<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 18, 1999
SECURITIES ACT FILE NO. 333-78141
INVESTMENT COMPANY ACT FILE NO. 811-09331
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
PRE-EFFECTIVE AMENDMENT NO. 1 [X]
POST-EFFECTIVE AMENDMENT NO. [ ]
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 1 [X]
(check appropriate box or boxes)
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MUNIHOLDINGS FLORIDA INSURED FUND V
(Exact Name of Registrant as Specified in Charter)
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800 SCUDDERS MILL ROAD, PLAINSBORO, NEW JERSEY 08536
(Address of Principal Executive Offices)
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REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (609) 282-2800
------------------------
TERRY K. GLENN
MUNIHOLDINGS FLORIDA INSURED FUND V
800 SCUDDERS MILL ROAD,
PLAINSBORO, NEW JERSEY 08536
MAILING ADDRESS: P.O. BOX 9011, PRINCETON, NEW JERSEY
08543-9011
(Name and Address of Agent for Service)
------------------------
COPIES TO:
<TABLE>
<S> <C>
MICHAEL J. HENNEWINKEL, ESQ. FRANK P. BRUNO, ESQ.
FUND ASSET MANAGEMENT, L.P. BROWN & WOOD LLP
P.O. BOX 9011 ONE WORLD TRADE CENTER
PRINCETON, NEW JERSEY 08543-9011 NEW YORK, NEW YORK 10048-0557
</TABLE>
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Approximate date of proposed public offering: As soon as practicable after
the effective date of this Registration Statement.
------------------------
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), other than securities offered only in
connection with dividend or interest reinvestment plans, check the following
box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434
under the Securities Act, please check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
<TABLE>
<CAPTION>
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PROPOSED MAXIMUM
PROPOSED MAXIMUM AGGREGATE
TITLE OF AMOUNT BEING OFFERING PRICE OFFERING AMOUNT OF
SECURITIES BEING REGISTERED REGISTERED(1)(2) PER SHARE(1) PRICE(1) REGISTRATION FEE(3)
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<S> <C> <C> <C> <C>
Common Shares of Beneficial Interest ($.10 par
value)....................................... 5,750,000 shares $15.00 $ 86,250,000 $23,978
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</TABLE>
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(1) Estimated solely for the purpose of calculating the registration fee.
(2) Includes 750,000 shares subject to the underwriter's over-allotment option.
(3) Transmitted to the designated lockbox at Mellon Bank in Pittsburgh, PA. $278
was previously paid. $23,700 was transmitted in connection with this filing.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act or until the Registration Statement shall become effective on
such date as the Commission, acting pursuant to said Section 8(a), may
determine.
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<PAGE> 2
THE INFORMATION CONTAINED IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED MAY 18, 1999
PROSPECTUS
5,000,000 SHARES
MUNIHOLDINGS FLORIDA INSURED FUND V
COMMON SHARES
------------------------
MuniHoldings Florida Insured Fund V (the "Fund") is a newly organized,
non-diversified, closed-end management investment company that seeks to provide
shareholders with current income exempt from Federal income tax and the
opportunity to own shares whose value is exempt from Florida intangible personal
property tax. The Fund seeks to achieve its objective by investing primarily in
a portfolio of long-term, investment grade municipal obligations the interest on
which, in the opinion of bond counsel to the issuer, is exempt from Federal
income tax and which enable shares of the Fund to be exempt from Florida
intangible personal property tax. The Fund intends to invest in municipal
obligations that are rated investment grade, or if unrated, are considered by
the Fund's investment adviser to be of comparable quality. Under normal
circumstances, at least 80% of the Fund's assets will be invested in municipal
obligations with remaining maturities of one year or more that are covered by
insurance guaranteeing the timely payment of principal at maturity and interest.
Because the Fund is newly organized, its shares have no history of public
trading. Shares of closed-end investment companies frequently trade at a
discount from their net asset value. This risk may be greater for investors
expecting to sell their shares in a relatively short period after completion of
the public offering. The Fund plans to apply to list its shares on the New York
Stock Exchange or another national securities exchange under the symbol "FDM."
Trading of the Fund's common shares on the exchange is expected to begin within
two weeks of the date of this prospectus. Before it begins trading, the
underwriter does not intend to make a market in the Fund's shares. Thus,
investors may not be able to buy and sell shares of the Fund during that time.
Within approximately three months after completion of this offering of
common shares, the Fund intends to offer preferred shares representing
approximately 40% of the Fund's capital immediately after the issuance of such
preferred shares. There can be no assurance, however, that preferred shares
representing such percentage of the Fund's capital will actually be issued. The
use of preferred shares to leverage the common shares can create special risks.
------------------------
This prospectus contains information you should know before investing,
including information about risks. Please read it before you invest and keep it
for future reference.
------------------------
INVESTING IN THE COMMON SHARES INVOLVES CERTAIN RISKS, WHICH ARE DESCRIBED IN
THE "RISK FACTORS AND SPECIAL CONSIDERATIONS" SECTION BEGINNING ON PAGE 8 OF
THIS PROSPECTUS.
<TABLE>
<CAPTION>
PER SHARE TOTAL
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<S> <C> <C>
Public Offering Price.......................... $15.00 $ 75,000,000
Sales Load..................................... None None
Proceeds, before expenses, to Fund............. $15.00 $ 75,000,000
</TABLE>
The Fund's investment adviser or an affiliate will pay the underwriter a
commission in the amount of % of the public offering price per share in
connection with the sale of the common shares.
The underwriter may also purchase up to an additional 750,000 shares at the
public offering price within 45 days from the date of this prospectus to cover
over-allotments.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
We expect that the common shares will be ready for delivery in New York, New
York on or about June , 1999.
------------------------
MERRILL LYNCH & CO.
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The date of this prospectus is June , 1999.
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.......................................... 3
Risk Factors and Special Considerations..................... 8
Fee Table................................................... 10
The Fund.................................................... 11
Use of Proceeds............................................. 11
Investment Objective and Policies........................... 11
Risks and Special Considerations of Leverage................ 23
Investment Restrictions..................................... 26
Trustees and Officers....................................... 28
Investment Advisory and Management Arrangements............. 30
Portfolio Transactions...................................... 32
Dividends and Distributions................................. 33
Taxes....................................................... 34
Automatic Dividend Reinvestment Plan........................ 39
Mutual Fund Investment Option............................... 41
Net Asset Value............................................. 41
Description of Capital Shares............................... 42
Custodian................................................... 45
Underwriting................................................ 45
Transfer Agent, Dividend Disbursing Agent and Registrar..... 47
Legal Opinions.............................................. 47
Experts..................................................... 47
Additional Information...................................... 47
Report of Independent Auditors.............................. 49
Statement of Assets, Liabilities and Capital................ 50
Appendix I -- Economic and Other Conditions in Florida...... 51
Appendix II -- Ratings of Municipal Bonds................... 55
Appendix III -- Portfolio Insurance......................... 62
Appendix IV -- Taxable Equivalent Yields for 1999........... 64
</TABLE>
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INFORMATION ABOUT THE FUND CAN BE REVIEWED AND COPIED AT THE SEC'S PUBLIC
REFERENCE ROOM IN WASHINGTON, D.C. CALL 1-800-SEC-0330 FOR INFORMATION ON THE
OPERATION OF THE PUBLIC REFERENCE ROOM. THIS INFORMATION IS ALSO AVAILABLE ON
THE SEC'S INTERNET SITE AT HTTP://WWW.SEC.GOV AND COPIES MAY BE OBTAINED UPON
PAYMENT OF A DUPLICATING FEE BY WRITING THE PUBLIC REFERENCE SECTION OF THE SEC,
WASHINGTON, D.C. 20549-6009.
------------------
You should rely only on the information contained in this prospectus. We
have not, and the underwriter has not, authorized any other person to provide
you with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not, and the
underwriter is not, making an offer to sell these securities in any jurisdiction
where the offer or sale is not permitted. You should assume that the information
appearing in this prospectus is accurate as of the date on the front cover of
this prospectus only. Our business, financial condition, results of operations
and prospects may have changed since that date.
2
<PAGE> 4
PROSPECTUS SUMMARY
This summary is qualified in its entirety by reference to the detailed
information included in this prospectus.
THE FUND MuniHoldings Florida Insured Fund V (the "Fund") is a newly
organized, non-diversified, closed-end management investment
company.
THE OFFERING The Fund is offering 5,000,000 common shares at an initial
offering price of $15.00 per share. The common shares are being
offered by Merrill Lynch, Pierce, Fenner & Smith Incorporated, as
underwriter. The underwriter may also purchase up to an additional
750,000 common shares within 45 days of the date of this
prospectus to cover over-allotments.
INVESTMENT The investment objective of the Fund is to provide shareholders
OBJECTIVE AND with current income exempt from Federal income tax and the
POLICIES opportunity to own shares whose value is exempt from Florida
intangible personal property tax. The Fund seeks to achieve its
objective by investing primarily in a portfolio of long-term,
investment grade municipal obligations the interest on which, in
the opinion of bond counsel to the issuer, is exempt from Federal
income tax and which enable shares of the Fund to be exempt from
Florida intangible personal property tax.
Investment Grade Municipal Bonds. The Fund intends to invest in
municipal bonds that are rated investment grade by one or more
nationally recognized statistical rating agencies or, if unrated,
are considered by the investment adviser to be of comparable
quality.
Florida Municipal Bonds. The Fund will generally invest
substantially all (at least 80%) of its assets in Florida
municipal bonds. However, when the Fund's investment adviser
believes that investment grade Florida municipal bonds are not
available in sufficient amounts at an appropriate price, the Fund
may invest a lesser amount of its assets in these securities. At
all times, except during periods when the Fund is in the process
of investing its proceeds from a public offering or during
temporary defensive periods, the Fund intends to invest at least
65% of its assets in Florida municipal bonds and at least 80% of
its assets in Florida municipal bonds and other long-term
municipal bonds. These other long-term municipal bonds that the
Fund may buy will be exempt from Federal income tax but their
value will not be exempt from Florida intangible personal property
tax.
The Fund will normally invest at least 80% of its assets in
insured municipal obligations with remaining maturities of one
year or more. Insured municipal obligations are covered by
insurance that guarantees timely interest payments and the
repayment of principal at maturity.
In general, the Fund does not intend its investments to earn a
large amount of interest income that is not exempt from Federal
income tax or to hold substantial assets which would subject
shares of the Fund to Florida intangible personal property tax.
3
<PAGE> 5
Indexed and Inverse Floating Rate Securities. The Fund may invest
in securities whose potential returns are directly related to
changes in an underlying index or interest rate, known as indexed
securities. The return on indexed securities will rise when the
underlying index or interest rate rises and fall when the index or
interest rate falls. The Fund may also invest in securities whose
return is inversely related to changes in an interest rate
(inverse floaters). In general, income on inverse floaters will
decrease when short term interest rates increase and increase when
short term interest rates decrease. Investments in inverse
floaters may subject the Fund to the risks of reduced or
eliminated interest payments and losses of principal. In addition,
certain indexed securities and inverse floaters may increase or
decrease in value at a greater rate than the underlying interest
rate, which effectively leverages the Fund's investment. As a
result, the market value of such securities will generally be more
volatile than that of fixed rate, tax exempt securities. Both
indexed securities and inverse floaters are derivative securities
and can be considered speculative.
Options and Futures Transactions. The Fund may seek to hedge its
portfolio against changes in interest rates using options and
financial futures contracts. The Fund's hedging transactions are
designed to reduce volatility, but come at some cost. For example,
the Fund may try to limit its risk of loss from a decline in price
of a portfolio security by purchasing a put option. However, the
Fund must pay for the option, and the price of the security may
not in fact drop. In large part, the success of the Fund's hedging
activities depends on its ability to forecast movements in
securities prices and interest rates. The Fund does not, however,
intend to enter into options and futures transactions for
speculative purposes. The Fund is not required to hedge its
portfolio and may choose not to do so. The Fund cannot guarantee
that any hedging strategies it uses will work.
LEVERAGE Issuance of Preferred Shares. The Fund intends to offer preferred
shares within three months after completion of this offering. The
preferred shares will represent approximately 40% of the Fund's
capital, including the capital raised by issuing the preferred
shares. There can be no assurance, however, that preferred shares
will actually be issued. Issuing preferred shares will result in
the leveraging of the common shares. Although the Board of
Trustees has not yet determined the terms of the preferred shares
offering, the Fund expects that the preferred shares will pay
dividends that will be adjusted over either relatively short-term
periods (generally seven to 28 days) or medium-term periods (up to
five years). The preferred shares dividend rate will be based upon
prevailing interest rates for debt obligations of comparable
maturity. The money raised by the preferred shares offering will
be invested in longer-term obligations in accordance with the
Fund's investment objective. The expenses of the preferred shares,
which will be borne by the Fund, will reduce the net asset value
of the common shares. In addition, at times when the Fund is
required to allocate taxable income to preferred shareholders, the
terms of the preferred shares may require the Fund to make an
additional distribution to them. The amount of this additional
distribution approximately equals the tax liability resulting from
the allocation (an "Additional Distribution"). During periods
4
<PAGE> 6
when the Fund has preferred shares outstanding, the Fund will pay
fees to the investment adviser for its services that are higher
than if the Fund did not issue preferred shares because the fees
will be calculated on the basis of the Fund's average weekly net
assets, including proceeds from the sale of preferred shares.
Potential Benefits of Leverage. Under normal market conditions,
longer term obligations produce higher yields than short and
medium term obligations. The Fund's investment adviser believes
that the interest income the Fund receives from its long term
investments will exceed the amount of interest the Fund must pay
to the preferred shareholders. Thus, the Fund's use of preferred
shares should provide common shareholders with a higher yield than
they would receive if the Fund were not leveraged.
Risks. The use of leverage creates certain risks for common
shareholders, including higher volatility of both the net asset
value and the market value of the common shares. Since any decline
in the value of the Fund's investments will affect only the common
shareholders, in a declining market the use of leverage will cause
the Fund's net asset value to decrease more than it would if the
Fund were not leveraged. This decrease in net asset value will
likely also cause a decline in the market price for common shares.
In addition, fluctuations in the dividend rates paid on, and the
amount of taxable income allocable to, the preferred shares will
affect the yield to common shareholders. There can be no assurance
that the Fund will earn a higher net return on its investments
than the then current dividend rate (and any Additional
Distribution) it pays on the preferred shares. Under certain
conditions, the benefits of leverage to common shareholders will
be reduced, and the Fund's leveraged capital structure could
result in a lower rate of return to common shareholders than if
the Fund were not leveraged.
Distributions. When the Fund issues preferred shares, common
shareholders will receive all of the Fund's net income that
remains after it pays dividends (and any Additional Distribution)
on the preferred shares and generally will be entitled to a pro
rata share of net realized capital gains. If the Fund is
liquidated, preferred shareholders will be entitled to receive
liquidating distributions before any distribution is made to
common shareholders. These liquidating distributions are expected
to equal the original purchase price per share of the preferred
shares plus any accumulated and unpaid dividends and Additional
Distributions.
Redemption of Preferred Shares. The Fund may redeem the preferred
shares for any reason. For example, the Fund may redeem all or
part of the preferred shares if it believes that the Fund's
leveraged capital structure will cause common shareholders to
obtain a lower return than they would if the common shares were
unleveraged for any significant amount of time.
Voting Rights. Preferred shareholders, voting as a separate
class, will be entitled to elect two of the Fund's Trustees.
Common and preferred shareholders, voting together as a single
class, will be entitled to elect the remaining Trustees. If the
5
<PAGE> 7
Fund fails to pay dividends to the preferred shareholders for two
full years, the holders of all outstanding shares of preferred
shares, voting as a separate class, would then be entitled to
elect a majority of the Fund's Trustees. The preferred
shareholders also will vote separately on certain other matters as
required under the Fund's Declaration of Trust, the Investment
Company Act of 1940, as amended, and Massachusetts law. Otherwise,
common and preferred shareholders will have equal voting rights
(one vote per share) and will vote together as a single class.
Ratings. Before it offers the preferred shares, the Fund intends
to apply to one or more nationally recognized statistical ratings
organizations for ratings on the preferred shares. The Fund
believes that a rating for the preferred shares will make it
easier to market the shares, which should reduce the dividend
rate.
LISTING Currently, there is no public market for the Fund's common shares.
However, the Fund plans to apply to list its common shares on the
New York Stock Exchange or another national securities exchange.
Trading of the Fund's common shares is expected to begin within
two weeks of the date of this prospectus. Before it begins
trading, the underwriter does not intend to make a market in the
Fund's common shares. Thus, investors may not be able to buy and
sell shares of the Fund during that period.
INVESTMENT
ADVISER Fund Asset Management, L.P. is the Fund's investment adviser and
provides investment advisory and management services to the Fund.
For its services, the Fund pays the investment adviser a fee at
the annual rate of 0.55% of the Fund's average weekly net assets,
including assets acquired from the sale of preferred shares.
DIVIDENDS
AND
DISTRIBUTIONS The Fund intends to distribute dividends of all or a portion of
its net investment income to common shareholders each month. Once
the Fund issues preferred shares, the monthly dividends to common
shareholders will consist of all or a portion of net investment
income that remains after the Fund pays dividends (and any
Additional Distribution) on the preferred shares. At times, in
order to maintain a stable level of monthly dividends to common
shareholders, the Fund may pay out less than all of its net
investment income or pay out accumulated undistributed income in
addition to net investment income. The Fund expects to begin
paying dividends to common shareholders within approximately 90
days from the date of this prospectus. The Fund will distribute
net capital gains, if any, at least annually to common
shareholders and, after it issues the preferred shares, on a pro
rata basis to common and preferred shareholders. When the Fund
allocates capital gains or other taxable income to preferred
shareholders, under certain circumstances, the terms of the
preferred shares may require the Fund to make an Additional
Distribution. The Fund may not declare any cash dividend or other
distribution on its common shares unless the preferred shares have
asset coverage of at least 200%. If the Fund issues preferred
shares representing 40% of its total capital, the preferred
shares' asset coverage will be approximately 250%. If the Fund's
ability to make distributions on its common shares is limited, the
Fund may not be able to
6
<PAGE> 8
qualify for taxation as a regulated investment company. This would
have adverse tax consequences for common shareholders.
AUTOMATIC
DIVIDEND
REINVESTMENT
PLAN Dividend and capital gains distributions generally are used to
purchase additional common shares. However, an investor can choose
to receive distributions in cash. Since not all investors can
participate in the automatic dividend reinvestment plan, you
should call your broker or nominee to confirm that you are
eligible to participate in the plan.
MUTUAL FUND
INVESTMENT
OPTION Investors who purchase shares in this offering through the
underwriter and later sell their shares have the option, subject
to certain conditions, to purchase Class D shares of certain
Merrill Lynch funds with the proceeds from the sale.
7
<PAGE> 9
RISK FACTORS AND SPECIAL CONSIDERATIONS
Liquidity and Market Price of Shares. The Fund is newly organized and has
no operating history or history of public trading. Before the Fund's common
shares are listed on the New York Stock Exchange, an investment in the Fund may
be illiquid.
Shares of closed-end funds that trade in a secondary market frequently
trade at a market price that is below their net asset value. This is commonly
referred to as "trading at a discount." Investors who sell their shares within a
relatively short period after completion of the public offering are more likely
to be exposed to this risk. The Fund is designed primarily for long-term
investors and should not be considered a vehicle for trading purposes.
Florida Municipal Bonds. The Fund intends to invest the majority of its
portfolio in Florida municipal bonds. As a result, the Fund is more exposed to
risks affecting issuers of Florida municipal bonds than is a municipal bond fund
that invests more widely.
Interest Rate and Credit Risk. The Fund invests in municipal bonds, that
are subject to interest rate and credit risk. Interest rate risk is the risk
that prices of municipal bonds generally increase when interest rates decline
and decrease when interest rates increase. Prices of longer term securities
generally change more in response to interest rate changes than prices of
shorter term securities. Credit risk is the risk that the issuer will be unable
to pay the interest or principal when due. The degree of credit risk depends on
both the financial condition of the issuer and the terms of the obligation.
Non-diversification. The Fund is registered as a "non-diversified"
investment company. This means that the Fund may invest a greater percentage of
its assets in a single issuer than a diversified investment company. Even as a
non-diversified fund, the Fund must still meet the diversification requirements
of applicable Federal income tax laws. Since the Fund may invest a relatively
high percentage of its assets in a limited number of issuers, the Fund may be
more exposed to any single economic, political or regulatory occurrence than a
more widely-diversified fund.
Rating Categories. The Fund intends to invest in municipal bonds that are
rated investment grade by Standard & Poor's, Moody's Investors Service, Inc. or
Fitch IBCA, Inc. It may also invest in unrated municipal bonds that the Fund's
investment adviser believes are of comparable quality. Obligations rated in the
lowest investment grade category may have certain speculative characteristics.
Private Activity Bonds. The Fund may invest in certain tax-exempt
securities classified as "private activity bonds." These bonds may subject
certain investors in the Fund to the Federal alternative minimum tax.
Taxes. It is possible that the Fund may not be able to fully dispose of
all of its assets subject to Florida intangible personal property tax by the
last business day of the calendar year. This would subject shares of the Fund to
Florida intangible personal property tax.
Portfolio Insurance and Rating Agencies. The Fund will be subject to
certain investment restrictions imposed by guidelines of the insurance companies
that issue portfolio insurance and to
8
<PAGE> 10
guidelines of one or more nationally recognized statistical ratings
organizations that may issue ratings for the preferred shares. These guidelines
may impose asset coverage or portfolio composition requirements that are more
stringent than those imposed by the Investment Company Act of 1940, as amended.
The Fund does not expect these requirements or guidelines to prevent the
investment adviser from managing the Fund's portfolio in accordance with the
Fund's investment objective and policies.
Leverage. The Fund plans to offer preferred shares. The preferred stock
will represent approximately 40% of the Fund's capital, including capital raised
by issuing the preferred shares. Leverage creates certain risks for common
shareholders, including higher volatility of both the net asset value and the
market value of the common shares. Leverage also creates the risk that the
investment return on the Fund's common shares will be reduced to the extent the
dividends paid on preferred shares and other expenses of the preferred shares
exceed the income earned by the Fund on its investments. If the Fund is
liquidated, preferred shareholders will be entitled to receive liquidating
distributions before any distribution is made to common shareholders.
Inverse Floating Obligations. The 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. The Fund may engage in certain options
and futures transactions to reduce its exposure to interest rate movements. If
the Fund incorrectly forecasts market values, interest rates or other factors,
the Fund's performance could suffer. The Fund also may suffer a loss if the
other party to the transaction fails to meet its obligations. The Fund is not
required to use hedging and may not do so.
Antitakeover Provisions. The Fund's Declaration of Trust includes
provisions that could limit the ability of other entities or persons to acquire
control of the Fund or to change the composition of its Board of Trustees. Such
provisions could 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.
9
<PAGE> 11
FEE TABLE
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales Load (as a percentage of offering
price)................................................ None
Dividend Reinvestment Plan Fees........................ None
ANNUAL EXPENSES (as a percentage of net assets attributable
to Common Stock):
Investment Advisory Fees(a)(b)......................... .92%
Interest Payments on Borrowed Funds.................... None
Other Expenses(a)(b)................................... .42%
----
Total Annual Expenses(a)(b)....................... 1.34%
====
</TABLE>
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
EXAMPLE ------ ------- ------- --------
<S> <C> <C> <C> <C>
An investor would pay the following expenses on a
$1,000 investment, assuming total annual expenses of
1.34% (assuming leverage of 40% of the Fund's total
assets) and a 5% annual return throughout the
periods:............................................ $14 $42 $73 $161
</TABLE>
- ------------
(a) Assumes leverage by issuing preferred shares in an amount of approximately
40% of the Fund's capital at a dividend rate of 3.25%. The Fund intends to
use leverage only if the Investment Adviser believes that it would result in
higher income to shareholders over time. See "Risks and Special
Considerations of Leverage". If the Fund does not use leverage, it is
estimated that, as a percentage of net assets attributable to common shares,
the Investment Advisory Fees would be 0.55%, Other Expenses would be 0.19%
and Total Annual Expenses would be 0.74%.
(b) See "Investment Advisory and Management Arrangements" -- page 30.
The Fee Table is intended to assist investors in understanding the costs
and expenses that a shareholder in the Fund will bear directly or indirectly.
The expenses set forth under "Other Expenses" are based on estimated amounts
through the end of the Fund's first fiscal year on an annualized basis. The
Example set forth above assumes reinvestment of all dividends and distributions
and uses a 5% annual rate of return as mandated by the Securities and Exchange
Commission regulations. THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF
FUTURE EXPENSES OR ANNUAL RATES OF RETURN, AND ACTUAL EXPENSES OR ANNUAL RATES
OF RETURN MAY BE MORE OR LESS THAN THOSE ASSUMED FOR PURPOSES OF THE EXAMPLE.
10
<PAGE> 12
THE FUND
MuniHoldings Florida Insured Fund V (the "Fund") is a newly organized,
non-diversified, closed-end management investment company. The Fund was
organized under the laws of The Commonwealth of Massachusetts on May 10, 1999,
and has registered under the 1940 Act. The Fund's principal office is located at
800 Scudders Mill Road, Plainsboro, New Jersey 08536, and its telephone number
is (609) 282-2800.
The Fund has been organized as a closed-end investment company. Closed-end
investment companies differ from open-end investment companies (commonly
referred to as "mutual funds") in that closed-end investment companies do not
generally make a continuous offering of their shares or redeem their securities
at the option of the shareholder, whereas open-end companies issue securities
redeemable at net asset value at any time at the option of the shareholder and
typically engage in a continuous offering of their shares. Accordingly, open-end
investment companies are subject to continuous asset in-flows and out-flows that
can complicate portfolio management. Shares of closed-end investment companies,
however, frequently trade at a discount from their net asset value. This risk
may be greater for investors expecting to sell their shares in a relatively
short period after completion of the public offering.
USE OF PROCEEDS
The net proceeds of this offering will be approximately $ (or
approximately $ assuming the Underwriter exercises the over-allotment
option in full) after payment of offering expenses estimated to be approximately
$ .
The net proceeds of the offering will be invested in accordance with the
Fund's investment objective and policies within approximately three months after
completion of the offering of common shares, depending on market conditions and
the availability of appropriate securities. Pending such investment, it is
anticipated that the proceeds will be invested in short-term, tax-exempt
securities. See "Investment Objective and Policies."
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to provide shareholders with current
income exempt from Federal income tax and the opportunity to own shares whose
value is exempt from Florida intangible personal property tax. The Fund will
seek to achieve its objective by investing primarily in a portfolio of
long-term, investment grade municipal obligations issued by or on behalf of the
State of Florida, its political subdivisions, agencies and instrumentalities,
and other qualifying issuers, each of which pays interest that, in the opinion
of bond counsel to the issuer, is exempt from Federal income tax and which
enables shares of the Fund to be exempt from Florida intangible personal
property tax ("Florida Municipal Bonds"). The Fund intends to invest
substantially all (at least 80%) of its assets in Florida Municipal Bonds,
except at times when the Fund's investment adviser, Fund Asset Management, L.P.
(the "Investment Adviser"), considers that Florida Municipal Bonds of sufficient
quality and quantity are unavailable for investment at suitable prices by the
Fund. To the extent the Investment Adviser considers that suitable Florida
Municipal Bonds are not available for investment, the Fund may purchase other
long-term municipal obligations the interest on which is exempt from Federal
income taxes but the value of which is not
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exempt from Florida intangible personal property taxes ("Municipal Bonds"). The
Fund will maintain at least 65% of its assets in Florida Municipal Bonds and at
least 80% of its assets in Florida Municipal Bonds and Municipal Bonds, except
during interim periods pending investment of the net proceeds of public
offerings of the Fund's securities and during temporary defensive periods. Under
normal circumstances, at least 80% of the Fund's assets will be invested in
municipal obligations with remaining maturities of one year or more that are
covered by insurance guaranteeing the timely payment of principal at maturity
and interest. The Fund's investment objective is a fundamental policy that may
not be changed without a vote of a majority of the Fund's outstanding voting
securities, as defined below under "Investment Restrictions." There can be no
assurance that the investment objective of the Fund will be realized. At times
the Fund may seek to hedge its portfolio through the use of futures transactions
and options to reduce volatility in the net asset value of its common shares.
The Fund ordinarily does not intend to realize significant interest income
that is subject to Federal income tax or have significant assets subject to
Florida intangible personal property tax. The Fund may invest all or a portion
of its assets in certain tax-exempt securities classified as "private activity
bonds" (in general, bonds that benefit non-governmental entities) that may
subject certain investors in the Fund to a Federal alternative minimum tax.
The Fund also may invest in securities not issued by or on behalf of a
state or territory or by an agency or instrumentality thereof, if the Fund
nevertheless believes such securities pay interest or distributions that are
exempt from Federal income taxation ("Non-Municipal Tax-Exempt Securities").
Non-Municipal Tax-Exempt Securities may include securities issued by other
investment companies that invest in Florida Municipal Bonds and Municipal Bonds,
to the extent such investments are permitted by the Investment Company Act of
1940, as amended (the "1940 Act"). Other Non-Municipal Tax-Exempt Securities
could include trust certificates or other instruments evidencing interests in
one or more long-term Florida Municipal Bonds or Municipal Bonds. Certain
Non-Municipal Tax-Exempt Securities may be characterized as derivative
instruments. Non-Municipal Tax-Exempt Securities are considered "Florida
Municipal Bonds" or "Municipal Bonds" for purposes of the Fund's investment
objective and policies.
Investment in common shares of the Fund offers several potential benefits.
The Fund offers investors the opportunity to receive income exempt from Federal
income tax and to hold Fund shares exempt from Florida intangible personal
property tax by investing in a professionally managed portfolio comprised
primarily of investment grade insured Florida Municipal Bonds. Investment in the
Fund also relieves the investor of the burdensome administrative details
involved in managing a portfolio of Florida Municipal Bonds. Additionally, the
Investment Adviser will seek to enhance the yield on the common shares by
leveraging the Fund's capital structure through the issuance of preferred
shares. The benefits are at least partially offset by the expenses involved in
operating an investment company. Such expenses primarily consist of the advisory
fee and operational costs. Additionally, the use of leverage involves certain
expenses and special risk considerations. See "Risks and Special Considerations
of Leverage."
The investment grade Florida Municipal Bonds and Municipal Bonds in which
the Fund will primarily invest are those Florida Municipal Bonds and Municipal
Bonds rated at the date of purchase in the four highest rating categories of
Standard & Poor's ("S&P"), Moody's Investors Services, Inc. ("Moody's") or Fitch
IBCA, Inc. ("Fitch"), or, if unrated, are considered to be of comparable quality
by the Investment
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<PAGE> 14
Adviser. In the case of long-term debt, the investment grade rating categories
are AAA through BBB for S&P, Aaa through Baa for Moody's and AAA through BBB for
Fitch. In the case of short-term notes, the investment grade rating categories
are SP-1+ through SP-3 for S&P, MIG-1 through MIG-3 for Moody's and F-1+ through
F-3 for Fitch. In the case of tax-exempt commercial paper, the investment grade
rating categories are A-1+ through A-3 for S&P, Prime-1 through Prime-3 for
Moody's and F-1+ through F-3 for Fitch. Obligations ranked in the lowest
investment grade rating category (BBB, SP-3 and A-3 for S&P; Baa, MIG-3 and
Prime-3 for Moody's; and BBB and F-3 for Fitch), while considered "investment
grade," may have certain speculative characteristics. There may be
sub-categories or gradations indicating relative standing within the rating
categories set forth above. See Appendix II to this Prospectus for a description
of S&P's, Moody's and Fitch's ratings of Municipal Bonds. In assessing the
quality of Florida Municipal Bonds and Municipal Bonds with respect to the
foregoing requirements, the Investment Adviser will take into account the
portfolio insurance as well as the nature of any letters of credit or similar
credit enhancements 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 enhancement.
Consequently, if Florida Municipal Bonds or Municipal Bonds are covered by
insurance policies issued by insurers whose claims-paying ability is rated AAA
by S&P or Fitch or Aaa by Moody's, the Investment Adviser may consider such
municipal obligations to be equivalent to AAA- or Aaa- rated securities, as the
case may be, even though such Florida Municipal Bonds or Municipal Bonds would
generally be assigned a lower rating if the rating were based primarily upon the
credit characteristics of the issuers without regard to the insurance feature.
The insured Florida Municipal Bonds and Municipal Bonds must also comply with
the standards applied by the insurance carriers in determining eligibility for
portfolio insurance.
The Fund's investments may also include variable rate demand obligations
("VRDOs") and VRDOs in the form of participation interests ("Participating
VRDOs") in variable rate tax-exempt obligations held by a financial institution,
typically a commercial bank. The VRDOs in which the Fund may invest are
tax-exempt obligations, in the opinion of counsel to the issuer, that contain a
floating or variable interest rate adjustment formula and a right of demand on
the part of the holder thereof to receive payment of the unpaid principal
balance plus accrued interest on a short notice period not to exceed seven days.
Participating VRDOs provide the Fund with a specified undivided interest (up to
100%) in the underlying obligation and the right to demand payment of the unpaid
principal balance plus accrued interest on the Participating VRDOs from the
financial institution on a specified number of days' notice, not to exceed seven
days. There is, however, the possibility that because of default or insolvency,
the demand feature of VRDOs or Participating VRDOs may not be honored. The Fund
has been advised by its counsel that the Fund should be entitled to treat the
income received on Participating VRDOs as interest from tax-exempt obligations
for Federal income tax purposes.
