potential holders of AMPS only may
participate in auctions through their
broker-dealers. Broker-dealers submit
the orders of their respective customers
who are existing and potential holders
of AMPS to the Auction Agent. On or
prior to
12
<PAGE>
each auction date for the AMPS (the
business day next preceding the first
day of each dividend period), each
holder may submit orders to buy, sell or
hold AMPS to its broker-dealer. Outside
of these auctions, shares of AMPS may be
purchased or sold through broker-dealers
for the AMPS in a secondary trading
market maintained by the broker-dealers.
However, there can be no assurance that
a secondary market will develop or if it
does develop, that it will provide
holders with a liquid trading market for
the AMPS of any of the Funds.
Ratings of AMPS. The AMPS of each Fund
have each been assigned a rating of AAA
from Standard & Poor's ("S&P") and "aaa"
from Moody's Investors Service, Inc.
("Moody's"). See "Comparison of the
Funds - Rating Agency Guidelines."
Portfolio Insurance. Each of the Funds
has a similar policy with respect to
obtaining insurance for portfolio
securities. Under normal circumstances,
at least 80% of each Fund's assets will
be invested in municipal obligations
either (i) insured under an insurance
policy purchased by the Fund or (ii)
insured under an insurance policy
obtained by the issuer thereof or any
other party. See "Comparison of the
Funds - Investment Objectives and
Policies - Portfolio Insurance."
Ratings of Municipal Obligations. Each
of the Funds will invest in municipal
obligations that are at the time of
purchase considered investment grade.
Portfolio Transactions. The portfolio
transactions in which the Funds may
engage are similar, as are the
procedures for such transactions. See
"Comparison of the Funds - Portfolio
Transactions."
Dividends and Distributions. The methods
of dividend payment and distributions
are similar for all of the Funds, both
with respect to the Common Shares and
the AMPS of each Fund. See "Comparison
of the Funds - Dividends and
Distributions."
NetAsset Value. The net asset value per
Common Share of each Fund is determined
after the close of business on the NYSE
(generally, 4:00 p.m., Eastern time) on
the last business day in each week. For
purposes of determining the net asset
value of a Common Share of each Fund,
the value of the securities held by the
Fund plus any cash or other assets
(including interest accrued but not yet
received) minus all liabilities
(including accrued expenses) and the
aggregate liquidation value of the
outstanding shares of AMPS of the Fund
is divided by the total number of Common
Shares of the Fund outstanding at such
time. Expenses, including fees payable
to FAM, are accrued daily. See
"Comparison of the Funds - Net Asset
Value."
13
<PAGE>
Voting Rights. The corresponding voting
rights of the holders of each Fund's
Common Shares are substantially similar.
Similarly, the corresponding voting
rights of the holders of each Fund's
AMPS are substantially similar. See
"Comparison of the Funds - Capital
Shares."
Shareholder Services. An automatic
dividend reinvestment plan is available
to holders of each Fund's Common Shares.
The plans are similar for the four
Funds. See "Comparison of the Funds
Automatic Dividend Reinvestment Plan."
Other shareholder services, including
the provision of annual and semi-annual
reports, are the same for the four
Funds.
Outstanding Securities of Florida Insured, Florida Insured II, Florida
Insured III and Florida Insured IV as of August 31, 1999
Amount Outstanding
Amount Held by Exclusive of Amount
Amount Fund for its Own Shown in Previous
Title of Class Authorized Account Column
- ------------------------- ---------- --------------- ------------------
Florida Insured
Common Shares ......... Unlimited -0- 10,798,052
AMPS .................. 1,000,000 -0- 4,190
Florida Insured II
Common Shares ......... Unlimited -0- 8,840,687
AMPS .................. 1,000,000 -0- 3,440
Florida Insured III
Common Shares ......... Unlimited -0- 6,181,830
AMPS .................. 1,000,000 -0- 2,160
Florida Insured IV
Common Shares ......... Unlimited -0- 9,126,034
AMPS .................. 1,000,000 -0- 3,340
Tax Considerations ................... The Funds have jointly requested a
private letter ruling from the IRS with
respect to the Reorganization to the
effect that, among other things, no Fund
will recognize gain or loss on the
transaction and the shareholders of the
Acquired Funds will not recognize gain
or loss on the exchange of their shares
for Florida Insured Common Shares
(except to the extent that a common
shareholder in an Acquired Fund receives
cash representing an interest in less
than a full Florida Insured Common Share
in the Reorganization) or Florida
Insured AMPS. The consummation of the
Reorganization is subject to the receipt
of such ruling or of an opinion of
counsel to the same effect. The
Reorganization will not affect the
status of Florida Insured as a regulated
investment company (a "RIC") under the
Internal Revenue Code of 1986, as
amended (the "Code"). Each of the
Acquired Funds will liquidate pursuant
to the Reorganization. See "Agreement
and Plan of Reorganization -- Tax
Consequences of the Reorganization."
14
<PAGE>
RISK FACTORS AND SPECIAL CONSIDERATIONS
Since each of the four Funds invests primarily in a portfolio of Florida
Municipal Bonds, any risks inherent in such investments are equally applicable
to all four Funds and will be similarly pertinent to the combined fund after the
Reorganization. It is expected that the Reorganization itself will not adversely
affect the rights of holders of Common Shares or of any series of AMPS of any of
the Funds or create additional risks.
Florida Municipal Bonds
Florida Insured ordinarily intends to invest at least 65% of its portfolio
in Florida Municipal Bonds. Florida Insured II, Florida Insured III and Florida
Insured IV ordinarily intend to invest at least 80% of their respective
portfolios in Florida Municipal Bonds. As a result, each Fund is more exposed to
risks affecting issuers of Florida Municipal Bonds than is a municipal bond fund
that invests more widely. See "Comparison of the Funds--Special Considerations
Relating to Florida Municipal Bonds" and Exhibit III-"Economic and Other
Conditions in Florida."
Interest Rate and Credit Risk
Each Fund invests in municipal bonds, which are subject to interest rate
and credit risk. Interest rate risk is the risk that prices of municipal bonds
generally increase when interest rates decline and decrease when interest rates
increase. Prices of longer-term securities generally change more in response to
interest rate changes than prices of shorter-term securities. Credit risk is the
risk that the issuer will be unable to pay the interest or principal when due.
The degree of credit risk depends on both the financial condition of the issuer
and the terms of the obligation.
Non-diversification
Each Fund is registered as a "non-diversified" investment company. This
means that the Fund may invest a greater percentage of its assets in a single
issuer than a diversified investment company. Since a Fund may invest a
relatively high percentage of its assets in a limited number of issuers, the
Fund may be more exposed to any single economic, political or regulatory
occurrence than a more widely-diversified fund. Even as a non-diversified fund,
each Fund must still meet the diversification requirements of applicable Federal
income tax law.
Rating Categories
The Funds intend to invest in municipal bonds that are rated investment
grade by S&P, Moody's or Fitch IBCA, Inc. ("Fitch") or are considered by FAM to
be of comparable quality. Obligations rated in the lowest investment grade
category may have certain speculative characteristics.
Private Activity Bonds
Each Fund may invest in certain tax-exempt securities classified as
"private activity bonds." These bonds may subject certain investors in a Fund to
the Federal alternative minimum tax.
Portfolio Insurance
Each of the Funds is subject to certain investment restrictions imposed by
guidelines of the insurance companies that issue portfolio insurance. The Funds
do not believe these guidelines prevent FAM from managing the Funds' portfolios
in accordance with the Funds' investment objective and policies.
Leverage
Use of leverage, through the issuance of AMPS, involves certain risks to
holders of Common Shares of each of the Funds. For example, each Fund's issuance
of AMPS may result in higher volatility of the net asset value of its Common
Shares and potentially more volatility in the market value of its Common Shares.
In addition, changes in the short-term and medium-term dividend rates on, and
the amount of taxable income allocable to, the AMPS will affect the yield to
holders of Common Shares. Under certain circumstances, when a Fund is required
to allocate taxable income to holders of AMPS, the Fund may be required to make
an additional distribution to such holders in an amount approximately equal to
the tax liability resulting from the allocation (an "Additional Distribution").
Leverage will allow holders of each Fund's Common Shares to realize a higher
current rate of
15
<PAGE>
return than if the Fund were not leveraged as long as the Fund, while accounting
for its costs and operating expenses, is able to realize a higher net return on
its investment portfolio than the then-current dividend rate (and any Additional
Distribution) paid on the AMPS. Similarly, since a pro rata portion of each
Fund's net realized capital gains is generally payable to holders of the Fund's
Common Shares, the use of leverage will increase the amount of such gains
distributed to holders of the Fund's Common Shares. However, short-term,
medium-term and long-term interest rates change from time to time as do their
relationships to each other (i.e., the slope of the yield curve) depending upon
such factors as supply and demand forces, monetary and tax policies and investor
expectations. Changes in any or all of such factors could cause the relationship
between short-term, medium-term and long-term rates to change (i.e., to flatten
or to invert the slope of the yield curve) so that short-term and medium-term
rates may substantially increase relative to the long-term obligations in which
each Fund may be invested. To the extent that the current dividend rate (and any
Additional Distribution) on the AMPS approaches the net return on a Fund's
investment portfolio, the benefit of leverage to holders of Common Shares will
be decreased. If the current dividend rate (and any Additional Distribution) on
the AMPS were to exceed the net return on a Fund's portfolio, holders of Common
Shares would receive a lower rate of return than if the Fund were not leveraged.
Similarly, since both the costs of issuing AMPS and any decline in the value of
a Fund's investments (including investments purchased with the proceeds from any
AMPS offering) will be borne entirely by holders of the Fund's Common Shares,
the effect of leverage in a declining market would result in a greater decrease
in net asset value to holders of Common Shares than if the Fund were not
leveraged. If a Fund is liquidated, holders of that Fund's AMPS will be entitled
to receive liquidating distributions before any distribution is made to holders
of Common Shares of that Fund.
In an extreme case, a decline in net asset value could affect each Fund's
ability to pay dividends on its Common Shares. Failure to make such dividend
payments could adversely affect the Fund's qualification as a RIC under the
Federal tax laws. See "Comparison of the Funds - Tax Rules Applicable to the
Funds and their Shareholders." However, each Fund intends to take all measures
necessary to make Common Share dividend payments. If a Fund's current investment
income is ever insufficient to meet dividend payments on either the Common
Shares or the AMPS, the Fund may have to liquidate certain of its investments.
In addition, each Fund has the authority to redeem its AMPS for any reason and
may redeem all or part of its AMPS under the following circumstances:
o if the Fund anticipates that the leveraged capital structure will
result in a lower rate of return for any significant amount of time to
holders of the Common Shares than it can obtain if the Common Shares
were not leveraged,
o if the asset coverage for the AMPS declines below 200%, either as a
result of a decline in the value of the Fund's portfolio investments
or as a result of the repurchase of Common Shares in tender offers or
otherwise, or
o in order to maintain the asset coverage guidelines established by
Moody's and S&P in rating the AMPS.
Redemption of the AMPS or insufficient investment income to make dividend
payments, may reduce the net asset value of the Common Shares and require the
Fund to liquidate a portion of its investments at a time when it may be
disadvantageous to do so.
Portfolio Management. The portfolio management strategies of the Funds are
the same. In the event of an increase in short-term or medium-term rates or
other change in market conditions to the point where a Fund's leverage could
adversely affect holders of Common Shares as noted above, or in anticipation of
such changes, each Fund may attempt to shorten the average maturity of its
investment portfolio, which would tend to offset the negative impact of leverage
on holders of its Common Shares. Each Fund also may attempt to reduce the degree
to which it is leveraged by redeeming AMPS pursuant to the provisions of the
Fund's Certificate of Designation establishing the rights and preferences of the
AMPS or otherwise purchasing shares of AMPS. Purchases and sales or redemptions
of AMPS, whether on the open market or in negotiated transactions, are subject
to limitations under the Investment Company Act. If market conditions
subsequently change, each Fund may sell previously unissued shares of AMPS or
shares of AMPS that the Fund previously issued but later repurchased or
redeemed.
Inverse Floating Obligations
A Fund's investments in "inverse floating obligations" or "residual
interest bonds" provide investment leverage because their market value increases
or decreases in response to market changes at a greater rate than
16
<PAGE>
fixed rate, long term tax exempt securities. The market values of such
securities are more volatile than the market values of fixed rate, tax exempt
securities.
Options and Futures Transactions
Each Fund may engage in certain options and futures transactions to reduce
its exposure to interest rate movements. If a Fund incorrectly forecasts market
values, interest rates or other factors, that Fund's performance could suffer.
Each Fund also may suffer a loss if the other party to the transaction fails to
meet its obligations. The Funds are not required to use hedging and may choose
not to do so.
Antitakeover Provisions
The Declaration of Trust of each of the Funds (in each case the "Charter")
includes provisions that could limit the ability of other entities or persons to
acquire control of that Fund or to change the composition of its Board of
Trustees. Such provisions could limit the ability of shareholders to sell their
shares at a premium over prevailing market prices by discouraging a third party
from seeking to obtain control of the Fund.
Ratings Considerations
The Funds have received ratings of their AMPS of AAA from S&P and "aaa"
from Moody's. In order to maintain these ratings, the Funds are required to
maintain portfolio holdings meeting specified guidelines of such rating
agencies. These guidelines may impose asset coverage requirements that are more
stringent than those imposed by the Investment Company Act.
As described by Moody's and S&P, a preferred stock rating is an assessment
of the capacity and willingness of an issuer to pay preferred stock obligations.
The ratings of the AMPS are not recommendations to purchase, hold or sell AMPS,
inasmuch as the ratings do not comment as to market price or suitability for a
particular investor, nor do the rating agency guidelines address the likelihood
that a holder of AMPS will be able to sell such shares in an auction. The
ratings are based on current information furnished to Moody's and S&P by the
Funds and FAM and information obtained from other sources. The ratings may be
changed, suspended or withdrawn as a result of changes in, or the unavailability
of, such information. The Common Shares of the Funds have not been rated by a
nationally recognized statistical rating organization.
The Board of Trustees of each of the Funds, without shareholder approval,
may amend, alter or repeal certain definitions or restrictions which have been
adopted by the Fund pursuant to the rating agency guidelines, in the event the
Fund receives confirmation from the rating agencies that any such amendment,
alteration or repeal would not impair the ratings then assigned to AMPS.
17
<PAGE>
COMPARISON OF THE FUNDS
Financial Highlights
Florida Insured
The financial information in the table below has been audited in
conjunction with the annual audits of the financial statements of the Fund by
Deloitte & Touche LLP, independent auditors. The following per share data and
ratios have been derived from information provided in the financial statements
of the Fund.
<TABLE>
<CAPTION>
For the Period
For the Year Ended September 26, 1997+
August 31, 1999## to August 31, 1998
------------------- -------------------
<S> <C> <C>
Increase (Decrease) in Net Asset Value:
Per Share Operating Performance:
Net asset value, beginning of period ................................................ $ 15.00
-------- --------
Investment income - net ............................................................. 1.08
Realized and unrealized gain (loss) on investments - net ............................ 1.08
-------- --------
Total from investment operations .................................................... 2.16
--------
Less dividends and distributions to Common Shareholders:
Investment income - net ........................................................ (.71)
Realized gain on investments - net ............................................. --
In excess of realized gain on investment - net ................................ --
-------- --------
Total dividends and distributions to Common Shareholders ............................ (.71)
Capital charge resulting from issuance of Common Shares ............................. (.03)
Effect of Preferred Share activity: ++
-------- --------
Dividends and distributions to Preferred Shareholders:
Investment income - net ........................................................ (.30)
Realized gain on investments - net ............................................. --
In excess of realized gain on investments - net ................................ --
======== ========
Capital charge resulting from issuance of Preferred Shares ........................ (.09)
--------
Total effect of Preferred Share activity ............................................ (.39)
-------- --------
Net asset value, end of period ...................................................... $ 16.03
======== ========
Market price per share, end of period ............................................... $14.8125
======== ========
Total Investment Return:**
Based on market price per share ..................................................... 3.47%#
======== ========
Based on net asset value per share .................................................. 11.97%#
======== ========
Ratios Based on Average Net Assets Attributable to Common Shares:
Expenses, net of reimbursement*** ................................................... .87%*
======== ========
Total expenses*** ................................................................... 1.20%*
======== ========
Total Investment income - net*** .................................................... 7.51%*
======== ========
Amount of Dividends to Preferred Shareholders ....................................... 2.07%*
======== ========
Investment Income Net to Common Shareholders ........................................ 5.45%*
======== ========
Ratios based on Total Average Net Assets+++***
Expenses of net of reimbursement .................................................... .54%*
======== ========
Expenses ............................................................................ .75%*
======== ========
Investment income-net ............................................................... 4.70%*
======== ========
Supplemental Data:
Preferred Shares:
Dividends to Preferred Shareholders ................................................. 3.47%*
======== ========
Net assets, net of Preferred Shares, end of period (in thousands) ................... $172,516
======== ========
Preferred Shares outstanding, end of period (in thousands) .......................... $104,750
======== ========
Portfolio turnover .................................................................. 101.89%
======== ========
Dividends Per Share on Preferred Shares Outstanding:
Series A - investment income - net ............................................. $ 753
======== ========
Series B - investment income - net ............................................. $ 764
======== ========
Leverage:
Asset coverage per $1,000 ........................................................... $ 2,647
======== ========
</TABLE>
- ---------------
* Annualized.
** Total investment returns based on market value, which can be
significantly greater or lesser than the net asset value, may result in
substantially different returns. Total investment returns exclude the
effects of sales charges.
*** Do not reflect the effect of dividends to Preferred Shareholders.
+ Commencement of operations
++ The Fund's Preferred Shares were issued on October 16, 1997.
+++ Includes Common and Preferred Shares average net assets.
# Aggregate total investment return.
## To be filed by amendment.
18
<PAGE>
Florida Insured II
The financial information in the table below has been audited in
conjunction with the annual audits of the financial statements of the Fund by
Deloitte & Touche LLP, independent auditors. The following per share data and
ratios have been derived from information provided in the financial statements
of the Fund.
<TABLE>
<CAPTION>
For the Period
For the Year Ended February 25, 1998+
June 30, 1999 to June 30, 1998
------------------ ------------------
<S> <C> <C>
Increase (Decrease) in Net Asset Value:
Per Share Operating Performance:
Net asset value, beginning of period ................................................. $ 14.97 $ 15.00
-------- --------
Investment income - net .............................................................. 1.13 .39
Realized and unrealized gain (loss) on investments - net ............................. (.81) .04
-------- --------
Total from investment operations ..................................................... .32 .43
--------
Less dividends and distributions to Common Shareholders:
Investment income - net ......................................................... (.80) (.22)
In excess of realized gain on investments - net ................................. (.03) --
-------- --------
Total dividends and distributions to Common Shareholders ............................. (.83) (.22)
-------- --------
Capital charge resulting from issuance of Common Shares .............................. -- (.04)
-------- --------
Effect of Preferred Share activity:++
Dividends and distributions to Preferred Shareholders:
Investment income - net ............................................................ (.31) (.11)
In excess of realized gain on investments - net .................................... (.01) --
Capital charge resulting from issuance of Preferred Shares ......................... -- (.09)
-------- --------
Total effect of Preferred Share activity ............................................. (.32) (.20)
-------- --------
Net asset value, end of period ....................................................... $ 14.14 $ 14.97
======== ========
Market price per share, end of period ................................................ $12.9375 $ 15.50
======== ========
Total Investment Return:**
Based on market price per share ...................................................... (11.75)% 4.87%#
======== ========
Based on net asset value per share ................................................... (.13)% 1.29%#
======== ========
Ratios Based on Average Net Assets of Common Shares:
Expenses, net of reimbursement*** .................................................... 1.13% .35%*
======== ========
Total expenses*** .................................................................... 1.22% 1.10%*
======== ========
Total investment income - net*** ..................................................... 7.36% 7.26%*
======== ========
Amount of dividends to Preferred Shareholders ........................................ 2.02% 2.00%*
======== ========
Investment Income - net to Common Shareholders ....................................... 5.34% 5.26%*
======== ========
Ratios based on Total Average net Assets +++***
Expenses, net of reimbursement ....................................................... .69% .24%*
======== ========
Total expenses ....................................................................... .75% .76%*
======== ========
Total investment income - net ........................................................ 4.49% 5.00%*
======== ========
Ratios Based on Average Net Assets of Preferred Shares:
Dividends to Preferred Shareholders .................................................. 3.16% 4.43%*
======== ========
Supplemental Data:
Net assets, net of Preferred Shares, end of period (in thousands) .................... $124,976 $132,351
======== ========
Preferred Shares outstanding, end of period (in thousands) ........................... $ 86,000 $ 86,000
======== ========
Portfolio turnover ................................................................... 108.45% 59.25%
======== ========
Dividends Per Share on Preferred Shares Outstanding:
Series A - Investment income - net ................................................... $ 789 $ 281
======== ========
Series B - Investment income - net ................................................... $ 793 $ 277
======== ========
Leverage:
Asset coverage per $1,000 ............................................................ $ 2,453 $ 2,539
======== ========
</TABLE>
- ----------------
* Annualized.
** Total investment returns based on market value, which can be
significantly greater or lesser than the net asset value, may result in
substantially different returns. Total investment returns exclude the
effects of sales charges.
*** Does not reflect the effect of dividends to Preferred Shareholders.
+ Commencement of operations.
++ The Fund's Preferred Shares were issued on March 13, 1998.
+++ Includes Common and Preferred Shares average net assets.
# Aggregate total investment return.
19
<PAGE>
Florida Insured III
The financial information in the table below has been provided by FAM, has
been audited in conjunction with the annual audits of the financial statements
of the Fund by Ernst & Young LLP, independent auditors. The following per share
data and ratios have been derived from information provided in the financial
statements of the Fund.
For the Period
October 1, 1998+ to
September 30, 1999##
-------------------
Increase (Decrease) in Net Asset Value:
Per Share Operating Performance:
Net asset value, beginning of period ..................................
Investment income - net ...............................................
Realized and unrealized gain (loss) on investments - net .............
Total from investment operations ......................................
Less dividends and distributions to Common Shareholders: ..............
Investment income - net .............................................
Realized gain on investment - net ...................................
Total dividends and distributions to Common Shareholders ..............
Capital charge resulting from issuance of Common Shares ...............
Effect of Preferred Shares activity:++ ................................
Dividends and distributions to Preferred Shareholders: ..............
Investment income - net .............................................
Realized gain on investments - net ..................................
Capital charge resulting from issuance of Preferred Shares ..........
Total effect of Preferred Share activity ..............................
Net asset value, end of period ........................................
Market price per share, end of period .................................
Total Investment Return:** ............................................
Based on market price per share .......................................
Based on net asset value per share ....................................
Ratios Based on Average Net Assets Attributable to Common Shares:***
Expenses, net of reimbursement ........................................
Expenses ..............................................................
Investment income - net ...............................................
Amount of Dividends to Preferred Shareholders .........................
Investment Income Net to Common Shareholders ..........................
Ratios based on Total Average Net Assets
Supplemental Data:
Net assets, net of Preferred Shares, end of period (in thousands)
Preferred Shares outstanding, end of period (in thousands)
Portfolio turnover ....................................................
Dividends Per Share on Preferred Shares Outstanding: ..................
Investment income - net ...............................................
Leverage:
Asset coverage per $1,000 .............................................
- -------------
* Annualized.
** Total investment returns based on market value, which can be
significantly greater or less than the net asset value, may result in
substantially different returns. Total investment returns exclude the
effects of sales charges.
*** Does not reflect the effect of dividends to Preferred Shareholders.
+ Commencement of operations.
++ The Fund's Preferred Shares was issued on October 22, 1998.
# Aggregate total investment return.
## To be provided by amendment.
20
<PAGE>
Florida Insured IV
The financial information in the table below has been audited in
conjunction with the annual audits of the financial statements of the Fund by
Ernst & Young LLP, independent auditors. The following per share data and ratios
have been derived from information provided in the financial statements of the
Fund.
For the Period
January 29, 1999+
to September 30, 1999##
---------------------
Increase (Decrease) in Net Asset Value:
Per Share Operating Performance:
Net asset value, beginning of period ..................................
Investment income - net ...............................................
Realized and unrealized gain (loss) on investments - net ..............
Total from investment operations ......................................
Less dividends and distributions to Common Shareholders:
Investment income - net .............................................
Realized gain on investment - net ...................................
Total dividends and distributions to Common Shareholders
Capital charge resulting from issuance of Common Shares ...............
Effect of Preferred Share activity:++ .................................
Dividends and distributions to Preferred Shareholders:
Investment income - net .............................................
Realized gain on investments - net ..................................
Capital charge resulting from issuance of Preferred Shares ..........
Total effect of Preferred Shares activity .............................
Net asset value, end of period ........................................
Market price per share, end of period .................................
Total Investment Return:**
Based on market price per share .......................................
Based on net asset value per share ....................................
Ratios Based on Average Net Assets Attributable to Common Shares:***
Expenses, net of reimbursement ........................................
Expenses ..............................................................
Investment income - net ...............................................
Amount of Dividends to Preferred Shareholders
Investment Income Net to Common Shareholders
Ratios based on Total Average Net Assets
Supplemental Data:
Net assets, net of Preferred Shares, end of period (in thousands)
Preferred Shares outstanding, end of period (in thousands)
Portfolio turnover ....................................................
Dividends Per Share on Preferred Shares Outstanding:
Investment income - net ...............................................
Leverage:
Asset coverage per $1,000 .............................................
- --------------
* Annualized.
** Total investment returns based on market value, which can be
significantly greater or less than the net asset value, may result in
substantially different returns. Total investment returns exclude the
effects of sales charges.
*** Does not reflect the effect of dividends to Preferred Shareholders.
+ Commencement of operations.
++ The Fund's Preferred Shares was issued on February 22, 1999.
# Aggregate total investment return.
## To be provided by amendment.
21
<PAGE>
Per Share Data for Common Shares*
Traded on the New York Stock Exchange (unaudited)
<TABLE>
<CAPTION>
Florida Insured
Premium
(Discount)
to Net
Market Price** Net Asset Value Asset Value
-------------------- --------------------- --------------------
Quarter Ended High Low High Low High Low
- -------------------------- -------- -------- --------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
November 30, 1997+ ............. 16.25 15.0625 15.38 15.04 5.13 (0.20)
February 28, 1998 .............. 16.0625 15.625 15.83 15.56 3.97 (2.40)
May 31, 1998 ................... 14.9375 14.3125 15.68 15.29 0.92 (6.39)
August 31, 1998 ................ 14.875 14.0625 16.03 15.63 (4.19) (10.54)
November 30, 1998 .............. 16.25 15.375 16.07 15.83 1.12 (8.21)
February 28, 1999 .............. 16.0625 15.4375 15.68 15.44 5.71 (0.40)
May 31, 1999 ................... 14.9375 14.0625 15.43 15.10 1.21 (8.35)
<CAPTION>
Florida Insured II
Premium
(Discount)
to Net
Market Price** Net Asset Value Asset Value
-------------------- --------------------- --------------------
Quarter Ended High Low High Low High Low
- -------------------------- -------- -------- --------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
March 31, 1998++ ............... 15.6875 15.0625 14.99 14.80 4.31 0.33
June 30, 1998 .................. 15.50 15.00 15.21 14.92 6.20 0.07
September 30, 1998 ............. 15.3125 14.625 15.68 15.28 0.70 (6.62)
December 31, 1998 .............. 15.50 14.6875 15.60 15.18 (0.08) (3.33)
March 31, 1999 ................. 15.50 14.50 15.36 15.11 1.71 (4.79)
June 30, 1999 .................. 13.75 12.50 14.67 14.08 (3.33) (11.28)
<CAPTION>
Florida Insured III
Premium
(Discount)
to Net
Market Price** Net Asset Value Asset Value
-------------------- --------------------- --------------------
Quarter Ended High Low High Low High Low
- -------------------------- -------- -------- --------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
December 31, 1998+++ ........... 15.4375 14.625 14.98 14.61 6.68 (0.57)
March 31, 1999 ................. 15.3125 14.3125 14.81 14.54 4.17 (3.78)
June 30, 1999 .................. 13.4375 12.6875 14.10 13.55 0.38 (6.71)
September 30, 1999
<CAPTION>
Florida Insured IV
Premium
(Discount)
to Net
Market Price** Net Asset Value Asset Value
-------------------- --------------------- --------------------
Quarter Ended High Low High Low High Low
- -------------------------- -------- -------- --------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
March 31, 1999++++ ............. 15.25 15.00 15.00 14.71 2.21 (0.13)
June 30, 1999 .................. 14.875 12.875 14.24 13.59 2.21 (4.04)
September 30, 1999
</TABLE>
- ---------------
* Calculations are based upon Common Shares outstanding at the end of each
quarter.
** As reported in the consolidated transaction operating system.
+ For the period September 25, 1997 to November 30, 1997.
++ For the period February 25, 1998 to March 31, 1998.
+++ For the period October 1, 1998 to December 31, 1998.
++++ For the period January 29, 1999 to March 31, 1999.
As indicated in the tables above, for the periods shown the Common Shares
of the Funds generally has traded at prices close to net asset value, with
premiums or discounts to net asset value of less than 15% being reflected in the
market value of the shares from time to time. Although there is no reason to
believe that this pattern should be affected by the Reorganization, it is not
possible to predict whether shares of the surviving fund
22
<PAGE>
will trade at a premium or discount to net asset value following the
Reorganization, or what the extent of any such premium or discount might be.
Investment Objective and Policies
The structure, organization and investment policies of the Funds are
substantially similar, with the differences among the four Funds set forth
below. Each Fund seeks as a fundamental investment objective to provide
shareholders with current income exempt from Federal income tax and to provide
shareholders with the opportunity to own shares the value of which is exempt
from Florida intangible personal property tax. The investment objective of each
Fund is a fundamental policy that may not be changed without a vote of a
majority of the Fund's outstanding voting securities.
Each Fund seeks to achieve its investment objective by investing primarily
in a portfolio of Florida Municipal Bonds. At all times, at least 65% of each
Fund's total assets will be invested in Florida Municipal Bonds and at least 80%
of each Fund's total assets will be invested in Florida Municipal Bonds and in
other long-term municipal obligations exempt from Federal income tax but whose
value is not exempt from Florida intangible personal property taxes ("Municipal
Bonds"), except during interim periods pending investment of the net proceeds of
public offerings of its securities and during temporary defensive periods. At
times, each Fund may seek to hedge its portfolio through the use of futures and
options transactions to reduce volatility in the net asset value of its Common
Shares. Under normal circumstances, at least 80% of each Fund's total assets
will be invested in municipal obligations with remaining maturities of one year
or more that are covered by insurance guaranteeing the timely payment of
principal at maturity and interest.
Ordinarily, none of the Funds intends to realize significant investment
income subject to Federal income tax or to have assets subject or have
significant assets subject to Florida intangible personal property tax. To the
extent FAM considers that suitable Florida Municipal Bonds are not available for
investment, the Funds may purchase Municipal Bonds. Each Fund may invest all or
a portion of its assets in certain tax-exempt securities classified as "private
activity bonds" (in general, bonds that benefit non-governmental entities) that
may subject certain investors in the Fund to a Federal alternative minimum tax.
Each Fund also may invest in securities not issued by or on behalf of a
state or territory or by an agency or instrumentality thereof, if the Fund
nevertheless believes such securities pay interest or distributions that are
exempt from Federal income taxation ("Non-Municipal Tax-Exempt Securities").
Non-Municipal Tax-Exempt Securities may include securities issued by other
investment companies that invest in Florida Municipal Bonds and Municipal Bonds,
to the extent such investments are permitted by the Investment Company Act.
Other Non-Municipal Tax-Exempt Securities could include trust certificates or
other instruments evidencing interests in one or more long-term Florida
Municipal Bonds or Municipal Bonds. Certain Non-Municipal Tax-Exempt Securities
may be characterized as derivative instruments. Non-Municipal Tax-Exempt
Securities will be considered "Florida Municipal Bonds" or "Municipal Bonds" for
purposes of a Fund's investment objective and policies.
The investment grade Florida Municipal Bonds and Municipal Bonds in which
each Fund primarily invests are those Florida Municipal Bonds and Municipal
Bonds that are rated at the date of purchase in the four highest rating
categories of S&P, Moody's or Fitch or, if unrated, are considered to be of
comparable quality by FAM. In the case of long-term debt, the investment grade
rating categories are AAA through BBB for S&P and Fitch and Aaa through Baa for
Moody's. In the case of short-term notes, the investment grade rating categories
are SP-1 through SP-3 for S&P, MIG-1 through MIG-3 for Moody's and F-1+ through
F-3 for Fitch. In the case of tax-exempt commercial paper, the investment grade
rating categories are A-1+ through A-3 for S&P, Prime-1 through Prime-3 for
Moody's and F-1+ through F-3 for Fitch. Obligations ranked in the lowest
investment grade rating category (BBB, SP-3 and A-3 for S&P; Baa, MIG-3 and
Prime-3 for Moody's; and BBB and F-3 for Fitch), while considered "investment
grade," may have certain speculative characteristics. In assessing the quality
of Florida Municipal Bonds and Municipal Bonds with respect to the foregoing
requirements, FAM takes into account the portfolio insurance as well as the
nature of any letters of credit or similar credit enhancement to which
particular Florida Municipal Bonds and Municipal Bonds are entitled and the
creditworthiness of the insurance company or financial institution that provided
such insurance or credit enhancements. Consequently, if Florida Municipal Bonds
or Municipal Bonds are covered by insurance policies issued by insurers whose
claims-paying ability is rated AAA by S&P or Fitch or Aaa by Moody's, FAM may
consider such municipal obligations to be equivalent to AAA- or Aaa- rated
securities, as the case may be, even though such Florida Municipal Bonds or
Municipal Bonds would generally be assigned a lower rating if the rating were
based primarily upon the credit characteristics of the issuers without regard to
the insurance feature. The insured Florida Municipal Bonds and
23
<PAGE>
Municipal Bonds must also comply with the standards applied by the insurance
carriers in determining eligibility for portfolio insurance. See Exhibit IV --
"Ratings of Municipal Bonds and Commercial Paper" and Exhibit V -- "Portfolio
Insurance."
Each of the Funds may invest in variable rate demand obligations ("VRDOs")
and VRDOs in the form of participation interests ("Participating VRDOs") in
variable rate tax-exempt obligations held by a financial institution, typically
a commercial bank. The VRDOs in which each Fund may invest are tax-exempt
obligations, in the opinion of counsel to the issuer, that contain a floating or
variable interest rate adjustment formula and a right of demand on the part of
the holder thereof to receive payment of the unpaid principal balance plus
accrued interest on a short notice period not to exceed seven days.
Participating VRDOs provide each Fund with a specified undivided interest (up to
100%) in the underlying obligation and the right to demand payment of the unpaid
principal balance plus accrued interest on the Participating VRDOs from the
financial institution on a specified number of days' notice, not to exceed seven
days. There is, however, the possibility that because of default or insolvency,
the demand feature of VRDOs or Participating VRDOs may not be honored. Each Fund
has been advised by its counsel that the Fund should be entitled to treat the
income received on Participating VRDOs as interest from tax-exempt obligations
for Federal income tax purposes.
The average maturity of each Fund's portfolio securities varies based upon
FAM's assessment of economic and market conditions. The net asset value of
common stock of a closed-end investment company, such as each Fund, which
invests primarily in fixed-income securities, changes as the general levels of
interest rates fluctuate. When interest rates decline, the value of a fixed
income portfolio can be expected to rise. Conversely, when interest rates rise,
the value of a fixed income portfolio can be expected to decline. Prices of
longer-term securities generally fluctuate more in response to interest rate
changes than do short-term or medium-term securities. These changes in net asset
value are likely to be greater in the case of a fund having a leveraged capital
structure, such as that used by the Funds.
Each Fund intends to invest primarily in long-term Florida Municipal Bonds
and Municipal Bonds with a maturity of more than ten years. However, each Fund
may also invest in short-term tax-exempt securities, short-term U.S. Government
securities, repurchase agreements or cash. Such short-term securities or cash
will not exceed 20% of each Fund's total assets except during interim periods
pending investment of the net proceeds from public offerings of the Fund's
securities or in anticipation of the repurchase or redemption of the Fund's
securities and temporary periods when, in the opinion of FAM, prevailing market
or economic conditions warrant.
Each Fund is classified as non-diversified within the meaning of the
Investment Company Act, which means that the Fund is not limited by such Act in
the proportion of its total assets that it may invest in securities of a single
issuer. However, each Fund's investments are limited so as to qualify the Fund
for the special tax treatment afforded RICs under the Federal tax laws. To
qualify, among other requirements, each Fund limits its investments so that, at
the close of each quarter of the taxable year, (i) not more than 25% of the
market value of the Fund's total assets will be invested in the securities
(other than U.S. Government securities) of a single issuer, and (ii) with
respect to 50% of the market value of its total assets, not more than 5% of the
market value of its total assets will be invested in the securities (other than
U.S. Government securities) of a single issuer. A fund that elects to be
classified as "diversified" under the Investment Company Act must satisfy the
foregoing 5% requirement with respect to 75% of its total assets. To the extent
that any Fund assumes large positions in the securities of a small number of
issuers, the Fund's yield may fluctuate to a greater extent than that of a
diversified company as a result of changes in the financial condition or in the
market's assessment of the issuers.
Portfolio Insurance
Under normal circumstances, at least 80% of the assets of each Fund will be
invested in Florida Municipal Bonds and Municipal Bonds either (i) insured under
an insurance policy purchased by the Fund, or (ii) insured under an insurance
policy obtained by the issuer thereof or any other party. The Funds will seek to
limit their investments to municipal obligations insured under insurance
policies issued by insurance carriers that have total admitted assets
(unaudited) of at least $75,000,000 and capital and surplus (unaudited) of at
least $50,000,000 and insurance claims-paying ability ratings of AAA from S&P or
Fitch, or Aaa from Moody's. There can be no assurance that insurance from
insurance carriers meeting these criteria will be available. See Exhibit V to
this Proxy Statement and Prospectus for a brief description of insurance
claims-paying ability ratings of S&P, Moody's and Fitch. Currently, it is
anticipated that a majority of the insured Florida Municipal Bonds and Municipal
Bonds in each Fund's portfolio will be insured by the following insurance
companies which satisfy the foregoing criteria: AMBAC Indemnity Corporation,
Financial Guaranty Insurance Company, Financial Security
24
<PAGE>
Assurance and Municipal Bond Investors Assurance Corporation. Each Fund also may
purchase Florida Municipal Bonds and Municipal Bonds covered by insurance issued
by any other insurance company that satisfies the foregoing criteria. A majority
of insured Florida Municipal Bonds and Municipal Bonds held by each Fund will be
insured under policies obtained by parties other than the Fund.
Each Fund may purchase, but has no obligation to purchase, separate
insurance policies (the "Policies") from insurance companies meeting the
criteria set forth above that guarantee payment of principal and interest on
specified eligible Florida Municipal Bonds and Municipal Bonds purchased by the
Funds. A Florida Municipal Bond or Municipal Bond will be eligible for coverage
if it meets certain requirements of the insurance company set forth in a Policy.
In the event interest or principal of an insured Florida Municipal Bond or
Municipal Bond is not paid when due, the insurer will be obligated under its
Policy to make such payment not later than 30 days after it has been notified
by, and provided with documentation from, the Fund that such nonpayment has
occurred.
The Policies will be effective only as to insured Florida Municipal Bonds
and Municipal Bonds beneficially owned by a Fund. In the event of a sale of any
Florida Municipal Bonds and Municipal Bonds held by a Fund, the issuer of the
relevant Policy will be liable only for those payments of interest and principal
that are then due and owing. The Policies will not guarantee the market value of
an insured Florida Municipal Bond or Municipal Bond or the value of the shares
of a Fund.
The insurer will not have the right to withdraw coverage on securities
insured by its Policies and held by a Fund so long as such securities remain in
the Fund's portfolio. In addition, the insurer may not cancel its Policies for
any reason except failure to pay premiums when due. The Board of Trustees of
each Fund reserves the right to terminate any of the Policies if it determines
that the benefits to the Fund of having its portfolio insured under such Policy
are not justified by the expense involved.
The premiums for the Policies are paid by the Fund and the yield on its
portfolio is reduced thereby. FAM estimates that the cost of the annual premiums
for the Policies of each Fund currently range from approximately .02 of 1% to
.15 of 1% of the principal amount of the Florida Municipal Bonds and Municipal
Bonds covered by such Policies. The estimate is based on the expected
composition of each Fund's portfolio of Florida Municipal Bonds and Municipal
Bonds. Additional information regarding the Policies is set forth in Exhibit V
to this Proxy Statement and Prospectus. In instances in which a Fund purchases
Florida Municipal Bonds and Municipal Bonds insured under policies obtained by
parties other than the Fund, the Fund does not pay the premiums for such
policies; rather, the cost of such policies may be reflected in the purchase
price of the Florida Municipal Bonds and Municipal Bonds.
It is the intention of FAM to retain any insured securities that are in
default or in significant risk of default and to place a value on the insurance,
which ordinarily will be the difference between the market value of the
defaulted security and the market value of similar securities which are not in
default. In certain circumstances, however, FAM may determine that an alternate
value for the insurance, such as the difference between the market value of the
defaulted security and its par value, is more appropriate. FAM's ability to
manage the portfolio of a Fund may be limited to the extent it holds defaulted
securities, which may limit its ability in certain circumstances to purchase
other Florida Municipal Bonds and Municipal Bonds. See "Net Asset Value" below
for a more complete description of each Fund's method of valuing defaulted
securities and securities that have a significant risk of default.
There can be no assurance that insurance with the terms and issued by
insurance carriers meeting the criteria described above will continue to be
available to each Fund. In the event the Board of Trustees of a Fund determines
that such insurance is unavailable or that the cost of such insurance outweighs
the benefits to the Fund, the Fund may modify the criteria for insurance
carriers or the terms of the insurance, or may discontinue its policy of
maintaining insurance for all or any of the Florida Municipal Bonds and
Municipal Bonds held in the Fund's portfolio. Although FAM periodically reviews
the financial condition of each insurer, there can be no assurance that the
insurers will be able to honor their obligations under all circumstances.
The portfolio insurance reduces financial or credit risk (i.e., the
possibility that the owners of the insured Florida Municipal Bonds or Municipal
Bonds will not receive timely scheduled payments of principal or interest).
However, the insured Florida Municipal Bonds or Municipal Bonds are subject to
market risk (i.e., fluctuations in market value as a result of changes in
prevailing interest rates).
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Description of Florida Municipal Bonds and Municipal Bonds
Florida Municipal Bonds and Municipal Bonds include debt obligations issued
to obtain funds for various public purposes, including construction of a wide
range of public facilities, refunding of outstanding obligations and obtaining
funds for general operating expenses and loans to other public institutions and
facilities. In addition, certain types of bonds ("PABs") are issued by or on
behalf of public authorities to finance various privately operated facilities,
including, among other things, airports, public ports, mass commuting
facilities, multi-family housing projects, as well as facilities for water
supply, gas, electricity, sewage or solid waste disposal. For purposes of this
Proxy Statement and Prospectus, such obligations are considered Municipal Bonds
if the interest paid thereon is exempt from Federal income tax and as Florida
Municipal Bonds if the interest thereon is exempt from Federal income tax and
the obligation is exempt from Florida intangible personal property tax, even
though such bonds may be PABs as discussed below. Also, for purposes of this
Proxy Statement and Prospectus, Non-Municipal Tax-Exempt Securities as discussed
above will be considered Florida Municipal Bonds or Municipal Bonds.
The two principal classifications of Florida Municipal Bonds and Municipal
Bonds are "general obligation" bonds and "revenue" bonds, which latter category
includes PABs and, for bonds issued on or before August 15, 1986, industrial
development bonds or IDBs. General obligation bonds are secured by the issuer's
pledge of faith, credit and taxing power for the repayment of principal and the
payment of interest. Revenue or special obligation bonds are payable only from
the revenues derived from a particular facility or class of facilities or, in
some cases, from the proceeds of a special excise tax or other specific revenue
source such as from the user of the facility being financed. PABs are in most
cases revenue bonds and do not generally constitute the pledge of the credit or
taxing power of the issuer of such bonds. The repayment of the principal and the
payment of interest on such bonds depends solely on the ability of the user of
the facility financed by the bonds to meet its financial obligations and the
pledge, if any, of real and personal property so financed as security for such
payment. Florida Municipal Bonds and Municipal Bonds may also include "moral
obligation" bonds, which are normally issued by special purpose public
authorities. If an issuer of moral obligation bonds is unable to meet its
obligations, the repayment of such bonds becomes a moral commitment but not a
legal obligation of the state or municipality in question.
Each Fund may purchase Florida Municipal Bonds and Municipal Bonds
classified as PABs. Interest received on certain PABs is treated as an item of
"tax preference" for purposes of the Federal alternative minimum tax and may
impact the overall tax liability of investors in the Fund. There is no
limitation on the percentage of each Fund's assets that may be invested in
Florida Municipal Bonds and Municipal Bonds the interest on which is treated as
an item of "tax preference" for purposes of the Federal alternative minimum tax.
See "Tax Rules Applicable to the Funds and Their Shareholders."
Also included within the general category of Florida Municipal Bonds and
Municipal Bonds are certificates of participation ("COPs") executed and
delivered for the benefit of government authorities or entities to finance the
acquisition or construction of equipment, land and/or facilities. COPs represent
participations in a lease, an installment purchase contract or a conditional
sales contract (hereinafter collectively referred to as "lease obligations")
relating to such equipment, land or facilities. Although lease obligations do
not constitute general obligations of the issuer for which the issuer's
unlimited taxing power is pledged, a lease obligation frequently is backed by
the issuer's covenant to budget for, appropriate and make the payments due under
the lease obligation. However, certain lease obligations contain
"non-appropriation" clauses which provide that the issuer has no obligation to
make lease or installment purchase payments in future years unless money is
appropriated for such purpose on a yearly basis. Although "non-appropriation"
lease obligations are secured by the lease property, disposition of the property
in the event of foreclosure might prove difficult.
Federal tax legislation has limited and may continue to limit the types and
volume of bonds the interest on which is excludable from income for Federal
income tax purposes. As a result, this legislation and legislation that may be
enacted in the future may affect the availability of Florida Municipal Bonds and
Municipal Bonds for investment by the Funds.
Special Considerations Relating to Florida Municipal Bonds
Each Fund ordinarily will invest at least 80% of its total assets in
Florida Municipal Bonds and, therefore, is more susceptible to factors adversely
affecting issuers of Florida Municipal Bonds than is a municipal bond fund that
is not concentrated in issuers of Florida Municipal Bonds to this degree. Many
different social,
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environmental and economic factors may affect the financial condition of Florida
and its political subdivisions. From time to time Florida and its political
subdivisions have encountered financial difficulties. Florida is highly
dependent upon sales and use taxes, which account for the majority of its
General Fund revenues. The Florida Constitution does not permit a state or local
personal income tax. The structure of personal income in Florida is also
different from the rest of the nation in that the State has a proportionally
greater retirement age population that is dependent upon transfer payments
(social security, pension benefits, etc.). Such transfer payments can be
affected by Federal legislation. Florida's economic growth is also highly
dependent upon other factors such as changes in population growth, tourism,
interest rates and hurricane activity. The Florida Constitution may limit the
State's ability to raise revenues and may have an adverse effect on the finances
of Florida and its political subdivisions. FAM does not believe that the current
economic conditions in Florida will have a significant adverse effect on each
Fund's ability to invest in investment grade Florida Municipal Bonds. As of
August 20, 1999, the State had a high bond rating from Moody's (Aa2), S&P (AA++)
and Fitch IBCA, Inc. on all of its general obligation bonds. For a discussion of
economic and other conditions in the State of Florida, see Exhibit II--
"Economic and Other Conditions in Florida."
Other Investment Policies
The Funds have adopted certain other policies as set forth below:
Borrowings. Each Fund is authorized to borrow amounts of up to 5% of the
value of its total assets at the time of such borrowings; provided, however,
that each Fund is authorized to borrow moneys in amounts of up to 331/3% of the
value of its total assets at the time of such borrowings to finance the
repurchase of its own common shares pursuant to tender offers or otherwise to
redeem or repurchase preferred shares or for temporary, extraordinary or
emergency purposes. Borrowings by each Fund (commonly known, as with the
issuance of preferred shares, as "leveraging") create an opportunity for greater
total return since the Fund will not be required to sell portfolio securities to
repurchase or redeem shares but, at the same time, increase exposure to capital
risk. In addition, borrowed funds are subject to interest costs that may offset
or exceed the return earned on the borrowed funds.
When-Issued Securities and Delayed Delivery Transactions. Each Fund may
purchase or sell Florida Municipal Bonds and Municipal Bonds on a delayed
delivery basis or on a when-issued basis at fixed purchase or sale terms. These
transactions arise when securities are purchased or sold by a Fund with payment
and delivery taking place in the future. The purchase will be recorded on the
date that the Fund enters into the commitment, and the value of the obligation
thereafter will be reflected in the calculation of the Fund's net asset value.
The value of the obligation on the delivery day may be more or less than its
purchase price. A separate account of the Fund will be established with its
custodian consisting of cash, cash equivalents or liquid securities having a
market value at all times at least equal to the amount of the commitment.
Indexed and Inverse Floating Obligations. Each Fund may invest in Florida
Municipal Bonds and Municipal Bonds yielding a return based on a particular
index of value or interest rates. For example, each Fund may invest in Florida
Municipal Bonds and Municipal Bonds that pay interest based on an index of
Municipal Bond interest rates. The principal amount payable upon maturity of
certain Florida Municipal Bonds and Municipal Bonds also may be based on the
value of an index. To the extent a Fund invests in these types of Municipal
Bonds, the Fund's return on such Florida Municipal Bonds and Municipal Bonds
will be subject to risk with respect to the value of the particular index. Also,
a Fund may invest in so-called "inverse floating obligations" or "residual
interest bonds" on which the interest rates typically vary inversely with a
short-term floating rate (which may be reset periodically by a Dutch auction, a
remarketing agent, or by reference to a short-term tax-exempt interest rate
index). Each Fund may purchase synthetically-created inverse floating
obligations evidenced by custodial or trust receipts. Generally, income on
inverse floating obligations will decrease when short-term rates increase, and
will increase when short-term rates decrease. Such securities have the effect of
providing a degree of investment leverage, since they may increase or decrease
in value in response to changes, as an illustration, in market interest rates at
a rate that is a multiple (typically two) of the rate at which fixed-rate,
long-term, tax-exempt securities increase or decrease in response to such
changes. As a result, the market values of such securities generally will be
more volatile than the market values of fixed-rate tax-exempt securities. To
seek to limit the volatility of these securities, a Fund may purchase inverse
floating obligations with shorter-term maturities or limitations on the extent
to which the interest rate may vary. FAM believes that indexed and inverse
floating obligations represent a flexible portfolio management instrument for
the Funds that allows FAM to vary the degree of investment leverage relatively
efficiently under different market conditions.
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Call Rights. Each of the Funds may purchase a Florida Municipal Bond or
Municipal Bond issuer's rights to call all or a portion of such Florida
Municipal Bond or Municipal Bond for mandatory tender for purchase (a "Call
Right"). A holder of a Call Right may exercise such right to require a mandatory
tender for the purchase of related Florida Municipal Bonds or Municipal Bonds,
subject to certain conditions. A Call Right that is not exercised prior to the
maturity of the related Florida Municipal Bond or Municipal Bond will expire
without value. The economic effect of holding both the Call Right and the
related Florida Municipal Bond or Municipal Bond is identical to holding a
Florida Municipal Bond or Municipal Bond as a non-callable security.
Repurchase Agreements. The Funds may invest in securities pursuant to
repurchase agreements. Repurchase agreements may be entered into only with a
member bank of the Federal Reserve System or a primary dealer in U.S. government
securities or an affiliate thereof. Under such agreements, the seller agrees,
upon entering into the contract, to repurchase the security at a mutually
agreed-upon time and price, thereby determining the yield during the term of the
agreement. The Funds may not invest in repurchase agreements maturing in more
than seven days if such investments, together with all other illiquid
investments, would exceed 15% of the Fund's net assets. In the event of default
by the seller under a repurchase agreement, the Funds may suffer time delays and
incur costs or possible losses in connection with the disposition of the
underlying securities.
In general, for Federal income tax purposes, repurchase agreements are
treated as collateralized loans secured by the securities "sold." Therefore,
amounts earned under such agreements will not be considered tax-exempt interest.
Information Regarding Options and Futures Transactions
Each Fund may hedge all or a portion of its portfolio investments against
fluctuations in interest rates through the use of options and certain financial
futures contracts and options thereon. While each Fund's use of hedging
strategies is intended to reduce the volatility of the net asset value of the
common shares, the net asset value of the common shares will fluctuate. There
can be no assurance that a Fund's hedging transactions will be effective. In
addition, because of the leveraged nature of the Common Shares, hedging
transactions will result in a larger impact on the net asset value of the Common
Shares than would be the case if the Common Shares were not leveraged.
Furthermore, a Fund may only engage in hedging activities from time to time and
may not necessarily be engaging in hedging activities when movements in interest
rates occur. No Fund has an obligation to enter into hedging transactions and
each may choose not to do so.
Certain Federal income tax requirements may limit a Fund's ability to
engage in hedging transactions. Gains from transactions in options and futures
contracts distributed to shareholders will be taxable as ordinary income or, in
certain circumstances, as long-term capital gains to shareholders. In addition,
in order to obtain ratings of the AMPS from one or more NRSROs, a Fund may be
required to limit its use of hedging techniques in accordance with the specified
guidelines of such rating organizations. See "Rating Agency Guidelines" below.
The following is a description of the options and futures transactions in
which each Fund may engage, limitations on the Fund's use of such transactions
and risks associated with these transactions. The investment policies with
respect to the hedging transactions of a Fund are not fundamental policies and
may be modified by the Board of Trustees of the Fund without the approval of the
Fund's shareholders.
Writing Covered Call Options. Each Fund is authorized to write (i.e., sell)
covered call options with respect to Florida Municipal Bonds and Municipal Bonds
it owns, thereby giving the holder of the option the right to buy the underlying
security covered by the option from the Fund at the stated exercise price until
the option expires. Each Fund writes only covered call options, which means that
so long as the Fund is obligated as the writer of a call option, it will own the
underlying securities subject to the option. The Fund may not write covered call
options on underlying securities in an amount exceeding 15% of the market value
of its total assets.
Each Fund receives a premium from writing a call option, which increases
the Fund's return on the underlying security in the event the option expires
unexercised or is closed out at a profit. By writing a call, a Fund limits its
opportunity to profit from an increase in the market value of the underlying
security above the exercise price of the option for as long as the Fund's
obligation as a writer continues. Covered call options serve as a partial hedge
against a decline in the price of the underlying security. Each Fund may engage
in closing transactions in order to terminate outstanding options that it has
written.
Purchase of Options. Each Fund may purchase put options in connection with
its hedging activities. By buying a put, the Fund has a right to sell the
underlying security at the exercise price, thus limiting its risk of loss
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through a decline in the market value of the security until the put expires. The
amount of any appreciation in the value of the underlying security will be
partially offset by the amount of the premium paid for the put option and any
related transaction costs. Prior to its expiration, a put option may be sold in
a closing sale transaction; profit or loss from the sale will depend on whether
the amount received is more or less than the premium paid for the put option
plus the related transaction costs. A closing sale transaction cancels out the
Fund's position as the purchaser of an option by means of an offsetting sale of
an identical option prior to the expiration of the option it has purchased. In
certain circumstances, the Fund may purchase call options on securities held in
its portfolio on which it has written call options, or on securities which it
intends to purchase. A Fund will not purchase options on securities if, as a
result of such purchase, the aggregate cost of all outstanding options on
securities held by the Fund would exceed 5% of the market value of the Fund's
total assets.
Financial Futures Contracts and Options. Each Fund is authorized to
purchase and sell certain financial futures contracts and options thereon solely
for the purposes of hedging its investments in Florida Municipal Bonds and
Municipal Bonds against declines in value and hedging against increases in the
cost of securities it intends to purchase. A financial futures contract
obligates the seller of a contract to deliver and the purchaser of a contract to
take delivery of the type of financial instrument covered by the contract or, in
the case of index-based financial futures contracts, to make and accept a cash
settlement, at a specific future time for a specified price. A sale of financial
futures contracts may provide a hedge against a decline in the value of
portfolio securities because such depreciation may be offset, in whole or in
part, by an increase in the value of the position in the financial futures
contracts or options. A purchase of financial futures contracts may provide a
hedge against an increase in the cost of securities intended to be purchased,
because such appreciation may be offset, in whole or in part, by an increase in
the value of the position in the financial futures contracts.
The purchase or sale of a financial futures contract differs from the
purchase or sale of a security in that no price or premium is paid or received.
Instead, an amount of cash or securities acceptable to the broker equal to
approximately 5% of the contract amount must be deposited with the broker. This
amount is known as initial margin. Subsequent payments to and from the broker,
called variation margin, are made on a daily basis as the price of the financial
futures contract fluctuates making the long and short positions in the financial
futures contract more or less valuable.
Each Fund may purchase and sell financial futures contracts based on The
Bond Buyer Municipal Bond Index, a price-weighted measure of the market value of
40 large tax-exempt issues, and purchase and sell put and call options on such
financial futures contracts for the purpose of hedging Florida Municipal Bonds
and Municipal Bonds that the Fund holds or anticipates purchasing against
adverse changes in interest rates. Each Fund also may purchase and sell
financial futures contracts on U.S. Government securities and purchase and sell
put and call options on such financial futures contracts for such hedging
purposes. With respect to U.S. Government securities, currently there are
financial futures contracts based on long-term U.S. Treasury bonds, U.S.
Treasury notes, GNMA Certificates and three-month U.S. Treasury bills.
Subject to policies adopted by its Board of Trustees, each Fund also may
engage in transactions in other financial futures contracts, such as financial
futures contracts on other municipal bond indices that may become available, if
FAM should determine that there is normally sufficient correlation between the
prices of such financial futures contracts and the Florida Municipal Bonds and
Municipal Bonds in which the Fund invests to make such hedging appropriate.
Over-The-Counter Options. Each Fund may engage in options and futures
transactions on exchanges and in the over-the-counter markets ("OTC options").
In general, exchange-traded contracts are third-party contracts (i.e.,
performance of the parties' obligations is guaranteed by an exchange or clearing
corporation) with standardized strike prices and expiration dates. OTC option
transactions are two-party contracts with price and terms negotiated by the
buyer and seller.
Restrictions on OTC Options. Each Fund will engage in transactions in OTC
options only with banks or dealers that have capital of at least $50 million or
whose obligations are guaranteed by an entity having capital of at least $50
million. Certain OTC options and assets used to cover OTC options written by the
Funds are considered to be illiquid. The illiquidity of such options or assets
may prevent a successful sale of such options or assets, result in a delay of
sale, or reduce the amount of proceeds that otherwise might be realized.
Risk Factors in Financial Futures Contracts and Options Thereon. Use of
futures transactions involves the risk of imperfect correlation in movements in
the price of financial futures contracts and movements in the price of the
security that is the subject of the hedge. If the price of the financial futures
contract moves more or less
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than the price of the security that is the subject of the hedge, a Fund will
experience a gain or loss that will not be completely offset by movements in the
price of such security. There is a risk of imperfect correlation where the
securities underlying financial futures contracts have different maturities,
ratings, geographic compositions or other characteristics different from those
of the security being hedged. In addition, the correlation may be affected by
additions to or deletions from the index that serves as a basis for a financial
futures contract. Finally, in the case of financial futures contracts on U.S.
Government securities and options on such financial futures contracts, the
anticipated correlation of price movements between the U.S. Government
securities underlying the futures or options and Florida Municipal Bonds and
Municipal Bonds may be adversely affected by economic, political, legislative or
other developments which have a disparate impact on the respective markets for
such securities.
Under regulations of the Commodity Futures Trading Commission, the futures
trading activities described herein will not result in a Fund being deemed a
"commodity pool," as defined under such regulations, provided that the Fund
adheres to certain restrictions. In particular, the Fund may purchase and sell
financial futures contracts and options thereon (i) for bona fide hedging
purposes, without regard to the percentage of the Fund's assets committed to
margin and option premiums, and (ii) for non-hedging purposes, if, immediately
thereafter the sum of the amount of initial margin deposits on the Fund's
existing futures positions and option premiums entered into for non-hedging
purposes do not exceed 5% of the market value of the liquidation value of the
Fund's portfolio, after taking into account unrealized profits and unrealized
losses on any such transactions. Margin deposits may consist of cash or
securities acceptable to the broker and the relevant contract market.
When a Fund purchases a financial futures contract, or writes a put option
or purchases a call option thereon, it will maintain an amount of cash, cash
equivalents (e.g., commercial paper and daily tender adjustable notes) or liquid
securities in a segregated account with the Fund's custodian, so that the amount
so segregated plus the amount of initial and variation margin held in the
account of its broker equals the market value of the financial futures contract,
thereby ensuring that the use of such financial futures contract is unleveraged.
Although certain risks are involved in options and futures transactions,
FAM believes that, because each Fund will engage in options and futures
transactions only for hedging purposes, the options and futures portfolio
strategies of a Fund will not subject the Fund to the risks associated with
speculation in options and futures transactions.
The volume of trading in the exchange markets with respect to Florida
Municipal Bond or Municipal Bond options may be limited, and it is impossible to
predict the amount of trading interest that may exist in such options. In
addition, there can be no assurance that viable exchange markets will continue
to be available.
Each Fund intends to enter into options and futures transactions, on an
exchange or in the over-the-counter market, only if there appears to be a liquid
secondary market for such options or futures. There can be no assurance,
however, that a liquid secondary market will exist at any specific time. Thus,
it may not be possible to close an option or futures transaction. The inability
to close options and futures positions also could have an adverse impact on a
Fund's ability to hedge effectively its portfolio. There is also the risk of
loss by a Fund of margin deposits or collateral in the event of bankruptcy of a
broker with which the Fund has an open position in an option or financial
futures contract.
The liquidity of a secondary market in a financial futures contract may be
adversely affected by "daily price fluctuation limits" established by commodity
exchanges that limit the amount of fluctuation in a financial futures contract
price during a single trading day. Once the daily limit has been reached in the
contract, no trades may be entered into at a price beyond the limit, thus
preventing the liquidation of open futures positions. Prices have in the past
reached or exceeded the daily limit on a number of consecutive trading days.
If it is not possible to close a financial futures position entered into by
a Fund, the Fund would continue to be required to make daily cash payments of
variation margin in the event of adverse price movements. In such a situation,
if the Fund has insufficient cash, it may have to sell portfolio securities to
meet daily variation margin requirements at a time when it may be
disadvantageous to do so.
The successful use of these transactions also depends on the ability of FAM
to forecast correctly the direction and extent of interest rate movements within
a given time frame. To the extent these rates remain stable during the period in
which a financial futures contract is held by a Fund or move in a direction
opposite to that anticipated, the Fund may realize a loss on the hedging
transaction that is not fully or partially offset by an increase in the value of
portfolio securities. As a result, the Fund's total return for such period may
be less than
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if it had not engaged in the hedging transaction. Furthermore, the Fund will
only engage in hedging transactions from time to time and may not necessarily be
engaging in hedging transactions when movements in interest rates occur.
Investment Restrictions
The Funds have identical investment restrictions. The following are
fundamental investment restrictions of each Fund and may not be changed without
the approval of the holders of a majority of the outstanding Common Shares and
the outstanding AMPS and any other preferred shares, voting together as a single
class, and a majority of the outstanding AMPS and any other preferred shares,
voting separately as a class. (For this purpose and under the Investment Company
Act, "majority" means for each such class the lesser of (i) 67% of the shares of
each class of capital shares represented at a meeting at which more than 50% of
the outstanding shares of each class of capital shares are represented or (ii)
more than 50% of the outstanding shares of each class of capital shares.) No
Fund may:
1. Make investments for the purpose of exercising control or management.
2. Purchase or sell real estate, commodities or commodity contracts;
provided, that the Fund may invest in securities secured by real estate or
interests therein or issued by companies that invest in real estate or interests
therein, and the Fund may purchase and sell financial futures contracts and
options thereon.
3. Issue senior securities or borrow money except as permitted by Section
18 of the Investment Company Act.
4. Underwrite securities of other issuers except insofar as the Fund may be
deemed an underwriter under the Securities Act of 1933, as amended, in selling
portfolio securities.
5. Make loans to other persons, except that the Fund may purchase Florida
Municipal Bonds, Municipal Bonds and other debt securities and enter into
repurchase agreements in accordance with its investment objective, policies and
limitations.
6. Invest more than 25% of its total assets (taken at market value at the
time of each investment) in securities of issuers in a single industry;
provided, that for purposes of this restriction, states, municipalities and
their political subdivisions are not considered to be part of any industry.
Additional investment restrictions adopted by each Fund, which may be
changed by the Board of Trustees without shareholder approval, provide that no
Fund may:
a. Purchase securities of other investment companies, except to the extent
that such purchases are permitted by applicable law. Applicable law currently
prohibits a Fund from purchasing the securities of other investment companies
except if immediately thereafter not more than (i) 3% of the total outstanding
voting stock of such company is owned by the Fund, (ii) 5% of the Fund's total
assets, taken at market value, would be invested in any one such company, (iii)
10% of the Fund's total assets, taken at market value, would be invested in such
securities, and (iv) the Fund, together with other investment companies having
the same investment adviser and companies controlled by such companies, owns not
more than 10% of the total outstanding stock of any one closed-end investment
company.
b. Mortgage, pledge, hypothecate or in any manner transfer, as security for
indebtedness, any securities owned or held by the Fund except as may be
necessary in connection with borrowings mentioned in investment restriction (3)
above or except as may be necessary in connection with transactions in financial
futures contracts and options thereon.
c. Purchase any securities on margin, except that a Fund may obtain such
short-term credit as may be necessary for the clearance of purchases and sales
of portfolio securities (the deposit or payment by a Fund of initial or
variation margin in connection with financial futures contracts and options
thereon is not considered the purchase of a security on margin).
d. Make short sales of securities or maintain a short position or invest in
put, call, straddle or spread options, except that the Fund may write, purchase
and sell options and futures on Florida Municipal Bonds, Municipal Bonds, U.S.
Government obligations and related indices or otherwise in connection with bona
fide hedging activities and may purchase and sell Call Rights to require
mandatory tender for the purchase of related Florida Municipal Bonds and
Municipal Bonds.
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If a percentage restriction on the investment or use of assets set forth
above is adhered to at the time a transaction is effected, later changes in
percentages resulting from changing values will not be considered a violation.
For so long as AMPS are rated by Moody's, no Fund will change these
additional investment restrictions unless it receives written confirmation from
Moody's that engaging in such transactions would not impair the rating then
assigned to the AMPS by Moody's.
FAM and Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill
Lynch") are owned and controlled by Merrill Lynch & Co., Inc. ("ML & Co.").
Because of the affiliation of Merrill Lynch with FAM, each Fund is prohibited
from engaging in certain transactions involving Merrill Lynch except pursuant to
an exemptive order or otherwise in compliance with the provisions of the
Investment Company Act and the rules and regulations thereunder. Included among
such restricted transactions will be purchases from or sales to Merrill Lynch of
securities in transactions in which it acts as principal. An exemptive order has
been obtained that permits the Funds to effect principal transactions with
Merrill Lynch in high quality, short-term, tax-exempt securities subject to
conditions set forth in such order. The Funds may consider in the future
requesting an order permitting other principal transactions with Merrill Lynch,
but there can be no assurance that such application will be made and, if made,
that such order would be granted.
Rating Agency Guidelines
Each Fund intends that, so long as its AMPS are outstanding, the
composition of its portfolio will reflect guidelines established by Moody's and
S&P in connection with the Fund's receipt of a rating for such shares on or
prior to their date of original issue of at least "aaa" from Moody's and AAA
from S&P. Moody's and S&P, which are nationally recognized statistical rating
organizations, issue ratings for various securities reflecting the perceived
creditworthiness of such securities. The guidelines for rating AMPS have been
developed by Moody's and S&P in connection with issuances of asset-backed and
similar securities, including debt obligations and variable rate preferred
stock, generally on a case-by-case basis through discussions with the issuers of
these securities. The guidelines are designed to ensure that assets underlying
outstanding debt or preferred stock will be varied sufficiently and will be of
sufficient quality and amount to justify investment grade ratings. The
guidelines do not have the force of law but have been adopted by each Fund in
order to satisfy current requirements necessary for Moody's and S&P to issue the
above-described ratings for AMPS, which ratings generally are relied upon by
institutional investors in purchasing such securities. The guidelines provide a
set of tests for portfolio composition and asset coverage that supplement (and
in some cases are more restrictive than) the applicable requirements under the
Investment Company Act.
Each Fund may, but is not required to, adopt any modifications to these
guidelines that hereafter may be established by Moody's or S&P. Failure to adopt
any such modifications, however, may result in a change in the ratings described
above or a withdrawal of the ratings altogether. In addition, any rating agency
providing a rating for the AMPS, at any time, may change or withdraw any such
rating. As set forth in the Certificate of Designation of each Fund, the Board
of Trustees, without shareholder approval, may modify certain definitions or
restrictions that have been adopted by the Fund pursuant to the rating agency
guidelines, provided the Board of Trustees has obtained written confirmation
from Moody's and S&P that any such change would not impair the ratings then
assigned by Moody's and S&P to the AMPS. See "The Reorganization--Risk Factors
and Special Considerations--Ratings Considerations."
For so long as any shares of a Fund's AMPS are rated by Moody's or S&P, as
the case may be, a Fund's use of options and financial futures contracts and
options thereon will be subject to certain limitations mandated by the rating
agencies.
Portfolio Composition
There are small differences in concentration among the categories of
issuers of the Florida Municipal Bonds and Municipal Bonds held in the
portfolios of the Funds. For Florida Insured, as of August 31, 1999, the highest
concentration of Florida Municipal Bonds and Municipal Bonds was in Water and
Sewer Utilities, Housing, and Transportation, accounting for 23%, 17% and 17% of
the Fund's portfolio, respectively; for Florida Insured II, the highest
concentration was in Water and Sewer Utilities, Housing, and Transportation,
accounting for 28%, 18% and 12% of the Fund's portfolio; for Florida Insured
III, the highest concentration was in Water and Sewer Utilities, Housing, and
Other Revenue Bonds, accounting for 23%, 19% and 16% of the Fund's portfolio,
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<PAGE>
respectively; and for Florida Insured IV, the highest concentration was in Water
and Sewer Utilities, Other Revenue Bonds and Housing, accounting for 27%, 14%
and 13% of the Fund's portfolio, respectively.
Although the investment portfolios of all four Funds must satisfy the same
standards of credit quality, the actual securities owned by each Fund are
different, as a result of which there are certain differences in the composition
of the four investment portfolios. The tables below set forth the percentages of
the Florida Municipal Bonds and Municipal Bonds held by each Fund, as of a
certain date.
Florida Insured
As of August 31, 1999, approximately 97% of the market value of Florida
Insured's portfolio was invested in long-term municipal obligations and
approximately 3% of the market value of Florida Insured's portfolio was invested
in short-term municipal obligations. The following table sets forth certain
information with respect to the composition of Florida Insured's long-term
municipal obligation investment portfolio as of August 31, 1999.
Number of Value
S&P* Moody's* Issues (in thousands) Percent
- ---- -------- --------- -------------- -------
AAA Aaa 65 $ 229,372 96%
AA Aa 1 2,128 0.9%
NR NR 3 7,320 3.1%
--------- -------------- -------
69 $ 238,820 100.0%
========= ============== =======
- -----------------
* Ratings: Using the higher of S&P's or Moody's rating on the Fund's municipal
obligations, S&P's rating categories may be modified further by a plus (+) or
minus (-) in AA, A and BBB ratings. Moody's rating categories may be modified
further by a 1, 2 or 3 in Aaa, Aa, A and Baa ratings. See Exhibit IV
--"Ratings of Municipal Bonds and Commercial Paper."
Florida Insured II
As of August 31, 1999, approximately 98% of the market value of Florida
Insured II's portfolio was invested in long-term municipal obligations and
approximately 2% of the market value of Florida Insured II's portfolio was
invested in short-term municipal obligations. The following table sets forth
certain information with respect to the composition of Florida Insured II's
long-term municipal obligation investment portfolio as of August 31, 1999.
Number of Value
S&P* Moody's* Issues (in thousands) Percent
- ---- -------- --------- -------------- -------
AAA Aaa 38 $ 190,169 98.2%
A A 1 3,485 1.8%
---- -------------- -------
39 $ 193,654 100.0%
==== ============== =======
- -----------------
* Ratings: Using the higher of S&P's or Moody's rating on the Fund's municipal
obligations, S&P's rating categories may be modified further by a plus (+) or
minus (-) in AA, A and BBB ratings. Moody's rating categories may be modified
further by a 1, 2 or 3 in Aa, A and Baa ratings. See Exhibit IV -- "Ratings
of Municipal Bonds and Commercial Paper."
Florida Insured III
As of August 31, 1999, approximately 97% of the market value of Florida
Insured III's portfolio was invested in long-term municipal obligations and
approximately 3% of the market value of Florida Insured III's portfolio was
invested in short-term municipal obligations. The following table sets forth
certain information with respect to the composition of Florida Insured III's
long-term municipal obligation investment portfolio as of August 31, 1999.
Number of Value
S&P* Moody's* Issues (in thousands) Percent
- ---- -------- --------- -------------- -------
AAA Aaa 34 $ 124,577 100.0%
--------- -------------- -------
34 $ 124,577 100.0%
========= ============== =======
- -------------------
* Ratings: Using the higher of S&P's or Moody's rating on the Fund's municipal
obligations, S&P's rating categories may be modified further by a plus (+) or
minus (-) in AA, A and BBB ratings. Moody's rating categories may be modified
further by a 1, 2 or 3 in Aa, A and Baa ratings. See Exhibit IV --"Ratings of
Municipal Bonds and Commercial Paper."
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<PAGE>
Florida Insured IV
As of August 31, 1999, approximately 96% of the market value of Florida
Insured IV's portfolio was invested in long-term municipal obligations and
approximately 4% of the market value of Florida Insured IV's portfolio was
invested in short-term municipal obligations. The following table sets forth
certain information with respect to the composition of Florida Insured IV's
long-term municipal obligation investment portfolio as of August 31, 1999.
Number of Value
S&P* Moody's* Issues (in thousands) Percent
- ---- -------- --------- -------------- -------
AAA Aaa 40 $ 194,243 100.0%
--------- -------------- -------
40 $ 194,243 100.0%
========= ============== =======
- -----------------------
* Ratings: Using the higher of S&P's or Moody's rating on the Fund's municipal
obligations, S&P's rating categories may be modified further by a plus (+) or
minus (-) in AA, A and BBB ratings. Moody's rating categories may be modified
further by a 1, 2 or 3 in Aa, A and Baa ratings. See Exhibit IV --"Ratings of
Municipal Bonds and Commercial Paper."
Portfolio Transactions
The procedures for engaging in portfolio transactions are the same for each
of the Funds. Subject to policies established by the Board of Trustees of each
Fund, FAM is primarily responsible for the execution of each Fund's portfolio
transactions. In executing such transactions, FAM seeks to obtain the best
results for each Fund, taking into account such factors as price (including the
applicable brokerage commission or dealer spread), size of order, difficulty of
execution and operational facilities of the firm involved and the firm's risk in
positioning a block of securities. While FAM generally seeks reasonably
competitive commission rates, the Funds do not necessarily pay the lowest
commission or spread available.
None of the Funds has any obligation to deal with any broker or dealer in
the execution of transactions in portfolio securities. Subject to obtaining the
best price and execution, securities firms that provide supplemental investment
research to FAM, including Merrill Lynch, may receive orders for transactions by
a Fund. Information so received will be in addition to, and not in lieu of, the
services required to be performed by FAM under its investment advisory
agreements with the Funds, and the expenses of FAM will not necessarily be
reduced as a result of the receipt of such supplemental information.
The securities in which each Fund primarily invests are traded in the
over-the-counter markets, and each Fund normally deals directly with the dealers
who make markets in the securities involved, except in those circumstances where
better prices and execution are available elsewhere. Under the Investment
Company Act, except as permitted by exemptive order, persons affiliated with a
Fund are prohibited from dealing with the Fund as principals in the purchase and
sale of securities. Since transactions in the over-the-counter markets usually
involve transactions with dealers acting as principals for their own account,
the Funds do not deal with affiliated persons, including Merrill Lynch and its
affiliates, in connection with such transactions, except that, pursuant to an
exemptive order obtained by FAM, a Fund may engage in principal transactions
with Merrill Lynch in high quality, short-term, tax-exempt securities. An
affiliated person of a Fund may serve as its broker in over-the-counter
transactions conducted on an agency basis.
The Funds also may purchase tax-exempt debt instruments in individually
negotiated transactions with the issuers. Because an active trading market may
not exist for such securities, the prices that the Funds may pay for these
securities or receive on their resale may be lower than that for similar
securities with a more liquid market.
The Board of Trustees of each Fund has considered the possibility of
recapturing for the benefit of the Funds brokerage commissions, dealer spreads
and other expenses of possible portfolio transactions, such as underwriting
commissions, by conducting portfolio transactions through affiliated entities,
including Merrill Lynch. For example, brokerage commissions received by Merrill
Lynch could be offset against the investment advisory fees paid by the Fund to
FAM. After considering all factors deemed relevant, the Trustees of each Fund
made a determination not to seek such recapture. The Trustees will reconsider
this matter from time to time.
Periodic auctions are conducted for the AMPS of each of the Funds by the
Auction Agent for the Funds. The auctions require the participation of one or
more broker-dealers, each of whom enters into an agreement with the Auction
Agent. After each auction, the Auction Agent pays a service charge, from funds
provided by the issuing Fund, to each broker-dealer at the annual rate of .25%,
calculated on the basis of the purchase price of shares of the relevant AMPS
placed by such broker-dealer at such auction.
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<PAGE>
Portfolio Turnover
Generally, no Fund purchases securities for short-term trading profits.
However, any of the Funds may dispose of securities without regard to the time
that they have been held when such action, for defensive or other reasons,
appears advisable to FAM. (The portfolio turnover rate is calculated by dividing
the lesser of purchases or sales of portfolio securities for the particular
fiscal year by the monthly average of the value of the portfolio securities
owned by a Fund during the particular fiscal year. For purposes of determining
this rate, all securities whose maturities at the time of acquisition are one
year or less are excluded.) A high portfolio turnover rate results in greater
transaction costs, which are borne directly by the Fund, and also has certain
tax consequences for shareholders. The portfolio turnover rate for each of the
Funds for the periods indicated is set forth below:
Florida Insured Period
September 26,
1997 + Year
to 8/31/98 Ended 8/31/99
-------------- -------------
101.89% 120.70%
Florida Insured II Period February
25, 1988 + Year
to 6/30/98 Ended 6/30/99
--------------- -------------
59.25% 108.45%
Florida Insured III Period October
1, 1998
to 9/30/99
---------------
__%
Florida Insured IV Period January
29, 1999+
to 9/30/99
---------------
__%
- ---------------
+ Commencement of operations
Net Asset Value
The net asset value per Common Share of each Fund is determined after the
close of business on the NYSE (generally, 4:00 p.m., Eastern time) on the last
business day in each week. For purposes of determining the net asset value of a
Common Share of each Fund, the value of the securities held by the Fund plus any
cash or other assets (including interest accrued but not yet received) minus all
liabilities (including accrued expenses) and the aggregate liquidation value of
the outstanding AMPS is divided by the total number of Common Shares outstanding
at such time. Expenses, including the fees payable to FAM, are accrued daily.
The Florida Municipal Bonds and Municipal Bonds in which each Fund invests
are traded primarily in the over-the-counter markets. In determining net asset
value, each Fund uses the valuations of portfolio securities furnished by a
pricing service approved by its Board of Trustees. The pricing service typically
values portfolio securities at the bid price or the yield equivalent when
quotations are readily available. Florida Municipal Bonds and Municipal Bonds
for which quotations are not readily available are valued at fair market value
on a consistent basis as determined by the pricing service using a matrix system
to determine valuations. The procedures of the pricing service and its
valuations are reviewed by the officers of each Fund under the general
supervision of the Board of Trustees of the Fund. The Board of Trustees of each
Fund has determined in good faith that the use of a pricing service is a fair
method of determining the valuation of portfolio securities. Positions in
futures contracts are valued at closing prices for such contracts established by
the exchange on which they are traded, or if market quotations are not readily
available, are valued at fair value on a consistent basis using methods
determined in good faith by the Board of Trustees of each Fund.
