As filed with the Securities and Exchange Commission on November 10, 1999
Securities Act File No. 333-88463
Investment Company Act File No. 811-08349
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM N-14
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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|X| Pre-Effective Amendment No. 1
|_| Post-Effective Amendment No.
(Check appropriate box or boxes)
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MuniHoldings Florida Insured Fund
(Exact Name of Registrant as Specified in Its Charter)
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(609) 282-2800
(Area Code and Telephone Number)
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800 Scudders Mill Road
Plainsboro, New Jersey 08536
(Address of Principal Executive Offices:
Number, Street, City, State, Zip Code)
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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)
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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
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Approximate Date of Proposed Public Offering: As soon as practicable after
the Registration Statement becomes effective under the Securities Act of 1933.
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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) $156,549 previously paid by wire transfer to the designated lockbox of the
Securities and Exchange Commission in Pittsburgh, Pennsylvania.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<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
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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),
10:00 a.m. Eastern time (for Florida Insured II), 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
termination 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 and Prospectus.
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: November 10, 1999
<PAGE>
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
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ANNUAL MEETINGS OF SHAREHOLDERS
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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
of Florida Insured received in the Reorganization to their respective
shareholders and will then liquidate 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.
----------
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 November 10, 1999.
<PAGE>
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 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 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, 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............................. 16
Florida Municipal Bonds......................................... 16
Interest Rate and Credit Risk................................... 16
Non-diversification............................................. 16
Rating Categories............................................... 16
Private Activity Bonds.......................................... 16
Taxes........................................................... 16
Portfolio Insurance............................................. 16
Leverage........................................................ 16
Inverse Floating Obligations.................................... 18
Options and Futures Transactions................................ 18
Antitakeover Provisions......................................... 18
Ratings Considerations.......................................... 18
COMPARISON OF THE FUNDS................................................. 19
Financial Highlights................................................ 19
Florida Insured................................................. 19
Florida Insured II.............................................. 20
Florida Insured III............................................. 21
Florida Insured IV.............................................. 22
Investment Objective and Policies................................... 24
Portfolio Insurance................................................. 25
Description of Florida Municipal Bonds and Municipal Bonds.......... 27
Special Considerations Relating to Florida Municipal Bonds.......... 28
Other Investment Policies........................................... 28
Information Regarding Options and Futures Transactions.............. 29
Investment Restrictions............................................. 32
Rating Agency Guidelines............................................ 33
Portfolio Composition............................................... 34
Portfolio Transactions.............................................. 35
Portfolio Turnover.................................................. 36
Net Asset Value..................................................... 36
Capital Shares...................................................... 37
Management of the Funds............................................. 39
Code of Ethics...................................................... 40
Voting Rights....................................................... 41
Shareholder Inquiries............................................... 42
Dividends and Distributions......................................... 42
Automatic Dividend Reinvestment Plan................................ 43
Mutual Fund Investment Option....................................... 44
Liquidation Rights of Holders of AMPS............................... 44
Tax Rules Applicable to the Funds and their Shareholders............ 45
Florida Taxation of the Funds....................................... 49
AGREEMENT AND PLAN OF REORGANIZATION.................................... 50
General............................................................. 50
Procedure........................................................... 51
Terms of the Agreement and Plan of Reorganization................... 51
Potential Benefits to Shareholders of the Funds as a Result
of the Reorganization............................................. 53
Surrender and Exchange of Share Certificates........................ 54
Tax Consequences of the Reorganization.............................. 55
Appraisal Rights.................................................... 56
Capitalization...................................................... 57
3
<PAGE>
PAGE
----
ITEM 2: ELECTION OF TRUSTEES........................................... 58
To Be Elected by Holders of AMPS of Florida Insured, Florida
Insured II and Florida Insured IV, Voting Separately as a Class... 58
To be Elected by Holders of Common Shares and AMPS of
Florida Insured, Florida Insured II and Florida Insured IV,
Voting Together as a Single Class................................. 58
To Be Elected by Holders of AMPS of Florida Insured III,
Voting Separately as a Class...................................... 59
To Be Elected by Holders of Common Shares and AMPS of
Florida Insured III, Voting Together as a Single Class............ 59
Committee and Board Meetings........................................ 60
Compliance with Section 16(a) of the Securities Exchange Act of 1934 60
Interested Persons.................................................. 61
Compensation of Trustees............................................ 61
Officers of the Funds............................................... 61
ITEM 3: SELECTION OF INDEPENDENT AUDITORS.............................. 62
INFORMATION CONCERNING THE ANNUAL MEETINGS.............................. 62
Date, Time and Place of Meetings.................................... 62
Solicitation, Revocation and Use of Proxies......................... 62
Record Date and Outstanding Shares.................................. 62
Security Ownership of Certain Beneficial Owners and Management...... 63
Voting Rights and Required Vote..................................... 63
ADDITIONAL INFORMATION.................................................. 64
Year 2000 Issues.................................................... 65
CUSTODIAN............................................................... 65
TRANSFER AGENT, DIVIDEND DISBURSING AGENT AND REGISTRAR................. 65
LEGAL PROCEEDINGS....................................................... 65
LEGAL OPINIONS.......................................................... 65
EXPERTS ................................................................ 65
SHAREHOLDER PROPOSALS................................................... 66
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 .............................. 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 12, 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 majority 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 majority 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, Reorganization
was approved by the Board of Trustees of Florida Insured, Florida Insured II,
Florida Insured III and Florida Insured IV by a unanimous vote. 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 Boards 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
6
<PAGE>
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.
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.
Fee Table for Common Shareholders of Florida Insured,
Florida Insured II, Florida Insured III, Florida Insured IV and
Pro Forma Florida Insured as of June 30, 1999 (Unaudited)(a)
<TABLE>
<CAPTION>
Actual
--------------------------------------------------- Pro Forma
Florida Florida Florida Florida Florida
Insured Insured II Insured III Insured IV Insured
------- ---------- ----------- ---------- -------
<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 annual operating expenses for pro forma Florida Insured are
projections for a 12-month period.
(e) Based on assets of each Fund and pro forma Florida Insured, excluding
assets attributable to AMPS. If assets attributable to AMPS are included,
the Investment Advisory Fees for each Fund and for pro forma Florida
Insured would be 0.55% and the Total Annual Expenses would be 0.77%,
0.78%, 0.83%, 0.78% and 0.71%.
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
Pro Forma Florida Insured* ....................................... $ 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."
The Fund intends to invest primarily
in long-term Florida Municipal Bonds
and municipal obligations the
interest on which is exempt from
Federal tax but do not enable shares
of the Fund to be exempt from Florida
intangible personal property tax
("Municipal Bonds") with a maturity
of more than ten years. The weighted
average maturity of the Fund's
portfolio was 25.09 years as of
September 30, 1999. The average
maturity of the Fund's portfolio
securities, and therefore the Fund's
portfolio as a whole, will vary based
upon the assessment of Fund Asset
Management, L.P. ("FAM"), the Fund's
investment adviser, of economic and
market conditions. See "Comparison of
the Funds--Investment Objective 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 September 30, 1999,
Florida Insured had net assets of
$250,421,764.
8
<PAGE>
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 payment of principal at
maturity and interest. See
"Comparison of the Funds--Investment
Objectives and Policies." The fund
intends to invest primarily in
long-term Florida Municipal Bonds and
Municipal Bonds with a maturity of
more than ten years. The weighted
average maturity of the Fund's
portfolio was 25.16 years as of
September 30, 1999. The average
maturity of the Fund's portfolio
securities, and therefore the Fund's
portfolio as a whole, will vary based
upon FAM's assessment of economic and
market conditions. See "Comparison of
the Funds--Investment Objective 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 September 30, 1999,
Florida Insured II had net assets of
$201,094,601.
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." The Fund intends to invest
primarily in long-term Florida
Municipal Bonds and
9
<PAGE>
Municipal Bonds with a maturity of
more than ten years. The weighted
average maturity of the Fund's
portfolio was 26.42 years as of
September 30, 1999.
The average maturity of the Fund's
portfolio securities, and therefore
the Fund's portfolio as a whole, will
vary based upon FAM's assessment of
economic and market conditions. See
"Comparison of the Funds--Investment
Objective 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 September 30, 1999,
Florida Insured III had net assets of
$130,910,834.
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." The Fund intends to invest
primarily in long-term Florida
Municipal Bonds and Municipal Bonds
with a maturity of more than ten
years. The weighted average maturity
of the Fund's portfolio was 25.05
years as of September 30, 1999. The
average maturity of the Fund's
portfolio securities, and therefore
the Fund's portfolio as a whole, will
vary based upon FAM's assessment of
economic and market conditions. The
average maturity of the Fund's
portfolio securities, and therefore
the Fund's portfolio as a whole, will
vary based upon FAM's assessment of
economic and market conditions. See
"Comparison of the Funds--Investment
Objective and Policies."
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 September 30, 1999,
Florida Insured IV had net assets of
$197,754,551.
Comparison of the Funds.............. Investment Objectives and Policies. The
Funds have substantially similar
investment objectives and policies.
All four Funds seek to provide
shareholders (including holders of
AMPS) with current income exempt from
Federal income tax and to provide
10
<PAGE>
shareholders with the opportunity to
own shares the value of which is
exempt from Florida intangible
personal property tax and seek to
achieve this objective by investing
primarily in a portfolio of Florida
Municipal Bonds. The Funds intend 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. The Fund will, under normal
circumstances, maintain at least 65%
of its assets in Florida Municipal
Bonds and at least 80% of its assets
in Florida Municipal Bonds and
Municipal Bonds. See "Comparison of
the Funds - Investment Objective 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 September 30, 1999, (i) the net
asset value per share of Florida
Insured Common Shares was $13.49 and
the market price per share was
$12.625; (ii) the net asset value per
share of Florida Insured II Common
Shares was $13.02 and the market
price per share was $12.3125; (iii)
the net asset value per share of
Florida Insured III Common Shares was
$12.44 and the market price per share
was $11.875; and (iv) the net asset
value per share of Florida Insured IV
Common Shares was $12.52 and the
market price per share was $12.625.
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" and "Agreement and Plan of
Reorganization - Terms of the Agreement
and Plan of Reorganization." 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 Dividend
Date Fund Series Rate
---------------- ------------------- ------ --------
October 12, 1999 Florida Insured A 3.45%
October 15, 1999 Florida Insured B 3.40%
October 8, 1999 Florida Insured II A 3.70%
October 13, 1999 Florida Insured II B 3.50%
October 12, 1999 Florida Insured III A 3.70%
October 15, 1999 Florida Insured III B 3.34%
October 14, 1999 Florida Insured IV A 3.50%
October 8, 1999 Florida Insured IV B 3.45%
11
<PAGE>
Advisory Fees. The investment adviser
for each of the Funds is Fund Asset
Management, L.P. ("FAM"). The
principal business address of FAM is
800 Scudders Mill Road, Plainsboro,
New Jersey 08536. FAM was organized
as an investment adviser in 1977 and
offers investment advisory services
to more than 50 registered investment
companies. The Asset Management Group
of Merrill Lynch & Co., Inc. ("ML &
Co.") (which includes FAM) acts as
investment adviser for over 100
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
and auction agency 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 net
assets of approximately
12
<PAGE>
$156.2 million excluding AMPS, and
0.77%, based on net assets of
approximately $261.0 million
including AMPS; the overall
annualized operating expense ratio
for Florida Insured II was 1.32%,
based on net assets of approximately
$125.0 million excluding AMPS, and
0.78%, based on net assets of
approximately $211.0 million
including AMPS; the overall
annualized operating expense ratio
for Florida Insured III was 1.36%,
based on net assets of approximately
$84.1 million excluding AMPS, and
0.83%, based on 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 net assets of approximately
$124.3 million excluding AMPS, and
0.78%, based on 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
pro forma Florida Insured would have
been 1.19%, based on net assets of
approximately $489.6 million
excluding AMPS, and 0.71%, based on
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 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 &
13
<PAGE>
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 Objective and Policies"
and "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.
See Exhibit IV -- "Ratings of
Municipal Bonds."
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."
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
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."
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.
14
<PAGE>
Outstanding Securities of Florida Insured, Florida Insured II, Florida
Insured III and Florida Insured IV as of September 30, 1999
<TABLE>
<CAPTION>
Amount Outstanding
Amount Held by Exclusive of Amount
Amount Fund for its Own Shown in Previous
Title of Class Authorized Account Column
- ------------------------------ ---------- ---------------- ------------------
<S> <C> <C> <C>
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
</TABLE>
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."
15
<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
The Funds 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
a Federal alternative minimum tax.
Taxes
It is possible that a Fund may not be able to fully dispose of a
sufficient portion of its assets subject to Florida intangible personal property
tax by the last business day of the calendar year. This could subject shares of
a Fund to Florida intangible personal property tax. See "Comparison of the
Funds -- Tax Rules Applicable to the Funds and their Shareholders."
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,
16
<PAGE>
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 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.
17
<PAGE>
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 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.
18
<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 ............................ $ 16.03 $ 15.00
-------- --------
Investment income - net ......................................... 1.14 1.08
Realized and unrealized gain (loss) on investments - net ........ (1.77) 1.08
-------- --------
Total from investment operations ................................ (.63) 2.16
-------- --------
Less dividends and distributions to Common Shareholders:
Investment income - net .................................. (.86) (.71)
Realized gain on investments - net ....................... (.07) --
In excess of realized gain on investments - net .......... (.27) --
-------- --------
Total dividends and distributions to Common Shareholders ........ (1.20) (.71)
Capital charge resulting from issuance of Common Shares ......... -- (.03)
-------- --------
Effect of Preferred Share activity: ++
Dividends and distributions to Preferred Shareholders:
Investment income - net .................................. (.23) (.30)
Realized gain on investments - net ....................... (.03) --
In excess of realized gain on investments - net .......... (.10) --
Capital charge resulting from issuance of Preferred Shares ... -- (.09)
-------- --------
Total effect of Preferred Share activity ........................ (.36) (.39)
-------- --------
Net asset value, end of period .................................. $ 13.84 $ 16.03
======== ========
Market price per share, end of period ........................... $ 12.75 $14.8125
======== ========
Total investment Return:**
Based on market price per share ................................. (6.80%) 3.47%#
======== ========
Based on net asset value per share .............................. (6.51%) 11.97%#
======== ========
Ratios Based on Average Net Assets of Common Shares:
Total Expenses, net of reimbursement*** ......................... 1.18% .87%*
======== ========
Total expenses*** ............................................... 1.26% 1.20%*
======== ========
Total investment income - net*** ................................ 7.34% 7.51%*
======== ========
Amount of Dividends to Preferred Shareholders ................... 1.50% 2.07%*
======== ========
Investment income - net, to Common Shareholders ................. 5.84% 5.44%*
======== ========
Ratios Based in Average Net Assets+++***
Total expenses, net of reimbursement ............................ .73% .54%*
======== ========
Total expenses .................................................. .77% .75%*
======== ========
Total investment income-net ..................................... 4.51% 4.70%*
======== ========
Ratios Based on Average Net Assets of Preferred Shares:
Dividends to Preferred Shareholders ............................. 2.39% 3.47%*
======== ========
Supplemental Data:
Net assets, net of Preferred Shares, end of period (in thousands) $149,395 $172,516
======== ========
Preferred Shares outstanding, end of period (in thousands) ...... $104,750 $104,750
======== ========
Portfolio turnover .............................................. 120.70% 101.89%
======== ========
Leverage:
Asset coverage per $1,000 ....................................... $ 2,426 $ 2,647
======== ========
Dividends Per Share on Preferred Shares Outstanding:
Series A - Investment income - net .............................. $ 606 $ 753
======== ========
Series B - Investment income - net .............................. $ 598 $ 764
======== ========
</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.
19
<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:
Total 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 +++***
Total 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%
======== ========
Leverage:
Asset coverage per $1,000 ........................................ $ 2,453 $ 2,539
======== ========
Dividends Per Share on Preferred Shares Outstanding:
Series A - Investment income - net ............................... $ 789 $ 281
======== ========
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
charges.
*** Do 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.
20
<PAGE>
Florida Insured III
The financial information in the table below is unaudited and has been
provided by FAM. 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
October 1, 1998+ to
March 31, 1999
-------------------
<S> <C>
Increase (Decrease) in Net Asset Value:
Per Share Operating Performance:
Net asset value, beginning of period .............................. $ 15.00
-------
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 Return:**
Based on market price per share ................................... (1.99%)#
=======
Based on net asset value per share ................................ .16%#
=======
Ratios to Average Net Assets***
Expenses, net of reimbursement .................................... .35%*
=======
Expenses .......................................................... .80%*
=======
Investment income - net ........................................... 4.79%*
=======
Supplemental Data:
Net assets, net of Preferred Shares, end of period (in thousands) . $90,820
=======
Preferred Shares outstanding, end of period (in thousands) ........ $54,000
=======
Portfolio turnover ................................................ 123.02%
=======
Dividends Per Share on Preferred Shares Outstanding:
Series A - Investment income - net ................................ $ 329
=======
Series B - Investment income - net ................................ $ 338
=======
Leverage:
Asset coverage per $1,000 ......................................... $ 2,682
=======
</TABLE>
- ----------
* 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.
*** 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.
21
<PAGE>
Florida Insured IV
The financial information in the table below is unaudited and has been
provided by FAM. 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
January 29, 1999+
to March 31, 1999
<S> <C>
Increase (Decrease) in Net Asset Value:
Per Share Operating Performance:
Net asset value, beginning of period ............................ $ 15.00
--------
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 Return:**
Based on market price per share ................................. 1.67%#
========
Based on net asset value per share .............................. (.53%)#
========
Ratios to Average Net Assets ***
Expenses, net of reimbursement .................................. .13%*
========
Expenses ........................................................ .74%*
========
Investment income - net ......................................... 5.30%*
========
Supplemental Data:
Net assets, net of Preferred Shares, end of period (in thousands) $135,989
========
Preferred Shares outstanding, end of period (in thousands) ...... $ 83,500
========
Portfolio turnover .............................................. 23.78%
========
Leverage:
Asset coverage per $1,000 ....................................... $ 2,629
========
Dividends Per Share on Preferred Shares Outstanding:
Series A - Investment income - net .............................. $ 90
========
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
charges.
