<PAGE>
As filed with the Securities and Exchange Commission on October 4, 1999
Securities Act File No. 333-
Investment Company Act File No. 811-6500
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------
PRE-EFFECTIVE AMENDMENT NO. [_] POST-EFFECTIVE AMENDMENT NO. [_]
(check appropriate box or boxes)
---------------
MuniYield New York Insured Fund, Inc.
(Exact Name of Registrant as Specified in its Charter)
---------------
(609) 282-2800
(Area Code and Telephone Number)
---------------
800 Scudders Mill Road
Plainsboro, New Jersey 08536
(Address of Principal Executive Offices: Number, Street, City, State, Zip
Code)
---------------
Terry K. Glenn
MuniYield New York Insured Fund, Inc.
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: Michael J. Hennewinkel, Esq.
Frank P. Bruno, Esq. MERRILL LYNCH ASSET MANAGEMENT, L.P.
BROWN & WOOD LLP 800 Scudders Mill Road
One World Trade Center Plainsboro, NJ 08536
New York, NY 10048-0557
---------------
Approximate Date of Proposed Public Offering: As soon as practicable after
the Registration Statement becomes effective under the Securities Act of 1933.
---------------
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
<TABLE>
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
<CAPTION>
Proposed Proposed
Maximum Maximum
Amount Being Offering Price Aggregate Amount of
Title of Securities Being Registered Registered(1) Per Unit(1) Offering Price(1) Registration Fee(3)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock ($.10 par
value)................ 29,831,900 $13.60 $405,713,840 $112,789
- --------------------------------------------------------------------------------------------------------
Auction Market Preferred
Stock, Series C....... 2,800 $ 25,000(2) $ 70,000,000 $ 19,460
- --------------------------------------------------------------------------------------------------------
Auction Market Preferred
Stock, Series D....... 1,960 $ 25,000(2) $ 49,000,000 $ 13,622
- --------------------------------------------------------------------------------------------------------
Auction Market Preferred
Stock, Series E....... 2,200 $ 25,000(2) $ 55,000,000 $ 15,290
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of calculating the filing fee.
(2) Represents the liquidation preference of a share of preferred stock after
the reorganization.
(3) Paid by wire transfer to the designated lockbox of the Securities and
Exchange Commission in Pittsburgh, Pennsylvania.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
MUNIYIELD NEW YORK INSURED FUND, INC.
MUNIYIELD NEW YORK INSURED FUND II, INC.
P.O. Box 9011
Princeton, New Jersey 08543-9011
---------------
NOTICE OF SPECIAL MEETINGS OF STOCKHOLDERS OF
MUNIYIELD NEW YORK INSURED FUND, INC.
AND
MUNIYIELD NEW YORK INSURED FUND II, INC.
---------------
TO BE HELD ON DECEMBER 15, 1999
TO THE STOCKHOLDERS OF
MUNIYIELD NEW YORK INSURED FUND, INC.
MUNIYIELD NEW YORK INSURED FUND II, INC.
NOTICE IS HEREBY GIVEN that the special meetings of the stockholders (the
"Meetings") of MuniYield New York Insured Fund, Inc. ("New York Insured") and
MuniYield New York Insured Fund II, Inc. ("New York Insured II") will be held
at the offices of Merrill Lynch Asset Management, L.P., 800 Scudders Mill
Road, Plainsboro, New Jersey on Wednesday, December 15, 1999 at 3:45 p.m.
Eastern time (for New York Insured) and 4:00 p.m. Eastern time (for New York
Insured II) for the following purposes:
(1) To approve or disapprove an Agreement and Plan of Reorganization (the
"Agreement and Plan of Reorganization") contemplating (i) the acquisition
of substantially all of the assets and the assumption of substantially all
of the liabilities of New York Insured II by New York Insured, in exchange
solely for an equal aggregate value of newly-issued shares of Common Stock
of New York Insured ("New York Insured Common Stock"), shares of a newly-
created series of Auction Market Preferred Stock ("AMPS") of New York
Insured to be designated Series C ("New York Insured Series C AMPS"),
shares of a newly created series of AMPS of New York Insured to be
designated Series D ("New York Insured Series D AMPS") and shares of a
newly created series of AMPS of New York Insured to be designated Series E
("New York Insured Series E AMPS"); and (ii) the distribution by New York
Insured II of such New York Insured Common Stock to the holders of Common
Stock of New York Insured II, such New York Insured Series C AMPS to the
holders of Series A AMPS of New York Insured II, such New York Insured
Series D AMPS to the holders of Series B AMPS of New York Insured II and
such New York Insured Series E AMPS to the holders of Series C and Series D
AMPS of New York Insured II. A vote in favor of this proposal also will
constitute a vote in favor of the liquidation and dissolution of New York
Insured II and the termination of its registration under the Investment
Company Act of 1940;
(2) To transact such other business as properly may come before the
Meetings or any adjournment thereof.
The Boards of Directors of New York Insured and New York Insured II have
fixed the close of business on October 20, 1999 as the record date for the
determination of stockholders entitled to notice of, and to vote at, the
Meetings or any adjournment thereof.
A complete list of the stockholders of New York Insured and New York Insured
II entitled to vote at the Meetings will be available and open to the
examination of any stockholder of New York Insured or New York Insured II,
respectively, for any purpose germane to the Meetings during ordinary business
hours from and after December 1, 1999, at the offices of New York Insured, 800
Scudders Mill Road, Plainsboro, New Jersey.
You are cordially invited to attend the Meetings. Stockholders who do not
expect to attend the Meetings in person are requested to complete, date and
sign the enclosed form of proxy applicable to their fund and return it
promptly in the envelope provided for that purpose. The enclosed proxy is
being solicited on behalf of the Board of Directors of New York Insured or New
York Insured II, as applicable.
By Order of the Boards of Directors
Alice A. Pellegrino
Secretary of MuniYield New York
Insured Fund, Inc. and MuniYield New
York Insured Fund II, Inc.
Plainsboro, New Jersey
Dated: , 1999
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not use this prospectus to sell securities until the registration statement +
+filed with the Securities and Exchange Commission is effective. This +
+prospectus is not an offer to sell these securities and is not soliciting an +
+offer to buy these securities in any State where the offer or sale is not +
+permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION
PRELIMINARY PROXY STATEMENT AND PROSPECTUS DATED OCTOBER 4, 1999
PROXY STATEMENT AND PROSPECTUS
MUNIYIELD NEW YORK INSURED FUND, INC.
MUNIYIELD NEW YORK INSURED FUND II, INC.
P.O. Box 9011, Princeton, New Jersey 08543-9011
(609) 282-2800
-----------
SPECIAL MEETINGS OF STOCKHOLDERS OF
MUNIYIELD NEW YORK INSURED FUND, INC.
AND
MUNIYIELD NEW YORK INSURED FUND II, INC.
-----------
DECEMBER 15, 1999
This Joint Proxy Statement and Prospectus is furnished to you as a
stockholder of one of the funds listed above. A Special Meeting of the
stockholders of each of these funds will be held on December 15, 1999 (the
"Meetings") to consider the items that are listed below and discussed in
greater detail elsewhere in this Proxy Statement and Prospectus. The Board of
Directors of each fund is requesting its stockholders to submit a proxy to be
used at the Meetings to vote the shares held by the stockholder submitting the
proxy.
The proposals to be considered at the Meetings are:
1.To approve or disapprove an Agreement and Plan of Reorganization between
the funds; and
2.To transact such other business as may properly come before the Meetings
or any adjournment thereof.
The Agreement and Plan of Reorganization that you are being asked to consider
involves a transaction that will be referred to in this Proxy Statement and
Prospectus as the Reorganization. The Reorganization involves the combination
of the two funds into one. The two funds are:
MuniYield New York Insured Fund, Inc. ("New York Insured"), which will be
the surviving fund; and
MuniYield New York Insured Fund II, Inc. ("New York Insured II")
New York Insured and New York Insured II are sometimes referred to herein
collectively as the "Funds" and individually as a "Fund," each as applicable
and each as the context requires.
(continued on next page)
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED
THESE SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROXY STATEMENT
AND PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
This Proxy Statement and Prospectus serves as a prospectus of New York
Insured in connection with the issuance of New York Insured Common Stock and
three newly-created series of New York Insured AMPS in the Reorganization.
The Proxy Statement and Prospectus sets forth information about New York
Insured and New York Insured II that stockholders of the Funds should know
before considering the Reorganization and should be retained for future
reference. Each of the Funds has authorized the solicitation of proxies in
connection with the Reorganization solely on the basis of this Proxy Statement
and Prospectus and the accompanying documents.
The address of the principal executive offices of New York Insured and New
York Insured II is 800 Scudders Mill Road, Plainsboro, New Jersey 08536, and
the telephone number is (609) 282-2800.
The date of this Proxy Statement and Prospectus is , 1999.
<PAGE>
In the Reorganization, New York Insured will acquire substantially all of
the assets and assume substantially all of the liabilities of New York Insured
II solely in exchange for shares of its common stock, par value $.10 per share
("New York Insured Common Stock"), and shares of three newly-created series of
its Auction Market Preferred Stock ("AMPS"), with a par value of $.10 per
share and a liquidation preference of $25,000 per share to be designated
Series C ("New York Insured Series C"), Series D ("New York Insured Series D")
and Series E ("New York Insured Series E") sometimes referred to herein
collectively as the "New York Insured AMPS". New York Insured II will
distribute New York Insured Common Stock and New York Insured AMPS received in
the Reorganization to its stockholders and will then liquidate and dissolve
and terminate its registration under the Investment Company Act. New York
Insured will continue to operate as a registered closed-end investment company
with the investment objective and policies described in this Proxy Statement
and Prospectus.
In the Reorganization, New York Insured will issue shares of its common
stock and AMPS to New York Insured II based on the value of the assets
transferred to New York Insured by New York Insured II. These shares will then
be distributed by New York Insured II to its stockholders based on the value
of the shares held by each stockholder just prior to the Reorganization. A
holder of Common Stock of New York Insured II will receive New York Insured
Common Stock and a holder of AMPS of New York Insured II will receive shares
of one of the newly-created series of AMPS of New York Insured.
The common stock of each of the Funds ("Common Stock") is listed on the New
York Stock Exchange (the "NYSE") under the symbols "MYT" (New York Insured)
and "MYY" (New York Insured II). Subsequent to the Reorganization, shares of
New York Insured Common Stock will continue to be listed on the NYSE under the
symbol "MYT." Reports, proxy materials and other information concerning any of
the Funds may be inspected at the offices of the NYSE, 20 Broad Street, New
York, New York 10005.
2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
INTRODUCTION.............................................................. 5
ITEM 1: THE REORGANIZATION................................................ 5
SUMMARY................................................................. 5
RISK FACTORS AND SPECIAL CONSIDERATIONS................................. 13
New York Municipal Bonds.............................................. 13
Interest Rate and Credit Risk......................................... 13
Non-diversification................................................... 13
Rating Categories..................................................... 14
Private Activity Bonds................................................ 14
Portfolio Insurance................................................... 14
Leverage.............................................................. 14
Portfolio Management.................................................. 15
Inverse Floating Obligations.......................................... 15
Options and Futures Transactions...................................... 15
Antitakeover Provisions............................................... 15
Ratings Considerations................................................ 16
COMPARISON OF THE FUNDS................................................. 17
Financial Highlights.................................................. 17
Investment Objective and Policies..................................... 21
Portfolio Insurance................................................... 24
Description of New York Municipal Bonds and Municipal Bonds........... 25
Special Considerations Relating to New York Municipal Bonds........... 26
Other Investment Policies............................................. 26
Information Regarding Options and Futures Transactions................ 28
Investment Restrictions............................................... 31
AMPS Rating Agency Guidelines......................................... 32
Portfolio Composition................................................. 34
Portfolio Transactions................................................ 35
Portfolio Turnover.................................................... 35
Net Asset Value....................................................... 36
Capital Stock......................................................... 36
Management of the Funds............................................... 39
Code of Ethics........................................................ 40
Voting Rights......................................................... 41
Stockholder Inquiries................................................. 41
Dividends and Distributions........................................... 42
Automatic Dividend Reinvestment Plan.................................. 43
Mutual Fund Investment Option......................................... 45
Liquidation Rights of Holders of AMPS................................. 45
Tax Rules Applicable to the Funds and their Stockholders.............. 45
AGREEMENT AND PLAN OF REORGANIZATION.................................... 50
General............................................................... 50
Procedure............................................................. 51
Terms of the Agreement and Plan of Reorganization..................... 52
Potential Benefits to Common Stockholders of the Funds as a Result of
the Reorganization................................................... 54
Surrender and Exchange of Stock Certificates.......................... 55
Tax Consequences of the Reorganization................................ 56
Capitalization........................................................ 58
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
Page
-----
<S> <C>
INFORMATION CONCERNING THE SPECIAL MEETINGS............................... 59
Date, Time and Place of Meetings...................................... 59
Solicitation, Revocation and Use of Proxies........................... 59
Record Date and Outstanding Shares.................................... 59
Security Ownership of Certain Beneficial Owners and Management........ 59
Voting Rights and Required Vote....................................... 60
ADDITIONAL INFORMATION.................................................... 61
Year 2000 Issues...................................................... 62
CUSTODIAN................................................................. 62
TRANSFER AGENT, DIVIDEND DISBURSING AGENT AND REGISTRAR................... 62
LEGAL PROCEEDINGS......................................................... 62
LEGAL OPINIONS............................................................ 62
EXPERTS................................................................... 63
STOCKHOLDER PROPOSALS..................................................... 63
INDEX TO FINANCIAL STATEMENTS............................................. F-1
EXHIBIT I--INFORMATION PERTAINING TO EACH FUND............................ I-1
EXHIBIT II--AGREEMENT AND PLAN OF REORGANIZATION.......................... II-1
EXHIBIT III--ECONOMIC AND OTHER CONDITIONS IN NEW YORK.................... III-1
EXHIBIT IV--RATINGS OF MUNICIPAL BONDS AND COMMERCIAL PAPER............... IV-1
EXHIBIT V--PORTFOLIO INSURANCE............................................ V-1
</TABLE>
4
<PAGE>
INTRODUCTION
This Proxy Statement and Prospectus is furnished in connection with the
solicitation of proxies on behalf of the Boards of Directors of New York
Insured and New York Insured II for use at the Meetings to be held at the
offices of Merrill Lynch Asset Management, L.P. ("MLAM"), 800 Scudders Mill
Road, Plainsboro, New Jersey on December 15, 1999, at the time specified for
each Fund in Exhibit I to this Proxy Statement and Prospectus. The mailing
address for each of the Funds is P.O. Box 9011, Princeton, New Jersey 08543-
9011. The approximate mailing date of this Proxy Statement and Prospectus is
November , 1999.
Any person giving a proxy may revoke it at any time prior to its exercise by
executing a superseding proxy, by giving written notice of the revocation to
the Secretary of New York Insured or New York Insured II, as applicable, at
the address indicated above or by voting in person at the appropriate Meeting.
All properly executed proxies received prior to the Meetings will be voted at
the Meetings in accordance with the instructions marked thereon or otherwise
as provided therein. Unless instructions to the contrary are marked, proxies
will be voted "FOR" the proposal to approve the Agreement and Plan of
Reorganization between New York Insured and New York Insured II (the
"Agreement and Plan of Reorganization").
With respect to Item 1, assuming a quorum is present at the Meetings,
approval of the Agreement and Plan of Reorganization will require the
affirmative vote of stockholders representing (i) a majority of the
outstanding shares of New York Insured Common Stock and New York Insured AMPS,
voting together as a single class, and a majority of the outstanding shares of
New York Insured AMPS, Series A and B, voting together as a single class, (ii)
a majority of the outstanding shares of New York Insured II Common Stock and
New York Insured II AMPS, voting together as a single class, and a majority of
the outstanding shares of New York Insured II AMPS, Series A, B, C and D,
voting together as a single class. Because of the requirement that the
Agreement and Plan of Reorganization be approved by stockholders of both
Funds, the Reorganization will not take place if stockholders of either Fund
do not approve the Agreement and Plan of Reorganization.
The Board of Directors of each of the Funds has fixed the close of business
on October 20, 1999 as the record date (the "Record Date") for the
determination of stockholders entitled to notice of, and to vote at, the
Meetings or any adjournment thereof. Stockholders on the Record Date will be
entitled to one vote for each share held, with no shares having cumulative
voting rights. At the Record Date, each Fund had outstanding the number of
shares of Common Stock and AMPS indicated in Exhibit I. To the knowledge of
the management of each of the Funds, no person owned beneficially more than 5%
of the respective outstanding shares of either class of capital stock of any
Fund at the Record Date.
The Boards of Directors of the Funds know of no business other than that
discussed in Item 1 above that will be presented for consideration at the
Meetings. If any other matter is properly presented, it is the intention of
the persons named in the enclosed proxy to vote in accordance with their best
judgment.
ITEM 1: THE REORGANIZATION
SUMMARY
The following is a summary of certain information contained elsewhere in
this Proxy Statement and Prospectus and is qualified in its entirety by
reference to the more complete information contained in this Proxy Statement
and Prospectus and in the Agreement and Plan of Reorganization attached hereto
as Exhibit II.
In this Proxy Statement and Prospectus, the term "Reorganization" refers
collectively to (i) the acquisition of substantially all of the assets and the
assumption of substantially all of the liabilities of New York Insured II by
New York Insured and the subsequent distribution of New York Insured Common
Stock to the holders of New York Insured II Common Stock, of New York Insured
Series C AMPS to the holders of New York Insured II AMPS, Series A, of New
York Insured Series D AMPS to the holders of New York Insured II AMPS, Series
B, of New York Insured Series E AMPS to the holders of New York Insured II
AMPS, Series C and D, respectively; and (ii) the subsequent deregistration and
dissolution of New York Insured II.
5
<PAGE>
At meetings of the Boards of Directors of each of the Funds, the Board of
Directors of each of the Funds unanimously approved the Reorganization.
Subject to obtaining the necessary approvals from the stockholders of both
Funds, the Board of Directors of New York Insured II also deemed advisable the
deregistration of the New York Insured II under the Investment Company Act of
1940, as amended (the "Investment Company Act") and its dissolution under the
laws of the State of Maryland. The Reorganization requires approval of the
stockholders of both Funds. The Reorganization will not take place if the
stockholders of either Fund do not approve the Agreement and the Plan of
Reorganization.
Each of the Funds seeks to provide stockholders with current income exempt
from Federal income tax and New York State and New York City personal income
taxes. Each of the Funds seeks to achieve its investment objective by
investing primarily in a portfolio of long-term, investment grade municipal
obligations, the interest on which, in the opinion of bond counsel to the
issuer, is exempt from Federal income tax and New York State and New York City
personal income taxes. Under normal circumstances, at least 80% of each Fund's
total assets will be invested in municipal obligations with remaining
maturities of one year or more that are covered by insurance guaranteeing the
timely payment of principal at maturity and interest.
Each of the Funds is a non-diversified, leveraged, closed-end management
investment company registered under the Investment Company Act. If the
stockholders of the Funds approve the Reorganization, (i) New York Insured
Common Stock and New York Insured Series C, D and E AMPS will be issued to New
York Insured II in exchange for the assets of New York Insured II; and (ii)
New York Insured II will distribute these shares to its stockholders as
provided in the Agreement and Plan of Reorganization. After the
Reorganization, New York Insured II will terminate its registration under the
Investment Company Act and its incorporation under Maryland law.
Based upon their evaluation of all relevant information, the Directors of
each Fund have determined that the Reorganization will potentially benefit the
holders of Common Stock of that Fund. Specifically, after the Reorganization,
stockholders of the New York Insured II will remain invested in a closed-end
fund with an investment objective and policies substantially similar to New
York Insured II's investment objective and policies and that uses
substantially the same management personnel. In addition, it is anticipated
that common stockholders of each of the Funds will be subject to a reduced
overall operating expense ratio based on the anticipated pro forma combined
total operating expenses and the combined assets of the surviving fund after
the Reorganization. The Boards also considered the relative tax positions of
the Funds' portfolios. It is not anticipated that the Reorganization will
directly benefit the holders of shares of AMPS of either Fund; however, the
Reorganization will not adversely affect the holders of shares of any series
of AMPS of either Fund and the expenses of the Reorganization will not be
borne by the holders of shares of AMPS of either Fund.
If all of the requisite approvals are obtained, it is anticipated that the
Reorganization will occur as soon as practicable after such approval, provided
that the Funds have obtained prior to that time a favorable private letter
ruling from the Internal Revenue Service (the "IRS") concerning the tax
consequences of the Reorganization as set forth in the Agreement and Plan of
Reorganization or an opinion of counsel to the same effect. Under the
Agreement and Plan of Reorganization, however, the Board of Directors of
either Fund may cause the Reorganization to be postponed or abandoned should
such Board determine that it is in the best interests of the stockholders of
that Fund to do so. The Agreement and Plan of Reorganization may be
terminated, and the Reorganization abandoned, whether before or after approval
by the Funds' stockholders, at any time prior to the Exchange Date (as defined
below), (i) by mutual consent of the Boards of Directors of both Funds or (ii)
by the Board of Directors of either Fund if any condition to that Fund's
obligations has not been fulfilled or waived by such Fund's Board of
Directors.
6
<PAGE>
Pro Forma Fee Table for Common Stockholders of New York Insured,
New York Insured II and the Combined Fund
as of June 30, 1999 (Unaudited)(a)
<TABLE>
<CAPTION>
Actual
--------------------
New York New York Pro Forma
Insured Insured II Combined
-------- ---------- ---------
<S> <C> <C> <C>
Common Stockholder Transaction Expenses
Maximum Sales Load (as a percentage of offering
price)......................................... None(b) None(b) None(c)
Dividend Reinvestment Plan Fees................. None None None
Annual Expenses (as a percentage of net assets
attributable to Common Stock at June 30,
1999)(d).......................................
Investment Advisory Fees(e)..................... 0.73% 0.72% 0.73%
Interest Payments on Borrowed Funds............. None None None
Other Expenses.................................. 0.29% 0.23% 0.20%
---- ---- ----
Total Annual Expenses........................... 1.02% 0.95% 0.93%
==== ==== ====
</TABLE>
- --------
(a) No information is presented with respect to AMPS because no Fund's
operating expenses or expenses of the Reorganization will be borne by the
holders of AMPS of any of the Funds. Generally, AMPS are sold at a fixed
liquidation preference of $25,000 per share and investment return is set
at an auction.
(b) Shares of Common Stock purchased in the secondary market may be subject to
brokerage commissions or other charges.
(c) No sales load will be charged on the issuance of shares in the
Reorganization. Shares of Common Stock are not available for purchase from
the Funds but may be purchased through a broker-dealer subject to
individually negotiated commission rates.
(d) The pro forma annual operating expenses for the combined fund are
projections for a 12-month period.
(e) Takes into account leverage as a result of the issuance of AMPS by either
Fund and by the combined Fund. If the Fund did not use leverage it is
estimated that, as a percentage of net assets attributable to Common
Stock, the Investment Advisory Fees would be 0.50% for each Fund and for
the combined Fund, the Total Annual Expenses would be 0.70%, 0.66% and
0.64% for each Fund and for the combined Fund, respectively.
Example:
Cumulative Expenses Paid on Shares of Common Stock
for the Periods Indicated:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
An investor would pay the following expenses
on a $1,000 investment, assuming (1) the
operating expense ratio for each Fund (as a
percentage of net assets attributable to
Common Stock) set forth in the table above
and (2) a 5% annual return throughout the
period:
New York Insured.............................. $10 $32 $56 $125
New York Insured II........................... $10 $30 $53 $117
Combined Fund*................................ $ 9 $30 $51 $114
</TABLE>
- --------
* Assumes that the Reorganization had taken place on June 30, 1999.
7
<PAGE>
The foregoing Fee Table is intended to assist investors in understanding the
costs and expenses that a common stockholder of each of the Funds will bear
directly or indirectly as compared to the costs and expenses that would be
borne by such investors taking into account the Reorganization. The Example set
forth above assumes that shares of Common Stock were purchased in the initial
offerings and the reinvestment of all dividends and distributions and uses a 5%
annual rate of return as mandated by Securities and Exchange Commission (the
"SEC") regulations. The Example should not be considered a representation of
past or future expenses or annual rates of return. Actual expenses or annual
rates of return may be more or less than those assumed for purposes of the
Example. See "Comparison of the Funds" and "The Reorganization--Potential
Benefits to Common Stockholders of the Funds as a Result of the
Reorganization."
Business of New York Insured... New York Insured was incorporated under the
laws of the State of Maryland on December 17,
1991 and commenced operations on February 21,
1992. New York Insured is a non-diversified,
leveraged, closed-end management investment
company whose investment objective is to
provide stockholders with current income
exempt from Federal income tax and New York
State and New York City personal income
taxes. New York Insured seeks to achieve its
investment objective by investing primarily
in a portfolio of long-term investment grade
municipal obligations, the interest on which,
in the opinion of bond counsel to the issuer,
is exempt from Federal income taxes and New
York State and New York City personal income
taxes ("New York Municipal Bonds"). Under
normal circumstances, at least 80% of New
York Insured's total assets will be invested
in municipal obligations with remaining
maturities of one year or more that are
covered by insurance guaranteeing the timely
payment of principal at maturity and
interest. See "Comparison of the Funds--
Investment Objectives and Policies."
New York Insured has outstanding Common Stock
and two series of AMPS, designated Series A
and Series B, which shall be referred to
herein collectively as "New York Insured
AMPS." As of August 31, 1999, New York
Insured had net assets of $259,204,322.
Business of New York Insured New York Insured II was incorporated under
II............................. the laws of the State of Maryland on May 5,
1992 and commenced operations on June 19,
1992. New York Insured II is a non-
diversified, leveraged, closed-end management
investment company whose investment objective
is to provide stockholders with current
income exempt from Federal income taxes and
New York State and New York City personal
income taxes. New York Insured II seeks to
achieve its investment objective by investing
primarily in a portfolio of New York
Municipal Bonds. Under normal circumstances,
at least 80% of New York Insured II's total
assets will be invested in municipal
obligations with remaining maturities of one
year or more that are covered by insurance
guaranteeing the timely payment of principal
at maturity and interest. See "Comparison of
the Funds--Investment Objectives and
Policies."
New York Insured II has outstanding Common
Stock and four series of AMPS, designated
Series A, Series B, Series C and Series D,
which shall be referred to herein
collectively as "New
8
<PAGE>
York Insured II AMPS." As of August 31, 1999,
New York Insured II had net assets of
$547,788,297.
Comparison of the Funds........ Investment Objectives and Policies. The Funds
have substantially similar investment
objectives and policies. Both Funds seek to
provide current income exempt from Federal
income tax and New York State and New York
City personal income taxes and seek to
maintain as much of their respective
portfolios invested in New York Municipal
Bonds as possible. Each Fund is subject to
the requirement that 80% of its assets be
invested in New York Municipal Bonds with
remaining maturities of one year or more that
are covered by insurance guaranteeing the
timely payment of principal at maturity and
interest. See "Comparison of the Funds--
Investment Objectives and Policies."
Capital Stock. Each Fund has outstanding both
Common Stock and AMPS. The Common Stock of
each of the Funds is traded on the NYSE. As
of August 31, 1999 (i) the net asset value
per share of New York Insured Common Stock
was $13.84 and the market price per share was
$13.50; and (ii) the net asset value per
share of New York Insured II Common Stock was
$14.02 and the market price per share was
$12.9375. The AMPS of each Fund have a
liquidation preference of $25,000 per share
and are sold principally at auction. See
"Comparison of the Funds--Capital Stock."
Auctions generally have been held and will be
held every seven days in the case of the New
York Insured AMPS, Series B and the New York
Insured II AMPS, Series A and B and every 28
days in the case of the New York Insured
AMPS, Series A and the New York Insured II
AMPS, Series C and D, unless the applicable
Fund elects, subject to certain limitations
to have a special dividend period. In
connection with the Reorganization, it is
anticipated that a holder of AMPS of New York
Insured II may receive New York Insured AMPS
with a dividend payment date and an auction
date that fall on a day of the week that is
different from the schedule of the AMPS of
New York Insured II that he or she holds. See
"Comparison of the Funds--Capital Stock." The
following table provides information about
the dividend rates for each series of AMPS of
each of the Funds as of a recent auction.
<TABLE>
<CAPTION>
Dividend
Auction Date Fund Series Rate
------------ ---- ------ --------
<S> <C> <C> <C>
August 30, 1999......... New York Insured A 2.94%
September 20, 1999...... New York Insured B 3.35%
September 17, 1999...... New York Insured II A 3.50%
September 21, 1999...... New York Insured II B 3.10%
September 8, 1999....... New York Insured II C 3.45%
August 31, 1999......... New York Insured II D 3.40%
</TABLE>
Advisory Fees. The investment adviser for
each of the Funds is Fund Asset Management,
L.P. ("FAM"). FAM is an affiliate of MLAM,
and both FAM and MLAM are owned and
controlled by Merrill Lynch & Co., Inc. ("ML
& Co."). The principal business
9
<PAGE>
address of FAM is 800 Scudders Mill Road,
Plainsboro, New Jersey 08536. Companies in
the Asset Management Group of ML & Co. (which
includes FAM) act as investment advisers for
over 100 other registered investment
companies and also offer portfolio management
and portfolio analysis services to
individuals and institutional accounts.
FAM is responsible for the management of each
Fund's investment portfolio and for providing
administrative services to each Fund. Walter
C. O'Connor serves as the portfolio manager
for New York Insured II; Roberto W. Roffo
serves as the portfolio manager for New York
Insured. After the Reorganization, Messr.
Roffo will serve as portfolio manager of the
combined fund.
Pursuant to separate investment advisory
agreements between each Fund and FAM, each
Fund pays FAM a monthly fee at the annual
rate of 0.50% of such Fund's average weekly
net assets, including assets acquired from
the sale of AMPS. Subsequent to the
Reorganization, FAM will continue to receive
compensation at the rate of 0.50% of the
average weekly net assets, including assets
acquired from the sale of AMPS, of the
combined fund. See "Comparison of the Funds--
Management of the Funds."
Other Significant Fees. The Bank of New York
is the custodian, transfer agent, dividend
disbursing agent and registrar for the Common
Stock of New York Insured, and receives a fee
for such service. State Street Bank and Trust
Company is the custodian, transfer agent,
dividend disbursing agent and registrar for
the Common Stock of New York Insured II. The
Bank of New York is the transfer agent,
dividend disbursing agent, registrar and
auction agent for each Fund's AMPS. The
principal business addresses are as follows:
The Bank of New York, 90 Washington Street,
New York, New York 10286 (for its custodial
services) and 101 Barclay Street, New York,
New York 10286 (for its transfer agency and
auction services); State Street Bank and
Trust Company, One Heritage Drive, P2N North
Quincy Massachusetts 02171 (for its custodial
services), 225 Franklin Street, Boston,
Massachusetts 02110 for its (transfer agency
services). See "Comparison of the Funds--
Management of the Funds."
Overall Expense Ratio. As of June 30, 1999,
the overall annualized operating expense
ratio for New York Insured was 1.02%, based
on average net assets of approximately $182.2
million excluding AMPS, and 0.70%, based on
average net assets of approximately $267.2
million including AMPS; and the overall
annualized operating expense ratio for New
York Insured II was 0.95%, based on average
net assets of approximately $387.9 million
excluding AMPS, and 0.66%, based on average
net assets of approximately $561.9 million
including AMPS. If the Reorganization had
taken place on June 30, 1999, the overall
operating expense ratio for the combined fund
on a pro forma basis would have been 0.93%,
based on average net assets of approximately
$570.1 million excluding AMPS, and 0.64%,
based on average net assets of approximately
$829.1million including AMPS.
10
<PAGE>
Purchases and Sales of Common Stock and
AMPS. Purchase and sale procedures for the
Common Stock of both New York Insured and New
York Insured II are identical, and investors
typically purchase and sell shares of Common
Stock of such Funds through a registered
broker-dealer on the NYSE, thereby incurring
a brokerage commission set by the broker-
dealer. Alternatively, investors may purchase
or sell shares of Common Stock of such Funds
through privately negotiated transactions
with existing stockholders.
Purchase and sale procedures for the New York
Insured AMPS and the New York Insured II AMPS
also are identical. Such AMPS generally are
purchased and sold at separate auctions
conducted on a regular basis by The Bank of
New York, as the auction agent for each
Fund's AMPS (the "Auction Agent"). Unless
otherwise permitted by the Funds, existing
and potential holders of AMPS may only
participate in auctions through their broker-
dealers. Broker-dealers submit the orders of
their respective customers who are existing
and potential holders of AMPS to the Auction
Agent. On or prior to each auction date for
the AMPS (the business day next preceding the
first day of each dividend period), each
holder may submit orders to buy, sell or hold
AMPS to its broker-dealer. Outside of these
auctions, shares of AMPS may be purchased or
sold through broker-dealers for the AMPS in a
secondary trading market maintained by the
broker-dealers. However, there can be no
assurance that a secondary market will
develop or if it does develop, that it will
provide holders with a liquid trading market
for the AMPS of either of the Funds.
Ratings of AMPS. The New York Insured AMPS
and the New York Insured II AMPS have each
been assigned a rating of AAA from Standard &
Poor's ("S&P") and "aaa" from Moody's
Investors Service, Inc. ("Moody's"). See
"Comparison of the Funds--Rating Agency
Guidelines."
Portfolio Insurance. Each of the Funds has a
similar policy with respect to obtaining
insurance for portfolio securities. Under
normal circumstances, at least 80% of each
Fund's assets will be invested in municipal
obligations either (i) insured under an
insurance policy purchased by the Fund or
(ii) insured under an insurance policy
obtained by the issuer thereof or any other
party. See "Comparison of the Funds--
Investment Objectives and Policies--Portfolio
Insurance."
Ratings of Municipal Obligations. New York
Insured and New York Insured II will invest
only in municipal obligations that at the
time of purchase are considered investment
grade.
Portfolio Transactions. The portfolio
transactions in which New York Insured and
New York Insured II may engage are similar,
as are the procedures for such transactions.
See "Comparison of the Funds--Portfolio
Transactions."
11
<PAGE>
Dividends and Distributions. The methods of
dividend payment and distributions are
similar for New York Insured and New York
Insured II, both with respect to the Common
Stock and the AMPS of each Fund. See
"Comparison of the Funds-- Dividends and
Distributions."
Net Asset Value. The net asset value per
share of Common Stock of each Fund is
determined after the close of business on the
NYSE (generally, 4:00 p.m., Eastern time) on
the last business day of each week. For
purposes of determining the net asset value
of a share of Common Stock of each Fund, the
value of the securities held by the Fund plus
any cash or other assets (including interest
accrued but not yet received) minus all
liabilities (including accrued expenses) and
the aggregate liquidation value of the
outstanding shares of AMPS of the Fund is
divided by the total number of shares of
Common Stock of the Fund outstanding at such
time. Expenses, including fees payable to
FAM, are accrued daily. See "Comparison of
the Funds--Net Asset Value."
Voting Rights. The corresponding voting
rights of the holders of shares of New York
Insured and New York Insured II Common Stock
are virtually identical. Similarly, the
corresponding voting rights of the holders of
shares of New York Insured AMPS and New York
Insured II AMPS are virtually identical. See
"Comparison of the Funds--Capital Stock."
Stockholder Services. An automatic dividend
reinvestment plan is available to holders of
shares of each Fund's Common Stock. The plans
are identical for the two Funds. See
"Comparison of the Funds--Automatic Dividend
Reinvestment Plan." Other stockholder
services, including the provision of annual
and semi-annual reports, are the same for the
two Funds.
Outstanding Securities of New York Insured and New York
Insured II as of
<TABLE>
<CAPTION>
Amount Outstanding
Amount Held By Exclusive of Amount
Amount Fund for its Shown in
Title of Class Authorized Own Account Previous Column
-------------- ----------- -------------- -------------------
<S> <C> <C> <C>
New York Insured
Common Stock................... 199,996,000 0 12,585,427
AMPS
Series A..................... 1,700 0 1,700
Series B..................... 1,700 0 1,700
New York Insured II
Common Stock................... 199,993,040 0 26,668,886
AMPS
Series A..................... 2,800 0 2,800
Series B..................... 1,960 0 1,960
Series C..................... 1,000 0 1,000
Series D..................... 1,200 0 1,200
</TABLE>
12
<PAGE>
Tax Considerations............. The Funds have jointly requested a private
letter ruling from the IRS with respect to
the Reorganization to the effect that, among
other things, neither Fund will recognize
gain or loss on the transaction and the
stockholders of New York Insured II will not
recognize gain or loss on the exchange of
their shares for New York Insured Common
Stock (except to the extent that a common
stockholder of New York Insured II receives
cash representing an interest in less than a
full share of New York Insured Common Stock
in the Reorganization) or New York Insured
AMPS. The consummation of the Reorganization
is subject to the receipt of such ruling or
of an opinion of counsel to the same effect.
The Reorganization will not affect the status
of New York Insured as a regulated investment
company (a "RIC") under the Internal Revenue
Code of 1986, as amended (the "Code"). New
York Insured II will liquidate pursuant to
the Reorganization. See "Agreement and Plan
of Reorganization--Tax Consequences of the
Reorganization."
RISK FACTORS AND SPECIAL CONSIDERATIONS
Since both Funds invest primarily in a portfolio of New York Municipal
Bonds, any risks inherent in such investments are equally to both Funds and
will also be similarly pertinent to the combined fund after the
Reorganization. It is expected that the Reorganization itself will not
adversely affect the rights of holders of shares of Common Stock or of any
series of AMPS of either Fund or create additional risks.