Each Fund determines and makes available for publication the net asset
value of its Common Shares weekly. Currently, the net asset values of shares of
publicly traded closed-end investment companies investing in debt securities are
published in Barron's, the Monday edition of The Wall Street Journal, and the
Monday and Saturday editions of The New York Times.
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<PAGE>
Capital Shares
Each of the Funds has outstanding both Common Shares and AMPS. The Common
Shares of each of the Funds is traded on the NYSE. The Florida Insured Common
Shares commenced trading on the NYSE on September 26, 1997. As of August 31,
1999, the net asset value per Florida Insured Common Share was $13.84 and the
market price per share was $12.75. The Florida Insured II Common Shares
commenced trading on the NYSE on February 25, 1998. As of August 31, 1999, the
net asset value per Florida Insured II Common Share was $13.41 and the market
price per share was $12.375. The Florida Insured III Common Shares commenced
trading on the NYSE on October 1, 1998. As of August 31, 1999, the net asset
value per Florida Insured III Common Share was $12.87 and the market price per
share was $12.0625. The Florida Insured IV Common Shares commenced trading on
the NYSE on January 29, 1999. As of August 31, 1999, the net asset value per
Florida Insured IV Common Share was $12.89 and the market price per share was
$12.0625.
Each Fund is authorized to issue an unlimited number of shares of
beneficial interest, all of which initially were classified as Common Shares.
The Board of Trustees of each Fund may authorize separate classes of shares
together with such designation or preferences, rights, voting powers,
restrictions, limitations, qualifications or terms as may be determined from
time to time by the Trustees. Pursuant to such authority, the Trustees have
authorized the issuance of an unlimited number of Common Shares together with
1,000,000 in preferred shares of beneficial interest. In connection with each
respective Fund's offering of AMPS, Florida Insured designated _________ shares
of beneficial interest as AMPS, Florida Insured II designated 3,440 shares of
beneficial interest as AMPS, Florida Insured III designated 2,160 shares of
beneficial interest as AMPS and Florida Insured IV designated 3,340 shares of
beneficial interest as AMPS.
Common Shares
Holders of each Fund's Common Shares are entitled to share equally in
dividends declared by the Fund's Board of Trustees payable to holders of the
Common Shares and in the net assets of the Fund available for distribution to
holders of the Common Shares after payment of the preferential amounts payable
to holders of any outstanding preferred shares. See "Voting Rights" and
"Liquidation Rights of Holders of AMPS" below. Holders of a Fund's Common Shares
do not have preemptive or conversion rights and a Fund's Common Shares are not
redeemable. The outstanding Common Shares of each Fund are fully paid and
nonassessable.
The Fund is an entity of the type commonly known as a "Massachusetts
business trust." Under Massachusetts law, shareholders of such a trust may,
under certain circumstances, be held personally liable as partners for its
obligations. However, the Declaration of Trust of each of the Funds contains an
express disclaimer of shareholder liability for acts or obligations of the Fund
and provides for indemnification and reimbursement of expense out of the Fund's
property for any shareholder held personally liable for the obligations of that
Fund. Thus, the risk of a shareholder incurring financial loss on account of
shareholder liability is limited to circumstances in which the Fund itself would
be unable to meet its obligations. Given the nature of the Fund's assets and
operations, the possibility of the Fund being unable to meet its obligations is
remote and, in the opinion of Massachusetts counsel to the Fund, the risk to
Fund shareholders is remote.
So long as any AMPS of a Fund or any other preferred shares are
outstanding, holders of the Fund's Common Shares will not be entitled to receive
any dividends of or other distributions from the Fund unless all accumulated
dividends on of the Fund's outstanding AMPS and any other preferred shares have
been paid, and unless asset coverage (as defined in the Investment Company Act)
with respect to such AMPS and any other preferred shares would be at least 200%
after giving effect to such distributions.
Preferred Shares
The AMPS of each of the Funds have a similar structure. The AMPS of each
Fund are preferred shares of the Fund that entitle their holders to receive
dividends when, as and if declared by the Board of Trustees, out of funds
legally available therefor, at a rate per annum that may vary for the successive
dividend periods. The AMPS of all of the Funds have liquidation preferences of
$25,000 per share; none of the Fund's AMPS are traded on any stock exchange or
over-the-counter. Each Fund's AMPS can be purchased at an auction or through
broker-dealers who maintain a secondary market in the AMPS.
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<PAGE>
Auctions generally have been held and will be held every seven days for the
AMPS of each of the Funds, unless the applicable Fund elects, subject to certain
limitations, to declare a special dividend period. The following table provides
information about the dividend rates for each series of AMPS of each of the
Funds as of a recent auction.
Auction Date Fund Series Dividend Rate
------------------- ------------------- ------ -------------
September 14, 1999 Florida Insured A 3.40%
September 10, 1999 Florida Insured B 3.29%
September 13, 1999 Florida Insured II A 3.30%
September 8, 1999 Florida Insured II B 3.31%
September 14, 1999 Florida Insured III A 3.30%
September 10, 1999 Florida Insured III B 3.30%
September 9, 1999 Florida Insured IV A 3.30%
September 13, 1999 Florida Insured IV B 3.20%
Under the Investment Company Act, each Fund is permitted to have
outstanding more than one series of preferred shares as long as no single series
has priority over another series as to the distribution of assets of the Fund or
the payment of dividends. Holders of a Fund's preferred shares do not have
preemptive rights to purchase any shares of AMPS or any other preferred shares
that might be issued. The net asset value per share of a Fund's AMPS equals its
liquidation preference plus accumulated dividends per share.
The redemption provisions pertaining to the AMPS of each Fund are
substantially similar. It is anticipated that shares of AMPS of each Fund will
generally be redeemable at the option of the Fund at a price equal to their
liquidation preference of $25,000 per share plus accumulated but unpaid
dividends (whether or not earned or declared) to the date of redemption plus,
under certain circumstances, a redemption premium. Shares of AMPS will also be
subject to mandatory redemption at a price equal to their liquidation preference
plus accumulated but unpaid dividends (whether or not earned or declared) to the
date of redemption upon the occurrence of certain specified events, such as the
failure of the Fund to maintain asset coverage requirements for the AMPS
specified by Moody's and S&P in connection with their issuance of ratings on the
AMPS.
Certain Provisions of the Charter
Each Fund's Charter includes provisions that could have the effect of
limiting the ability of other entities or persons to acquire control of the Fund
or to change the composition of its Board of Trustees and could have the effect
of depriving shareholders of an opportunity to sell their shares at a premium
over prevailing market prices by discouraging a third party from seeking to
obtain control of the Fund. A Trustee may be removed from office with or without
cause but only by vote of the holders of at least 662/3% of the votes entitled
to be voted on the matter. A Trustee elected by all of the holders of capital
shares may be removed only by action of such holders, and a Trustee elected by
the holders of AMPS and any other preferred shares may be removed only by action
of the holders of AMPS and any other preferred shares.
In addition, the Charter of each Fund requires the favorable vote of the
holders of at least 662/3% of all of the Fund's shares of capital shares, then
entitled to be voted, voting as a single class, to approve, adopt or authorize
the following:
o a merger or consolidation or statutory share exchange of the Fund with
any other corporation or entity,
o a sale of all or substantially all of the Fund's assets (other than in
the regular course of the Fund's investment activities), or
o a liquidation or dissolution of the Fund,
unless such action has been approved, adopted or authorized by the affirmative
vote of at least two-thirds of the total number of Trustees fixed in accordance
with the by-laws, in which case the affirmative vote of a majority of all of the
votes entitled to be cast by shareholders of the Fund, voting as a single class,
is required. Such approval, adoption or authorization of the foregoing also
would require the favorable vote of at least a majority of the Fund's preferred
shares then entitled to be voted thereon, including the AMPS, voting as a
separate class.
In addition, conversion of a Fund to an open-end investment company would
require an amendment to the Fund's Charter. The amendment would have to be
declared advisable by the Board of Trustees prior to its submission to
shareholders. Such an amendment would require the affirmative vote of the
holders of at least
37
<PAGE>
66 2/3% of the Fund's outstanding capital shares (including the AMPS and any
other preferred shares) entitled to be voted on the matter, voting as a single
class (or a majority of such shares if the amendment was previously approved,
adopted or authorized by at least two-thirds of the total number of the Trustees
fixed in accordance with the by-laws), and the affirmative vote of at least a
majority of outstanding preferred shares of a Fund (including the AMPS), voting
as a separate class. Such a vote also would satisfy a separate requirement in
the Investment Company Act that the change be approved by the shareholders.
Shareholders of an open-end investment company may require the company to redeem
their shares of common stock at any time (except in certain circumstances as
authorized by or under the Investment Company Act) at their net asset value,
less such redemption charge, if any, as might be in effect at the time of a
redemption. All redemptions will be made in cash. If the Fund is converted to an
open-end investment company, it could be required to liquidate portfolio
securities to meet requests for redemption and the Common Shares no longer would
be listed on a stock exchange. Conversion to an open-end investment company
would also require redemption of all outstanding preferred shares (including the
AMPS) and would require changes in certain of the Fund's investment policies and
restrictions, such as those relating to the issuance of senior securities, the
borrowing of money and the purchase of illiquid securities.
The Board of Trustees of each Fund has determined that the 662/3% voting
requirements described above, which are greater than the minimum requirements
under Massachusetts law or the Investment Company Act, are in the best interests
of shareholders generally. Reference should be made to the Charter of each Fund
on file with the SEC for the full text of these provisions.
Management of the Funds
Trustees and Officers. The Boards of Trustees of Florida Insured, Florida
Insured II and Florida Insured IV currently consist of the same seven persons,
five of whom are not "interested persons," as defined in the Investment Company
Act, of any of those Funds. The Board of Trustees of Florida Insured III
currently consists of seven persons, five of whom are not "interested persons"
of Florida Insured III. Terry K. Glenn serves as a Trustee and President of each
of the Funds, and Arthur Zeikel serves as a Trustee of each of the Funds. The
Trustees of each Fund are responsible for the overall supervision of the
operations of the Fund and perform the various duties imposed on the Trustees of
investment companies by the Investment Company Act and under applicable
Massachusetts law. The Funds have the same slate of officers with a few
exceptions. For further information regarding the Trustees and officers of each
Fund, see "Item 2. Election of Trustees" and Exhibit I -- "Information
Pertaining to Each Fund."
Robert A. DiMella and Robert D. Sneeden serve as the portfolio managers for
each Fund, and will continue to serve as the portfolio managers of the combined
fund after the Reorganization. The portfolio managers are primarily responsible
for the management of the applicable Fund's portfolio. Biographical information
about Messrs. DiMella and Sneeden is contained in Exhibit I -- "Information
Pertaining to Each Fund."
Management and Advisory Arrangements. FAM, which is owned and controlled by
ML & Co., serves as the investment adviser for each of the Funds pursuant to
separate investment advisory agreements that, except for their termination
dates, are identical. FAM provides each Fund with the same investment advisory
and management services. The Asset Management Group of ML & Co. (which includes
FAM) acts as the investment adviser to more than 100 other registered investment
companies and offers services to individuals and institutional accounts. As of
August 31, 1999, the Asset Management Group had a total of approximately $520
billion in investment company and other portfolio assets under management
(approximately $38.9 billion of which were invested in municipal securities).
This amount includes assets managed for certain affiliates of FAM. FAM is a
limited partnership, the partners of which are ML & Co. and Princeton Services,
Inc. The principal business address of FAM is 800 Scudders Mill Road,
Plainsboro, New Jersey 08536.
Each Fund's investment advisory agreement with FAM provides that, subject
to the supervision of the Board of Trustees of the Fund, FAM is responsible for
the actual management of the Fund's portfolio. The responsibility for making
decisions to buy, sell or hold a particular security for each Fund rests with
FAM, subject to review by the Board of Trustees of the Fund.
FAM provides the portfolio management for each of the Funds. Such portfolio
management considers analyses from various sources (including brokerage firms
with which each Fund does business), makes the necessary investment decisions,
and places orders for transactions accordingly. FAM also is responsible for the
performance of certain administrative and management services for each Fund.
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<PAGE>
For the services provided by FAM under each Fund's investment advisory
agreement, the Fund pays a monthly fee at an annual rate of .55 of 1% of the
Fund's average weekly net assets (i.e., the average weekly value of the total
assets of the Fund, including assets acquired from the sale of AMPS, minus the
sum of accrued liabilities of the Fund and accumulated dividends on its AMPS).
For purposes of this calculation, average weekly net assets are determined at
the end of each month on the basis of the average net assets of the Fund for
each week during the month. The assets for each weekly period are determined by
averaging the net assets at the last business day of a week with the net assets
at the last business day of the prior week.
Each Fund's investment advisory agreement obligates FAM to provide
investment advisory services and to pay all compensation of and furnish office
space for officers and employees of the Fund connected with investment and
economic research, trading and investment management of the Fund, as well as the
compensation of all Trustees of the Fund who are affiliated persons of FAM or
any of its affiliates. Each Fund pays all other expenses incurred in the
operation of the Fund, including, among other things, expenses for legal and
auditing services, taxes, costs of printing proxies, listing fees, share
certificates and shareholder reports, charges of the custodian and the transfer
agent, dividend disbursing agent and registrar, fees and expenses with respect
to the issuance of AMPS, SEC fees, fees and expenses of unaffiliated Trustees,
accounting and pricing costs, insurance, interest, brokerage costs, litigation
and other extraordinary or non-recurring expenses, mailing and other expenses
properly payable by the Fund. FAM provides accounting services to each Fund, and
each Fund reimburses FAM for its respective costs in connection with such
services.
Unless earlier terminated as described below, the investment advisory
agreement between each Fund and FAM will continue from year to year if approved
annually (a) by the Board of Trustees of the Fund or by a majority of the Fund's
outstanding Common Shares and AMPS, voting together as a single class, and (b)
by a majority of the Trustees of the Fund who are not parties to such contract
or "interested persons," as defined in the Investment Company Act, of any such
party. The contract is not assignable and it may be terminated without penalty
on 60 days' written notice at the option of either party thereto or by the vote
of the shareholders of the Fund.
Securities held by a Fund may also be held by, or be appropriate
investments for, other funds or investment advisory clients for which FAM or its
affiliates act as an adviser. Because of different objectives or other factors,
a particular security may be bought for an advisory client when other clients
are selling the same security. If purchases or sales of securities by FAM for a
Fund or other funds for which it acts as investment adviser or for advisory
clients arise for consideration at or about the same time, transactions in such
securities will be made, insofar as feasible, for the respective funds and
clients in a manner deemed equitable to all. Transactions effected by FAM (or
its affiliates) on behalf of more than one of its clients during the same period
may increase the demand for securities being purchased or the supply of
securities being sold, causing an adverse effect on price.
Code of Ethics
The Board of Trustees of each of the Funds has adopted a Code of Ethics
pursuant to Rule 17j-1 under the Investment Company Act that incorporates the
Code of Ethics of FAM (together, the "Codes"). The Codes significantly restrict
the personal investing activities of all employees of FAM and, as described
below, impose additional, more onerous, restrictions on Fund investment
personnel.
The Codes require that all employees of FAM preclear any personal
securities investment (with limited exceptions, such as U.S. Government
securities). The preclearance requirement and associated procedures are designed
to identify any substantive prohibition or limitation applicable to the proposed
investment. The substantive restrictions applicable to all employees of FAM
include a ban on acquiring any securities in a "hot" initial public offering and
a prohibition from profiting on short-term trading securities. In addition, no
employee may purchase or sell any security that at the time is being purchased
or sold (as the case may be), or to the knowledge of the employee is being
considered for purchase or sale, by any fund advised by FAM. Furthermore, the
Codes provide for trading "blackout periods" that prohibit trading by investment
personnel of each of the Funds within periods of trading by the Fund in the same
(or equivalent) security (15 or 30 days depending upon the transaction).
Voting Rights
Voting rights are identical for the holders of each Fund's Common Shares.
Holders of each Fund's Common Shares are entitled to one vote for each share
held and will vote with the holders of any of the Fund's outstanding AMPS or
other preferred shares on each matter submitted to a vote of holders of Common
Shares, except as set forth below.
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Shareholders of each Fund are entitled to one vote for each share held.
Each Fund's Common Shares, AMPS and any other preferred shares do not have
cumulative voting rights, which means that the holders of more than 50% of a
Fund's Common Shares, AMPS and any other preferred shares voting for the
election of Trustees can elect all of the Trustees standing for election by such
holders, and, in such event, the holders of the Fund's remaining Common Shares,
AMPS and any other preferred shares will not be able to elect any of such
Trustees.
Voting rights of the holders of each Fund's AMPS are identical. Except as
otherwise indicated below, and except as otherwise required by applicable law,
holders of shares of a Fund's AMPS will be entitled to one vote per share on
each matter submitted to a vote of the Fund's shareholders and will vote
together with the holders of the Fund's Common Shares as a single class.
In connection with the election of a Fund's Trustees, holders of a Fund's
AMPS and any other preferred shares voting separately as a class, shall be
entitled at all times to elect two of the Fund's Trustees, and the remaining
Trustees will be elected by holders of the Fund's Common Shares and the Fund's
AMPS and any other preferred shares, voting together as a single class. In
addition, if at any time dividends on a Fund's outstanding AMPS shall be unpaid
in an amount equal to at least two full years' dividends thereon or if at any
time holders of any of a Fund's preferred shares are entitled, together with the
holders of the Fund's AMPS, to elect a majority of the Trustees of the Fund
under the Investment Company Act, then the number of Trustees constituting the
Board of Trustees automatically shall be increased by the smallest number that,
when added to the two Trustees elected exclusively by the holders of AMPS and
any other preferred shares as described above, would constitute a majority of
the Board of Trustees as so increased by such smallest number, and at a special
meeting of shareholders which will be called and held as soon as practicable,
and at all subsequent meetings at which Trustees are to be elected, the holders
of the Fund's AMPS and any other preferred shares, voting separately as a class,
will be entitled to elect the smallest number of additional Trustees that,
together with the two Trustees which such holders in any event will be entitled
to elect, constitutes a majority of the total number of Trustees of the Fund as
so increased. The terms of office of the persons who are Trustees at the time of
that election will continue. If the Fund thereafter shall pay, or declare and
set apart for payment in full, all dividends payable on all outstanding AMPS and
any other preferred shares for all past dividend periods, the additional voting
rights of the holders of AMPS and any other preferred shares as described above
shall cease, and the terms of office of all of the additional Trustees elected
by the holders of AMPS and any other preferred shares (but not of the Trustees
with respect to whose election the holders of Common Shares were entitled to
vote or the two Trustees the holders of AMPS and any other preferred shares have
the right to elect in any event) will terminate automatically.
The affirmative vote of the holders of a majority of a Fund's outstanding
AMPS and any other shares voting as a separate class, will be required to (i)
authorize, create or issue any class or series of shares ranking prior to any
series of preferred shares with respect to payment of dividends or the
distribution of assets on liquidation, (ii) amend, alter or repeal the
provisions of the Charter, whether by merger, consolidation or otherwise, so as
to adversely affect any of the contract rights expressly set forth in the
Charter of holders of preferred shares, (iii) approve any plan of reorganization
adversely affecting such AMPS or (iv) take any action to change a Fund's
investment policies requiring a vote of shareholders under Section 13(a) of the
Investment Company Act.
Shareholder Inquiries
Shareholder inquiries with respect to any of the Funds may be addressed to
such Fund by telephone at (609) 282-2800 or at the address set forth on the
cover page of this Proxy Statement and Prospectus.
Dividends and Distributions
The Funds' current policies with respect to dividends and distributions
relating to their Common Shares are identical. Each Fund intends to distribute
all of its net investment income. Dividends from such net investment income are
declared and paid monthly to holders of a Fund's Common Shares. Monthly
distributions to holders of a Fund's Common Shares normally consist of
substantially all of the net investment income remaining after the payment of
dividends (and any Additional Distributions) on the Fund's AMPS. All net
realized capital gains, if any, are distributed at least annually, pro rata to
holders of a Fund's Common Shares and AMPS. While any of a Fund's AMPS are
outstanding, the Fund may not declare any cash dividend or other distribution on
the Fund's Common Shares, unless at the time of such declaration (1) all
accumulated dividends on the Fund's AMPS (including any Additional
Distributions) have been paid, and (2) the net asset value of the Fund's
portfolio (determined after deducting the amount of such dividend or other
distribution) is at least 200% of the liquidation value of the Fund's
outstanding AMPS. This limitation on a Fund's ability to make distributions on
its Common Shares under certain circumstances could impair the ability of the
Fund to maintain its qualification for taxation as a regulated investment
company under the Federal tax laws which would have an adverse impact on
shareholders. See "Comparison of the Funds - Tax Rules Applicable to the Funds
and Their Shareholders."
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Similarly, the Funds' current policies with respect to dividends and
distributions on their AMPS are identical. The holders of a Fund's AMPS are
entitled to receive, when, as and if declared by the Board of Trustees of the
Fund, out of funds legally available therefor, cumulative cash dividends on
their shares. Dividends on a Fund's AMPS so declared and payable shall be paid
(i) in preference to and in priority over any dividends so declared and payable
on the Fund's Common Shares, and (ii) to the extent permitted under the Code and
to the extent available, out of net tax-exempt income earned on the Fund's
investments. Dividends for each Fund's AMPS are paid through The Depository
Trust Company ("DTC") (or a successor securities depository) on each dividend
payment date. DTC's normal procedures now provide for it to distribute dividends
in same-day funds to agent members, who in turn are expected to distribute such
dividends to the person for whom they are acting as agent in accordance with the
instructions of such person. Prior to each dividend payment date, the relevant
Fund is required to deposit with the Auction Agent sufficient funds for the
payment of such declared dividends. None of the Funds intends to establish any
reserves for the payment of dividends, and no interest will be payable in
respect of any dividend payment or payment on a Fund's AMPS which may be in
arrears.
Dividends paid by each Fund, to the extent paid from tax-exempt income
earned on Florida Municipal Bonds, are exempt from Federal income tax subject to
the possible application of the Federal alternative minimum tax. However, each
Fund is required to allocate net capital gains and other income subject to
regular Federal income tax if any, proportionately between its Common Shares and
its AMPS in accordance with the current position of the IRS described herein.
See "Tax Rules Applicable to the Funds and their Shareholders" below. Each Fund
notifies the Auction Agent of the amount of any net capital gains or other
taxable income to be included in any dividend on shares of AMPS prior to the
auction establishing the applicable rate for such dividend. The Auction Agent in
turn notifies each broker-dealer whenever it receives any such notice from a
Fund, and each broker-dealer then notifies its customers who are holders of the
Fund's AMPS. Each Fund also may include such income in a dividend on shares of
its AMPS without giving advance notice thereof if it increases the dividend by
an additional amount to offset the tax effect thereof. The amount of taxable
income allocable to a Fund's AMPS will depend upon the amount of such income
realized by the Fund and other factors, but generally is not expected to be
significant.
For information concerning the manner in which dividends and distributions
to holders of each Fund's Common Shares may be reinvested automatically in the
Fund's Common Shares, see "Automatic Dividend Reinvestment Plan" below.
Dividends and distributions will be subject to the tax treatment as discussed
below, whether they are reinvested in shares of a Fund or received in cash.
If any Fund retroactively allocates any net capital gains or other income
subject to regular Federal income tax to its AMPS without having given advance
notice thereof as described above, which only may happen when such allocation is
made as a result of the redemption of all or a portion of the outstanding shares
of its AMPS or the liquidation of the Fund, the Fund will make certain payments
to holders of its AMPS to which such allocation was made to offset substantially
the tax effect thereof. In no other instances will the Fund be required to make
payments to holders of its AMPS to offset the tax effect of any reallocation of
net capital gains or other taxable income.
Automatic Dividend Reinvestment Plan
Pursuant to each Fund's Automatic Dividend Reinvestment Plan (each, a
"Plan"), unless a holder of a Fund's Common Shares elects otherwise, all
dividend and capital gains distributions are automatically reinvested by either
The Bank of New York or State Street Bank and Trust Company, as applicable, as
agent for shareholders in administering the Plan (as applicable, the "Plan
Agent"), in additional Common Shares of the Fund. The Bank of New York is the
Plan Agent for Florida Insured and will be the Plan Agent following the
Reorganization. Holders of a Fund's Common Shares who elect not to participate
in the Plan receive all distributions in cash paid by check mailed directly to
the shareholder of record (or, if the shares are held in street or other nominee
name, then to such nominee) by The Bank of New York or State Street Bank and
Trust Company, as applicable, as dividend paying agent. Such shareholders may
elect not to participate in the Plan and to receive all distributions of
dividends and capital gains in cash by sending written instructions to The Bank
of New York or State Street Bank and Trust Company, as applicable, as dividend
paying agent, at the address set forth below. Participation in the Plan is
completely voluntary and may be terminated or resumed at any time without
penalty by written notice if received by the Plan Agent not less than ten days
prior to any dividend record date; otherwise, such termination or resumption
will be effective with respect to any subsequently declared dividend or capital
gains distribution.
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Whenever a Fund declares an ordinary income dividend or a capital gain
dividend (collectively referred to as "dividends") payable either in shares or
in cash, non-participants in the Plan receive cash, and participants in the Plan
receive the equivalent in the Fund's Common Shares. The shares are acquired by
the Plan Agent for the participant's account, depending upon the circumstances
described below, either (i) through receipt of additional unissued but
authorized Common Shares from the Fund ("newly-issued shares") or (ii) by
purchase of outstanding Common Shares on the open market ("open-market
purchases"), on the NYSE or elsewhere. If on the payment date for the dividend,
the net asset value per share of the Fund's Common Shares is equal to or less
than the market price per share of the Fund's Common Shares plus estimated
brokerage commissions (such condition being referred to herein as "market
premium"), the Plan Agent invests the dividend amount in newly-issued shares on
behalf of the participant. The number of newly-issued Common Shares of the Fund
to be credited to the participant's account is determined by dividing the dollar
amount of the dividend by the net asset value per share on the date the shares
are issued, provided that the maximum discount from the then-current market
price per share on the date of issuance may not exceed 5%. If on the dividend
payment date, the net asset value per share is greater than the market value
(such condition being referred to herein as "market discount"), the Plan Agent
invests the dividend amount in shares acquired on behalf of the participant in
open-market purchases.
In the event of a market discount on the dividend payment date, the Plan
Agent has until the last business day before the next date on which the shares
trade on an "ex-dividend" basis or in no event more than 30 days after the
dividend payment date (the "last purchase date") to invest the dividend amount
in shares acquired in open-market purchases. Each Fund intends to pay monthly
income dividends. Therefore, the period during which open-market purchases can
be made exists only from the payment date on the dividend through the date
before the next "ex-dividend" date, which typically is approximately ten days.
If, before the Plan Agent has completed its open-market purchases, the market
price of a Fund's Common Shares exceeds the net asset value per share, the
average per share purchase price paid by the Plan Agent may exceed the net asset
value of the Fund's shares, resulting in the acquisition of fewer shares than if
the dividend had been paid in newly-issued shares on the dividend payment date.
Because of the foregoing difficulty with respect to open-market purchases, the
Plan provides that if the Plan Agent is unable to invest the full dividend
amount in open-market purchases during the purchase period or if the market
discount shifts to a market premium during the purchase period, the Plan Agent
ceases making open-market purchases and invests the uninvested portion of the
dividend amount in newly-issued shares at the close of business on the last
purchase date.
The Plan Agent maintains all shareholders' accounts in the Plan and
furnishes written confirmation of all transactions in the account, including
information needed by shareholders for tax records. Shares in the account of
each Plan participant are held by the Plan Agent in non-certificated form in the
name of the participant, and each shareholder's proxy includes those shares
purchased or received pursuant to the Plan. The Plan Agent will forward all
proxy solicitation materials to participants and vote proxies for shares held
pursuant to the Plan in accordance with the instructions of the participants.
In the case of shareholders such as banks, brokers or nominees which hold
shares for others who are the beneficial owners, the Plan Agent will administer
the Plan on the basis of the number of shares certified from time to time by the
record shareholders as representing the total amount registered in the record
shareholder's name and held for the account of beneficial owners who are to
participate in the Plan.
There are no brokerage charges with respect to shares issued directly by
any Fund as a result of dividends or capital gains distributions payable either
in shares or in cash. However, each participant pays a pro rata share of
brokerage commissions incurred with respect to the Plan Agent's open-market
purchases in connection with the reinvestment of dividends.
The automatic reinvestment of dividends and distributions does not relieve
participants of any Federal, state or local income tax that may be payable (or
required to be withheld) on such dividends. See "Comparison of the Funds - Tax
Rules Applicable to the Funds and Their Shareholders".
Shareholders participating in the Plan may receive benefits not available
to shareholders not participating in the Plan. If the market price (plus
commissions) of a Fund's Common Shares is above the net asset value,
participants in the Plan receive the Fund's Common Shares at less than they
otherwise could purchase them and have shares with a cash value greater than the
value of any cash distribution they would have received on their shares. If the
market price plus commissions is below the net asset value, participants receive
distributions of shares with a net asset value greater than the value of any
cash distribution they would have received on their
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shares. However, there may be insufficient shares available in the market to
make distributions of shares at prices below the net asset value. Also, since
the Funds normally do not redeem their shares, the price on resale may be more
or less than the net asset value. See "Comparison of the Funds-Tax Rules
Applicable to the Funds and Their Shareholders" for a discussion of the tax
consequences of the Plan.
Each Fund reserves the right to amend or terminate its Plan. There is no
direct service charge to participants in the Plan; however, each Fund reserves
the right to amend its Plan to include a service charge payable by the
participants.
After the Reorganization, a holder of shares of a Fund who currently elects
to receive dividends in cash will continue to receive dividends in cash; all
other holders will have their dividends automatically reinvested in shares of
the combined fund. However, if a shareholder owns shares in an Acquired Fund and
in Florida Insured, after the Reorganization, the shareholder's election with
respect to the dividends of Florida Insured will control unless the shareholder
specifically elects a different option at that time. Following the
Reorganization, all correspondence should be directed to the Plan Agent, The
Bank of New York, at 101 Barclay Street, New York, New York 10286.
Mutual Fund Investment Option
A holder of Common Shares of any Fund, who purchased his or her shares
through Merrill Lynch in the Fund's initial public offering, has the right to
reinvest the net proceeds from a sale of such shares in Class D shares of
certain Merrill Lynch-sponsored open-end funds without the imposition of an
initial sales charge, if certain conditions are satisfied. A holder of Common
Shares of an Acquired Fund who qualifies for this option will have the same
option with respect to the Florida Insured Common Shares received in the
Reorganization.
Liquidation Rights of Holders of AMPS
Upon any liquidation, dissolution or winding up of any Fund, whether
voluntary or involuntary, the holders of the Fund's AMPS will be entitled to
receive, out of the assets of the Fund available for distribution to
shareholders, before any distribution or payment is made upon any of the Fund's
Common Shares or any other capital shares of the Fund ranking junior in right of
payment upon liquidation to AMPS, $25,000 per share together with the amount of
any dividends accumulated but unpaid (whether or not earned or declared) thereon
to the date of distribution, and after such payment the holders of AMPS will be
entitled to no other payments except for any Additional Dividends. If such
assets of the Fund shall be insufficient to make the full liquidation payment on
the AMPS and liquidation payments on any other outstanding class or series of
preferred shares of the Fund ranking on a parity with the AMPS as to payment
upon liquidation, then such assets will be distributed among the holders of AMPS
and the holders of shares of such other class or series ratably in proportion to
the respective preferential amounts to which they are entitled. After payment of
the full amount of liquidation distribution to which they are entitled, the
holders of a Fund's AMPS will not be entitled to any further participation in
any distribution of assets by the Fund except for any additional dividends. A
consolidation, merger or share exchange of a Fund with or into any other entity
or entities or a sale, whether for cash, shares of stock, securities or
properties, of all or substantially all or any part of the assets of the Fund
shall not be deemed or construed to be a liquidation, dissolution or winding up
of the Fund for this purpose.
Tax Rules Applicable to the Funds and their Shareholders
The tax consequences of investing in Common Shares or AMPS of each of the
Funds are identical. Each of the Funds has elected and qualified (or will elect
and qualify, if applicable) for the special tax treatment afforded RICs under
the Code. As a result, in any taxable year in which they distribute an amount
equal to at least 90% of taxable net income and 90% of tax-exempt net income
(see below), the Funds are not subject to Federal income tax to the extent that
they distribute their net investment income and net realized capital gains. In
all taxable years through the taxable year of the Reorganization, each Fund has
distributed substantially all of its income. Florida Insured intends to continue
to distribute substantially all of its income following the Reorganization.
Each Fund intends to qualify to pay "exempt-interest dividends" as defined
in Section 852(b)(5) of the Code. Under such section, if, at the close of each
quarter of its taxable year, at least 50% of the value of a Fund's total assets
consists of obligations exempt from Federal income tax ("tax-exempt
obligations") under Section 103(a) of the Code (relating generally to
obligations of a state or local governmental unit), the Fund is qualified to pay
exempt-interest dividends to its shareholders. Exempt-interest dividends are
dividends or any part thereof paid
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by a Fund which are attributable to interest on tax-exempt obligations and
designated by the Fund as exempt-interest dividends in a written notice mailed
to shareholders within 60 days after the close of its taxable year. To the
extent that the dividends distributed to a Fund's shareholders are derived from
interest income exempt from Federal income tax under Code Section 103(a) and are
properly designated as exempt-interest dividends, they are excludable from a
shareholder's gross income for Federal income tax purposes. Exempt-interest
dividends are included, however, in determining the portion, if any, of a
person's social security benefits and railroad retirement benefits subject to
Federal income taxes. Interest on indebtedness incurred or continued to purchase
or carry a Fund's shares is not deductible for Federal income tax purposes to
the extent attributable to exempt-interest dividends. A tax adviser should be
consulted with respect to whether exempt-interest dividends retain the exclusion
under Code Section 103(a) if a shareholder would be treated as a "substantial
user" or "related person" under Code Section 147(a) with respect to property
financed with the proceeds from an issue of "industrial development bonds" or
"private activity bonds," if any, held by a Fund.
Prior to July 1, 1999, shares similar to shares in the Funds were exempt
from Florida intangible personal property tax if the fund's portfolio consisted
solely of assets exempt from the Florida intangible personal property tax. Under
this provision, each of the Funds received a ruling from the Florida Department
of Revenue that shares of that Fund are exempt from the Florida intangible
personal property tax in the following year, if, on the last day of any calendar
year, that Fund's assets consist solely of assets exempt from Florida intangible
personal property tax. Effective July 1, 1999, the Florida Legislature revised
this requirement so that a fund's shares will be exempt if at least 90% of the
net asset value of the portfolio of assets corresponding to the shares in the
fund is invested in assets that are exempt from the Florida intangible personal
property tax ("revised asset requirement"). The Funds will apply for a ruling
from the Florida Department of Revenue that if, on the last business day of any
calendar year, at least 90% of the net asset value of the portfolio of assets
corresponding to shares in the Funds is invested in assets that are exempt from
the tax, shares of the Fund owned by Florida residents will be exempt from the
Florida intangible personal property tax in the following year. Although there
is no assurance that the Florida Department will issue a favorable ruling on
this issue, the Florida Department of Revenue has previously issued similar
rulings. The Florida Department of Revenue has the authority to revoke or modify
a previously issued ruling; however, if a ruling is revoked or modified, the
revocation or modification is prospective only. Prior to receipt of the ruling
from the Florida Department of Revenue, each Fund will rely on an opinion of
Florida counsel for the Funds, Holland & Knight LLP, stating that each Fund's
shares will be exempt from Florida intangible personal property tax if the
revised asset requirement is met. This opinion is based on existing Florida law
and interpretive authority which could be changed at any time retroactively.
While the opinion represents the best judgment of Holland & Knight LLP, the
legal conclusions will not be challenged by the Department of Revenue or in
judicial or administrative proceedings. Thus, under Florida counsel's opinion or
if a favorable ruling is issued, and if the revised asset requirement is met,
shares of each Fund owned by Florida residents will be exempt from Florida
intangible personal property tax. Assets exempt from Florida intangible personal
property tax include obligations of the State of Florida and its political
subdivisions; obligations of the United States Government or its agencies; and
cash.
A Fund may from time to time hold assets that are not exempt from Florida
intangible personal property tax ("non-exempt assets") and may not be able to
dispose of such assets so that 90% of the net asset value of the Fund's assets
on the last business day of the calendar year consists of assets exempt from the
Florida intangible personal property tax. This would subject shares of that Fund
to Florida intangible personal property tax. If shares of a Fund are subject to
Florida intangible personal property tax because of a failure to dispose of
sufficient non-exempt assets, only that portion of the value of the Fund shares
equal to the portion of the net asset value of the Fund that is attributable to
obligations of the United States Government will be exempt from taxation. Each
Fund will attempt to monitor its portfolio so that on the last business day of
each calendar year 90% of the net asset value of the Fund's assets consists of
assets exempt from Florida intangible personal property tax.
Dividends paid by a Fund to individuals who are Florida residents are not
subject to personal income taxation by Florida, because Florida does not impose
a personal income tax. Distribution of investment income and capital gains by a
Fund will be subject to Florida corporate income taxes, state taxes in states
other than Florida and local taxes in cities other than those in Florida.
Shareholders not subject to taxation by Florida do not benefit from the fact
that shares of a Fund will be exempt from the Florida intangible personal
property tax.
The IRS, in a revenue ruling, held that certain AMPS would be treated as
stock for Federal income tax purposes. The terms of the currently outstanding
AMPS of each of the Funds, as well as the Florida Insured
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Series C, D and E AMPS to be issued by Florida Insured, are substantially
similar, but not identical, to the AMPS discussed in the revenue ruling. In the
opinion of Brown & Wood LLP, counsel to all four Funds, the shares of each
Fund's currently outstanding AMPS, as well as the Florida Insured Series C, D
and E AMPS to be issued in the Reorganization, constitute stock, and
distributions with respect to shares of such AMPS (other than distributions in
redemption of shares of AMPS subject to Section 302(b) of the Code) will
constitute dividends to the extent of current and accumulated earnings and
profits as calculated for Federal income tax purposes. Nevertheless, the IRS
could take a contrary position, asserting, for example, that the AMPS constitute
debt. If this position were upheld, the discussion of the treatment of
distributions below would not apply to holders of AMPS. Instead, distributions
by each Fund to holders of its AMPS would constitute interest, whether or not
they exceed the earnings and profits of the Fund, and would be included in full
in the income of the recipient and taxed as ordinary income. Counsel believes
that such a position, if asserted by the IRS, would be unlikely to prevail.
To the extent that a Fund's distributions are derived from interest on its
taxable investments or from an excess of net short-term capital gains over net
long-term capital losses ("ordinary income dividends"), such distributions are
considered taxable ordinary income for Federal income tax purposes.
Distributions, if any, from an excess of net long-term capital gains over net
short-term capital losses derived from the sale of securities or from certain
transactions in futures or options ("capital gain dividends") are taxable as
long-term capital gains for Federal income tax purposes, regardless of the
length of time the shareholder has owned Fund shares. Certain categories of
capital gains are taxable at different rates for Federal income tax purposes.
Generally not later than 60 days after the close of its taxable year, a Fund
provides its shareholders with a written notice designating the amounts of any
exempt-interest dividends and capital gain dividends, as well as any amount of
capital gain dividends in the different categories of capital gain referred to
above. Distributions by a Fund, whether from exempt-interest income or capital
gains, are not eligible for the dividends received deduction for corporations
under the Code.
A loss realized on a sale or exchange of shares of a Fund is disallowed if
other Fund shares are acquired (whether under the Automatic Dividend
Reinvestment Plan or otherwise) within a 61-day period beginning 30 days before
and ending 30 days after the date that the shares are disposed of. In such a
case, the basis of the shares acquired will be adjusted to reflect the
disallowed loss.
All or a portion of a Fund's gain from the sale or redemption of tax-exempt
obligations purchased at a market discount will be treated as ordinary income
rather than capital gain. This rule may increase the amount of ordinary income
dividends received by shareholders. Any loss upon the sale or exchange of Fund
shares held for six months or less is treated as long-term capital loss to the
extent of exempt-interest dividends received by the shareholder. In addition,
such loss is disallowed to the extent of any capital gain dividends received by
the shareholder. Distributions in excess of a Fund's earnings and profits first
will reduce the adjusted tax basis of a holder's shares and, after such adjusted
tax basis is reduced to zero, will constitute capital gains to such holder
(assuming the shares are held as a capital asset). If a Fund pays a dividend in
January which was declared in the previous October, November or December to
shareholders of record on a specified date in one of such months, then such
dividend is treated for tax purposes as paid by the Fund and received by its
shareholders on December 31 of the year in which such dividend was declared.
The IRS has taken the position in a revenue ruling that if a RIC has two or
more classes of shares it may designate distributions made to each class in any
year as consisting of no more than such class' proportionate share of particular
types of income, including exempt-interest dividends and capital gain dividends.
A class's proportionate share of a particular type of income is determined
according to the percentage of total dividends paid by the RIC during such year
that was paid to such class. Consequently, when Common Shares and one or more
series of AMPS are outstanding, each Fund designates distributions made to the
classes as consisting of particular types of income in accordance with each
class's proportionate share of such income. After the Reorganization, Florida
Insured will, likewise, so designate distributions with respect to its Common
Shares and its AMPS, Series A, B, C, D and E. Each Fund may notify the Auction
Agent of the amount of any net capital gains and other taxable income to be
included in any dividend on shares of its AMPS prior to the auction establishing
the applicable rate for such dividend. Except for the portion of any dividend
that a Fund informs the Auction Agent will be treated as capital gains or other
taxable income, the dividends paid on the shares of AMPS constitute
exempt-interest dividends. Alternatively, each Fund may include such income in a
dividend on shares of its AMPS without giving advance notice thereof if it
increases the dividend by an additional amount to offset the tax effect thereof.
The amount of net capital gains and ordinary income allocable to a Fund's AMPS
(the "taxable distribution") depends upon the amount of such gains and income
realized by the Fund and the total
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dividends paid by the Fund on its Common Shares and its AMPS during a taxable
year, but the taxable distribution generally is not significant.
In the opinion of Brown & Wood LLP, counsel to all four Funds, under
current law the manner in which each Fund allocates, and Florida Insured Fund
will allocate, items of tax-exempt income, net capital gains and other taxable
income, if any, among Common Shares and outstanding AMPS, (including for Florida
Insured Series A and Series B AMPS and the newly issued series of AMPS) will be
respected for Federal income tax purposes. However, the tax treatment of
additional dividends may affect a Fund's calculation of each class' allocable
share of capital gains and other taxable income. In addition, there is currently
no direct guidance from the IRS or other sources specifically addressing whether
a Fund's method for allocating tax-exempt income, net capital gains and other
taxable income among Common Shares and the outstanding series of AMPS will be
respected for Federal income tax purposes, and it is possible that the IRS could
disagree with counsel's opinion and attempt to reallocate a Fund's net capital
gains or other taxable income. In the event of a reallocation, some of the
dividends identified by a Fund as exempt-interest dividends to holders of shares
of its AMPS could be recharacterized as additional capital gains or other
taxable income. In the event of such recharacterization, a Fund is not required
to make payments to such shareholders to offset the tax effect of such
reallocation. In addition, a reallocation could cause a Fund to be liable for
income tax and excise tax on all reallocated taxable income. Brown & Wood LLP
has advised each Fund that, in its opinion, if the IRS were to challenge in
court a Fund's allocations of income and gain, the IRS would be unlikely to
prevail. The opinion of Brown & Wood LLP, however, represents only its best
legal judgment and is not binding on the IRS or the courts.
The Code requires a RIC to pay a nondeductible 4% excise tax to the extent
it does not distribute during each calendar year 98% of its ordinary income,
determined on a calendar year basis, and 98% of its capital gains, determined in
general, on an October 31 year-end, plus certain undistributed amounts from
previous years. The required distributions, however, are based only on the
taxable income of a RIC. The excise tax, therefore, generally does not apply to
the tax-exempt income of RICs, such as the Funds, that pay exempt-interest
dividends.
The Code subjects interest received on certain otherwise tax-exempt
securities to a Federal alternative minimum tax. The alternative minimum tax
applies to interest received on "private activity bonds" issued after August 7,
1986. "Private activity bonds" are bonds which, although tax-exempt, are used
for purposes other than those generally performed by governmental units and
which benefit non-governmental entities (e.g., bonds used for industrial
development or housing purposes). Income received on such bonds is classified as
an item of "tax preference" which could subject investors in such bonds,
including shareholders of the Funds, to an increased alternative minimum tax.
Each Fund purchases such "private activity bonds" and reports to shareholders
within 60 days after calendar year-end the portion of its dividends declared
during the year which constitutes an item of tax preference for alternative
minimum tax purposes. The Code further provides that corporations are subject to
a Federal alternative minimum tax based, in part, on certain differences between
taxable income as adjusted for other tax preferences and the corporation's
"adjusted current earnings" which more closely reflect a corporation's economic
income. Because an exempt-interest dividend paid by a Fund is included in
adjusted current earnings, a corporate shareholder may be required to pay a
Federal alternative minimum tax on exempt-interest dividends paid by such Fund.
The Funds may invest in instruments the return on which includes
nontraditional features such as indexed principal or interest payments
("nontraditional instruments"). These instruments may be subject to special tax
rules under which a Fund may be required to accrue and distribute income before
amounts due under the obligations are paid. In addition, it is possible that all
or a portion of the interest payments on such nontraditional instruments could
be recharacterized as taxable ordinary income.
If at any time when AMPS are outstanding a Fund does not meet the asset
coverage requirements of the Investment Company Act, the Fund will be required
to suspend distributions to holders of Common Shares until the asset coverage is
restored. See "Dividends and Distributions." This may prevent such Fund from
distributing at least 90% of its net investment income and may, therefore,
jeopardize the Fund's qualification for taxation as a RIC. If a Fund were to
fail to qualify as a RIC, some or all of the distributions paid by the Fund
would be fully taxable to stockholders for Federal income tax purposes. Upon any
failure to meet the asset coverage requirements of the Investment Company Act, a
Fund, in its sole discretion, may redeem AMPS in order to maintain or restore
the requisite asset coverage and avoid the adverse consequences to the Fund and
its shareholders of failing to qualify as a RIC. There can be no assurance,
however, that any such action would achieve such objectives.
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As noted above, a Fund must distribute annually at least 90% of its net
taxable and tax-exempt interest income. A distribution will only be counted for
this purpose if it qualifies for the dividends paid deduction under the Code.
Some types of preferred shares that the Funds have issued and that Florida
Insured currently contemplates issuing may raise an issue as to whether
distributions on such preferred shares are "preferential" under the Code and,
therefore, not eligible for the dividends paid deduction. Counsel has advised
the Funds that the outstanding preferred shares and the preferred shares to be
issued by Florida Insured will not result in the payment of a preferential
dividend. If a Fund ultimately relies solely on a legal opinion when it issues
such preferred shares, there is no assurance that the IRS would agree that
dividends on the preferred shares are not preferential. If the IRS successfully
disallowed the dividends paid deduction for dividends on the preferred shares,
the Funds could be disqualified as RICs. In this case, dividends paid by the
Funds on the Common Shares and the AMPS would not be exempt from Federal income
taxes. Additionally, the Funds would be subject to the Federal alternative
minimum tax.
Under certain circumstances when a Fund is required to allocate taxable
income to the AMPS, it will pay Additional Distributions to holders of AMPS. The
Federal income tax consequences of Additional Distributions under existing law
are uncertain. The Funds treat and Florida Insured intends to continue to treat
a holder as receiving a dividend distribution in the amount of any Additional
Distribution only as and when such Additional Distribution is paid. An
Additional Distribution generally is designated by a Fund as an exempt-interest
dividend except as otherwise required by applicable law. However, the IRS may
assert that all or part of an Additional Distribution is a taxable dividend
either in the taxable year for which the allocation of taxable income is made or
in the taxable year in which the Additional Distribution is paid.
The value of shares acquired pursuant to a Fund's dividend reinvestment
plan is generally excluded from gross income to the extent that the cash amount
reinvested would be excluded from gross income. If, when a Fund's shares are
trading at a premium over net asset value, the Fund issues shares pursuant to
the dividend reinvestment plan that have a greater fair market value than the
amount of cash reinvested, it is possible that all or a portion of such discount
(which may not exceed 5% of the fair market value of the Fund's shares) could be
viewed as a taxable distribution. If the discount is viewed as a taxable
distribution, it is also possible that the taxable character of this discount
would be allocable to all of the shareholders, including shareholders who do not
participate in the Fund's dividend reinvestment plan. Thus, shareholders who do
not participate in the dividend reinvestment plan, as well as dividend
reinvestment plan participants, might be required to report as ordinary income a
portion of their distributions equal to the allocable share of the discount.
Under certain provisions of the Code, some shareholders may be subject to a
31% withholding tax on certain ordinary income dividends and on capital gain
dividends and redemption payments ("backup withholding"). Generally,
shareholders subject to backup withholding will be those for whom no taxpayer
identification number is on file with a Fund or who, to the Fund's knowledge,
have furnished an incorrect number. When establishing an account, an investor
must certify under penalty of perjury that such number is correct and that such
shareholder is not otherwise subject to backup withholding.
Ordinary income dividends paid to shareholders who are nonresident aliens
or foreign entities are subject to a 30% United States withholding tax under
existing provisions of the Code applicable to foreign individuals and entities
unless a reduced rate of withholding or a withholding exemption is provided
under applicable treaty law. Nonresident shareholders are urged to consult their
own tax advisers concerning the applicability of the United States withholding
tax.
The Code provides that every shareholder required to file a tax return must
include for information purposes on such return the amount of exempt-interest
dividends received from all sources (including the Funds) during the taxable
year.
Tax Treatment of Options and Futures Transactions. Each Fund may purchase
or sell municipal bond index financial futures contracts and interest rate
financial futures contracts on U.S. Government securities. Each Fund may also
purchase and write call and put options on such financial futures contracts. In
general, unless an election is available to a Fund or an exception applies, such
options and financial futures contracts that are "Section 1256 contracts" will
be "marked to market" for Federal income tax purposes at the end of each taxable
year, i.e., each such option or financial futures contract will be treated as
sold for its fair market value on the last day of the taxable year, and any gain
or loss attributable to Section 1256 contracts will be 60% long-term and 40%
short-term capital gain or loss. Application of these rules to Section 1256
contracts held by a Fund may alter the timing and character of distributions to
shareholders. The mark-to-market rules outlined above, however,
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will not apply to certain transactions entered into by a Fund solely to reduce
the risk of changes in price or interest rates with respect to its investments.
Code Section 1092, which applies to certain "straddles," may affect the
taxation of a Fund's sales of securities and transactions in financial futures
contracts and related options. Under Section 1092, a Fund may be required to
postpone recognition for tax purposes of losses incurred in certain sales of
securities and certain closing transactions in financial futures contracts or
the related options.
Florida Taxation of the Fund
If a Fund does not have a taxable nexus to Florida, such as through the
location within the state of the Fund's activities or those of FAM, under
present Florida law, the Fund is not subject to Florida corporate income
taxation. Additionally, if a Fund's assets do not have a taxable situs in
Florida on January 1 of each calendar year, the Fund will not be subject to
Florida intangible personal property tax. If a Fund has a taxable nexus to
Florida or the Fund's assets have a taxable situs in Florida on January 1 of any
year, the Fund will be subject to Florida taxation.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury Regulations and Florida tax laws presently
in effect. For the complete provisions, reference should be made to the
pertinent Code sections, the Treasury Regulations promulgated thereunder and the
applicable tax laws. The Code and the Treasury Regulations, as well as the
Florida tax laws, are subject to change by legislative, judicial or
administrative action either prospectively or retroactively.
Shareholders are urged to consult their tax advisers regarding specific
questions as to Federal, foreign, state or local tax consequences of an
investment in a Fund.
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AGREEMENT AND PLAN OF REORGANIZATION
General
Under the Agreement and Plan of Reorganization (attached hereto as Exhibit
II), (i) Florida Insured will acquire substantially all of the assets, and will
assume substantially all of the liabilities, of Florida Insured II, in exchange
solely for an equal aggregate value of Florida Insured Common Shares and Florida
Insured Series C AMPS to be issued by Florida Insured, (ii) Florida Insured will
acquire substantially all of the assets, and will assume substantially all of
the liabilities, of Florida Insured III, in exchange solely for an equal
aggregate value of Florida Insured Common Shares and Florida Insured Series D
AMPS to be issued by Florida Insured and (iii) Florida Insured will acquire
substantially all of the assets, and will assume substantially all of the
liabilities, of Florida Insured IV, in exchange solely for an equal aggregate
value of Florida Insured Common Shares and Florida Insured Series E AMPS to be
issued by Florida Insured. The number of Florida Insured Common Shares issued to
each Acquired Fund will have an aggregate net asset value of the shares of
Common Stock of that Acquired Fund (except that cash will be paid in lieu of any
fractional shares), and the number of shares of Florida Insured Series C AMPS,
Florida Insured Series D AMPS and Florida Insured Series E AMPS issued to
Florida Insured II, Florida Insured III and Florida Insured IV, respectively,
will have an aggregate liquidation preference and value equal to the aggregate
liquid preference and value of such Fund AMPS. Upon receipt by the Acquired
Funds of such shares, the Acquired Funds will (i) distribute the Florida Insured
Common Shares to the holders of Florida Insured II Common Shares, Florida
Insured III Common Shares and Florida Insured IV Common Shares, as applicable,
in exchange for their Common Shares in the Acquired Funds and (ii) distribute
the Florida Insured Series C AMPS to the holders of Florida Insured II AMPS, the
Florida Insured Series D AMPS to the holders of Florida Insured III AMPS and the
Florida Insured Series E AMPS to the holders of Florida Insured IV AMPS, in
exchange for their AMPS in the Acquired Funds. A Certificate of Designation of
Florida Insured establishing the powers, rights and preferences of the Florida
Insured Series C AMPS, the Florida Insured Series D AMPS and the Florida Insured
Series E AMPS will be filed with the Office of the Secretary of State of the
Commonwealth of Massachusetts prior to the closing of the Reorganization. As
soon as practicable after the date that the Reorganization takes place (the
"Exchange Date"), each of the Acquired Funds will execute and lodge among the
records of Florida Insured an instrument in writing setting forth the facts of
each Funds' termination and cause a copy thereof to be filed in the Office of
the Secretary of State of the Commonwealth of Massachusetts.
Each of the Acquired Funds will distribute the Florida Insured Common
Shares and the Florida Insured Series C AMPS, Florida Insured Series D AMPS or
Florida Insured Series E AMPS received by it pro rata to its holders of record
of Common Shares and AMPS, as applicable, in exchange for such shareholders'
shares in the Acquired Funds. Such distribution would be accomplished by opening
new accounts on the books of Florida Insured in the names of the common and
preferred shareholders of each of the Acquired Funds and transferring to those
shareholder accounts the Florida Insured Common Shares or Florida Insured AMPS
previously credited on those books to the accounts of the Acquired Funds. Each
newly-opened account on the books of Florida Insured for the previous holders of
the Acquired Funds would represent the respective pro rata number of Florida
Insured Common Shares (rounded down, in the case of fractional shares, to the
next largest number of whole shares) due such holder of Common Shares. No
fractional Florida Insured Common Shares will be issued. In lieu thereof,
Florida Insured's transfer agent, The Bank of New York, will aggregate all
fractional Florida Insured Common Shares and sell the resulting whole shares on
the NYSE for the account of all holders of fractional interests, and each such
holder will be entitled to the pro rata share of the proceeds from such sale
upon surrender of the Common Share certificates of the applicable Acquired Fund.
Similarly, each newly-opened account on the books of Florida Insured for the
previous holders of AMPS of an Acquired Fund would represent the respective pro
rata number of Florida Insured Series C AMPS, Florida Insured Series D AMPS or
Florida Insured Series E AMPS due such holder of AMPS. See "Surrender and
Exchange of Share Certificates" below for a description of the procedures to be
followed by the shareholders of the Acquired Funds to obtain their Florida
Insured Common Shares or AMPS (and cash in lieu of fractional shares, if any).
Accordingly, as a result of the Reorganization, every holder of Common
Shares of an Acquired Fund would own Florida Insured Common Shares that (except
for cash payments received in lieu of fractional shares) would have an aggregate
net asset value immediately after the Exchange Date equal to the aggregate net
asset value of that shareholder's Common Shares immediately prior to the
Exchange Date. Since the Florida Insured Common Shares would be issued at net
asset value in exchange for the net assets of the Acquired Funds having a value
equal to the aggregate net asset value of those Florida Insured Common Shares,
the net asset value per share of Florida Insured Common Shares should remain
virtually unchanged by the Reorganization. Similarly, since the
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Florida Insured Series C AMPS, Florida Insured Series D AMPS or Florida Insured
Series E AMPS would be issued at a liquidation preference and value per share
equal to the liquidation preference and value per share of the AMPS of the
Acquired Funds, the respective liquidation preference and value per share of the
Florida Insured Series C AMPS, Florida Insured Series D AMPS and Florida Insured
Series E AMPS will remain unchanged by the Reorganization. Thus, the
Reorganization will result in no dilution of net asset value of the Florida
Insured Common Shares, other than to reflect the costs of the Reorganization,
and will result in no dilution to the value per share of holders of AMPS of the
Acquired Funds. However, as a result of the Reorganization, a shareholder of any
of the Funds likely will hold a reduced percentage of ownership in the larger
combined entity than he or she did in any of the constituent Funds.
Procedure
At meetings of the Boards of Trustees of each of the Acquired Funds, and at
a meeting of the Board of Trustees of Florida Insured, the Board of Trustees of
each of the Funds, including all of the Trustees who are not "interested
persons," as defined in the Investment Company Act, of the applicable Fund,
unanimously approved the Agreement and Plan of Reorganization and the submission
of such Agreement and Plan of Reorganization to the shareholders of each of the
Funds for approval.
Also, the Board of Trustees of Florida Insured approved the filing of a
Certificate of Designation establishing the powers, rights and preferences of
the Florida Insured Series C AMPS, the Florida Insured Series D AMPS and the
Florida Insured Series E AMPS in order that they may be distributed to holders
of AMPS of each of the Acquired Funds as part of the Reorganization.
As a result of such Board approvals, the Funds have jointly filed this
proxy statement with the SEC soliciting a vote of the shareholders of each of
the Funds to approve the Reorganization. The costs of such solicitation are to
be paid by Florida Insured after the Reorganization so as to be borne equally
and exclusively on a per share basis by the holders of Common Shares of each of
the Funds. Annual meetings of shareholders of the Funds will be held on December
15, 1999. If the shareholders of all four Funds approve the Reorganization, the
Reorganization will take place as soon as practicable after such approval,
provided that the Funds have obtained prior to that time a favorable private
letter ruling from the IRS concerning the tax consequences of the Reorganization
as set forth in the Agreement and Plan of Reorganization or an opinion of
counsel to the same effect.
The Boards of Trustees of Florida Insured, Florida Insured II, Florida
Insured III and Florida Insured IV recommend that the shareholders of the
respective Funds approve the Agreement and Plan of Reorganization.
Terms of the Agreement and Plan of Reorganization
The following is a summary of the significant terms of the Agreement and
Plan of Reorganization. This summary is qualified in its entirety by reference
to the Agreement and Plan of Reorganization, attached hereto as Exhibit II.
Valuation of Assets and Liabilities. The respective assets of each of the
Funds will be valued on the business day prior to the Exchange Date (the
"Valuation Date"). The valuation procedures are the same for all four Funds: the
net asset value per Common Share of each Fund will be determined after the close
of business on the NYSE (generally, 4:00 P.M., Eastern time) on the Valuation
Date. For the purpose of determining the net asset value of a Common Share of
each Fund, the value of the securities held by the issuing Fund plus any cash or
other assets (including interest accrued but not yet received) minus all
liabilities (including accrued expenses) and the aggregate liquidation value of
the outstanding AMPS of the issuing Fund is divided by the total number of
Common Shares of the issuing Fund outstanding at such time. Daily expenses,
including the fees payable to FAM, will accrue on the Valuation Date.
The Florida Municipal Bonds and Municipal Bonds in which each Fund invests
are traded primarily in the over-the-counter markets. In determining net asset
value on the Valuation Date, each Fund will use the valuations of portfolio
securities furnished by a pricing service approved by the Boards of Trustees of
the Funds. The pricing service typically values portfolio securities at the bid
price or the yield equivalent when quotations are readily available. Florida
Municipal Bonds and Municipal Bonds for which quotations are not readily
available will be valued at fair market value on a consistent basis as
determined by the pricing service using a matrix system to determine valuations.
The Boards of Trustees of the Funds have determined in good faith that the use
of a pricing service is a fair method of determining the valuation of portfolio
securities. Positions in financial
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futures contracts will be valued on the Valuation Date at closing prices for
such contracts established by the exchange on which they are traded, or if
market quotations are not readily available, will be valued at fair value on a
consistent basis using methods determined in good faith by the Board of
Trustees.
Distribution of Florida Insured Common Shares, Florida Insured Series C
AMPS, Florida Insured Series D AMPS and Florida Insured Series E AMPS. On the
Exchange Date, Florida Insured will issue to each Acquired Fund a number of
Florida Insured Common Shares the aggregate net asset value of which will equal
the respective aggregate net asset value of the Common Shares of the Acquired
Fund on the Valuation Date. Each holder of Common Shares of an Acquired Fund
will receive the number of Florida Insured Common Shares corresponding to his or
her proportionate interest in the respective aggregate net asset value of the
Common Shares of the Acquired Fund, as applicable.
On the Exchange Date, Florida Insured also will issue (i) to Florida
Insured II a number of Florida Insured Series C AMPS, the aggregate liquidation
preference and value of which will equal the aggregate liquidation preference
and value of Florida Insured II AMPS on the Valuation Date, (ii) to Florida
Insured III a number of Florida Insured Series D AMPS, the aggregate liquidation
preference and value of which will equal the aggregate liquidation preference
and value of Florida Insured III AMPS on the Valuation Date and (iii) to Florida
Insured IV a number of Florida Insured Series E AMPS, the aggregate liquidation
preference and value of which will equal the aggregate liquidation preference
and value of Florida Insured IV AMPS on the Valuation Date. Each holder of AMPS
of an Acquired Fund will receive the number of Florida Insured Series C AMPS,
Florida Insured Series D AMPS or Florida Insured Series E AMPS corresponding to
his or her proportionate interest in the aggregate liquidation preference and
value of the AMPS of the Acquired Fund. No sales charge or fee of any kind will
be charged to shareholders of the Acquired Funds in connection with their
receipt of Florida Insured Common Shares or AMPS in the Reorganization. Holders
of certain series of AMPS of the Acquired Funds will find that the auction date
and dividend payment date for the Florida Insured AMPS received in the
Reorganization fall on different days of the week than the auction date or
dividend payment date of the AMPS currently held. Any such change in the auction
date and dividend payment date will not adversely affect the value of a holder's
AMPS. It is anticipated that (i) the auction for Florida Insured Series C AMPS
will be held on Monday; Florida Insured II Series A AMPS are auctioned on Monday
but Florida Insured II Series B AMPS are auctioned on Wednesday; (ii) the
auction for Florida Insured Series D AMPS will be held on Wednesday; the Florida
Insured III Series A AMPS are auctioned on Tuesday and the Florida Insured III
Series B AMPS are auctioned on Friday; and (iii) the auction for Florida Insured
Series E AMPS will be held on Thursday; the Florida Insured IV Series A AMPS are
also auctioned on Thursday, but the Florida Insured IV Series B AMPS are
auctioned on Monday. The auction procedures for all of the AMPS are similar. As
a result of the Reorganization, the last dividend period for the AMPS of each
Acquired Fund prior to the Exchange Date may be shorter than the dividend period
for such AMPS determined as set forth in the applicable Certificate of
Designation.
Expenses. Florida Insured shall pay, subsequent to the Exchange Date, all
expenses incurred in connection with the Reorganization, including, but not
limited to, all costs related to the preparation and distribution of materials
distributed to each Fund's Board of Trustees, expenses incurred in connection
with the preparation of the Agreement and Plan of Reorganization, a registration
statement on Form N-14 and a private letter ruling request submitted to the IRS,
SEC and state securities commission filing fees and legal and audit fees in
connection with the Reorganization, costs of printing and distributing this
Proxy Statement and Prospectus, legal fees incurred preparing each Fund's board
materials, attending each Fund's board meetings and preparing the minutes,
accounting fees associated with each Fund's financial statements, stock exchange
fees, rating agency fees, portfolio transfer taxes (if any) and any similar
expenses incurred in connection with the Reorganization. In this regard,
expenses of the Reorganization will be deducted from the assets of the combined
fund so as to be borne equally and exclusively on a per share basis by the
holders of Common Shares of each of the Funds. No Fund shall pay any expenses of
its respective shareholders arising out of or in connection with the
Reorganization.
Required Approvals. Under the Declaration of Trust of each Fund (as amended
to date and including Certificates of Designation establishing the powers,
rights and preferences of the AMPS of each Fund), relevant Massachusetts law and
the rules of the NYSE, shareholder approval of the Agreement and Plan of
Reorganization requires the affirmative vote of shareholders representing more
than 50% of the outstanding Common Shares and AMPS, voting together as a single
class, and of the AMPS, voting separately as a class. Because of the requirement
that the Agreement and Plan of Reorganization be approved by the shareholders of
all four Funds, the Reorganization will not take place if the shareholders of
any one Fund do not approve the Agreement and Plan of Reorganization.
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Deregistration and Dissolution. Following the transfer of the assets and
liabilities of the Acquired Funds and the distribution of Florida Insured Common
Shares, Florida Insured Series C AMPS, Florida Insured Series D AMPS and Florida
Insured Series E AMPS to shareholders of the Acquired Funds, in accordance with
the foregoing, each of the Acquired Funds will terminate its registration under
the Investment Company Act and its organization under Massachusetts law and will
withdraw its authority to do business in any state where it is required to do
so.
Amendments and Conditions. The Agreement and Plan of Reorganization may be
amended at any time prior to the Exchange Date with respect to any of the terms
therein. The obligations of each Fund pursuant to the Agreement and Plan of
Reorganization are subject to various conditions, including a registration
statement on Form N-14 being declared effective by the Commission, approval by
the shareholders of each of the Funds, favorable IRS rulings or an opinion of
counsel being received as to tax matters, an opinion of counsel as to securities
matters being received and the continuing accuracy of various representations
and warranties of the Funds being confirmed by the respective parties.
Postponement, Termination. Under the Agreement and Plan of Reorganization,
the Board of Trustees of any of the Funds may cause the Reorganization to be
postponed or abandoned under certain circumstances should such Board determine
that it is in the best interests of the shareholders of its respective Fund to
do so. The Agreement and Plan of Reorganization may be terminated, and the
Reorganization abandoned at any time (whether before or after adoption thereof
by the shareholders of any of the Funds) prior to the Exchange Date, or the
Exchange Date may be postponed: (i) by mutual consent of the Boards of Trustees
of the four Funds and (ii) by the Board of Trustees of any Fund if any condition
to that Fund's obligations set forth in the Agreement and Plan of Reorganization
has not been fulfilled or waived by such Board.
Potential Benefits to Shareholders of the Funds as a Result of the
Reorganization
In approving the Reorganization, the Board of Trustees of each Fund
identified certain benefits that are likely to result from the Reorganization,
including lower aggregate operating expenses per Common Share, greater
efficiency and flexibility in portfolio management and a more liquid trading
market for the Common Shares of the combined fund. With respect to each of the
Acquired Funds, following the Reorganization their respective shareholders will
remain invested in a closed-end fund that has investment objectives and policies
substantially similar to those of the Acquired Fund. The Boards also considered
the possible risks and costs of combining the Funds, and examined the relative
credit strength, maturity characteristics, mix of type and purpose, and yield of
the Funds' portfolios of Florida Municipal Bonds and Municipal Bonds and the
costs involved in a transaction such as the Reorganization. The Boards noted the
many similarities between the Funds, including their substantially similar
investment objectives and investment policies, their use of substantially the
same management personnel and their similar portfolios of Florida Municipal
Bonds and Municipal Bonds. The Board also considers the relative tax positions
of each of the Fund's portfolios. Based on these factors, the Boards concluded
that the Reorganization will potentially benefit the shareholders of each Fund
in that it (i) presents no significant risks that would outweigh the benefits
discussed above and (ii) involves minimal costs (including relatively minor
legal, accounting and administrative costs).
The surviving fund that would result from the Reorganization would have a
larger asset base than any of the Funds has currently. Based on data presented
by FAM, the Board of each Fund believes that administrative expenses for a
larger combined fund would be less than the aggregate expenses for the
individual Funds, resulting in a lower expense ratio for common shareholders of
the combined fund and higher earnings per common share. In particular, certain
fixed costs, such as costs of printing shareholder reports and proxy statements,
legal expenses, audit fees, mailing costs and other expenses will be spread
across a larger asset base, thereby lowering the expense ratio for the combined
fund. To illustrate the potential economies of scale, as of June 30, 1999, the
total annualized operating expense ratio for Florida Insured was 1.28%, based on
average net assets of approximately $156.2 million excluding AMPS, and 0.77%,
based on average net assets of approximately $261.0 million including AMPS; the
total annualized operating expense ratio for Florida Insured II was 1.32%, based
on average net assets of approximately $125.0 million excluding AMPS, and 0.78%,
based on average net assets of approximately $211.0 million including AMPS; the
total annualized operating expense ratio for Florida Insured III was 1.36%,
based on average net assets of approximately $84.1 million excluding AMPS, and
0.83%, based on average net assets of approximately $138.1 million including
AMPS; and the total annualized operating expense ratio for Florida Insured IV
was 1.31%, based on average net assets of approximately $124.3 million excluding
AMPS, and 0.78%, based on average net assets of approximately $207.8 million
including AMPS. If the Reorganization had taken place on June 30, 1999, the
overall operating expense ratio for the combined fund
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on a pro forma basis would have been 1.19%, based on average net assets of
approximately $489.6 million excluding AMPS, and 0.71%, based on average net
assets of approximately $817.8 million including AMPS.
Management projections estimate that Florida Insured will have net assets
in excess of $817 million upon completion of the Reorganization. A larger asset
base should provide benefits in portfolio management. After the Reorganization,
Florida Insured should be able to purchase larger amounts of Florida Municipal
Bonds and Municipal Bonds at more favorable prices than any of the Funds
separately and, with this greater purchasing power, request improvements in the
terms of the Florida Municipal Bonds and Municipal Bonds (e.g., added indenture
provisions covering call protection, sinking funds and audits for the benefit of
large holders) prior to purchase.
Based on the foregoing, the Boards concluded that the Reorganization is in
the best interests of the shareholders of each of the Funds because the
Reorganization presents no significant risks or costs (including legal,
accounting and administrative costs) that would outweigh the benefits discussed
above.
In approving the Reorganization, the Board of Trustees of each Fund
determined that the Reorganization is in the best interests of that Fund and,
with respect to net asset value and liquidation preference, that the interests
of existing shareholders of that Fund would not be diluted as a result of the
Reorganization. Although the Reorganization is expected to result in a reduction
in net asset value per share of the combined fund after the Reorganization of
approximately $.01 as a result of the estimated costs of the Reorganization,
management of each Fund advised its Board that it expects that such costs would
be recovered within [18] months after the Exchange Date due to a decrease in the
operating expense ratio.
It is not anticipated that the Reorganization directly would benefit the
holders of AMPS of any of the Funds; however, the Reorganization will not
adversely affect the holders of AMPS of any of the Funds and the expenses of the
Reorganization will not be borne by the holders of AMPS of any of the Funds.
Surrender and Exchange of Share Certificates
After the Exchange Date, each holder of an outstanding certificate or
certificates formerly representing Common Shares or AMPS of any one of the
Acquired Funds will be entitled to receive, upon surrender of his or her
certificate or certificates, a certificate or certificates representing the
number of Florida Insured Common Shares or Florida Insured Series C AMPS,
Florida Insured Series D AMPS or Florida Insured Series E AMPS distributable
with respect to such holder's Common Shares or AMPS of the Acquired Fund,
together with cash in lieu of any fractional Common Shares. Promptly after the
Exchange Date, the transfer agent for the Florida Insured Common Shares will
mail to each holder of certificates formerly representing Common Shares of an
Acquired Fund a letter of transmittal for use in surrendering his or her
certificates for certificates representing Florida Insured Common Shares and
cash in lieu of any fractional Common Shares. Shares of AMPS are held in "street
name" by the Depository Trust Company and all transfers will be accomplished by
book entry. Surrender of physical certificates for AMPS is not required.
Shares of AMPS are held in "street names' by the Depository Trust Company
and all transfers will be accomplished by book entry. Surrender of physical
certificates for AMPS is not required.
If prior to the Reorganization, After the Reorganization,
you held: you will hold:
- ------------------------------------ ----------------------------------
Florida Insured Common Shares Florida Insured Common Shares
Florida Insured Series A AMPS Florida Insured Series A AMPS
Florida Insured Series B AMPS Florida Insured Series B AMPS
Florida Insured II Common Shares Florida Insured Common Shares
Florida Insured II Series A AMPS Florida Insured Series C AMPS
Florida Insured II Series B AMPS Florida Insured Series C AMPS
Florida Insured III Common Shares Florida Insured Common Shares
Florida Insured III Series A AMPS Florida Insured Series D AMPS
Florida Insured III Series B AMPS Florida Insured Series D AMPS
Florida Insured IV Common Shares Florida Insured Common Shares
Florida Insured IV Series A AMPS Florida Insured Series E AMPS
Florida Insured IV Series B AMPS Florida Insured Series E AMPS
Please do not send in any share certificates at this time. Upon
consummation of the Reorganization, common shareholders of the Acquired Funds
will be furnished with instructions for exchanging their share certificates for
Florida Insured share certificates and, if applicable, cash in lieu of
fractional shares.
53
<PAGE>
From and after the Exchange Date, certificates formerly representing Common
Shares or AMPS of an Acquired Fund will be deemed for all purposes to evidence
ownership of the number of full Florida Insured Common Shares, Florida Insured
Series C AMPS, Florida Insured Series D AMPS or Florida Insured Series E AMPS
distributable with respect to the shares of the Acquired Fund held before the
Reorganization as described above and as shown in the table above, provided
that, until such share certificates have been so surrendered, no dividends
payable to the holders of record of Common Shares or AMPS of an Acquired Fund as
of any date subsequent to the Exchange Date will be paid to the holders of such
outstanding share certificates. Dividends payable to holders of record of Common
Shares or AMPS of Florida Insured, as of any date after the Exchange Date and
prior to the exchange of certificates by any shareholder of an Acquired Fund,
will be paid to such shareholder, without interest, at the time such shareholder
surrenders his or her share certificates for exchange.
From and after the Exchange Date, there will be no transfers on the share
transfer books of any Acquired Fund. If, after the Exchange Date, certificates
representing Common Shares or AMPS of an Acquired Fund are presented to Florida
Insured, they will be cancelled and exchanged for certificates representing
Common Shares or AMPS of Florida Insured, as applicable, and cash in lieu of
fractional Common Shares, if any, distributable with respect to such Common
Shares or AMPS in the Reorganization.
Tax Consequences of the Reorganization
General. The Reorganization has been structured with the intention that it
qualify for Federal income tax purposes as a tax-free reorganization under
Section 368(a)(1)(C) of the Code. Each of the four Funds has elected and
qualified (except that Florida Insured III and Florida Insured IV will elect and
qualify) for the special tax treatment afforded RICs under the Code, and Florida
Insured intends to continue to so qualify after the Reorganization. The Funds
have jointly requested a private letter ruling from the IRS that for Federal
income tax purposes: (i) the exchange of assets by each Acquired Fund for
Florida Insured shares, as described, will constitute a reorganization within
the meaning of Section 368(a)(1)(C) of the Code, and each of the Acquired Funds
and Florida Insured will be deemed a "party" to a reorganization within the
meaning of Section 368(b) of the Code; (ii) in accordance with Section 361(a) of
the Code, no gain or loss will be recognized to the Acquired Funds as a result
of the Reorganization or on the distribution of Florida Insured Common Shares
and Florida Insured Series C AMPS, Florida Insured Series D AMPS or Florida
Insured Series E AMPS to the respective shareholders of the Acquired Funds under
Section 361(c)(1) of the Code; (iii) under Section 1032 of the Code, no gain or
loss will be recognized to Florida Insured as a result of the Reorganization;
(iv) in accordance with Section 354(a)(1) of the Code, no gain or loss will be
recognized to the shareholders of the Acquired Funds on the receipt of Florida
Insured Common Shares and Florida Insured Series C AMPS, Florida Insured Series
D AMPS or Florida Insured Series E AMPS in exchange for their corresponding
Common Shares or AMPS of an Acquired Fund (except to the extent that common
shareholders receive cash representing an interest in fractional shares of
Florida Insured in the Reorganization); (v) in accordance with Section 362(b) of
the Code, the tax basis of the assets of the Acquired Funds in the hands of
Florida Insured will be the same as the tax basis of such assets in the hands of
the Acquired Fund that transferred them immediately prior to the consummation of
the Reorganization; (vi) in accordance with Section 358 of the Code, immediately
after the Reorganization, the tax basis of the Florida Insured Common Shares,
Florida Insured Series C AMPS, Florida Insured Series D AMPS or Florida Insured
Series E AMPS received by the shareholders of the Acquired Fund in the
Reorganization will be equal to the tax basis of the Common Shares or AMPS of
the Acquired Funds surrendered in exchange; (vii) in accordance with Section
1223 of the Code, a shareholder's holding period for the Florida Insured Common
Shares, Florida Insured Series C AMPS, Florida Insured Series D AMPS or Florida
Insured Series E AMPS will be determined by including the period for which such
shareholder held the Common Shares or AMPS of the Acquired Fund exchanged
therefor, provided that such shares were held as a capital asset; (viii) in
accordance with Section 1223 of the Code, Florida Insured's holding period with
respect to the assets of the Acquired Funds transferred will include the period
for which such assets were held by the Acquired Fund; (ix) the payment of cash
to common shareholders of an Acquired Fund in lieu of fractional Florida Insured
Common Shares will be treated as though the fractional shares were distributed
as part of the Reorganization and then redeemed, with the result that such
shareholders will have short- or long-term capital gain or loss to the extent
that the cash distribution differs from the shareholder's basis allocable to the
Florida Insured fractional shares; and (x) the taxable year of each of the
Acquired Funds will end on the effective date of the Reorganization and pursuant
to Section 381(a) of the Code and regulations thereunder, Florida Insured will
succeed to and take into account certain tax attributes of the Acquired Funds,
such as earnings and profits, capital loss carryovers and method of accounting.
54
<PAGE>
As noted in the discussion under "Comparison of the Funds--Tax Rules
Applicable to the Funds and Their Shareholders," a Fund must distribute annually
at least 90% of its net taxable and tax-exempt income. A distribution only will
be counted for this purpose if it qualifies for the dividends paid deduction
under the Code. In the opinion of Brown & Wood LLP, the issuance of Florida
Insured Series C AMPS, Florida Insured Series D AMPS and Florida Insured Series
E AMPS pursuant to the Reorganization in addition to the already existing
Florida Insured Series A AMPS and Florida Insured Series B AMPS will not cause
distributions on any series of Florida Insured AMPS to be treated as
preferential dividends ineligible for the dividends paid deduction. It is
possible, however, that the IRS may assert that, because there are several
series of AMPS, distributions on such shares are preferential under the Code and
therefore not eligible for the dividends paid deduction. If the IRS successfully
disallowed the dividends paid deduction for dividends on the AMPS, Florida
Insured could lose the special tax treatment afforded RICs. In this case,
dividends on the Florida Insured Common Shares and AMPS would not be exempt from
Federal income tax. Additionally, Florida Insured would be subject to the
alternative minimum tax.