The average maturity of the Fund's portfolio securities will vary based
upon the Investment Adviser's assessment of economic and market conditions. The
net asset value of the common shares of a closed-end investment company, such as
the Fund, which invests primarily in fixed-income securities, changes as the
general levels of interest rates fluctuate. When interest rates decline, the
value of a fixed-income portfolio generally can be expected to rise. Conversely,
when interest rates rise, the value of a fixed-income portfolio generally can be
expected to decline. Prices of longer-term securities generally fluctuate more
in response to interest rate changes than do short-term or medium-term
securities. These changes in net asset value
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<PAGE> 15
are likely to be greater in the case of a fund having a leveraged capital
structure, as proposed for the Fund. See "Risks and Special Considerations of
Leverage."
The Fund intends to invest primarily in long-term Florida Municipal Bonds
and Municipal Bonds with a maturity of more than ten years. Also, the Fund may
invest in intermediate-term Florida Municipal Bonds and Municipal Bonds with a
maturity of between three years and ten years. The Fund may invest in
short-term, tax-exempt securities, short-term U.S. Government securities,
repurchase agreements or cash. Such short-term securities or cash will not
exceed 20% of its total assets except during interim periods pending investment
of the net proceeds of public offerings of the Fund's securities or in
anticipation of the repurchase or redemption of the Fund's securities and
temporary periods when, in the opinion of the Investment Adviser, prevailing
market or economic conditions warrant. The Fund does not ordinarily intend to
realize significant interest income that is subject to Federal income tax or to
hold assets which would subject Fund shares to Florida intangible personal
property taxes.
The Fund is classified as non-diversified within the meaning of the 1940
Act, which means that the Fund is not limited by the 1940 Act in the proportion
of its assets that it may invest in securities of a single issuer. However, the
Fund's investments will be limited so as to qualify the Fund for special tax
treatment afforded regulated investment companies under the Federal tax laws.
See "Taxes." To qualify, among other requirements, the Fund will limit its
investments so that, at the close of each quarter of the taxable year, (i) not
more than 25% of the market value of the Fund's total assets will be invested in
the securities (other than U.S. Government securities) of a single issuer, and
(ii) with respect to 50% of the market value of its total assets, not more than
5% of the market value of its total assets will be invested in the securities
(other than U.S. Government securities) of a single issuer. A fund that elects
to be classified as "diversified" under the 1940 Act must satisfy the foregoing
5% requirement with respect to 75% of its total assets. To the extent that the
Fund assumes large positions in the securities of a small number of issuers, the
Fund's yield may fluctuate to a greater extent than that of a diversified
company as a result of changes in the financial condition or in the market's
assessment of the issuers.
PORTFOLIO INSURANCE
Under normal circumstances, at least 80% of the Fund's assets will be
invested in Florida Municipal Bonds and Municipal Bonds either (i) insured under
an insurance policy purchased by the Fund or (ii) insured under an insurance
policy obtained by the issuer thereof or any other party. The Fund will seek to
limit its investments to municipal bonds 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 at all times available. See Appendix III to this
Prospectus for a brief description of S&P's, Fitch's and Moody's insurance
claims-paying ability ratings. Currently, it is anticipated that a majority of
the insured Florida Municipal Bonds and Municipal Bonds in the Fund's portfolio
will be insured by the following insurance companies that satisfy the foregoing
criteria: AMBAC Indemnity Corporation, Financial Guaranty Insurance Company,
Financial Security Assurance and Municipal Bond Investors Assurance Corporation.
The Fund also may purchase Florida Municipal Bonds and Municipal Bonds covered
by insurance issued by any other insurance company that satisfies the foregoing
criteria. It
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<PAGE> 16
is anticipated that initially a majority of insured Florida Municipal Bonds and
Municipal Bonds held by the Fund will be insured under policies obtained by
parties other than the Fund.
The Fund may purchase, but has no obligation to purchase, separate
insurance policies (the "Policies") from insurance companies meeting the
criteria set forth above that guarantee the payment of principal and interest on
specified eligible Florida Municipal Bonds and Municipal Bonds purchased by the
Fund. A Florida Municipal Bond and a Municipal Bond will be eligible for
coverage if it meets certain requirements of the insurance company set forth in
a Policy. In the event interest or principal on an insured Florida Municipal
Bond and Municipal Bond is not paid when due, the insurer will be obligated
under its Policy to make such payment not later than 30 days after it has been
notified by, and provided with documentation from, the Fund that such nonpayment
has occurred.
The Policies will be effective only as to insured Florida Municipal Bonds
and Municipal Bonds beneficially owned by the Fund. In the event of a sale of
any Florida Municipal Bonds and Municipal Bonds held by the Fund, the issuer of
the relevant Policy will be liable only for those payments of interest and
principal that are then due and owing. The Policies will not guarantee the
market value of the insured Florida Municipal Bonds and Municipal Bonds or the
value of the shares of the Fund.
The insurer will not have the right to withdraw coverage on securities
insured by their Policies and held by the Fund so long as such securities remain
in the Fund's portfolio. In addition, the insurer may not cancel its Policies
for any reason except failure to pay premiums when due. The Board of Trustees of
the Fund will reserve the right to terminate any of the Policies if it
determines that the benefits to the Fund of having its portfolio insured under
such policy are not justified by the expense involved.
The premiums for the Policies are paid by the Fund and the yield on the
Fund's portfolio is reduced thereby. The Investment Adviser estimates that the
cost of the annual premiums for the Policies currently ranges from approximately
.02 of 1% to .15 of 1% of the principal amount of the Florida Municipal Bonds
and Municipal Bonds covered by such Policies. The estimate is based on the
expected composition of the Fund's portfolio of Florida Municipal Bonds and
Municipal Bonds. Additional information regarding the Policies is set forth in
Appendix III to this Prospectus. In instances in which the Fund purchases
Florida Municipal Bonds and Municipal Bonds insured under policies obtained by
parties other than the Fund, the Fund does not pay the premiums for such
policies; rather, the cost of such policies may be reflected in the purchase
price of the Florida Municipal Bonds and Municipal Bonds.
It is the intention of the Investment Adviser to retain any insured
securities that are in default or in significant risk of default and to place a
value on the insurance, which ordinarily will be the difference between the
market value of the defaulted security and the market value of similar
securities that are not in default. In certain circumstances, however, the
Investment Adviser 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. The Investment Adviser's ability to manage the
portfolio may be limited to the extent the Fund 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 the Fund's method of valuing defaulted securities and
securities that have a significant risk of default.
There can be no assurance that insurance with the terms and issued by
insurance carriers meeting the criteria described above will continue to be
available to the Fund. In the event the Board of Trustees
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<PAGE> 17
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 discontinue its policy of
maintaining insurance for all or any of the Florida Municipal Bonds and
Municipal Bonds held in the Fund's portfolio. Although the Investment Adviser
periodically reviews the financial condition of each insurer, there can be no
assurance that the insurers will be able to honor their obligations under all
circumstances.
The portfolio insurance reduces financial or credit risk (i.e., the
possibility that the owners of the insured Florida Municipal Bonds or Municipal
Bonds will not receive timely scheduled payments of principal or interest).
However, the insured Florida Municipal Bonds or Municipal Bonds are subject to
market risk (i.e., fluctuations in market value as a result of changes in
prevailing interest rates or other market conditions).
DESCRIPTION OF FLORIDA MUNICIPAL BONDS AND MUNICIPAL BONDS
Florida Municipal Bonds and Municipal Bonds include debt obligations issued
to obtain funds for various public purposes, including construction of a wide
range of public facilities, refunding of outstanding obligations and obtaining
funds for general operating expenses and loans to other public institutions and
facilities. In addition, certain types of private activity bonds ("PABs") are
issued by or on behalf of public authorities to finance various privately
operated facilities, including airports, public ports, mass commuting
facilities, multifamily housing projects, as well as facilities for water
supply, gas, electricity, sewage or solid waste disposal. For purposes of this
prospectus, such obligations are Municipal Bonds if the interest paid thereon is
exempt from Federal income tax and are 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 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 typically secured by
the issuer's pledge of faith, credit and taxing power for the repayment of
principal and the payment of interest. Revenue or special obligation bonds are
typically payable only from the revenues derived from a particular facility or
class of facilities or, in some cases, from the proceeds of a special excise tax
or other specific revenue source such as from the user of the facility being
financed. PABs are in most cases revenue bonds and do not generally constitute
the pledge of the credit or taxing power of the issuer of such bonds. The
repayment of principal and the payment of interest on revenue 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.
The Fund may purchase Florida Municipal Bonds and Municipal Bonds
classified as PABs. Interest received on certain PABs is treated as an item of
"tax preference" for purposes of the Federal alternative
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<PAGE> 18
minimum tax and may impact the overall tax liability of investors in the Fund.
There is no limitation on the percentage of the Fund's assets that may be
invested in Florida Municipal Bonds and Municipal Bonds the interest on which is
treated as an item of "tax preference" for purposes of the Federal alternative
minimum tax. See "Taxes -- General."
Also included within the general category of Florida Municipal Bonds and/or
Municipal Bonds are certificates of participation ("COPs") executed and
delivered for the benefit of government authorities or entities to finance the
acquisition or construction of equipment, land and/or facilities. COPs represent
participations in a lease, an installment purchase contract or a conditional
sales contract (hereinafter collectively referred to as "lease obligations")
relating to such equipment, land or facilities. Although lease obligations
typically do not constitute general obligations of the issuer for which the
issuer's unlimited taxing power is pledged, a lease obligation frequently is
backed by the issuer's covenant to budget for, appropriate and make the payments
due under the lease obligation. However, certain lease obligations contain
"non-appropriation" clauses, which provide that the issuer has no obligation to
make lease or installment purchase payments in future years unless money is
appropriated for such purpose on a yearly basis. Although "non-appropriation"
lease obligations are secured by the lease property, disposition of the property
in the event of foreclosure might prove difficult.
Federal tax legislation has limited and may continue to limit the types and
volume of such bonds the interest on which qualifies for a Federal income tax
exemption. Legislation that may be enacted in the future may affect the
availability of Florida Municipal Bonds and Municipal Bonds for investment by
the Fund.
SPECIAL CONSIDERATIONS RELATING TO FLORIDA MUNICIPAL BONDS
The Fund ordinarily will invest at least 80% of its total assets in Florida
Municipal Bonds, and therefore it is more susceptible to factors adversely
affecting issuers of Florida Municipal Bonds than is a municipal bond mutual
fund that is not concentrated in issuers of Florida Municipal Bonds to this
degree. Many different social, environmental and economic factors may affect the
financial condition of Florida and its political subdivisions. From time to time
Florida and its political 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. In combination, the two amendments to the
Florida Constitution may limit the State's ability to raise revenues and may
have an adverse effect on the finances of Florida and its political
subdivisions. The Investment Adviser does not believe that the current economic
conditions in Florida will have a significant adverse effect on the Fund's
ability to invest in investment grade Florida Municipal Bonds. As of December 2,
1998, the State had a high bond rating from Moody's (Aa2), S&P (AA+) and Fitch
IBCA, Inc. (AA) on all of its general obligation bonds. For a discussion of
economic and other conditions in the State of Florida, see Appendix I, "Economic
and Other Conditions in Florida."
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OTHER INVESTMENT POLICIES
The Fund has adopted certain other policies as set forth below:
Borrowings. The Fund is authorized to borrow money in amounts of up to 5%
of the value of its total assets at the time of such borrowings; provided,
however, that the Fund is authorized to borrow moneys in amounts of up to
33 1/3% of the value of its total assets at the time of such borrowings to
finance the repurchase of its own common shares pursuant to tender offers or
otherwise to redeem or repurchase preferred shares or for temporary,
extraordinary or emergency purposes. Borrowings by the Fund (commonly known, as
with the issuance of preferred shares, as "leveraging") create an opportunity
for greater total return since the Fund will not be required to sell portfolio
securities to repurchase or redeem shares but, at the same time, increase
exposure to capital risk. In addition, borrowed funds are subject to interest
costs that may offset or exceed the return earned on the borrowed funds.
When-Issued Securities and Delayed Delivery Transactions. The Fund may
purchase or sell Florida Municipal Bonds and Municipal Bonds on a delayed
delivery basis or on a when-issued basis at fixed purchase or sale terms. These
transactions arise when securities are purchased or sold by the Fund with
payment and delivery taking place in the future. The purchase will be recorded
on the date the Fund enters into the commitment, and the value of the obligation
will thereafter be reflected in the calculation of the Fund's net asset value.
The value of the obligation on the delivery day may be more or less than its
purchase price. A separate account of the Fund will be established with its
custodian consisting of cash, cash equivalents or liquid securities having a
market value at all times at least equal to the amount of the commitment.
Indexed and Inverse Floating Obligations. The Fund may invest in Florida
Municipal Bonds and Municipal Bonds yielding a return based on a particular
index of value or interest rates. For example, the Fund may invest in Florida
Municipal Bonds and Municipal Bonds that pay interest based on an index of
Municipal Bond interest rates. The principal amount payable upon maturity of
certain Florida Municipal Bonds and Municipal Bonds also may be based on the
value of an index. To the extent the Fund invests in these types of Municipal
Bonds, the Fund's return on such Florida Municipal Bonds and Municipal Bonds
will be subject to risk with respect to the value of the particular index. Also,
the Fund may invest in so-called "inverse floating obligations" or "residual
interest bonds" on which the interest rates typically vary inversely with a
short-term floating rate (which may be reset periodically by a dutch auction, a
remarketing agent, or by reference to a short-term tax-exempt interest rate
index). The Fund may purchase synthetically-created inverse floating rate bonds
evidenced by custodial or trust receipts. Generally, income on inverse floating
rate bonds will decrease when short-term interest rates increase, and will
increase when short-term interest rates decrease. Such securities have the
effect of providing a degree of investment leverage, since they may increase or
decrease in value in response to changes in market interest rates at a rate that
is a multiple (typically two) of the rate at which fixed-rate, long-term,
tax-exempt securities increase or decrease in response to such changes. As a
result, the market values of such securities generally will be more volatile
than the market values of fixed-rate tax-exempt securities. To seek to limit the
volatility of these securities, the Fund may purchase inverse floating
obligations with shorter-term maturities or limitations on the extent to which
the interest rate may vary. The Investment Adviser believes that indexed and
inverse floating obligations represent a flexible portfolio management
instrument for the Fund that allows the Investment Adviser to vary the degree of
investment leverage relatively efficiently under different market conditions.
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Call Rights. The Fund may purchase a Florida Municipal Bond or Municipal
Bond issuer's right to call all or a portion of such Florida Municipal Bond or
Municipal Bond for mandatory tender for purchase (a "Call Right"). A holder of a
Call Right may exercise such right to require a mandatory tender for the
purchase of related Florida Municipal Bonds or Municipal Bonds, subject to
certain conditions. A Call Right that is not exercised prior to the maturity of
the related Florida Municipal Bond or Municipal Bond will expire without value.
The economic effect of holding both the Call Right and the related Florida
Municipal Bond or Municipal Bond is identical to holding a Florida Municipal
Bond or Municipal Bond as a non-callable security.
Repurchase Agreements. The Fund may invest in securities pursuant to
repurchase agreements. Repurchase agreements may be entered into only with a
member bank of the Federal Reserve System or a primary dealer in U.S. Government
securities or an affiliate thereof. Under such agreements, the seller agrees,
upon entering into the contract, to repurchase the security at a mutually
agreed-upon time and price, thereby determining the yield during the term of the
agreement. The Fund may not invest in repurchase agreements maturing in more
than seven days if such investments, together with all other illiquid
investments, would exceed 15% of the Fund's net assets. In the event of default
by the seller under a repurchase agreement, the Fund may suffer time delays and
incur costs or possible losses in connection with the disposition of the
underlying securities.
In general, for Federal income tax purposes, repurchase agreements are
treated as collateralized loans secured by the securities "sold." Therefore,
amounts earned under such agreements will not be considered tax-exempt interest.
OPTIONS AND FUTURES TRANSACTIONS
The Fund may hedge all or a portion of its portfolio investments against
fluctuations in interest rates through the use of options and certain financial
futures contracts ("financial futures contracts") and options thereon. While the
Fund's use of hedging strategies is intended to reduce the volatility of the net
asset value of the common shares, the net asset value of the common shares will
fluctuate. There can be no assurance that the Fund's hedging transactions will
be effective. In addition, because of the anticipated 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, the Fund may only engage in hedging activities
from time to time and may not necessarily be engaging in hedging activities when
movements in interest rates occur. The Fund has no obligation to enter into
hedging transactions and may not do so.
Certain Federal income tax requirements may limit the Fund's ability to
engage in hedging transactions. Gains from transactions in options and futures
contracts distributed to shareholders will be taxable as ordinary income or, in
certain circumstances, as long-term capital gains to shareholders. See
"Taxes -- Tax Treatment of Options and Futures Transactions." In addition, in
order to obtain ratings of the preferred shares from one or more nationally
recognized statistical ratings organizations ("NRSROs"), the Fund may be
required to limit its use of hedging techniques in accordance with the specified
guidelines of such organizations.
The following is a description of the options and futures transactions in
which the Fund may engage, limitations on the Fund's use of such transactions
and risks associated with these transactions. The
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investment policies with respect to the hedging transactions of the Fund are not
fundamental policies and may be modified by the Board of Trustees of the Fund
without the approval of the Fund's shareholders.
Writing Covered Call Options. The Fund may write (i.e., sell) covered call
options with respect to Florida Municipal Bonds and Municipal Bonds it owns,
thereby giving the holder of the option the right to buy the underlying security
covered by the option from the Fund at the stated exercise price until the
option expires. The Fund writes only covered call options, which means that so
long as the Fund is obligated as the writer of a call option, it will own the
underlying securities subject to the option. The Fund may not write covered call
options on underlying securities in an amount exceeding 15% of the market value
of its total assets.
The Fund will receive a premium from writing a call option, which increases
the Fund's return on the underlying security in the event the option expires
unexercised or is closed out at a profit. By writing a call, the Fund limits its
opportunity to profit from an increase in the market value of the underlying
security above the exercise price of the option for as long as the Fund's
obligation as a writer continues. Covered call options may serve as a partial
hedge against a decline in the price of the underlying security. The Fund may
engage in closing transactions in order to terminate outstanding options that it
has written.
Purchase of Options. The Fund may purchase put options in connection with
its hedging activities. By buying a put the Fund has a right to sell the
underlying security at the exercise price, thus limiting the Fund's risk of loss
through a decline in the market value of the security until the put expires. The
amount of any appreciation in the value of the underlying security will be
partially offset by the amount of the premium paid for the put option and any
related transaction costs. Prior to its expiration, a put option may be sold in
a closing sale transaction; profit or loss from the sale will depend on whether
the amount received is more or less than the premium paid for the put option
plus the related transaction costs. A closing sale transaction cancels out the
Fund's position as the purchaser of an option by means of an offsetting sale of
an identical option prior to the expiration of the option it has purchased. In
certain circumstances, the Fund may purchase call options on securities held in
its portfolio on which it has written call options or on securities that it
intends to purchase. The Fund will not purchase options on securities if, as a
result of such purchase, the aggregate cost of all outstanding options on
securities held by the Fund would exceed 5% of the market value of the Fund's
total assets.
Financial Futures Contracts and Options. The Fund is authorized to
purchase and sell certain financial futures contracts and options thereon solely
for the purpose of hedging its investments in Florida Municipal Bonds and
Municipal Bonds against declines in value and to hedge 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 futures contracts, to make and accept a cash settlement,
at a specific future time for a specified price. A sale of financial futures
contracts may provide a hedge against a decline in the value of portfolio
securities because such depreciation may be offset, in whole or in part, by an
increase in the value of the position in the financial futures contracts. A
purchase of financial futures contracts may provide a hedge against an increase
in the cost of securities intended to be purchased because such appreciation may
be offset, in whole or in part, by an increase in the value of the position in
the futures contracts.
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<PAGE> 22
The purchase or sale of a futures contract differs from the purchase or
sale of a security in that no price or premium is paid or received. Instead, an
amount of cash or securities acceptable to the broker equal to approximately 5%
of the contract amount must be deposited with the broker. This amount is known
as initial margin. Subsequent payments to and from the broker, called variation
margin, are made on a daily basis as the price of the financial futures contract
fluctuates making the long and short positions in the financial futures contract
more or less valuable.
The Fund may purchase and sell financial futures contracts based on The
Bond Buyer Municipal Bond Index, a price-weighted measure of the market value of
40 large tax-exempt issues, and purchase and sell put and call options on such
financial futures contracts for the purpose of hedging Florida Municipal Bonds
and Municipal Bonds that the Fund holds or anticipates purchasing against
adverse changes in interest rates. The Fund also may purchase and sell financial
futures contracts on U.S. Government securities and purchase and sell put and
call options on such financial futures contracts for such hedging purposes. With
respect to U.S. Government securities, currently there are financial futures
contracts based on long-term U.S. Treasury bonds, U.S. Treasury notes, GNMA
Certificates and three-month U.S. Treasury bills.
Subject to policies adopted by the Board of Trustees, the Fund also may
engage in transactions in other financial futures contracts, such as financial
futures contracts on other municipal bond indices that may become available, if
the Investment Adviser should determine that there is normally sufficient
correlation between the prices of such financial futures contracts and the
Florida Municipal Bonds and Municipal Bonds in which the Fund invests to make
such hedging appropriate.
Over-The-Counter Options. The Fund may engage in options and futures
transactions on exchanges and in the over-the-counter markets ("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 options
transactions are two-party contracts with prices and terms negotiated by the
buyer and seller. See "Restrictions on OTC Options" below for information as to
restrictions on the use of OTC options.
Restrictions on OTC Options. The Fund will engage in transactions in OTC
options only with banks or dealers that have capital of at least $50 million or
whose obligations are guaranteed by an entity having capital of at least $50
million. Certain OTC options and assets used to cover OTC options written by the
Fund may be considered to be illiquid. The illiquidity of such options or assets
may prevent a successful sale of such options or assets, result in a delay of
sale, or reduce the amount of proceeds that might otherwise be realized.
Risk Factors in Options and Futures Transactions. 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, the Fund will experience a gain or loss that will not be completely
offset by movements in the price of such security. There is a risk of imperfect
correlation where the securities underlying financial futures contracts have
different maturities, ratings, geographic compositions or other characteristics
than the security being hedged. In addition, the correlation may be affected by
additions to or deletions from the index that serves as a basis for a financial
futures contract. Finally, in the case of financial futures contracts on U.S.
Government securities and
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<PAGE> 23
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 that have a
disparate impact on the respective markets for such securities.
Under regulations of the Commodity Futures Trading Commission ("CFTC"), the
futures trading activities described herein will not result in the Fund being
deemed a "commodity pool," as defined under such regulations, provided that the
Fund adheres to certain restrictions. In particular, the Fund may purchase and
sell financial futures contracts and options thereon (i) for bona fide hedging
purposes, without regard to the percentage of the Fund's assets committed to
margin and option premiums, and (ii) for non-hedging purposes if, immediately
thereafter, the sum of the amount of initial margin deposits on the Fund's
existing futures positions and option premiums entered into for non-hedging
purposes does not exceed 5% of the market value of the liquidation value of the
Fund's portfolio, after taking into account unrealized profits and unrealized
losses on any such transactions. Margin deposits may consist of cash or
securities acceptable to the broker and the relevant contract market.
When the Fund purchases a financial futures contract, or writes a put
option or purchases a call option thereon, it will maintain an amount of cash,
cash equivalents (e.g., commercial paper and daily tender adjustable notes) or
liquid securities in a segregated account with the Fund's custodian so that the
amount so segregated plus the amount of initial and variation margin held in the
account of its broker equals the market value of the financial futures contract,
thereby ensuring that the use of such financial futures contract is unleveraged.
Certain risks are involved in options and futures transactions. The
Investment Adviser believes, however, that, because the Fund will engage in
options and futures transactions only for hedging purposes, the Fund's options
and futures portfolio strategies will not subject the Fund to those risks
associated with speculation in options and futures transactions.
The volume of trading in the exchange markets with respect to Florida
Municipal Bond or Municipal Bond options may be limited, and it is impossible to
predict the amount of trading interest that may exist in such options. In
addition, there can be no assurance that viable exchange markets will continue
to be available.
The Fund intends to enter into options and futures transactions, on an
exchange or in the over-the-counter market, only if there appears to be a liquid
secondary market for such options or futures. There can be no assurance,
however, that a liquid secondary market will exist at any specific time. Thus,
it may not be possible to close an options or futures transaction. The inability
to close options and futures positions also could have an adverse impact on the
Fund's ability to effectively hedge its portfolio. There is also the risk of
loss by the Fund of margin deposits or collateral in the event of bankruptcy of
a broker with which the Fund has an open position in an option or financial
futures contract.
The liquidity of a secondary market in a financial futures contract may be
adversely affected by "daily price fluctuation limits" established by commodity
exchanges that limit the amount of fluctuation in a financial futures contract
price during a single trading day. Once the daily limit has been reached in the
contract, no trades may be entered into at a price beyond the limit, thus
preventing the liquidation of open futures positions. Prices have in the past
moved beyond the daily limit on a number of consecutive trading days.
22
<PAGE> 24
If it is not possible to close a financial futures position entered into by
the Fund, the Fund would continue to be required to make daily cash payments of
variation margin in the event of adverse price movements. In such a situation,
if the Fund has insufficient cash, it may have to sell portfolio securities to
meet daily variation margin requirements at a time when it may be
disadvantageous to do so.
The successful use of these transactions also depends on the ability of the
Investment Adviser to forecast correctly the direction and extent of interest
rate movements within a given time frame. To the extent these rates remain
stable during the period in which a financial futures contract is held by the
Fund or move in a direction opposite to that anticipated, the Fund may realize a
loss on the hedging transaction that is not fully or partially offset by an
increase in the value of portfolio securities. As a result, the Fund's total
return for such period may be less than if it had not engaged in the hedging
transaction. Furthermore, the Fund will only engage in hedging transactions from
time to time and may not necessarily be engaged in hedging transactions when
movements in interest rates occur.
RISKS AND SPECIAL CONSIDERATIONS OF LEVERAGE
EFFECTS OF LEVERAGE
Within approximately three months after the completion of this offering,
the Fund intends to offer shares of preferred shares representing approximately
40% of the Fund's capital immediately after the issuance of such preferred
shares. There can be no assurance, however, that preferred shares representing
such percentage of the Fund's capital will actually be issued. Issuing the
preferred shares will result in the leveraging of the common shares. Although
the Fund's Board of Trustees has not yet determined the terms of the preferred
shares offering, the Fund anticipates that the preferred shares will pay
dividends that will be adjusted over either relatively short-term periods
(generally seven to 28 days) or medium-term periods (up to five years). The
dividend rate will be based upon prevailing interest rates for debt obligations
of comparable maturity. The proceeds of the preferred shares offering will be
invested in longer-term obligations in accordance with the Fund's investment
objective. The expenses of the preferred shares, which will be borne by the
Fund, will reduce the net asset value of the common shares. Additionally, under
certain circumstances, when the Fund is required to allocate taxable income to
holders of preferred shares, the Fund anticipates that the terms of the
preferred shares will require the Fund to make an additional distribution to
such holders in an amount approximately equal to the tax liability resulting
from such allocation (an "Additional Distribution"). Because under normal market
conditions, obligations with longer maturities produce higher yields than
short-term and medium-term obligations, the Investment Adviser believes that the
spread inherent in the difference between the short-term and medium-term rates
(and any Additional Distribution) paid by the Fund as dividends on the preferred
shares and the longer-term rates received by the Fund may provide holders of
common shares with a potentially higher yield.
The use of leverage, however, involves certain risks to the holders of
common shares. For example, issuance of the preferred shares may result in
higher volatility of the net asset value of the common shares and potentially
more volatility in the market value of the common shares. In addition, changes
in the short-term and medium-term dividend rates on, and the amount of taxable
income allocable to, the preferred shares will affect the yield to holders of
common shares. Leverage will allow holders of common shares to realize a higher
current rate of return than if the Fund were not leveraged as long as the Fund,
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<PAGE> 25
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 preferred shares. Similarly,
since a pro rata portion of the Fund's net realized capital gains are generally
payable to holders of common shares, the use of leverage will increase the
amount of such gains distributed to holders of 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 the Fund may be invested. To the extent that the
current dividend rate (and any Additional Distribution) on the preferred shares
approaches the net return on the 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 preferred shares were to exceed
the net return on the 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 cost of issuing the preferred shares and any decline in the value of the
Fund's investments (including investments purchased with the proceeds from any
preferred share offering) will be borne entirely by holders of 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 the Fund is liquidated, holders of preferred shares will be
entitled to receive liquidating distributions before any distribution is made to
holders of common shares.
In an extreme case, a decline in net asset value could affect the Fund's
ability to pay dividends on the common shares. Failure to make such dividend
payments could adversely affect the Fund's qualification as a regulated
investment company under Federal tax laws. See "Taxes." However, the Fund
intends to take all measures necessary to make dividend payments on the common
shares. If the Fund's current investment income is ever insufficient to meet
dividend payments on either the common shares or the preferred shares, the Fund
may have to liquidate certain of its investments. In addition, the Fund will
have the authority to redeem the preferred shares for any reason and may redeem
all or part of the preferred shares under the following circumstances:
- 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,
- if the asset coverage for the preferred shares 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
- in order to maintain the asset coverage guidelines established by the
NRSROs that have rated the preferred shares.
Redemption of the preferred shares 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.
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<PAGE> 26
As discussed under "Investment Advisory and Management Arrangements,"
during periods when the Fund has preferred shares outstanding, the fees paid to
the Investment Adviser for investment advisory and management services will be
higher than if the Fund did not issue preferred shares because the fees paid
will be calculated on the basis of the Fund's average weekly net assets,
including proceeds from the sale of preferred shares.
Assuming the use of leverage by issuing preferred shares (paying dividends
at a rate that generally will be adjusted every 28 days) in an amount
representing approximately 40% of the Fund's capital at an annual dividend rate
of 3.25% payable on such preferred shares based on market rates as of the date
of this prospectus, the annual return that the Fund's portfolio must experience
(net of expenses) in order to cover such dividend payments would be 1.30%.
The following table is designed to illustrate the effect on the return to a
holder of the Fund's common shares of the leverage obtained by the issuance of
preferred shares representing approximately 40% of the Fund's capital, assuming
hypothetical annual returns on the Fund's portfolio of minus 10% to plus 10%. As
the table shows, leverage generally increases the return to shareholders when
portfolio return is positive and decreases the return when portfolio return is
negative. The figures appearing in the table are hypothetical and actual returns
may be greater or less than those appearing in the table.
<TABLE>
<S> <C> <C> <C> <C> <C>
Assumed Portfolio Return (net of expenses).... (10)% (5)% 0% 5% 10%
Corresponding Common Shares Return............ (19)% (11)% (2)% 6% 15%
</TABLE>
Leveraging the common shares cannot be fully achieved until preferred
shares are issued and the proceeds of such offering have been invested in
long-term Florida Municipal Bonds and Municipal Bonds.
PORTFOLIO MANAGEMENT AND OTHER CONSIDERATIONS
If short-term or medium-term rates increase or other changes in market
conditions occur to the point where the Fund's leverage could adversely affect
holders of common shares as noted above (or in anticipation of such changes),
the Fund may attempt to shorten the average maturity of its investment portfolio
in order to offset the negative impact of leverage. The Fund also may attempt to
reduce the degree to which it is leveraged by redeeming preferred shares
pursuant to the Fund's Certificate of Designation, which establishes the rights
and preferences of the preferred shares, or otherwise by purchasing preferred
shares. Purchases and redemptions of preferred shares, whether on the open
market or in negotiated transactions, are subject to limitations under the 1940
Act. In determining whether or not it is in the best interest of the Fund and
its shareholders to redeem or repurchase outstanding preferred shares, the
Trustees will take into account a variety of factors, including the following:
- market conditions,
- the ratio of preferred shares to common shares, and
- the expenses associated with such redemption or repurchase.
If market conditions subsequently change, the Fund may sell previously unissued
preferred shares or preferred shares that the Fund had issued but later
repurchased or redeemed.
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<PAGE> 27
The Fund intends to apply for ratings of the preferred shares from one or
more NRSROs. In order to obtain these ratings, the Fund may be required to
maintain portfolio holdings that meet the specified guidelines of such
organizations. These guidelines may impose asset coverage requirements that are
more stringent than those imposed by the 1940 Act. The Fund does not anticipate
that these guidelines will impede the Investment Adviser from managing the
Fund's portfolio in accordance with the Fund's investment objective and
policies. Ratings on the preferred shares issued by the Fund should not be
confused with ratings on the obligations held by the Fund.
Under the 1940 Act, the Fund is not permitted to issue preferred shares
unless, immediately after such issuance, the net asset value of the Fund's
portfolio is at least 200% of the liquidation value of the outstanding preferred
shares (expected to equal the original purchase price of the outstanding
preferred shares plus any accumulated and unpaid dividends thereon and any
accumulated and unpaid Additional Distribution). In addition, the Fund is not
permitted to declare any cash dividend or other distribution on its common
shares unless, at the time of such declaration, the net asset value of the
Fund's portfolio (determined after deducting the amount of such dividend or
distribution) is at least 200% of such liquidation value. Under the Fund's
proposed capital structure, assuming the sale of preferred shares representing
approximately 40% of the Fund's capital, the net asset value of the Fund's
portfolio is expected to be approximately 250% of the liquidation value of the
Fund's preferred shares. To the extent possible, the Fund intends to purchase or
redeem preferred shares from time to time to maintain coverage of preferred
shares of at least 200%.
INVESTMENT RESTRICTIONS
The following are fundamental investment restrictions of the Fund and,
prior to issuance of the preferred shares, may not be changed without the
approval of the holders of a majority of the Fund's outstanding common shares
(which for this purpose and under the 1940 Act means the lesser of (i) 67% of
the common shares represented at a meeting at which more than 50% of the
outstanding common shares are represented or (ii) more than 50% of the
outstanding shares). Subsequent to the issuance of the preferred shares, the
following investment restrictions may not be changed without the approval of a
majority of the outstanding common shares and of the outstanding preferred
shares, voting together as a class, and the approval of a majority of the
outstanding preferred shares, voting separately as a class. The Fund may not:
1. Make investments for the purpose of exercising control or
management.