New York Municipal Bonds
New York Insured and New York Insured II invest a substantial portion of
their assets in New York Municipal Bonds. As a result, each Fund is more
exposed to risks affecting issuers of New York Municipal Bonds than is a
municipal bond fund that invests more widely. See "Comparison of the Funds--
Special Considerations Relating to New York Municipal Bonds" and Exhibit III--
"Economic and Other Conditions in New York." If the Funds invest less than 80%
of their assets in New York Municipal Bonds, the income provided by the Funds
may not be exempt from New York State and City personal income tax.
Interest Rate and Credit Risk
Each Fund invests in municipal bonds, which are subject to interest rate and
credit risk. Interest rate risk is the risk that prices of municipal bonds
generally increase when interest rates decline and decrease when interest
rates increase. Prices of longer-term securities generally change more in
response to interest rate changes than prices of shorter-term securities.
Credit risk is the risk that the issuer will be unable to pay the interest or
principal when due. The degree of credit risk depends on both the financial
condition of the issuer and the terms of the obligation.
Non-diversification
Each Fund is registered as a "non-diversified" investment company. This
means that each Fund may invest a greater percentage of its assets in a single
issuer than a diversified investment company. Since a Fund may invest a
relatively high percentage of its assets in a limited number of issuers, the
Fund may be more exposed to the effects of any single economic, political or
regulatory occurrence than a more widely-diversified fund. Even as non-
diversified funds, each Fund must still meet the diversification requirements
of applicable Federal income tax laws.
13
<PAGE>
Rating Categories
The Funds invest primarily in municipal bonds that are rated investment
grade by S&P, Moody's or Fitch IBCA, Inc. ("Fitch") or are considered by FAM
to be of comparable quality. Each Fund may also invest in unrated municipal
bonds that FAM believes are of comparable quality. Obligations rated in the
lowest investment grade category may have certain speculative characteristics.
Private Activity Bonds
Each Fund may invest all or a portion of its assets in certain tax-exempt
securities classified as "private activity bonds." These bonds may subject
certain investors in a Fund to the Federal alternative minimum tax.
Portfolio Insurance
Each of the Funds is subject to certain investment restrictions imposed by
guidelines of the insurance companies that issue portfolio insurance. The
Funds do not believe these guidelines prevent FAM from managing the Funds'
portfolios in accordance with the Funds' investment objective and policies.
Leverage
Use of leverage, through the issuance of AMPS, involves certain risks to
holders of Common Stock of each of the Funds. For example, each Fund's
issuance of AMPS may result in higher volatility of the net asset value of its
Common Stock and potentially more volatility in the market value of its Common
Stock. In addition, changes in the short-term and medium-term dividend rates
on, and the amount of taxable income allocable to, the AMPS will affect the
yield to holders of Common Stock. Under certain circumstances, when a Fund is
required to allocate taxable income to holders of AMPS, the Fund may be
required to make an additional distribution to such holders in an amount
approximately equal to the tax liability resulting from the allocation (an
"Additional Distribution"). Leverage will allow holders of the Fund's Common
Stock to realize a higher current rate of return than if the Fund were not
leveraged as long as each Fund, while accounting for its costs and operating
expenses, is able to realize a higher net return on its investment portfolio
than the then-current dividend rate (and any Additional Distribution) paid on
the AMPS. Similarly, since a pro rata portion of each Fund's net realized
capital gains is generally payable to holders of the Fund's Common Stock, the
use of leverage will increase the amount of such gains distributed to holders
of the Fund's Common Stock. However, short-term, medium-term and long-term
interest rates change from time to time as do their relationships to each
other (i.e., the slope of the yield curve) depending upon such factors as
supply and demand forces, monetary and tax policies and investor expectations.
Changes in any or all of such factors could cause the relationship between
short-term, medium-term and long-term rates to change (i.e., to flatten or to
invert the slope of the yield curve) so that short-term and medium-term rates
may substantially increase relative to the long-term obligations in which each
Fund may be invested. To the extent that the current dividend rate (and any
Additional Distribution) on the AMPS approaches the net return on a Fund's
investment portfolio, the benefit of leverage to holders of Common Stock will
be decreased. If the current dividend rate (and any Additional Distribution)
on the AMPS were to exceed the net return on a Fund's portfolio, holders of
Common Stock would receive a lower rate of return than if the Fund were not
leveraged. Similarly, since both the costs of issuing AMPS and any decline in
the value of a Fund's investments (including investments purchased with the
proceeds from any AMPS offering) will be borne entirely by holders of the
Fund's Common Stock, the effect of leverage in a declining market would result
in a greater decrease in net asset value to holders of Common Stock than if
the Fund were not leveraged. If a Fund is liquidated, holders of that Fund's
AMPS will be entitled to receive liquidating distributions before any
distribution is made to holders of Common Stock of that Fund.
In an extreme case, a decline in net asset value could affect each Fund's
ability to pay dividends on its Common Stock. Failure to make such dividend
payments could adversely affect the Fund's qualification as a RIC under the
Federal tax laws. See "Comparison of the Funds--Tax Rules Applicable to the
Funds and their Stockholders." However, each Fund intends to take all measures
necessary to make Common Stock dividend
14
<PAGE>
payments. If a Fund's current investment income is ever insufficient to meet
dividend payments on either the Common Stock or the AMPS, the Fund may have to
liquidate certain of its investments. In addition, each Fund has the authority
to redeem its AMPS for any reason and may redeem all or part of its AMPS under
the following circumstances:
. if the Fund anticipates that its leveraged capital structure will result
in a lower rate of return for any significant amount of time to holders
of the Common Stock than the Fund can obtain if the Common Stock were
not leveraged,
. if the asset coverage for the AMPS declines below 200%, either as a
result of a decline in the value of the Fund's portfolio investments or
as a result of the repurchase of Common Stock in tender offers, or
. in order to maintain the asset coverage established by the guidelines of
the nationally recognized statistical rating organizations ("NRSROs")
that have rated the AMPS.
Redemption of the AMPS or insufficient investment income to make dividend
payments, may reduce the net asset value of the Common Stock and require the
Fund to liquidate a portion of its investments at a time when it may be
disadvantageous to do so.
Portfolio Management
The portfolio management strategies of both Funds are the same. In the event
of an increase in short-term or medium-term rates or other change in market
conditions to the point where a Fund's leverage could adversely affect holders
of Common Stock as noted above, or in anticipation of such changes, each Fund
may attempt to shorten the average maturity of its investment portfolio, which
would tend to offset the negative impact of leverage on holders of its Common
Stock. Each Fund also may attempt to reduce the degree to which it is
leveraged by redeeming AMPS pursuant to the provisions of the Fund's Articles
Supplementary establishing the rights and preferences of the AMPS or otherwise
purchasing shares of AMPS. Purchases and sales or redemptions of AMPS, whether
on the open market or in negotiated transactions, are subject to limitations
under the Investment Company Act. If market conditions subsequently change,
each Fund may sell previously unissued shares of AMPS or shares of AMPS that
the Fund previously issued but later repurchased or redeemed.
Inverse Floating Obligations
A Fund's investments in "inverse floating obligations" or "residual interest
bonds" provide investment leverage because their market value increases or
decreases in response to market changes at a greater rate than fixed rate,
long term tax exempt securities. The market values of such securities are more
volatile than the market values of fixed rate, tax exempt securities.
Options and Futures Transactions
Each Fund may engage in certain options and futures transactions to reduce
its exposure to interest rate movements. If a Fund incorrectly forecasts
market values, interest rates or other factors, that Fund's performance could
suffer. Each Fund also may suffer a loss if the other party to the transaction
fails to meet its obligations. The Funds are not required to use hedging and
may choose not to do so.
Antitakeover Provisions
The Articles of Incorporation of each of the Funds (in each case the
"Charter") include provisions that could limit the ability of other entities
or persons to acquire control of that Fund or to change the composition of its
Board of Directors. Such provisions could limit the ability of stockholders to
sell their shares at a premium over prevailing market prices by discouraging a
third party from seeking to obtain control of the Fund.
15
<PAGE>
Ratings Considerations
The Funds have received ratings of their AMPS of AAA from S&P and "Aaa" from
Moody's. In order to maintain these ratings, the Funds are required to
maintain portfolio holdings meeting specified guidelines of such rating
agencies. These guidelines may impose asset coverage requirements that are
more stringent than those imposed by the Investment Company Act.
As described by Moody's and S&P, a preferred stock rating is an assessment
of the capacity and willingness of an issuer to pay preferred stock
obligations. The ratings of the AMPS are not recommendations to purchase, hold
or sell shares of AMPS, inasmuch as the ratings do not comment as to market
price or suitability for a particular investor, nor do the rating agency
guidelines address the likelihood that a holder of shares of AMPS will be able
to sell such shares in an auction. The ratings are based on current
information furnished to Moody's and S&P by the Funds and FAM and information
obtained from other sources. The ratings may be changed, suspended or
withdrawn as a result of changes in, or the unavailability of, such
information. The Common Stock of the Funds has not been rated by a nationally
recognized statistical rating organization.
The Board of Directors of each of the Funds, without stockholder approval,
may amend, alter or repeal certain definitions or restrictions which have been
adopted by the Fund pursuant to the rating agency guidelines, in the event the
Fund receives confirmation from the rating agencies that any such amendment,
alteration or repeal would not impair the ratings then assigned to shares of
AMPS.
16
<PAGE>
COMPARISON OF THE FUNDS
Financial Highlights
New York Insured
The financial information in the table below, except for the six month
period ended April 30, 1999, which is unaudited and has been provided by FAM,
has been audited in conjunction with the annual audits of the financial
statements of the Fund by Deloitte & Touche LLP ("D&T"), independent auditors.
The following per share data and ratios have been derived from information
provided in the financial statements of the Fund.
<TABLE>
<CAPTION>
For the
Six Months
Ended For the Year Ended October 31,
April 30, --------------------------------------
1999 1998 1997 1996 1995
---------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Increase (Decrease) in Net
Asset Value:
Per Share Operating
Performance:
Net asset value, beginning
of period................ $ 16.26 $ 15.89 $ 15.49 $ 15.64 $ 14.17
-------- -------- -------- -------- --------
Investment income--net.... .51 1.12 1.15 1.15 1.19
Realized and unrealized
gain (loss) on
investments--net......... (.15) .61 .48 (.03) 1.58
-------- -------- -------- -------- --------
Total from investment
operations............... .36 1.73 1.63 1.12 2.77
-------- -------- -------- -------- --------
Less dividends and
distributions to Common
Stock shareholders:
Investment income--net... (.46) (.90) (.91) (.91) (.92)
Realized gain on
investments--net........ (.65) (.19) (.07) -- (.10)
In excess of realized
gain of investments--
net..................... -- -- -- (.10) --
-------- -------- -------- -------- --------
Total dividends and
distributions to Common
Stock shareholders....... (1.11) (1.09) (.98) (1.01) (1.02)
-------- -------- -------- -------- --------
Effect of Preferred Stock
activity:
Dividends and
distributions to
Preferred Stock
shareholders:
Investment income--net... (.04) (.19) (.23) (.23) (.26)
Realized gain on
investments--net........ (.10) (.08) (.02) -- (.02)
In excess of realized
gain on investments--
net..................... -- -- -- (.03) --
-------- -------- -------- -------- --------
Total effect of Preferred
Stock activity........... (.14) (.27) (.25) (.26) (.28)
-------- -------- -------- -------- --------
Net asset value, end of
period................... $ 15.37 $ 16.26 $ 15.89 $ 15.49 $ 15.64
======== ======== ======== ======== ========
Market price per share,
end of period............ $15.9375 $16.3125 $ 15.875 $ 14.875 $ 14.375
======== ======== ======== ======== ========
Total Investment Return:**
Based on market price per
share.................... 4.77%+ 9.99% 13.79% 10.79% 26.40%
======== ======== ======== ======== ========
Based on net asset value
per share................ 1.36%+ 9.53% 9.37% 6.04% 18.89%
======== ======== ======== ======== ========
Ratios to Average Net
Assets:***
Expenses.................. .69%* .68% .70% .70% .71%
======== ======== ======== ======== ========
Investment income--net.... 4.65%* 4.91% 5.09% 5.11% 5.42%
======== ======== ======== ======== ========
Supplemental Data:
Net assets, net of
Preferred Stock, end of
period (in thousands).... $193,011 $199,582 $192,107 $186,611 $188,354
======== ======== ======== ======== ========
Preferred Stock
outstanding, end of
period (in thousands).... $ 85,000 $ 85,000 $ 85,000 $ 85,000 $ 85,000
======== ======== ======== ======== ========
Portfolio turnover........ 43.75% 89.76% 81.73% 80.59% 88.17%
======== ======== ======== ======== ========
Leverage:
Asset coverage per $1,000. $ 3,271 $ 3,348 $ 3,260 $ 3,195 $ 3,216
======== ======== ======== ======== ========
Dividends Per Share on
Preferred Stock
Outstanding:.............
Series A--Investment
income--net.............. $ 160 $ 695 $ 826 $ 819 $ 935
======== ======== ======== ======== ========
Series B--Investment
income--net.............. $ 171 $ 689 $ 837 $ 807 $ 904
======== ======== ======== ======== ========
</TABLE>
(footnotes on following page)
17
<PAGE>
- --------
* Annualized.
** Total investment returns based on market value, which can be significantly
greater or less than the net asset value, may result in substantially
different returns. Total investment returns exclude the effects of sales
loads.
*** Do not reflect the effect of dividends to Preferred Stock shareholders.
+ Aggregate total investment return.
18
<PAGE>
New York Insured II
The financial information in the table below, except for the six month
period ended April 30, 1999, which is unaudited and has been provided by FAM,
has been audited in conjunction with the annual audits of the financial
statements of the Fund by Ernst & Young llp ("E&Y"), independent auditors. The
following per share data and ratios have been derived from information
provided in the financial statements of the Fund.
<TABLE>
<CAPTION>
For the
Six Months
Ended For the Year Ended October 31,
April 30, --------------------------------------
1999 1998 1997 1996 1995
---------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Increase (Decrease) in Net
Asset Value:
Per Share Operating
Performance:
Net asset value, beginning
of period................ $ 15.82 $ 15.18 $ 14.53 $ 14.63 $ 13.13
-------- -------- -------- -------- --------
Investment income--net.... .51 1.05 1.08 1.04 1.07
Realized and unrealized
gain (loss) on
investments--net......... (.25) .66 .66 (.09) 1.50
-------- -------- -------- -------- --------
Total from investment
operations............... .26 1.71 1.74 .95 2.57
-------- -------- -------- -------- --------
Less dividends and
distributions to Common
Stock shareholders:
Investment income--net... (.42) (.84) (.84) (.82) (.84)
Realized gain on
investments--net........ (.11) -- + -- -- --
-------- -------- -------- -------- --------
Total dividends and
distributions to Common
Stock shareholders....... (.53) (.84) (.84) (.82) (.84)
-------- -------- -------- -------- --------
Capital charge resulting
from issuance of Common
Stock.................... -- (.01) (.02) -- --
-------- -------- -------- -------- --------
Effect of Preferred Stock
activity:++
Dividends and
distributions to
Preferred Stock
shareholders:
Investment income--net... (.08) (.22) (.23) (.23) (.23)
Realized gain on
investments--net........ (.03) -- + -- -- --
-------- -------- -------- -------- --------
Total effect of Preferred
Stock activity........... (.11) (.22) (.23) (.23) (.23)
-------- -------- -------- -------- --------
Net asset value, end of
period................... $ 15.44 $ 15.82 $ 15.18 $ 14.53 $ 14.63
======== ======== ======== ======== ========
Market price per share,
end of period............ $15.3125 $15.4375 $ 14.25 $ 13.375 $ 13.25
======== ======== ======== ======== ========
Total Investment Return:**
Based on market price per
share.................... 2.63%# 14.60% 13.15% 7.28% 28.61%
======== ======== ======== ======== ========
Based on net asset value
per share................ .98%# 10.24% 10.95% 5.55% 18.96%
======== ======== ======== ======== ========
Ratios to Average Net
Assets:***
Expenses.................. .65%* .64% .68% .71% .74%
======== ======== ======== ======== ========
Investment income--net.... 4.61%* 4.81% 5.04% 5.00% 5.27%
======== ======== ======== ======== ========
Supplemental Data:
Net assets, net of
Preferred Stock, end of
period (in thousands).... $411,790 $420,658 $321,752 $161,472 $162,655
======== ======== ======== ======== ========
Preferred Stock
outstanding, end of
period (in thousands).... $174,000 $174,000 $144,000 $ 70,000 $ 70,000
======== ======== ======== ======== ========
Portfolio turnover........ 43.55% 136.43% 121.49% 118.28% 110.76%
======== ======== ======== ======== ========
Leverage:
Asset coverage per $1,000. $ 3,367 $ 3,418 $ 3,234 $ 3,307 $ 3,324
======== ======== ======== ======== ========
Dividends Per Share on
Preferred Stock
Outstanding:
Series A--Investment
income--net.............. $ 313 $ 849 $ 865 $ 913 $ 910
======== ======== ======== ======== ========
Series B--Investment
income--net.............. $ 312 $ 825 $ 643 $ -- $ --
======== ======== ======== ======== ========
Series C--Investment
income--net.............. $ 335 $ 785 $ 667 $ -- $ --
======== ======== ======== ======== ========
Series D--Investment
income--net.............. $ 296 $ 628 $ -- $ -- $ --
======== ======== ======== ======== ========
</TABLE>
(footnotes on following page)
19
<PAGE>
- --------
* Annualized.
** Total investment returns based on market value, which can be significantly
greater or less than the net asset value, may result in substantially
different returns. Total investment returns exclude the effects of sales
loads.
*** Do not reflect the effect of dividends to Preferred Stock shareholders.
+ Amount is less than $.01 per share.
++ The Fund's Preferred Stock was issued on September 16, 1992 (Series A);
January 27, 1997 (Series B and Series C) and February 9, 1998 (Series D).
# Aggregate total investment return.
20
<PAGE>
Per Share Data for Common Stock*
Traded on the New York Stock Exchange (unaudited)
New York Insured
<TABLE>
<CAPTION>
Premium
(Discount) to
Net
Market Price** Net Asset Value Asset Value
--------------- --------------- ---------------
Quarter Ended* High Low High Low High Low
-------------- ------- ------- --------------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
January 31, 1997............... 14.875 14.625 15.45 15.22 (3.16) (5.39)
April 30, 1997................. 14.875 14.125 15.16 14.93 (1.55) (5.77)
July 31, 1997.................. 16.0625 15.375 16.07 15.55 (0.19) (4.85)
October 31, 1997............... 16.625 15.5625 15.97 15.67 4.03 (0.71)
January 31, 1998............... 16.6875 16.125 16.24 15.96 2.54 (3.72)
April 30, 1998................. 16.0625 15.625 16.08 15.49 3.06 (5.53)
July 31, 1998.................. 15.875 15.1875 15.99 15.90 0.18 (3.54)
October 31, 1998............... 16.5625 16.0625 16.69 16.21 0.33 (2.05)
January 31, 1999............... 16.4375 16.00 15.66 15.45 7.32 2.29
April 30, 1999................. 16.125 15.75 15.49 15.37 5.31 2.09
July 31, 1999.................. 14.75 14.375 14.65 14.39 4.37 (0.48)
New York Insured II
<CAPTION>
Premium
(Discount) to
Net
Market Price** Net Asset Value Asset Value
--------------- --------------- ---------------
Quarter Ended* High Low High Low High Low
-------------- ------- ------- --------------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
January 31, 1997............... 13.00 12.625 14.60 14.31 (8.87) (12.97)
April 30, 1997................. 13.625 13.00 14.32 14.07 (3.37) (12.46)
July 31, 1997.................. 14.75 14.3125 15.28 14.72 (2.42) (6.12)
October 31, 1997............... 15.25 14.1875 15.22 14.83 0.66 (6.13)
January 31, 1998............... 16.125 15.00 15.84 15.50 (1.62) (6.11)
April 30, 1998................. 14.9375 14.25 15.61 14.98 (1.08) (8.17)
July 31, 1998.................. 14.875 14.50 15.54 15.42 (1.47) (5.91)
October 31, 1998............... 16.00 15.3125 16.27 15.77 (2.12) (5.24)
January 31, 1999............... 15.75 15.25 15.83 15.52 1.22 (3.45)
April 30, 1999................. 15.4375 14.875 15.59 15.44 (0.83) (4.22)
July 31, 1999.................. 13.9375 13.25 14.75 14.46 (2.79) (7.23)
</TABLE>
- --------
*Calculations are based upon shares of Common Stock outstanding at the end of
each quarter.
**As reported in the consolidated transaction operating system.
As indicated in the tables above, for the periods shown the Common Stock of
the Funds generally has traded at prices close to net asset value, with small
premiums or discounts to net asset value of generally less than 10% being
reflected in the market value of the shares from time to time. Although there
is no reason to believe that this pattern should be affected by the
Reorganization, it is not possible to rate whether shares of the surviving
fund will trade at a premium or discount to net asset value following the
Reorganization, or what the extent of any such premium or discount might be.
Investment Objective and Policies
The structure, organization and investment policies of both Funds are
substantially similar, with the differences between the four Funds set forth
below. Each Fund seeks as a fundamental investment objective current income
exempt from Federal income tax and New York State and New York City personal
income taxes.
21
<PAGE>
The investment objective of each Fund is a fundamental policy that may not be
changed without a vote of a majority of the Fund's outstanding voting
securities.
Each Fund seeks to achieve its investment objective by investing primarily
in a portfolio of New York Municipal Bonds. At all times, at least 65% of each
Fund's total assets will be invested in New York Municipal Bonds and at least
80% of each Fund's total assets will be invested in New York Municipal Bonds
and in other long-term municipal obligations exempt from Federal income tax
but not New York State and New York City personal income taxes ("Municipal
Bonds"), except during interim periods pending investment of the net proceeds
of public offerings of its securities and during temporary defensive periods.
At times, each Fund may seek to hedge its portfolio through the use of futures
and options transactions to reduce volatility in the net asset value of its
shares of Common Stock.
Ordinarily, neither Fund intends to realize significant investment income
subject to Federal income tax and New York State and New York City personal
income taxes. To the extent FAM considers that suitable New York Municipal
Bonds are not available for investment, the Funds may purchase other long-term
municipal obligations exempt from Federal income tax, but not New York
personal income tax ("Municipal Bonds"). Each Fund may invest all or a portion
of its assets in certain tax-exempt securities classified as "private activity
bonds" (in general, bonds that benefit non-governmental entities) that may
subject certain investors in the Fund to a Federal alternative minimum tax.
Each Fund also may invest in securities not issued by or on behalf of a
state or territory or by an agency or instrumentality thereof, if the Fund
nevertheless believes such securities pay interest or distributions that are
exempt from Federal income taxation ("Non-Municipal Tax-Exempt Securities").
Non-Municipal Tax-Exempt Securities may include securities issued by other
investment companies that invest in New York Municipal Bonds and Municipal
Bonds, to the extent such investments are permitted by the Investment Company
Act. Other Non-Municipal Tax-Exempt Securities could include trust
certificates or other instruments evidencing interests in one or more long-
term New York Municipal Bonds or Municipal Bonds. Certain Non-Municipal Tax-
Exempt Securities may be characterized as derivative instruments. Non-
Municipal Tax-Exempt Securities will be considered "New York Municipal Bonds"
or "Municipal Bonds" for purposes of a Fund's investment objective and
policies.
The investment grade New York Municipal Bonds and Municipal Bonds in which
each Fund primarily invests are those New York Municipal Bonds and Municipal
Bonds that are rated at the date of purchase in the four highest rating
categories of S&P, Moody's or Fitch or, if unrated, are considered to be of
comparable quality by FAM. In the case of long-term debt, the investment grade
rating categories are AAA through BBB for S&P and Fitch and Aaa through Baa
for Moody's. In the case of short-term notes, the investment grade rating
categories are SP-1 through SP-3 for S&P, MIG-1 through MIG-3 for Moody's and
F-1+ through F-3 for Fitch. In the case of tax-exempt commercial paper, the
investment grade rating categories are A-1+ through A-3 for S&P, Prime-1
through Prime-3 for Moody's and F-1+ through F-3 for Fitch. Obligations ranked
in the lowest investment grade rating category (BBB, SP-3 and A-3 for S&P;
Baa, MIG-3 and Prime-3 for Moody's; and BBB and F-3 for Fitch), while
considered "investment grade," may have certain speculative characteristics.
There may be sub-categories or gradations indicating relative standing within
the rating categories set forth above.
In assessing the quality of New York Municipal Bonds and Municipal Bonds
with respect to the foregoing requirements, FAM takes into account the
portfolio insurance as well as the nature of any letters of credit or similar
credit enhancement to which particular New York Municipal Bonds and Municipal
Bonds are entitled and the creditworthiness of the insurance company or
financial institution that provided such insurance or credit enhancements.
Consequently, if New York Municipal Bonds or Municipal Bonds are covered by
insurance policies issued by insurers whose claims-paying ability is rated AAA
by S&P or Fitch or Aaa by Moody's, FAM may consider such municipal obligations
to be equivalent to AAA- or Aaa- rated securities, as the case may be, even
though such New York 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 New York Municipal Bonds and Municipal Bonds must also comply with the
22
<PAGE>
standards applied by the insurance carriers in determining eligibility for
portfolio insurance. See Exhibit IV--"Ratings of Municipal Bonds and
Commercial Paper" and Exhibit V--"Portfolio Insurance."
Each of the Funds may invest in variable rate demand obligations ("VRDOs")
and VRDOs in the form of participation interests ("Participating VRDOs") in
variable rate tax-exempt obligations held by a financial institution,
typically a commercial bank. The VRDOs in which each Fund may invest are tax-
exempt obligations, in the opinion of counsel to the issuer, that contain a
floating or variable interest rate adjustment formula and a right of demand on
the part of the holder thereof to receive payment of the unpaid principal
balance plus accrued interest on a short notice period not to exceed seven
days. Participating VRDOs provide each Fund with a specified undivided
interest (up to 100%) in the underlying obligation and the right to demand
payment of the unpaid principal balance plus accrued interest on the
Participating VRDOs from the financial institution on a specified number of
days' notice, not to exceed seven days. There is, however, the possibility
that because of default or insolvency, the demand feature of VRDOs or
Participating VRDOs may not be honored. Each Fund has been advised by its
counsel that the Fund should be entitled to treat the income received on
Participating VRDOs as interest from tax-exempt obligations for Federal income
tax purposes.
The average maturity of each Fund's portfolio securities varies based upon
FAM's assessment of economic and market conditions. The net asset value of the
shares of common stock of a closed-end investment company, such as each Fund,
which invests primarily in fixed-income securities, changes as the general
levels of interest rates fluctuate. When interest rates decline, the value of
a fixed income portfolio can be expected to rise. Conversely, when interest
rates rise, the value of a fixed income portfolio can be expected to decline.
Prices of longer-term securities generally fluctuate more in response to
interest rate changes than do short-term or medium-term securities. These
changes in net asset value are likely to be greater in the case of a fund
having a leveraged capital structure, such as that used by the Funds.
Each Fund intends to invest primarily in long-term New York Municipal Bonds
and Municipal Bonds with a maturity of more than ten years. However, each Fund
may also invest in intermediate-term New York Municipal Bonds and Municipal
Bonds with a maturity of between three years and ten years. Each Fund may also
invest in short-term tax-exempt securities, short-term U.S. Government
securities, repurchase agreements or cash. Such short-term securities or cash
will not exceed 20% of each Fund's total assets except during interim periods
pending investment of the net proceeds from public offerings of the Fund's
securities or in anticipation of the repurchase or redemption of the Fund's
securities and temporary periods when, in the opinion of FAM, prevailing
market or economic conditions warrant. The Funds do not ordinarily intend to
realize significant interest income that is subject to Federal income tax and
New York personal income taxes.
Each Fund is classified as non-diversified within the meaning of the
Investment Company Act, which means that the Fund is not limited by such Act
in the proportion of its total assets that it may invest in securities of a
single issuer. However, each Fund's investments are limited so as to qualify
the Fund for the special tax treatment afforded RICs under the Federal tax
laws. To qualify, among other requirements, each Fund limits its investments
so that, at the close of each quarter of the taxable year, (i) not more than
25% of the market value of the Fund's total assets will be invested in the
securities (other than U.S. Government securities) of a single issuer, and
(ii) with respect to 50% of the market value of its total assets, not more
than 5% of the market value of its total assets will be invested in the
securities (other than U.S. Government securities) of a single issuer. A fund
that elects to be classified as "diversified" under the Investment Company Act
must satisfy the foregoing 5% requirement with respect to 75% of its total
assets. To the extent that any Fund assumes large positions in the securities
of a small number of issuers, the Fund's yield may fluctuate to a greater
extent than that of a diversified company as a result of changes in the
financial condition or in the market's assessment of the issuers.
23
<PAGE>
Portfolio Insurance
Under normal circumstances, at least 80% of the assets of New York Insured
and New York Insured II will be invested in New York Municipal Bonds and
Municipal Bonds either (i) insured under an insurance policy purchased by the
Fund, or (ii) insured under an insurance policy obtained by the issuer thereof
or any other party. The Funds will seek to limit their investments to
municipal obligations insured under insurance policies issued by insurance
carriers that have total admitted assets (unaudited) of at least $75,000,000
and capital and surplus (unaudited) of at least $50,000,000 and insurance
claims-paying ability ratings of AAA from S&P or Fitch, or Aaa from Moody's.
There can be no assurance that insurance from insurance carriers meeting these
criteria will be available. See Exhibit V to this Proxy Statement and
Prospectus for a brief description of insurance claims-paying ability ratings
of S&P, Moody's and Fitch. Currently, it is anticipated that a majority of the
insured New York Municipal Bonds and Municipal Bonds in the Fund's portfolio
will be insured by the following insurance companies which satisfy the
foregoing criteria: AMBAC Assurance Corporation, Financial Guaranty Insurance
Company, Financial Security Assurance and Municipal Bond Investors Assurance
Corporation. Each Fund also may purchase New York Municipal Bonds and
Municipal Bonds covered by insurance issued by any other insurance company
that satisfies the foregoing criteria. A majority of insured New York
Municipal Bonds and Municipal Bonds held by each Fund will be insured under
policies obtained by parties other than the Fund.
Each Fund may purchase, but has no obligation to purchase, separate
insurance policies (the "Policies") from insurance companies meeting the
criteria set forth above that guarantee payment of principal and interest on
specified eligible New York Municipal Bonds and Municipal Bonds purchased by
the Funds. A New York Municipal Bond or Municipal Bond will be eligible for
coverage if it meets certain requirements of the insurance company set forth
in a Policy. In the event interest or principal of an insured New York
Municipal Bond or Municipal Bond is not paid when due, the insurer will be
obligated under its Policy to make such payment not later than 30 days after
it has been notified by, and provided with documentation from, the Fund that
such nonpayment has occurred.
The Policies will be effective only as to insured New York Municipal Bonds
and Municipal Bonds beneficially owned by a Fund. In the event of a sale of
any New York Municipal Bonds and Municipal Bonds held by a Fund, the issuer of
the relevant Policy will be liable only for those payments of interest and
principal that are then due and owing. The Policies will not guarantee the
market value of an insured New York Municipal Bond or Municipal Bond or the
value of the shares of a Fund.
The insurer will not have the right to withdraw coverage on securities
insured by its Policies and held by a Fund so long as such securities remain
in the Fund's portfolio. In addition, the insurer may not cancel its Policies
for any reason except failure to pay premiums when due. The Board of Directors
of each Fund reserves the right to terminate any of the Policies if it
determines that the benefits to the Fund of having its portfolio insured under
such Policy are not justified by the expense involved.
The premiums for the Policies are paid by the Fund and the yield on its
portfolio is reduced thereby. FAM estimates that the cost of the annual
premiums for the Policies of each Fund currently range from approximately .02
of 1% to .15 of 1% of the principal amount of the New York Municipal Bonds and
Municipal Bonds covered by such Policies. The estimate is based on the
expected composition of each Fund's portfolio of New York Municipal Bonds and
Municipal Bonds. Additional information regarding the Policies is set forth in
Exhibit V to this Proxy Statement and Prospectus. In instances in which a Fund
purchases New York 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 New York Municipal Bonds and Municipal Bonds.
It is the intention of FAM to retain any insured securities that are in
default or in significant risk of default and to place a value on the
insurance, which ordinarily will be the difference between the market value of
the defaulted security and the market value of similar securities which are
not in default. In certain circumstances, however, FAM may determine that an
alternate value for the insurance, such as the difference between the
24
<PAGE>
market value of the defaulted security and its par value, is more appropriate.
FAM's ability to manage the portfolio of a Fund may be limited to the extent
it holds defaulted securities, which may limit its ability in certain
circumstances to purchase other New York Municipal Bonds and Municipal Bonds.
See "Net Asset Value" below for a more complete description of each Fund's
method of valuing defaulted securities and securities that have a significant
risk of default.
There can be no assurance that insurance with the terms and issued by
insurance carriers meeting the criteria described above will continue to be
available to each Fund. In the event the Board of Directors of a Fund
determines that such insurance is unavailable or that the cost of such
insurance outweighs the benefits to the Fund, the Fund may modify the criteria
for insurance carriers or the terms of the insurance, or may discontinue its
policy of maintaining insurance for all or any of the New York Municipal Bonds
and Municipal Bonds held in the Fund's portfolio. Although FAM periodically
reviews the financial condition of each insurer, there can be no assurance
that the insurers will be able to honor their obligations under all
circumstances.
The portfolio insurance reduces financial or credit risk (i.e., the
possibility that the owners of the insured New York Municipal Bonds or
Municipal Bonds will not receive timely scheduled payments of principal or
interest). However, the insured New York Municipal Bonds or Municipal Bonds
are subject to market risk (i.e., fluctuations in market value as a result of
changes in prevailing interest rates).
Description of New York Municipal Bonds and Municipal Bonds
New York 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, among other things, airports, public ports,
mass commuting facilities, multi-family housing projects as well as facilities
for water supply, gas, electricity, sewage or solid waste disposal. For
purposes of this Proxy Statement and Prospectus, such obligations are
Municipal Bonds if the interest paid thereon is exempt from Federal income tax
and are New York Municipal Bonds if the interest thereon is exempt from
Federal income tax and from New York State and New York City personal income
tax, even though such bonds may be industrial development bonds or PABs as
discussed below. Also, for purposes of this Proxy Statement and Prospectus,
Non-Municipal Tax-Exempt Securities as discussed above will be considered New
York Municipal Bonds or Municipal Bonds.
The two principal classifications of New York 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 payable only from the revenues derived from a particular
facility or class of facilities or, in some cases, from the proceeds of a
special excise tax or other specific revenue source such as from the user of
the facility being financed. PABs are in most cases revenue bonds and do not
generally constitute the pledge of the credit or taxing power of the issuer of
such bonds. The repayment of principal and the payment of interest on such
industrial development 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. New York Municipal Bonds and Municipal Bonds may also include "moral
obligation" bonds, which are normally issued by special purpose public
authorities. If an issuer of moral obligation bonds is unable to meet its
obligations, the repayment of such bonds becomes a moral commitment but not a
legal obligation of the state or municipality in question.
Each Fund may purchase New York Municipal Bonds and Municipal Bonds
classified as PABs or IDBs. Interest received on certain PABs is treated as an
item of "tax preference" for purposes of the Federal alternative minimum tax
and may impact the overall tax liability of certain investors in the Fund.
There is no limitation on
25
<PAGE>
the percentage of the Fund's assets that may be invested in New York 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
"Comparison of Funds--Tax Rules Applicable to the Funds and their
Stockholders."
Also included within the general category of New York 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 is excludable from income for
Federal income tax purposes. Such legislation may affect the availability of
New York Municipal Bonds and Municipal Bonds for investment by the Fund.
Special Considerations Relating to New York Municipal Bonds
The Fund ordinarily will invest at least 65% of its total assets in New York
Municipal Bonds and, therefore, it is more susceptible to factors adversely
affecting issuers of New York Municipal Bonds than is a municipal bond fund
that is not concentrated in issuers of New York Municipal Bonds to this
degree. Because each Fund's portfolio will comprise investment grade
securities, each Fund is expected to be insulated from the market and credit
risks that may exist in connection with investments in non-investment grade
New York Municipal Bonds. There is no assurance that a particular rating will
continue for any given period of time or that such rating will not be revised
downward or withdrawn entirely if, in the judgment of the agency originally
establishing the rating, circumstances so warrant. The value of New York
Municipal Bonds and Municipal Bonds generally may be affected by uncertainties
in the municipal markets as a result of legislation or litigation changing the
taxation of New York Municipal Bonds and Municipal Bonds or the rights of New
York Municipal Bond and Municipal Bond holders in the event of a bankruptcy.
Municipal bankruptcies are rare, and certain provisions of the U.S. Bankruptcy
Code governing such bankruptcies are unclear. Further, the application of
state law to Municipal Bond issuers could produce varying results among the
states or among Municipal Bond issuers within a state. These uncertainties
could have a significant impact on the prices of the New York Municipal Bonds
and Municipal Bonds in which the Funds invest. FAM does not believe that
current economic conditions in New York or other factors described above will
have a significant adverse effect on the Fund's ability to invest prudently in
New York Municipal Bonds. As of June 18, 1999, Moody's, S&P and Fitch rated
New York City's general obligation bonds A3, A-, and A, respectively. As of
June 15, 1999, Moody's and S&P rated New York State's outstanding general
obligation bonds A2 and A, respectively. See Exhibit III, "Economic and Other
Conditions in New York," and Exhibit IV, "Ratings of Municipal Bonds and
Commercial Paper."