Under Section 381(a) of the Code, Florida Insured will succeed to and take
into account certain tax attributes of the Acquired Funds, including, but not
limited to, earnings and profits, any net operating loss carryovers, any capital
loss carryovers and method of accounting. The Code, however, contains special
limitations with regard to the use of net operating losses, capital losses and
other similar items in the context of certain reorganizations, including
tax-free reorganizations pursuant to Section 368(a)(1)(C) of the Code, which
could reduce the benefit of these attributes to Florida Insured.
Shareholders should consult their tax advisers regarding the effect of the
Reorganization in light of their individual circumstances. As the foregoing
relates only to Federal income tax consequences, shareholders also should
consult their tax advisers as to the foreign, state and local tax consequences
of the Reorganization.
Regulated Investment Company Status. The Funds have elected (or will elect
in their first tax returns, as applicable) and qualified (or will qualify as
applicable) for taxation as RICs under Sections 851-855 of the Code, and after
the Reorganization Florida Insured intends to continue to so qualify.
Appraisal Rights
A shareholder of any of the Funds who does not vote in favor of the
Reorganization may have the right under Massachusetts law to object to the
Reorganization and demand payment for his or her shares from the applicable Fund
and an appraisal thereof upon compliance with the procedures specified in
Sections 86 through 98 of the Massachusetts Business Corporation Law (the
"Massachusetts Business Corporation Law"), which are set forth in Exhibit VI
hereto. A vote against the Reorganization or the execution of a proxy directing
such a vote will not satisfy the requirements of those provisions. A failure to
vote against the Reorganization will not constitute a waiver of such rights. The
Funds take the position that, if available, this statutory right of appraisal
may be exercised only by shareholders of record.
Section 92 of the Massachusetts Business Corporation Law provides that for
purposes of payment to any shareholder who elects to exercise his or her
statutory right of appraisal, the value of shares of such shareholder is to be
determined as of the day preceding the date of the shareholders' vote approving
the Agreement and Plan of Reorganization. Under the terms of the Agreement and
Plan of Reorganization, Florida insured will assume the obligations of each of
the Funds, if any, with respect to statutory rights of appraisal.
For federal income tax purposes, dissenting shareholders obtaining payment
for their shares will recognize gain or loss measured by the difference between
any such payment and the tax basis for their shares. Shareholders are advised to
consult their personal tax advisers as to the tax consequences of dissenting.
55
<PAGE>
Capitalization
The following table sets forth as of March 31, 1999 (i) the capitalization
of Florida Insured, (ii) the capitalization of Florida Insured II, (iii) the
capitalization of Florida Insured III, (iv) the capitalization of Florida
Insured IV and (v) the pro forma capitalization of Florida Insured as adjusted
to give effect to the Reorganization.
Pro Forma Capitalization of Florida Insured, Florida Insured II, Florida Insured
III, Florida Insured IV and the Combined Fund as of March 31, 1999 (unaudited)
<TABLE>
<CAPTION>
Combined
Florida Florida Florida Florida Pro Forma Fund as
Insured Insured II Insured III Insured IV Adjustment adjusted(a)
------- ---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net Assets:
Net Assets Attributable to
Common Shares ....................... $166,883,530 $134,677,866 $81,465,203 $129,873,532 ($4,142,639) $502,063,084
Net Assets Attributable to
AMPS ................................ $104,750,000 $ 86,000,000 $54,000,000 $ 83,500,000 -- $328,250,000
Shares Outstanding:
Common Shares ....................... 10,798,052 8,840,687 6,181,830 9,116,667 -- 34,155,383(b)
AMPS
Series A ........................... 2,095 1,720 1,080 1,670 -- 2,095
Series B ........................... 2,095 1,720 1,080 1,670 -- 2,095
Series C ........................... -- -- -- -- -- 3,440(b)
Series D ........................... -- -- -- -- -- 2,160(b)
Series E ........................... -- -- -- -- -- 3,340(b)
Net Asset Value Per Share:
Common Shares ....................... $ 15.45 $ 15.23 $ 14.69 $ 14.92 -- 15.35(c)
AMPS ................................ $ 25,000 $ 25,000 $ 25,000 $ 25,000 -- $ 25,000
</TABLE>
- ----------------------
(a) The adjusted balances are presented as if the Reorganization had been
consummated on March 31, 1999 and are for informational purposes only.
Assumes distribution of undistributed net investment income undistributed
realized capital gains. No assurance can be given as to how many Florida
Insured Common Shares that shareholders of Florida Insured II, Florida
Insured III or Florida Insured IV will receive on the Exchange Date, and
the foregoing should not be relied upon to reflect the number of Florida
Insured Common Shares that actually will be received on or after such date.
(b) Assumes the issuance of 23,357,331 Florida Insured Common Shares and three
newly-created series of AMPS consisting of 3,440 Series C shares, 2,160
Series D shares and 3,340 Series E shares, respectively, in exchange for
the net assets of each of Florida Insured II, Florida Insured III and
Florida Insured IV. The number of shares issued was based on the net asset
value of each Fund, net of distributions, on March 31, 1999.
(c) Net Asset Value Per Common Share after distribution of undistributed net
investment income and undistributed realized capital gains.
56
<PAGE>
ITEM 2: ELECTION OF TRUSTEES
At the Meetings, the Board of Trustees for each of the Funds will be
elected to serve until the next Annual Meeting of Shareholders and until their
successors are elected and qualified. If the shareholders of all of the Funds
approve the Reorganization, then the Board of Trustees of Florida Insured
elected at the Meetings will serve as the Board of the combined fund, until its
next Annual Meeting of Shareholders. If the shareholders of any Fund vote
against the Reorganization, then the Board of Trustees of each Fund elected at
the Meetings will continue to serve until the next Annual Meeting of
Shareholders of that Fund. It is intended that all properly executed proxies
will be voted (unless such authority has been withheld in the proxy) as follows:
(1) All proxies of the holders of AMPS of any Fund, voting separately as a
class, will be voted in favor of the two persons designated as Trustees to be
elected by the holders of AMPS of that Fund; and
(2) All proxies of the holders of Common Shares and AMPS of any Fund,
voting together as a single class, will be voted in favor of the five persons
designated as Trustees to be elected by the holders of Common Shares and AMPS of
that Fund.
The Boards of Trustees of the Funds know of no reason why any of these
nominees will be unable to serve, but in the event of any such unavailability,
the proxies received will be voted for such substitute nominee or nominees as
the appropriate Board of Trustees may recommend.
Certain information concerning the nominees is set forth below. Additional
information concerning the nominees and other information relevant to the
election of Trustees is set forth in Exhibit I.
To Be Elected by Shareholders of Florida Insured, Florida Insured II and Florida
Insured IV
Principal Occupation During Past
Name and Address Age Five Years and Public Directorships(1)
- ---------------- --- -----------------------------------
Terry K. Glenn(1)(3)* ............ 59 Executive Vice President of FAM and
P. O. Box 9011 MLAM (which terms as used herein
Princeton, New Jersey 08543-9011 include their corporate
predecessors) since 1983; Executive
Vice President and Director of
Princeton Services Inc. ("Princeton
Services") since 1993; President of
Princeton Funds Distributor, Inc.
("PFD") since 1986 and Director
thereof since 1991; President of
Princeton Administrators, L.P.
("Princeton Administrators") since
1988.
Ronald W. Forbes(1)(2)(3) ........ 59 Professor of Finance, School of
1400 Washington Avenue Business, State University of New
Albany, New York 12222 York at Albany, since 1989;
Consultant, Urban Institute,
Washington, D.C. since 1995.
Cynthia A. Montgomery(1)(2)(3) ... 47 Professor, Harvard Business School
Harvard Business School since 1989; Associate Professor,
Soldiers Field Road J.L. Kellogg Graduate School of
Boston, Massachusetts 02163 Management, Northwestern University
from 1985 to 1989; Assistant
Professor, Graduate School of
Business Administration, The
University of Michigan from 1979 to
1985; Director, UNUM Corporation
since 1990 and Director of Newell
Co. since 1995.
Charles C. Reilly(1)(2)(3) ....... 68 Self-employed financial consultant
9 Hampton Harbor Road since 1990; President and Chief
Hampton Bays, New York 11946 Investment Officer of Verus
Capital, Inc. from 1979 to 1990;
Senior Vice President of Arnhold
and S. Bleichroeder, Inc. from 1973
to 1990; Adjunct Professor,
Columbia University Graduate School
of Business from 1990 to 1991;
Adjunct Professor, Wharton School,
The University of Pennsylvania from
1989 to 1990; Partner, Small Cities
Cable Television from 1986 to 1997.
57
<PAGE>
Principal Occupation During Past
Name and Address Age Five Years and Public Directorships(1)
- ---------------- --- -----------------------------------
Kevin A. Ryan(1)(2)(3) ........... 67 Founder and current Director of The
127 Commonwealth Avenue Boston University Center for the
Chestnut Hill, Advancement of Ethics and
Massachusetts 02167 Character; Professor of Education
at Boston University since 1982;
formerly taught on the faculties of
The University of Chicago, Stanford
University and Ohio State
University.
Richard R. West(1)(2)(3) ......... 61 Professor of Finance since 1984,
Box 604 Dean from 1984 to 1993, and
Genoa, Nevada 89411 currently Dean Emeritus of New York
University, Leonard N. Stern School
of Business Administration;
Director of Bowne & Co., Inc.
(financial printers), Vornado
Realty Trust, Inc. (real estate
holding company) and Alexander's
Inc. (real estate company).
Arthur Zeikel(1)(3)* ............. 67 Chairman of FAM and MLAM from 1997
300 Woodland Avenue to 1999; President of FAM and MLAM
Westfield, New Jersey 07090 from 1977 to 1997; Chairman of
Princeton Services from 1997 to
1999, Director thereof from 1993 to
1999 and President from 1993 to
1997; Executive Vice President of
ML & Co. from 1990 to 1999.
To Be Elected by Shareholders of Florida Insured III
Principal Occupation During Past
Name and Address Age Five Years and Public Directorships(1)
- ---------------- --- -----------------------------------
Terry K. Glenn(1)(3)* ............ 59 Executive Vice President of FAM and
P.O. Box 9011 MLAM since 1983; Executive Vice
Princeton, New Jersey 08543-9011 President and Director of Princeton
Services since 1993; President of
PFD since 1986 and Director thereof
since 1991; President of Princeton
Administrators since 1988.
James H. Bodurtha(1)(2)(3) ....... 55 Director and Executive Vice
36 Popponesset Road President, The China Business
Cotuit, Massachusetts 02635 Group, Inc. since 1996; Chairman
and Chief Executive Officer, China
Enterprise Management Corporation
from 1993 to 1996; Chairman,
Berkshire Corporation since 1980;
Partner, Squire, Sanders & Dempsey
from 1980 to 1993.
Herbert I. London(1)(2)(3) ....... 60 John M. Olin Professor of
2 Washington Square Village Humanities, New York University
New York, New York 10012 since 1993 and Professor since
1980; President, Hudson Institute
since 1997 and Trustee thereof
since 1980; Dean, Gallatin Division
of New York University from 1976 to
1993; Distinguished Fellow, Herman
Kahn Chair, Hudson Institute from
1984 to 1985; Director, Damon Corp.
from 1991 to 1995; Overseer, Center
for Naval Analyses from 1983 to
1993; Limited Partner, Hypertech LP
in 1996.
Robert R. Martin(1)(2)(3) ........ 72 Chairman and Chief Executive
513 Grand Hill Officer, Kinnard Investments, Inc.
St. Paul, Minnesota 55103 from 1990 to 1993; Executive Vice
President, Dain Bosworth from 1974
to 1989; Director, Carnegie Capital
Management from 1977 to 1985 and
Chairman thereof in 1979; Director,
Securities Industry Association
from 1981 to 1982 and Public
Securities Association from 1979 to
1980; Chairman of the Board, WTC
Industries, Inc. in 1994; Trustee,
Northland College since 1992.
58
<PAGE>
Principal Occupation During Past
Name and Address Age Five Years and Public Directorships(1)
- ---------------- --- -----------------------------------
Joseph L. May(1)(2)(3) ........... 70 Attorney in private practice since
424 Church Street 1984; President, May and Athens
Suite 2000 Hosiery Mills Division,
Nashville, Tennessee 37219 Wayne-Gossard Corporation from 1954
to 1983: Vice President, Wayne-
Gossard Corporation from 1972 to
1983; Chairman, The May Corporation
(personal holding company) from
1972 to 1983; Director, Signal
Apparel Co. from 1972 to 1989.
Andre F. Perold(1)(2)(3) ......... 47 Professor, Harvard Business School
Morgan Hall since 1989 and Associate Professor
Soldiers Field from 1983 to 1989; Trustee, The
Boston, Massachusetts 02163 Common Fund since 1989; Director,
Quantec Limited since 1991, TIBCO
from 1994 to 1996 and Genbel
Securities Limited and Genbel Bank
since 1999.
Arthur Zeikel(1)(3)* ............. 67 Chairman of FAM and MLAM from 1997
300 Woodland Avenue to 1999; President of FAM and MLAM
Westfield, New Jersey 07090 from 1977 to 1997; Chairman of
Princeton Services from 1997 to
1999, Director thereof from 1993 to
1999 and President thereof from
1993 to 1997; Executive Vice
President of ML & Co. from 1990 to
1999.
- ----------
(1) Each of the nominees is a director, trustee or member of an advisory board
of one or more additional investment companies for which FAM, MLAM or their
affiliates act as investment adviser. See "Compensation of Board Members"
in Exhibit I.
(2) Member of Audit Committee of the Board of Trustees.
(3) Please see Exhibit I for information, with respect to each Fund, indicating
the names of the nominees to be elected by holders of AMPS, voting
separately as a class, and the names of the nominees to be elected by
holders of Common Shares and AMPS, voting together as a single class.
* Interested person, as defined in the Investment Company Act, of each of the
Funds.
Committee and Board Meetings
The Board of each Fund has a standing Audit Committee, which consists of
Board members who are not "interested persons" of the Fund within the meaning of
the Investment Company Act. The principal purpose of the Audit Committee is to
review the scope of the annual audit conducted by the Fund's independent
auditors and the evaluation by such auditors of the accounting procedures
followed by the Fund. The non-interested Board members have retained independent
legal counsel to assist them in connection with these duties. No Fund's Board
has a nominating committee.
During each Fund's last fiscal year, each of the Board members then in
office attended at least 75% of the aggregate of the total number of meetings of
the Board held during the fiscal year and, if a member, of the total number of
meetings of the Audit Committee held during the period for which he or she
served. See Exhibit I for further information about Audit Committee and Board
meetings.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the officers and Trustees of each Fund and persons who
own more than ten percent of a registered class of the Fund's equity securities,
to file reports of ownership and changes in ownership on Forms 3, 4 and 5 with
the SEC and the NYSE. Officers, Trustees and greater than ten percent
shareholders are required by SEC regulations to furnish the Fund with copies of
all Forms 3, 4 and 5 they file.
Based solely on each Fund's review of the copies of such forms, and
amendments thereto, furnished to it during or with respect to its most recent
fiscal year, and written representations from certain reporting persons that
they were not required to file Form 5 with respect to the most recent fiscal
year, each Fund believes that all of its officers, Trustees, greater than ten
percent beneficial owners and other persons subject to Section 16 of the
Exchange Act because of the requirements of Section 30 of the Investment Company
Act, i.e., any advisory board member, investment adviser or affiliated person of
the Fund's investment adviser, have complied with all filing requirements
applicable to them with respect to transactions during the Fund's most recent
fiscal year, except that [______________].
59
<PAGE>
Interested Persons
Each Fund considers Mr. Zeikel and Mr. Glenn to be "interested persons" of
the Fund within the meaning of Section 2(a)(19) of the Investment Company Act
because of the positions each holds or has held with FAM and its affiliates. Mr.
Glenn is the President of each Fund.
Compensation of Trustees
FAM, the investment adviser of each Fund, pays all compensation to all
officers of each Fund and all Trustees of each Fund who are affiliated with ML &
Co. or its subsidiaries. Each Fund pays each Trustee not affiliated with FAM
(each a "non-affiliated Trustee") an annual fee plus a fee for each meeting
attended, and each Fund also pays each member of its Audit Committee, which
consists of all of the non-affiliated Trustees, an annual fee plus a fee for
each meeting attended, together with such Trustee's out-of-pocket expenses
relating to attendance at such meetings. Information with respect to fees and
expenses paid to the non-Trustee members for each Fund's most recently completed
fiscal year is set forth in Exhibit I.
Officers of the Funds
Information regarding the officers of each Fund is set forth in Exhibit I.
Officers of the Funds are elected and appointed by the Board and hold office
until they resign, are removed or are otherwise disqualified to serve.
60
<PAGE>
ITEM 3: SELECTION OF INDEPENDENT AUDITORS
The Board of Trustees of each Fund, including a majority of the Trustees
who are not interested persons of the Fund, has selected independent auditors to
examine the financial statements of the Fund for the Fund's current fiscal year.
Deloitte & Touche LLP ("D&T") acts as independent auditors for Florida Insured
and Florida Insured II and is expected to act as independent auditors for the
combined fund. Ernst & Young LLP ("E&Y") acts as independent auditors for
Florida Insured III and Florida Insured IV. The current fiscal year for Florida
Insured is the fiscal year ending August 31, 2000; for Florida Insured II, the
fiscal year ending June 30, 2000; for Florida Insured III, the fiscal year
ending September 30, 2000; and for Florida Insured IV, the fiscal year ending
September 30, 2000.
No Fund knows of any direct or indirect financial interest of such auditors
in any Fund. Such appointment is subject to ratification or rejection by the
shareholders of each respective Fund. If the shareholders of each of the Funds
approve the Reorganization, then the independent auditors selected at the
Meeting for Florida Insured will serve as the independent auditors of the
combined fund until its next Annual Meeting of Shareholders. If the shareholders
of any of the Funds vote against the Reorganization, then the independent
auditors of each Fund selected at the Meetings will continue to serve as
independent auditors of that Fund until the next Annual Meeting of Shareholders
of that Fund. Unless a contrary specification is made, the accompanying proxy
will be voted in favor of ratifying the selection of such Fund's auditors.
D&T also acts as independent auditors for ML & Co. and most of its
subsidiaries, including FAM and MLAM, and for most other investment companies
for which FAM or MLAM acts as investment adviser. Additionally, E&Y also acts as
independent auditors for several other investment companies for which FAM or
MLAM acts as investment adviser. The fees received by the independent auditors
from these other entities are substantially greater, in the aggregate, than the
total fees received by the independent auditors from each applicable Fund. The
Board of Trustees of each of Florida Insured and Florida Insured II considered
the fact that D&T have been retained as the independent auditors for ML & Co.
and the other entities described above in its evaluation of the independence of
D&T with respect to each applicable Fund. The Board of Trustees of each of
Florida Insured III and Florida Insured IV considered the fact that E&Y have
been retained as independent auditors for the other entities described above in
its evaluation of the independence of E&Y with respect to each applicable Fund.
Representatives of the independent auditors are expected to be present at
the Meetings and will have the opportunity to make a statement if they so desire
and to respond to questions from shareholders.
INFORMATION CONCERNING THE ANNUAL MEETINGS
Date, Time and Place of Meetings
The Meetings will be held on December 15, 1999 at the offices of MLAM, 800
Scudders Mill Road, Plainsboro, New Jersey at the times listed on Exhibit I.
Solicitation, Revocation and Use of Proxies
A shareholder executing and returning a proxy has the power to revoke it at
any time prior to its exercise by executing a superseding proxy, by giving
written notice of the revocation to the Secretary of the appropriate Fund or by
voting in person at the Meeting. Although mere attendance at the Meetings will
not revoke a proxy, a shareholder present at the Meetings may withdraw his or
her proxy and vote in person.
All shares represented by properly executed proxies, unless such proxies
previously have been revoked, will be voted at the Meetings in accordance with
the directions on the proxies; if no direction is indicated, the shares will be
voted "FOR" (i) the approval of the Agreement and Plan of Reorganization, (ii)
the election of applicable nominees to the Board of Trustees and (iii) the
ratification of the selection of D&T or E&Y, as applicable, as independent
accountants. It is not anticipated that any other matters will be brought before
the Meetings. If, however, any other business properly is brought before the
Meetings, proxies will be voted in accordance with the judgment of the persons
designated on such proxies.
61
<PAGE>
Record Date and Outstanding Shares
Only holders of record of Common Shares or AMPS of any of the Funds at the
close of business on the Record Date are entitled to vote at the Meetings or any
adjournment thereof. At the close of business on the Record Date, the Funds had
the number of shares outstanding indicated in Exhibit I.
Security Ownership of Certain Beneficial Owners and Management
To the knowledge of the Funds, at the date hereof, no person or entity owns
beneficially 5% or more of the Common Shares or AMPS of any Fund.
As of the Record Date, none of the nominees held shares of the Funds except
as set forth in the table below:
Nominee Fund and Class of Shares No. of Shares Held*
- ------------------------ ------------------------ ------------------
- ----------
* These holdings represent less than [ ]% of the Common Shares outstanding.
As of the Record Date, the Trustees and officers of Florida Insured as a
group ( persons) owned an aggregate of less than 1% of the outstanding Florida
Insured Common Shares and [owned no] Florida Insured AMPS.
As of the Record Date, the Trustees and officers of Florida Insured II as a
group (__ persons) owned an aggregate of less than 1% of the outstanding Florida
Insured II Common Shares and [owned no] Florida Insured II AMPS.
As of the Record Date, the Trustees and officers of Florida Insured III as
a group (__ persons) owned an aggregate of less than 1% of the outstanding
Florida Insured III Common Shares and [owned no] Florida Insured III AMPS.
As of the Record Date, the Trustees and officers of Florida Insured IV as a
group (__ persons) owned an aggregate of less than 1% of the outstanding Florida
Insured IV Common Shares and [owned no] Florida Insured IV AMPS.
On the Record Date, Mr. Glenn, a Trustee and an officer of each of the
Funds, Mr. Zeikel, a Trustee of each of the Funds, and the other Trustees and
officers of each Fund owned an aggregate of less than 1% of the outstanding
shares of Common Stock of ML & Co.
Voting Rights and Required Vote
For purposes of this Proxy Statement and Prospectus, each Common Share and
AMPS of each of the Funds is entitled to one vote. Approval of the Agreement and
Plan of Reorganization requires the approval of each Fund. With respect to each
Fund, approval of the Agreement and Plan of Reorganization requires the
affirmative vote of shareholders representing (i) a majority of the Fund's
outstanding Common Shares and AMPS, voting together as a single class, and (ii)
a majority of the Fund's outstanding AMPS, voting separately as a class. See
Exhibit VI -- "Sections 86 through 98 of Chapter 156B of the Massachusetts
General Laws (the Massachusetts Business Corporation Law)" for a discussion of
dissenters' rights under Massachusetts law.
For purposes of each Meeting, a quorum consists of a majority of the shares
entitled to vote at the Meeting, present in person or by proxy. If, by the time
scheduled for each Meeting, a quorum of the applicable Fund's shareholders is
not present, or if a quorum is present but sufficient votes in favor of the
Agreement and Plan of Reorganization are not received from the shareholders of
the applicable Fund, the persons named as proxies may propose one or more
adjournments of the Meeting to permit further solicitation of proxies from
shareholders. Any such adjournment will require the affirmative vote of a
majority of the shares of the applicable Fund present in person or by proxy and
entitled to vote at the session of the Meeting to be adjourned. The persons
named as proxies will vote in favor of any such adjournment if they determine
that adjournment and additional solicitation are reasonable and in the interests
of the applicable Fund's shareholders.
62
<PAGE>
With respect to Item 2, the election of Trustees, assuming a quorum is
present, holders of a Fund's AMPS, voting separately or as a class, are entitled
to elect two Trustees of the Fund and holders of a Fund's Common Shares and
AMPS, voting together as a single class, are entitled to elect the remaining
Trustees of that Fund. With respect to each Fund, assuming a quorum is present,
(x) election of the two Trustees of the Fund to be elected by the holders of
that Fund's AMPS, voting separately as a class, will require the affirmative
vote of a plurality of the votes cast by the holders of that Fund's AMPS,
represented at the Meeting and entitled to vote, voting together as a single
class; and (y) election of the remaining Trustees of the Fund will require the
affirmative vote of a plurality of the votes cast by the holders of that Fund's
Common Shares and AMPS, represented at the Meetings and entitled to vote, voting
together as a single class.
Assuming a quorum is present, Item 3, approval of the ratification of the
selection of the independent auditors of each Fund, will require the affirmative
vote of a majority of that Fund's Common Shares and AMPS represented at the
Meetings and entitled to vote, voting together as a single class.
ADDITIONAL INFORMATION
The expenses of preparation, printing and mailing of the enclosed form of
proxy, the accompanying Notice and this Proxy Statement and Prospectus will be
borne by Florida Insured, the surviving fund after the Reorganization, so as to
be borne equally and exclusively on a per share basis by the holders of Common
Shares of each of the Funds. If the Reorganization is not approved, these
expenses will be allocated among the Funds according to the net asset value of
the Common Shares of each Fund on the Meeting date.
The Funds likewise will reimburse banks, brokers and others for their
reasonable expenses in forwarding proxy solicitation materials to the beneficial
owners of shares of each of the Funds and certain persons that the Funds may
employ for their reasonable expenses in assisting in the solicitation of proxies
from such beneficial owners of capital shares of the Funds.
In order to obtain the necessary quorum at the Meetings, supplementary
solicitation may be made by mail, telephone, telegraph or personal interview by
officers of the Funds. Each of the Funds has retained Shareholder Communications
Corporation, 17 State Street, New York, New York 10004 to aid in the
solicitation of proxies, at a cost to be borne by each of the Funds of
approximately $7,500, plus out-of-pocket expenses.
Broker-dealer firms, including Merrill Lynch, holding Fund shares in
"street name" for the benefit of their customers and clients will request the
instructions of such customers and clients on how to vote their shares on each
Item before the Meetings. The Funds understand that, under the rules of the
NYSE, such broker-dealer firms may, without instructions from their customers
and clients, grant authority to the proxies designated to vote on the election
of the Trustees of each Fund (Item 2) and the ratification of the selection of
independent auditors for each Fund (Item 3) if no instructions have been
received prior to the date specified in the broker-dealer firm's request for
voting instructions. With respect to Common Shares of each Fund, broker-dealer
firms, including Merrill Lynch, will not be permitted to grant voting authority
without instructions with respect to the approval of the Agreement and Plan of
Reorganization (Item 1). AMPS of a Fund held in "street name," however, may be
voted under certain conditions by broker-dealer firms with respect to Item 1 and
counted for purposes of establishing a quorum of that Fund if no instructions
are received one business day before the Meeting or, if adjourned, one business
day before the day to which the Meeting is adjourned. With respect to each Fund,
these conditions include, among others, that (i) at least 30% of that Fund's
AMPS outstanding have voted on Item 1, (ii) less than 10% of that Fund's AMPS
outstanding have voted against Item 1 and (iii) holders of that Fund's Common
Shares have voted to approve Item 1. In such instances, the broker-dealer firm
will vote that Fund's AMPS on Item 1 in the same proportion as the votes cast by
all holders of that Fund's AMPS who voted on Item 1. The Funds will include
shares held of record by broker-dealers as to which such authority has been
granted in its tabulation of the total number of shares present for purposes of
determining whether the necessary quorum of shareholders of each Fund exists.
Proxies that are returned to a Fund but that are marked "abstain" or on which a
broker-dealer has declined to vote on any proposal ("broker non-votes") will be
counted as present for the purposes of determining a quorum. Merrill Lynch has
advised the Funds that it intends to vote shares held in its name for which no
instructions are received, except as limited by agreement or applicable law, on
Items 2 and 3 (with respect to Common Shares and AMPS) and 1 (with respect to
AMPS only) in the same proportion as the votes received from beneficial owners
of those shares for which instructions have been received, whether or not held
in nominee name. Abstentions and broker non-votes will not be counted as votes
cast. Abstentions and broker non-votes, therefore, will not have an effect on
the vote on Items 2 and 3. Abstentions and broker non-votes will have the same
effect as a vote against Item 1.
63
<PAGE>
This Proxy Statement and Prospectus does not contain all of the information
set forth in the registration statement and the exhibits relating thereto which
Florida Insured has filed with the Commission under the Securities Act and the
Investment Company Act, to which reference is hereby made.
The Funds are subject to the informational requirements of the Exchange Act
and the Investment Company Act and in accordance therewith are required to file
reports, proxy statements and other information with the SEC. Any such reports,
proxy statements and other information can be inspected and copied at the public
reference facilities of the SEC at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the following regional offices of the SEC:
Regional Office, at Seven World Trade Center, Suite 1300, New York, New York
10048; Pacific Regional Office, at 5670 Wilshire Boulevard, 11th Floor, Los
Angeles, California 90036; and Midwest Regional Office, at Northwestern Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511.
Copies of such materials can be obtained from the public reference section of
the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
The SEC maintains a Web site at http://www.sec.gov containing reports, proxy and
information statements and other information regarding registrants, including
the Funds, that file electronically with the SEC. Reports, proxy statements and
other information concerning the Funds can also be inspected at the offices of
the New York Stock Exchange, 20 Broad Street, New York, New York 10005.
Year 2000 Issues
Many computer systems were designed using only two digits to designate
years. These systems may not be able to distinguish the Year 2000 from the Year
1900 (commonly known as the "Year 2000 Problem"). The Funds could be adversely
affected if the computer systems used by FAM or other Fund service providers do
not properly address this problem before January 1, 2000. FAM expects to have
addressed this problem before then, and does not anticipate that the services it
provides will be adversely affected. The Fund's other service providers have
told FAM that they also expect to resolve the Year 2000 Problem, and FAM will
continue to monitor the situation as the Year 2000 approaches. However, if the
problem has not been fully addressed, the Funds could be negatively affected.
The Year 2000 Problem could also have a negative impact on the issuers of
securities in which the Funds invest, and this could hurt the Funds' investment
returns.
CUSTODIAN
The Bank of New York acts as the custodian for cash and securities of
Florida Insured and Florida Insured II. The principal business address of The
Bank of New York in such capacity is 90 Washington Street, New York, New York
10286. State Street Bank and Trust Company acts as the custodian for cash and
securities of Florida Insured III and Florida Insured IV. The principal business
address of State Street Bank and Trust Company in such capacity is One Heritage
Drive, P2N, North Quincy, Massachusetts 02171. It is anticipated that the Bank
of New York will act as the custodian for the combined Fund after the
Reorganization.
TRANSFER AGENT, DIVIDEND DISBURSING AGENT AND REGISTRAR
The Bank of New York serves as the transfer agent, dividend disbursing
agent and registrar with respect to the Common Shares of Florida Insured and
Florida Insured II, pursuant to separate registrar, transfer agency and service
agreements with each of those Funds. The principal business address of The Bank
of New York in such capacity is 101 Barclay Street, New York, New York 10286.
State Street Bank and Trust Company serves as the transfer agent, dividend
disbursing agent and registrar with respect to the Common Shares of Florida
Insured III and Florida Insured IV, pursuant to a registrar, transfer agency and
service agreement with each of those Funds. The principal business address of
State Street Bank and Trust Company in such capacity is 225 Franklin Street,
Boston, Massachusetts 02110.
The Bank of New York serves as the transfer agent, registrar and auction
agent to Florida Insured, Florida Insured II, Florida Insured III and Florida
Insured IV, in connection with their respective AMPS, pursuant to separate
registrar, transfer agency and service agreements with each of the Funds. The
principal business address of The Bank of New York is 101 Barclay Street, New
York, New York 10286.
LEGAL PROCEEDINGS
There are no material legal proceedings to which any Fund is a party.
64
<PAGE>
LEGAL OPINIONS
Certain legal matters in connection with the Reorganization will be passed
upon for the Funds by Brown & Wood LLP, New York, New York. Brown & Wood LLP
will rely as to matters of Massachusetts law on the opinion of Bingham Dana LLP,
Boston Massachusetts. Certain information under "Taxes" relating to matters of
Florida law will be passed upon for the Funds and the Underwriter by Holland &
Knight LLP, Tampa, Florida.
EXPERTS
The audited financial statements and financial highlights of Florida
Insured and Florida Insured II included in this Proxy Statement and Prospectus
have been so included in reliance on the reports of D&T, independent auditors
for each of these Funds, given on their authority as experts in auditing and
accounting. The principal business address of D&T is 117 Campus Drive,
Princeton, New Jersey 08540. D&T will serve as the independent auditors for the
combined fund after the Reorganization.
Ernst & Young LLP, independent auditors, have audited the financial
statements and financial highlights of Florida Insured III and Florida Insured
IV as of September 30, 1999 as set forth in their reports which appear in this
Proxy Statement and Prospectus. The financial statements and financial
highlights of Florida Insured III and Florida Insured IV are included in
reliance upon their reports, given on their authority as experts in accounting
and auditing.
The principal business address of Ernst & Young LLP is 99 Wood Avenue
South, Iselin, New Jersey 08830.
SHAREHOLDER PROPOSALS
If a shareholder of any of the Funds intends to present a proposal at the
2000 Annual Meeting of Shareholders of any of the Funds, all of which are
anticipated to be held in December 2000, and desires to have the proposal
included in the Fund's proxy statement and form of proxy for that meeting, the
shareholder must deliver the proposal to the offices of the appropriate Fund by
__________.
By Order of the Boards of Trustees
William E. Zitelli, Jr.
Secretary of MuniHoldings Florida Insured
Fund, MuniHoldings Florida Insured Fund II and
MuniHoldings Florida Insured Fund IV
Alice A. Pellegrino
Secretary of MuniHoldings Florida Insured Fund III
65
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page
----
Audited Financial Statements for MuniHoldings Florida Insured
Fund for the Fiscal Year Ended August 31, 1999 ...................... F-2
Audited Financial Statements for MuniHoldings Florida Insured
Fund II for the Fiscal Year Ended June 30, 1999 ..................... F-3
Audited Financial Statements for MuniHoldings Florida Insured
Fund IV for the Fiscal Year Ended September 30, 1999 ................. F-15
Unaudited Financial Statements for MuniHoldings Florida Insured
Fund III for the Period from October 1, 1998 to March 31, 1999 ..... F-16
Audited Financial Statements for MuniHoldings Florida Insured
Fund III for the Fiscal Year Ended September 30, 1999 ................ F-27
Unaudited Financial Statements for MuniHoldings Florida Insured
Fund IV for the Period from January 29, 1999 to March 31, 1999 ...... F-28
Unaudited Financial Statements for the Combined Fund on a Pro
Forma Basis, as of March 31, 1999 ................................... F-38
F-1
<PAGE>
Audited Financial Statements for
MuniHoldings Florida Insured Fund, Inc.
for the Fiscal Year Ended August 31, 1999
[to be filed by amendment]
F-2
<PAGE>
Audited Financial Statements for
MuniHoldings Florida Insured Fund II, Inc.
for the Fiscal Year Ended June 30, 1999
F-3
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Shareholders,
MuniHoldings Florida Insured Fund II:
We have audited the accompanying statement of assets, liabilities and capital,
including the schedule of investments, of MuniHoldings Florida Insured Fund II
as of June 30, 1999, the related statements of operations for the year then
ended and changes in net assets and the financial highlights for the year then
ended and for the period from February 25, 1998 (commencement of operations) to
June 30, 1998. These financial statements and the financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and the financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at June 30,
1999 by correspondence with the custodian and brokers. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights present
fairly, in all material respects, the financial position of MuniHoldings Florida
Insured Fund II as of June 30, 1999, the results of its operations, the changes
in its net assets, and the financial highlights for the respective stated
periods in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
August 6, 1999
F-4
<PAGE>
MuniHoldings Florida Insured Fund II, June 30, 1999
SCHEDULE OF INVESTMENTS (in Thousands)
<TABLE>
<CAPTION>
S&P Moody's Face Value
STATE Ratings Ratings Amount Issue (Note 1a)
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Florida -- 87.3% NR* Aaa $ 7,000 Broward County, Florida, Housing Finance Authority, S/F
Mortgage Revenue Refunding Bonds, AMT, Series B, 5.40%
due 4/01/2029 (b)(c) $ 6,798
---------------------------------------------------------------------------------------------------------
AAA NR* 7,500 Charlotte County, Florida, Utility Revenue Refunding
Bonds, 5% due 10/01/2023 (d) 7,096
---------------------------------------------------------------------------------------------------------
AAA Aaa 5,500 Dade County, Florida, Water and Sewer System Revenue
Bonds, 5.25% due 10/01/2026 (d) 5,367
---------------------------------------------------------------------------------------------------------
Escambia County, Florida, HFA, S/F Mortgage Revenue
Refunding Bonds (Multi-County Program), AMT, Series A
(b)(c):
NR* Aaa 3,405 5.30% due 10/01/2019 3,302
NR* Aaa 4,400 5.35% due 4/01/2031 4,237
---------------------------------------------------------------------------------------------------------
AAA Aaa 4,500 Florida HFA (Barrington Place), AMT, Series K-1, 5.45%
due 12/01/2037 (a) 4,429
---------------------------------------------------------------------------------------------------------
NR* Aaa 6,530 Florida HFA, Revenue Refunding Bonds, RITR, AMT, Series
12, 7.57% due 7/01/2029 (e)(f) 6,968
---------------------------------------------------------------------------------------------------------
AAA Aaa 1,945 Florida Housing Finance Corporation, Revenue Refunding
Bonds (Homeowner Mortgage), AMT, Series 2, 5.35% due
1/01/2021 (e) 1,904
---------------------------------------------------------------------------------------------------------
Florida Housing Finance Corporation, Revenue Refunding
Bonds (Homeowner Mortgage), Series 1 (e):
AAA Aaa 2,240 5.15% due 1/01/2014 2,191
AAA Aaa 1,930 5.15% due 7/01/2014 1,882
---------------------------------------------------------------------------------------------------------
AAA Aaa 5,500 Florida Ports Financing Commission Revenue Bonds (State
Transportation Trust Fund), AMT, 5.375% due 6/01/2027 (e) 5,387
---------------------------------------------------------------------------------------------------------
NR* Aaa 1,700 Florida State Governmental Utility Authority, Utility
Revenue Bonds (Barefoot Bay Utility System), 5% due
10/01/2029 (a) 1,594
---------------------------------------------------------------------------------------------------------
Florida State Turnpike Authority, Turnpike Revenue Bonds
(Department of Transportation), Series A (d):
AAA Aaa 4,250 5% due 7/01/2021 4,036
AAA Aaa 10,000 4.50% due 7/01/2027 8,669
---------------------------------------------------------------------------------------------------------
A- Baa1 3,400 Highlands County, Florida, Health Facilities Authority
Revenue Bonds (Adventist Health Systems), 5.25% due
11/15/2028 3,093
---------------------------------------------------------------------------------------------------------
NR* Aaa 10,000 Hillsborough County, Florida, School Board, COP, RITR,
Series 31, 6.57% due 7/01/2021 (e)(f) 9,885
---------------------------------------------------------------------------------------------------------
AAA NR* 5,000 Jacksonville, Florida, Health Facilities Authority,
Hospital Revenue Bonds (Charity Obligation Group), Series
C, 5.375% due 8/15/2029 (e) 4,901
---------------------------------------------------------------------------------------------------------
Lakeland, Florida, Electric and Water Revenue Refunding
Bonds, Series A (e):
AAA Aaa 2,500 5% due 10/01/2018 2,404
AAA Aaa 2,500 5% due 10/01/2028 2,347
---------------------------------------------------------------------------------------------------------
NR* Aaa 970 Lee County, Florida, Housing Finance Authority, S/F
Mortgage Revenue Refunding Bonds, AMT, Series A-2, 6.30%
due 3/01/2029 (b)(c)(i)(j) 1,057
---------------------------------------------------------------------------------------------------------
NR* Aaa 5,000 Miami-Dade County, Florida, Public Service Tax Revenue
Bonds (UMSA Public Improvements), 5% due 10/01/2023 (g) 4,731
---------------------------------------------------------------------------------------------------------
AAA Aaa 6,320 Miami-Dade County, Florida, Water and Sewer Revenue
Bonds, Series A, 5% due 10/01/2029 (d) 5,918
---------------------------------------------------------------------------------------------------------
AAA Aaa 2,345 North Springs, Florida, Improvement District, Water
Management, GO, Refunding, 5% due 5/01/2019 (e) 2,240
---------------------------------------------------------------------------------------------------------
AAA NR* 4,015 Orange County, Florida, HFA, M/F Revenue Bonds (Metro
Place Apartments), AMT, Series A, 5.375%
due 10/01/2030 (b) 3,970
---------------------------------------------------------------------------------------------------------
</TABLE>
F-5
<PAGE>
<TABLE>
<CAPTION>
S&P Moody's Face Value
STATE Ratings Ratings Amount Issue (Note 1a)
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
AAA NR* 4,965 Orange County, Florida, HFA, S/F Mortgage Revenue Bonds,
AMT, Series B, 5.875% due 3/01/2028 (b)(c) 5,087
---------------------------------------------------------------------------------------------------------
NR* Aaa 7,650 Orange County, Florida, School Board, COP, Refunding
Bonds, Series A, 5.375% due 8/01/2022 (e) 7,604
---------------------------------------------------------------------------------------------------------
Orlando and Orange County Expressway Authority, Florida,
Expressway Revenue Refunding Bonds, Junior Lien (d):
AAA Aaa 1,500 5% due 7/01/2021 1,423
AAA Aaa 5,000 5% due 7/01/2028 4,709
---------------------------------------------------------------------------------------------------------
AAA Aaa 6,000 Orlando, Florida, Greater Orlando Aviation Authority,
Airport Facilities Revenue Bonds, AMT, Series A, 5.125%
due 10/01/2028 (d) 5,691
---------------------------------------------------------------------------------------------------------
NR* Aaa 5,000 Osceola County, Florida, Sales Tax Revenue Bonds, 5% due
4/01/2019 (g) 4,788
---------------------------------------------------------------------------------------------------------
AAA NR* 3,000 Peace River/Manasota, Florida, Regional Water Supply
Authority, Revenue Refunding Bonds (Peace River Option
Project), Series A, 5.20% due 10/01/2018 (e) 2,938
---------------------------------------------------------------------------------------------------------
A1+ VMIG1+ 900 Pinellas County, Florida, Health Facilities Authority,
Revenue Refunding Bonds (Pooled Hospital Loan Program),
DATES, 4% due 12/01/2015 (a)(h) 900
---------------------------------------------------------------------------------------------------------
AAA Aaa 3,750 Saint John's County, Florida, Sales Tax Revenue Refunding
Bonds, 5% due 10/01/2019 (d) 3,588
---------------------------------------------------------------------------------------------------------
NR* Aaa 5,000 Saint Petersburg, Florida, Public Utilities Revenue
Bonds, Series A, 5% due 10/01/2028 (g) 4,693
---------------------------------------------------------------------------------------------------------
AAA Aaa 5,000 Sarasota County, Florida, Public Hospital Board, Revenue
Refunding Bonds (Sarasota Memorial Hospital), Series B,
5.25% due 7/01/2024 (e) 4,898
---------------------------------------------------------------------------------------------------------
AAA Aaa 8,430 Seminole County, Florida, School Board, COP, Series A, 5%
due 7/01/2023 (e) 7,979
---------------------------------------------------------------------------------------------------------
AAA Aaa 10,000 Sunrise Lakes, Florida, Phase 4 Recreation District,
Refunding Bonds, GO, 5.25% due 8/01/2024 (a) 9,768
---------------------------------------------------------------------------------------------------------
AAA Aaa 14,350 Tampa, Florida, Sports Authority Revenue Bonds
(Local Option Sales Tax -- Stadium Project),
5.25% due 1/01/2027 (e) 14,003
---------------------------------------------------------------------------------------------------------
AAA Aaa 1,720 Tampa, Florida, Water and Sewer Revenue Refunding Bonds,
5.125% due 10/01/2017 (d) 1,685
====================================================================================================================================
Illinois -- 4.2% AAA Aaa 9,200 Metropolitan Pier and Exposition Authority, Illinois,
Dedicated State Tax Revenue Refunding Bonds (McCormick
Place Expansion Project), Series A, 5.25% due 6/15/2027 (a) 8,810
====================================================================================================================================
Massachusetts -- 3.1% AAA Aaa 6,750 Massachusetts State Turnpike Authority, Metropolitan
Highway System Revenue Refunding Bonds, Sub-Series B,
5.25% due 1/01/2029 (e) 6,467
====================================================================================================================================
Pennsylvania -- 0.9% NR* Aaa 2,050 Beaver County, Pennsylvania, GO, Refunding, 5.30% due
10/01/2026 (e) 1,989
====================================================================================================================================
</TABLE>
Portfolio Abbreviations
To simplify the listings of MuniHoldings Florida Insured Fund II's portfolio
holdings in the Schedule of Investments, we have abbreviated the names of many
of the securities according to the list below and at right.
AMT Alternative Minimum Tax (subject to)
COP Certificates of Participation
DATES Daily Adjustable Tax-Exempt Securities
GO General Obligation Bonds
HFA Housing Finance Agency
M/F Multi-Family
RITR Residual Interest Trust Receipts
S/F Single-Family
VRDN Variable Rate Demand Notes
F-6
<PAGE>
MuniHoldings Florida Insured Fund II, June 30, 1999
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
<TABLE>
<CAPTION>
S&P Moody's Face Value
STATE Ratings Ratings Amount Issue (Note 1a)
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Texas -- 5.2% A1+ NR* $ 800 Harris County, Texas, Health Facilities Development
Corporation, Hospital Revenue Refunding Bonds (Methodist
Hospital), VRDN, 4% due 12/01/2025 (h) $ 800
---------------------------------------------------------------------------------------------------------
AAA Aaa 6,000 Houston, Texas, Water and Sewer System Revenue Refunding
Bonds, Junior Lien, Series A, 5.25% due 12/01/2025 (d) 5,768
---------------------------------------------------------------------------------------------------------
AAA Aaa 4,500 Matagorda County, Texas, Navigation District Number 1
Revenue Refunding Bonds (Reliant Energy Inc.), Series A,
5.25% due 6/01/2026 (a) 4,312
====================================================================================================================================
Puerto Rico -- 0.9% AAA Aaa 2,000 Puerto Rico Commonwealth, GO, Refunding, 5.25% due
7/01/2018 (e) 2,000
====================================================================================================================================
Total Investments (Cost -- $220,579) -- 101.6% 214,306
Variation Margin on Financial Futures Contracts** -- (0.1%) (245)
Liabilities in Excess of Other Assets -- (1.5%) (3,085)
--------
Net Assets -- 100.0% $210,976
========
====================================================================================================================================
</TABLE>
(a) AMBAC Insured.
(b) FNMA Collateralized.
(c) GNMA Collateralized.
(d) FGIC Insured.
(e) MBIA Insured.
(f) The interest rate is subject to change periodically and inversely based
upon prevailing market rates. The interest rate shown is the rate in
effect at June 30, 1999.
(g) FSA Insured.
(h) The interest rate is subject to change periodically based upon prevailing
market rates. The interest rate shown is the rate in effect at June 30,
1999.
(i) FHLMC Collateralized.
(j) Security held as collateral in connection with open financial futures
contracts.
See Notes to Financial Statements.
* Not rated.
** Financial futures contracts sold as of June 30, 1999 were as follows:
- --------------------------------------------------------------------------------
(in Thousands)
- --------------------------------------------------------------------------------
Number of Expiration Value
Contracts Issue Date (Notes 1a & 1b)
- --------------------------------------------------------------------------------
280 US Treasury September 1999 $32,454
Bonds
- --------------------------------------------------------------------------------
(Total Contract Price -- $31,954) $32,454
=======
- --------------------------------------------------------------------------------
+ Highest short-term rating by Moody's Investors Service, Inc.
Ratings of issues shown have not been audited by Deloitte & Touche LLP.
Quality Profile
The quality ratings of securities in the Fund as of June 30, 1999 were as
follows:
- --------------------------------------------------------------------------------
Percent of
S&P Rating/Moody's Rating Net Assets
- --------------------------------------------------------------------------------
AAA/Aaa ........................................................... 99.3%
A/A ............................................................... 1.5
Other+ ............................................................ 0.8
- --------------------------------------------------------------------------------
+ Temporary investments in short-term municipal securities.
F-7
<PAGE>
STATEMENT OF ASSETS, LIABILITIES AND CAPITAL
<TABLE>
<CAPTION>
As of June 30, 1999
====================================================================================================================================
<S> <C> <C> <C>
Assets: Investments, at value (identified cost -- $220,578,523) (Note 1a)............... $214,305,974
Cash............................................................................ 104,628
Receivables:
Interest...................................................................... $ 3,861,262
Securities sold............................................................... 3,118,367 6,979,629
------------
Deferred organization expenses (Note 1e)........................................ 12,429
Prepaid expenses and other assets............................................... 12,590
------------
Total assets.................................................................... 221,415,250
------------
====================================================================================================================================
Liabilities: Payables:
Securities purchased.......................................................... 9,779,913
Variation margin (Note 1b).................................................... 245,000
Dividends to shareholders (Note 1f)........................................... 148,613
Investment adviser (Note 2)................................................... 89,752
Offering costs (Note 1e)...................................................... 55,000 10,318,278
------------
Accrued expenses and other liabilities.......................................... 121,092
------------
Total liabilities............................................................... 10,439,370
------------
====================================================================================================================================
Net Assets: Net assets...................................................................... $210,975,880
====================================================================================================================================
Capital: Capital Shares (unlimited number of shares of beneficial interest authorized)
(Note 4):
Preferred Shares, par value $.10 per share (3,440 shares of AMPS* issued and
outstanding at $25,000 per share liquidation preference) ................... $ 86,000,000
Common Shares, par value $.10 per share (8,840,687 shares issued and
outstanding)................................................................ $ 884,069
Paid-in capital in excess of par................................................ 130,634,369
Undistributed investment income -- net.......................................... 705,318
Accumulated realized capital losses on investments -- net....................... (151,674)
Accumulated distributions in excess of realized capital gains on investments --
net (Note 1f)................................................................. (323,966)
Unrealized depreciation on investments -- net................................... (6,772,236)
------------
Total -- Equivalent to $14.14 net asset value per Common Share
(market price -- $12.9375).................................................... 124,975,880
------------
Total capital................................................................... $210,975,880
============
====================================================================================================================================
</TABLE>
* Auction Market Preferred Shares.
See Notes to Financial Statements.
F-8
<PAGE>
MuniHoldings Florida Insured Fund II, June 30, 1999
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the Year Ended June 30, 1999
====================================================================================================================================
<S> <C> <C> <C>
Investment Interest and amortization of premium and discount earned........................ $ 11,420,060
Income
(Note 1d):
====================================================================================================================================
Expenses: Investment advisory fees (Note 2)............................................... $ 1,212,392
Commission fees (Note 4)........................................................ 198,083
Professional fees............................................................... 68,921
Accounting services (Note 2).................................................... 38,560
Transfer agent fees............................................................. 31,372
Printing and shareholder reports................................................ 21,426
Trustees' fees and expenses..................................................... 20,064
Custodian fees.................................................................. 19,371
Listing fees.................................................................... 16,431
Pricing fees.................................................................... 7,016
Amortization of organization expenses (Note 1e)................................. 3,398
Other........................................................................... 7,440
------------
Total expenses before reimbursement............................................. 1,644,474
Reimbursement of expenses (Note 2).............................................. (124,545)
------------
Total expenses after reimbursement.............................................. 1,519,929
------------
Investment income -- net ....................................................... 9,900,131
------------
====================================================================================================================================
Realized & Realized gain on investments -- net............................................. 337,624
Unrealized Gain Change in unrealized appreciation/depreciation on investments -- net............ (7,527,700)
(Loss) on ------------
Investments -- Net Increase in Net Assets Resulting from Operations............................ $ 2,710,055
Net (Notes 1b, ============
1d & 3):
====================================================================================================================================
</TABLE>
See Notes to Financial Statements.
F-9
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the Year For the Period
Ended Feb. 25, 1998+
Increase (Decrease) in Net Assets: June 30, 1999 to June 30, 1998
===================================================================================================================================
<S> <C> <C> <C>
Operations: Investment income -- net........................................................ $ 9,900,131 $ 3,487,407
Realized gain (loss) on investments -- net...................................... 337,624 (489,175)
Change in unrealized appreciation/depreciation on investments -- net............ (7,527,700) 755,464
------------ ------------
Net increase in net assets resulting from operations............................ 2,710,055 3,753,696
------------ ------------
===================================================================================================================================
Dividends & Investment income -- net:
Distributions to Common Shares................................................................. (7,040,096) (1,961,155)
Shareholders Preferred Shares.............................................................. (2,721,298) (959,794)
(Note 1f): In excess of realized gain on investments -- net:
Common Shares................................................................. (223,828) --
Preferred Shares.............................................................. (100,138) --
------------ ------------
Net decrease in net assets resulting from dividends and distributions to
shareholders.................................................................. (10,085,360) (2,920,949)
------------ ------------
===================================================================================================================================
Beneficial Net proceeds from issuance of Common Shares..................................... -- 132,000,000
Interest Proceeds from issuance of Preferred Shares...................................... -- 86,000,000
Transactions Value of shares issued to Common Shareholders in reinvestment of dividends...... -- 509,781
(Notes 1e & 4): Offering costs resulting from the issuance of Common Shares..................... -- (294,647)
Offering and underwriting costs resulting from the issuance of Preferred Shares. -- (796,701)
------------ ------------
Net increase in net assets derived from beneficial interest transactions........ -- 217,418,433
------------ ------------
===================================================================================================================================
Net Assets: Total increase (decrease) in net assets......................................... (7,375,305) 218,251,180
Beginning of period............................................................. 218,351,185 100,005
------------ ------------
End of period*.................................................................. $210,975,880 $218,351,185
============ ============
===================================================================================================================================
* Undistributed investment income -- net (Note 1g)................................ $ 705,318 $ 566,458
============ ============
===================================================================================================================================
</TABLE>
+ Commencement of operations.
See Notes to Financial Statements.
F-10
<PAGE>
MuniHoldings Florida Insured Fund II, June 30, 1999
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
The following per share data and ratios have been derived
from information provided in the financial statements. For the Year For the Period
Ended Feb. 25, 1998+
Increase (Decrease) in Net Asset Value: June 30, 1999 to June 30, 1998
===================================================================================================================================
<S> <C> <C> <C>
Per Share Net asset value, beginning of period........................................ $ 14.97 $ 15.00
Operating --------- ---------
Performance: Investment income -- net.................................................... 1.13 .39
Realized and unrealized gain (loss) on investments -- net................... (.81) .04
--------- ---------
Total from investment operations............................................ .32 .43
--------- ---------
Less dividends to Common Shareholders:
Investment income -- net.................................................. (.80) (.22)
In excess of realized gain on investments -- net.......................... (.03) --
--------- ---------
Total dividends and distributions to Common Shareholders.................... (.83) (.22)
--------- ---------
Capital charge resulting from issuance of Common Shares..................... -- (.04)
--------- ---------
Effect of Preferred Share activity:++
Dividends to Preferred Shareholders:
Investment income -- net................................................ (.31) (.11)
In excess of realized gain on investments -- net........................ (.01) --
Capital charge resulting from issuance of Preferred Shares................ -- (.09)
--------- ---------
Total effect of Preferred Share activity.................................... (.32) (.20)
--------- ---------
Net asset value, end of period.............................................. $ 14.14 $ 14.97
========= =========
Market price per share, end of period....................................... $ 12.9375 $ 15.50
========= =========
====================================================================================================================================
Total Investment Based on market price per share............................................. (11.75%) 4.87%@
Return:** ========= =========
Based on net asset value per share.......................................... (.13%) 1.29%@
========= =========
====================================================================================================================================
Ratios Based on Expenses, net of reimbursement***........................................... 1.13% .35%*
Average Net ========= =========
Assets Of Total expenses***........................................................... 1.22% 1.10%*
Common Shares: ========= =========
Total investment income -- net***........................................... 7.36% 7.26%*
========= =========
Amount of dividends to Preferred Shareholders............................... 2.02% 2.00%*
========= =========
Investment income -- net, to Common Shareholders............................ 5.34% 5.26%*
========= =========
====================================================================================================================================
Ratios Based on Expenses, net of reimbursement.............................................. .69% .24%*
Total Average Net ========= =========
Assets:+++*** Total expenses.............................................................. .75% .76%*
========= =========
Total investment income -- net.............................................. 4.49% 5.00%*
========= =========
====================================================================================================================================
Ratios Based on Dividends to Preferred Shareholders......................................... 3.16% 4.43%*
Average Net Assets ========= =========
Of Preferred Shares:
====================================================================================================================================
F-11
<PAGE>
====================================================================================================================================
Supplemental Net assets, net of Preferred Shares, end of period (in thousands)........... $ 124,976 $ 132,351
Data: ========= =========
Preferred Shares outstanding, end of period (in thousands).................. $ 86,000 $ 86,000
========= =========
Portfolio turnover.......................................................... 108.45% 59.25%
========= =========
====================================================================================================================================
Leverage: Asset coverage per $1,000................................................... $ 2,453 $ 2,539
========= =========
====================================================================================================================================
Dividends Series A -- Investment income -- net........................................ $ 789 $ 281
Per Share on ========= =========
Preferred Shares Series B -- Investment income -- net........................................ $ 793 $ 277
========= =========
====================================================================================================================================
</TABLE>
* Annualized.
** Total investment returns based on market value, which can be significantly
greater or lesser than the net asset value, may result in substantially
different returns. Total investment returns exclude the effects of sales
loads.
*** Does not reflect the effect of dividends to Preferred Shareholders.
+ Commencement of operations.
++ The Fund's Preferred Shares were issued on March 31, 1998.
+++ Includes Common and Preferred Shares average net assets.
@ Aggregate total investment return.
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. Significant Accounting Policies:
MuniHoldings Florida Insured Fund II (the "Fund") is registered under the
Investment Company Act of 1940 as a non-diversified, closed-end management
investment company. The Fund's financial statements are prepared in accordance
with generally accepted accounting principles which may require the use of
management accruals and estimates. The Fund will determine and make available
for publication the net asset value of its Common Shares on a weekly basis. The
Fund's Common Shares are listed on the New York Stock Exchange under the symbol
MUF. The following is a summary of significant accounting policies followed by
the Fund.
(a) Valuation of investments--Municipal bonds are traded primarily in the
over-the-counter markets and are valued at the most recent bid price or yield
equivalent as obtained by the Fund's pricing service from dealers that make
markets in such securities. Financial futures contracts and options thereon,
which are traded on exchanges, are valued at their closing prices as of the
close of such exchanges. Options written or purchased are valued at the last
sale price in the case of exchange-traded options. In the case of options traded
in the over-the-counter market, valuation is the last asked price (options
written) or the last bid price (options purchased). Securities with remaining
maturities of sixty days or less are valued at amortized cost, which
approximates market value. Securities and assets for which market quotations are
not readily available are valued at fair value as determined in good faith by or
under the direction of the Board of Trustees of the Fund, including valuations
furnished by a pricing service retained by the Fund, which may utilize a matrix
system for valuations. The procedures of the pricing service and its valuations
are reviewed by the officers of the Fund under the general supervision of the
Board of Trustees.
(b) Derivative financial instruments--The Fund may engage in
various portfolio strategies to seek to increase its return by hedging its
portfolio against adverse movements in the debt markets. Losses may arise due to
changes in the value of the contract or if the counterparty does not perform
under the contract.
o Financial futures contracts--The Fund may purchase or sell financial futures
contracts and options on such futures contracts for the purpose of hedging the
market risk on existing securities or the intended purchase of securities.
Futures contracts are contracts for delayed delivery of securities at a specific
future date and at a specific price or yield. Upon entering into a contract, the
Fund deposits and maintains as collateral such initial margin as required by the
exchange on which the transaction is effected. Pursuant to the contract, the
Fund agrees to receive from or pay to the broker an amount of cash equal to the
daily fluctuation in value of the contract. Such
F-12
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (concluded)
- --------------------------------------------------------------------------------
receipts or payments are known as variation margin and are recorded by the Fund
as unrealized gains or losses. When the contract is closed, the Fund records a
realized gain or loss equal to the difference between the value of the contract
at the time it was opened and the value at the time it was closed.
o Options--The Fund is authorized to write covered call options and purchase
call and put options. When the Fund writes an option, an amount equal to the
premium received by the Fund is reflected as an asset and an equivalent
liability. The amount of the liability is subsequently marked to market to
reflect the current market value of the option written. When a security is
purchased or sold through an exercise of an option, the related premium paid (or
received) is added to (or deducted from) the basis of the security acquired or
deducted from (or added to) the proceeds of the security sold. When an option
expires (or the Fund enters into a closing transaction), the Fund realizes a
gain or loss on the option to the extent of the premiums received or paid (or
gain or loss to the extent the cost of the closing transaction exceeds the
premium paid or received). Written and purchased options are non-income
producing investments.
(c) Income taxes--It is the Fund's policy to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no Federal income tax provision is required.
(d) Security transactions and investment income--Security transactions are
recorded on the dates the transactions are entered into (the trade dates).
Interest income is recognized on the accrual basis. Discounts and market
premiums are amortized into interest income. Realized gains and losses on
security transactions are determined on the identified cost basis.
(e) Deferred organization and offering expenses--Deferred organization expenses
are amortized on a straight-line basis over a period not exceeding five years.
In accordance with Statement of Position 98-5, any unamortized organization
expenses will be expensed on July 1, 1999. This charge will not have any
material impact on the operations of the Fund. Direct expenses relating to the
public offering of the Fund's Common and Preferred Shares were charged to
capital at the time of issuance of the shares.
(f) Dividends and
distributions--Dividends from net investment income are declared and paid
monthly. Distributions of capital gains are recorded on the ex-dividend dates.
Distributions in excess of realized capital gains are due primarily to differing
tax treatments for futures transactions and post-October losses.
(g) Reclassification--Generally accepted accounting principles require that
certain components of net assets be adjusted to reflect permanent differences
between financial and tax reporting. Accordingly, current year's permanent
book/tax differences of $123 have been reclassified between accumulated net
realized capital losses and undistributed net investment income. These
reclassifications have no effect on net assets or net asset value per share.
2. Investment Advisory Agreement and Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with FAM. The general
partner of FAM is Princeton Services, Inc. ("PSI"), an indirect wholly-owned
subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is the limited
partner.
FAM is responsible for the management of the Fund's portfolio and provides the
necessary personnel, facilities, equipment and certain other services necessary
to the operations of the Fund. For such services, the Fund pays a monthly fee at
an annual rate of 0.55% of the Fund's average weekly net assets, including
proceeds from the issuance of Preferred Shares. For the year ended June 30,
1999, FAM earned fees of $1,212,392, of which $124,545 was voluntarily waived.
Accounting services are provided to the Fund by FAM at cost.
Certain officers and/or trustees of the Fund are officers and/or trustees of
FAM, PSI, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the
year ended June 30, 1999 were $240,728,898 and $235,986,803, respectively.
Net realized gains (losses) for the year ended June 30, 1999 and net unrealized
losses as of June 30, 1999 were as follows:
F-13
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (concluded)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Realized Unrealized
Gains (Losses) Losses
- --------------------------------------------------------------------------------
Long-term investments $ 564,442 $(6,272,549)
Financial futures contracts (226,818) (499,687)
Total $ 337,624 $(6,772,236)
- --------------------------------------------------------------------------------
As of June 30, 1999, net unrealized depreciation for Federal income tax purposes
aggregated $6,272,549, of which $25,994 related to appreciated securities and
$6,298,543 related to depreciated securities. The aggregate cost of investments
at June 30, 1999 for Federal income tax purposes was $220,578,523.
4. Beneficial Interest Transactions:
The Fund is authorized to issue an unlimited number of shares of beneficial
interest, including Preferred Shares, par value $.10 per share, all of which
were initially classified as Common Shares. The Board of Trustees is authorized,
however, to reclassify any unissued shares of beneficial interest without
approval of holders of Common Shares.
Common Shares
Shares issued and outstanding during the year ended June 30, 1999 remained
constant and for the period February 25, 1998 to June 30, 1998, increased by
8,800,000 as a result of the initial offering and by 34,020 as a result of
dividend reinvestments.
Preferred Shares
Auction Market Preferred Shares ("AMPS") are Preferred Shares of the Fund, with
a par value of $.05 per share and a liquidation preference of $25,000 per share,
that entitle their holders to receive cash dividends at an annual rate that may
vary for the successive dividend periods. The yields in effect at June 30, 1999
were as follows: Series A, 3.95%; and Series B, 3.60%. Shares issued and
outstanding during the year ended June 30, 1999 remained constant and for the
period February 25, 1998 to June 30, 1998 increased by 3,440 as a result of the
AMPS offering. The Fund pays commissions to certain broker-dealers at the end of
each auction at an annual rate ranging from 0.25% to 0.375%, calculated on the
proceeds of each auction. For the year ended June 30, 1999, MLPF&S earned
$164,154 as commissions.
5. Subsequent Event:
On July 8, 1999, the Fund's Board of Trustees declared an ordinary income
dividend to Common Shareholders in the amount of $.065777 per share, payable on
July 29, 1999 to shareholders of record as of July 23, 1999.
F-14
<PAGE>
Audited Financial Statements for
MuniHoldings Florida Insured Fund IV
for the Fiscal Year Ended September 30, 1999
[to be filed by amendment]
F-15
<PAGE>
Unaudited Financial Statements for
MuniHoldings Florida Insured Fund III
for the Period from October 1, 1998 to March 31, 1999
F-16
<PAGE>
MuniHoldings Florida Insured Fund III, March 31, 1999
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (in Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
S&P Moody's Face Value
STATE Ratings Ratings Amount Issue (Note 1a)
====================================================================================================================================
<S> <C> <C> <C> <C>
Florida--72.1% AAA Aaa $ 2,685 Broward County, Florida, Airport System Revenue
Bonds, AMT, Series G, 5.125% due 10/01/2015 (a) $ 2,707
-----------------------------------------------------------------------------------------------------------
Clay County, Florida, HFA, S/F Mortgage Revenue
Refunding Bonds (Multi-County) (b)(c):
NR* Aaa 4,000 5.45% due 4/01/2031 (h) 4,040
NR* Aaa 3,000 AMT, 5.35% due 10/01/2018 3,037
-----------------------------------------------------------------------------------------------------------
AAA Aaa 4,375 Dade County, Florida, Seaport, GO,
Refunding, 5.125% due 10/01/2026 (e) 4,400
-----------------------------------------------------------------------------------------------------------
AAA Aaa 6,125 Dade County, Florida, Water and Sewer System Revenue
Bonds, 5.25% due 10/01/2026 (d) 6,249
-----------------------------------------------------------------------------------------------------------
NR* Aaa 4,000 Escambia County, Florida, HFA, S/F Mortgage Revenue
Refunding Bonds (Multi-County Program),
AMT, Series A, 5.35% due 4/01/2031 (b)(c) 4,046
-----------------------------------------------------------------------------------------------------------
NR* Baa1 3,000 Escambia County, Florida, PCR (Champion
International Corp. Project), AMT,
6.40% due 9/01/2030 (h) 3,190
-----------------------------------------------------------------------------------------------------------
A1 VMIG1+ 700 Escambia County, Florida, PCR, Refunding (Gulf Power
Company Project), VRDN,
2.95% due 7/01/2022 (f) 700
-----------------------------------------------------------------------------------------------------------
AAA Aaa 3,500 Florida, HFA, Revenue Bonds (Wentworth Apartments
Project), AMT, Series I-1,
5.45% due 10/01/2037 (a) 3,539
-----------------------------------------------------------------------------------------------------------
AAA Aaa 3,340 Florida Housing Finance Corporation Revenue Bonds
(Homeowner Mortgage), AMT, Series 2,
5.35% due 1/01/2021 (e) 3,371
-----------------------------------------------------------------------------------------------------------
AAA Aaa 2,000 Florida State Department of Children and Families,
COP (South Florida State Hospital Project),
5% due 7/01/2018 (a) 1,990
-----------------------------------------------------------------------------------------------------------
Florida State Turnpike Authority, Turnpike
Revenue Bonds:
AAA NR* 2,430 (Department of Transportation) Series B, 5% due 7/01/2018 (e) 2,434
AAA Aaa 4,010 Series A, 5% due 7/01/2017 (g) 4,024
-----------------------------------------------------------------------------------------------------------
A- Baa1 5,000 Highlands County, Florida, Health Facilities Authority
Revenue Bonds (Adventist Health Systems),
5.25% due 11/15/2028 4,825
-----------------------------------------------------------------------------------------------------------
AAA NR* 12,990 Jacksonville, Florida, Health Facilities Authority,
Hospital Revenue Refunding Bonds, RIB,
Series 49, 6.864% due 8/15/2027 (e)(i) 12,892
-----------------------------------------------------------------------------------------------------------
NR* Aaa 5,000 Miami-Dade County, Florida, Public Service Tax
Revenue Bonds (UMSA Public Improvements),
5% due 10/01/2023 (g) 4,965
-----------------------------------------------------------------------------------------------------------
Orange County, Florida, Tourist Development, Tax
Revenue Refunding Bonds (e):
AAA Aaa 3,500 5% due 10/01/2018 3,505
AAA Aaa 5,160 5% due 10/01/2019 5,160
-----------------------------------------------------------------------------------------------------------
AAA Aaa 2,500 Orlando and Orange County Expressway Authority,
Florida, Expressway Revenue Bonds,
Junior Lien, 5% due 7/01/2017 (d) 2,504
-----------------------------------------------------------------------------------------------------------
AAA Aaa 3,100 Orlando and Orange County Expressway Authority, Florida,
Expressway Revenue Refunding Bonds,
Junior Lien, 5% due 7/01/2028 (d) 3,067
-----------------------------------------------------------------------------------------------------------
Pinellas County, Florida, HFA, S/F Mortgage Revenue
Bonds (Multi-County Program), AMT, Series C
(b)(c):
NR* Aaa 1,735 5.70% due 9/01/2018 1,785
NR* Aaa 1,990 5.80% due 3/01/2029 2,051
-----------------------------------------------------------------------------------------------------------
AAA Aaa 5,000 Pinellas County, Florida, Sewer Revenue
Refunding Bonds, 5% due 10/01/2024 (d) 4,964
-----------------------------------------------------------------------------------------------------------
</TABLE>
F-17
<PAGE>
<TABLE>
<CAPTION>
S&P Moody's Face Value
STATE Ratings Ratings Amount Issue (Note 1a)
====================================================================================================================================
<S> <C> <C> <C> <C>
AAA Aaa 3,700 Polk County, Florida, School Board, COP,
Series A, 5% due 1/01/2018 (g) 3,706
-----------------------------------------------------------------------------------------------------------
AAA Aaa 2,000 Port St. Lucie, Florida, Special Assessment
Revenue Bonds, Utility Service Area Numbers 3 & 4,
Series A, 5% due 10/01/2018 (e) 2,003
-----------------------------------------------------------------------------------------------------------
AAA Aaa 4,135 St. John's County, Florida, Sales Tax Revenue
Refunding Bonds, 5% due 10/01/2019 (d) 4,135
-----------------------------------------------------------------------------------------------------------
A1+ VMIG1+ 3,000 St. Lucie County, Florida, PCR, Refunding
(Florida Power and Light Company Project), VRDN,
3% due 1/01/2026 (f) 3,000
-----------------------------------------------------------------------------------------------------------
NR* Aaa 2,130 Village Center Community Development District,
Florida, Utility Revenue Refunding Bonds,
Series A, 5% due 10/01/2023 (e) 2,115
====================================================================================================================================
Illinois--9.8% AAA Aaa 2,500 Chicago, Illinois, Board of Education,
GO (Chicago Reform School), Series A,
5.25% due 12/01/2030 (a) 2,506
-----------------------------------------------------------------------------------------------------------
AAA Aaa 2,500 Chicago, Illinois, Sales Tax Revenue Refunding
Bonds, 5.25% due 1/01/2028 (d) 2,510
-----------------------------------------------------------------------------------------------------------
AAA Aaa 9,200 Metropolitan Pier and Exposition Authority, Illinois,
Dedicated State Tax Revenue Refunding
Bonds (McCormick Place Expansion Project),
Series A, 5.25% due 6/15/2027 (a) 9,233
====================================================================================================================================
Massachusetts--4.2% AAA Aaa 6,000 Massachusetts State Turnpike Authority, Metropolitan
Highway System, Revenue Refunding Bonds,
Sub-Series A, 5.25% due 1/01/2029 (a) 6,073
====================================================================================================================================
</TABLE>
Portfolio Abbreviations
To simplify the listings of MuniHoldings Florida Insured Fund III's portfolio
holdings in the Schedule of Investments, we have abbreviated the names of many
of the securities according to the list at right.
AMT Alternative Minimum Tax (subject to)
COP Certificates of Participation
GO General Obligation Bonds
HFA Housing Finance Agency
PCR Pollution Control Revenue Bonds
RIB Residual Interest Bonds
S/F Single-Family
VRDN Variable Rate Demand Notes
F-18
<PAGE>
MuniHoldings Florida Insured Fund III, March 31, 1999
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
S&P Moody's Face Value
STATE Ratings Ratings Amount Issue (Note 1a)
====================================================================================================================================
<S> <C> <C> <C> <C>
Texas--7.1% A1+ NR* $ 400 Harris County, Texas, Health Facilities Development
Corporation, Hospital Revenue Refunding
Bonds (Methodist Hospital), VRDN, 2.90% due 12/01/2025 (f) $ 400
-----------------------------------------------------------------------------------------------------------
AAA Aaa 6,000 Houston, Texas, Water and Sewer System, Revenue
Refunding Bonds, Junior Lien, Series A,
5.25% due 12/01/2025 (d) 6,049
-----------------------------------------------------------------------------------------------------------
AAA Aaa 3,725 Texas State Turnpike Authority, Dallas North
Thruway Revenue Bonds (President George Bush
Turnpike), 5.25% due 1/01/2023 (d) 3,753
====================================================================================================================================
Total Investments (Cost--$135,465)--93.2% 134,928
Variation Margin on Financial Futures Contracts**--0.1% 119
Other Assets Less Liabilities--6.7% 9,773
--------
Net Assets--100.0% $144,820
========
====================================================================================================================================
</TABLE>
(a) AMBAC Insured.
(b) FNMA Collateralized.
(c) GNMA Collateralized.
(d) FGIC Insured.
(e) MBIA Insured.
(f) The interest rate is subject to change periodically based upon prevailing
market rates. The interest rate shown is the rate in effect at March 31,
1999.
(g) FSA Insured.
(h) All or a portion of security held as collateral in connection with open
financial futures contracts.
(i) The interest rate is subject to change periodically and inversely based
upon prevailing market rates. The interest rate shown is the rate in
effect at March 31, 1999.
*Not Rated.
**Financial futures contracts sold as of March 31, 1999 were as follows:
See Notes to Financial Statements.
(in Thousands)
- --------------------------------------------------------------------------------
Number of Expiration Value
Contracts Issue Exchange Date (Notes 1a & 1b)
- --------------------------------------------------------------------------------
225 US Treasury Bonds BZW June 1999 $27,127
- --------------------------------------------------------------------------------
Total Financial Futures Contracts Sold
(Total Contract Price--$27,186) $27,127
=======
- --------------------------------------------------------------------------------
+Highest short-term rating by Moody's Investors Service, Inc.
- --------------------------------------------------------------------------------
QUALITY PROFILE
- --------------------------------------------------------------------------------
The quality ratings of securities in the Fund as of March 31, 1999 were as
follows:
- --------------------------------------------------------------------------------
Percent of
S&P Rating/Moody's Rating Net Assets
- --------------------------------------------------------------------------------
AAA/Aaa................................................................ 84.8%
A/A.................................................................... 3.4
BBB/Baa................................................................ 2.2
Other+................................................................. 2.8
- --------------------------------------------------------------------------------
+Temporary investments in short-term municipal securities.
F-19
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS, LIABILITIES AND CAPITAL
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
As of March 31, 1999
====================================================================================================================================
<S> <C> <C> <C>
Assets: Investments, at value (identified cost--$135,465,203) (Note 1a) ........... $134,927,582
Cash ...................................................................... 71,073
Receivables:
Securities sold ......................................................... $ 7,605,036
Interest ................................................................ 2,382,548
Variation margin (Note 1b) .............................................. 119,531 10,107,115
-------------
Deferred organization expenses (Note 1e) .................................. 13,500
------------
Total assets .............................................................. 145,119,270
===========
====================================================================================================================================
Liabilities: Payables:
Offering costs (Note 1e) ................................................ 225,812
Investment adviser (Note 2) ............................................. 32,858
Dividends to shareholders (Note 1f) ..................................... 16,513 275,183
-------------
Accrued expenses and other liabilities .................................... 23,596
------------
Total liabilities ......................................................... 298,779
------------
====================================================================================================================================
Net Assets: Net assets ................................................................ $144,820,491
============
====================================================================================================================================
Capital: Capital Shares (unlimited number of shares of beneficial interest
authorized) (Note 4):
Preferred Shares, par value $.10 per share (2,160 shares of
AMPS* issued and outstanding at $25,000 per share liquidation
preference) ............................................................. $ 54,000,000
Common Shares, par value $.10 per share (6,181,830 shares
issued and outstanding)........ ......................................... $ 618,183
Paid-in capital in excess of par........................................... 91,277,757
Undistributed investment income--net....................................... 447,007
Accumulated realized capital losses on investments--net.................... (1,043,898)
Unrealized depreciation on investments--net................................ (478,558)
--------
Total--Equivalent to $14.69 net asset value per Common Share
(market price--$14.375) ................................................. 90,820,491
------------
Total capital.............................................................. $144,820,491
============
====================================================================================================================================
</TABLE>
*Auction Market Preferred Shares.
See Notes to Financial Statements.
F-20
<PAGE>
MuniHoldings Florida Insured Fund III, March 31, 1999
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Period October 1, 1998+ to March 31, 1999
====================================================================================================================================
<S> <C> <C> <C>
Investment Interest and amortization of premium and discount earned....................... $ 3,440,984
Income (Note 1d):
====================================================================================================================================
Expenses: Investment advisory fees (Note 2).............................................. $ 367,860
Commission fees (Note 4)....................................................... 55,967
Accounting services (Note 2)................................................... 38,795
Professional fees.............................................................. 21,350
Transfer agent fees............................................................ 15,259
Trustees' fees and expenses.................................................... 10,134
Listing fees................................................................... 7,148
Custodian fees................................................................. 4,054
Pricing fees................................................................... 3,186
Printing and shareholder reports............................................... 3,098
Amortization of organization expenses (Note 1e)................................ 1,283
Other.......................................................................... 3,697
--------
Total expenses before reimbursement............................................ 531,831
Reimbursement of expenses (Note 2)............................................. (295,183)
--------
Total expenses after reimbursement............................................. 236,648
------------
Investment income--net......................................................... 3,204,336
------------
====================================================================================================================================
Realized & Unrealized Realized loss on investments--net.............................................. (1,043,898)
Loss on Investments Unrealized depreciation on investments--net.................................... (478,558)
- - -- Net (Notes ------------
1b, 1d & 3): Net Increase in Net Assets Resulting from Operations........................... $ 1,681,880
============
====================================================================================================================================
</TABLE>
+Commencement of operations.
See Notes to Financial Statements.
F-21
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Period
Oct. 1, 1998+ to
Increase (Decrease) in Net Assets: March 31, 1999
======================================================================================================================
<S> <C> <C>
Operations: Investment income--net ........................................................ $ 3,204,336
Realized loss on investments--net ............................................. (1,043,898)
Unrealized depreciation on investments--net ................................... (478,558)
-------------
Net increase in net assets resulting from operations .......................... 1,681,880
-------------
======================================================================================================================
Dividends to Investment income--net:
Shareholders Common Shares ............................................................... (2,037,001)
(Note 1f): Preferred Shares ............................................................ (720,328)
-------------
Net decrease in net assets resulting from dividends to shareholders ........... (2,757,329)
-------------
======================================================================================================================
Beneficial Interest Proceeds from issuance of Common Shares ....................................... 92,250,000
Transactions Proceeds from issuance of Preferred Shares .................................... 54,000,000
(Notes 1e & 4): Value of shares issued to Common Shareholders in reinvestment of dividends .... 370,420
Offering costs resulting from the issuance of Common Shares ................... (271,355)
Offering and underwriting costs resulting from the issuance of Preferred Shares (553,130)
-------------
Net increase in net assets derived from beneficial interest transactions ...... 145,795,935
-------------
======================================================================================================================
Net Assets: Total increase in net assets .................................................. 144,720,486
Beginning of period ........................................................... 100,005
-------------
End of period* ................................................................ $ 144,820,491
=============
======================================================================================================================
*Undistributed investment income--net .......................................... $ 447,007
=============
======================================================================================================================
</TABLE>
+Commencement of operations.