*** 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.
22
<PAGE>
Per Share Data for Common Shares*
Traded on the New York Stock Exchange (unaudited)
Florida Insured
<TABLE>
<CAPTION>
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)
August 31, 1999 ....... 14.00 12.4375 15.00 13.61 (6.67) (10.28)
</TABLE>
Florida Insured II
<TABLE>
<CAPTION>
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)
September 30, 1999..... 13.1875 11.8125 14.25 12.98 (5.16) (9.39)
</TABLE>
Florida Insured III
<TABLE>
<CAPTION>
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..... 12.875 11.25 13.70 12.39 (4.54) (10.57)
</TABLE>
Florida Insured IV
<TABLE>
<CAPTION>
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..... 13.6875 11.75 13.75 12.47 0.84 (8.85)
</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 12% 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
23
<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. Each Fund intends to invest substantially
all (at least 80%) of its assets in Florida Municipal Bonds, except at times
when FAM, considers that Florida Municipal Bonds of sufficient quality and
quantity are unavailable for investment at suitable prices by the Fund. When
this is the case, a Fund may purchase 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 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. For purposes of a Fund's
investment objective and policies, Non-Municipal Tax-Exempt Securities that pay
interest that is exempt from Federal income tax and whose value is not subject
to Florida intangible personal property tax will be considered "Florida
Municipal Bonds" and Non-Municipal Tax-Exempt Securities that pay interest that
is exempt from Federal income taxes will be considered "Municipal Bonds."
The investment grade Florida Municipal Bonds and Municipal Bonds in which
each Fund 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-2 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-2 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
24
<PAGE>
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 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. See "Risk Factors and Special
Considerations -- Leverage."
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
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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 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. Additional information
regarding the Policies is set forth in Exhibit V.
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.
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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).
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.
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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, 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 III -
"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 33 1/3% of the
value of its total assets at the time of such borrowings to finance the
repurchase of its own common shares pursuant to tender offers or otherwise to
redeem or repurchase preferred shares or for temporary, extraordinary or
emergency purposes. Borrowings by 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
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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.
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. See
"Comparison of the Funds-- Tax Rules Applicable to the Funds and their
Shareholders -- Tax Treatment of Options and Futures Transactions." 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.
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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
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.
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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 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.
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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 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, for the Common Shares and AMPS voting together as a single class,
"majority" means the lesser of (i) 67% of the shares of each class of capital
shares represented at a meeting at which more than 50% of the outstanding shares
of each class of capital shares are represented or (ii) more than 50% of the
outstanding shares of each class of capital shares, but for the AMPS voting
separately as a single class, "majority" means more than 50% of the outstanding
AMPS.) 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.
For purposes of restriction (6), the exception for states, municipalities
and the political subdivisions applies only to tax-exempt securities issued by
such entities.
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.
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<PAGE>
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.
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.
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<PAGE>
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,
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 96.0%
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."
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."
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.
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<PAGE>
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."
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."
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
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<PAGE>
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.
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
August 31, 1998 Ended August 31, 1999
--------------- ---------------------
101.89% 120.70%
Florida Insured II Period February
25, 1998 + Year
to June 30, 1998 Ended June 30, 1999
------------- -------------------
59.25% 108.45%
Florida Insured III Period October
1, 1998 +
to March 31, 1999
(unaudited)
-----------------
123.02%
Florida Insured IV Period January
29, 1999+
to March 31, 1999
(unaudited)
-----------------
23.78%
- ----------
+ 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
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<PAGE>
contracts are valued at closing prices for such contracts established by the
exchange on which they are traded, orif 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.
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 September 30,
1999, the net asset value per Florida Insured Common Share was $13.49 and the
market price per share was $12.625. The Florida Insured II Common Shares
commenced trading on the NYSE on February 25, 1998. As of September 30, 1999,
the net asset value per Florida Insured II Common Share was $13.02 and the
market price per share was $12.3125. The Florida Insured III Common Shares
commenced trading on the NYSE on October 1, 1998. As of September 30, 1999, the
net asset value per Florida Insured III Common Share was $12.44 and the market
price per share was $11.875. The Florida Insured IV Common Shares commenced
trading on the NYSE on January 29, 1999. As of September 30, 1999, the net asset
value per Florida Insured IV Common Share was $12.52 and the market price per
share was $12.625.
Each Fund is authorized to issue an unlimited number of shares of
beneficial interest. 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 preferred shares of beneficial interest. In connection with each
respective Fund's offering of AMPS, Florida Insured designated 4,190 preferred
shares of beneficial interest as AMPS, Florida Insured II designated 3,440
preferred shares of beneficial interest as AMPS, Florida Insured III designated
2,160 preferred shares of beneficial interest as AMPS and Florida Insured IV
designated 3,340 preferred shares of beneficial interest as AMPS.
Each 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 Funds' assets and
operations, the possibility of a Fund being unable to meet its obligations is
remote and, in the opinion of Massachusetts counsel to the Fund, the risk to the
Funds' shareholders is remote.
The declaration of Trust further provides that no Trustee, officer,
employee or agent of the Fund is liable to the Fund or to any shareholder, nor
is any Trustee, officer, employee or agent liable to any third persons in
connection with the affairs of the Fund, except as such liability may arise from
his or her own bad faith, willful misfeasance, gross negligence, or reckless
disregard of their duties. It also provides that all third persons shall look
solely to the Fund property for satisfaction of claims arising in connection
with the affairs of the Fund. With the exceptions stated, the Declaration of
Trust provides that a Trustee, officer, employee or agent is entitled to be
indemnified against all liability in connection with the affairs of the Fund.
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.
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<PAGE>
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.
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
---------------- ------------------- ------ -------------
October 12, 1999 Florida Insured A 3.45%
October 15, 1999 Florida Insured B 3.40%
October 8, 1999 Florida Insured II A 3.70%
October 13, 1999 Florida Insured II B 3.50%
October 12, 1999 Florida Insured III A 3.70%
October 15, 1999 Florida Insured III B 3.34%
October 14, 1999 Florida Insured IV A 3.50%
October 8, 1999 Florida Insured IV B 3.45%
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 66 2/3% of the votes entitled
to be voted on the matter. A Trustee elected by all of the holders of capital
shares may be removed only by action of such holders, and a Trustee elected by
the holders of AMPS and any other preferred shares may be removed only by action
of 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 66 2/3% 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:
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<PAGE>
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 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 66 2/3% 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 registered investment
companies and offers services to individuals and institutional
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accounts. As of September 1999, the Asset Management Group had a total of
approximately $514 billion in investment company and other portfolio assets
under management (approximately $38.5 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. FAM was organized as an investment adviser in
1977 and offers investment advisory services to more than 50 registered
investment companies. 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.
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.
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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.
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.
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.
In connection with the election of each 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.
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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 or a portion of its net investment income monthly to holders of its Common
Shares. 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 or a portion of the
net investment income remaining after the payment of dividends (and any
Additional Distributions) on the Fund's AMPS. A Fund may at times pay out less
than the entire amount of net investment income earned in any particular period
and may at times pay out such accumulated undistributed income in addition to
net investment income earned in other periods in order to permit the Fund to
maintain a more stable level of dividends to holders of Common Shares. As a
result, the dividend paid by a Fund to holders of its Common Shares for any
particular period may be more or less than the amount of net investment income
earned by the Fund during such period. For Federal tax purposes, the Fund is
required to distribute substantially all of its net investment income for each
year. All net realized capital gains, if any, are distributed pro rata at least
annually, to holders of 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 adverse tax consequences for
shareholders. See "Comparison of the Funds - Tax Rules Applicable to the Funds
and their Shareholders."
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
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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.
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
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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 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
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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 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 the interest on which is excludable from gross income
for Federal income tax purposes ("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
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 IDBs or PABs, 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
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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, there is no guarantee that the legal
conclusions will not be challenged by the Department of Revenue or in judicial
or administrative proceedings. Thus, under Florida counsel's opinion or if a
favorable ruling is issued, and if the 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 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
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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 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
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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.
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 a question 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").
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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, 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 Funds
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 equal to the aggregate
net asset value of the Common Shares 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 liquidation preference and value of each such
Fund's 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
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Florida Insured Common Shares should remain virtually unchanged by the
Reorganization. Similarly, since the 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
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of a pricing service is a fair method of determining the valuation of portfolio
securities. Positions in financial futures contracts will be valued on the
Valuation Date at closing prices for such contracts established by the exchange
on which they are traded, or if market quotations are not readily available,
will be valued at fair value on a consistent basis using methods determined in
good faith by 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 single 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 Termination. 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 Fund's 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 Funds' 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 the table below shows the
total annualized operating expense ratio of each Fund and pro forma Florida
Insured based on net assets both excluding and including assets attributable to
AMPS, as of June 30, 1999:
<TABLE>
<CAPTION>
Total annualized Net assets, Total annualized Net assets,
operating excluding operating including
expense ratio, AMPS expense ratio, AMPS
Fund excluding AMPS (in millions) including AMPS (in millions)
----- ---------------- ------------- ---------------- -------------
<S> <C> <C> <C> <C>
Florida Insured ............. 1.28% $156.2 0.77% $261.0
Florida Insured II .......... 1.32% $125.0 0.78% $211.0
Florida Insured III.......... 1.36% $ 84.1 0.83% $138.1
Florida Insured IV .......... 1.31% $124.3 0.78% $207.8
Pro Forma Florida Insured(1). 1.19% $489.6 0.71% $817.8
- ----------
1 Assumes Reorganization had taken place on June 30, 1999.
</TABLE>
53
<PAGE>
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 $.02 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 six months to one year 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 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 distributable with respect to such holder's Common Shares
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 names" by the Depository Trust Company
and all transfers will be accomplished by book entry. Surrender of physical
certificates for AMPS is not required.
<TABLE>
<CAPTION>
If prior to the Reorganization, you held: After the Reorganization, you will hold:
- ------------------------------------ ----------------------------------
<S> <C>
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
</TABLE>
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.
From and after the Exchange Date, certificates formerly representing
Common Shares of an Acquired Fund will be deemed for all purposes to evidence
ownership of the number of full Florida Insured Common Shares distributable with
respect to the shares of the Acquired Fund held before the Reorganization as
described above
54
<PAGE>
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 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 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 of an Acquired Fund are presented to Florida Insured,
they will be cancelled and exchanged for certificates representing Common Shares
of Florida Insured, as applicable, and cash in lieu of fractional Common Shares,
if any, distributable with respect to such Common Shares 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 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 Common Shares 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.
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 existingFlorida
Insured Series A AMPS and Florida Insured Series B AMPS will not cause
distributions on any series of
55
<PAGE>
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 and qualified
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.
56
<PAGE>
Capitalization
The following table sets forth as of August 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 capitalization of pro forma Florida Insured as
adjusted to give effect to the Reorganization.
Capitalization of Florida Insured, Florida Insured II, Florida Insured III,
Florida Insured IV and Pro Forma Florida Insured as of August 31, 1999
(unaudited)
<TABLE>
<CAPTION>
Pro Forma
Florida Florida Florida Florida Pro Forma Florida
Insured Insured II Insured III Insured IV Adjustment Insured(a)
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net Assets:
Net Assets Attributable to
Common Shares ............ $149,394,708 $118,543,604 $ 79,570,974 $117,651,597 ($ 3,653,548) $461,507,335
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 9,126,034 (1,263,429) 33,683,174(b)
AMPS .....................
Series A ................. 2,095 1,720 1,080 1,670 (4,470) 2,095
Series B ................. 2,095 1,720 1,080 1,670 (4,470) 2,095
Series C ................. -- -- -- -- 3,440 3,440(b)
Series D ................. -- -- -- -- 2,160 2,160(b)
Series E ................. -- -- -- -- 3,340 3,340(b)
Net Asset Value Per Share:
Common Shares ............ $ 13.84 $ 13.41 $ 12.87 $ 12.89 -- $ 13.70(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 August 31, 1999 and are for informational purposes only.
Assumes distribution of undistributed net investment income and accrual of
estimated Reorganization expenses of $507,000. 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 22,885,122 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 estimated number of shares issued was based on the
net asset value of each Fund, net of distributions, on August 31, 1999.
(c) Net Asset Value Per Common Share net of Reorganization-related expenses
and distribution of undistributed net investment income of $1,283,310 for
Florida Insured, $734,244 for Florida Insured II, $445,280 for Florida
Insured III and $683,714 for Florida Insured IV.
57
<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
To Be Elected by Holders of AMPS of Each Fund, Voting Separately as a Class
<TABLE>
<CAPTION>
Principal Occupation During Past
Name and Address Age Five Years and Public Directorships(1)
- ----------------------------------------------------------- -- ------------------------------------------------------------
<S> <C> <C>
Charles C. Reilly(1)(2).................................... 68 Self-employed financial consultant since 1990; President
9 Hampton Harbor Road and Chief Investment Officer of Verus Capital, Inc. from
Hampton Bays, New York 11946 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.
Richard R. West(1)(2)...................................... 61 Professor of Finance since 1984, Dean from 1984 to 1993,
Box 604 and currently Dean Emeritus of New York University,
Genoa, Nevada 89411 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).
</TABLE>
To Be Elected by Holders of Common Shares and AMPS of Each Fund, Voting Together
as a Single Class
<TABLE>
<CAPTION>
Principal Occupation During Past
Name and Address Age Five Years and Public Directorships(1)
- ----------------------------------------------------------- -- ------------------------------------------------------------
<S> <C> <C>
Terry K. Glenn(1)*......................................... 59 Executive Vice President of FAM and MLAM (which terms
P. O. Box 9011 as used herein include their corporate predecessors) since
Princeton, New Jersey 08543-9011 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)..................................... 59 Professor of Finance, School of Business, State University
1400 Washington Avenue of New York at Albany, since 1989; Consultant, Urban
Albany, New York 12222 Institute, Washington, D.C. since 1995.
</TABLE>
58
<PAGE>
<TABLE>
<CAPTION>
Principal Occupation During Past
Name and Address Age Five Years and Public Directorships(1)
- ----------------------------------------------------------- -- ------------------------------------------------------------
<S> <C> <C>
Cynthia A. Montgomery(1)(2)................................ 47 Professor, Harvard Business School since 1989; Associate
Harvard Business School Professor, J.L. Kellogg Graduate School of Management,
Soldiers Field Road Northwestern University from 1985 to 1989; Assistant
Boston, Massachusetts 02163 Professor, Graduate School of Business Administration, The
University of Michigan from 1979 to 1985; Director, UNUM
Provident Corporation since 1990 and Director of Newell
Rubbermaid since 1995.
Kevin A. Ryan(1)(2)........................................ 67 Founder and Director Emeritus of The Boston University
127 Commonwealth Avenue Center for the Advancement of Ethics and Character and
Chestnut Hill, Director thereof until 1999; Professor until 1999 and
Massachusetts 02167 currently Professor Emeritus of Education at Boston
University since 1982; formerly taught on the faculties of
The University of Chicago, Stanford University and Ohio
State University.
Arthur Zeikel(1)*.......................................... 67 Chairman of FAM and MLAM from 1997 to 1999;
300 Woodland Avenue President of FAM and MLAM from 1977 to 1997;
Westfield, New Jersey 07090 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.
</TABLE>
TO BE ELECTED BY SHAREHOLDERS OF FLORIDA INSURED III
To Be Elected by Holders of AMPS, Voting Separately as a Class
<TABLE>
<CAPTION>
Principal Occupation During Past
Name and Address Age Five Years and Public Directorships(1)
- ----------------------------------------------------------- -- ------------------------------------------------------------
<S> <C> <C>
Joseph L. May(1)(2)........................................ 70 Attorney in private practice since 1984; President, May and
424 Church Street Athens Hosiery Mills Division, Wayne-Gossard
Suite 2000 Corporation from 1954 to 1983: Vice President, Wayne-
Nashville, Tennessee 37219 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)...................................... 47 Professor, Harvard Business School since 1989 and
Morgan Hall Associate Professor from 1983 to 1989; Trustee, The
Soldiers Field Common Fund since 1989; Director, Quantec Limited since
Boston, Massachusetts 02163 1991, TIBCO from 1994 to 1996 and Genbel Securities Limited
and Genbel Bank since 1999.
</TABLE>
To Be Elected by Holders of Common Shares and AMPS , Voting Together as a Single
Class
<TABLE>
<CAPTION>
Principal Occupation During Past
Name and Address Age Five Years and Public Directorships(1)
- ----------------------------------------------------------- -- ------------------------------------------------------------
<S> <C> <C>
Terry K. Glenn(1)*......................................... 59 Executive Vice President of FAM and MLAM since 1983;
P.O. Box 9011 Executive Vice President and Director of Princeton
Princeton, New Jersey 08543-9011 Services since 1993; President of PFD since 1986 and
Director thereof since 1991; President of Princeton
Administrators since 1988.
James H. Bodurtha(1)(2..................................... 55 Director and Executive Vice President, The China
36 Popponesset Road Business Group, Inc. since 1996; Chairman and Chief
Cotuit, Massachusetts 02635 Executive Officer, China Enterprise Management Corporation
from 1993 to 1996; Chairman, Berkshire Corporation since
1980; Partner, Squire, Sanders & Dempsey from 1980 to 1993;
Director, Gilder Group LLP and related companies since 1999.
</TABLE>
59
<PAGE>
<TABLE>
<CAPTION>
Principal Occupation During Past
Name and Address Age Five Years and Public Directorships(1)
- ----------------------------------------------------------- -- ------------------------------------------------------------
<S> <C> <C>
Herbert I. London(1)(2).................................... 60 John M. Olin Professor of Humanities, New York
2 Washington Square Village University since 1993 and Professor since 1980; President,
New York, New York 10012 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)..................................... 72 Chairman and Chief Executive Officer, Kinnard
513 Grand Hill Investments, Inc. from 1990 to 1993; Executive Vice
St. Paul, Minnesota 55103 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.
Arthur Zeikel(1)*.......................................... 67 Chairman of FAM and MLAM from 1997 to 1999;
300 Woodland Avenue President of FAM and MLAM from 1977 to 1997;
Westfield, New Jersey 07090 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.
</TABLE>
- ----------------
(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 Exhibit I.