Other Investment Policies
The Funds have adopted certain other policies as set forth below:
Borrowings. Each Fund is authorized to borrow amounts of up to 5% of the
value of its total assets at the time of such borrowings; provided,
however, that each Fund is authorized to borrow moneys in amounts of up to
33 1/3% of the value of its total assets at the time of such borrowings to
finance the repurchase of its own common stock pursuant to tender offers or
otherwise to redeem or repurchase shares of preferred stock or for
temporary, extraordinary or emergency purposes. Borrowings by each Fund
26
<PAGE>
(commonly known, as with the issuance of preferred stock, as "leveraging")
create an opportunity for greater total return since the Fund will not be
required to sell portfolio securities to repurchase or redeem shares but,
at the same time, increase exposure to capital risk. In addition, borrowed
funds are subject to interest costs that may offset or exceed the return
earned on the borrowed funds.
When-Issued Securities and Delayed Delivery Transactions. Each Fund may
purchase or sell New York Municipal Bonds and Municipal Bonds on a delayed
delivery basis or on a when-issued basis at fixed purchase or sale terms.
These transactions arise when securities are purchased or sold by a Fund
with payment and delivery taking place in the future. The purchase will be
recorded on the date that the Fund enters into the commitment, and the
value of the obligation thereafter will be reflected in the calculation of
the Fund's net asset value. The value of the obligation on the delivery day
may be more or less than its purchase price. A separate account of the Fund
will be established with its custodian consisting of cash, cash equivalents
or liquid securities having a market value at all times at least equal to
the amount of the commitment.
Indexed and Inverse Floating Obligations. Each Fund may invest in New
York Municipal Bonds and Municipal Bonds yielding a return based on a
particular index of value or interest rates. For example, each Fund may
invest in New York 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 New York Municipal Bonds and Municipal
Bonds also may be based on the value of an index. To the extent a Fund
invests in these types of Municipal Bonds, the Fund's return on such New
York Municipal Bonds and Municipal Bonds will be subject to risk with
respect to the value of the particular index. Also, a Fund may invest in
so-called "inverse floating obligations" or "residual interest bonds" on
which the interest rates typically vary inversely with a short-term
floating rate (which may be reset periodically by a dutch auction, a
remarketing agent, or by reference to a short-term tax-exempt interest rate
index). Each Fund may purchase synthetically-created inverse floating
obligations evidenced by custodial or trust receipts. Generally, income on
inverse floating bonds will decrease when short-term rates increase, and
will increase when short-term rates decrease. Such securities have the
effect of providing a degree of investment leverage, since they may
increase or decrease in value in response to changes, as an illustration,
in market interest rates at a rate that is a multiple (typically two) of
the rate at which fixed-rate, long-term, tax-exempt securities increase or
decrease in response to such changes. As a result, the market values of
such securities generally will be more volatile than the market values of
fixed-rate tax-exempt securities. To seek to limit the volatility of these
securities, a Fund may purchase inverse floating obligations with shorter-
term maturities or limitations on the extent to which the interest rate may
vary. FAM believes that indexed and inverse floating obligations represent
a flexible portfolio management instrument for the Funds that allows FAM to
vary the degree of investment leverage relatively efficiently under
different market conditions.
Call Rights. Each of the Funds may purchase a New York Municipal Bond or
Municipal Bond issuer's rights to call all or a portion of such New York
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 New York Municipal Bonds or
Municipal Bonds, subject to certain conditions. A Call Right that is not
exercised prior to the maturity of the related New York Municipal Bond or
Municipal Bond will expire without value. The economic effect of holding
both the Call Right and the related New York Municipal Bond or Municipal
Bond is identical to holding a New York Municipal Bond or Municipal Bond as
a non-callable security.
Repurchase Agreements. The Funds may invest in securities pursuant to
repurchase agreements. Repurchase agreements may be entered into only with
a member bank of the Federal Reserve System or a primary dealer in U.S.
Government securities or an affiliate thereof. Under such agreements, the
seller agrees, upon entering into the contract, to repurchase the security
at a mutually agreed-upon time and price, thereby determining the yield
during the term of the agreement. The Funds may not invest in repurchase
agreements maturing in more than seven days if such investments, together
with all other illiquid
27
<PAGE>
investments, would exceed 15% of the Fund's net assets. In the event of
default by the seller under a repurchase agreement, the Funds may suffer
time delays and incur costs or possible losses in connection with the
disposition of the underlying securities.
In general, for Federal and New York income tax purposes, repurchase
agreements are treated as collateralized loans secured by the securities
"sold." Therefore, amounts earned under such agreements will not be considered
tax-exempt interest.
Information Regarding Options and Futures Transactions
Each Fund may hedge all or a portion of its portfolio investments against
fluctuations in interest rates through the use of options and certain
financial futures contracts and options thereon. While each Fund's use of
hedging strategies is intended to reduce the volatility of the net asset value
of the common stock, the net asset value of the common stock will fluctuate.
There can be no assurance that a Fund's hedging transactions will be
effective. In addition, because of the leveraged nature of the Common Stock,
hedging transactions will result in a larger impact on the net asset value of
the Common Stock than would be the case if the Common Stock were not
leveraged. Furthermore, a Fund may only engage in hedging activities from time
to time and may not necessarily be engaging in hedging activities when
movements in interest rates occur. Neither Fund has an obligation to enter
into hedging transactions and each may choose not to do so.
Certain Federal income tax requirements may limit a Fund's ability to engage
in hedging transactions. Gains from transactions in options and futures
contracts distributed to stockholders will be taxable as ordinary income or,
in certain circumstances, as long-term capital gains to stockholders. In
addition, in order to obtain ratings of the AMPS from one or more NRSROs, a
Fund may be required to limit its use of hedging techniques in accordance with
the specified guidelines of such rating organizations. See "Rating Agency
Guidelines" below.
The following is a description of the options and futures transactions in
which each Fund may engage, limitations on the Fund's use of such transactions
and risks associated with these transactions. The investment policies with
respect to the hedging transactions of a Fund are not fundamental policies and
may be modified by the Board of Directors of the Fund without the approval of
the Fund's stockholders.
Writing Covered Call Options. Each Fund is authorized to write (i.e., sell)
covered call options with respect to New York Municipal Bonds and Municipal
Bonds it owns, thereby giving the holder of the option the right to buy the
underlying security covered by the option from the Fund at the stated exercise
price until the option expires. Each Fund writes only covered call options,
which means that so long as the Fund is obligated as the writer of a call
option, it will own the underlying securities subject to the option. The Fund
may not write covered call options on underlying securities in an amount
exceeding 15% of the market value of its total assets.
Each Fund receives a premium from writing a call option, which increases the
Fund's return on the underlying security in the event the option expires
unexercised or is closed out at a profit. By writing a call, a Fund limits its
opportunity to profit from an increase in the market value of the underlying
security above the exercise price of the option for as long as the Fund's
obligation as a writer continues. Covered call options serve as a partial
hedge against a decline in the price of the underlying security. Each Fund may
engage in closing transactions in order to terminate outstanding options that
it has written.
Purchase of Options. Each Fund may purchase put options in connection with
its hedging activities. By buying a put, the Fund has a right to sell the
underlying security at the exercise price, thus limiting its risk of loss
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
28
<PAGE>
expiration of the option it has purchased. In certain circumstances, the Fund
may purchase call options on securities held in its portfolio on which it has
written call options, or on securities which it intends to purchase. A Fund
will not purchase options on securities if, as a result of such purchase, the
aggregate cost of all outstanding options on securities held by the Fund would
exceed 5% of the market value of the Fund's total assets.
Financial Futures Contracts and Options. Each Fund is authorized to
purchase and sell certain financial futures contracts and options thereon
solely for the purposes of hedging its investments in New York Municipal Bonds
and Municipal Bonds against declines in value and hedging against increases in
the cost of securities it intends to purchase. A financial futures contract
obligates the seller of a contract to deliver and the purchaser of a contract
to take delivery of the type of financial instrument covered by the contract
or, in the case of index-based financial futures contracts, to make and accept
a cash settlement, at a specific future time for a specified price. A sale of
financial futures contracts may provide a hedge against a decline in the value
of portfolio securities because such depreciation may be offset, in whole or
in part, by an increase in the value of the position in the financial futures
contracts or options. A purchase of financial futures contracts may provide a
hedge against an increase in the cost of securities intended to be purchased,
because such appreciation may be offset, in whole or in part, by an increase
in the value of the position in the financial futures contracts.
The purchase or sale of a financial futures contract differs from the
purchase or sale of a security in that no price or premium is paid or
received. Instead, an amount of cash or securities acceptable to the broker
equal to approximately 5% of the contract amount must be deposited with the
broker. This amount is known as initial margin. Subsequent payments to and
from the broker, called variation margin, are made on a daily basis as the
price of the financial futures contract fluctuates making the long and short
positions in the financial futures contract more or less valuable.
Each Fund may purchase and sell financial futures contracts based on The
Bond Buyer Municipal Bond Index, a price-weighted measure of the market value
of 40 large tax-exempt issues, and purchase and sell put and call options on
such financial futures contracts for the purpose of hedging New York Municipal
Bonds and Municipal Bonds that the Fund holds or anticipates purchasing
against adverse changes in interest rates. Each Fund also may purchase and
sell financial futures contracts on U.S. Government securities and purchase
and sell put and call options on such financial futures contracts for such
hedging purposes. With respect to U.S. Government securities, currently there
are financial futures contracts based on long-term U.S. Treasury bonds, U.S.
Treasury notes, GNMA Certificates and three-month U.S. Treasury bills.
Subject to policies adopted by its Board of Directors, each Fund also may
engage in transactions in other financial futures contracts, such as financial
futures contracts on other municipal bond indices that may become available,
if FAM should determine that there is normally sufficient correlation between
the prices of such financial futures contracts and the New York Municipal
Bonds and Municipal Bonds in which the Fund invests to make such hedging
appropriate.
Over-The-Counter Options. Each Fund may engage in options and futures
transactions on exchanges and in the over-the-counter markets ("OTC options").
In general, exchange-traded contracts are third-party contracts (i.e.,
performance of the parties' obligations is guaranteed by an exchange or
clearing corporation) with standardized strike prices and expiration dates.
OTC option transactions are two-party contracts with price and terms
negotiated by the buyer and seller.
Restrictions on OTC Options. Each Fund will engage in transactions in OTC
options only with banks or dealers that have capital of at least $50 million
or whose obligations are guaranteed by an entity having capital of at least
$50 million. Certain OTC options and assets used to cover OTC options written
by the Funds are considered to be illiquid. The illiquidity of such options or
assets may prevent a successful sale of such options or assets, result in a
delay of sale, or reduce the amount of proceeds that otherwise might be
realized.
29
<PAGE>
Risk Factors in Financial Futures Contracts and Options Thereon. Use of
futures transactions involves the risk of imperfect correlation in movements
in the price of financial futures contracts and movements in the price of the
security that is the subject of the hedge. If the price of the financial
futures contract moves more or less than the price of the security that is the
subject of the hedge, a Fund will experience a gain or loss that will not be
completely offset by movements in the price of such security. There is a risk
of imperfect correlation where the securities underlying financial futures
contracts have different maturities, ratings, geographic compositions or other
characteristics different from those of the security being hedged. In
addition, the correlation may be affected by additions to or deletions from
the index that serves as a basis for a financial futures contract. Finally, in
the case of financial futures contracts on U.S. Government securities and
options on such financial futures contracts, the anticipated correlation of
price movements between the U.S. Government securities underlying the futures
or options and New York Municipal Bonds and Municipal Bonds may be adversely
affected by economic, political, legislative or other developments which have
a disparate impact on the respective markets for such securities.
Under regulations of the Commodity Futures Trading Commission, the futures
trading activities described herein will not result in a Fund being deemed a
"commodity pool," as defined under such regulations, provided that the Fund
adheres to certain restrictions. In particular, the Fund may purchase and sell
financial futures contracts and options thereon (i) for bona fide hedging
purposes, without regard to the percentage of the Fund's assets committed to
margin and option premiums, and (ii) for non-hedging purposes, if, immediately
thereafter the sum of the amount of initial margin deposits on the Fund's
existing futures positions and option premiums entered into for non-hedging
purposes do not exceed 5% of the market value of the liquidation value of the
Fund's portfolio, after taking into account unrealized profits and unrealized
losses on any such transactions. Margin deposits may consist of cash or
securities acceptable to the broker and the relevant contract market.
When a Fund purchases a financial futures contract, or writes a put option
or purchases a call option thereon, it will maintain an amount of cash, cash
equivalents (e.g., commercial paper and daily tender adjustable notes) or
liquid securities in a segregated account with the Fund's custodian, so that
the amount so segregated plus the amount of initial and variation margin held
in the account of its broker equals the market value of the financial futures
contract, thereby ensuring that the use of such financial futures contract is
unleveraged.
Although certain risks are involved in options and futures transactions, FAM
believes that, because each Fund will engage in options and futures
transactions only for hedging purposes, the options and futures portfolio
strategies of a Fund will not subject the Fund to the risks associated with
speculation in options and futures transactions.
The volume of trading in the exchange markets with respect to New York
Municipal Bonds or Municipal Bond options may be limited, and it is impossible
to predict the amount of trading interest that may exist in such options. In
addition, there can be no assurance that viable exchange markets will continue
to be available.
Each Fund intends to enter into options and futures transactions, on an
exchange or in the over-the-counter market, only if there appears to be a
liquid secondary market for such options or futures. There can be no
assurance, however, that a liquid secondary market will exist at any specific
time. Thus, it may not be possible to close an option or futures transaction.
The inability to close options and futures positions also could have an
adverse impact on a Fund's ability to hedge effectively its portfolio. There
is also the risk of loss by a Fund of margin deposits or collateral in the
event of bankruptcy of a broker with which the Fund has an open position in an
option or financial futures contract.
The liquidity of a secondary market in a financial futures contract may be
adversely affected by "daily price fluctuation limits" established by
commodity exchanges that limit the amount of fluctuation in a financial
futures contract price during a single trading day. Once the daily limit has
been reached in the contract, no trades may be entered into at a price beyond
the limit, thus preventing the liquidation of open futures positions. Prices
have in the past reached or exceeded the daily limit on a number of
consecutive trading days.
30
<PAGE>
If it is not possible to close a financial futures position entered into by
a Fund, the Fund would continue to be required to make daily cash payments of
variation margin in the event of adverse price movements. In such a situation,
if the Fund has insufficient cash, it may have to sell portfolio securities to
meet daily variation margin requirements at a time when it may be
disadvantageous to do so.
The successful use of these transactions also depends on the ability of FAM
to forecast correctly the direction and extent of interest rate movements
within a given time frame. To the extent these rates remain stable during the
period in which a financial futures contract is held by a Fund or move in a
direction opposite to that anticipated, the Fund may realize a loss on the
hedging transaction that is not fully or partially offset by an increase in
the value of portfolio securities. As a result, the Fund's total return for
such period may be less than if it had not engaged in the hedging transaction.
Furthermore, the Fund will only engage in hedging transactions from time to
time and may not necessarily be engaging in hedging transactions when
movements in interest rates occur.
Investment Restrictions
The Funds have identical investment restrictions. The following are
fundamental investment restrictions of each Fund and may not be changed
without the approval of the holders of a majority of the outstanding shares of
Common Stock and the outstanding shares of AMPS and any other preferred stock,
voting together as a single class, and a majority of the outstanding shares of
AMPS and any other preferred stock, voting separately as a class. (For this
purpose and under the Investment Company Act, "majority" means for each such
class the lesser of (i) 67% of the shares of each class of capital stock
represented at a meeting at which more than 50% of the outstanding shares of
each class of capital stock are represented or (ii) more than 50% of the
outstanding shares of each class of capital stock.) Neither Fund may:
1. Make investments for the purpose of exercising control or management.
2. Purchase securities of other investment companies, except in
connection with a merger, consolidation, acquisition or reorganization, or
by purchase in the open market of securities of closed-end investment
companies and only if immediately thereafter not more than 10% of the
Fund's total assets would be invested in such securities.
3. Purchase or sell real estate, real estate limited partnerships,
commodities or commodity contracts; provided, that the Fund may invest in
securities secured by real estate or interests therein or issued by
companies that invest in real estate or interests therein, and the Fund may
purchase and sell financial futures contracts and options thereon.
4. Issue senior securities other than preferred stock or borrow amounts
in excess of 5% of its total assets taken at market value; provided,
however, that the Fund is authorized to borrow moneys in excess of 5% of
the value of its total assets for the purpose of repurchasing shares of
Common Stock or redeeming shares of preferred stock.
5. Underwrite securities of other issuers except insofar as the Fund may
be deemed an underwriter under the Securities Act of 1933 (the "Securities
Act") in selling portfolio securities.
6. Make loans to other persons, except that the Fund may purchase New
York Municipal Bonds, Municipal Bonds and other debt securities and enter
into repurchase agreements in accordance with its investment objective,
policies and limitations.
7. 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).
8. 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 New York Municipal
31
<PAGE>
Bonds, Municipal Bonds, U.S. Government obligations and related indices or
otherwise in connection with bona fide hedging activities.
9. 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.
An additional investment restriction adopted by each Fund, which may be
changed by the Board of Directors without stockholder approval, provide that
neither Fund may:
a. 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.
b. 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).
c. 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 New York 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 New York Municipal Bonds and Municipal Bonds.
If a percentage restriction on the investment or use of assets set forth
above is adhered to at the time a transaction is effected, later changes in
percentages resulting from changing values will not be considered a violation.
For so long as shares of AMPS are rated by Moody's, neither Fund will change
these additional investment restrictions unless it receives written
confirmation from Moody's that engaging in such transactions would not impair
the rating then assigned to the shares of AMPS by Moody's.
FAM and Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch")
are owned and controlled by Merrill Lynch & Co., Inc. ("ML & Co."). Because of
the affiliation of Merrill Lynch with FAM, each Fund is prohibited from
engaging in certain transactions involving Merrill Lynch except pursuant to an
exemptive order or otherwise in compliance with the provisions of the
Investment Company Act and the rules and regulations thereunder. Included
among such restricted transactions will be purchases from or sales to Merrill
Lynch of securities in transactions in which it acts as principal. An
exemptive order has been obtained that permits the Funds to effect principal
transactions with Merrill Lynch in high quality, short-term, tax-exempt
securities subject to conditions set forth in such order. The Funds may
consider in the future requesting an order permitting other principal
transactions with Merrill Lynch, but there can be no assurance that such
application will be made and, if made, that such order would be granted.
AMPS Rating Agency Guidelines
Each Fund intends that, so long as shares of its AMPS are outstanding, the
composition of its portfolio will reflect guidelines established by Moody's
and S&P in connection with the Fund's receipt of a rating for such shares on
or prior to their date of original issue of at least "aaa" from Moody's and
AAA from S&P. Moody's and S&P, which are nationally recognized statistical
rating organizations, issue ratings for various securities reflecting the
perceived creditworthiness of such securities. The guidelines for rating AMPS
have been developed by Moody's and S&P in connection with issuances of asset-
backed and similar securities, including debt obligations and variable rate
preferred stock, generally on a case-by-case basis through discussions with
the
32
<PAGE>
issuers of these securities. The guidelines are designed to ensure that assets
underlying outstanding debt or preferred stock will be varied sufficiently and
will be of sufficient quality and amount to justify investment-grade ratings.
The guidelines do not have the force of law but have been adopted by each Fund
in order to satisfy current requirements necessary for Moody's and S&P to
issue the above-described ratings for shares of AMPS, which ratings generally
are relied upon by institutional investors in purchasing such securities. The
guidelines provide a set of tests for portfolio composition and asset coverage
that supplement (and in some cases are more restrictive than) the applicable
requirements under the Investment Company Act.
Each Fund may, but is not required to, adopt any modifications to these
guidelines that hereafter may be established by Moody's or S&P. Failure to
adopt any such modifications, however, may result in a change in the ratings
described above or a withdrawal of the ratings altogether. In addition, any
rating agency providing a rating for the shares of AMPS, at any time, may
change or withdraw any such rating. As set forth in the Articles Supplementary
of each Fund, the Board of Directors, without stockholder approval, may modify
certain definitions or restrictions that have been adopted by the Fund
pursuant to the rating agency guidelines, provided the Board of Directors has
obtained written confirmation from Moody's and S&P that any such change would
not impair the ratings then assigned by Moody's and S&P to the AMPS. See "The
Reorganization--Risk Factors and Special Considerations--Ratings
Considerations."
For so long as any shares of a Fund's AMPS are rated by Moody's or S&P, as
the case may be, a Fund's use of options and financial futures contracts and
options thereon will be subject to certain limitations mandated by the rating
agencies.
33
<PAGE>
Portfolio Composition
There are small differences in concentration among the categories of issuers
of the New York Municipal Bonds and Municipal Bonds held in the portfolios of
the Funds. For New York Insured, as of August 31, 1999, the highest
concentration of New York Municipal Bonds and Municipal Bonds was in
Hospitals/Healthcare, Transportation and Education, accounting for 23%, 17%,
and 13% of the Fund's portfolio, respectively; and for New York Insured II,
the highest concentration was in Transportation, Education and
Hospitals/Healthcare, accounting for 21%, 19% and 16% of the Fund's portfolio,
respectively.
Although the investment portfolios of both Funds must satisfy the same
standards of credit quality, the actual securities owned by each Fund are
different, as a result of which there are certain differences in the
composition of the two investment portfolios. The tables below set forth
ratings information for the New York Municipal Bonds and Municipal Bonds held
by each Fund, as of a certain date.
New York Insured
As of August 31, 1999, approximately 95% of the market value of New York
Insured's portfolio was invested in long-term municipal obligations and
approximately 5% of the market value of New York Insured's portfolio was
invested in short-term municipal obligations. The following table sets forth
certain information with respect to the composition of New York Insured's
long-term municipal obligation investment portfolio as of August 31, 1999.
<TABLE>
<CAPTION>
Number of Value
S&P* Moody's* Issues (in thousands) Percent
---- -------- --------- -------------- -------
<S> <C> <C> <C> <C>
AAA Aaa 39 $240,767 98.3%
A A 1 4,105 1.7
--- -------- -----
40 $244,872 100.0%
=== ======== =====
</TABLE>
- --------
* Ratings: Using the higher of S&P's or Moody's rating on the Fund's municipal
obligations, S&P's rating categories may be modified further by a plus (+)
or minus (-) in AA, A and BBB ratings. Moody's rating categories may be
modified further by a 1, 2 or 3 in Aa, A and Baa ratings. See Exhibit IV--
"Ratings of Municipal Bonds and Commercial Paper."
New York Insured II
As of August 31, 1999 approximately 98% of the market value of New York
Insured II's portfolio was invested in long-term municipal obligations and
approximately 2% of the market value of New York Insured II's portfolio was
invested in short-term municipal obligations. The following table sets forth
certain information with respect to the composition of New York Insured II's
long-term municipal obligation investment portfolio as of August 31, 1999.
<TABLE>
<CAPTION>
Number of Value
S&P* Moody's* Issues (in thousands) Percent
---- -------- --------- -------------- -------
<S> <C> <C> <C> <C>
AAA Aaa 107 $448,979 84.9%
AA Aa 8 39,027 7.4
A A 7 26,832 5.1
BBB Baa 1 4,499 0.8
NR NR 1 9,776 1.8
--- -------- -----
124 $529,113 100.0%
=== ======== =====
</TABLE>
- --------
* Ratings: Using the higher of S&P's or Moody's rating on the Fund's municipal
obligations, S&P's rating categories may be modified further by a plus (+)
or minus (-) in AA, A and BBB ratings. Moody's rating categories may be
modified further by a 1, 2 or 3 in Aa, A and Baa ratings. See Exhibit IV--
"Ratings of Municipal Bonds and Commercial Paper."
34
<PAGE>
Portfolio Transactions
The procedures for engaging in portfolio transactions are the same for both
New York Insured and New York Insured II. Subject to policies established by
the Board of Directors of each Fund, FAM is primarily responsible for the
execution of each Fund's portfolio transactions. In executing such
transactions, FAM seeks to obtain the best results for each Fund, taking into
account such factors as price (including the applicable brokerage commission
or dealer spread), size of order, difficulty of execution and operational
facilities of the firm involved and the firm's risk in positioning a block of
securities. While FAM generally seeks reasonably competitive commission rates,
New York Insured and New York Insured II do not necessarily pay the lowest
commission or spread available.
Neither Fund has any obligation to deal with any broker or dealer in the
execution of transactions in portfolio securities. Subject to obtaining the
best price and execution, securities firms that provide supplemental
investment research to FAM, including Merrill Lynch, may receive orders for
transactions by a Fund. Information so received will be in addition to, and
not in lieu of, the services required to be performed by FAM under its
investment advisory agreements with the Funds, and the expenses of FAM will
not necessarily be reduced as a result of the receipt of such supplemental
information.
Each Fund invests in securities that are primarily traded in the over-the-
counter markets, and each Fund normally deals directly with the dealers who
make markets in the securities involved, except in those circumstances where
better prices and execution are available elsewhere. Under the Investment
Company Act, except as permitted by exemptive order, persons affiliated with a
Fund are prohibited from dealing with the Fund as principals in the purchase
and sale of securities. Since transactions in the over-the-counter markets
usually involve transactions with dealers acting as principals for their own
account, the Funds do not deal with affiliated persons, including Merrill
Lynch and its affiliates, in connection with such transactions, except that,
pursuant to an exemptive order obtained by FAM, a Fund may engage in principal
transactions with Merrill Lynch in high quality, short-term, tax-exempt
securities. An affiliated person of a Fund may serve as its broker in over-
the-counter transactions conducted on an agency basis.
New York Insured and New York Insured II also may purchase tax-exempt debt
instruments in individually negotiated transactions with the issuers. Because
an active trading market may not exist for such securities, the prices that
the Funds may pay for these securities or receive on their resale may be lower
than that for similar securities with a more liquid market.
The Board of Directors of each Fund has considered the possibility of
recapturing for the benefit of the Fund's brokerage commissions, dealer
spreads and other expenses of possible portfolio transactions, such as
underwriting commissions, by conducting portfolio transactions through
affiliated entities, including Merrill Lynch. For example, brokerage
commissions received by Merrill Lynch could be offset against the investment
advisory fees paid by the Fund to FAM. After considering all factors deemed
relevant, the Directors of each Fund made a determination not to seek such
recapture. The Directors will reconsider this matter from time to time.
Periodic auctions are conducted for the New York Insured AMPS and New York
Insured II AMPS by the Auction Agent for the Funds. The auctions require the
participation of one or more broker-dealers, each of whom enters into an
agreement with the Auction Agent. After each auction, the Auction Agent pays a
service charge, from funds provided by the issuing Fund, to each broker-dealer
at the annual rate of .25%, calculated on the basis of the purchase price of
shares of the relevant AMPS placed by such broker-dealer at such auction.
Portfolio Turnover
Generally, neither Fund purchases securities for short-term trading profits.
However, either Fund may dispose of securities without regard to the time that
they have been held when such action, for defensive or other reasons, appears
advisable to FAM. (The portfolio turnover rate is calculated by dividing the
lesser of purchases
35
<PAGE>
or sales of portfolio securities for the particular fiscal year by the monthly
average of the value of the portfolio securities owned by a Fund during the
particular fiscal year. For purposes of determining this rate, all securities
whose maturities at the time of acquisition are one year or less are
excluded.) A high portfolio turnover rate results in greater transaction
costs, which are borne directly by the Fund, and also has certain tax
consequences for stockholders. The portfolio turnover rate for each of the
Funds for the periods indicated is set forth below:
<TABLE>
<CAPTION>
Year ended Six Months ended
10/31/98 4/30/99
---------- ----------------
<S> <C> <C>
New York Insured.............................. 89.76% 43.75%
<CAPTION>
Year ended
10/31/98
----------
<S> <C> <C>
New York Insured II........................... 136.43%
</TABLE>
Net Asset Value
The net asset value per share of Common Stock of each Fund is determined
after the close of business on the NYSE (generally, 4:00 p.m., Eastern time)
on the last business day in each week. For purposes of determining the net
asset value of a share of Common Stock of each Fund, the value of the
securities held by the Fund plus any cash or other assets (including interest
accrued but not yet received) minus all liabilities (including accrued
expenses) and the aggregate liquidation value of the outstanding shares of
AMPS is divided by the total number of shares of Common Stock outstanding at
such time. Expenses, including the fees payable to FAM, are accrued daily.
The New York Municipal Bonds and Municipal Bonds in which each Fund invests
are traded primarily in the over-the-counter markets. In determining net asset
value, each Fund uses the valuations of portfolio securities furnished by a
pricing service approved by its Board of Directors. The pricing service
typically values portfolio securities at the bid price or the yield equivalent
when quotations are readily available. New York Municipal Bonds and Municipal
Bonds for which quotations are not readily available are valued at fair market
value on a consistent basis as determined by the pricing service using a
matrix system to determine valuations. The procedures of the pricing service
and its valuations are reviewed by the officers of each Fund under the general
supervision of the Board of Directors of the Fund. The Board of Directors of
each Fund has determined in good faith that the use of a pricing service is a
fair method of determining the valuation of portfolio securities. Positions in
futures contracts are valued at closing prices for such contracts established
by the exchange on which they are traded, or if market quotations are not
readily available, are valued at fair value on a consistent basis using
methods determined in good faith by the Board of Directors of each Fund.
Each Fund determines and makes available for publication the net asset value
of its Common Stock weekly. Currently, the net asset values of shares of
publicly traded closed-end investment companies investing in debt securities
are published in Barron's, the Monday edition of The Wall Street Journal, and
the Monday and Saturday editions of The New York Times.
Capital Stock
New York Insured and New York Insured II have outstanding both Common Stock
and AMPS. New York Insured Common Stock and New York Insured II Common Stock
are traded on the NYSE. The shares of New York Insured Common Stock commenced
trading on the NYSE on March 16, 1992. As of August 31, 1999, the net asset
value per share of New York Insured Common Stock was $13.84 and the market
price per share was $13.50. The shares of New York Insured II Common Stock
commenced trading on the NYSE on July 20, 1992. As of August 31, 1999, the net
asset value per share of New York Insured II Common Stock was $14.02 and the
market price per share was $12.9375.
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<PAGE>
Each Fund is authorized to issue 200,000,000 shares of capital stock, all of
which shares initially were classified as Common Stock. The Board of Directors
of each Fund is authorized to classify or reclassify any unissued shares of
capital stock by setting or changing the preferences, conversion or other
rights, voting powers, restrictions, limitations as to dividends,
qualifications, or terms or conditions of redemption. In connection with each
respective Fund's offering of shares of AMPS, New York Insured reclassified
3,400 shares of unissued capital stock as AMPS and New York Insured II
reclassified 6,960 shares of unissued capital stock as AMPS.
Common Stock
Holders of each Fund's Common Stock are entitled to share equally in
dividends declared by the Fund's Board of Directors payable to holders of the
Common Stock and in the net assets of the Fund available for distribution to
holders of the Common Stock after payment of the preferential amounts payable
to holders of any outstanding preferred stock. See "Voting Rights" and
"Liquidation Rights of Holders of AMPS" below. Holders of a Fund's Common
Stock do not have preemptive or conversion rights and shares of a Fund's
Common Stock are not redeemable. The outstanding shares of Common Stock of
each Fund are fully paid and nonassessable.
So long as any shares of a Fund's AMPS or any other preferred stock are
outstanding, holders of the Fund's Common Stock will not be entitled to
receive any dividends of or other distributions from the Fund unless all
accumulated dividends on outstanding shares of the Fund's AMPS and any other
preferred stock have been paid, and unless asset coverage (as defined in the
Investment Company Act) with respect to such AMPS and any other preferred
stock would be at least 200% after giving effect to such distributions.
Preferred Stock
New York Insured AMPS are structured identically to New York Insured II
AMPS. The AMPS of both Funds have a similar structure. The AMPS of each Fund
are shares of preferred stock of the Fund that entitle their holders to
receive dividends when, as and if declared by the Board of Directors, out of
funds legally available therefor, at a rate per annum that may vary for the
successive dividend periods. New York Insured AMPS and New York Insured II
AMPS both have liquidation preferences of $25,000 per share; neither Fund's
AMPS are traded on any stock exchange or over-the-counter. Each Fund's AMPS
can be purchased at an auction or through broker-dealers who maintain a
secondary market in the AMPS.
Auctions generally have been held and will be held every seven days for the
AMPS of each of the Funds, unless the applicable Fund elects, subject to
certain limitations, to declare a special dividend period. The following table
provides information about the dividend rates for each series of AMPS of each
of the Funds as of a recent auction.
<TABLE>
<CAPTION>
Dividend
Auction Date Fund Series Rate
------------ ------------------- ------ --------
<S> <C> <C> <C>
August 30, 1999........................ New York Insured A 2.94%
September 20, 1999..................... New York Insured B 3.35%
September 17, 1999..................... New York Insured II A 3.50%
September 21, 1999..................... New York Insured II B 3.10%
September 8, 1999...................... New York Insured II C 3.45%
August 31, 1999........................ New York Insured II D 3.40%
</TABLE>
Under the Investment Company Act, each Fund is permitted to have outstanding
more than one series of preferred stock as long as no single series has
priority over another series as to the distribution of assets of the Fund or
the payment of dividends. Holders of a Fund's preferred stock do not have
preemptive rights to purchase any shares of AMPS or any other preferred stock
that might be issued. The net asset value per share of a Fund's AMPS equals
its liquidation preference plus accumulated dividends per share.
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<PAGE>
Redemption Provisions
The redemption provisions pertaining to New York Insured AMPS are identical
to those pertaining to New York Insured II AMPS. It is anticipated that shares
of AMPS of each Fund will generally be redeemable at the option of the Fund at
a price equal to their liquidation preference plus accumulated but unpaid
dividends to the date of redemption plus, under certain circumstances, a
redemption premium. Shares of AMPS will also be subject to mandatory
redemption at a price equal to their liquidation preference plus accumulated
but unpaid dividends to the date of redemption upon the occurrence of certain
specified events, such as the failure of the Fund to maintain the asset
coverage for the AMPS specified by Moody's and S&P in connection with their
issuance of ratings on the AMPS.
Certain Provisions of the Charter
Each Fund's Charter includes provisions that could have the effect of
limiting the ability of other entities or persons to acquire control of the
Fund or to change the composition of its Board of Directors and could have the
effect of depriving stockholders 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 Director may be removed from office
with or without cause by vote of the holders of at least 66 2/3% of the votes
entitled to be voted on the matter. A Director elected by all of the holders
of capital stock may be removed only by action of such holders, and a Director
elected by the holders of AMPS and any other preferred stock may be removed
only by action of the holders of AMPS and any other preferred stock.
In addition, the Charter of each Fund requires the favorable vote of the
holders of at least 66 2/3% of all of the Fund's shares of capital stock, then
entitled to be voted, voting as a single class, to approve, adopt or authorize
the following:
.a merger or consolidation or statutory share exchange of the Fund with any
other corporation or entity,
. a sale of all or substantially all of the Fund's assets (other than in
the regular course of the Fund's investment activities), or
.a liquidation or dissolution of the Fund,
unless such action has been approved, adopted or authorized by the affirmative
vote of at least two-thirds of the total number of Directors fixed in
accordance with the by-laws, in which case the affirmative vote of a majority
of all of the votes entitled to be cast by stockholders of the Fund, voting as
a single class, is required. Such approval, adoption or authorization of the
foregoing also would require the favorable vote of at least a majority of the
Fund's shares of preferred stock then entitled to be voted thereon, including
the AMPS, voting as a separate class.
In addition, conversion of a Fund to an open-end investment company would
require an amendment to the Fund's Charter. The amendment would have to be
declared advisable by the Board of Directors prior to its submission to
stockholders. Such an amendment would require the affirmative vote of the
holders of at least 66 2/3% of the Fund's outstanding shares of capital stock
(including the AMPS and any other preferred stock) entitled to be voted on the
matter, voting as a single class (or a majority of such shares if the
amendment was previously approved, adopted or authorized by at least two-
thirds of the total number of Directors fixed in accordance with the by-laws),
and the affirmative vote of at least a majority of outstanding shares of
preferred stock of a Fund (including the AMPS), voting as a separate class.
Such a vote also would satisfy a separate requirement in the Investment
Company Act that the change be approved by the stockholders. Stockholders of
an open-end investment company may require the company to redeem their shares
of common stock at any time (except in certain circumstances as authorized by
or under the Investment Company Act) at their net asset value, less such
redemption charge, if any, as might be in effect at the time of a redemption.
All redemptions will be made in cash. If the Fund is converted to an open-end
investment company, it could be required to liquidate portfolio securities to
meet requests for redemption and the Common Stock no longer would be listed on
a stock
38
<PAGE>
exchange. Conversion to an open-end investment company would also require
redemption of all outstanding shares of preferred stock (including the AMPS)
and would require changes in certain of the Fund's investment policies and
restrictions, such as those relating to the issuance of senior securities, the
borrowing of money and the purchase of illiquid securities.
The Board of Directors of each Fund has determined that the 66 2/3% voting
requirements described above, which are greater than the minimum requirements
under Maryland law or the Investment Company Act, are in the best interests of
stockholders generally. Reference should be made to the Charter of each Fund
on file with the SEC for the full text of these provisions.