2. Purchase or sell real estate, commodities or commodity contracts;
provided that the Fund may invest in securities secured by real estate or
interests therein or issued by entities that invest in real estate or
interest therein, and the Fund may purchase and sell financial futures
contracts and options thereon.
3. Issue senior securities or borrow money except as permitted by
Section 18 of the 1940 Act.
4. Underwrite securities of other issuers except insofar as the Fund
may be deemed an underwriter under the Securities Act of 1933, as amended,
in selling portfolio securities.
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<PAGE> 28
5. Make loans to other persons, except that the Fund may purchase
Florida Municipal Bonds, Municipal Bonds and other debt securities and
enter into repurchase agreements in accordance with its investment
objective, policies and limitations.
6. Invest more than 25% of its total assets (taken at market value at
the time of each investment) in securities of issuers in a single industry;
provided that, for purposes of this restriction, states, municipalities and
their political subdivisions are not considered to be part of any industry.
Additional investment restrictions adopted by the Fund, which may be changed by
the Board of Trustees without shareholder approval, provide that the Fund may
not:
a. Purchase securities of other investment companies, except to the
extent that such purchases are permitted by applicable law. Applicable law
currently prohibits the Fund from purchasing the securities of other
investment companies except if immediately thereafter not more than (i) 3%
of the total outstanding voting shares 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 shares of any one closed-end investment company.
b. Mortgage, pledge, hypothecate or in any manner transfer, as
security for indebtedness, any securities owned or held by the Fund except
as may be necessary in connection with borrowings mentioned in investment
restriction (3) above or except as may be necessary in connection with
transactions in financial futures contracts and options thereon.
c. Purchase any securities on margin, except that the Fund may obtain
such short-term credit as may be necessary for the clearance of purchases
and sales of portfolio securities (the deposit or payment by the Fund of
initial or variation margin in connection with financial futures contracts
and options thereon is not considered the purchase of a security on
margin).
d. Make short sales of securities or maintain a short position or
invest in put, call, straddle or spread options, except that the Fund may
write, purchase and sell options and futures on Florida Municipal Bonds,
Municipal Bonds, U.S. Government obligations and related indices or
otherwise in connection with bona fide hedging activities and may purchase
and sell Call Rights to require mandatory tender for the purchase of
related Florida Municipal Bonds and Municipal Bonds.
If a percentage restriction on investment policies or 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.
The Investment Adviser of the Fund and Merrill Lynch, Pierce, Fenner &
Smith Incorporated ("Merrill Lynch") are owned and controlled by Merrill Lynch &
Co. ("ML&Co."). Because of the affiliation of Merrill Lynch with the Investment
Adviser, the Fund is prohibited from engaging in certain transactions involving
Merrill Lynch except pursuant to an exemptive order or otherwise in compliance
with the provisions of the 1940 Act and the rules and regulations thereunder.
Included among such restricted transactions will be purchases from or sales to
Merrill Lynch of securities in transactions in which it acts as principal. An
exemptive order has been obtained that permits the Fund to effect principal
27
<PAGE> 29
transactions with Merrill Lynch in high quality, short-term, tax-exempt
securities subject to conditions set forth in such order. The Fund may consider
in the future requesting an order permitting other principal transactions with
Merrill Lynch, but there can be no assurance that such application will be made
and, if made, that such order would be granted.
TRUSTEES AND OFFICERS
Information about the Trustees, executive officers and the portfolio
manager of the Fund, including their ages and their principal occupations during
the last five years is set forth below. Unless otherwise noted, the address of
each Trustee, executive officer and portfolio manager is 800 Scudders Mill Road,
Plainsboro, New Jersey 08536.
TERRY K. GLENN (58) -- President and Director(1)(2) -- Executive Vice
President of the Investment Adviser and Merrill Lynch Asset Management, L.P.
("MLAM") (which terms as used herein include their corporate predecessors) since
1983; Executive Vice President and Director of Princeton Services, Inc.
("Princeton Services") since 1993; President of Princeton Funds Distributor,
Inc. ("PFD") since 1986 and Director thereof since 1991; President of Princeton
Administrators, L.P. since 1988.
RONALD W. FORBES(58) -- Director(2) -- 1400 Washington Avenue, Albany, New
York 12222. Professor of Finance, School of Business, State University of New
York at Albany since 1989; Consultant, Urban Institute, Washington, D.C. since
1995.
CYNTHIA A. MONTGOMERY (46) -- Director(2) -- Harvard Business School,
Soldiers Field Road, Boston, Massachusetts 02163. Professor, Harvard Business
School since 1989; Associate Professor, J.L. Kellogg Graduate School of
Management, Northwestern University from 1985 to 1989; Assistant Professor,
Graduate School of Business Administration, The University of Michigan from 1979
to 1985; Director, UNUM Corporation since 1990 and Director of Newell Co. since
1995.
CHARLES C. REILLY (67) -- Director(2) -- 9 Hampton Harbor Road, Hampton
Bays, New York 11946. Self-employed financial consultant since 1990; President
and Chief Investment Officer of Verus Capital, Inc. from 1979 to 1990; Senior
Vice President of 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.
KEVIN A. RYAN (66) -- Director(2) -- 127 Commonwealth Avenue, Chestnut
Hill, Massachusetts 02167. Founder and current Director of The Boston University
Center for the Advancement of Ethics and Character; Professor of Education at
Boston University since 1982; formerly taught on the faculties of The University
of Chicago, Stanford University and Ohio State University.
RICHARD R. WEST (61) -- Director(2) -- Box 604, Genoa, Nevada 89411.
Professor of Finance since 1984, and Dean from 1984 to 1993, and currently Dean
Emeritus of New York University, Leonard N. Stern School of Business
Administration; Director of Bowne & Co., Inc., Vornado Realty Trust, Inc.,
Vornado Operating Company and Alexander's Inc.
ARTHUR ZEIKEL (66) -- Director(1)(2) -- Chairman of the Investment Adviser
and MLAM from 1997 to 1999; President of the Investment Adviser and MLAM from
1977 to 1997; Chairman of Princeton
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<PAGE> 30
Services from 1997 to 1999, Director thereof from 1993 to 1999 and President
thereof from 1993 to 1997; Executive Vice President of ML & Co. from 1990 to
1999.
VINCENT R. GIORDANO (54) -- Senior Vice President(1)(2) -- Senior Vice
President of the Investment Adviser and MLAM since 1984; Senior Vice President
of Princeton Services since 1993.
KENNETH A. JACOB (48) -- Vice President(1)(2) -- First Vice President of
MLAM since 1997; Vice President of MLAM from 1984 to 1997; Vice President of the
Investment Adviser since 1984.
ROBERT A. DIMELLA, CFA (32) -- Vice President and Portfolio
Manager(1)(2) -- Vice President of MLAM since 1997; Assistant Vice President of
MLAM from 1995 to 1997; Assistant Portfolio Manager of MLAM from 1993 to 1995.
ROBERT D. SNEEDEN (46) -- Vice President and Portfolio
Manager(1)(2) -- Assistant Vice President and Portfolio Manager of MLAM since
1994.
DONALD C. BURKE (38) -- Vice President and Treasurer(1)(2) -- Senior Vice
President and Treasurer of the Investment Adviser and MLAM since 1999; Senior
Vice President and Treasurer of Princeton Services since 1999; Vice President of
PFD since 1999; First Vice President of MLAM from 1997 to 1999; Vice President
of MLAM from 1990 to 1997; Director of Taxation of MLAM since 1990.
WILLIAM E. ZITELLI, JR.(30) -- Secretary(1)(2) -- Attorney associated with
the Investment Adviser since 1998; Attorney associated with Pepper Hamilton LLP
from 1997 to 1998; Attorney associated with Reboul, MacMurray, Hewitt, Maynard
and Kristal from 1994 to 1997.
- ------------
(1) Interested person, as defined in the 1940 Act, of the Fund.
(2) Such Trustee or officer is a director, trustee or officer of one or more
additional investment companies for which the Investment Adviser or its
affiliate, MLAM, acts as investment adviser or manager.
In the event that the Fund issues preferred shares, in connection with the
election of the Fund's Trustees, holders of shares of preferred shares, voting
as a separate class, will be entitled to elect two of the Fund's Trustees, and
the remaining Trustees will be elected by all holders of capital shares, voting
as a single class. See "Description of Capital Shares."
COMPENSATION OF TRUSTEES
Pursuant to an Investment Advisory Agreement with the Fund, the Investment
Adviser pays all compensation of officers and employees of the Fund as well as
the fees of all Trustees who are affiliated persons of ML&Co. or its
subsidiaries.
The Fund pays each Trustee not affiliated with the Investment Adviser
(each, a "non-affiliated Trustee") a fee of $ per year plus $ per
meeting attended, and pays all Trustee's out-of-pocket expenses relating to
attendance at meetings. The Fund also compensates members of the Board's audit
and nominating committee (the "Committee"), which consists of all of the
non-affiliated Trustees, an annual fee of $ . The Chairman of the Committee
receives an additional annual fee of $ .
The following table sets forth compensation to be paid by the Fund to the
non-affiliated Trustees projected through the end of the Fund's first full
fiscal year, and for the calendar year ended December 31,
29
<PAGE> 31
1998 the aggregate compensation paid by all investment companies advised by the
Investment Adviser and its affiliate, MLAM ("FAM/MLAM Advised Funds"), to the
non-affiliated Trustees.
<TABLE>
<CAPTION>
TOTAL
PENSION OR COMPENSATION
RETIREMENT FROM FUND AND
AGGREGATE BENEFITS FAM/MLAM
COMPENSATION ACCRUED AS PART OF ADVISED FUNDS PAID
NAME OF TRUSTEE FROM FUND FUND EXPENSE TO TRUSTEES
--------------- ------------ ------------------ ------------------
<S> <C> <C> <C>
Ronald W. Forbes(1).......................... $ None $192,567
Cynthia A. Montgomery(1)..................... $ None $192,567
Charles C. Reilly(1)......................... $ None $362,858
Kevin A. Ryan(1)............................. $ None $192,567
Richard R. West(1)........................... $ None $334,125
</TABLE>
- ------------
(1) The Trustees serve on the boards of MLAM/FAM Advised Funds as follows: Mr.
Forbes (37 registered investment companies consisting of 50 portfolios); Ms.
Montgomery (37 registered investment companies consisting of 50 portfolios);
Mr. Reilly (56 registered investment companies consisting of 69 portfolios);
Mr. Ryan (37 registered investment companies consisting of 50 portfolios);
and Mr. West (58 registered investment companies consisting of 83
portfolios).
INVESTMENT ADVISORY AND MANAGEMENT ARRANGEMENTS
The Investment Adviser, which is owned and controlled by ML&Co., a
financial services holding company and the parent of Merrill Lynch, provides the
Fund with investment advisory and management services. The Asset Management
Group of ML & Co. (which includes the Investment Adviser) acts as the investment
adviser to more than 100 registered investment companies and offers investment
advisory services to individuals and institutional accounts. As of April 1999,
the Asset Management Group had a total of approximately $523 billion in
investment company and other portfolio assets under management (approximately
$40 billion of which was invested in municipal securities). This amount includes
assets managed for certain affiliates of the Investment Adviser. The Investment
Adviser is a limited partnership, the partners of which are ML&Co. and Princeton
Services, Inc. The principal business address of the Investment Adviser is 800
Scudders Mill Road, Plainsboro, New Jersey 08536.
The Investment Advisory Agreement provides that, subject to the supervision
of the Board of Trustees of the Fund, the Investment Adviser is responsible for
the actual management of the Fund's portfolio. The responsibility for making
decisions to buy, sell or hold a particular security rests with the Investment
Adviser, subject to review by the Board of Trustees.
The Investment Adviser provides the portfolio management for the Fund. Such
portfolio management will consider analyses from various sources (including
brokerage firms with which the Fund does business), make the necessary
investment decisions, and place orders for transactions accordingly. The
Investment Adviser will also be responsible for the performance of certain
administrative and management services for the Fund. Robert A. DiMella and
Richard D. Sneeden are the portfolio managers of the Fund and are primarily
responsible for the Fund's day-to-day management.
For the services provided by the Investment Adviser under the Investment
Advisory Agreement, the Fund will pay a monthly fee at an annual rate of 0.55 of
1% of the Fund's average weekly net assets (i.e., the average weekly value of
the total assets of the Fund, including proceeds from the issuance of preferred
30
<PAGE> 32
shares, minus the sum of accrued liabilities of the Fund and accumulated
dividends on the preferred shares). For purposes of this calculation, average
weekly net assets are determined at the end of each month on the basis of the
average net assets of the Fund for each week during the month. The assets for
each weekly period are determined by averaging the net assets at the last
business day of a week with the net assets at the last business day of the prior
week.
The Investment Advisory Agreement obligates the Investment Adviser to
provide investment advisory services and to pay all compensation of and furnish
office space for officers and employees of the Fund connected with investment
and economic research, trading and investment management of the Fund, as well as
the compensation of all Trustees of the Fund who are affiliated persons of the
Investment Adviser or any of its affiliates. The Fund pays all other expenses
incurred in the operation of the Fund, including, among other things, expenses
for legal and auditing services, taxes, costs of printing proxies, listing fees,
if any, share certificates and shareholder reports, charges of the custodian and
the transfer and dividend disbursing agent and registrar, fees and expenses with
respect to the issuance of preferred shares, Securities and Exchange Commission
fees, fees and expenses of non-affiliated Trustees, accounting and pricing
costs, insurance, interest, brokerage costs, litigation and other extraordinary
or non-recurring expenses, mailing and other expenses properly payable by the
Fund. Accounting services are provided to the Fund by the Investment Adviser,
and the Fund reimburses the Investment Adviser for its costs in connection with
such services.
Unless earlier terminated as described below, the Investment Advisory
Agreement will remain in effect for a period of two years from the date of
execution and will remain in effect from year to year thereafter if approved
annually (a) by the Board of Trustees of the Fund or by a majority of the
outstanding shares of the Fund and (b) by a majority of the Trustees who are not
parties to such contract or interested persons (as defined in the 1940 Act) of
any such party. Such contract is not assignable and may be terminated without
penalty on 60 days' written notice at the option of either party thereto or by
the vote of the shareholders of the Fund.
Securities held by the Fund may also be held by, or be appropriate
investments for, other funds or investment advisory clients for which the
Investment Adviser or its affiliates act as an adviser. Because of different
objectives or other factors, a particular security may be bought for an advisory
client when other clients are selling the same security. If purchases or sales
of securities by the Investment Adviser for the Fund or other funds for which it
acts as investment adviser or for advisory clients arise for consideration at or
about the same time, transactions in such securities will be made, insofar as
feasible, for the respective funds and clients in a manner deemed equitable to
all. Transactions effected by the Investment Adviser (or its affiliates) on
behalf of more than one of its clients during the same period may increase the
demand for securities being purchased or the supply of securities being sold,
causing an adverse effect on price.
CODE OF ETHICS
The Board of Trustees of the Fund has adopted a Code of Ethics pursuant to
Rule 17j-1 under the 1940 Act that incorporates the Code of Ethics of the
Investment Adviser (together, the "Codes"). The Codes significantly restrict the
personal investing activities of all employees of the Investment Adviser and, as
described below, impose additional, more onerous, restrictions on Fund
investment personnel.
31
<PAGE> 33
The Codes require that all employees of the Investment Adviser preclear any
personal securities investment (with limited exceptions, such as U.S. Government
securities). The preclearance requirement and associated procedures are designed
to identify any substantive prohibition or limitation applicable to the proposed
investment. The substantive restrictions applicable to all employees of the
Investment Adviser include a ban on acquiring any securities in a "hot" initial
public offering and a prohibition from profiting on short-term trading
securities. In addition, no employee may purchase or sell any security that at
the time is being purchased or sold (as the case may be), or to the knowledge of
the employee is being considered for purchase or sale, by any fund advised by
the Investment Adviser. Furthermore, the Codes provide for trading "blackout
periods" that prohibit trading by investment personnel of the Fund within
periods of trading by the Fund in the same (or equivalent) security (15 or 30
days depending upon the transaction).
PORTFOLIO TRANSACTIONS
Subject to policies established by the Board of Trustees of the Fund, the
Investment Adviser is primarily responsible for the execution of the Fund's
portfolio transactions. In executing such transactions, the Investment Adviser
seeks to obtain the best results for the Fund, taking into account such factors
as price (including the applicable brokerage commission or dealer spread), size
of order, difficulty of execution and operational facilities of the firm
involved and the firm's risk in positioning a block of securities. While the
Investment Adviser generally seeks reasonably competitive commission rates, the
Fund does not necessarily pay the lowest commission or spread available.
The Fund has no obligation to deal with any broker or dealer in the
execution of transactions in portfolio securities. Subject to providing the best
price and execution, securities firms that provide supplemental investment
research to the Investment Adviser, including Merrill Lynch, may receive orders
for transactions by the Fund. Research information provided to the Investment
Adviser by securities firms is supplemental. It does not replace or reduce the
level of services performed by the Investment Adviser and the expenses of the
Investment Adviser will not be reduced because it receives supplemental research
information.
The Fund invests in securities traded in the over-the-counter markets, and
the Fund intends to deal directly with dealers who make markets in the
securities involved, except in those circumstances where better prices and
execution are available elsewhere. Under the 1940 Act, except as permitted by
exemptive order, persons affiliated with the Fund, including Merrill Lynch, are
prohibited from dealing with the Fund as principal in the purchase and sale of
securities. Since transactions in the over-the-counter market usually involve
transactions with dealers acting as principals for their own accounts, the Fund
does not deal with Merrill Lynch and its affiliates in connection with such
transactions except that, pursuant to exemptive orders obtained by the
Investment Adviser, the Fund may engage in principal transactions with Merrill
Lynch in high quality, short-term, tax-exempt securities. See "Investment
Restrictions." However, affiliated persons of the Fund, including Merrill Lynch,
serve as its brokers in certain over-the-counter transactions conducted on an
agency basis.
The Fund also may purchase tax-exempt debt instruments in individually
negotiated transactions with the issuers. Because an active trading market may
not exist for such securities, the prices that the Fund
32
<PAGE> 34
may pay for these securities or receive on their resale may be lower than that
for similar securities with a more liquid market.
PORTFOLIO TURNOVER
The Fund may dispose of securities without regard to the time they have
been held when such action, for defensive or other reasons, if it appears
advisable to the Investment Adviser. While it is not possible to predict
turnover rates with any certainty, presently it is anticipated that the Fund's
annual portfolio turnover rate, under normal circumstances, should be less than
100%. (The portfolio turnover rate is calculated by dividing the lesser of
purchases or sales of portfolio securities for the particular fiscal year by the
monthly average of the value of the portfolio securities owned by the Fund
during the particular fiscal year. For purposes of determining this rate, all
securities whose maturities at the time of acquisition are one year or less are
excluded.) A high portfolio turnover rate results in greater transaction costs,
which are borne directly by the Fund, and also has certain tax consequences for
shareholders.
DIVIDENDS AND DISTRIBUTIONS
The Fund intends to distribute dividends of all or a portion of its net
investment income monthly to holders of common shares. It is expected that the
Fund will commence paying dividends to holders of common shares within
approximately 90 days of the date of this prospectus. From and after issuance of
the preferred shares, monthly dividends to holders of common shares normally
will consist of all or a portion of its net investment income remaining after
the payment of dividends (and any Additional Distribution) on the preferred
shares. The 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 the
Fund to holders of 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 calendar year. All net realized capital
gains, if any, will be distributed pro rata at least annually to holders of
common shares and any preferred shares. While any preferred shares are
outstanding, the Fund may not declare any cash dividend or other distribution on
its common shares, unless at the time of such declaration, (i) all accumulated
preferred share dividends, including any Additional Distribution, have been
paid, and (ii) 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 outstanding preferred shares (expected to equal the
original purchase price of the outstanding preferred shares plus any accumulated
and unpaid dividends thereon and any accumulated but unpaid Additional
Distribution). If the Fund's ability to make distributions on its common shares
is limited, such limitation could under certain circumstances impair the ability
of the Fund to maintain its qualification for taxation as a regulated investment
company, which would have adverse tax consequences for holders of common shares.
See "Taxes."
See "Automatic Dividend Reinvestment Plan" for information concerning the
manner in which dividends and distributions to holders of common shares may be
automatically reinvested in common shares of the Fund. Dividends and
distributions may be taxable to shareholders under certain circumstances as
discussed below, whether they are reinvested in shares of the Fund or received
in cash.
33
<PAGE> 35
TAXES
GENERAL
The Fund intends to elect and to qualify for the special tax treatment
afforded regulated investment companies ("RICs") under the Internal Revenue Code
of 1986, as amended (the "Code"). As long as it so qualifies, in any taxable
year in which it distributes at least 90% of its taxable net income and 90% of
its tax-exempt net income (see below), the Fund (but not its shareholders) will
not be subject to Federal income tax to the extent that it distributes its net
investment income and net realized capital gains. The Fund intends to distribute
substantially all of such income.
The Code requires a RIC to pay a nondeductible 4% excise tax to the extent
the RIC does not distribute, during each calendar year, 98% of its ordinary
income, determined on a calendar year basis, and 98% of its capital gains,
determined, in general, on an October 31 year-end, plus certain undistributed
amounts from previous years. The required distributions, however, are based only
on the taxable income of a RIC. The excise tax, therefore, generally will not
apply to the tax-exempt income of a RIC, such as the Fund, that pays
exempt-interest dividends.
The Fund intends to qualify to pay "exempt-interest dividends" as defined
in Section 852(b)(5) of the Code. Under such section if, at the close of each
quarter of its taxable year, at least 50% of the value of its total assets
consists of obligations 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 shall be qualified to pay exempt-interest dividends to its
shareholders. Exempt-interest dividends are dividends or any part thereof paid
by the Fund that are attributable to interest on tax-exempt obligations and
designated by the Fund as exempt-interest dividends in a written notice mailed
to the Fund's shareholders within 60 days after the close of its taxable year.
To the extent that the dividends distributed to the Fund's shareholders are
derived from interest income excludable from gross income for Federal income tax
purposes under Code Section 103(a) and are properly designated as
exempt-interest dividends, they will be excludable from a shareholder's gross
income for Federal income tax purposes. Exempt-interest dividends are included,
however, in determining the portion, if any, of a person's social security and
railroad retirement benefits subject to Federal income taxes. Each shareholder
is advised to consult a tax adviser with respect to whether exempt-interest
dividends retain the exclusion under Code Section 103(a) if such shareholder
would be treated as a "substantial user" or "related person" under Code Section
147(a) with respect to property financed with the proceeds of an issue of PABs
or IDBs, if any, held by the Fund.
The Fund has applied for a ruling from the Florida Department of Revenue
that shares of the Fund will be exempt from Florida intangible personal property
tax in the following year, if, on the last business day of any calendar year,
the Fund's assets consist solely of assets exempt from Florida intangible
personal property tax ("asset requirement"). Although there is no assurance that
the Florida Department of Revenue will issue a favorable ruling on this issue,
the Florida Department of Revenue has previously issued similar rulings. The
Florida Department of Revenue has the authority to revoke or modify a previously
issued ruling; however, if a ruling is revoked or modified, the revocation or
modification is prospective only. Prior to receipt of the ruling from the
Florida Department of Revenue, the Fund will rely on an opinion of Florida
counsel for the Fund, Holland & Knight LLP, stating that Fund shares will be
exempt from Florida intangible personal property tax if the asset requirement is
met. This opinion is based
34
<PAGE> 36
on existing Florida law and interpretive authority which could be changed at any
time retroactively. While the opinion represents the best judgment of Holland &
Knight LLP, the legal conclusions reached therein are not binding on the Florida
Department of Revenue, and there is no assurance that the legal conclusions will
not be challenged by the Department of Revenue or in judicial or administrative
proceedings. Thus, under Florida counsel's opinion or if a favorable ruling is
issued, and if the asset requirement is met, shares of the Fund owned by Florida
residents will be exempt from Florida intangible personal property tax. Assets
exempt from Florida intangible personal property tax include Florida Municipal
Bonds, obligations of the United States Government or its agencies, and cash.
The Fund may from time to time hold assets that are not exempt from Florida
intangible personal property tax. It is possible that the Fund may not be able
to fully dispose of all of its assets subject to Florida intangible personal
property tax by the last business day of the calendar year. This would subject
shares of the Fund to Florida intangible personal property tax. If shares of the
Fund are subject to Florida intangible personal property tax because the asset
requirement is not met, only that portion of the value of Fund shares equal to
the portion of the net asset value of the Fund that is attributable to
obligations of the United States Government will be exempt from taxation. The
Fund will attempt to monitor its portfolio so that on the last business day of
each calendar year the Fund's assets consist solely of assets exempt from
Florida intangible personal property tax.
Dividends paid by the Fund to individuals who are Florida residents are not
subject to personal income taxation by Florida, because Florida does not impose
a personal income tax. Distributions of investment income and capital gains by
the Fund will be subject to Florida corporate income taxes, state taxes in
states other than Florida and local taxes in cities other than those in Florida.
Shareholders not subject to taxation by Florida do not benefit from the fact
that shares of the Fund will be exempt from the Florida intangible personal
property tax. Interest on indebtedness incurred or continued to purchase or
carry Fund shares is not deductible for Federal income tax purposes to the
extent attributable to exempt-interest dividends.
To the extent that the Fund's distributions are derived from interest on
its taxable investments or from an excess of net short-term capital gains over
net long-term capital losses ("ordinary income dividends"), such distributions
will be 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. Generally not later than 60 days
after the close of its taxable year, the Fund will provide its shareholders with
a written notice designating the amounts of any exempt-interest dividends and
capital gain dividends, as well as any amount of capital gain dividends in the
different categories of capital gain referred to above. Distributions by the
Fund, whether from exempt-income, ordinary income or capital gains, are not
eligible for the dividends received deduction allowed to corporations under the
Code.
All or a portion of the Fund's gain from the sale or redemption of
tax-exempt obligations purchased at a market discount will be treated for
Federal income tax purposes as ordinary income rather than capital gain. This
rule may increase the amount of ordinary income dividends received by
shareholders. Distributions in excess of the Fund's earnings and profits will
first reduce the adjusted tax basis of a holder's shares and, after such
adjusted tax basis is reduced to zero, will constitute capital gains to such
35
<PAGE> 37
holder (assuming the shares are held as a capital asset). Any loss upon the sale
or exchange of Fund shares held for six months or less will be disallowed to the
extent of any exempt-interest dividends received by the shareholder. In
addition, any such loss that is not disallowed under the rule stated above will
be treated as long-term capital loss to the extent of any capital gain dividends
received by the shareholder. If the Fund pays a dividend in January that was
declared in the previous October, November or December to shareholders of record
on a specified date in one of such months, then such dividend will be treated
for tax purposes as being paid by the Fund and received by its shareholders on
December 31 of the year in which such dividend was declared.
The Internal Revenue Service (the "Service") has taken the position in a
revenue ruling that if a RIC has more than one class of shares, it may designate
distributions made to each class in any year as consisting of no more than such
class's proportionate share of particular types of income, including
exempt-interest income and net long-term capital gains. A class's proportionate
share of a particular type of income is determined according to the percentage
of total dividends paid by the RIC during such year that was paid to such class.
Consequently, when common shares and one or more series of preferred shares are
outstanding, the Fund intends to designate distributions made to the classes as
consisting of particular types of income in accordance with the classes'
proportionate shares of such income. Thus, the Fund will designate dividends
paid as exempt-interest dividends in a manner that allocates such dividends
among the holders of common shares and series of preferred shares in proportion
to the total dividends paid to each class during the taxable year, or otherwise
as required by applicable law. Capital gain dividends will similarly be
allocated among the classes in proportion to the total dividends paid to each
class during the taxable year, or otherwise as required by applicable law. When
capital gain or other taxable income is allocated to holders of preferred shares
pursuant to the allocation rules described above, the terms of the preferred
shares may require the Fund to make an additional distribution to or otherwise
compensate such holders for the tax liability resulting from such allocation.
The Code subjects interest received on certain otherwise tax-exempt
securities to a Federal alternative minimum tax. The Federal alternative minimum
tax applies to interest received on certain "private activity bonds" issued
after August 7, 1986. Private activity bonds are bonds that, although
tax-exempt, are used for purposes other than those performed by governmental
units and that benefit non-governmental entities (e.g., bonds used for
industrial development or housing purposes). Income received on such bonds is
classified as an item of "tax preference" which could subject certain investors
in such bonds, including shareholders of the Fund, to an increased Federal
alternative minimum tax. The Fund intends to purchase such "private activity
bonds" and will report to shareholders within 60 days after calendar year-end
the portion of its dividends declared during the year that constitutes an item
of tax preference for Federal alternative minimum tax purposes. The Code further
provides that corporations are subject to a Federal alternative minimum tax
based, in part, on certain differences between taxable income as adjusted for
other tax preferences and the corporation's "adjusted current earnings," which
more closely reflect a corporation's economic income. Because an exempt-interest
dividend paid by the Fund will be included in adjusted current earnings, a
corporate shareholder may be required to pay a Federal alternative minimum tax
on exempt-interest dividends paid by the Fund.
The Fund may invest in instruments the return on which includes
nontraditional features such as indexed principal or interest payments
("nontraditional instruments"). These instruments may be subject to special tax
rules under which the Fund may be required to accrue and distribute income
before amounts
36
<PAGE> 38
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 preferred shares are outstanding the Fund does not meet
the asset coverage requirements of the 1940 Act, the Fund will be required to
suspend distributions to holders of common shares until the asset coverage is
restored. See "Dividends and Distributions." This may prevent the 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 the Fund were to
fail to qualify as a RIC, some or all of the distributions paid by the Fund
would be fully taxable for Federal income tax purposes. Upon any failure to meet
the asset coverage requirements of the 1940 Act, the Fund, in its sole
discretion, may redeem preferred shares 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, the Fund must distribute annually at least 90% of its net
taxable and tax-exempt interest income. A distribution will only be counted for
this purpose if it qualifies for the dividends paid deduction under the Code.
Some types of preferred shares that the Fund currently contemplates issuing may
raise an issue as to whether distributions on such preferred shares are
"preferential" under the Code and, therefore, not eligible for the dividends
paid deduction. The Fund intends to issue preferred shares that counsel advises
will not result in the payment of a preferential dividend and may seek a private
letter ruling from the Service to that effect. If the Fund ultimately relies
solely on a legal opinion when it issues such preferred shares, there is no
assurance that the Service would agree that dividends on the preferred shares
are not preferential. If the Service successfully disallowed the dividends paid
deduction for dividends on the preferred shares, the Fund could be disqualified
as a RIC. In this case, dividends on the common shares would not be exempt from
Federal income taxes. Additionally, the Fund would be subject to the alternative
minimum tax.
The value of shares acquired pursuant to the Fund's dividend reinvestment
plan will generally be excluded from gross income to the extent that the cash
amount reinvested would be excluded from gross income. If, when the 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 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 their allocable share of the discount.
Ordinary income dividends paid to shareholders who are nonresident aliens
or foreign entities will be subject to a 30% United States withholding tax under
existing provisions of the Code applicable to foreign individuals and entities
unless a reduced rate of withholding or a withholding exemption is provided
under applicable treaty law. Nonresident shareholders are urged to consult their
own tax advisers concerning the applicability of the United States withholding
tax.
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<PAGE> 39
Under certain Code provisions, some taxpayers may be subject to 31%
withholding tax on certain ordinary income dividends and on capital gain
dividends and redemption payments ("backup withholding"). Generally,
shareholders subject to backup withholding are those for whom no certified
taxpayer identification number is on file with the Fund or who, to the Fund's
knowledge, have furnished an incorrect number. When establishing an account, an
investor must certify under penalty of perjury that such number is correct and
that such investor is not otherwise subject to backup withholding.
The Code provides that every shareholder required to file a tax return must
include for information purposes on such return the amount of exempt-interest
dividends received from all sources (including the Fund) during the taxable
year.
TAX TREATMENT OF OPTIONS AND FUTURES TRANSACTIONS
The Fund may purchase or sell municipal bond index financial futures
contracts and interest rate financial futures contracts on U.S. Government
securities. The Fund may also purchase and write call and put options on such
financial futures contracts. In general, unless an election is available to the
Fund or an exception applies, such options and financial futures contracts that
are "Section 1256 contracts" will be "marked to market" for Federal income tax
purposes at the end of each taxable year, i.e., each such option or financial
futures contract will be treated as sold for its fair market value on the last
day of the taxable year, and any gain or loss attributable to Section 1256
contracts will be 60% long-term and 40% short-term capital gain or loss.
Application of these rules to Section 1256 contracts held by the Fund may alter
the timing and character of distributions to shareholders. The mark-to-market
rules outlined above, however, will not apply to certain transactions entered
into by the Fund solely to reduce the risk of changes in price or interest rates
with respect to its investments.
Code Section 1092, which applies to certain "straddles," may affect the
taxation of the Fund's sales of securities and transactions in financial futures
contracts and related options. Under Section 1092, the Fund may be required to
postpone recognition for tax purposes of losses incurred in certain sales of
securities and certain closing transactions in financial futures contracts or
the related options.
FLORIDA TAXATION OF THE FUND
If the 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 the Investment
Adviser, under present Florida law, the Fund is not subject to Florida corporate
income taxation. Additionally, if the 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 the 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
Florida tax laws. The Code and the Treasury Regulations, as well as the Florida
tax laws, are subject to change by legislative, judicial or administrative
action either prospectively or retroactively.
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<PAGE> 40
Shareholders are urged to consult their tax advisers regarding specific
questions as to Federal, state, local or foreign taxes.