(2) Member of Audit Committee of the Board of Trustees.
* 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 Audit Committee also reviews and nominates candidates
to serve as non-interested Board members. The non-interested Board members have
retained independent legal counsel to assist them in connection with these
duties.
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
60
<PAGE>
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.
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.
61
<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 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.
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.
62
<PAGE>
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 for Trustee owned shares of the
Funds.
As of the Record Date, the Trustees and officers of Florida Insured as a
group (13 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 (13 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 (13 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 (13 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.
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 majority 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 majority 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.
63
<PAGE>
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 relative 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.
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
64
<PAGE>
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.
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 financial statements for the fiscal year ended August 31, 1999 and the
financial highlights for the year then ended and for the period September 26,
1997 to August 31, 1998 for Florida Insured and the financial statements for the
fiscal year ended June 30, 1999 and the financial highlights for the year then
ended and for the period February 25, 1998 to June 30, 1998 for Florida Insured
II included in this Proxy Statement and Prospectus have been so included in
reliance on the reports of Deloitte & Touche LLP ("D&T"), independent auditors
for each
65
<PAGE>
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.
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
July 14, 2000.
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
66
<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-14
Unaudited Financial Statements for MuniHoldings Florida Insured Fund III
for the Period October 1, 1998 to March 31, 1999 ....................... F-27
Unaudited Financial Statements for MuniHoldings Florida Insured Fund IV
for the Period January 29, 1999 to March 31, 1999 ...................... F-39
Unaudited Financial Statements for Pro Forma Florida Insured,
as of August 31, 1999 .................................................. F-49
F-1
<PAGE>
Audited Financial Statements for
MuniHoldings Florida Insured Fund
for the Fiscal Year Ended August 31, 1999
F-2
<PAGE>
MuniHoldings Florida Insured Fund, August 31, 1999
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Shareholders
MuniHoldings Florida Insured Fund:
We have audited the accompanying statement of assets, liabilities and capital,
including the schedule of investments, of MuniHoldings Florida Insured Fund as
of August 31, 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 September 26, 1997 (commencement of operations) to August 31,
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 August
31, 1999 by correspondence with the custodian and broker. 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 as of August 31, 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
October 7, 1999
F-3
<PAGE>
MuniHoldings Florida Insured Fund, August 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>
Colorado--0.6% A1+ VMIG1+ $ 1,400 Moffat County, Colorado, PCR, Refunding
(Pacificorp Projects), VRDN, 2.75%
due 5/01/2013 (a)(c) $ 1,400
====================================================================================================================================
Florida--83.6% AAA Aaa 1,500 Brevard County, Florida, School Board COP, Series
B, 5.50% due 7/01/2021 (c) 1,475
---------------------------------------------------------------------------------------------------------
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 785
AAA Aaa 1,250 5.70% due 11/01/2029 1,227
---------------------------------------------------------------------------------------------------------
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) 1,649
---------------------------------------------------------------------------------------------------------
AAA Aaa 2,500 Cocoa, Florida, Water and Sewer Revenue Improvement
Bonds, 5.75% due 10/01/2007 (f)(i) 2,687
---------------------------------------------------------------------------------------------------------
NR* NR* 4,440 Collier County, Florida, IDA, IDR, Refunding
(Southern States Utilities), AMT, 6.50% due 10/01/2025 4,514
---------------------------------------------------------------------------------------------------------
Dade County, Florida, Aviation Revenue Bonds
(Miami International Airport) (d):
AAA Aaa 2,000 AMT, Series B, 5.125% due 10/01/2022 1,836
AAA Aaa 6,000 Series C, 5.125% due 10/01/2027 5,551
---------------------------------------------------------------------------------------------------------
AAA Aaa 6,500 Dade County, Florida, Aviation Revenue Bonds,
Series B, 5.60% due 10/01/2026 (b) 6,473
---------------------------------------------------------------------------------------------------------
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 1,342
NR* NR* 1,445 6.05% due 11/01/2039 1,463
---------------------------------------------------------------------------------------------------------
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 1,230
AAA Aaa 1,700 5.70% due 9/01/2022 1,679
AAA Aaa 1,890 5.75% due 9/01/2029 1,856
---------------------------------------------------------------------------------------------------------
Dade County, Florida, Water and Sewer System Revenue
Bonds (i):
AAA Aaa 1,885 5.375% due 10/01/2016 1,867
AAA Aaa 10,125 5.25% due 10/01/2026 9,580
---------------------------------------------------------------------------------------------------------
NR* Aaa 2,300 Duval County, Florida, HFA, S/F Mortgage Revenue
Refunding Bonds, AMT, 5.30% due 4/01/2031 (e)(h)(j) 2,088
---------------------------------------------------------------------------------------------------------
Escambia County, Florida, HFA, S/F Mortgage Revenue
Refunding Bonds (Multi-County Program), AMT (e)(h):
NR* Aaa 2,780 5.20% due 4/01/2032 (b) 2,475
NR* Aaa 4,000 Series A, 5.35% due 4/01/2031 3,639
NR* Aaa 2,360 Series C, 5.80% due 10/01/2019 2,332
---------------------------------------------------------------------------------------------------------
AAA Aaa 4,000 Escambia County, Florida, Utilities Authority,
Utility System Revenue Bonds, 5.25% due 1/01/2024 (i) 3,795
---------------------------------------------------------------------------------------------------------
AAA Aaa 1,675 Florida HFA, Revenue Bonds (Mar Lago Village Apartments
Project), AMT, Series F, 5.90% due 12/01/2027 (c) 1,677
---------------------------------------------------------------------------------------------------------
NR* Aaa 10,930 Florida HFA, Revenue Refunding Bonds, RITR, AMT, Series
12, 8.07% due 7/01/2029 (b)(g) 11,122
---------------------------------------------------------------------------------------------------------
AAA Aaa 2,610 Florida Housing Finance Corporation, Homeowner Mortgage
Revenue Refunding Bonds, Series 1, 5.10% due 7/01/2013 (b) 2,468
---------------------------------------------------------------------------------------------------------
F-4
<PAGE>
NR* Aaa 3,500 Florida Housing Finance Corporation, Housing Revenue
Bonds (Hampton Court Apartments), AMT, Series D-1, 5.55%
due 9/01/2025 (h) 3,406
---------------------------------------------------------------------------------------------------------
NR* Aaa 1,000 Florida State Governmental Utility Authority, Utility
Revenue Bonds (Golden Gate Utility System), 5% due
7/01/2029 (c) 900
---------------------------------------------------------------------------------------------------------
AAA Aaa 1,900 Florida State Mid-Bay Bridge Authority Revenue Bonds,
Series A, 5.45%** due 10/01/2023 (c) 467
---------------------------------------------------------------------------------------------------------
AAA Aaa 1,500 Fort Myers, Florida, Improvement Revenue Refunding Bonds,
Series A, 5% due 12/01/2022 (c) 1,373
---------------------------------------------------------------------------------------------------------
AAA Aaa 6,200 Hillsborough County, Florida, Aviation Authority, Revenue
Refunding Bonds (Tampa International Airport), Series B,
5.125% due 10/01/2017 (c) 5,895
---------------------------------------------------------------------------------------------------------
AAA Aaa 3,000 Hillsborough County, Florida, Port District Special
Revenue Refunding Bonds (Tampa Port Authority), AMT, 6%
due 6/01/2020 (d) 3,042
---------------------------------------------------------------------------------------------------------
NR* Aaa 11,015 Hillsborough County, Florida, School Board, COP, RITR,
Series 31, 7.07% due 7/01/2021 (b)(g) 10,285
---------------------------------------------------------------------------------------------------------
AAA Aaa 2,500 Hillsborough County, Florida, School Board, COP, Revenue
Refunding Bonds (Master Lease Program), Series A, 5% due
7/01/2023 (b) 2,276
---------------------------------------------------------------------------------------------------------
NR* Aaa 2,415 Homestead, Florida, Water and Wastewater Revenue
Refunding Bonds, 5.25% due 10/01/2027 (c) 2,283
---------------------------------------------------------------------------------------------------------
AAA NR* 5,000 Jacksonville, Florida, Health Facilities Authority,
Hospital Revenue Bonds (Charity Obligation Group), Series
C, 5.375% due 8/15/2029 (b) 4,788
---------------------------------------------------------------------------------------------------------
NR* VMIG1+ 200 Jacksonville, Florida, Health Facilities Authority,
Hospital Revenue Refunding Bonds (Genesis Rehabilitation
Hospital), VRDN, 3.20% due 5/01/2021 (a) 200
---------------------------------------------------------------------------------------------------------
AA- A1 2,000 Lakeland, Florida, Electric and Water Revenue Bonds, 5.50%
due 10/01/2006 (f) 2,128
---------------------------------------------------------------------------------------------------------
Lakeland, Florida, Electric and Water Revenue Refunding
Bonds, Series A (b):
AAA Aaa 3,000 5% due 10/01/2018 2,807
AAA Aaa 4,650 5% due 10/01/2028 4,190
---------------------------------------------------------------------------------------------------------
AAA Aaa 2,500 Lee County, Florida, Water and Sewer Revenue Bonds, Series
A, 5% due 10/01/2029 (c) 2,249
---------------------------------------------------------------------------------------------------------
Leon County, Florida, School Board COP, Master Lease
Program (b):
AAA Aaa 2,460 5.125% due 7/01/2017 2,353
AAA Aaa 1,000 5.125% due 7/01/2022 931
---------------------------------------------------------------------------------------------------------
AAA Aaa 1,000 Manatee County, Florida, School Board COP, 6.125% due
7/01/2006 (b)(f) 1,101
---------------------------------------------------------------------------------------------------------
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) 3,521
---------------------------------------------------------------------------------------------------------
AAA Aaa 3,000 Miami-Dade County, Florida, Professional Sports
Franchise Facility Revenue Refunding Bonds, 5% due
10/01/2023 (b) 2,734
---------------------------------------------------------------------------------------------------------
</TABLE>
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 and at right.
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
PCR Pollution Control Revenue Bonds
RITR Residual Interest Trust Receipts
S/F Single-Family
VRDN Variable Rate Demand Notes
F-5
<PAGE>
MuniHoldings Florida Insured Fund, August 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> <C>
Florida NR* Aaa $ 4,000 Miami-Dade County, Florida, Public Service Tax Revenue
(concluded) Bonds (UMSA Public Improvements), 5% due 10/01/2023 (d) $ 3,645
---------------------------------------------------------------------------------------------------------
Miami-Dade County, Florida, School Board, COP, Refunding:
AAA Aaa 1,000 Series A, 5% due 8/01/2026 (c) 903
AAA Aaa 2,000 Series C, 5% due 8/01/2025 (d) 1,809
---------------------------------------------------------------------------------------------------------
AAA Aaa 3,940 Miami-Dade County, Florida, Water and Sewer Revenue
Bonds, Series A, 5% due 10/01/2029 (i) 3,545
---------------------------------------------------------------------------------------------------------
NR* Aaa 5,750 Mirimar, Florida, Wastewater Improvement Assessment
Revenue Refunding Bonds, 5% due 10/01/2025 (b) 5,207
---------------------------------------------------------------------------------------------------------
AAA Aaa 4,000 North Broward, Florida, Hospital District Improvement
Revenue Refunding Bonds, 5.375% due 1/15/2024 (b) 3,845
---------------------------------------------------------------------------------------------------------
AAA Aaa 3,340 Okaloosa County, Florida, Gas District Revenue Refunding
Bonds, Gas Systems, Series A, 5.625% due 10/01/2023 (b) 3,341
---------------------------------------------------------------------------------------------------------
AAA NR* 1,000 Orange County, Florida, HFA, M/F Revenue Bonds (Metro
Place Apartments), AMT, Series A, 5.35% due 10/01/2023 (h) 951
---------------------------------------------------------------------------------------------------------
AAA Aaa 1,000 Orange County, Florida, Health Facilities Authority,
Mortgage Revenue Bonds (South Central Nursing), Series A,
5.40% due 7/01/2019 (d) 962
---------------------------------------------------------------------------------------------------------
NR* Aaa 10,000 Orange County, Florida, School Board, COP, Refunding
Bonds, Series A, 5.375% due 8/01/2022 (b) 9,698
---------------------------------------------------------------------------------------------------------
AAA Aaa 5,000 Orange County, Florida, Tourist Development Tax Revenue
Refunding Bonds, 5.125% due 10/01/2021 (b) 4,670
---------------------------------------------------------------------------------------------------------
AAA Aaa 5,000 Orlando and Orange County Expressway Authority, Florida,
Expressway Revenue Refunding Bonds, Junior Lien, 5% due
7/01/2028 (i) 4,520
---------------------------------------------------------------------------------------------------------
NR* Aaa 3,500 Osceola County, Florida, Sales Tax Revenue Bonds, 5%
due 4/01/2019 (d) 3,256
---------------------------------------------------------------------------------------------------------
NR* Aaa 1,600 Pinellas County, Florida, HFA, S/F Housing Revenue Bonds
(Multi-County Program), AMT, Series A-1, 5.30% due
9/01/2030 (e)(h) 1,454
---------------------------------------------------------------------------------------------------------
AAA Aaa 7,095 Saint John's County, Florida, IDA, IDR (Golf Hall of Fame
Project), 5.875% due 9/01/2023 (b) 7,201
---------------------------------------------------------------------------------------------------------
A1+ VMIG1+ 1,000 Saint Lucie County, Florida, PCR, Refunding (Florida Power
and Light Company Project), VRDN, 3.20% due 3/01/2027 (a) 1,000
---------------------------------------------------------------------------------------------------------
AAA Aaa 3,000 Saint Petersburg, Florida, Excise Tax Revenue Refunding
Bonds, 5.15% due 10/01/2013 (i) 2,953
---------------------------------------------------------------------------------------------------------
NR* Aaa 5,000 Saint Petersburg, Florida, Public Utilities Revenue Bonds,
Series A, 5% due 10/01/2028 (d) 4,505
---------------------------------------------------------------------------------------------------------
AAA Aaa 3,500 Sarasota County, Florida, Public Hospital Board, Revenue
Refunding Bonds (Sarasota Memorial Hospital), Series B,
5.25% due 7/01/2024 (b) 3,292
---------------------------------------------------------------------------------------------------------
AAA Aaa 8,000 Sunrise, Florida, Utility Systems Revenue Refunding Bonds,
5% due 10/01/2028 (c) 7,219
---------------------------------------------------------------------------------------------------------
AAA Aaa 7,250 Tampa-Hillsborough County, Florida, Expressway Authority
Revenue Refunding Bonds, 5% due 7/01/2027 (c) 6,602
====================================================================================================================================
Illinois--1.8% AAA Aaa 5,000 Chicago, Illinois, Water Revenue Refunding Bonds, 5.25%
due 11/01/2027 (i) 4,601
====================================================================================================================================
Massachusetts--3.3% AAA Aaa 4,800 Massachusetts State Turnpike Authority, Metropolitan
Highway System, Revenue Refunding Bonds, Sub-Series B,
5.25% due 1/01/2029 (b) 4,442
---------------------------------------------------------------------------------------------------------
AAA Aaa 4,500 Massachusetts State Water Resource Authority, Revenue
Refunding Bonds, Series D, 5% due 8/01/2024 (b) 4,034
====================================================================================================================================
F-6
<PAGE>
New York--1.6% A1+ VMIG1+ 2,500 Long Island Power Authority, New York, Electric System
Revenue Bonds, VRDN, Sub-Series 7, 3.15% due
4/01/2025 (a)(b) 2,500
---------------------------------------------------------------------------------------------------------
A1+ VMIG1+ 1,600 New York State Thruway Authority, General Revenue Bonds,
VRDN, 3.10% due 1/01/2024 (a)(i) 1,600
====================================================================================================================================
North Carolina--0.3% A1+ NR* 700 Raleigh Durham, North Carolina, Airport Authority,
Special Facility Revenue Refunding Bonds (American
Airlines Inc.), VRDN, Series B, 3.20% due 11/01/2015 (a) 700
====================================================================================================================================
Texas--5.8% A1+ NR* 200 Harris County, Texas, Health Facilities Development
Corporation, Hospital Revenue Refunding Bonds (Methodist
Hospital), VRDN, 3.20% due 12/01/2025 (a) 200
---------------------------------------------------------------------------------------------------------
AAA Aaa 9,600 Houston, Texas, Water and Sewer System, Revenue Refunding
Bonds, Junior Lien, Series A, 5.25% due 12/01/2025 (i) 8,965
---------------------------------------------------------------------------------------------------------
AAA Aaa 4,000 Matagorda County, Texas, Navigation District Number 1,
Revenue Refunding Bonds (Reliant Energy Inc.), Series A,
5.25% due 6/01/2026 (c) 3,682
---------------------------------------------------------------------------------------------------------
AAA Aaa 2,120 North Harris, Texas, Montgomery Community College
District, GO, 5.25% due 2/15/2025 (c) 1,979
====================================================================================================================================
Total Investments (Cost--$255,113)--97.0% 246,420
Other Assets Less Liabilities--3.0% 7,725
--------
Net Assets--100.0% $254,145
========
====================================================================================================================================
</TABLE>
(a) The interest rate is subject to change periodically based upon prevailing
market rates. The interest rate shown is the rate in effect at August 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 August 31, 1999.
(h) FNMA Collateralized.
(i) FGIC Insured.
(j) FHA Insured.
* Not Rated.
** Represents a zero coupon bond; the interest rate shown reflects the
effective yield at the time of purchase by the Fund.
+ Highest short-term rating by Moody's Investors Service, Inc.
Ratings of issues shown have not been audited by Deloitte & Touche LLP.
See Notes to Financial Statements.
================================================================================
Quality Profile
The quality ratings of securities in the Fund as of August 31, 1999 were as
follows:
- --------------------------------------------------------------------------------
Percent of
S&P Rating/Moody's Rating Net Assets
- --------------------------------------------------------------------------------
AAA/Aaa .................................................. 90.3%
AA/Aa .................................................... 0.8
NR (Not Rated) ........................................... 2.9
Other+ ................................................... 3.0
- --------------------------------------------------------------------------------
+ Temporary investments in short-term municipal securities.