Management of the Funds
Directors and Officers. The Boards of Directors of New York Insured and New
York Insured II currently consist of the same seven persons, five of whom are
not "interested persons," as defined in the Investment Company Act, of any of
those Funds. Terry K. Glenn serves as a Director and President of both Funds,
and Arthur Zeikel serves as a Director of both Funds. The Directors of each
Fund are responsible for the overall supervision of the operations of the Fund
and perform the various duties imposed on the directors of investment
companies by the Investment Company Act and under applicable Maryland law. New
York Insured and New York Insured II have the same slate of officers.
Mr. Walter C. O'Connor serves as the portfolio manager for New York Insured.
Mr. Roberto W. Roffo serves as portfolio manager for New York Insured II. Mr.
Roberto W. Roffo will serve as the portfolio manager of the combined fund
after the Reorganization. The portfolio managers are primarily responsible for
the management of each Fund's portfolio.
Management and Advisory Arrangements. FAM, which is owned and controlled by
ML & Co., serves as the investment adviser for each of the Funds pursuant to
separate investment advisory agreements that, except for their termination
dates, are identical. FAM provides each Fund with the same investment advisory
and management services. The Asset Management Group of ML & Co. (which
includes FAM) acts as the investment adviser to more than 100 other registered
investment companies and offers services to individuals and institutional
accounts. As of July, the Asset Management Group had a total of approximately
$518 billion in investment company and other portfolio assets under management
(approximately $37 billion of which were invested in municipal securities).
This amount includes assets managed for certain affiliates of FAM. FAM is a
limited partnership, the partners of which are ML & Co. and Princeton
Services, Inc. The principal business address of FAM is 800 Scudders Mill
Road, Plainsboro, New Jersey 08536.
Each Fund's investment advisory agreement with FAM provides that, subject to
the supervision of the Board of Directors of the Fund, FAM is responsible for
the actual management of the Fund's portfolio. The responsibility for making
decisions to buy, sell or hold a particular security for each Fund rests with
FAM, subject to review by the Board of Directors of the Fund.
FAM provides the portfolio management for each of the Funds. Such portfolio
management considers analyses from various sources (including brokerage firms
with which each Fund does business), makes the necessary investment decisions,
and places orders for transactions accordingly. FAM also is responsible for
the performance of certain administrative and management services for each
Fund.
For the services provided by FAM under each Fund's investment advisory
agreement, each Fund pays a monthly fee at an annual rate of .50 of 1% of the
Fund's average weekly net assets (i.e., the average weekly value of the total
assets of the Fund, including assets acquired from the sale of preferred
stock, minus the sum of accrued liabilities of the Fund and accumulated
dividends on its shares of preferred stock). 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
39
<PAGE>
averaging the net assets at the last business day of a week with the net
assets at the last business day of the prior week.
Each Fund's investment advisory agreement obligates FAM to provide
investment advisory services and to pay all compensation of and furnish office
space for officers and employees of the Fund connected with investment and
economic research, trading and investment management of the Fund, as well as
the compensation of all Directors of the Fund who are affiliated persons of
FAM or any of its affiliates. Each Fund pays all other expenses incurred in
the operation of the Fund, including, among other things, expenses for legal
and auditing services, taxes, costs of printing proxies, listing fees, stock
certificates and stockholder reports, charges of the custodian and the
transfer agent, dividend disbursing agent and registrar, fees and expenses
with respect to the issuance of AMPS, SEC fees, fees and expenses of
unaffiliated Directors, accounting and pricing costs, insurance, interest,
brokerage costs, litigation and other extraordinary or non-recurring expenses,
mailing and other expenses properly payable by the Fund. FAM provides
accounting services to each Fund, and each Fund reimburses FAM for its
respective costs in connection with such services.
Unless earlier terminated as described below, the investment advisory
agreement between each Fund and FAM will continue from year to year if
approved annually (a) by the Board of Directors of the Fund or by a majority
of the outstanding shares of the Fund's Common Stock and AMPS, voting together
as a single class, and (b) by a majority of the Directors of the Fund who are
not parties to such contract or "interested persons," as defined in the
Investment Company Act, of any such party. The contract is not assignable and
it may be terminated without penalty on 60 days' written notice at the option
of either party thereto or by the vote of the stockholders of the Fund.
Securities held by a Fund may also be held by, or be appropriate investments
for, other funds or investment advisory clients for which FAM or its
affiliates act as an adviser. Because of different objectives or other
factors, a particular security may be bought for an advisory client when other
clients are selling the same security. If purchases or sales of securities by
FAM for a Fund or other funds for which it acts as investment adviser or for
advisory clients arise for consideration at or about the same time,
transactions in such securities will be made, insofar as feasible, for the
respective funds and clients in a manner deemed equitable to all. Transactions
effected by FAM (or its affiliates) on behalf of more than one of its clients
during the same period may increase the demand for securities being purchased
or the supply of securities being sold, causing an adverse effect on price.
Code of Ethics
The Board of Directors of each of the Funds has adopted a Code of Ethics
pursuant to Rule 17j-1 under the Investment Company Act that incorporates the
Code of Ethics of FAM (together, the "Codes"). The Codes significantly
restrict the personal investing activities of all employees of FAM and, as
described below, impose additional, more onerous, restrictions on Fund
investment personnel.
The Codes require that all employees of FAM preclear any personal securities
investment (with limited exceptions, such as U.S. Government securities). The
preclearance requirement and associated procedures are designed to identify
any substantive prohibition or limitation applicable to the proposed
investment. The substantive restrictions applicable to all employees of FAM
include a ban on acquiring any securities in a "hot" initial public offering
and a prohibition from profiting on short-term trading securities. In
addition, no employee may purchase or sell any security that at the time is
being purchased or sold (as the case may be), or to the knowledge of the
employee is being considered for purchase or sale, by any fund advised by FAM.
Furthermore, the Codes provide for trading "blackout periods" that prohibit
trading by investment personnel of each of the Funds within periods of trading
by the Fund in the same (or equivalent) security (15 or 30 days depending upon
the transaction).
40
<PAGE>
Voting Rights
Voting rights are identical for the holders of shares of New York Insured
Common Stock and the holders of New York Insured II Common Stock. Holders of
each Fund's Common Stock are entitled to one vote for each share held and will
vote with the holders of any outstanding shares of the Fund's AMPS or other
preferred stock on each matter submitted to a vote of holders of Common Stock,
except as set forth below.
Stockholders of each Fund are entitled to one vote for each share held. The
shares of each Fund's Common Stock, AMPS and any other preferred stock do not
have cumulative voting rights, which means that the holders of more than 50%
of the shares of a Fund's Common Stock, AMPS and any other preferred stock
voting for the election of Directors can elect all of the Directors standing
for election by such holders, and, in such event, the holders of the remaining
shares of a Fund's Common Stock, AMPS and any other preferred stock will not
be able to elect any of such Directors.
Voting rights of the holders of each Fund's AMPS are identical. Except as
otherwise indicated below, and except as otherwise required by applicable law,
holders of shares of a Fund's AMPS will be entitled to one vote per share on
each matter submitted to a vote of the Fund's stockholders and will vote
together with the holders of shares of the Fund's Common Stock as a single
class.
In connection with the election of a Fund's Directors, holders of shares of
a Fund's AMPS, voting separately as a class, shall be entitled at all times to
elect two of the Fund's Directors, and the remaining Directors will be elected
by holders of shares of the Fund's Common Stock and shares of the Fund's AMPS
and any other preferred stock, voting together as a single class. In addition,
if at any time dividends on outstanding shares of a Fund's AMPS shall be
unpaid in an amount equal to at least two full years' dividends thereon or if
at any time holders of any shares of a Fund's preferred stock are entitled,
together with the holders of shares of the Fund's AMPS, to elect a majority of
the Directors of the Fund under the Investment Company Act, then the number of
Directors constituting the Board of Directors automatically shall be increased
by the smallest number that, when added to the two Directors elected
exclusively by the holders of shares of AMPS and any other preferred stock as
described above, would constitute a majority of the Board of Directors as so
increased by such smallest number, and at a special meeting of stockholders
which will be called and held as soon as practicable, and at all subsequent
meetings at which Directors are to be elected, the holders of shares of the
Fund's AMPS and any other preferred stock, voting separately as a class, will
be entitled to elect the smallest number of additional Directors that,
together with the two Directors which such holders in any event will be
entitled to elect, constitutes a majority of the total number of Directors of
the Fund as so increased. The terms of office of the persons who are Directors
at the time of that election will continue. If the Fund thereafter shall pay,
or declare and set apart for payment in full, all dividends payable on all
outstanding shares of AMPS and any other preferred stock for all past dividend
periods, the additional voting rights of the holders of shares of AMPS and any
other preferred stock as described above shall cease, and the terms of office
of all of the additional Directors elected by the holders of shares of AMPS
and any other preferred stock (but not of the Directors with respect to whose
election the holders of shares of Common Stock were entitled to vote or the
two Directors the holders of shares of AMPS and any other preferred stock have
the right to elect in any event) will terminate automatically.
The affirmative vote of the holders of a majority of the outstanding shares
of a Fund's AMPS, voting as a separate class, will be required to (i)
authorize, create or issue any class or series of stock ranking prior to any
series of preferred stock 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 stock.
Stockholder Inquiries
Stockholder inquiries with respect to New York Insured and New York Insured
II may be addressed to either Fund by telephone at (609) 282-2800 or at the
address set forth on the cover page of this Proxy Statement and Prospectus.
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<PAGE>
Dividends and Distributions
New York Insured's current policy with respect to dividends and
distributions relating to shares of New York Insured Common Stock is identical
to New York Insured II's policy with respect to shares of New York Insured II
Common Stock. Each Fund intends to distribute all of its net investment
income. Dividends from such net investment income are declared and paid
monthly to holders of a Fund's Common Stock. Monthly distributions to holders
of a Fund's Common Stock normally consist of substantially all of the net
investment income remaining after the payment of dividends on the Fund's AMPS.
All net realized long-term or short-term capital gains, if any, are
distributed at least annually, pro rata to holders of shares of a Fund's
Common Stock and AMPS. While any shares of a Fund's AMPS are outstanding, the
Fund may not declare any cash dividend or other distribution on the Fund's
Common Stock, unless at the time of such declaration (1) all accumulated
dividends on the Fund's AMPS have been paid, and (2) the net asset value of
the Fund's portfolio (determined after deducting the amount of such dividend
or other distribution) is at least 200% of the liquidation value of the Fund's
outstanding shares of AMPS. This limitation on a Fund's ability to make
distributions on its Common Stock under certain circumstances could impair the
ability of the Fund to maintain its qualification for taxation as a regulated
investment company under the Federal tax laws which would have an adverse
impact on stockholders. See "Comparison of the Funds--Tax Rules Applicable to
the Fund's and their Stockholders."
Similarly, New York Insured's current policy with respect to dividends and
distributions on shares of New York Insured AMPS is identical to New York
Insured II's policy with respect to shares of New York Insured II AMPS. The
holders of shares of a Fund's AMPS are entitled to receive, when, as and if
declared by the Board of Directors of the Fund, out of funds legally available
therefor, cumulative cash dividends on their shares. Dividends on a Fund's
shares of AMPS so declared and payable shall be paid (i) in preference to and
in priority over any dividends so declared and payable on the Fund's Common
Stock, and (ii) to the extent permitted under the Code and to the extent
available, out of net tax-exempt income earned on the Fund's investments.
Dividends for each Fund's AMPS are paid through The Depository Trust Company
("DTC") (or a successor securities depository) on each dividend payment date.
DTC's normal procedures now provide for it to distribute dividends in same-day
funds to agent members, who in turn are expected to distribute such dividends
to the person for whom they are acting as agent in accordance with the
instructions of such person. Prior to each dividend payment date, the relevant
Fund is required to deposit with the Auction Agent sufficient funds for the
payment of such declared dividends. Neither of the Funds intends to establish
any reserves for the payment of dividends, and no interest will be payable in
respect of any dividend payment or payment on the shares of a Fund's AMPS
which may be in arrears.
Dividends paid by each Fund, to the extent paid from tax-exempt income
earned on New York Municipal Bonds, are exempt from Federal income tax and New
York State and New York City personal income taxes, subject to the possible
application of the alternative minimum tax. However, each Fund is required to
allocate net capital gains and other income subject to regular Federal income
tax and New York State and New York City personal income taxes, if any,
proportionately between shares of its Common Stock and shares of its AMPS in
accordance with the current position of the IRS described herein. See "Tax
Rules Applicable to the Funds and their Stockholders" below. Each Fund
notifies the Auction Agent of the amount of any net capital gains or other
taxable income to be included in any dividend on shares of AMPS prior to the
auction establishing the applicable rate for such dividend. The Auction Agent
in turn notifies each broker-dealer whenever it receives any such notice from
a Fund, and each broker-dealer then notifies its customers who are holders of
the Fund's AMPS. Each Fund also may include such income in a dividend on
shares of its AMPS without giving advance notice thereof if it increases the
dividend by an additional amount to offset the tax effect thereof. The amount
of taxable income allocable to shares of a Fund's AMPS will depend upon the
amount of such income realized by the Fund and other factors, but generally is
not expected to be significant.
For information concerning the manner in which dividends and distributions
to holders of each Fund's Common Stock may be reinvested automatically in
shares of the Fund's Common Stock, see "Automatic Dividend Reinvestment Plan"
below. Dividends and distributions will be subject to the tax treatment
discussed below, whether they are reinvested in shares of a Fund or received
in cash.
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<PAGE>
If any Fund, New York Insured or New York Insured II, as the case may be,
retroactively allocates any net capital gains or other income subject to
regular Federal income tax and New York State and New York City personal
income taxes to shares of its AMPS without having given advance notice thereof
as described above, which only may happen when such allocation is made as a
result of the redemption of all or a portion of the outstanding shares of its
AMPS or the liquidation of the Fund, the Fund will make certain payments to
holders of shares of its AMPS to which such allocation was made to offset
substantially the tax effect thereof. In no other instances will the Fund be
required to make payments to holders of shares of its AMPS to offset the tax
effect of any reallocation of net capital gains or other taxable income.
Automatic Dividend Reinvestment Plan
Pursuant to each Fund's Automatic Dividend Reinvestment Plan (each, a
"Plan"), unless a holder of a Fund's Common Stock elects otherwise, all
dividend and capital gains distributions are automatically reinvested by
either The Bank of New York or State Street Bank and Trust Company, as
applicable, as agent for stockholders in administering the Plan (as
applicable, the "Plan Agent"), in additional shares of the Fund's Common
Stock. The Bank of New York is the Plan Agent for New York Insured and will be
the Plan Agent following the Reorganization. Holders of a Fund's Common Stock
who elect not to participate in the Plan receive all distributions in cash
paid by check mailed directly to the stockholder of record (or, if the shares
are held in street or other nominee name, then to such nominee) by The Bank of
New York or State Street Bank and Trust Company, as applicable, as dividend
paying agent. Such stockholders may elect not to participate in the Plan and
to receive all distributions of dividends and capital gains in cash by sending
written instructions to The Bank of New York or State Street Bank and Trust
Company, as applicable, as dividend paying agent, at the address set forth
below. Participation in the Plan is completely voluntary and may be terminated
or resumed at any time without penalty by written notice if received by the
Plan Agent not less than ten days prior to any dividend record date;
otherwise, such termination or resumption will be effective with respect to
any subsequently declared dividend or capital gains distribution.
Whenever a Fund declares an ordinary income dividend or a capital gain
dividend (collectively referred to as "dividends") payable either in shares or
in cash, non-participants in the Plan receive cash, and participants in the
Plan receive the equivalent in shares of the Fund's Common Stock. The shares
are acquired by the Plan Agent for the participant's account, depending upon
the circumstances described below, either (i) through receipt of additional
unissued but authorized shares of the Fund's Common Stock from the Fund
("newly-issued shares") or (ii) by purchase of outstanding shares of the
Fund's Common Stock on the open market ("open-market purchases"), on the NYSE
or elsewhere. If on the payment date for the dividend, the net asset value per
share of the Fund's Common Stock is equal to or less than the market price per
share of the Fund's Common Stock plus estimated brokerage commissions (such
condition being referred to herein as "market premium"), the Plan Agent
invests the dividend amount in newly-issued shares on behalf of the
participant. The number of newly-issued shares of the Fund's Common Stock to
be credited to the participant's account is determined by dividing the dollar
amount of the dividend by the net asset value per share on the date the shares
are issued, provided that the maximum discount from the then-current market
price per share on the date of issuance may not exceed 5%. If on the dividend
payment date, the net asset value per share is greater than the market value
(such condition being referred to herein as "market discount"), the Plan Agent
invests the dividend amount in shares acquired on behalf of the participant in
open-market purchases.
In the event of a market discount on the dividend payment date, the Plan
Agent has until the last business day before the next date on which the shares
trade on an "ex-dividend" basis or in no event more than 30 days after the
dividend payment date (the "last purchase date") to invest the dividend amount
in shares acquired in open-market purchases. Each Fund intends to pay monthly
income dividends. Therefore, the period during which open-market purchases can
be made exists only from the payment date on the dividend through the date
before the next "ex-dividend" date, which typically is approximately ten days.
If, before the Plan Agent has completed its open-market purchases, the market
price of a share of a Fund's Common Stock exceeds the net asset value per
share, the average per share purchase price paid by the Plan Agent may exceed
the net asset value of the
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<PAGE>
Fund's shares, resulting in the acquisition of fewer shares than if the
dividend had been paid in newly-issued shares on the dividend payment date.
Because of the foregoing difficulty with respect to open-market purchases, the
Plan provides that if the Plan Agent is unable to invest the full dividend
amount in open-market purchases during the purchase period or if the market
discount shifts to a market premium during the purchase period, the Plan Agent
ceases making open-market purchases and invests the uninvested portion of the
dividend amount in newly-issued shares at the close of business on the last
purchase date.
The Plan Agent maintains all stockholders' accounts in the Plan and
furnishes written confirmation of all transactions in the account, including
information needed by stockholders for tax records. Shares in the account of
each Plan participant are held by the Plan Agent in non-certificated form in
the name of the participant, and each stockholder's proxy includes those
shares purchased or received pursuant to the Plan. The Plan Agent will forward
all proxy solicitation materials to participants and vote proxies for shares
held pursuant to the Plan in accordance with the instructions of the
participants.
In the case of stockholders such as banks, brokers or nominees which hold
shares for others who are the beneficial owners, the Plan Agent will
administer the Plan on the basis of the number of shares certified from time
to time by the record stockholders as representing the total amount registered
in the record stockholder's name and held for the account of beneficial owners
who are to participate in the Plan.
There are no brokerage charges with respect to shares issued directly by
either Fund as a result of dividends or capital gains distributions payable
either in shares or in cash. However, each participant pays a pro rata share
of brokerage commissions incurred with respect to the Plan Agent's open-market
purchases in connection with the reinvestment of dividends.
The automatic reinvestment of dividends and distributions does not relieve
participants of any Federal, state or local income tax that may be payable (or
required to be withheld) on such dividends. See "Comparison of the Funds--Tax
Rules Applicable to the Funds and their Stockholders."
Stockholders participating in the Plan may receive benefits not available to
stockholders not participating in the Plan. If the market price (plus
commissions) of a Fund's shares of Common Stock is higher than net asset
value, participants in the Plan receive shares of the Fund's Common Stock at
less than they otherwise could purchase them and have shares with a cash value
greater than the value of any cash distribution they would have received on
their shares. If the market price plus commissions is less than net asset
value, participants receive distributions of shares with a net asset value
greater than the value of any cash distribution they would have received on
their shares. However, there may be insufficient shares available in the
market to make distributions of shares at prices below the net asset value.
Also, since the Funds normally do not redeem their shares, the price on resale
may be more or less than the net asset value. See "Comparison of the Funds--
Tax Rules Applicable to the Funds and their Stockholders" for a discussion of
the tax consequences of the Plan.
Each Fund reserves the right to amend or terminate its Plan. There is no
direct service charge to participants in the Plan; however, each Fund reserves
the right to amend its Plan to include a service charge payable by the
participants.
After the Reorganization, a holder of shares of New York Insured II who has
elected to receive dividends in cash will continue to receive dividends in
cash; all other holders will have their dividends automatically reinvested in
shares of the combined fund. However, if a stockholder owns shares in both New
York Insured II and New York Insured, after the Reorganization, the
stockholder's election with respect to the dividends of New York Insured will
control unless the stockholder specifically elects a different option at that
time. All correspondence should be directed to the Plan Agent, The Bank of New
York, at 101 Barclay Street, New York, New York 10286.
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Mutual Fund Investment Option
A holder of New York Insured Common Stock or New York Insured II Common
Stock, who purchased his or her shares through Merrill Lynch in the Fund's
initial public offering, has the right to reinvest the net proceeds from a
sale of such shares in Class A shares of certain Merrill Lynch-sponsored open-
end funds without the imposition of an initial sales charge, if certain
conditions are satisfied. A holder of New York Insured II Common Stock who
qualifies for this option will have the same option with respect to the shares
of New York Insured Common Stock received in the Reorganization.
Liquidation Rights of Holders of AMPS
Upon any liquidation, dissolution or winding up of New York Insured or New
York Insured II, whether voluntary or involuntary, the holders of shares of
the Fund's AMPS will be entitled to receive, out of the assets of the Fund
available for distribution to stockholders, before any distribution or payment
is made upon any shares of the Fund's Common Stock or any other capital stock
of the Fund ranking junior in right of payment upon liquidation to AMPS,
$25,000 per share together with the amount of any dividends accumulated but
unpaid (whether or not earned or declared) thereon to the date of
distribution, and after such payment the holders of AMPS will be entitled to
no other payments except for any additional dividends. If such assets of the
Fund shall be insufficient to make the full liquidation payment on the AMPS
and liquidation payments on any other outstanding class or series of preferred
stock of the Fund ranking on a parity with the AMPS as to payment upon
liquidation, then such assets will be distributed among the holders of shares
of AMPS and the holders of shares of such other class or series ratably in
proportion to the respective preferential amounts to which they are entitled.
After payment of the full amount of liquidation distribution to which they are
entitled, the holders of shares of a Fund's AMPS will not be entitled to any
further participation in any distribution of assets by the Fund except for any
additional dividends. A consolidation, merger or share exchange of a Fund with
or into any other entity or entities or a sale, whether for cash, shares of
stock, securities or properties, of all or substantially all or any part of
the assets of the Fund shall not be deemed or construed to be a liquidation,
dissolution or winding up of the Fund for this purpose.
Tax Rules Applicable to the Funds and their Stockholders
The tax consequences of investing in shares of Common Stock or AMPS of each
of the Funds are identical. New York Insured and New York Insured II have
elected and qualified for the special tax treatment afforded RICs under the
Code. As a result, in any taxable year in which they distribute an amount
equal to at least 90% of taxable net income and 90% of tax-exempt net income
(see below), the Funds (but not their stockholders) are not subject to Federal
income tax to the extent that they distribute their net investment income and
net realized capital gains. In all taxable years through the taxable year of
the Reorganization, each Fund has distributed substantially all of its income.
New York Insured intends to continue to distribute substantially all of its
income following the Reorganization.
Each Fund is qualified to pay "exempt-interest dividends" as defined in
Section 852(b)(5) of the Code. Under such section, if, at the close of each
quarter of its taxable year, at least 50% of the value of a Fund's total
assets consists of obligations exempt from Federal income tax ("tax-exempt
obligations") under Section 103(a) of the Code (relating generally to
obligations of a state or local governmental unit), the Fund is qualified to
pay exempt-interest dividends to its stockholders. Exempt-interest dividends
are dividends or any part thereof paid by a Fund which are attributable to
interest on tax-exempt obligations and designated by a Fund as exempt-interest
dividends in a written notice mailed to stockholders within 60 days after the
close of its taxable year. To the extent that the dividends distributed to a
Fund's stockholders are derived from interest income exempt from Federal
income tax under Code Section 103(a) and are properly designated as exempt-
interest dividends, they are excludable from a stockholder's gross income for
Federal income tax purposes. Exempt-interest dividends are included, however,
in determining the portion, if any, of a person's social security benefits and
railroad retirement benefits subject to Federal income taxes. A tax adviser
should be consulted with respect to whether exempt-interest dividends retain
the exclusion under Code Section 103(a) if a stockholder would be treated as a
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"substantial user" or "related person" under Code Section 147(a) with respect
to property financed with the proceeds from an issue of "industrial
development bonds" or "private activity bonds," if any, held by a Fund.
The portion of exempt-interest dividends paid from interest received by a
Fund from New York Municipal Bonds also is exempt from New York State and New
York City personal income taxes. However, exempt-interest dividends paid to a
corporate stockholder are subject to New York State corporation franchise tax
and New York City general corporation tax. Stockholders subject to income
taxation by states other than New York and cities other than New York City
realize a lower after-tax rate of return than New York State and City
stockholders since the dividends distributed by a Fund generally are not
exempt, to any significant degree, from income taxation by such other states
or cities. Each Fund will inform its stockholders annually as to the portion
of the Fund's distributions that constitutes exempt-interest dividends and the
portion that is exempt from New York State and New York City personal income
taxes. To the extent attributable to exempt interest dividends, interest on
indebtedness incurred or continued to purchase or carry a Fund's shares is not
deductible for Federal income tax or New York State or New York City personal
income tax purposes.
The IRS, in a revenue ruling, held that certain AMPS would be treated as
stock for Federal income tax purposes. The terms of the currently outstanding
AMPS of New York Insured and New York Insured II, as well as the Series C, D
and E AMPS to be issued by New York Insured Fund, are substantially similar,
but not identical, to the AMPS discussed in the revenue ruling. In the opinion
of Brown & Wood LLP, counsel to all four Funds, the shares of each Fund's
currently outstanding AMPS, as well as the Series C, D and E AMPS to be issued
by New York Insured, constitute stock, and distributions with respect to
shares of such AMPS (other than distributions in redemption of shares of AMPS
subject to Section 302(b) of the Code) will constitute dividends to the extent
of current and accumulated earnings and profits as calculated for Federal
income tax purposes. Nevertheless, the IRS could take a contrary position,
asserting, for example, that the shares of AMPS constitute debt. If this
position were upheld, the discussion of the treatment of distributions below
would not apply to holders of shares of AMPS. Instead, distributions by each
Fund to holders of shares of its AMPS would constitute interest, whether or
not they exceed the earnings and profits of the Fund, would be included in
full in the income of the recipient and taxed as ordinary income. Counsel
believes that such a position, if asserted by the IRS, would be unlikely to
prevail.
To the extent that a Fund's distributions are derived from interest on its
taxable investments or from an excess of net short-term capital gains over net
long-term capital losses ("ordinary income dividends"), such distributions are
considered taxable ordinary income for Federal income tax and New York State
and New York City personal 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 stockholder
has owned Fund shares, and for New York State and New York City personal
income tax purposes will be treated as capital gains which are taxed at
ordinary income rates. Certain categories of capital gains are taxable at
different rates for Federal income tax purposes. Generally not later than 60
days after the close of its taxable year, a Fund provides its stockholders
with a written notice designating the amounts of any exempt-interest dividends
and capital gain dividends, as well as any amount of capital gain dividends in
the different categories of capital gain referred to above. Distributions by a
Fund, whether from exempt-interest income, ordinary income or capital gains,
are not eligible for the dividends received deduction for corporations under
the Code.
A loss realized on a sale or exchange of shares of a Fund is disallowed if
other Fund shares are acquired (whether under the Automatic Dividend
Reinvestment Plan or otherwise) within a 61-day period beginning 30 days
before and ending 30 days after the date that the shares are disposed of. In
such a case, the basis of the shares acquired will be adjusted to reflect the
disallowed loss.
All or a portion of a Fund's gain from the sale or redemption of tax-exempt
obligations purchased at a market discount will be treated as ordinary income
rather than capital gain. This rule may increase the amount of
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ordinary income dividends received by stockholders. Any loss upon the sale or
exchange of Fund shares held for six months or less is treated as long-term
capital loss to the extent of exempt-interest dividends received by the
stockholder. In addition, such loss is disallowed to the extent of any capital
gain dividends received by the stockholder. Distributions in excess of a
Fund's earnings and profits first will reduce the adjusted tax basis of a
holder's shares and, after such adjusted tax basis is reduced to zero, will
constitute capital gains to such holder (assuming the shares are held as a
capital asset). If a Fund pays a dividend in January which was declared in the
previous October, November or December to stockholders of record on a
specified date in one of such months, then such dividend is treated for tax
purposes as paid by the Fund and received by its stockholders on December 31
of the year in which such dividend was declared.
The IRS has taken the position in a revenue ruling that if a RIC has two or
more classes of shares it may designate distributions made to each class in
any year as consisting of no more than such class' proportionate share of
particular types of income, including exempt-interest dividends and capital
gain dividends. A class's proportionate share of a particular type of income
is determined according to the percentage of total dividends paid by the RIC
during such year that was paid to such class. Consequently, when Common Stock
and one or more series of AMPS are outstanding, each Fund intends to designate
distributions made to the classes as consisting of particular types of income
in accordance with each class's proportionate share of such income. After the
Reorganization, New York Insured will, likewise, so designate distributions
with respect to its Common Stock and its AMPS, Series A, B, C, D and E. Each
Fund may notify the Auction Agent of the amount of any net capital gains and
other taxable income to be included in any dividend on shares of its AMPS
prior to the auction establishing the applicable rate for such dividend.
Except for the portion of any dividend that a Fund informs the Auction Agent
will be treated as capital gains or other taxable income, the dividends paid
on the shares of AMPS constitute exempt-interest dividends. Alternatively,
each Fund may include such income in a dividend on shares of its AMPS without
giving advance notice thereof if it increases the dividend by an additional
amount to offset the tax effect thereof. The amount of net capital gains and
ordinary income allocable to shares of a Fund's AMPS (the "taxable
distribution") depends upon the amount of such gains and income realized by
the Fund and the total dividends paid by the Fund on shares of its Common
Stock and shares of its AMPS during a taxable year, but the taxable
distribution generally is not significant.
In the opinion of Brown & Wood LLP, counsel to both Funds, under current law
the manner in which each Fund allocates, and New York Insured Fund will
allocate, items of tax-exempt income, net capital gains, and other taxable
income, if any, among shares of Common Stock and outstanding AMPS (including,
for New York Insured, Series A and B AMPS and the newly issued Series C,
Series D and Series E AMPS) will be respected for Federal income tax purposes.
However, the tax treatment of additional dividends may affect a Fund's
calculation of each class' allocable share of capital gains and other taxable
income. In addition, there is currently no direct guidance from the IRS or
other sources specifically addressing whether a Fund's method for allocating
tax-exempt income, net capital gains and other taxable income among shares of
Common Stock and the series of AMPS will be respected for Federal income tax
purposes, and it is possible that the IRS could disagree with counsel's
opinion and attempt to reallocate a Fund's net capital gains or other taxable
income. In the event of a reallocation, some of the dividends identified by a
Fund as exempt-interest dividends to holders of shares of its AMPS could be
recharacterized as additional capital gains or other taxable income. In the
event of such recharacterization, a Fund is not required to make payments to
such stockholders to offset the tax effect of such reallocation. In addition,
a reallocation could cause a Fund to be liable for income tax and excise tax
on all reallocated taxable income. Brown & Wood LLP has advised each Fund
that, in its opinion, if the IRS were to challenge in court a Fund's
allocations of income and gain, the IRS would be unlikely to prevail. The
opinion of Brown & Wood LLP, however, represents only its best legal judgment
and is not binding on the IRS or the courts.
The Code requires a RIC to pay a nondeductible 4% excise tax to the extent
it does not distribute during each calendar year 98% of its ordinary income,
determined on a calendar year basis, and 98% of its capital gains, determined
in general, on an October 31 year-end, plus certain undistributed amounts from
previous years. The required distributions, however, are based only on the
taxable income of a RIC. The excise tax, therefore,
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generally does not apply to the tax-exempt income of RICs, such as the Funds,
that pay exempt-interest dividends.
The Code subjects interest received on certain otherwise tax-exempt
securities to a Federal alternative minimum tax. The alternative minimum tax
applies to interest received on "private activity bonds" issued after August
7, 1986. "Private activity bonds" are bonds which, although tax-exempt, are
used for purposes other than those generally performed by governmental units
and which benefit non-governmental entities (e.g., bonds used for industrial
development or housing purposes). Income received on such bonds is classified
as an item of "tax preference" which could subject investors in such bonds,
including stockholders of the Funds, to an increased Federal alternative
minimum tax. Each Fund purchases such "private activity bonds" and reports to
stockholders within 60 days after calendar year-end the portion of its
dividends declared during the year which constitutes an item of tax preference
for alternative minimum tax purposes. The Code further provides that
corporations are subject to a Federal alternative minimum tax based, in part,
on certain differences between taxable income as adjusted for other tax
preferences and the corporation's "adjusted current earnings" which more
closely reflect a corporation's economic income. Because an exempt-interest
dividend paid by a Fund is included in adjusted current earnings, a corporate
stockholder may be required to pay a Federal alternative minimum tax on
exempt-interest dividends paid by such Fund.
The Funds may invest in instruments the return on which includes
nontraditional features such as indexed principal or interest payments
("nontraditional instruments"). These instruments may be subject to special
tax rules under which a Fund may be required to accrue and distribute income
before amounts due under the obligations are paid. In addition, it is possible
that all or a portion of the interest payments on such nontraditional
instruments could be recharacterized as taxable ordinary income.
If at any time when shares of AMPS are outstanding a Fund does not meet the
asset coverage requirements of the Investment Company Act, the Fund will be
required to suspend distributions to holders of Common Stock until the asset
coverage is restored. See "Dividends and Distributions." This may prevent such
Fund from distributing at least 90% of its net investment income and may,
therefore, jeopardize the Fund's qualification for taxation as a RIC. If a
Fund were to fail to qualify as a RIC, some or all of the distributions paid
by the Fund would be fully taxable for Federal income tax and New York State
and New York City personal income tax purposes. Upon any failure to meet the
asset coverage requirements of the Investment Company Act, a Fund, in its sole
discretion, may redeem shares of AMPS in order to maintain or restore the
requisite asset coverage and avoid the adverse consequences to the Fund and
its stockholders of failing to qualify as a RIC. There can be no assurance,
however, that any such action would achieve such objectives.
As noted above, a Fund must distribute annually at least 90% of its net
taxable and tax-exempt interest income. A distribution will only be counted
for this purpose if it qualifies for the dividends paid deduction under the
Code. Some types of preferred stock that New York Insured contemplates issuing
may raise an issue as to whether distributions on such preferred stock are
"preferential" under the Code and, therefore, not eligible for the dividends
paid deduction. Counsel has advised the Funds that the outstanding preferred
stock and the preferred stock to be issued by New York Insured will not result
in the payment of a preferential dividend. If a Fund ultimately relies solely
on a legal opinion when it issues such preferred stock, there is no assurance
that the IRS would agree that dividends on the preferred stock are not
preferential. If the IRS successfully disallowed the dividends paid deduction
for dividends on the preferred stock, the Funds could be disqualified as RICs.
In this case, dividends paid by the Funds on the Common Stock and the AMPS
would not be exempt from Federal income taxes. Additionally, the Funds would
be subject to the alternative minimum tax.
Under certain circumstances, when a Fund is required to allocate taxable
income to the AMPS, it will pay Additional Distributions to holders of shares
of AMPS. The Federal income tax consequences of Additional Distributions under
existing law are uncertain. The Funds treat and New York Insured Fund intends
to continue to treat a holder as receiving a dividend distribution in the
amount of any Additional Distribution only as and when such Additional
Distribution is paid. An Additional Distribution generally is designated by a
Fund as an
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exempt-interest dividend except as otherwise required by applicable law.
However, the IRS may assert that all or part of an Additional Distribution is
a taxable dividend either in the taxable year for which the allocation of
taxable income is made or in the taxable year in which the Additional
Distribution is paid.
The value of shares acquired pursuant to a Fund's dividend reinvestment plan
is generally excluded from gross income to the extent that the cash amount
reinvested would be excluded from gross income. If, when a Fund's shares are
trading at a premium over net asset value, the Fund issues shares pursuant to
the dividend reinvestment plan that have a greater fair market value than the
amount of cash reinvested, it is possible that all or a portion of such
discount (which may not exceed 5% of the fair market value of the Fund's
shares) could be viewed as a taxable distribution. If the discount is viewed
as a taxable distribution, it is also possible that the taxable character of
this discount would be allocable to all of the stockholders, including
stockholders who do not participate in the Fund's dividend reinvestment plan.
Thus, stockholders who do not participate in the dividend reinvestment plan,
as well as dividend reinvestment plan participants, might be required to
report as ordinary income a portion of their distributions equal to the
allocable share of the discount.
Under certain provisions of the Code, some stockholders may be subject to a
31% withholding tax on certain ordinary income dividends and on capital gain
dividends and redemption payments ("backup withholding"). Generally,
stockholders subject to backup withholding will be those for whom no taxpayer
identification number is on file with a Fund or who, to the Fund's knowledge,
have furnished an incorrect number. When establishing an account, an investor
must certify under penalty of perjury that such number is correct and that
such stockholder is not otherwise subject to backup withholding.
Ordinary income dividends paid to stockholders who are nonresident aliens or
foreign entities are subject to a 30% United States withholding tax under
existing provisions of the Code applicable to foreign individuals and entities
unless a reduced rate of withholding or a withholding exemption is provided
under applicable treaty law. Nonresident stockholders are urged to consult
their own tax advisers concerning the applicability of the United States
withholding tax.