AUTOMATIC DIVIDEND REINVESTMENT PLAN
Pursuant to the Fund's Automatic Dividend Reinvestment Plan (the "Plan"),
unless a holder of common shares otherwise elects, all dividend and capital
gains distributions will be automatically reinvested by ,
as agent for shareholders in administering the Plan (the "Plan Agent"), in
additional common shares of the Fund. Holders of common shares who elect not to
participate in the Plan will 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 , as
dividend paying agent. Such participants 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 , 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 distribution.
Whenever the Fund declares an income dividend or a capital gains
distribution (collectively, referred to as "dividends") payable either in shares
or in cash, non-participants in the Plan will receive cash, and participants in
the Plan will receive the equivalent in common shares. The shares will be
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 New York Stock Exchange (the "NYSE") or elsewhere. If on the
payment date for the dividend, the net asset value per share of the common
shares is equal to or less than the market price per common shares plus
estimated brokerage commissions (such condition being referred to herein as
"market premium"), the Plan Agent will invest the dividend amount in newly
issued shares on behalf of the participant. The number of newly issued shares of
common shares to be credited to the participant's account will be 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 will invest the dividend amount in shares acquired on behalf of the
participant in open-market purchases. Prior to the time the common shares
commence trading on the NYSE, participants in the Plan will receive any
dividends in newly issued shares.
In the event of a market discount on the dividend payment date, the Plan
Agent will have 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. It is contemplated that the
Fund will pay monthly income dividends. Therefore, the period during which
open-market purchases can be made will exist only from the payment date on the
dividend through the date before the next "ex-dividend" date, which typically
will be approximately ten days. If, before the Plan Agent has completed its
open-market
39
<PAGE> 41
purchases, the market price of a common share exceeds the net asset value per
share, the average per share purchase prices paid by the Plan Agent may exceed
the net asset value of the Fund's shares, resulting in the acquisition of fewer
shares than if the dividend had been paid in newly issued shares on the dividend
payment date. Because of the foregoing difficulty with respect to open-market
purchases, the Plan provides that if the Plan Agent is unable to invest the full
dividend amount in open-market purchases during the purchase period or if the
market discount shifts to a market premium during the purchase period, the Plan
Agent will cease making open-market purchases and will invest 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 will be held by the Plan Agent in non-certificated form in
the name of the participant and each shareholder's proxy will include 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 that 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 will be no brokerage charges with respect to shares issued directly
by the Fund as a result of dividends or capital gains distributions payable
either in shares or in cash. However, each participant will pay 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 will not relieve
participants of any Federal, state or local income tax that may be payable (or
required to be withheld) on such dividends. See "Taxes."
Shareholders participating in the Plan may receive benefits not available
to shareholders not participating in the Plan. If the market price plus
commissions of the Fund's shares is above the net asset value, participants in
the Plan will receive shares of the Fund at less than they could otherwise
purchase them and will 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 will receive
distributions in 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 in shares
at prices below the net asset value. Also, since the Fund does not redeem its
shares, the price on resale may be more or less than the net asset value. See
"Taxes" for a discussion of tax consequences of the Plan.
Experience under the Plan may indicate that changes are desirable.
Accordingly, the Fund reserves the right to amend or terminate the Plan. There
is no direct service charge to participants in the Plan; however, the Fund
reserves the right to amend the Plan to include a service charge payable by the
participants.
All correspondence concerning the Plan should be directed to the Plan Agent
at .
40
<PAGE> 42
MUTUAL FUND INVESTMENT OPTION
Purchasers of common shares of the Fund through Merrill Lynch in this
offering will have an investment option consisting of the right to reinvest the
net proceeds from a sale of such shares (the "Original Shares") in Class D
initial sales charge shares of certain Merrill Lynch-sponsored open-end mutual
funds ("Eligible Class D Shares") at their net asset value, without the
imposition of the initial sales charge, if the conditions set forth below are
satisfied. First, the sale of the Original Shares must be made through Merrill
Lynch, and the net proceeds therefrom must be immediately reinvested in Eligible
Class D Shares. Second, the Original Shares must have been either acquired in
this offering or be shares representing reinvested dividends from common shares
acquired in this offering. Third, the Original Shares must have been
continuously maintained in a Merrill Lynch securities account. Fourth, there
must be a minimum purchase of $250 to be eligible for the investment option.
Class D shares of the mutual funds are subject to an account maintenance fee at
an annual rate of up to 0.25% of the average daily net asset value of such
mutual fund. The Eligible Class D Shares may be redeemed at any time at the next
determined net asset value, subject in certain cases to a redemption fee. Prior
to the time the common shares commence trading on the NYSE, the distributor for
the mutual funds will advise Merrill Lynch Financial Consultants as to those
mutual funds that offer the investment option described above.
NET ASSET VALUE
Net asset value per common share is determined as of 15 minutes after the
close of business on the NYSE (generally, the NYSE closes at 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, 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 preferred shares is divided by the total number of common
shares outstanding at such time. Expenses, including the fees payable to the
Investment Adviser, are accrued daily.
The Florida Municipal Bonds and Municipal Bonds in which the Fund invests
are traded primarily in the over-the-counter markets. In determining net asset
value, the Fund utilizes the valuations of portfolio securities furnished by a
pricing service approved by the Board of Trustees. The pricing service typically
values portfolio securities at the bid price or the yield equivalent when
quotations are readily available. Florida Municipal Bonds and Municipal Bonds
for which quotations are not readily available are valued at fair market value
on a consistent basis as determined by the pricing service using a matrix system
to determine valuations. The procedures of the pricing service and its
valuations are reviewed by the officers of the Fund under the general
supervision of the Board of Trustees. The Board of Trustees has determined in
good faith that the use of a pricing service is a fair method of determining the
valuation of portfolio securities. Positions in futures contracts are valued at
closing prices for such contracts established by the exchange on which they are
traded, or if market quotations are not readily available, are valued at fair
value on a consistent basis using methods determined in good faith by the Board
of Trustees.
The Fund determines and makes available for publication the net asset value
of its common shares weekly. Currently, the net asset values of shares of
publicly traded closed-end investment companies investing in debt securities are
published in Barron's, the Monday edition of The Wall Street Journal, and the
Monday and Saturday editions of The New York Times.
41
<PAGE> 43
DESCRIPTION OF CAPITAL SHARES
The Fund is authorized to issue an unlimited number of shares of beneficial
interest, par value $.10 per share. The Board of Trustees may authorize separate
classes of shares together with such designations and powers, preferences and
rights, qualifications, limitations and restrictions as may be determined from
time to time by the Trustees. Pursuant to such authority, the Trustees have
authorized the issuance of an unlimited number of common shares together with
1,000,000 preferred shares. Within approximately three months after completion
of the offering of the common shares described herein, the Fund intends to offer
preferred shares representing approximately 40% of the Fund's capital
immediately after the issuance of such preferred shares. There is no assurance
that such preferred shares will be issued.
The Fund is an entity of the type commonly known as a "Massachusetts
business trust." Under Massachusetts law, shareholders of such a trust may,
under certain circumstances, be held personally liable as partners for its
obligations. However, the Declaration of Trust of the Fund contains an express
disclaimer of shareholder liability for acts or obligations of the Fund and
provides for indemnification and reimbursement of expenses out of the Fund's
property for any shareholder held personally liable for the obligations of the
Fund. Thus, the risk of a shareholder incurring financial loss on account of
shareholder liability is limited to circumstances in which the Fund itself would
be unable to meet its obligations. Given the nature of the Fund's assets and
operations, the possibility of the Fund being unable to meet its obligations is
remote and, in the opinion of Massachusetts counsel to the Fund, the risk to
Fund shareholders is remote.
The Declaration of Trust further provides that no Trustee, officer,
employee or agent of the Fund is liable to the Fund or to any shareholder, nor
is any Trustee, officer, employee of 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
Common shares, when issued and outstanding, will be fully paid and
non-assessable. Shareholders are entitled to share pro rata in the net assets of
the Fund available for distribution to shareholders upon liquidation of the
Fund. Shareholders are entitled to one vote for each share held.
So long as any shares of the Fund's preferred shares are outstanding,
holders of common shares will not be entitled to receive any net income of or
other distributions from the Fund unless all accumulated dividends on preferred
shares have been paid and unless asset coverage (as defined in the 1940 Act)
with respect to preferred shares would be at least 200% after giving effect to
such distributions. See "Preferred Shares" below.
The Fund will send unaudited reports at least semi-annually and audited
annual financial statements to all of its shareholders.
42
<PAGE> 44
The Investment Adviser provided the initial capital for the Fund by
purchasing 6,667 common shares of the Fund for $100,005. As of the date of this
prospectus, the Investment Adviser owned 100% of the outstanding common shares
of the Fund. The Investment Adviser may be deemed to control the Fund until such
time as it owns less than 25% of the outstanding shares of the Fund.
PREFERRED SHARES
It is anticipated that the Fund's preferred shares will be issued in one or
more series, with rights as determined by the Board of Trustees, by action of
the Board of Trustees without the approval of the holders of common shares.
Under the 1940 Act, the Fund is permitted to have outstanding more than one
series of preferred stock so long as no single series has a priority over
another series as to the distribution of assets of the Fund or the payment of
dividends. Holders of common shares have no preemptive right to purchase any
preferred shares that might be issued. It is anticipated that the net asset
value per the preferred shares will equal its original purchase price per share
plus accumulated dividends per share.
The Fund's Board of Trustees has declared its intention to authorize an
offering of preferred shares (representing approximately 40% of the Fund's
capital immediately after the issuance of such preferred shares) within
approximately three months after completion of the offering of common shares,
subject to market conditions and to the Board's continuing to believe that
leveraging the Fund's capital structure through the issuance of preferred shares
is likely to achieve the benefits to the holders of common shares described in
the prospectus. Although the terms of the preferred shares, including its
dividend rate, voting rights, liquidation preference and redemption provisions
will be determined by the Board of Trustees (subject to applicable law and the
Fund's Declaration of Trust), the initial series of preferred shares will be
structured to carry either a relatively short-term dividend rate, in which case
periodic redetermination of the dividend rate will be made at relatively short
intervals (generally seven or 28 days), or a medium-term dividend rate, in which
case periodic redetermination of the dividend rate will be made at intervals of
up to five years. In either case, such redetermination of the dividend rate will
be made through an auction or remarketing procedure. Additionally, under certain
circumstances, when the Fund is required to allocate taxable income to holders
of the preferred shares, it is anticipated that the terms of the preferred
shares will require the Fund to make an Additional Distribution (as defined in
"Risks and Special Considerations of Leverage -- Effects of Leverage") to such
holders. The Board also has indicated that it is likely that the liquidation
preference, voting rights and redemption provisions of the preferred shares will
be as stated below. The Fund's Declaration of Trust, as amended, together with
any Certificate of Designation, is referred to below as the "Charter."
Liquidation Preference. In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Fund, the holders of preferred
shares will be entitled to receive a preferential liquidating distribution
(expected to equal the original purchase price per share plus an amount equal to
accumulated and unpaid dividends whether or not earned or declared and any
accumulated and unpaid Additional Distribution) before any distribution of
assets is made to holders of common shares. After payment of the full amount of
the liquidating distribution to which they are entitled, the preferred
shareholders will not be entitled to any further participation in any
distribution of assets by the Fund. A consolidation or merger of the Fund with
or into any other corporation or corporations or a sale of all or substantially
all of the assets of the Fund will not be deemed to be a liquidation,
dissolution or winding up of the Fund.
43
<PAGE> 45
Voting Rights. Except as otherwise indicated in this prospectus and except
as otherwise required by applicable law, holders of preferred shares will have
equal voting rights with holders of common shares (one vote per share) and will
vote together with holders of common shares as a single class.
In connection with the election of the Fund's trustees, holders of
preferred shares, voting as a separate class, will be entitled to elect two of
the Fund's trustees, and the remaining trustees will be elected by all holders
of capital shares, voting as a single class. So long as any preferred shares are
outstanding, the Fund will have not less than five trustees. If at any time
dividends on the Fund's preferred shares shall be unpaid in an amount equal to
two full years' dividends thereon, the holders of all outstanding preferred
shares, voting as a separate class, will be entitled to elect a majority of the
Fund's trustees until all dividends in default have been paid or declared and
set apart for payment.
The affirmative vote of the holders of a majority of the outstanding
preferred shares, voting as a separate class, will be required to (i) authorize,
create or issue any class or series of shares ranking prior to any series of
preferred shares with respect to payment of dividends or the distribution of
assets on liquidation or (ii) amend, alter or repeal the provisions of the
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.
Redemption Provisions. It is anticipated that preferred shares will
generally be redeemable at the option of the Fund at a price equal to their
liquidation preference plus accumulated but unpaid dividends to the date of
redemption plus, under certain circumstances, a redemption premium. Preferred
shares will also be subject to mandatory redemption at a price equal to their
liquidation preference plus accumulated but unpaid dividends 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 preferred shares
specified by the rating agencies that issue ratings on the preferred shares.
CERTAIN PROVISIONS OF THE DECLARATION OF TRUST
The Fund's Declaration of Trust includes provisions that could have the
effect of limiting the ability of other entities or persons to acquire control
of the Fund or to change the composition of its Board of Trustees and could have
the effect of depriving shareholders of an opportunity to sell their shares at a
premium over prevailing market prices by discouraging a third party from seeking
to obtain control of the Fund. A trustee may be removed from office with or
without cause, but only by vote of the holders of at least 66 2/3% of the votes
entitled to be voted on the matter. A trustee elected by all the holders of
capital shares may be removed only by action of such holders, and a trustee
elected by the holders of preferred shares may be removed only by action of such
holders.
In addition, the Declaration of Trust requires the favorable vote of the
holders of at least 66 2/3% of the Fund's capital shares then entitled to be
voted, voting as a single class, to approve, adopt or authorize the following:
- a merger or consolidation or statutory share exchange of the Fund with
other entities,
- a sale of all or substantially all of the Fund's assets (other than in
the regular course of the Fund's investment activities), or
44
<PAGE> 46
- a liquidation or dissolution of the Fund, unless such action has been
approved, adopted or authorized by the affirmative vote of 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 the Fund's capital
shares is required. Following the proposed issuance of the preferred
shares, it is anticipated that the approval, adoption or authorization of
the foregoing would also require the favorable vote of a majority of the
Fund's preferred shares then entitled to be voted, voting as a separate
class.
In addition, conversion of the Fund to an open-end investment company would
require an amendment to the Fund's Declaration of Trust. The amendment would
have to be declared advisable by the Board of Trustees prior to its submission
to shareholders. Such an amendment would require the favorable vote of the
holders of at least 66 2/3% of the Fund's outstanding capital shares (including
any 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 two-thirds of the total number of Trustees fixed in
accordance with the by-laws), and, assuming preferred shares are issued, the
affirmative vote of a majority of outstanding preferred shares of the Fund,
voting as a separate class. Such a vote also would satisfy a separate
requirement in the 1940 Act that the change be approved by the shareholders.
Shareholders of an open-end investment company may require the company to redeem
their common shares at any time (except in certain circumstances as authorized
by or under the 1940 Act) at their net asset value, less such redemption charge,
if any, as might be in effect at the time of a redemption. All redemptions will
be made in cash. If the Fund is converted to an open-end investment company, it
could be required to liquidate portfolio securities to meet requests for
redemption, and the common shares would no longer be listed on a stock exchange.
Conversion to an open-end investment company would also require redemption
of all outstanding preferred shares and would require changes in certain of the
Fund's investment policies and restrictions, such as those relating to the
issuance of senior securities, the borrowing of money and the purchase of
illiquid securities.
The Board of Trustees has determined that the 66 2/3% voting requirements
described above, which are greater than the minimum requirements under
Massachusetts law or the 1940 Act, are in the best interests of shareholders
generally. Reference should be made to the Charter on file with the Securities
and Exchange Commission for the full text of these provisions.
CUSTODIAN
The Fund's securities and cash are held under a custodial agreement with
.
UNDERWRITING
Merrill Lynch, Pierce, Fenner & Smith Incorporated (the "Underwriter") has
agreed, subject to the terms and conditions of a Purchase Agreement with the
Fund and the Investment Adviser, to purchase 5,000,000 common shares from the
Fund. The Underwriter is committed to purchase all of such shares if any are
purchased.
The Underwriter has advised the Fund that it proposes initially to offer
the common shares to the public at the public offering price set forth on the
cover page of this prospectus. There is no sales charge
45
<PAGE> 47
or underwriting discount charged to investors on purchases of common shares in
the offering. The Investment Adviser or an affiliate has agreed to pay the
Underwriter from its own assets a commission in connection with the sale of
common shares in the offering in the amount of $ per share. Such payment is
equal to % of the initial public offering price per share. The Underwriter
also has advised the Fund that from this amount the Underwriter may pay a
concession to certain dealers not in excess of $ per share on sales by such
dealers. After the initial public offering, the public offering price and other
selling terms may be changed. Investors must pay for common shares purchased in
the offering on or before June , 1999.
The Fund has granted the Underwriter an option, exercisable for 45 days
after the date hereof, to purchase up to 750,000 additional common shares to
cover over-allotments, if any, at the initial offering price.
The Underwriter may engage in certain transactions that stabilize the price
of the common shares. Such transactions consist of bids or purchases for the
purpose of pegging, fixing or maintaining the price of the common shares.
If the Underwriter creates a short position in the common shares in
connection with the offering, i.e., if it sells more common shares than are set
forth on the cover page of this prospectus, the Underwriter may reduce that
short position by purchasing common shares in the open market. The Underwriter
also may elect to reduce any short position by exercising all or part of the
over-allotment option described above.
The Underwriter also may impose a penalty bid on certain selling group
members. This means that if the Underwriter purchases common shares in the open
market to reduce the Underwriter's short position or to stabilize the price of
the common shares, it may reclaim the amount of the selling concession from the
selling group members who sold those common shares as part of the offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of a security to the extent that it were
to discourage resales of the security.
Neither the Fund nor the Underwriter makes any representation or prediction
as to the direction or magnitude of any effect that the transactions described
above may have on the price of the shares of common stock. In addition, neither
the Fund nor the Underwriter makes any representation that the Underwriter will
engage in such transactions or that such transactions, once commenced, will not
be discontinued without notice.
Prior to this offering, there has been no public market for the common
shares. The Fund plans to apply to list its common shares on the NYSE or another
national securities exchange. However, during an initial period which is not
expected to exceed two weeks from the date of this prospectus, the Fund's common
shares will not be listed on any securities exchange. Additionally, before it
begins trading, the Underwriter does not intend to make a market in the Fund's
common shares, although a limited market may develop. Thus, it is anticipated
that investors may not be able to buy and sell shares of the Fund during such
period. In order to meet the requirements for listing, the Underwriter has
undertaken to sell lots of 100 or more shares to a minimum of 2,000 beneficial
owners.
46
<PAGE> 48
The Fund anticipates that the Underwriter may from time to time act as a
broker in connection with the execution of its portfolio transactions. The Fund
has obtained an exemptive order permitting it to engage in certain principal
transactions with the Underwriter involving high quality, short-term, tax-exempt
securities subject to certain conditions. See "Investment Restrictions" and
"Portfolio Transactions."
The Underwriter is an affiliate of the Investment Adviser of the Fund.
The Fund and the Investment Adviser have agreed to indemnify the
Underwriter against certain liabilities, including liabilities under the
Securities Act of 1933.
TRANSFER AGENT, DIVIDEND DISBURSING AGENT AND REGISTRAR
The transfer agent, dividend disbursing agent and registrar for the common
shares of the Fund is .
LEGAL OPINIONS
Certain legal matters in connection with the common shares offered hereby
will be passed upon for the Fund and the Underwriter 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 the caption "Taxes" relating to matters of Florida law will be passed upon
for the Fund and the Underwriter by Holland & Knight LLP, Tampa, Florida.
EXPERTS
The statement of assets, liabilities and capital of the Fund as of
, 1999 included in this prospectus and Registration Statement has been
audited by , independent auditors, as set forth in their
report thereon appearing elsewhere herein, and is included in reliance upon such
report given upon authority of such firm as experts in accounting and auditing.
The selection of independent auditors is subject to ratification by shareholders
of the Fund.
ADDITIONAL INFORMATION
The Fund is subject to the informational requirements of the Securities
Exchange Act of 1934 and the 1940 Act and in accordance therewith is required to
file reports, proxy statements and other information with the Securities and
Exchange Commission (the "Commission"). Any such reports, proxy statements and
other information can be inspected and copies at the public reference facilities
of the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the following regional offices of the Commission:
Regional Office, at Seven World Trade Center, Suite 1300, New York, New York
10048; Pacific Regional Office, at 5670 Wilshire Boulevard, 11th Floor, Los
Angeles, California 90036; and Midwest Regional Office, at Northwestern Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511.
Copies of such materials can be obtained from the public reference section of
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. The Commission maintains a Web site at http://www.sec.gov containing
reports, proxy and information statements and other information regarding
registrants, including the Fund, that file
47
<PAGE> 49
electronically with the Commission. Reports, proxy statements and other
information concerning the Fund can also be inspected at the offices of the New
York Stock Exchange, 20 Broad Street, New York, New York 10005.
Additional information regarding the Fund is contained in the Registration
Statement on Form N-2, including amendments, exhibits and schedules thereto,
relating to such shares filed by the Fund with the Commission in Washington,
D.C. This prospectus does not contain all of the information set forth in the
Registration Statement, including any amendments, exhibits and schedules
thereto. For further information with respect to the fund and the shares offered
hereby, reference is made to the Registration Statement. Statements contained in
this prospectus as to the contents of any contract or other document referred to
are not necessarily complete and in each instance reference is made to the copy
of such contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference. A copy of the Registration Statement may be inspected without charge
at the Commission's principal office in Washington, D.C., and copies of all or
any part thereof may be obtained from the Commission upon the payment of certain
fees prescribed by the Commission.
YEAR 2000 ISSUES
Many computer systems were designed using only two digits to designate
years. These systems may not be able to distinguish the Year 2000 from the Year
1900 (commonly known as the "Year 2000 Problem"). The Fund could be adversely
affected if the computer systems used by the Investment Adviser or other Fund
service providers do not properly address this problem before January 1, 2000.
The Investment Adviser expects to have addressed this problem before then, and
does not anticipate that the services it provides will be adversely affected.
The Fund's other service providers have told the Investment Adviser that they
also expect to resolve the Year 2000 Problem, and the Investment Adviser will
continue to monitor the situation as the Year 2000 approaches. However, if the
problem has not been fully addressed, the Fund could be negatively affected. The
Year 2000 Problem could also have a negative impact on the issuers of securities
in which the Fund invests, and this could hurt the Fund's investment returns.
48
<PAGE> 50
REPORT OF INDEPENDENT AUDITORS
To the Board of Trustees and Shareholder
MuniHoldings Florida Insured Fund V:
We have audited the accompanying statement of assets, liabilities and capital of
MuniHoldings Florida Insured Fund V as of , 1999. This statement of
assets, liabilities and capital is the responsibility of the Fund's management.
Our responsibility is to express an opinion on this statement of assets,
liabilities and capital based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the statement of assets, liabilities and capital is free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement of assets, liabilities
and capital. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
statement of assets, liabilities and capital presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the statement of assets, liabilities and capital referred to
above presents fairly, in all material respects, the financial position of
MuniHoldings Florida Insured Fund V at , 1999, in conformity with
generally accepted accounting principles.
49
<PAGE> 51
MUNIHOLDINGS FLORIDA INSURED FUND V
STATEMENT OF ASSETS, LIABILITIES AND CAPITAL
JUNE , 1999
<TABLE>
<S> <C>
ASSETS
Cash................................................... $100,005
Offering costs (Note 1)................................
--------
Total assets......................................
--------
LIABILITIES
Liabilities and accrued expenses (Note 1)..............
--------
NET ASSETS.................................................. $100,005
========
CAPITAL
Common Shares, par value $.10 per share; unlimited
number of shares authorized; 6,667 shares issued and
outstanding (Note 1).................................. $ 667
Paid-in Capital in excess of par....................... 99,338
--------
Total Capital-Equivalent to $15.00 net asset value per
Common Share (Note 1)................................. $100,005
========
</TABLE>
NOTES TO STATEMENT OF ASSETS, LIABILITIES AND CAPITAL
NOTE 1. ORGANIZATION
The Fund was organized under the laws of the Commonwealth of Massachusetts
on May 10, 1999 as a closed-end, non-diversified management investment company
and has had no operations other than the sale to Fund Asset Management, L.P.
(the "Investment Adviser") of an aggregate of 6,667 Common Shares for $100,005
on June , 1999. The General Partner of the Investment Adviser is an indirectly
wholly owned subsidiary of Merrill Lynch & Co., Inc.
The Investment Adviser, on behalf of the Fund, will incur organization
costs estimated at $ . Direct costs relating to the public offering of the
Fund's shares will be charged to capital at the time of issuance of shares.
NOTE 2. MANAGEMENT ARRANGEMENTS
The Fund has engaged the Investment Adviser to provide investment advisory
and management services to the Fund. The Investment Adviser will receive a
monthly fee for advisory services at an annual rate of 0.55 of 1% of the Fund's
average weekly net assets, including any proceeds from the issuance of Preferred
Shares. The Investment Adviser or an affiliate will pay Merrill Lynch, Pierce,
Fenner & Smith Incorporated a commission in the amount of % of the price to
the public in connection with the initial public offering of the Fund's Common
Shares.
NOTE 3. FEDERAL INCOME TAXES
The Fund intends to qualify as a "regulated investment company" and as such
(and by complying with the applicable provisions of the Internal Revenue Code of
1986, as amended) will not be subject to Federal income tax on taxable income
(including realized capital gains) that is distributed to shareholders.
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APPENDIX I
ECONOMIC AND OTHER CONDITIONS IN FLORIDA
The following information is a brief summary of factors affecting the
economy of the State of Florida (the "State") and does not purport to be a
complete description of such factors. Other factors will affect issuers. The
summary is based upon one or more of the most recent publicly available offering
statements relating to debt offerings of the State, however, it has not been
updated. The Fund has not independently verified the information.
Throughout the 1980s, the State's unemployment rate has, generally, tracked
below that of the nation. In the nineties, the trend was reversed, until 1995
and 1996, when the State's unemployment rate again tracked below the national
average. The State's unemployment rate is projected to be 4.7% in 1997-98 and
5.0 in 1998-99. The average rate of unemployment for the State was 4.8% while
the nation's was 4.9%. (The projections set forth in this Appendix were obtained
from a report, prepared by the Revenue and Economic Analysis Unit of the
Executive Office of the Governor for the State of Florida, contained within a
recent official statement, dated August 18, 1998, for a State of Florida debt
offering.)
Personal income in the State has grown at a strong pace and has generally
outperformed both the nation as a whole and the Southeast in particular. From
1992 through 1997, the State's per capita income expanded approximately 25.9%,
while the national per capita income increased by 24.1%. Real personal income in
Florida is estimated to increase 5.2% in 1997-98 and 3.7% in 1998-99 while real
personal income per capita is projected to grow at 3.2% in 1997-98 and 1.8% in
1998-99.
The structure of Florida's income differs from that of the nation and the
southeast. Because Florida has a proportionally greater retirement age
population, property income (dividends, interest, and rent) and transfer
payments (social security and pension benefits, among other sources of income)
are a relatively more important source of income. For example, Florida's
employment income in 1997 represented 59.8% of total personal income, while the
nation's share of total personal income in the form of wages and salaries and
other labor benefits was 70.4%. Florida's income is dependent upon transfer
payments controlled by the federal government.
The State's strong population growth is one fundamental reason why its
economy has typically performed better than the nation as a whole. In 1980, the
State was ranked seventh among the 50 states with a population of 9.7 million
people. The State has grown dramatically since then and as of April 1, 1997
ranked fourth with an estimated population of 14.7 million. Since 1990, the
State's average annual rate of population increase has been approximately 1.8%
as compared to an approximately 1.0% for the nation as a whole. While annual
growth in the State's population is expected to decline somewhat, it is still
expected to grow close to 230,000 new residents per year throughout the 1990s.
Tourism is one of the State's most important industries. 47 million people
visited the State in 1997, according to the Florida Department of Commerce.
Tourism arrivals are expected to increase by 2.1% this fiscal year and 4.7% next
year. By the end of the fiscal year, 43.8 million domestic and international
tourists are expected to have visited the State. In 1998-99, tourist arrivals
should approximate 45.6 million. Florida tourism appears to be recovering from
the effects of negative publicity regarding crime against tourists in the state.
Factors such as "product maturity" of a Florida vacation package, higher prices,
and more aggressive marketing by competing vacation destinations, could
contribute to a tourism slowdown.
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Florida's dependency on the highly cyclical construction and
construction-related manufacturing sectors has declined. For example, total
contract construction employment as a share of total non-farm employment was a
little over 5.7% in 1997. Florida, nevertheless, has had a dynamic construction
industry, with single and multi-family housing starts accounting for
approximately 9.2% of total U.S. housing starts, while the State's population
was 5.5% of the nation's population. Total housing starts were 132,813 in 1997.
A driving force behind Florida's construction industry is its rapid growth in
population. In Florida, single and multi-family housing starts in 1997-98 are
projected to reach a combined level of 129,500, while increasing 131,300 next
year. Multi-family starts have been slow to recover, but are showing stronger
growth now and should maintain a level of nearly 38,200 in 1997-98 and 37,200 in
1998-99. Total construction expenditures are forecasted to increase 13.2% in
this year and increase 6.5% next year.
Financial operations of the State covering all receipts and expenditures
are maintained through the use of four funds-the General Revenue Fund, Trust
Funds, the Working Capital Fund, and beginning in fiscal year 1994-95, the
Budget Stabilization Fund. In fiscal year 1996-97, the State derived
approximately 67% of its total direct revenues to these funds from State taxes
and fees. Federal funds and other special revenues accounted for the remaining
revenues. Major sources of tax revenues to the General Revenue Fund are the
sales and use tax, corporate income tax, intangible personal property tax,
beverage tax, and estate tax which amounted to 68%, 8%, 4% and 3%, respectively,
of total General Revenue Funds available. State expenditures are categorized for
budget and appropriation purposes by type of fund and spending unit, which are
further subdivided by line item. In fiscal year 1996-97, expenditures from the
General Revenue Fund for education, health and welfare, and public safety
amounted to approximately 53%, 26% and 14%, respectively, of total General
Revenues.
The Sales and Use Tax is the greatest single source of tax receipts in the
State. For the State fiscal year ended June 30, 1997, receipts from this source
were $12,089 million, an increase of 5.5% from fiscal year 1995-96. The second
largest source of State tax receipts is the Motor Fuel Tax. The collections from
this source during the fiscal year ending June 30, 1997, were $2,012 million.
Alcoholic beverage tax revenues totalled $447.2 million for the State fiscal
year ending June 30, 1997, an increase of $5.7 million from the previous year.
The receipts of corporate income tax for the fiscal year ended June 30, 1997
were $1,362.3 million, an increase of 17.2% from fiscal year 1995-96. Gross
Receipt tax collections for fiscal year 1996-97 totalled $575.7 million, an
increase of 6.0% over the previous fiscal year. Documentary stamp tax
collections totalled $844.2 million during fiscal year 1996-97, posting an 8.9%
increase from the previous fiscal year. The intangible personal property tax is
a tax on stocks, bonds, notes, governmental leaseholds, certain limited
partnership interests, mortgages and other obligations secured by liens on
Florida realty, and other intangible personal property. Total collections from
intangible personal property taxes were $952.4 million during the fiscal year
ending June 30, 1997, a 6.3% increase from the previous fiscal year. Severance
taxes totalled $39.2 million during fiscal year 1995-96, up 26.1% from the
previous fiscal year. In November 1986, the voters of the State approved a
constitutional amendment to allow the State to operate a lottery. Fiscal year
1996-97 produced ticket sales of $2.09 billion of which education received
approximately $792.3 million.
For fiscal year 1998-99 the estimated General Revenue plus Working Capital
and Budget Stabilization funds available total $19,113.2 million, a 2.6%
increase over 1997-98. The $16,887.6 million in estimated revenues represent a
7.2% increase over the analogous figure in 1997. With combined General
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Revenue, Working Capital Fund and Budget Stabilization Fund appropriations at
$17,207.0 million, unencumbered reserves at the end of 1998-99 are estimated at
$1,414.8 million.
The State Constitution does not permit a state or local personal income
tax. An amendment to the State Constitution by the electors of the State would
be required in order to impose a personal income tax in the State.
Property valuations for homestead property are subject to a growth cap.
Growth in the just (market) value of property qualifying for the homestead
exemption is limited to 3% or the change in the Consumer Price Index, whichever
is less. If the property changes ownership or homestead status, it is to be
re-valued at full just value on the next tax roll. Although the impact of the
growth cap cannot be determined, it may have the effect of causing local
government units in the State to rely more on non-ad valorem tax revenues to
meet operating expenses and other requirements normally funded with ad valorem
tax revenues.
An amendment to the State Constitution was approved by statewide ballot in
the November 8, 1994 general election which is commonly referred to as the
"Limitation on State Revenues Amendment." This amendment provides that State
revenues collected for any fiscal year shall be limited to State revenues
allowed under the amendment for the prior fiscal year plus an adjustment for
growth. Growth is defined as an amount equal to the average annual rate of
growth in State personal income over the most recent twenty quarters times the
State revenues allowed under the amendment for the prior fiscal year. State
revenues collected for any fiscal year in excess of this limitation are required
to be transferred to the Budget Stabilization Fund until the fund reaches the
maximum balance specified in Section 19(g) of Article III of the State
Constitution, and thereafter is required to be refunded to taxpayers as provided
by general law. The limitation on State revenues imposed by the amendment may be
increased by the Legislature, by a two-thirds vote of each house.