F-7
<PAGE>
MuniHoldings Florida Insured Fund, August 31, 1999
STATEMENT OF ASSETS, LIABILITIES AND CAPITAL
<TABLE>
<CAPTION>
As of August 31, 1999
====================================================================================================================================
<S> <C> <C> <C>
Assets: Investments, at value (identified cost--$255,113,434) (Note 1a) ................. $246,420,048
Cash ............................................................................ 92,922
Receivables:
Securities sold ............................................................... $ 4,516,611
Interest ...................................................................... 4,260,754 8,777,365
------------
Prepaid expenses and other assets ............................................... 12,045
------------
Total assets .................................................................... 255,302,380
------------
====================================================================================================================================
Liabilities: Payables:
Securities purchased .......................................................... 832,089
Investment adviser (Note 2) ................................................... 105,700
Dividends to shareholders (Note 1f) ........................................... 90,800
Offering costs (Note 1e) ...................................................... 52,060 1,080,649
------------
Accrued expenses and other liabilities .......................................... 77,023
------------
Total liabilities ............................................................... 1,157,672
------------
====================================================================================================================================
Net Assets: Net assets ...................................................................... $254,144,708
============
====================================================================================================================================
Capital: Capital Shares (unlimited number of shares of beneficial interest authorized)
(Note 4):
Preferred Shares, par value $.10 per share (4,190 shares of AMPS*
issued and outstanding at $25,000 per share liquidation preference) ........... $104,750,000
Common Shares, par value $.10 per share (10,798,052 shares issued and
outstanding) ............................................................... $ 1,079,805
Paid-in capital in excess of par ................................................ 159,650,433
Undistributed investment income--net ............................................ 1,283,310
Accumulated distribution in excess of realized capital gains on
investments--net (Note 1f) .................................................... (3,925,454)
Unrealized depreciation on investments--net ..................................... (8,693,386)
------------
Total capital--Equivalent to $13.84 net asset value of Common Share
(market price--$12.75) ........................................................ 149,394,708
------------
Total capital ................................................................... $254,144,708
============
====================================================================================================================================
</TABLE>
* Auction Market Preferred Shares.
See Notes to Financial Statements.
F-8
<PAGE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the Year Ended August 31, 1999
====================================================================================================================================
<S> <C> <C> <C>
Investment Interest and amortization of premium and discount earned ........................ $ 14,307,432
Income
(Note 1d):
====================================================================================================================================
Expenses: Investment advisory fees (Note 2) ............................................... $ 1,503,913
Commission fees (Note 4) ........................................................ 265,667
Accounting services (Note 2) .................................................... 84,433
Professional fees ............................................................... 68,994
Transfer agent fees ............................................................. 44,542
Listing fees .................................................................... 35,804
Printing and shareholder reports ................................................ 22,277
Custodian fees .................................................................. 21,557
Trustees' fees and expenses ..................................................... 18,438
Pricing fees .................................................................... 11,136
Other ........................................................................... 39,689
------------
Total expenses before reimbursement ............................................. 2,116,450
Reimbursement of expenses (Note 2) .............................................. (128,456)
------------
Total expenses after reimbursement .............................................. 1,987,994
------------
Investment income--net .......................................................... 12,319,438
------------
====================================================================================================================================
Realized & Realized loss on investments--net ............................................... (1,856,838)
Unrealized Gain Change in unrealized appreciation/depreciation on investments--net .............. (17,298,513)
(Loss) On ------------
Investments-- Net Decrease in Net Assets Resulting from Operations ............................ $ (6,835,913)
Net (Notes 1b, ============
1d & 3):
====================================================================================================================================
</TABLE>
See Notes to Financial Statements.
F-9
<PAGE>
MuniHoldings Florida Insured Fund, August 31, 1999
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the For the Period
Year Ended Sept. 26, 1997+
Increase (Decrease) in Net Assets: Aug. 31, 1999 to Aug. 31, 1998
==============================================================================================================================
<S> <C> <C> <C>
Operations: Investment income--net .................................................... $ 12,319,438 $ 11,552,061
Realized gain (loss) on investments--net .................................. (1,856,838) 2,950,478
Change in unrealized appreciation/depreciation on investments--net ........ (17,298,513) 8,605,127
------------ ------------
Net increase (decrease) in net assets resulting from operations ........... (6,835,913) 23,107,666
------------ ------------
==============================================================================================================================
Dividends & Investment income--net:
Distributions to Common Shares ........................................................... (9,261,991) (7,624,987)
Shareholders Preferred Shares ........................................................ (2,522,551) (3,178,660)
(Note 1f): Realized gain on investments--net:
Common Shares ........................................................... (795,035) --
Preferred Shares ........................................................ (298,605) --
In excess of realized gain on investments--net:
Common Shares ........................................................... (2,853,657) --
Preferred Shares ........................................................ (1,071,797) --
------------ ------------
Net decrease in net assets resulting from dividends and distributions
to shareholders ......................................................... (16,803,636) (10,803,647)
------------ ------------
==============================================================================================================================
Beneficial Net proceeds from issuance of Common Shares ............................... -- 161,250,000
Interest Proceeds from issuance of Preferred Shares ................................ -- 104,750,000
Transactions Value of shares issued to Common Shareholders in reinvestment of
(Notes 1e & 4): dividends and distributions ............................................. 518,200 127,870
Offering costs resulting from the issuance of Common Shares ............... -- (340,658)
Offering and underwriting costs resulting from the issuance of
Preferred Shares ........................................................ -- (925,179)
------------ ------------
Net increase in net assets derived from beneficial interest transactions .. 518,200 264,862,033
------------ ------------
==============================================================================================================================
Net Assets: Total increase (decrease) in net assets ................................... (23,121,349) 277,166,052
Beginning of period ....................................................... 277,266,057 100,005
------------ ------------
End of period* ............................................................ $254,144,708 $277,266,057
============ ============
==============================================================================================================================
* Undistributed investment income--net ...................................... $ 1,283,310 $ 748,414
============ ============
==============================================================================================================================
</TABLE>
+ Commencement of operations.
See Notes to Financial Statements.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
The following per share data and ratios have been derived
from information provided in the financial statements. For the For the Period
Year Ended Sept. 26, 1997+
Increase (Decrease) in Net Asset Value: Aug. 31, 1999 to Aug. 31, 1998
==============================================================================================================================
<S> <C> <C> <C>
Per Share Net asset value, beginning of period ...................................... $ 16.03 $ 15.00
Operating ------------ ------------
Performance: Investment income--net .................................................... 1.14 1.08
Realized and unrealized gain (loss) on investments--net ................... (1.77) 1.08
------------ ------------
Total from investment operations .......................................... (.63) 2.16
------------ ------------
Less dividends and distributions to Common Shareholders:
F-10
<PAGE>
Investment income--net .................................................. (.86) (.71)
Realized gain on investments--net ....................................... (.07) --
In excess of realized gain on investments--net .......................... (.27) --
------------ ------------
Total dividends and distributions to Common Shareholders .................. (1.20) (.71)
------------ ------------
Capital charge resulting from issuance of Common Shares -- (.03)
------------ ------------
Effect of Preferred Share activity:++
Dividends and distributions to Preferred Shareholders:
Investment income--net ................................................ (.23) (.30)
Realized gain on investments--net ..................................... (.03) --
In excess of realized gain on investments--net ........................ (.10) --
Capital charge resulting from issuance of Preferred Shares .............. -- (.09)
Total effect of Preferred Share activity .................................. (.36) (.39)
------------ ------------
Net asset value, end of period ............................................ $ 13.84 $ 16.03
============ ============
Market price per share, end of period ..................................... $ 12.75 $ 14.8125
============ ============
==============================================================================================================================
Total Investment Based on market price per share ........................................... (6.80%) 3.47%++++
Return:** ============ ============
Based on net asset value per share ........................................ (6.51%) 11.97%++++
============ ============
==============================================================================================================================
Ratios Based Expenses, net of reimbursement*** ......................................... 1.18% .87%*
on Average ============ ============
Net Assets Total expenses*** ......................................................... 1.26% 1.20%*
Of Common ============ ============
Shares: Total investment income--net*** ........................................... 7.34% 7.51%*
============ ============
Amount of dividends to Preferred Shareholders ............................. 1.50% 2.07%*
============ ============
Investment income--net, to Common Shareholders ............................ 5.84% 5.44%*
============ ============
==============================================================================================================================
Ratios Based on Total expenses, net of reimbursement ...................................... .73% .54%*
Average Net ============ ============
Assets:+++*** Total expenses ............................................................ .77% .75%*
============ ============
Total investment income--net .............................................. 4.51% 4.70%*
============ ============
==============================================================================================================================
Ratios Based on Dividends to Preferred Shareholders ....................................... 2.39% 3.47%*
Average Net ============ ============
Assets Of
Preferred
Shares:
==============================================================================================================================
Supplemental Net assets, net of Preferred Shares, end of period (in thousands) ......... $ 149,395 $ 172,516
Data: ============ ============
Preferred Shares outstanding, end of period (in thousands) ................ $ 104,750 $ 104,750
============ ============
Portfolio turnover ..................................................... 120.70% 101.89%
============ ============
==============================================================================================================================
Leverage: Asset coverage per $1,000 ................................................. $ 2,426 $ 2,647
============ ============
==============================================================================================================================
Dividends Per Series A--Investment income--net .......................................... $ 606 $ 753
Share on ============ ============
Preferred Series B--Investment income--net .......................................... $ 598 $ 764
Shares ============ ============
Outstanding:
==============================================================================================================================
</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.
See Notes to Financial Statements.
F-11
<PAGE>
MuniHoldings Florida Insured Fund, August 31, 1999
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-diversi-fied, 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
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.
o Options--The Fund is authorized to write covered call options and purchase put
options. When the Fund writes an option, an amount equal to the premium received
by the Fund is reflected as an asset and an equivalent liability. The amount of
the liability is subsequently marked to market to reflect the current market
value of the option written.
When a security is purchased or sold through an exercise of an option, the
related premium paid (or received) is added to (or deducted from) the basis of
the security acquired or deducted from (or added to) the proceeds of the
security sold. When an option expires (or the Fund enters into a closing
transaction), the Fund realizes a gain or loss on the option to the extent of
the premiums received or paid (or gain or loss to the extent the cost of the
closing transaction exceeds the premium paid or received).
Written and purchased options are non-income producing investments.
(c) Income taxes--It is the Fund's policy to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no Federal income tax provision is required.
(d) Security transactions and investment income--Security transactions are
recorded on the dates the transactions are entered into (the trade dates).
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-12
<PAGE>
(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.
2. Investment Advisory Agreement and Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with Fund Asset
Management, L.P. ("FAM"). The general partner of FAM is Princeton Services, Inc.
("PSI"), an indirect wholly-owned subsidiary of Merrill Lynch & Co., Inc. ("ML &
Co."), which is the limited partner.
FAM is responsible for the management of the Fund's portfolio and provides the
necessary personnel, facilities, equipment and certain other services necessary
to the operations of the Fund. For such services, the Fund pays a monthly fee at
an annual rate of .55% of the Fund's average weekly net assets, including
proceeds from the issuance of Preferred Shares. For the year ended August 31,
1999, FAM earned fees of $1,503,913, of which $128,456 was voluntarily waived.
During the period September 26, 1997 to August 31, 1998, Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("MLPF&S"), an affiliate of FAM, received
underwriting fees of $785,625 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
year ended August 31, 1999 were $318,153,717 and $327,516,355, respectively.
Net realized gains (losses) for the year ended August 31, 1999 and net
unrealized losses as of August 31, 1999 were as follows:
- --------------------------------------------------------------------------------
Realized Unrealized
Gains (Losses) Losses
- --------------------------------------------------------------------------------
Long-term investments ...................... $(2,812,221) $(8,693,386)
Financial futures contracts ................ 955,383 --
----------- -----------
Total ...................................... $(1,856,838) $(8,693,386)
=========== ===========
- --------------------------------------------------------------------------------
As of August 31, 1999, net unrealized depreciation for Federal income tax
purposes aggregated $8,981,200, of which $518,771 related to appreciated
securities and $9,499,971 related to depreciated securities. The aggregate cost
of investments at August 31, 1999 for Federal income tax purposes was
$255,401,248.
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 year ended August 31, 1999, increased by
33,181 as a result of dividend reinvestment. Shares issued and outstanding for
the period September 26, 1997 to August 31, 1998, increased by 10,750,000 from
shares sold and by 8,204 as a result of dividend reinvestment.
Preferred Shares
Auction Market Preferred Shares ("AMPS") are shares of 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
August 31, 1999 were as follows: Series A, 3.26% and Series B, 3.20%.
Shares issued and outstanding during the year ended August 31, 1999 remained
constant and for the period ended September 26,1997 to August 31, 1998 increased
by 4,190 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 .25% to .375%, calculated on the proceeds of each
auction. For the year ended August 31, 1999, MLPF&S, earned $188,808 as
commissions.
5. Reorganization Plan:
On September 9, 1999, the Fund's Board of Trustees approved a plan of
reorganization whereby the Fund would acquire substantially all of the assets
and liabilities of MuniHoldings Florida Insured Fund II, MuniHoldings Florida
Insured Fund III and MuniHoldings Florida Insured Fund IV in exchange for newly
issued shares of the Fund. The plan of reorganization is subject to shareholder
approval. MuniHoldings Florida Insured Fund II, MuniHoldings Florida Insured
Fund III and MuniHoldings Florida Insured Fund IV are registered,
non-diversified, closed-end management investment companies. All four entities
have a similar investment objective and are managed by FAM.
6. Subsequent Event:
On September 8, 1999, the Fund's Board of Trustees declared an ordinary income
dividend to Common Shareholders in the amount of $.068882 per share, payable on
September 29, 1999 to shareholders of record as of September 22, 1999.