The Code provides that every stockholder required to file a tax return must
include for information purposes on such return the amount of exempt-interest
dividends received from all sources (including the Funds) during the taxable
year.
Each Fund may purchase or sell municipal bond index financial futures
contracts and interest rate financial futures contracts on U.S. Government
securities. Each Fund may also purchase and write call and put options on such
financial futures contracts. In general, unless an election is available to a
Fund or an exception applies, such options and financial futures contracts
that are "Section 1256 contracts" will be "marked to market" for Federal
income tax purposes at the end of each taxable year, i.e., each such option or
financial futures contract will be treated as sold for its fair market value
on the last day of the taxable year, and any gain or loss attributable to
Section 1256 contracts will be 60% long-term and 40% short-term capital gain
or loss. Application of these rules to Section 1256 contracts held by a Fund
may alter the timing and character of distributions to stockholders. The mark-
to-market rules outlined above, however, will not apply to certain
transactions entered into by a Fund solely to reduce the risk of changes in
price or interest rates with respect to its investments.
Code Section 1092, which applies to certain "straddles," may affect the
taxation of a Fund's sales of securities and transactions in financial futures
contracts and related options. Under Section 1092, a Fund may be required to
postpone recognition for tax purposes of losses incurred in certain sales of
securities and certain closing transactions in financial futures contracts or
the related options.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury Regulations and New York State and New
York City tax laws presently in effect. For the complete provisions, reference
should be made to the pertinent Code sections, the Treasury Regulations
promulgated thereunder and the applicable tax laws. The Code and the Treasury
Regulations, as well as the New York State and New York
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City tax laws, are subject to change by legislative, judicial or
administrative action either prospectively or retroactively.
Stockholders are urged to consult their tax advisers regarding specific
questions as to Federal, foreign, state or local tax consequences of an
investment in a Fund.
AGREEMENT AND PLAN OF REORGANIZATION
General
Under the Agreement and Plan of Reorganization (attached hereto as Exhibit
II), (i) New York Insured will acquire substantially all of the assets, and
will assume substantially all of the liabilities, of New York Insured II, in
exchange solely for shares of an equal aggregate value of New York Insured
Common Stock, New York Insured Series C AMPS, New York Insured Series D AMPS
and New York Insured Series E AMPS to be issued by New York Insured. The
number of shares of New York Insured Common Stock issued to New York Insured
II will have an aggregate net asset value equal to the aggregate net asset
value of the shares of New York Insured II Common Stock (except that cash will
be paid in lieu of any fractional shares), and the number of shares of New
York Insured Series C AMPS, New York Insured Series D AMPS and New York
Insured Series E AMPS issued to New York Insured II will have an aggregate
liquidation preference and value equal to the aggregate liquidation preference
and value of New York Insured II's AMPS. Upon receipt by New York Insured II
of such shares, New York Insured II will (i) distribute the shares of New York
Insured Common Stock to the holders of New York Insured II Common Stock in
exchange for their shares of Common Stock in New York Insured II and (ii)
distribute the shares of New York Insured Series C AMPS to the holders of New
York Insured II Series A AMPS, the shares of New York Insured Series D AMPS to
the holders of New York Insured II Series B AMPS and the shares of New York
Insured Series E AMPS to the holders of New York Insured II Series C and
Series D AMPS, in exchange for their shares of AMPS of New York Insured II.
New York Insured will file Articles Supplementary establishing the powers,
rights and preferences of the New York Insured Series C AMPS, the New York
Insured Series D AMPS and the New York Insured Series E AMPS with the State
Department of Assessments and Taxation of Maryland (the "Maryland Department")
prior to the closing of the Reorganization. As soon as practicable after the
date that the Reorganization takes place (the "Exchange Date"), New York
Insured II will file Articles of Dissolution with the Maryland Department to
effect the formal dissolution of such Fund, and will dissolve.
New York Insured II will distribute the shares of New York Insured Common
Stock and the shares of New York Insured Series C AMPS, New York Insured
Series D AMPS or New York Insured Series E AMPS received by it pro rata to its
holders of record of Common Stock and AMPS, as applicable, in exchange for
such stockholders' shares in New York Insured II. Such distribution would be
accomplished by opening new accounts on the books of New York Insured in the
names of the common and preferred stockholders of New York Insured II and
transferring to those stockholder accounts the New York Insured Common Stock
or New York Insured AMPS previously credited on those books to the accounts of
New York Insured II. Each newly-opened account on the books of New York
Insured for the previous holders of New York Insured II would represent the
respective pro rata number of shares of New York Insured Common Stock (rounded
down, in the case of fractional shares, to the next largest number of whole
shares) due such holder of Common Stock. No fractional shares of New York
Insured Common Stock will be issued. In lieu thereof, New York Insured's
transfer agent, The Bank of New York, will aggregate all fractional shares of
New York Insured Common Stock and sell the resulting whole shares on the NYSE
for the account of all holders of fractional interests, and each such holder
will be entitled to the pro rata share of the proceeds from such sale upon
surrender of the New York Insured II Common Stock certificates. Similarly,
each newly-opened account on the books of New York Insured for the previous
holders of New York Insured II AMPS would represent the respective pro rata
number of shares of New York Insured Series C AMPS, New York Insured Series D
AMPS or New York Insured Series E AMPS due such holder of AMPS. See "Surrender
and Exchange of Stock Certificates" below for a description of the procedures
to be followed by the stockholders of New York Insured II to obtain their New
York Insured
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Common Stock (and cash in lieu of fractional shares, if any). Because AMPS are
held in "street name" by the Depository Trust Company, all transfers are
accomplished by book entry and no surrender of share certificates representing
AMPS is necessary.
Accordingly, as a result of the Reorganization, every holder of New York
Insured II Common Stock would own shares of New York Insured Common Stock that
(except for cash payments received in lieu of fractional shares) would have an
aggregate net asset value immediately after the Exchange Date equal to the
aggregate net asset value of that stockholder's Common Stock immediately prior
to the Exchange Date. Since the New York Insured Common Stock would be issued
at net asset value in exchange for the net assets of New York Insured II
having a value equal to the aggregate net asset value of those shares of New
York Insured Common Stock, the net asset value per share of New York Insured
Common Stock should remain virtually unchanged by the Reorganization.
Similarly, since the New York Insured Series C AMPS, New York Insured Series D
AMPS and New York Insured Series E AMPS would be issued at a liquidation
preference and value per share equal to the liquidation preference and value
per share of New York Insured II AMPS, the liquidation preference and value
per share of the New York Insured AMPS will remain unchanged by the
Reorganization. Thus, the Reorganization will result in no dilution of net
asset value of New York Insured Common Stock other than to reflect the costs
of the Reorganization, and will result in no dilution of the liquidation
preference and value per share of the New York Insured AMPS. However, as a
result of the Reorganization, a stockholder of either Funds likely will hold a
reduced percentage of ownership in the larger combined entity than he or she
did in either of the constituent Funds.
Procedure
At meetings of the Board of Directors of each of the Funds; the Board of
Directors of each of the Funds, including all of the Directors who are not
"interested persons," as defined in the Investment Company Act, of the
applicable Fund, [unanimously] approved the Agreement and Plan of
Reorganization and the submission of such Agreement and Plan of Reorganization
to the stockholders of each of the Funds for approval.
Also, the Board of Directors of New York Insured approved the filing of
Articles Supplementary establishing the powers, rights and preferences of the
New York Insured Series C AMPS, the New York Insured Series D AMPS and the New
York Insured Series E AMPS in order that they may be distributed to holders of
New York Insured II AMPS.
As a result of such Board approvals, the Funds have jointly filed this proxy
statement with the SEC soliciting a vote of the stockholders of each of the
Funds to approve the Reorganization. The costs of such solicitation are to be
paid by New York Insured after the Reorganization so as to be borne equally
and exclusively on a per share basis by the holders of Common Stock of each of
the Funds. It is anticipated that special meetings of stockholders of the
Funds will be held on December 15, 1999. If the stockholders of both Funds
approve the Reorganization, the Reorganization will take place as soon as
practicable after such approval, provided that the Funds have obtained prior
to that time a favorable private letter rulings from the IRS concerning the
tax consequences of the Reorganization as set forth in the Agreement and Plan
of Reorganization or an opinion of counsel to the same effect.
The Boards of Directors of New York Insured and New York Insured II
recommend that the stockholders of the respective Funds approve the Agreement
and Plan of Reorganization.
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Terms of the Agreement and Plan of Reorganization
The following is a summary of the significant terms of the Agreement and
Plan of Reorganization. This summary is qualified in its entirety by reference
to the Agreement and Plan of Reorganization, attached hereto as Exhibit II.
Valuation of Assets and Liabilities. The respective assets of each of the
Funds will be valued on the business day prior to the Exchange Date (the
"Valuation Date"). The valuation procedures are the same for both Funds: net
asset value per share of the Common Stock of each Fund will be determined
after the close of business on the NYSE (generally, 4:00 p.m., Eastern time)
on the Valuation Date. For the purpose of determining the net asset value of a
share of Common Stock of each Fund, the value of the securities held by the
issuing Fund plus any cash or other assets (including interest accrued but not
yet received) minus all liabilities (including accrued expenses) and the
aggregate liquidation value of the outstanding shares of AMPS of the issuing
Fund is divided by the total number of shares of Common Stock of the issuing
Fund outstanding at such time. Daily expenses, including the fees payable to
FAM, will accrue on the Valuation Date.
The New York Municipal Bonds and Municipal Bonds in which each Fund invests
are traded primarily in the over-the-counter markets. In determining net asset
value on the Valuation Date, each Fund will use the valuations of portfolio
securities furnished by a pricing service approved by the Boards of Directors
of the Funds. The pricing service typically values portfolio securities at the
bid price or the yield equivalent when quotations are readily available. New
York Municipal Bonds and Municipal Bonds for which quotations are not readily
available will be valued at fair market value on a consistent basis as
determined by the pricing service using a matrix system to determine
valuations. The Boards of Directors of the Funds have determined in good faith
that the use of a pricing service is a fair method of determining the
valuation of portfolio securities. Positions in financial futures contracts
will be valued on the Valuation Date at closing prices for such contracts
established by the exchange on which they are traded, or if market quotations
are not readily available, will be valued at fair value on a consistent basis
using methods determined in good faith by the Board of Directors.
Distribution of New York Insured Common Stock, New York Insured Series C
AMPS, New York Insured Series D AMPS and New York Insured Series E AMPS. On
the Exchange Date, New York Insured will issue to New York Insured II a number
of shares of New York Insured Common Stock the aggregate net asset value of
which will equal the respective aggregate net asset value of shares of New
York Insured II Common Stock on the Valuation Date. Each holder of New York
Insured II Common Stock will receive the number of shares of New York Insured
Common Stock corresponding to his or her proportionate interest in the
respective aggregate net asset value of the New York Insured II Common Stock ,
as applicable.
On the Exchange Date, New York Insured also will issue to New York Insured
II (i) a number of shares of New York Insured Series C AMPS, the aggregate
liquidation preference and value of which will equal the aggregate liquidation
preference and value of New York Insured II Series A AMPS on the Valuation
Date, (ii) a number of shares of New York Insured Series D AMPS, the aggregate
liquidation preference and value of which will equal the aggregate liquidation
preference and value of New York Insured II Series B AMPS on the Valuation
Date and (iii) a number of shares of New York Insured Series E AMPS, the
aggregate liquidation preference and value of which will equal the aggregate
liquidation preference and value of New York Insured II Series C and Series D
AMPS on the Valuation Date. Each holder of AMPS of New York Insured II will
receive the number of shares of New York Insured Series C AMPS, New York
Insured Series D AMPS or New York Insured Series E AMPS corresponding to his
or her proportionate interest in the aggregate liquidation preference and
value of the AMPS of New York Insured II. No sales charge or fee of any kind
will be charged to stockholders of New York Insured II in connection with
their receipt of New York Insured Common Stock or AMPS in the Reorganization.
Holders of certain series of AMPS of New York Insured II may find that the
auction date and dividend payment date for the New York Insured AMPS received
in the Reorganization fall on different days of the week than the auction date
or dividend payment date of the AMPS currently held. Any such change in the
auction date and dividend payment date will not adversely affect the value of
a holder's AMPS. It is anticipated that (i) the auction for New York Insured
Series C AMPS will be held on Friday; New York
52
<PAGE>
Insured II Series A AMPS are auctioned on Friday; (ii) the auction for New
York Insured Series D AMPS will be held on Tuesday; New York Insured II Series
B AMPS are auctioned on Tuesday; and (iii) the auction for New York Insured
Series E AMPS will be held on Wednesday; the New York Insured II Series C AMPS
are auctioned on Wednesday and the New York Insured II Series D AMPS are
auctioned on Tuesday. The auction procedures for all of the AMPS are
substantially the same. As a result of the Reorganization, the last dividend
period for the AMPS of New York Insured II prior to the Exchange Date may be
shorter than the dividend period for such AMPS determined as set forth in the
applicable Articles Supplementary.
Expenses. New York Insured shall pay, subsequent to the Exchange Date, all
expenses incurred in connection with the Reorganization, including, but not
limited to, all costs related to the preparation and distribution of materials
distributed to each Fund's Board of Directors, expenses incurred in connection
with the preparation of the Agreement and Plan of Reorganization, a
registration statement on Form N-14 and a private letter ruling request
submitted to the IRS, SEC and state securities commission filing fees and
legal and audit fees in connection with the Reorganization, costs of printing
and distributing this Proxy Statement and Prospectus, legal fees incurred
preparing each Fund's board materials, attending each Fund's board meetings
and preparing the minutes, accounting fees associated with each Fund's
financial statements, stock exchange fees, rating agency fees, portfolio
transfer taxes (if any) and any similar expenses incurred in connection with
the Reorganization. In this regard, expenses of the Reorganization will be
deducted from the assets of the combined fund so as to be borne equally and
exclusively on a per share basis by the holders of Common Stock of each of the
Funds. Both Funds shall pay any expenses of their stockholders arising out of
or in connection with the Reorganization.
Required Approvals. Under Articles of Incorporation of each Fund (as amended
to date and including Articles Supplementary establishing the powers, rights
and preferences of the AMPS of each Fund), relevant Maryland law and the rules
of the NYSE, stockholder approval of the Agreement and Plan of Reorganization
requires the affirmative vote of stockholders representing more than 50% of
the outstanding shares of Common Stock and AMPS, voting together as a single
class, and more than 50% of the AMPS, voting separately as a class. Because of
the requirement that the Agreement and Plan of Reorganization be approved by
the stockholders of both Funds, the Reorganization will not take place if the
stockholders of either Fund do not approve the Agreement and Plan of
Reorganization.
Deregistration and Dissolution. Following the transfer of the assets and
liabilities of New York Insured II and the distribution of shares of New York
Insured Common Stock, New York Insured Series C AMPS, New York Insured Series
D AMPS and New York Insured Series E AMPS to stockholders of the Fund, in
accordance with the foregoing, New York Insured II will terminate its
registration under the Investment Company Act and its incorporation under
Maryland law and will withdraw its authority to do business in any state where
it is required to do so.
Amendments and Conditions. The Agreement and Plan of Reorganization may be
amended at any time prior to the Exchange Date with respect to any of the
terms therein. The obligations of each Fund pursuant to the Agreement and Plan
of Reorganization are subject to various conditions, including a registration
statement on Form N-14 being declared effective by the SEC, approval by the
stockholders of each of the Funds, a favorable IRS ruling or an opinion of
counsel being received as to tax matters, an opinion of counsel as to
securities matters being received and the continuing accuracy of various
representations and warranties of the Funds being confirmed by the respective
parties.
Postponement, Termination. Under the Agreement and Plan of Reorganization,
the Board of Directors of either Fund may cause the Reorganization to be
postponed or abandoned should such Board determine that it is in the best
interests of the stockholders of its respective Fund to do so. The Agreement
and Plan of Reorganization may be terminated, and the Reorganization abandoned
at any time (whether before or after adoption thereof by the stockholders of
either Fund) prior to the Exchange Date, or the Exchange Date may be
postponed: (i) by mutual consent of the Boards of Directors of both Funds or
(ii) by the Board of Directors of
53
<PAGE>
either Fund if any condition to that Fund's obligations set forth in the
Agreement and Plan of Reorganization has not been fulfilled or waived by such
Board.
Potential Benefits to Common Stockholders of the Funds as a Result of the
Reorganization
In approving the Reorganization, the Board of Directors of each Fund
identified certain benefits that are likely to result from the Reorganization,
including lower aggregate operating expenses per share of Common Stock,
greater efficiency and flexibility in portfolio management and a more liquid
trading market for the shares of Common Stock of the combined fund. With
respect to the New York Insured II, following the Reorganization its
stockholders will remain invested in a closed-end fund that has investment
objectives and policies substantially similar to those of the New York Insured
II. The Boards also considered the possible risks and costs of combining the
Funds, and examined the relative credit strength, maturity characteristics,
mix of type and purpose, and yield of the Funds' portfolios of New York
Municipal Bonds and Municipal Bonds and the costs involved in a transaction
such as the Reorganization. The Boards noted the many similarities between the
Funds, including their substantially similar investment objectives and
investment policies, their use of substantially the same management personnel
and their similar portfolios of New York Municipal Bonds and Municipal Bonds.
The Boards also considered the relative tax positions of both Funds'
portfolios. Based on these factors, the Boards concluded that the
Reorganization will potentially benefit the stockholders of each Fund in that
it (i) presents no significant risks that would outweigh the benefits
discussed above and (ii) involves minimal costs (including relatively minor
legal, accounting and administrative costs).
The surviving fund that would result from the Reorganization would have a
larger asset base than either of the Funds has currently. Based on data
presented by FAM, the Board of each Fund believes that administrative expenses
for a larger combined fund would be less than the aggregate expenses for the
individual Funds, resulting in a lower expense ratio for common stockholders
of the combined fund and higher earnings per common share. In particular,
certain fixed costs, such as costs of printing stockholder reports and proxy
statements, legal expenses, audit fees, mailing costs and other expenses will
be spread across a larger asset base, thereby lowering the expense ratio for
the combined fund. To illustrate the potential economies of scale, the table
below shows the total annualized operating expense ratio of each Fund and the
combined fund based on average net assets both excluding and including assets
attributable to AMPS as of June 30, 1999:
<TABLE>
<CAPTION>
Total annualized Average net Total annualized Average net
operating assets, excluding operating assets, including
expense ratio, AMPS expense ratio, AMPS
Fund excluding AMPS (in millions) including AMPS (in millions)
---- ---------------- ----------------- ---------------- -----------------
<S> <C> <C> <C> <C>
New York Insured........ 1.02% $182.2 0.70% $267.2
New York Insured II..... 0.95% $387.9 0.66% $561.9
Combined Fund(1)........ 0.93% $570.1 0.64% $829.1
</TABLE>
- --------
(1) Assumes Reorganization had taken place on June 30, 1999.
Management projections estimate that New York Insured will have net assets
in excess of $829.1 million including assets attributable to AMPS upon
completion of the Reorganization. A larger asset base should provide benefits
in portfolio management. After the Reorganization, New York Insured should be
able to purchase larger amounts of New York Municipal Bonds and Municipal
Bonds at more favorable prices than either of the Funds separately and, with
this greater purchasing power, request improvements in the terms of the New
York Municipal Bonds and Municipal Bonds (e.g., added indenture provisions
covering call protection, sinking funds and audits for the benefit of large
holders) prior to purchase.
Based on the foregoing, each Fund's Board concluded that the Reorganization
is in the best interests of that Fund because the Reorganization presents no
significant risks or costs (including legal, accounting and administrative
costs) that would outweigh the benefits discussed above.
In approving the Reorganization, the Board of Directors of each Fund
determined that the Reorganization is in the best interests of that Fund and,
with respect to net asset value and liquidation preference, that the interests
54
<PAGE>
of existing stockholders of that Fund would not be diluted as a result of the
Reorganization. Although the Reorganization is expected to result in a
reduction in net asset value per share of the combined fund after the
Reorganization of approximately $.01 as a result of the estimated costs of the
Reorganization, management of each Fund advised its Board that it expects that
such costs would be recovered within [18] months after the Exchange Date due
to a decrease in the operating expense ratio.
It is not anticipated that the Reorganization directly would benefit the
holders of shares of AMPS of either Fund; however, the Reorganization will not
adversely affect the holders of shares of AMPS of either Fund and the expenses
of the Reorganization will not be borne by the holders of shares of AMPS of
either Fund.
Surrender and Exchange of Stock Certificates
After the Exchange Date, each holder of an outstanding certificate or
certificates formerly representing shares of New York Insured II Common Stock
will be entitled to receive, upon surrender of his or her certificate or
certificates, a certificate or certificates representing the number of shares
of New York Insured Common Stock distributable with respect to such holder's
shares of New York Insured II Common Stock, together with cash in lieu of any
fractional shares of Common Stock. Promptly after the Exchange Date, the
transfer agent for the New York Insured Common Stock will mail to each holder
of certificates formerly representing shares of New York Insured II Common
Stock or New York Insured II AMPS a letter of transmittal for use in
surrendering his or her certificates for certificates representing shares of
New York Insured Common Stock and cash in lieu of any fractional shares of
Common Stock.
Shares of AMPS are held in "street name" by the Depository Trust Company,
and all transfers will be accomplished by book entry. Surrender of physical
certificates for AMPS is not required.
If prior to the Reorganization you held: After the Reorganization, you
------------------------------ will hold:
------------------------------
New York Insured Common Stock
New York Insured Common Stock
New York Insured Series A AMPS
New York Insured Series A AMPS
New York Insured Series B AMPS
New York Insured Series B AMPS
New York Insured II Common Stock
New York Insured Common Stock
New York Insured II Series A AMPS
New York Insured Series C AMPS
New York Insured II Series B AMPS
New York Insured Series D AMPS
New York Insured II Series C AMPS
New York Insured Series E AMPS
New York Insured II Series D AMPS
New York Insured Series E AMPS
Please do not send in any stock certificates at this time. Upon consummation
of the Reorganization, common stockholders of New York Insured II will be
furnished with instructions for exchanging their stock certificates for New
York Insured stock certificates and, if applicable, cash in lieu of fractional
shares.
From and after the Exchange Date, certificates formerly representing shares
of New York Insured II Common Stock will be deemed for all purposes to
evidence ownership of the number of full shares of New York Insured Common
Stock distributable with respect to the shares of New York Insured II held
before the Reorganization as described above and as shown in the table above,
provided that, until such stock certificates have been so surrendered, no
dividends payable to the holders of record of New York Insured II Common Stock
or New York Insured II AMPS as of any date subsequent to the Exchange Date
will be paid to the holders of such outstanding stock certificates. Dividends
payable to holders of record of shares of New York Insured Common Stock, as of
any date after the Exchange Date and prior to the exchange of certificates by
any
55
<PAGE>
stockholder of New York Insured II, will be paid to such stockholder, without
interest, at the time such stockholder surrenders his or her stock
certificates for exchange.
From and after the Exchange Date, there will be no transfers on the stock
transfer books of New York Insured II. If, after the Exchange Date,
certificates representing shares of New York Insured II Common Stock are
presented to New York Insured, they will be canceled and exchanged for
certificates representing New York Insured Common Stock, as applicable, and
cash in lieu of fractional shares of Common Stock, if any, distributable with
respect to such Common Stock in the Reorganization.
Tax Consequences of the Reorganization
General. The Reorganization has been structured with the intention that it
qualify for Federal income tax purposes as a tax-free reorganization under
Section 368(a)(1)(D) of the Code. Each of the Funds has elected and qualified
for the special tax treatment afforded RICs under the Code, and New York
Insured intends to continue to so qualify after the Reorganization. The Funds
have jointly requested a private letter ruling from the IRS that for Federal
income tax purposes: (i) the exchange of assets by New York Insured II for New
York Insured stock, as described, will constitute a reorganization within the
meaning of Section 368(a)(1)(D) of the Code, and New York Insured and New York
Insured II will each be deemed a "party" to a reorganization within the
meaning of Section 368(b) of the Code; (ii) in accordance with Section 361(a)
of the Code, no gain or loss will be recognized to New York Insured II as a
result of the Reorganization or on the distribution of New York Insured Common
Stock and New York Insured Series C AMPS, New York Insured Series D AMPS or
New York Insured Series E AMPS to the respective stockholders of New York
Insured II under Section 361(c)(1) of the Code; (iii) under Section 1032 of
the Code, no gain or loss will be recognized to New York Insured as a result
of the Reorganization; (iv) in accordance with Section 354(a)(1) of the Code,
no gain or loss will be recognized to the stockholders of New York Insured II
on the receipt of New York Insured Common Stock and New York Insured Series C
AMPS, New York Insured Series D AMPS or New York Insured Series E AMPS in
exchange for their corresponding shares of Common Stock or AMPS of New York
Insured II (except to the extent that common stockholders receive cash
representing an interest in fractional shares of New York Insured in the
Reorganization); (v) in accordance with Section 362(b) of the Code, the tax
basis of the assets of New York Insured II in the hands of New York Insured
will be the same as the tax basis of such assets in the hands of New York
Insured II immediately prior to the consummation of the Reorganization; (vi)
in accordance with Section 358 of the Code, immediately after the
Reorganization, the tax basis of the New York Insured Common Stock, New York
Insured Series C AMPS, New York Insured Series D AMPS or New York Insured
Series E AMPS received by the stockholders of New York Insured II in the
Reorganization will be equal to the tax basis of the Common Stock or AMPS of
New York Insured II surrendered in exchange; (vii) in accordance with Section
1223 of the Code, a stockholder's holding period for the New York Insured
Common Stock, New York Insured Series C AMPS, New York Insured Series D AMPS
or New York Insured Series E AMPS will be determined by including the period
for which such stockholder held the Common Stock or AMPS of New York Insured
II exchanged therefor, provided that such shares were held as a capital asset;
(viii) in accordance with Section 1223 of the Code, New York Insured's holding
period with respect to the assets of New York Insured II transferred will
include the period for which such assets were held by New York Insured II;
(ix) the payment of cash to common stockholders of New York Insured II in lieu
of fractional shares of New York Insured Common Stock will be treated as
though the fractional shares were distributed as part of the Reorganization
and then redeemed, with the result that such stockholders will have short-or
long-term capital gain or loss to the extent that the cash distribution
differs from the stockholder's basis allocable to the New York Insured
fractional shares; and (x) the taxable year of New York Insured II will end on
the effective date of the Reorganization and pursuant to Section 381(a) of the
Code and regulations thereunder, New York Insured will succeed to and take
into account certain tax attributes of New York Insured II, such as earnings
and profits, capital loss carryovers and method of accounting.
As noted in the discussion under "Comparison of the Funds--Tax Rules
Applicable to the Funds and Their Stockholders," a Fund must distribute
annually at least 90% of its net taxable and tax-exempt income. A
56
<PAGE>
distribution only will be counted for this purpose if it qualifies for the
dividends paid deduction under the Code. In the opinion of Brown & Wood LLP,
the issuance of New York Insured Series C AMPS, New York Insured Series D AMPS
and New York Insured Series E AMPS pursuant to the Reorganization in addition
to the already existing New York Insured Series A AMPS and New York Insured
Series B AMPS will not cause distributions on any series of New York Insured
AMPS to be treated as preferential dividends ineligible for the dividends paid
deduction. It is possible, however, that the IRS may assert that, because
there are several series of AMPS, distributions on such shares are
preferential under the Code and therefore not eligible for the dividends paid
deduction. If the IRS successfully disallowed the dividends paid deduction for
dividends on the AMPS, New York Insured could lose the special tax treatment
afforded RICs. In this case, dividends on the shares of New York Insured
Common Stock and AMPS would not be exempt from Federal income tax.
Additionally, New York Insured would be subject to the Federal alternative
minimum tax.
Under Section 381(a) of the Code, New York Insured will succeed to and take
into account certain tax attributes of New York Insured II, including, but not
limited to, earnings and profits, any net operating loss carryovers, any
capital loss carryovers and method of accounting. The Code, however, contains
special limitations with regard to the use of net operating losses, capital
losses and other similar items in the context of certain reorganizations,
including tax-free reorganizations pursuant to Section 368(a)(1)(D) of the
Code, which could reduce the benefit of these attributes to New York Insured.
Stockholders should consult their tax advisers regarding the effect of the
Reorganization in light of their individual circumstances. As the foregoing
relates only to Federal income tax consequences, stockholders also should
consult their tax advisers as to the foreign, state and local tax consequences
of the Reorganization.
Regulated Investment Company Status. The Funds have elected and qualified
for taxation as RICs under Sections 851-855 of the Code, and after the
Reorganization New York Insured intends to continue to so qualify.
57
<PAGE>
Capitalization
The following table sets forth as of April 30, 1999 (i) the capitalization
of New York Insured, (ii) the capitalization of New York Insured II, and (iii)
the pro forma capitalization of the combined fund as adjusted to give effect
to the Reorganization.
Pro Forma Capitalization of New York Insured, New York Insured II
and the Combined Fund as of April 30, 1999 (unaudited)
<TABLE>
<CAPTION>
Combined Fund
New York New York Pro Forma as
Insured Insured II Adjustment(a) adjusted (b)(c)
------------ ------------ ------------- ---------------
<S> <C> <C> <C> <C>
Net Assets
Net Assets
Attributable to
Common Stock......... $193,011,092 $411,790,011 $(6,054,631) $598,746,472
Net Assets
Attributable to AMPS. 85,000,000 174,000,000 -- 259,000,000
Shares Outstanding:
Common Stock.......... 12,560,647 26,668,886 -- 39,732,482(b)
AMPS..................
Series A............ 1,700 2,800 1,700 1,700
Series B............ 1,700 1,960 1,700 1,700
Series C............ N/A 1,000 2,800 2,800(b)
Series D............ N/A 1,200 1,960 1,960(b)
Series E............ N/A N/A 2,200 2,200(b)
Net Asset Value Per
Share:
Common Stock.......... $15.37 $15.44 -- $15.07(c)
AMPS.................. $25,000 $25,000 -- $25,000
</TABLE>
- --------
(a) The adjusted balances are presented as if the Reorganization had been
consummated on April 30, 1999 and are for informational purposes only.
Assumes distribution of undistributed net investment income and
undistributed realized capital gains. No assurance can be given as to how
many shares of New York Insured Common Stock that stockholders of New York
Insured II will receive on the Exchange Date, and the foregoing should not
be relied upon to reflect the number of shares of New York Insured Common
Stock that actually will be received on or after such date.
(b) Assumes the issuance of 27,171,835 shares of New York Insured Common Stock
and three newly-created series of AMPS consisting of 2,800 Series C
shares, 1,960 Series D shares and 2,200 Series E shares, respectively, in
exchange for the net assets of New York Insured II. The number of shares
issued was based on the net asset value of each Fund, net of
distributions, on April 30, 1999.
(c) Net Asset Value Per Share of Common Stock after distribution of
undistributed net investment income and undistributed realized capital
gains.
58
<PAGE>
INFORMATION CONCERNING THE SPECIAL MEETINGS
Date, Time and Place of Meetings
The Meetings will be held on December 15, 1999 at the offices of MLAM, 800
Scudders Mill Road, Plainsboro, New Jersey at the times listed on Exhibit I.
Solicitation, Revocation and Use of Proxies
A stockholder executing and returning a proxy has the power to revoke it at
any time prior to its exercise by executing a superseding proxy, by giving
written notice of the revocation to the Secretary of the appropriate Fund or
by voting in person at the Meeting. Although mere attendance at the Meetings
will not revoke a proxy, a stockholder present at the Meetings may withdraw
his or her proxy and vote in person.
All shares represented by properly executed proxies, unless such proxies
previously have been revoked, will be voted at the Meetings in accordance with
the directions on the proxies; if no direction is indicated, the shares will
be voted "FOR" the approval of the Agreement and Plan of Reorganization. It is
not anticipated that any other matters will be brought before the Meetings.
If, however, any other business properly is brought before the Meetings,
proxies will be voted in accordance with the judgment of the persons
designated on such proxies.
Record Date and Outstanding Shares
Only holders of record of shares of Common Stock or AMPS of either Fund at
the close of business on the Record Date are entitled to vote at the Meetings
or any adjournment thereof. At the close of business on the Record Date, the
Funds had the number of shares outstanding indicated in Exhibit I.
Security Ownership of Certain Beneficial Owners and Management
To the knowledge of the Funds, at the date hereof, no person or entity owns
beneficially 5% or more of the shares of the Common Stock or AMPS of either
Fund.
As of the Record Date, none of the nominees held shares of the Funds except
as set forth in the table below:
[Table to come]
As of the Record Date, the Directors and officers of New York Insured as a
group (12 persons) owned an aggregate of less than 1% of the outstanding
shares of New York Insured Common Stock and [owned no] New York Insured AMPS.
As of the Record Date, the Directors and officers of New York Insured II as
a group (12 persons) owned an aggregate of less than 1% of the outstanding
shares of New York Insured II Common Stock and [owned no] New York Insured II
AMPS.
59
<PAGE>
On the Record Date, Mr. Glenn, a Director and an officer of each of the
Funds, Mr. Zeikel, a Director of each of the Funds, and the other Directors
and officers of each Fund owned an aggregate of less than 1% of the
outstanding shares of Common Stock of ML & Co.
Voting Rights and Required Vote
For purposes of this Proxy Statement and Prospectus, each share of Common
Stock and AMPS of each of the Funds is entitled to one vote. Approval of the
Agreement and Plan of Reorganization requires the approval of each Fund. With
respect to each Fund, approval of the Agreement and Plan of Reorganization
requires the affirmative vote of stockholders representing (i) a majority of
the outstanding shares of the Fund's Common Stock and AMPS, voting together as
a single class, and (ii) a majority of the outstanding shares of the Fund's
AMPS, voting separately as a class.
Under Maryland law, stockholders of a registered investment company whose
shares are traded publicly on a national securities exchange, such as New York
Insured II, are not entitled to demand the fair value of their shares upon a
transfer of assets; therefore, the common stockholders of New York Insured II
will be bound by the terms of the Reorganization, if approved at the Meetings.
However, any common stockholder of New York Insured II may sell his or her
shares of Common Stock at any time on the NYSE. Conversely, since the AMPS are
not traded publicly on a national securities exchange, holders of AMPS issued
by New York Insured II will be entitled to appraisal rights upon the
consummation of the Reorganization. As stockholders of the corporation
acquiring the assets of New York Insured II, neither holders of New York
Insured Common Stock nor holders of New York Insured AMPS are entitled to
appraisal rights under Maryland law.
Under Maryland law, a holder of New York Insured II AMPS desiring to receive
payment of the fair value of his or her stock (an "objecting stockholder") (i)
must file with New York Insured II a written objection to the Reorganization
at or before the Meeting, (ii) must not vote in favor of the Reorganization,
and (iii) must make written demand on New York Insured for payment of his or
her stock, stating the number and class of shares for which he or she demands
payment, within 20 days after the Maryland Department of Assessments and
Taxation accepts for filing the Articles of Transfer with respect to the
Reorganization (New York Insured is required promptly to give written notice
to all objecting stockholders of the date that the Articles of Transfer are
accepted for record). An objecting stockholder who fails to adhere to this
procedure will be bound by the terms of the Reorganization. An objecting
stockholder ceases to have any rights of a stockholder except the right to
receive fair value for his or her shares and has no right to receive any
dividends or distribution payable to such holders on a record date after the
close of business on the date on which fair value is to be determined, which,
for these purposes, will be the date of the Meeting. A demand for payment of
fair market value may not be withdrawn, except upon the consent of New York
Insured. Within 50 days after the Articles of Transfer have been accepted for
filing, an objecting stockholder who has not received payment for his or her
shares may petition a court located in Baltimore, Maryland for an appraisal to
determine the fair market value of his or her stock.
For purposes of each Meeting, a quorum consists of a majority of the shares
entitled to vote at the Meeting, present in person or by proxy. If, by the
time scheduled for each Meeting, a quorum of the applicable Fund's
stockholders is not present, or if a quorum is present but sufficient votes in
favor of the Agreement and Plan of Reorganization are not received from the
stockholders of the applicable Fund, the persons named as proxies may propose
one or more adjournments of the Meeting to permit further solicitation of
proxies from stockholders. Any such adjournment will require the affirmative
vote of a majority of the shares of the applicable Fund present in person or
by proxy and entitled to vote at the session of the Meeting to be adjourned.
The persons named as proxies will vote in favor of any such adjournment if
they determine that adjournment and additional solicitation are reasonable and
in the interests of the applicable Fund's stockholders.
60
<PAGE>
ADDITIONAL INFORMATION
The expenses of preparation, printing and mailing of the enclosed form of
proxy, the accompanying Notice and this Proxy Statement and Prospectus will be
borne by New York Insured, the surviving fund after the Reorganization, so as
to be borne equally and exclusively on a per share basis by the holders of New
York Insured Common Stock and New York Insured II Common Stock. If the
Reorganization is not approved, these expenses will be allocated between the
Funds according to the net asset value of the Common Stock of each Fund on the
Meeting date.
The Funds likewise will reimburse banks, brokers and others for their
reasonable expenses in forwarding proxy solicitation materials to the
beneficial owners of shares of each of the Funds and certain persons that the
Funds may employ for their reasonable expenses in assisting in the
solicitation of proxies from such beneficial owners of shares of capital stock
of the Funds.
In order to obtain the necessary quorum at the Meetings, supplementary
solicitation may be made by mail, telephone, telegraph or personal interview
by officers of the Funds. Each of the Funds has retained [name, address] to
aid in the solicitation of proxies, at a cost to be borne by each of the Funds
of approximately $ , plus out-of-pocket expenses.