The term "State revenues," as used in the amendment, means taxes, fees,
licenses, and charges for services imposed by the Legislature on individuals,
businesses, or agencies outside State government. However, the term "State
revenues" does not include: (i) revenues that are necessary to meet the
requirements set forth in documents authorizing the issuance of Bonds by the
State; (ii) revenues that are used to provide matching funds for the federal
Medicaid program with the exception of the revenues used to support the Public
Medical Assistance Trust Fund or its successor program and with the exception of
State matching funds used to fund elective expansions made after July 1, 1994;
(iii) proceeds from the State lottery returned as prizes; (iv) receipts of the
Florida Hurricane Catastrophe Fund; (v) balances carried forward from prior
fiscal years; (vi) taxes, licenses, fees and charges for services imposed by
local, regional, or school district governing bodies; or (vii) revenue from
taxes, licenses, fees and charges for services required to be imposed by any
amendment or revision to the State Constitution after July 1, 1994. The
amendment took effect on January 1, 1995 and is applicable to State fiscal year
1995-96.
It should be noted that many of the provisions of the amendment are
ambiguous, and likely will not be clarified until State courts have ruled on
their meanings. Further, it is unclear how the Legislature will implement the
language of the amendment and whether such implementing legislation will itself
be the subject of court interpretation.
The Fund cannot predict the impact of the amendment on State finances. To
the extent local governments traditionally receive revenues from the State which
are subject to, and limited by, the amendment, the future distribution of such
State revenues may be adversely affected by the amendment.
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Hurricanes continue to endanger the coastal and interior portions of
Florida. Substantial damage resulted from Hurricane Andrew in 1992. During the
1995 hurricane season, a record number of tropical storms and hurricanes also
caused substantial damages. The 1996 and 1997 hurricane seasons were uneventful
with considerably less damage than in 1992 and 1995. During the 1998 hurricane
season, which ended November 30, two hurricanes caused significant damage to
several coastal communities in Florida. The Fund cannot predict the economic
impact, if any, of future hurricanes and storms.
As of December 2, 1998, the State had a high bond rating from Moody's
Investors Service, Inc. (Aa2), Standard & Poor's (AA+) and Fitch IBCA, Inc. (AA)
on all of its general obligation bonds. Outstanding general obligation bonds at
June 30, 1997 totalled almost $7.9 billion and were issued to finance capital
outlay for educational projects of both local school districts, community
colleges and state universities, environmental protection and highway
construction. The State has issued over $1,340 billion of general obligation
bonds since July 1, 1997.
Due to investments in certain derivatives, Escambia County, Florida in 1994
sustained notable losses which may in the future affect their operations. As
reported in the local press, several lawsuits have resulted regarding such
investments.
In late October, 1996, the Florida Auditor General notified the Governor's
office that seventeen municipalities or special districts are in a state of
financial emergency (including the Orlando-Orange County Expressway Authority
and the Pinellas Suncoast Transit Authority) and that another twenty-five
municipalities or special districts might be in a state of financial emergency
(including the City of Miami). For these purposes, a state of emergency is
considered two consecutive years of budget deficits. Municipalities or special
districts that may be in a state of financial emergency are those that the
Auditor General was unable to conclude had sufficient revenues to cover their
deficits. The operations of all these entities mentioned in the Auditor
General's communication may be adversely affected by their financial condition.
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APPENDIX II
RATINGS OF MUNICIPAL BONDS
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S ("MOODY'S") MUNICIPAL BOND
RATINGS
Aaa Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are
generally referred to as "gilt edge." Interest payments are
protected by a large or by an exceptionally stable margin and
principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most
unlikely to impair the fundamentally strong position of such
issues.
Aa Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are
generally known as high grade bonds. They are rated lower than
the best bonds because margins of protection may not be as large
as in Aaa securities or fluctuation of protective elements may be
of greater amplitude or there may be other elements present which
make the long-term risks appear somewhat larger than in Aaa
securities.
A Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and interest
are considered adequate, but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly
secured. Interest payments and principal security appear adequate
for the present, but certain protective elements may be lacking
or may be characteristically unreliable over any great length of
time. Such bonds lack outstanding investment characteristics and
in fact have speculative characteristics as well.
Ba Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very
moderate and thereby not well safeguarded during both good and
bad times over the future. Uncertainty of position characterizes
bonds in this class.
B Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal
payments or of 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.
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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: Those bonds in the Aa, A, Baa, Ba and B groups which Moody's
believes possess the strongest investment attributes are designated by the
symbols Aa1, A1, Baa1, Ba1 and B1.
Short-term Notes: The three ratings of Moody's for short-term notes are
MIG 1/VMIG 1, MIG 2/VMIG 2, and MIG 3/VMIG 3; MIG 1/VMIG 1 denotes "best
quality, enjoying strong protection from established cash flows"; MIG 2/VMIG 2
denotes "high quality" with "ample margins of protection"; MIG 3/VMIG 3
instruments are of "favorable quality . . . but . . . lacking the undeniable
strength of the preceding grades".
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 ability
will often be evidenced by many of the following characteristics: leading market
positions in well established industries; high rates of return on funds
employed; conservative capitalization structures with moderate reliance on debt
and ample asset protection; broad margins in earning coverage of fixed financial
charges and high internal cash generation; and well 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, may 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 may require 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 opinion 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.
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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 obligors 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 circumstances.
The ratings are based, in varying degrees, on the following considerations:
I. Likelihood of payment -- 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 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
B
CCC
CC
C Debt rated "BB," "B," "CCC," "CC" and "C" are regarded as having
significant speculative characteristics. "BB" indicates the least
degree of speculation and "C" the highest degree of speculation.
While such debt will likely have some quality and protective
characteristics, these may be outweighed by large uncertainties
or major risk exposures to adverse conditions.
D Debt rated "D" is in payment default. The "D" rating category is
used when payments on an obligation are not made on the date due
even if the applicable grace period has not expired, unless
Standard & Poor's believes that such payments will be made during
such grace period. The "D" rating also will be used upon the
filing of a bankruptcy petition or the taking of similar action
if payments on an obligation are jeopardized.
Plus (+) or Minus (-): The ratings from "AA" to "CCC" may be modified by
the addition of a plus or minus sign to show relative standing within the major
rating categories.
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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 an adequate capacity for
timely payment. They are, however, more vulnerable to the adverse
effects of changes in circumstances than obligations carrying the
higher designations.
B Issues rated "B" are regarded as having only speculative capacity
for timely payment.
C This rating is assigned to short-term debt obligations with a
doubtful capacity for payment.
D Debt rated "D" is in payment default. The "D" rating category is
used when interest payments or principal payments are not made on
the date due, even if the applicable grace period has not expired
unless Standard & Poor's believes that such payments will be made
during such grace period.
A commercial paper rating is not a recommendation to purchase or sell a
security. The ratings are based on current information furnished to Standard &
Poor's by the issuer or obtained by Standard & Poor's from other sources it
considers reliable. The ratings may be changed, suspended, or withdrawn as a
result of changes in, or unavailability of, such information.
A Standard & Poor's note rating reflects the liquidity factors and market
access risks unique to 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.
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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 carrying the same rating are of similar but not necessarily identical
credit quality since the rating categories do not fully reflect small
differences in the degrees of credit risk.
Fitch ratings are not recommendations to buy, sell, or hold any security.
Ratings do not comment on the adequacy of market price, the suitability of any
security for a particular investor, or the tax-exempt nature or taxability of
payments made in respect of any security.
Fitch ratings are based on information obtained from issuers, other
obligors, underwriters, their experts, and other sources Fitch believes to be
reliable. Fitch does not audit or verify the truth or accuracy of such
information. Ratings may be changed, suspended, or withdrawn as a result of
changes in, or the unavailability of, information or for other reasons.
AAA Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by
reasonably foreseeable events.
AA Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay
principal is very strong, although not quite as strong as bonds
rated "AAA." Because bonds rated in the "AAA" and "AA" categories
are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated
"F-1+."
A Bonds considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay
principal is considered to be strong, but may be more vulnerable
to adverse changes in economic conditions and circumstances than
bonds with higher ratings.
BBB Bonds considered to be investment grade and of
satisfactory-credit quality. The obligor's ability to pay
interest and repay principal is considered to be adequate.
Adverse changes in economic conditions and circumstances,
however, are more likely to have adverse impact on these bonds,
and therefore impair timely payment. The likelihood that the
ratings of these bonds will fall below investment grade is higher
than for bonds with higher ratings.
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.
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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 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.
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CCC Bonds have certain identifiable characteristics which, if not
remedied, may lead to default. The ability to meet obligations
requires an advantageous business and economic environment.
CC Bonds are minimally protected. Default in payment of interest
and/or principal seems probable over time.
C Bonds are in imminent default in payment of interest or
principal.
DDD
DD
D Bonds are in default on interest and/or principal payments. Such
bonds are extremely speculative and should be valued on the basis
of their ultimate recovery value in liquidation or reorganization
of the obligor. "DDD" represents the highest potential for
recovery on these bonds, and "D" represents the lowest potential
for recovery.
Plus (+) or Minus (-): Plus and minus signs are used with a rating symbol
to indicate the relative position of a credit within the rating category. Plus
and minus signs, however, are not used in the "DDD," "DD," or "D" categories.
DESCRIPTION OF FITCH'S SHORT-TERM RATINGS
Fitch's short-term ratings apply to debt obligations that are payable on
demand or have original maturities of up to three years, including commercial
paper, certificates of deposit, medium-term notes, and municipal and investment
notes.
The short-term rating places greater emphasis than a long-term rating on
the existence of liquidity necessary to meet the issuer's obligations in a
timely manner.
Fitch short-term ratings are as follows:
F-1+ Exceptionally Strong Credit Quality. Issues assigned this rating
are regarded as having the strongest degree of assurance for
timely payment.
F-1 Very Strong Credit Quality. Issues assigned this rating reflect
an assurance of timely payment only slightly less in degree than
issues rated "F-1+."
F-2 Good Credit Quality. Issues assigned this rating have a
satisfactory degree of assurance for timely payment, but the
margin of safety is not as great as for issues assigned "F-1+"
and "F-1" ratings.
F-3 Fair Credit Quality. Issues assigned this rating have
characteristics suggesting that the degree of assurance for
timely payment is adequate; however, near-term adverse changes
could cause these securities to be rated below investment grade.
F-S Weak Credit Quality. Issues assigned this rating have
characteristics suggesting a minimal degree of assurance for
timely payment and are vulnerable to near-term adverse changes in
financial and economic conditions.
D Default. Issues assigned this rating are in actual or imminent
payment default.
LOC The symbol "LOC" indicates that the rating is based on a letter
of credit issued by a commercial bank.
61
<PAGE> 63
APPENDIX III
PORTFOLIO INSURANCE
Set forth below is further information with respect to the insurance
policies (the "Policies") that the Fund may obtain from several insurance
companies with respect to insured Florida Municipal Bonds and Municipal Bonds
held by the Fund. The Fund has no obligation to obtain any such Policies, and
the terms of any Policies actually obtained may vary significantly from the
terms discussed below.
In determining eligibility for insurance, insurance companies will apply
their own standards. These standards correspond generally to the standards such
companies normally use in establishing the insurability of new issues of Florida
Municipal Bonds and Municipal Bonds and are not necessarily the criteria that
would be used in regard to the purchase of such bonds by the Fund. The Policies
do not insure (i) municipal securities ineligible for insurance and (ii)
municipal securities no longer owned by the Fund.
The Policies do not guarantee the market value of the insured Florida
Municipal Bonds and Municipal Bonds or the value of the shares of the Fund. In
addition, if the provider of an original issuance insurance policy is unable to
meet is 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 premiums, the Policies may require that the Fund notify the insurance
company as to all Florida Municipal Bonds and Municipal Bonds in the Fund's
portfolio and permit the insurance company to audit their records. The insurance
premiums will be payable monthly by the Fund in accordance with a premium
schedule to be furnished by the insurance company at the time the Policies are
issued. Premiums are based upon the amounts covered and the composition of the
portfolio.
The insurance companies used by the Fund will 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, Inc. ("Moody's").
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 or
Fitch. Capacity to honor insurance contracts is considered by S&P and Fitch to
be extremely strong and highly likely to remain so over a long period of time. 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. 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
62
<PAGE> 64
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.
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.
63
<PAGE> 65
APPENDIX IV
TAXABLE EQUIVALENT YIELDS FOR 1999
<TABLE>
<CAPTION>
TAXABLE INCOME* A TAX-FREE YIELD OF
- ------------------------------------ 1999 FEDERAL ---------------------------------------------
TAX BRACKET SINGLE RETURN JOINT RETURN 5.00% 5.50% 6.00% 6.50% 7.00% 7.50%
- ----------------- ----------------- ------------ ----- ----- ----- ----- ----- -----
IS EQUAL TO A TAXABLE YIELD OF
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 25,751-$ 62,450 $ 43,051-$104,050 28.00% 6.94% 7.64% 8.33% 9.03% 9.72% 10.42%
$ 62,451-$130,250 $104,051-$158,550 31.00% 7.25% 7.97% 8.70% 9.42% 10.14% 10.87%
$130,251-$283,150 $158,551-$283,150 36.00% 7.81% 8.59% 9.38% 10.16% 10.94% 11.72%
Over $283,150 Over $283,150 39.60% 8.28% 9.11% 9.93% 10.76% 11.59% 12.42%
</TABLE>
- ---------------
* Because Florida does not impose a personal income tax, this table reflects
only the effect of exemption from Federal income tax. An investor's marginal
tax rate may exceed the rates shown in the above table due to the reduction,
or possible elimination, of the personal exemption deduction for high-income
taxpayers and an overall limit on itemized deductions. Income also may be
subject to certain state and local taxes. For investors who pay alternative
minimum tax, tax-exempt yields may be equivalent to lower taxable yields than
those shown above. The tax rates shown above do not apply to corporate
taxpayers. The tax characteristics of the Fund are described more fully
elsewhere in this prospectus. Consult your tax adviser for further details.
This chart is for illustrative purposes only and cannot be taken as an
indication of anticipated Fund performance.
64
<PAGE> 66
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Through and including September , 1999 (the 90th day after the date of
this prospectus), all dealers effecting transactions in these securities,
whether or not participating in this offering, may be required to deliver a
prospectus. This is in addition to the dealers' obligation to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
5,000,000 SHARES
MUNIHOLDINGS FLORIDA INSURED FUND V
COMMON SHARES
---------------------
PROSPECTUS
---------------------
MERRILL LYNCH & CO.
JUNE , 1999
CODE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 67
PART C. OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(1) Financial Statements
Independent Auditors' Report
Statement of Assets, Liabilities and Capital as of June , 1999
(2) Exhibits:
<TABLE>
<S> <C> <C>
(a) -- Declaration of Trust(a)
(b) -- By-Laws(a)
(c) -- Not applicable
(d)(1) -- Portions of the Declaration of Trust and By-Laws of the
Registrant defining the rights of holders of shares of the
Registrant(b)
(d)(2) -- Form of specimen certificate for Common Shares of the
Registrant
(e) -- Form of Dividend Reinvestment Plan
(f) -- Not applicable
(g) -- Form of Investment Advisory Agreement between the Fund and
Fund Asset Management, L.P.
(h)(1) -- Form of Purchase Agreement between the Fund and Merrill
Lynch, Pierce, Fenner & Smith Incorporated
(h)(2) -- Merrill Lynch Standard Dealer Agreement
(i) -- Not applicable
(j) -- Form of Custodian Contract between the Fund and
*
(k) -- Form of Registrar, Transfer Agency and Service Agreement
between the Fund and *
(l) -- Opinion and Consent of Brown & Wood LLP*
(m) -- Not applicable
(n)(1) -- Opinion and Consent of Holland & Knight LLP*
(n)(2) -- Consent of , independent auditors for
the Fund*
(o) -- Not applicable
(p) -- Certificate of Fund Asset Management, L.P.*
(q) -- Not applicable
(r) -- Not applicable
</TABLE>
- ---------------
<TABLE>
<S> <C>
(a) Filed on May 10, 1999 as an exhibit to the Registrant's
Registration Statement on Form N-2 (File No. 333-78141).
(b) Reference is made to Section 3.4, Article V, Article VI
(sections 1, 2, 4, 5 and 7), Article VIII, Article IX and
Article X of the Registrant's Declaration of Trust, filed as
Exhibit (a) to this 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, filed as Exhibit (b) to this
Registration Statement.
* To be provided by amendment.
</TABLE>
ITEM 25. MARKETING ARRANGEMENTS.
See Exhibits (h)(1) and (h)(2).
C-1
<PAGE> 68
ITEM 26. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated expenses to be incurred in
connection with the offering described in this Registration Statement:
<TABLE>
<S> <C>
Registration fees........................................... $ *
New York Stock Exchange listing fee......................... *
Printing (other than share certificates).................... *
Engraving and printing share certificates................... *
Legal fees and expenses..................................... *
Accounting fees and expenses................................ *
NASD fees................................................... *
Miscellaneous............................................... *
--------
Total............................................. $ *
========
</TABLE>
- ---------------
* To be provided by amendment.
ITEM 27. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
The information in the prospectus under the captions "Investment Advisory
and Management Arrangements" and "Description of Capital Shares -- Common
Shares" and in Note 1 to the Statement of Assets, Liabilities and Capital is
incorporated herein by reference.
ITEM 28. NUMBER OF HOLDERS OF SECURITIES.
There will be one record holder of the common shares, par value $0.10 per
share, as of the effective date of this Registration Statement.
ITEM 29. INDEMNIFICATION.
Section 5.3 of the Registrant's Declaration of Trust provides as follows:
"The Trust shall indemnify each of its Trustees, officers, employees, and
agents (including persons who serve at its request as directors, officers or
trustees of another organization in which it has any interest as a shareholder,
creditor or otherwise) against all liabilities and expenses (including amounts
paid in satisfaction of judgments, in compromise, as fines and penalties, and as
counsel fees) reasonably incurred by him in connection with the defense or
disposition of any action, suit or other proceeding, whether civil or criminal,
in which he may be involved or with which he may be threatened, while in office
or thereafter, by reason of his being or having been such a trustee, officer,
employee or agent, except with respect to any matter as to which he shall have
been adjudicated to have acted in bad faith, willful misfeasance, gross
negligence or reckless disregard of his duties; provided, however, that as to
any matter disposed of by a compromise payment by such person, pursuant to a
consent decree or otherwise, no indemnification either for said payment or for
any other expenses shall be provided unless the Trust shall have received a
written opinion from independent legal counsel approved by the Trustees to the
effect that if either the matter of willful misfeasance, gross negligence or
reckless disregard of duty, or the matter of good faith and reasonable belief as
to the best interests of the Trust, had been adjudicated, it would have been
adjudicated in favor of such person. The rights accruing to any person under
these provisions shall not exclude any other right to which he may be lawfully
entitled; provided that no person may satisfy any right of indemnity or
reimbursement granted herein or in Section 5.1 or to which he may be otherwise
entitled except out of the property of the Trust, and no Shareholder shall be
personally liable to any person with respect to any claim for indemnity or
reimbursement or otherwise. The Trustees may 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."
C-2
<PAGE> 69
The Registrant's By-Laws provide that insofar as the conditional advancing
of indemnification moneys pursuant to Section 5.3 of the Declaration of Trust
for actions based upon the Investment Company Act of 1940 may be concerned, such
payments will be made only on the following conditions: (i) the advances must be
limited to amounts used, or to be used, for the preparation or presentation of a
defense to the action, including costs connected with the preparation of a
settlement; (ii) advances may be made only upon receipt of a written promise by,
or on behalf of, the recipient to repay that amount of the advance which exceeds
the amount to which it is ultimately determined he is entitled to receive from
the Registrant by reason of indemnification; and (iii)(a) such promise must be
secured by a surety bond, other suitable insurance or an equivalent form of
security which assures that any repayments may be obtained by the Registrant
without delay or litigation, which bond, insurance or other form of security
must be provided by the recipient of the advance, or (b) a majority of a quorum
of the Registrant's disinterested, non-party Trustees, or an independent legal
counsel in a written opinion, shall determine, based upon a review of readily
available facts, that the recipient of the advance ultimately will be found
entitled to indemnification.
In Section 8 of the Distribution Agreement relating to the securities being
offered hereby, the Registrant agrees to indemnify the Distributor and each
person, if any, who controls the Distributor within the meaning of the
Securities Act of 1933 (the "1933 Act"), against certain types of civil
liabilities arising in connection with the Registration Statement or Prospectus.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "1933 Act"), may be provided to trustees, officers and
controlling persons of the Fund, pursuant to the foregoing provisions or
otherwise, the Fund has been advised that in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as expressed
in the 1933 Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the Fund of
expenses incurred or paid by a trustee, officer or controlling person of the
Fund in connection with any successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Fund will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the 1933 Act and
will be governed by the final adjudication of such issue.
Reference is made to Section Six of the Purchase Agreement, a form of which
will be filed as Exhibit (h)(1) hereto, for provisions relating to the
indemnification of the underwriter.
ITEM 30. BUSINESS AND OTHER CONNECTIONS OF THE INVESTMENT ADVISER.
Fund Asset Management, L.P. (the "Investment Adviser") acts as investment
adviser for the following open-end registered investment companies: CBA Money
Fund, CMA Government Securities Fund, CMA Money Fund, CMA Multi-State Municipal
Series Trust, CMA Tax-Exempt Fund, CMA Treasury Fund, The Corporate Fund
Accumulation Program, Inc., Financial Institutions Series Trust, Merrill Lynch
Basic Value Fund, Inc., Merrill Lynch California Municipal Series Trust, Merrill
Lynch Corporate Bond Fund, Inc., Merrill Lynch Corporate High Yield Fund, Inc.,
Merrill Lynch Emerging Tigers Fund, Inc., Merrill Lynch Federal Securities
Trust, Merrill Lynch Funds for Institutions Series, Merrill Lynch Multi-State
Limited Maturity Municipal Series Trust, Merrill Lynch Multi-State Municipal
Series Trust, Merrill Lynch Municipal Bond Fund, Inc., Merrill Lynch Phoenix
Fund, Inc., Merrill Lynch Special Value Fund, Inc., Merrill Lynch World Income
Fund, Inc., and The Municipal Fund Accumulation Program, Inc., and for the
following closed-end registered investment companies: Apex Municipal Fund, Inc.,
Corporate High Yield Fund, Inc., Corporate High Yield Fund II, Inc., Corporate
High Yield Fund III, Inc., Debt Strategies Fund, Inc., Debt Strategies Fund II,
Inc., Debt Strategies Fund III, Inc., Income Opportunities Fund 1999, Inc.,
Income Opportunities Fund 2000, Inc., Merrill Lynch Municipal Strategy Fund,
Inc., MuniAssets Fund, Inc., MuniEnhanced Fund, Inc., MuniHoldings Fund, Inc.,
MuniHoldings Fund II, Inc., MuniHoldings California Insured Fund, Inc.,
MuniHoldings California Insured Fund II, Inc., MuniHoldings California Insured
Fund III, Inc., MuniHoldings California Insured Fund IV, Inc., MuniHoldings
Florida Insured Fund, MuniHoldings Florida Insured Fund II, MuniHolding Florida
Insured Fund III, MuniHoldings Florida Insured Fund IV, MuniHoldings Insured
Fund, Inc., MuniHoldings Insured Fund II, Inc., MuniHoldings
C-3
<PAGE> 70
Michigan Insured Fund, Inc., MuniHoldings New Jersey Insured Fund, Inc.,
MuniHoldings New Jersey Insured Fund II, Inc., MuniHoldings New Jersey Insured
Fund III, Inc., MuniHoldings New York Fund, Inc., MuniHoldings New York Insured
Fund, Inc., MuniHoldings New York Insured Fund II, Inc., MuniHoldings New York
Insured Fund III, Inc., MuniHoldings Pennsylvania Insured Fund, MuniInsured
Fund, Inc., MuniVest Fund, Inc., MuniVest Fund II, Inc., MuniVest Florida Fund,
MuniVest Michigan Insured Fund, Inc., MuniVest New Jersey Fund, Inc., MuniVest
Pennsylvania Insured Fund, MuniYield Arizona Fund, Inc., MuniYield California
Fund, Inc., MuniYield California Insured Fund, Inc., MuniYield California
Insured Fund II, Inc., MuniYield Florida Fund, MuniYield Florida Insured Fund,
MuniYield Fund, Inc., MuniYield Insured Fund, Inc., MuniYield Michigan Fund,
Inc., MuniYield Michigan Insured Fund, Inc., MuniYield New Jersey Fund, Inc.,
MuniYield New Jersey Insured Fund, Inc., MuniYield New York Insured Fund, Inc.,
MuniYield New York Insured Fund II, Inc., MuniYield Pennsylvania Fund, MuniYield
Quality Fund, Inc., MuniYield Quality Fund II, Inc., Senior High Income
Portfolio, Inc. and Worldwide DollarVest Fund, Inc.
Merrill Lynch Asset Management, L.P. ("MLAM"), an affiliate of the
Investment Adviser, acts as the investment adviser for the following open-end
registered investment companies: Merrill Lynch Adjustable Rate Securities Fund,
Inc., Merrill Lynch Americas Income Fund, Inc., Merrill Lynch Asset Builder
Program, Inc., Merrill Lynch Asset Growth Fund, Inc., Merrill Lynch Asset Income
Fund, Inc., Merrill Lynch Capital Fund, Inc., Merrill Lynch Convertible Fund,
Inc., Merrill Lynch Developing Capital Markets Fund, Inc., Merrill Lynch Dragon
Fund, Inc., Merrill Lynch EuroFund, Merrill Lynch Fundamental Growth Fund, Inc.,
Merrill Lynch Global Bond Fund for Investment and Retirement, Merrill Lynch
Global Allocation Fund, Inc., Merrill Lynch Global Growth Fund, Inc., Merrill
Lynch Global Holdings, Merrill Lynch Global Resources Trust, Merrill Lynch
Global SmallCap Fund, Inc., Merrill Lynch Global Technology Fund, Inc., Merrill
Lynch Global Utility Fund, Inc., Merrill Lynch Global Value Fund, Inc., Merrill
Lynch Growth Fund, Merrill Lynch Healthcare Fund, Inc., Merrill Lynch Index
Funds, Inc., Merrill Lynch Intermediate Government Bond Fund, Merrill Lynch
International Equity Fund, Merrill Lynch Latin America Fund, Inc., Merrill Lynch
Middle East/Africa Fund, Inc., Merrill Lynch Municipal Series Trust, Merrill
Lynch Pacific Fund, Inc., Merrill Lynch Ready Assets Trust, Merrill Lynch Real
Estate Fund, Inc., Merrill Lynch Retirement Series Trust, Merrill Lynch Series
Fund, Inc., Merrill Lynch Short-Term Global Income Fund, Inc., Merrill Lynch
Strategic Dividend Fund, Merrill Lynch Technology Fund, Inc., Merrill Lynch U.S.
Treasury Money Fund, Merrill Lynch U.S.A. Government Reserves, Merrill Lynch
Utility Income Fund, Inc., Merrill Lynch Variable Series Funds, Inc. and
Hotchkis and Wiley Funds (advised by Hotchkis and Wiley, a division of MLAM);
and for the following closed-end registered investment companies: Merrill Lynch
High Income Municipal Bond Fund, Inc. and Merrill Lynch Senior Floating Rate
Fund, Inc. MLAM also acts as sub-adviser to Merrill Lynch World Strategy
Portfolio and Merrill Lynch Basic Value Equity Portfolio, two investment
portfolios of EQ Advisors Trust.
The address of each of these investment companies is P.O. Box 9011,
Princeton, New Jersey 08543-9011, except that the address of Merrill Lynch Funds
for Institutions Series and Merrill Lynch Intermediate Government Bond Fund is
One Financial Center, 23rd Floor, Boston, Massachusetts 02110-2646. The address
of the Investment Adviser, FAM, Princeton Services, Inc. ("Princeton Services")
and Princeton Administrators, L.P. is also P.O. Box 9011, Princeton, New Jersey
08543-9011. The address of Princeton Funds Distributor, Inc. ("PFD") and of
Merrill Lynch Funds Distributor ("MLFD") is P.O. Box 9081, Princeton, New Jersey
08543-9081. The address of Merrill Lynch, Pierce, Fenner & Smith Incorporated
("Merrill Lynch") and Merrill Lynch & Co., Inc. ("ML&Co.") is World Financial
Center, 250 Vesey Street, New York, New York 10281. The address of Financial
Data Services, Inc. ("FDS") is 4800 Deer Lake Drive East, Jacksonville, Florida
32246-6484.
Set forth below is a list of each executive officer and partner of the
Investment Adviser indicating each business, profession, vocation or employment
of a substantial nature in which each such person or entity has been engaged for
the past two years for his or her or its own account or in the capacity of
director, officer, employee, partner or trustee. In addition, Mr. Glenn is
President and Mr. Burke is Treasurer of all or substantially all of the
investment companies described in the preceding paragraphs and also hold the
same positions with all or substantially all of the investment companies advised
by MLAM as they do with those
C-4
<PAGE> 71
advised by the Investment Adviser. Messrs. Giordano and Monagle are officers of
one or more of such companies.
<TABLE>
<CAPTION>
POSITION(S) WITH OTHER SUBSTANTIAL BUSINESS,
NAME THE MANAGER PROFESSION, VOCATION OR EMPLOYMENT
---- ------------------------ ----------------------------------
<S> <C> <C>
ML&Co. .......................... Limited Partner Financial Services Holding
Company; Limited Partner of MLAM
Princeton Services............... General Partner General Partner of MLAM
Jeffrey M. Peek.................. President President of MLAM; President and
Director of Princeton Services;
Executive Vice President of
ML&Co.; Managing Director and
Co-Head of the Investment Banking
Division of Merrill Lynch in 1997;
Senior Vice President and Director
of the Global Securities and
Economics Division of Merrill
Lynch from 1995 to 1997
Terry K. Glenn................... Executive Vice President Executive Vice President of MLAM;
Executive Vice President and
Director of Princeton Services;
President and Director of PFD;
Director of FDS; President of
Princeton Administrators, L.P.
Donald C. Burke.................. Senior Vice President, Senior Vice President and
Treasurer and Director Treasurer of FAM; Senior Vice
of Taxation President and Treasurer of
Princeton Services; Vice President
of PFD; First Vice President of
the Investment Adviser from 1997
to 1999; Vice President of the
Investment Adviser from 1990
to 1997
Michael G. Clark................. Senior Vice President Senior Vice President of FAM;
Senior Vice President of Princeton
Services; Treasurer and Director
of PFD; First Vice President of
the Investment Adviser from 1997
to 1999; Vice President of the
Investment Adviser from 1996
to 1997
Linda L. Federici................ Senior Vice President Senior Vice President of MLAM;
Senior Vice President of Princeton
Services
Vincent R. Giordano.............. Senior Vice President Senior Vice President of MLAM;
Senior Vice President of Princeton
Services
Michael J. Hennewinkel........... Senior Vice President, Senior Vice President, General
General Counsel and Counsel and Secretary of MLAM;
Secretary Senior Vice President of Princeton
Services
</TABLE>
C-5
<PAGE> 72
<TABLE>
<CAPTION>
POSITION(S) WITH OTHER SUBSTANTIAL BUSINESS,
NAME THE MANAGER PROFESSION, VOCATION OR EMPLOYMENT
---- ------------------------ ----------------------------------
<S> <C> <C>
Philip L. Kirstein............... Senior Vice President Senior Vice President of MLAM;
Senior Vice President, General
Counsel, Director and Secretary of
Princeton Services
Ronald M. Kloss.................. Senior Vice President Senior Vice President of MLAM;
Senior Vice President of Princeton
Services
Debra W. Landsman-Yaros.......... Senior Vice President Senior Vice President of MLAM;
Senior Vice President of Princeton
Services; Vice President of PFD
Stephen M. M. Miller............. Senior Vice President Executive Vice President of
Princeton Administrators, L.P.;
Senior Vice President of Princeton
Services
Joseph T. Monagle, Jr............ Senior Vice President Senior Vice President of MLAM;
Senior Vice President of Princeton
Services
Brian A. Murdock................. Senior Vice President Senior Vice President of MLAM;
Senior Vice President of Princeton
Services
Gregory D. Upah.................. Senior Vice President Senior Vice President of MLAM;
Senior Vice President of Princeton
Services
</TABLE>
ITEM 31. LOCATION OF ACCOUNT AND RECORDS.
All accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940, as amended, and the rules
promulgated thereunder are maintained at the offices of the registrant (800
Scudders Mill Road, Plainsboro, New Jersey 08536), its investment adviser (800
Scudders Mill Road, Plainsboro, New Jersey 08536), and its custodian and
transfer agent.
ITEM 32. MANAGEMENT SERVICES.
Not applicable.
ITEM 33. UNDERTAKINGS.
(a) Registrant undertakes to suspend the offering of the common shares
covered hereby until it amends its prospectus contained herein if (1) subsequent
to the effective date of this Registration Statement, its net asset value per
common share declines more than 10% from its net asset value per common share as
of the effective date of this Registration Statement, or (2) its net asset value
per common share increases to an amount greater than its net proceeds as stated
in the prospectus contained herein.
(b) Registrant undertakes that:
(1) For purposes of determining any liability under the 1933 Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in the form
of prospectus filed by the registrant pursuant to Rule 497(h) under the
1933 Act shall be deemed to be part of this Registration Statement as of
the time it was declared effective.
(2) For the purpose of determining any liability under the 1933 Act,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
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<PAGE> 73
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the Township of Plainsboro, and State of New Jersey, on the 18th
day of
May 1999.
MUNIHOLDINGS FLORIDA INSURED FUND V
(Registrant)
By: /s/ ALICE A. PELLEGRINO
------------------------------------
(Alice A. Pellegrino, President)
Each person whose signature appears below hereby authorizes Alice A.