F-13
<PAGE>
Audited Financial Statements for
MuniHoldings Florida Insured Fund II
for the Fiscal Year Ended June 30, 1999
F-14
<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-15
<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-16
<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-17
<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-18
<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-19
<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-20
<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-21
<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-22
<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-23
<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-24
<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-25
<PAGE>
(This page intentionally left blank)
F-26
<PAGE>
Unaudited Financial Statements for
MuniHoldings Florida Insured Fund III
for the Period from October 1, 1998 to March 31, 1999
F-27
<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-28
<PAGE>
<TABLE>
<CAPTION>
S&P Moody's Face Value
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-29
<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
=======
- --------------------------------------------------------------------------------
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-30
<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-31
<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-32
<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-33
<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-34
<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-35
<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-36
<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-37
<PAGE>
(This page intentionally left blank)
F-38
<PAGE>
Unaudited Financial Statements for
MuniHoldings Florida Insured Fund IV
for the Period from January 29, 1999 to March 31, 1999
F-39
<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-40
<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-41
<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-42
<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-43
<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-44
<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-45
<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-46
<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-47
<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-48
<PAGE>
Unaudited Financial Statements for
Pro Forma Florida Insured
as of August 31, 1999
F-49
<PAGE>
Combined Schedule of Investments
for MuniHoldings Florida Insured Fund, MuniHoldings Florida Insured Fund II,
MuniHoldings Florida Insured Fund III and MuniHoldings Florida Insured Fund IV
August 31, 1999 (unaudited)
(in Thousands)
<TABLE>
<CAPTION>
Florida Florida Florida Pro Forma
S&P Moody's Face Florida Insured Insured Insured Florida
Ratings Ratings Amount Issue Insured++ II++ III++ IV++ Insured++
- ------------------------------------------------------------------------------------------------------------------------------------
Colorado -- 0.3%
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
A1+ VMIG1+ $ 2,500 Moffat County, Colorado, PCR, Refunding
(Pacificorp Projects),
VRDN, 2.75% due 5/01/2013 (a)(c) ............. $1,400 $500 -- $ 600 $2,500
- ------------------------------------------------------------------------------------------------------------------------------------
Florida -- 83.0%
- ------------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,500 Brevard County, Florida, School Board COP,
Series B, 5.50% due 7/01/2021(c) ........... 1,475 -- -- -- 1,475
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 ....................... 785 -- -- -- 785
AAA Aaa 1,250 5.70% due 11/01/2029 ....................... 1,227 -- -- -- 1,227
Broward County, Florida, HFA, S/F Mortgage
Revenue Refunding Bonds, AMT, Series B:
NR* Aaa 7,000 5.40% due 4/01/2029(e)(h) .................. -- 6,467 -- -- 6,467
NR* Aaa 3,200 5.25% due 4/01/2031 2,874 2,874
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) 1,649 -- -- -- 1,649
AAA NR* 7,500 Charlotte County, Florida, Utility Revenue
Refunding Bonds, 5% due 10/01/2023(i) ...... -- 6,853 -- -- 6,853
NR* Aaa 5,000 Clay County, Florida, HFA, S/F Mortgage
Revenue Refunding Bonds (Multi-County), AMT,
5.45% due 4/01/2031(e)(h) .................. -- -- $4,645 -- 4,645
AAA Aaa 2,500 Cocoa, Florida, Water and Sewer Revenue
Improvement Bonds, 5.75% due
10/01/2007(f)(i) ........................... 2,687 -- -- -- 2,687
NR* NR* 4,440 Collier County, Florida, IDA, IDR, Refunding
(Southern States Utilities), AMT,
6.50% due 10/01/2025 ....................... 4,514 -- -- -- 4,514
Dade County, Florida, Aviation Revenue Bonds
(Miami International Airport) (d):
AAA Aaa 2,000 AMT, Series B, 5.125% due 10/01/2022(d) ...... 1,836 -- -- -- 1,836
AAA Aaa 6,000 Series C, 5.125% due 10/01/2027 .............. 5,551 -- -- -- 5,551
</TABLE>
F-50
<PAGE>
Combined Schedule of Investments
for MuniHoldings Florida Insured Fund, MuniHoldings Florida Insured Fund II,
MuniHoldings Florida Insured Fund III and MuniHoldings Florida Insured Fund IV
August 31, 1999 (unaudited) (continued)
(in Thousands)
<TABLE>
<CAPTION>
Florida Florida Florida Pro Forma
S&P Moody's Face Florida Insured Insured Insured Florida
Ratings Ratings Amount Issue Insured++ II++ III++ IV++ Insured++
- ------------------------------------------------------------------------------------------------------------------------------------
Florida (continued)
- ------------------------------------------------------------------------------------------------------------------------------------
<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) .......... $6,473 -- -- -- $ 6,473
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 ....................... 1,342 -- -- -- 1,342
NR* NR* 1,445 6.05% due 11/01/2039 ....................... 1,463 -- -- -- 1,463
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 ........................ 1,230 -- -- -- 1,230
AAA Aaa 1,700 5.70% due 9/01/2022 ........................ 1,679 -- -- -- 1,679
AAA Aaa 1,890 5.75% due 9/01/2029 ........................ 1,856 -- -- -- 1,856
AAA NR* 4,000 Dade County, Florida, Seaport, GO, Refunding,
5.125% due 10/01/2026(e) -- -- $3,695 -- 3,695
Dade County, Florida, Water and Sewer
System Revenue Bonds(i):
AAA Aaa 1,885 5.375% due 10/01/2016 ...................... 1,867 -- -- -- 1,867
AAA Aaa 25,625 5.25% due 10/01/2026 ....................... 9,580 $5,204 -- $9,461 24,245
NR* Aaa 8,300 Duval County, Florida, HFA, S/F Mortgage
Revenue Bonds, AMT, 5.30% due 4/01/2031(e)(h) 2,088 -- -- 5,460 7,548
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) ..................... 2,475 -- -- 8,902 11,377
NR* Aaa 2,000 Series A, 5.30% due 10/01/2019 -- 1,860 -- -- 1,860
NR* Aaa 8,400 Series A, 5.35% due 4/01/2031 .............. 3,639 4,003 -- -- 7,642
NR* Aaa 2,360 Series C, 5.80% due 10/01/2019 ............. 2,332 -- -- -- 2,332
A1 VMIG1+ 700 Escambia County, Florida, PCR, Refunding
(Gulf Power Company Project), VRDN,
3.20% due 7/01/2022(a) ..................... -- -- 700 -- 700
AAA Aaa 4,000 Escambia County, Florida, Utilities Authority,
Utility System Revenue Bonds, 5.25% due
1/01/2024 (i) .............................. 3,795 -- -- -- 3,795
Florida HFA Revenue Bonds, AMT (c):
AAA Aaa 4,500 (Barrington Place), Series K-1,
5.45% due 12/01/2037 ....................... -- 4,239 -- -- 4,239
</TABLE>
F-51
<PAGE>
Combined Schedule of Investments
for MuniHoldings Florida Insured Fund, MuniHoldings Florida Insured Fund II,
MuniHoldings Florida Insured Fund III and MuniHoldings Florida Insured Fund IV
August 31, 1999 (unaudited) (continued)
(in Thousands)
<TABLE>
<CAPTION>
Florida Florida Florida Florida Pro Forma
S&P Moody's Face Insured Insured Insured Insured Florida
Ratings Ratings Amount ++ II++ III++ IV++ Insured++
- ------------------------------------------------------------------------------------------------------------------------------------
Florida (continued)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AAA Aaa $ 1,675 (Mar Lago Village Apartments Project),
Series F, 5.90% due 12/01/2027 ............... $ 1,677 -- -- -- $ 1,677
AAA Aaa 3,500 (Wentworth Apartments Project), Series I-1,
5.45% due 10/01/2037 ....................... -- -- $3,297 -- 3,297
AAA Aaa 3,750 (Willow Lake Apartments), Series J-1,
5.35% due 7/01/2027 ........................ -- -- -- $3,553 3,553
AAA Aaa 6,000 (Willow Lake Apartments), Series J-1,
5.45% due 1/01/2038 ........................ -- -- -- 5,652 5,652
NR* Aaa 17,460 Florida HFA Revenue Refunding Bonds, RITR,
AMT, Series 12, 8.32% due 7/01/2029(b)(g) .. 11,122 $6,645 -- -- 17,767
Florida Housing Finance Corporation, Housing
Revenue Bonds, AMT:
NR* Aaa 3,500 (Hampton Court Apartments), Series D-1,
5.55% due 9/01/2025 (h) .................... 3,406 -- -- -- 3,406
AAA NR* 2,300 (Spring Harbor Apartments), Series C-1,
5.50% due 8/01/2019 (c) .................... -- -- 2,230 -- 2,230
AAA Aaa 2,610 Florida Housing Finance Corporation Revenue
Bonds, Homeowner Mortgage,
Series 1, 5.10% due 7/01/2013(b) ........... 2,468 -- -- -- 2,468
AAA Aaa 5,195 Florida Housing Finance Corporation Revenue
Refunding Bonds, Homeowner Mortgage,
AMT, Series 2, 5.35% due 1/01/2021(b) ...... -- 1,812 3,027 -- 4,839
AAA Aaa 5,665 Florida Municipal Loan Council Revenue Bonds,
5% due 4/01/2029(b) ........................ -- -- -- 5,101 5,101
AAA Aaa 4,000 Florida Ports Financing Commission Revenue
Bonds (State Transportation Trust Fund), AMT,
5.375% due 6/01/2027(b) .................... -- -- -- 3,798 3,798
Florida State Governmental Utility Authority,
Utility Revenue Bonds(c):
NR* Aaa 6,205 (Barefoot Bay Utility system), 5% due
10/01/2029 ................................. -- 5,583 -- -- 5,583
NR* Aaa 4,600 (Golden Gate Utility System), 5% due
7/01/2029 .................................. 900 3,240 -- -- 4,140
</TABLE>
F-52
<PAGE>
Combined Schedule of Investments
for MuniHoldings Florida Insured Fund, MuniHoldings Florida Insured Fund II,
MuniHoldings Florida Insured Fund III and MuniHoldings Florida Insured Fund IV
August 31, 1999 (unaudited) (continued)
(in Thousands)
<TABLE>
<CAPTION>
Florida Florida Florida Pro Forma
S&P Moody's Face Florida Insured Insured Insured Florida
Ratings Ratings Amount Issue Insured++ II++ III++ IV++ Insured++
- ------------------------------------------------------------------------------------------------------------------------------------
Florida (continued)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NR* Aaa $ 6,075 (Poinciana Utility System), 5.25% due
10/01/2018 ................................. -- -- -- $5,848 $5,848
NR* Aaa 1,525 (Sarasota Utility System), 5% due 10/01/2029 -- -- -- 1,372 1,372
AAA Aaa 1,900 Florida State Mid-Bay Bridge Authority
Revenue Bonds, Series A, 5.45%** due
10/01/2023(c) .............................. $ 467 -- -- -- 467
Florida State Turnpike Authority, Turnpike
Revenue Bonds (Department of Transportation)
AAA Aaa 11,250 Series A, 5% due 7/01/2021(i) .............. -- $3,905 $2,756 3,675 10,336
AAA Aaa 10,000 Series A, 4.50% due 7/01/2027(i) ........... -- 8,250 -- -- 8,250
AAA Aaa 1,500 Fort Myers, Florida, Improvement Revenue
Refunding Bonds, Series A, 5% due
12/01/2022(c) .............................. 1,373 -- -- -- 1,373
AAA Aaa 6,000 Greater Orlando Aviation Authority, Florida,
Airport Facilities Revenue Bonds, AMT,
Series A, 5.125% due 10/01/2028(i) ......... -- 5,457 -- -- 5,457
AAA Aaa 6,200 Hillsborough County, Florida, Aviation
Authority Revenue Refunding Bonds (Tampa
International Airport), Series B,
5.125% due 10/01/2017(c) ................... 5,895 -- -- -- 5,895
AAA Aaa 3,825 Hillsborough County, Florida, Capital
Improvement Revenue Bonds (Warehouse and
Sheriffs Facilities Project), 5% due
7/01/2028(d) ............................... -- -- 3,448 -- 3,448
AAA Aaa 2,500 Hillsborough County, Florida, Court
Facilities Revenue Bonds, 5.40% due
5/01/2030(c) ............................... -- -- 2,402 -- 2,402
AAA Aaa 3,000 Hillsborough County, Florida, Port District
Special Revenue Refunding Bonds (Tampa Port
Authority), AMT, 6% due 6/01/2020(d) ....... 3,042 -- -- -- 3,042
AAA Aaa 2,500 Hillsborough County, Florida, School Board,
COP, Revenue Refunding Bonds (Master Lease
Program), Series A, 5% due 7/01/2023 (b) ... 2,276 -- -- -- 2,276
NR* Aaa 21,015 Hillsborough County, Florida, School Board,
COP, RITR, Series 31, 7.07% due
7/01/2021(b)(g) ............................ 10,285 9,338 -- -- 19,623
NR* Aaa 2,415 Homestead Florida Water and Wastewater
Revenue Refunding Bonds, 5.25% due
10/01/2027(c) .............................. 2,283 -- -- -- 2,283
</TABLE>
F-53
<PAGE>
Combined Schedule of Investments
for MuniHoldings Florida Insured Fund, MuniHoldings Florida Insured Fund II,
MuniHoldings Florida Insured Fund III and MuniHoldings Florida Insured Fund IV
August 31, 1999 (unaudited) (continued)
(in Thousands)
<TABLE>
<CAPTION>
Florida Florida Florida Pro Forma
S&P Moody's Face Florida Insured Insured Insured Florida
Ratings Ratings Amount Issue Insured++ II++ III++ IV++ Insured++
- ------------------------------------------------------------------------------------------------------------------------------------
Florida (continued)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AAA NR* $15,000 Jacksonville, Florida, Health Facilities
Authority, Hospital Revenue Bonds
(Charity Obligation Group), Series C,
5.375% due 8/15/2029 (b) ................... $ 4,788 $ 4,788 -- $4,789 $14,365
NR* VMIG1+ 200 Jacksonville, Florida, Health Facilities
Authority, Hospital Revenue Refunding Bonds
(Genesis Rehabilitation Hospital), VRDN,
3.20% due 5/01/2021 (a) .................... 200 -- -- -- 200
AAA NR* 12,990 Jacksonville, Florida, HFA, Hospital Revenue
Refunding Bonds, RIB, Series 49, 6.604% due
8/15/2027(b)(g) ............................ -- -- $10,744 -- 10,744
Jupiter Island, Florida, Utility System
Revenue Bonds (South Martin Regional
Utility)(b):
AAA Aaa 3,000 5% due 10/01/2018 .......................... -- -- 2,797 -- 2,797
AAA Aaa 1,900 5% due 10/01/2028 .......................... -- -- -- 1,712 1,712
AA- A1 2,000 Lakeland, Florida, Electric and Water Revenue
Bonds, 5.50% due 10/01/2006(f) ............. 2,128 -- -- -- 2,128
Lakeland, Florida, Electric and Water Revenue
Refunding Bonds, Series A (b):
AAA Aaa 5,500 5% due 10/01/2018 .......................... 2,807 2,339 -- -- 5,146
AAA Aaa 2,040 5% due 10/01/2019 .......................... -- -- 1,896 -- 1,896
AAA Aaa 9,650 5% due 10/01/2028 .......................... 4,190 2,253 2,253 -- 8,696
AAA Aaa 5,500 Lakeland, Florida, Hospital System Revenue
Bonds (Lakeland Regional Health System),
Series A, 5.50% due 11/15/2026(b) .......... -- -- 2,441 2,929 5,370
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) ... -- 1,028 -- -- 1,028
AAA Aaa 15,000 Lee County, Florida, Water and Sewer Revenue
Bonds, Series A, 5% due 10/01/2029 (c) ..... 2,249 4,499 -- 6,749 13,497
Leon County, Florida, School Board COP,
Master Lease Program(b):
AAA Aaa 2,460 5.125% due 7/01/2017 ....................... 2,353 -- -- -- 2,353
AAA Aaa 1,000 5.125% due 7/01/2022 ....................... 931 -- -- -- 931
</TABLE>
F-54
<PAGE>
Combined Schedule of Investments
for MuniHoldings Florida Insured Fund, MuniHoldings Florida Insured Fund II,
MuniHoldings Florida Insured Fund III and MuniHoldings Florida Insured Fund IV
August 31, 1999 (unaudited) (continued)
(in Thousands)
<TABLE>
<CAPTION>
Florida Florida Florida Pro Forma
S&P Moody's Face Florida Insured Insured Insured Florida
Ratings Ratings Amount Issue Insured++ II++ III++ IV++ Insured++
- ------------------------------------------------------------------------------------------------------------------------------------
Florida (continued)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AAA Aaa $ 1,000 Manatee County, Florida, School Board COP,
6.125% due 7/01/2006(b)(f) ................. $ 1,101 -- -- -- $1,101
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) ................... 3,521 -- -- -- 3,521
AAA Aaa 5,750 Miami Beach, Florida, Parking Revenue Bonds,
5.125% due 9/01/2022(d) .................... -- -- -- $5,371 5,371
AAA Aaa 3,000 Miami-Dade County, Florida, Professional
Sports Franchise Facility Revenue
Refunding Bonds, 5% due 10/01/2023(b) ...... 2,734 -- -- -- 2,734
NR* Aaa 14,000 Miami-Dade County, Florida, Public Service
Tax Revenue Bonds (UMSA Public
Improvements), 5% due 10/01/2023(d) ........ 3,645 $4,557 $4,557 -- 12,759
Miami-Dade County, Florida, School Board,
COP, Refunding:
AAA Aaa 1,000 Series A, 5% due 8/01/2026 (c) ............. 903 -- -- -- 903
AAA Aaa 9,900 Series C, 5% due 8/01/2025(d) .............. 1,809 1,357 905 4,884 8,955
AAA Aaa 16,270 Miami-Dade County, Florida, Water and Sewer
Revenue Bonds, Series A, 5% due
10/01/2029 (i) ............................. 3,545 5,241 -- 5,853 14,639
NR* Aaa 8,750 Mirimar, Florida, Wastewater Improvement
Assessment Revenue Refunding Bonds, 5% due
10/01/2025(b) .............................. 5,207 -- -- 2,717 7,924
AAA Aaa 4,000 North Broward, Florida, Hospital District
Improvement Revenue Refunding Bonds, 5.375%
due 1/15/2024(b) ........................... 3,845 -- -- -- 3,845
AAA Aaa 2,850 North Port, Florida, Utility Revenue
Refunding Bonds, 5% due 10/01/2018(i) ...... -- 2,657 -- -- 2,657
AAA Aaa 1,750 North Springs, Florida, Improvement District,
Water Management, GO, Refunding, 5% due
5/01/2019(b) ............................... -- -- 1,624 -- 1,624
AAA Aaa 3,340 Okaloosa County, Florida, Gas District
Revenue Refunding Bonds, Gas Systems,
Series A, 5.625% due 10/01/2023(b) ......... 3,341 -- -- -- 3,341
AAA Aaa 2,950 Okeechobee, Florida, Utility Authority,
Utility System Revenue Refunding Bonds,
Capital Improvements, 5% due 10/01/2019(d) . -- -- 2,741 -- 2,741
</TABLE>
F-55
<PAGE>
Combined Schedule of Investments
for MuniHoldings Florida Insured Fund, MuniHoldings Florida Insured Fund II,
MuniHoldings Florida Insured Fund III and MuniHoldings Florida Insured Fund IV
August 31, 1999 (unaudited) (continued)
(in Thousands)
<TABLE>
<CAPTION>
Florida Florida Florida Pro Forma
S&P Moody's Face Florida Insured Insured Insured Florida
Ratings Ratings Amount Issue Insured++ II++ III++ IV++ Insured++
- ------------------------------------------------------------------------------------------------------------------------------------
Florida (continued)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NR* Aaa $ 2,525 Orange County, Florida, HFA, Homeowner
Revenue Refunding Bonds, AMT, Series A-1,