Broker-dealer firms, including Merrill Lynch, holding Fund shares in "street
name" for the benefit of their customers and clients will request the
instructions of such customers and clients on how to vote their shares on the
Reorganization before the Meetings. With respect to shares of Common Stock of
each Fund, broker-dealer firms, including Merrill Lynch, will not be permitted
to grant voting authority without instructions with respect to the approval of
the Agreement and Plan of Reorganization. Shares of AMPS held in "street
name," however, may be voted without instructions under certain conditions by
broker-dealer firms with respect to the Reorganization and counted for
purposes of establishing a quorum if no instructions are received one business
day before the Meeting or, if adjourned, one business day before the day to
which the Meeting is adjourned. These conditions include, among others, that
(i) at least 30% of the AMPS outstanding have voted on the Reorganization,
(ii) less than 10% of the AMPS outstanding have voted against the
Reorganization and (iii) holders of Common Stock have voted to approve the
Reorganization. In such instances, the broker-dealer firm will vote those
shares of AMPS on Item 1 in the same proportion as the votes cast by all
holders of AMPS who voted on the Reorganization. The Funds will include shares
held of record by broker-dealers as to which such authority has been granted
in its tabulation of the total number of shares present for purposes of
determining whether the necessary quorum of stockholders of each Fund exists.
Proxies that are returned to a Fund but that are marked "abstain" or on which
a broker-dealer has declined to vote on any proposal ("broker non-votes") will
be counted as present for the purposes of determining a quorum. Abstentions
and broker non-votes will not be counted as votes cast. Abstentions and broker
non-votes will have the same effect as a vote against the Reorganization.
This Proxy Statement and Prospectus does not contain all of the information
set forth in the registration statement and the exhibits relating thereto
which New York Insured has filed with the Commission under the Securities Act
and the Investment Company Act, to which reference is hereby made.
The Funds are subject to the informational requirements of the Exchange Act
and the Investment Company Act and in accordance therewith are required to
file reports, proxy statements and other information with the SEC. Any such
reports, proxy statements and other information can be inspected and copied at
the public reference facilities of the SEC at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549, and at the following regional
offices of the SEC: Regional Office, at Seven World Trade Center, Suite 1300,
New York, New York 10048; Pacific Regional Office, at 5670 Wilshire Boulevard,
11th Floor, Los Angeles, California 90036; and Midwest Regional Office, at
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. Copies of such materials can be obtained from the public
reference section of the SEC at 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. The SEC maintains a Web site at http://www.sec.gov
containing reports, proxy and information statements and other information
regarding
61
<PAGE>
registrants, including the Funds, that file electronically with the SEC.
Reports, proxy statements and other information concerning the Funds can also
be inspected at the offices of the New York Stock Exchange, 20 Broad Street,
New York, New York 10005.
Year 2000 Issues
Many computer systems were designed using only two digits to designate
years. These systems may not be able to distinguish the Year 2000 from the
Year 1900 (commonly known as the "Year 2000 Problem"). The Funds could be
adversely affected if the computer systems used by FAM or other Fund service
providers do not properly address this problem before January 1, 2000. FAM
expects to have addressed this problem before then, and does not anticipate
that the services it provides will be adversely affected. The Fund's other
service providers have told FAM that they also expect to resolve the Year 2000
Problem, and FAM will continue to monitor the situation as the Year 2000
approaches. However, if the problem has not been fully addressed, the Funds
could be negatively affected. The Year 2000 Problem could also have a negative
impact on the issuers of securities in which the Funds invest, and this could
hurt the Funds' investment returns.
CUSTODIAN
The Bank of New York acts as the custodian for cash and securities of New
York Insured and will act as custodian for the combined fund after the
Reorganization. The principal business address of The Bank of New York in such
capacity is 90 Washington Street, New York, New York 10286. State Street Bank
and Trust Company acts as the custodian for cash and securities of New York
Insured II. The principal business address of State Street Bank and Trust
Company in such capacity is One Heritage Drive, P2N, North Quincy,
Massachusetts 02171.
TRANSFER AGENT, DIVIDEND DISBURSING AGENT AND REGISTRAR
The Bank of New York serves as the transfer agent, dividend disbursing agent
and registrar with respect to the Common Stock of New York Insured, pursuant
to a registrar, transfer agency, dividend disbursing agency and service
agreement with New York Insured and will act as transfer agent, dividend
disbursing agent with respect to the Common Stock of the combined fund after
the Reorganization. The principal business address of The Bank of New York in
such capacity is 101 Barclay Street, New York, New York 10286.
State Street Bank and Trust Company serves as the transfer agent, dividend
disbursing agent and registrar with respect to the Common Stock of New York
Insured II, pursuant to a registrar, transfer agency and service agreement
with the Fund. The principal business address of State Street Bank and Trust
Company in such capacity is 225 Franklin Street, Boston, Massachusetts 02110.
The Bank of New York serves as the transfer agent, dividend disbursing
agent, registrar and auction agent to New York Insured and New York Insured II
in connection with their respective AMPS. The principal business address of
The Bank of New York is 101 Barclay Street, New York, New York 10286.
LEGAL PROCEEDINGS
There are no material legal proceedings to which any Fund is a party.
LEGAL OPINIONS
Certain legal matters in connection with the Reorganization will be passed
upon for the Funds by Brown & Wood LLP, New York, New York.
62
<PAGE>
EXPERTS
The financial statements for the fiscal year ended October 31, 1998, and the
financial highlights for each of the years in the five-year period then ended
of New York Insured included in this Proxy Statement and Prospectus have been
so included in reliance on the reports of D&T, independent auditors, given on
their authority as experts in auditing and accounting. The principal business
address of D&T is 117 Campus Drive, Princeton, New Jersey 08540. D&T will
serve as the independent auditors for the combined fund after the
Reorganization.
Ernst & Young LLP, independent auditors, have audited the financial
statements and financial highlights of New York Insured II for each of the two
years in the period ended October 31, 1998, as set forth in their report which
appears in this Proxy Statement and Prospectus. The financial statements and
financial highlights of New York Insured II are included in reliance upon
their report, given on their authority as experts in accounting and auditing.
The principal business address of Ernst & Young LLP is 99 Wood Avenue South,
Iselin, New Jersey 08830.
STOCKHOLDER PROPOSALS
If a stockholder of either of the Funds intends to present a proposal at the
Annual Meeting of Stockholders of either of the Funds, both of which are
anticipated to be held in April 2000, and desires to have the proposal
included in the Fund's proxy statement and form of proxy for that meeting, the
stockholder must deliver the proposal to the offices of the appropriate Fund
by .
By Order of the Boards of Directors
Alice A. Pellegrino
Secretary of MuniYield New York
Insured Fund, Inc. and MuniYield
New York Insured Fund II, Inc.
63
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Audited Financial Statements for MuniYield New York Insured Fund, Inc.
for the fiscal year ended October 31, 1998.............................. F-2
Unaudited Financial Statements for MuniYield New York Insured Fund, Inc.
for the Six-Month Period Ended April 30, 1999........................... F-16
Audited Financial Statements for MuniYield New York Insured Fund II, Inc.
for the fiscal year ended October 31, 1998.............................. F-29
Unaudited Financial Statements for MuniYield New York Insured Fund II,
Inc. for the Six-Month Period Ended April 30, 1999...................... F-47
Unaudited Financial Statements for the Combined Fund on a Pro Forma
Basis, as of April 30, 1999............................................. F-64
</TABLE>
F-1
<PAGE>
Audited Financial Statements for MuniYield New York Insured Fund, Inc. for the
Fiscal Year Ended October 31, 1998
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
MuniYield New York Insured Fund, Inc.:
We have audited the accompanying statement of assets, liabilities and capital,
including the schedule of investments, of MuniYield New York Insured Fund,
Inc., as of October 31, 1998, the related statements of operations for the
year then ended and changes in net assets for each of the years in the two-
year period then ended, and the financial highlights for each of the years in
the five-year period then ended. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial
highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and the
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned at October 31, 1998 by correspondence with the custodian and broker. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights present
fairly, in all material respects, the financial position of MuniYield New York
Insured Fund, Inc. as of October 31, 1998, the results of its operations, the
changes in its net assets, and the financial highlights for the respective
stated periods in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
December 4, 1998
F-3
<PAGE>
MuniYield New York Insured Fund, Inc. October 31, 1998
SCHEDULE OF INVESTMENTS (in Thousands)
<TABLE>
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
- ----------------------------------------------------------------------------------------------------------------------------------
New York--99.6%
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AAA Aaa $ 6,095 Albany County, New York, Airport Authority, Airport Revenue Bonds, RITR, AMT,
Series RI-97-7, 8.17% due 12/15/2023 (d)(e) $ 7,199
==================================================================================================================================
AAA Aaa 8,200 Buffalo, New York and Fort Erie, Ontario, Canada, Public Bridge Authority, Toll Bridge
System Revenue Bonds, 5.75% due 1/01/2025 (b) 8,805
==================================================================================================================================
Long Island, New York, Power Authority, Electric System Revenue Refunding Bonds,
Series A:
AAA Aaa 10,000 5.25% due 12/01/2026 (a) 10,235
</TABLE>
F-4
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
A- Baa1 4,400 5.50% due 12/01/2029 4,544
==================================================================================================================================
AAA Aaa 2,500 Metropolitan Transportation Authority, New York, Commuter Facilities Revenue Bonds,
Series C-1, 5.375% due 7/01/2027 (f) 2,591
==================================================================================================================================
AAA Aaa 11,000 Metropolitan Transportation Authority, New York, Transportation Facilities Revenue Bonds,
Series J, 6.50% due 7/01/2002 (f)(g) 12,243
==================================================================================================================================
AAA Aaa 3,000 Nassau County, New York, IDA, Civic Facility Revenue Refunding Bonds (Hofstra University
Project), 5% due 7/01/2023 (b) 2,966
==================================================================================================================================
A1+ VMIG1+ 2,325 New York City, New York, Cultural Resources Trust, Revenue Bonds (Carnegie Hall), VRDN,
2.70% due 12/01/2015 (c) 2,325
==================================================================================================================================
A1+ VMIG1+ 2,500 New York City, New York, GO, VRDN, UT, Series B, Sub-Series B-6, 3.70% due 8/15/2005 (b)(c) 2,500
==================================================================================================================================
New York City, New York, Municipal Water Finance Authority, Water and Sewer
System Revenue Bonds:
AAA Aaa 1,000 Refunding, Fiscal 1997-Series A, 5.375% due 6/15/2026 (e) 1,031
AAA Aaa 10,000 Series A, 4.75% due 6/15/2031 (f) 9,522
AAA Aaa 22,500 Series B, 5.75% due 6/15/2026 (b) 24,189
AAA Aaa 5,000 Series B, 5.50% due 6/15/2027 (b) 5,279
==================================================================================================================================
AAA Aaa 5,000 New York City, New York, Transitional Finance Authority Revenue Bonds (Future Tax
Secured), Series A, 5% due 8/15/2027 (b) 4,932
==================================================================================================================================
AAA Aaa 10,000 New York, New York, RITR, Series 33, 6.94% due 8/01/2027 (b)(d) 10,700
==================================================================================================================================
New York, New York, Refunding, GO, UT:
A- A3 3,870 Series B, 6.375% due 8/15/2012 4,321
AAA Aaa 5,000 Series G, 5% due 8/01/2006 (b) 5,292
==================================================================================================================================
</TABLE>
PORTFOLIO ABBREVIATIONS
To simplify the listings of MuniYield New York Insured Fund, Inc.'s portfolio
holdings in the Schedule of Investments, we have abbreviated the names of many
of the securities according to the list below and at right.
AMT Alternative Minimum Tax (subject to)
COP Certificates of Participation
DATES Daily Adjustable Tax-Exempt Securities
GO General Obligation Bonds
IDA Industrial Development Authority
PCR Pollution Control Revenue Bonds
RITR Residual Interest Trust Receipts
UT Unlimited Tax
VRDN Variable Rate Demand Notes
MuniYield New York Insured Fund, Inc. October 31, 1998
F-5
<PAGE>
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
<TABLE>
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
- ----------------------------------------------------------------------------------------------------------------------------------
New York (continued)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
New York State Dormitory Authority Revenue Bonds:
AAA Aaa $ 4,400 (City University System), Series C, 7.50% due 7/01/2010 (f) $ 5,639
AAA Aaa 2,365 (City University System), Third Resolution, Series 1, 6.25% due 7/01/2004 (a)(g) 2,684
AAA Aaa 4,000 (City University System), Third Resolution, Series 1, 6.25% due 7/01/2004 (a)(g) 4,540
A1+ VMIG1+ 1,200 (Cornell University), VRDN, Series B, 3.70% due 7/01/2025 (c) 1,200
AAA Aaa 2,000 (Ithaca College), 5.25% due 7/01/2026 (a) 2,044
AAA Aaa 2,000 (New School Social Research), 5.75% due 7/01/2026 (b) 2,177
AAA Aaa 4,980 Refunding (City University System), Series C, 7% due 7/01/2014 (f) 5,327
AAA Aaa 3,500 Refunding (City University System), Third Generation Resources, Series 2,
5% due 7/01/2023 (a) 3,461
AAA Aaa 4,250 Refunding (Hospital Mortgage--United Health Services Hospitals), 5.375%
due 8/01/2027 (a) 4,367
AAA Aaa 3,100 Refunding (Montefiore Medical Center), 5.25% due 2/01/2015 (a) 3,194
AAA Aaa 10,000 Refunding (North Shore University Hospital), 5.25% due 11/01/2019 (b) 10,242
AAA Aaa 6,000 Refunding (Siena College), 5.75% due 7/01/2026 (b) 6,530
AAA Aaa 5,850 Refunding (St. Joseph's Hospital Health Center), 5.25% due 7/01/2018 (b) 5,960
==================================================================================================================================
AAA Aaa 10,250 New York State Energy Research and Development Authority, Gas Facilities Revenue Bonds
(Brooklyn Union Gas Company), AMT, Series B, 6.75% due 2/01/2024 (b) 11,263
==================================================================================================================================
New York State Energy Research and Development Authority, PCR (Niagara Mohawk
Power Corp. Project), Series A (c):
A1+ NR* 4,300 DATES, 3.70% due 7/01/2015 4,300
A1+ NR* 3,700 VRDN, 3.75% due 12/01/2023 3,700
==================================================================================================================================
AAA Aaa 2,975 New York State Environmental Facilities Corporation, Special Obligation Revenue Refunding
Bonds (Riverbank State Park), 5.50% due 4/01/2016 (a) 3,162
==================================================================================================================================
A A2 7,715 New York State, GO, Series B, 5% due 3/01/2015 7,801
==================================================================================================================================
New York State Medical Care Facilities, Finance Agency Revenue Bonds:
AAA Aaa 2,790 (Health Center Project--Second Mortgage), Series A, 6.375% due 11/15/2019 (a) 3,200
AAA Aaa 1,000 (Long-Term Health Care Insured Program), Series D, 6.50% due 11/01/2015 (e) 1,105
AAA Aaa 1,865 (Long-Term Health Care), Series B, 6.45% due 11/01/2014 (e) 2,042
AAA Aaa 8,335 (Mental Health Services Facilities), Series A, 6.375% due 8/15/2017 (f) 9,099
AAA Aaa 1,000 (New York Hospital Mortgage), Series A, 6.75% due 2/15/2005 (a)(g)(h) 1,168
AAA Aaa 7,250 (New York Hospital Mortgage), Series A, 6.80% due 2/15/2005 (a)(g)(h) 8,485
AAA Aaa 10,000 Refunding (Hospital and Nursing Home), Series C, 6.375% due 8/15/2029 (b) 10,981
==================================================================================================================================
NR* Aaa 7,900 New York State Mortgage Agency Revenue Bonds, RITR, AMT, Series 24,
7.72% due 10/01/2028 (d) 8,837
==================================================================================================================================
New York State Thruway Authority, Highway and Bridge Trust Fund, Series B (f)(g):
AAA Aaa 8,000 6.25% due 4/01/2004 9,044
AAA Aaa 3,000 UT, 6% due 4/01/2004 3,355
==================================================================================================================================
AAA VMIG1+ 2,500 New York State Thruway Authority Revenue Bonds, VRDN, 3.70% due 1/01/2024 (c)(f) 2,500
</TABLE>
F-6
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
==================================================================================================================================
Port Authority of New York and New Jersey, Consolidated Revenue Bonds (f):
AAA Aaa 5,000 116th Series, 4.25% due 10/01/2026 4,453
AAA Aaa 2,180 AMT, 97th Series, 6.50% due 7/15/2019 2,443
==================================================================================================================================
AAA Aaa 5,700 Syracuse, New York, COP (Syracuse Hancock International Airport), AMT,
6.50% due 1/01/2017 (f) 6,195
==================================================================================================================================
</TABLE>
MuniYield New York Insured Fund, Inc. October 31, 1998
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
<TABLE>
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
- ----------------------------------------------------------------------------------------------------------------------------------
New York (concluded)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
A1+ VMIG1+ $ 500 Syracuse, New York, IDA, Civic Facility Revenue Bonds,
Multi-Modal (Syracuse University Project), VRDN, 3.70% due 3/01/2023 (c) $ 500
==================================================================================================================================
AAA Aaa 4,000 Triborough Bridge and Tunnel Authority, New York, Special Obligation Revenue Refunding
Bonds, Series A, 4.75% due 1/01/2024 (b) 3,841
==================================================================================================================================
Total Investments (Cost--$267,022)--99.6% 283,513
Other Assets Less Liabilities--0.4% 1,069
--------
Net Assets--100.0% $284,582
========
==================================================================================================================================
</TABLE>
(a) AMBAC Insured.
(b) MBIA Insured.
(c) The interest rate is subject to change periodically based upon prevailing
market rates. The interest rate shown is the rate in effect at October 31,
1998.
(d) The interest rate is subject to change periodically and inversely based
upon prevailing market rates. The interest rate shown is the rate in
effect at October 31, 1998.
(e) FSA Insured.
(f) FGIC Insured.
(g) Prerefunded.
(h) FHA Insured.
+ Highest short-term rating by Moody's Investors Service, Inc.
* Not Rated.
Ratings of issues shown have not been audited by Deloitte & Touche LLP.
F-7
<PAGE>
See Notes to Financial Statements.
QUALITY PROFILE
The quality ratings of securities in the Fund as of October 31, 1998 were as
follows:
- --------------------------------------------------------------------------------
Percent of
S&P Rating/Moody's Rating Net Assets
- --------------------------------------------------------------------------------
AAA/Aaa............................................................. 87.8%
A/A................................................................. 5.8
Other*.............................................................. 6.0
- --------------------------------------------------------------------------------
* Temporary investments in short-term municipal securities.
MuniYield New York Insured Fund, Inc. October 31, 1998
FINANCIAL INFORMATION
Statement of Assets, Liabilities and Capital as of October 31, 1998
<TABLE>
<CAPTION>
======================================================================================================================
<S> <C> <C> <C>
Assets: Investments, at value (identified cost--$267,022,066) (Note 1a) ........ $283,512,835
Cash ................................................................... 86,175
Receivables:
Interest ............................................................. $ 4,236,184
Securities sold ...................................................... 521,970 4,758,154
------------
Prepaid expenses and other assets ...................................... 14,053
------------
Total assets ........................................................... 288,371,217
------------
======================================================================================================================
Liabilities: Payables:
Securities purchased ................................................. 3,519,444
Investment adviser (Note 2) .......................................... 125,435
Dividends to shareholders (Note 1e) .................................. 50,734 3,695,613
------------
Accrued expenses and other liabilities ................................. 93,154
------------
Total liabilities ...................................................... 3,788,767
------------
======================================================================================================================
Net Assets: Net assets ............................................................. $284,582,450
============
======================================================================================================================
</TABLE>
F-8
<PAGE>
<TABLE>
<S> <C> <C> <C>
Capital: Capital Stock (200,000,000 shares authorized) (Note 4):
Preferred Stock, par value $.05 per share (3,400 shares of AMPS*
issued and outstanding at $25,000 per share liquidation preference) .. $ 85,000,000
Common Stock, par value $.10 per share (12,274,294 shares issued
and outstanding) ..................................................... $ 1,227,429
Paid-in capital in excess of par ....................................... 171,600,056
Undistributed investment income--net ................................... 3,010,351
Undistributed realized capital gains on investments--net ............... 7,253,845
Unrealized appreciation on investments--net ............................ 16,490,769
------------
Total--Equivalent to $16.26 net asset value per share of Common Stock
(market price--$16.3125) ............................................... 199,582,450
------------
Total capital .......................................................... $284,582,450
============
======================================================================================================================
</TABLE>
* Auction Market Preferred Stock.
See Notes to Financial Statements.
MuniYield New York Insured Fund, Inc. October 31, 1998
FINANCIAL INFORMATION (continued)
Statement of Operations
<TABLE>
<CAPTION>
For the Year Ended
October 31, 1998
===============================================================================================================
<S> <C> <C> <C>
Investment Income Interest and amortization of premium and discount earned .. $ 15,635,016
(Note 1d):
===============================================================================================================
Expenses: Investment advisory fees (Note 2) ......................... $ 1,399,829
Commission fees (Note 4) .................................. 215,237
Professional fees ......................................... 73,296
Accounting services (Note 2) .............................. 54,413
Transfer agent fees ....................................... 31,764
Listing fees .............................................. 24,441
Directors' fees and expenses .............................. 23,033
Custodian fees ............................................ 21,413
Printing and shareholder reports .......................... 20,946
Pricing fees .............................................. 8,042
Other ..................................................... 25,943
------------
Total expenses ............................................ 1,898,357
------------
Investment income--net .................................... 13,736,659
------------
</TABLE>
F-9
<PAGE>
<TABLE>
<CAPTION>
===============================================================================================================
<S> <C> <C>
Realized & Realized gain on investments--net ......................... 9,533,983
Unrealized Gain Change in unrealized appreciation on investments--net ..... (2,168,441)
(Loss) on ------------
Investments--Net Net Increase in Net Assets Resulting from Operations ...... $ 21,102,201
(Notes 1b, 1d & 3): ============
===============================================================================================================
</TABLE>
See Notes to Financial Statements.
MuniYield New York Insured Fund, Inc. October 31, 1998
FINANCIAL INFORMATION (continued)
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
For the Year Ended October 31,
------------------------------
Increase (Decrease) in Net Assets: 1998 1997
==============================================================================================================================
<S> <C> <C> <C>
Operations: Investment income--net ................................................. $ 13,736,659 $ 13,937,912
Realized gain on investments--net ...................................... 9,533,983 4,164,812
Change in unrealized appreciation on investments--net .................. (2,168,441) 1,553,036
------------- -------------
Net increase in net assets resulting from operations ................... 21,102,201 19,655,760
------------- -------------
==============================================================================================================================
Dividends & Investment income--net:
Distributions to Common Stock ......................................................... (10,960,993) (10,993,544)
Shareholders Preferred Stock ...................................................... (2,353,599) (2,826,998)
(Note 1e): Realized gain on investments--net:
Common Stock ......................................................... (2,282,779) (799,349)
Preferred Stock ...................................................... (986,221) (198,679)
------------- -------------
Net decrease in net assets resulting from dividends and distributions
to shareholders ........................................................ (16,583,592) (14,818,570)
------------- -------------
==============================================================================================================================
Capital Stock Value of shares issued to Common Stock shareholders in reinvestment
Transactions of dividends and distributions ......................................... 2,957,094 658,515
(Note 4): ------------- -------------
==============================================================================================================================
Net Assets: Total increase in net assets ........................................... 7,475,703 5,495,705
Beginning of year ...................................................... 277,106,747 271,611,042
------------- -------------
End of year* ........................................................... $ 284,582,450 $ 277,106,747
============= =============
==============================================================================================================================
*Undistributed investment income--net (Note 1f) ......................... $ 3,010,351 $ 2,576,708
</TABLE>
F-10
<PAGE>
<TABLE>
<S> <C> <C>
============= =============
==============================================================================================================================
</TABLE>
See Notes to Financial Statements.
MuniYield New York Insured Fund, Inc. October 31, 1998
FINANCIAL INFORMATION (concluded)
Financial Highlights
<TABLE>
<CAPTION>
The following per share data and ratios have been derived
from information provided in the financial statements. For the Year Ended October 31,
------------------------------------------------------
Increase (Decrease) in Net Asset Value: 1998 1997 1996 1995 1994
=================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year .................. $ 15.89 $ 15.49 $ 15.64 $ 14.17 $ 16.85
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .............................. 1.12 1.15 1.15 1.19 1.20
Realized and unrealized gain (loss) on
investments--net .................................... .61 .48 (.03) 1.58 (2.67)
-------- -------- -------- -------- --------
Total from investment operations .................... 1.73 1.63 1.12 2.77 (1.47)
-------- -------- -------- -------- --------
Less dividends and distributions to Common Stock
shareholders:
Investment income--net ............................ (.90) (.91) (.91) (.92) (.97)
Realized gain on investments--net ................. (.19) (.07) -- (.10) (.05)
In excess of realized gain on investments--net .... -- -- (.10) -- --
-------- -------- -------- -------- --------
Total dividends and distributions to
Common Stock shareholders ......................... (1.09) (.98) (1.01) (1.02) (1.02)
-------- -------- -------- -------- --------
Effect of Preferred Stock activity:
Dividends and distributions to Preferred
Stock shareholders:
Investment income--net .......................... (.19) (.23) (.23) (.26) (.18)
Realized gain on investments--net ............... (.08) (.02) -- (.02) (.01)
In excess of realized gain on investments--net .. -- -- (.03) -- --
-------- -------- -------- -------- --------
Total effect of Preferred Stock activity ............ (.27) (.25) (.26) (.28) (.19)
-------- -------- -------- -------- --------
Net asset value, end of year ........................ $ 16.26 $ 15.89 $ 15.49 $ 15.64 $ 14.17
======== ======== ======== ======== ========
Market price per share, end of year ................. $16.3125 $ 15.875 $ 14.875 $ 14.375 $ 12.25
======== ======== ======== ======== ========
=================================================================================================================================
Total Investment Based on market price per share ..................... 9.99% 13.79% 10.79% 26.40% (20.49%)
Return:* ======== ======== ======== ======== ========
</TABLE>
F-11
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Based on net asset value per share .................. 9.53% 9.37% 6.04% 18.89% (9.94%)
======== ======== ======== ======== ========
=================================================================================================================================
Ratios to Average Expenses ............................................ .68% .70% .70% .71% .70%
Net Assets:** ======== ======== ======== ======== ========
Investment income--net .............................. 4.91% 5.09% 5.11% 5.42% 5.28%
======== ======== ======== ======== ========
=================================================================================================================================
Supplemental Net assets, net of Preferred Stock, end of year
Data: (in thousands) ...................................... $199,582 $192,107 $186,611 $188,354 $170,670
======== ======== ======== ======== ========
Preferred Stock outstanding, end of year
(in thousands) ...................................... $ 85,000 $ 85,000 $ 85,000 $ 85,000 $ 85,000
======== ======== ======== ======== ========
Portfolio turnover .................................. 89.76% 81.73% 80.59% 88.17% 41.26%
======== ======== ======== ======== ========
=================================================================================================================================
Leverage: Asset coverage per $1,000 ........................... $ 3,348 $ 3,260 $ 3,195 $ 3,216 $ 3,008
======== ======== ======== ======== ========
=================================================================================================================================
Dividends Per Share Series A--Investment income--net .................... $ 695 $ 826 $ 819 $ 935 $ 673
On Preferred Stock ======== ======== ======== ======== ========
Outstanding:+ Series B--Investment income--net .................... $ 689 $ 837 $ 807 $ 904 $ 593
======== ======== ======== ======== ========
=================================================================================================================================
</TABLE>
* Total investment returns based on market value, which can be
significantly greater or lesser than the net asset value, may result
in substantially different returns. Total investment returns exclude
the effects of sales loads.
** Do not reflect the effect of dividends to Preferred Stock
shareholders.
+ Dividends per share have been adjusted to reflect a two-for-one
stock split that occurred on December 1, 1994.
See Notes to Financial Statements.
MuniYield New York Insured Fund, Inc. October 31, 1998
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
MuniYield New York Insured Fund, Inc. (the "Fund") is registered under the
Investment Company Act of 1940 as a non-diversified, closed-end management
investment company. The Fund determines and makes available for publication the
net asset value of its Common Stock on a weekly basis. The Fund's Common Stock
is listed on the New York Stock Exchange under the symbol MYN. The following is
a summary of significant accounting policies followed by the Fund.
(a) Valuation of investments--Municipal bonds are traded primarily in the
over-the-counter markets and are valued at the most recent bid price or yield
F-12
<PAGE>
equivalent as obtained by the Fund's pricing service from dealers that make
markets in such securities. Financial futures contracts and options thereon,
which are traded on exchanges, are valued at their closing prices as of the
close of such exchanges. Options written or purchased are valued at the last
sale price in the case of exchange-traded options. In the case of options traded
in the over-the-counter market, valuation is the last asked price (options
written) or the last bid price (options purchased). Securities with remaining
maturities of sixty days or less are valued at amortized cost, which
approximates market value. Securities and assets for which market quotations are
not readily available are valued at their fair value as determined in good faith
by or under the direction of the Board of Directors of the Fund, including val
uations furnished by a pricing service retained by the Fund, which may utilize a
matrix system for val uations. 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 Directors.
(b) Derivative financial instruments--The Fund may engage in various portfolio
strategies to seek to increase its return by hedging its portfolio against
adverse movements in the debt markets. Losses may arise due to changes in the
value of the contract or if the counterparty does not perform under the
contract.
o Financial futures contracts--The Fund may purchase or sell financial futures
contracts and options on such futures contracts for the purpose of hedging the
market risk on existing securities or the intended purchase of securities.
Futures contracts are contracts for delayed delivery of securities at a specific
future date and at a specific price or yield. Upon entering into a contract, the
Fund deposits and maintains as collateral such initial margin as required by the
exchange on which the transaction is effected. Pursuant to the contract, the
Fund agrees to receive from or pay to the broker an amount of cash equal to the
daily fluctuation in value of the contract. Such receipts or payments are known
as variation margin and are recorded by the Fund as unrealized gains or losses.
When the contract is closed, the Fund records a realized gain or loss equal to
the difference between the value of the contract at the time it was opened and
the value at the time it was closed.
o Options--The Fund is authorized to write covered call options and purchase put
options. When the Fund writes an option, an amount equal to the premium received
by the Fund is reflected as an asset and an equivalent liability. The amount of
the liability is subsequently marked to market to reflect the current market
value of the option written.
When a security is purchased or sold through an exercise of an option, the
related premium paid (or received) is added to (or deducted from) the basis of
the security acquired or deducted from (or added to) the proceeds of the
security sold. When an option expires (or the Fund enters into a closing
transaction), the Fund realizes a gain or loss on the option to the extent of
the premiums received or paid (or gain or loss to the extent the cost of the
closing transaction exceeds the premium paid or received).
Written and purchased options are non-income producing investments.
(c) Income taxes--It is the Fund's policy to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no Federal income tax provision is required.
F-13
<PAGE>
(d) Security transactions and investment income--Security transactions are
recorded on the dates the transactions are entered into (the trade dates).
Interest income is recognized on the accrual basis. Discounts and market
premiums are amortized into interest income. Realized gains and losses on
security transactions are determined on the identified cost basis.
(e) Dividends and distributions--Dividends from net investment income are
declared and paid
monthly. Distributions of capital gains are recorded on the ex-dividend dates.
(f) Reclassification--Generally accepted accounting principles require that
certain components of net assets be adjusted to reflect permanent differences
between financial and tax reporting. Accordingly, current year's permanent
book/tax differences of $11,576 have been reclassified between undistributed net
realized capital gains and undistributed net investment income. These
reclassifications have no effect on net assets or net asset value per share.
2. Investment Advisory Agreement and Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with Fund Asset
Management, L.P. ("FAM"). The general partner of FAM is Princeton Services, Inc.
("PSI"), an indirect wholly-owned subsidiary of Merrill Lynch & Co., Inc. ("ML &
Co."), which is the limited partner.
FAM is responsible for the management of the Fund's portfolio and provides the
necessary personnel, facilities, equipment and certain other services necessary
to the operations of the Fund. For such services, the Fund pays a monthly fee at
an annual rate of 0.50% of the Fund's average weekly net assets, including
proceeds from the issuance of Preferred Stock.
Accounting services are provided to the Fund by FAM at cost.
Certain officers and/or directors of the Fund are officers and/or directors of
FAM, PSI, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the
year ended October 31, 1998 were $242,922,560 and $240,943,452, respectively.
Net realized gains for the year ended October 31, 1998 and net unrealized gains
as of October 31, 1998 were as follows:
- --------------------------------------------------------------------------------
Realized Unrealized
Gains Gains
- --------------------------------------------------------------------------------
Long-term investments ..................... $9,372,121 $16,490,769
Financial futures contracts ............... 161,862 --
---------- -----------
Total ..................................... $9,533,983 $16,490,769
========== ===========
F-14
<PAGE>
- --------------------------------------------------------------------------------
As of October 31, 1998, net unrealized appreciation for Federal income tax
purposes aggregated $16,490,769, of which $16,905,881 related to appreciated
securities and $415,112 related to depreciated securities. The aggregate cost of
investments at October 31, 1998 for Federal income tax purposes was
$267,022,066.
4. Capital Stock Transactions:
The Fund is authorized to issue 200,000,000 shares of capital stock, including
Preferred Stock, par value $.10 per share, all of which were initially
classified as Common Stock. The Board of Directors is authorized, however, to
reclassify any unissued shares of capital stock without approval of the holders
of Common Stock.
Common Stock
Shares issued and outstanding during the years ended October 31, 1998 and
October 31, 1997 increased by 185,859 and 41,692, respectively, as a result of
dividend reinvestment.
Preferred Stock
Auction Market Preferred Stock ("AMPS") are shares of Preferred Stock of the
Fund, with a par value of $.05 per share and a liquidation preference of $25,000
per share, that entitle their holders to receive cash dividends at an annual
rate that may vary for the suc ces sive dividend periods. The yields in effect
at October 31, 1998 were: Series A, 3.23% and Series B, 3.25%.
Shares issued and outstanding during the years ended October 31, 1998 and
October 31, 1997 remained constant.
The Fund pays commissions to certain broker-dealers at the end of each auction
at an annual rate ranging from 0.25% to 0.375%, calculated on the proceeds of
each auction. For the year ended October 31, 1998, Merrill Lynch, Pierce, Fenner
& Smith Inc., an affiliate of FAM, earned $85,619 as commissions.
5. Subsequent Event:
On November 5, 1998, the Fund's Board of Directors declared an ordinary income
dividend to Common Stock shareholders in the amount of $.080966 per share,
payable on November 27, 1998 to shareholders of record as of November 20, 1998.
F-15
<PAGE>
Unaudited Financial Statements for MuniYield New York Insured Fund, Inc. for
the Six-Month Period Ended April 30, 1999
F-16
<PAGE>
MuniYield New York Insured Fund, Inc. April 30, 1999
SCHEDULE OF INVESTMENTS (in Thousands)
<TABLE>
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
=================================================================================================================
New York--100.1%
<S> <C> <C> <C> <C>
Albany County, New York, Airport Authority, Airport Revenue Bonds:
NR* Aaa $ 6,095 RITR, Series RI-7, 7.52% due 12/15/2023 (d)(e) $ 7,188
AAA Aaa 4,565 Series B, 4.75% due 12/15/2018 (e) 4,368
- -----------------------------------------------------------------------------------------------------------------
AAA Aaa 8,200 Buffalo and Fort Erie, New York, Public Bridge Authority, Toll Bridge
System Revenue Bonds, 5.75% due 1/01/2025 (b) 8,725
- -----------------------------------------------------------------------------------------------------------------
AAA Aaa 10,000 Long Island Power Authority, New York, Electric System Revenue Bonds,
</TABLE>
F-17
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Series A, 5.25% due 12/01/2026 (a) 10,142
- -----------------------------------------------------------------------------------------------------------------
A1+ VMIG1+ 850 Long Island Power Authority, New York, Electric System Revenue Bonds,
VRDN, Sub-Series 7, 4.10% due 4/01/2025 (b)(c) 850
- -----------------------------------------------------------------------------------------------------------------
AAA Aaa 2,500 Metropolitan Transportation Authority, New York, Commuter Facilities
Revenue Bonds, Series C-1, 5.375% due 7/01/2027 (f) 2,576
- -----------------------------------------------------------------------------------------------------------------
AAA Aaa 4,680 Metropolitan Transportation Authority, New York, Commuter Facilities
Revenue Refunding Bonds, Series B, 4.75% due 7/01/2026 (f) 4,401
- -----------------------------------------------------------------------------------------------------------------
AAA Aaa 7,370 Metropolitan Transportation Authority, New York, Transportation
Facilities Revenue Refunding Bonds, Series A, 4.75% due 7/01/2024 (b) 6,946
- -----------------------------------------------------------------------------------------------------------------
AAA Aaa 5,000 Nassau County, New York, GO (General Improvement), Series V, 5.25%
due 3/01/2011 (a) 5,250
- -----------------------------------------------------------------------------------------------------------------
New York City, New York, GO, Refunding:
A- A3 3,870 Series B, 6.375% due 8/15/2012 4,281
AAA Aaa 2,500 Series D, 5.25% due 8/01/2021 (b) 2,533
- -----------------------------------------------------------------------------------------------------------------
A1+ VMIG1+ 400 New York City, New York, GO, VRDN, Series B-2, Sub-Series B-5, 4.10%
due 8/15/2011 (b)(c) 400
- -----------------------------------------------------------------------------------------------------------------
New York City, New York, Municipal Water Finance Authority, Water and
Sewer System Revenue Bonds, Series B (b):
AAA Aaa 22,500 5.75% due 6/15/2026 24,161
AAA Aaa 5,000 5.50% due 6/15/2027 5,222
- -----------------------------------------------------------------------------------------------------------------
New York City, New York, Municipal Water Finance Authority, Water and
Sewer System Revenue Refunding Bonds:
AAA Aaa 1,000 Series A, 5.375% due 6/15/2026 (e) 1,025
AAA Aaa 10,000 Series B, 5.25% due 6/15/2029 (a) 10,122
- -----------------------------------------------------------------------------------------------------------------
NR* Aaa 14,585 New York City, New York, RITR, Series 33, 6.24% due 8/01/2027 (b)(d) 15,442
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
PORTFOLIO ABBREVIATIONS
To simplify the listings of MuniYield New York Insured Fund, Inc.'s portfolio
holdings in the Schedule of Investments, we have abbreviated the names of many
of the securities according to the list below and at right.