Pellegrino, William E. Zitelli, Jr. or Lori A. Martin, or any of them, as
attorney-in-fact, to sign on his or her behalf, individually and in each
capacity stated below, any amendment to this Registration Statement (including
post-effective amendments) and to file the same, with all exhibits thereto, with
the Securities and Exchange Commission.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
/s/ ALICE A. PELLEGRINO President and Trustee May 18, 1999
- ---------------------------------------------------
(Alice A. Pellegrino)
/s/ WILLIAM E. ZITELLI, JR. Treasurer and Trustee May 18, 1999
- ---------------------------------------------------
(William E. Zitelli, Jr.)
/s/ LORI A. MARTIN Secretary and Trustee May 18, 1999
- ---------------------------------------------------
(Lori A. Martin)
</TABLE>
C-7
<PAGE> 74
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT NAME
- ------- ------------
<S> <C>
(d)(2) -- Form of Specimen Certificate for Common Shares of the
Registrant
(e) -- Form of Dividend Reinvestment Plan
(g) -- Form of Investment Advisory Agreement between the Fund
and Fund Asset Management, L.P.
(h)(1) -- Form of Purchase Agreement between the Fund and Merrill
Lynch, Pierce, Fenner & Smith Incorporated
(h)(2) -- Merrill Lynch Standard Dealer Agreement
</TABLE>
<PAGE> 1
COMMON SHARES COMMON SHARES
PAR VALUE $.10 PAR VALUE $.10
ORGANIZED AS A BUSINESS TRUST CUSIP
UNDER THE LAWS OF THE SEE REVERSE FOR CERTAIN DEFINITIONS
COMMONWEALTH OF MASSACHUSETTS
INCORPORATED UNDER THE LAWS OF THE STATE OF MASSACHUSETTS
MUNIHOLDINGS FLORIDA INSURED FUND V
This certifies that
is the owner of
FULLY PAID AND NON-ASSESSABLE COMMON SHARES OF BENEFICIAL INTEREST
OF MuniHoldings Florida Insured Fund V (the "Trust") transferable on the books
of the Trust by the holder in person or by duly authorized attorney upon
surrender of this Certificate properly endorsed. This Certificate and the shares
represented hereby are issued and shall be subject to all of the provisions of
the Declaration of Trust, dated May 10, 1999 (a copy of which has been filed
with the Secretary of the Commonwealth of Massachusetts) and of the By-Laws of
the Trust, and of all the amendments from time to time made thereto. The
Declaration of Trust provides that the name "MuniHoldings Florida Insured Fund
IV" refers to the Trustees under the Declaration collectively as Trustees, but
not as individuals or personally; and no Trustee, shareholder, officer, employee
or agent of the Trust may be held to any personal liability, nor may resort be
had to their private property for the satisfaction of any obligation or claim or
otherwise in connection with the affairs of the Trust but the Trust Property
only shall be liable. This Certificate is not valid unless countersigned and
registered by the Transfer Agent and Registrar.
Witness the facsimile seal of the Trust and the facsimile
signatures of its duly authorized officers.
Dated:
President Secretary
Countersigned and Registered:
STATE STREET BANK AND TRUST COMPANY
Transfer Agent and Registrar
Authorized Signature
<PAGE> 2
MUNIHOLDINGS FLORIDA INSURED FUND V
A full statement of the designations and any preferences, conversion
and other rights, voting powers, restrictions, limitations as to dividends,
qualifications and terms and conditions of redemption of the shares of each
class of stock which the Trust is authorized to issue and the differences in the
relative rights and preferences between the shares of each class to the extent
that they have been set, and the authority of the Board of Trustees to set the
relative rights and preferences of subsequent classes and series, will be
furnished by the Trust to any stockholder, without charge, upon request to the
Secretary of the Trust at its principal office.
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM--as tenants in common UNIF GIFT MIN ACT -- _____Custodian_____
(Cust) (Minor)
TEN ENT--as tenants by the entireties under Uniform Gifts to Minors Act _______
(State)
JT TEN --as joint tenants with right
of survivorship and not as
tenants in common
Additional abbreviations may also be used though not in the above list.
For value received,_______ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
_____________________________________________________________________________
_____________________________________________________________________________
Please print or typewrite name and address including zip code of assignee
_____________________________________________________________________________
Shares
________________________________________________________________
represented by the within Certificate, and do hereby irrevocably constitute and
appoint
_____________________________________________________________________________
Attorney to transfer the said shares on the books of the within-named Trust with
full power of substitution in the premises.
Dated: _____________
Signature: _______________________
2
<PAGE> 3
NOTICE: The signature to this assignment must correspond with the name
as written upon the face of the certificate, in every particular,
without alteration or enlargement, or any change whatever.
Signature Guaranteed:____________________________________
Signatures must be guaranteed by an "eligible guarantor
institution" as such term is defined in Rule 17Ad-15
under the Securities Exchange Act of 1934.
3
<PAGE> 1
MUNIHOLDINGS FLORIDA INSURED FUND V
TERMS AND CONDITIONS OF
AUTOMATIC DIVIDEND REINVESTMENT PLAN
1. Appointment of Agent. You, __________, will act as Agent for me, and
will open an account for me under the Dividend Reinvestment Plan (the "Plan") in
the same name as my present common shares, par value $.10 per share ("Common
Shares"), of MUNIHOLDINGS FLORIDA INSURED FUND V (the "Fund") are registered,
and will automatically put into effect for me the dividend reinvestment option
of the Plan as of the first record date for a dividend or capital gains
distribution (collectively referred to herein as a "dividend"), payable at the
election of shareholders in cash or Common Shares.
2. Dividends Payable in Common Shares. My participation in the Plan
constitutes an election by me to receive dividends in Common Shares whenever the
Fund declares a dividend. In such event, the dividend amount shall automatically
be made payable to me entirely in Common Shares which shall be acquired by the
Agent for my account, depending upon the circumstances described in paragraph 3,
either (i) through receipt of additional shares of unissued but authorized
Common Shares from the Fund ("newly-issued shares") as described in paragraph 6
or (ii) by purchase of outstanding Common Shares on the open market
("open-market purchases") as described in paragraph 7.
3. Determination of Whether Newly-Issued Shares or Open-Market
Purchases. If on the payment date for the dividend (the "valuation date"), the
net asset value per Common Share, as defined in paragraph 8, is equal to or less
than the market price per Common Share, as defined in paragraph 8, plus
estimated brokerage commissions (such condition being referred to herein as
"market premium"), the Agent shall invest the dividend amount in newly-issued
shares on my behalf as described in paragraph 6. If on the valuation date, the
net asset value per share is greater than the market value (such condition being
referred to herein as "market discount"), the Agent shall invest the dividend
amount in shares acquired on my behalf in open-market purchases as described in
paragraph 7.
4. Purchase Period for Open-Market Purchases. In the event of a market
discount on the valuation date, the Agent shall have until the last business day
before the next ex-dividend date with respect to the Common Shares or in no
event more than 30 days after the valuation date (the "last purchase date") to
invest the dividend amount in shares acquired in open-market purchases except
where temporary curtailment or suspension of purchases is necessary to comply
with applicable provisions of federal securities laws.
5. Failure to Complete Open-Market Purchases During Purchase Period. If
the Agent is unable to invest the full dividend amount in open-market purchases
during the purchase period because the market discount has shifted to a market
premium or otherwise, the Agent will invest the uninvested portion of the
dividend amount in newly-issued shares at the close of business on the last
purchase date as described in paragraph 4; except that the Agent may not acquire
newly-issued shares after the valuation date under the foregoing circumstances
unless it has
<PAGE> 2
received a legal opinion that registration of such shares is not required under
the Securities Act of 1933, as amended, or unless the shares to be issued are
registered under such Act.
6. Acquisition of Newly-Issued Shares. In the event that all or part of
the dividend amount is to be invested in newly-issued shares, you shall
automatically receive such newly-issued Common Shares, including fractions, for
my account, and the number of additional newly-issued Common Shares to be
credited to my account shall be determined by dividing the dollar amount of the
dividend on my shares to be invested in newly-issued shares by the net asset
value per Common Share on the date the shares are issued (the valuation date in
the case of an initial market premium or the last purchase date in case the
Agent is unable to complete open-market purchases during the purchase period);
provided, that the maximum discount from the then current market price per share
on the date of issuance shall not exceed 5%.
7. Manner of Making Open-Market Purchases. In the event that the
dividend amount is to be invested in Common Shares acquired in open-market
purchases, you shall apply the amount of such dividend on my shares (less my pro
rata share of brokerage commissions incurred with respect to your open-market
purchases) to the purchase on the open-market of Common Shares for my account.
Open-market purchases may be made on any securities exchange where the Common
Shares are traded, in the over-the-counter market or in negotiated transactions
and may be on such terms as to price, delivery and otherwise as you shall
determine. My funds held by you uninvested will not bear interest, and it is
understood that, in any event, you shall have no liability in connection with
any inability to purchase shares within 30 days after the initial date of such
purchase as herein provided, or with the timing of any purchases affected. You
shall have no responsibility as to the value of the Common Shares acquired for
my account. For the purposes of cash investments you may commingle my funds with
those of other shareholders of the Fund for whom you similarly act as Agent, and
the average price (including brokerage commissions) of all shares purchased by
you as Agent in the open market shall be the price per share allocable to me in
connection with open-market purchases.
8. Meaning of Market Price and Net Asset Value. For all purposes of the
Plan: (a) the market price of the Common Shares on a particular date shall be
the last sales price on the New York Stock Exchange (the "Exchange") on that
date, or, if there is no sale on the Exchange on that date, then the mean
between the closing bid and asked quotations for such shares on the Exchange on
such date and (b) net asset value per Common Share on a particular date shall be
as determined by or on behalf of the Fund.
9. Registration of Shares Acquired Pursuant to the Plan. You may hold
my Common Shares acquired pursuant to the Plan, together with the shares of
other shareholders of the Fund acquired pursuant to the Plan, in noncertificated
form in your name or that of your nominee. You will forward to me any proxy
solicitation material and will vote any shares so held for me only in accordance
with the proxy returned by me to the Fund. Upon my written request, you will
deliver to me, without charge, a certificate or certificates for the full shares
held by you for my account.
10. Confirmations. You will confirm to me each acquisition made for my
account as soon as practicable but not later than 60 days after the date
thereof.
2
<PAGE> 3
11. Fractional Interests. Although I may from time to time have an
undivided fractional interest (computed to three decimal places) in a share of
the Fund, no certificates for a fractional share will be issued. However,
dividends and distributions on fractional shares will be credited to my account.
In the event of termination of my account under the Plan, you will adjust for
any such undivided fractional interest in cash at the market value of the Fund's
shares at the time of termination less the pro rata expense of any sale required
to make such an adjustment.
12. Share Dividends or Share Purchase Rights. Any share dividends or
split shares distributed by the Fund on shares held by you for me will be
credited to my account. In the event that the Fund makes available to its
shareholders rights to purchase additional shares or other securities, the
shares held for me under the Plan will be added to other shares held by me in
calculating the number of rights to be issued to me.
13. Service Fee. Your service fee for handling capital gains
distributions or income dividends will be paid by the Fund. I will be charged
for my pro rata share of brokerage commissions on all open market purchases.
14. Termination of Account. I may terminate my account under the Plan
by notifying you in writing. Such termination will be effective immediately if
my notice is received by you not less than ten days prior to any dividend or
distribution record date; otherwise such termination will be effective on the
first trading day after the payment date for such dividend or distribution with
respect to any subsequent dividend or distribution. The Plan may be terminated
by you or the Fund upon notice in writing mailed to me at least 90 days prior to
any record date for the payment of any dividend or distribution by the Fund.
Upon any termination you will cause a certificate or certificates for the full
shares held for me under the Plan and cash adjustment for any fraction to be
delivered to me without charge. If I elect by notice to you in writing in
advance of such termination to have you sell part or all of my shares and remit
the proceeds to me, you are authorized to deduct brokerage commissions for this
transaction from the proceeds.
15. Amendment of Plan. These terms and conditions may be amended or
supplemented by you or the Fund at any time or times but, except when necessary
or appropriate to comply with applicable law or the rules or policies of the
Securities and Exchange Commission or any other regulatory authority, only by
mailing to me appropriate written notice at least 90 days prior to the effective
date thereof. The amendment or supplement shall be deemed to be accepted by me
unless, prior to the effective date, thereof, you receive written notice of the
termination of my account under the Plan. Any such amendment may include an
appointment by you in your place and stead of a successor Agent under these
terms and conditions, with full power and authority to perform all or any of the
acts to be performed by the Agent under these terms and conditions. Upon any
such appointment of an Agent for the purpose of receiving dividends and
distributions, the Fund will be authorized to pay to such successor Agent, for
my account, all dividends and distributions payable in Common Shares of the Fund
held in my name or under the Plan for retention or application by such successor
Agent as provided in these terms and conditions.
3
<PAGE> 4
16. Extent of Responsibility of Agent. You shall at all times act in
good faith and agree to use your best efforts within reasonable limits to insure
the accuracy of all services performed under this Agreement and to comply with
applicable law, but assume no responsibility and shall not be liable for loss or
damage due to errors unless such error is caused by your negligence, bad faith,
or willful misconduct or that of your employees.
17. Governing Law. These terms and conditions shall be governed by the
laws of the State of New York without regard to its conflicts of laws
provisions.
4
<PAGE> 1
INVESTMENT ADVISORY AGREEMENT
AGREEMENT, made as of the day of , 1999, by and between
MUNIHOLDINGS FLORIDA INSURED FUND V, a Massachusetts business trust (the
"Fund"), and FUND ASSET MANAGEMENT, L.P., a Delaware limited partnership (the
"Investment Adviser").
WITNESSETH:
WHEREAS, the Fund is engaged in business as a closed-end,
non-diversified, management investment company registered under the Investment
Company Act of 1940, as amended (the "Investment Company Act"); and
WHEREAS, the Investment Adviser is engaged principally in rendering
management and investment advisory services and is registered as an investment
adviser under the Investment Advisers Act of 1940, as amended; and
WHEREAS, the Fund desires to retain the Investment Adviser to provide
management and investment advisory services to the Fund in the manner and on the
terms hereinafter set forth; and
WHEREAS, the Investment Adviser is willing to provide management and
investment advisory services to the Fund on the terms and conditions hereinafter
set forth;
NOW, THEREFORE, in consideration of the premises and the covenants
hereinafter contained, the Fund and the Investment Adviser hereby agree as
follows:
ARTICLE I
Duties of the Investment Adviser
The Fund hereby employs the Investment Adviser to act as a manager and
investment adviser of the Fund and to furnish, or arrange for its affiliates to
furnish, the management and
<PAGE> 2
investment advisory services described below, subject to the policies of, review
by and overall control of the Board of Trustees of the Fund, for the period and
on the terms and conditions set forth in this Agreement. The Investment Adviser
hereby accepts such employment and agrees during such period, at its own
expense, to render, or arrange for the rendering of, such services and to assume
the obligations herein set forth for the compensation provided for herein. The
Investment Adviser and its affiliates for all purposes herein shall be deemed to
be independent contractors and, unless otherwise expressly provided or
authorized, shall have no authority to act for or represent the Fund in any way
or otherwise be deemed agents of the Fund.
(a) Management and Administrative Services. The Investment Adviser
shall perform, or arrange for its affiliates to perform, the management and
administrative services necessary for the operation of the Fund, including
administering shareholder accounts and handling shareholder relations. The
Investment Adviser shall provide the Fund with office space, facilities,
equipment and necessary personnel and such other services as the Investment
Adviser, subject to review by the Board of Trustees, from time to time shall
determine to be necessary or useful to perform its obligations under this
Agreement. The Investment Adviser, also on behalf of the Fund, shall conduct
relations with custodians, depositories, transfer agents, pricing agents,
dividend disbursing agents, other shareholder servicing agents, accountants,
attorneys, underwriters, brokers and dealers, corporate fiduciaries, insurers,
banks and such other persons in any such other capacity deemed to be necessary
or desirable. The Investment Adviser generally shall monitor the Fund's
compliance with investment policies and restrictions as set forth in filings
made by the Fund under the Federal securities laws. The Investment Adviser shall
make reports to the Board of Trustees of its performance of obligations
hereunder and
2
<PAGE> 3
furnish advice and recommendations with respect to such other aspects of the
business and affairs of the Fund as it shall determine to be desirable.
(b) Investment Advisory Services. The Investment Adviser shall provide,
or arrange for its affiliates to provide, the Fund with such investment
research, advice and supervision as the latter from time to time may consider
necessary for the proper supervision of the assets of the Fund, shall furnish
continuously an investment program for the Fund and shall determine from time to
time which securities shall be purchased, sold or exchanged and what portion of
the assets of the Fund shall be held in the various securities in which the Fund
invests, options, futures, options on futures or cash, subject always to the
restrictions of the Declaration of Trust and the By-Laws of the Fund, as amended
from time to time, the provisions of the Investment Company Act and the
statements relating to the Fund's investment objective, investment policies and
investment restrictions as the same are set forth in filings made by the Fund
under the Federal securities laws. The Investment Adviser shall make decisions
for the Fund as to the manner in which voting rights, rights to consent to
corporate action and any other rights pertaining to the Fund's portfolio
securities shall be exercised. Should the Board of Trustees at any time,
however, make any definite determination as to investment policy and notify the
Investment Adviser thereof in writing, the Investment Adviser shall be bound by
such determination for the period, if any, specified in such notice or until
similarly notified that such determination has been revoked. The Investment
Adviser shall take, on behalf of the Fund, all actions which it deems necessary
to implement the investment policies determined as provided above, and in
particular to place all orders for the purchase or sale of portfolio securities
for the Fund's account with brokers or dealers selected by it, and to that end,
the Investment Adviser is authorized as the agent of the Fund to give
instructions to the custodian of the Fund as to
3
<PAGE> 4
deliveries of securities and payments of cash for the account of the Fund. In
connection with the selection of such brokers or dealers and the placing of such
orders with respect to assets of the Fund, the Investment Adviser is directed at
all times to seek to obtain execution and prices within the policy guidelines
determined by the Board of Trustees and set forth in filings made by the Fund
under the Federal securities laws. Subject to this requirement and the
provisions of the Investment Company Act, the Securities Exchange Act of 1934,
as amended, and other applicable provisions of law, the Investment Adviser may
select brokers or dealers with which it or the Fund is affiliated.
(c) Notice Upon Change in Partners of the Investment Adviser. The
Investment Adviser is a limited partnership and its limited partner is Merrill
Lynch & Co., Inc. and its general partner is Princeton Services, Inc. The
Investment Adviser will notify the Fund of any change in the membership of the
partnership within a reasonable time after such change.
ARTICLE II
Allocation of Charges and Expenses
(a) The Investment Adviser. The Investment Adviser shall provide the
staff and personnel necessary to perform its obligations under this Agreement,
shall assume and pay or cause to be paid all expenses incurred in connection
with the maintenance of such staff and personnel, and, at its own expense, shall
provide the office space, facilities, equipment and necessary personnel which it
is obligated to provide under Article I hereof, and shall pay all compensation
of officers of the Fund and all Trustees of the Fund who are affiliated persons
of the Investment Adviser.
(b) The Fund. The Fund assumes, and shall pay or cause to be paid, all
other expenses of the Fund including, without limitation: taxes, expenses for
legal and auditing
4
<PAGE> 5
services, costs of printing proxies, share certificates, shareholder reports and
prospectuses, charges of the custodian, any sub-custodian and transfer agent,
charges of any auction agent and broker dealers in connection with preferred
shares of the Fund, expenses of portfolio transactions, Securities and Exchange
Commission fees, expenses of registering the common shares and preferred shares
under Federal, state and foreign laws, fees and actual out-of-pocket expenses of
Trustees who are not affiliated persons of the Investment Adviser, accounting
and pricing costs (including the daily calculation of the net asset value),
insurance, interest, brokerage costs, litigation and other extraordinary or
non-recurring expenses, and other expenses properly payable by the Fund. It also
is understood that the Fund will reimburse the Investment Adviser for its costs
incurred in providing accounting services to the Fund.
ARTICLE III
Compensation of the Investment Adviser
(a) Investment Advisory Fee. For the services rendered, the facilities
furnished and the expenses assumed by the Investment Adviser, the Fund shall pay
to the Investment Adviser at the end of each calendar month a fee based upon the
average weekly value of the net assets of the Fund at the annual rate of 0.55 of
1.0% (0.55%) of the average weekly net assets of the Fund (i.e., the average
weekly value of the total assets of the Fund, minus the sum of accrued
liabilities of the Fund and accumulated dividends on outstanding preferred
shares), commencing on the day following effectiveness hereof. 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. It is understood that the liquidation preference
of any outstanding preferred shares (other
5
<PAGE> 6
than accumulated dividends) is not considered a liability in determining the
Fund's average weekly net assets. If this Agreement becomes effective subsequent
to the first day of a month or shall terminate before the last day of a month,
compensation for that part of the month this Agreement is in effect shall be
prorated in a manner consistent with the calculation of the fee as set forth
above. Subject to the provisions of subsection (b) hereof, payment of the
Investment Adviser's compensation for the preceding month shall be made as
promptly as possible after completion of the computations contemplated by
subsection (b) hereof. During any period when the determination of net asset
value is suspended by the Board of Trustees, the average net asset value of a
share for the last week prior to such suspension for this purpose shall be
deemed to be the net asset value at the close of each succeeding week until it
is again determined.
(b) Expense Limitations. In the event the operating expenses of the
Fund, including amounts payable to the Investment Adviser pursuant to subsection
(a) hereof, for any fiscal year ending on a date on which this Agreement is in
effect exceed the expense limitations applicable to the Fund imposed by
applicable state securities laws or regulations thereunder, as such limitations
may be raised or lowered from time to time, the Investment Adviser shall reduce
its management and investment advisory fee by the extent of such excess and, if
required pursuant to any such laws or regulations, will reimburse the Fund in
the amount of such excess; provided, however, to the extent permitted by law,
there shall be excluded from such expenses the amount of any interest, taxes,
distribution fees, brokerage fees and commissions and extraordinary expenses
(including but not limited to legal claims and liabilities and litigation costs
and any indemnification related thereto) paid or payable by the Fund. Whenever
the expenses of the Fund exceed a pro rata portion of the applicable annual
expense limitations, the estimated amount of reimbursement under such
limitations shall be applicable as an offset against the
6
<PAGE> 7
monthly payment of the fee due to the Investment Adviser. Should two or more
such expense limitations be applicable as at the end of the last business day of
the month, that expense limitation which results in the largest reduction in the
Investment Adviser's fee shall be applicable.
ARTICLE IV
Limitation of Liability of the Investment Adviser
The Investment Adviser shall not be liable for any error of judgment or
mistake of law or for any loss arising out of any investment or for any act or
omission in the management of the Fund, except for willful misfeasance, bad
faith or gross negligence in the performance of its duties, or by reason of
reckless disregard of its obligations and duties hereunder. As used in this
Article IV, the term "Investment Adviser" shall include any affiliates of the
Investment Adviser performing services for the Fund contemplated hereby and
directors, officers and employees of the Investment Adviser and of such
affiliates.
ARTICLE V
Activities of the Investment Adviser
The services of the Investment Adviser to the Fund are not to be deemed
to be exclusive; the Investment Adviser and any person controlled by or under
common control with the Investment Adviser (for purposes of this Article V
referred to as "affiliates") are free to render services to others. It is
understood that trustees, officers, employees and shareholders of the Fund are
or may become interested in the Investment Adviser and its affiliates, as
directors, officers, employees, partners and shareholders or otherwise, and that
directors, officers, employees, partners and shareholders of the Investment
Adviser and of its affiliates are or may become similarly interested in the
Fund, and that the Investment Adviser and directors, officers,
7
<PAGE> 8
employees, partners and shareholders of its affiliates may become interested in
the Fund as shareholders or otherwise.
ARTICLE VI
Duration and Termination of this Agreement
This Agreement shall become effective as of the date first above
written and shall remain in force until , 2000 and thereafter, but only so
long as such continuance specifically is approved at least annually by (i) the
Board of Trustees of the Fund, or by the vote of a majority of the outstanding
voting securities of the Fund, and (ii) by the vote of a majority of those
Trustees who are not parties to this Agreement or interested persons of any such
party cast in person at a meeting called for the purpose of voting on such
approval.
This Agreement may be terminated at any time, without the payment of
any penalty, by the Board of Trustees or by vote of a majority of the
outstanding voting securities of the Fund, or by the Investment Adviser, on
sixty (60) days' written notice to the other party. This Agreement shall
terminate automatically in the event of its assignment.
ARTICLE VII
Amendment of this Agreement
This Agreement may be amended by the parties only if such amendment
specifically is approved by the vote of (i) a majority of the outstanding voting
securities of the Fund, and (ii) a majority of those Trustees who are not
parties to this Agreement or interested persons of any such party cast in person
at a meeting called for the purpose of voting on such approval.
8
<PAGE> 9
ARTICLE VIII
Definitions of Certain Terms
The terms "vote of a majority of the outstanding voting securities",
"assignment", "affiliated person" and "interested person", when used in this
Agreement, shall have the respective meanings specified in the Investment
Company Act and the rules and regulations thereunder, subject, however, to such
exemptions as may be granted by the Securities and Exchange Commission under
said Act.
ARTICLE IX
Governing Law
This Agreement shall be governed by and construed in accordance with
the laws of the State of New York and the applicable provisions of the
Investment Company Act. To the extent that the applicable laws of the State of
New York, or any of the provisions herein, conflict with the applicable
provisions of the Investment Company Act, the latter shall control.
ARTICLE X
Personal Liability
The Declaration of Trust establishing MuniHoldings Florida Insured Fund
V, dated May 10, 1999 , a copy of which, together with all amendments thereto
("Declaration"), is on file in the office of the Secretary of the Commonwealth
of Massachusetts, provides that the name "Muniholdings Florida Insured Fund V"
refers to the Trustees under the Declaration collectively as Trustees, but not
as individuals personally; and no Trustee, shareholder, officer, employee or
agent of the Fund shall be held to any personal liability, nor shall resort be
had to their private property for the satisfaction of any obligation or claim or
otherwise in connection with the affairs of the Fund, but the "Trust Property"
only shall be liable.
9
<PAGE> 10
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written.
MUNIHOLDINGS FLORIDA INSURED FUND V
By: ______________________________
Authorized Signatory
ATTEST:
____________________
Secretary
FUND ASSET MANAGEMENT, L.P.
By: ______________________________
Authorized Signatory
ATTEST:
____________________
Secretary
10
<PAGE> 1
MUNIHOLDINGS FLORIDA INSURED FUND V
(A MASSACHUSETTS BUSINESS TRUST)
COMMON SHARES OF BENEFICIAL INTEREST
PURCHASE AGREEMENT
Dated: , 1999
<PAGE> 2
TABLE OF CONTENTS
PAGE
SECTION 1. Representations and Warranties......................................2
(a) Representations and Warranties by the Fund and the Adviser.........2
(b) Additional Representations of the Adviser..........................7
(c) Officers' Certificates.............................................7
SECTION 2. Sale and Delivery to the Underwriter; Closing.......................7
(a) Initial Shares.....................................................7
(b) Option Shares......................................................8
(c) Payment............................................................8
(d) Denominations; Registration........................................8
SECTION 3. Covenants of the Fund...............................................9
(a) Compliance with Securities Regulations and Commission Requests.....9
(b) Filing of Amendments...............................................9
(c) Delivery of Registration Statements................................9
(d) Delivery of Prospectus............................................10
(e) Continued Compliance with Securities Laws.........................10
(f) Blue Sky Qualifications...........................................10
(g) Rule 158..........................................................10
(h) Use of Proceeds...................................................11
(i) Subchapter M......................................................11
(j) Listing...........................................................11
(k) Restrictions on Sale of Shares....................................11
SECTION 4. Payment of Expenses................................................11
(a) Expenses..........................................................11
(b) Termination of Agreement..........................................12
SECTION 5. Conditions of Underwriter's Obligations............................12
(a) Effectiveness of Registration Statement...........................12
(b) Opinion of Counsel for the Fund and the Underwriter...............12
(c) Opinion of General Counsel of the Adviser.........................12
(d) Opinion of Special Florida Counsel to the Fund....................12
(e) Officers' Certificates............................................12
(f) Accountant's Comfort Letter.......................................13
(g) Bring-down Comfort Letter.........................................13
(h) Approval of Listing...............................................13
(i) No Objection......................................................13
(j) Conditions to Purchase Option Shares..............................13
(k) Additional Documents..............................................14
(l) Termination of Agreement..........................................14
(i)
<PAGE> 3
SECTION 6. Indemnification....................................................14
(a) Indemnification of the Underwriter................................14
(b) Indemnification of Fund, Adviser, Trustees, General Partner and
Officers.......................................................15
(c) Actions against Parties, Notification.............................16
(d) Settlement without Consent if Failure to Reimburse................16
SECTION 7. Contribution.......................................................16
SECTION 8. Representations, Warranties and Agreements to Survive Delivery.....18
SECTION 9. Termination of Agreement...........................................18
(a) Termination; General..............................................18
(b) Liabilities.......................................................18
SECTION 10. Notices...........................................................18
SECTION 11. Parties...........................................................18
SECTION 12. Governing Law and Time............................................19
SECTION 13. Liability of Shareholders, Trustees and Officers..................19
SECTION 14. Effect of Headings................................................19
SCHEDULE A. ..................................................................21
EXHIBITS
Exhibit A - Form of Opinion of Fund's Counsel................................A-1
Exhibit B - Form of Opinion of General Counsel of the Investment Adviser.....B-1
Exhibit C - Form of Opinion of Special Florida Counsel to the Fund...........C-1
Exhibit D - Form of Accountant's Comfort Letter..............................D-1
(ii)
<PAGE> 4
MUNIHOLDINGS FLORIDA INSURED FUND V
(a Massachusetts business trust)
Common Shares of Beneficial Interest
(Par Value $.10 Per Share)
PURCHASE AGREEMENT
, 1999
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
North Tower
World Financial Center
New York, New York 10281-1201
Ladies and Gentlemen:
MuniHoldings Florida Insured Fund V, a Massachusetts business trust
(the "Fund"), and Fund Asset Management, L.P., a Delaware limited partnership
(the "Adviser"), each confirms its agreement with Merrill Lynch & Co., Merrill
Lynch, Pierce, Fenner & Smith Incorporated (the "Underwriter"), with respect to
the issue and sale by the Fund and the purchase by the Underwriter of common
shares of beneficial interest, par value $.10 per share, of the Fund (the
"Common Shares"), and, with respect to the grant by the Fund to the Underwriter
of the option described in Section 2(b) hereof to purchase all or any part of
additional Common Shares to cover over-allotments, if any. The aforesaid
Common Shares (the "Initial Shares") to be purchased by the Underwriter and all
or any part of the Common Shares subject to the option described in Section
2(b) hereof (the "Option Shares"), are hereinafter called, collectively, the
"Shares."
The Fund understands that the Underwriter proposes to make a public
offering of the Shares as soon as the Underwriter deems advisable after this
Agreement has been executed and delivered.
The Fund has filed with the Securities and Exchange Commission (the
"Commission") a notification on Form N-8A of registration of the Fund as an
investment company under the Investment Company Act of 1940, as amended (the
"Investment Company Act"), and a registration statement on Form N-2 (No.
333-78141) including the related preliminary prospectus, for the registration of
the Shares under the Securities Act of 1933, as amended (the "1933 Act"), the
Investment Company Act, and the rules and regulations of the Commission under
the 1933 Act and the Investment Company Act (together, the "Rules and
Regulations"), and has filed such amendments to such registration statement on
Form N-2, if any, and such
<PAGE> 5
amended preliminary prospectuses as may have been required to the date hereof.
Promptly after execution and delivery of this Agreement, the Fund will either
(i) prepare and file a prospectus in accordance with the provisions of paragraph
(c) of Rule 497 ("Rule 497(c)") of the rules and regulations of the Commission
under the 1933 Act (the "1933 Act Regulations") or a certificate in accordance
with the provisions of paragraph (j) of Rule 497 ("Rule 497(j)") of the 1933 Act
Regulations, (ii) prepare and file a prospectus in accordance with the
provisions of Rule 430A ("Rule 430A") of the 1933 Act Regulations and paragraph
(h) of Rule 497 ("Rule 497(h)") of the 1933 Act Regulations, or (iii) if the
Fund has elected to rely upon Rule 434 ("Rule 434") of the 1933 Act Regulations,
prepare and file a term sheet (a "Term Sheet") in accordance with the provisions
of Rule 434 and Rule 497(h). The information included in any such prospectus or
in any such Term Sheet, as the case may be, that was omitted from such
registration statement at the time it became effective but that is deemed to be
part of such registration statement at the time it became effective (a) pursuant
to paragraph (b) of Rule 430A is referred to as "Rule 430A Information" or (b)
pursuant to paragraph (d) of Rule 434 is referred to as "Rule 434 Information."
Each prospectus used before such registration statement became effective, and
any prospectus that omitted, as applicable, the Rule 430A Information or the
Rule 434 Information, that was used after such effectiveness and prior to the
execution and delivery of this Agreement, is herein called a "preliminary
prospectus." Such registration statement, including the exhibits thereto and
schedules thereto, if any, at the time it became effective and including the
Rule 430A Information and the Rule 434 Information, as applicable, is herein
called the "Registration Statement." Any registration statement filed pursuant
to Rule 462(b) of the 1933 Act Regulations is herein referred to as the "Rule
462(b) Registration Statement," and after such filing the term "Registration
Statement" shall include the Rule 462(b) Registration Statement. The final
prospectus in the form first furnished to the Underwriter for use in connection
with the offering of the Shares is herein called the "Prospectus." If Rule 434
is relied on, the term "Prospectus" shall refer to the preliminary prospectus
dated , 1999, together with the applicable Term Sheet and all references in
this Agreement to the date of such Prospectus shall mean the date of the
applicable Term Sheet. For purposes of this Agreement, all references to the
Registration Statement, any preliminary prospectus, the Prospectus, or any Term
Sheet or any amendment or supplement to any of the foregoing shall be deemed to
include the copy filed with the Commission pursuant to its Electronic Data
Gathering, Analysis and Retrieval system ("EDGAR").