See Notes to Financial Statements.
F-22
<PAGE>
MuniHoldings Florida Insured Fund III, March 31, 1999
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
The following per share data and ratios have been derived For the Period
from information provided in the financial statements. Oct. 1, 1998+ to
Increase (Decrease) in Net Asset Value: March 31, 1999
====================================================================================================
<S> <C> <C>
Per Share Net asset value, beginning of period ............................ $ 15.00
Operating -----------
Performance: Investment income--net .......................................... .52
Realized and unrealized loss on investments--net ................ (.23)
-----------
Total from investment operations ................................ .29
-----------
Less dividends to Common Shareholders from investment income--net (.33)
-----------
Capital charge resulting from issuance of Common Shares ......... (.05)
-----------
Effect of Preferred Share activity:++
Dividends to Preferred Shareholders:
Investment income--net ....................................... (.12)
Capital charge resulting from issuance of Preferred Shares .... (.10)
-----------
Total effect of Preferred Share activity ........................ (.22)
-----------
Net asset value, end of period .................................. $ 14.69
===========
Market price per share, end of period ........................... $ 14.375
===========
====================================================================================================
Total Investment Based on market price per share ................................. (1.99%)++
Return:** ===========
Based on net asset value per share .............................. .16%++
===========
====================================================================================================
Ratios to Average Expenses, net of reimbursement .................................. .35%*
Net Assets:*** ===========
Expenses ........................................................ .80%*
===========
Investment income--net .......................................... 4.79%*
===========
====================================================================================================
Supplemental Net assets, net of Preferred Shares, end of period (in thousands) $ 90,820
Data: ===========
Preferred Shares outstanding, end of period (in thousands) ...... $ 54,000
===========
Portfolio turnover .............................................. 123.02%
===========
====================================================================================================
Leverage: Asset coverage per $1,000 ....................................... $ 2,682
===========
====================================================================================================
Dividends Per Series A--Investment income--net ................................ $ 329
Share on Preferred ===========
Shares Outstanding: Series B--Investment income--net ................................ $ 338
===========
====================================================================================================
</TABLE>
*Annualized.
**Total investment returns based on market value, which can be significantly
greater or lesser than the net asset value, may result in substantially
different returns. Total investment returns exclude the effects of sales
loads.
***Do not reflect the effect of dividends to Preferred Shareholders.
+Commencement of operations.
++The Fund's Preferred Shares were issued on October 22, 1998.
++Aggregate total investment return.
See Notes to Financial Statements.
F-23
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. Significant Accounting Policies:
MuniHoldings Florida Insured Fund III (the "Fund") is registered under the
Investment Company Act of 1940 as a non-diversified, closed-end management
investment company. The Fund's financial statements are prepared in accordance
with generally accepted accounting principles which may require the use of
management accruals and estimates. These unaudited financial statements reflect
all adjustments which are, in the opinion of management, necessary to a fair
statement of the results for the interim period presented. All such adjustments
are of a normal recurring nature. Prior to commencement of operations on October
1, 1998, the Fund had no operations other than those relating to organizational
matters and the sale of 6,667 shares of Common Shares on September 18, 1998, to
Fund Asset Management, L.P. ("FAM") for $100,005. The Fund will determine and
make available for publication the net asset value of its Common Shares on a
weekly basis. The Fund's Common Shares are listed on the New York Stock Exchange
under the symbol MFD. The following is a summary of significant accounting
policies followed by the Fund.
(a) Valuation of investments--Municipal bonds are traded primarily in the
over-the-counter markets and are valued at the most recent bid price or yield
equivalent as obtained by the Fund's pricing service from dealers that make
markets in such securities. Financial futures contracts and options thereon,
which are traded on exchanges, are valued at their closing prices as of the
close of such exchanges. Options written or purchased are valued at the last
sale price in the case of exchange-traded options. In the case of options traded
in the over-the-counter market, valuation is the last asked price (options
written) or the last bid price (options purchased). Securities with remaining
maturities of sixty days or less are valued at amortized cost, which
approximates market value. Securities and assets for which market quotations are
not readily available are valued at fair value as determined in good faith by or
under the direction of the Board of Trustees of the Fund, including valuations
furnished by a pricing service retained by the Fund, which may utilize a matrix
system for valuations. The procedures of the pricing service and its valuations
are reviewed by the officers of the Fund under the general supervision of the
Board of Trustees.
(b) Derivative financial instruments--The Fund may engage in various portfolio
strategies to seek to increase its return by hedging its portfolio against
adverse movements in the debt markets. Losses may arise due to changes in the
value of the contract or if the counterparty does not perform under the
contract.
o Financial futures contracts--The Fund may purchase or sell financial futures
contracts and options on such futures contracts for the purpose of hedging the
market risk on existing securities or the intended purchase of securities.
Futures contracts are contracts for delayed delivery of securities at a specific
future date and at a specific price or yield. Upon entering into a contract, the
Fund deposits and maintains as collateral such initial margin as required by the
exchange on which the transaction is effected. Pursuant to the contract, the
Fund agrees to receive from or pay to the broker an amount of cash equal to the
daily fluctuation in value of the contract. Such receipts or payments are known
as variation margin and are recorded by the Fund as unrealized gains or losses.
When the contract is closed, the Fund records a realized gain or loss equal to
the difference between the value of the contract at the time it was opened and
the value at the time it was closed.
o Options--The Fund is authorized to write covered call options and purchase
call and put options. When the Fund writes an option, an amount equal to the
premium received by the Fund is reflected as an asset and an
F-24
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (concluded)
- --------------------------------------------------------------------------------
equivalent liability. The amount of the liability is subsequently marked to
market to reflect the current market value of the option written.
When a security is purchased or sold through an exercise of an option, the
related premium paid (or received) is added to (or deducted from) the basis of
the security acquired or deducted from (or added to) the proceeds of the
security sold. When an option expires (or the Fund enters into a closing
transaction), the Fund realizes a gain or loss on the option to the extent of
the premiums received or paid (or gain or loss to the extent the cost of the
closing transaction exceeds the premium paid or received).
Written and purchased options are non-income producing investments.
(c) Income taxes--It is the Fund's policy to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no Federal income tax provision is required.
(d) Security transactions and investment income--Security transactions are
recorded on the dates the transactions are entered into (the trade dates).
Interest income is recognized on the accrual basis. Discounts and market
premiums are amortized into interest income. Realized gains and losses on
security transactions are determined on the identified cost basis.
(e) Deferred organization and offering expenses--Deferred organization expenses
are amortized on a straight-line basis over a period not exceeding five years.
In accordance with Statement of Position 98-5, any unamortized organization
expenses will be expensed on the first day of the next fiscal year beginning
after December 15, 1998. This charge will not have any material impact on the
operations of the Fund. Direct expenses relating to the public offering of the
Fund's Common and Preferred Shares were charged to capital at the time of
issuance of the shares.
(f) Dividends and distributions--Dividends from net investment income are
declared and paid monthly. Distributions of capital gains are recorded on the
ex-dividend dates.
2. Investment Advisory Agreement and
Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with FAM. The general
partner of FAM is Princeton Services, Inc. ("PSI"), an indirect wholly-owned
subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is the limited
partner.
FAM is responsible for the management of the Fund's portfolio and provides the
necessary personnel, facilities, equipment and certain other services necessary
to the operations of the Fund. For such services, the Fund pays a monthly fee at
an annual rate of 0.55% of the Fund's average weekly net assets including
proceeds from the issuance of Preferred Shares. For the period October 1, 1998
to March 31, 1999, FAM earned fees of $367,860, of which $265,394 was
volun-tarily waived. FAM also reimbursed the Fund for additional expenses of
$29,789.
During the period October 1, 1998 to March 31, 1999, Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("MLPF&S"), an affiliate of FAM, received
underwriting fees of $405,000 in connection with the issuance of the Fund's
Preferred Shares.
Accounting services are provided to the Fund by FAM at cost.
Certain officers and/or trustees of the Fund are officers and/or directors of
FAM, PSI, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the
period October 1, 1998 to March 31, 1999 were $290,348,680 and $157,770,053,
respectively. Net realized gains (losses) for the period October 1, 1998 to
March 31, 1999 and net unrealized gains (losses) as of March 31, 1999 were as
follows:
- --------------------------------------------------------------------------------
Realized Unrealized
Gains (Losses) Gains (Losses)
- --------------------------------------------------------------------------------
Long-term investments $(1,244,838) $ (537,621)
Financial futures contracts 200,940 59,063
----------- -----------
Total $(1,043,898) $ (478,558)
=========== ===========
- --------------------------------------------------------------------------------
As of March 31, 1999, net unrealized depreciation for Federal income tax
purposes aggregated $537,621, of
F-25
<PAGE>
which $162,716 related to appreciated securities and $700,337 related to
depreciated securities. The aggregate cost of investments at March 31, 1999 for
Federal income tax purposes was $135,465,203.
4. Beneficial Interest Transactions:
The Fund is authorized to issue an unlimited number of shares of beneficial
interest, including Preferred Shares, par value $.10 per share, all of which
were initially classified as Common Shares. The Board of Trustees is authorized,
however, to reclassify any unissued shares of capital without approval of
holders of Common Shares. Common Shares
Shares issued and outstanding for the period October 1, 1998 to March 31, 1999,
increased by 6,150,000 from shares sold and by 25,163 as a result of dividend
reinvestment.
Preferred Shares
Auction Market Preferred Shares ("AMPS") are Preferred Shares of the Fund, with
a par value of $.10 per share and a liquidation preference of $25,000 per share,
that entitle their holders to receive cash dividends at an annual rate that may
vary for the successive dividend periods. The yields in effect at March 31, 1999
were for Series A, 3.20% and Series B, 3.19%.
In connection with the offering of AMPS, the Board of Trustees reclassified
2,160 shares of unissued beneficial interest as AMPS. Shares issued and
outstanding during the period October 1, 1998 to March 31, 1999 increased by
2,160 as a result of the AMPS offering.
The Fund pays commissions to certain broker-dealers at the end of each auction
at an annual rate ranging from 0.25% to 0.375%, calculated on the proceeds of
each auction. For the period October 1, 1998 to March 31, 1999, MLPF&S earned
$50,877 as commissions.
5. Subsequent Event:
On April 8, 1999, the Fund's Board of Trustees declared an ordinary income
dividend to Common Shareholders in the amount of $.067979 per share, payable on
April 29, 1999 to shareholders of record as of April 22, 1999.
F-26
<PAGE>
Audited Financial Statements for
MuniHoldings Florida Insured Fund III
for the Fiscal Year Ended September 30, 1999
[to be filed by amendment]
F-27
<PAGE>
Unaudited Financial Statements for
MuniHoldings Florida Insured Fund IV
for the Period from January 29, 1999 to March 31, 1999
F-28
<PAGE>
MuniHoldings Florida Insured Fund IV, March 31, 1999
SCHEDULE OF INVESTMENTS (in Thousands)
<TABLE>
<CAPTION>
S&P Moody's Face Value
STATE Ratings Ratings Amount Issue (Note 1a)
=============================================================================================================================
<S> <C> <C> <C> <C> <C>
Florida--73.1% NR* Aaa $ 2,375 Bay County, Florida, School Board, COP, 5% due
7/01/2023 (a) $ 2,345
----------------------------------------------------------------------------------------------------
A1+ Aa3 1,000 Dade County, Florida, IDA, Exempt Facilities,
Revenue Refunding Bonds (Florida Power & Light Co.),
VRDN, 2.90% due 6/01/2021 (g) 1,000
----------------------------------------------------------------------------------------------------
AAA Aaa 10,000 Dade County, Florida, Water and Sewer System
Revenue Bonds, 5.25% due 10/01/2026 (d) 10,202
----------------------------------------------------------------------------------------------------
NR* Aaa 6,000 Duval County, Florida, HFA, S/F Mortgage Revenue
Bonds, AMT, 5.30% due 4/01/2029 (b)(c)(h 6,010
----------------------------------------------------------------------------------------------------
NR* Aaa 10,000 Escambia County, Florida, HFA, S/F Mortgage
Revenue Refunding Bonds, Multi-County Program,
AMT, 5.20% due 4/01/2032 (b)(c)(e)(j) 9,953
----------------------------------------------------------------------------------------------------
Florida, HFA, Revenue Bonds (Willow Lake
Apartments), AMT, Series J-1 (a):
AAA Aaa 3,750 5.35% due 7/01/2027 3,799
AAA Aaa 6,000 5.45% due 1/01/2038 6,102
----------------------------------------------------------------------------------------------------
AAA Aaa 9,995 Florida State Turnpike Authority, Turnpike Revenue
Bonds, Series A, 5% due 7/01/2022 (f) 9,913
----------------------------------------------------------------------------------------------------
AAA Aaa 5,200 Greater Orlando Aviation Authority, Florida,
Airport Facilities Revenue Bonds, AMT,
5.25% due 10/01/2023 (d) 5,246
----------------------------------------------------------------------------------------------------
A- Baa1 5,500 Highlands County, Florida, Health Facilities
Authority Revenue Bonds (Adventist Health
Systems), 5.25% due 11/15/2028 5,308
----------------------------------------------------------------------------------------------------
Jacksonville, Florida, Excise Taxes Revenue
Refunding and Improvement Bonds, Series A (d):
AAA Aaa 1,595 5% due 10/01/2017 1,600
AAA Aaa 1,970 5% due 10/01/2018 1,973
AAA Aaa 1,060 5% due 10/01/2019 1,060
----------------------------------------------------------------------------------------------------
AAA Aaa 6,000 Miami Beach, Florida, Parking Revenue Bonds,
5.125% due 9/01/2022 (f) 6,033
----------------------------------------------------------------------------------------------------
AAA Aaa 4,250 North Port, Florida, Utility Revenue Refunding
Bonds, 5% due 10/01/2018 (d) 4,250
----------------------------------------------------------------------------------------------------
Orlando and Orange County Expressway Authority,
Florida, Expressway Revenue Refunding Bonds
(Junior Lien) (d):
AAA Aaa 2,600 5% due 7/01/2017 2,604
AAA Aaa 13,250 5% due 7/01/2021 13,161
----------------------------------------------------------------------------------------------------
Pinellas County, Florida, HFA, S/F Housing Revenue
Bonds (Multi-County Program), AMT, Series A-1 (b)(c):
NR* Aaa 1,375 5.20% due 9/01/2021 1,366
NR* Aaa 2,750 5.25% due 9/01/2025 2,738
----------------------------------------------------------------------------------------------------
AAA Aaa 6,000 Pinellas County, Florida, Sewer Revenue Refunding
Bonds, 5% due 10/01/2024 (d) 5,957
----------------------------------------------------------------------------------------------------
AAA Aaa 9,000 Polk County, Florida, School Board, COP, Series A,
5% due 1/01/2020 (f) 8,965
----------------------------------------------------------------------------------------------------
AAA Aaa 4,375 Port Saint Lucie, Florida, Utility Revenue
Refunding and Improvement Bonds, Series A,
5.125% due 9/01/2027 (e) 4,401
----------------------------------------------------------------------------------------------------
AAA Aaa 5,000 Saint John's River Management District, Florida,
Land Acquisition Revenue Refunding Bonds,
5.125% due 7/01/2016 (f) 5,052
----------------------------------------------------------------------------------------------------
NR* Aaa 9,500 Sarasota County, Florida, Public Hospital Board
Revenue Refunding Bonds, RITR, Series 99,
7.615% due 7/01/2028 (e)(i) 10,767
----------------------------------------------------------------------------------------------------
AAA Aaa 6,000 Sunrise, Florida, Utility System Revenue Refunding
Bonds, 5.20% due 10/01/2022 (a) 6,133
----------------------------------------------------------------------------------------------------
</TABLE>
F-29
<PAGE>
<TABLE>
<CAPTION>
S&P Moody's Face Value
STATE Ratings Ratings Amount Issue (Note 1a)
=============================================================================================================================
<S> <C> <C> <C> <C> <C>
NR* Aaa 5,965 Tampa, Florida, Solid Waste System Revenue
Refunding Bonds (McKay Bay Refuse-to-Energy),
AMT, Series B, 5.25% due 10/01/2016 (a) 6,094
----------------------------------------------------------------------------------------------------
NR* Aaa 7,500 Tampa, Florida, Sports Authority Revenue Bonds,
RITR, Series 98, 7.115% due 1/01/2027 (e)(i) 7,785
----------------------------------------------------------------------------------------------------
AAA Aaa 7,575 Tampa-Hillsborough County, Florida, Expressway
Authority Revenue Bonds, 5% due 7/01/2022 (a) 7,523
----------------------------------------------------------------------------------------------------
AAA Aaa 3,115 Tampa-Hillsborough County, Florida, Expressway
Authority, Revenue Refunding Bonds,
5.125% due 7/01/2019 (a) 3,135
=============================================================================================================================
Illinois--13.0% AAA Aaa 7,500 Chicago, Illinois, Sales Tax Revenue Refunding
Bonds, 5.25% due 1/01/2028 (d) 7,531
----------------------------------------------------------------------------------------------------
AAA Aaa 15,000 Chicago, Illinois, Water Revenue Refunding Bonds,
5.25% due 11/01/2027 (d) 15,060
----------------------------------------------------------------------------------------------------
AAA Aaa 6,000 Illinois Educational Facilities Authority, Revenue
Refunding Bonds (Illinois Institute of Technology),
5.25% due 12/01/2025 (a) 6,024
=============================================================================================================================
Massachusetts--3.7% AAA Aaa 8,000 Massachusetts State Turnpike Authority,
Metropolitan Highway System Revenue Bonds,
Sub-Series A, 5.25% due 1/01/2029 (a) 8,098
=============================================================================================================================
Mississippi--1.7% NR* P1 3,600 Perry County, Mississippi, PCR, Refunding (Leaf
River Forest Project), VRDN, 3% due 3/01/2002 (g) 3,600
=============================================================================================================================
Tennessee--1.6% AAA Aaa 3,640 Harpeth Valley Utilities District, Tennessee,
Utilities Improvement Revenue Bonds,
Series A, 5% due 9/01/2028 (e) 3,596
=============================================================================================================================
Texas--3.6% A1+ NR* 2,900 Harris County, Texas, Health Facilities Development
Corporation, Hospital Revenue Refunding Bonds
(Methodist Hospital), VRDN, 2.90% due 12/01/2025 (g) 2,900
----------------------------------------------------------------------------------------------------
AAA Aaa 5,000 Texas State Turnpike Authority, Dallas North
Thruway Revenue Bonds (President George Bush
Turnpike), 5.25% due 1/01/2023 (d) 5,038
=============================================================================================================================
Total Investments (Cost--$213,374)--96.7% 212,322
Variation Margin on Financial Futures Contracts**--0.1% 98
Other Assets Less Liabilities--3.2% 7,069
--------
Net Assets--100.0% $219,489
========
=============================================================================================================================
</TABLE>
(a) AMBAC Insured.
(b) FNMA Collateralized.
(c) GNMA Collateralized.
(d) FGIC Insured.
(e) MBIA Insured.
(f) FSA Insured.
(g) The interest rate is subject to change periodically based upon prevailing
market rates. The interest rate shown is the rate in effect at March 31,
1999.
(h) FHA Insured.
(i) The interest rate is subject to change periodically and inversely based
upon prevailing market rates. The interest rate shown is the rate in
effect at March 31, 1999.
(j) All or a portion of security held as collateral in connection with open
financial futures contracts.
* Not Rated.
** Financial futures contracts sold as of March 31, 1999 were as follows:
- --------------------------------------------------------------------------------
(in Thousands)
- --------------------------------------------------------------------------------
Number of Expiration Value
Contracts Issue Exchange Date (Notes 1a & 1b)
- --------------------------------------------------------------------------------
185 US Treasury Bonds BZW June 1999 $22,304
- --------------------------------------------------------------------------------
Total Financial Futures Contracts Sold
(Total Contract Price--$22,454) $22,304
=======
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
F-30
<PAGE>
MuniHoldings Florida Insured Fund IV, March 31, 1999
STATEMENT OF ASSETS, LIABILITIES AND CAPITAL
<TABLE>
<CAPTION>
As of March 31, 1999
====================================================================================================================================
<S> <C> <C> <C>
Assets: Investments, at value (identified cost--$213,373,532) (Note 1a)............ $212,322,376
Cash....................................................................... 85,945
Receivables:
Securities sold.......................................................... $ 4,695,595
Interest................................................................. 2,704,140
Variation margin (Note 1b)............................................... 98,281
Investment adviser (Note 2).............................................. 18,896 7,516,912
------------
Prepaid expenses and other assets.......................................... 18,250
------------
Total assets............................................................... 219,943,483
------------
====================================================================================================================================
Liabilities: Payables:
Offering costs (Note 1e)................................................. 379,514
Dividends to shareholders (Note 1f)...................................... 37,408 416,922
------------
Accrued expenses and other liabilities..................................... 37,208
------------
Total liabilities.......................................................... 454,130
------------
====================================================================================================================================
Net Assets: Net assets................................................................. $219,489,353
============
====================================================================================================================================
Capital: Capital Shares (unlimited number of shares of beneficial
interest authorized) (Note 4):
Preferred Shares, par value $.10 per share (3,340 shares
of AMPS* issued and outstanding at $25,000 per share
liquidation preference).................................................. $ 83,500,000
Common Shares, par value $.10 per share (9,116,667 shares
issued and outstanding) ................................................. $ 911,667
Paid-in capital in excess of par........................................... 134,785,971
Undistributed investment income--net....................................... 1,203,774
Accumulated realized capital losses on investments--net.................... (11,216)
Unrealized depreciation on investments--net................................ (900,843)
------------
Total--Equivalent to $14.92 net asset value per Common Share
(market price--$15.25) .................................................... 135,989,353
------------
Total capital.............................................................. $219,489,353
============
====================================================================================================================================
</TABLE>
*Auction Market Preferred Shares.
See Notes to Financial Statements.
F-31
<PAGE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the Period January 29, 1999+ to March 31, 1999
====================================================================================================================================
<S> <C> <C> <C>
Investment Interest and amortization of premium and discount earned................... $ 1,517,650
Income (Note 1d):
====================================================================================================================================
Expenses: Investment advisory fees (Note 2).......................................... $153,780
Commission fees (Note 4)................................................... 24,909
Accounting services (Note 2)............................................... 8,056
Transfer agent fees........................................................ 5,069
Professional fees.......................................................... 5,061
Trustees' fees and expenses................................................ 3,668
Listing fees............................................................... 2,161
Custodian fees............................................................. 2,097
Printing and shareholder reports........................................... 1,423
Pricing fees............................................................... 792
Other...................................................................... 1,180
--------
Total expenses before reimbursement........................................ 208,196
Reimbursement of expenses (Note 2)......................................... (172,676)
--------
Total expenses after reimbursement......................................... 35,520
---------
Investment income--net..................................................... 1,482,130
---------
====================================================================================================================================
Realized & Realized loss on investments--net............................................. (11,216)
Unrealized Loss Unrealized depreciation on investments--net................................... (900,843)
on Investments-- ---------
Net (Notes 1b, Net Increase in Net Assets Resulting from Operations.......................... $ 570,071
1d & 3): =========
====================================================================================================================================
</TABLE>
+Commencement of operations.
See Notes to Financial Statements.
F-32
<PAGE>
MuniHoldings Florida Insured Fund IV, March 31, 1999
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the Period
Jan. 29, 1999+ to
Increase (Decrease) in Net Assets: March 31, 1999
========================================================================================================================
<S> <C> <C>
Operations: Investment income--net ........................................................ $ 1,482,130
Realized loss on investments--net ............................................. (11,216)
Unrealized depreciation on investments--net ................................... (900,843)
-------------
Net increase in net assets resulting from operations .......................... 570,071
-------------
========================================================================================================================
Dividends to Investment income--net to Preferred Shareholders .............................. (278,356)
Shareholders -------------
(Note 1f):
========================================================================================================================
Beneficial Interest Proceeds from issuance of Common Shares . 136,650,000
Transactions Proceeds from issuance of Preferred Shares .................................... 83,500,000
(Notes 1e & 4): Offering costs resulting from the issuance of Common Shares ................... (260,117)
Offering and underwriting costs resulting from the issuance of Preferred Shares (792,250)
-------------
Net increase in net assets derived from beneficial interest transactions ...... 219,097,633
-------------
========================================================================================================================
Net Assets: Total increase in net assets .................................................. 219,389,348
Beginning of period ........................................................... 100,005
-------------
End of period* ................................................................ $ 219,489,353
=============
========================================================================================================================
*Undistributed investment income--net .......................................... $ 1,203,774
=============
========================================================================================================================
</TABLE>
+Commencement of operations.
See Notes to Financial Statements.
F-33
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
The following per share data and ratios have been derived
from information provided in the financial statements. For the Period
Jan. 29, 1999+ to
Increase (Decrease) in Net Asset Value: March 31, 1999
=======================================================================================================
<S> <C> <C>
Per Share Net asset value, beginning of period ............................ $ 15.00
Operating -----------
Performance: Investment income--net .......................................... .16
Realized and unrealized loss on investments--net ................ (.09)
-----------
Total from investment operations ................................ .07
-----------
Capital charge resulting from issuance of Common Shares ......... (.03)
-----------
Effect of Preferred Share activity:++
Dividends to Preferred Shareholders:
Investment income--net ....................................... (.03)
Capital charge resulting from issuance of Preferred Shares .... (.09)
-----------
Total effect of Preferred Share activity ........................ (.12)
-----------
Net asset value, end of period .................................. $ 14.92
===========
Market price per share, end of period ........................... $ 15.25
===========
=======================================================================================================
Total Investment Based on market price per share ................................. 1.67%+++
Return:** ===========
Based on net asset value per share .............................. (.53%)+++
===========
=======================================================================================================
Ratios to Average Expenses, net of reimbursement .................................. .13%*
Net Assets:*** ===========
Expenses ........................................................ .74%*
===========
Investment income--net .......................................... 5.30%*
===========
=======================================================================================================
Supplemental Net assets, net of Preferred Shares, end of period (in thousands) $ 135,989
Data: ===========
Preferred Shares outstanding, end of period (in thousands) ...... $ 83,500
===========
Portfolio turnover .............................................. 23.78%
===========
=======================================================================================================
Leverage: Asset coverage per $1,000 ....................................... $ 2,629
===========
=======================================================================================================
Dividends Per Series A--Investment income--net ................................ $ 90
Share on Preferred ===========
Shares Outstanding: Series B--Investment income--net ................................ $ 76
===========
=======================================================================================================
</TABLE>
* Annualized.
** Total investment returns based on market value, which can be significantly
greater or lesser than the net asset value, may result in substantially
different returns. Total investment returns exclude the effects of sales
loads.
*** Do not reflect the effect of dividends to Preferred Shareholders.
+ Commencement of operations.
++ The Fund's Preferred Shares were issued on February 22, 1999.
+++ Aggregate total investment return.
See Notes to Financial Statements.
F-34
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. Significant Accounting Policies:
MuniHoldings Florida Insured Fund IV (the "Fund") is registered under the
Investment Company Act of 1940 as a non-diversified, closed-end management
investment company. The Fund's financial statements are prepared in accordance
with generally accepted accounting principles which may require the use of
management accruals and estimates. These unaudited financial statements reflect
all adjustments which are, in the opinion of management, necessary to a fair
statement of the results for the interim period presented. All such adjustments
are of a normal recurring nature. Prior to commencement of operations on January
29, 1999 the Fund had no operations other than those relating to organizational
matters and the sale of 6,667 shares of Common Shares on January 13, 1999, to
Fund Asset Management, L.P. ("FAM") for $100,005. The Fund determines and makes
available for publication the net asset value of its Common Shares on a weekly
basis. The Fund's Common Shares are listed on the New York Stock Exchange under
the symbol MFR. The following is a summary of significant accounting policies
followed by the Fund.
(a) Valuation of investments--Municipal bonds are traded primarily in the
over-the-counter markets and are valued at the most recent bid price or yield
equivalent as obtained by the Fund's pricing service from dealers that make
markets in such securities. Financial futures contracts and options thereon,
which are traded on exchanges, are valued at their closing prices as of the
close of such exchanges. Options written or purchased are valued at the last
sale price in the case of exchange-traded options. In the case of options traded
in the over-the-counter market, valuation is the last asked price (options
written) or the last bid price (options purchased). Securities with remaining
maturities of sixty days or less are valued at amortized cost, which
approximates market value. Securities and assets for which market quotations are
not readily available are valued at fair value as determined in good faith by or
under the direction of the Board of Trustees of the Fund, including valuations
furnished by a pricing service retained by the Fund, which may utilize a matrix
system for valuations. The procedures of the pricing service and its valuations
are reviewed by the officers of the Fund under the general supervision of the
Board of Trustees.
(b) Derivative financial instruments--The Fund may engage in various portfolio
strategies to seek to increase its return by hedging its portfolio against
adverse movements in the debt markets. Losses may arise due to changes in the
value of the contract or if the counterparty does not perform under the
contract.
o Financial futures contracts--The Fund may purchase or sell financial futures
contracts and options on such futures contracts for the purpose of hedging the
market risk on existing securities or the intended purchase of securities.
Futures contracts are contracts for delayed delivery of securities at a specific
future date and at a specific price or yield. Upon entering into a contract, the
Fund deposits and maintains as collateral such initial margin as required by the
exchange on which the transaction is effected. Pursuant to the contract, the
Fund agrees to receive from or pay to the broker an amount of cash equal to the
daily fluctuation in value of the contract. Such receipts or payments are known
as variation margin and are recorded by the Fund as unrealized gains or losses.
When the contract is closed, the Fund records a realized gain or loss equal to
the difference between the value of the contract at the time it was opened and
the value at the time it was closed.
o Options--The Fund is authorized to write covered call options and purchase
call and put options. When the Fund writes an option, an amount equal to the
premium received by the Fund is reflected as an asset and an equivalent
liability. The amount of the liability is subsequently marked to market to
reflect the current market value of the option written.
When a security is purchased or sold through an exercise of an option, the
related premium paid (or received) is added to (or deducted from) the basis of
the security acquired or deducted from (or added to) the proceeds of the
security sold. When an option expires (or the Fund enters into a closing
transaction), the Fund realizes a gain or loss on the option to the extent of
the premiums received or paid (or gain or loss to the extent the cost of the
closing transaction exceeds the premium paid or received).
F-35
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (concluded)
- --------------------------------------------------------------------------------
Written and purchased options are non-income producing investments.
(c) Income taxes--It is the Fund's policy to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no Federal income tax provision is required.
(d) Security transactions and investment income--Security transactions are
recorded on the dates the transactions are entered into (the trade dates).
Interest income is recognized on the accrual basis. Discounts and market
premiums are amortized into interest income. Realized gains and losses on
security transactions are determined on the identified cost basis.
(e) Offering expenses--Direct expenses relating to the public offering of the
Fund's Common and Preferred Shares were charged to capital at the time of
issuance of the shares.
(f) Dividends and distributions--Dividends from net investment income are
declared and paid monthly. Distributions of capital gains are recorded on the
ex-dividend dates.
2. Investment Advisory Agreement and
Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with FAM. The general
partner of FAM is Princeton Services, Inc. ("PSI"), an indirect wholly-owned
subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is the limited
partner.
FAM is responsible for the management of the Fund's portfolio and provides the
necessary personnel, facilities, equipment and certain other services necessary
to the operations of the Fund. For such services, the Fund pays a monthly fee at
an annual rate of 0.55% of the Fund's average weekly net assets, including
proceeds from the issuance of Preferred Shares. For the period January 29, 1999
to March 31, 1999, FAM earned fees of $153,780, all of which was voluntarily
waived. FAM also reimbursed the Fund additional expenses of $18,896.
During the period January 29, 1999 to March 31, 1999, Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("MLPF&S"), an affiliate of FAM, received
underwriting fees of $626,250 in connection with the issuance of the Fund's
Preferred Shares.
Accounting services are provided to the Fund by FAM at cost.
Certain officers and/or trustees of the Fund are officers and/or directors of
FAM, PSI, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the
period January 29, 1999 to March 31, 1999 were $239,930,482 and $33,727,570,
respectively.
Net realized gains (losses) for the period January 29, 1999 to March 31, 1999
and net unrealized gains (losses) as of March 31, 1999 were as follows:
- --------------------------------------------------------------------------------
Realized Unrealized
Gains (Losses) Gains (Losses)
- --------------------------------------------------------------------------------
Long-term investments $ (312,626) $(1,051,156)
Financial futures contracts 301,410 150,313
----------- -----------
Total $ (11,216) $ (900,843)
=========== ===========
- --------------------------------------------------------------------------------
As of March 31, 1999, net unrealized depreciation for Federal income tax
purposes aggregated $1,051,156, of which $124,047 related to appreciated
securities and $1,175,203 related to depreciated securities. The aggregate cost
of investments at March 31, 1999 for Federal income tax purposes was
$213,373,532.
4. Beneficial Interest Transactions:
The Fund is authorized to issue an unlimited number of shares of beneficial
interest, including Preferred Shares, par value $.10 per share, all of which
were initially classified as Common Shares. The Board of Trustees is authorized,
however, to reclassify any unissued shares of capital without approval of
holders of Common Shares.
Common Shares
Shares issued and outstanding during the period January 29, 1999 to March 31,
1999 increased by 9,110,000 from shares sold.
F-36
<PAGE>
Preferred Shares
Auction Market Preferred Shares ("AMPS") are Preferred Shares of the Fund, with
a par value of $.10 per share and a liquidation preference of $25,000 per share,
that entitle their holders to receive cash dividends at an annual rate that may
vary for the successive dividend periods. The yields in effect at March 31, 1999
were for Series A, 3.27% and Series B, 3.45%.
In connection with the offering of AMPS, the Board of Trustees reclassified
3,340 shares of unissued beneficial interest as AMPS.
Shares issued and outstanding during the period January 29, 1999 to March 31,
1999 increased by 3,340 as a result of the AMPS offering. The Fund pays
commissions to certain broker-dealers at the end of each auction at an annual
rate ranging from 0.25% to 0.375%, calculated on the proceeds of each auction.
For the period January 29, 1999 to March 31, 1999, MLPF&S earned $15,875 as
commissions.
5. Subsequent Event:
On April 8, 1999, the Fund's Board of Trustees declared an ordinary income
dividend to Common Shareholders in the amount of $.132816 per share, payable on
April 29, 1999 to shareholders of record as of April 22, 1999.
F-37
<PAGE>
Unaudited Financial Statements for
the Combined Fund on a Pro Forma Basis,
as of March 31, 1999
F-38
<PAGE>
COMBINED SCHEDULE OF INVESTMENTS FOR
MUNIHOLDINGS FLORIDA INSURED FUND, MUNIHOLDINGS FLORIDA INSURED FUND II,
MUNIHOLDINGS FLORIDA INSURED FUND III AND MUNIHOLDING FLORIDA INSURED FUND IV
(unaudited)
MARCH 31, 1999
(in Thousands)
<TABLE>
<CAPTION>
Muni- Muni- Muni- Muni- Pro
Holdings Holdings Holdings Holdings Forma
Florida Florida Florida Florida for
S&P Moody's Face Insued Insured Insured Insured Combined
Ratings Ratings Amount Fund++ Fund II++ Fund III++ Fund IV++ Funds++
- ------------------------------------------------------------------------------------------------------------------------------------
Florida--80% Issue
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NR* Aaa $2,375 Bay County, Florida, School Board,
COP, 5% due 7/01/2023(c) ............................. -- -- -- $ 2,345 $ 2,345
AAA Aaa 1,500 Brevard County, Florida, School Board
COP, Series B, 5.50% due 7/01/2021(c) ................ $ 1,562 -- -- -- 1,562
AAA Aaa 2,685 Broward County, Florida, Airport System Revenue Bonds,
AMT, Series G, 5.125% due 10/01/2015(c) .............. -- -- $ 2,707 -- 2,707
Broward County, Florida, HFA, M/F Housing
Revenue Bonds (Heron Pointe Apartments Project),
AMT, Series A(d):
AAA Aaa 800 5.65% due 11/01/2022 .................................. 827 -- -- -- 827
AAA Aaa 1,250 5.70% due 11/01/2029 .................................. 1,292 -- -- -- 1,292
NR* Aaa 7,000 Broward County, Florida, HFA, S/F Mortgage Revenue
Refunding Bonds, AMT, Series B, 5.40% due
4/01/2029(e)(h) ....................................... -- $ 7,038 -- -- 7,038
AAA Aaa 1,650 Broward County, Florida, Professional Sports Facilities
Tax Revenue Bonds (Civic Arena Project), Series A,
5.625% due 9/01/2028(b) ............................... 1,732 -- -- -- 1,732
AAA NR* 7,500 Charlotte County, Florida, Utility Revenue
Refunding Bonds, 5% due 10/01/2023(i) ................ -- 7,448 -- -- 7,448
Clay County, Florida, HFA, S/F Mortgage Revenue
Refunding Bonds (Multi-County)(e)(h):
NR* Aaa 9,000 5.45% due 4/01/2031 ................................... 5,050 -- 4,040 -- 9,090
NR* Aaa 3,000 AMT, 5.35% due 10/01/2018 ............................ -- -- 3,037 -- 3,037
AAA Aaa 2,500 Cocoa, Florida, Water and Sewer Revenue
Improvement Bonds, 5.75% due 10/01/2007(f)(i) ........ 2,800 -- -- -- 2,800
NR* NR* 4,440 Collier County, Florida, IDA, IDR, Refunding (Southern
States Utilities), AMT, 6.50% due 10/01/2025 ......... 4,639 -- -- -- 4,639
AAA Aaa 2,000 Dade County, Florida, Aviation Revenue Bonds
(Miami International Airport), AMT, Series B,
5.125% due 10/01/2022(d) .............................. 1,980 -- -- -- 1,980
</TABLE>
F-39
<PAGE>
COMBINED SCHEDULE OF INVESTMENTS FOR
MUNIHOLDINGS FLORIDA INSURED FUND, MUNIHOLDINGS FLORIDA INSURED FUND II,
MUNIHOLDINGS FLORIDA INSURED FUND III AND MUNIHOLDING FLORIDA INSURED FUND IV
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
MARCH 31, 1999
(in Thousands)
<TABLE>
<CAPTION>
Muni- Muni- Muni- Muni- Pro
Holdings Holdings Holdings Holdings Forma
Florida Florida Florida Florida for
S&P Moody's Face Insued Insured Insured Insured Combined
Ratings Ratings Amount Fund++ Fund II++ Fund III++ Fund IV++ Funds++
- ------------------------------------------------------------------------------------------------------------------------------------
Florida (continued) Issue
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AAA Aaa 6,500 Dade County, Florida, Aviation Revenue Bonds, Series B,
5.60% due 10/01/2026(b) ............................... 6,832 -- -- -- 6,832
Dade County, Florida, HFA, M/F Mortgage Revenue Bonds
(Golden Lakes Apartments Project), AMT, Series A:
NR* NR* 1,335 5.95% due 11/01/2027 .................................. 1,398 -- -- -- 1,398
NR* NR* 1,445 6.05% due 11/01/2039 .................................. 1,513 -- -- -- 1,513
Dade County, Florida, HFA, M/F Mortgage Revenue
Bonds (Siesta Pointe Apartments), AMT, Series
A(d):
AAA Aaa 1,225 5.65% due 9/01/2017 ................................... 1,270 -- -- -- 1,270
AAA Aaa 1,700 5.70% due 9/01/2022 ................................... 1,757 -- -- -- 1,757
AAA Aaa 1,890 5.75% due 9/01/2029 ................................... 1,954 -- -- -- 1,954
A1+ Aa3 1,000 Dade County, Florida, IDA Exempt Facilities, Revenue
Refunding Bonds (Florida Power & Light Co.),
VRDN, 2.90% due 6/01/2021(a) ......................... -- -- -- 1,000 1,000
AAA NR* 4,375 Dade County, Florida, Seaport, GO, Refunding,
5.125% due 10/01/2026(e) .............................. -- -- 4,400 -- 4,400
Dade County, Florida, Water and Sewer System
Revenue Bonds(i):
AAA Aaa 1,885 5.375% due 10/01/2016 ................................. 1,964 -- -- -- 1,964
AAA Aaa 11,930 5.50% due 10/01/2025 .................................. 12,423 12,423
AAA Aaa 26,625 5.25% due 10/01/2026 .................................. 5,101 5,611 6,249 10,202 27,163
NR* Aaa 8,300 Duval County, Florida, HFA, S/F Mortgage Revenue
Bonds, AMT, 5.30% due 4/01/2031(e)(h) ................ 2,323 -- -- 6,010 8,333
Escambia County, Florida, HFA, S/F Mortgage Revenue
Refunding Bonds, Multi-County Program, AMT(e)(h):
NR* Aaa 12,780 5.20% due 4/01/2032(b) ................................ 2,767 -- -- 9,953 12,720
NR* Aaa 3,405 Series A, 5.30% due 10/01/2019 ........................ 3,445 3,445
NR* Aaa 8,400 Series A, 5.35% due 4/01/2031 ......................... 4,451 4,046 -- 8,497
NR* Aaa 2,360 Series C, 5.80% due 10/01/2019 ....................... 2,442 -- -- -- 2,442
NR* Baa1 3,000 Escambia County, Florida, PCR (Champion International
Corp. Project), AMT, 6.40% due 9/01/2030(k) .......... -- -- 3,190 -- 3,190
</TABLE>
F-40
<PAGE>
COMBINED SCHEDULE OF INVESTMENTS FOR
MUNIHOLDINGS FLORIDA INSURED FUND, MUNIHOLDINGS FLORIDA INSURED FUND II,
MUNIHOLDINGS FLORIDA INSURED FUND III AND MUNIHOLDING FLORIDA INSURED FUND IV
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
MARCH 31, 1999
(in Thousands)
<TABLE>
<CAPTION>
Muni- Muni- Muni- Muni- Pro
Holdings Holdings Holdings Holdings Forma
Florida Florida Florida Florida for
S&P Moody's Face Insued Insured Insured Insured Combined
Ratings Ratings Amount Fund++ Fund II++ Fund III++ Fund IV++ Funds++
- ------------------------------------------------------------------------------------------------------------------------------------
Florida (continued) Issue
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
A1 VMIG1+ 700 Escambia County, Florida, PCR, Refunding (Gulf Power
Company Project), VRDN, 2.95% due 7/01/2022(a) ....... -- -- 700 -- 700
Florida HFA Revenue Bonds, AMT (c):
AAA Aaa 4,500 (Barrington Place), Series K-1, 5.45% due 12/01/2037 . -- 4,558 -- -- 4,558
AAA Aaa 1,675 (Mar Lago Village Apartments Project), Series F,
5.90% due 12/01/2027 ................................ 1,764 -- -- -- 1,764
AAA Aaa 3,500 (Wentworth Apartments Project), Series I-1, 5.45%
due 10/01/2037 ...................................... -- -- 3,539 -- 3,539
AAA Aaa 3,750 (Willow Lake Apartments), Series J-1, 5.35%
due 7/01/2027 ....................................... -- -- -- 3,799 3,799
AAA Aaa 6,000 (Willow Lake Apartments), Series J-1, 5.45%
due 1/01/2038 ....................................... -- -- -- 6,102 6,102
NR* Aaa 17,460 Florida HFA Revenue Refunding Bonds, RITR, AMT,
Series 12, 8.32% due 7/01/2029(b)(g) ................. 11,989 7,163 -- -- 19,152
Florida Housing Finance Corporation Revenue Bonds,
Homeowner Mortgage, Series 1(b):
AAA Aaa 2,090 5.10% due 1/01/2013 ................................... 2,095 -- -- -- 2,095
AAA Aaa 2,715 5.10% due 7/01/2013 ................................... 2,721 -- -- -- 2,721
AAA Aaa 5,340 Florida Housing Finance Corporation Revenue
Refunding Bonds, Homeowner Mortgage,
AMT, Series 2, 5.35% due 1/01/2021(b) ................ -- 2,019 3,371 -- 5,390
Florida Housing Finance Corporation Revenue
Refunding Bonds, Homeowner Mortgage, Series 1(b):
AAA Aaa 2,325 5.15% due 1/01/2014 ................................... -- 2,341 -- -- 2,341
AAA Aaa 2,005 5.15% due 7/01/2014 ................................... -- 2,019 -- -- 2,019
AAA Aaa 13,710 Florida Ports Financing Commission Revenue Bonds
(State Transportation Trust Fund), AMT, 5.375%
due 6/01/2027(b) ...................................... 2,252 11,720 -- -- 13,972
AAA Aaa 2,000 Florida State Department of Children and Families,
COP (South Florida State Hospital Project),
5% due 7/01/2018(c) ................................... -- -- 1,990 -- 1,990
</TABLE>
F-41
<PAGE>
COMBINED SCHEDULE OF INVESTMENTS FOR
MUNIHOLDINGS FLORIDA INSURED FUND, MUNIHOLDINGS FLORIDA INSURED FUND II,
MUNIHOLDINGS FLORIDA INSURED FUND III AND MUNIHOLDING FLORIDA INSURED FUND IV
SCHEDULE OF INVESTMENTS (unaudited) (Continued)
MARCH 31, 1999
(in Thousands)
<TABLE>
<CAPTION>
Muni- Muni- Muni- Muni- Pro
Holdings Holdings Holdings Holdings Forma
Florida Florida Florida Florida for
S&P Moody's Face Insued Insured Insured Insured Combined
Ratings Ratings Amount Fund++ Fund II++ Fund III++ Fund IV++ Funds++
- ------------------------------------------------------------------------------------------------------------------------------------
Florida (continued) Issue
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AA+ Aa2 1,000 Florida State GO, Department of Transportation,
Right of Way, 5.50% due 7/01/2021 .................... 1,037 -- -- -- 1,037
Florida State Mid-Bay Bridge Authority Revenue
Bonds, Series A(c):
AAA Aaa 3,400 0%** due 10/01/2022 ................................... 1,001 -- -- -- 1,001
AAA Aaa 5,000 0%** due 10/01/2023 ................................... 1,392 -- -- -- 1,392
Florida State Turnpike Authority, Turnpike Revenue
Bonds, Series A(d):
AAA Aaa 4,010 5% due 7/01/2017 ...................................... -- -- 4,024 -- 4,024
AAA Aaa 4,210 5% due 7/01/2018 ...................................... -- 4,217 -- -- 4,217
AAA Aaa 4,420 5% due 7/01/2019 ...................................... 4,420 -- -- -- 4,420
AAA Aaa 4,645 5% due 7/01/2020 ...................................... 4,626 -- -- -- 4,626
AAA Aaa 9,995 5% due 7/01/2022 ...................................... -- -- -- 9,913 9,913
Florida State Turnpike Authority, Turnpike Revenue
Bonds (Department of Transportation)
A Aaa 10,000 Series A, 4.50% due 7/01/2027(i) ...................... -- 9,079 -- -- 9,079
AAA NR* 2,430 Series B, 5% due 7/01/2018(b) ........................ -- 2,434 -- 2,434
AAA Aaa 1,500 Fort Myers, Florida, Improvement Revenue Refunding
Bonds, Series A, 5% due 12/01/2022(c) ................ 1,490 -- -- -- 1,490
AAA Aaa 5,200 Greater Orlando Aviation Authority, Florida, Airport
Facilities Revenue Bonds, AMT, 5.25%
due 10/01/2023(i) ..................................... -- -- -- 5,246 5,246
A- Baa1 17,500 Highlands County, Florida, Health Facilities Authority
Revenue Bonds (Adventist Health Systems),
5.25% due 11/15/2028 .................................. 1,930 4,825 4,825 5,308 16,888
AAA Aaa 5,700 Hillsborough County, Florida, Aviation Authority
Revenue Refunding Bonds (Tampa International
Airport), Series B, 5.125% due 10/01/2017(c) ......... 5,745 -- -- -- 5,745
AAA Aaa 3,000 Hillsborough County, Florida, Port District Special
Revenue Refunding Bonds (Tampa Port Authority),
AMT, 6% due 6/01/2020(d) ............................. 3,199 -- -- -- 3,199
</TABLE>
F-42
<PAGE>
COMBINED SCHEDULE OF INVESTMENTS FOR
MUNIHOLDINGS FLORIDA INSURED FUND, MUNIHOLDINGS FLORIDA INSURED FUND II,
MUNIHOLDINGS FLORIDA INSURED FUND III AND MUNIHOLDING FLORIDA INSURED FUND IV
SCHEDULE OF INVESTMENTS (unaudited) (Continued)
MARCH 31, 1999
(in Thousands)
<TABLE>
<CAPTION>
Muni- Muni- Muni- Muni- Pro
Holdings Holdings Holdings Holdings Forma
Florida Florida Florida Florida for
S&P Moody's Face Insued Insured Insured Insured Combined
Ratings Ratings Amount Fund++ Fund II++ Fund III++ Fund IV++ Funds++
- ------------------------------------------------------------------------------------------------------------------------------------
Florida (continued) Issue
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NR* VMIG1+ 21,015 Hillsborough County, Florida, School Board, COP, RITR,
Series 31, 7.32% due 7/01/2021(b)(g) ................. 11,660 10,585 -- -- 22,245
NR* Aaa 2,415 Homestead Florida Water and Wastewater Revenue
Refunding Bonds, 5.25% due 10/01/2027(c) ............. 2,464 -- -- -- 2,464
NR* Aaa 1,650 Indian Trace Community Development District, Florida
Water Management Special Benefit Assessment,
5% due 5/01/2017(b) ................................... -- 1,653 -- -- 1,653
Jacksonville, Florida, Excise Taxes Revenue Refunding
and Improvement Bonds, Series A(i):
AAA Aaa 1,595 5% due 10/01/2017 ..................................... -- -- -- 1,601 1,601
AAA Aaa 1,970 5% due 10/01/2018 ..................................... -- -- -- 1,973 1,973
AAA Aaa 1,060 5% due 10/01/2019 ..................................... -- -- -- 1,060 1,060
AAA NR* 12,990 Jacksonville, Florida, HFA, Hospital Revenue Refunding
Bonds, RIB, Series 49, 6.864% due 8/15/2027(b)(g) .... -- -- 12,892 -- 12,892
AA- A1 2,000 Lakeland, Florida, Electric and Water Revenue Bonds,
5.50% due 10/01/2006(f) ............................... 2,081 -- -- -- 2,081
AAA Aaa 2,040 Lakeland, Florida, Hospital System Revenue Refunding
Bonds (Lakeland Regional Medical Center),
5% due 11/15/2022(b) .................................. 2,005 -- -- -- 2,005
NR* Aaa 970 Lee County, Florida, Housing Finance Authority,
S/F Mortgage Revenue Refunding Bonds,
AMT, Series A-2, 6.30% due 3/01/2029(e)(h)(j) ........ -- 1,076 -- -- 1,076
Leon County, Florida, School Board COP, Master
Lease Program(b):
AAA Aaa 2,460 5.125% due 7/01/2017 .................................. 2,498 -- -- -- 2,498
AAA Aaa 1,000 5.125% due 7/01/2022 .................................. 1,003 -- -- -- 1,003
AAA Aaa 1,000 Manatee County, Florida, School Board COP,
6.125% due 7/01/2006(b)(f) ............................ 1,142 -- -- -- 1,142
</TABLE>
F-43
<PAGE>
COMBINED SCHEDULE OF INVESTMENTS FOR
MUNIHOLDINGS FLORIDA INSURED FUND, MUNIHOLDINGS FLORIDA INSURED FUND II,
MUNIHOLDINGS FLORIDA INSURED FUND III AND MUNIHOLDING FLORIDA INSURED FUND IV
SCHEDULE OF INVESTMENTS (unaudited) (Continued)
MARCH 31, 1999
(in Thousands)
<TABLE>
<CAPTION>
Muni- Muni- Muni- Muni- Pro
Holdings Holdings Holdings Holdings Forma
Florida Florida Florida Florida for
S&P Moody's Face Insued Insured Insured Insured Combined
Ratings Ratings Amount Fund++ Fund II++ Fund III++ Fund IV++ Funds++
- ------------------------------------------------------------------------------------------------------------------------------------
Florida (continued) Issue
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AAA Aaa 3,665 Martin County, Florida, Health Facilities Authority,
Hospital Revenue Bonds (Martin Memorial
Medical Center Project), Series A, 5.375%
due 11/15/2024(b) ..................................... 3,750 -- -- -- 3,750
NR* Aaa 2,000 Marion County, Florida, School Board, COP,
5% due 6/01/2023(d) ................................... -- 1,975 -- -- 1,975
AAA Aaa 6,000 Miami Beach, Florida, Parking Revenue Bonds,
5.125% due 9/01/2022(d) ............................... -- -- -- 6,033 6,033
AAA Aaa 6,810 Miami-Dade County, Florida, Professional Sports
Franchise Facility Revenue Refunding Bonds,
5% due 10/01/2023(b) .................................. 6,762 -- -- -- 6,762
NR* Aaa 14,000 Miami-Dade County, Florida, Public Service Tax
Revenue Bonds (UMSA Public Improvements),
5% due 10/01/2023(d) .................................. 3,972 4,965 4,965 -- 13,902
Miami-Dade County, Florida, Special Obligation
Revenue Bonds, Sub-Series B(b):
AAA Aaa 15,000 0%** due 10/01/2033 ................................... 2,306 -- -- -- 2,306
AAA Aaa 10,885 0%** due 10/01/2034 ................................... 1,582 -- -- -- 1,582
AAA Aaa 16,340 0%** due 10/01/2035 ................................... 2,245 -- -- -- 2,245
AAA Aaa 5,000 5% due 10/01/2037 ..................................... 4,899 -- -- -- 4,899
AAA Aaa 4,000 Miami-Dade County, Florida, School Board, COP, Revenue
Refunding Bonds, Series C, 5% due 8/01/2025(d) ....... -- 3,936 -- -- 3,936
AAA Aaa 4,000 North Broward, Florida, Hospital District Improvement
Revenue Refunding Bonds, 5.375%
due 1/15/2024(b) ...................................... 4,087 -- -- -- 4,087
AAA Aaa 4,250 North Port, Florida, Utility Revenue Refunding Bonds,
5% due 10/01/2018(i) .................................. -- -- -- 4,250 4,250
AAA Aaa 2,695 North Springs, Florida, Improvement District, Water
Management, GO, Refunding, 5% due 5/01/2019(b) ....... -- 2,692 -- -- 2,692
</TABLE>
F-44
<PAGE>
COMBINED SCHEDULE OF INVESTMENTS FOR
MUNIHOLDINGS FLORIDA INSURED FUND, MUNIHOLDINGS FLORIDA INSURED FUND II,
MUNIHOLDINGS FLORIDA INSURED FUND III AND MUNIHOLDING FLORIDA INSURED FUND IV
SCHEDULE OF INVESTMENTS (unaudited) (Continued)
MARCH 31, 1999
(in Thousands)
<TABLE>
<CAPTION>
Muni- Muni- Muni- Muni- Pro
Holdings Holdings Holdings Holdings Forma
Florida Florida Florida Florida for
S&P Moody's Face Insued Insured Insured Insured Combined
Ratings Ratings Amount Fund++ Fund II++ Fund III++ Fund IV++ Funds++
- ------------------------------------------------------------------------------------------------------------------------------------
Florida (continued) Issue
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AAA Aaa 3,340 Okaloosa County, Florida, Gas District Revenue
Refunding Bonds, Gas Systems, Series A,
5.625% due 10/01/2023(b) .............................. 3,541 -- -- -- 3,541
Orange County, Florida, HFA, M/F Revenue Bonds
(Metro Place Apartments), AMT, Series A (h):
AAA NR* 1,000 5.35% due 10/01/2023 .................................. 1,012 -- -- -- 1,012
AAA NR* 4,015 5.375% due 10/01/2030 ................................. -- 4,070 -- -- 4,070
AAA NR* 4,965 Orange County, Florida, HFA, S/F Mortgage Revenue
Bonds, AMT, Series B, 5.875% due 3/01/2028(e)(h) ..... -- 5,161 -- -- 5,161
NR* Aaa 17,650 Orange County, Florida, School Board, COP, Refunding
Bonds, Series A, 5.375% due 8/01/2022(b) ............. 10,254 7,844 -- -- 18,098
Orange County, Florida, Tourist Development Tax
Revenue Refunding Bonds(b):
AAA Aaa 3,500 5% due 10/01/2018 ..................................... -- -- 3,505 -- 3,505
AAA Aaa 5,160 5% due 10/01/2019 ..................................... -- -- 5,160 -- 5,160
AAA Aaa 5,000 5.125% due 10/01/2021 ................................. 5,023 -- -- 5,023
Orlando and Orange County Expressway Authority,
Florida, Expressway Revenue Refunding Bonds,
Junior Lien(i):
AAA Aaa 5,100 5% due 7/01/2017 ...................................... -- -- 2,504 2,604 5,108
AAA Aaa 15,250 5% due 7/01/2021 ...................................... -- 1,987 -- 13,161 15,148
AAA Aaa 3,100 5% due 7/01/2028 ...................................... -- -- 3,067 -- 3,067
AAA Aaa 3,700 Series A, 5.125% due 7/01/2020 ........................ 3,714 -- -- -- 3,714
AAA Aaa 2,180 Palm Beach County, Florida, Water and Wastewater
Revenue Bonds, 5% due 10/01/2017(d) .................. -- 2,187 -- -- 2,187
AAA NR* 3,000 Peace River/Manasota, Florida, Regional Water Supply
Authority Revenue Refunding Bonds (Peace River
Option Project), Series A, 5.20% due 10/01/2018(b) ... -- 3,051 -- -- 3,051
</TABLE>
F-45
<PAGE>
COMBINED SCHEDULE OF INVESTMENTS FOR
MUNIHOLDINGS FLORIDA INSURED FUND, MUNIHOLDINGS FLORIDA INSURED FUND II,
MUNIHOLDINGS FLORIDA INSURED FUND III AND MUNIHOLDING FLORIDA INSURED FUND IV
SCHEDULE OF INVESTMENTS (unaudited) (Continued)
MARCH 31, 1999
(in Thousands)
<TABLE>
<CAPTION>
Muni- Muni- Muni- Muni- Pro
Holdings Holdings Holdings Holdings Forma
Florida Florida Florida Florida for
S&P Moody's Face Insued Insured Insured Insured Combined
Ratings Ratings Amount Fund++ Fund II++ Fund III++ Fund IV++ Funds++
- ------------------------------------------------------------------------------------------------------------------------------------
Florida (continued) Issue
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Pinellas County, Florida, HFA, S/F Housing Revenue
Bonds, Multi-County Program (e)(h):
NR* Aaa 1,735 AMT, Series C, 5.70% due 9/01/2018 .................... -- -- 1,785 -- 1,785
NR* Aaa 1,375 AMT, Series A-1, 5.20% due 9/01/2021 .................. -- -- -- 1,366 1,366
NR* Aaa 2,750 AMT, Series A-1, 5.25% due 9/01/2025 .................. -- -- -- 2,738 2,738
NR* Aaa 1,990 AMT, Series C, 5.80% due 3/01/2029 .................... -- -- 2,051 -- 2,051
NR* Aaa 1,500 Series A-1, 5.30% due 9/01/2030 ...................... 1,515 -- -- -- 1,515
AAA Aaa 11,000 Pinellas County, Florida, Sewer Revenue Refunding
Bonds, 5% due 10/01/2024(i) .......................... -- -- 4,964 5,957 10,921
Polk County, Florida, School Board, COP(d):
AAA Aaa 6,900 5% due 1/01/2023 ...................................... -- 6,814 -- -- 6,814
AAA Aaa 3,700 Series A, 5% due 1/01/2018 ........................... -- -- 3,706 -- 3,706
AAA Aaa 9,000 Series A, 5% due 1/01/2020 ........................... -- -- -- 8,965 8,965
AAA Aaa 2,000 Port St. Lucie, Florida, Special Assessment Revenue Bonds,
Utility Service Area Numbers 3 & 4, Series A,
5% due 10/01/2018(b) .................................. -- -- 2,003 -- 2,003
AAA Aaa 14,375 Port Saint Lucie, Florida, Utility Revenue Refunding and
Improvement Bonds, Series A, 5.125%
due 9/01/2027(b) ...................................... 5,030 5,030 -- 4,401 14,461
AAA Aaa 7,095 Saint John's County, Florida, IDA, IDR (Golf Hall of Fame
Project), 5.875% due 9/01/2023(b) .................... 7,617 -- -- -- 7,617
AAA Aaa 8,135 Saint John's County, Florida, Sales Tax Revenue
Refunding Bonds, 5% due 10/01/2019(i) ................ -- 4,000 4,135 -- 8,135
AAA Aaa 5,000 Saint John's River Management District, Florida, Land
Acquisition Revenue Refunding Bonds,
5.125% due 7/01/2016(d) ............................... -- -- -- 5,052 5,052
A-1+ VMIG1+ 3,000 Saint Lucie County, Florida, PCR, Refunding (Florida
Power and Light Company Project), VRDN, 3%
due 1/01/2026(a) ..................................... -- -- 3,000 -- 3,000
</TABLE>
F-46
<PAGE>
COMBINED SCHEDULE OF INVESTMENTS FOR
MUNIHOLDINGS FLORIDA INSURED FUND, MUNIHOLDINGS FLORIDA INSURED FUND II,
MUNIHOLDINGS FLORIDA INSURED FUND III AND MUNIHOLDING FLORIDA INSURED FUND IV
SCHEDULE OF INVESTMENTS (unaudited) (Continued)
MARCH 31, 1999
(in Thousands)
<TABLE>
<CAPTION>
Muni- Muni- Muni- Muni- Pro
Holdings Holdings Holdings Holdings Forma
Florida Florida Florida Florida for
S&P Moody's Face Insued Insured Insured Insured Combined
Ratings Ratings Amount Fund++ Fund II++ Fund III++ Fund IV++ Funds++
- ------------------------------------------------------------------------------------------------------------------------------------
Florida (continued) Issue
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AAA Aaa 10,000 Saint Petersburg, Florida, Excise Tax Revenue Refunding
Bonds, 5.15% due 10/01/2013(i) ....................... 10,205 -- -- -- 10,205
NR* Aaa 9,500 Sarasota County, Florida, Public Hospital Board, Revenue
Refunding Bonds, RITR, Series 99,
7.615% due 7/01/2028(b)(g) ............................ -- -- -- 10,767 10,767
AAA Aaa 5,000 Sarasota County, Florida, Public Hospital Board, Revenue
Refunding Bonds (Sarasota Memorial Hospital),
Series B, 5.25% due 7/01/2024(b) ..................... -- 5,134 -- -- 5,134
AAA Aaa 8,430 Seminole County, Florida, School Board, COP, Series A,
5% due 7/01/2023(b) ................................... -- 8,324 -- -- 8,324
AAA Aaa 2,750 South Miami, Florida, Health Facilities Authority,
Hospital Revenue Refunding Bonds (Baptist
Health System Obligation Group),
5.50% due 10/01/2020(b) ............................... 2,838 -- -- -- 2,838
AAA Aaa 6,000 Sunrise, Florida, Utility System Revenue
Refunding Bonds, 5.20% due 10/01/2022(c) ............. -- -- -- 6,133 6,133
AAA Aaa 10,000 Sunrise Lakes, Florida, Phase 4 Recreation District,
Refunding Bonds, GO, 5.25% due 8/01/2024(c) .......... -- 10,184 -- -- 10,184
NR* Aaa 5,965 Tampa, Florida, Solid Waste System Revenue Refunding
Bonds (McKay Bay Refuse-to-Energy), AMT,
Series B, 5.25% due 10/01/2016(c) .................... -- -- -- 6,094 6,094
AAA Aaa 21,850 Tampa, Florida, Sports Authority Revenue Bonds,
Sales Tax Payments (Stadium Project),
5.25% due 1/01/2027 (b) ............................... 7,643 14,623 -- -- 22,266
NR* Aaa 7,500 Tampa, Florida, Sports Authority Revenue Bonds,
RITR, Series 98, 7.115% due 1/01/2027(b)(g) .......... -- -- -- 7,785 7,785
AAA Aaa* 5,600 Tampa, Florida, Utility Tax Improvement Revenue Bonds,
5% due 10/01/2019(d) .................................. 5,600 -- -- -- 5,600
AAA Aaa 1,720 Tampa, Florida, Water and Sewer Revenue Refunding
Bonds, 5.125% due 10/01/2017(i) ...................... -- 1,743 -- -- 1,743
</TABLE>
F-47
<PAGE>
COMBINED SCHEDULE OF INVESTMENTS FOR
MUNIHOLDINGS FLORIDA INSURED FUND, MUNIHOLDINGS FLORIDA INSURED FUND II,
MUNIHOLDINGS FLORIDA INSURED FUND III AND MUNIHOLDING FLORIDA INSURED FUND IV
SCHEDULE OF INVESTMENTS (unaudited) (Continued)
MARCH 31, 1999
(in Thousands)
<TABLE>
<CAPTION>
Muni- Muni- Muni- Muni- Pro
Holdings Holdings Holdings Holdings Forma
Florida Florida Florida Florida for
S&P Moody's Face Insued Insured Insured Insured Combined
Ratings Ratings Amount Fund++ Fund II++ Fund III++ Fund IV++ Funds++
- ------------------------------------------------------------------------------------------------------------------------------------
Florida (continued) Issue
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AAA Aaa 7,575 Tampa-Hillsborough County, Florida, Expressway
Authority Revenue Bonds, 5% due 7/01/2022(c) ......... -- -- -- 7,523 7,523
Tampa-Hillsborough County, Florida, Expressway
Authority Reveune Refunding Bonds (c):
AAA Aaa 3,115 5.125% due 7/01/2019 .................................. -- -- -- 3,134 3,134
AAA Aaa 7,250 5% due 7/01/2027 ...................................... 7,174 -- -- -- 7,174
AAA Aaa 6,875 Village Center Community Development District, Florida,
Recreational Revenue Refunding Bonds, Series A,
5% due 11/01/2021(b) .................................. 6,829 -- -- -- 6,829
NR* Aaa 2,130 Village Center Community Development District, Florida,
Utility Revenue Refunding Bonds, Series A,
5% due 10/01/2023(b) .................................. -- -- 2,115 -- 2,115
- ------------------------------------------------------------------------------------------------------------------------------------
Illinois--6.8%
- ------------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 2,500 Chicago, Illinois, Board of Education, GO (Chicago
School Reform Project), Series A,
5.25% due 12/01/2030(c) ............................ -- -- 2,506 -- 2,506
AAA Aaa 10,000 Chicago, Illinois, Sales Tax Revenue Refunding
Bonds, 5.25% due 1/01/2028(i) ..................... -- -- 2,510 7,531 10,041
AAA Aaa 28,650 Chicago, Illinois, Water Revenue Refunding Bonds,
5.25% due 11/01/2027(i) ............................ 6,852 6,852 -- 15,060 28,764
AAA Aaa 6,000 Illinois Educational Facilities Authority Revenue
Refunding Bonds (Illinois Institue of Technology),
5.25% due 12/01/2025(c) ............................ -- -- -- 6,024 6,024
A-1+ VMIG1+ 1,300 Illinois Health Facilities Authority Revenue Refunding
Bonds (University of Chicago Hospitals), VRDN,
2.90% due 8/01/2026(a)(b) .......................... 1,300 -- -- -- 1,300
AAA Aaa 9,200 Metropolitan Pier and Exposition Authority, Illinois,
Dedicated State Tax Revenue Refunding Bonds
(McCormick Place Expansion Project), Series A,
5.25% due 6/15/2027(c) ............................. -- -- 9,233 -- 9,233
</TABLE>
F-48
<PAGE>
COMBINED SCHEDULE OF INVESTMENTS FOR
MUNIHOLDINGS FLORIDA INSURED FUND, MUNIHOLDINGS FLORIDA INSURED FUND II,
MUNIHOLDINGS FLORIDA INSURED FUND III AND MUNIHOLDING FLORIDA INSURED FUND IV
SCHEDULE OF INVESTMENTS (unaudited) (Continued)
MARCH 31, 1999
(in Thousands)
<TABLE>
<CAPTION>
Muni- Muni- Muni- Muni- Pro
Holdings Holdings Holdings Holdings Forma
Florida Florida Florida Florida for
S&P Moody's Face Insued Insured Insured Insured Combined
Ratings Ratings Amount Fund++ Fund II++ Fund III++ Fund IV++ Funds++
- ------------------------------------------------------------------------------------------------------------------------------------
Massachusetts--4.8% Issue
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AAA Aaa 21,000 Massachusetts State Turnpike Authority, Metropolitan
Highway System Revenue Bonds, Sub-Series A,
5.25% due 1/01/2029(c) ............................. 7,085 -- 6,073 8,098 21,256
AAA Aaa 15,000 Massachusetts State Turnpike Authority, Metropolitan
Highway System Revenue Refunding Bonds,
Sub-Series B, 5.25% due 1/01/2029(b) .............. 5,049 10,098 -- -- 15,147
AAA Aaa 5,000 Massachusetts State Water Resources Authority Revenue
Bonds, Series B, 5% due 12/01/2025(b) ............. -- 4,870 -- -- 4,870
- ------------------------------------------------------------------------------------------------------------------------------------
Mississippi--0.4
- ------------------------------------------------------------------------------------------------------------------------------------
NR* P-1 3,600 Perry County, Mississippi, PCR, Refunding
(Leaf River Forest Project), VRDN,
3% due 3/01/2002(a) ................................ -- -- -- 3,600 3,600
- ------------------------------------------------------------------------------------------------------------------------------------
Pennsylvania--0.%
- ------------------------------------------------------------------------------------------------------------------------------------
NR Aaa 6,050 Beaver County, Pennsylvania, GO, Refunding
5.25% due 10/01/2022(b) ......................... -- 6,099 -- -- 6,099
- ------------------------------------------------------------------------------------------------------------------------------------
Puerto Rico--0.8
- ------------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 2,000 Puerto Rico Commonwealth, GO, Refunding,
5.25% due 7/01/2018(b) ............................. -- 2,036 -- -- 2,036
AAA Aaa 4,500 Puerto Rico Comonwealth Highway Transporation
Authority, Transportation Revenue Bonds,
Puerto Rico State Infrastructure,
5% due 7/01/2022(b) ................................ -- 4,481 -- -- 4,481
- ------------------------------------------------------------------------------------------------------------------------------------
New York - 0.3
- ------------------------------------------------------------------------------------------------------------------------------------
A-1+ VMIG-1 2,600 Long Island Power Authority, New York, Electric System
Revenue Bonds, VRDN, Sub-Series 7, 3.05%
due 4/01/2025(a)(b) ................................ 2,600 -- -- -- 2,600
</TABLE>
F-49
<PAGE>
COMBINED SCHEDULE OF INVESTMENTS FOR
MUNIHOLDINGS FLORIDA INSURED FUND, MUNIHOLDINGS FLORIDA INSURED FUND II,
MUNIHOLDINGS FLORIDA INSURED FUND III AND MUNIHOLDING FLORIDA INSURED FUND IV
SCHEDULE OF INVESTMENTS (unaudited) (Continued)
MARCH 31, 1999
(in Thousands)
<TABLE>
<CAPTION>
Muni- Muni- Muni- Muni- Pro
Holdings Holdings Holdings Holdings Forma
Florida Florida Florida Florida for
S&P Moody's Face Insued Insured Insured Insured Combined
Ratings Ratings Amount Fund++ Fund II++ Fund III++ Fund IV++ Funds++
- ------------------------------------------------------------------------------------------------------------------------------------
Tennessee--0.4% Issue
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AAA Aaa 3,640 Harpeth Valley Utilities District, Tennessee,
Utilities Improvement Revenue Bonds, Series A,
5% due 9/01/2028(b) ................................ -- -- -- 3,596 3,596
- ------------------------------------------------------------------------------------------------------------------------------------
Texas - 3.4%
- ------------------------------------------------------------------------------------------------------------------------------------
A-1+ NR* 5,300 Harris County, Texas, Health Facilities Development
Corporation, Hospital Revenue Refunding Bonds
(Methodist Hospital), VRDN, 2.90%
due 12/01/2025(a) .................................. 2,000 -- 400 2,900 5,300
AAA Aaa 14,500 Houston, Texas, Water and Sewer System Revenue
Refunding Bonds, Junior Lien, Series A, 5.25%
due 12/01/2025(i) .................................. 2,521 6,049 6,049 -- 14,619
AAA Aaa 8,725 Texas State Turnpike Authority, Dallas North Thruway
Revenue Bonds (President George Bush Turnpike),
5.25% due 1/01/2023(d) ............................. -- -- 3,753 5,038 8,791
- ------------------------------------------------------------------------------------------------------------------------------------
Total Investments (Cost-- $830,313)-- 97.6% ......... 265,144 223,453 134,928 212,322 835,847
Variation Margin on Financial Futures Contracts++-0.0% 0 (73) 119 98 144
Other Assets Less Liabilities-- 2.4% ................. 6,490 (2,702) 9,773 7,069 20,630
-------- -------- -------- -------- --------
Net Assets-- 100.0% .................................. $271,634 $220,678 $144,820 $219,489 $856,621
======== ======== ======== ======== ========
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(foot notes appear on the following page)
See Notes to Financial Statements.
F-50
<PAGE>
(foot notes from previous page)
(a) The interest rate is subject to change periodically based upon prevailing
market rates. The interest rate shown is the rate in effect at March 31,
1999.
(b) MBIA Insured.
(c) AMBAC Insured.
(d) FSA Insured.
(e) GNMA Collateralized.
(f) Prerefunded.
(g) The interest rate is subject to change periodically and inversely based
upon prevailing market rates. The interest rate shown is the rate in effect
at March 31, 1999.
(h) FNMA Collateralized.
(i) FGIC Insured.
(j) FHLMC Collateralized.
(k) All or a portion of security held as collateral in connection with open
financial futures contract.
* Not Rated
** Represents a zero coupon bond; the interest rate shown is the effective
yield at the time of purchase by the Fund.
+ Highest short-term rating by Moody's Investors Service, Inc.
++ Financial futures contracts sold as of March 31, 1999 were as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Number of Contracts Issue Expiration Date (Notes 1a & 1b)
------------------- ----- --------------- ---------------
<S> <C> <C> <C>
620 US Treasury Bonds June 1999 $71,132
-------
Total Financial Futures Contracts Sold
(Total Contract Price - $71,488) $71,132
=======
</TABLE>
See Notes to Financial Statements.
Portfolio Abbreviations
To simplify the listings of MuniHoldings Florida Insured Fund's portfolio
holdings in the Schedule of Investments, we have abbreviated the names of many
of the securities according to the list below.
ACES Adjustable Convertible Extendable Securities
AMT Alternative Minimum Tax (subject to)
COP Certificates of Participation
GO General Obligation Bonds
HFA Housing Finance Agency
IDA Industrial Development Authority
IDR Industrial Development Revenue Bonds
M/F Multi-Family
RITR Residual Interest Trust Receipts
S/F Single-Family
VRDN Variable Rate Demand Notes
F-51
<PAGE>
The following unaudited pro forma Combined Statement of ASsets, Liabilities
and Capital for the Combined Fund has been derived from the Statements of
ASsets, Liabilities and Capital of the respective Funds a period from September
1, 1998 to March 31, 1999 and such information has been adjusted to give effect
to the Reorganization as if the Reorganization had occurred at March 31, 1999.
The pro forma Combined Statement of Assets, Liabilities and Capital is presented
for informational purposes only and does not purport to be indicative of the
financial condition that actually would have resulted if the Reorganization had
been consummated at March 31, 1999. The pro forma Combined Statement of Assets,
Liabilities and Capita should be read in conjunction with the Funds' financial
statements and related notes thereto which are included in the Joint Proxy
Statement and Prospectus.
PRO FORMA COMBINED STATEMENT OF ASSETS, LIABILITIES AND CAPITAL
FOR MUNIHOLDINGS FLORIDA INSURED FUND, MUNIHOLDINGS FLORIDA INSURED FUND II,
MUNIHOLDINGS FLORIDA INSURED FUND III AND MUNIHOLDINGS FLORIDA INSURED FUND IV
As of March 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
Florida Florida Florida
Insured Insured II Insured III
------------- ------------- -------------
<S> <C> <C> <C>
Assets:
Investments, at value* (Note 1a) $ 265,143,930 $ 223,453,316 $ 134,927,582
Cash 79,996 923,975 71,073
Receivables:
Securities sold 4,120,899 4,328,275 7,605,036
Interest 4,588,208 3,463,471 2,382,548
Variation margin (Note 1b) 0 0 119,531
Investment advisor (Note 2) 0 0 0
Prepaid expenses and other assets 12,232 27,837 13,500
------------- ------------- -------------
Total assets 273,945,265 232,196,874 145,119,270
------------- ------------- -------------
Liabilities:
Payables:
Securities purchased 2,004,750 11,032,269 0
Offering costs (Note 1e) 54,000 117,305 225,812
Dividends to shareholders (Note 1f) 115,581 148,029 16,513
Investment adviser (Note 2) 117,452 96,255 32,858
Variation margin (Note 1b) 0 73,125 0
Accrued expenses and other liabilities 19,952 52,025 23,596
------------- ------------- -------------
Total liabilities 2,311,735 11,519,008 298,779
------------- ------------- -------------
Net Assets: $ 271,633,530 $ 220,677,866 $ 144,820,491
============= ============= =============
Capital
Capital Shares (unlimited number of shares of
beneficial interest authorized)
Preferred Shares, par value $.10 per share of
AMPS** issued and outstanding+ at $25,000
per share liquidation preference $ 104,750,000 $ 86,000,000 $ 54,000,000
Common Shares par value $.10 per share
issued and outstanding++ 1,079,805 884,069 618,183
Paid-in capital in excess of par 159,650,434 130,634,369 91,277,757
Undistributed investment income - net 1,151,415 685,196 447,007
Undistributed (accumulated) realized capital gains
(losses) on investments-net (448,286) 655,247 (1,043,898)
Unrealized appreciation (depreciation) on
investments-net 5,450,162 1,818,985 (478,558)
------------- -------------
Total Capital $ 271,633,530 $ 220,677,866 $ 144,820,491
============= ============= =============
* Identified Cost $ 259,693,768 $ 221,780,581 $ 135,465,203
============= ============= =============
+ AMPS** issued and outstanding 4,190 3,440 2,160
============= ============= =============
++ Shares issued and outstanding 10,798,052 8,840,687 6,181,830
============= ============= =============
+++ Net asset value per Common Share $ 15.45 $ 15.23 $ 14.69
============= ============= =============
<CAPTION>
Pro Forma
Florida for
Insured IV Adjustments Combined Fund
------------- ------------- -------------
<S> <C> <C> <C>
Assets:
Investments, at value* (Note 1a) $ 212,322,376 $ 835,847,204
Cash 85,945 1,160,989
Receivables:
Securities sold 4,695,595 20,749,805
Interest 2,704,140 13,138,367
Variation margin (Note 1b) 98,281 217,812
Investment advisor (Note 2) 18,896 18,896
Prepaid expenses and other assets 18,250 71,819
------------- ------------- -------------
Total assets 219,943,483 871,204,892
------------- ------------- -------------
Liabilities:
Payables:
Securities purchased 0 13,037,019
Offering costs (Note 1e) 379,514 776,631
Dividends to shareholders (Note 1f) 37,408 4,142,639(1) 4,460,170
Investment adviser (Note 2) 0 246,565
Variation margin (Note 1b) 0 73,125
Accrued expenses and other liabilities 37,208 132,781
------------- ------------- -------------
Total liabilities 454,130 4,142,639 18,726,291
------------- ------------- -------------
Net Assets:
Net Assets $ 219,489,353 $ (4,142,639) $ 852,478,601
============= ============= =============
Capital
Capital Shares (unlimited number of shares of
beneficial interest authorized)
Preferred Shares, par value $.10 per share of
AMPS** issued and outstanding+ at $25,000
per share liquidation preference $ 83,500,000 $ 328,250,000
Common Shares par value $.10 per share
issued and outstanding++ 911,667 (78,186) 3,415,538
Paid-in capital in excess of par 134,785,971 78,186 516,426,717
Undistributed investment income - net 1,203,774 (3,487,392) 0
Undistributed (accumulated) realized capital gains
(losses) on investments-net (11,216) (655,247) (1,503,400)
Unrealized appreciation (depreciation) on
investments-net (900,843) 5,889,746
------------- ------------- -------------
Total Capital $ 219,489,353 $ (4,142,639) $ 852,478,601
============= ============= =============
* Identified Cost $ 213,373,532 -- $ 830,313,084
============= ============= =============
+ AMPS** issued and outstanding 3,340 -- 13,130
============= ============= =============
++ Shares issued and outstanding 9,116,667 (781,853) 34,155,383
============= ============= =============
+++ Net asset value per Common Share $ 14.92 -- $ 15.35
============= ============= =============
</TABLE>
** Auction Market Preferred Shares.
- ----------
(1) Assumes the distribution of undistributed investment income and
undistributed realized capital gains.