5.60% due 9/01/2024(c) ..................... -- -- $2,414 -- $ 2,414
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 ....................... $ 951 -- -- -- 951
AAA NR* 4,015 5.375% due 10/01/2030 ...................... -- $3,781 -- -- 3,781
AAA NR* 4,965 Orange County, Florida, HFA, S/F Mortgage
Revenue Bonds, AMT, Series B, 5.875% due
3/01/2028(e)(h) ............................ -- 5,010 -- -- 5,010
Orange County, Florida, Health Facilities
Authority, Mortgage Revenue Bonds
(South Central Nursing), Series A(d):
AAA Aaa 4,000 5.40% due 7/01/2019 ........................ 962 -- -- -- 962
AAA Aaa 2,470 5.50% due 7/01/2032 ........................ -- -- 2,898 $2,386 5,284
NR* Aaa 7,620 Orange County, Florida, School Board, COP,
Series A, 5% due 8/01/2024(e) .............. -- -- -- 6,924 6,924
NR* Aaa 17,650 Orange County, Florida, School Board, COP,
Refunding Bonds, Series A, 5.375% due
8/01/2022(b) ............................... 9,698 7,419 -- -- 17,117
Orange County, Florida, Tourist Development
Tax Revenue Refunding Bonds(b):
AAA Aaa 2,500 5% due 10/01/2018 .......................... -- 2,339 -- -- 2,339
AAA Aaa 5,160 5% due 10/01/2019 .......................... -- -- -- 4,795 4,795
AAA Aaa 5,000 5.125% due 10/01/2021 ...................... 4,670 -- -- -- 4,670
Orlando and Orange County Expressway
Authority, Florida, Expressway Revenue
Refunding Bonds, Junior Lien(i):
AAA Aaa 18,400 5% due 7/01/2021 ........................... -- -- 4,589 12,298 16,887
AAA Aaa 10,000 5% due 7/01/2028 ........................... 4,520 4,520 -- -- 9,040
NR* Aaa 8,500 Osceola County, Florida, Sales Tax Revenue
Bonds, 5% due 4/01/2019(d) ................. 3,256 -- -- 4,651 7,907
AAA Aaa 3,750 Palm Bay, Florida, Utility Systems Capital
Improvement Revenue Bonds, 5% due
10/01/2028(e) ............................... -- -- -- 3,379 3,379
</TABLE>
F-56
<PAGE>
Combined Schedule of Investments
for MuniHoldings Florida Insured Fund, MuniHoldings Florida Insured Fund II,
MuniHoldings Florida Insured Fund III and MuniHoldings Florida Insured Fund IV
August 31, 1999 (unaudited) (continued)
(in Thousands)
<TABLE>
<CAPTION>
Florida Florida Florida Pro Forma
S&P Moody's Face Florida Insured Insured Insured Florida
Ratings Ratings Amount Issue Insured++ II++ III++ IV++ Insured++
- ------------------------------------------------------------------------------------------------------------------------------------
Florida (continued)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Peace River/Manasota, Florida, Regional Water
Supply Authority Revenue Refunding Bonds
(Peace River Option Project), Series A,
AAA NR* $ 3,000 5.20% due 10/01/2018(b) .................... -- $2,866 -- -- $2,866
AAA NR* 2,500 5% due 10/01/2028 (b) ...................... -- -- $2,259 -- 2,259
NR* Aaa 1,425 Pembroke Pines, Florida, Capital Improvement
Revenue Refunding Bonds, 5.25% due
12/01/2026(c) .............................. -- -- 1,346 -- 1,346
Pinellas County, Florida, HFA, S/F Housing
Revenue Bonds, Multi-County Program, AMT
(e)(h):
NR* Aaa 1,600 Series A-1, 5.30% due 9/01/2030 ............ $ 1,454 -- -- -- 1,454
NR* Aaa 3,325 Series B-1, 5.60% due 9/01/2025 ............ -- -- 3,172 -- 3,172
NR* Aaa 1,000 Series B-2, 5.45% due 9/01/2017 ............ -- -- -- $ 975 975
A1+ VMIG1+ 300 Pinellas County, Florida, Health Facilities
Authority, Revenue Refunding Bonds (Pooled
Hospital Loan Program), DATES,
3.10% due 12/01/2015(a) .................... -- 300 -- -- 300
AAA Aaa 3,285 Pinellas County, Florida, Sewer Revenue
Refunding Bonds, 5% due 10/01/2024(i) ...... -- -- 2,984 -- 2,984
AAA Aaa 3,500 Polk County, Florida, School Board, COP,
5% due 1/01/2024(d) ........................ -- -- 3,184 -- 3,184
AAA Aaa 7,095 Saint John's County, Florida, IDA, IDR (Golf
Hall of Fame Project), 5.875% due
9/01/2023(b) ............................... 7,201 -- -- -- 7,201
AAA Aaa 3,750 Saint John's County, Florida, Sales Tax
Revenue Refunding Bonds, 5% due
10/01/2019(i) .............................. -- 3,485 -- -- 3,485
AAA Aaa 1,500 Saint John's River Management District,
Florida, Land Acquisition Revenue Refunding
Bonds, 5.125% due 7/01/2016(d) ............. -- -- -- 1,437 1,437
Saint Lucie County, Florida, PCR, Refunding
(Florida Power and Light Company Project),
VRDN(a)
A-1+ NR* 1,400 2.85% due 1/01/2026 ........................ -- -- 1,700 1,400 3,100
A-1+ VMIG1+ 5,100 3.20% due 3/01/2027 ........................ 1,000 -- -- 2,400 3,400
</TABLE>
F-57
<PAGE>
Combined Schedule of Investments
for MuniHoldings Florida Insured Fund, MuniHoldings Florida Insured Fund II,
MuniHoldings Florida Insured Fund III and MuniHoldings Florida Insured Fund IV
August 31, 1999 (unaudited) (continued)
(in Thousands)
<TABLE>
<CAPTION>
Florida Florida Florida Pro Forma
S&P Moody's Face Florida Insured Insured Insured Florida
Ratings Ratings Amount Issue Insured++ II++ III++ IV++ Insured++
- ------------------------------------------------------------------------------------------------------------------------------------
Florida (continued)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AAA Aaa $ 3,000 Saint Petersburg, Florida, Excise Tax Revenue
Refunding Bonds, 5.15% due 10/01/2013(i) ... $ 2,953 -- -- -- $ 2,953
NR* Aaa 12,205 Saint Petersbrg, Florida, Public Utilities
Revenue Bonds, Series A, 5% due
10/01/2028(d) .............................. 4,505 -- $1,987 $4,506 10,998
NR* Aaa 9,500 Sarasota County, Florida, Public Hospital
Board, Revenue Refunding Bonds, RITR,
Series 99, 7.355% due 7/01/2028(b)(g) ...... -- -- -- 8,964 8,964
AAA Aaa 3,500 Sarasota County, Florida, Public Hospital
Board, Revenue Refunding Bonds (Sarasota
Memorial Hospital), Series B, 5.25% due
7/01/2024(b) ............................... 3,292 -- -- -- 3,292
AAA Aaa 5,430 Seminole County, Florida, School Board, COP,
Series A, 5% due 7/01/2023(b) .............. -- -- 4,944 -- 4,944
Sunrise, Florida, Utility System Revenue
Refunding Bonds(c):
AAA Aaa 6,000 5.20% due 10/01/2022 ....................... -- -- -- 5,666 5,666
AAA Aaa 27,295 5% due 10/01/2028 .......................... 7,219 $7,219 7,219 2,973 24,630
AAA Aaa 10,000 Sunrise Lakes, Florida, Phase 4 Recreation
District,
Refunding Bonds, GO, 5.25% due 8/01/2024(c) -- 9,455 -- -- 9,455
AAA Aaa 2,140 Tallahasee, Florida, Energy System Revenue
Refunding
Bonds, Series A, 5% due 10/01/2028(d) ...... -- -- 1,928 -- 1,928
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) .......... -- -- -- 5,712 5,712
NR* Aaa 7,500 Tampa, Florida, Sports Authority Revenue
Bonds, RITR, Series 98, 6.852% due
1/01/2027(b)(g) ............................ -- -- -- 6,668 6,668
AAA Aaa 21,850 Tampa, Florida, Sports Authority Revenue
Bonds, Sales Tax Payments (Stadium
Project), 5.25% due 1/01/2027 (b) .......... -- 13,574 7,094 -- 20,668
AAA Aaa 1,000 Tampa, Florida, Sports Authority Revenue
Bonds, Sales Tax Payments (Tampa Bay Arena
Project), 5.75% due 10/01/2020 ............. -- 1,027 -- -- 1,027
AAA Aaa 5,600 Tampa, Florida, Utility Tax Improvement
Revenue Bonds, 5% due 10/01/2019(d) ........ -- -- 5,204 -- 5,204
</TABLE>
F-58
<PAGE>
Combined Schedule of Investments
for MuniHoldings Florida Insured Fund, MuniHoldings Florida Insured Fund II,
MuniHoldings Florida Insured Fund III and MuniHoldings Florida Insured Fund IV
August 31, 1999 (unaudited) (continued)
(in Thousands)
<TABLE>
<CAPTION>
Florida Florida Florida Pro Forma
S&P Moody's Face Florida Insured Insured Insured Florida
Ratings Ratings Amount Issue Insured++ II++ III++ IV++ Insured++
- ------------------------------------------------------------------------------------------------------------------------------------
Florida (concluded)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Tampa-Hillsborough County, Florida,
Expressway Authority Revenue Refunding
Bonds (c):
AAA Aaa $ 3,115 5.125% due 7/01/2019 ....................... -- -- -- $2,932 $ 2,932
AAA Aaa 9,600 5% due 7/01/2027 ........................... $ 6,602 $ 2,140 -- -- 8,742
- ------------------------------------------------------------------------------------------------------------------------------------
Illinois -- 5.1%
- ------------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 15,000 Chicago, Illinois, Board of Education, GO
(Chicago School Reform Project), Series A,
5.25% due 12/01/2027(c) .................... -- 3,680 $5,520 -- 9,200
AAA Aaa 17,430 Chicago, Illinois, Water Revenue Refunding
Bonds, 5.25% due 11/01/2027(i) ............. 4,601 11,438 -- 4,601 20,640
AAA Aaa 3,500 Illinois Development Finance Authority, PCR,
Refunding (Illinois Power Company Project),
Series B, 5.40% due 3/01/2028(b) ........... -- -- -- 3,269 3,269
AAA Aaa 1,600 Illinois Educational Facilities Authority
Revenue Refunding Bonds (Illinois Institue
of Technology), 5.25% due 12/01/2025(c) .... -- -- -- 1,478 1,478
A-1+ VMIG1+ 695 Illinois Health Facilities Authority Revenue
Refunding Bonds (University of Chicago
Hospitals), VRDN, 3.20% due 8/01/2026(a)(b) -- -- 400 295 695
AAA Aaa 5,200 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) . -- 4,787 -- -- 4,787
- ------------------------------------------------------------------------------------------------------------------------------------
Massachusetts -- 1.1%
- ------------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 4,800 Massachusetts State Turnpike Authority,
Metropolitan Highway System Revenue
Refunding Bonds, Sub-Series B,
5.25% due 1/01/2029(b) ..................... 4,442 -- -- -- 4,442
AAA Aaa 4,500 Massachusetts State Water Resource Authority
Revenue Refunding Bonds, Series D, 5% due
8/01/2024(b) ............................... 4,034 -- -- -- 4,034
</TABLE>
F-59
<PAGE>
Combined Schedule of Investments
for MuniHoldings Florida Insured Fund, MuniHoldings Florida Insured Fund II,
MuniHoldings Florida Insured Fund III and MuniHoldings Florida Insured Fund IV
August 31, 1999 (unaudited) (continued)
(in Thousands)
<TABLE>
<CAPTION>
Florida Florida Florida Pro Forma
S&P Moody's Face Florida Insured Insured Insured Florida
Ratings Ratings Amount Issue Insured++ II++ III++ IV++ Insured++
- ------------------------------------------------------------------------------------------------------------------------------------
Minnesota -- 0.2%
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
A1+ NR* $ 1,800 Beltrami County, Minnesota, Environmental
Control Revenue Refunding Bonds (Northwood
Panelboard Co. Project),
VRDN, 3.20% due 12/01/2021(a) .............. -- -- -- $1,800 $1,800
- ------------------------------------------------------------------------------------------------------------------------------------
New York -- 1.0%
- ------------------------------------------------------------------------------------------------------------------------------------
Long Island Power Authority, New York,
Electric System Revenue Bonds, VRDN(a):
A- VMIG1+ 400 Sub-Series 5, 3.15% due 5/01/2033 .......... -- $ 200 $ 200 -- 400
A1+ VMIG1+ 3,900 Sub-Series 7, 3.15% due 4/01/2025(b) ....... $ 2,500 -- -- 1,400 3,900
AAA Aaa 2,500 Long Island Power Authority, New York,
Electric System Revenue Refunding Bonds,
Series A, 5% due 12/01/2018(d) ............. -- -- -- 2,305 2,305
A1+ VMIG1+ 1,600 New York State Thruway Authority, General
Revenue Bonds, VRDN, 3.10% due
1/01/2024(a)(i) ............................ 1,600 -- -- -- 1,600
- ------------------------------------------------------------------------------------------------------------------------------------
North Carolina -- 0.1%
- ------------------------------------------------------------------------------------------------------------------------------------
A1+ NR* 700 Raleigh Durham, North Carolina, Airport
Authority, Special Facility Revenue Refunding
Bonds (American Airlines Inc.), VRDN,
Series B, 3.20% due 11/01/2015(a) .......... 700 -- -- -- 700
- ------------------------------------------------------------------------------------------------------------------------------------
Pennsylvania -- 0.0%
- ------------------------------------------------------------------------------------------------------------------------------------
A1+ NR* 200 Geisinger Authority, Pennsylvania, Health
System Revenue Refunding Bonds (Penn
State--Geisinger Health), VRDN, Series B,
3.15% due 8/15/2028(a) ..................... -- 200 -- -- 200
- ------------------------------------------------------------------------------------------------------------------------------------
Texas -- 7.3%
- ------------------------------------------------------------------------------------------------------------------------------------
A-1+ NR* 1,600 Harris County, Texas, Health Facilities
Development Corporation, Hospital
Revenue Refunding Bonds (Methodist
Hospital), VRDN, 3.20% due 12/01/2025(a) ... 200 -- 400 1,000 1,600
AAA Aaa 39,600 Houston, Texas, Water and Sewer System
Revenue Refunding Bonds, Junior Lien,
Series A, 5.25% due 12/01/2025(i) .......... 8,965 9,339 9,339 9,339 36,982
</TABLE>
F-60
<PAGE>
Combined Schedule of Investments
for MuniHoldings Florida Insured Fund, MuniHoldings Florida Insured Fund II,
MuniHoldings Florida Insured Fund III and MuniHoldings Florida Insured Fund IV
August 31, 1999 (unaudited) (continued)
(in Thousands)
<TABLE>
<CAPTION>
Florida Florida Florida Pro Forma
S&P Moody's Face Florida Insured Insured Insured Florida
Ratings Ratings Amount Issue Insured++ II++ III++ IV++ Insured++
- ------------------------------------------------------------------------------------------------------------------------------------
Texas (concluded)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AAA Aaa 16,300 Matagorda County, Texas, Navigation
District Number 1 Revenue Refunding
Bonds (Reliant Energy Inc.),
Series A, 5.25% due 6/01/2026(c) ......... $ 3,682 -- $ 3,038 $ 8,285 $ 15,005
A1+ Aaa 2,300 North Central Texas Health Facility
Development Corporation Revenue Bonds
(Methodist Hospitals-Dallas), VRDN,
Series B, 3.20% due 10/01/2015(a)(b) ..... -- $ 2,300 -- -- 2,300
AAA Aaa 2,120 North Harris, Texas, Montgomery Community
College District, GO, 5.25% due
2/15/2025(c) ............................. 1,979 -- -- -- 1,979
-------- -------- -------- -------- --------
Total Investments (Cost - $812,100) - 98.1% ............................... 246,420 197,154 127,977 203,138 774,689
Other Assets Less Liabilities (Liabilities in Excess of Other Assets) - 1.9% 7,725 7,390 5,594 (1,986) 15,068
-------- -------- -------- -------- --------
Net Assets - 100.0% ....................................................... $254,145 $204,544 $133,571 $201,152 $789,757
======== ======== ======== ======== ========
</TABLE>
F-61
<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 August 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 August 31, 1999.
(h) FNMA Collateralized.
(i) FGIC Insured.
(j) FHLMC Collateralized.
* 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.
++ Value as discussed in Combined 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.
AMT Alternative Minimum Tax (subject to)
COP Certificates of Participation
DATES Daily Adjustable Tax-Exempt Securities
GO General Obligation Bonds
HFA Housing Finance Agency
IDA Industrial Development Authority
IDR Industrial Development Revenue Bonds
M/F Multi-Family
PCR Pollution Control Revenue Bonds
RIB Resident Interest Bonds
RITR Residual Interest Trust Receipts
S/F Single-Family
VRDN Variable Rate Demand Notes
F-62
<PAGE>
The following unaudited pro forma Combined Statement of Assets,
Liabilities and Capital has been derived from the Statements of Assets,
Liabilities and Capital of the respective Funds as of August 31, 1999 and such
information has been adjusted to give effect to the Reorganization as if the
Reorganization had occurred at August 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 August 31,
1999. The pro forma Combined Statement of Assets, Liabilities and Capital should
be read in conjunction with the Funds' financial statements and related notes
thereto which are included in 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 August 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
Florida Florida Florida
Insured Insured II Insured III
------------- ------------- -------------
<S> <C> <C> <C>
Assets:
Investments, at value* (Note 1a) ................ $ 246,420,048 $ 197,153,640 $ 127,976,818
Cash ............................................ 92,922 2,814,836 1,765,347
Receivables:
Securities sold ............................... 4,516,611 5,017,852 6,323,256
Interest ...................................... 4,260,754 3,189,650 1,963,888
Prepaid expenses and other assets ............... 12,045 20,875 318
------------- ------------- -------------
Total assets .................................... 255,302,380 208,196,853 138,029,627
============= ============= =============
Liabilities:
Payables:
Securities purchased .......................... 832,089 3,255,568 4,121,971
Offering costs (Note 1e) ...................... 52,060 111,805 154,428
Dividends to shareholders (Note 1f) ........... 90,800 174,780 112,128
Investment adviser (Note 2) ................... 105,700 85,540 45,499
Accrued expenses and other liabilities .......... 77,023 25,556 24,627
------------- ------------- -------------
Total liabilities ............................... 1,157,672 3,653,249 4,458,653
------------- ------------- -------------
Net Assets ...................................... $ 254,144,708 $ 204,543,604 $ 133,570,974
============= ============= =============
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 ................ 159,650,433 130,634,368 91,277,758
Undistributed investment income - net ........... 1,283,310 734,244 445,280
Accumulated realized capital losses on
investments - net ............................. (3,925,454) (3,827,808) (6,624,978)
Unrealized appreciation (depreciation) on
investments - net ............................. (8,693,386) (9,881,269) (6,145,269)
------------- ------------- -------------
Total Capital ................................... $ 254,144,708 $ 204,543,604 $ 133,570,974
============= ============= =============
* Identified Cost ............................. $ 255,113,434 $ 207,034,908 $ 134,122,087
============= ============= =============
+ 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 ............ $ 13.84 $ 13.41 $ 12.87
============= ============= =============
</TABLE>
** Auction Market Preferred Shares.
- ----------
(1) Assumes the distribution of undistributed net investment income.
(2) Reflects the charge for estimated Reorganization expenses of $507,000.
See Notes to Financial Statements.