All references in this Agreement to financial statements and schedules
and other information which is "contained," "included" or "stated" in the
Registration Statement, any preliminary prospectus or the Prospectus (or other
references of like import) shall be deemed to mean and include all such
financial statements and schedules and other information which is incorporated
by reference in the Registration Statement, any preliminary prospectus or the
Prospectus, as the case may be.
SECTION 1. Representations and Warranties.
(a) Representations and Warranties by the Fund and the Adviser. The
Fund and the Adviser each severally represents and warrants to the Underwriter
as of the date hereof, as of the Closing Time referred to in Section 2(c) hereof
and as of the Date of Delivery (if any) referred to in Section 2(b) hereof, and
agrees with the Underwriter, as follows:
2
<PAGE> 6
(i) Compliance with Registration Requirements. The Fund meets the
requirements for use of Form N-2 under the 1933 Act. Each of the
Registration Statement and any Rule 462(b) Registration Statement has
become effective under the 1933 Act and no stop order suspending the
effectiveness of the Registration Statement or any Rule 462(b)
Registration Statement has been issued under the 1933 Act and no
proceedings for that purpose have been instituted or are pending or, to
the knowledge of the Fund, are contemplated by the Commission, and any
request on the part of the Commission for additional information has
been complied with. If required, the Fund has received any orders
exempting the Fund from any provisions of the Investment Company Act.
(ii) At the respective times the Registration Statement, any Rule
462(b) Registration Statement and any post-effective amendments thereto
became effective and at the Closing Time (and, if any Option Shares are
purchased, at the Date of Delivery) the Registration Statement, the
Rule 462(b) Registration Statement and any amendments or supplements
thereto complied and will comply in all material respects with the
requirements of the 1933 Act, the Investment Company Act and the Rules
and Regulations and did not and will not contain an untrue statement of
a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading.
Neither the Prospectus, nor any amendments or supplements thereto, at
the time the Prospectus or any amendments or supplements thereto were
issued and at the Closing Time (and, if any Option Shares are
purchased, at the Date of Delivery) included or will include an untrue
statement of a material fact or omitted or will omit to state a
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading.
The representations and warranties in this subsection shall not apply
to statements in or omissions from the Registration Statement or the
Prospectus made in reliance upon and in conformity with information
furnished to the Fund in writing by the Underwriter expressly for use
in the Registration Statement or in the Prospectus. If Rule 434 is
used, the Fund will comply with the requirements of Rule 434.
(iii) Each preliminary prospectus and the prospectus filed as part
of the Registration Statement as originally filed or as part of any
amendment thereto, or filed pursuant to Rule 497(c) or Rule 497(h)
under the 1933 Act, complied when so filed in all material respects
with the Rules and Regulations and each preliminary prospectus and the
Prospectus delivered to the Underwriter for use in connection with this
offering was identical to the electronically transmitted copies thereof
filed with the Commission pursuant to EDGAR, except to the extent
permitted by Regulation S-T.
(iv) Independent Accountants. The accountants who certified the
financial statements and supporting schedules, if any, included in the
Registration Statement are independent public accountants as required
by the 1933 Act and the Rules and Regulations.
(v) Financial Statements. The financial statements, included in
the Registration Statement and Prospectus, together with the related
schedules and notes, present fairly the financial position of the Fund
at the date indicated and said statements
3
<PAGE> 7
have been prepared in conformity with generally accepted accounting
principles ("GAAP") applied on a consistent basis throughout the period
involved. The supporting schedules, if any, included in the
Registration Statement present fairly in accordance with GAAP the
information required to be stated therein.
(vi) No Material Adverse Change in Business. Since the respective
dates as of which information is given in the Registration Statement
and in the Prospectus, except as otherwise stated therein, (A) there
has been no material adverse change in the condition, financial or
otherwise, or in the earnings, business affairs or business prospects
of the Fund, whether or not arising in the ordinary course of business
(a "Material Adverse Effect"), (B) there have been no transactions
entered into by the Fund, other than those in the ordinary course of
business, which are material with respect to the Fund and (C) there has
been no dividend or distribution of any kind declared, paid or made by
the Fund on any class of its capital shares.
(vii) Good Standing of the Fund. The Fund has been duly organized
and is validly existing as a voluntary association (commonly referred
to as a business trust) under the laws of the Commonwealth of
Massachusetts and has power and authority to own, lease and operate its
properties and to conduct its business as described in the Prospectus
and to enter into and perform its obligations under this Agreement; and
the Fund is duly qualified to transact business and is in good standing
in each jurisdiction in which such qualification is required, whether
by reason of the ownership or leasing of property or the conduct of
business, except where the failure so to qualify or to be in good
standing would not result in a Material Adverse Effect.
(viii) Subsidiaries. The Fund has no subsidiaries.
(ix) Capitalization. The authorized, issued and outstanding
capital shares of the Fund is as set forth in the Prospectus under the
caption "Description of Capital Shares."
(x) Investment Company Act. The Fund is registered with the
Commission under the Investment Company Act as a closed-end,
non-diversified, management investment company, and no order of
suspension or revocation of such registration has been issued or
proceedings therefor initiated or threatened by the Commission.
(xi) Authorization of Agreement. This Agreement has been duly
authorized, executed and delivered by the Fund.
(xii) Authorization and Description of Shares. The Shares to be
purchased by the Underwriter from the Fund have been duly authorized
for issuance and sale to the Underwriter pursuant to this Agreement,
and, when issued and delivered by the Fund pursuant to this Agreement
against payment of the consideration set forth in this Agreement will
be validly issued, fully paid and non-assessable (except for certain
possible liability of shareholders described in the Prospectus under
"Description of Capital Shares"); the Shares conform to all statements
relating thereto contained in the Prospectus and such description
conforms to the rights set forth in the instruments
4
<PAGE> 8
defining the same; no holder of the Shares will be subject to personal
liability by reason of being such a holder (except for certain possible
liability of shareholders described in the Prospectus under
"Description of Capital Shares"); and the issuance of the Shares is not
subject to the preemptive or other similar rights of any securityholder
of the Fund.
(xiii) Absence of Defaults and Conflicts. The Fund is not in
violation of its declaration of trust or by-laws or in default in the
performance or observance of any obligation, agreement, covenant or
condition contained in any material contract, indenture, mortgage, deed
of trust, loan or credit agreement, note, lease or other agreement or
instrument to which the Fund is a party or by which it or its
properties may be bound, or to which any of the property or assets of
the Fund is subject (collectively, "Agreements and Instruments"),
except for such defaults that would not result in a Material Adverse
Effect; and the execution, delivery and performance of this Agreement,
the Investment Advisory Agreement and the Custody Agreement referred to
in the Registration Statement (as used herein, the "Advisory Agreement"
and the "Custody Agreement," respectively) and the consummation of the
transactions contemplated in this Agreement and in the Registration
Statement (including the issuance and sale of the Shares and the use of
the proceeds from the sale of the Shares as described in the Prospectus
under the caption "Use of Proceeds") and compliance by the Fund with
its obligations under this Agreement have been duly authorized by all
necessary corporate action and do not and will not, whether with or
without the giving of notice or passage of time or both, conflict with
or constitute a breach of, or a default or Repayment Event (as defined
below) under, or result in the creation or imposition of any lien,
charge or encumbrance upon any property or assets of the Fund pursuant
to the Agreements and Instruments (except for such conflicts, breaches
or defaults or liens, charges or encumbrances that would not result in
a Material Adverse Effect), nor will such action result in any
violation of the provisions of the declaration of trust or the by-laws
of the Fund, or any applicable law, statute, rule, regulation,
judgment, order, writ or decree of any government, government
instrumentality or court, domestic or foreign, having jurisdiction over
the Fund or any of its assets, properties or operations. As used
herein, a "Repayment Event" means any event or condition which gives
the holder of any note, debenture or other evidence of indebtedness (or
any person acting on such holder's behalf) the right to require the
repurchase, redemption or repayment of all or a portion of such
indebtedness by the Fund.
(xiv) Absence of Proceedings. There is no action, suit,
proceeding, inquiry or investigation before or brought by any court or
governmental agency or body, domestic or foreign, now pending, or, to
the knowledge of the Fund, threatened against or affecting the Fund,
which is required to be disclosed in the Registration Statement (other
than as disclosed therein), or which might reasonably be expected to
result in a Material Adverse Effect, or which might reasonably be
expected to materially and adversely affect the properties or assets
thereof or the consummation of the transactions contemplated in this
Agreement or the performance by the Fund of its obligations hereunder;
the aggregate of all pending legal or governmental proceedings to which
the Fund is a party or of which any of its respective property or
assets is the subject which are not described in the Registration
Statement, including ordinary routine litigation incidental to the
business, could not reasonably be expected to result in a Material
Adverse Effect.
5
<PAGE> 9
(xv) Subchapter M Compliance. The Fund intends to, and will,
direct the investment of the proceeds of the offering described in the
Registration Statement in such a manner as to comply with the
requirements of Subchapter M of the Internal Revenue Code of 1986, as
amended ("Subchapter M of the Code"), and intends to qualify as a
regulated investment company under Subchapter M of the Code.
(xvi) Accuracy of Exhibits. There are no contracts or documents
which are required to be described in the Registration Statement or the
Prospectus or to be filed as exhibits thereto which have not been so
described and filed as required.
(xvii) Possession of Intellectual Property. The Fund owns or
possesses, or can acquire on reasonable terms, adequate patents, patent
rights, licenses, inventions, copyrights, know-how (including trade
secrets and other unpatented and/or unpatentable proprietary or
confidential information, systems or procedures), trademarks, service
marks, trade names or other intellectual property (collectively,
"Intellectual Property") necessary to carry on the business now
operated by it, and the Fund has not received any notice or is
otherwise aware of any infringement or conflict with asserted rights of
others with respect to any Intellectual Property or of any facts or
circumstances which would render any Intellectual Property invalid or
inadequate to protect the interest of the Fund therein, and which
infringement or conflict (if the subject of any unfavorable decision,
ruling or finding) or invalidity or inadequacy, singly or in the
aggregate, would result in a Material Adverse Effect.
(xviii) Absence of Further Requirements. No filing with, or
authorization, approval, consent, license, order, registration,
qualification or decree of, any court or governmental authority or
agency is necessary or required for the performance by the Fund of its
obligations hereunder, in connection with the offering, issuance or
sale of the Shares under this Agreement or the consummation of the
transactions contemplated by this Agreement, except such as have been
already obtained or as may be required under the 1933 Act or the 1940
Act or the Rules and Regulations and foreign or state securities or
blue sky laws.
(xix) Possession of Licenses and Permits. The Fund possesses such
permits, licenses, approvals, consents and other authorizations
(collectively, "Governmental Licenses") issued by the appropriate
federal, state, local or foreign regulatory agencies or bodies
necessary to conduct the business now operated by it; the Fund is in
compliance with the terms and conditions of all such Governmental
Licenses, except where the failure so to comply would not, singly or in
the aggregate, have a Material Adverse Effect; all of the Governmental
Licenses are valid and in full force and effect, except when the
invalidity of such Governmental Licenses or the failure of such
Governmental Licenses to be in full force and effect would not have a
Material Adverse Effect; and the Fund has not received any notice of
proceedings relating to the revocation or modification of any such
Governmental Licenses which, singly or in the aggregate, if the subject
of an unfavorable decision, ruling or finding, would result in a
Material Adverse Effect.
6
<PAGE> 10
(b) Additional Representations of the Adviser. The Adviser represents
and warrants to the Underwriter as of the date hereof and as of the
Representation Date as follows:
(i) Organization and Authority of Adviser. The Adviser has been
duly organized as a limited partnership under the laws of the State of
Delaware, with power and authority to conduct its business as described
in the Registration Statement and the Prospectus.
(ii) Investment Advisers Act. The Adviser is duly registered as an
investment adviser under the Investment Advisers Act of 1940, as
amended (the "Investment Advisers Act"), and is not prohibited by the
Investment Advisers Act or the Investment Company Act, or the rules and
regulations under such acts, from acting under the Advisory Agreement
for the Fund as contemplated by the Registration Statement and the
Prospectus.
(iii) Authorization of Agreements. This Agreement has been duly
authorized, executed and delivered by the Adviser; the Advisory
Agreement has been duly authorized, executed and delivered by the
Adviser and constitutes a valid and binding obligation of the Adviser,
enforceable in accordance with its terms, subject, as to enforcement,
to bankruptcy, insolvency, reorganization or other laws relating to or
affecting creditors' rights and to general equitable principles; and
neither the execution and delivery of this Agreement or the Advisory
Agreement, nor the performance by the Adviser of its obligations
hereunder or thereunder will conflict with, or result in a breach of
any of the terms and provisions of, or constitute, with or without the
giving of notice or the lapse of time or both, a default under, any
agreement or instrument to which the Adviser is a party or by which it
is bound, or any law, order, rule or regulation applicable to it of any
jurisdiction, court, Federal or state regulatory body, administrative
agency or other governmental body, stock exchange or securities
association having jurisdiction over the Adviser or its respective
properties or operations.
(iv) Financial Resources. The Adviser has the financial resources
available to it necessary for the performance of its services and
obligations as contemplated in the Registration Statement and the
Prospectus.
(v) Rule 482 Compliance. Any advertisement approved by the Adviser
for use in the public offering of the Shares pursuant to Rule 482 under
the 1933 Act Regulations (an "Omitting Prospectus") complies with the
requirements of such Rule 482.
(c) Officers' Certificates. Any certificate signed by any officer of
the Fund or any officer of the Adviser delivered to the Underwriter or to
counsel for the Fund and the Underwriter shall be deemed a representation and
warranty by the Fund or the Adviser, as the case may be, to the Underwriter as
to the matters covered thereby.
SECTION 2. Sale and Delivery to the Underwriter; Closing.
(a) Initial Shares. On the basis of the representations and warranties
herein contained, and subject to the terms and conditions herein set forth, the
Fund agrees to sell to the
7
<PAGE> 11
Underwriter and the Underwriter agrees to purchase from the Fund the Initial
Shares at the price per share set forth in Schedule A.
(b) Option Shares. In addition, on the basis of the representations and
warranties herein contained and subject to the terms and conditions herein set
forth, the Fund hereby grants an option to the Underwriter to purchase up to an
additional Common Shares at the price per share set forth in Schedule A,
less an amount per shares equal to any dividends or distributions declared by
the Fund and payable on the Initial Shares but not payable on the Option Shares.
The option hereby granted will expire 45 days after the date hereof and may be
exercised in whole or in part from time to time only for the purpose of covering
over-allotments which may be made in connection with the offering and
distribution of the Initial Shares upon notice by the Underwriter to the Fund
setting forth the number of Option Shares as to which the Underwriter is then
exercising the option and the time, date and place of payment and delivery for
such Option Shares. Any such time and date of delivery for the Option Shares (a
"Date of Delivery") shall be determined by the Underwriter, but shall not be
later than seven full business days after the exercise of said option, nor in
any event prior to Closing Time, as hereinafter defined.
(c) Payment. Payment of the purchase price for, and delivery of
certificates for, the Initial Shares shall be made at the offices of Brown &
Wood LLP, One World Trade Center, New York, New York 10048-0557, or at such
other place as shall be agreed upon by the Underwriter and the Fund, at 9:00
A.M. (Eastern time) on the third (fourth, if the pricing occurs after 4:30 P.M.
(Eastern time) on any given day) business day following the date hereof, or such
other time not later than ten business days after such date as shall be agreed
upon by the Underwriter and the Fund (such time and date of payment and delivery
herein being referred to as "Closing Time").
In addition, in the event that any or all of the Option Shares are
purchased by the Underwriter, payment of the purchase price for, and delivery of
certificates for, such Option Shares shall be made at the above-mentioned
offices of Brown & Wood LLP, or at such other place as shall be agreed upon by
the Underwriter and the Fund, on each Date of Delivery as specified in the
notice from the Underwriter to the Fund.
Payment shall be made to the Fund by wire transfer of immediately
available funds to a bank account designated by the Fund, against delivery to
the Underwriter of certificates for the Shares to be purchased by it.
(d) Denominations; Registration. Certificates for the Initial Shares
and the Option Shares, if any, shall be in such denominations and registered in
such names as the Underwriter may request in writing at least one full business
day before the Closing Time or the relevant Date of Delivery, as the case may
be. The certificates for the Initial Shares and the Option Shares will be made
available by the Fund for examination by the Underwriter not later than 10:00
A.M. on the last business day prior to Closing Time or the Date of Delivery, as
the case may be.
8
<PAGE> 12
SECTION 3. Covenants of the Fund. The Fund covenants with the Underwriter
as follows:
(a) Compliance with Securities Regulations and Commission Requests. The
Fund, subject to Section 3(b), will comply with the requirements of Rule 430A or
Rule 434, as applicable, and will notify the Underwriter immediately, and
confirm the notice in writing, (i) if any post-effective amendment to the
Registration Statement shall have become effective, or any supplement to the
Prospectus or any amended Prospectus shall have been filed, (ii) of the receipt
of any comments from the Commission, (iii) of any request by the Commission for
any amendment to the Registration Statement or any amendment or supplement to
the Prospectus or for additional information, (iv) of the issuance by the
Commission of any stop order suspending the effectiveness of the Registration
Statement or of any order preventing or suspending the use of any preliminary
prospectus, or of the suspension of the qualification of the Shares for offering
or sale in any jurisdiction, or of the initiation or threatening of any
proceedings for any of such purposes, and (v) of the issuance by the Commission
of an order of suspension or revocation of the notification on Form N-8A of
registration of the Fund as an investment company under the Investment Company
Act or the initiation of any proceeding for that purpose. The Fund will make
every reasonable effort to prevent the issuance of any stop order described in
subsection (iv) hereunder or any order of suspension or revocation described in
subsection (v) hereunder and, if any such stop order or order of suspension or
revocation is issued, to obtain the lifting thereof at the earliest possible
moment. The Fund will promptly effect the filings necessary pursuant to Rule
497(c), Rule 497(j) or Rule 497(h) and will take such steps as it deems
necessary to ascertain promptly whether the certificate transmitted for filing
under Rule 497(j) or the form of prospectus transmitted for filing under Rule
497(c) or Rule 497(h) was received for filing by the Commission and, in the
event that it was not, it will promptly file such certificate or prospectus.
(b) Filing of Amendments. The Fund will give the Underwriter notice of
its intention to file or prepare any amendment to the Registration Statement
(including any post-effective amendment or filing under Rule 462(b)), any Term
Sheet or any amendment, supplement or revision to either the prospectus included
in the Registration Statement at the time it became effective or to the
Prospectus, whether pursuant to the Investment Company Act, the 1933 Act, or
otherwise, and will furnish the Underwriter with copies of any such documents a
reasonable amount of time prior to such proposed filing or use, as the case may
be, and will not file or use any such document to which the Underwriter or
counsel to the Underwriter and the Fund shall object.
(c) Delivery of Registration Statements. The Fund has furnished or will
deliver to the Underwriter and counsel to the Underwriter and the Fund, without
charge, signed copies of the notification of registration on Form N-8A and
Registration Statement as originally filed and of each amendment thereto,
(including exhibits filed therewith, or incorporated by reference therein) and
signed copies of all consents and certificates of experts, and will also deliver
to the Underwriter a conformed copy, without charge, of the Registration
Statement as originally filed and of each amendment thereto (without exhibits)
for the Underwriter. The copies of the Registration Statement and each amendment
thereto furnished to the Underwriter will be identical to the electronically
transmitted copies thereof filed with the Commission pursuant to EDGAR, except
to the extent permitted by Regulation S-T.
9
<PAGE> 13
(d) Delivery of Prospectus. The Fund has delivered to the Underwriter,
without charge, as many copies of each preliminary prospectus as the Underwriter
reasonably requested, and the Fund hereby consents to the use of such copies for
purposes permitted by the 1933 Act. The Fund will furnish to the Underwriter,
without charge, during the period when the Prospectus is required to be
delivered under the 1933 Act, such number of copies of the Prospectus (as
amended or supplemented) as the Underwriter may reasonably request. The
Prospectus and any amendments or supplements thereto furnished to the
Underwriter will be identical to the electronically transmitted copies thereof
field with the Commission pursuant to EDGAR, except to the extent permitted by
Regulation S-T.
(e) Continued Compliance with Securities Laws. The Fund will comply
with the 1933 Act, the Investment Company Act and the Rules and Regulations so
as to permit the completion of the distribution of the Shares as contemplated in
this Agreement and in the Prospectus. If at any time when a prospectus is
required by the 1933 Act to be delivered in connection with sales of the Shares,
any event shall occur or condition shall exist as a result of which it is
necessary, in the opinion of counsel to the Underwriter and the Fund, to amend
the Registration Statement or amend or supplement any Prospectus in order that
the Prospectus will not include any untrue statements of material fact or omit
to state a material fact necessary in order to make the statements therein not
misleading in the light of the circumstances existing at the time it is
delivered to a purchaser, or if it shall be necessary, in the opinion of such
counsel, at any such time to amend the Registration Statement or amend or
supplement any Prospectus in order to comply with the requirements of the 1933
Act or the 1933 Act Regulations, the Fund will promptly prepare and file with
the Commission, subject to Section 3(b), such amendment or supplement as may be
necessary to correct such statement or omission or to make the Registration
Statement or the Prospectus comply with such requirements, and the Fund will
furnish to the Underwriter such number of copies of such amendment or supplement
as the Underwriter may reasonably request.
(f) Blue Sky Qualifications. The Fund will use its best efforts, in
cooperation with the Underwriter, to qualify the Shares for offering and sale
under the applicable securities laws of such states and other jurisdictions as
the Underwriter may designate and to maintain such qualifications in effect for
a period of not less than one year from the later of the effective date of the
Registration Statement and any Rule 462(b) Registration Statement; provided,
however, that the Fund shall not be obligated to file any general consent to
service of process or to qualify as a dealer in securities in any jurisdiction
in which it is not so qualified or to subject itself to taxation in respect of
doing business in any jurisdiction in which it is not otherwise so subject. In
each jurisdiction in which the Shares have been so qualified, the Fund will file
such statements and reports as may be required by the laws of such jurisdiction
to continue such qualification in effect for a period of not less than one year
from the effective date of the Registration Statement and any Rule 462(b)
Registration Statement.
(g) Rule 158. The Fund will timely file such reports pursuant to the
Investment Company Act as are necessary in order to make generally available to
its securityholders as soon as practicable an earnings statement for the
purposes of, and to provide the benefits contemplated by, the last paragraph of
Section 11(a) of the 1933 Act.
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<PAGE> 14
(h) Use of Proceeds. The Fund will use the net proceeds received by it
from the sale of the Shares in the manner specified in the Prospectus under "Use
of Proceeds."
(i) Subchapter M. The Fund will use its best efforts to maintain its
qualification as a regulated investment company under Subchapter M of the Code.
(j) Listing. The Fund will use its best efforts to effect the listing
of the Shares on the New York Stock Exchange so that trading on such Exchange
will begin no later than two weeks from the date of the Prospectus.
(k) Restrictions on Sale of Shares. During a period of 180 days from
the date of the Prospectus, the Fund will not, without your prior written
consent, directly or indirectly (i) offer, pledge, sell, contract to sell, sell
any option or contract to purchase, purchase any option or contract to sell,
grant any option, right or warrant to purchase or otherwise transfer or dispose
of any Common Shares or any securities convertible into or exercisable or
exchangeable for Common Shares or file any registration statement under the 1933
Act with respect to any of the foregoing or (ii) enter into any swap or any
other agreement or any transaction that transfers, in whole or in part, directly
or indirectly, the economic consequence of ownership of the Common Shares,
whether any such swap or transaction described in clause (i) or (ii) above is to
be settled by delivery of Common Shares of such other securities, in cash or
otherwise. The foregoing sentence shall not apply to (A) the Shares to be sold
hereunder or (B) any Common Shares issued pursuant to any dividend reinvestment
plan.
SECTION 4. Payment of Expenses.
(a) Expenses. The Fund will pay all expenses incident to the
performance of its obligations under this Agreement, including (i) the
preparation, printing and filing of the Registration Statement (including
financial statements and exhibits) as originally filed and of each amendment
thereto, (ii) the preparation, printing and delivery to the Underwriter of this
Agreement and such other documents as may be required in connection with the
offering, purchase, sale issuance or delivery of the Shares, (iii) the
preparation, issuance and delivery of the certificates for the Shares to the
Underwriter, including any stock or other transfer taxes and any stamp or other
duties payable upon the sale, issuance or delivery of the Shares to the
Underwriter, (iv) the fees and disbursements of the Fund's counsel, accountants
and other advisors, (v) the qualification of the Shares under the securities
laws in accordance with the provisions of Section 3(f) hereof, including filing
fees and the reasonable fees and disbursements of counsel to the Underwriter and
the Fund in connection therewith and in connection with the preparation of the
Blue Sky Survey and any supplement thereto, (vi) the printing and delivery to
the Underwriter of copies of each preliminary prospectus, any Term Sheets and of
the Prospectus and any amendments or supplements thereto, (vii) the preparation,
printing and delivery to the Underwriter of copies of the Blue Sky Survey and
any supplement thereto, (viii) the fees and expenses of any transfer agent or
registrar for the Shares and (ix) the filing fees incident to, and the
reasonable fees and disbursements of counsel to the Underwriter and the Fund in
connection with the review by the National Association of Securities Dealers,
Inc. (the "NASD") of the terms of the sale of the Shares and (x) the fees and
expenses incurred in connection with the listing of the Shares on the New York
Stock Exchange.
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<PAGE> 15
(b) Termination of Agreement. If this Agreement is terminated by the
Underwriter in accordance with the provisions of Section 5 or Section 9(a)(i)
hereof, the Fund or the Adviser shall reimburse the Underwriter for all of its
out-of-pocket expenses, including the reasonable fees and disbursements of
counsel to the Fund and the Underwriter. In the event the transactions
contemplated hereunder are not consummated, the Adviser agrees to pay all of the
costs and expenses set forth in paragraph (a) of this Section 4 which the Fund
would have paid if such transactions had been consummated.
SECTION 5. Conditions of Underwriter's Obligations. The obligations of the
Underwriter hereunder are subject to the accuracy of the representations and
warranties of the Fund and the Adviser contained in Section 1 hereof, or in the
certificates of any officer of the Fund and the Adviser delivered pursuant to
the provisions hereof, to the performance by the Fund and the Adviser of their
respective covenants and obligations hereunder, and to the following further
conditions:
(a) Effectiveness of Registration Statement. The Registration Statement
including any Rule 462(b) Registration Statement has become effective and at
Closing Time no stop order suspending the effectiveness of the Registration
Statement shall have been issued under the 1933 Act or proceedings therefor
initiated or threatened by the Commission and any request on the part of the
Commission for additional information shall have been complied with to the
reasonable satisfaction of counsel to the Underwriter and the Fund. Either (i) a
certificate has been filed with the Commission in accordance with Rule 497(j) or
a prospectus has been filed with the Commission in accordance with Rule 497(c),
or (ii) a prospectus containing the Rule 430A Information shall have been filed
with the Commission in accordance with Rule 497(h) (or a post-effective
amendment providing such information shall have been filed and declared
effective in accordance with the requirements of Rule 430A) or, if the Fund has
elected to rely upon Rule 434, a Term Sheet shall have been filed with the
Commission in accordance with Rule 497(h).
(b) Opinion of Counsel for the Fund and the Underwriter. At Closing
Time, the Underwriter shall have received the favorable opinion, dated as of
Closing Time, of Brown & Wood LLP, counsel to the Fund and the Underwriter, to
the effect set forth in Exhibit A hereto. In giving their opinion, Brown & Wood
LLP may rely as to matters involving the laws of the Commonwealth of
Massachusetts upon the opinion of Bingham Dana LLP.
(c) Opinion of General Counsel of the Adviser. At Closing Time, the
Underwriter shall have received the favorable opinion, dated as of Closing Time,
of Michael J. Hennewinkel, Esq., General Counsel to the Adviser, or a senior
attorney of the Adviser, in form and substance satisfactory to counsel to the
Underwriter, to the effect set forth in Exhibit B hereto and to such further
effect as counsel to the Underwriter may reasonably request.
(d) Opinion of Special Florida Counsel to the Fund. At Closing Time,
the Underwriter shall have received the favorable opinion, dated as of Closing
Time, of Holland & Knight LLP, special Florida counsel to the Fund, to the
effect set forth in Exhibit C hereto.
(e) Officers' Certificates. At Closing Time, there shall not have been,
since the date hereof or since the respective dates as of which information is
given in the Prospectus, any
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<PAGE> 16
material adverse change in the condition, financial or otherwise, or in the
earnings, business affairs or business prospects of the Fund, whether or not
arising in the ordinary course of business, and the Underwriter shall have
received (A) a certificate of the President or a Vice President of the Fund,
dated as of Closing Time, to the effect that (i) there has been no such material
adverse change, (ii) the representations and warranties in Section 1(a) hereof
are true and correct with the same force and effect as though expressly made at
and as of Closing Time, (iii) the Fund has complied with all agreements and
satisfied all conditions on its part to be performed or satisfied at or prior to
Closing Time, and (iv) no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that purpose have
been instituted or are pending or are contemplated by the Commission and (B) a
certificate of the President or a Vice President of the Adviser, dated as of
Closing Time, to the effect that (i) the representations and warranties in
Sections 1(a) and 1(b) hereof are true and correct with the same force and
effect as though expressly made at and as of Closing Time, and (ii) the Adviser
has complied with all agreements and satisfied all conditions on its part to be
performed or satisfied at or prior to Closing Time.
(f) Accountant's Comfort Letter. At the time of the execution of this
Agreement, the Underwriter shall have received from a letter, dated such
date, in form and substance satisfactory to the Underwriter containing
statements and information of the type ordinarily included in accountants'
"comfort letters" to underwriters with respect to the financial statements and
certain financial information contained in the Registration Statement and the
Prospectus, to the effect set forth in Exhibit D hereto and to such further
effect as counsel to the Underwriter may reasonably request.
(g) Bring-down Comfort Letter. At Closing Time, the Underwriter shall
have received from a letter, dated as of Closing Time, to the effect that
they reaffirm the statements made in the letter, furnished pursuant to
subsection (f) of this Section, except that the "specified date" referred to
shall be a date not more than three business days prior to Closing Time.
(h) Approval of Listing. At Closing Time, the Shares shall have been
approved for listing on the New York Stock Exchange, subject only to official
notice of issuance.
(i) No Objection. The NASD has confirmed that it has not raised any
objection with respect to the fairness and reasonableness of the underwriting
terms and arrangements.
(j) Conditions to Purchase Option Shares. In the event that the
Underwriter exercises its option provided in Section 2(b) hereof to purchase all
or any portion of the Option Shares, the representations and warranties of the
Fund and the Adviser contained herein and the statements in any certificates
furnished by the Fund and the Adviser hereunder shall be true and correct as of
each Date of Delivery and, at the relevant Date of Delivery, the Underwriter
shall have received:
(i) Officers' Certificates. Certificates, dated such Date of
Delivery, of the President or a Vice President of the Fund and of the
President or a Vice President of the Adviser confirming that the
respective certificates delivered at the Closing Time pursuant to
Section 5(e) hereof remains true and correct as of such Date of
Delivery.
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<PAGE> 17
(ii) Opinions of Counsel. The favorable opinions of Brown & Wood
LLP, counsel to the Fund and the Underwriter, and of Michael J.
Hennewinkel, Esq., General Counsel of the Adviser, or a senior
attorney of the Adviser, and Holland & Knight LLP, special Florida
counsel to the Fund, each in form and substance satisfactory to the
counsel for the Underwriter, dated such Date of Delivery, relating to
the Option Shares to be purchased on such Date of Delivery and
otherwise to the same effect as the opinions required by Sections
5(b), 5(c) and 5(d) hereof, respectively.
(iii) Bring-down Comfort Letter. A letter from in form and
substance satisfactory to the Underwriter and dated such Date of
Delivery, substantially the same in form and substance as the letter
furnished to the Underwriter pursuant to Section 5(f), except that the
"specified date" in the letter furnished pursuant to this paragraph
shall be a date not more than five days prior to such Date of Delivery.
(k) Additional Documents. At Closing Time and at each Date of Delivery,
counsel to the Fund and the Underwriter shall have been furnished with such
documents and opinions as it may require for the purpose of enabling it to pass
upon the issuance and sale of the Shares as herein contemplated, or in order to
evidence the accuracy of any of the representations or warranties, or the
fulfillment of any of the conditions, herein contained; and all proceedings
taken by the Fund in connection with the issuance and sale of the Shares as
herein contemplated shall be satisfactory in form and substance to the
Underwriter and counsel to the Fund and the Underwriter.
(l) Termination of Agreement. If any condition specified in this
Section shall not have been fulfilled when and as required to be fulfilled, this
Agreement, or, in the case of any condition to the purchase of Option Shares on
a Date of Delivery which is after the Closing Time, the obligations of the
Underwriter to purchase the relevant Option Shares, may be terminated by the
Underwriter by notice to the Fund at any time at or prior to Closing Time or
such Date of Delivery, as the case may be, and such termination shall be without
liability of any party to any other party except as provided in Section 4 and
except that Sections 1, 6, 7 and 8 shall survive any such termination and remain
in full force and effect.
SECTION 6. Indemnification.