See Notes to Financial Statements.
F-52
<PAGE>
The following unaudited pro forma Combined Statement of Operations for the
Combined Fund has been derived from the statement of operations of the
respective Funds for the period from September 1, 1998 to March 31, 1999 and
such information has been adjusted to give effect to the Reorganization as if
the Reorganization had occurred on September 1, 1998. The pro forma Combined
Statement of Operations is presented for informational purposes only and does
not purport to be indicative of the results of operations that actually would
have resulted if the Reorganization had been consummated on September 1, 1998
nor which may result from future operations. The pro forma Combined Statement of
Operations should be read in conjunction with the Funds' financial statements
and related notes thereto which are included in the Joint Proxy Statement and
Prospectus.
<TABLE>
<CAPTION>
PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR MUNIHOLDINGS FLORIDA INSURED FUND, MUNIHOLDINGS FLORIDA INSURED FUND II,
MUNIHOLDINGS FLORIDA INSURED FUND III AND MUNIHOLDINGS FLORIDA INSURED FUND IV
(UNAUDITED)
Florida Insured Florida Insured Florida Insured Florida Insured
Fund Fund II Fund III Fund IV
For the period For the period For the period For the period
September 1, 1998 September 1, 1998 October 1, 1998 January 29, 1999+
to March 31, 1999 to March 31, 1999 to March 31, 1999 to March 31, 1999
------------------- ------------------ ------------------- ------------------
<S> <C> <C> <C> <C>
Investment Income (Note 1d):
Interest and amortization of premium and
discount earned $ 8,363,152 $ 6,639,165 $3,927,916 $5,923,731
============= ============= ========== ==========
Expenses:
Investment advisory fees (Note 2) 813,881 660,808 367,860 153,780
Commission fees 145,554 116,278 55,967 24,909
Accounting services (Note 2) 55,795 19,069 38,795 8,056
Professional fees 40,556 48,864 21,350 5,061
Transfer agent fees 20,987 22,543 15,259 5,069
Trustees' fees and expenses 10,059 11,802 10,134 3,668
Listing fees 19,452 9,645 4,054 2,161
Custodian fees 11,396 11,079 7,148 2,097
Printing and shareholder reports 13,429 13,151 3,098 1,423
Pricing fees 6,357 4,039 3,186 792
Amortization of organization expenses (Note 1e) 0 1,995 1,283 0
Other 14,723 6,597 3,697 1,180
------------- ------------- ---------- ----------
Total expenses before reimbursement 1,152,189 925,870 531,831 208,196
------------- ------------- ---------- ----------
Reimbursement of expenses (Note 2) 0 (5,659) (295,183) (172,676)
------------- ------------- ---------- ----------
Total expenses after reimbursement 1,152,189 920,211 236,648 35,520
------------- ------------- ---------- ----------
Investment income - net 7,210,963 5,718,954 3,691,268 5,888,211
------------- ------------- ---------- ----------
Realized & Unrealized Gains(Loss) on
Investments - Net (Notes 1b & 1d)
Realized gain (loss) on investments-net 1,620,330 1,606,370 (1,043,898) (11,216)
------------- ------------- ---------- ----------
Change in unrealized appreciation/depreciation on
investments - net (3,154,965) (2,553,170) (478,558) (900,843)
------------- ------------- ---------- ----------
Net Increase in Net Assets Resulting from
Operations $5,676,328.07 $4,772,154.46 $2,168,812 $4,976,152
============= ============= ========== ==========
<CAPTION>
Pro Forma
for
Adjustments Combined Fund
----------- -------------
<S> <C> <C>
Investment Income (Note 1d):
Interest and amortization of premium and
discount earned $ 24,853,964
-------- ============
Expenses:
Investment advisory fees (Note 2)
Commission fees 1,996,329
Accounting services (Note 2) (53,115)(1) 342,708
Professional fees (67,631)(1) 68,600
48,200
Transfer agent fees 63,858
Trustees' fees and expenses (25,603)(1) 10,059
Listing fees 35,313
Custodian fees 31,720
Printing and shareholder reports (6,601)(1) 24,500
Pricing fees 14,374
Amortization of organization expenses (Note 1e) 3,278
Other 26,197
-------- -------------
Total expenses before reimbursement (152,950) 2,665,136
-------- -------------
Reimbursement of expenses (Note 2) 0 (473,518)
Total expenses after reimbursement (152,950) 2,191,618
-------- -------------
Investment income - net (152,950) 17,769,333
-------- -------------
Realized & Unrealized Gains(Loss) on
Investments - Net (Notes 1b & 1d)
-------- -------------
Realized gain (loss) on investments-net 0 2,171,586
-------- -------------
Change in unrealized appreciation/depreciation on
investments - net 0 (7,087,536)
-------- -------------
Net Increase in Net Assets Resulting from
-------- -------------
Operations $(152,950) $ 12,853,383
========= ============
</TABLE>
- ----------
+ Commencement of operations.
(1) Reflects the anticipated savings of the Reorganization.
(2) These Pro Forma Combined Statements of Operations exclude non-recurring
estimated Reorganization expenses of $507,000 which will be paid by Florida
Insured Fund subsequent to the reorganization.
F-53
<PAGE>
MuniHoldings Florida Insured Fund
COMBINED NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
MuniHoldings Florida Insured Fund (the "Fund") is registered under the
Investment Company Act of 1940 as a non-diversified, closed-end management
investment company. The Fund's financial statements are prepared in accordance
with generally accepted accounting principles which may require the use of
management accruals and estimates. These unaudited financial statements reflect
all adjustments which are, in the opinion of management necessary to a fair
statement of the results for the interim period presented. All such adjustments
are of a normal recurring nature. The Fund will determine and make available for
publication the net asset value of its Common Shares on a weekly basis. The
Fund's Common Shares are listed on the New York Stock Exchange under the symbol
MFL. The following is a summary of significant accounting policies followed by
the Fund.
(a) Valuation of investments -- Municipal bonds are traded primarily in the
over-the-counter markets and are valued at the most recent bid price or yield
equivalent as obtained by the Fund's pricing service from dealers that make
markets in such securities. Financial futures contracts and options thereon,
which are traded on exchanges, are valued at their closing prices as of the
close of such exchanges. Options written or purchased are valued at the last
sale price in the case of exchange-traded options. In the case of options traded
in the over-the-counter market, valuation is the last asked price (options
written) or the last bid price (options purchased). Securities with remaining
maturities of sixty days or less are valued at amortized cost, which
approximates market value. Securities and assets for which market quotations are
not readily available are valued at fair value as determined in good faith by or
under the direction of the Board of Trustees of the Fund, including valuations
furnished by a pricing service retained by the Fund, which may utilize a matrix
system for valuations. The procedures of the pricing service and its valuations
are reviewed by the officers of the Fund under the general supervision of the
Board of Trustees.
(b) Derivative financial instruments -- The Fund may engage in various
portfolio strategies to seek to increase its return by hedging its portfolio
against adverse movements in the debt markets. Losses may arise due to changes
in the value of the contract or if the counterparty does not perform under the
contract.
o Financial futures contracts-- The Fund may purchase or sell financial
futures contracts and options on such futures contracts for the
purpose of hedging the market risk on existing securities or the
intended purchase of securities. Futures contracts are contracts for
delayed delivery of securities at a specific future date and at a
specific price or yield. Upon entering into a contract, the Fund
deposits and maintains as collateral such initial margin as required
by the exchange on which the transaction is effected. Pursuant to the
contract, the Fund agrees to receive from or pay to the broker an
amount of cash equal to the daily fluctuation in value of the
contract. Such receipts or payments are known as variation margin and
are recorded by the Fund as unrealized gains or losses. When the
contract is closed, the Fund records a realized gain or loss equal to
the difference between the value of the contract at the time it was
opened and the value at the time it was closed.
Options -- The Fund is authorized to write covered call options and
purchase put options. When the Fund writes an option, an amount equal to the
premium received by the Fund is reflected as an asset and an equivalent
liability. The amount of the liability is subsequently marked to market to
reflect the current market value of the option written.
When a security is purchased or sold through an exercise of an option, the
related premium paid (or received) is added to (or deducted from) the basis of
the security acquired or deducted from (or added to) the proceeds of the
security sold. When an option expires (or the Fund enters into a closing
transaction), the Fund realizes a gain or loss on the option to the extent of
the premiums received or paid (or gain or loss to the extent the cost of the
closing transaction exceeds the premium paid or received).
Written and purchased options are non-income producing investments.
(c) Income taxes -- It is the Fund's policy to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no Federal income tax provision is required.
F-54
<PAGE>
(d) Security transactions and investment income -- Security transactions
are recorded on the dates the transactions are entered into (the trade dates).
Interest income is recognized on the accrual basis. Discounts and market
premiums are amortized into interest income. Realized gains and losses on
security transactions are determined on the identified cost basis.
(e) Deferred organization and offering expenses -- Deferred organization
expenses are amortized on a straight-line basis over a period not exceeding five
years. In accordance with Statement of Position 98-5, any unamortized
organization expenses will be expensed on the first day of the next fiscal year
beginning after December 15, 1998. This charge will not have any material impact
on the operations of the Fund. Direct expenses relating to the public offering
of the Fund's Common and Preferred shares were charged to capital at the time of
issuance of the shares.
(f) Dividends and distributions -- Dividends from net investment income are
declared and paid monthly. Distribution of capital gains are recorded on the
ex-dividend dates.
2. Investment Advisory Agreement and Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with FAM. The
general partner of FAM is Princeton Services, Inc. ("PSI"), an indirect
wholly-owned subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is the
limited partner.
FAM is responsible for the management of the Fund's portfolio and provides
the necessary personnel, facilities, equipment and certain other services
necessary to the operations of the Fund. For such services, the Fund pays a
monthly fee at an annual rate of 0.55% of the Fund's average weekly net assets,
including proceeds from the issuance of Preferred Shares.
For MuniHoldings Florida Insured Fund II, FAM earned fees of $660,809 for
the period September 1, 1998 to March 31, 1999, of which $5,659 was voluntarily
waived. For MuniHoldings Florida Insured Fund III, FAM earned fees of $367,860
for the period October 1, 1998 to March 31, 1999, of which $295,183 was
voluntarily waived. For MuniHoldings Florida Insured Fund IV, FAM earned fees of
$153,780 for the period January 29, 1999 to March 31, 1999 all of which was
voluntarily waived. FAM also reimbursed the Fund for additional expenses of
$18,896.
Accounting services are provided to the Fund by FAM at cost.
Certain officers and/or trustees of the Fund are officers and/or directors
of FAM, PSI, and/or ML & Co.
F-55
<PAGE>
EXHIBIT I
INFORMATION PERTAINING TO EACH FUND
o General Information Pertaining to the Funds
<TABLE>
<CAPTION>
State of
Defined Term Fiscal Organiza- Meeting
Fund Used in Exhibit I Year End tion Time
- ---- ----------------- -------- ---- ----
<S> <C> <C> <C> <C>
MuniHoldings Florida Insured Fund ............... Florida Insured 8/31 MA 9:45 a.m.
MuniHoldings Florida Insured Fund II, ........... Florida Insured II 6/30 MA 10:00 a.m.
MuniHoldings Florida Insured Fund III ........... Florida Insured III 9/30 MA 10:15 a.m.
MuniHoldings Florida Insured Fund IV ............ Florida Insured IV 9/30 MA 10:30 a.m.
Capital Shares
Outstanding as of
the Record Date
-------------------
Common
Fund Shares AMPS
- ---- ------ ----
Florida Insured ......................................................... 10,798,052 4,190
Florida Insured II ...................................................... 8,840,687 3,440
Florida Insured III ..................................................... 6,181,830 2,160
Florida Insured IV ...................................................... 9,116,667 3,340
</TABLE>
o Information Pertaining to Officers and Trustees
<TABLE>
<CAPTION>
Year in Which Each Nominee of Florida Insured, Florida Insured II
and Florida Insured IV Became a Member of the Board
-------------------------------------------------------------------------
Fund Forbes Glenn Montgomery Reilly Ryan West Zeikel
- ---- ------ ----- ---------- ------ ---- ---- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Florida Insured ............. 1997 1999 1997 1997 1997 1997 1997
Florida Insured II .......... 1997 1999 1997 1997 1997 1997 1997
Florida Insured IV .......... 1999 1999 1999 1999 1999 1999 1999
</TABLE>
<TABLE>
<CAPTION>
Year in Which Each Nominee of Florida Insured III Became a Member of the Board
-------------------------------------------------------------------------------
Fund Bodurtha Glenn London Martin May Perold Zeikel
- ---- -------- ----- ------ ------ --- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Florida Insured III ......... 1998 1999 1998 1998 1998 1998 1999
</TABLE>
Set forth in the table below, with respect to each Fund, are the names of
the nominees to be elected by holders of AMPS, voting separately as a class, and
the names of the nominees to be elected by holders of Common Shares and AMPS,
voting together as a single class.
<TABLE>
<CAPTION>
Nominees to be Nominees to be Elected by
Fund Elected by Holders of AMPS Holders of Common Shares and AMPS
- ----- ------------------------------------- ----------------------------------------
<S> <C> <C> <C> <C>
Florida Insured ........... Charles C. Reilly Richard R. West Ronald W. Forbes Kevin A. Ryan
Terry K. Glenn Arthur Zeikel
Cynthia A. Montgomery
Florida Insured II ........ Charles C. Reilly Richard R. West Ronald W. Forbes Kevin A. Ryan
Terry K. Glenn Arthur Zeikel
Cynthia A. Montgomery
Florida Insured III ....... Joseph L. May Andre F. Perold James H. Bodurtha Robert R. Martin
Terry K. Glenn Arthur Zeikel
Herbert I. London
Florida Insured IV ........ Charles C. Reilly Richard R. West Ronald W. Forbes Kevin A. Ryan
Terry K. Glenn Arthur Zeikel
Cynthia A. Montgomery
</TABLE>
Set forth in the table below is information regarding board and committee
meetings held and the aggregate fees and expenses paid by the Fund to
non-affiliated Board members during each Fund's most recently completed fiscal
year.
I-1
<PAGE>
<TABLE>
<CAPTION>
Board Audit Committee
--------------------------------- ------------------------------ Aggregate
# # Per Fees and
Meetings Annual Per Meeting Meetings Annual Meeting Expenses
Fund Held* Fee ($) Fee ($)** Held Fee ($) Fee ($)** ($)
- ---- -------- ------- --------- -------- ------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Florida Insured ............ 9 $2,000 $200 4 $900 0
Florida Insured II ......... 6 $2,000 $200 4 $900 0
Florida Insured III ........ 4 $2,500 $250 4 $500 $125
Florida Insured IV ......... 4 $2,000 $200 4 $900 0
</TABLE>
- ----------
* Includes meetings held via teleconferencing equipment.
** The fee is payable for each meeting attended in person. A fee is not paid
for telephonic meetings.
Set forth in the table below is information regarding compensation paid by
the Fund to the non-affiliated Board members for the most recently completed
fiscal year.
<TABLE>
<CAPTION>
Compensation From Florida Insured I, Florida Insured II and Florida Insured IV ($)*
-----------------------------------------------------------------------------------
Fund Forbes Montgomery Reilly Ryan West
- ---- ------ ---------- ------ ---- ----
<S> <C> <C> <C> <C> <C>
Florida Insured ........... $3,400 $3,400 $4,400 $3,400 $3,400
Florida Insured II ......... $3,700 $3,700 $4,700 $3,700 $3,700
Florida Insured IV ......... $3,600 $3,600 $4,600 $3,600 $3,600
</TABLE>
<TABLE>
<CAPTION>
Compensation From Florida Insured III ($)*
-----------------------------------------------------------------------------------
Fund Bodurtha London Martin May Perold
- ---- -------- ------ ------ --- ------
<S> <C> <C> <C> <C> <C>
Florida Insured III ........ $4,375 $4,375 $4,375 $4,375 $4,375
</TABLE>
- ----------
* No pension or retirement benefits are accrued as part of Fund expenses.
Set forth in the table below is information regarding the aggregate
compensation paid by all registered investment companies advised by FAM and its
affiliate, MLAM ("FAM/MLAM Advised Funds"), including the Funds, to the
non-affiliated Board members for the year ended December 31, 1998.
<TABLE>
<CAPTION>
Aggregate Compensation From FAM/MLAM Advised Funds
Name of Board Member Paid to Board members of Florida Insured III ($)(1)
- -------------------- ---------------------------------------------------
<S> <C>
James H. Bodurtha ............ $163,500
Herbert I. London ............ $163,500
Robert R. Martin ............. $163,500
Joseph L. May ................ $163,500
Andre F. Perold .............. $163,500
</TABLE>
- ----------
(1) The Trustees serve on the boards of FAM/MLAM Advised Funds as follows: Mr.
Bodurtha (29 registered investment companies consisting of 47 portfolios);
Mr. London (29 registered investment companies consisting of 47
portfolios); Mr. Martin (29 registered investment companies consisting of
47 portfolios); Mr. May (29 registered investment companies consisting of
47 portfolios); and Mr. Perold (29 registered investment companies
consisting of 47 portfolios).
<TABLE>
<CAPTION>
Aggregate Compensation From FAM/MLAM Advised Funds
Paid to Board members of Florida Insured, Florida Insured II and
----------------------------------------------------------------
Name of Board Member Florida Insured IV,($)(2)
- -------------------- -------------------------
<S> <C>
Ronald W. Forbes ............. $192,567
Cynthia A. Montgomery ........ $192,567
Charles C. Reilly ............ $362,858
Kevin A. Ryan ................ $192,567
Richard R. West .............. $346,125
</TABLE>
- ----------
(2) The Trustees serve on the boards of FAM/MLAM-advised funds as follows: Mr.
Forbes (42 registered investment companies consisting of 55 portfolios);
Ms. Montgomery (42 registered investment companies consisting of 55
portfolios); Mr. Reilly (60 registered investment companies consisting of
73 portfolios); Mr. Ryan (42 registered investment companies consisting of
55 portfolios); and Mr. West (62 registered investment companies consisting
of 86 portfolios).
I-2
<PAGE>
EXHIBIT II
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made as of
the _____ day of ________________, 1999, by and between MuniHoldings Florida
Insured Fund, a Massachusetts business trust ("Florida Insured"), MuniHoldings
Florida Insured Fund II, a Massachusetts business trust ("Florida Insured II"),
MuniHoldings Florida Insured Fund III, a Massachusetts business trust ("Florida
Insured III") and MuniHoldings Florida Insured Fund IV, a Massachusetts business
trust ("Florida Insured IV") (Florida Insured, Florida Insured II, Florida
Insured III, and Florida Insured IV are sometimes referred to herein
collectively as the "Funds"; Florida Insured II, Florida Insured III and Florida
Insured IV are sometimes referred to herein collectively as the "Acquired
Funds").
PLAN OF REORGANIZATION
The reorganization will comprise the following:
(a)(1) the acquisition by Florida Insured of substantially all of the
assets, and the assumption by Florida Insured of substantially all of the
liabilities of Florida Insured II in exchange solely for an equal aggregate
value of newly issued (A) common shares, with a par value of $0.10 per share, of
Florida Insured ("Florida Insured Common Shares") and (B) auction market
preferred shares of Florida Insured, with a liquidation preference of $25,000
per share plus an amount equal to accumulated but unpaid dividends thereon
(whether or not earned or declared) to be designated Series C ("Florida Insured
Series C AMPS"), and (2) the subsequent distribution by Florida Insured II to
Florida Insured II shareholders of (x) all of the Florida Insured Common Shares
received by Florida Insured II in exchange for such shareholders' common shares
of beneficial interest, with a par value of $0.10 per share, of Florida Insured
II ("Florida Insured II Common Shares") and (y) all of the Florida Insured
Series C AMPS received by Florida Insured II in exchange for such shareholders'
auction market preferred shares of Florida Insured II, with a liquidation
preference of $25,000 per share plus an amount equal to accumulated but unpaid
dividends thereon (whether or not earned or declared) designated Series A
("Florida Insured II Series A AMPS") and such shareholders' auction market
preferred shares of Florida Insured II, with a liquidation preference of $25,000
per share plus an amount equal to accumulated but unpaid dividends thereon
(whether or not earned or declared), designated Series B ("Florida Insured II
Series B AMPS," and together with the Florida Insured II Series A AMPS the
"Florida Insured II AMPS");
(b)(1) the acquisition by Florida Insured of substantially all of the
assets, and the assumption by Florida Insured of substantially all of the
liabilities of Florida Insured III in exchange solely for an equal aggregate
value of newly issued (A) Florida Insured Common Shares and (B) auction market
preferred shares of Florida Insured, with a liquidation preference of $25,000
per share plus an amount equal to accumulated but unpaid dividends thereon
(whether or not earned or declared) to be designated Series D ("Florida Insured
Series D AMPS"), and (2) the subsequent distribution by Florida Insured III to
Florida Insured III shareholders of (x) all of the Florida Insured Common Shares
received by Florida Insured III in exchange for such shareholders' common shares
of beneficial interest, with a par value of $0.10 per share, of Florida Insured
III ("Florida Insured III Common Shares") and (y) all of the Florida Insured
Series D AMPS received by Florida Insured III in exchange for such shareholders'
auction market preferred shares of Florida Insured III, with a liquidation
preference of $25,000 per share plus an amount equal to accumulated but unpaid
dividends thereon (whether or not earned or declared) designated Series A
("Florida Insured III Series A AMPS") and all of such shareholders' auction
market preferred shares of Florida Insured III, with a liquidation preference of
$25,000 per share plus an amount equal to accumulated but unpaid dividends
thereon (whether or not earned or declared) designated Series B ("Florida
Insured III Series B AMPS," and together with Florida Insured III Series A AMPS
the "Florida Insured III AMPS");
(c)(1) the acquisition by Florida Insured of substantially all of the
assets, and the assumption by Florida Insured of substantially all of the
liabilities of Florida Insured IV in exchange solely for an equal aggregate
value of newly issued (A) Florida Insured Common Shares and (B) auction market
preferred shares of Florida Insured, with a liquidation preference of $25,000
per share plus an amount equal to accumulated but unpaid dividends thereon
(whether or not earned or declared) to be designated Series E ("Florida Insured
Series E AMPS"), and (2) the subsequent distribution by Florida Insured IV to
Florida Insured IV shareholders of (x) all of the Florida
II-1
<PAGE>
Insured Common Shares received by Florida Insured IV in exchange for such
shareholders' common shares of beneficial interest, with a par value of $0.10
per share, of Florida Insured IV ("Florida Insured IV Common Shares") and (y)
all of the Florida Insured Series E AMPS received by Florida Insured IV in
exchange for such shareholders' auction market preferred shares, of Florida
Insured IV, with a liquidation preference of $25,000 per share plus an amount
equal to accumulated but unpaid dividends thereon (whether or not earned or
declared) designated Series A ("Florida Insured IV Series A AMPS") and all of
such shareholders' auction market preferred shares of Florida Insured IV, with a
liquidation preference of $25,000 per share plus an amount equal to accumulated
but unpaid dividends thereon (whether or not earned or declared) designated
Series B ("Florida Insured IV Series B AMPS," and together with Florida Insured
IV Series A AMPS the "Florida Insured IV AMPS");
all upon and subject to the terms hereinafter set forth (collectively, the
"Reorganization").
In the course of the Reorganization, Florida Insured Common Shares, Florida
Insured Series C AMPS, Florida Insured Series D AMPS and Florida Insured Series
E AMPS will be distributed to the shareholders of the Acquired Funds as follows:
(a) (1) each holder of Florida Insured II Common Shares will be entitled to
receive a number of Florida Insured Common Shares equal to the aggregate net
asset value of the Florida Insured II Common Shares owned by such shareholder on
the Exchange Date (as defined in Section 9(a) of the Agreement); and (2) each
holder of Florida Insured II AMPS will be entitled to receive a number of shares
of Florida Insured Series C AMPS equal to the aggregate liquidation preference
(and aggregate value) of the Florida Insured II AMPS owned by such shareholder
on the Exchange Date;
(b) (1) each holder of Florida Insured III Common Shares will be entitled
to receive a number of Florida Insured Common Shares equal to the aggregate net
asset value of the Florida Insured III Common Shares owned by such shareholder
on the Exchange Date; and (2) each holder of Florida Insured III AMPS will be
entitled to receive a number of shares of Florida Insured Series D AMPS equal to
the aggregate liquidation preference (and aggregate value) of the Florida
Insured III AMPS owned by such shareholder on the Exchange Date; and
(c) (1) each holder of Florida Insured IV Common Shares will be entitled to
receive a number of Florida Insured Common Shares equal to the aggregate net
asset value of the Florida Insured IV Common Shares owned by such shareholder on
the Exchange Date; and (2) each holder of Florida Insured IV AMPS will be
entitled to receive a number of shares of Florida Insured Series E AMPS equal to
the aggregate liquidation preference (and aggregate value) of the Florida
Insured IV AMPS owned by such shareholder on the Exchange Date.
It is intended that the Reorganization described in this Plan shall be a
reorganization within the meaning of Section 368(a)(1)(C) of the Internal
Revenue Code of 1986, as amended (the "Code"), and any successor provision.
Prior to the Exchange Date, each Acquired Fund shall declare a dividend or
dividends which, together with all such previous dividends, shall have the
effect of distributing to their respective shareholders all of their respective
net investment company taxable income to and including the Exchange Date, if any
(computed without regard to any deduction for dividends paid), and all of its
net capital gain, if any, realized to and including the Exchange Date. In this
regard and in connection with the Reorganization, the last dividend period for
the Florida Insured II AMPS, Florida Insured III AMPS and Florida Insured IV
AMPS prior to the Exchange Date may be shorter than the dividend period for such
AMPS determined as set forth in the applicable Articles Supplementary.
A Certificate of Designation of Florida Insured establishing the powers,
rights and preferences of the Florida Insured Series C AMPS, the Florida Insured
Series D AMPS and the Florida Insured Series E AMPS will be filed with the
Office of the Secretary of State of the Commonwealth of Massachusetts prior to
the Exchange Date.
As promptly as practicable after the consummation of the Reorganization,
each Acquired Fund shall be terminated in accordance with the laws of the
Commonwealth of Massachusetts and will terminate its registration under the
Investment Company Act of 1940, as amended (the "1940 Act").
II-2
<PAGE>
AGREEMENT
In order to consummate the Reorganization and in consideration of the
promises and the covenants and agreements hereinafter set forth, and intending
to be legally bound, each of the Funds hereby agrees as follows:
1. Representations and Warranties of Florida Insured.
Florida Insured represents and warrants to, and agrees with, the Acquired
Funds that:
(a) Florida Insured is a trust with transferable shares duly organized,
validly existing and in good standing in conformity with the laws of the
Commonwealth of Massachusetts, and has the power to own all of its assets and to
carry out this Agreement. Florida Insured has all necessary Federal, state and
local authorizations to carry on its business as it is now being conducted and
to carry out this Agreement.
(b) Florida Insured is duly registered under the 1940 Act as a
non-diversified, closed-end management investment company (File No. 811-08349),
and such registration has not been revoked or rescinded and is in full force and
effect. Florida Insured has elected and qualified for the special tax treatment
afforded regulated investment companies ("RICs") under Sections 851-855 of the
Code at all times since its inception and intends to continue to so qualify
until consummation of the Reorganization and thereafter.
(c) Each of the Acquired Funds has been furnished with Florida Insured's
Annual Report to Shareholders for the fiscal year ended August 31, 1999, and the
audited financial statements appearing therein, having been examined by Deloitte
& Touche LLP, independent public accountants, fairly present the financial
position of Florida Insured as of the respective dates indicated, in conformity
with generally accepted accounting principles applied on a consistent basis.
(d) An unaudited statement of assets, liabilities and capital of Florida
Insured and an unaudited schedule of investments of Florida Insured, each as of
the Valuation Time (as defined in Section 5(d) of this Agreement), will be
furnished to each of the Acquired Funds, at or prior to the Exchange Date for
the purpose of determining the number of Florida Insured Common Shares, Florida
Insured Series C AMPS, Florida Insured Series D AMPS, and Florida Insured Series
E AMPS to be issued pursuant to Section 6 of this Agreement; each will fairly
present the financial position of Florida Insured as of the Valuation Time in
conformity with generally accepted accounting principles applied on a consistent
basis.
(e) Florida Insured has full power and authority to enter into and perform
its obligations under this Agreement. The execution, delivery and performance of
this Agreement has been duly authorized by all necessary action of its Board of
Trustees, and this Agreement constitutes a valid and binding contract
enforceable in accordance with its terms, subject to the effects of bankruptcy,
insolvency, moratorium, fraudulent conveyance and similar laws relating to or
affecting creditors' rights generally and court decisions with respect thereto.
(f) There are no material legal, administrative or other proceedings
pending or, to the knowledge of Florida Insured, threatened against it which
assert liability on the part of Florida Insured or which materially affect its
financial condition or its ability to consummate the Reorganization. Florida
Insured is not charged with or, to the best of its knowledge, threatened with
any violation or investigation of any possible violation of any provisions of
any Federal, state or local law or regulation or administrative ruling relating
to any aspect of its business.
(g) Florida Insured is not obligated under any provision of its Declaration
of Trust, as amended, or its by-laws, as amended, or a party to any contract or
other commitment or obligation, and is not subject to any order or decree which
would be violated by its execution of or performance under this Agreement,
except insofar as the Funds have mutually agreed to amend such contract or other
commitment or obligation to cure any potential violation as a condition
precedent to the Reorganization.
(h) There are no material contracts outstanding to which Florida Insured is
a party that have not been disclosed in the N-14 Registration Statement (as
defined in subsection (k) below) or will not otherwise be disclosed to the
Acquired Funds prior to the Valuation Time.
(i) Florida Insured has no known liabilities of a material amount,
contingent or otherwise, other than those shown on its statements of assets,
liabilities and capital referred to in subsection (c) above, those incurred in
the ordinary course of its business as an investment company since August 31,
1999; and those incurred in connection with the Reorganization. As of the
Valuation Time, Florida Insured will advise each Acquired Fund in writing of all
known liabilities, contingent or otherwise, whether or not incurred in the
ordinary course of business, existing
II-3
<PAGE>
or accrued as of such time, except to the extent disclosed in the financial
statements referred to in subsection (c) above.
(j) No consent, approval, authorization or order of any court or government
authority is required for the consummation by Florida Insured of the
Reorganization, except such as may be required under the Securities Act of 1933,
as amended (the "1933 Act"), the Securities Exchange Act of 1934, as amended
(the "1934 Act") and the 1940 Act or state securities laws (which term as used
herein shall include the laws of the District of Columbia and Puerto Rico).
(k) The registration statement filed by Florida Insured on Form N-14 which
includes the joint proxy statement of the Funds with respect to the transactions
contemplated herein and the prospectus of Florida Insured relating to the
Florida Insured Common Shares, Florida Insured Series C AMPS, Florida Insured
Series D AMPS and Florida Insured Series E AMPS to be issued pursuant to this
Agreement, (the "Joint Proxy Statement and Prospectus"), and any supplement or
amendment thereto or to the documents therein (as amended or supplemented, the
"N-14 Registration Statement"), on its effective date, at the time of the
shareholders' meetings referred to in Section 8(a) of this Agreement and at the
Exchange Date, insofar as it relates to Florida Insured (i) complied or will
comply in all material respects with the provisions of the 1933 Act, the 1934
Act and the 1940 Act and the rules and regulations thereunder and (ii) did not
or will not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading; and the Joint Proxy Statement and Prospectus included
therein did not or will not contain any untrue statement of a material fact or
omit to state any material fact necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading; provided,
however, that the representations and warranties in this subsection only shall
apply to statements in or omissions from the N-14 Registration Statement made in
reliance upon and in conformity with information furnished by Florida Insured
for use in the N-14 Registration Statement as provided in Section 8(e) of this
Agreement.
(l) Florida Insured is authorized to issue an unlimited number of common
shares of beneficial interest, par value $.10 per share, and 1,000,000 preferred
shares of beneficial interest, par value $.10 per share. The Board of Trustees
of Florida Insured has designated 2,095 preferred shares as Auction Market
Preferred Shares, Series A; 2,095 preferred shares as Auction Market Preferred
Shares, Series B. Each outstanding common share and share of beneficial interest
and eachAuction Market Preferred Share of Florida Insured is fully paid and
non-assessable, and has full voting rights.
(m) The Florida Insured Common Shares, Florida Insured Series C AMPS,
Florida Insured Series D AMPS and Florida Insured Series E AMPS to be issued to
the Acquired Funds pursuant to this Agreement will have been duly authorized
and, when issued and delivered pursuant to this Agreement, will be legally and
validly issued and will be fully paid and nonassessable and will have full
voting rights, and no shareholder of Florida Insured will have any preemptive
right of subscription or purchase in respect thereof.
(n) At or prior to the Exchange Date, the Florida Insured Common Shares to
be transferred to the Acquired Funds for distribution to the shareholders of the
Acquired Funds on the Exchange Date will be duly qualified for offering to the
public in all states of the United States in which the sale of shares of the
Funds presently are qualified, and there will be a sufficient number of such
shares registered under the 1933 Act and, as may be necessary, with each
pertinent state securities commission to permit the transfers contemplated by
this Agreement to be consummated.
(o) At or prior to the Exchange Date, the Florida Insured Series C AMPS to
be transferred to Florida Insured II on the Exchange Date, the Florida Insured
Series D AMPS to be transferred to Florida Insured III on the Exchange Date and
the Florida Insured Series E AMPS to be transferred to Florida Insured IV on the
Exchange Date will be duly qualified for offering to the public in all states of
the United States in which the sale of AMPS of the Acquired Funds presently are
qualified, and there are a sufficient number of each series of Florida Insured
AMPS registered under the 1933 Act and with each pertinent state securities
commission to permit the transfers contemplated by this Agreement to be
consummated.
(p) At or prior to the Exchange Date, Florida Insured will have obtained
any and all regulatory, Trustee and shareholder approvals necessary to issue the
Florida Insured Common Shares, Florida Insured Series C AMPS, Florida Insured
Series D AMPS and Florida Insured Series E AMPS to Florida Insured II, Florida
Insured III and Florida Insured IV, as applicable.
II-4
<PAGE>
2. Representations and Warranties of Florida Insured II.
Florida Insured II represents and warrants to, and agrees with, Florida
Insured, Florida Insured III and Florida Insured IV that:
(a) Florida Insured II is a business trust with transferable shares duly
organized, validly existing and in good standing in conformity with the laws of
the Commonwealth of Massachusetts, and has the power to own all of its assets
and to carry out this Agreement. Florida Insured II has all necessary Federal,
state and local authorizations to carry on its business as it is now being
conducted and to carry out this Agreement.
(b) Florida Insured II is duly registered under the 1940 Act as a
non-diversified, closed-end management investment company (File No. 811-08543),
and such registration has not been revoked or rescinded and is in full force and
effect. Florida Insured II has elected and qualified for the special tax
treatment afforded RICs under Sections 851-855 of the Code at all times since
its inception, and intends to continue to so qualify through its taxable year
ending upon liquidation.
(c) As used in this Agreement, the term "Florida Insured II Investments"
shall mean (i) the investments of Florida Insured II shown on the schedule of
its investments as of the Valuation Time furnished to each of Florida Insured,
Florida Insured III and Florida Insured IV; and (ii) all other assets owned by
Florida Insured II or liabilities incurred as of the Valuation Time.
(d) Florida Insured II has full power and authority to enter into and
perform its obligations under this Agreement. The execution, delivery and
performance of this Agreement has been duly authorized by all necessary action
of its Board of Trustees and this Agreement constitutes a valid and binding
contract enforceable in accordance with its terms, subject to the effects of
bankruptcy, insolvency, moratorium, fraudulent conveyance and similar laws
relating to or affecting creditors' rights generally and court decisions with
respect thereto.
(e) Each of Florida Insured, Florida Insured III and Florida Insured IV has
been furnished with Florida Insured II's Annual Report to Shareholders for the
fiscal year ended June 30, 1999, and the audited financial statements appearing
therein, having been examined by Deloitte & Touche LLP, independent public
accountants, fairly present the financial position of Florida Insured II as of
the respective dates indicated, in conformity with generally accepted accounting
principles applied on a consistent basis.
(f) An unaudited statement of assets, liabilities and capital of Florida
Insured II and an unaudited schedule of investments of Florida Insured II, each
as of the Valuation Time, will be furnished to each of Florida Insured, Florida
Insured III and Florida Insured IV at or prior to the Exchange Date for the
purpose of determining the number of shares of Florida Insured Common Shares and
Florida Insured Series C AMPS to be issued to Florida Insured II pursuant to
Section 6 of this Agreement; each will fairly present the financial position of
Florida Insured II as of the Valuation Time in conformity with generally
accepted accounting principles applied on a consistent basis.
(g) There are no material legal, administrative or other proceedings
pending or, to the knowledge of Florida Insured II, threatened against it which
assert liability on the part of Florida Insured II or which materially affect
its financial condition or its ability to consummate the Reorganization. Florida
Insured II is not charged with or, to the best of its knowledge, threatened with
any violation or investigation of any possible violation of any provisions of
any Federal, state or local law or regulation or administrative ruling relating
to any aspect of its business.
(h) There are no material contracts outstanding to which Florida Insured II
is a party that have not been disclosed in the N-14 Registration Statement or
will not otherwise be disclosed to Florida Insured, Florida Insured III and
Florida Insured IV prior to the Valuation Time.
(i) Florida Insured II is not obligated under any provision of its
Declaration of Trust, as amended, or its by-laws, as amended, or a party to any
contract or other commitment or obligation, and is not subject to any order or
decree which would be violated by its execution of or performance under this
Agreement, except insofar as the Funds have mutually agreed to amend such
contract or other commitment or obligation to cure any potential violation as a
condition precedent to the Reorganization.
(j) Florida Insured II has no known liabilities of a material amount,
contingent or otherwise, other than those shown on its statements of assets,
liabilities and capital referred to above, those incurred in the ordinary
II-5
<PAGE>
course of its business as an investment company since June 30, 1999 and those
incurred in connection with the Reorganization. As of the Valuation Time,
Florida Insured II will advise Florida Insured, Florida Insured III and Florida
Insured IV in writing of all known liabilities, contingent or otherwise, whether
or not incurred in the ordinary course of business, existing or accrued as of
such time.
(k) Florida Insured II has filed, or has obtained extensions to file, all
Federal, state and local tax returns which are required to be filed by it, and
has paid or has obtained extensions to pay, all Federal, state and local taxes
shown on said returns to be due and owing and all assessments received by it, up
to and including the taxable year in which the Exchange Date occurs. All tax
liabilities of Florida Insured II have been adequately provided for on its
books, and no tax deficiency or liability of Florida Insured II has been
asserted and no question with respect thereto has been raised by the Internal
Revenue Service or by any state or local tax authority for taxes in excess of
those already paid, up to and including the taxable year in which the Exchange
Date occurs.
(l) At both the Valuation Time and the Exchange Date, Florida Insured II
will have full right, power and authority to sell, assign, transfer and deliver
the Florida Insured II Investments. At the Exchange Date, subject only to the
obligation to deliver the Florida Insured II Investments as contemplated by this
Agreement, Florida Insured II will have good and marketable title to all of the
Florida Insured II Investments, and Florida Insured will acquire all of the
Florida Insured II Investments free and clear of any encumbrances, liens or
security interests and without any restrictions upon the transfer thereof
(except those imposed by the Federal or state securities laws and those
imperfections of title or encumbrances as do not materially detract from the
value or use of the Florida Insured II Investments or materially affect title
thereto).
(m) No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by Florida Insured II of
the Reorganization, except such as may be required under the 1933 Act, the 1934
Act, the 1940 Act or state securities laws.
(n) The N-14 Registration Statement, on its effective date, at the time of
the shareholders' meetings referred to in Section 8(a) of this Agreement and on
the Exchange Date, insofar as it relates to Florida Insured II (i) complied or
will comply in all material respects with the provisions of the 1933 Act, the
1934 Act and the 1940 Act and the rules and regulations thereunder, and (ii) did
not or will not contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading; and the Joint Proxy Statement and Prospectus
included therein did not or will not contain any untrue statement of a material
fact or omit to state any material fact necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; provided, however, that the representations and warranties in this
subsection shall apply only to statements in or omissions from the N-14
Registration Statement made in reliance upon and in conformity with information
furnished by Florida Insured II for use in the N-14 Registration Statement as
provided in Section 8(e) of this Agreement.
(o) Florida Insured II is authorized to issue an unlimited number of common
shares of beneficial interest, par value $.10 per share, and 1,000,000 preferred
shares of beneficial interest, Auction Market Preferred Shares, Series A and
Auction Market Preferred Shares, Series B; Auction Market Preferred Shares; all
of which shares have been designated as AMPS, and have been designated as common
shares, par value $.10 per share; each outstanding share of which is fully paid
and nonassessable and has full voting rights.
(p) All of the issued and outstanding Florida Insured II Common Shares and
Florida Insured II AMPS were offered for sale and sold in conformity with all
applicable Federal and state securities laws.
(q) The books and records of Florida Insured II made available to Florida
Insured, Florida Insured III, Florida Insured IV and/or their counsel are
substantially true and correct and contain no material misstatements or
omissions with respect to the operations of Florida Insured II.
(r) Florida Insured II will not sell or otherwise dispose of any of the
Florida Insured Common Shares or Florida Insured Series C AMPS to be received in
the Reorganization, except in distribution to the shareholders of Florida
Insured II, as provided in Section 5 of this Agreement.
3. Representations and Warranties of Florida Insured III.
Florida Insured III represents and warrants to, and agrees with, Florida
Insured, Florida Insured II and Florida Insured IV that:
II-6
<PAGE>
(a) Florida Insured III is a trust with transferable shares, duly
organized, validly existing and in good standing in conformity with the laws of
the Commonwealth of Massachusetts, and has the power to own all of its assets
and to carry out this Agreement. Florida Insured III has all necessary Federal,
state and local authorizations to carry on its business as it is now being
conducted and to carry out this Agreement.
(b) Florida Insured III is duly registered under the 1940 Act as a
non-diversified, closed-end management investment company (File No. 811-08815),
and such registration has not been revoked or rescinded and is in full force and
effect. Florida Insured III has elected and qualified for the special tax
treatment afforded RICs under Sections 851-855 of the Code at all times since
its inception and intends to continue to so qualify through its taxable year
ending upon liquidation.
(c) As used in this Agreement, the term "Florida Insured III Investments"
shall mean (i) the investments of Florida Insured III shown on the schedule of
its investments as of the Valuation Time furnished to each of Florida Insured,
Florida Insured II and Florida Insured IV; and (ii) all other assets owned by
Florida Insured III or liabilities incurred as of the Valuation Time.
(d) Florida Insured III has full power and authority to enter into and
perform its obligations under this Agreement. The execution, delivery and
performance of this Agreement has been duly authorized by all necessary action
of its Board of Trustees and this Agreement constitutes a valid and binding
contract enforceable in accordance with its terms, subject to the effects of
bankruptcy, insolvency, moratorium, fraudulent conveyance and similar laws
relating to or affecting creditors' rights generally and court decisions with
respect thereto.
(e) Each of Florida Insured, Florida Insured II and Florida Insured IV has
been furnished with Florida Insured III's Annual Report to Shareholders for the
fiscal year ending September 30, 1999 and with Florida Insured III's Semi-Annual
Report to Shareholders for the six months ended March 31, 1999, and the
unaudited financial statements appearing therein fairly present the financial
position of Florida Insured III as of the respective dates indicated, in
conformity with generally accepted accounting principles applied on a consistent
basis.
(f) An unaudited statement of assets, liabilities and capital of Florida
Insured III and an unaudited schedule of investments of Florida Insured III,
each as of the Valuation Time, will be furnished to each of Florida Insured,
Florida Insured II and Florida Insured IV at or prior to the Exchange Date for
the purpose of determining the number of Florida Insured Common Shares and
Florida Insured Series D AMPS to be issued to Florida Insured III pursuant to
Section 6 of this Agreement; each will fairly present the financial position of
Florida Insured III as of the Valuation Time in conformity with generally
accepted accounting principles applied on a consistent basis.
(g) There are no material legal, administrative or other proceedings
pending or, to the knowledge of Florida Insured III, threatened against it which
assert liability on the part of Florida Insured III or which materially affect
its financial condition or its ability to consummate the Reorganization. Florida
Insured III, is not charged with or, to the best of its knowledge, threatened
with any violation or investigation of any possible violation of any provisions
of any Federal, state or local law or regulation or administrative ruling
relating to any aspect of its business.
(h) There are no material contracts outstanding to which Florida Insured
III is a party that have not been disclosed in the N-14 Registration Statement
or will not otherwise be disclosed to Florida Insured, Florida Insured II and
Florida Insured IV prior to the Valuation Time.
(i) Florida Insured III is not obligated under any provision of its
Declaration of Trust, as amended, or its by-laws, as amended, or a party to any
contract or other commitment or obligation, and is not subject to any order or
decree which would be violated by its execution of or performance under this
Agreement, except insofar as the Funds have mutually agreed to amend such
contract or other commitment or obligation to cure any potential violation as a
condition precedent to the Reorganization.
(j) Florida Insured III has no known liabilities of a material amount,
contingent or otherwise, other than those shown on its statements of assets,
liabilities and capital referred to above, those incurred in the ordinary course
of its business as an investment company since March 31, 1999 and those incurred
in connection with the Reorganization. As of the Valuation Time, Florida Insured
III will advise Florida Insured, Florida Insured II and Florida Insured IV in
writing of all known liabilities, contingent or otherwise, whether or not
incurred in the ordinary course of business, existing or accrued as of such
time.
II-7
<PAGE>
(k) Florida Insured III has filed, or has obtained extensions to file, all
Federal, state and local tax returns which are required to be filed by it, and
has paid or has obtained extensions to pay, all Federal, state and local taxes
shown on said returns to be due and owing and all assessments received by it, up
to and including the taxable year in which the Exchange Date occurs. All tax
liabilities of Florida Insured III have been adequately provided for on its
books, and no tax deficiency or liability of Florida Insured III has been
asserted and no question with respect thereto has been raised by the Internal
Revenue Service or by any state or local tax authority for taxes in excess of
those already paid, up to and including the taxable year in which the Exchange
Date occurs.
(l) At both the Valuation Time and the Exchange Date, Florida Insured III
will have full right, power and authority to sell, assign, transfer and deliver
the Florida Insured III Investments. At the Exchange Date, subject only to the
obligation to deliver the Florida Insured III Investments as contemplated by
this Agreement, Florida Insured III will have good and marketable title to all
of the Florida Insured III Investments, and Florida Insured will acquire all of
the Florida Insured III Investments free and clear of any encumbrances, liens or
security interests and without any restrictions upon the transfer thereof
(except those imposed by the Federal or state securities laws and those
imperfections of title or encumbrances as do not materially detract from the
value or use of the Florida Insured III Investments or materially affect title
thereto).
(m) No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by Florida Insured III
of the Reorganization, except such as may be required under the 1933 Act, the
1934 Act, the 1940 Act or state securities laws.
(n) The N-14 Registration Statement, on its effective date, at the time of
the shareholders' meetings referred to in Section 8(a) of this Agreement and on
the Exchange Date, insofar as it relates to Florida Insured III (i) complied or
will comply in all material respects with the provisions of the 1933 Act, the
1934 Act and the 1940 Act and the rules and regulations thereunder, and (ii) did
not or will not contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading; and the Joint Proxy Statement and Prospectus
included therein did not or will not contain any untrue statement of a material
fact or omit to state any material fact necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; provided, however, that the representations and warranties in this
subsection shall apply only to statements in or omissions from the N-14
Registration Statement made in reliance upon and in conformity with information
furnished by Florida Insured III for use in the N-14 Registration Statement as
provided in Section 8(e) of this Agreement.
(o) Florida Insured III is authorized to issue an unlimited number of
common shares of beneficial interest, par value $.10 per share, and 1,000,000
preferred shares of beneficial interest, Auction Market Preferred Shares, Series
A; Auction Market Preferred Shares and Series B; Auction Market Preferred
Shares; all of which shares have been designated as AMPS, and have been
designated as common shares, par value $.10 per share; each outstanding share of
which is fully paid and nonassessable and has full voting rights.
(p) All of the issued and outstanding Florida Insured III Common Shares and
Florida Insured III AMPS were offered for sale and sold in conformity with all
applicable Federal and state securities laws.
(q) The books and records of Florida Insured III made available to Florida
Insured, Florida Insured II, and Florida Insured IV and/or their counsel are
substantially true and correct and contain no material misstatements or
omissions with respect to the operations of Florida Insured III.
(r) Florida Insured III will not sell or otherwise dispose of any of the
Florida Insured Common Shares or Florida Insured Series D AMPS to be received in
the Reorganization, except in distribution to the shareholders of Florida
Insured III, as provided in Section 5 of this Agreement.
4. Representations and Warranties of Florida Insured IV.
Florida Insured IV represents and warrants to, and agrees with, Florida
Insured, Florida Insured II and Florida Insured III that:
(a) Florida Insured IV is a trust with transferable shares, duly organized,
validly existing and in good standing in conformity with the laws of the
Commonwealth of Massachusetts, and has the power to own all of its assets and to
carry out this Agreement. Florida Insured IV has all necessary Federal, state
and local authorizations to carry on its business as it is now being conducted
and to carry out this Agreement.
II-8
<PAGE>
(b) Florida Insured IV is duly registered under the 1940 Act as a
non-diversified, closed-end management investment company (File No. 811-09129),
and such registration has not been revoked or rescinded and is in full force and
effect. Florida Insured IV has elected and qualified for the special tax
treatment afforded RICs under Sections 851-855 of the Code at all times since
its inception, and intends to continue to so qualify through its taxable year
ending upon liquidation.
(c) As used in this Agreement, the term "Florida Insured IV Investments"
shall mean (i) the investments of Florida Insured IV shown on the schedule of
its investments as of the Valuation Time furnished to each of Florida Insured,
Florida Insured II and Florida Insured III; and (ii) all other assets owned by
Florida Insured IV or liabilities incurred as of the Valuation Time. The Florida
Insured IV Investments together with the Florida Insured II Investments and the
Florida Insured III Investments may sometimes be referred to herein collectively
as the "Acquired Fund Investments".
(d) Florida Insured IV has full power and authority to enter into and
perform its obligations under this Agreement. The execution, delivery and
performance of this Agreement has been duly authorized by all necessary action
of its Board of Trustees and this Agreement constitutes a valid and binding
contract enforceable in accordance with its terms, subject to the effects of
bankruptcy, insolvency, moratorium, fraudulent conveyance and similar laws
relating to or affecting creditors' rights generally and court decisions with
respect thereto.
(e) Each of Florida Insured, Florida Insured II and Florida Insured III has
been furnished with Florida Insured IV's Annual Report to Shareholders for the
fiscal period ended September 30, 1999 and Florida Insured IV's Semi-Annual
Report to Shareholders for the period ended March 31, 1999, and the unaudited
financial statements appearing therein fairly present the financial position of
Florida Insured IV as of the respective dates indicated, in conformity with
generally accepted accounting principles applied on a consistent basis.
(f) An unaudited statement of assets, liabilities and capital of Florida
Insured IV and an unaudited schedule of investments of Florida Insured IV, each
as of the Valuation Time, will be furnished to each of Florida Insured, Florida
Insured II and Florida Insured III at or prior to the Exchange Date for the
purpose of determining the number of Florida Insured Common Shares and Florida
Insured Series E AMPS to be issued to Florida Insured IV pursuant to Section 6
of this Agreement; each will fairly present the financial position of Florida
Insured IV as of the Valuation Time in conformity with generally accepted
accounting principles applied on a consistent basis.
(g) There are no material legal, administrative or other proceedings
pending or, to the knowledge of Florida Insured IV, threatened against it which
assert liability on the part of Florida Insured IV or which materially affect
its financial condition or its ability to consummate the Reorganization. Florida
Insured IV, is not charged with or, to the best of its knowledge, threatened
with any violation or investigation of any possible violation of any provisions
of any Federal, state or local law or regulation or administrative ruling
relating to any aspect of its business.
(h) There are no material contracts outstanding to which Florida Insured
IV is a party that have not been disclosed in the N-14 Registration Statement or
will not otherwise be disclosed to Florida Insured, Florida Insured II and
Florida Insured III prior to the Valuation Time.
(i) Florida Insured IV is not obligated under any provision of its
Declaration of Trust, as amended, or its by-laws, as amended, or a party to any
contract or other commitment or obligation, and is not subject to any order or
decree which would be violated by its execution of or performance under this
Agreement, except insofar as the Funds have mutually agreed to amend such
contract or other commitment or obligation to cure any potential violation as a
condition precedent to the Reorganization.
(j) Florida Insured IV has no known liabilities of a material amount,
contingent or otherwise, other than those shown on its statements of assets,
liabilities and capital referred to above, those incurred in the ordinary course
of its business as an investment company since March 31, 1999 and those incurred
in connection with the Reorganization. As of the Valuation Time, Florida Insured
IV will advise Florida Insured, Florida Insured II and Florida Insured III in
writing of all known liabilities, contingent or otherwise, whether or not
incurred in the ordinary course of business, existing or accrued as of such
time.
(k) Florida Insured IV has filed, or has obtained extensions to file, all
Federal, state and local tax returns which are required to be filed by it, and
has paid or has obtained extensions to pay, all Federal, state and local taxes
shown on said returns to be due and owing and all assessments received by it, up
to and including the
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taxable year in which the Exchange Date occurs. All tax liabilities of Florida
Insured IV have been adequately provided for on its books, and no tax deficiency
or liability of Florida Insured IV has been asserted and no question with
respect thereto has been raised by the Internal Revenue Service or by any state
or local tax authority for taxes in excess of those already paid, up to and
including the taxable year in which the Exchange Date occurs.
(l) At both the Valuation Time and the Exchange Date, Florida Insured IV
will have full right, power and authority to sell, assign, transfer and deliver
the Florida Insured IV Investments. At the Exchange Date, subject only to the
obligation to deliver the Florida Insured IV Investments as contemplated by this
Agreement, Florida Insured IV will have good and marketable title to all of the
Florida Insured IV Investments, and Florida Insured will acquire all of the
Florida Insured IV Investments free and clear of any encumbrances, liens or
security interests and without any restrictions upon the transfer thereof
(except those imposed by the Federal or state securities laws and those
imperfections of title or encumbrances as do not materially detract from the
value or use of the Florida Insured IV Investments or materially affect title
thereto).
(m) No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by Florida Insured IV of
the Reorganization, except such as may be required under the 1933 Act, the 1934
Act, the 1940 Act or state securities laws.
(n) The N-14 Registration Statement, on its effective date, at the time of
the shareholders' meetings referred to in Section 8(a) of this Agreement and on
the Exchange Date, insofar as it relates to Florida Insured IV (i) complied or
will comply in all material respects with the provisions of the 1933 Act, the
1934 Act and the 1940 Act and the rules and regulations thereunder, and (ii) did
not or will not contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading; and the Joint Proxy Statement and Prospectus
included therein did not or will not contain any untrue statement of a material
fact or omit to state any material fact necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; provided, however, that the representations and warranties in this
subsection shall apply only to statements in or omissions from the N-14
Registration Statement made in reliance upon and in conformity with information
furnished by Florida Insured IV for use in the N-14 Registration Statement as
provided in Section 8(e) of this Agreement.
(o) Florida Insured IV is authorized to issue an unlimited number of common
shares of beneficial interest, par value $.10 per share, and 1,000,000 preferred
shares of beneficial interest, Auction Market Preferred Shares, Series A;
Auction Market Preferred Shares and Series B; Auction Market Preferred Shares;
all of which shares have been designated as AMPS, and have been designated as
common shares, par value $.10 per share; each outstanding share of which is
fully paid and nonassessable and has full voting rights.
(p) All of the issued and outstanding Florida Insured IV Common Shares and
Florida Insured IV AMPS were offered for sale and sold in conformity with all
applicable Federal and state securities laws.
(q) The books and records of Florida Insured IV made available to Florida
Insured, Florida Insured II and Florida Insured III and/or their counsel are
substantially true and correct and contain no material misstatements or
omissions with respect to the operations of Florida Insured IV.
(r) Florida Insured IV will not sell or otherwise dispose of any of the
Florida Insured Common Shares or Florida Insured Series E AMPS to be received in
the Reorganization, except in distribution to the shareholders of Florida
Insured IV, as provided in Section 5 of this Agreement.
5. The Reorganization.
(a)Subject to receiving the requisite approvals of the shareholders of each
of the Funds, and to the other terms and conditions contained herein, (i)
Florida Insured II agrees to convey, transfer and deliver to Florida Insured and
Florida Insured agrees to acquire from Florida Insured II, on the Exchange Date,
all of the Florida Insured II Investments (including interest accrued as of the
Valuation Time on debt instruments), and assume substantially all of the
liabilities of Florida Insured II, in exchange solely for that number of Florida
Insured Common Shares and Florida Insured Series C AMPS provided in Section 6 of
this Agreement; (ii) Florida Insured III agrees to convey, transfer and deliver
to Florida Insured and Florida Insured agrees to acquire from Florida Insured
III on the Exchange Date, all of the Florida Insured III Investments (including
interest accrued as of the Valuation Time on debt instruments) and assume
substantially all of the liabilities of Florida Insured III in exchange solely
for that number of Florida Insured Common Shares and Florida Insured Series D
AMPS provided in Section 6 of this Agreement; and (iii) Florida Insured IV
agrees to convey, transfer and deliver to
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Florida Insured and Florida Insured agrees to acquire from Florida Insured IV on
the Exchange Date, all of the Florida Insured IV Investments (including interest
accrued as of the Valuation Time on debt instruments) and assume substantially
all of the liabilities of Florida Insured IV in exchange solely for that number
of Florida Insured Common Shares and Florida Insured Series E AMPS provided in
Section 6 of this Agreement.
Pursuant to this Agreement, as soon as practicable after the Exchange Date
(i) Florida Insured II will distribute all Florida Insured Common Shares and
Florida Insured Series C AMPS received by it to its shareholders in exchange for
their Florida Insured II Common Shares and Florida Insured II AMPS; (ii) Florida
Insured III will distribute all Florida Insured Common Shares and Florida
Insured Series D AMPS received by it to its shareholders in exchange for their
Florida Insured III Common Shares and Florida Insured III AMPS; and (iii)
Florida Insured IV will distribute all Florida Insured Common Shares and Florida
Insured Series E AMPS received by it to its shareholders in exchange for their
Florida Insured IV Common Shares and Florida Insured IV AMPS. Such distributions
shall be accomplished by the opening of shareholder accounts on the share ledger
records of Florida Insured in the amounts due the shareholders of each Acquired
Fund based on their respective holdings in such Acquired Fund as of the
Valuation Time.
(b) Prior to the Exchange Date, each Acquired Fund shall declare a dividend
or dividends which, together with all such previous dividends, shall have the
effect of distributing to their respective shareholders all of their respective
net investment company taxable income to and including the Exchange Date, if any
(computed without regard to any deduction for dividends paid), and all of its
net capital gain, if any, realized to and including the Exchange Date. In this
regard and in connection with the Reorganization, the last dividend period for
the Florida Insured II AMPS, the Florida Insured III AMPS and the Florida
Insured IV AMPS prior to the Exchange Date may be shorter than the dividend
period for such AMPS determined as set forth in the applicable Certificates of
Designation.
(c) Each of the Acquired Funds will pay or cause to be paid to Florida
Insured any interest such Acquired Fund receives on or after the Exchange Date
with respect to any of the Acquired Fund Investments transferred to Florida
Insured hereunder.
(d) The Valuation Time shall be 4:00 p.m., Eastern time, on February __,
2000, or such earlier or later day and time as may be mutually agreed upon in
writing (the "Valuation Time").
(e) Recourse for liabilities assumed from each Acquired Fund by Florida
Insured in the Reorganization will be limited to the net assets of each such
fund acquired by Florida Insured. The known liabilities of the Acquired Funds,
as of the Valuation Time, shall be confirmed in writing to Florida Insured
pursuant to Sections 2(j), 3(j) and 4(j) of this Agreement.
(f) The Funds will jointly file a Certificate of Termination with the
Secretary of State of the Commonwealth of Massachusetts and any other such
instrument as may be required by the Commonwealth of Massachusetts to effect the
transfer of the Acquired Fund Investments.
(g) The Acquired Funds will each be terminated following the Exchange Date
by terminating its organization under the Investment Company Act and its
organization under Massachusetts law and will withdraw its authority to do
business in any state where it is required to do so.
(h) Florida Insured will file with the Secretary of State of the
Commonwealth of Massachusetts a Certificate of Designation to its Declaration of
Trust establishing the powers, rights and preferences of the Florida Insured
Series C AMPS, the Florida Insured Series D AMPS and the Florida Insured Series
E AMPS prior to the closing of the Reorganization.
(i) As promptly as practicable after the liquidation of each of the
Acquired Fund pursuant to the Reorganization, each Acquired Fund shall terminate
its respective registration under the 1940 Act.
6. Issuance and Valuation of Florida Insured Common Shares, Florida Insured
Series C AMPS, Florida Insured Series D AMPS and Florida Insured Series E
AMPS in the Reorganization.
Florida Insured Common Shares and Florida Insured Series C AMPS of an
aggregate net asset value or liquidation preference, as the case may be, equal
(to the nearest one ten thousandth of one cent) to the value of the assets of
Florida Insured II acquired in the Reorganization determined as hereinafter
provided, reduced by the amount of liabilities of Florida Insured II assumed by
Florida Insured in the Reorganization, shall be issued by Florida Insured to
Florida Insured II in exchange for such assets of Florida Insured II, plus cash
in lieu of
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<PAGE>
fractional shares. Florida Insured will issue to Florida Insured II (a) a number
of Florida Insured Common Shares, the aggregate net asset value of which will
equal the aggregate net asset value of the Florida Insured II Common Shares,
determined as set forth below, and (b) a number of Florida Insured Series C
AMPS, the aggregate liquidation preference and value of which will equal the
aggregate liquidation preference and value of the Florida Insured II AMPS,
determined as set forth below.
Florida Insured Common Shares and Florida Insured Series D AMPS of an
aggregate net asset value or liquidation preference, as the case may be, equal
(to the nearest one then thousandth of one cent) to the value of the assets of
Florida Insured III acquired in the Reorganization determined as hereinafter
provided, reduced by the amount of liabilities of Florida Insured III assumed by
Florida Insured in the Reorganization, shall be issued by Florida Insured to
Florida Insured III in exchange for such assets of Florida Insured III, plus
cash in lieu of fractional shares. Florida Insured will issue to Florida Insured
III (a) a number of Florida Insured Common Shares, the aggregate net asset value
of which will equal the aggregate net asset value of the Florida Insured III
Common Shares, determined as set forth below, and (b) a number of Florida
Insured Series D AMPS, the aggregate liquidation preference and value of which
will equal the aggregate liquidation preference and value of the Florida Insured
III AMPS, determined as set forth below.
Florida Insured Common Shares and Florida Insured Series E AMPS of an
aggregate net asset value or liquidation preference, as the case may be, equal
(to the nearest one ten thousandth of one cent) to the value of the assets of
Florida Insured IV acquired in the Reorganization determined as hereinafter
provided, reduced by the amount of liabilities of Florida Insured IV assumed by
Florida Insured in the Reorganization, shall be issued by Florida Insured to
Florida Insured IV in exchange for such assets of Florida Insured IV, plus cash
in lieu of fractional shares. Florida Insured will issue to Florida Insured IV
(a) a number of Florida Insured Common Shares, the aggregate net asset value of
which will equal the aggregate net asset value of the Florida Insured IV Common
Shares, determined as set forth below, and (b) a number of Florida Insured
Series E AMPS, the aggregate liquidation preference and value of which will
equal the aggregate liquidation preference and value of the Florida Insured IV
AMPS, determined as set forth below.
The net asset value of each of the Funds and the liquidation preference and
value of the AMPS of each of the Funds shall be determined as of the Valuation
Time in accordance with the procedures described in (i) the prospectus of
Florida Insured, dated September 16, 1997, relating to the Florida Insured
Common Shares and (ii) the preliminary prospectus of Florida Insured, dated
October 2, 1997, relating to the Florida Insured AMPS, and no formula will be
used to adjust the net asset value so determined of any Fund to take into
account differences in realized and unrealized gains and losses. Values in all
cases shall be determined as of the Valuation Time. The value of the Acquired
Fund Investments to be transferred to Florida Insured shall be determined by
Florida Insured pursuant to the procedures utilized by Florida Insured in
valuing its own assets and determining its own liabilities for purposes of the
Reorganization. Such valuation and determination shall be made by Florida
Insured in cooperation with the Acquired Funds and shall be confirmed in writing
by Florida Insured to the Acquired Funds. The net asset value per share of the
Florida Insured Common Shares and the liquidation preference and value per share
of the Florida Insured Series C AMPS, the Florida Insured Series D AMPS and the
Florida Insured Series E AMPS shall be determined in accordance with such
procedures and Florida Insured shall certify the computations involved. For
purposes of determining the net asset value of a Common Share of each Fund, the
value of the securities held by the Fund plus any cash or other assets
(including interest accrued but not yet received) minus all liabilities
(including accrued expenses) and the aggregate liquidation value of the
outstanding shares of AMPS of that Fund is divided by the total number of Common
Shares of that Fund outstanding at such time.
Florida Insured shall issue to Florida Insured II separate certificates or
share deposit receipts for the Florida Insured Common Shares and the Florida
Insured Series C AMPS, each registered in the name of Florida Insured II.
Florida Insured II then shall distribute the Florida Insured Common Shares and
the Florida Insured Series C AMPS to the holders of Florida Insured II Common
Shares and Florida Insured II AMPS by redelivering the certificates or share
deposit receipts evidencing ownership of (i) the Florida Insured Common Shares
to The Bank of New York, as the transfer agent and registrar for the Florida
Insured Common Shares for distribution to the holders of Florida Insured II
Common Shares on the basis of such holder's proportionate interest in the
aggregate net asset value of the Common Shares of Florida Insured II and (ii)
the Florida Insured Series C AMPS to The Bank of New York, as the transfer agent
and registrar for the Florida Insured Series C AMPS for distribution to the
holders of Florida Insured II AMPS on the basis of such holder's proportionate
interest in the aggregate liquidation preference and value of the AMPS of
Florida Insured II. With respect to any Florida Insured II
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<PAGE>
shareholder holding certificates evidencing ownership of either Florida Insured
II Common Shares or Florida Insured II AMPS as of the Exchange Date, and subject
to Florida Insured being informed thereof in writing by Florida Insured II,
Florida Insured will not permit such shareholder to receive new certificates
evidencing ownership of the Florida Insured Common Shares or Florida Insured
Series C AMPS, exchange Florida Insured Common Shares or Florida Insured Series
C AMPS credited to such shareholder's account for shares of other investment
companies managed by Merrill Lynch Asset Management, L.P. ("MLAM") or any of its
affiliates, or pledge or redeem such Florida Insured Common Shares or Florida
Insured Series C AMPS, in any case, until notified by Florida Insured II or its
agent that such shareholder has surrendered his or her outstanding certificates
evidencing ownership of Florida Insured II Common Shares or Florida Insured II
AMPS or, in the event of lost certificates, posted adequate bond. Florida
Insured II, at its own expense, will request its shareholders to surrender their
outstanding certificates evidencing ownership of Florida Insured II Common
Shares or Florida Insured II AMPS, as the case may be, or post adequate bond
therefor.
Florida Insured shall issue to Florida Insured III separate certificates or
share deposit receipts for the Florida Insured Common Shares and the Florida
Insured Series D AMPS, each registered in the name of Florida Insured III.
Florida Insured III then shall distribute the Florida Insured Common Shares and
the Florida Insured Series D AMPS to the holders of Florida Insured III Common
Shares and Florida Insured III AMPS by redelivering the certificates or share
deposit receipts evidencing ownership of (i) the Florida Insured Common Shares
to The Bank of New York, as the transfer agent and registrar for the Florida
Insured Common Shares for distribution to the holders of Florida Insured III
Common Shares on the basis of such holder's proportionate interest in the
aggregate net asset value of the Common Shares of Florida Insured III and (ii)
the Florida Insured Series D AMPS to The Bank of New York, as the transfer agent
and registrar for the Florida Insured Series D AMPS for distribution to the
holders of Florida Insured III AMPS on the basis of such holder's proportionate
interest in the aggregate liquidation preference and value of the AMPS of
Florida Insured III. With respect to any Florida Insured III shareholder holding
certificates evidencing ownership of either Florida Insured III Common Shares or
Florida Insured III AMPS as of the Exchange Date, and subject to Florida Insured
being informed thereof in writing by Florida Insured III, Florida Insured will
not permit such shareholder to receive new certificates evidencing ownership of
the Florida Insured Common Shares or Florida Insured Series D AMPS, exchange
Florida Insured Common Shares or Florida Insured Series D AMPS credited to such
shareholder's account for shares of other investment companies managed by MLAM
or any of its affiliates, or pledge or redeem such Florida Insured Common Shares
or Florida Insured Series D AMPS, in any case, until notified by Florida Insured
III or its agent that such shareholder has surrendered his or her outstanding
certificates evidencing ownership of Florida Insured III Common Shares or
Florida Insured III AMPS or, in the event of lost certificates, posted adequate
bond. Florida Insured III, at its own expense, will request its shareholders to
surrender their outstanding certificates evidencing ownership of Florida Insured
III Common Shares or Florida Insured III AMPS, as the case may be, or post
adequate bond therefor.
Florida Insured shall issue to Florida Insured IV separate certificates or
share deposit receipts for the Florida Insured Common Shares and the Florida
Insured Series E AMPS, each registered in the name of Florida Insured IV.
Florida Insured IV then shall distribute the Florida Insured Common Shares and
the Florida Insured Series E AMPS to the holders of Florida Insured IV Common
Shares and Florida Insured IV AMPS by redelivering the certificates or share
deposit receipts evidencing ownership of (i) the Florida Insured Common Shares
to The Bank of New York, as the transfer agent and registrar for the Florida
Insured Common Shares for distribution to the holders of Florida Insured IV
Common Shares on the basis of such holder's proportionate interest in the
aggregate net asset value of the Common Shares of Florida Insured IV and (ii)
the Florida Insured Series E AMPS to The Bank of New York, as the transfer agent
and registrar for the Florida Insured Series E AMPS for distribution to the
holders of Florida Insured IV AMPS on the basis of such holder's proportionate
interest in the aggregate liquidation preference and value of the AMPS of
Florida Insured IV. With respect to any Florida Insured IV shareholder holding
certificates evidencing ownership of either Florida Insured IV Common Shares or
Florida Insured IV AMPS as of the Exchange Date, and subject to Florida Insured
being informed thereof in writing by Florida Insured IV, Florida Insured will
not permit such shareholder to receive new certificates evidencing ownership of
Florida Insured Common Shares or Florida Insured Series E AMPS, exchange Florida
Insured Common Shares or Florida Insured Series E AMPS credited to such
shareholder's account for shares of other investment companies managed by MLAM
or any of its affiliates, or pledge or redeem such Florida Insured Common Shares
or Florida Insured Series E AMPS, in any case, until notified by Florida Insured
IV or its agent that such shareholder has surrendered his or her outstanding
certificates evidencing ownership of Florida Insured IV Common Shares or Florida
Insured IV AMPS or, in the event of lost certificates, posted adequate bond.
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<PAGE>
Florida Insured IV, at its own expense, will request its shareholders to
surrender their outstanding certificates evidencing ownership of Florida Insured
IV Common Shares or Florida Insured IV AMPS, as the case may be, or post
adequate bond therefor.
Dividends payable to holders of record of Florida Insured Common Shares,
Florida Insured Series C AMPS, Florida Insured Series D AMPS, or Florida Insured
Series E AMPS, as the case may be, as of any date after the Exchange Date and
prior to the exchange of certificates by any shareholder of an Acquired Fund
shall be payable to such shareholder without interest; however, such dividends
shall not be paid unless and until such shareholder surrenders the share
certificates representing common shares or AMPS of the Acquired Funds, as the
case may be, for exchange.
No fractional shares of Florida Insured Common Shares will be issued to
holders of Florida Insured II Common Shares, Florida Insured III Common Shares
or Florida Insured IV Common Shares. In lieu thereof, Florida Insured's transfer
agent, The Bank of New York, will aggregate all fractional shares of Florida
Insured Common Shares and sell the resulting full shares on the New York Stock
Exchange at the current market price for Florida Insured Common Shares for the
account of all holders of fractional interests, and each such holder will
receive such holder's pro rata share of the proceeds of such sale upon surrender
of such holder's certificates representing Florida Insured II Common Shares,
Florida Insured III Common Shares or Florida Insured IV Common Shares.
7. Payment of Expenses.
(a) With respect to expenses incurred in connection with the
Reorganization, (i) each Fund shall pay all expenses incurred that are
attributable solely to such Fund and the conduct of its business, and (ii)
Florida Insured shall pay, subsequent to the Exchange Date and pro rata
according to each Fund's net assets on the Exchange Date, all expenses incurred
in connection with the Reorganization, including, but not limited to, all costs
related to the preparation and distribution of the N-14 Registration Statement.
Such fees and expenses shall include the cost of preparing and filing a ruling
request with the Internal Revenue Service, legal and accounting fees, printing
costs, filing fees, stock exchange fees, rating agency fees, portfolio transfer
taxes (if any) and any similar expenses incurred in connection with the
Reorganization.
(b) If for any reason the Reorganization is not consummated, no party shall
be liable to any other party for any damages resulting therefrom, including,
without limitation, consequential damages.
8. Covenants of the Funds.
(a) Each Fund agrees to call an annual meeting of its shareholders as soon
as is practicable after the effective date of the N-14 Registration Statement
for the purpose of considering the Reorganization as described in this
Agreement.
(b) Each Fund covenants to operate its business as presently conducted
between the date hereof and the Exchange Date.
(c) Each Acquired Fund agrees that following the consummation of the
Reorganization, it will terminate in accordance with the laws of the
Commonwealth of Massachusetts and any other applicable law, it will not make any
distributions of any Florida Insured Common Shares, Florida Insured Series C
AMPS, Florida Insured Series D AMPS or Florida Insured Series E AMPS, as
applicable other than to its respective shareholders and without first paying or
adequately providing for the payment of all of its respective liabilities not
assumed by Florida Insured, if any, and on and after the Exchange Date it shall
not conduct any business except in connection with its termination.
(d) Each Acquired Fund undertakes that if the Reorganization is
consummated, it will file an application pursuant to Section 8(f) of the 1940
Act for an order declaring that such Acquired Fund has ceased to be a registered
investment company.
(e) Florida Insured will file the N-14 Registration Statement with the
Securities and Exchange Commission (the "Commission") and will use its best
efforts to provide that the N-14 Registration Statement becomes effective as
promptly as practicable. Each Fund agrees to cooperate fully with the others,
and each will furnish to the others the information relating to itself to be set
forth in the N-14 Registration Statement as required by the 1933 Act, the 1934
Act the 1940 Act, and the rules and regulations thereunder and the state
securities laws.
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(f) Florida Insured has no plan or intention to sell or otherwise dispose
of the Acquired Fund Investments, except for dispositions made in the ordinary
course of business.
(g) Each of the Funds agrees that by the Exchange Date all of its Federal
and other tax returns and reports required to be filed on or before such date
shall have been filed and all taxes shown as due on said returns either have
been paid or adequate liability reserves have been provided for the payment of
such taxes. In connection with this covenant, the Funds agree to cooperate with
each other in filing any tax return, amended return or claim for refund,
determining a liability for taxes or a right to a refund of taxes or
participating in or conducting any audit or other proceeding in respect of
taxes. Florida Insured agrees to retain for a period of ten (10) years following
the Exchange Date all returns, schedules and work papers and all material
records or other documents relating to tax matters of the Acquired Funds for
each of such Fund's taxable period first ending after the Exchange Date and for
all prior taxable periods. Any information obtained under this subsection shall
be kept confidential except as otherwise may be necessary in connection with the
filing of returns or claims for refund or in conducting an audit or other
proceeding. After the Exchange Date, each of the Acquired Funds shall prepare,
or cause its agents to prepare, any Federal, state or local tax returns,
including any Forms 1099, required to be filed by such fund with respect to its
final taxable year ending with its complete liquidation and for any prior
periods or taxable years and further shall cause such tax returns and Forms 1099
to be duly filed with the appropriate taxing authorities. Notwithstanding the
aforementioned provisions of this subsection, any expenses incurred by the
Acquired Funds (other than for payment of taxes) in connection with the
preparation and filing of said tax returns and Forms 1099 after the Exchange
Date shall be borne by each such Fund to the extent such expenses have been
accrued by such Fund in the ordinary course without regard to the
Reorganization; any excess expenses shall be borne by Fund Asset Management,
L.P. ("FAM") at the time such tax returns and Forms 1099 are prepared.
(h) The Funds each agree to mail to its respective shareholders of record
entitled to vote at the annual meeting of shareholders at which action is to be
considered regarding this Agreement, in sufficient time to comply with
requirements as to notice thereof, a combined proxy statement and prospectus
which complies in all material respects with the applicable provisions of
Section 14(a) of the 1934 Act and Section 20(a) of the 1940 Act, and the rules
and regulations, respectively, thereunder.
(i) Following the consummation of the Reorganization, Florida Insured will
stay in existence and continue its business as a non-diversified, closed-end
management investment company registered under the 1940 Act.
9. Exchange Date.
(a) Delivery of the assets of the Acquired Funds to be transferred,
together with any other Acquired Fund Investments, and the Florida Insured
Common Shares, Florida Insured Series C AMPS, Florida Insured Series D AMPS and
Florida Insured Series E AMPS to be issued as provided in this Agreement, shall
be made at the offices of Brown & Wood LLP, One World Trade Center, New York,
New York 10048, at 10:00 a.m. on the next full business day following the
Valuation Time, or at such other place, time and date agreed to by the Funds,
the date and time upon which such delivery is to take place being referred to
herein as the "Exchange Date." To the extent that any Acquired Fund Investments,
for any reason, are not transferable on the Exchange Date, the applicable
Acquired Fund shall cause such Acquired Fund Investments to be transferred to
Florida Insured's account with The Bank of New York at the earliest practicable
date thereafter.
(b) Each of the Acquired Funds will deliver to Florida Insured on the
Exchange Date confirmations or other adequate evidence as to the tax basis of
each of their respective Acquired Fund Investments delivered to Florida Insured
hereunder, certified by Deloitte & Touche LLP (for Florida Insured II) and by
Ernst & Young LLP (for Florida Insured III and Florida Insured IV).
(c) As soon as practicable after the close of business on the Exchange
Date, each of the Acquired Funds shall deliver to Florida Insured a list of the
names and addresses of all of the shareholders of record of such Acquired Fund
on the Exchange Date and the number of shares of Common Shares and AMPS of such
Acquired Fund owned by each such shareholder, certified to the best of their
knowledge and belief by the applicable transfer agent for such Acquired Fund or
by its President.