<TABLE>
<CAPTION>
Florida Pro Forma
Insured IV Adjustments Florida Insured
------------- ------------- -------------
<S> <C> <C> <C>
Assets:
Investments, at value* (Note 1a) ................ $ 203,138,180 $ 774,688,686
Cash ............................................ 116,738 4,789,843
Receivables:
Securities sold ............................... 1,403,569 17,261,288
Interest ...................................... 3,674,971 13,089,263
Prepaid expenses and other assets ............... 18,250 51,488
------------- ------------- -------------
Total assets .................................... 208,351,708 809,880,568
------------- ------------- -------------
Liabilities:
Payables:
Securities purchased .......................... 6,734,291 14,943,919
Offering costs (Note 1e) ...................... 219,170 537,463
Dividends to shareholders (Note 1f) ........... 145,369 3,146,548(1) 3,669,625
Investment adviser (Note 2) ................... 42,873 279,612
Accrued expenses and other liabilities .......... 58,408 507,000(2) 692,614
------------- ------------- -------------
Total liabilities ............................... 7,200,111 3,653,548 20,123,233
------------- ------------- -------------
Net Assets ...................................... $ 201,151,597 $ (3,653,548) $ 789,757,335
============= ============= =============
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++ .................. 912,603 (126,343) 3,368,317
Paid-in capital in excess of par ................ 134,919,545 (380,657) 516,101,447
Undistributed investment income - net ........... 683,714 (3,146,548) 0
Accumulated realized capital losses on
investments - net ............................. (6,172,593) (20,550,833)
Unrealized appreciation (depreciation) on
investments - net ............................. (12,691,672) (37,411,596)
------------- ------------- -------------
Total Capital ................................... $ 201,151,597 $ (3,653,548) $ 789,757,335
============= ============= =============
* Identified Cost ............................. $ 215,829,852 -- $ 812,100,281
============= ============= =============
+ AMPS** issued and outstanding ............... 3,340 -- 13,130
============= ============= =============
++ Shares issued and outstanding ............... 9,126,034 (1,263,429) 33,683,174
============= ============= =============
+++ Net asset value per Common Share ............ $ 12.89 -- $ 13.70
============= ============= =============
</TABLE>
** Auction Market Preferred Shares.
- ----------
(1) Assumes the distribution of undistributed net investment income.
(2) Reflects the charge for estimated Reorganization expenses of $507,000.
See Notes to Financial Statements.
F-63
<PAGE>
The following unaudited pro forma Combined Statement of Operations has
been derived from the statement of operations of the respective Funds for the
periods indicated through August 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.
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)
<TABLE>
<CAPTION>
Florida Insured Florida Insured Florida Insured
Fund Fund II Fund III
For the period For the period For the period
September 1, 1998 September 1, 1998 October 1, 1998
to August 31, 1999 to August 31, 1999 to August 31, 1999
------------------ ------------------ ------------------
<S> <C> <C> <C>
Investment Income (Note 1d):
Interest and amortization of premium and
discount earned ............................... $ 14,307,432 $ 11,430,850 $ 6,549,992
------------ ------------ ------------
Expenses:
Investment advisory fees (Note 2) ............... 1,503,913 1,201,746 644,291
Commission fees ................................. 265,667 211,145 113,802
Accounting services (Note 2) .................... 84,433 40,136 85,148
Professional fees ............................... 68,994 73,526 47,665
Transfer agent fees ............................. 44,542 33,629 32,863
Trustees' fees and expenses ..................... 18,438 20,969 20,879
Listing fees .................................... 35,804 18,576 14,534
Custodian fees .................................. 21,557 20,195 9,662
Printing and shareholder reports ................ 22,277 22,623 8,440
Pricing fees .................................... 11,136 7,335 1,058
Other ........................................... 39,689 14,716 10,355
------------ ------------ ------------
Total expenses before reimbursement ............. 2,116,450 1,664,596 988,697
Reimbursement of expenses (Note 2) .............. (128,456) (89,378) (337,090)
------------ ------------ ------------
Total expenses after reimbursement .............. 1,987,994 1,575,218 651,607
------------ ------------ ------------
Investment income - net ......................... 12,319,438 9,855,632 5,898,385
------------ ------------ ------------
Realized & Unrealized Loss on
Investments - Net (Notes 1b & 1d)
Realized gain (loss) on investments-net ......... (1,856,838) (2,876,562) (6,624,978)
Change in unrealized appreciation/depreciation on
investments - net ............................. (17,298,513) (14,253,425) (6,145,269)
------------ ------------ ------------
Net Increase (Decrease) in Net Assets Resulting
from Operations ............................... $ (6,835,913) $ (7,274,355) $ (6,871,862)
============ ============ ============
</TABLE>
- ----------
+ Commencement of operations.
(1) Reflects the anticipated savings of the Reorganization through fewer
audits and consolidation of printing, accounting and other services.
(2) This Pro Forma Combined Statement of Operations excludes non-recurring
estimated Reorganization expenses of $507,000.
See Notes to Financial Statements.
<TABLE>
<CAPTION>
Florida Insured
Fund IV
For the period
January 29, 1999+ Pro Forma
to August 31, 1999 Adjustments Florida Insured
------------------ ----------- ---------------
<S> <C> <C> <C>
Investment Income (Note 1d):
Interest and amortization of premium and
discount earned ............................... $ 6,168,565 $ 38,456,839
------------ ------------ ------------
Expenses:
Investment advisory fees (Note 2) ............... 591,070 3,941,020
Commission fees ................................. 107,876 698,490
Accounting services (Note 2) .................... 26,884 (123,401)(1) 113,200
Professional fees ............................... 29,731 (136,916)(1) 83,000
Transfer agent fees ............................. 22,316 133,350
Trustees' fees and expenses ..................... 15,910 (57,758)(1) 18,438
Listing fees .................................... 8,995 77,909
Custodian fees .................................. 8,625 60,039
Printing and shareholder reports ................ 9,688 (528)(1) 62,500
Pricing fees .................................... 3,494 23,023
Other ........................................... 6,097 70,857
------------ ------------ ------------
Total expenses before reimbursement ............. 830,686 (318,603) 5,281,826
Reimbursement of expenses (Note 2) .............. (426,357) 0 (981,281)
------------ ------------ ------------
Total expenses after reimbursement .............. 404,329 (318,603) 4,300,545
------------ ------------ ------------
Investment income - net ......................... 5,764,236 318,603 34,156,294
------------ ------------ ------------
Realized & Unrealized Loss on
Investments - Net (Notes 1b & 1d)
Realized loss on investments-net ................ (6,172,593) 0 (17,530,971)
Change in unrealized appreciation/depreciation on
investments - net ............................. (12,691,672) 0 (50,388,879)
------------ ------------ ------------
Net Increase (Decrease) in Net Assets Resulting
from Operations ............................... $(13,100,029) $ 318,603 $(33,763,556)
============ ============ ============
</TABLE>
- ----------
+ Commencement of operations.
(1) Reflects the anticipated savings as a result of of the Reorganization
through fewer audits and consolidation of printing, accounting and other
services.
(2) This Pro Forma Combined Statement of Operations excludes non-recurring
estimated Reorganization expenses of $507,000.
See Notes to Financial Statements.
F-64
<PAGE>
MuniHoldings Florida Insured Fund
COMBINED NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
MuniHoldings Florida Insured Fund (the "Fund," which term as used herein
shall refer to MuniHoldings Florida Insured Fund after giving effect to the
Reorganization) 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. 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-65
<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) 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 MuniHoldings Florida Insured Fund, FAM earned fees of $1,503,913 for
the period September 1, 1998 to August 31, 1999, of which $128,456 was
voluntarily waived. For MuniHoldings Florida Insured Fund II, FAM earned fees of
$1,201,746 for the period September 1, 1998 to August 31, 1999, of which $89,378
was voluntarily waived. For MuniHoldings Florida Insured Fund III, FAM earned
fees of $644,291 for the period October 1, 1998 to August 31, 1999, of which
$307,301 was voluntarily waived. In addition FAM also reimbursed the Fund
$29,789 in additional expenses. For MuniHoldings Florida Insured Fund IV, FAM
earned fees of $591,070 for the period January 29, 1999 to August 31, 1999, of
which $407,461 was voluntarily waived. In addition FAM also reimbursed the Fund
$18,896 in additional expenses.
F-66
<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>
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.
</TABLE>
<TABLE>
<CAPTION>
Capital Shares
Outstanding as of
the Record Date
--------------------------------
Common
Fund Shares AMPS
- ---- ------ ----
<S> <C> <C>
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.................................................. 9,126,034 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 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.
<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 5 2,000 200 4 800 0 18,438
Florida Insured II 5 2,000 200 4 800 0 20,064
Florida Insured III 5 2,500 250 4 500 125 10,134
Florida Insured IV 4 2,000 200 3 800 0 3,668
</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.
*** The Chairman of the Audit Committee of Florida Insured, Florida Insured
II, Florida Insured III and Florida Insured IV receives an annual fee of
$1,000.
I-1
<PAGE>
Set forth in the table below is information regarding compensation paid by
the Fund to the non-affiliated Board members for the most recently completed
fiscal year.
<TABLE>
<CAPTION>
Compensation From Florida Insured I, Florida Insured II and Florida Insured IV ($)*
-----------------------------------------------------------------------------------
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 $4,750 $4,750 $4,750 $4,750 $4,750
</TABLE>
- ----------
* No pension or retirement benefits are accrued as part of Fund expenses.
Set forth in the table below is information regarding the aggregate
compensation paid by all registered investment companies advised by FAM and its
affiliate, MLAM ("FAM/MLAM Advised Funds"), including the Funds, to the
non-affiliated Board members for the year ended December 31, 1998.
<TABLE>
<CAPTION>
Aggregate Compensation From FAM/MLAM Advised Funds
Name of Board Member Paid to Board members of Florida Insured III ($)(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).
Set forth in the table below is information about the officers of each of
the Funds.
<TABLE>
<CAPTION>
Officer Since
------------------------------------------
Florida Florida Florida Florida
Name and Biography Age Office Insured Insured II Insured III Insured IV
<S> <C> <C> <C> <C> <C> <C>
Terry K.Glenn 59 President 1997* 1998* 1998* 1998*
Executive Vice President of MLAM and
FAM since 1983; Executive Vice President
and Director of Princeton Services, Inc.
("Princeton Services") since 1993; President
of Princeton Funds Distributor, Inc.
("PFD") since 1986 and Director thereof
since 1991; President of Princeton
Administrators, L.P. since 1988.
Vincent R. Giordano 55 Senior 1997 1998 1998 1998
Senior Vice President of FAM and MLAM Vice President
since 1984; Portfolio Manager of FAM and
MLAM since 1977; Senior Vice President of
Princeton Services since 1993.
</TABLE>
- ----------
* Mr. Glenn was elected President of each Fund in 1999. Prior to that he
served as Executive Vice President of each Fund.
I-2
<PAGE>
<TABLE>
<CAPTION>
Officer Since
------------------------------------------
Florida Florida Florida Florida
Name and Biography Age Office Insured Insured II Insured III Insured IV
<S> <C> <C> <C> <C> <C> <C>
Kenneth A. Jacob 48 Vice President 1997 1998 1998 1998
First Vice President of MLAM since 1997;
Vice President of MLAM from 1984 to
1997; Vice President of FAM since 1984.
Donald C. Burke 39 Vice President 1997 1998 1998 1998
Senior Vice President and Treasurer of Treasurer 1999 1999 1999 1999
MLAM and FAM since 1999; Senior Vice
President and Treasurer of Princeton Services
since 1999; Vice President of PFD since
1999; First Vice President of MLAM from
1997 to 1999; Vice President of MLAM from
1990 to 1997; Director of Taxation of
MLAM since 1990.
Robert A. DiMella, CFA 33 Vice President 1997 1998 1998 1998
Vice President of MLAM since 1997;
Assistant Vice President of MLAM from
1995 to 1997; Assistant Portfolio Manager of
MLAM from 1993 to 1995.
Robert D. Sneeden 46 Vice President 1997 -- 1998 1998
Assistant Vice President and Portfolio
Manager of MLAM since 1994; Vice
President of Lehman Brothers from 1990 to
1994.
Alice A. Pellegrino 59 Secretary -- -- 1998 --
Vice President of MLAM since 1999;
Attorney associated with MLAM since 1997;
Associate with Kirkpatrick & Lockhart
LLP from 1992 to 1997.
William E. Zitelli, Jr. 31 Secretary 1999 1999 -- 1998
Attorney associated with MLAM since 1998;
Attorney associated with Pepper
Hamilton LLP from 1997 to 1998;
Attorney associated with Reboul, MacMurray,
Hewitt, Maynard and Kristol from 1994 to 1997.
</TABLE>
I-3
<PAGE>
EXHIBIT II
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made as of
the 9th day of November, 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 audited 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 and 2,095 preferred shares as Auction Market
Preferred Shares, Series B. Each outstanding common share of beneficial interest
and each Auction 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 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 audited 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, par value $.10 per share. The Board of
Trustees of Florida Insured II has designated 1,720 preferred shares as Auction
Market Preferred Shares, Series A and 1,720 preferred shares as Auction Market
Preferred Shares, Series B. Each outstanding common share of beneficial interest
and each outstanding Auction Market Preferred Share of Florida Insured II 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:
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(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 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.
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(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, par value $.10 per share. The Board of
Trustees of Florida Insured III has designated 1,080 preferred shares as Auction
Market Preferred Shares, Series A and 1,080 preferred shares as Auction Market
Preferred Shares, Series B. Each outstanding common share of beneficial interest
and each outstanding Auction Market Preferred Share of Florida Insured III 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.
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(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 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
II-9
<PAGE>
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, par value $.10 per share. The Board of
Trustees of Florida Insured IV has designated 1,670 preferred shares as Auction
Market Preferred Shares, Series A and 1,670 preferred shares as Auction Market
Preferred Shares, Series B. Each outstanding common share of beneficial interest
and each outstanding Auction Market Preferred Share of Florida Insured IV 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 18,
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 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.
(g) 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.
(h) 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 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
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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 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
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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.
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.
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<PAGE>
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 at the Valuation Time, 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.
(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.
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<PAGE>
(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:
(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
II-15
<PAGE>
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) to the
best of such counsel's knowledge, no consent, approval, authorization or order
of any United States federal court, or governmental authority is required for
the consummation by 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 such as may be required
under state securities laws; (ii) 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; (iii) 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;
(iv) 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;
(v) the execution and delivery of the Agreement by the Funds and the
consummation of the Reorganization will not violate any material provisions of
any agreement (known to such counsel) to which any Fund is a party or by which
any Fund is bound, except as far as the parties have agreed to amend such
provision as a condition precedent to the Reorganization; (vi) such counsel does
not know of any statutes, legal or governmental proceedings or contracts or
other documents related to the Reorganization of a character required to be
described in the N-14 Registration Statement which are not described therein or,
if required to be filed, filed as required; (vii) no Fund, to the
II-16
<PAGE>
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;
(viii) 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; (ix) all actions required to be taken by the Funds to
authorize this Agreement and to effect the Reorganization have been duly
authorized by all necessary actions on the part of such Fund; and (x)
such opinion is solely for the benefit of the Funds and their Trustees and
officers. Such opinion also shall state that (a) while such counsel cannot make
any representation as to the accuracy or completeness of statements of fact in
the N-14 Registration Statement or any amendment or supplement thereto, nothing
has come to their attention that would lead them to believe that, on the
respective effective dates of the N-14 Registration Statement and any amendment
or supplement thereto, (1) the N-14 Registration Statement or any amendment or
supplement thereto contained any untrue statement of a material fact or omitted
to state any material fact 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
(b) 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 and the opinion of Bingham Dana LLP as to matters of
Massachusetts law.
(f) That the Acquired Funds shall have received an opinion or opinions of
Bingham Dana LLP, as Massachusetts 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
filing or registration with, or consent, approval, authorization or order of any
Massachusetts state court or governmental authority is required for the
consummation by the Funds of the Reorganization, except such as have been
obtained from the Boards of Trustees and shareholders of the Funds and such as
may be required under Massachusetts state securities laws; (vii) all actions
required to be taken by the Funds to authorize this Agreement and to effect the
Reorganization have been duly authorized by all necessary actions on the part of
such Fund; and (viii) such opinion is solely for the benefit of the Funds and
their Trustees and officers. In giving the opinion set forth above, Bingham Dana
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.
(g) 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
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<PAGE>
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 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.
(h) 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.
(i) That the N-14 Registration Statement shall have become effective under
the 1933 Act, and no stop order suspending such effectiveness shall have been
instituted or, to the knowledge of Florida Insured, be contemplated by the
Commission.
(j) That Acquired Funds shall have received from Deloitte & Touche LLP a
letter dated within three days prior to the effective date of the N-14
Registration Statement and a similar letter dated within five days prior to the
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
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<PAGE>
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.
(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 Florida Insured or would prohibit the Reorganization.
(l) 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 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 June 30, 1999
(for Florida Insured II) and September 30, 1999 (for Florida Insured III and
Florida Insured IV) (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
July 1, 1999 (for Florida Insured II) and October 1, 1999 (for Florida Insured
III and Florida Insured IV), 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 July 1, 1999 (for Florida Insured II) and
October 1, 1999 (for Florida Insured III and Florida Insured IV), to and
II-19
<PAGE>
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 an opinion of Bingham Dana
LLP, as Massachusetts 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(f) of this Agreement and such other matters as Florida
Insured reasonably may deem necessary or desirable.
(h) 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.
(i) 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 within three days prior to the effective date
of the N-14 Registration Statement and a similar letter dated within five days
prior to the Exchange Date, in form and 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.
(j) 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.
(k) 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.
(l) 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.
II-20
<PAGE>
(m) 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.
(n) 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.
(o) 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
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 31, 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.
II-21
<PAGE>
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 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
II-22
<PAGE>
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.
(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.
II-23
<PAGE>
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: /s/ Donald C. Burke
------------------------------------
Attest: Donald C. Burke,
/s/ William E. Zitelli, Jr. Vice President and Treasurer
- -----------------------------------
William E. Zitelli, Jr., Secretary MUNIHOLDINGS FLORIDA INSURED FUND II
By: /s/ Donald C. Burke
------------------------------------
Attest: Donald C. Burke,
/s/ William E. Zitelli, Jr. Vice President and Treasurer
- -----------------------------------
William E. Zitelli, Jr., Secretary MUNIHOLDINGS FLORIDA INSURED FUND III
By: /s/ Donald C. Burke
------------------------------------
Attest: Donald C. Burke,
/s/ Alice A. Pellegrino Vice President and Treasurer
- -----------------------------------
Alice A. Pellegrino, Secretary MUNIHOLDINGS FLORIDA INSURED FUND IV
By: /s/ Donald C. Burke
------------------------------------
Attest: Donald C. Burke,
/s/ William E. Zitelli, Jr. Vice President and Treasurer
- -----------------------------------
William E. Zitelli, Jr., Secretary
II-24
<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 Funds have not independently verified the information.