(a) Indemnification of the Underwriter. (1) The Fund and the Adviser
jointly and severally agree to indemnify and hold harmless the Underwriter and
each person, if any, who controls the Underwriter within the meaning of Section
15 of the 1933 Act as follows:
(i) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, arising out of any untrue statement or alleged
untrue statement of a material fact contained in the Registration
Statement (or any amendment thereto), including the Rule 430A
Information and the Rule 434 Information, if applicable, or the
omission or alleged omission therefrom of a material fact required to
be stated therein or necessary to make the statements therein not
misleading or arising out of any untrue statement or alleged untrue
statement of a material fact included in any preliminary prospectus,
any Omitting Prospectus or the Prospectus (or any amendment or
supplement thereto), or the
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<PAGE> 18
omission or alleged omission therefrom of a material fact necessary in
order to make the statements therein, in the light of the circumstances
under which they were made, not misleading;
(ii) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, to the extent of the aggregate amount
paid in settlement of any litigation, or any investigation or
proceeding by any governmental agency or body, commenced or threatened,
or of any claim whatsoever based upon any such untrue statement or
omission, provided that (subject to Section 6(d) below) any such
settlement is effected with the written consent of the indemnifying
party; and
(iii) against any and all expense whatsoever, as incurred
(including the fees and disbursements of counsel chosen by the
Underwriter) reasonably incurred in investigating, preparing or
defending against any litigation, or any investigation or proceeding by
any governmental agency or body, commenced or threatened, or any claim
whatsoever based upon any such untrue statement or omission, or any
such alleged untrue statement or omission, to the extent that any such
expense is not paid under (i) or (ii) above;
provided, however, that this indemnity agreement shall not apply to any loss,
liability, claim, damage or expense to the extent arising out of any untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished to the Fund by the
Underwriter expressly for use in the Registration Statement (or any amendment
thereto), including the Rule 430A Information and the Rule 434 Information, if
applicable, or any preliminary prospectus, any Omitting Prospectus or the
Prospectus (or any amendment or supplement thereto).
(2) Insofar as this indemnity agreement may permit indemnification for
liabilities under the 1933 Act of any person who is a partner of the Underwriter
or who controls the Underwriter within the meaning of Section 15 of the 1933 Act
and who, at the date of this Agreement, is a trustee or officer of the Fund or
controls the Fund within the meaning of Section 15 of the 1933 Act, such
indemnity agreement is subject to the undertaking of the Fund in the
Registration Statement under Item 29 thereof.
(b) Indemnification of Fund, Adviser, Trustees, General Partner and
Officers. The Underwriter agrees to indemnify and hold harmless the Fund, the
Adviser, the trustees of the Fund, the general partner of the Adviser, each of
the Fund's officers who signed the Registration Statement, and each person, if
any, who controls the Fund or the Adviser within the meaning of Section 15 of
the 1933 Act, against any and all loss, liability, claim, damage and expense
described in the indemnity contained in subsection (a) of this Section, as
incurred, but only with respect to untrue statements or omissions, or alleged
untrue statements or omissions, made in the Registration Statement (or any
amendment thereto) including the Rule 430A Information and the Rule 434
Information, if applicable, or in any preliminary prospectus, any Omitting
Prospectus or the Prospectus (or any amendment or supplement thereto) in
reliance upon and in conformity with written information furnished to the Fund
by the Underwriter expressly for use in the
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<PAGE> 19
Registration Statement (or any amendment thereto), or any preliminary
prospectus, any Omitting Prospectus or the Prospectus (or any amendment or
supplement thereto).
(c) Actions against Parties, Notification. Each indemnified party shall
give notice as promptly as reasonably practicable to each indemnifying party of
any action commenced against it in respect of which indemnity may be sought
hereunder, but failure to so notify an indemnifying party shall not relieve such
indemnifying party from any liability hereunder to the extent it is not
materially prejudiced as a result thereof and in any event shall not relieve it
from any liability which it may have otherwise than on account of this indemnity
agreement. In the case of parties indemnified pursuant to Section 6(a) above,
counsel to the indemnified parties shall be selected by the Underwriter, and, in
the case of parties indemnified pursuant to Section 6(b) above, counsel to the
indemnified parties shall be selected by the Fund and the Adviser. An
indemnifying party may participate at its own expense in the defense of any such
action; provided, however, that counsel to the indemnifying party shall not
(except with the consent of the indemnified party) also be counsel to the
indemnified party. In no event shall the indemnifying parties be liable for the
fees and expenses of more than one counsel (in addition to any local counsel)
separate from their own counsel for all indemnified parties in connection with
any one action or separate but similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances. No
indemnifying party shall, without the prior written consent of the indemnified
parties, settle or compromise or consent to the entry of any judgment with
respect to any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or any claim whatsoever in
respect of which indemnification or contribution could be sought under this
Section 6 or Section 7 hereof (whether or not the indemnified parties are actual
or potential parties thereto), unless such settlement, compromise or consent (i)
includes an unconditional release of each indemnified party from all liability
arising out of such litigation, investigation, proceeding or claim and (ii) does
not include a statement as to or an admission of fault, culpability or a failure
to act by or on behalf of any indemnified party.
(d) Settlement without Consent if Failure to Reimburse. If at any time
an indemnified party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel, such indemnifying party
agrees that it shall be liable for any settlement of the nature contemplated by
Section 6 (a)(ii) effected without its written consent if (i) such settlement is
entered into more than 45 days after receipt by such indemnifying party of the
aforesaid request, (ii) such indemnifying party shall have received notice of
the terms of such settlement at least 30 days prior to such settlement being
entered into and (iii) such indemnifying party shall not have reimbursed such
indemnified party in accordance with such request prior to the date of such
settlement.
SECTION 7. Contribution. If the indemnification provided for in Section 6
hereof is for any reason unavailable to or insufficient to hold harmless an
indemnified party in respect of any losses, liabilities, claims, damages or
expenses referred to therein, then each indemnifying party shall contribute to
the aggregate amount of such losses, liabilities, claims, damages and expenses
incurred by such indemnified party, as incurred, (i) in such proportion as is
appropriate to reflect the relative benefits received by the Fund and the
Adviser on the one hand and the Underwriter on the other hand from the offering
of the Shares pursuant to this Agreement or (ii) if the allocation provided by
clause (i) is not permitted by applicable law, in such proportion as is
16
<PAGE> 20
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the Fund and the Adviser on the one hand
and of the Underwriter on the other hand in connection with the statements or
omissions which resulted in such losses, liabilities, claims, damages or
expenses, as well as any other relevant equitable considerations.
The relative benefits received by the Fund and the Adviser on the one
hand and the Underwriter on the other hand in connection with the offering of
the Shares pursuant to this Agreement shall be deemed to be in the same
respective proportions as the total net proceeds from the offering of the Shares
pursuant to this Agreement (before deducting expenses) received by the Fund, and
the total underwriting commission received by the Underwriter, in each case as
set forth or otherwise indicated on the cover of the Prospectus, or, if Rule 434
is used, the corresponding location on the Term Sheet, bear to the sum of the
aggregate initial public offering price of the Shares and the total underwriting
commission received by the Underwriter as set forth or otherwise indicated on
such cover.
The relative fault of the Fund and the Adviser on the one hand and the
Underwriter on the other hand shall be determined by reference to, among other
things, whether any such untrue or alleged untrue statement of a material fact
or omission or alleged omission to state a material fact relates to information
supplied by the Fund and the Adviser or by the Underwriter and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.
The Fund, the Adviser and the Underwriter agree that it would not be
just and equitable if contribution pursuant to this Section 7 were determined by
pro rata allocation or by any other method of allocation which does not take
account of the equitable considerations referred to above in this Section 7. The
aggregate amount of losses, liabilities, claims, damages and expenses incurred
by an indemnified party and referred to above in this Section 7 shall be deemed
to include any legal or other expenses reasonably incurred by such indemnified
party in investigating, preparing or defending against any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever based upon any such untrue or alleged untrue
statement or omission or alleged omission.
Notwithstanding the provisions of this Section 7, the Underwriter shall
not be required to contribute any amount in excess of the amount by which the
total price at which the Shares underwritten by it and distributed to the public
were offered to the public exceeds the amount of any damages which the
Underwriter has otherwise been required to pay by reason of any such untrue or
alleged untrue statement or omission or alleged omission.
No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the 1933 Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
For purposes of this Section 7, each person, if any, who controls the
Underwriter within the meaning of Section 15 of the 1933 Act shall have the same
rights to contribution as the Underwriter, and each director of the Fund and the
Adviser, respectively, each officer of the Fund who signed the Registration
Statement and each person, if any, who controls the Fund and
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<PAGE> 21
the Adviser within the meaning of Section 15 of the 1933 Act, shall have the
same rights to contribution as the Fund and the Adviser.
SECTION 8. Representations, Warranties and Agreements to Survive Delivery.
All representations, warranties and agreements contained in this Agreement or in
certificates of officers of the Fund or of the Adviser submitted pursuant
hereto, shall remain operative and in full force and effect, regardless of any
investigation made by or on behalf of the Underwriter or controlling person, or
by or on behalf of the Fund or the Adviser and shall survive delivery of the
Shares to the Underwriter.
SECTION 9. Termination of Agreement.
(a) Termination; General. The Underwriter may terminate this Agreement
by notice to the Fund, at any time at or prior to Closing Time (i) if there has
been, since the time of execution of this Agreement or since the respective
dates as of which information is given in the Prospectus, any material adverse
change in the condition, financial or otherwise, or in the earnings, business
affairs or business prospects of the Fund or the Adviser, whether or not arising
in the ordinary course of business, or (ii) if there has occurred any material
adverse change in the financial markets in the United States or the
international financial markets, any outbreak of hostilities or escalation
thereof or other calamity or crisis or any change or development involving a
prospective change in national or international political, financial or economic
conditions, in each case the effect of which is such as to make it, in the
judgment of the Underwriter, impracticable to market the Shares or to enforce
contracts for the sale of the Shares, or (iii) if trading in any securities of
the Fund has been suspended or materially limited by the Commission or the New
York Stock Exchange, or if trading generally on the American Stock Exchange or
the New York Stock Exchange or in the Nasdaq National Market has been suspended
or materially limited, or minimum or maximum prices for trading have been fixed,
or maximum ranges for prices for securities have been required, by any of said
exchanges or by such system or by order of the Commission, the National
Association of Securities Dealers, Inc. or any other governmental authority, or
(iv) if a banking moratorium has been declared by either Federal or New York
authorities.
(b) Liabilities. If this Agreement is terminated pursuant to this
Section, such termination shall be without liability of any party to any other
party except as provided in Section 4 hereof, and provided further that Sections
1, 6, 7 and 8 shall survive such termination and remain in full force and
effect.
SECTION 10. Notices. All notices and other communications hereunder shall
be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunication. Notices to the
Underwriter shall be directed to Merrill Lynch & Co. Inc., Merrill Lynch,
Pierce, Fenner & Smith Incorporated at North Tower, World Financial Center, New
York, New York 10281-1201, Attention: Richard Bruce, Vice President; notices to
the Fund or to the Adviser shall be directed to each of them at 800 Scudders
Mill Road, Plainsboro, New Jersey 08536, Attention: Terry K. Glenn, President.
SECTION 11. Parties. This Agreement shall inure to the benefit of and be
binding upon the Underwriter, the Fund, the Adviser and their respective
successors. Nothing expressed or
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<PAGE> 22
mentioned in this Agreement is intended or shall be construed to give any
person, firm or corporation, other than the Underwriter, the Fund, the Adviser
and their respective successors and the controlling persons and officers,
trustees and general partner referred to in Sections 6 and 7 and their heirs and
legal representatives, any legal or equitable right, remedy or claim under or in
respect of this Agreement or any provision herein contained. This Agreement and
all conditions and provisions hereof are intended to be for the sole and
exclusive benefit of the Underwriter, the Fund and the Adviser and their
respective successors, and said controlling persons and officers, trustees and
general partner and their heirs and legal representatives, and for the benefit
of no other person, firm or corporation. No purchaser of Shares from the
Underwriter shall be deemed to be a successor merely by reason of such purchase.
SECTION 12. GOVERNING LAW AND TIME. THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. SPECIFIED
TIMES OF DAY REFER TO NEW YORK CITY TIME.
SECTION 13. Liability of Shareholders, Trustees and Officers. This
Agreement is executed by or on behalf of the trustees of the Fund solely in
their capacity as such trustees, and shall not constitute their personal
obligation either jointly or severally in their individual capacities. No
trustee, officer or shareholder of the Fund shall be liable for any obligations
of the Fund under this instrument and the Fund shall be solely liable therefor;
all parties hereto shall look solely to the Fund property for the payment of any
claim, or the performance of any obligation, hereunder.
SECTION 14. Effect of Headings. The Article and Section headings herein
and the Table of Contents are for convenience only and shall not affect the
construction hereof.
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<PAGE> 23
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Fund a counterpart hereof, whereupon
this instrument, along with all counterparts, will become a binding agreement
between the Underwriter and the Fund and the Adviser in accordance with its
terms.
Very truly yours,
MUNIHOLDINGS FLORIDA INSURED
FUND V
By: ___________________________
Authorized Officer
FUND ASSET MANAGEMENT, L.P.
By: ___________________________
Authorized Officer
CONFIRMED AND ACCEPTED,
as of the date first above written:
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By: ___________________________
Authorized Signatory
20
<PAGE> 24
SCHEDULE A
MUNIHOLDINGS FLORIDA INSURED FUND V
(a Massachusetts business trust)
Common Shares of Beneficial Interest
(Par Value $.10 Per Share)
1. The initial public offering price per share for the Shares, determined
as provided in Section 2 hereof, and the purchase price per share for the Shares
to be paid by the Underwriter, shall be $15.00.
2. The Adviser will pay, or arrange for an affiliate to pay, a commission
to the Underwriter in the amount of $___ per share for the Shares purchased by
the Underwriter.
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<PAGE> 25
Exhibit A
FORM OF OPINION OF FUND'S COUNSEL
TO BE DELIVERED PURSUANT TO
SECTION 5(b)
(i) The Fund has been duly organized and is validly existing as a voluntary
association (commonly referred to as a business trust) under the laws of the
Commonwealth of Massachusetts.
(ii) The Fund has power and authority to own, lease and operate its
properties and to conduct its business as described in the Prospectus and to
enter into and perform its obligations under the Purchase Agreement.
(iii) The Fund is duly qualified to transact business and is in good
standing in each jurisdiction in which such qualification is required, whether
by reason of the ownership or leasing of property or the conduct of business,
except where the failure so to qualify or to be in good standing would not
result in a material adverse change in the condition, financial or otherwise, or
in the earnings, business affairs or business prospects of the Fund, whether or
not arising in the ordinary course of business (a "Material Adverse Effect").
(iv) The authorized, issued and outstanding capital shares of the Fund is
as set forth in the Prospectus under the caption "Description of Capital
Shares."
(v) The Shares to be purchased by the Underwriter from the Fund have been
duly authorized for issuance and sale to the Underwriter pursuant to the
Purchase Agreement and, when issued and delivered by the Fund pursuant to the
Purchase Agreement against payment of the consideration set forth in the
Purchase Agreement, will be validly issued and fully paid and non-assessable
(except for certain possible liability of shareholders described in the
Prospectus under "Description of Capital Shares") and no holder of the Shares is
or will be subject to personal liability by reason of being such a holder
(except for certain possible liability of shareholders described in the
Prospectus under "Description of Capital Shares").
(vi) The issuance of the Shares is not subject to the preemptive or other
similar rights of any securityholder of the Fund.
(vii) To the best of our knowledge, the Fund does not have any
subsidiaries.
(viii) The Purchase Agreement has been duly authorized, executed and
delivered by the Fund and complies with all applicable provisions of the
Investment Company Act.
(ix) The Registration Statement, including any Rule 462(b) Registration
Statement, has been declared effective under the 1933 Act; any required filing
of the certificate pursuant to Rule 497(j) or the Prospectus pursuant to Rule
497(c) or Rule 497(h), as the case may be, has been made in the manner and
within the time period required by Rule 497(j), Rule 497(c) or Rule
A-1
<PAGE> 26
497(h), as the case may be; and, to the best of our knowledge, no stop order
suspending the effectiveness of the Registration Statement or any Rule 462(b)
Registration Statement has been issued under the 1933 Act and no proceedings for
that purpose have been instituted or are pending or threatened by the
Commission.
(x) The Registration Statement, including any Rule 462(b) Registration
Statement, the Rule 430A Information and the Rule 434 Information, as
applicable, the Prospectus, and each amendment or supplement to the Registration
Statement and the Prospectus, as of their respective effective or issue dates
(other than the financial statements and supporting schedules included therein
or omitted therefrom, as to which we need express no opinion) complied as to
form in all material respects with the requirements of the 1933 Act, the
Investment Company Act and the Rules and Regulations.
(xi) The form of certificate used to evidence the Common Shares complies in
all material respects with all applicable statutory requirements, with any
applicable requirements of the declaration of trust and by-laws of the Fund and
the requirements of the New York Stock Exchange.
(xii) To the best of our knowledge, there is not pending or threatened any
action, suit, proceeding, inquiry or investigation, to which the Fund is a
party, or to which the property of the Fund is subject, before or brought by any
court or governmental agency or body, domestic or foreign, which might
reasonably be expected to result in a Material Adverse Effect, or which might
reasonably be expected to materially and adversely affect the properties or
assets thereof or the consummation of the transactions contemplated in the
Purchase Agreement or the performance by the Fund of its obligations thereunder,
other than those disclosed in the Prospectus.
(xiii) The information in the Prospectus under "Description of Capital
Shares" and "Taxes" (other than information related to Florida law or legal
conclusions involving matters of Florida law as to which we express no opinion)
and in the Registration Statement under Item 29, to the extent that it
constitutes matters of law, summaries of legal matters, the Fund's declaration
of trust and bylaws or legal proceedings, or legal conclusions, has been
reviewed by us and is correct in all material respects.
(xiv) To the best of our knowledge, there are no statutes or regulations
that are required to be described in the Prospectus that are not described as
required.
(xv) All descriptions in the Prospectus of contracts and other documents to
which the Fund is a party are accurate in all material respects; to the best of
our knowledge, there are no franchises, contracts, indentures, mortgages, loan
agreements, notes, leases or other instruments of the Fund required to be
described or referred to in the Registration Statement or to be filed as
exhibits thereto other than those described or referred to therein or filed or
incorporated by reference as exhibits thereto, and the descriptions thereof or
references thereto are correct in all material respects.
(xvi) To the best of our knowledge, the Fund is not in violation of its
declaration of trust or by-laws and no default by the Fund exists in the due
performance or observance of any
A-2
<PAGE> 27
material obligation, agreement, covenant or condition contained in any contract,
indenture, mortgage, loan agreement, note, lease or other agreement or
instrument that is described or referred to in the Registration Statement or the
Prospectus or filed or incorporated by reference as an exhibit to the
Registration Statement.
(xvii) No filing with, or authorization, approval, consent, license, order,
registration, qualification or decree of, any court or governmental authority or
agency, domestic or foreign (other than under the 1933 Act, the Investment
Company Act and the Rules and Regulations, which have been obtained, or as may
be required under the securities or blue sky laws of the various states, as to
which we need express no opinion) is necessary or required in connection with
the due authorization, execution and delivery of the Purchase Agreement, the
Advisory Agreement and the Custody Agreement or for the offering, issuance, sale
or delivery of the Shares.
(xviii) The Advisory Agreement and the Custody Agreement have each been
duly authorized and approved by the Fund and comply as to form in all material
respects with all applicable provisions of the Investment Company Act, and each
has been duly executed by the Fund.
(xix) The Fund is registered with the Commission under the Investment
Company Act as a closed-end, non-diversified management investment company, and
all required action has been taken by the Fund under the 1933 Act, the
Investment Company Act and the Rules and Regulations to make the public offering
and consummate the sale of the Shares pursuant to the Purchase Agreement; the
provisions of the declaration of trust and the by-laws of the Fund comply as to
form in all material respects with the requirements of the Investment Company
Act; and, to the best of their knowledge and information, no order of suspension
or revocation of such registration under the Investment Company Act, pursuant to
Section 8(e) of the Investment Company Act, has been issued or proceedings
therefor initiated or threatened by the Commission.
(xx) The execution, delivery and performance of the Purchase Agreement and
the consummation of the transactions contemplated in the Purchase Agreement and
in the Registration Statement (including the issuance and sale of the Shares,
and the use of the proceeds from the sale of the Shares as described in the
Prospectus under the caption "Use of Proceeds") and compliance by the Fund with
its obligations under the Purchase Agreement do not and will not, whether with
or without the giving of notice or lapse of time or both, conflict with or
constitute a breach of, or default or Repayment Event (as defined in Section
1(a)(xiii) of the Purchase Agreement) under or result in the creation or
imposition of any lien, charge or encumbrance upon any property or assets of the
Fund pursuant to any contract, indenture, mortgage, deed of trust, loan or
credit agreement, note, lease or any other agreement or instrument, known to us,
to which the Fund is a party or by which it may be bound, or to which any of the
property or assets of the Fund is subject (except for such conflicts, breaches
or defaults or liens, charges or encumbrances that would not have a Material
Adverse Effect), nor will such action result in any violation of the provisions
of the declaration of trust or by-laws of the Fund, or any applicable law,
statute, rule, regulation, judgment, order, writ or decree, known to us, of any
government, government instrumentality or court, domestic or foreign, having
jurisdiction over the Fund or any of its properties, assets or operations.
A-3
<PAGE> 28
Nothing has come to our attention that would lead us to believe that
the Registration Statement or any amendment thereto, including the Rule 430A
Information and Rule 434 Information (if applicable), (except for financial
statements and schedules and other financial data included or incorporated by
reference therein or omitted therefrom, as to which we need make no statement),
at the time such Registration Statement or any such amendment became effective,
contained an untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading or that the Prospectus or any amendment or supplement thereto
(except for financial statements and schedules and other financial data included
or incorporated by reference therein or omitted therefrom, as to which we need
make no statement), at the time the Prospectus was issued, at the time any such
amended or supplemented prospectus was issued or at the Closing Time, included
or includes an untrue statement of a material fact or omitted or omits to state
a material fact necessary in order to make the statements therein, in the light
of the circumstances under which they were made, not misleading.
In rendering such opinion, such counsel may rely as to matters
involving the laws of the Commonwealth of Massachusetts upon the opinion of
Bingham Dana LLP. Bingham Dana LLP and Brown & Wood LLP may rely, as to matter
of fact (but not as to legal conclusions), to the extent they deem proper, on
certificates and written statements of responsible officers of and accountants
for the Fund and the Adviser and public officials. Such opinion shall not state
that it is to be governed or qualified by, or that it is otherwise subject to,
any treatise, written policy or other document relating to legal opinions,
including, without limitation, the Legal Opinion Accord of the ABA Section of
Business Law (1991).
A-4
<PAGE> 29
Exhibit B
FORM OF OPINION OF GENERAL COUNSEL TO THE
INVESTMENT ADVISER TO BE DELIVERED
PURSUANT TO SECTION 5(c)
(i) The Adviser has been duly organized as a limited partnership under the
laws of the State of Delaware, with power and authority to conduct its business
as described in the Registration Statement and in the Prospectus.
(ii) The Adviser is duly registered as an investment adviser under the
Investment Advisers Act and is not prohibited by the Investment Advisers Act or
the Investment Company Act, or the rules and regulations under such Acts, from
acting under the Advisory Agreement for the Fund as contemplated by the
Prospectus.
(iii) This Agreement and the Advisory Agreement have been duly authorized,
executed and delivered by the Adviser, and the Advisory Agreement constitutes a
valid and binding obligation of the Adviser, enforceable in accordance with its
terms, subject, as to enforcement, to bankruptcy, insolvency, reorganization or
other laws relating to or affecting creditors' rights and to general equity
principles; and, to the best of his knowledge and information, neither the
execution and delivery of this Agreement or the Advisory Agreement nor the
performance by the Adviser of its obligations hereunder or thereunder will
conflict with, or result in a breach of, any of the terms and provisions of, or
constitute, with or without the giving of notice or the lapse of time or both, a
default under, any agreement or instrument to which the Adviser is a party or by
which the Adviser is bound, or any law, order, rule or regulation applicable to
the Adviser of any jurisdiction, court, Federal or state regulatory body,
administrative agency or other governmental body, stock exchange or securities
association having jurisdiction over the Adviser or its properties or
operations.
(iv) To the best of his knowledge and information, the description of the
Adviser in the Registration Statement and in the Prospectus does not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein not misleading.
B-1
<PAGE> 30
Exhibit C
FORM OF OPINION OF SPECIAL
FLORIDA COUNSEL TO THE FUND
(i) The information in the Prospectus under the caption "Taxes", to the
extent that it constitutes matters of Florida law or legal conclusions involving
matters of Florida law, has been reviewed by us and is correct in all material
respects.
(ii) Nothing has come to our attention that would lead us to believe that
the information in the Registration Statement under the caption "Investment
Objective and Policies -- Special Considerations Relating to Florida Municipal
Bonds and Municipal Bonds" and in Appendix I entitled "Economic and Other
Conditions in Florida", at the time such Registration Statement or any amendment
became effective, contained an untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading or that the information under such caption and
in such appendix in the Prospectus, at the time the Prospectus was issued, at
the time any amended or supplemented prospectus was issued or at Closing Time,
included or includes an untrue statement of a material fact or omitted or omits
to state a material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading.
C-1
<PAGE> 31
Exhibit D
FORM OF ACCOUNTANTS'
COMFORT LETTER PURSUANT TO SECTION 5(e)
(i) We are independent public accountants with respect to the Company
within the meaning of the 1933 Act and the 1933 Act Regulations.
(ii) In our opinion the financial statements audited by us and included in
the Registration Statement and the Prospectus comply as to form in all material
respects with the applicable accounting requirements of the 1933 Act, the
Investment Company Act and the Rules and Regulations.
Such accountants shall also state that they have performed specified
procedures, not constituting an audit, including a reading of the latest
available interim financial statements of the Fund, a reading of the minute
books of the Fund, made inquiries of officials of the Fund responsible for
financial accounting matters and such other inquiries and procedures as may be
specified in such letter, and on the basis of such inquiries and procedures
nothing came to their attention that caused them to believe that at the date of
the latest available financial statements read by such accountants, or at a
subsequent specified date not more than three days prior to the date of the
Purchase Agreement, there was any change in the capital shares or net assets of
the Fund as compared with amounts shown on the financial statements included in
the Registration Statement and the Prospectus.
D-1
<PAGE> 1
Revised October 29, 1990
[LOGO]
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
MERRILL LYNCH WORLD HEADQUARTERS
NORTH TOWER WORLD FINANCIAL CENTER
NEW YORK, N.Y. 10281-1305
STANDARD DEALER AGREEMENT
Dear Sirs:
In connection with public offerings of securities underwritten by us,
or by a group of underwriters (the "Underwriters") represented by us, you may be
offered the opportunity to purchase a portion of such securities, as principal,
at a discount from the offering price representing a selling concession or
reallowance granted as consideration for services rendered by you in the sale of
such securities. We request that you agree to the following terms and
provisions, and make the following representations, which, together with any
additional terms and provisions set forth in any wire or letter sent to you in
connection with a particular offering, will govern all such purchases of
securities and the reoffering thereof by you.
Your subscription to, or purchase of, such securities will constitute
your reaffirmation of this Agreement.
1. When we are acting as representative (the "Representative") of the
Underwriters in offering securities to you, it should be understood that all
offers are made subject to prior sale of the subject securities, when, as and if
such securities are delivered to and accepted by the Underwriters and subject to
the approval of legal matters by their counsel. In such cases, any order from
you for securities will be strictly subject to confirmation and we reserve the
right in our uncontrolled discretion to reject any order in whole or in part.
Upon release by us, you may reoffer such securities at the offering price fixed
by us. With our consent, you may allow a discount, not in excess of the
reallowance fixed by us, in selling such securities to other dealers, provided
that in doing so you comply with the Rules of Fair Practice of the National
Association of Securities Dealers, Inc. (the "NASD"). Upon our request, you will
advise us of the identity of any dealer to whom you allow such a discount and
any Underwriter or dealer from whom you receive such a discount. After the
securities are released for sale to the public, we may vary the offering price
and other selling terms.
2. You represent that you are a dealer actually engaged in the
investment banking or securities business and that you are either (i) a member
in good standing of the NASD or (ii) a dealer with its principal place of
business located outside the United States, its territories or possessions and
not registered under the Securities Exchange Act of 1934 (a "non-member foreign
dealer") or (iii) a bank not eligible for membership in the NASD. If you are a
non-member foreign dealer, you agree to make no sales of securities within the
United States, its
<PAGE> 2
territories or its possessions or to persons who are nationals thereof or
residents therein. Non-member foreign dealers and banks agree, in making any
sales, to comply with the NASD's interpretation with respect to free-riding and
withholding. In accepting a selling concession where we are acting as
Representative of the Underwriters, in accepting a reallowance from us whether
or not we are acting as such Representative, and in allowing a discount to any
other person, you agree to comply with the provisions of Section 24 of Article
III of the Rules of Fair Practice of the NASD, and, in addition, if you are a
non-member foreign dealer or bank, you agree to comply, as though you were a
member of the NASD, with the provisions of Sections 8 and 36 of Article III of
such Rules of Fair Practice and to comply with Section 25 of Article III thereof
as that Section applies to a non-member foreign dealer or bank. You represent
that you are fully familiar with the above provisions of the Rules of Fair
Practice of the NASD.
3. If the securities have been registered under the Securities Act of
1933 (the "1933 Act"), in offering and selling such securities, you are not
authorized to give any information or make any representation not contained in
the prospectus relating thereto. You confirm that you are familiar with the
rules and policies of the Securities and Exchange Commission relating to the
distribution of preliminary and final prospectuses, and you agree that you will
comply therewith in any offering covered by this Agreement. If we are acting as
Representative of the Underwriters, we will make available to you, to the extent
made available to us by the issuer of the securities, such number of copies of
the prospectus or offering documents, for securities not registered under the
1933 Act, as you may reasonably request.
4. If we are acting as Representative of the Underwriters of securities
of an issuer that is not required to file reports under the Securities Exchange
Act of 1934 (the "1934 Act"), you agree that you will not sell any of the
securities to any account over which you have discretionary authority.
5. Payment for securities purchased by you is to be made at our office,
Merrill Lynch World Headquarters North Tower World Financial Center New York,
N.Y. 10281-1305 (or at such other place as we may advise), at the offering price
less the concession allowed to you, on such date as we may advise, by certified
or official bank check in New York Clearing House funds (or such other funds as
we may advise), payable to our order, against delivery of the securities to be
purchased by you. We shall have authority to make appropriate arrangements for
payment for and/or delivery through the facility of The Depository Trust Company
or any such other depository or similar facility for the securities.
6. In the event that, prior to the completion of the distribution of
securities covered by this Agreement, we purchase in the open market or
otherwise any securities delivered to you, if we are acting as Representative of
the Underwriters, you agree to repay to us for the accounts of the Underwriters
the amount of the concession allowed to you plus brokerage commissions and any
transfer taxes paid in connection with such purchase.
7. At any time prior to the completion of the distribution of
securities covered by this Agreement you will, upon our request as
Representative of the Underwriters, report to us the amount of securities
purchased by you which then remains unsold and will, upon our request, sell to
us for the account of one or more of the Underwriters such amount of such unsold
2
<PAGE> 3
securities as we may designate, at the offering price less an amount to be
determined by us not in excess of the concession allowed to you.
8. If we are acting as Representative of the Underwriters, upon
application to us, we will inform you of the states and other jurisdictions of
the United States in which it is believed that the securities being offered are
qualified for sale under, or are exempt from the requirements of, their
respective securities laws, but we assume no responsibility with respect to your
right to sell securities in any jurisdiction. We shall have authority to file
with the Department of State of the State of New York a Further State Notice
with respect to the securities, if necessary.
9. You agree that in connection with any offering of securities covered
by this Agreement you will comply with the applicable provisions of the 1933 Act
and the 1934 Act and the applicable rules and regulations of the Securities and
Exchange Commission thereunder, the applicable rules and regulations of the
NASD, and the applicable rules of any securities exchange having jurisdiction
over the offering.
10. We shall have full authority to take such action as we may deem
advisable in respect of all matters pertaining to any offering covered by this
Agreement. We shall be under no liability to you except for our lack of good
faith and for obligations assumed by us in this Agreement, except that you do
not waive any rights that you may have under the 1933 Act or the rules and
regulations thereunder.
11. Any notice from us shall be deemed to have been duly given if
mailed or transmitted by any standard form of written telecommunications to you
at the above address or at such other address as you shall specify to us in
writing.
12. With respect to any offering of securities covered by this
Agreement, the price restrictions contained in Paragraph 1 hereof and the
provisions of Paragraphs 6 and 7 hereof shall terminate as to such offering at
the close of business on the 45th day after the securities are released for sale
or, as to any or all such provisions, at such earlier time as we may advise. All
other provisions of this Agreement shall remain operative and in full force and
effect with respect to such offering.
13. This Agreement shall be governed by the laws of the State of New
York.
3
<PAGE> 4
Please confirm your agreement hereto by signing the enclosed duplicate
copy hereof in the place provided below and returning such signed duplicate copy
to us at World Headquarters, North Tower, World Financial Center, New York, N.Y.
10281-1305, Attention: Corporate Syndicate. Upon receipt thereof, this
instrument and such signed duplicate copy will evidence the agreement between
us.
Very truly yours,
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By: /s/ Fred F. Hessinger
-------------------------------------------
Name: Fred F. Hessinger
Confirmed and accepted as of the
day of , 19
- --------------------------------------------
Name of Dealer
- --------------------------------------------
Authorized Officer or Partner
(if not Officer or Partner, attach
copy of Instrument of Authorization)
4