AMT Alternative Minimum Tax (subject to)
COP Certificates of Participation
FLOATS Floating Rate Securities
GO General Obligation Bonds
IDA Industrial Development Authority
PCR Pollution Control Revenue Bonds
RITR Residual Interest Trust Receipts
VRDN Variable Rate Demand Notes
MuniYield New York Insured Fund, Inc. April 30, 1999
F-18
<PAGE>
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
<TABLE>
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
=================================================================================================================
New York (continued)
<S> <C> <C> <C> <C>
AAA Aaa $10,385 New York City, New York, Transitional Finance Authority Revenue
Bonds, Future Tax Secured, Series B, 4.75% due 11/15/2023 (f) $ 9,810
- -----------------------------------------------------------------------------------------------------------------
AAA Aaa 8,750 New York State Dormitory Authority, Lease Revenue Bonds (Municipal
Health Facilities Improvement Program), Series 1, 4.75% due 1/15/2029 (e) 8,195
- -----------------------------------------------------------------------------------------------------------------
New York State Dormitory Authority Revenue Bonds:
AAA Aaa 4,000 (City University System), Third Resolution, Series 1, 6.25% due
7/01/2004 (a)(g) 4,510
AAA Aaa 2,000 (Ithaca College), 5.25% due 7/01/2026 (a) 2,027
AAA Aaa 2,000 (New School Social Research), 5.75% due 7/01/2026 (b) 2,153
AAA Aaa 6,000 (Siena College), 5.75% due 7/01/2026 (b) 6,460
- -----------------------------------------------------------------------------------------------------------------
New York State Dormitory Authority Revenue Refunding Bonds:
AAA Aaa 4,400 (City University System), Series C, 7.50% due 7/01/2010 (f) 5,408
AAA Aaa 4,980 (City University System), Series C, 7% due 7/01/2014 (f) 5,271
AAA NR* 4,250 (Hospital Mortgage--United Health Services Hospitals), 5.375% due
8/01/2027 (a)(h) 4,356
AAA Aaa 10,000 (North Shore University Hospital), 5.25% due 11/01/2019 (b) 10,095
AAA Aaa 5,850 (Saint Joseph's Hospital Health Center), 5.25% due 7/01/2018 (b) 5,909
AAA Aaa 13,360 (State University Educational Facilities), Series A, 4.75% due
5/15/2025 (b) 12,580
- -----------------------------------------------------------------------------------------------------------------
AAA Aaa 10,250 New York State Energy Research and Development Authority, Gas
Facilities Revenue Bonds (Brooklyn Union Gas Company), AMT, Series B,
6.75% due 2/01/2024 (b) 11,159
- -----------------------------------------------------------------------------------------------------------------
New York State Energy Research and Development Authority, PCR,
Refunding (c):
A1+ VMIG1+ 1,200 (New York State Electric and Gas), VRDN, Series D, 4.20% due
10/01/2029 1,200
NR* P1 4,900 (Niagara Mohawk Corporation Project), FLOATS, Series A, 4.20% due
3/01/2027 4,900
- -----------------------------------------------------------------------------------------------------------------
AAA Aaa 2,975 New York State Environmental Facilities Corporation, Special
Obligation Revenue Refunding Bonds (Riverbank State Park), 5.50% due
4/01/2016 (a) 3,130
- -----------------------------------------------------------------------------------------------------------------
New York State Medical Care Facilities, Finance Agency Revenue Bonds:
AAA Aaa 2,680 (Health Center Project--Second Mortgage), Series A, 6.375% due
11/15/2019 (a) 3,053
AAA Aaa 1,865 (Long-Term Health Care), Series B, 6.45% due 11/01/2014 (e) 2,024
AAA Aaa 1,000 (Long-Term Health Care--Insured Program), Series D, 6.50% due
11/01/2015 (e) 1,096
AAA Aaa 1,000 (New York Hospital Mortgage), Series A, 6.75% due 2/15/2005 (a)(g)(h) 1,156
AAA Aaa 7,250 (New York Hospital Mortgage), Series A, 6.80% due 2/15/2005 (a)(g)(h) 8,397
- -----------------------------------------------------------------------------------------------------------------
AAA Aaa 10,000 New York State Medical Care Facilities, Finance Agency Revenue
</TABLE>
F-19
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Refunding Bonds (Hospital and Nursing Home), Series C, 6.375% due
8/15/2029 (b) 10,891
- -----------------------------------------------------------------------------------------------------------------
NR* NR* 7,900 New York State Mortgage Agency Revenue Bonds, RITR, Series 24, 7.07%
due 10/01/2028 (d) 8,895
- -----------------------------------------------------------------------------------------------------------------
A1+ VMIG1+ 800 New York State Thruway Authority, General Revenue Bonds, VRDN, 4.20%
due 1/01/2024 (c)(f) 800
- -----------------------------------------------------------------------------------------------------------------
New York State Thruway Authority, Highway and Bridge Trust Fund
Revenue Bonds, Series B (f)(g):
AAA Aaa 3,000 6% due 4/01/2004 3,335
AAA Aaa 8,000 6.25% due 4/01/2004 8,982
- -----------------------------------------------------------------------------------------------------------------
AAA Aaa 6,500 New York State Urban Development Corporation, Revenue Refunding Bonds
(Correctional Capital Project), Series A, 5.25% due 1/01/2021 (e) 6,561
- -----------------------------------------------------------------------------------------------------------------
AAA Aaa 2,180 Port Authority of New York and New Jersey, Consolidated Revenue Bonds,
AMT, 97th Series, 6.50% due 7/15/2019 (f) 2,414
- -----------------------------------------------------------------------------------------------------------------
AAA Aaa 5,700 Syracuse, New York, COP (Syracuse Hancock International Airport),
AMT, 6.50% due 1/01/2017 (f) 6,140
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
MuniYield New York Insured Fund, Inc. April 30, 1999
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
<TABLE>
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
=================================================================================================================
New York (concluded)
<S> <C> <C> <C> <C>
AAA Aaa $ 3,000 Syracuse, New York, GO, Refunding, Series B, 5.25% due 10/01/2014 (e) $ 3,115
- -----------------------------------------------------------------------------------------------------------------
A1+ VMIG1+ 500 Syracuse, New York, IDA, Civic Facility Revenue Bonds (Multi-Modal-
Syracuse University Project), VRDN, 4.20% due 3/01/2023 (c) 500
- -----------------------------------------------------------------------------------------------------------------
Total Investments (Cost--$266,195)--100.1% 278,154
Liabilities in Excess of Other Assets--(0.1%) (143)
--------
Net Assets--100.0% $278,011
========
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
(a) AMBAC Insured.
(b) MBIA Insured.
(c) The interest rate is subject to change periodically based upon prevailing
market rates. The interest rate shown is the rate in effect at April 30,
F-20
<PAGE>
1999.
(d) The interest rate is subject to change periodically and inversely based
upon prevailing market rates. The interest rate shown is the rate in
effect at April 30, 1999.
(e) FSA Insured.
(f) FGIC Insured.
(g) Prerefunded.
(h) FHA Insured.
+ Highest short-term rating by Moody's Investors Service, Inc.
* Not Rated.
See Notes to Financial Statements.
MuniYield New York Insured Fund, Inc. April 30, 1999
FINANCIAL INFORMATION
Statement of Assets, Liabilities and Capital as of April 30, 1999
<TABLE>
<S> <C> <C> <C>
Assets: Investments, at value (identified cost--$266,194,870) (Note 1a) .......... $278,154,486
Cash ..................................................................... 23,465
Interest receivable ...................................................... 4,933,029
Prepaid expenses and other assets ........................................ 14,053
------------
Total assets ............................................................. 283,125,033
------------
- ------------------------------------------------------------------------------------------------------------------------
Liabilities: Payables:
Securities purchased ................................................... $ 4,949,109
Investment adviser (Note 2) ............................................ 122,104
Dividends to shareholders (Note 1e) .................................... 26,656 5,097,869
------------
Accrued expenses and other liabilities ................................... 16,072
------------
Total liabilities ........................................................ 5,113,941
------------
- ------------------------------------------------------------------------------------------------------------------------
Net Assets: Net assets ............................................................... $278,011,092
============
- ------------------------------------------------------------------------------------------------------------------------
Capital: Capital Stock (200,000,000 shares authorized) (Note 4):
Preferred Stock, par value $.05 per share (3,400 shares of AMPS*
issued and outstanding at $25,000 per share liquidation preference) .... $ 85,000,000
Common Stock, par value $.10 per share (12,560,647 shares issued
and outstanding) ....................................................... $ 1,256,065
Paid-in capital in excess of par ......................................... 176,066,384
Undistributed investment income--net ..................................... 3,215,494
Undistributed realized capital gains on investments--net ................. 513,533
Unrealized appreciation on investments--net .............................. 11,959,616
------------
Total--Equivalent to $15.37 net asset value per share of Common Stock
(market price--$15.9375) ................................................. 193,011,092
</TABLE>
F-21
<PAGE>
<TABLE>
<S> <C> <C>
------------
Total capital ............................................................ $278,011,092
============
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Auction Market Preferred Stock.
See Notes to Financial Statements.
MuniYield New York Insured Fund, Inc. April 30, 1999
FINANCIAL INFORMATION (continued)
Statement of Operations
<TABLE>
<CAPTION>
For the Six Months Ended
April 30, 1999
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment Income Interest and amortization of premium and discount earned .... $ 7,480,963
(Note 1d):
- -----------------------------------------------------------------------------------------------------------------
Expenses: Investment advisory fees (Note 2) ........................... $ 699,084
Commission fees (Note 4) .................................... 103,126
Accounting services (Note 2) ................................ 38,210
Professional fees ........................................... 34,807
Transfer agent fees ......................................... 29,056
Printing and shareholder reports ............................ 12,103
Listing fees ................................................ 11,951
Custodian fees .............................................. 11,336
Directors' fees and expenses ................................ 11,131
Pricing fees ................................................ 3,868
Other ....................................................... 16,656
-----------
Total expenses .............................................. 971,328
-----------
Investment income -- net .................................... 6,509,635
-----------
- -----------------------------------------------------------------------------------------------------------------
Realized & Realized gain on investments -- net ......................... 2,518,058
Unrealized Gain Change in unrealized appreciation on investments -- net ..... (4,531,153)
(Loss) on -----------
Investments--Net Net Increase in Net Assets Resulting from Operations ........ $ 4,496,540
(Notes 1b, 1d & 3): ===========
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
F-22
<PAGE>
MuniYield New York Insured Fund, Inc. April 30, 1999
FINANCIAL INFORMATION (continued)
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
For the Six For the
Months Ended Year Ended
Increase (Decrease) in Net Assets: April 30, 1999 Oct. 31, 1998
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operations: Investment income--net .................................................. $ 6,509,635 $ 13,736,659
Realized gain on investments--net ....................................... 2,518,058 9,533,983
Change in unrealized appreciation on investments--net ................... (4,531,153) (2,168,441)
------------- -------------
Net increase in net assets resulting from operations .................... 4,496,540 21,102,201
------------- -------------
- -------------------------------------------------------------------------------------------------------------------------------
Dividends & Investment income--net:
Distributions to Common Stock .......................................................... (5,742,676) (10,960,993)
Shareholders Preferred Stock ....................................................... (561,816) (2,353,599)
(Note 1e): Realized gain on investments--net:
Common Stock .......................................................... (8,008,462) (2,282,779)
Preferred Stock ....................................................... (1,249,908) (986,221)
------------- -------------
Net decrease in net assets resulting from dividends and distributions
to shareholders ......................................................... (15,562,862) (16,583,592)
------------- -------------
- -------------------------------------------------------------------------------------------------------------------------------
Capital Stock Value of shares issued to Common Stock shareholders in reinvestment
Transactions of dividends and distributions .......................................... 4,494,964 2,957,094
(Note 4): ------------- -------------
- -------------------------------------------------------------------------------------------------------------------------------
Net Assets: Total increase (decrease) in net assets ................................. (6,571,358) 7,475,703
Beginning of period ..................................................... 284,582,450 277,106,747
------------- -------------
End of period* .......................................................... $ 278,011,092 $ 284,582,450
============= =============
- -------------------------------------------------------------------------------------------------------------------------------
*Undistributed investment income--net .................................... $ 3,215,494 $ 3,010,351
============= =============
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
MuniYield New York Insured Fund, Inc. April 30, 1999
FINANCIAL INFORMATION (concluded)
F-23
<PAGE>
Financial Highlights
<TABLE>
<CAPTION>
The following per share data and ratios have been derived For the Six
from information provided in the financial statements. Months Ended For the Year Ended October 31,
April 30, -------------------------------------------
Increase (Decrease) in Net Asset Value: 1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period ............... $ 16.26 $ 15.89 $ 15.49 $ 15.64 $ 14.17
Operating -------- -------- -------- -------- --------
Performance: Investment income--net ............................. .51 1.12 1.15 1.15 1.19
Realized and unrealized gain (loss) on
investments--net ................................... (.15) .61 .48 (.03) 1.58
-------- -------- -------- -------- --------
Total from investment operations ................... .36 1.73 1.63 1.12 2.77
-------- -------- -------- -------- --------
Less dividends and distributions to Common Stock
shareholders:
Investment income--net ........................... (.46) (.90) (.91) (.91) (.92)
Realized gain on investments--net ................ (.65) (.19) (.07) -- (.10)
In excess of realized gain on investments--net ... -- -- -- (.10) --
-------- -------- -------- -------- --------
Total dividends and distributions to
Common Stock shareholders .......................... (1.11) (1.09) (.98) (1.01) (1.02)
-------- -------- -------- -------- --------
Effect of Preferred Stock activity:
Dividends and distributions to Preferred
Stock shareholders:
Investment income--net ......................... (.04) (.19) (.23) (.23) (.26)
Realized gain on investments--net .............. (.10) (.08) (.02) -- (.02)
In excess of realized gain on investments--net.. -- -- -- (.03) --
-------- -------- -------- -------- --------
Total effect of Preferred Stock activity ........... (.14) (.27) (.25) (.26) (.28)
-------- -------- -------- -------- --------
Net asset value, end of period ..................... $ 15.37 $ 16.26 $ 15.89 $ 15.49 $ 15.64
======== ======== ======== ======== ========
Market price per share, end of period .............. $15.9375 $16.3125 $ 15.875 $ 14.875 $ 14.375
======== ======== ======== ======== ========
- -----------------------------------------------------------------------------------------------------------------------------------
Total Investment Based on market price per share .................... 4.77%+ 9.99% 13.79% 10.79% 26.40%
Return:** ======== ======== ======== ======== ========
Based on net asset value per share ................. 1.36%+ 9.53% 9.37% 6.04% 18.89%
======== ======== ======== ======== ========
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Expenses ........................................... .69%* .68% .70% .70% .71%
Net Assets:*** ======== ======== ======== ======== ========
Investment income--net ............................. 4.65%* 4.91% 5.09% 5.11% 5.42%
======== ======== ======== ======== ========
- -----------------------------------------------------------------------------------------------------------------------------------
Supplemental Net assets, net of Preferred Stock, end of period
Data: (in thousands) ..................................... $193,011 $199,582 $192,107 $186,611 $188,354
======== ======== ======== ======== ========
Preferred Stock outstanding, end of period
(in thousands) ..................................... $ 85,000 $ 85,000 $ 85,000 $ 85,000 $ 85,000
======== ======== ======== ======== ========
Portfolio turnover ................................. 43.75% 89.76% 81.73% 80.59% 88.17%
</TABLE>
F-24
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
======== ======== ======== ======== ========
- -----------------------------------------------------------------------------------------------------------------------------------
Leverage: Asset coverage per $1,000 .......................... $ 3,271 $ 3,348 $ 3,260 $ 3,195 $ 3,216
======== ======== ======== ======== ========
- -----------------------------------------------------------------------------------------------------------------------------------
Dividends Per Share Series A--Investment income--net ................... $ 160 $ 695 $ 826 $ 819 $ 935
On Preferred Stock ======== ======== ======== ======== ========
Outstanding: Series B--Investment income--net ................... $ 171 $ 689 $ 837 $ 807 $ 904
======== ======== ======== ======== ========
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
** Total investment returns based on market value, which can be significantly
greater or lesser than the net asset value, may result in substantially
different returns. Total investment returns exclude the effects of sales
loads.
*** Do not reflect the effect of dividends to Preferred Stock shareholders.
+ Aggregate total investment return.
See Notes to Financial Statements.
MuniYield New York Insured Fund, Inc. April 30, 1999
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
MuniYield New York Insured Fund, Inc. (the "Fund") is registered under the
Investment Company Act of 1940 as a non-diversified, closed-end management
investment company. The Fund's financial statements are prepared in accordance
with generally accepted accounting principles which may require the use of
management accruals and estimates. These unaudited financial statements reflect
all adjustments which are, in the opinion of management, necessary to a fair
statement of the results for the interim period presented. All such adjustments
are of a normal recurring nature. The Fund determines and makes available for
publication the net asset value of its Common Stock on a weekly basis. The
Fund's Common Stock is listed on the New York Stock Exchange under the symbol
MYN. The following is a summary of significant accounting policies followed by
the Fund.
(a) Valuation of investments--Municipal bonds are traded primarily in the
over-the-counter markets and are valued at the most recent bid price or yield
equivalent as obtained by the Fund's pricing service from dealers that make
markets in such securities. Financial futures contracts and options thereon,
which are traded on exchanges, are valued at their closing prices as of the
close of such exchanges. Options written or purchased are valued at the last
sale price in the case of exchange-traded options. In the case of options traded
in the over-the-counter market, valuation is the last asked price (options
written) or the last bid price (options purchased). Securities with remaining
maturities of sixty days or less are valued at amortized cost, which
approximates market value. Securities and assets for which market quotations are
not readily available are valued at their fair value as determined in good faith
by or under the direction of the Board of Directors of the Fund, including
F-25
<PAGE>
valuations furnished by a pricing service retained by the Fund, which may
utilize a matrix system for valuations. The procedures of the pricing service
and its valuations are reviewed by the officers of the Fund under the general
supervision of the Board of Directors.
(b) Derivative financial instruments--The Fund may engage in various portfolio
strategies to seek to increase its return by hedging its portfolio against
adverse movements in the debt markets. Losses may arise due to changes in the
value of the contract or if the counterparty does not perform under the
contract.
o Financial futures contracts--The Fund may purchase or sell financial futures
contracts and options on such futures contracts for the purpose of hedging the
market risk on existing securities or the intended purchase of securities.
Futures contracts are contracts for delayed delivery of securities at a specific
future date and at a specific price or yield. Upon entering into a contract, the
Fund deposits and maintains as collateral such initial margin as required by the
exchange on which the transaction is effected. Pursuant to the contract, the
Fund agrees to receive from or pay to the broker an amount of cash equal to the
daily fluctuation in value of the contract. Such receipts or payments are known
as variation margin and are recorded by the Fund as unrealized gains or losses.
When the contract is closed, the Fund records a realized gain or loss equal to
the difference between the value of the contract at the time it was opened and
the value at the time it was closed.
o Options--The Fund is authorized to write covered call options and purchase put
options. When the Fund writes an option, an amount equal to the premium received
by the Fund is reflected as an asset and an equivalent liability. The amount of
the liability is subsequently marked to market to reflect the current market
value of the option written.
When a security is purchased or sold through an exercise of an option, the
related premium paid (or received) is added to (or deducted from) the basis of
the security acquired or deducted from (or added to) the proceeds of the
security sold. When an option expires (or the Fund enters into a closing
transaction), the Fund realizes a gain or loss on the option to the extent of
the premiums received or paid (or gain or loss to the extent the cost of the
closing transaction exceeds the premium paid or received).
Written and purchased options are non-income producing investments.
(c) Income taxes--It is the Fund's policy to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no Federal income tax provision is required.
(d) Security transactions and investment income--Security transactions are
recorded on the dates the transactions are entered into (the trade dates).
Interest income is recognized on the accrual basis.
MuniYield New York Insured Fund, Inc. April 30, 1999
Discounts and market premiums are amortized into interest income. Realized gains
and losses on security transactions are determined on the identified cost basis.
F-26
<PAGE>
(e) Dividends and distributions--Dividends from net investment income are
declared and paid monthly. Distributions of capital gains are recorded on the
ex-dividend dates.
2. Investment Advisory Agreement and Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with Fund Asset
Management, L.P. ("FAM"). The general partner of FAM is Princeton Services, Inc.
("PSI"), an indirect wholly-owned subsidiary of Merrill Lynch & Co., Inc. ("ML &
Co."), which is the limited partner.
FAM is responsible for the management of the Fund's portfolio and provides the
necessary personnel, facilities, equipment and certain other services necessary
to the operations of the Fund. For such services, the Fund pays a monthly fee at
an annual rate of 0.50% of the Fund's average weekly net assets, including
proceeds from the issuance of Preferred Stock.
Accounting services are provided to the Fund by FAM at cost.
Certain officers and/or directors of the Fund are officers and/or directors of
FAM, PSI, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the six
months ended April 30, 1999 were $121,958,493 and $116,833,422, respectively.
Net realized gains for the six months ended April 30, 1999 and net unrealized
gains as of April 30, 1999 were as follows:
- --------------------------------------------------------------------------------
Realized Unrealized
Gains Gains
- --------------------------------------------------------------------------------
Long-term investments ..................... $2,485,868 $11,959,616
Financial futures contracts ............... 32,190 --
---------- -----------
Total ..................................... $2,518,058 $11,959,616
========== ===========
- --------------------------------------------------------------------------------
As of April 30, 1999, net unrealized appreciation for Federal income tax
purposes aggregated $11,959,616, of which $12,507,082 related to appreciated
securities and $547,466 related to depreciated securities. The aggregate cost of
investments at April 30, 1999 for Federal income tax purposes was $266,194,870.
4. Capital Stock Transactions:
The Fund is authorized to issue 200,000,000 shares of capital stock, including
Preferred Stock, par value $.10 per share, all of which were initially
classified as Common Stock. The Board of Directors is authorized, however, to
reclassify any unissued shares of capital stock without approval of the holders
of Common Stock.
Common Stock
Shares issued and outstanding during the six months ended April 30, 1999 and the
F-27
<PAGE>
year ended October 31, 1998 increased by 286,353 and 185,859, respectively, as a
result of dividend reinvestment.
Preferred Stock
Auction Market Preferred Stock ("AMPS") are shares of Preferred Stock of the
Fund, with a par value of $.05 per share and a liquidation preference of $25,000
per share, that entitle their holders to receive cash dividends at an annual
rate that may vary for the successive dividend periods. The yields in effect at
April 30, 1999 were: Series A, 3.25% and Series B, 3.27%.
Shares issued and outstanding during the six months ended April 30, 1999 and the
year ended October 31, 1998 remained constant.
The Fund pays commissions to certain broker-dealers at the end of each auction
at an annual rate ranging from 0.25% to 0.375%, calculated on the proceeds of
each auction. For the six months ended April 30, 1999, Merrill Lynch, Pierce,
Fenner & Smith Incorporated, an affiliate of FAM, earned $38,964 as commissions.
5. Subsequent Event:
On May 6, 1999, the Fund's Board of Directors declared an ordinary income
dividend to Common Stock shareholders in the amount of $.071989 per share,
payable on May 27, 1999 to shareholders of record as of May 21, 1999.
F-28
<PAGE>
Audited Financial Statements for MuniYield New York Insured Fund II, Inc. for
the Fiscal Year ended October 31, 1998
F-29
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors,
MuniYield New York Insured Fund II, Inc.
We have audited the accompanying statement of assets, liabilities and capital
of MuniYield New York Insured Fund II, Inc., including the schedule of
investments, as of October 31, 1998, and the related statement of operations
for the year then ended and the statements of changes in net assets and
financial highlights for each of the two years in the period then ended. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits. The
financial highlights for each of the three years in the period ended October
31, 1996 of MuniYield New York Insured Fund II, Inc., were audited by other
auditors whose report dated December 3, 1996, expressed an unqualified opinion
on such financial highlights.
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 financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights. Our procedures included
confirmation of securities owned as of October 31, 1998 by correspondence with
the custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above and audited by us present fairly, in all material respects, the
financial position of MuniYield New York Insured Fund II, Inc. at October 31,
1998, the results of its operations for the year then ended, and the changes
in its net assets and financial highlights for each of the two years in the
period then ended, in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
Princeton, New Jersey
December 1, 1998
F-30
<PAGE>
PORTFOLIO ABBREVIATIONS
To simplify the listings of MuniYield New York Insured Fund II, Inc.'s portfolio
holdings in the Schedule of Investments, we have abbreviated the names of many
of the securities according to the list below and at right.
AMT Alternative Minimum Tax (subject to)
COP Certificates of Participation
GO General Obligation Bonds
HFA Housing Finance Agency
IDA Industrial Development Authority
M/F Multi-Family
PCR Pollution Control Revenue Bonds
RITR Residual Interest Trust Receipts
UT Unlimited Tax
VRDN Variable Rate Demand Notes
F-31
<PAGE>
MuniYield New York Insured Fund II, Inc. October 31, 1998
SCHEDULE OF INVESTMENTS (in Thousands)
<TABLE>
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
- ----------------------------------------------------------------------------------------------------------------------------------
New York--98.6%
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AAA Aaa $ 4,095 Albany County, New York, Airport Authority, Airport Revenue Bonds, RITR, AMT,
Series RI-97-7, 8.17% due 12/15/2023 (c)(f) $ 4,837
==================================================================================================================================
NR* Aaa 3,000 Allegany County, New York, IDA, Civic Facilities Revenue Refunding Bonds (Alfred
University), 5% due 8/01/2028 (d) 2,954
==================================================================================================================================
A A2 3,000 Allegany County, New York, IDA, Solid Waste Disposal Facility Revenue Bonds (Atlantic
Richfield Company), AMT, 6.625% due 9/01/2016 3,267
==================================================================================================================================
A A2 1,275 Battery Park City Authority, New York, Revenue Refunding Bonds, Junior--Series A, 5.80%
due 11/01/2022 1,364
==================================================================================================================================
AAA Aaa 4,300 Buffalo, New York, Sewer Authority Revenue Bonds, Series F, 6% due 7/01/2013 (b) 4,957
==================================================================================================================================
Huntington, New York, Refunding, GO, UT (a):
NR* Aaa 715 5.50% due 4/15/2010 789
NR* Aaa 485 5.50% due 4/15/2011 534
NR* Aaa 460 5.50% due 4/15/2012 507
NR* Aaa 455 5.50% due 4/15/2013 500
NR* Aaa 450 5.50% due 4/15/2014 492
NR* Aaa 450 5.50% due 4/15/2015 489
==================================================================================================================================
AAA Aaa 10,800 Long Island Power Authority, New York, Electric Systems Revenue Refunding Bonds,
Series A, 5.50% due 12/01/2029 (d) 11,312
==================================================================================================================================
AAA Aaa 9,570 Metropolitan Transportation Authority, New York, Commuter Facilities Revenue Bonds,
Series A, 6.375% due 7/01/2004 (d)(e) 10,884
==================================================================================================================================
AAA Aaa 5,000 Metropolitan Transportation Authority, New York, Commuter Facilities Revenue Refunding
Bonds, Series B, 4.75% due 7/01/2026 (b) 4,792
==================================================================================================================================
Metropolitan Transportation Authority, New York, Dedicated Tax Fund Revenue Bonds,
Series A (b):
AAA Aaa 5,250 5% due 4/01/2023 5,191
AAA Aaa 7,100 4.75% due 4/01/2028 6,796
==================================================================================================================================
Metropolitan Transportation Authority, New York, Transit Facilities Revenue Bonds:
AAA Aaa 2,000 Series A, 6.10% due 7/01/2006 (c)(e) 2,302
AAA Aaa 2,500 Series C-1, 5.50% due 7/01/2022 (b) 2,645
==================================================================================================================================
Metropolitan Transportation Authority, New York, Transit Facilities Revenue Refunding
Bonds, Series A (d):
AAA Aaa 3,555 4.75% due 7/01/2021 3,421
AAA Aaa 5,325 4.75% due 7/01/2024 5,111
</TABLE>
F-32
<PAGE>
<TABLE>
<CAPTION>
==================================================================================================================================
<S> <C> <C> <C> <C>
BBB+ Baa1 3,000 Metropolitan Transportation Authority, New York, Transit Facilities, Service Contract,
Revenue Refunding Bonds, Series 5, 7% due 7/01/2012 3,281
==================================================================================================================================
Metropolitan Transportation Authority, New York, Transportation Facilities
Revenue Bonds (e):
AAA Aaa 2,400 Series A, 6.10% due 7/01/2006 (c) 2,762
AAA Aaa 30,690 Series O, 6.375% due 7/01/2004 (d) 34,905
==================================================================================================================================
AAA Aaa 1,005 Mount Sinai, New York, Union Free School District, Refunding, GO, UT, 6.20%
due 2/15/2019 (a) 1,180
==================================================================================================================================
Nassau County, New York, GO, UT, Series P (b)(e):
AAA Aaa 3,250 6.50% due 11/01/2004 3,778
AAA Aaa 3,685 6.50% due 11/01/2004 4,283
==================================================================================================================================
AAA Aaa 3,000 New York City, New York, Cultural Resources Trust, Revenue Refunding Bonds (Museum of
Modern Art), Series A, 5.50% due 1/01/2021 (a) 3,175
==================================================================================================================================
</TABLE>
MuniYield New York Insured Fund II, Inc. October 31, 1998
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
<TABLE>
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
- ----------------------------------------------------------------------------------------------------------------------------------
New York (continued)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
New York City, New York, GO, UT:
A- A3 $ 3,625 7.50% due 2/01/2006 $ 4,055
AAA Aaa 2,000 Series B, Fiscal 92, 7% due 2/01/2017 (a) 2,208
AAA Aaa 2,000 Series B, Fiscal 92, 7% due 2/01/2018 (a) 2,208
==================================================================================================================================
New York City, New York, IDA, Civic Facility Revenue Bonds:
NR* Aaa 885 (Anti-Defamation League Foundation), Series A, 5.50% due 6/01/2022 (d) 938
AAA Aaa 12,500 (USTA National Tennis Center Project), 6.375% due 11/15/2014 (c) 14,060
==================================================================================================================================
A A 7,485 New York City, New York, IDA, Special Facility Revenue Bonds, RITR,
AMT, Series RI-5, 8.195% due 1/01/2024 (f) 8,516
==================================================================================================================================
New York City, New York, Municipal Water Finance Authority, Water and Sewer System
Revenue Bonds:
A- A2 13,000 RITR, Series 21, 7.62% due 6/15/2029 (f) 15,049
A A1 1,290 Series A, 6.75% due 6/15/2017 1,390
AAA Aaa 7,500 Series A, 4.75% due 6/15/2031 (b) 7,142
AAA Aaa 2,000 Series A-1994, 7% due 6/15/2015 (b) 2,173
AAA Aaa 1,500 Series F, 5.50% due 6/15/2023 (d) 1,574
==================================================================================================================================
</TABLE>
F-33
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
New York City, New York, Municipal Water Finance Authority, Water and Sewer System
Revenue Refunding Bonds:
AAA Aaa 5,000 Series A, 6% due 6/15/2005 (d)(e) 5,631
AAA Aaa 5,000 Series D, 4.75% due 6/15/2025 (b) 4,795
A1+ VMIG1+ 1,500 VRDN, Series A, 3.70% due 6/15/2025 (b)(g) 1,500
==================================================================================================================================
New York City, New York, Transitional Finance Authority Revenue Bonds, Future Tax
Secured, Series B (b):
AAA Aaa 7,500 4.75% due 11/15/2023 7,203
AAA Aaa 10,000 4.50% due 11/15/2027 9,224
==================================================================================================================================
A1+ VMIG1+ 300 New York, New York, GO, UT, VRDN, Series B, 3.60% due 10/01/2022 (b)(g) 300
==================================================================================================================================
A- A3 3,400 New York, New York, Refunding, GO, UT, Series J, 5% due 8/01/2023 3,324
==================================================================================================================================
New York State Dormitory Authority Revenue Bonds:
AAA Aaa 11,165 (City University System), Third Generation Reserves, Series 2, 6.875% due 7/01/2004 (d)(e) 13,022
AAA Aaa 3,000 (City University System), Third Resolution, Series 1, 6.25% due 7/01/2004 (a)(e) 3,405
AAA Aaa 3,640 (City University System), Third Resolution, Series 1, 6.25% due 7/01/2004 (a)(e) 4,132
AAA Aaa 6,290 (City University System), Third Resolution, Series 1, 6.30% due 7/01/2024 (a) 7,049
AAA Aaa 1,375 (Consolidated City University System), Second Generation, Series A, 5.75% due 7/01/2018 (c) 1,532
A- A3 2,340 (Mental Health Services Facilities Improvement), 6% due 8/15/2016 2,637
AAA Aaa 4,350 (Mental Health Services Facilities Improvement), Series F, 4.50% due 8/15/2028 (a) 4,008
AAA Aaa 6,000 (Mount Sinai School of Medicine), Series A, 5.15% due 7/01/2024 (d) 6,244
AAA Aaa 1,105 (New School of Social Research), 5.75% due 7/01/2026 (d) 1,202
AAA Aaa 2,000 (New York University), Series A, 5.75% due 7/01/2027 (d) 2,267
NR* Aaa 8,125 RITR, Series 1, 7.885% due 7/01/2027 (f) 10,293
AAA Aaa 3,500 (Saint Barnabas Hospital), 5.45% due 8/01/2035 (a)(h) 3,617
AAA Aaa 1,050 (Saint John's University), 6.875% due 7/01/2011 (a) 1,149
AAA Aaa 12,000 (Sloan Kettering Cancer Memorial), 5.50% due 7/01/2023 (d) 13,078
BBB+ Baa1 1,000 (State University Athletic Facilities), 7.25% due 7/01/2021 1,089
AAA Aaa 12,230 (State University Educational Facilities), Series B, 6.25% due 5/15/2004 (d)(e) 13,854
AAA Aaa 2,000 (State University Educational Facilities), Series B, 5.75% due 5/15/2004 (b)(e) 2,184
==================================================================================================================================
</TABLE>
MuniYield New York Insured Fund II, Inc. October 31, 1998
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
<TABLE>
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
- ----------------------------------------------------------------------------------------------------------------------------------
New York (continued)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
New York State Dormitory Authority Revenue Refunding Bonds:
AAA Aaa $10,000 (Mental Health Services Facilities Improvement), Series D, 4.75% due 2/15/2025 (d) $ 9,593
AAA Aaa 1,500 (New York & Presbyterian Hospital), Series A, 4.75% due 8/01/2027 (a) 1,432
AAA Aaa 4,000 (North Shore University Hospital), 5.25% due 11/01/2019 (d) 4,097
AAA Aaa 5,000 (Rockefeller University), 4.75% due 7/01/2037 4,770
</TABLE>
F-34
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
AAA Aaa 4,500 (State University Educational Facilities), Series A, 5.875% due 5/15/2011 (b) 5,139
A- A3 1,500 (State University Educational Facilities), Series A, 5.50% due 5/15/2019 1,608
A- A3 2,000 (State University Educational Facilities), Series A, 5.25% due 5/15/2021 2,081
AAA Aaa 13,660 (State University Educational Facilities), Series A, 4.75% due 5/15/2025 (d) 13,103
==================================================================================================================================
New York State Energy Research and Development Authority, Facilities Revenue Bonds
(Consolidated Edison Company Inc.), AMT, Series A:
AAA Aaa 2,000 6.75% due 1/15/2027 (d) 2,128
AAA Aaa 3,785 6.75% due 1/15/2027 (a) 4,030
==================================================================================================================================
AAA Aaa 4,200 New York State Energy Research and Development Authority, Facilities Revenue Bonds,
RITR, Series 19, 8.47% due 8/15/2020 (f) 5,142
==================================================================================================================================
New York State Energy Research and Development Authority, Gas Facilities Revenue Bonds:
AAA Aaa 12,000 (Brooklyn Union Gas Company), AMT, Series A, 6.75% due 2/01/2024 (d) 13,181
AAA Aaa 6,255 (Brooklyn Union Gas Company), AMT, Series B, 6.75% due 2/01/2024 (d) 6,873
AAA Aaa 14,355 RITR, Series 9, 7.27% due 1/01/2021 (d)(f) 15,893
==================================================================================================================================
AAA Aaa 3,600 New York State Energy Research and Development Authority, PCR, Refunding (Rochester
Gas and Electric Project), AMT, Series B, 6.50% due 5/15/2032 (d) 3,926
==================================================================================================================================
A1+ NR* 4,900 New York State Energy Research and Development Authority,
Various PCR (Niagara Power Corporation Project), VRDN, AMT, Series B, 3.75%
due 7/01/2027 (g) 4,900
==================================================================================================================================
A- Aa 5,000 New York State Environmental Facilities Corporation, PCR, RITR, Series RI-1, 7.895%
due 6/15/2014 (f) 5,930
==================================================================================================================================
AAA Aaa 1,040 New York State HFA, M/F Housing Revenue Bonds, AMT, Series A, 7.75% due 11/01/2020 (a) 1,112
==================================================================================================================================
AAA Aaa 6,575 New York State Local Government Assistance Corporation, RITR, Series 22, 8.27%
due 4/01/2024 (a)(f) 8,015
==================================================================================================================================
New York State Medical Care Facilities, Finance Agency Revenue Bonds:
AAA Aaa 5,535 (Brookdale Hospital Medical Center), Series A, 6.85% due 2/15/2005 (e) 6,493
AAA Aaa 2,790 (Health Center Project--Second Mortgage), Series A, 6.375% due 11/15/2019 (a) 3,200
AAA Aaa 3,000 (Mental Health), Series E, 6.50% due 8/15/2015 (c) 3,398
AAA Aaa 1,500 (Mental Health Services Facilities), Series A, 6% due 2/15/2025 (d) 1,662
AAA Aaa 12,250 (New York Hospital Mortgage), Series A, 6.50% due 2/15/2005 (a)(e)(h) 14,136
AAA Aaa 12,850 (New York Hospital Mortgage), Series A, 6.80% due 2/15/2005 (a)(e)(h) 15,040
AAA Aaa 3,700 Series F, 6.50% due 8/15/2002 (c)(e) 4,126
==================================================================================================================================
AAA Aaa 5,200 New York State Medical Care Facilities, Finance Agency Revenue Refunding Bonds
(Hospital and Nursing Home), Series C, 6.375% due 8/15/2029 (d) 5,710
==================================================================================================================================
New York State Mortgage Agency, Homeowner Mortgage Revenue Bonds:
NR* Aa2 3,270 AMT, Series 44, 7.50% due 4/01/2026 3,579
AAA Aaa 1,000 Series 43, 6.45% due 10/01/2017 (d) 1,088
==================================================================================================================================
NR* Aaa 4,000 New York State Mortgage Agency Revenue Bonds, RITR, AMT, Series 24, 7.72%
due 10/01/2028 (f) 4,474
==================================================================================================================================
</TABLE>
F-35
<PAGE>
MuniYield New York Insured Fund II, Inc. October 31, 1998
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
<TABLE>
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
- ----------------------------------------------------------------------------------------------------------------------------------
New York (continued)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AAA Aaa $ 2,050 New York State Power Authority, Revenue Refunding and General Purpose Bonds, Series CC,
5% due 1/01/2003 (d)(e) $ 2,180
==================================================================================================================================
AAA Aaa 3,400 New York State Thruway Authority, General Revenue Bonds, Series C, 6% due 1/01/2005 (b)(e) 3,830
==================================================================================================================================
AAA Aaa 11,000 New York State Thruway Authority, Highway and Bridge Trust Fund, Series B, 6.25%
due 4/01/2004 (b)(e) 12,436
==================================================================================================================================
New York State Thruway Authority, Service Contract Revenue Bonds (Local Highway and
Bridge), Series A-2 (d):
AAA Aaa 7,000 5.375% due 4/01/2016 7,325
AAA Aaa 5,000 5% due 4/01/2018 4,994
==================================================================================================================================
AAA Aaa 2,295 New York State Urban Development Corporation, Revenue Refunding Bonds (Correctional
Capital Facilities), Series A, 5.25% due 1/01/2014 (c) 2,438
==================================================================================================================================
AAA Aaa 4,725 Niagara Falls, New York, Bridge Commission Toll Revenue Bonds, 6.125% due 10/01/2002 (b)(e) 5,222
==================================================================================================================================
AAA Aaa 1,000 Niagara Falls, New York, Water Treatment Plant, UT, AMT, 7.25% due 11/01/2010 (d) 1,251
==================================================================================================================================
AAA Aaa 1,260 North Country, New York, Development Authority, Solid Waste Management System,
Revenue Refunding Bonds, 6% due 5/15/2015 (c) 1,434
==================================================================================================================================
North Hempstead, New York, GO, UT, Refunding, Series B (b):
AAA Aaa 1,745 6.40% due 4/01/2013 2,086
AAA Aaa 555 6.40% due 4/01/2017 662
==================================================================================================================================
AAA Aaa 1,665 Oneida County, New York, IDA Revenue Bonds, Civic Facility (Mohawk Valley Network Inc.),
Series A, 5.20% due 2/01/2013 (c) 1,719
==================================================================================================================================
AAA Aaa 1,080 Oneida County, New York, Refunding, GO, UT, 5.50% due 3/15/2009 (b) 1,187
==================================================================================================================================
Port Authority of New York and New Jersey, Consolidated Revenue Bonds:
AA- A1 3,000 71st Series, 6.50% due 1/15/2026 3,205
AAA Aaa 2,000 71st Series, 6.50% due 1/15/2026 (b) 2,136
AAA Aaa 3,200 104th Series, 4.75% due 1/15/2026 (a) 3,086
AAA Aaa 6,300 116th Series, 4.50% due 10/01/2018 5,974
AAA Aaa 10,000 116th Series, 4.25% due 10/01/2026 (b) 8,905
==================================================================================================================================
AAA Aaa 4,000 Port Authority of New York and New Jersey, RITR, AMT, 108th Series, 7.885%
due 1/15/2017 (c)(f) 4,693
==================================================================================================================================
Port Authority of New York and New Jersey, Special Obligation Revenue Refunding Bonds
(Versatile Structure Obligation), VRDN (g):
</TABLE>
F-36
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
A1 VMIG1+ 2,000 AMT, Series 1R, 3.85% due 8/01/2028 2,000
A1+ VMIG1+ 1,100 Series 2, 3.70% due 5/01/2019 1,100
==================================================================================================================================
AAA Aaa 2,500 St. Lawrence County, New York, Industrial Development Civic Facility Revenue Bonds
(St. Lawrence University Project), Series A, 5.375% due 7/01/2018 (d) 2,593
==================================================================================================================================
Syracuse, New York, COP (Syracuse Hancock International Airport), AMT (b):
AAA Aaa 3,650 6.625% due 1/01/2012 3,989
AAA Aaa 3,120 6.50% due 1/01/2017 3,391
==================================================================================================================================
BBB+ Baa1 4,000 Triborough Bridge and Tunnel Authority, New York (Convention Center Project), Series E,
7.25% due 1/01/2010 4,813
==================================================================================================================================
Triborough Bridge and Tunnel Authority, New York, General Purpose Revenue Refunding Bonds:
A+ Aa3 1,000 Series B, 5% due 1/01/2020 1,009
AAA Aaa 2,000 Series Y, 6.125% due 1/01/2021 (i) 2,338
==================================================================================================================================
</TABLE>
MuniYield New York Insured Fund II, Inc. October 31, 1998
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
<TABLE>
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
- ----------------------------------------------------------------------------------------------------------------------------------
New York (concluded)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Triborough Bridge and Tunnel Authority, New York, Special Obligation Revenue
Refunding Bonds:
AAA Aaa $ 1,030 6.25% due 1/01/2012 (a) $ 1,111
AAA Aaa 2,265 Series A, 5.125% due 1/01/2011 (d) 2,401
AAA Aaa 2,000 Series B, 6.875% due 1/01/2015 (a) 2,160
==================================================================================================================================
Total Investments (Cost--$548,168)--98.6% 586,087
Other Assets Less Liabilities--1.4% 8,571
--------
Net Assets--100.0% $594,658
========
==================================================================================================================================
</TABLE>
(a) AMBAC Insured.