In the early 1990's, the State's unemployment rate generally tracked above
that of the nation. Beginning in calendar year 1995, the State's unemployment
rate has generally tracked below the national average. The State's unemployment
rate is projected to be 4.2% in calendar year 1999 and 4.4% in calendar year
2000, while the nation's unemployment rate for those calendar years is projected
to be 4.5% and 4.6%, respectively. (The projections set forth in this Exhibit
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")).
During calendar years 1992 through 1998, the State's per capita income is
projected to have expanded approximately 29.0%, while the national per capita
income increased by approximately 30.3%. 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 relatively more important sources of income.
For example, Florida's employment income in calendar year 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 census
year 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 census
year 1990, the State's estimated 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 expected to have grown by over 200,000 new residents per year
throughout the 1990's.
Tourism is one of the State's most important industries. An estimated 48.7
million people visited the State in calendar year 1998, according to the Florida
Department of Commerce. Tourism arrivals are expected to increase by 2.0% in
fiscal year 1998-99 and 1.7% the following fiscal year. In fiscal year 1998-99,
tourist arrivals are projected to approximate 49.7 million. In fiscal year
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. The State's
fiscal year begins July 1 and ends June 30.
Florida's dependency on the highly cyclical construction and
construction-related manufacturing sectors has declined. Total contract
construction employment as a share of total non-farm employment declined from
7.5% in the late 1980s to approximately 5.3% in calendar year 1998. Florida,
nevertheless, has an important construction industry, with single and
multi-family housing starts projected to reach a combined level of 144,000 in
fiscal year 1998-99 and 143,000 in fiscal year 1999-2000. Multi-family starts
have been slow to recover from the early 1990's recession, but are showing
stronger growth now and are expected to approximate 46,500 in fiscal year
1998-99 and 46,300 in fiscal year 1999-2000. Total construction expenditures in
fiscal years 1998-99 and 1999-2000 are forecasted to increase 8.6% and 2.5%,
respectively. A driving force behind the State's construction industry is its
rapid population growth. Net migration to the State is forecasted to slow,
although the State's population is expected to have grown by over 200,000
persons per year during the 1990's.
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 the Budget Stabilization Fund. In fiscal
year 1996-97, the State derived approximately 67% of its total direct revenues
to these funds from State taxes and fees. Federal funds and other special
revenues accounted for the remaining revenues. Major sources of tax revenues to
the General Revenue Fund are the sales and use tax, corporate income tax,
intangible personal property tax, beverage tax, and estate tax which amounted to
68%, 8%, 4%, 3% and 3%, respectively, of total General Revenue Funds available.
State expenditures are categorized for budget and appropriation
III-1
<PAGE>
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 fiscal year 1996-97, receipts from this source were $12,089 million,
an increase of 5.5% from fiscal year 1995-96, although not all of these receipts
are credited to the General Revenue Fund. The second largest source of State tax
receipts is the Motor Fuel Tax. The collections from this source during fiscal
year 1996-97 were $2,012 million, although these revenues are almost entirely
dedicated trust funds for specific purposes and are not included in the General
Revenue Fund. Alcoholic beverage tax revenues totalled $447.2 million for fiscal
year 1996-97, an increase of $5.7 million from the previous fiscal year. The
receipts of corporate income tax for fiscal year 1996-97 were $1,362.3 million,
an increase of 17.2% from fiscal year 1995-96. Documentary stamp tax collections
totalled $844.2 million during fiscal year 1996-97, posting an 8.9% increase
from the previous fiscal year. Gross receipts utility tax collections for fiscal
year 1996-97 totalled $575.7 million, an increase of 6.0% over 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 fiscal year 1996-97, a 6.3% increase from the
previous fiscal year. Recent reductions in the intangible personal property tax
rate and expansions in the exclusions from that tax could reduce future revenues
from that source. A significant portion of these tax proceeds are unavailable to
the General Revenue Fund. The State's estate tax on resident decedents' estates
is generally equal to the amount allowable as a credit against federal estate
tax for state death taxes paid, and does not increase the estate's total federal
estate tax liability. For fiscal year 1996-97, estate tax receipts were $546.9
million, an increase of 30% from the prior fiscal year. In fiscal year 1996-97,
State-operated lotteries produced gross revenue of $2.09 billion. State law
requires allocating lottery revenues 50% to prizes, at least 38% to public
education, and no more than 12% to lottery administrative costs. In fiscal year
1996-97, 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 of these revenues.
State of Florida
Total General Revenues
Fiscal Year 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
III-2
<PAGE>
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 the Estimated Revenues component
of the fiscal year 1998-99 total represent a 5.0% increase over the analogous
figure in 1997-98. 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. For fiscal
year 1999-2000, the estimated total of General Revenue plus Working Capital and
Budget Stabilization funds available are $20,133.9 million, a 3.3% increase over
the total estimated for fiscal year 1998-99. The $18,555.2 million in the
Estimated Revenues component of the estimated 1999-2000 total represent a 4.4%
increase over the analogous figure for fiscal year 1998-99.
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 that
provision 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 may be increased by the Legislature, by a two-thirds vote of
each house.
"State revenues" are defined as 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.
It should be noted that many of these provisions, which were adopted by
constitutional amendment in 1994, 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 provisions and whether such
implementing legislation will itself be the subject of court interpretation.
The Fund cannot predict the impact of these provisions on State finances.
To the extent local governments traditionally receive revenues from the State
which are subject to, and limited by, these provisions the future distribution
of such State revenues may be adversely affected.
Hurricanes continue to endanger the coastal and interior portions of
Florida. Substantial damage resulted from tropical storms and hurricanes in the
1992, 1995, 1998 and 1999 hurricane seasons. 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 bond rating of Aa2 from Moody's
Investors Service, Inc., AA+ from Standard & Poor's and AA from Fitch IBCA, Inc.
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
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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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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.
CC While 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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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
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<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.
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<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
DD bonds are extremely speculative and should be valued on the basis of
D their ultimate recovery value in liquidation or reorganization of
the obligor. "DDD" represents the highest potential for recovery on
these bonds, and "D" represents the lowest potential for recovery.
Plus (+) or Minus (-): Plus and minus signs are used with a rating symbol
to indicate the relative position of a credit within the rating category. Plus
and minus signs, however, are not used in the "DDD," "DD," or "D" categories.
Description of Fitch's Short-Term Ratings
Fitch's short-term ratings apply to debt obligations that are payable on
demand or have original maturities of up to three years, including commercial
paper, certificates of deposit, medium-term notes, and municipal and investment
notes.
The short-term rating places greater emphasis than a long-term rating on
the existence of liquidity necessary to meet the issuer's obligations in a
timely manner.
Fitch short-term ratings are as follows:
F-1+ Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely
payment.
F-1 Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues
rated "F-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.
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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.
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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 and William E. Zitelli, Jr.
as proxies, each with the power to appoint his substitute, and hereby authorizes
each of them to represent and to vote, as designated on the reverse hereof, all
of the 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" proposals 1, 2 and 3.
By signing and dating the reverse side of this card, you authorize the
proxies to vote each proposal as marked, or if not marked, to vote "FOR" each
proposal, and to use their discretion to vote for any other matter as may
properly come before the meeting or any adjournment thereof. If you do not
intend to personally attend the meeting, please complete and return this card at
once in the enclosed envelope.
<PAGE>
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)
2. ELECTION OF TRUSTEES
<TABLE>
<S> <C>
FOR all nominees listed below WITHHOLD AUTHORITY
(except as marked to the contrary below) |_| to vote for all nominees listed below |_|
</TABLE>
(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 and William E. Zitelli, Jr.
as proxies, each with the power to appoint his substitute, and hereby authorizes
each of them to represent and to vote, as designated on the reverse hereof, all
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" proposals 1, 2 and 3.
By signing and dating the reverse side of this card, you authorize the
proxies to vote each proposal as marked, or if not marked, to vote "FOR" each
proposal, and to use their discretion to vote for any other matter as may
properly come before the meeting or any adjournment thereof. If you do not
intend to personally attend the meeting, please complete and return this card at
once in the enclosed envelope.
(Continued and to be signed on the reverse side)
<PAGE>
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)
2. ELECTION OF TRUSTEES
<TABLE>
<S> <C>
FOR all nominees listed below WITHHOLD AUTHORITY
(except as marked to the contrary below) |_| to vote for all nominees listed below |_|
</TABLE>
(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 and William E. Zitelli, Jr.
as proxies, each with the power to appoint his substitute, and hereby authorizes
each of them to represent and to vote, as designated on the reverse hereof, all
of the 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" proposals 1, 2 and 3.
By signing and dating the reverse side of this card, you authorize the
proxies to vote each proposal as marked, or if not marked, to vote "FOR" each
proposal, and to use their discretion to vote for any other matter as may
properly come before the meeting or any adjournment thereof. If you do not
intend to personally attend the meeting, please complete and return this card at
once in the enclosed envelope.
(Continued and to be signed on the reverse side)
<PAGE>
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)
2. ELECTION OF TRUSTEES
<TABLE>
<S> <C>
FOR all nominees listed below WITHHOLD AUTHORITY
(except as marked to the contrary below) |_| to vote for all nominees listed below |_|
</TABLE>
(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 and William E. Zitelli, Jr.
as proxies, each with the power to appoint his substitute, and hereby authorizes
each of them to represent and to vote, as designated on the reverse hereof, all
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" proposals 1, 2 and 3.
By signing and dating the reverse side of this card, you authorize the
proxies to vote each proposal as marked, or if not marked, to vote "FOR" each
proposal, and to use their discretion to vote for any other matter as may
properly come before the meeting or any adjournment thereof. If you do not
intend to personally attend the meeting, please complete and return this card at
once in the enclosed envelope.
(Continued and to be signed on the reverse side)
<PAGE>
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)
2. ELECTION OF TRUSTEES
<TABLE>
<S> <C>
FOR all nominees listed below WITHHOLD AUTHORITY
(except as marked to the contrary below) |_| to vote for all nominees listed below |_|
</TABLE>
(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" proposals 1, 2 and 3.
By signing and dating the reverse side of this card, you authorize the
proxies to vote each proposal as marked, or if not marked, to vote "FOR" each
proposal, and to use their discretion to vote for any other matter as may
properly come before the meeting or any adjournment thereof. If you do not
intend to personally attend the meeting, please complete and return this card at
once in the enclosed envelope.
(Continued and to be signed on the reverse side)
<PAGE>
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)
2. ELECTION OF TRUSTEES
<TABLE>
<S> <C>
FOR all nominees listed below WITHHOLD AUTHORITY
(except as marked to the contrary below) |_| to vote for all nominees listed below |_|
</TABLE>
(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" proposals 1, 2 and 3.
By signing and dating the reverse side of this card, you authorize the
proxies to vote each proposal as marked, or if not marked, to vote "FOR" each
proposal, and to use their discretion to vote for any other matter as may
properly come before the meeting or any adjournment thereof. If you do not
intend to personally attend the meeting, please complete and return this card at
once in the enclosed envelope.
(Continued and to be signed on the reverse side)
<PAGE>
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)
2. ELECTION OF TRUSTEES
<TABLE>
<S> <C>
FOR all nominees listed below WITHHOLD AUTHORITY
(except as marked to the contrary below) |_| to vote for all nominees listed below |_|
</TABLE>
(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 and William E. Zitelli, Jr.
as proxies, each with the power to appoint his substitute, and hereby authorizes
each of them to represent and to vote, as designated on the reverse hereof, all
of the 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" proposals 1, 2 and 3.
By signing and dating the reverse side of this card, you authorize the
proxies to vote each proposal as marked, or if not marked, to vote "FOR" each
proposal, and to use their discretion to vote for any other matter as may
properly come before the meeting or any adjournment thereof. If you do not
intend to personally attend the meeting, please complete and return this card at
once in the enclosed envelope.
(Continued and to be signed on the reverse side)
<PAGE>
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)
2. ELECTION OF TRUSTEES
<TABLE>
<S> <C>
FOR all nominees listed below WITHHOLD AUTHORITY
(except as marked to the contrary below) |_| to vote for all nominees listed below |_|
</TABLE>
(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 and William E. Zitelli, Jr.
as proxies, each with the power to appoint his substitute, and hereby authorizes
each of them to represent and to vote, as designated on the reverse hereof, all
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" proposals 1, 2 and 3.
By signing and dating the reverse side of this card, you authorize the
proxies to vote each proposal as marked, or if not marked, to vote "FOR" each
proposal, and to use their discretion to vote for any other matter as may
properly come before the meeting or any adjournment thereof. If you do not
intend to personally attend the meeting, please complete and return this card at
once in the enclosed envelope.
(Continued and to be signed on the reverse side)
<PAGE>
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)
2. ELECTION OF TRUSTEES
<TABLE>
<S> <C>
FOR all nominees listed below WITHHOLD AUTHORITY
(except as marked to the contrary below) |_| to vote for all nominees listed below |_|
</TABLE>
(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 Certificate of Designation creating the Series A AMPS and
the Series B AMPS. (c)
(e) -- Form of Certificate of Designation creating the Series C AMPS, the
Series D AMPS and the Series E AMPS. (e)
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.
(b) -- Consent of Deloitte & Touche LLP, independent auditors for
MuniHoldings Florida Insured Fund II.
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.
(e) Filed on October 5, 1999 as an Exhibit to Registrant's Registration
Statement on Form N-14 (File No. 333-88463).
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 or opinion.
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 10th day of November, 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 William E. Zitelli, Jr., 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
- -------------------------- (Principal Executive Officer) November 10, 1999
(Terry K. Glenn)
/s/ DONALD C. BURKE Treasurer
- -------------------------- (Principal Financial and
(Donald C. Burke) Accounting Officer) November 10, 1999
/s/ RONALD W. FORBES Trustee November 10, 1999
- --------------------------
(Ronald W. Forbes)
/s/ CYNTHIA A. MONTGOMERY Trustee November 10, 1999
- --------------------------
(Cynthia A. Montgomery)
/s/ CHARLES C. REILLY Trustee November 10, 1999
- --------------------------
(Charles C. Reilly)
/s/ KEVIN A. RYAN Trustee November 10, 1999
- --------------------------
(Kevin A. Ryan)
/s/ RICHARD R. WEST Trustee November 10, 1999
- --------------------------
(Richard R. West)
/s/ ARTHUR ZEIKEL Trustee November 10, 1999
- --------------------------
(Arthur Zeikel)
C-4
<PAGE>
EXHIBIT INDEX
11 -- Opinion and Consent of Brown & Wood LLP, Counsel for the
Registrant.
14 (a) -- Consent of Deloitte & Touche LLP, independent auditors for the
Registrant.
(b) -- Consent of Deloitte & Touche LLP, independent auditors for
MuniHoldings Florida Insured Fund II.
C-5
EXHIBIT 11
BROWN & WOOD LLP
ONE WORLD TRADE CENTER
NEW YORK, NEW YORK 10048-0057
TELEPHONE: 212-839-5300
FACSIMILE: 212-839-5599
November 10, 1999
MuniHoldings Florida Insured Fund
800 Scudders Mill Road
Plainsboro, New Jersey 08536
Ladies and Gentlemen:
We have acted as counsel for MuniHoldings Florida Insured Fund (the
"Fund") in connection with the proposed acquisition by the Fund of substantially
all of the assets and the assumption by the Fund of substantially all of the
liabilities of MuniHoldings Florida Insured Fund II, MuniHoldings Florida
Insured Fund III and MuniHoldings Florida Insured Fund IV, in exchange for
newly-issued common shares of beneficial interest and auction market preferred
shares of the Fund (collectively the "Reorganization"). This opinion is
furnished in connection with the Fund's Registration Statement on Form N-14
under the Securities Act of 1933, as amended (File No. 333-88463) (the
"Registration Statement"), relating to common shares of beneficial interest and
auction market preferred shares of the Fund, each par value $0.10 per share (the
"Shares"), to be issued in the Reorganization.
As counsel for the Fund, we are familiar with the proceedings taken by it
and to be taken by it in connection with the authorization, issuance and sale of
the Shares. In addition, we have examined and are familiar with the Declaration
of Trust of the Fund, as amended the By-Laws of the Fund, as amended, and such
other documents as we have deemed relevant to the matters referred to in this
opinion.
Based upon the foregoing, we are of the opinion that subsequent to the
approval of the Agreement and Plan of Reorganization between the Fund and
MuniHoldings Florida Insured Fund II, MuniHoldings Florida Insured Fund III and
MuniHoldings Florida Insured Fund IV, set forth in the joint proxy statement and
prospectus constituting a part of the Registration Statement (the "Proxy
Statement and Prospectus"), the Shares, upon issuance in the manner referred to
in the Registration Statement, for consideration not less than the par value
thereof, will be legally issued, fully paid and non-assessable common shares of
beneficial interest or auction market preferred shares, as the case may be, of
the Fund (except for certain possible liability of shareholders described in the
Proxy Statement and Prospectus under "Item 1. The Reorganization-Comparison of
the Funds-Capital Shares."
In rendering the foregoing opinions, we have relied, without independent
investigation or verification, as to all matters involving the laws of the
Commonwealth of Massachusetts, upon the opinion of Bingham Dana LLP.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name in the Proxy Statement and
Prospectus constituting a part thereof.
Very truly yours,
/s/ Brown & Wood LLP
EXHIBIT 14(a)
INDEPENDENT AUDITORS' CONSENT
MuniHoldings Florida Insured Fund:
We consent to the use in this Pre-Effective Amendment No. 1 to Registration
Statement No. 333-88463 on Form N-14 of our report dated October 7, 1999
appearing in the Proxy Statement and Prospectus, which is a part of such
Registration Statement, and to the reference to us under captions
"Comparison of the Funds-Financial Highlights" and "Experts" also appearing in
such Proxy Statement and Prospectus.
/s/ Deloitte & Touche LLP
- -------------------------
Deloitte & Touche LLP
Princeton, New Jersey
November 9, 1999
Exhibit 14(b)
INDEPENDENT AUDITORS' CONSENT
MuniHoldings Florida Insured Fund II:
We consent to the use in this Pre-Effective Amendment No. 1 to Registration
Statement No. 333-88463 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 captions
"Comparison of the Funds-Financial Highlights" and "Experts" also appearing in
such Proxy Statement and Prospectus.
/s/ Deloitte & Touche LLP
- -------------------------
Deloitte & Touche LLP
Princeton, New Jersey
November 9, 1999