10. Conditions of the Acquired Funds.
The obligations of each Acquired Fund hereunder shall be subject to the
following conditions:
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(a) That this Agreement shall have been adopted, and the Reorganization
shall have been approved, by the affirmative vote of two-thirds of the members
of the Board of Trustees of each of the Funds and by the affirmative vote of (i)
the holders of (a) a majority of the Florida Insured Common Shares and Florida
Insured AMPS, voting together as a single class, and (b) a majority of the
Florida Insured AMPS, voting separately as a class, in each case issued and
outstanding and entitled to vote thereon; (ii) the holders of (a) a majority of
the Florida Insured II Common Shares and Florida Insured II AMPS, voting
together as a single class, and (b) a majority of the Florida Insured II AMPS,
voting separately as a class, in each case issued and outstanding and entitled
to vote thereon; (iii) the holders of (a) a majority of the Florida Insured III
Common Shares and Florida Insured III AMPS, voting together as a single class,
and (b) a majority of the Florida Insured III AMPS, voting separately as a
class, in each case issued and outstanding and entitled to vote thereon; (iv)
the holders of (a) a majority of the Florida Insured IV Common Shares and
Florida Insured IV AMPS, voting together as a single class, and (b) a majority
of the Florida Insured IV AMPS, voting separately as a class, in each case
issued and outstanding and entitled to vote thereon; and further that each Fund
shall have delivered to each other Fund a copy of the resolution approving this
Agreement adopted by such Fund's Board of Trustees, and a certificate setting
forth the vote of such Fund's shareholders obtained at its Annual Meeting, each
certified by the Secretary of the appropriate Fund.
(b) That each Acquired Fund shall have received from Florida Insured and
from each other Acquired Fund a statement of assets, liabilities and capital,
with values determined as provided in Section 6 of this Agreement, together with
a schedule of such fund's investments, all as of the Valuation Time, certified
on the Fund's behalf by its President (or any Vice President) and its Treasurer,
and a certificate signed by the Fund's President (or any Vice President) and its
Treasurer, dated as of the Exchange Date, certifying that as of the Valuation
Time and as of the Exchange Date there has been no material adverse change in
the financial position of the Fund since the date of such Fund's most recent
Annual or Semi-Annual Report as applicable, other than changes in its portfolio
securities since that date or changes in the market value of its portfolio
securities.
(c) That Florida Insured shall have furnished to the Acquired Funds a
certificate signed by Florida Insured's President (or any Vice President) and
its Treasurer, dated as of the Exchange Date, certifying that, as of the
Valuation Time and as of the Exchange Date all representations and warranties of
Florida Insured made in this Agreement are true and correct in all material
respects with the same effect as if made at and as of such dates, and that
Florida Insured has complied with all of the agreements and satisfied all of the
conditions on its part to be performed or satisfied at or prior to each of such
dates.
(d) That there shall not be any material litigation pending with respect to
the matters contemplated by this Agreement.
(e) That the Acquired Funds shall have received an opinion or opinions of
Brown & Wood LLP, as counsel to the Funds, in form and substance satisfactory to
the Acquired Funds and dated the Exchange Date, to the effect that (i) each of
the Funds is a trust with transferable shares duly organized, validly existing
and in good standing in conformity with the laws of the Commonwealth of
Massachusetts; (ii) the Florida Insured Common Shares, Florida Insured Series C
AMPS, Florida Insured Series D AMPS and Florida Insured Series E AMPS to be
issued pursuant to this Agreement are duly authorized and, upon delivery, will
be validly issued and outstanding and fully paid and nonassessable by Florida
Insured, and no shareholder of Florida Insured has any preemptive right to
subscription or purchase in respect thereof (pursuant to the Declaration of
Trust or the by-laws of Florida Insured or the law of the Commonwealth of
Massachusetts, or to the best of such counsel's knowledge, otherwise); (iii)
this Agreement has been duly authorized, executed and delivered by each of the
Funds, and represents a valid and binding contract, enforceable in accordance
with its terms, except as enforceability may be limited by bankruptcy,
insolvency, reorganization or other similar laws pertaining to the enforcement
of creditors' rights generally and court decisions with respect thereto;
provided, such counsel shall express no opinion with respect to the application
of equitable principles in any proceeding, whether at law or in equity; (iv) the
execution and delivery of this Agreement does not, and the consummation of the
Reorganization will not, violate any material provisions of Massachusetts law or
the Declaration of Trust, as amended, the by-laws, as amended, or any agreement
(known to such counsel) to which any Fund is a party or by which any Fund is
bound, except insofar as the parties have agreed to amend such provision as a
condition precedent to the Reorganization; (v) each of the Acquired Funds has
the power to sell, assign, transfer and deliver the assets transferred by it
hereunder and, upon consummation of the Reorganization in accordance with the
terms of this Agreement, each of the Acquired Funds will have duly transferred
such assets and liabilities in accordance with this Agreement; (vi) to the best
of such counsel's knowledge, no consent, approval, authorization or order of any
United States federal
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<PAGE>
court, Massachusetts state court or governmental authority is required for the
consummation by the Funds of the Reorganization, except such as have been
obtained under the 1933 Act, the 1934 Act and the 1940 Act and the published
rules and regulations of the Commission thereunder and under Massachusetts law
and such as may be required under state securities laws; (vii) the N-14
Registration Statement has become effective under the 1933 Act, no stop order
suspending the effectiveness of the N-14 Registration Statement has been issued
and no proceedings for that purpose have been instituted or are pending or
contemplated under the 1933 Act, and the N-14 Registration Statement, and each
amendment or supplement thereto, as of their respective effective dates, appear
on their face to be appropriately responsive in all material respects to the
requirements of the 1933 Act, the 1934 Act and the 1940 Act and the published
rules and regulations of the Commission thereunder; (viii) the descriptions in
the N-14 Registration Statement of statutes, legal and governmental proceedings
and contracts and other documents are accurate and fairly present the
information required to be shown; (ix) the information in the Joint Proxy
Statement and Prospectus under "Comparison of the Funds--Tax Rules Applicable to
the Funds and their Shareholders" and "Agreement and Plan of Reorganization--Tax
Consequences of the Reorganization," (other than information related to Florida
law or legal conclusions involving matters of Florida law as to which we express
no opinion) to the extent that it constitutes matters of law, summaries of legal
matters or legal conclusions, has been reviewed by such counsel and is correct
in all material respects as of the date of the Joint Proxy Statement and
Prospectus; (x) such counsel does not know of any statutes, legal or
governmental proceedings or contracts or other documents related to the
Reorganization of a character required to be described in the N-14 Registration
Statement which are not described therein or, if required to be filed, filed as
required; (xi) no Fund, to the knowledge of such counsel, is required to qualify
to do business as a foreign corporation in any jurisdiction except as may be
required by state securities laws, and except where each has so qualified or the
failure so to qualify would not have a material adverse effect on such Fund or
its respective shareholders; (xii) such counsel does not have actual knowledge
of any material suit, action or legal or administrative proceeding pending or
threatened against any of the Funds, the unfavorable outcome of which would
materially and adversely affect such Fund; (xiii) all corporate actions required
to be taken by the Funds to authorize this Agreement and to effect the
Reorganization have been duly authorized by all necessary corporate actions on
the part of such Fund; and (xiv) such opinion is solely for the benefit of the
Funds and their Trustees and officers. Such opinion also shall state that (x)
while such counsel cannot make any representation as to the accuracy or
completeness of statements of fact in the N-14 Registration Statement or any
amendment or supplement thereto, nothing has come to their attention that would
lead them to believe that, on the respective effective dates of the N-14
Registration Statement and any amendment or supplement thereto, (1) the N-14
Registration Statement or any amendment or supplement thereto contained any
untrue statement of a material fact or omitted to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading; and (2) the prospectus included in the N-14 Registration Statement
contained any untrue statement of a material fact or omitted to state any
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; and (y) such counsel
does not express any opinion or belief as to the financial statements or other
financial or statistical data relating to any Fund contained or incorporated by
reference in the N-14 Registration Statement. In giving the opinion set forth
above, Brown & Wood LLP may state that it is relying on certificates of officers
of a Fund with regard to matters of fact and certain certificates and written
statements of governmental officials with respect to the good standing of a
Fund.
(f) That each Acquired Fund shall have received either (a) a private letter
ruling from the Internal Revenue Service or (b) an opinion of Brown & Wood LLP,
to the effect that for Federal income tax purposes (i) the transfer by such
Acquired Fund of substantially all of its assets to Florida Insured in exchange
solely for Florida Insured Common Shares and Florida Insured Series C AMPS,
Florida Insured Series D AMPS or Florida Insured Series E AMPS as provided in
this Agreement will constitute a reorganization within the meaning of Section
368(a)(1)(C) of the Code, and the respective Funds will each be deemed to be a
"party" to a reorganization within the meaning of Section 368(b); (ii) in
accordance with Section 361(a) of the Code, no gain or loss will be recognized
to an Acquired Fund as a result of the asset transfer solely in exchange for
Florida Insured Common Shares and Florida Insured Series C AMPS, Florida Insured
Series D AMPS or Florida Insured Series E AMPS, as the case may be, or on the
distribution of the Florida Insured shares to shareholders of the respective
Acquired Fund under Section 361(c)(1); (iii) under Section 1032 of the Code, no
gain or loss will be recognized to Florida Insured on the receipt of assets of
an Acquired Fund in exchange for its shares; (iv) in accordance with Section
354(a)(1) of the Code, no gain or loss will be recognized to the shareholders of
an Acquired Fund on the receipt of Shares of Florida Insured in exchange for
their shares of the Acquired Fund (except to the extent that common shareholders
receive cash representing an interest in fractional shares of Florida Insured
Common Stock in the Reorganization) (v) in
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<PAGE>
accordance with Section 362(b) of the Code, the tax basis of an Acquired Fund's
assets in the hands of Florida Insured will be the same as the tax basis of such
assets in the hands of the Acquired Fund immediately prior to the consummation
of the Reorganization; (vi) in accordance with Section 358 of the Code,
immediately after the Reorganization, the tax basis of the shares of Florida
Insured received by the shareholders of an Acquired Fund in the Reorganization
will be equal, in the aggregate, to the tax basis of the shares of the Acquired
Fund surrendered in exchange; (vii) in accordance with Section 1223 of the Code,
a shareholder's holding period for the shares of Florida Insured will be
determined by including the period for which such shareholder held the Acquired
Fund shares exchanged therefor, provided that such shares were held as a capital
asset; (viii) in accordance with Section 1223 of the Code, Florida Insured's
holding period with respect to an Acquired Fund's assets transferred will
include the period for which such assets were held by the Acquired Fund; (ix)
the payment of cash to common shareholders of an Acquired Fund in lieu of
fractional shares of Florida Insured Common Shares will be treated as though the
fractional shares were distributed as part of the Reorganization and then
redeemed, with the result that such shareholders will have short- or long-term
capital gain or loss to the extent that the cash distribution differs from the
shareholder's basis allocable to the Florida Insured fractional shares; and (x)
the taxable year of each Acquired Fund will end on the effective date of the
Reorganization and pursuant to Section 381(a) of the Code and regulations
thereunder, Florida Insured will succeed to and take into account certain tax
attributes of each Acquired Fund, such as earnings and profits, capital loss
carryovers and method of accounting.
(g) That all proceedings taken by each of the Funds and its counsel in
connection with the Reorganization and all documents incidental thereto shall be
satisfactory in form and substance to the others.
(h) That the N-14 Registration Statement shall have become effective under
the 1933 Act, and no stop order suspending such effectiveness shall have been
instituted or, to the knowledge of Florida Insured, be contemplated by the
Commission.
(i) That Acquired Funds shall have received from Deloitte & Touche LLP a
letter dated as of the effective date of the N-14 Registration Statement and a
similar letter dated within five days prior to the Exchange Date, in form and
substance satisfactory to them, to the effect that (i) they are independent
public accountants with respect to Florida Insured within the meaning of the
1933 Act and the applicable published rules and regulations thereunder; (ii) in
their opinion, the financial statements and supplementary information of Florida
Insured included or incorporated by reference in the N-14 Registration Statement
and reported on by them comply as to form in all material respects with the
applicable accounting requirements of the 1933 Act and the published rules and
regulations thereunder; (iii) on the basis of limited procedures agreed upon by
the Funds and described in such letter (but not an examination in accordance
with generally accepted auditing standards) consisting of a reading of any
unaudited interim financial statements and unaudited supplementary information
of Florida Insured included in the N-14 Registration Statement, and inquiries of
certain officials of Florida Insured responsible for financial and accounting
matters, nothing came to their attention that caused them to believe that (a)
such unaudited financial statements and related unaudited supplementary
information do not comply as to form in all material respects with the
applicable accounting requirements of the 1933 Act and the published rules and
regulations thereunder, (b) such unaudited financial statements are not fairly
presented in conformity with generally accepted accounting principles, applied
on a basis substantially consistent with that of the audited financial
statements, or (c) such unaudited supplementary information is not fairly stated
in all material respects in relation to the unaudited financial statements taken
as a whole; and (iv) on the basis of limited procedures agreed upon by the Funds
and described in such letter (but not an examination in accordance with
generally accepted auditing standards), the information relating to Florida
Insured appearing in the N-14 Registration Statement, which information is
expressed in dollars (or percentages derived from such dollars) (with the
exception of performance comparisons, if any), if any, has been obtained from
the accounting records of Florida Insured or from schedules prepared by
officials of Florida Insured having responsibility for financial and reporting
matters and such information is in agreement with such records, schedules or
computations made therefrom.
(j) That the Commission shall not have issued an unfavorable advisory
report under Section 25(b) of the 1940 Act, nor instituted or threatened to
institute any proceeding seeking to enjoin consummation of the Reorganization
under Section 25(c) of the 1940 Act, and no other legal, administrative or other
proceeding shall be instituted or threatened which would materially affect the
financial condition of Florida Insured or would prohibit the Reorganization.
(k) That the Acquired Funds shall have received from the Commission such
orders or interpretations as Brown & Wood LLP, as their counsel, deems
reasonably necessary or desirable under the 1933 Act and the 1940
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<PAGE>
Act in connection with the Reorganization, provided, that such counsel shall
have requested such orders as promptly as practicable, and all such orders shall
be in full force and effect.
11. Florida Insured Conditions.
The obligations of Florida Insured hereunder shall be subject to the
following conditions:
(a) That this Agreement shall have been adopted, and the Reorganization
shall have been approved, by the Board of Trustees and the shareholders of each
of the Funds as set forth in Section 10(a); and that each of the Acquired Funds
shall have delivered to Florida Insured a copy of the resolution approving this
Agreement adopted by such Acquired Fund's Board of Trustees, and a certificate
setting forth the vote of the shareholders of such Acquired Fund obtained, each
certified by its Secretary.
(b) That each Acquired Fund shall have furnished to Florida Insured a
statement of its assets, liabilities and capital, with values determined as
provided in Section 6 of this Agreement, together with a schedule of investments
with their respective dates of acquisition and tax costs, all as of the
Valuation Time, certified on such Fund's behalf by its President (or any Vice
President) and its Treasurer, and a certificate signed by such Fund's President
(or any Vice President) and its Treasurer, dated as of the Exchange Date,
certifying that as of the Valuation Time and as of the Exchange Date there has
been no material adverse change in the financial position of the Acquired Fund
since the date of such Fund's most recent Annual Report or Semi-Annual Report,
as applicable, other than changes in the Acquired Fund Investments since that
date or changes in the market value of the Acquired Fund Investments.
(c) That each Acquired Fund shall have furnished to Florida Insured a
certificate signed by such Fund's President (or any Vice President) and its
Treasurer, dated the Exchange Date, certifying that as of the Valuation Time and
as of the Exchange Date all representations and warranties of the Acquired Fund
made in this Agreement are true and correct in all material respects with the
same effect as if made at and as of such dates and the Acquired Fund has
complied with all of the agreements and satisfied all of the conditions on its
part to be performed or satisfied at or prior to such dates.
(d) That each Acquired Fund shall have delivered to Florida Insured a
letter from Deloitte & Touche LLP (for Florida Insured II) or Ernst & Young LLP
(for Florida Insured III and Florida Insured IV), dated the Exchange Date,
stating that such firm has performed a limited review of the Federal, state and
local income tax returns of the Acquired Fund for the period ended
______________ (which returns originally were prepared and filed by the Acquired
Fund), and that based on such limited review, nothing came to their attention
which caused them to believe that such returns did not properly reflect, in all
material respects, the Federal, state and local income taxes of the Acquired
Fund for the period covered thereby; and that for the period from
________________, to and including the Exchange Date and for any taxable year of
the Acquired Fund ending upon the liquidation of that Acquired Fund, such firm
has performed a limited review to ascertain the amount of applicable Federal,
state and local taxes, and has determined that either such amount has been paid
or reserves have been established for payment of such taxes, this review to be
based on unaudited financial data; and that based on such limited review,
nothing has come to their attention which caused them to believe that the taxes
paid or reserves set aside for payment of such taxes were not adequate in all
material respects for the satisfaction of Federal, state and local taxes for the
period from , to and including the Exchange Date and for any taxable year of
that Acquired Fund, ending upon the liquidation of such fund or that such fund
would not qualify as a regulated investment company for Federal income tax
purposes for the tax years in question.
(e) That there shall not be any material litigation pending with respect to
the matters contemplated by this Agreement.
(f) That Florida Insured shall have received an opinion of Brown & Wood
LLP, as counsel to the Funds, in form and substance satisfactory to Florida
Insured and dated the Exchange Date, with respect to the matters specified in
Section 10(e) of this Agreement and such other matters as Florida Insured
reasonably may deem necessary or desirable.
(g) That Florida Insured shall have received a private letter ruling from
the Internal Revenue Service or an opinion of Brown & Wood LLP with respect to
the matters specified in Section 10(f) of this Agreement.
(h) That Florida Insured shall have received from Deloitte & Touche LLP
(for Florida Insured II) or Ernst & Young LLP (for Florida Insured III and
Florida Insured IV) a letter dated as of the effective date of the N-14
Registration Statement and a similar letter dated within five days prior to the
Exchange Date, in form and
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<PAGE>
substance satisfactory to Florida Insured, to the effect that (i) they are
independent public accountants with respect to such fund within the meaning of
the 1933 Act and the applicable published rules and regulations thereunder; (ii)
in their opinion, the financial statements and supplementary information of such
fund included or incorporated by reference in the N-14 Registration Statement
and reported on by them comply as to form in all material respects with the
applicable accounting requirements of the 1933 Act and the published rules and
regulations thereunder; (iii) on the basis of limited procedures agreed upon by
the Funds and described in such letter (but not an examination in accordance
with generally accepted auditing standards) consisting of a reading of any
unaudited interim financial statements and unaudited supplementary information
of the Acquired Fund included in the N-14 Registration Statement, and inquiries
of certain officials of the Acquired Fund responsible for financial and
accounting matters, nothing came to their attention that caused them to believe
that (a) such unaudited financial statements and related unaudited supplementary
information do not comply as to form in all material respects with the
applicable accounting requirements of the 1933 Act and the published rules and
regulations thereunder, (b) such unaudited financial statements are not fairly
presented in conformity with generally accepted accounting principles, applied
on a basis substantially consistent with that of the audited financial
statements, or (c) such unaudited supplementary information is not fairly stated
in all material respects in relation to the unaudited financial statements taken
as a whole; and (iv) on the basis of limited procedures agreed upon by the Funds
and described in such letter (but not an examination in accordance with
generally accepted auditing standards), the information relating to the Acquired
Fund appearing in the N-14 Registration Statement, which information is
expressed in dollars (or percentages derived from such dollars) (with the
exception of performance comparisons, if any), if any, has been obtained from
the accounting records of the Acquired Fund or from schedules prepared by
officials of the Acquired Fund having responsibility for financial and reporting
matters and such information is in agreement with such records, schedules or
computations made therefrom.
(i) That the Acquired Fund Investments to be transferred to Florida Insured
shall not include any assets or liabilities which Florida Insured, by reason of
charter limitations or otherwise, may not properly acquire or assume.
(j) That the N-14 Registration Statement shall have become effective under
the 1933 Act and no stop order suspending such effectiveness shall have been
instituted or, to the knowledge of any Acquired Fund, be contemplated by the
Commission.
(k) That the Commission shall not have issued an unfavorable advisory
report under Section 25(b) of the 1940 Act, nor instituted or threatened to
institute any proceeding seeking to enjoin consummation of the Reorganization
under Section 25(c) of the 1940 Act, and no other legal, administrative or other
proceeding shall be instituted or threatened which would materially affect the
financial condition of any Acquired Fund or would prohibit the Reorganization.
(l) That Florida Insured shall have received from the Commission such
orders or interpretations as Brown & Wood LLP, as counsel to Florida Insured,
deems reasonably necessary or desirable under the 1933 Act and the 1940 Act in
connection with the Reorganization, provided, that such counsel shall have
requested such orders as promptly as practicable, and all such orders shall be
in full force and effect.
(m) That all proceedings taken by each Acquired Fund and its respective
counsel in connection with the Reorganization and all documents incidental
thereto shall be satisfactory in form and substance to Florida Insured.
(n) That prior to the Exchange Date, each of the Acquired Funds shall have
declared a dividend or dividends which, together with all such previous
dividends, shall have the effect of distributing to its shareholders all of its
net investment company taxable income for the period to and including the
Exchange Date, if any (computed without regard to any deduction for dividends
paid), and all of its net capital gain, if any, realized to and including the
Exchange Date. In this regard, the last dividend period for the Florida Insured
II AMPS, the Florida Insured III AMPS and the Florida Insured IV AMPS may be
shorter than the dividend period for such AMPS determined as set forth in the
applicable Certificate of Designation.
12. Termination, Postponement and Waivers.
(a) Notwithstanding anything contained in this Agreement to the contrary,
this Agreement may be terminated and the Reorganization abandoned at any time
(whether before or after adoption thereof by the shareholders of the Funds)
prior to the Exchange Date, or the Exchange Date may be postponed, (i) by mutual
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consent of the Boards of Trustees of the Funds, (ii) by the Board of Trustees of
any Acquired Fund if any condition of such Acquired Fund's obligations set forth
in Section 10 of this Agreement has not been fulfilled or waived by such Board;
or (iii) by the Board of Trustees of Florida Insured if any condition of Florida
Insured's obligations set forth in Section 11 of this Agreement have not been
fulfilled or waived by such Board.
(b) If the transactions contemplated by this Agreement have not been
consummated by August __, 2000, this Agreement automatically shall terminate on
that date, unless a later date is mutually agreed to by the Boards of Trustees
of the Funds.
(c) In the event of termination of this Agreement pursuant to the
provisions hereof, the same shall become void and have no further effect, and
there shall not be any liability on the part of any Fund or persons who are
their directors, trustees, officers, agents or shareholders in respect of this
Agreement.
(d) At any time prior to the Exchange Date, any of the terms or conditions
of this Agreement may be waived by the Board of Trustees of any Fund (whichever
is entitled to the benefit thereof), if, in the judgment of such Board after
consultation with its counsel, such action or waiver will not have a material
adverse effect on the benefits intended under this Agreement to the shareholders
of their respective fund, on behalf of which such action is taken. In addition,
the Boards of Trustees of the Funds have delegated to FAM the ability to make
non-material changes to the transaction if it deems it to be in the best
interests of the Funds to do so.
(e) The respective representations and warranties contained in Sections 1,
2, 3 and 4 of this Agreement shall expire with, and be terminated by, the
consummation of the Reorganization, and no Fund nor any of its officers,
Trustees, agents or shareholders shall have any liability with respect to such
representations or warranties after the Exchange Date. This provision shall not
protect any officer, Trustee, agent or shareholder of any Fund against any
liability to the entity for which that officer, Trustee, agent or shareholder so
acts or to its shareholders, to which that officer, Trustee, agent or
shareholder otherwise would be subject by reason of willful misfeasance, bad
faith, gross negligence, or reckless disregard of the duties in the conduct of
such office.
(f) If any order or orders of the Commission with respect to this Agreement
shall be issued prior to the Exchange Date and shall impose any terms or
conditions which are determined by action of the Boards of Trustees of the Funds
to be acceptable, such terms and conditions shall be binding as if a part of
this Agreement without further vote or approval of the shareholders of the Funds
unless such terms and conditions shall result in a change in the method of
computing the number of Florida Insured Common Shares, Florida Insured Series C
AMPS, Florida Insured Series D AMPS and Florida Insured Series E AMPS to be
issued to the Acquired Funds, as applicable, in which event, unless such terms
and conditions shall have been included in the proxy solicitation materials
furnished to the shareholders of the Funds prior to the meetings at which the
Reorganization shall have been approved, this Agreement shall not be consummated
and shall terminate unless the Funds promptly shall call a special meeting of
shareholders at which such conditions so imposed shall be submitted for
approval.
13. Indemnification.
(a) Each Acquired Fund hereby severally agrees to indemnify and hold
Florida Insured harmless from all loss, liability and expense (including
reasonable counsel fees and expenses in connection with the contest of any
claim) which Florida Insured may incur or sustain by reason of the fact that (i)
Florida Insured shall be required to pay any corporate obligation of such
Acquired Fund, whether consisting of tax deficiencies or otherwise, based upon a
claim or claims against such Acquired Fund which were omitted or not fairly
reflected in the financial statements to be delivered to Florida Insured in
connection with the Reorganization; (ii) any representations or warranties made
by such Acquired Fund in this Agreement should prove to be false or erroneous in
any material respect; (iii) any covenant of such Acquired Fund has been breached
in any material respect; or (iv) any claim is made alleging that (a) the N-14
Registration Statement included any untrue statement of a material fact or
omitted to state any material fact required to be stated therein or necessary to
make the statements therein not misleading attributable to such Fund or (b) the
Joint Proxy Statement and Prospectus delivered to the shareholders of the Funds
and forming a part of the N-14 Registration Statement included any untrue
statement of a material fact or omitted to state any material fact necessary to
make the statements therein attributable to such Fund, in the light of the
circumstances under which they were made, not misleading, except insofar as such
claim is based on written information furnished to the Acquired Funds by Florida
Insured.
(b) Florida Insured hereby agrees to indemnify and hold each Acquired Fund
harmless from all loss, liability and expenses (including reasonable counsel
fees and expenses in connection with the contest of any claim) which such
Acquired Fund may incur or sustain by reason of the fact that (i) any
representations or
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warranties made by Florida Insured in this Agreement should prove false or
erroneous in any material respect, (ii) any covenant of Florida Insured has been
breached in any material respect, or (iii) any claim is made alleging that (a)
the N-14 Registration Statement included any untrue statement of a material fact
or omitted to state any material fact required to be stated therein or necessary
to make the statements therein, not misleading or (b) the Joint Proxy Statement
and Prospectus delivered to shareholders of the Funds and forming a part of the
N-14 Registration Statement included any untrue statement of a material fact or
omitted to state any material fact necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading,
except with respect to (ii)(a) and (b) herein insofar as such claim is based on
written information furnished to Florida Insured by the Acquired Fund seeking
indemnification.
(c) In the event that any claim is made against Florida Insured in respect
of which indemnity may be sought by Florida Insured from an Acquired Fund under
Section 13(a) of this Agreement, or in the event that any claim is made against
an Acquired Fund in respect of which indemnity may be sought by an Acquired Fund
from Florida Insured under Section 13(b) of this Agreement, then the party
seeking indemnification (the "Indemnified Party"), with reasonable promptness
and before payment of such claim, shall give written notice of such claim to the
other party (the "Indemnifying Party"). If no objection as to the validity of
the claim is made in writing to the Indemnified Party by the Indemnifying Party
within thirty (30) days after the giving of notice hereunder, then the
Indemnified Party may pay such claim and shall be entitled to reimbursement
therefor, pursuant to this Agreement. If, prior to the termination of such
thirty-day period, objection in writing as to the validity of such claim is made
to the Indemnified Party, the Indemnified Party shall withhold payment thereof
until the validity of such claim is established (i) to the satisfaction of the
Indemnifying Party, or (ii) by a final determination of a court of competent
jurisdiction, whereupon the Indemnified Party may pay such claim and shall be
entitled to reimbursement thereof, pursuant to this Agreement, or (iii) with
respect to any tax claims, within seven (7) calendar days following the earlier
of (A) an agreement between Florida Insured and the Acquired Fund seeking
indemnification that an indemnity amount is payable, (B) an assessment of a tax
by a taxing authority, or (C) a "determination" as defined in Section 1313(a) of
the Code. For purposes of this Section 13, the term "assessment" shall have the
same meaning as used in Chapter 63 of the Code and Treasury Regulations
thereunder, or any comparable provision under the laws of the appropriate taxing
authority. In the event of any objection by the Indemnifying Party, the
Indemnifying Party promptly shall investigate the claim, and if it is not
satisfied with the validity thereof, the Indemnifying Party shall conduct the
defense against such claim. All costs and expenses incurred by the Indemnifying
Party in connection with such investigation and defense of such claim shall be
borne by it. These indemnification provisions are in addition to, and not in
limitation of, any other rights the parties may have under applicable law.
14. Other Matters.
(a) Pursuant to Rule 145 under the 1933 Act, and in connection with the
issuance of any shares to any person who at the time of the Reorganization is,
to its knowledge, an affiliate of a party to the Reorganization pursuant to Rule
145(c), Florida Insured will cause to be affixed upon the certificate(s) issued
to such person (if any) a legend as follows:
THESE SHARES ARE SUBJECT TO RESTRICTIONS ON TRANSFER UNDER THE
SECURITIES ACT OF 1933 AND MAY NOT BE SOLD OR OTHERWISE
TRANSFERRED EXCEPT TO MUNIHOLDINGS FLORIDA INSURED FUND (OR ITS
STATUTORY SUCCESSOR), OR ITS PRINCIPAL UNDERWRITER UNLESS (I) A
REGISTRATION STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER
THE SECURITIES ACT OF 1933 OR (II) IN THE OPINION OF COUNSEL
REASONABLY SATISFACTORY TO THE FUND, SUCH REGISTRATION IS NOT
REQUIRED.
and, further, that stop transfer instructions will be issued to Florida
Insured's transfer agent with respect to such shares. Each Acquired Fund will
provide Florida Insured on the Exchange Date with the name of any shareholder of
an Acquired Fund who is to the knowledge of such Acquired Fund an affiliate of
that Acquired Fund on such date.
(b) All covenants, agreements, representations and warranties made under
this Agreement and any certificates delivered pursuant to this Agreement shall
be deemed to have been material and relied upon by each of the parties,
notwithstanding any investigation made by them or on their behalf.
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<PAGE>
(c) Any notice, report or demand required or permitted by any provision of
this Agreement shall be in writing and shall be made by hand delivery, prepaid
certified mail or overnight service, addressed to any Fund, at 800 Scudders Mill
Road, Plainsboro, New Jersey 08536, Attn: Terry K. Glenn, President.
(d) This Agreement supersedes all previous correspondence and oral
communications between the parties regarding the Reorganization, constitutes the
only understanding with respect to the Reorganization, may not be changed except
by a letter of agreement signed by each party and shall be governed by and
construed in accordance with the laws of the State of Florida applicable to
agreements made and to be performed in said state.
(e) It is expressly agreed that the obligations of the Funds hereunder
shall not be binding upon any of their respective Trustees, shareholders,
nominees, officers, agents, or employees personally, but shall bind only the
trust property of the respective Fund as provided in such Fund's Declaration of
Trust. The execution and delivery of this Agreement has been authorized by the
Trustees of each Fund and signed by authorized officers of each Fund, acting as
such, and neither such authorization by such Trustees, nor such execution and
delivery by such officers shall be deemed to have been made by any of them
individually or to impose any liability on any of them personally, but shall
bind only the trust property of each Fund as provided in such Funds' Declaration
of Trust.
This Agreement may be executed in any number of counterparts, each of
which, when executed and delivered, shall be deemed to be an original but all
such counterparts together shall constitute but one instrument.
MUNIHOLDINGS FLORIDA INSURED FUND
By: _____________________________________
Attest:
_____________________________
MUNIHOLDINGS FLORIDA INSURED FUND II
By: _____________________________________
Attest:
_____________________________
MUNIHOLDINGS FLORIDA INSURED FUND III
By: _____________________________________
Attest:
_____________________________
MUNIHOLDINGS FLORIDA INSURED FUND IV
By: _____________________________________
Attest:
_____________________________
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<PAGE>
EXHIBIT III
ECONOMIC AND OTHER CONDITIONS IN FLORIDA
The following information is a brief summary of factors affecting the
economy of the State of Florida (the "State") and does not purport to be a
complete description of such factors. Other factors will affect issuers. The
summary is based upon one or more of the most recent publicly available offering
statements relating to debt offerings of the State, however, it has not been
updated. The Fund has not independently verified the information.
Throughout the 1980s, the State's unemployment rate has, generally, tracked
below that of the nation. In the nineties, the trend was reversed, until 1995
and 1996, when the State's unemployment rate again tracked below the national
average. The State's unemployment rate is projected to be 4.2% in 1999 and 4.4
in 2000. In 1998, Florida's average rate of unemployment was 4.3% while the
nation's was 4.5%. (The projections set forth in this Appendix were obtained
from a report, prepared by the Revenue and Economic Analysis Unit of the
Executive Office of the Governor for the State of Florida, contained within a
recent official statement, dated August 20, 1999 for a State of Florida debt
offering ("State of Florida Report")).
From 1992 through 1998, the State's per capita income expanded
approximately 29.0%, while the national per capita income increased by 30.3%.
Real personal income in Florida is estimated to increase 4.9% in 1998-1999 and
3.5% in 1999-2000 while real personal income per capita is projected to grow at
3.1% in 1998-1999 and 1.8% in 1999-2000.
The structure of Florida's income differs from that of the nation and the
Southeast. Because Florida has a proportionally greater retirement age
population, property income (dividends, interest, and rent) and transfer
payments (social security and pension benefits, among other sources of income)
are a relatively more important source of income. For example, Florida's
employment income in 1998 represented 62.0% of total personal income, while the
nation's share of total personal income in the form of wages and salaries and
other labor benefits was 72.2%. Florida's income is dependent upon transfer
payments controlled by the federal government.
The State's strong population growth is one fundamental reason why its
economy has typically performed better than the nation as a whole. In 1980, the
State was ranked seventh among the 50 states with a population of 9.7 million
people. The State has grown dramatically since then and as of April 1, 1998
ranked fourth with an estimated population of 15.0 million. Since 1990, the
State's average annual rate of population increase has been approximately 1.9%
as compared to an approximately 1.0% for the nation as a whole. While annual
growth in the State's population is expected to decline somewhat, it is still
expected to grow close to 230,000 new residents per year throughout the 1990s.
Tourism is one of the State's most important industries. Forty eight
million seven hundred thousand (48.7 million) people visited the State in 1998,
according to the Florida Department of Commerce. Tourism arrivals are expected
to increase by 2.0% in 1998-99 and 1.7% the following year. In 1998-1999,
tourist arrivals are projected to approximately 49.7 million. In 1999-2000,
tourist arrivals are projected to reach 50.6 million. Florida tourism appears to
be recovering from the effects of negative publicity regarding crime against
tourists in the State. Factors such as "product maturity" of a Florida vacation
package, higher prices, and more aggressive marketing by competing vacation
destinations, could contribute to a tourism slowdown.
Florida's dependency on the highly cyclical construction and
construction-related manufacturing sectors has declined. For example, total
contract construction employment as a share of total non-farm employment was a
little over 5.3% in 1998. Florida, nevertheless, has had a dynamic construction
industry, with single and multi-family housing starts accounting for
approximately 9.2% of total U.S. housing starts, while the State's population
was 5.5% of the nation's population. Total housing starts were 145,000 in 1998.
A driving force behind Florida's construction industry is its rapid growth in
population. In Florida, single and multi-family housing starts in 1998-1999 are
projected to reach a combined level of 144,000 and 143,000 next year.
Multi-family starts have been slow to recover, but are showing stronger growth
now and should maintain a level of nearly 46,500 in 1998-1999 and 46,300 in
1999-2000. Total construction expenditures are forecasted to increase 8.6% in
this year and 2.5% next year.
Financial operations of the State covering all receipts and expenditures
are maintained through the use of four funds-the General Revenue Fund, Trust
Funds, the Working Capital Fund, and beginning in fiscal year 1994-95, the
Budget Stabilization Fund. In fiscal year 1996-97, the State derived
approximately 67% of its total direct revenues to these funds from State taxes
and fees. Federal funds and other special revenues accounted for the
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<PAGE>
remaining revenues. Major sources of tax revenues to the General Revenue Fund
are the sales and use tax, corporate income tax, intangible personal property
tax, beverage tax, and estate tax which amounted to 68%, 8%, 4%, 3% and 3%,
respectively, of total General Revenue Funds available. State expenditures are
categorized for budget and appropriation purposes by type of fund and spending
unit, which are further subdivided by line item. In fiscal year 1996-97,
expenditures from the General Revenue Fund for education, health and welfare,
and public safety amounted to approximately 53%, 26% and 14%, respectively, of
total General Revenues.
The Sales and Use Tax is the greatest single source of tax receipts in the
State. For the State fiscal year ended June 30, 1997, receipts from this source
were $12,089 million, an increase of 5.5% from fiscal year 1995-96 The second
largest source of State tax receipts is the Motor Fuel Tax . The collections
from this source during the fiscal year ended June 30, 1997, were $2,012
million. Alcoholic beverage tax revenues totalled $447.2 million for the State
fiscal year ended June 30, 1997, an increase of $5.7 million from the previous
year. The receipts of corporate income tax for the fiscal year ended June 30,
1997 were $1,362.3 million, an increase of 17.2% from fiscal year 1995-96. Gross
Receipt tax collections for fiscal year 1996-97 totalled $575.7 million, an
increase of 6.0% over the previous fiscal year. Documentary stamp tax
collections totalled $844.2 million during fiscal year 1996-97, posting an 8.9%
increase from the previous fiscal year. The intangible personal property tax is
a tax on stocks, bonds, notes, governmental leaseholds, certain limited
partnership interests, mortgages and other obligations secured by liens on
Florida realty, and other intangible personal property. Total collections from
intangible personal property taxes were $952.4 million during the fiscal year
ended June 30, 1997, a 6.3% increase from the previous fiscal year. Severance
taxes totalled $39.2 million during fiscal year 1995-96, up 26.1% from the
previous fiscal year. In November 1986, the voters of the State approved a
constitutional amendment to allow the State to operate a lottery. Fiscal year
1996-97 produced ticket sales of $2.09 billion of which education received
approximately $792.3 million.
In addition to the foregoing information, the State of Florida Report
contains the following General Revenue information for fiscal year 1997-1998 in
tabular form.
State of Florida
Total General Revenues
Fiscal Years 1997-98
(in millions
of dollars)
1997-98
Actual
General Revenue Fund:
Sales Tax-GR ............................................. $11,828.7
Beverage Tax & Licenses .................................. 550.1
Corporate Income Tax ..................................... 1,395.7
Documentary Stamp Tax .................................... 429.6
Cigarette Tax ............................................ 142.1
Insurance Premium Tax .................................... 295.5
Pari-Mutuels Tax ......................................... 25.6
Intangibles Tax .......................................... 756.0
Estate Tax ............................................... 595.0
Interest Earnings ........................................ 217.9
Public Safety Licenses ................................... 61.2
Medical & Hospital Fees .................................. 99.8
Motor Vehicle Charges .................................... 41.3
Auto Title & Lien Fees ................................... 24.0
Severance Taxes .......................................... 35.4
Service Charges .......................................... 383.8
Other Taxes, Licenses & Fees ............................. 262.5
Less: Refunds ............................................ (204.6)
Net General Revenue ...................................... $16,939.4
Executive Office of the Governor
Revenue and Economic Analysis
March 8, 1999
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Those tables also disclose that State Fuel Tax Trust Fund Revenues for
fiscal year 1997-1998 were $1,175.7 million.
For fiscal year 1998-99 the estimated General Revenue plus Working Capital
and Budget Stabilization funds available total $19,481.8 million, a 5.2%
increase over 1997-98. The $17,779.5 million in estimated revenues represent a
5.0% increase over the analogous figure in 1997-1998. With combined General
Revenue, Working Capital Fund and Budget Stabilization Fund appropriations at
$18,222.0 million, unencumbered reserves at the end of 1998-99 are estimated at
$1,360,7 million.
The State Constitution does not permit a state or local personal income
tax. An amendment to the State Constitution by the electors of the State would
be required in order to impose a personal income tax in the State.
Property valuations for homestead property are subject to a growth cap.
Growth in the just (market) value of property qualifying for the homestead
exemption is limited to 3% or the change in the Consumer Price Index, whichever
is less. If the property changes ownership or homestead status, it is to be
re-valued at full just value on the next tax roll. Although the impact of the
growth cap cannot be determined, it may have the effect of causing local
government units in the State to rely more on non-ad valorem tax revenues to
meet operating expenses and other requirements normally funded with ad valorem
tax revenues.
The State Constitution provides that State revenues collected for any
fiscal year shall be limited to State revenues allowed under that provision for
the prior fiscal year plus an adjustment for growth. Growth is defined as an
amount equal to the average annual rate of growth in State personal income over
the most recent twenty quarters times the State revenues allowed under the
amendment for the prior fiscal year. State revenues collected for any fiscal
year in excess of this limitation are required to be transferred to the Budget
Stabilization Fund until the fund reaches the maximum balance specified in
Section 19(g) of Article III of the State Constitution, and thereafter is
required to be refunded to taxpayers as provided by general law. The limitation
on State revenues imposed by the amendment may be increased by the Legislature,
by a two-thirds vote of each house.
The term "State revenues," as used in the amendment, means taxes, fees,
licenses, and charges for services imposed by the Legislature on individuals,
businesses, or agencies outside State government. However, the term "State
revenues" does not include: (i) revenues that are necessary to meet the
requirements set forth in documents authorizing the issuance of Bonds by the
State; (ii) revenues that are used to provide matching funds for the federal
Medicaid program with the exception of the revenues used to support the Public
Medical Assistance Trust Fund or its successor program and with the exception of
State matching funds used to fund elective expansions made after July 1, 1994;
(iii) proceeds from the State lottery returned as prizes; (iv) receipts of the
Florida Hurricane Catastrophe Fund; (v) balances carried forward from prior
fiscal years; (vi) taxes, licenses, fees and charges for services imposed by
local, regional, or school district governing bodies; or (vii) revenue from
taxes, licenses, fees and charges for services required to be imposed by any
amendment or revision to the State Constitution after July 1, 1994. The
amendment took effect on January 1, 1995 and is applicable to State fiscal year
1995-96.
It should be noted that many of the provisions of the amendment are
ambiguous, and likely will not be clarified until State courts have ruled on
their meanings. Further, it is uncertain how the Legislature will implement the
language of the amendment and whether such implementing legislation will itself
be the subject of court interpretation.
The Fund cannot predict the impact of the amendment on State finances To
the extent local governments traditionally receive revenues from the State which
are subject to, and limited by, the amendment, the future distribution of such
State revenues may be adversely affected by the amendment.
Hurricanes continue to endanger the coastal and interior portions of
Florida. Substantial damage resulted from Hurricane Andrew in 1992. During the
1995 hurricane season, a record number of tropical storms and hurricanes also
caused substantial damages. The 1996 and 1997 hurricane seasons were uneventful
with considerably less damage than in 1992 and 1995. During the 1998 hurricane
season, two hurricanes caused significant damage to several coastal communities
in Florida. The hurricane season runs from June 1 through November 30. The Fund
cannot predict the economic impact, if any, of future hurricanes and storms.
As of August 20, 1999, the State had a high bond rating from Moody's
Investors Service, Inc. (Aa2), Standard & Poor' s (AA+) and Fitch IBCA, Inc.
(AA) on all of its general obligation bonds. Outstanding general obligation
bonds at June 30, 1998 totalled almost $8.7 billion and were issued to finance
capital outlay for
III-3
<PAGE>
educational projects of both local school districts, community colleges and
state universities, environmental protection and highway construction. The State
has issued over $787 million of general obligation bonds since July 1, 1998.
In May 1999, as supplemented in June 1999, the Florida Auditor General
notified the Governor's Office that it identified, as of September 30, 1997,
forty local government entities as meeting one or more of the financial
emergency conditions prescribed by State statute. The Auditor General's
notification indicated that ten of those local government entities (including
the city of Miami) were on September 30, 1997 in a state of financial emergency.
Stating that a statutorily defined financial emergency is not necessarily
indicative of a local governmental entity's solvency or ability to pay its
current financial obligations, the Auditor General's notification indicated that
the remaining thirty local government entities were not facing a true financial
crisis and / or the financial emergency was due to accounting practices. For
these purposes, a state of emergency is considered two consecutive years of
budget deficits. Municipalities or special districts that may be in a state of
financial emergency are those that the Auditor General was unable to conclude
had sufficient revenues to cover their deficits. The operations of all these
entities mentioned in the Auditor General's notification may be adversely
affected by their financial condition.
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<PAGE>
EXHIBIT IV
RATINGS OF MUNICIPAL BONDS
Description of Moody's Investors Service, Inc.'s ("Moody's") Municipal Bond
Ratings
Aaa Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally
referred to as "gilt edge." Interest payments are protected by a large
or by an exceptionally stable margin and principal is secure. While
the various protective elements are likely to change, such changes can
be visualized are most unlikely to impair the fundamentally strong
position of such issues.
Aa Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are
generally known as high grade bonds. They are rated lower than the
best bonds because margins of protection may not be as large as in Aaa
securities or fluctuation of protective elements may be of greater
amplitude or there may be other elements present which make the
long-term risks appear somewhat larger than in Aaa securities.
A Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate, but
elements may be present which suggest a susceptibility to impairment
some time in the future.
Baa Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present, but
certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
Ba Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very moderate and
thereby not well safeguarded during both good and bad times over the
future. Uncertainty of position characterizes bonds in this class.
B Bonds which are rated B generally lack characteristics of a desirable
investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of
time may be small.
Caa Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to
principal or interest.
Ca Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other
marked shortcomings.
C Bonds which are rated C are the lowest rated class of bonds and issues
so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Note: These bonds in the Aa, A, Baa, Ba and B groups which Moody's believes
possess the strongest investment attributes are designated by the symbols Aal,
Al, Baal, Bal and Bl.
Short-term Notes: The three ratings of Moody's for short-term notes are MIG
1/VMIG 1, MIG 2/VMIG 2, and MIG 3/VMIG 3; MIG 1 /VMIG 1 denotes "best quality,
enjoying strong protection from established cash flows"; MIG 2/VMIG 2 denotes
"high quality" with "ample margins of protection"; MIG 3/VMIG 3 instruments are
of "favorable quality ... but ... lacking the undeniable strength of the
preceding grades."
Description of Moody's Commercial Paper Ratings
Moody's Commercial Paper ratings are opinions of the ability of issuers to
repay punctually promissory obligations not having an original maturity in
excess of nine months. Moody's employs the following three designations, all
judged to be investment grade, to indicate the relative repayment capacity of
rated issuers:
Issuers rated Prime-1 (or supporting institutions) have a superior ability
for repayment of short-term promissory obligations. Prime-1 repayment capacity
will often be evidenced by the following characteristics:
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<PAGE>
leading market positions in well established industries; high rates of return on
funds employed; conservative capitalization structures with moderate reliance on
debt and ample asset protection; broad margins, in earning coverage of fixed
financial charges and high internal cash generation; and with established access
to a range of financial markets and assured sources of alternate liquidity.
Issuers rated Prime-2 (or supporting institutions) have a strong ability
for repayment of short-term promissory obligations. This will normally be
evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
Issuers rated Prime-3 (or supporting institutions) have an acceptable
ability for repayment of short-term promissory obligations. The effects of
industry characteristics and market composition may be more pronounced.
Variability in earnings and profitability may result in changes to the level of
debt protection measurements and the requirement for relatively high financial
leverage. Adequate alternate liquidity is maintained.
Issuers rated Not Prime do not fall within any of the Prime rating
categories.
Description of Standard & Poor's, a Division of The McGraw-Hill Companies, Inc.
("Standard & Poor's"), Municipal Debt Ratings
A Standard & Poor's municipal debt rating is a current assessment of the
creditworthiness of an obligor with respect to a specific financial obligation,
a specific class of financial obligations or a specific program. It takes into
consideration the creditworthiness of guarantors, insurers, or other forms of
credit enhancement on the obligation.
The debt rating is not a recommendation to purchase, sell or hold a
financial obligation, inasmuch as it does not comment as to market price or
suitability for a particular investor.
The ratings are based on current information furnished by the issuer or
obtained by Standard & Poor's from other sources Standard & Poor's considers
reliable. Standard & Poor's does not perform an audit in connection with any
rating and may, on occasion, rely on unaudited financial information. The
ratings may be changed, suspended or withdrawn as a result of changes in, or
unavailability of, such information, or based on other circumstances.
The ratings are based, in varying degrees, on the following considerations:
I. Likelihood of default-capacity and willingness of the obligor as to
the timely payment of interest and repayment of principal in accordance
with the terms of the obligation;
II. Nature of and provisions of the obligation;
III. Protection afforded to, and relative position of, the obligation
in the event of bankruptcy, reorganization or other arrangement under the
laws of bankruptcy and other laws affecting creditors' rights.
AAA Debt rated "AAA" has the highest rating assigned by Standard & Poor's.
Capacity of the obligor to meet its financial commitment on the
obligation is extremely strong.
AA Debt rated "AA" differs from the highest-rated issues only in small
degree. The obligor's capacity to meet its financial commitment on the
obligation is very strong.
A Debt rated "A" is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in
higher-rated categories. However, the obligor's capacity to meet its
financial commitment on the obligation is still strong.
BBB Debt rated "BBB" exhibits adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely
to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.
BB Debt rated "BB," "B," "CCC," "CC", and "C" are regarded as having
B significant speculative characteristics. "BB" indicates the least
CCC degree of speculation and "C" the highest degree of speculation. While
CC such debt will likely have some quality and protective
C characteristics, these may be outweighed by large uncertainties or
major risk exposures to adverse conditions.
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<PAGE>
D Debt rated "D" is in payment default. The "D" rating category is used
when payments on an obligation are not made on the date due even if
the applicable grace period has not expired, unless Standard & Poor's
believes that such payments will be made during such grace period. The
"D" rating also will be used upon the filing of a bankruptcy petition
or the taking of similar action if payments on an obligation are
jeopardized.
Plus (+) or Minus (-): The ratings from "AA" to "CCC" may be modified by
the addition of a plus or minus sign to show relative standing within the major
rating categories.
Description of Standard & Poor's Commercial Paper Ratings
A Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more than
365 days. Ratings are graded into several categories, ranging from "A-1" for the
highest quality obligations to "D" for the lowest. These categories are as
follows:
A-1 This designation indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus sign (+) designation.
A-2 Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as
for issues designated "A-1."
A-3 Issues carrying this designation have adequate capacity for timely
payment. They are, however, more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher
designations.
B Issues rated "B" are regarded as having only speculative capacity for
timely payment.
C This rating is assigned to short-term debt obligations with a doubtful
capacity for payment.
D Debt rated "D" is in payment default. The "D" rating category is used
when interest payments or principal payments are not made on the date
due, even if the applicable grace period has not expired unless
Standard & Poor's believes that such payments will be made during such
grace period.
c The "c" subscript is used to provide additional information to
investors that the bank may terminate its obligation to purchase
tendered bonds if the long-term credit rating of the issuer is below
an investment-grade level and/or the issuer's bonds are deemed
taxable.
p The letter "p" indicates that the rating is provisional. A provisional
rating assumes the successful completion of the project financed by
the debt being rated and indicates that payment of the debt service
requirements is largely or entirely dependent upon the successful,
timely completion of the project. This rating, however, while
addressing credit quality subsequent to completion of the project,
makes no comment on the likelihood of or the risk of default upon
failure of such completion. The investor should exercise his own
judgment with respect to such likelihood and risk.
Continuance of the ratings is contingent upon Standard & Poor's
receipt of an executed copy of the escrow agreement or closing
documentation confirming investments and cash flows.
r The "r" highlights derivative, hybrid, and certain other obligations
that Standard & Poor's believes may experience high volatility or high
variability in expected returns as a result of noncredit risks.
Examples of such obligations are securities with principal or interest
return indexed to equities, commodities, or currencies; certain swaps
and options; and interest-only and principal-only mortgage securities.
The absence of an "r" symbol should not be taken as an indication that
an obligation will exhibit no volatility or variability in total
return.
A commercial paper rating is not a recommendation to purchase or sell a
security. The ratings are based on current information furnished to Standard &
Poor's by the issuer or obtained by Standard & Poor's from other sources it
considers reliable. The ratings may be changed, suspended, or withdrawn as a
result of changes in, or unavailability of, such information.
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<PAGE>
A Standard & Poor's note rating reflects the liquidity factors and market
access risks unique to such notes. Notes due in three years or less will likely
receive a note rating. Notes maturing beyond three years will most likely
receive a long-term debt rating. The following criteria will be used in making
that assessment.
-- Amortization schedule--the larger the final maturity relative to other
maturities, the more likely it will be treated as a note.
-- Source of payment--the more dependent the issue is on the market for its
refinancing, the more likely it will be treated as a note.
Note rating symbols are as follows:
SP-1 Strong capacity to pay principal and interest. An issue determined to
possess a very strong capacity to pay debt service is given a plus (+)
designation.
SP-2 Satisfactory capacity to pay principal and interest with some
vulnerability to adverse financial and economic changes over the term
of the notes.
SP-3 Speculative capacity to pay principal and interest
Description of Fitch IBCA, Inc.'s ("Fitch") Investment Grade Bond Ratings
Fitch investment grade bond ratings provide a guide to investors in
determining the credit risk associated with a particular security. The rating
represents Fitch's assessment of the issuer's ability to meet the obligations of
a specific debt issue or class of debt in a timely manner.
The rating takes into consideration special features of the issue, its
relationship to other obligations of the issuer, the current and prospective
financial condition and operating performance of the issuer and any guarantor,
as well as the economic and political environment that might affect the issuer's
future financial strength and credit quality.
Fitch ratings do not reflect any credit enhancement that may be provided by
insurance policies or financial guarantees unless otherwise indicated.
Bonds that have the same rating are of similar but not necessarily
identical credit quality since the rating categories do not fully reflect small
differences in the degrees of credit risk.
Fitch ratings are not recommendations to buy, sell, or hold any security.
Ratings do not comment on the adequacy of market price, the suitability of any
security for a particular investor, or the tax-exempt nature or taxability of
payments made in respect of any security.
Fitch ratings are based on information obtained from issuers, other
obligors, underwriters, their experts, and other sources Fitch believes to be
reliable. Fitch does not audit or verify the truth or accuracy of such
information. Ratings may be changed, suspended, or withdrawn as a result of
changes in, or the unavailability of, information or for other reasons.
AAA Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by
reasonably foreseeable events.
AA Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is
very strong, although not quite as strong as bonds rated "AAA."
Because bonds rated in the "AAA" and "AA" categories are not
significantly vulnerable to foreseeable future developments,
short-term debt of these issuers is generally rated "F-1+."
A Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes
in economic conditions and circumstances than bonds with higher
ratings.
BBB Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have an adverse impact on
these
IV-4
<PAGE>
bonds, and therefore impair timely payment. The likelihood that the
ratings of these bonds will fall below investment grade is higher than
for bonds with higher ratings.
Plus (+) or Minus (-): Plus and minus signs are used with a rating symbol
to indicate the relative position of a credit within the rating category. Plus
and minus signs, however, are not used in the "AAA" category.
NR Indicates that Fitch does not rate the specific issue.
Conditional
A conditional rating is premised on the successful completion of a project
or the occurrence of a specific event.
Suspended
A rating is suspended when Fitch deems the amount of information available
from the issuer to be inadequate for rating purposes.
Withdrawn
A rating will be withdrawn when an issue matures or is called or refinanced
and, at Fitch's discretion, when an issuer fails to furnish proper and timely
information.
FitchAlert
Ratings are placed on FitchAlert to notify investors of an occurrence that
is likely to result in a rating change and the likely direction of such change.
These are designated as "Positive," indicating a potential upgrade, "Negative,"
for potential downgrade, or "Evolving," where ratings may be raised or lowered.
FitchAlert is relatively short-term, and should be resolved within three to 12
months.
Ratings Outlook
An outlook is used to describe the most likely direction of any rating
change over the intermediate term. It is described as "Positive" or "Negative."
The absence of a designation indicates a stable outlook.
Description of Fitch's Speculative Grade Bond Ratings
Fitch speculative grade bond ratings provide a guide to investors in
determining the credit risk associated with a particular security. The ratings
("BB" to "C") represent Fitch's assessment of the likelihood of timely payment
of principal and interest in accordance with the terms of obligation for bond
issues not in default. For defaulted bonds, the rating ("DDD" to "D") is an
assessment of the ultimate recovery value through reorganization or liquidation.
The rating takes into consideration special features of the issue, its
relationship to other obligations of the issuer, the current and prospective
financial condition and operating performance of the issuer and any guarantor,
as well as the economic and political environment that might affect the issuer's
future financial strength.
Bonds that have the rating are of similar but not necessarily identical
credit quality since rating categories cannot fully reflect the differences in
degrees of credit risk.
BB Bonds are considered speculative. The obligor's ability to pay
interest and repay principal may be affected over time by adverse
economic changes. However, business and financial alternatives can be
identified which could assist the obligor in satisfying its debt
service requirements.
B Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of
continued timely payment of principal and interest reflects the
obligor's limited margin of safety and the need for reasonable
business and economic activity throughout the life of the issue.
CCC Bonds have certain identifiable characteristics which, if not
remedied, may lead to default. The ability to meet obligations
requires an advantageous business and economic environment.
IV-5
<PAGE>
CC Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C Bonds are in imminent default in payment of interest or principal.
DDD Bonds are in default on interest and/or principal payments. Such bonds
DD are extremely speculative and should be valued on the basis of their
D ultimate recovery value in liquidation or reorganization of the
obligor. "DDD" represents the highest potential for recovery on these
bonds, and "D" represents the lowest potential for recovery.
Plus (+) or Minus (-): Plus and minus signs are used with a rating symbol
to indicate the relative position of a credit within the rating category. Plus
and minus signs, however, are not used in the "DDD," "DD," or "D" categories.
Description of Fitch's Short-Term Ratings
Fitch's short-term ratings apply to debt obligations that are payable on
demand or have original maturities of up to three years, including commercial
paper, certificates of deposit, medium-term notes, and municipal and investment
notes.
The short-term rating places greater emphasis than a long-term rating on
the existence of liquidity necessary to meet the issuer's obligations in a
timely manner.
Fitch short-term ratings are as follows:
F-1+ Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely
payment.
F-1 Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues
rated "F-l+".
F-2 Good Credit Quality. Issues assigned this rating have a satisfactory
degree of assurance for timely payment, but the margin of safety is
not as great as for issues assigned "F-1+" and "F-l" ratings.
F-3 Fair Credit Quality. Issues assigned this rating have characteristics
suggesting that the degree of assurance for timely payment is
adequate; however, near-term adverse changes could cause these
securities to be rated below investment grade.
F-S Weak Credit Quality. Issues assigned this rating have characteristics
suggesting a minimal degree of assurance for timely payment and are
vulnerable to near-term adverse changes in financial and economic
conditions.
D Default. Issues assigned this rating are in actual or imminent payment
default.
LOC The symbol "LOC" indicates that the rating is based on a letter of
credit issued by a commercial bank.
IV-6
<PAGE>
EXHIBIT V
PORTFOLIO INSURANCE
Set forth below is further information with respect to the insurance
policies (the "Policies") that the Fund may obtain from several insurance
companies with respect to insured New York Municipal Bonds and Municipal Bonds
held by the Fund. The Fund has no obligation to obtain any such Policies, and
the terms of any Policies actually obtained may vary significantly from the
terms discussed below.
In determining eligibility for insurance, insurance companies will apply
their own standards. These standards correspond generally to the standards such
companies normally use in establishing the insurability of new issues of New
York Municipal Bonds and Municipal Bonds and are not necessarily the criteria
that would be used in regard to the purchase of such bonds by the Fund. The
Policies do not insure (i) municipal securities ineligible for insurance and
(ii) municipal securities no longer owned by the Fund.
The Policies do not guarantee the market value of the insured New York
Municipal Bonds and Municipal Bonds or the value of the shares of the Fund. In
addition, if the provider of an original issuance insurance policy is unable to
meet its obligations under such policy or if the rating assigned to the
insurance claims-paying ability of any such insurer deteriorates, the insurance
company will not have any obligation to insure any issue held by the Fund that
is adversely affected by either of the above described events. In addition to
the payment of premium, the policies may require that the Fund notify the
insurance company as to all New York Municipal Bonds and Municipal Bonds in the
Fund's portfolio and permit the insurance company to audit their records. The
insurance premiums will be payable monthly by the Fund in accordance with a
premium schedule to be furnished by the insurance company at the time the
Policies are issued. Premiums are based upon the amounts covered and the
composition of the portfolio.
The Fund will seek to utilize insurance companies that have insurance
claims-paying ability ratings of AAA from Standard & Poor's ("S&P") or Fitch
IBCA, Inc. ("Fitch") or Aaa from Moody's Investors Service ("Moody's"). There
can be no assurance, however, that insurance from insurance carriers meeting
these criteria will be at all times available.
An S&P insurance claims-paying ability rating is an assessment of an
operating insurance company's financial capacity to meet obligations under an
insurance policy in accordance with the terms. An insurer with an insurance
claims-paying ability rating of AAA has the highest rating assigned by S&P.
Capacity to honor insurance contracts is considered by S&P to be extremely
strong and highly likely to remain so over a long period of time. A Fitch
insurance claims-paying ability rating provides an assessment of an insurance
company's financial strength and, therefore, its ability to pay policy and
contract claims under the terms indicated. An insurer with an insurance
claims-paying ability rating of AAA has the highest rating assigned by Fitch.
The ability to pay claims is adjudged by Fitch to be extremely strong for
insurance companies with this highest rating. In the opinion of Fitch,
foreseeable business and economic risk factors should not have any material
adverse impact on the ability of these insurers to pay claims. In Fitch's
opinion, profitability, overall balance sheet strength, capitalization and
liquidity are all at very secure levels and are unlikely to be affected by
potential adverse underwriting, investment or cyclical events. A Moody's
insurance claims-paying ability rating is an opinion of the ability of an
insurance company to repay punctually senior policyholder obligations and
claims. An insurer with an insurance claims-paying ability rating of Aaa is
considered by Moody's to be of the best quality. In the opinion of Moody's, the
policy obligations of an insurance company with an insurance claims-paying
ability rating of Aaa carry the smallest degree of credit risk and, while the
financial strength of these companies is likely to change, such changes as can
be visualized are most unlikely to impair the company's fundamentally strong
position.
An insurance claims-paying ability rating of S&P, Fitch or Moody's does not
constitute an opinion on any specific contract in that such an opinion can only
be rendered upon the review of the specific insurance contract. Furthermore, an
insurance claims-paying ability rating does not take into account deductibles,
surrender or cancellation penalties or the timeliness of payment; nor does it
address the ability of a company to meet nonpolicy obligations (i.e., debt
contracts).
The assignment of ratings by S&P, Fitch or Moody's to debt issues that are
fully or partially supported by insurance policies, contracts or guarantees is a
separate process from the determination of claims-paying ability ratings. The
likelihood of a timely flow of funds from the insurer to the trustee for the
bondholders is a key element in the rating determination for such debt issues.
V-1
<PAGE>
EXHIBIT VI
SECTIONS 86 THROUGH 98 OF CHAPTER 156B
OF THE MASSACHUSETTS GENERAL LAWS
(THE MASSACHUSETTS BUSINESS CORPORATION LAW)
ss. 86. Sections applicable to appraisal; prerequisites
If a corporation proposes to take a corporate action as to which any
section of this chapter provides that a stockholder who objects to such action
shall have the right to demand payment for his shares and an appraisal thereof,
sections eighty-seven to ninety-eight, inclusive, shall apply except as
otherwise specifically provided in any section of this chapter. Except as
provided in sections eighty-two and eighty-three, no stockholder shall have such
right unless (1) he files with the corporation before taking the vote of the
shareholders on such corporate action, written objection to the proposed action
stating that he intends to demand payment for his shares if the action is taken
and (2) his shares are not voted in favor of the proposed action.
ss. 87. Statement of rights of objecting stockholders in notice of meeting; form
The notice of the meeting of stockholders at which the approval of such
proposed action to be considered shall contain a statement of the rights of
objecting stockholders. The giving of such notice shall not be deemed to create
any rights in any stockholder receiving the same to demand payment for his
stock, and the directors may authorize the inclusion in any such notice of a
statement of opinion by the management as to the existence or non-existence of
the right of stockholders to demand payment for their stock on account of the
proposed corporate action. The notice may be in such form as the directors or
officers calling the meeting deem advisable, but the following form of notice
shall be sufficient to comply with this section:
"If the action proposed is approved by the stockholders at the meeting and
effected by the corporation, any stockholder (1) who files with the corporation
before the taking of the vote on the approval of such action, written objection
to the proposed action stating that he intends to demand payment for his shares
if the action is taken and (2) whose shares are not voted in favor of such
action has or may have the right to demand in writing from the corporation (or,
in the case of a consolidation or merger, the name of the resulting or surviving
corporation shall be inserted), within twenty days after the date of mailing to
him of notice in writing that the corporate action has become effective, payment
for his shares and an appraisal of the value thereof. Such corporation and any
such stockholder shall in such cases have the rights and duties and shall follow
the procedure set forth in sections 88 to 98, inclusive, of chapter 156B of the
General Laws of Massachusetts."
ss. 88. Notice of effectiveness of action objected to
The corporation taking such action, or in the case of a merger or
consolidation the surviving or resulting corporation, shall, within ten days
after the date on which such corporate action became effective, notify each
stockholder who filed a written objection meeting the requirements of section
eighty-six and whose shares were not voted in favor of the approval of such
action, that the action approved at the meeting of the corporation of which he
is a stockholder has become effective. The giving of such notice shall not be
deemed to create any rights in any stockholder receiving the same to demand
payment for his stock. The notice shall be sent by registered or certified mail,
addressed to the stockholder at his last known address as it appears in the
records of the corporation.
ss. 89. Demand for payment; time for payment
If within twenty days after the date of mailing of a notice under
subsection (e) of section eighty-two, subsection (f) of section eighty-three, or
section eighty-eight, any stockholder to whom the corporation was required to
give such notice shall demand in writing from the corporation taking such
action, or in the case of a consolidation or merger from the resulting or
surviving corporation, payment for his stock, the corporation upon which such
demand is made shall pay to him the fair value of his stock within thirty days
after the expiration of the period during which such demand may be made.
ss. 90. Demand for determination of value; bill in equity; venue
If during the period of thirty days provided for in section eighty-nine the
corporation upon which such demand is made and any such objecting stockholder
fail to agree as to the value of such stock, such corporation or any such
stockholder may within four months after the expiration of such thirty-day
period demand a
VI-1
<PAGE>
determination of the value of the stock of all such objecting stockholders by a
bill in equity filed in the superior court in the county where the corporation
in which such objecting stockholder held stock had or has its principal office
in the commonwealth.
ss. 91. Parties to suit to determine value; service
If the bill is filed by the corporation, it shall name as parties
respondent all stockholders who have demanded payment for their shares and with
whom the corporation has not reached agreement as to the value thereof. If the
bill is filed by a stockholder, he shall bring the bill in his own behalf and in
behalf of all other stockholders who have demanded payment for their shares and
with whom the corporation has not reached agreement as to the value thereof, and
service of the bill shall be made upon the corporation by subpoena with a copy
of the bill annexed. The corporation shall file with its answer a duly verified
list of all such other stockholders, and such stockholders shall thereupon be
deemed to have been added as parties to the bill. The corporation shall give
notice in such form and returnable on such date as the court shall order to each
stockholder party to the bill by registered or certified mail, addressed to the
last known address of such stockholder as shown in the records of the
corporation, and the court may order such additional notice by publication or
otherwise as it deems advisable. Each stockholder who makes demand as provided
in section eighty-nine shall be deemed to have consented to the provisions of
this section relating to notice, and the giving of notice by the corporation to
any such stockholder in compliance with the order of the court shall be
sufficient service of process on him. Failure to give notice to any stockholder
making demand shall not invalidate the proceedings as to other stockholders to
whom notice was properly given, and the court may at any time before the entry
of a final decree make supplementary orders of notice.
ss. 92. Decree determining value and ordering payment; valuation date
After hearing the court shall enter a decree determining the fair value of
the stock of those stockholders who have become entitled to the valuation of and
payment for their shares, and shall order the corporation to make payment of
such value, together with interest, if any, as hereinafter provided to the
stockholders entitled thereto upon the transfer by them to the corporation of
the certificates representing such stock if certificated or, if uncertificated,
upon receipt of the instruction transferring such stock to the corporation. For
this purpose, the value of the shares shall be determined as of the day
preceding the date of the vote approving the proposed corporate action and shall
be exclusive of any element of value arising from the expectation or
accomplishment of the proposed corporate action.
ss. 93 Reference to special master
The court in its discretion may refer the bill or any question arising
thereunder to a special master to hear the parties, make findings and report the
same to the court, all in accordance with the usual practice in suits in equity
in the superior court.
ss. 94. Notation on stock certificates of pendency of bill
On motion the court may order stockholder parties to the bill to submit
their certificates of stock to the corporation for the notation thereon of the
pendency of the bill and may order the corporation to note such pendency in its
records with respect to any uncertificated shares held by such stockholder
parties, and may on motion dismiss the bill as to any stockholder who fails to
comply with such order.
ss. 95. Costs; interest
The costs of the bill, including the reasonable compensation and expenses
of any master appointed by the court, but exclusive of fees of counsel or of
experts retained by any party, shall be determined by the court and taxed upon
the parties to the bill, or any of them, in such manner as appears to be
equitable, except that all costs of giving notice to stockholders as provided in
this chapter shall be paid by the corporation. Interest shall be paid upon any
award from the date of the vote approving the proposed corporate action, and the
court may on application of any interested party determine the amount of
interest to be paid in the case of any stockholder.
ss. 96. Dividends and voting rights after demand for payment
Any stockholder who has demanded payment for his stock as provided in this
chapter shall not thereafter be entitled to notice of any meeting of
stockholders or to vote such stock for any purpose and shall not be entitled to
the payment of dividends or other distribution on the stock (except dividends or
other distributions payable to stockholders of record at a date which is prior
to the date of the vote, approving the proposed corporate action) unless:
VI-2
<PAGE>
1) A bill shall not be filed within the time provided in section
ninety;
2) A bill, if filed, shall be dismissed as to such stockholder; or
3) Such stockholder shall with the written approval of the
corporation, or in the case of a consolidation or merger, the resulting or
surviving corporation, deliver to it a written withdrawal of his objections
to and an acceptance of such corporate action.
Notwithstanding the provisions of clauses (1) to (3), inclusive, said
stockholder shall have only the rights of a stockholder who did not so demand
payment for his stock as provided in this chapter.
ss. 97. Status of shares paid for
The shares of the corporation paid for by the corporation pursuant to the
provisions of this chapter shall have the status of treasury stock, or in the
case of a consolidation or merger the shares or the securities of the resulting
or surviving corporation into which the shares of such objecting stockholder
would have been converted had he not objected to such consolidation or merger
shall have the status of treasury stock or securities.
ss. 98. Exclusive remedy; exception
The enforcement by a stockholder of his right to receive payment for his
shares in the manner provided in this chapter shall be an exclusive remedy
except that this chapter shall not exclude in the right of such stockholder to
bring or maintain an appropriate proceeding to obtain relief on the ground that
such corporate action will be or is illegal or fraudulent as to him.
VI-3
<PAGE>
COMMON SHARES
MUNIHOLDINGS FLORIDA INSURED FUND
P.O. BOX 9011
PRINCETON, NEW JERSEY 08543-9011
P R O X Y
This proxy is solicited on behalf of the Board of Trustees
The undersigned hereby appoints Terry K. Glenn, Patrick Sweeney and William
Zitelli as proxies, each with the power to appoint his or her substitute, and
hereby authorizes each of them to represent and to vote, as designated on the
reverse hereof, all of the Common Shares of MuniHoldings Florida Insured Fund
(the "Fund") held of record by the undersigned on October 20, 1999 at the Annual
Meeting of Shareholders of the Fund to be held on December 15, 1999, or any
adjournment thereof.
This proxy when properly executed will be voted in the manner herein
directed by the undersigned shareholder. If no direction is made, this proxy
will be voted "FOR" items 1, 2 and 3.
Please mark boxes /X/ or [X] in blue or black ink.
1. To consider and act upon a proposal to approve the Agreement and Plan of
Reorganization among the Fund, MuniHoldings Florida Insured Fund II,
MuniHoldings Florida Insured Fund III and MuniHoldings Florida Insured Fund
IV.
For | | Against | | Abstain | |
(Continued and to be signed on the reverse side)
<PAGE>
2. ELECTION OF TRUSTEES
FOR all nominees listed below WITHHOLD AUTHORITY
(except as marked to the contrary below) | | to vote for all nominees
listed below | |
(Instruction: to withold authority to vote for any individual nominee,
strike a line through the nominee's name in the list below.)
Ronald W. Forbes, Terry K. Glenn, Cynthia A. Montgomery, Kevin A. Ryan,
Arthur Zeikel
3. Proposal to ratify the selection of Deloitte & Touche LLP as the
independent auditors of the Fund to serve for the current fiscal year.
For | | Against | | Abstain | |
4. In the discretion of such proxies, upon such other business as properly may
come before the meeting or any adjournment thereof.
Please sign exactly as name appears
hereon. When shares are held by joint
tenants, both should sign. When signing
as attorney or as executor,
administrator, trustee or guardian,
please give full title as such. If a
corporation, please sign in full
corporate name by president or other
authorized officer. If a partnership,
please sign in partnership name by
authorized persons.
Dated:__________________________________
X_______________________________________
Signature
X_______________________________________
Signature, if held jointly
Sign, date, and return the Proxy Card promptly using the enclosed envelope.
<PAGE>
AUCTION MARKET
PREFERRED SHARES
MUNIHOLDINGS FLORIDA INSURED FUND
P.O. BOX 9011
PRINCETON, NEW JERSEY 08543-9011
P R O X Y
This proxy is solicited on behalf of the Board of Trustees
The undersigned hereby appoints Terry K. Glenn, Patrick Sweeney and William
Zitelli as proxies, each with the power to appoint his or her substitute, and
hereby authorizes each of them to represent and to vote, as designated on the
reverse hereof, all the Auction Market Preferred Shares of MuniHoldings Florida
Insured Fund (the "Fund") held of record by the undersigned on October 20, 1999
at the Annual Meeting of Shareholders of the Fund to be held on December 15,
1999, or any adjournment thereof.
This proxy when properly executed will be voted in the manner herein
directed by the undersigned shareholder. If no direction is made, this proxy
will be voted "FOR" items 1, 2 and 3.
Please mark boxes /X/ or [X] in blue or black ink.
1. To consider and act upon a proposal to approve the Agreement and Plan of
Reorganization among the Fund, MuniHoldings Florida Insured Fund II,
MuniHoldings Florida Insured Fund III and MuniHoldings Florida Insured Fund
IV.
For | | Against | | Abstain | |
(Continued and to be signed on the reverse side)
<PAGE>
2. ELECTION OF TRUSTEES
FOR all nominees listed below WITHHOLD AUTHORITY
(except as marked to the contrary below) | | to vote for all nominees
listed below | |
(Instruction: to withold authority to vote for any individual nominee,
strike a line through the nominee's name in the list below.)
Ronald W. Forbes, Terry K. Glenn, Cynthia A. Montgomery, Charles C. Reilly,
Kevin A. Ryan, Richard R. West, Arthur Zeikel
3. Proposal to ratify the selection of Deloitte & Touche LLP as the
independent auditors of the Fund to serve for the current fiscal year.
For | | Against | | Abstain | |
4. In the discretion of such proxies, upon such other business as properly may
come before the meeting or any adjournment thereof.
If the undersigned is a broker-dealer, it hereby instructs the proxies,
pursuant to Rule 452 of the New York Stock Exchange, to vote any
uninstructed Auction Market Preferred Shares, in the same proportion as
votes cast by holders of Auction Market Preferred Shares, who have
responded to this proxy solicitation.
Please sign exactly as name appears
hereon. When shares are held by joint
tenants, both should sign. When signing
as attorney or as executor,
administrator, trustee or guardian,
please give full title as such. If a
corporation, please sign in full
corporate name by president or other
authorized officer. If a partnership,
please sign in partnership name by
authorized persons.
Dated:__________________________________
X_______________________________________
Signature
X_______________________________________
Signature, if held jointly
Sign, date, and return the Proxy Card promptly using the enclosed envelope.
<PAGE>
COMMON SHARES
MUNIHOLDINGS FLORIDA INSURED FUND II
P.O. BOX 9011
PRINCETON, NEW JERSEY 08543-9011
P R O X Y
This proxy is solicited on behalf of the Board of Trustees
The undersigned hereby appoints Terry K. Glenn, Patrick Sweeney and William
Zitelli as proxies, each with the power to appoint his or her substitute, and
hereby authorizes each of them to represent and to vote, as designated on the
reverse hereof, all of the Common Shares of MuniHoldings Florida Insured Fund II
(the "Fund") held of record by the undersigned on October 20, 1999 at the Annual
Meeting of Shareholders of the Fund to be held on December 15, 1999, or any
adjournment thereof.
This proxy when properly executed will be voted in the manner herein
directed by the undersigned shareholder. If no direction is made, this proxy
will be voted "FOR" items 1, 2 and 3.
Please mark boxes /X/ or [X] in blue or black ink.
1. To consider and act upon a proposal to approve the Agreement and Plan of
Reorganization among the Fund, MuniHoldings Florida Insured Fund,
MuniHoldings Florida Insured Fund III and MuniHoldings Florida Insured Fund
IV.
For | | Against | | Abstain | |
(Continued and to be signed on the reverse side)
<PAGE>
2. ELECTION OF TRUSTEES
FOR all nominees listed below WITHHOLD AUTHORITY
(except as marked to the contrary below) | | to vote for all nominees
listed below | |
(Instruction: to withold authority to vote for any individual nominee,
strike a line through the nominee's name in the list below.)
Ronald W. Forbes, Terry K. Glenn, Cynthia A. Montgomery, Kevin A. Ryan,
Arthur Zeikel
3. Proposal to ratify the selection of Deloitte & Touche LLP as the
independent auditors of the Fund to serve for the current fiscal year.
For | | Against | | Abstain | |
4. In the discretion of such proxies, upon such other business as properly may
come before the meeting or any adjournment thereof.
Please sign exactly as name appears
hereon. When shares are held by joint
tenants, both should sign. When signing
as attorney or as executor,
administrator, trustee or guardian,
please give full title as such. If a
corporation, please sign in full
corporate name by president or other
authorized officer. If a partnership,
please sign in partnership name by
authorized persons.
Dated:__________________________________
X_______________________________________
Signature
X_______________________________________
Signature, if held jointly
Sign, date, and return the Proxy Card promptly using the enclosed envelope.
<PAGE>
AUCTION MARKET
PREFERRED SHARES
MUNIHOLDINGS FLORIDA INSURED FUND II
P.O. BOX 9011
PRINCETON, NEW JERSEY 08543-9011
P R O X Y
This proxy is solicited on behalf of the Board of Trustees
The undersigned hereby appoints Terry K. Glenn, Patrick Sweeney and William
Zitelli as proxies, each with the power to appoint his or her substitute, and
hereby authorizes each of them to represent and to vote, as designated on the
reverse hereof, all the Auction Market Preferred Shares of MuniHoldings Florida
Insured Fund II (the "Fund") held of record by the undersigned on October 20,
1999 at the Annual Meeting of Shareholders of the Fund to be held on December
15, 1999, or any adjournment thereof.
This proxy when properly executed will be voted in the manner herein
directed by the undersigned shareholder. If no direction is made, this proxy
will be voted "FOR" items 1, 2 and 3.
Please mark boxes /X/ or [X] in blue or black ink.
1. To consider and act upon a proposal to approve the Agreement and Plan of
Reorganization among the Fund, MuniHoldings Florida Insured Fund,
MuniHoldings Florida Insured Fund III and MuniHoldings Florida Insured Fund
IV.
For | | Against | | Abstain | |
(Continued and to be signed on the reverse side)
<PAGE>
2. ELECTION OF TRUSTEES
FOR all nominees listed below WITHHOLD AUTHORITY
(except as marked to the contrary below) | | to vote for all nominees
listed below | |
(Instruction: to withold authority to vote for any individual nominee,
strike a line through the nominee's name in the list below.)
Ronald W. Forbes, Terry K. Glenn, Cynthia A. Montgomery, Charles C. Reilly,
Kevin A. Ryan, Richard R. West, Arthur Zeikel
3. Proposal to ratify the selection of Deloitte & Touche LLP as the
independent auditors of the Fund to serve for the current fiscal year.
For | | Against | | Abstain | |
4. In the discretion of such proxies, upon such other business as properly may
come before the meeting or any adjournment thereof.
If the undersigned is a broker-dealer, it hereby instructs the proxies,
pursuant to Rule 452 of the New York Stock Exchange, to vote any
uninstructed Auction Market Preferred Shares, in the same proportion as
votes cast by holders of Auction Market Preferred Shares, who have
responded to this proxy solicitation.
Please sign exactly as name appears
hereon. When shares are held by joint
tenants, both should sign. When signing
as attorney or as executor,
administrator, trustee or guardian,
please give full title as such. If a
corporation, please sign in full
corporate name by president or other
authorized officer. If a partnership,
please sign in partnership name by
authorized persons.
Dated:__________________________________
X_______________________________________
Signature
X_______________________________________
Signature, if held jointly
Sign, date, and return the Proxy Card promptly using the enclosed envelope.
<PAGE>
COMMON SHARES
MUNIHOLDINGS FLORIDA INSURED FUND III
P.O. BOX 9011
PRINCETON, NEW JERSEY 08543-9011
P R O X Y
This proxy is solicited on behalf of the Board of Trustees
The undersigned hereby appoints Terry K. Glenn, Donald C. Burke and Alice
A. Pellegrino as proxies, each with the power to appoint his or her substitute,
and hereby authorizes each of them to represent and to vote, as designated on
the reverse hereof, all of the Common Shares of MuniHoldings Florida Insured
Fund III (the "Fund") held of record by the undersigned on October 20, 1999 at
the Annual Meeting of Shareholders of the Fund to be held on December 15, 1999,
or any adjournment thereof.
This proxy when properly executed will be voted in the manner herein
directed by the undersigned shareholder. If no direction is made, this proxy
will be voted "FOR" items 1, 2 and 3.
Please mark boxes /X/ or [X] in blue or black ink.
1. To consider and act upon a proposal to approve the Agreement and Plan of
Reorganization among the Fund, MuniHoldings Florida Insured Fund,
MuniHoldings Florida Insured Fund II and MuniHoldings Florida Insured Fund
IV.
For | | Against | | Abstain | |
(Continued and to be signed on the reverse side)
<PAGE>
2. ELECTION OF TRUSTEES
FOR all nominees listed below WITHHOLD AUTHORITY
(except as marked to the contrary below) | | to vote for all nominees
listed below | |
(Instruction: to withold authority to vote for any individual nominee,
strike a line through the nominee's name in the list below.)
James H. Bodurtha, Terry K. Glenn, Herbert I. London, Robert R. Martin,
Arthur Zeikel
3. Proposal to ratify the selection of Ernst & Young LLP as the independent
auditors of the Fund to serve for the current fiscal year.
For | | Against | | Abstain | |
4. In the discretion of such proxies, upon such other business as properly may
come before the meeting or any adjournment thereof.
Please sign exactly as name appears
hereon. When shares are held by joint
tenants, both should sign. When signing
as attorney or as executor,
administrator, trustee or guardian,
please give full title as such. If a
corporation, please sign in full
corporate name by president or other
authorized officer. If a partnership,
please sign in partnership name by
authorized persons.
Dated:__________________________________
X_______________________________________
Signature
X_______________________________________
Signature, if held jointly
Sign, date, and return the Proxy Card promptly using the enclosed envelope.
<PAGE>
AUCTION MARKET
PREFERRED SHARES
MUNIHOLDINGS FLORIDA INSURED FUND III
P.O. BOX 9011
PRINCETON, NEW JERSEY 08543-9011
P R O X Y
This proxy is solicited on behalf of the Board of Trustees
The undersigned hereby appoints Terry K. Glenn, Donald C. Burke and Alice
A. Pellegrino as proxies, each with the power to appoint his or her substitute,
and hereby authorizes each of them to represent and to vote, as designated on
the reverse hereof, all the Auction Market Preferred Shares of MuniHoldings
Florida Insured Fund III (the "Fund") held of record by the undersigned on
October 20, 1999 at the Annual Meeting of Shareholders of the Fund to be held on
December 15, 1999, or any adjournment thereof.
This proxy when properly executed will be voted in the manner herein
directed by the undersigned shareholder. If no direction is made, this proxy
will be voted "FOR" items 1, 2 and 3.
Please mark boxes /X/ or [X] in blue or black ink.
1. To consider and act upon a proposal to approve the Agreement and Plan of
Reorganization among the Fund, MuniHoldings Florida Insured Fund,
MuniHoldings Florida Insured Fund II and MuniHoldings Florida Insured Fund
IV.
For | | Against | | Abstain | |
(Continued and to be signed on the reverse side)
<PAGE>
2. ELECTION OF TRUSTEES
FOR all nominees listed below WITHHOLD AUTHORITY
(except as marked to the contrary below) | | to vote for all nominees
listed below | |
(Instruction: to withold authority to vote for any individual nominee,
strike a line through the nominee's name in the list below.)
James H. Bodurtha, Terry K. Glenn, Herbert I. London, Robert R. Martin,
Joseph L. May, Andre F. Perold, Arthur Zeikel
3. Proposal to ratify the selection of Ernst & Young LLP as the independent
auditors of the Fund to serve for the current fiscal year.
For | | Against | | Abstain | |
4. In the discretion of such proxies, upon such other business as properly may
come before the meeting or any adjournment thereof.
If the undersigned is a broker-dealer, it hereby instructs the proxies,
pursuant to Rule 452 of the New York Stock Exchange, to vote any
uninstructed Auction Market Preferred Shares, in the same proportion as
votes cast by holders of Auction Market Preferred Shares, who have
responded to this proxy solicitation.
Please sign exactly as name appears
hereon. When shares are held by joint
tenants, both should sign. When signing
as attorney or as executor,
administrator, trustee or guardian,
please give full title as such. If a
corporation, please sign in full
corporate name by president or other
authorized officer. If a partnership,
please sign in partnership name by
authorized persons.
Dated:__________________________________
X_______________________________________
Signature
X_______________________________________
Signature, if held jointly
Sign, date, and return the Proxy Card promptly using the enclosed envelope.
<PAGE>
COMMON SHARES
MUNIHOLDINGS FLORIDA INSURED FUND IV
P.O. BOX 9011
PRINCETON, NEW JERSEY 08543-9011
P R O X Y
This proxy is solicited on behalf of the Board of Trustees
The undersigned hereby appoints Terry K. Glenn, Patrick Sweeney, William
Zitelli and Donald C. Burke as proxies, each with the power to appoint his or
her substitute, and hereby authorizes each of them to represent and to vote, as
designated on the reverse hereof, all of the Common Shares of MuniHoldings
Florida Insured Fund IV (the "Fund") held of record by the undersigned on
October 20, 1999 at the Annual Meeting of Shareholders of the Fund to be held on
December 15, 1999, or any adjournment thereof.
This proxy when properly executed will be voted in the manner herein
directed by the undersigned shareholder. If no direction is made, this proxy
will be voted "FOR" items 1, 2 and 3.
Please mark boxes /X/ or [X] in blue or black ink.
1. To consider and act upon a proposal to approve the Agreement and Plan of
Reorganization among the Fund, MuniHoldings Florida Insured Fund,
MuniHoldings Florida Insured Fund II and MuniHoldings Florida Insured Fund
III.
For | | Against | | Abstain | |
(Continued and to be signed on the reverse side)
<PAGE>
2. ELECTION OF TRUSTEES
FOR all nominees listed below WITHHOLD AUTHORITY
(except as marked to the contrary below) | | to vote for all nominees
listed below | |
(Instruction: to withold authority to vote for any individual nominee,
strike a line through the nominee's name in the list below.)
Ronald W. Forbes, Terry K. Glenn, Cynthia A. Montgomery, Kevin A. Ryan,
Arthur Zeikel
3. Proposal to ratify the selection of Ernst & Young LLP as the independent
auditors of the Fund to serve for the current fiscal year.
For | | Against | | Abstain | |
4. In the discretion of such proxies, upon such other business as properly may
come before the meeting or any adjournment thereof.
Please sign exactly as name appears
hereon. When shares are held by joint
tenants, both should sign. When signing
as attorney or as executor,
administrator, trustee or guardian,
please give full title as such. If a
corporation, please sign in full
corporate name by president or other
authorized officer. If a partnership,
please sign in partnership name by
authorized persons.
Dated:__________________________________
X_______________________________________
Signature
X_______________________________________
Signature, if held jointly
Sign, date, and return the Proxy Card promptly using the enclosed envelope.
<PAGE>
AUCTION MARKET
PREFERRED SHARES
MUNIHOLDINGS FLORIDA INSURED FUND IV
P.O. BOX 9011
PRINCETON, NEW JERSEY 08543-9011
P R O X Y
This proxy is solicited on behalf of the Board of Trustees
The undersigned hereby appoints Terry K. Glenn, Patrick Sweeney and William
Zitelli as proxies, each with the power to appoint his or her substitute, and
hereby authorizes each of them to represent and to vote, as designated on the
reverse hereof, all the Auction Market Preferred Shares of MuniHoldings Florida
Insured Fund IV (the "Fund") held of record by the undersigned on October 20,
1999 at the Annual Meeting of Shareholders of the Fund to be held on December
15, 1999, or any adjournment thereof.
This proxy when properly executed will be voted in the manner herein
directed by the undersigned shareholder. If no direction is made, this proxy
will be voted "FOR" items 1, 2 and 3.
Please mark boxes /X/ or [X] in blue or black ink.
1. To consider and act upon a proposal to approve the Agreement and Plan of
Reorganization among the Fund, MuniHoldings Florida Insured Fund,
MuniHoldings Florida Insured Fund II and MuniHoldings Florida Insured Fund
III.
For | | Against | | Abstain | |
(Continued and to be signed on the reverse side)
<PAGE>
2. ELECTION OF TRUSTEES
FOR all nominees listed below WITHHOLD AUTHORITY
(except as marked to the contrary below) | | to vote for all nominees
listed below | |
(Instruction: to withold authority to vote for any individual nominee,
strike a line through the nominee's name in the list below.)
Ronald W. Forbes, Terry K. Glenn, Cynthia A. Montgomery, Charles C. Reilly,
Kevin A. Ryan, Richard R. West, Arthur Zeikel
3. Proposal to ratify the selection of Ernst & Young LLP as the independent
auditors of the Fund to serve for the current fiscal year.
For | | Against | | Abstain | |
4. In the discretion of such proxies, upon such other business as properly may
come before the meeting or any adjournment thereof.
If the undersigned is a broker-dealer, it hereby instructs the proxies,
pursuant to Rule 452 of the New York Stock Exchange, to vote any
uninstructed Auction Market Preferred Shares, in the same proportion as
votes cast by holders of Auction Market Preferred Shares, who have
responded to this proxy solicitation.
Please sign exactly as name appears
hereon. When shares are held by joint
tenants, both should sign. When signing
as attorney or as executor,
administrator, trustee or guardian,
please give full title as such. If a
corporation, please sign in full
corporate name by president or other
authorized officer. If a partnership,
please sign in partnership name by
authorized persons.
Dated:__________________________________
X_______________________________________
Signature
X_______________________________________
Signature, if held jointly
Sign, date, and return the Proxy Card promptly using the enclosed envelope.
<PAGE>
PART C
OTHER INFORMATION
Item 15. Indemnification.
Section 5.3 of the Registrant's Amended and Restated Declaration of Trust,
a form of which was previously filed as an exhibit to the Common Shares
Registration Statement (defined below); Article VI of the Registrant's By-Laws,
which was previously filed as an exhibit to the Common Shares Registration
Statement, and the Investment Advisory Agreement, a form of which was previously
filed as an exhibit to the Common Shares Registration Statement, provide for
indemnification.
"The Trust shall indemnify each of its Trustees, officers, employees, and
agents (including persons who serve at its request as directors, officers or
trustees of another organization in which it has any interest as a shareholder,
creditor or otherwise) against all liabilities and expenses (including amounts
paid in satisfaction of judgments, in compromise, as fines and penalties, and as
counsel fees) reasonably incurred by him in connection with the defense or
disposition of any action, suit or other proceeding, whether civil or criminal
in which he may be involved or with which he may be threatened, while in office
or thereafter, by reason of his being or having been such a trustee, officer,
employee or agent, except with respect to any matters to which he shall have
been adjudicated to have acted in bad faith, willful misfeasance, gross
negligence or reckless disregard of his duties; provided, however, that as to
any matter disposed of by a compromise payment by such person, pursuant to a
consent decree or otherwise, no indemnification either for said payment or for
any other expenses shall be provided unless the Trust shall have received a
written opinion from independent legal counsel approved by the Trustees to the
effect that if either the matter of willful misfeasance, gross negligence or
reckless disregard of duty, or the matter of good faith and reasonable belief as
to the best interests of the Trust, had been adjudicated, it would have been
adjudicated in favor of such person. The rights accruing to any person under
these provisions shall not exclude any other right to which he may be lawfully
entitled; provided that no person may satisfy any right of indemnity or
reimbursement granted herein or in Section 5.1 or to which he may be otherwise
entitled except out of the property of the Trust, and no Shareholder shall be
personally liable to any person with respect to any claim for indemnity or
reimbursement or otherwise. The Trustees may make advance payments in connection
with indemnification under this Section 5.3, provided that the indemnified
person shall have given a written undertaking to reimburse the Trust in the
event it is subsequently determined that he is not entitled to such
indemnification."
The Registrant's By-Laws provide that insofar as the conditional advancing
of indemnification moneys pursuant to Section 5.3 of the Declaration of Trust
for actions based upon the Investment Company Act of 1940 may be concerned, such
payments will be made only on the following conditions: (i) the advances must be
limited to amounts used, or to be used, for the preparation or presentation of a
defense to the action, including costs connected with the preparation of a
settlement; (ii) advances may be made only upon receipt of a written promise by,
or on behalf of, the recipient to repay that amount of the advance which exceeds
the amount to which it is ultimately determined he is entitled to receive from
the Registrant by reason of indemnification; and (iii) (a) such promise must be
secured by a surety bond, other suitable insurance or an equivalent form of
security which assures that any repayments may be obtained by the Registrant
without delay or litigation, which bond, insurance or other form of security
must be provided by the recipient of the advance, or (b) a majority of a quorum
of the Registrant's disinterested, non-party Trustees, or an independent legal
counsel in a written opinion, shall determine, based upon a review of readily
available facts, that the recipient of the advance ultimately will be found
entitled to indemnification.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "1933 Act") may be provided to trustees, officers and
controlling persons of the Fund, pursuant to the foregoing provisions or
otherwise, the Fund has been advised that in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the Fund of
expenses incurred or paid by a trustee, officer or controlling person of the
Fund in connection with any successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Fund will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
C-1
<PAGE>
Reference is made to Section Six of the Purchase Agreement for provisions
relating to the indemnification of the underwriter.
Item 16. Exhibits.
1 (a) -- Declaration of Trust of the Registrant, dated September 8, 1997.(a)
(b) -- Articles of Amendment relating to name change. (a)
(c) -- Articles of Amendment relating to name change. (b)
(d) -- Form of Certificates of Designation creating the Series A AMPS and the
Series B AMPS. (c)
(e) -- Form of Certificates of Designation creating the Series C AMPS, the
Series D AMPS and the Series E AMPS.
2 -- By-Laws of the Registrant.(a)
3 -- Not Applicable.
4 -- Form of Agreement and Plan of Reorganization among the Registrant and
MuniHoldings Florida Insured Fund II, MuniHoldings Insured Fund III
and MuniHoldings Insured Fund IV (included in Exhibit II to the Proxy
Statement and Prospectus contained in this Registration Statement).
5 (a) -- Copies of instruments defining the rights of shareholders, including
the relevant portions of the Declaration of Trust and the By-Laws of
the Registrant. (c)
(b) -- Form of specimen certificate for the Common Shares of the Registrant.
(a)
(c) -- Form of specimen certificate for the AMPS of the Registrant. (c)
6 -- Form of Investment Advisory Agreement between Registrant and Fund
Asset Management, L.P. (a)
7 (a) -- Form of Purchase Agreement for the Common Shares. (a)
(b) -- Form of Purchase Agreement for the AMPS. (c)
(c) -- Form of Merrill Lynch Standard Dealer Agreement. (a)
8 -- Not applicable.
9 -- Custodian Contract between the Registrant and The Bank of New York.(a)
10 -- Not applicable.
11 -- Opinion and Consent of Brown & Wood LLP, counsel for the Registrant.*
12 -- Private Letter Ruling from the Internal Revenue Service.*
13(a) -- Transfer Agency, Dividend Disbursing Agency and Shareholder Servicing
Agency Agreement between the Registrant and The Bank of New York. (a)
(b) -- Form of Auction Agent Agreement between the Registrant and IBJ
Whitehall Bank & Trust Co. (c)
(c) -- Form of Broker-Dealer Agreement. (c)
(d) -- Form of Letter of Representations. (c)
14(a) -- Consent of Deloitte & Touche LLP, independent auditors for the
Registrant and MuniHoldings Florida Insured Fund II
(b) -- Consent of Ernst & Young LLP, independent auditors for MuniHoldings
Florida Insured Fund III and MuniHoldings Florida Insured Fund IV.
15 -- Not applicable.
16 -- Power of Attorney (Included on the signature page of this Registration
Statement).
- ----------
* To be filed by amendment.
(a) Incorporated by reference to the Registrant's Registration Statement on
Form N-2 relating to the Registrant's Common Shares (File No. 333-35219)
(the "Common Shares Registration Statement"), filed on September 9, 1997.
(b) Incorporated by reference to Pre-Effective Amendment No. 1 to the Common
Shares Registration Statement, filed on September 23, 1997.
(c) Incorporated by reference to the Registrant's Registration Statement on
Form N-2 relating to the Registrant's Auction Market Preferred Stock (File
No. 333-32483) (the "AMPS Registration Statement"), filed on October 1,
1997.
(d) Reference is made to Article V, Article VI (sections 2, 3, 4, 5 and 6),
Article VII, Article VIII, Article X, Article XI, Article XII and Article
XIII of the Registrant's Declaration of Trust, previously filed as Exhibit
(1) to the Common Stock Registration Statement, and to Article II, Article
III (sections 1, 2, 3, 5 and 17), Article VI, Article VII, Article XII,
Article XIII and Article XIV of the Registrant's By-Laws previously filed
as Exhibit (2) to the Common Stock Registration Statement. Reference is
also made to the Form of Certificate of Designation filed as Exhibit 1(d)
to the AMPS Registration Statement and as Exhibit 1(e) hereto.
C-2
<PAGE>
Item 17. Undertakings.
(1) The undersigned Registrant agrees that prior to any public reoffering of
the securities registered through use of a prospectus which is part of this
Registration Statement by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c) of the Securities Act of
1933, as amended, the reoffering prospectus will contain information called
for by the applicable registration form for reofferings by persons who may
be deemed underwriters, in addition to the information called for by other
items of the applicable form.
(2) The undersigned Registrant agrees that every prospectus that is filed under
paragraph (1) above will be filed as part of an amendment to the
registration statement and will not be used until the amendment is
effective, and that, in determining any liability under the Securities Act
of 1933, as amended, each post-effective amendment shall be deemed to be a
new registration statement for the securities offered therein, and the
offering of securities at that time shall be deemed to be the initial bona
fide offering of them.
(3) The Registrant undertakes to file, by post-effective amendment, either a
copy of the Internal Revenue Service private letter ruling applied for or
an opinion of counsel as to certain tax matters, within a reasonable time
after receipt of such ruling.
C-3
<PAGE>
SIGNATURES
As required by the Securities Act of 1933, this Registration Statement has
been signed on behalf of the Registrant, in the Township of Plainsboro and State
of New Jersey, on the 5th day of October, 1999.
MUNIHOLDINGS FLORIDA INSURED FUND
(Registrant)
By /s/ TERRY K. GLENN
---------------------------
(Terry K. Glenn, President)
Each person whose signature appears below hereby authorizes Terry K. Glenn,
Donald C. Burke and Alice A. Pellegrino, or any of them, as attorney-in-fact, to
sign on his behalf, individually and in each capacity stated below, any
amendments to this Registration Statement (including post-effective amendments)
and to file the same, with all exhibits thereto, with the Securities and
Exchange Commission.
As required by the Securities Act of 1933, this Registration Statement has
been signed by the following persons in the capacities and on the dates
indicated.
Signatures Title Date
---------- ----- ----
/s/ TERRY K. GLENN President and Trustee October 5, 1999
- ---------------------------- (Principal Executive
(Terry K. Glenn) Officer)
/s/ DONALD C. BURKE Vice President and October 5, 1999
- ---------------------------- Treasurer (Principal
(Donald C. Burke) Financial and Accounting
Officer)
/s/ RONALD W. FORBES Trustee October 5, 1999
- ----------------------------
(Ronald W. Forbes)
/s/ CYNTHIA A. MONTGOMERY Trustee October 5, 1999
- ----------------------------
(Cynthia A. Montgomery)
/s/ CHARLES C. REILLY Trustee October 5, 1999
- ----------------------------
(Charles C. Reilly)
/s/ KEVIN A. RYAN Trustee October 5, 1999
- ----------------------------
(Kevin A. Ryan)
/s/ RICHARD R. WEST Trustee October 5, 1999
- ----------------------------
(Richard R. West)
/s/ ARTHUR ZEIKEL Trustee October 5, 1999
- ----------------------------
(Arthur Zeikel)
C-4
<PAGE>
EXHIBIT INDEX
1 (e) - Form of Certificates of Designation creating the Series C AMPS, the
Series D AMPS and the Series E AMPS.
14 (a) - Consent of Deloitte & Touche LLP, independent auditors for the
Registrant and MuniHoldings Florida Insured Fund II.
(b) - Consent of Ernst & Young LLP, independent auditors for MuniHoldings
Florida Insured Fund III and MuniHoldings Florida Insured Fund IV.
C-5
MUNIHOLDINGS FLORIDA INSURED FUND
CERTIFICATE OF DESIGNATION DATED , 2000
ESTABLISHING POWERS, QUALIFICATIONS, RIGHTS
AND PREFERENCES OF THREE SERIES OF AUCTION MARKET
PREFERRED SHARES ("AMPS(R)")
WHEREAS the Board of Trustees of MuniHoldings Florida Insured Fund (the
"Trust") is expressly empowered pursuant to Section 6.1 of the Trust's
Declaration of Trust to authorize the issuance of preferred shares of the Trust
in one or more series, with such preferences, powers, restrictions, limitations
or qualifications as determined by the Board of Trustees and as set forth in the
resolution or resolutions providing for the issuance of such preferred shares.
AND WHEREAS the Board of Trustees has determined that it is in the best
interests of the Trust to issue three series of such preferred shares.
NOW THEREFORE, the Board of Trustees does hereby authorize the issuance
of three series of preferred shares, par value $0.10 per share, liquidation
preference $25,000 per share plus an amount equal to accumulated but unpaid
dividends thereon (whether or not earned or declared), to be designated
respectively: Auction Market Preferred Shares, Series C; and Auction Market
Preferred Shares, Series D; and Auction Market Preferred Shares, Series E.
The preferences, voting powers, restrictions, limitations as to
dividends, qualifications, and terms and conditions of redemption, of the
preferred shares are as follows:
DESIGNATION
Series C: A series of 3,440 preferred shares, par value $.10 per share,
liquidation preference $25,000 per share plus an amount equal to accumulated but
unpaid dividends (whether or not earned or declared) thereon, is hereby
designated "Auction Market Preferred Shares, Series C." Each Auction Market
Preferred Share, Series C (sometimes referred to herein
- ----------
(R) Registered trademark of Merrill Lynch & Co., Inc.
<PAGE>
as "Series C AMPS") shall be issued on a date to be determined by the Board of
Trustees of the Trust or pursuant to their delegated authority; have an Initial
Dividend Rate and an Initial Dividend Payment Date as shall be determined in
advance of the issuance thereof by the Board of Trustees of the Trust or
pursuant to their delegated authority; and have such other preferences, voting
powers, limitations as to dividends, qualifications and terms and conditions of
redemption as are set forth in this Certificate of Designation. The Auction
Market Preferred Shares, Series C shall constitute a separate series of
preferred shares of the Trust, and each Auction Market Preferred Share, Series C
shall be identical.
Series D: A series of 2,160 preferred shares, par value $.10 per share,
liquidation preference $25,000 per share plus an amount equal to accumulated but
unpaid dividends (whether or not earned or declared) thereon, is hereby
designated "Auction Market Preferred Shares, Series D." Each Auction Market
Preferred Share, Series D (sometimes referred to herein as "Series D AMPS")
shall be issued on a date to be determined by the Board of Trustees of the Trust
or pursuant to their delegated authority; have an Initial Dividend Rate and an
Initial Dividend Payment Date as shall be determined in advance of the issuance
thereof by the Board of Trustees of the Trust or pursuant to their delegated
authority; and have such other preferences, voting powers, limitations as to
dividends, qualifications and terms and conditions of redemption as are set
forth in this Certificate of Designation. The Auction Market Preferred Shares,
Series D shall constitute a separate series of preferred shares of the Trust,
and each Auction Market Preferred Share, Series D shall be identical.
Series E: A series of 3,340 preferred shares, par value $.10 per share,
liquidation preference $25,000 per share plus an amount equal to accumulated but
unpaid dividends (whether or not earned or declared) thereon, is hereby
designated "Auction Market Preferred
2
<PAGE>
Shares, Series E." Each Auction Market Preferred Share, Series E (sometimes
referred to herein as "Series E AMPS") shall be issued on a date to be
determined by the Board of Trustees of the Trust or pursuant to their delegated
authority; have an Initial Dividend Rate and an Initial Dividend Payment Date as
shall be determined in advance of the issuance thereof by the Board of Trustees
of the Trust or pursuant to their delegated authority; and have such other
preferences, voting powers, limitations as to dividends, qualifications and
terms and conditions of redemption as are set forth in this Certificate of
Designation. The Auction Market Preferred Shares, Series E shall constitute a
separate series of preferred shares of the Trust, and each Auction Market
Preferred Share, Series E shall be identical.
1. Definitions. (a) Unless the context or use indicates another or
different meaning or intent, in this Certificate of Designation the following
terms have the following meanings, whether used in the singular or plural:
"`AA" Composite Commercial Paper Rate," on any date of determination,
means (i) the Interest Equivalent of the rate on commercial paper placed on
behalf of issuers whose corporate bonds are rated "AA" by S&P or "Aa" by Moody's
or the equivalent of such rating by another nationally recognized rating agency,
as such rate is made available on a discount basis or otherwise by the Federal
Reserve Bank of New York for the Business Day immediately preceding such date,
or (ii) in the event that the Federal Reserve Bank of New York does not make
available such a rate, then the arithmetic average of the Interest Equivalent of
the rate on commercial paper placed on behalf of such issuers, as quoted on a
discount basis or otherwise by Merrill Lynch, Pierce, Fenner & Smith
Incorporated or its successors that are Commercial Paper Dealers, to the Auction
Agent for the close of business on the Business Day immediately preceding such
date. If one of the Commercial Paper Dealers does not quote a rate required to
3
<PAGE>
determine the "AA" Composite Commercial Paper Rate, the "AA" Composite
Commercial Paper Rate will be determined on the basis of the quotation or
quotations furnished by any Substitute Commercial Paper Dealer or Substitute
Commercial Paper Dealers selected by the Trust to provide such rate or rates not
being supplied by the Commercial Paper Dealer. If the number of Dividend Period
days shall be (i) 7 or more but fewer than 49 days, such rate shall be the
Interest Equivalent of the 30-day rate on such commercial paper; (ii) 49 or more
but fewer than 70 days, such rate shall be the Interest Equivalent of the 60-day
rate on such commercial paper; (iii) 70 or more days but fewer than 85 days,
such rate shall be the arithmetic average of the Interest Equivalent on the
60-day and 90-day rates on such commercial paper; (iv) 85 or more days but fewer
than 99 days, such rate shall be the Interest Equivalent of the 90-day rate on
such commercial paper; (v) 99 or more days but fewer than 120 days, such rate
shall be the arithmetic average of the Interest Equivalent of the 90-day and
120-day rates on such commercial paper; (vi) 120 or more days but fewer than 141
days, such rate shall be the Interest Equivalent of the 120-day rate on such
commercial paper; (vii) 141 or more days but fewer than 162 days, such rate
shall be the arithmetic average of the Interest Equivalent of the 120-day and
180-day rates on such commercial paper; and (viii) 162 or more days but fewer
than 183 days, such rate shall be the Interest Equivalent of the 180-day rate on
such commercial paper.
"Accountant's Confirmation" has the meaning set forth in paragraph 7(c) of
this Certificate of Designation.
"Additional Dividend" has the meaning set forth in paragraph 2(e) of this
Certificate of Designation.
"Adviser" means the Trust's investment adviser which initially shall be
Fund Asset Management, L.P.
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<PAGE>
"Affiliate" means any Person, other than Merrill Lynch, Pierce, Fenner
& Smith Incorporated or its successors, known to the Auction Agent to be
controlled by, in control of, or under common control with, the Trust.
"Agent Member" means a member of the Securities Depository that will
act on behalf of a Beneficial Owner of one or more AMPS or a Potential
Beneficial Owner.
"AMPS" means, as the case may be, the Auction Market Preferred Shares,
Series C; or the Auction Market Preferred Shares, Series D; or Auction Market
Preferred Shares, Series E.
"AMPS Basic Maintenance Amount," as of any Valuation Date, means the
dollar amount equal to (i) the sum of (A) the product of the number of AMPS of
each series and Other AMPS Outstanding on such Valuation Date multiplied by the
sum of (a) $25,000 and (b) any applicable redemption premium attributable to the
designation of a Premium Call Period; (B) the aggregate amount of cash dividends
(whether or not earned or declared) that will have accumulated for each share of
AMPS and Other AMPS Outstanding, in each case, to (but not including) the end of
the current Dividend Period for each series of AMPS that follows such Valuation
Date in the event the then current Dividend Period will end within 49 calendar
days of such Valuation Date or through the 49th day after such Valuation Date in
the event the then current Dividend Period for each series of AMPS will not end
within 49 calendar days of such Valuation Date; (C) in the event the then
current Dividend Period will end within 49 calendar days of such Valuation Date,
the aggregate amount of cash dividends that would accumulate at the Maximum
Applicable Rate applicable to a Dividend Period of 28 or fewer days on any AMPS
and Other AMPS Outstanding from the end of such Dividend Period through the 49th
day after such Valuation Date, multiplied by the larger of the Moody's
Volatility Factor and the S&P Volatility Factor, determined from time to time by
Moody's and S&P, respectively (except that if such Valuation Date occurs
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<PAGE>
during a Non-Payment Period, the cash dividend for purposes of calculation would
accumulate at the then current Non-Payment Period Rate); (D) the amount of
anticipated expenses of the Trust for the 90 days subsequent to such Valuation
Date (including any premiums payable with respect to a Policy); (E) the amount
of the Trust's Maximum Potential Additional Dividend Liability as of such
Valuation Date; and (F) any current liabilities as of such Valuation Date to the
extent not reflected in any of (i)(A) through (i)(E) (including, without
limitation, and immediately upon determination, any amounts due and payable by
the Trust pursuant to repurchase agreements and any amounts payable for Florida
Municipal Bonds or Municipal Bonds purchased as of such Valuation Date) less
(ii) either (A) the Discounted Value of any of the Trust's assets, or (B) the
face value of any of the Trust's assets if such assets mature prior to or on the
date of redemption of AMPS or payment of a liability and are either securities
issued or guaranteed by the United States Government or Deposit Securities, in
both cases irrevocably deposited by the Trust for the payment of the amount
needed to redeem AMPS subject to redemption or to satisfy any of (i)(B) through
(i)(F). For Moody's and S&P, the Trust shall include as a liability an amount
calculated semi-annually equal to 150% of the estimated cost of obtaining other
insurance guaranteeing the timely payment of interest on a Moody's Eligible
Asset or S&P Eligible Asset and principal thereof to maturity with respect to
Moody's Eligible Assets and S&P Eligible Assets that (i) are covered by a Policy
which provides the Trust with the option to obtain such other insurance and (ii)
are discounted by a Moody's Discount Factor or an S&P Discount Factor
determined, as the case may be, by reference to the insurance claims-paying
ability rating of the issuer of such Policy.
"AMPS Basic Maintenance Cure Date," with respect to the failure by the
Trust to satisfy the AMPS Basic Maintenance Amount (as required by paragraph
7(a) of this Certificate of
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Designation) as of a given Valuation Date, means the sixth Business Day
following such Valuation Date.
"AMPS Basic Maintenance Report" means a report signed by any of the
President, Treasurer, any Senior Vice President or any Vice President of the
Trust which sets forth, as of the related Valuation Date, the assets of the
Trust, the Market Value and the Discounted Value thereof (seriatim and in
aggregate), and the AMPS Basic Maintenance Amount.
"Anticipation Notes" shall mean the following Florida Municipal Bonds:
revenue anticipation notes, tax anticipation notes, tax and revenue anticipation
notes, grant anticipation notes and bond anticipation notes.
"Applicable Percentage" has the meaning set forth in paragraph
10(a)(vii) of this Certificate of Designation.
"Applicable Rate" means the rate per annum at which cash dividends are
payable on the AMPS or Other AMPS, as the case may be, for any Dividend Period.
"Auction" means a periodic operation of the Auction Procedures.
"Auction Agent" means IBJ Whitehall Bank & Trust Company unless and
until another commercial bank, trust company or other financial institution
appointed by a resolution of the Board of Trustees of the Trust or a duly
authorized committee thereof enters into an agreement with the Trust to follow
the Auction Procedures for the purpose of determining the Applicable Rate and to
act as transfer agent, registrar, dividend disbursing agent and redemption agent
for the AMPS and Other AMPS.
"Auction Procedures" means the procedures for conducting Auctions set
forth in paragraph 10 of this Certificate of Designation.
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<PAGE>
"Beneficial Owner" means a customer of a Broker-Dealer who is listed on
the records of that Broker-Dealer (or, if applicable, the Auction Agent) as a
holder of AMPS or a Broker-Dealer that holds AMPS for its own account.
"Broker-Dealer" means any broker-dealer, or other entity permitted by
law to perform the functions required of a Broker-Dealer in paragraph 10 of this
Certificate of Designation, that has been selected by the Trust and has entered
into a Broker-Dealer Agreement with the Auction Agent that remains effective.
"Broker-Dealer Agreement" means an agreement between the Auction Agent
and a Broker-Dealer pursuant to which such Broker-Dealer agrees to follow the
procedures specified in paragraph 10 of this Certificate of Designation.
"Business Day" means a day on which the New York Stock Exchange, Inc.
is open for trading and which is not a Saturday, Sunday or other day on which
banks in The City of New York are authorized or obligated by law to close.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commercial Paper Dealers" means Merrill Lynch, Pierce, Fenner & Smith
Incorporated and such other commercial paper dealer or dealers as the Trust may
from time to time appoint, or, in lieu of any thereof, their respective
affiliates or successors.
"Common Shares" means the common shares of beneficial interest, par
value $.10 per share, of the Trust.
"Date of Original Issue" means, with respect to any share of AMPS or
Other AMPS, the date on which the Trust originally issues such share.
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<PAGE>
"Declaration" means the Declaration of Trust, as amended and
supplemented (including this Certificate of Designation), of the Trust on file
with the office of the Secretary of State of the Commonwealth of Massachusetts.
"Deposit Securities" means cash and Florida Municipal Bonds and
Municipal Bonds rated at least A2 (having a remaining maturity of 12 months or
less), P-1, VMIG-1 or MIG-1 by Moody's or A (having a remaining maturity of 12
months or less), A-1+ or SP-1+ by S&P.
"Discounted Value" means (i) with respect to an S&P Eligible Asset, the
quotient of the Market Value thereof divided by the applicable S&P Discount
Factor and (ii) with respect to a Moody's Eligible Asset, the lower of par and
the quotient of the Market Value thereof divided by the applicable Moody's
Discount Factor.
"Dividend Payment Date," with respect to AMPS, has the meaning set
forth in paragraph 2(b)(i) of this Certificate of Designation and, with respect
to Other AMPS, has the equivalent meaning.
"Dividend Period" means the Initial Dividend Period, any 7-Day Dividend
Period and any Special Dividend Period.
"Existing Holder" means a Broker-Dealer or any such other Person as may
be permitted by the Trust that is listed as the holder of record of AMPS in the
Share Books.
"Fitch" means Fitch IBCA, Inc. or its successors.
"Florida Municipal Bonds" means Municipal Bonds issued by or on behalf
of the State of Florida, its political subdivisions, agencies and
instrumentalities and by other qualifying issuers that pay interest which, in
the opinion of bond counsel to the issuer, is exempt from Federal income taxes
and Florida intangible personal property taxes, and includes Inverse Floaters.
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<PAGE>
"Forward Commitment" has the meaning set forth in paragraph 8(c) of
this Certificate of Designation.
"Holder" means a Person identified as a holder of record of AMPS in the
Share Register.
"Independent Accountant" means a nationally recognized accountant, or
firm of accountants, that is, with respect to the Trust, an independent public
accountant or firm of independent public accountants under the Securities Act of
1933, as amended.
"Initial Dividend Payment Date" means the Initial Dividend Payment Date
as determined by the Board of Trustees of the Trust with respect to each series
of AMPS or Other AMPS, as the case may be.
"Initial Dividend Period," with respect to each series of AMPS, has the
meaning set forth in paragraph 2(c)(i) of this Certificate of Designation and,
with respect to Other AMPS, has the equivalent meaning.
"Initial Dividend Rate," with respect to each series of AMPS, means the
rate per annum applicable to the Initial Dividend Period for such series of AMPS
and, with respect to Other AMPS, has the equivalent meaning.
"Initial Margin" means the amount of cash or securities deposited with
a broker as a margin payment at the time of purchase or sale of a futures
contract.
"Interest Equivalent" means a yield on a 360-day basis of a discount
basis security which is equal to the yield on an equivalent interest-bearing
security.
"Inverse Floaters" means trust certificates or other instruments
evidencing interests in one or more Florida Municipal Bonds that qualify as S&P
Eligible Assets (and are not part of a private placement of Florida Municipal
Bonds and satisfy the issuer and original issue size or
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<PAGE>
ratings requirements of clause (vi) of the definition of S&P Eligible Assets)
the interest rates on which are adjusted at short term intervals on a basis that
is inverse to the simultaneous readjustment of the interest rates on
corresponding floating rate trust certificates or other instruments issued by
the same issuer, provided that the ratio of the aggregate dollar amount of
floating rate instruments to inverse floating rate instruments issued by the
same issuer does not exceed one to one at their time of original issuance unless
the floating rate instruments have only one reset remaining until maturity.
"Long Term Dividend Period" means a Special Dividend Period consisting
of a specified period of one whole year or more but not greater than five years.
"Mandatory Redemption Price" means $25,000 per share of AMPS plus an
amount equal to accumulated but unpaid dividends (whether or not earned or
declared) to the date fixed for redemption and excluding Additional Dividends.
"Marginal Tax Rate" means the maximum marginal regular Federal
individual income tax rate applicable to ordinary income or the maximum marginal
regular Federal corporate income tax rate, whichever is greater.
"Market Value" of any asset of the Trust shall be the market value
thereof determined by the Pricing Service. Market Value of any asset shall
include any interest accrued thereon. The Pricing Service shall value portfolio
securities at the quoted bid prices or the mean between the quoted bid and asked
price or the yield equivalent when quotations are not readily available.
Securities for which quotations are not readily available shall be valued at
fair value as determined by the Pricing Service using methods which include
consideration of: yields or prices of municipal bonds of comparable quality,
type of issue, coupon, maturity and rating; indications as to value from
dealers; and general market conditions. The Pricing Service may
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<PAGE>
employ electronic data processing techniques and/or a matrix system to determine
valuations. In the event the Pricing Service is unable to value a security, the
security shall be valued at the lower of two dealer bids obtained by the Trust
from dealers who are members of the National Association of Securities Dealers,
Inc. and who make a market in the security, at least one of which shall be in
writing. Futures contracts and options are valued at closing prices for such
instruments established by the exchange or board of trade on which they are
traded, or if market quotations are not readily available, are valued at fair
value on a consistent basis using methods determined in good faith by the Board
of Trustees.
"Maximum Applicable Rate," with respect to AMPS, has the meaning set
forth in paragraph 10(a)(vii) of this Certificate of Designation and, with
respect to Other AMPS, has the equivalent meaning.
"Maximum Potential Additional Dividend Liability," as of any Valuation
Date, means the aggregate amount of Additional Dividends that would be due if
the Trust were to make Retroactive Taxable Allocations, with respect to any
fiscal year, estimated based upon dividends paid and the amount of undistributed
realized net capital gains and other taxable income earned by the Trust, as of
the end of the calendar month immediately preceding such Valuation Date and
assuming such Additional Dividends are fully taxable.
"Moody's" means Moody's Investors Service, Inc. or its successors.
"Moody's Discount Factor" means, for purposes of determining the
Discounted Value of any Florida Municipal Bond or Municipal Bond which
constitutes a Moody's Eligible Asset, the percentage determined by reference to
(a)(i) the rating by Moody's or S&P on such Bond or (ii) in the event the
Moody's Eligible Asset is insured under a Policy and the terms of the Policy
permit the Trust, at its option, to obtain other insurance guaranteeing the
timely payment of
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<PAGE>
interest on such Moody's Eligible Asset and principal thereof to maturity, the
Moody's insurance claims-paying ability rating of the issuer of the Policy or
(iii) in the event the Moody's Eligible Asset is insured under an insurance
policy which guarantees the timely payment of interest on such Moody's Eligible
Asset and principal thereof to maturity, the Moody's insurance claims-paying
ability rating of the issuer of the insurance policy (provided that for purposes
of clauses (ii) and (iii) if the insurance claims-paying ability of an issuer of
a Policy or insurance policy is not rated by Moody's but is rated by S&P, such
issuer shall be deemed to have a Moody's insurance claims-paying ability rating
which is two full categories lower than the S&P insurance claims-paying ability
rating) and (b) the Moody's Exposure Period, in accordance with the table set
forth below:
<TABLE>
<CAPTION>
Rating Category
--------------------------------------------------------
Moody's Exposure Period Aaa* Aa* A* Baa* Other** VMIG-1*** SP-1+***
----------------------- ---- --- -- ---- ------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
7 weeks or less ............... 151% 159% 168% 202% 229% 136% 148%
8 weeks or less but
greater than seven weeks ...... 154 164 173 205 235 137 149
9 weeks or less but
greater than eight weeks ...... 158 169 179 209 242 138 150
</TABLE>
- ----------
* Moody's rating.
** Florida Municipal Bonds and Municipal Bonds not rated by Moody's but rated
BBB or BBB+ by S&P.
*** Florida Municipal Bonds and Municipal Bonds rated MIG-1, VMIG-1 or P-1 or,
if not rated by Moody's, rated SP-1+ or A-1+ by S&P which do not mature or
have a demand feature at par exercisable within the Moody's Exposure Period
and which do not have a long-term rating. For the purposes of the
definition of Moody's Eligible Assets, these securities will have an
assumed rating of "A" by Moody's.
; provided, however, in the event a Moody's Discount Factor applicable to a
Moody's Eligible Asset is determined by reference to an insurance claims-paying
ability rating in accordance with clause (a)(ii) or (a)(iii), such Moody's
Discount Factor shall be increased by an amount equal to 50% of the difference
between (a) the percentage set forth in the foregoing table under the applicable
rating category and (b) the percentage set forth in the foregoing table under
the rating category which is one category lower than the applicable rating
category.
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Notwithstanding the foregoing, (i) a 102% Moody's Discount Factor will
be applied to short-term Florida Municipal Bonds and short-term Municipal Bonds,
so long as such Florida Municipal Bonds and Municipal Bonds are rated at least
MIG-1, VMIG-1 or P-1 by Moody's and mature or have a demand feature at par
exercisable within the Moody's Exposure Period, and the Moody's Discount Factor
for such Bonds will be 125% if such Bonds are not rated by Moody's but are rated
A-1+ or SP-1+ or AA by S&P and mature or have a demand feature at par
exercisable within the Moody's Exposure Period, and (ii) no Moody's Discount
Factor will be applied to cash or to Receivables for Florida Municipal Bonds or
Municipal Bonds Sold. "Receivables for Florida Municipal Bonds or Municipal
Bonds Sold," for purposes of calculating Moody's Eligible Assets as of any
Valuation Date, means no more than the aggregate of the following: (i) the book
value of receivables for Florida Municipal Bonds or Municipal Bonds sold as of
or prior to such Valuation Date if such receivables are due within five Business
Days of such Valuation Date, and if the trades which generated such receivables
are (x) settled through clearing house firms with respect to which the Trust has
received prior written authorization from Moody's or (y) with counterparties
having a Moody's long-term debt rating of at least Baa3; and (ii) the Moody's
Discounted Value of Florida Municipal Bonds or Municipal Bonds sold as of or
prior to such Valuation Date which generated receivables, if such receivables
are due within five Business Days of such Valuation Date but do not comply with
either of conditions (x) or (y) of the preceding clause (i).
"Moody's Eligible Asset" means cash, Receivables for Florida Municipal
Bonds or Municipal Bonds Sold, a Florida Municipal Bond or a Municipal Bond that
(i) pays interest in cash, (ii) is publicly rated Baa or higher by Moody's or,
if not rated by Moody's but rated by S&P, is rated at least BBB by S&P (provided
that, for purposes of determining the Moody's
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<PAGE>
Discount Factor applicable to any such S&P-rated Florida Municipal Bond or
S&P-rated Municipal Bond, such Florida Municipal Bond or Municipal Bond
(excluding any short-term Florida Municipal Bond or Municipal Bond) will be
deemed to have a Moody's rating which is one full rating category lower than its
S&P rating), (iii) does not have its Moody's rating suspended by Moody's; and
(iv) is part of an issue of Florida Municipal Bonds or Municipal Bonds of at
least $10,000,000. In addition, Florida Municipal Bonds and Municipal Bonds in
the Trust's portfolio must be within the following diversification requirements
in order to be included within Moody's Eligible Assets:
<TABLE>
<CAPTION>
Maximum
Maximum Maximum Maximum State or
Minimum Underlying Issue Type County Territory
Issue Size Obligor(%) Concentration(%) Concentration(%) Concentration
Rating ($ Millions) (1) (1)(3) (1)(4) (1)(5)
- ------ ------------ ---------- ---------------- ---------------- -------------
<S> <C> <C> <C> <C> <C>
Aaa ........... 10 100 100 100 100
Aa ............ 10 20 60 60 60
A ............. 10 10 40 40 40
Baa ........... 10 6 20 20 20
Other(2) ...... 10 4 12 12 12
</TABLE>
- ----------
(1) The referenced percentages represent maximum cumulative totals for the
related rating category and each lower rating category.
(2) Florida Municipal Bonds and Municipal Bonds not rated by Moody's but rated
BBB or BBB+ by S&P.
(3) Does not apply to general obligation bonds.
(4) Applicable to general obligation bonds only.
(5) Does not apply to Florida Municipal Bonds. Territorial bonds (other than
those issued by Puerto Rico and counted collectively) are each limited to
10% of Moody's Eligible Assets. For diversification purposes, Puerto Rico
will be treated as a state.
For purposes of the maximum underlying obligor requirement described above, any
Florida Municipal Bond or Municipal Bond backed by the guaranty, letter of
credit or insurance issued by a third party will be deemed to be issued by such
third party if the issuance of such third party credit is the sole determinant
of the rating on such Bond. For purposes of the issue type concentration
requirement described above, Florida Municipal Bonds and Municipal Bonds will be
classified within one of the following categories: health care issues (teaching
and non-teaching hospitals, public and private), housing issues (single- and
multi-family), educational facilities issues (public and private schools),
student loan issues, resource recovery issues,
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<PAGE>
transportation issues (mass transit, airport and highway bonds), industrial
revenue/pollution control bond issues, utility issues (including water, sewer
and electricity), general obligation issues, lease obligations/certificates of
participation, escrowed bonds and other issues ("Other Issues") not falling
within one of the aforementioned categories (includes special obligations to
crossover, excise and sales tax revenue, recreation revenue, special assessment
and telephone revenue bonds). In no event shall (a) more than 10% of Moody's
Eligible Assets consist of student loan issues, (b) more than 10% of Moody's
Eligible Assets consist of resource recovery issues or (c) more than 10% of
Moody's Eligible Assets consist of Other Issues.
When the Trust sells a Florida Municipal Bond or Municipal Bond and
agrees to repurchase it at a future date, the Discounted Value of such Bond will
constitute a Moody's Eligible Asset and the amount the Trust is required to pay
upon repurchase of such Bond will count as a liability for purposes of
calculating the AMPS Basic Maintenance Amount. For so long as the AMPS are rated
by Moody's, the Trust will not enter into any such reverse repurchase agreements
unless it has received written confirmation from Moody's that such transactions
would not impair the ratings then assigned the AMPS by Moody's. When the Trust
purchases a Florida Municipal Bond or Municipal Bond and agrees to sell it at a
future date to another party, cash receivable by the Trust thereby will
constitute a Moody's Eligible Asset if the long-term debt of such other party is
rated at least A2 by Moody's and such agreement has a term of 30 days or less;
otherwise the Discounted Value of such Bond will constitute a Moody's Eligible
Asset.
Notwithstanding the foregoing, an asset will not be considered a
Moody's Eligible Asset if it is (i) held in a margin account, (ii) subject to
any material lien, mortgage, pledge, security interest or security agreement of
any kind, (iii) held for the purchase of a security pursuant to a
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<PAGE>
Forward Commitment or (iv) irrevocably deposited by the Trust for the payment of
dividends or redemption.
"Moody's Exposure Period" means a period that is the same length or
longer than the number of days used in calculating the cash dividend component
of the AMPS Basic Maintenance Amount and shall initially be the period
commencing on and including a given Valuation Date and ending 48 days
thereafter.
"Moody's Hedging Transactions" has the meaning set forth in paragraph
8(b) of this Certificate of Designation.
"Moody's Volatility Factor" means 272% as long as there has been no
increase enacted to the Marginal Tax Rate. If such an increase is enacted but
not yet implemented, the Moody's Volatility Factor shall be as follows:
% Change in Moody's
Marginal Tax Volatility
Rate Factor
------------ ----------
<=5% 292%
>5% but <=10% 313%
>10% but <=15% 338%
>15% but <=20% 364%
>20% but <=25% 396%
>25% but <=30% 432%
>30% but <=35% 472%
>35% but <=40% 520%
Notwithstanding the foregoing, the Moody's Volatility Factor may mean such other
potential dividend rate increase factor as Moody's advises the Trust in writing
is applicable.
"Municipal Bonds" means "Municipal Bonds" as defined in the Trust's
Registration Statement on Form N-14 (File No. 333-___________) relating to the
AMPS on file with the Securities
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<PAGE>
and Exchange Commission, as such Registration Statement may be amended from time
to time, as well as short-term municipal obligations and Inverse Floaters.
"Municipal Index" has the meaning set forth in paragraph 8(a) of this
Certificate of Designation.
"1940 Act" means the Investment Company Act of 1940, as amended from
time to time.
"1940 Act AMPS Asset Coverage" means asset coverage, as defined in
section 18(h) of the 1940 Act, of at least 200% with respect to all outstanding
senior securities of the Trust which are shares of beneficial interest,
including all outstanding AMPS and Other AMPS (or such other asset coverage as
may in the future be specified in or under the 1940 Act as the minimum asset
coverage for senior securities which are stock of a closed-end investment
company as a condition of paying dividends on its common stock).
"1940 Act Cure Date," with respect to the failure by the Trust to
maintain the 1940 Act AMPS Asset Coverage (as required by paragraph 6 of this
Certificate of Designation) as of the last Business Day of each month, means the
last Business Day of the following month.
"Non-Call Period" has the meaning set forth under the definition of
"Specific Redemption Provisions."
"Non-Payment Period" means, with respect to each series of AMPS, any
period commencing on and including the day on which the Trust shall fail to (i)
declare, prior to the close of business on the second Business Day preceding any
Dividend Payment Date, for payment on or (to the extent permitted by paragraph
2(c)(i) of this Certificate of Designation) within three Business Days after
such Dividend Payment Date to the Holders as of 12:00 noon, New York City time,
on the Business Day preceding such Dividend Payment Date, the full
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<PAGE>
amount of any dividend on AMPS payable on such Dividend Payment Date or (ii)
deposit, irrevocably in trust, in same-day funds, with the Auction Agent by
12:00 noon, New York City time, (A) on such Dividend Payment Date the full
amount of any cash dividend on such shares payable (if declared) on such
Dividend Payment Date or (B) on any redemption date for any AMPS called for
redemption, the Mandatory Redemption Price per share of such AMPS or, in the
case of an optional redemption, the Optional Redemption Price per share, and
ending on and including the Business Day on which, by 12:00 noon, New York City
time, all unpaid cash dividends and unpaid redemption prices shall have been so
deposited or shall have otherwise been made available to Holders in same-day
funds; provided that, a Non-Payment Period shall not end unless the Trust shall
have given at least five days' but no more than 30 days' written notice of such
deposit or availability to the Auction Agent, all Existing Holders (at their
addresses appearing in the Share Books) and the Securities Depository.
Notwithstanding the foregoing, the failure by the Trust to deposit funds as
provided for by clauses (ii)(A) or (ii)(B) above within three Business Days
after any Dividend Payment Date or redemption date, as the case may be, in each
case to the extent contemplated by paragraph 2(c)(i) of this Certificate of
Designation, shall not constitute a "Non-Payment Period."
"Non-Payment Period Rate" means, initially, 200% of the applicable
Reference Rate (or 275% of such rate if the Trust has provided notification to
the Auction Agent prior to the Auction establishing the Applicable Rate for any
dividend pursuant to paragraph 2(f) hereof that net capital gains or other
taxable income will be included in such dividend on AMPS), provided that the
Board of Trustees of the Trust shall have the authority to adjust, modify, alter
or change from time to time the initial Non-Payment Period Rate if the Board of
Trustees of the Trust determines and Moody's and S&P (and any Substitute Rating
Agency in lieu of Moody's or S&P
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<PAGE>
in the event either of such parties shall not rate the AMPS) advise the Trust in
writing that such adjustment, modification, alteration or change will not
adversely affect their then-current ratings on the AMPS.
"Normal Dividend Payment Date" has the meaning set forth in paragraph
2(b)(i) of this Certificate of Designation.
"Notice of Redemption" means any notice with respect to the redemption
of AMPS pursuant to paragraph 4 of this Certificate of Designation.
"Notice of Revocation" has the meaning set forth in paragraph 2(c)(iii)
of this Certificate of Designation.
"Notice of Special Dividend Period" has the meaning set forth in
paragraph 2(c)(iii) of this Certificate of Designation.
"Optional Redemption Price" means $25,000 per share plus an amount
equal to accumulated but unpaid dividends (whether or not earned or declared) to
the date fixed for redemption and excluding Additional Dividends plus any
applicable redemption premium attributable to the designation of a Premium Call
Period.
"Other AMPS" means the auction rate preferred shares of the Trust,
other than the AMPS.
"Outstanding" means, as of any date (i) with respect to AMPS, AMPS
theretofore issued by the Trust except, without duplication, (A) any AMPS
theretofore cancelled or delivered to the Auction Agent for cancellation, or
redeemed by the Trust, or as to which a Notice of Redemption shall have been
given and Deposit Securities shall have been deposited in trust or segregated by
the Trust pursuant to paragraph 4(c) and (B) any AMPS as to which the Trust or
any Affiliate
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<PAGE>
thereof shall be a Beneficial Owner, provided that AMPS held by an Affiliate
shall be deemed outstanding for purposes of calculating the AMPS Basic
Maintenance Amount and (ii) with respect to other Preferred Shares, has the
equivalent meaning.
"Parity Shares" means the AMPS and each other outstanding series of
Preferred Shares the holders of which, together with the holders of the AMPS,
shall be entitled to the receipt of dividends or of amounts distributable upon
liquidation, dissolution or winding up, as the case may be, in proportion to the
full respective preferential amounts to which they are entitled, without
preference or priority one over the other.
"Person" means and includes an individual, a partnership, a
corporation, a trust, an unincorporated association, a joint venture or other
entity or a government or any agency or political subdivision thereof.
"Policy" means an insurance policy purchased by the Trust which
guarantees the payment of principal and interest on specified Florida Municipal
Bonds or Municipal Bonds during the period in which such Florida Municipal Bonds
or Municipal Bonds are owned by the Trust; provided, however, that, as long as
the AMPS are rated by Moody's and S&P, the Trust will not obtain any Policy
unless Moody's and S&P advise the Trust in writing that the purchase of such
Policy will not adversely affect their then-current rating on the AMPS.
"Potential Beneficial Owner" means a customer of a Broker-Dealer or a
Broker-Dealer that is not a Beneficial Owner of AMPS but that wishes to purchase
such shares, or that is a Beneficial Owner that wishes to purchase additional
AMPS.
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"Potential Holder" means any Broker-Dealer or any such other Person as
may be permitted by the Trust, including any Existing Holder, who may be
interested in acquiring AMPS (or, in the case of an Existing Holder, additional
AMPS).
"Preferred Shares" means the preferred shares of beneficial interest,
par value $.10 per share, of the Trust, and includes AMPS and Other AMPS.
"Premium Call Period" has the meaning set forth under the definition of
"Specific Redemption Provisions."
"Pricing Service" means J.J. Kenny or any pricing service designated by
the Board of Trustees of the Trust provided the Trust obtains written assurance
from S&P and Moody's that such designation will not impair the rating then
assigned by S&P and Moody's to the AMPS.
"Quarterly Valuation Date" means the twenty-fifth day of the last month
of each fiscal quarter of the Trust (or, if such day is not a Business Day, the
next succeeding Business Day) in each fiscal year of the Trust, commencing ,
2000.
"Receivables for Florida Municipal Bonds Sold" has the meaning set
forth under the definition of S&P Discount Factor.
"Receivables for Florida Municipal Bonds or Municipal Bonds Sold" has
the meaning set forth under the definition of Moody's Discount Factor.
"Reference Rate" means: (i) with respect to a Dividend Period or a
Short Term Dividend Period having 28 or fewer days, the higher of the applicable
"AA" Composite Commercial Paper Rate and the Taxable Equivalent of the
Short-Term Municipal Bond Rate, (ii) with respect to any Short Term Dividend
Period having more than 28 but fewer than 183 days, the applicable "AA"
Composite Commercial Paper Rate, (iii) with respect to any Short Term Dividend
Period having
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183 or more but fewer than 364 days, the applicable U.S. Treasury Bill Rate and
(iv) with respect to any Long Term Dividend Period, the applicable U.S. Treasury
Note Rate.
"Request for Special Dividend Period" has the meaning set forth in
paragraph 2(c)(iii) of this Certificate of Designation.
"Response" has the meaning set forth in paragraph 2(c)(iii) of this
Certificate of Designation.
"Retroactive Taxable Allocation" has the meaning set forth in paragraph
2(e) of this Certificate of Designation.
"Right," with respect to each series of AMPS, has the meaning set forth
in paragraph 2(e) of this Certificate of Designation and, with respect to Other
AMPS, has the equivalent meaning.
"S&P" means Standard & Poor's, a division of The McGraw-Hill Companies,
Inc. or its successors.
"S&P Discount Factor" means, for purposes of determining the Discounted
Value of any Florida Municipal Bond which constitutes an S&P Eligible Asset, the
percentage determined by reference to (a)(i) the rating by S&P, Moody's or Fitch
on such Bond or (ii) in the event the Florida Municipal Bond is insured under a
Policy and the terms of the Policy permit the Trust, at its option, to obtain
other permanent insurance guaranteeing the timely payment of interest on such
Florida Municipal Bond and principal thereof to maturity, the S&P insurance
claims-paying ability rating of the issuer of the Policy or (iii) in the event
the Florida Municipal Bond is insured under an insurance policy which guarantees
the timely payment of interest on such Florida Municipal Bond and principal
thereof to maturity, the S&P insurance claims-paying ability
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rating of the issuer of the insurance policy and (b) the S&P Exposure Period, in
accordance with the tables set forth below:
For Florida Municipal Bonds:
Rating Category
--------------------------------------------------
S&P Exposure Period AAA* AA* A* BBB*
- ------------------- --------------------------------------------------
45 Business Days........... 205% 210% 225% 265%
25 Business Days........... 185 190 205 245
10 Business Days........... 170 175 190 230
7 Business Days........... 165 170 185 225
3 Business Days........... 145 150 165 205
- --------------
* S&P rating.
Notwithstanding the foregoing, (i) the S&P Discount Factor for
short-term Florida Municipal Bonds will be 115%, so long as such Florida
Municipal Bonds are rated A-1+ or SP-1+ by S&P and mature or have a demand
feature exercisable in 30 days or less, or 120% so long as such Florida
Municipal Bonds are rated A-1 or SP-1 by S&P and mature or have a demand feature
exercisable in 30 days or less, or 125% if such Florida Municipal Bonds are not
rated by S&P but are rated VMIG-1, P-1 or MIG-1 by Moody's or F-1 + by Fitch;
provided, however, such short-term Florida Municipal Bonds rated by Moody's or
Fitch but not rated by S&P having a demand feature exercisable in 30 days or
less must be backed by a letter of credit, liquidity facility or guarantee from
a bank or other financial institution having a short-term rating of at least
A-1+ from S&P; and further provided that such short-term Florida Municipal Bonds
rated by Moody's or Fitch but not rated by S&P may comprise no more than 50% of
short-term F lorida Municipal Bonds that qualify as S&P Eligible Assets, (ii)
the S&P Discount Factor for Receivables for Florida Municipal Bonds Sold that
are due in more than five Business Days from such Valuation Date will be the S&P
Discount Factor applicable to the Florida Municipal Bonds sold, and (iii) no S&P
Discount Factor will be applied to cash or to Receivables for Florida
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Municipal Bonds Sold if such receivables are due within five Business Days of
such Valuation Date. "Receivables for Florida Municipal Bonds Sold," for
purposes of calculating S&P Eligible Assets as of any Valuation Date, means the
book value of receivables for Florida Municipal Bonds sold as of or prior to
such Valuation Date. The Trust may adopt S&P Discount Factors for Municipal
Bonds other than Florida Municipal Bonds provided that S&P advises the Trust in
writing that such action will not adversely affect its then current rating on
the AMPS. For purposes of the foregoing, Anticipation Notes rated SP-1 or, if
not rated by S&P, rated VMIG-1 by Moody's or F-1 + by Fitch, which do not mature
or have a demand feature exercisable in 30 days and which do not have a
long-term rating, shall be considered to be short-term Florida Municipal Bonds.
"S&P Eligible Asset" means cash, Receivables for Florida Municipal
Bonds Sold or a Florida Municipal Bond that (i) is interest bearing and pays
interest at least semi-annually; (ii) is payable with respect to principal and
interest in United States Dollars; (iii) is publicly rated BBB or higher by S&P
or, except in the case of Anticipation Notes that are grant anticipation notes
or bond anticipation notes which must be rated by S&P to be included in S&P
Eligible Assets, if not rated by S&P but rated by Moody's or Fitch, is rated at
least A by Moody's or Fitch (provided that such Moody's-rated or Fitch-rated
Florida Municipal Bonds will be included in S&P Eligible Assets only to the
extent the Market Value of such Florida Municipal Bonds does not exceed 50% of
the aggregate Market Value of the S&P Eligible Assets; and further provided
that, for purposes of determining the S&P Discount Factor applicable to any such
Moody's-rated or Fitch-rated Florida Municipal Bond, such Florida Municipal Bond
will be deemed to have an S&P rating which is one full rating category lower
than its Moody's rating or Fitch rating); (iv) is not subject to a covered call
or covered put option written by the Trust; (v) except for
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Inverse Floaters, is not part of a private placement of Florida Municipal Bonds;
and (vi) except for Inverse Floaters, is part of an issue of Florida Municipal
Bonds with an original issue size of at least $10 million or, if of an issue
with an original issue size below $10 million (but in no event below $5
million), is either (a) issued by an issuer with a total of at least $25 million
of securities outstanding or (b) rated at least A by S&P with all such Florida
Municipal Bonds not constituting more than 20% of the aggregate Market Value of
S&P Eligible Assets. Notwithstanding the foregoing:
(1) Florida Municipal Bonds of any one issuer or guarantor (excluding
bond insurers) will be considered S&P Eligible Assets only to the extent
the Market Value of such Florida Municipal Bonds does not exceed 10% of the
aggregate Market Value of the S&P Eligible Assets, provided that 2% is
added to the applicable S&P Discount Factor for every 1% by which the
Market Value of such Florida Municipal Bonds exceeds 5% of the aggregate
Market Value of the S&P Eligible Assets;
(2) Florida Municipal Bonds of any one issue type category (as
described below) will be considered S&P Eligible Assets only to the extent
the Market Value of such Bonds does not exceed 25% of the aggregate Market
Value of S&P Eligible Assets, except that Florida Municipal Bonds falling
within the utility issue type category will be broken down into three
sub-categories (as described below) and such Florida Municipal Bonds will
be considered S&P Eligible Assets to the extent the Market Value of such
Bonds in each such sub-category does not exceed 25% of the aggregate Market
Value of S&P Eligible Assets and the Market value of such Bonds in all
three sub-categories combined does not exceed 60% of the aggregate Market
Value of S&P Eligible Assets, except that Florida Municipal Bonds falling
within the transportation issue type category
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will be broken down into two sub-categories (as described below) and such
Florida Municipal Bonds will be considered S&P Eligible Assets to the
extent the Market Value of such Bonds in both sub-categories combined (as
described below) does not exceed 40% of the aggregate Market Value of S&P
Eligible Assets and except that Florida Municipal Bonds falling within the
general obligation issue type category will be considered S&P Eligible
Assets to the extent the Market Value of such Bonds does not exceed 50% of
the aggregate Market Value of S&P Eligible Assets. For purposes of the
issue type category requirement described above, Florida Municipal Bonds
will be classified within one of the following categories: health care
issues, housing issues, educational facilities issues, student loan issues,
transportation issues, industrial development bond issues, utility issues,
general obligation issues, lease obligations, escrowed bonds and other
issues not falling within one of the aforementioned categories. The general
obligation issue type category includes any issuer that is directly or
indirectly guaranteed by the State of Florida or its political
subdivisions. Utility issuers are included in the general obligation issue
type category if the issuer is directly or indirectly guaranteed by the
State of Florida or its political subdivisions. For purposes of the issue
type category requirement described above, Florida Municipal Bonds in the
utility issue type category will be classified within one of the three
following sub-categories: (i) electric, gas and combination issues (if the
combination issue includes an electric issue), (ii) water and sewer
utilities and combination issues (if the combination issue does not include
an electric issue), and (iii) irrigation, resource recovery, solid waste
and other utilities, provided that Florida Municipal Bonds included in this
sub-category (iii) must be rated by S&P in order to be included in S&P
Eligible Assets. For purposes of the
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issue type category requirement described above, Florida Municipal Bonds in
the transportation issue type category will be classified within one of the
two following sub-categories: (i) streets and highways, toll roads, bridges
and tunnels, airports and multi-purpose port authorities (multiple revenue
streams generated by toll roads, airports, real estate, bridges), (ii) mass
transit, parking, seaports and others. Exposure to transportation
sub-category (i) is limited to 25% of the aggregate Market Value of S&P
Eligible Assets, provided, however, exposure to transportation sub-category
(i) can exceed the 25% limit to the extent that exposure to transportation
sub-category (ii) is reduced, for a total exposure up to and not exceeding
40% of the aggregate Market Value of S&P Eligible Assets for the
transportation issue type category; and
(3) Florida Municipal Bonds which are escrow bonds or defeased bonds
may compose up to 100% of the aggregate Market Value of S&P Eligible Assets
if such Bonds initially are assigned a rating by S&P in accordance with
S&P's legal defeasance criteria or rerated by S&P as economic defeased
escrow bonds and assigned an AAA rating. Florida Municipal Bonds may be
rated as escrow bonds by another nationally recognized rating agency or
rerated as an escrow bond and assigned the equivalent of an S&P AAA rating,
provided that such equivalent rated Bonds are limited to 50% of the
aggregate Market Value of S&P Eligible Assets and are deemed to have an AA
S&P rating for purposes of determining the S&P Discount Factor applicable
to such Florida Municipal Bonds. The limitations on Florida Municipal Bonds
of any one issuer in clause (1) above are not applicable to escrow bonds,
however, economically defeased bonds that are either initially rated or
rerated by S&P or another nationally recognized rating agency and assigned
the same rating level as the issuer of the Bonds will remain in
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<PAGE>
its original issue type category set forth in clause (2) above. Florida
Municipal Bonds that are legally defeased and secured by securities issued
or guaranteed by the United States Government are not required to meet the
minimum issuance size requirement set forth above.
The Trust may include Municipal Bonds other than Florida Municipal
Bonds as S&P Eligible Assets pursuant to guidelines and restrictions to be
established by S&P provided that S&P advises the Trust in writing that such
action will not adversely affect its then current rating on the AMPS.
"S&P Exposure Period" means the maximum period of time following a
Valuation Date, including the Valuation Date and the AMPS Basic Maintenance Cure
Date, that the Trust has under this Certificate of Designation to cure any
failure to maintain, as of such Valuation Date, the Discounted Value for its
portfolio at least equal to the AMPS Basic Maintenance Amount (as described in
paragraph 7(a) of this Certificate of Designation).
"S&P Hedging Transactions" has the meaning set forth in paragraph 8(a)
of this Certificate of Designation.
"S&P Volatility Factor" means 277% or such other potential dividend
rate increase factor as S&P advises the Trust in writing is applicable.
"Securities Depository" means The Depository Trust Company or any
successor company or other entities elected by the Trust as securities
depository for the AMPS that agrees to follow the procedures required to be
followed by such securities depository in connection with the AMPS.
"Service" means the United States Internal Revenue Service.
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"7-Day Dividend Period" means a Dividend Period consisting of seven
days.
"Share Books" means the books maintained by the Auction Agent setting
forth at all times a current list, as determined by the Auction Agent, of
Existing Holders of the AMPS.
"Share Register" means the register of Holders maintained on behalf of
the Trust by the Auction Agent in its capacity as transfer agent and registrar
for the AMPS.
"Short Term Dividend Period" means a Special Dividend Period consisting
of a specified number of days (other than seven), evenly divisible by seven and
not fewer than seven nor more than 364.
"Special Dividend Period" means a Dividend Period consisting of (i) a
specified number of days (other than seven), evenly divisible by seven and not
fewer than seven nor more than 364 or (ii) a specified period of one whole year
or more but not greater than five years (in each case subject to adjustment as
provided in paragraph 2(b)(i)).
"Specific Redemption Provisions" means, with respect to a Special
Dividend Period either, or any combination of, (i) a period (a "Non-Call
Period") determined by the Board of Trustees of the Trust, after consultation
with the Auction Agent and the Broker-Dealers, during which the AMPS subject to
such Dividend Period shall not be subject to redemption at the option of the
Trust and (ii) a period (a "Premium Call Period"), consisting of a number of
whole years and determined by the Board of Trustees of the Trust, after
consultation with the Auction Agent and the Broker-Dealers, during each year of
which the AMPS subject to such Dividend Period shall be redeemable at the
Trust's option at a price per share equal to $25,000 plus accumulated but unpaid
dividends plus a premium expressed as a percentage of $25,000, as determined by
the Board of Trustees of the Trust after consultation with the Auction Agent and
the Broker-Dealers.
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"Subsequent Dividend Period," with respect to AMPS, has the meaning set
forth in paragraph 2(c)(i) of this Certificate of Designation and, with respect
to Other AMPS, has the equivalent meaning.
"Substitute Commercial Paper Dealers" means such Substitute Commercial
Paper Dealer or Dealers as the Trust may from time to time appoint or, in lieu
of any thereof, their respective affiliates or successors.
"Substitute Rating Agency" and "Substitute Rating Agencies" mean a
nationally recognized statistical rating organization or two nationally
recognized statistical rating organizations, respectively, selected by Merrill
Lynch, Pierce, Fenner & Smith Incorporated or its affiliates and successors,
after consultation with the Trust, to act as the substitute rating agency or
substitute rating agencies, as the case may be, to determine the credit ratings
of the AMPS.
"Taxable Equivalent of the Short-Term Municipal Bond Rate" on any date
means 90% of the quotient of (A) the per annum rate expressed on an interest
equivalent basis equal to the Kenny S&P 30-day High Grade Index (the "Kenny
Index") or any successor index, made available for the Business Day immediately
preceding such date but in any event not later than 8:30 A.M., New York City
time, on such date by Kenny Information Systems Inc. or any successor thereto,
based upon 30-day yield evaluations at par of bonds the interest on which is
excludable for regular Federal income tax purposes under the Code of "high
grade" component issuers selected by Kenny Information Systems Inc. or any such
successor from time to time in its discretion, which component issuers shall
include, without limitation, issuers of general obligation bonds but shall
exclude any bonds the interest on which constitutes an item of tax preference
under Section 57(a)(5) of the Code, or successor provisions, for purposes of the
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"alternative minimum tax," divided by (B) 1.00 minus the Marginal Tax Rate
(expressed as a decimal); provided, however, that if the Kenny Index is not made
so available by 8:30 A.M., New York City time, on such date by Kenny Information
Systems Inc. or any successor, the Taxable Equivalent of the Short-Term
Municipal Bond Rate shall mean the quotient of (A) the per annum rate expressed
on an interest equivalent basis equal to the most recent Kenny Index so made
available for any preceding Business Day, divided by (B) 1.00 minus the Marginal
Tax Rate (expressed as a decimal). The Trust may not utilize a successor index
to the Kenny Index unless Moody's and S&P provide the Trust with written
confirmation that the use of such successor index will not adversely affect the
then-current respective Moody's and S&P ratings of the AMPS.
"Treasury Bonds" has the meaning set forth in paragraph 8(a) of this
Certificate of Designation.
"Trust" means MuniHoldings Florida Insured Fund, a Massachusetts
business trust.
"U.S. Treasury Bill Rate" on any date means (i) the Interest Equivalent
of the rate on the actively traded Treasury Bill with a maturity most nearly
comparable to the length of the related Dividend Period, as such rate is made
available on a discount basis or otherwise by the Federal Reserve Bank of New
York in its Composite 3:30 P.M. Quotations for U.S. Government Securities report
for such Business Day, or (ii) if such yield as so calculated is not available,
the Alternate Treasury Bill Rate on such date. "Alternate Treasury Bill Rate" on
any date means the Interest Equivalent of the yield as calculated by reference
to the arithmetic average of the bid price quotations of the actively traded
Treasury Bill with a maturity most nearly comparable to the length of the
related Dividend Period, as determined by bid price quotations as of any time on
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the Business Day immediately preceding such date, obtained from at least three
recognized primary U.S. Government securities dealers selected by the Auction
Agent.
"U.S. Treasury Note Rate" on any date means (i) the yield as calculated
by reference to the bid price quotation of the actively traded, current coupon
Treasury Note with a maturity most nearly comparable to the length of the
related Dividend Period, as such bid price quotation is published on the
Business Day immediately preceding such date by the Federal Reserve Bank of New
York in its Composite 3:30 P.M. Quotations for U.S. Government Securities report
for such Business Day, or (ii) if such yield as so calculated is not available,
the Alternate Treasury Note Rate on such date. "Alternate Treasury Note Rate" on
any date means the yield as calculated by reference to the arithmetic average of
the bid price quotations of the actively traded, current coupon Treasury Note
with a maturity most nearly comparable to the length of the related Dividend
Period, as determined by the bid price quotations as of any time on the Business
Day immediately preceding such date, obtained from at least three recognized
primary U.S. Government securities dealers selected by the Auction Agent.
"Valuation Date" means, for purposes of determining whether the Trust
is maintaining the AMPS Basic Maintenance Amount, each Business Day commencing
with the Date of Original Issue.
"Variation Margin" means, in connection with an outstanding futures
contract owned or sold by the Trust, the amount of cash or securities paid to or
received from a broker (subsequent to the Initial Margin payment) from time to
time as the price of such futures contract fluctuates.
(b) The foregoing definitions of Accountant's Confirmation, AMPS Basic
Maintenance Amount, AMPS Basic Maintenance Cure Date, AMPS Basic Maintenance
Report, Deposit Securities, Discounted Value, Independent Accountant, Initial
Margin, Inverse Floaters, Market
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Value, Maximum Potential Additional Dividend Liability, Moody's Discount Factor,
Moody's Eligible Asset, Moody's Exposure Period, Moody's Hedging Transactions,
Moody's Volatility Factor, S&P Discount Factor, S&P Eligible Asset, S&P Exposure
Period, S&P Hedging Transactions, S&P Volatility Factor, Valuation Date and
Variation Margin have been determined by the Board of Trustees of the Trust in
order to obtain a "aaa" rating from Moody's and a AAA rating from S&P on the
AMPS on their Date of Original Issue; and the Board of Trustees of the Trust
shall have the authority, without shareholder approval, to amend, alter or
repeal from time to time the foregoing definitions and the restrictions and
guidelines set forth thereunder if Moody's and S&P or any Substitute Rating
Agency advises the Trust in writing that such amendment, alteration or repeal
will not adversely affect their then current ratings on the AMPS.
2. Dividends. (a) The Holders shall be entitled to receive, when, as
and if declared by the Board of Trustees of the Trust, out of funds legally
available therefor, cumulative dividends each consisting of (i) cash at the
Applicable Rate, (ii) a Right to receive cash as set forth in paragraph 2(e)
below, and (iii) any additional amounts as set forth in paragraph 2(f) below,
and no more, payable on the respective dates set forth below. Dividends on the
AMPS so declared and payable shall be paid (i) in preference to and in priority
over any dividends declared and payable on the Common Shares, and (ii) to the
extent permitted under the Code and to the extent available, out of net
tax-exempt income earned on the Trust's investments. To the extent permitted
under the Code, dividends on AMPS will be designated as exempt-interest
dividends. For the purposes of this section, the term "net tax-exempt income"
shall exclude capital gains of the Trust.
(b) (i) Cash dividends on AMPS shall accumulate from the Date of
Original Issue and shall be payable, when, as and if declared by the Board of
Trustees, out of funds legally available
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therefor, commencing on the Initial Dividend Payment Date with respect to each
series of AMPS. Following the Initial Dividend Payment Date for each series of
AMPS, dividends on each series of AMPS will be payable, at the option of the
Trust, either (i) with respect to any 7-Day Dividend Period and any Short Term
Dividend Period of 35 or fewer days, on the day next succeeding the last day
thereof or (ii) with respect to any Short Term Dividend Period of more than 35
days and with respect to any Long Term Dividend Period, monthly on the first
Business Day of each calendar month during such Short Term Dividend Period or
Long Term Dividend Period and on the day next succeeding the last day thereof
(each such date referred to in clause (i) or (ii) being herein referred to as a
"Normal Dividend Payment Date"), except that if such Normal Dividend Payment
Date is not a Business Day, then the Dividend Payment Date shall be the first
Business Day next succeeding such Normal Dividend Payment Date. Although any
particular Dividend Payment Date may not occur on the originally scheduled date
because of the exceptions discussed above, the next succeeding Dividend Payment
Date, subject to such exceptions, will occur on the next following originally
scheduled date. If for any reason a Dividend Payment Date cannot be fixed as
described above, then the Board of Trustees shall fix the Dividend Payment Date.
The Board of Trustees by resolution prior to authorization of a dividend by the
Board of Trustees may change a Dividend Payment Date if such change does not
adversely affect the contract rights of the Holders of AMPS set forth in the
Declaration. The Initial Dividend Period, 7-Day Dividend Periods and Special
Dividend Periods are hereinafter sometimes referred to as Dividend Periods. Each
dividend payment date determined as provided above is hereinafter referred to as
a "Dividend Payment Date."
(ii) Each dividend shall be paid to the Holders as they appear in the
Share Register as of 12:00 noon, New York City time, on the Business Day
preceding the Dividend Payment Date.
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Dividends in arrears for any past Dividend Period may be declared and paid at
any time, without reference to any regular Dividend Payment Date, to the Holders
as they appear on the Share Register on a date, not exceeding 15 days prior to
the payment date therefor, as may be fixed by the Board of Trustees of the
Trust.
(c) (i) During the period from and including the Date of Original Issue
to but excluding the Initial Dividend Payment Date for each series of AMPS (the
"Initial Dividend Period"), the Applicable Rate shall be the Initial Dividend
Rate. Commencing on the Initial Dividend Payment Date for each series of AMPS,
the Applicable Rate for each subsequent dividend period (hereinafter referred to
as a "Subsequent Dividend Period"), which Subsequent Dividend Period shall
commence on and include a Dividend Payment Date and shall end on and include the
calendar day prior to the next Dividend Payment Date (or last Dividend Payment
Date in a Dividend Period if there is more than one Dividend Payment Date),
shall be equal to the rate per annum that results from implementation of the
Auction Procedures.
The Applicable Rate for each Dividend Period commencing during a
Non-Payment Period shall be equal to the Non-Payment Period Rate; and each
Dividend Period, commencing after the first day of, and during, a Non-Payment
Period shall be a 7-Day Dividend Period in the case of each series of AMPS.
Except in the case of the willful failure of the Trust to pay a dividend on a
Dividend Payment Date or to redeem any AMPS on the date set for such redemption,
any amount of any dividend due on any Dividend Payment Date (if, prior to the
close of business on the second Business Day preceding such Dividend Payment
Date, the Trust has declared such dividend payable on such Dividend Payment Date
to the Holders of such AMPS as of 12:00 noon, New York City time, on the
Business Day preceding such Dividend Payment Date) or redemption price with
respect to any AMPS not paid to such Holders when
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due may be paid to such Holders in the same form of funds by 12:00 noon, New
York City time, on any of the first three Business Days after such Dividend
Payment Date or due date, as the case may be, provided that, such amount is
accompanied by a late charge calculated for such period of non-payment at the
Non-Payment Period Rate applied to the amount of such non-payment based on the
actual number of days comprising such period divided by 365. In the case of a
willful failure of the Trust to pay a dividend on a Dividend Payment Date or to
redeem any AMPS on the date set for such redemption, the preceding sentence
shall not apply and the Applicable Rate for the Dividend Period commencing
during the Non-Payment Period resulting from such failure shall be the
Non-Payment Period Rate. For the purposes of the foregoing, payment to a person
in same-day funds on any Business Day at any time shall be considered equivalent
to payment to such person in New York Clearing House (next-day) funds at the
same time on the preceding Business Day, and any payment made after 12:00 noon,
New York City time, on any Business Day shall be considered to have been made
instead in the same form of funds and to the same person before 12:00 noon, New
York City time, on the next Business Day.
(ii) The amount of cash dividends per share of any series of AMPS
payable (if declared) on the Initial Dividend Payment Date, each 7-Day Dividend
Period and each Dividend Payment Date of each Short Term Dividend Period shall
be computed by multiplying the Applicable Rate for such Dividend Period by a
fraction, the numerator of which will be the number of days in such Dividend
Period or part thereof that such share was outstanding and the denominator of
which will be 365, multiplying the amount so obtained by $25,000, and rounding
the amount so obtained to the nearest cent. During any Long Term Dividend
Period, the amount of cash dividends per share of AMPS payable (if declared) on
any Dividend Payment Date shall be computed by multiplying the Applicable Rate
for such Dividend Period by a fraction, the
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numerator of which will be such number of days in such part of such Dividend
Period that such share was outstanding and for which dividends are payable on
such Dividend Payment Date and the denominator of which will be 360, multiplying
the amount so obtained by $25,000, and rounding the amount so obtained to the
nearest cent.
(iii) With respect to each Dividend Period that is a Special Dividend
Period, the Trust may, at its sole option and to the extent permitted by law, by
telephonic and written notice (a "Request for Special Dividend Period") to the
Auction Agent and to each Broker-Dealer, request that the next succeeding
Dividend Period for a series of AMPS be a number of days (other than seven),
evenly divisible by seven, and not fewer than seven nor more than 364 in the
case of a Short Term Dividend Period or one whole year or more but not greater
than five years in the case of a Long Term Dividend Period, specified in such
notice, provided that the Trust may not give a Request for Special Dividend
Period of greater than 28 days (and any such request shall be null and void)
unless, for any Auction occurring after the initial Auction, Sufficient Clearing
Bids were made in the last occurring Auction and unless full cumulative
dividends, any amounts due with respect to redemptions, and any Additional
Dividends payable prior to such date have been paid in full. Such Request for
Special Dividend Period, in the case of a Short Term Dividend Period, shall be
given on or prior to the second Business Day but not more than seven Business
Days prior to an Auction Date for a series of AMPS and, in the case of a Long
Term Dividend Period, shall be given on or prior to the second Business Day but
not more than 28 days prior to an Auction Date for the AMPS. Upon receiving such
Request for Special Dividend Period, the Broker-Dealer(s) shall jointly
determine whether, given the factors set forth below, it is advisable that the
Trust issue a Notice of Special Dividend Period for the series of AMPS as
contemplated by such Request for Special Dividend Period and the Optional
Redemption Price
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of the AMPS during such Special Dividend Period and the Specific Redemption
Provisions and shall give the Trust and the Auction Agent written notice (a
"Response") of such determination by no later than the second Business Day prior
to such Auction Date. In making such determination the Broker-Dealer(s) will
consider (1) existing short-term and long-term market rates and indices of such
short-term and long-term rates, (2) existing market supply and demand for
short-term and long-term securities, (3) existing yield curves for short-term
and long-term securities comparable to the AMPS, (4) industry and financial
conditions which may affect the AMPS, (5) the investment objective of the Trust,
and (6) the Dividend Periods and dividend rates at which current and potential
beneficial holders of the AMPS would remain or become beneficial holders. If the
Broker-Dealer(s) shall not give the Trust and the Auction Agent a Response by
such second Business Day or if the Response states that given the factors set
forth above it is not advisable that the Trust give a Notice of Special Dividend
Period for the series of AMPS, the Trust may not give a Notice of Special
Dividend Period in respect of such Request for Special Dividend Period. In the
event the Response indicates that it is advisable that the Trust give a Notice
of Special Dividend Period for the series of AMPS, the Trust may by no later
than the second Business Day prior to such Auction Date give a notice (a "Notice
of
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Special Dividend Period") to the Auction Agent, the Securities Depository and
each Broker-Dealer which notice will specify (i) the duration of the Special
Dividend Period, (ii) the Optional Redemption Price as specified in the related
Response and (iii) the Specific Redemption Provisions, if any, as specified in
the related Response. The Trust also shall provide a copy of such Notice of
Special Dividend Period to Moody's and S&P. The Trust shall not give a Notice of
Special Dividend Period and, if the Trust has given a Notice of Special Dividend
Period, the Trust is required to give telephonic and written notice of its
revocation (a "Notice of Revocation") to the Auction Agent, each Broker-Dealer,
and the Securities Depository on or prior to the Business Day prior to the
relevant Auction Date if (x) either the 1940 Act AMPS Asset Coverage is not
satisfied or the Trust shall fail to maintain S&P Eligible Assets and Moody's
Eligible Assets each with an aggregate Discounted Value at least equal to the
AMPS Basic Maintenance Amount, in each case on each of the two Valuation Dates
immediately preceding the Business Day prior to the relevant Auction Date on an
actual basis and on a pro forma basis giving effect to the proposed Special
Dividend Period (using as a pro forma dividend rate with respect to such Special
Dividend Period the dividend rate which the Broker-Dealers shall advise the
Trust is an approximately equal rate for securities similar to the AMPS with an
equal dividend period), provided that, in calculating the aggregate Discounted
Value of Moody's Eligible Assets for this purpose, the Moody's Exposure Period
shall be deemed to be one week longer, (y) sufficient funds for the payment of
dividends payable on the immediately succeeding Dividend Payment Date have not
been irrevocably deposited with the Auction Agent by the close of business on
the third Business Day preceding the related Auction Date or (z) the
Broker-Dealer(s) jointly advise the Trust that after consideration of the
factors listed above they have concluded that it is advisable to give a Notice
of Revocation. The Trust also shall provide a copy of such Notice of Revocation
to Moody's and S&P. If the Trust is prohibited from giving a Notice of Special
Dividend Period as a result of any of the factors enumerated in clause (x), (y)
or (z) above or if the Trust gives a Notice of Revocation with respect to a
Notice of Special Dividend Period for the AMPS, the next succeeding Dividend
Period will be a 7-Day Dividend Period. In addition, in the event Sufficient
Clearing Bids are not made in the applicable Auction or such Auction is not held
for any reason, such next succeeding Dividend Period will be a 7-Day Dividend
Period and the Trust may not again give a Notice of Special Dividend Period for
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the AMPS (and any such attempted notice shall be null and void) until Sufficient
Clearing Bids have been made in an Auction with respect to a 7-Day Dividend
Period.
(d) (i) Holders shall not be entitled to any dividends, whether payable
in cash, property or shares, in excess of full cumulative dividends and
applicable late charges, as herein provided, on the AMPS (except for Additional
Dividends as provided in paragraph 2(e) hereof and additional payments as
provided in paragraph 2(f) hereof). Except for the late charge payable pursuant
to paragraph 2(c)(i) hereof, no interest, or sum of money in lieu of interest,
shall be payable in respect of any dividend payment on the AMPS that may be in
arrears.
(ii) For so long as any share of AMPS is Outstanding, the Trust shall
not declare, pay or set apart for payment any dividend or other distribution
(other than a dividend or distribution paid in shares of, or options, warrants
or rights to subscribe for or purchase, Common Shares or other shares of
beneficial interest, if any, ranking junior to the AMPS as to dividends or upon
liquidation) in respect of the Common Shares or any other shares of the Trust
ranking junior to or on a parity with the AMPS as to dividends or upon
liquidation, or call for redemption, redeem, purchase or otherwise acquire for
consideration any shares of the Common Shares or any other such junior shares of
beneficial interest (except by conversion into or exchange for shares of the
Trust ranking junior to the AMPS as to dividends and upon liquidation) or any
other such Parity Shares (except by conversion into or exchange for shares of
the Trust ranking junior to or on a parity with the AMPS as to dividends and
upon liquidation), unless (A) immediately after such transaction, the Trust
shall have S&P Eligible Assets and Moody's Eligible Assets each with an
aggregate Discounted Value equal to or greater than the AMPS Basic Maintenance
Amount and the Trust shall maintain the 1940 Act AMPS Asset Coverage, (B) full
cumulative dividends on AMPS and shares of Other AMPS due on or prior to the
date of the transaction have been
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declared and paid or shall have been declared and sufficient funds for the
payment thereof deposited with the Auction Agent, (C) any Additional Dividend
required to be paid under paragraph 2(e) below on or before the date of such
declaration or payment has been paid and (D) the Trust has redeemed the full
number of AMPS required to be redeemed by any provision for mandatory redemption
contained herein.
(e) Each dividend shall consist of (i) cash at the Applicable Rate,
(ii) an uncertificated right (a "Right") to receive an Additional Dividend (as
defined below), and (iii) any additional amounts as set forth in paragraph 2(f)
below. Each Right shall thereafter be independent of the AMPS on which the
dividend was paid. The Trust shall cause to be maintained a record of each Right
received by the respective Holders. A Right may not be transferred other than by
operation of law. If the Trust retroactively allocates any net capital gains or
other income subject to regular Federal income taxes to AMPS without having
given advance notice thereof to the Auction Agent as described in paragraph 2(f)
hereof solely by reason of the fact that such allocation is made as a result of
the redemption of all or a portion of the outstanding AMPS or the liquidation of
the Trust (the amount of such allocation referred to herein as a "Retroactive
Taxable Allocation"), the Trust will, within 90 days (and generally within 60
days) after the end of the Trust's fiscal year for which a Retroactive Taxable
Allocation is made, provide notice thereof to the Auction Agent and to each
holder of a Right applicable to such AMPS (initially Cede & Co. as nominee of
The Depository Trust Company) during such fiscal year at such holder's address
as the same appears or last appeared on the Share Books of the Trust. The Trust
will, within 30 days after such notice is given to the Auction Agent, pay to the
Auction Agent (who will then distribute to such holders of Rights), out of funds
legally available therefor, an
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amount equal to the aggregate Additional Dividend with respect to all
Retroactive Taxable Allocations made to such holders during the fiscal year in
question.
An "Additional Dividend" means payment to a present or former holder of
AMPS of an amount which, when taken together with the aggregate amount of
Retroactive Taxable Allocations made to such holder with respect to the fiscal
year in question, would cause such holder's dividends in dollars (after Federal
and Florida income tax consequences) from the aggregate of both the Retroactive
Taxable Allocations and the Additional Dividend to be equal to the dollar amount
of the dividends which would have been received by such holder if the amount of
the aggregate Retroactive Taxable Allocations would have been excludable from
the gross income of such holder. Such Additional Dividend shall be calculated
(i) without consideration being given to the time value of money; (ii) assuming
that no holder of AMPS is subject to the Federal alternative minimum tax with
respect to dividends received from the Trust; and (iii) assuming that each
Retroactive Taxable Allocation would be taxable in the hands of each holder of
AMPS at the greater of: (x) the maximum marginal regular Federal individual
income tax rate applicable to ordinary income or capital gains depending on the
taxable character of the distribution (including any surtax); or (y) the maximum
combined marginal regular Federal and Florida corporate income tax rate
applicable to ordinary income or capital gains depending on the taxable
character of the distribution (taking into account in both (x) and (y) the
Federal income tax deductibility of state taxes paid or incurred but not any
phase out of, or provision limiting, personal exemptions, itemized deductions,
or the benefit of lower tax brackets and assuming the taxability of Federally
tax-exempt dividends for corporations for Florida income tax purposes).
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(f) Except as provided below, whenever the Trust intends to include any
net capital gains or other income subject to regular Federal income taxes in any
dividend on AMPS, the Trust will notify the Auction Agent of the amount to be so
included at least five Business Days prior to the Auction Date on which the
Applicable Rate for such dividend is to be established. The Trust may also
include such income in a dividend on shares of a series of AMPS without giving
advance notice thereof if it increases the dividend by an additional amount
calculated as if such income was a Retroactive Taxable Allocation and the
additional amount was an Additional Dividend, provided that the Trust will
notify the Auction Agent of the additional amounts to be included in such
dividend at least five Business Days prior to the applicable Dividend Payment
Date.
(g) No fractional AMPS shall be issued.
3. Liquidation Rights. Upon any liquidation, dissolution or winding up
of the Trust, whether voluntary or involuntary, the Holders shall be entitled to
receive, out of the assets of the Trust available for distribution to
shareholders, before any distribution or payment is made upon any Common Shares
or any other shares of beneficial interest ranking junior in right of payment
upon liquidation to the AMPS, the sum of $25,000 per share plus accumulated but
unpaid dividends (whether or not earned or declared) thereon to the date of
distribution, and after such payment the Holders will be entitled to no other
payments other than Additional Dividends as provided in paragraph 2(e) hereof.
If upon any liquidation, dissolution or winding up of the Trust, the amounts
payable with respect to the AMPS and any other Outstanding class or series of
Preferred Shares of the Trust ranking on a parity with the AMPS as to payment
upon liquidation are not paid in full, the Holders and the holders of such other
class or series will share ratably in any such distribution of assets in
proportion to the respective preferential amounts to
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which they are entitled. After payment of the full amount of the liquidating
distribution to which they are entitled, the Holders will not be entitled to any
further participation in any distribution of assets by the Trust except for any
Additional Dividends. A consolidation, merger or statutory share exchange of the
Trust with or into any other corporation or entity or a sale, whether for cash,
shares of stock, securities or properties, of all or substantially all or any
part of the assets of the Trust shall not be deemed or construed to be a
liquidation, dissolution or winding up of the Trust.
4. Redemption. (a) Shares of AMPS shall be redeemable by the Trust as
provided below:
(i) To the extent permitted under the 1940 Act and Massachusetts law,
upon giving a Notice of Redemption, the Trust at its option may redeem
AMPS, in whole or in part, out of funds legally available therefor, at the
Optional Redemption Price per share, on any Dividend Payment Date; provided
that no share of AMPS may be redeemed at the option of the Trust during (A)
the Initial Dividend Period with respect to a series of shares or (B) a
Non-Call Period to which such share is subject. In addition, holders of
AMPS which are redeemed shall be entitled to receive Additional Dividends
to the extent provided herein. The Trust may not give a Notice of
Redemption relating to an optional redemption as described in this
paragraph 4(a)(i) unless, at the time of giving such Notice of Redemption,
the Trust has available Deposit Securities with maturity or tender dates
not later than the day preceding the applicable redemption date and having
a value not less than the amount due to Holders by reason of the redemption
of their AMPS on such redemption date.
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(ii) The Trust shall redeem, out of funds legally available therefor,
at the Mandatory Redemption Price per share, AMPS to the extent permitted
under the 1940 Act, on a date fixed by the Board of Trustees, if the Trust
fails to maintain S&P Eligible Assets and Moody's Eligible Assets each with
an aggregate Discounted Value equal to or greater than the AMPS Basic
Maintenance Amount as provided in paragraph 7(a) or to satisfy the 1940 Act
AMPS Asset Coverage as provided in paragraph 6 and such failure is not
cured on or before the AMPS Basic Maintenance Cure Date or the 1940 Act
Cure Date (herein collectively referred to as a "Cure Date"), as the case
may be. In addition, holders of AMPS so redeemed shall be entitled to
receive Additional Dividends to the extent provided herein. The number of
AMPS to be redeemed shall be equal to the lesser of (i) the minimum number
of AMPS the redemption of which, if deemed to have occurred immediately
prior to the opening of business on the Cure Date, together with all shares
of other Preferred Shares subject to redemption or retirement, would result
in the Trust having S&P Eligible Assets and Moody's Eligible Assets each
with an aggregate Discounted Value equal to or greater than the AMPS Basic
Maintenance Amount or satisfaction of the 1940 Act AMPS Asset Coverage, as
the case may be, on such Cure Date (provided that, if there is no such
minimum number of AMPS and of other Preferred Shares the redemption of
which would have such result, all AMPS and other Preferred Shares then
Outstanding shall be redeemed), and (ii) the maximum number of AMPS,
together with all other Preferred Shares subject to redemption or
retirement, that can be redeemed out of funds expected to be legally
available therefor on such redemption date. In determining the number of
AMPS required to be redeemed in accordance with the foregoing, the Trust
shall allocate the number required to be redeemed which would
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result in the Trust having S&P Eligible Assets and Moody's Eligible Assets
each with an aggregate Discounted Value equal to or greater than the AMPS
Basic Maintenance Amount or satisfaction of the 1940 Act AMPS Asset
Coverage, as the case may be, pro rata among AMPS of all series, Other AMPS
and other Preferred Shares subject to redemption pursuant to provisions
similar to those contained in this paragraph 4(a)(ii); provided that, AMPS
which may not be redeemed at the option of the Trust due to the designation
of a Non-Call Period applicable to such shares (A) will be subject to
mandatory redemption only to the extent that other shares are not available
to satisfy the number of shares required to be redeemed and (B) will be
selected for redemption in an ascending order of outstanding number of days
in the Non-Call Period (with shares with the lowest number of days to be
redeemed first) and by lot in the event of shares having an equal number of
days in such Non-Call Period. The Trust shall effect such redemption on a
Business Day which is not later than 35 days after such Cure Date, except
that if the Trust does not have funds legally available for the redemption
of all of the required number of AMPS and other Preferred Shares which are
subject to mandatory redemption or the Trust otherwise is unable to effect
such redemption on or prior to 35 days after such Cure Date, the Trust
shall redeem those AMPS which it is unable to redeem on the earliest
practicable date on which it is able to effect such redemption out of funds
legally available therefor.
(b) Notwithstanding any other provision of this paragraph 4, no AMPS
may be redeemed pursuant to paragraph 4(a)(i) of this Certificate of Designation
(i) unless all dividends in arrears on all remaining outstanding Parity Shares
shall have been or are being contemporaneously paid or declared and set apart
for payment and (ii) if redemption thereof would result in the Trust's
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failure to maintain Moody's Eligible Assets or S&P Eligible Assets with an
aggregate Discounted Value equal to or greater than the AMPS Basic Maintenance
Amount. In the event that less than all the outstanding shares of a series of
AMPS are to be redeemed and there is more than one Holder, the shares of that
series of AMPS to be redeemed shall be selected by lot or such other method as
the Trust shall deem fair and equitable.
(c) Whenever AMPS are to be redeemed, the Trust, not less than 17 nor
more than 60 days prior to the date fixed for redemption, shall mail a notice
("Notice of Redemption") by first-class mail, postage prepaid, to each Holder of
AMPS to be redeemed and to the Auction Agent. The Trust shall cause the Notice
of Redemption to also be published in the eastern and national editions of The
Wall Street Journal. The Notice of Redemption shall set forth (i) the redemption
date, (ii) the amount of the redemption price, (iii) the aggregate number of
AMPS of such series to be redeemed, (iv) the place or places where AMPS of such
series are to be surrendered for payment of the redemption price, (v) a
statement that dividends on the shares to be redeemed shall cease to accumulate
on such redemption date (except that holders may be entitled to Additional
Dividends) and (vi) the provision of this Certificate of Designation pursuant to
which such shares are being redeemed. No defect in the Notice of Redemption or
in the mailing or publication thereof shall affect the validity of the
redemption proceedings, except as required by applicable law.
If the Notice of Redemption shall have been given as aforesaid and,
concurrently or thereafter, the Trust shall have deposited in trust with the
Auction Agent, or segregated in an account at the Trust's custodian bank for the
benefit of the Auction Agent, Deposit Securities (with a right of substitution)
having an aggregate Discounted Value (utilizing in the case of S&P an S&P
Exposure Period of 22 Business Days) equal to the redemption payment for the
AMPS
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as to which such Notice of Redemption has been given with irrevocable
instructions and authority to pay the redemption price to the Holders of such
shares, then upon the date of such deposit or, if no such deposit is made, then
upon such date fixed for redemption (unless the Trust shall default in making
the redemption payment), all rights of the Holders of such shares as
shareholders of the Trust by reason of the ownership of such shares will cease
and terminate (except their right to receive the redemption price in respect
thereof and any Additional Dividends, but without interest), and such shares
shall no longer be deemed outstanding. The Trust shall be entitled to receive,
from time to time, from the Auction Agent the interest, if any, on such Deposit
Securities deposited with it and the Holders of any shares so redeemed shall
have no claim to any of such interest. In case the Holder of any shares so
called for redemption shall not claim the redemption payment for his shares
within one year after the date of redemption, the Auction Agent shall, upon
demand, pay over to the Trust such amount remaining on deposit and the Auction
Agent shall thereupon be relieved of all responsibility to the Holder of such
shares called for redemption and such Holder thereafter shall look only to the
Trust for the redemption payment.
5. Voting Rights. (a) General. Except as otherwise provided in the
Declaration or By-Laws, each Holder of AMPS shall be entitled to one vote for
each share held on each matter submitted to a vote of shareholders of the Trust,
and the holders of outstanding Preferred Shares, including AMPS, and of Common
Shares vote together as a single class; provided that, at any meeting of the
shareholders of the Trust held for the election of trustees, the holders of
outstanding Preferred Shares, including AMPS, shall be entitled, as a class, to
the exclusion of the holders of all other securities and classes of shares of
beneficial interest of the Trust, to elect two trustees of the Trust. Subject to
paragraph 5(b) hereof, the holders of outstanding shares of
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beneficial interest of the Trust, including the holders of outstanding Preferred
Shares, including AMPS, voting as a single class, shall elect the balance of the
trustees.
(b) Right to Elect Majority of Board of Trustees. During any period in
which any one or more of the conditions described below shall exist (such period
being referred to herein as a "Voting Period"), the number of trustees
constituting the Board of Trustees shall be automatically increased by the
smallest number that, when added to the two trustees elected exclusively by the
holders of Preferred Shares, would constitute a majority of the Board of
Trustees as so increased by such smallest number; and the holders of Preferred
Shares shall be entitled, voting separately as one class (to the exclusion of
the holders of all other securities and classes of shares of beneficial interest
of the Trust), to elect such smallest number of additional trustees, together
with the two trustees that such holders are in any event entitled to elect. A
Voting Period shall commence:
(i) if at any time accumulated dividends (whether or not earned or
declared, and whether or not funds are then legally available in an amount
sufficient therefor) on the outstanding AMPS equal to at least two full
years' dividends shall be due and unpaid and sufficient cash or specified
securities shall not have been deposited with the Auction Agent for the
payment of such accumulated dividends; or
(ii) if at any time holders of any other Preferred Shares are entitled
to elect a majority of the trustees of the Trust under the 1940 Act.
Upon the termination of a Voting Period, the voting rights described in
this paragraph 5(b) shall cease, subject always, however, to the reverting of
such voting rights in the Holders upon the further occurrence of any of the
events described in this paragraph 5(b).
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(c) Right to Vote with Respect to Certain Other Matters. So long as any
AMPS are outstanding, the Trust shall not, without the affirmative vote of the
holders of a majority of the Preferred Shares Outstanding at the time, voting
separately as one class: (i) authorize, create or issue any class or series of
shares ranking prior to the AMPS or any other series of Preferred Shares with
respect to payment of dividends or the distribution of assets on liquidation, or
(ii) amend, alter or repeal the provisions of the Declaration, whether by
merger, consolidation or otherwise, so as to adversely affect any of the
contract rights expressly set forth in the Declaration of holders of AMPS or any
other Preferred Shares. To the extent permitted under the 1940 Act, in the event
shares of more than one series of AMPS are outstanding, the Trust shall not
approve any of the actions set forth in clause (i) or (ii) which adversely
affects the contract rights expressly set forth in the Declaration of a Holder
of shares of a series of AMPS differently than those of a Holder of shares of
any other series of AMPS without the affirmative vote of the holders of at least
a majority of the AMPS of each series adversely affected and outstanding at such
time (each such adversely affected series voting separately as a class). The
Trust shall notify Moody's and S&P ten Business Days prior to any such vote
described in clause (i) or (ii). Unless a higher percentage is provided for
under the Declaration, the affirmative vote of the holders of a majority of the
outstanding Preferred Shares, including AMPS, voting together as a single class,
will be required to approve any plan of reorganization (including bankruptcy
proceedings) adversely affecting such shares or any action requiring a vote of
security holders under Section 13(a) of the 1940 Act. The class vote of holders
of Preferred Shares, including AMPS, described above will in each case be in
addition to a separate vote of the requisite percentage of shares of beneficial
interest and Preferred Shares, including AMPS, voting together as a single class
necessary to authorize the action in question.
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(d) Voting Procedures.
(i) As soon as practicable after the accrual of any right of the
holders of Preferred Shares to elect additional trustees as described in
paragraph 5(b) above, the Trust shall call a special meeting of such
holders and instruct the Auction Agent to mail a notice of such special
meeting to such holders, such meeting to be held not less than 10 nor more
than 20 days after the date of mailing of such notice. If the Trust fails
to send such notice to the Auction Agent or if the Trust does not call such
a special meeting, it may be called by any such holder on like notice. The
record date for determining the holders entitled to notice of and to vote
at such special meeting shall be the close of business on the fifth
Business Day preceding the day on which such notice is mailed. At any such
special meeting and at each meeting held during a Voting Period, such
Holders, voting together as a class (to the exclusion of the holders of all
other securities and classes of shares of beneficial interest of the
Trust), shall be entitled to elect the number of trustees prescribed in
paragraph 5(b) above. At any such meeting or adjournment thereof in the
absence of a quorum, a majority of such holders present in person or by
proxy shall have the power to adjourn the meeting without notice, other
than by an announcement at the meeting, to a date not more than 120 days
after the original record date.
(ii) For purposes of determining any rights of the Holders to vote on
any matter or the number of shares required to constitute a quorum, whether
such right is created by this Certificate of Designation, by the other
provisions of the Declaration, by statute or otherwise, a share of AMPS
which is not Outstanding shall not be counted.
(iii) The terms of office of all persons who are trustees of the Trust
at the time of a special meeting of Holders and holders of other Preferred
Shares to elect trustees shall continue, notwithstanding the election at
such meeting by the Holders and such other holders of the
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number of trustees that they are entitled to elect, and the persons so
elected by the Holders and such other holders, together with the two
incumbent trustees elected by the Holders and such other holders of
Preferred Shares and the remaining incumbent trustees elected by the
holders of the Common Shares and Preferred Shares, shall constitute the
duly elected trustees of the Trust.
(iv) Simultaneously with the expiration of a Voting Period, the terms
of office of the additional trustees elected by the Holders and holders of
other Preferred Shares pursuant to paragraph 5(b) above shall terminate,
the remaining trustees shall constitute the trustees of the Trust and the
voting rights of the Holders and such other holders to elect additional
trustees pursuant to paragraph 5(b) above shall cease, subject to the
provisions of the last sentence of paragraph 5(b).
(e) Exclusive Remedy. Unless otherwise required by law, the Holders of
AMPS shall not have any rights or preferences other than those specifically set
forth herein. The Holders of AMPS shall have no preemptive rights or rights to
cumulative voting. In the event that the Trust fails to pay any dividends on the
AMPS, the exclusive remedy of the Holders shall be the right to vote for
trustees pursuant to the provisions of this paragraph 5.
(f) Notification to S&P and Moody's. In the event a vote of Holders of
AMPS is required pursuant to the provisions of Section 13(a) of the 1940 Act,
the Trust shall, not later than ten Business Days prior to the date on which
such vote is to be taken, notify S&P and Moody's that such vote is to be taken
and the nature of the action with respect to which such vote is to be taken and,
not later than ten Business Days after the date on which such vote is taken,
notify S&P and Moody's of the result of such vote.
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6. 1940 Act AMPS Asset Coverage. The Trust shall maintain, as of the
last Business Day of each month in which any share of AMPS is outstanding, the
1940 Act AMPS Asset Coverage.
7. AMPS Basic Maintenance Amount. (a) The Trust shall maintain, on each
Valuation Date, and shall verify to its satisfaction that it is maintaining on
such Valuation Date, (i) S&P Eligible Assets having an aggregate Discounted
Value equal to or greater than the AMPS Basic Maintenance Amount and (ii)
Moody's Eligible Assets having an aggregate Discounted Value equal to or greater
than the AMPS Basic Maintenance Amount. Upon any failure to maintain the
required Discounted Value, the Trust will use its best efforts to alter the
composition of its portfolio to reattain a Discounted Value at least equal to
the AMPS Basic Maintenance Amount on or prior to the AMPS Basic Maintenance Cure
Date.
(b) On or before 5:00 p.m., New York City time, on the third Business
Day after a Valuation Date on which the Trust fails to satisfy the AMPS Basic
Maintenance Amount, the Trust shall complete and deliver to the Auction Agent,
and Moody's and S&P, as the case may be, a complete AMPS Basic Maintenance
Report as of the date of such failure, which will be deemed to have been
delivered to the Auction Agent if the Auction Agent receives a copy or telecopy,
telex or other electronic transcription thereof and on the same day the Trust
mails to the Auction Agent for delivery on the next Business Day the complete
AMPS Basic Maintenance Report. The Trust will deliver an AMPS Basic Maintenance
Report to the Auction Agent and Moody's and S&P, as the case may be, on or
before 5:00 p.m., New York City time, on the third Business Day after a
Valuation Date on which the Trust cures its failure to maintain Moody's Eligible
Assets or S&P Eligible Assets, as the case may be, with an aggregate Discounted
Value equal to or greater than the AMPS Basic Maintenance Amount or on which the
Trust fails to
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maintain Moody's Eligible Assets or S&P Eligible Assets, as the case may be,
with an aggregate Discounted Value which exceeds the AMPS Basic Maintenance
Amount by 5% or more. The Trust will also deliver an AMPS Basic Maintenance
Report to the Auction Agent, Moody's and S&P as of each Quarterly Valuation Date
on or before the third Business Day after such date. Additionally, on or before
5:00 p.m., New York City time, on the third Business Day after the first day of
a Special Dividend Period, the Trust will deliver an AMPS Basic Maintenance
Report to S&P and the Auction Agent. The Trust shall also provide Moody's and
S&P with an AMPS Basic Maintenance Report when specifically requested by either
Moody's or S&P. A failure by the Trust to deliver an AMPS Basic Maintenance
Report under this paragraph 7(b) shall be deemed to be delivery of an AMPS Basic
Maintenance Report indicating the Discounted Value for S&P Eligible Assets and
Moody's Eligible Assets of the Trust is less than the AMPS Basic Maintenance
Amount, as of the relevant Valuation Date.
(c) Within ten Business Days after the date of delivery of an AMPS
Basic Maintenance Report in accordance with paragraph 7(b) above relating to a
Quarterly Valuation Date, the Independent Accountant will confirm in writing to
the Auction Agent, S&P and Moody's (i) the mathematical accuracy of the
calculations reflected in such Report (and in any other AMPS Basic Maintenance
Report, randomly selected by the Independent Accountant, that was delivered by
the Trust during the quarter ending on such Quarterly Valuation Date), (ii)
that, in such Report (and in such randomly selected Report), the Trust correctly
determined the assets of the Trust which constitute S&P Eligible Assets or
Moody's Eligible Assets, as the case may be, at such Quarterly Valuation Date in
accordance with this Certificate of Designation, (iii) that, in such Report (and
in such randomly selected Report), the Trust determined whether the Trust had,
at such Quarterly Valuation Date (and at the Valuation Date addressed in such
randomly selected
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Report) in accordance with this Certificate of Designation, S&P Eligible Assets
of an aggregate Discounted Value at least equal to the AMPS Basic Maintenance
Amount and Moody's Eligible Assets of an aggregate Discounted Value at least
equal to the AMPS Basic Maintenance Amount, (iv) with respect to the S&P ratings
on Florida Municipal Bonds or Municipal Bonds, the issuer name, issue size and
coupon rate listed in such Report, that the Independent Accountant has requested
that S&P verify such information and the Independent Accountant shall provide a
listing in its letter of any differences, (v) with respect to the Moody's
ratings on Florida Municipal Bonds or Municipal Bonds, the issuer name, issue
size and coupon rate listed in such Report, that such information has been
verified by Moody's (in the event such information is not verified by Moody's,
the Independent Accountant will inquire of Moody's what such information is, and
provide a listing in its letter of any differences), (vi) with respect to the
bid or mean price (or such alternative permissible factor used in calculating
the Market Value) provided by the custodian of the Trust's assets to the Trust
for purposes of valuing securities in the Trust's portfolio, the Independent
Accountant has traced the price used in such Report to the bid or mean price
listed in such Report as provided to the Trust and verified that such
information agrees (in the event such information does not agree, the
Independent Accountant will provide a listing in its letter of such differences)
and (vii) with respect to such confirmation to Moody's, that the Trust has
satisfied the requirements of paragraph 8(b) of this Certificate of Designation
(such confirmation is herein called the "Accountant's Confirmation").
(d) Within ten Business Days after the date of delivery to the Auction
Agent, S&P and Moody's of an AMPS Basic Maintenance Report in accordance with
paragraph 7(b) above relating to any Valuation Date on which the Trust failed to
maintain S&P Eligible Assets with an aggregate Discounted Value and Moody's
Eligible Assets with an aggregate Discounted Value
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equal to or greater than the AMPS Basic Maintenance Amount, and relating to the
AMPS Basic Maintenance Cure Date with respect to such failure, the Independent
Accountant will provide to the Auction Agent, S&P and Moody's an Accountant's
Confirmation as to such AMPS Basic Maintenance Report.
(e) If any Accountant's Confirmation delivered pursuant to subparagraph
(c) or (d) of this paragraph 7 shows that an error was made in the AMPS Basic
Maintenance Report for a particular Valuation Date for which such Accountant's
Confirmation as required to be delivered, or shows that a lower aggregate
Discounted Value for the aggregate of all S&P Eligible Assets or Moody's
Eligible Assets, as the case may be, of the Trust was determined by the
Independent Accountant, the calculation or determination made by such
Independent Accountant shall be final and conclusive and shall be binding on the
Trust, and the Trust shall accordingly amend and deliver the AMPS Basic
Maintenance Report to the Auction Agent, S&P and Moody's promptly following
receipt by the Trust of such Accountant's Confirmation.
(f) On or before 5:00 p.m., New York City time, on the first Business
Day after the Date of Original Issue of the AMPS, the Trust will complete and
deliver to S&P and Moody's an AMPS Basic Maintenance Report as of the close of
business on such Date of Original Issue. Within five Business Days of such Date
of Original Issue, the Independent Accountant will confirm in writing to S&P and
Moody's (i) the mathematical accuracy of the calculations reflected in such
Report and (ii) that the aggregate Discounted Value of S&P Eligible Assets and
the aggregate Discounted Value of Moody's Eligible Assets reflected thereon
equals or exceeds the AMPS Basic Maintenance Amount reflected thereon. Also, on
or before 5:00 p.m., New York City time, on the first Business Day after Common
Shares are repurchased by the Trust, the Trust
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will complete and deliver to S&P and Moody's an AMPS Basic Maintenance Report as
of the close of business on such date that Common Shares are repurchased.
(g) For so long as AMPS are rated by Moody's, in managing the Trust's
portfolio, the Adviser will not alter the composition of the Trust's portfolio
if, in the reasonable belief of the Adviser, the effect of any such alteration
would be to cause the Trust to have Moody's Eligible Assets with an aggregate
Discounted Value, as of the immediately preceding Valuation Date, less than the
AMPS Basic Maintenance Amount as of such Valuation Date; provided, however, that
in the event that, as of the immediately preceding Valuation Date, the aggregate
Discounted Value of Moody's Eligible Assets exceeded the AMPS Basic Maintenance
Amount by five percent or less, the Adviser will not alter the composition of
the Trust's portfolio in a manner reasonably expected to reduce the aggregate
Discounted Value of Moody's Eligible Assets unless the Trust shall have
confirmed that, after giving effect to such alteration, the aggregate Discounted
Value of Moody's Eligible Assets would exceed the AMPS Basic Maintenance Amount.
8. Certain Other Restrictions and Requirements. (a) For so long as any
AMPS are rated by S&P, the Trust will not purchase or sell futures contracts,
write, purchase or sell options on futures contracts or write put options
(except covered put options) or call options (except covered call options) on
portfolio securities unless it receives written confirmation from S&P that
engaging in such transactions will not impair the ratings then assigned to the
AMPS by S&P, except that the Trust may purchase or sell futures contracts based
on the Bond Buyer Municipal Bond Index (the "Municipal Index") or United States
Treasury Bonds or Notes ("Treasury Bonds") and write, purchase or sell put and
call options on such contracts (collectively, "S&P Hedging Transactions"),
subject to the following limitations:
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(i) the Trust will not engage in any S&P Hedging Transaction based on
the Municipal Index (other than transactions which terminate a futures
contract or option held by the Trust by the Trust's taking an opposite
position thereto ("Closing Transactions")), which would cause the Trust at
the time of such transaction to own or have sold the least of (A) more than
1,000 outstanding futures contracts based on the Municipal Index, (B)
outstanding futures contracts based on the Municipal Index exceeding in
number 25% of the quotient of the Market Value of the Trust's total assets
divided by $1,000 or (C) outstanding futures contracts based on the
Municipal Index exceeding in number 10% of the average number of daily
traded futures contracts based on the Municipal Index in the 30 days
preceding the time of effecting such transaction as reported by The Wall
Street Journal;
(ii) the Trust will not engage in any S&P Hedging Transaction based on
Treasury Bonds (other than Closing Transactions) which would cause the
Trust at the time of such transaction to own or have sold the lesser of (A)
outstanding futures contracts based on Treasury Bonds exceeding in number
50% of the quotient of the Market Value of the Trust's total assets divided
by $100,000 ($200,000 in the case of the two-year United States Treasury
Note) or (B) outstanding futures contracts based on Treasury Bonds
exceeding in number 10% of the average number of daily traded futures
contracts based on Treasury Bonds in the 30 days preceding the time of
effecting such transaction as reported by The Wall Street Journal;
(iii) the Trust will engage in Closing Transactions to close out any
outstanding futures contract which the Trust owns or has sold or any outstanding
option thereon owned by the Trust in the event (A) the Trust does not have S&P
Eligible Assets with an
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aggregate Discounted Value equal to or greater than the AMPS Basic
Maintenance Amount on two consecutive Valuation Dates and (B) the Trust is
required to pay Variation Margin on the second such Valuation Date;
(iv) the Trust will engage in a Closing Transaction to close out any
outstanding futures contract or option thereon in the month prior to the
delivery month under the terms of such futures contract or option thereon
unless the Trust holds the securities deliverable under such terms; and
(v) when the Trust writes a futures contract or option thereon, it
will either maintain an amount of cash, cash equivalents or high grade
(rated A or better by S&P), fixed-income securities in a segregated account
with the Trust's custodian, so that the amount so segregated plus the
amount of Initial Margin and Variation Margin held in the account of or on
behalf of the Trust's broker with respect to such futures contract or
option equals the Market Value of the futures contract or option, or, in
the event the Trust writes a futures contract or option thereon which
requires delivery of an underlying security, it shall hold such underlying
security in its portfolio.
For purposes of determining whether the Trust has S&P Eligible Assets
with a Discounted Value that equals or exceeds the AMPS Basic Maintenance
Amount, the Discounted Value of cash or securities held for the payment of
Initial Margin or Variation Margin shall be zero and the aggregate Discounted
Value of S&P Eligible Assets shall be reduced by an amount equal to (i) 30% of
the aggregate settlement value, as marked to market, of any outstanding futures
contracts based on the Municipal Index which are owned by the Trust plus (ii)
25% of the aggregate settlement value, as marked to market, of any outstanding
futures contracts based on Treasury Bonds which contracts are owned by the
Trust.
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(b) For so long as any AMPS are rated by Moody's, the Trust will not
buy or sell futures contracts, write, purchase or sell call options on futures
contracts or purchase put options on futures contracts or write call options
(except covered call options) on portfolio securities unless it receives written
confirmation from Moody's that engaging in such transactions would not impair
the ratings then assigned to the AMPS by Moody's, except that the Trust may
purchase or sell exchange-traded futures contracts based on the Municipal Index
or Treasury Bonds and purchase, write or sell exchange-traded put options on
such futures contracts and purchase, write or sell exchange-traded call options
on such futures contracts (collectively, "Moody's Hedging Transactions"),
subject to the following limitations:
(i) the Trust will not engage in any Moody's Hedging Transaction based
on the Municipal Index (other than Closing Transactions) which would cause
the Trust at the time of such transaction to own or have sold (A)
outstanding futures contracts based on the Municipal Index exceeding in
number 10% of the average number of daily traded futures contracts based on
the Municipal Index in the 30 days preceding the time of effecting such
transaction as reported by The Wall Street Journal or (B) outstanding
futures contracts based on the Municipal Index having a Market Value
exceeding 50% of the Market Value of all Municipal Bonds constituting
Moody's Eligible Assets owned by the Trust (other than Moody's Eligible
Assets already subject to a Moody's Hedging Transaction);
(ii) the Trust will not engage in any Moody's Hedging Transaction
based on Treasury Bonds (other than Closing Transactions) which would cause
the Trust at the time of such transaction to own or have sold (A)
outstanding futures contracts based on Treasury Bonds having an aggregate
Market Value exceeding 20% of the aggregate
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Market Value of Moody's Eligible Assets owned by the Trust and rated Aa by
Moody's (or, if not rated by Moody's but rated by S&P, rated AAA by S&P) or
(B) outstanding futures contracts based on Treasury Bonds having an
aggregate Market Value exceeding 40% of the aggregate Market Value of all
Municipal Bonds constituting Moody's Eligible Assets owned by the Trust
(other than Moody's Eligible Assets already subject to a Moody's Hedging
Transaction) and rated Baa or A by Moody's (or, if not rated by Moody's but
rated by S&P, rated A or AA by S&P) (for purposes of the foregoing clauses
(i) and (ii), the Trust shall be deemed to own the number of futures
contracts that underlie any outstanding options written by the Trust);
(iii) the Trust will engage in Closing Transactions to close out any
outstanding futures contract based on the Municipal Index if the amount of
open interest in the Municipal Index as reported by The Wall Street Journal
is less than 5,000;
(iv) the Trust will engage in a Closing Transaction to close out any
outstanding futures contract by no later than the fifth Business Day of the
month in which such contract expires and will engage in a Closing
Transaction to close out any outstanding option on a futures contract by no
later than the first Business Day of the month in which such option
expires;
(v) the Trust will engage in Moody's Hedging Transactions only with
respect to futures contracts or options thereon having the next settlement
date or the settlement date immediately thereafter;
(vi) the Trust will not engage in options and futures transactions for
leveraging or speculative purposes and will not write any call options or
sell any futures contracts
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for the purpose of hedging the anticipated purchase of an asset prior to
completion of such purchase; and
(vii) the Trust will not enter into an option or futures transaction
unless, after giving effect thereto, the Trust would continue to have
Moody's Eligible Assets with an aggregate Discounted Value equal to or
greater than the AMPS Basic Maintenance Amount.
For purposes of determining whether the Trust has Moody's Eligible
Assets with an aggregate Discounted Value that equals or exceeds the AMPS Basic
Maintenance Amount, the Discounted Value of Moody's Eligible Assets which the
Trust is obligated to deliver or receive pursuant to an outstanding futures
contract or option shall be as follows: (i) assets subject to call options
written by the Trust which are either exchange-traded and "readily reversible"
or which expire within 49 days after the date as of which such valuation is made
shall be valued at the lesser of (a) Discounted Value and (b) the exercise price
of the call option written by the Trust; (ii) assets subject to call options
written by the Trust not meeting the requirements of clause (i) of this sentence
shall have no value; (iii) assets subject to put options written by the Trust
shall be valued at the lesser of (A) the exercise price and (B) the Discounted
Value of the subject security; (iv) futures contracts shall be valued at the
lesser of (A) settlement price and (B) the Discounted Value of the subject
security, provided that, if a contract matures within 49 days after the date as
of which such valuation is made, where the Trust is the seller the contract may
be valued at the settlement price and where the Trust is the buyer the contract
may be valued at the Discounted Value of the subject securities; and (v) where
delivery may be made to the Trust with any security of a class of securities,
the Trust shall assume that it will take delivery of the security with the
lowest Discounted Value.
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For purposes of determining whether the Trust has Moody's Eligible
Assets with an aggregate Discounted Value that equals or exceeds the AMPS Basic
Maintenance Amount, the following amounts shall be subtracted from the aggregate
Discounted Value of the Moody's Eligible Assets held by the Trust: (i) 10% of
the exercise price of a written call option; (ii) the exercise price of any
written put option; (iii) where the Trust is the seller under a futures
contract, 10% of the settlement price of the futures contract; (iv) where the
Trust is the purchaser under a futures contract, the settlement price of assets
purchased under such futures contract; (v) the settlement price of the
underlying futures contract if the Trust writes put options on a futures
contract; and (vi) 105% of the Market Value of the underlying futures contracts
if the Trust writes call options on a futures contract and does not own the
underlying contract.
(c) For so long as any AMPS are rated by Moody's, the Trust will not
enter into any contract to purchase securities for a fixed price at a future
date beyond customary settlement time (other than such contracts that constitute
Moody's Hedging Transactions that are permitted under paragraph 8(b) of this
Certificate of Designation), except that the Trust may enter into such contracts
to purchase newly-issued securities on the date such securities are issued
("Forward Commitments"), subject to the following limitations:
(i) the Trust will maintain in a segregated account with its custodian
cash, cash equivalents or short-term, fixed-income securities rated P-1,
MIG-1 or VMIG-1 by Moody's and maturing prior to the date of the Forward
Commitment with a Market Value that equals or exceeds the amount of the
Trust's obligations under any Forward Commitments to which it is from time
to time a party or long-term fixed income securities with a Discounted
Value that equals or exceeds the amount of the Trust's obligations under
any Forward Commitment to which it is from time to time a party; and
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(ii) the Trust will not enter into a Forward Commitment unless, after
giving effect thereto, the Trust would continue to have Moody's Eligible
Assets with an aggregate Discounted Value equal to or greater than the AMPS
Basic Maintenance Amount.
For purposes of determining whether the Trust has Moody's Eligible
Assets with an aggregate Discounted Value that equals or exceeds the AMPS Basic
Maintenance Amount, the Discounted Value of all Forward Commitments to which the
Trust is a party and of all securities deliverable to the Trust pursuant to such
Forward Commitments shall be zero.
(d) For so long as AMPS are rated by S&P or Moody's, the Trust will
not, unless it has received written confirmation from S&P and/or Moody's, as the
case may be, that such action would not impair the ratings then assigned to AMPS
by S&P and/or Moody's, as the case may be, (i) borrow money except for the
purpose of clearing transactions in portfolio securities (which borrowings shall
under any circumstances be limited to the lesser of $10 million and an amount
equal to 5% of the Market Value of the Trust's assets at the time of such
borrowings and which borrowings shall be repaid within 60 days and not be
extended or renewed and shall not cause the aggregate Discounted Value of
Moody's Eligible Assets and S&P Eligible Assets to be less than the AMPS Basic
Maintenance Amount), (ii) engage in short sales of securities, (iii) lend any
securities, (iv) issue any class or series of shares ranking prior to or on a
parity with the AMPS with respect to the payment of dividends or the
distribution of assets upon dissolution, liquidation or winding up of the Trust,
(v) reissue any AMPS previously purchased or redeemed by the Trust, (vi) merge
or consolidate into or with any other corporation or entity, (vii) change the
Pricing Service or (viii) engage in reverse repurchase agreements.
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(e) For so long as AMPS are rated by Moody's, the Trust agrees to
provide Moody's with the following, unless the Trust has received written
confirmation from Moody's that the provision of such information is no longer
required and that the current rating then assigned to the AMPS by Moody's would
not be impaired: a notification letter at least 30 days prior to any material
change in the Declaration; a copy of the AMPS Basic Maintenance Report prepared
by the Trust in accordance with this Certificate of Designation; and a notice
upon the occurrence of any of the following events: (i) any failure by the Trust
to declare or pay any dividends on the AMPS or successfully remarket the AMPS;
(ii) any mandatory or optional redemption of the AMPS effected by the Trust;
(iii) any assumption of control of the Board of Trustees of the Trust by the
holders of the AMPS; (iv) a general unavailability of dealer quotes on the
assets of the Trust; (v) any material auditor discrepancies on valuations; (vi)
the dividend rate on the AMPS equals or exceeds 95% of the Aaa Composite
Commercial Paper Rate; (vii) the occurrence of any Special Dividend Period;
(viii) any change in the Maximum Applicable Rate or the Reference Rate; (ix) the
acquisition by any person of beneficial ownership of more than 5% of the Trust's
voting shares of beneficial interest (inclusive of Common Shares and Preferred
Shares); (x) the occurrence of any change in Internal Revenue Service rules with
respect to the payment of Additional Dividends; (xi) any change in the Pricing
Service employed by the Trust; (xii) any change in the Investment Adviser;
(xiii) any increase of greater than 40% to the maximum marginal Federal income
tax rate applicable to individuals or corporations; and (xiv) the maximum
marginal Federal income tax rate applicable to individuals or corporations is
increased to a rate in excess of 50%.
9. Notice. All notices or communications, unless otherwise specified in
the By-Laws of the Trust or this Certificate of Designation, shall be
sufficiently given if in writing and delivered
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in person or mailed by first-class mail, postage prepaid. Notice shall be deemed
given on the earlier of the date received or the date seven days after which
such notice is mailed.
10. Auction Procedures.
(a) Certain definitions. As used in this paragraph 10, the following
terms shall have the following meanings, unless the context otherwise requires:
(i) "AMPS" means the AMPS being auctioned pursuant to this paragraph
10.
(ii) "Auction Date" means the first Business Day preceding the first
day of a Dividend Period.
(iii) "Available AMPS" has the meaning specified in paragraph 10(d)(i)
below.
(iv) "Bid" has the meaning specified in paragraph 10(b)(i) below.
(v) "Bidder" has the meaning specified in paragraph 10(b)(i) below.
(vi) "Hold Order" has the meaning specified in paragraph 10(b)(i)
below.
(vii) "Maximum Applicable Rate" for any Dividend Period will be the
Applicable Percentage of the Reference Rate. The Applicable Percentage will
be determined based on (i) the lower of the credit rating or ratings
assigned on such date to such shares by Moody's and S&P (or if Moody's or
S&P or both shall not make such rating available, the equivalent of either
or both of such ratings by a Substitute Rating Agency or two Substitute
Rating Agencies or, in the event that only one such rating shall be
available, such rating) and (ii) whether the Trust has provided
notification to the Auction Agent prior to the Auction establishing the
Applicable Rate for any dividend pursuant to paragraph 2(f) hereof that net
capital gains or other taxable income will be included in such dividend on
AMPS as follows:
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Applicable Applicable
Percentage of Percentage of
Credit Ratings Reference Reference
- ------------------------------------- Rate - Rate -
Moody's S&P No Notification Notification
- ---------------- -------------- --------------- ------------
"aa3" or higher AA- or higher 110% 150%
"a3" to "a1" A- to A+ 125% 160%
"baa3" to "baa1" BBB- to BBB+ 150% 250%
Below "baa3" Below BBB- 200% 275%
The Trust shall take all reasonable action necessary to enable S&P and
Moody's to provide a rating for each series of the AMPS. If either S&P or
Moody's shall not make such a rating available, or neither S&P nor Moody's shall
make such a rating available, Merrill Lynch, Pierce, Fenner & Smith Incorporated
or its affiliates and successors, after consultation with the Trust, shall
select a nationally recognized statistical rating organization or two nationally
recognized statistical rating organizations to act as a Substitute Rating Agency
or Substitute Rating Agencies, as the case may be.
(viii) "Order" has the meaning specified in paragraph 10(b)(i) below.
(ix) "Sell Order" has the meaning specified in paragraph 10(b)(i)
below.
(x) "Submission Deadline" means 1:00 P.M., New York City time, on any
Auction Date or such other time on any Auction Date as may be specified by
the Auction Agent from time to time as the time by which each Broker-Dealer
must submit to the Auction Agent in writing all Orders obtained by it for
the Auction to be conducted on such Auction Date.
(xi) "Submitted Bid" has the meaning specified in paragraph 10(d)(i)
below.
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(xii) "Submitted Hold Order" has the meaning specified in paragraph
10(d)(i) below.
(xiii) "Submitted Order" has the meaning specified in paragraph
10(d)(i) below.
(xiv) "Submitted Sell Order" has the meaning specified in paragraph
10(d)(i) below.
(xv) "Sufficient Clearing Bids" has the meaning specified in paragraph
10(d)(i) below.
(xvi) "Winning Bid Rate" has the meaning specified in paragraph
10(d)(i) below.
(b) Orders by Beneficial Owners, Potential Beneficial Owners, Existing
Holders and Potential Holders.
(i) Unless otherwise permitted by the Trust, Beneficial Owners and
Potential Beneficial Owners may only participate in Auctions through their
Broker-Dealers. Broker-Dealers will submit the Orders of their respective
customers who are Beneficial Owners and Potential Beneficial Owners to the
Auction Agent, designating themselves as Existing Holders in respect of
shares subject to Orders submitted or deemed submitted to them by
Beneficial Owners and as Potential Holders in respect of shares subject to
Orders submitted to them by Potential Beneficial Owners. A Broker-Dealer
may also hold AMPS in its own account as a Beneficial Owner. A
Broker-Dealer may thus submit Orders to the Auction Agent as a Beneficial
Owner or a Potential Beneficial Owner and therefore participate in an
Auction as an Existing Holder or Potential Holder on behalf of
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both itself and its customers. On or prior to the Submission Deadline on
each Auction Date:
(A) each Beneficial Owner may submit to its Broker-Dealer
information as to:
(1) the number of Outstanding shares, if any, of AMPS held
by such Beneficial Owner which such Beneficial Owner desires to
continue to hold without regard to the Applicable Rate for the
next succeeding Dividend Period;
(2) the number of Outstanding shares, if any, of AMPS held
by such Beneficial Owner which such Beneficial Owner desires to
continue to hold, provided that the Applicable Rate for the next
succeeding Dividend Period shall not be less than the rate per
annum specified by such Beneficial Owner; and/or
(3) the number of Outstanding shares, if any, of AMPS held
by such Beneficial Owner which such Beneficial Owner offers to
sell without regard to the Applicable Rate for the next
succeeding Dividend Period; and
(B) each Broker-Dealer, using a list of Potential Beneficial
Owners that shall be maintained in good faith for the purpose of
conducting a competitive Auction, shall contact Potential Beneficial
Owners, including Persons that are not Beneficial Owners, on such list
to determine the number of Outstanding shares, if any, of AMPS which
each such Potential Beneficial Owner offers to purchase, provided that
the Applicable Rate for the next succeeding Dividend Period shall not
be less than the rate per annum specified by such Potential Beneficial
Owner.
For the purposes hereof, the communication by a Beneficial Owner or
Potential Beneficial Owner to a Broker-Dealer, or the communication by a
Broker-Dealer acting for its
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own account to the Auction Agent, of information referred to in clause (A) or
(B) of this paragraph 10(b)(i) is hereinafter referred to as an "Order" and each
Beneficial Owner and each Potential Beneficial Owner placing an Order, including
a Broker-Dealer acting in such capacity for its own account, is hereinafter
referred to as a "Bidder"; an Order containing the information referred to in
clause (A)(1) of this paragraph 10(b)(i) is hereinafter referred to as a "Hold
Order"; an Order containing the information referred to in clause (A)(2) or (B)
of this paragraph 10(b)(i) is hereinafter referred to as a "Bid"; and an Order
containing the information referred to in clause (A)(3) of this paragraph
10(b)(i) is hereinafter referred to as a "Sell Order." Inasmuch as a
Broker-Dealer participates in an Auction as an Existing Holder or a Potential
Holder only to represent the interests of a Beneficial Owner or Potential
Beneficial Owner, whether it be its customers or itself, all discussion herein
relating to the consequences of an Auction for Existing Holders and Potential
Holders also applies to the underlying beneficial ownership interests
represented.
(ii) (A) A Bid by an Existing Holder shall constitute an irrevocable
offer to sell:
(1) the number of Outstanding AMPS specified in such Bid if
the Applicable Rate determined on such Auction Date shall be less
than the rate per annum specified in such Bid; or
(2) such number or a lesser number of Outstanding AMPS to be
determined as set forth in paragraph 10(e)(i)(D) if the
Applicable Rate determined on such Auction Date shall be equal to
the rate per annum specified therein; or
(3) a lesser number of Outstanding AMPS to be determined as
set forth in paragraph 10(e)(ii)(C) if such specified rate per
annum shall be
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higher than the Maximum Applicable Rate and Sufficient Clearing
Bids do not exist.
(B) A Sell Order by an Existing Holder shall constitute an
irrevocable offer to sell:
(1) the number of Outstanding AMPS specified in such Sell
Order; or
(2) such number or a lesser number of Outstanding AMPS to be
determined as set forth in paragraph 10(e)(ii)(C) if Sufficient
Clearing Bids do not exist.
(C) A Bid by a Potential Holder shall constitute an irrevocable
offer to purchase:
(1) the number of Outstanding AMPS specified in such Bid if
the Applicable Rate determined on such Auction Date shall be
higher than the rate per annum specified in such Bid; or
(2) such number or a lesser number of Outstanding AMPS to be
determined as set forth in paragraph 10(e)(i)(E) if the
Applicable Rate determined on such Auction Date shall be equal to
the rate per annum specified therein.
(c) Submission of Orders by Broker-Dealers to Auction Agent.
(i) Each Broker-Dealer shall submit in writing or through the Auction
Agent's Auction Processing System to the Auction Agent prior to the
Submission Deadline on each Auction Date all Orders obtained by such
Broker-Dealer, designating
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itself (unless otherwise permitted by the Trust) as an Existing Holder in
respect of shares subject to Orders submitted or deemed submitted to it by
Beneficial Owners and as a Potential Holder in respect of shares subject to
Orders submitted to it by Potential Beneficial Owners, and specifying with
respect to each Order:
(A) the name of the Bidder placing such Order (which shall be the
Broker-Dealer unless otherwise permitted by the Trust);
(B) the aggregate number of Outstanding AMPS that are the subject of
such Order;
(C) to the extent that such Bidder is an Existing Holder:
(1) the number of Outstanding shares, if any, of AMPS subject to
any Hold Order placed by such Existing Holder;
(2) the number of Outstanding shares, if any, of AMPS subject to
any Bid placed by such Existing Holder and the rate per annum
specified in such Bid; and
(3) the number of Outstanding shares, if any, of AMPS subject to
any Sell Order placed by such Existing Holder; and
(D) to the extent such Bidder is a Potential Holder, the rate per
annum specified in such Potential Holder's Bid.
(ii) If any rate per annum specified in any Bid contains more than
three figures to the right of the decimal point, the Auction Agent shall
round such rate up to the next highest one-thousandth (.001) of 1%.
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(iii) If an Order or Orders covering all of the Outstanding AMPS held
by an Existing Holder are not submitted to the Auction Agent prior to the
Submission Deadline, the Auction Agent shall deem a Hold Order (in the case
of an Auction relating to a Dividend Period which is not a Special Dividend
Period of 28 days or more) and a Sell Order (in the case of an Auction
relating to a Special Dividend Period of 28 days or more) to have been
submitted on behalf of such Existing Holder covering the number of
Outstanding AMPS held by such Existing Holder and not subject to Orders
submitted to the Auction Agent.
(iv) If one or more Orders on behalf of an Existing Holder covering in
the aggregate more than the number of Outstanding AMPS held by such
Existing Holder are submitted to the Auction Agent, such Order shall be
considered valid as follows and in the following order of priority:
(A) any Hold Order submitted on behalf of such Existing Holder shall
be considered valid up to and including the number of Outstanding AMPS held
by such Existing Holder; provided that if more than one Hold Order is
submitted on behalf of such Existing Holder and the number of AMPS subject
to such Hold Orders exceeds the number of Outstanding AMPS held by such
Existing Holder, the number of AMPS subject to each of such Hold Orders
shall be reduced pro rata so that such Hold Orders, in the aggregate, will
cover exactly the number of Outstanding AMPS held by such Existing Holder;
(B) any Bids submitted on behalf of such Existing Holder shall be
considered valid, in the ascending order of their respective rates per
annum if more than one Bid is submitted on behalf of such Existing Holder,
up to and including the excess of the
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number of Outstanding AMPS held by such Existing Holder over the number of
AMPS subject to any Hold Order referred to in paragraph 10(c)(iv)(A) above
(and if more than one Bid submitted on behalf of such Existing Holder
specifies the same rate per annum and together they cover more than the
remaining number of shares that can be the subject of valid Bids after
application of paragraph 10(c)(iv)(A) above and of the foregoing portion of
this paragraph 10(c)(iv)(B) to any Bid or Bids specifying a lower rate or
rates per annum, the number of shares subject to each of such Bids shall be
reduced pro rata so that such Bids, in the aggregate, cover exactly such
remaining number of shares); and the number of shares, if any, subject to
Bids not valid under this paragraph 10(c)(iv)(B) shall be treated as the
subject of a Bid by a Potential Holder; and
(C) any Sell Order shall be considered valid up to and including the
excess of the number of Outstanding AMPS held by such Existing Holder over
the number of AMPS subject to Hold Orders referred to in paragraph
10(c)(iv)(A) and Bids referred to in paragraph 10(c)(iv)(B); provided that
if more than one Sell Order is submitted on behalf of any Existing Holder
and the number of AMPS subject to such Sell Orders is greater than such
excess, the number of AMPS subject to each of such Sell Orders shall be
reduced pro rata so that such Sell Orders, in the aggregate, cover exactly
the number of AMPS equal to such excess.
(v) If more than one Bid is submitted on behalf of any Potential
Holder, each Bid submitted shall be a separate Bid with the rate per annum
and number of AMPS therein specified.
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(vi) Any Order submitted by a Beneficial Owner as a Potential
Beneficial Owner to its Broker-Dealer, or by a Broker-Dealer to the Auction
Agent, prior to the Submission Deadline on any Auction Date shall be
irrevocable.
(d) Determination of Sufficient Clearing Bids, Winning Bid Rate and
Applicable Rate.
(i) Not earlier than the Submission Deadline on each Auction Date, the
Auction Agent shall assemble all Orders submitted or deemed submitted to it
by the Broker-Dealers (each such Order as submitted or deemed submitted by
a Broker-Dealer being hereinafter referred to individually as a "Submitted
Hold Order," a "Submitted Bid" or a "Submitted Sell Order," as the case may
be, or as a "Submitted Order") and shall determine:
(A) the excess of the total number of Outstanding AMPS over the number
of Outstanding AMPS that are the subject of Submitted Hold Orders (such
excess being hereinafter referred to as the "Available AMPS");
(B) from the Submitted Orders whether the number of Outstanding AMPS
that are the subject of Submitted Bids by Potential Holders specifying one
or more rates per annum equal to or lower than the Maximum Applicable Rate
exceeds or is equal to the sum of:
(1) the number of Outstanding AMPS that are the subject of
Submitted Bids by Existing Holders specifying one or more rates per
annum higher than the Maximum Applicable Rate, and
(2) the number of Outstanding AMPS that are subject to Submitted
Sell Orders (if such excess or such equality exists (other than
because the number
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of Outstanding AMPS in clause (1) above and this clause (2) are each
zero because all of the Outstanding AMPS are the subject of Submitted
Hold Orders), such Submitted Bids by Potential Holders being
hereinafter referred to collectively as "Sufficient Clearing Bids");
and
(C) if Sufficient Clearing Bids exist, the lowest rate per annum
specified in the Submitted Bids (the "Winning Bid Rate") that if:
(1) each Submitted Bid from Existing Holders specifying the
Winning Bid Rate and all other Submitted Bids from Existing Holders
specifying lower rates per annum were rejected, thus entitling such
Existing Holders to continue to hold the AMPS that are the subject of
such Submitted Bids, and
(2) each Submitted Bid from Potential Holders specifying the
Winning Bid Rate and all other Submitted Bids from Potential Holders
specifying lower rates per annum were accepted, thus entitling the
Potential Holders to purchase the AMPS that are the subject of such
Submitted Bids, would result in the number of shares subject to all
Submitted Bids specifying the Winning Bid Rate or a lower rate per
annum being at least equal to the Available AMPS.
(ii) Promptly after the Auction Agent has made the determinations
pursuant to paragraph 10(d)(i), the Auction Agent shall advise the Trust of
the Maximum Applicable Rate and, based on such determinations, the
Applicable Rate for the next succeeding Dividend Period as follows:
(A) if Sufficient Clearing Bids exist, that the Applicable Rate for
the next succeeding Dividend Period shall be equal to the Winning Bid Rate;
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(B) if Sufficient Clearing Bids do not exist (other than because all
of the Outstanding AMPS are the subject of Submitted Hold Orders), that the
Applicable Rate for the next succeeding Dividend Period shall be equal to
the Maximum Applicable Rate; or
(C) if all of the Outstanding AMPS are the subject of Submitted Hold
Orders, that the Dividend Period next succeeding the Auction shall
automatically be the same length as the immediately preceding Dividend
Period and the Applicable Rate for the next succeeding Dividend Period
shall be equal to 40% of the Reference Rate (or 60% of such rate if the
Trust has provided notification to the Auction Agent prior to the Auction
establishing the Applicable Rate for any dividend pursuant to paragraph
2(f) hereof that net capital gains or other taxable income will be included
in such dividend on AMPS) on the date of the Auction.
(e) Acceptance and Rejection of Submitted Bids and Submitted Sell
Orders and Allocation of Shares. Based on the determinations made pursuant to
paragraph 10(d)(i), the Submitted Bids and Submitted Sell Orders shall be
accepted or rejected and the Auction Agent shall take such other action as set
forth below:
(i) If Sufficient Clearing Bids have been made, subject to the
provisions of paragraph 10(e)(iii) and paragraph 10(e)(iv), Submitted Bids
and Submitted Sell Orders shall be accepted or rejected in the following
order of priority and all other Submitted Bids shall be rejected:
(A) the Submitted Sell Orders of Existing Holders shall be accepted
and the Submitted Bid of each of the Existing Holders specifying any rate
per annum that is higher than the Winning Bid Rate shall be accepted, thus
requiring each such Existing
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Holder to sell the Outstanding AMPS that are the subject of such Submitted
Sell Order or Submitted Bid;
(B) the Submitted Bid of each of the Existing Holders specifying any
rate per annum that is lower than the Winning Bid Rate shall be rejected,
thus entitling each such Existing Holder to continue to hold the
Outstanding AMPS that are the subject of such Submitted Bid;
(C) the Submitted Bid of each of the Potential Holders specifying any
rate per annum that is lower than the Winning Bid Rate shall be accepted;
(D) the Submitted Bid of each of the Existing Holders specifying a
rate per annum that is equal to the Winning Bid Rate shall be rejected,
thus entitling each such Existing Holder to continue to hold the
Outstanding AMPS that are the subject of such Submitted Bid, unless the
number of Outstanding AMPS subject to all such Submitted Bids shall be
greater than the number of Outstanding AMPS ("Remaining Shares") equal to
the excess of the Available AMPS over the number of Outstanding AMPS
subject to Submitted Bids described in paragraph 10(e)(i)(B) and paragraph
10(e)(i)(C), in which event the Submitted Bids of each such Existing Holder
shall be accepted, and each such Existing Holder shall be required to sell
Outstanding AMPS, but only in an amount equal to the difference between (1)
the number of Outstanding AMPS then held by such Existing Holder subject to
such Submitted Bid and (2) the number of AMPS obtained by multiplying (x)
the number of Remaining Shares by (y) a fraction the numerator of which
shall be the number of Outstanding AMPS held by such Existing Holder
subject to such Submitted Bid and the denominator of which shall be the sum
of the number of
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Outstanding AMPS subject to such Submitted Bids made by all such Existing
Holders that specified a rate per annum equal to the Winning Bid Rate; and
(E) the Submitted Bid of each of the Potential Holders specifying a
rate per annum that is equal to the Winning Bid Rate shall be accepted but
only in an amount equal to the number of Outstanding AMPS obtained by
multiplying (x) the difference between the Available AMPS and the number of
Outstanding AMPS subject to Submitted Bids described in paragraph
10(e)(i)(B), paragraph 10(e)(i)(C) and paragraph 10(e)(i)(D) by (y) a
fraction the numerator of which shall be the number of Outstanding AMPS
subject to such Submitted Bid and the denominator of which shall be the sum
of the number of Outstanding AMPS subject to such Submitted Bids made by
all such Potential Holders that specified rates per annum equal to the
Winning Bid Rate.
(ii) If Sufficient Clearing Bids have not been made (other than
because all of the Outstanding AMPS are subject to Submitted Hold Orders),
subject to the provisions of paragraph 10(e)(iii), Submitted Orders shall
be accepted or rejected as follows in the following order of priority and
all other Submitted Bids shall be rejected:
(A) the Submitted Bid of each Existing Holder specifying any rate per
annum that is equal to or lower than the Maximum Applicable Rate shall be
rejected, thus entitling such Existing Holder to continue to hold the
Outstanding AMPS that are the subject of such Submitted Bid;
(B) the Submitted Bid of each Potential Holder specifying any rate per
annum that is equal to or lower than the Maximum Applicable Rate shall be
accepted, thus requiring such Potential Holder to purchase the Outstanding
AMPS that are the subject of such Submitted Bid; and
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(C) the Submitted Bids of each Existing Holder specifying any rate per
annum that is higher than the Maximum Applicable Rate shall be accepted and
the Submitted Sell Orders of each Existing Holder shall be accepted, in
both cases only in an amount equal to the difference between (1) the number
of Outstanding AMPS then held by such Existing Holder subject to such
Submitted Bid or Submitted Sell Order and (2) the number of AMPS obtained
by multiplying (x) the difference between the Available AMPS and the
aggregate number of Outstanding AMPS subject to Submitted Bids described in
paragraph 10(e)(ii)(A) and paragraph 10(e)(ii)(B) by (y) a fraction the
numerator of which shall be the number of Outstanding AMPS held by such
Existing Holder subject to such Submitted Bid or Submitted Sell Order and
the denominator of which shall be the number of Outstanding AMPS subject to
all such Submitted Bids and Submitted Sell Orders.
(iii) If, as a result of the procedures described in paragraph
10(e)(i) or paragraph 10(e)(ii), any Existing Holder would be entitled or
required to sell, or any Potential Holder would be entitled or required to
purchase, a fraction of a share of AMPS on any Auction Date, the Auction
Agent shall, in such manner as in its sole discretion it shall determine,
round up or down the number of AMPS to be purchased or sold by any Existing
Holder or Potential Holder on such Auction Date so that each Outstanding
share of AMPS purchased or sold by each Existing Holder or Potential Holder
on such Auction Date shall be a whole share of AMPS.
(iv) If, as a result of the procedures described in paragraph
10(e)(i), any Potential Holder would be entitled or required to purchase
less than a whole share of AMPS on any Auction Date, the Auction Agent
shall, in such manner as in its sole
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discretion it shall determine, allocate AMPS for purchase among Potential
Holders so that only whole AMPS are purchased on such Auction Date by any
Potential Holder, even if such allocation results in one or more of such
Potential Holders not purchasing any AMPS on such Auction Date.
(v) Based on the results of each Auction, the Auction Agent shall
determine, with respect to each Broker-Dealer that submitted Bids or Sell
Orders on behalf of Existing Holders or Potential Holders, the aggregate
number of Outstanding AMPS to be purchased and the aggregate number of the
Outstanding AMPS to be sold by such Potential Holders and Existing Holders
and, to the extent that such aggregate number of Outstanding shares to be
purchased and such aggregate number of Outstanding shares to be sold
differ, the Auction Agent shall determine to which other Broker-Dealer or
Broker-Dealers acting for one or more purchasers such Broker-Dealer shall
deliver, or from which other Broker-Dealer or Broker-Dealers acting for one
or more sellers such Broker-Dealer shall receive, as the case may be,
Outstanding AMPS.
(f) Miscellaneous. The Trust may interpret the provisions of this
paragraph 10 to resolve any inconsistency or ambiguity, remedy any formal defect
or make any other change or modification that does not substantially adversely
affect the rights of Beneficial Owners of AMPS. A Beneficial Owner or an
Existing Holder (A) may sell, transfer or otherwise dispose of AMPS only
pursuant to a Bid or Sell Order in accordance with the procedures described in
this paragraph 10 or to or through a Broker-Dealer, provided that in the case of
all transfers other than pursuant to Auctions such Beneficial Owner or Existing
Holder, its Broker-Dealer, if applicable, or its Agent Member advises the
Auction Agent of such transfer and (B) except as otherwise required by law,
shall have the ownership of the AMPS held by it maintained in book
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entry form by the Securities Depository in the account of its Agent Member,
which in turn will maintain records of such Beneficial Owner's beneficial
ownership. Neither the Trust nor any Affiliate shall submit an Order in any
Auction. Any Beneficial Owner that is an Affiliate shall not sell, transfer or
otherwise dispose of AMPS to any Person other than the Trust. All of the
Outstanding AMPS of a series shall be represented by a single certificate
registered in the name of the nominee of the Securities Depository unless
otherwise required by law or unless there is no Securities Depository. If there
is no Securities Depository, at the Trust's option and upon its receipt of such
documents as it deems appropriate, any AMPS may be registered in the Share
Register in the name of the Beneficial Owner thereof and such Beneficial Owner
thereupon will be entitled to receive certificates therefor and required to
deliver certificates therefor upon transfer or exchange thereof.
11. Securities Depository; Share Certificates. (a) If there is a
Securities Depository, one certificate for all of the AMPS of each series shall
be issued to the Securities Depository and registered in the name of the
Securities Depository or its nominee. Additional certificates may be issued as
necessary to represent AMPS. All such certificates shall bear a legend to the
effect that such certificates are issued subject to the provisions restricting
the transfer of AMPS contained in this Certificate of Designation. Unless the
Trust shall have elected, during a Non-Payment Period, to waive this
requirement, the Trust will also issue stop-transfer instructions to the Auction
Agent for the AMPS. Except as provided in paragraph (b) below, the Securities
Depository or its nominee will be the Holder, and no Beneficial Owner shall
receive certificates representing its ownership interest in such shares.
(b) If
the Applicable Rate applicable to all AMPS of a series shall be the Non-Payment
Period Rate or there is no Securities Depository, the Trust may at its option
issue one or more
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new certificates with respect to such shares (without the legend referred to in
paragraph 11(a)) registered in the names of the Beneficial Owners or their
nominees and rescind the stop-transfer instructions referred to in paragraph
11(a) with respect to such shares.
12. Personal Liability. The Declaration of Trust establishing
MuniHoldings Florida Insured Fund, dated September 8, 1997, a copy of which,
together with all amendments thereto, is on file in the office of the Secretary
of the Commonwealth of Massachusetts, provides that the name "MuniHoldings
Florida Insured Fund" refers to the trustees under the Declaration collectively
as trustees, but not as individuals or personally; and no trustee, shareholder,
officer, employee or agent of the Trust shall be held to any personal liability,
nor shall resort be had to their private property for the satisfaction of any
obligation or claim or otherwise in connection with the affairs of the Trust,
but the "Trust Property" only shall be liable.
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MUNIHOLDINGS FLORIDA INSURED FUND
CERTIFICATE
The undersigned hereby certifies that he is the Secretary of
MuniHoldings Florida Insured Fund, an unincorporated business trust organized
and existing under the laws of The Commonwealth of Massachusetts (the "Trust"),
that annexed hereto is the Certificate of Designation dated ____________, 1999,
establishing the powers, qualifications, rights and preferences of the Auction
Market Preferred Shares, Series C, the Auction Market Preferred Shares, Series D
and the Auction Market Preferred Shares, Series E of the Trust, which
Certificate has been adopted by the Board of Trustees of the Trust in a manner
provided in the Trust's Declaration of Trust.
Dated this th day of , 2000.
------------------------------
William E. Zitelli, Jr.
Secretary
INDEPENDENT AUDITORS' CONSENT
MuniHoldings Florida Insured Fund:
We consent to the reference to us under the captions "Comparison of the Funds --
Financial Highlights" and "Experts" appearing in the Proxy Statement and
Prospectus, which is part of this Registration Statement on Form N-14.
Deloitte & Touche LLP
Princeton, New Jersey
September 30, 1999
<PAGE>
INDEPENDENT AUDITORS' CONSENT
MuniHoldings Florida Insured Fund II:
We consent to the use in this Registration Statement on Form N-14 of our report
dated August 6, 1999 appearing in the Proxy Statement and Prospectus, which is a
part of such Registration Statement, and to the reference to us under the
captions "Comparison of the Funds -- Financial Highlights and "Experts" also
appearing in such Proxy Statement and Prospectus.
Deloitte & Touche LLP
Princeton, New Jersey
September 30, 1999
Exhibit 14(b)
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "The
Reorganization-Comparison of the Funds-Financial Highlights", "Selection of
Independent Auditors" and "Experts" and to the use of our reports dated October
XX , 1999 for MuniHoldings Florida Insured Fund III and October XX, 1999 for
MuniHoldings Florida Insured Fund IV included in the Registration Statement
(Form N-14 No. 333-0000) and related combined Preliminary Proxy Statement and
Prospectus of MuniHoldings Florida Insured Fund, MuniHoldings Florida Insured
Fund II, MuniHoldings Florida Insured Fund III and MuniHoldings Florida Insured
Fund IV filed with the Securities and Exchange Commission.
Ernst & Young LLP
MetroPark, New Jersey
The foregoing consent is in the form that will be signed upon conclusion of our
audits of the financial statements of MuniHoldings Florida Insured Fund III and
MuniHoldings Florida Insured Fund IV to be added by amendment.
/s/ Ernst & Young LLP
MetroPark,New Jersey
October 1, 1999