(b) FGIC Insured.
(c) FSA Insured.
(d) MBIA Insured.
(e) Prerefunded.
(f) The interest rate is subject to change periodically and inversely based
upon prevailing market rates. The interest rate shown is the rate in
F-37
<PAGE>
effect at October 31, 1998.
(g) The interest rate is subject to change periodically based upon prevailing
market rates. The interest rate shown is the rate in effect at October 31,
1998.
(h) FHA Insured.
(i) CAPMAC Insured.
+ Highest short-term rating by Moody's Investors Service, Inc.
* Not Rated.
Ratings of issues shown have not been audited by Ernst & Young LLP.
See Notes to Financial Statements.
QUALITY PROFILE
The quality ratings of securities in the Fund as of October 31, 1998 were as
follows:
- --------------------------------------------------------------------------------
Percent of
S&P Rating/Moody's Rating Net Assets
- --------------------------------------------------------------------------------
AAA/Aaa ............................................................ 85.8%
AA/Aa .............................................................. 2.3
A/A ................................................................ 7.3
BBB/Baa ............................................................ 1.5
Other* ............................................................. 1.7
- --------------------------------------------------------------------------------
* Temporary investments in short-term municipal securities.
MuniYield New York Insured Fund II, Inc. October 31, 1998
FINANCIAL INFORMATION
Statement of Assets, Liabilities and Capital as of October 31, 1998
<TABLE>
======================================================================================================================
<S> <C> <C> <C>
Assets: Investments, at value (identified cost--$548,168,254) (Note 1a) ......... $586,087,459
Cash .................................................................... 34,400
Receivables:
Interest .............................................................. $ 10,249,453
Securities sold ....................................................... 9,184,466 19,433,919
------------
Prepaid expenses and other assets ....................................... 19,427
------------
Total assets ............................................................ 605,575,205
------------
======================================================================================================================
Liabilities: Payables:
Securities purchased .................................................. 10,000,265
Dividends to shareholders (Note 1f) ................................... 480,741
Investment adviser (Note 2) ........................................... 262,440 10,743,446
</TABLE>
F-38
<PAGE>
<TABLE>
<S> <C> <C> <C>
------------
Accrued expenses and other liabilities .................................. 173,974
------------
Total liabilities ....................................................... 10,917,420
------------
======================================================================================================================
Net Assets: Net assets .............................................................. $594,657,785
============
======================================================================================================================
Capital: Capital Stock (200,000,000 shares authorized) (Note 4):
Preferred Stock, par value $.05 per share (6,960 shares of AMPS*
issued and outstanding at $25,000 per share liquidation preference) ... $174,000,000
Common Stock, par value $.10 per share (26,592,191 shares issued
and outstanding) ...................................................... $ 2,659,219
Paid-in capital in excess of par ........................................ 380,433,873
Undistributed investment income--net .................................... 2,000,229
Accumulated realized capital losses on investments--net ................. (2,354,741)
Unrealized appreciation on investments--net ............................. 37,919,205
------------
Total--Equivalent to $15.82 net asset value per share of Common Stock
(market price--$15.4375) ................................................ 420,657,785
------------
Total capital ........................................................... $594,657,785
============
======================================================================================================================
</TABLE>
* Auction Market Preferred Stock.
See Notes to Financial Statements.
MuniYield New York Insured Fund II, Inc. October 31, 1998
FINANCIAL INFORMATION (continued)
Statement of Operations
<TABLE>
<CAPTION>
For the Year Ended
October 31, 1998
===============================================================================================================
<S> <C> <C> <C>
Investment Income Interest and amortization of premium and discount earned ... $ 30,186,750
(Note 1d):
===============================================================================================================
Expenses: Investment advisory fees (Note 2) .......................... $ 2,775,072
Commission fees (Note 4) ................................... 416,534
Professional fees .......................................... 105,251
Transfer agent fees ........................................ 73,492
Accounting services (Note 2) ............................... 51,834
Custodian fees ............................................. 32,293
Listing fees ............................................... 24,390
</TABLE>
F-39
<PAGE>
<TABLE>
<S> <C> <C> <C>
Directors' fees and expenses ............................... 23,221
Pricing fees ............................................... 19,696
Other ...................................................... 11,830
-----------
Total expenses ............................................. 3,533,613
------------
Investment income--net ..................................... 26,653,137
------------
===============================================================================================================
Realized & Realized gain on investments--net .......................... 15,690,747
Unrealized Gain Change in unrealized appreciation on investments--net ...... (667,130)
(Loss) on ------------
Investments--Net Net Increase in Net Assets Resulting from Operations ....... $ 41,676,754
(Notes 1b, 1d & 3): ============
===============================================================================================================
</TABLE>
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
For the Year Ended October 31,
------------------------------
Increase (Decrease) in Net Assets: 1998 1997
==============================================================================================================================
<S> <C> <C> <C>
Operations: Investment income--net .................................................. $ 26,653,137 $ 20,346,467
Realized gain on investments--net ....................................... 15,690,747 5,879,051
Change in unrealized appreciation on investments--net ................... (667,130) 9,153,298
------------- -------------
Net increase in net assets resulting from operations .................... 41,676,754 35,378,816
------------- -------------
==============================================================================================================================
Dividends & Investment income--net:
Distributions to Common Stock .......................................................... (20,787,847) (15,161,332)
Shareholders Preferred Stock ....................................................... (5,533,891) (4,351,319)
(Note 1f): Realized gain on investments--net:
Common Stock .......................................................... (66,383) --
Preferred Stock ....................................................... (18,055) --
------------- -------------
Net decrease in net assets resulting from dividends and distributions
to shareholders ......................................................... (26,406,176) (19,512,651)
------------- -------------
==============================================================================================================================
Capital Stock Proceeds from issuance of Common Stock resulting from reorganization .... 83,897,738 144,780,654
Transactions Offering costs from issuance of Common Stock resulting from reorganization (262,206) (366,791)
(Notes 1e & 4): Proceeds from issuance of Preferred Stock resulting from reorganization . 30,000,000 74,000,000
------------- -------------
Net increase in net assets derived from capital stock transactions ...... 113,635,532 218,413,863
------------- -------------
==============================================================================================================================
Net Assets: Total increase in net assets ............................................ 128,906,110 234,280,028
Beginning of year ....................................................... 465,751,675 231,471,647
------------- -------------
End of year* ............................................................ $ 594,657,785 $ 465,751,675
============= =============
==============================================================================================================================
</TABLE>
F-40
<PAGE>
<TABLE>
<S> <C> <C> <C>
*Undistributed investment income--net (Note 1g) .......................... $ 2,000,229 $ 1,657,552
============= =============
==============================================================================================================================
</TABLE>
See Notes to Financial Statements.
MuniYield New York Insured Fund II, Inc. October 31, 1998
FINANCIAL INFORMATION (concluded)
Financial Highlights
<TABLE>
<CAPTION>
The following per share data and ratios have been derived
from information provided in the financial statements. For the Year Ended October 31,
------------------------------------------------------
Increase (Decrease) in Net Asset Value: 1998 1997 1996 1995 1994
=================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year ................. $ 15.18 $ 14.53 $ 14.63 $ 13.13 $ 15.89
Operating -------- -------- -------- -------- --------
Performance: Investment income--net ............................. 1.05 1.08 1.04 1.07 1.07
Realized and unrealized gain (loss) on
investments--net ................................... .66 .66 (.09) 1.50 (2.76)
-------- -------- -------- -------- --------
Total from investment operations ................... 1.71 1.74 .95 2.57 (1.69)
-------- -------- -------- -------- --------
Less dividends and distributions to Common Stock
shareholders:
Investment income--net ........................... (.84) (.84) (.82) (.84) (.87)
Realized gain on investments--net ................ --+ -- -- -- (.01)
-------- -------- -------- -------- --------
Total dividends and distributions to
Common Stock shareholders .......................... (.84) (.84) (.82) (.84) (.88)
-------- -------- -------- -------- --------
Capital charge resulting from issuance of
Common Stock ....................................... (.01) (.02) -- -- --
-------- -------- -------- -------- --------
Effect of Preferred Stock activity:++
Dividends and distributions to Preferred Stock
shareholders:
Investment income--net ......................... (.22) (.23) (.23) (.23) (.19)
Realized gain on investments--net .............. --+ -- -- -- --+
-------- -------- -------- -------- --------
Total effect of Preferred Stock activity ........... (.22) (.23) (.23) (.23) (.19)
-------- -------- -------- -------- --------
Net asset value, end of year ....................... $ 15.82 $ 15.18 $ 14.53 $ 14.63 $ 13.13
======== ======== ======== ======== ========
Market price per share, end of year ................ $15.4375 $ 14.25 $ 13.375 $ 13.25 $ 11.00
======== ======== ======== ======== ========
=================================================================================================================================
</TABLE>
F-41
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Total Investment Based on market price per share .................... 14.60% 13.15% 7.28% 28.61% (22.96%)
Return:* ======== ======== ======== ======== ========
Based on net asset value per share ................. 10.24% 10.95% 5.55% 18.96% (11.75%)
======== ======== ======== ======== ========
=================================================================================================================================
Ratios to Average Expenses ........................................... .64% .68% .71% .74% .74%
Net Assets:** ======== ======== ======== ======== ========
Investment income--net ............................. 4.81% 5.04% 5.00% 5.27% 5.09%
======== ======== ======== ======== ========
=================================================================================================================================
Supplemental Net assets, net of Preferred Stock, end of year
Data: (in thousands) ..................................... $420,658 $321,752 $161,472 $162,655 $145,977
======== ======== ======== ======== ========
Preferred Stock outstanding, end of year
(in thousands) ..................................... $174,000 $144,000 $ 70,000 $ 70,000 $ 70,000
======== ======== ======== ======== ========
Portfolio turnover ................................. 136.43% 121.49% 118.28% 110.76% 36.79%
======== ======== ======== ======== ========
=================================================================================================================================
Leverage: Asset coverage per $1,000 .......................... $ 3,418 $ 3,234 $ 3,307 $ 3,324 $ 3,085
======== ======== ======== ======== ========
=================================================================================================================================
Dividends Per Share Series A--Investment income--net ................... $ 849 $ 865 $ 913 $ 910 $ 759
On Preferred Stock ======== ======== ======== ======== ========
Outstanding:+++ Series B--Investment income--net ................... $ 825 $ 643 -- -- --
======== ======== ======== ======== ========
Series C--Investment income--net ................... $ 785 $ 667 -- -- --
======== ======== ======== ======== ========
Series D--Investment income--net ................... $ 628 -- -- -- --
======== ======== ======== ======== ========
=================================================================================================================================
</TABLE>
* Total investment returns based on market value, which can be
significantly greater or lesser than the net asset value, may
result in substantially different returns. Total investment
returns exclude the effects of sales loads.
** Do not reflect the effect of dividends to Preferred Stock
shareholders.
+ Amount is less than $.01 per share.
++ The Fund's Preferred Stock was issued on September 16, 1992
(Series A), January 27, 1997 (Series B and Series C) and
February 9, 1998 (Series D).
+++ Dividends per share have been adjusted to reflect a
two-for-one stock split that occurred on December 1, 1994.
See Notes to Financial Statements.
MuniYield New York Insured Fund II, Inc. October 31, 1998
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
F-42
<PAGE>
MuniYield New York Insured Fund II, Inc. (the "Fund") is registered under the
Investment Company Act of 1940 as a non-diversified, closed-end management
investment company. The Fund determines and makes available for publication the
net asset value of its Common Stock on a weekly basis. The Fund's Common Stock
is listed on the New York Stock Exchange under the symbol MYT. The following is
a summary of significant accounting policies followed by the Fund.
(a) Valuation of investments--Municipal bonds are traded primarily in the
over-the-counter markets and are valued at the most recent bid price or yield
equivalent as obtained by the Fund's pricing service from dealers that make
markets in such securities. Financial futures contracts and options thereon,
which are traded on exchanges, are valued at their closing prices as of the
close of such exchanges. Options written or purchased are valued at the last
sale price in the case of exchange-traded options. In the case of options traded
in the over-the-counter market, valuation is the last asked price (options
written) or the last bid price (options purchased). Securities with remaining
maturities of sixty days or less are valued at amortized cost, which
approximates market value. Securities and assets for which market quotations are
not readily available are valued at their fair value as determined in good faith
by or under the direction of the Board of Directors of the Fund, including
valuations furnished by a pricing service retained by the Fund, which may
utilize a matrix system for valuations. The procedures of the pricing service
and its valuations are reviewed by the officers of the Fund under the general
supervision of the Board of Directors.
(b) Derivative financial instruments--The Fund may engage in various portfolio
strategies to seek to increase its return by hedging its portfolio against
adverse movements in the debt markets. Losses may arise due to changes in the
value of the contract or if the counterparty does not perform under the
contract.
o Financial futures contracts--The Fund may purchase or sell financial futures
contracts and options on such futures contracts for the purpose of hedging the
market risk on existing securities or the intended purchase of securities.
Futures contracts are contracts for delayed delivery of securities at a specific
future date and at a specific price or yield. Upon entering into a contract, the
Fund deposits and maintains as collateral such initial margin as required by the
exchange on which the transaction is effected. Pursuant to the contract, the
Fund agrees to receive from or pay to the broker an amount of cash equal to the
daily fluctuation in value of the contract. Such receipts or payments are known
as variation margin and are recorded by the Fund as unrealized gains or losses.
When the contract is closed, the Fund records a realized gain or loss equal to
the difference between the value of the contract at the time it was opened and
the value at the time it was closed.
o Options--The Fund is authorized to write covered call options and purchase put
options. When the Fund writes an option, an amount equal to the premium received
by the Fund is reflected as an asset and an equivalent liability. The amount of
the liability is subsequently marked to market to reflect the current market
value of the option written.
When a security is purchased or sold through an exercise of an option, the
related premium paid (or received) is added to (or deducted from) the basis of
the security acquired or deducted from (or added to) the proceeds of the
security sold. When an option expires (or the Fund enters into a closing
transaction), the Fund realizes a gain or loss on the option to the extent of
F-43
<PAGE>
the premiums received or paid (or gain or loss to the extent the cost of the
closing transaction exceeds the premium paid or received).
Written and purchased options are non-income producing investments.
(c) Income taxes--It is the Fund's policy to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no Federal income tax provision is required.
(d) Security transactions and investment income--Security transactions are
recorded on the dates the transactions are entered into (the trade dates).
Interest income is recognized on the accrual basis. Discounts and market
premiums are amortized into interest income. Realized gains and losses on
security transactions are determined on the identified cost basis.
(e) Offering costs--Direct expenses relating to the issuance of Common Stock
resulting from reorganization were charged to capital.
(f) Dividends and distributions--Dividends from net investment income are
declared and paid monthly. Distributions of capital gains are recorded on the
ex-dividend dates.
(g) Reclassification--Generally accepted accounting principles require that
certain components of net assets be adjusted to reflect permanent differences
between financial and tax reporting. Accordingly, current year's permanent
book/tax differences of $11,278 have been reclassified between accumulated net
realized capital
MuniYield New York Insured Fund II, Inc. October 31, 1998
NOTES TO FINANCIAL STATEMENTS (concluded)
losses and undistributed net investment income. These reclassifications have no
effect on net assets or net asset value per share.
2. Investment Advisory Agreement and Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with Fund Asset
Management, L.P. ("FAM"). The general partner of FAM is Princeton Services, Inc.
("PSI"), an indirect wholly-owned subsidiary of Merrill Lynch & Co., Inc. ("ML &
Co."), which is the limited partner.
FAM is responsible for the management of the Fund's portfolio and provides the
necessary personnel, facilities, equipment and certain other services necessary
to the operations of the Fund. For such services, the Fund pays a monthly fee at
an annual rate of 0.50% of the Fund's average weekly net assets, including
proceeds from the issuance of Preferred Stock.
Accounting services are provided to the Fund by FAM at cost.
Certain officers and/or directors of the Fund are officers and/or directors of
FAM, PSI, and/or ML & Co.
F-44
<PAGE>
3. Investments:
Purchases and sales of investments, excluding short-term securities and
securities acquired through the reorganization, for the year ended October 31,
1998 were $731,759,870 and $717,353,053, respectively.
Net realized gains (losses) for the year ended October 31, 1998 and net
unrealized gains as of October 31, 1998 were as follows:
- --------------------------------------------------------------------------------
Realized Unrealized
Gains Gains
- --------------------------------------------------------------------------------
Long-term investments .......................... $16,304,054 $37,919,205
Financial futures contracts .................... (613,307) --
----------- -----------
Total .......................................... $15,690,747 $37,919,205
=========== ===========
- --------------------------------------------------------------------------------
As of October 31, 1998, net unrealized appreciation for Federal income tax
purposes aggregated $37,822,133, of which $38,434,217 related to appreciated
securities and $612,084 related to depreciated securities. The aggregate cost of
investments at October 31, 1998 for Federal income tax purposes was
$548,265,326.
4. Capital Stock Transactions:
The Fund is authorized to issue 200,000,000 shares of capital stock, including
Preferred Stock, par value $.10 per share, all of which were initially
classified as Common Stock. The Board of Directors is authorized, however, to
reclassify any unissued shares of capital stock without approval of the holders
of Common Stock.
Common Stock
Shares issued and outstanding during the years ended October 31, 1998 and
October 31, 1997 increased by 5,397,154 and 10,080,205, respectively, pursuant
to a plan of reorganization.
Preferred Stock
Auction Market Preferred Stock ("AMPS") are shares of Preferred Stock of the
Fund, with a par value of $.05 per share and a liquidation preference of $25,000
per share, that entitle their holders to receive cash dividends at an annual
rate that may vary for the successive dividend periods. The yields in effect at
October 31, 1998 were as follows: Series A, 3.25%; Series B, 3.30%; Series C,
3.45%; and Series D, 3.35%.
Shares issued and outstanding during the years ended October 31, 1998 and
October 31, 1997 increased by 1,200 and 2,960, respectively, pursuant to a plan
of reorganization.
The Fund pays commissions to certain broker-dealers at the end of each auction
at an annual rate ranging from 0.25% to 0.375%, calculated on the proceeds of
each auction. For the year ended October 31, 1998, Merrill Lynch, Pierce, Fenner
F-45
<PAGE>
& Smith Inc., an affiliate of FAM, earned $191,084 as commissions.
5. Acquisition of Taurus MuniNew York Holdings, Inc.:
On February 9, 1998, the Fund acquired all of the net assets of Taurus MuniNew
York Holdings, Inc. pursuant to a plan of reorganization. The acquisition was
accomplished by a tax-free exchange of 6,782,117 Common Stock shares and 1,200
AMPS shares of Taurus MuniNew York Holdings, Inc. for 5,397,154 Common Stock
shares and 1,200 AMPS shares of the Fund. Taurus MuniNew York Holdings, Inc.'s
net assets on that date of $113,898,593, including $9,119,231 of unrealized
appreciation and $458,687 of accumulated net realized capital losses, were
combined with those of the Fund. The aggregate net assets of the Fund
immediately after the acquisition amounted to $587,371,200.
6. Subsequent Event:
On November 5, 1998, the Fund's Board of Directors declared an ordinary income
dividend to Common Stock shareholders in the amount of $.069006 per share,
payable on November 27, 1998 to shareholders of record as of November 20, 1998.
F-46
<PAGE>
Unaudited Financial Statements for MuniYield New York Insured Fund II, Inc. for
the Six-Month Period Ended April 30, 1999
F-47
<PAGE>
MuniYield New York Insured Fund II, Inc. April 30, 1999
SCHEDULE OF INVESTMENTS (in Thousands)
<TABLE>
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NEW YORK-98.4%
- ------------------------------------------------------------------------------------------------------------------
NR* Aaa $ 4,095 Albany County, New York, Airport Authority, Airport Revenue Bonds,
RITR, Series RI-97-7, 7.52% due 12/15/2023 (c)(f) $ 4,829
- ------------------------------------------------------------------------------------------------------------------
A A2 1,275 Battery Park City Authority, New York, Revenue Refunding Bonds,
Junior Series A, 5.80% due 11/01/2022 1,355
- ------------------------------------------------------------------------------------------------------------------
Buffalo, New York, GO (General Improvement), Series A (a):
AAA Aaa 3,020 4.50% due 2/01/2007 3,071
AAA Aaa 1,555 4.50% due 2/01/2008 1,579
AAA Aaa 1,605 4.75% due 2/01/2009 1,650
- ------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,065 Buffalo, New York, GO, Refunding, Series C, 4.25% due 12/01/2007 (a) 1,067
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
F-48
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Buffalo, New York, GO (School), Series B (c):
AAA Aaa 1,160 4.50% due 2/01/2007 1,180
AAA Aaa 605 4.50% due 2/01/2008 614
AAA Aaa 635 4.75% due 2/01/2009 653
- ------------------------------------------------------------------------------------------------------------------
AAA Aaa 4,300 Buffalo, New York, Sewer Authority, Revenue Refunding Bonds, Series F,
6% due 7/01/2013 (b) 4,897
- ------------------------------------------------------------------------------------------------------------------
Huntington, New York, GO, Refunding (a):
NR* Aaa 715 5.50% due 4/15/2010 776
NR* Aaa 485 5.50% due 4/15/2011 526
NR* Aaa 460 5.50% due 4/15/2012 499
NR* Aaa 455 5.50% due 4/15/2013 494
NR* Aaa 450 5.50% due 4/15/2014 489
NR* Aaa 450 5.50% due 4/15/2015 489
- ------------------------------------------------------------------------------------------------------------------
Long Island Power Authority, New York, Electric System Revenue Bonds:
AAA Aaa 10,000 Series A, 5.50% due 12/01/2023 (d) 10,507
A- Baa1 5,000 Series A, 5.50% due 12/01/2029 5,134
AAA Aaa 14,300 Series A, 5.50% due 12/01/2029 (d) 14,747
A1+ VMIG1+ 2,600 VRDN, Sub-Series 5, 4.25% due 5/01/2033 (g) 2,600
A1+ VMIG1+ 2,800 VRDN, Sub-Series 7, 4.10% due 4/01/2025 (d)(g) 2,800
- ------------------------------------------------------------------------------------------------------------------
Metropolitan Transportation Authority, New York, Commuter Facilities
Revenue Bonds:
AAA Aaa 9,570 Series A, 6.375% due 7/01/2004 (d)(e) 10,805
AAA Aaa 15,770 Series C-1, 5.375% due 7/01/2027 (b) 16,248
- ------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,680 Metropolitan Transportation Authority, New York, Commuter Facilities
Revenue Refunding Bonds, Series B, 4.75% due 7/01/2026 (b) 1,580
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
PORTFOLIO ABBREVIATIONS
To simplify the listings of MuniYield New York Insured Fund II, Inc.'s portfolio
holdings in the Schedule of Investments, we have abbreviated the names of many
of the securities according to the list below and at right.
AMT Alternative Minimum Tax (subject to)
COP Certificates of Participation
DATES Daily Adjustable Tax-Exempt Securities
GO General Obligation Bonds
IDA Industrial Development Authority
PCR Pollution Control Revenue Bonds
RIB Residual Interest Bonds
RITR Residual Interest Trust Receipts
VRDN Variable Rate Demand Notes
MuniYield New York Insured Fund II, Inc. April 30, 1999
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
F-49
<PAGE>
<TABLE>
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NEW YORK (continued)
- ------------------------------------------------------------------------------------------------------------------
Metropolitan Transportation Authority, New York, Transit Facilities
Revenue Bonds:
AAA Aaa $ 2,000 Series A, 6.10% due 7/01/2006 (c)(e) $ 2,281
AAA Aaa 2,400 Series A, 6.10% due 7/01/2006 (c)(e) 2,738
AAA Aaa 2,500 Series C-1, 5.50% due 7/01/2022 (b) 2,618
AAA Aaa 20,000 Series O, 6.375% due 7/01/2004 (d)(e) 22,582
- ------------------------------------------------------------------------------------------------------------------
AAA Aaa 3,555 Metropolitan Transportation Authority, New York, Transit Facilities
Revenue Refunding Bonds, Series A, 4.75% due 7/01/2021 (d) 3,377
- ------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,005 Mount Sinai, New York, Union Free School District, GO, Refunding,
6.20% due 2/15/2019 (a) 1,169
- ------------------------------------------------------------------------------------------------------------------
Nassau County, New York, GO, Series P (b)(e):
AAA Aaa 3,250 6.50% due 11/01/2004 3,751
AAA Aaa 3,685 6.50% due 11/01/2004 4,253
- ------------------------------------------------------------------------------------------------------------------
AAA Aaa 3,000 New York City, New York, Cultural Resources Trust, Revenue
Refunding Bonds (Museum of Modern Art), Series A, 5.50% due 1/01/2021 (a) 3,139
- ------------------------------------------------------------------------------------------------------------------
New York City, New York, GO, Refunding:
AAA Aaa 2,000 Series B, 7% due 2/01/2017 (a) 2,183
AAA Aaa 2,000 Series B, 7% due 2/01/2018 (a) 2,183
AAA NR* 15,000 Series F, 5.375% due 8/01/2019 (d) 15,412
- ------------------------------------------------------------------------------------------------------------------
A1+ VMIG1+ 333 New York City, New York, GO, VRDN, Series B, Sub-Series B-5,
4.10% due 8/15/2022 (d)(g) 333
- ------------------------------------------------------------------------------------------------------------------
AAA Aaa 5,950 New York City, New York, Health and Hospital Corporation, Revenue
Refunding Bonds (Health System), Series A, 5.125% due 2/15/2014 (a) 6,116
- ------------------------------------------------------------------------------------------------------------------
New York City, New York, IDA, Civic Facility Revenue Bonds:
NR* Aaa 885 (Anti-Defamation League Foundation), Series A, 5.50% due 6/01/2022 (d) 928
AAA Aaa 12,500 (USTA National Tennis Center Project), 6.375% due 11/15/2014 (c) 13,958
- ------------------------------------------------------------------------------------------------------------------
NR* A 7,485 New York City, New York, IDA, Special Facilities Revenue Bonds,
RITR, Series RI-6, 7.545% due 1/01/2024 (f) 8,381
- ------------------------------------------------------------------------------------------------------------------
New York City, New York, Municipal Water Finance Authority, Water and
Sewer System Revenue Bonds:
NR* A1 11,000 RITR, Series 21, 6.97% due 6/15/2029 (f) 12,611
AA Aaa 1,050 Series A, 5% due 6/15/2027 (b) 1,024
- ------------------------------------------------------------------------------------------------------------------
New York City, New York, Municipal Water Finance Authority, Water and
Sewer System Revenue Refunding Bonds:
AAA Aaa 6,000 Series B, 5.25% due 6/15/2029 (a) 6,073
AAA NR* 15,000 Series B, 5.25% due 6/15/2029 (c) 15,183
AAA Aaa 1,750 Series D, 4.75% due 6/15/2025 (d) 1,648
AAA Aaa 1,500 Series F, 5.50% due 6/15/2023 (d) 1,553
</TABLE>
F-50
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
New York City, New York, Transitional Finance Authority Revenue Bonds
(Future Tax Secured):
AA Aa3 7,650 Series B, 5.125% due 11/01/2015 7,806
AAA Aaa 1,250 Series B, 4.75% due 11/15/2023 (b) 1,181
AAA Aaa 10,000 Series B, 4.50% due 11/15/2027 (b) 9,020
NR* VMIG1+ 6,400 VRDN, Series C, 4.20% due 5/01/2028 (g) 6,400
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
MuniYield New York Insured Fund II, Inc. April 30, 1999
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
<TABLE>
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NEW YORK (continued)
- ------------------------------------------------------------------------------------------------------------------
New York State Dormitory Authority Revenue Bonds:
NR* Aaa $ 1,000 (Brooklyn Hospital Center), 5.10% due 2/01/2019 (a)(h) $ 991
AAA NR* 2,460 (Champlain Valley Physicians), 5% due 7/01/2017(j) 2,454
AAA Aaa 6,290 (City University), Third Generation Reserves, Series 1, 6.30%
due 7/01/2004 (a)(e) 7,074
AAA Aaa 11,165 (City University), Third Generation Reserves, Series 2, 6.875%
due 7/01/2004 (d)(e) 12,911
AAA Aaa 3,000 (City University System), Third Resolution, Series 1, 6.25%
due 7/01/2004 (a)(e) 3,382
AAA Aaa 12,000 (Memorial Sloan Kettering Cancer Center), 5.50%
due 7/01/2023 (d) 12,835
A- A3 2,340 (Mental Health Services Facilities Improvement), Series B, 6%
due 8/15/2016 2,620
AAA Aaa 4,350 (Mental Health Services Facilities Improvement), Series F, 4.50%
due 8/15/2028 (a) 3,912
AAA Aaa 6,000 (Mount Sinai School of Medicine), Series A, 5.15%
due 7/01/2024 (d) 6,119
AAA Aaa 1,105 (New School of Social Research), 5.75% due 7/01/2026 (d) 1,190
AAA Aaa 2,000 (New York University), Series A, 5.75% due 7/01/2027 (d) 2,219
NR* Aaa 8,125 RIB, Series 1, 7.165% due 7/01/2027 (d)(f) 9,921
BBB- Baa1 1,000 (State University Athletic Facilities), 7.25% due 7/01/2001 (e) 1,092
AAA Aaa 2,000 (State University Educational Facilities), Series B, 5.75%
due 5/15/2004 (b)(e) 2,172
AAA Aaa 5,000 (State University Educational Facilities), Series B, 4.75%
due 5/15/2028 (d) 4,693
- ------------------------------------------------------------------------------------------------------------------
New York State Dormitory Authority, Revenue Refunding Bonds:
AAA Aaa 1,375 (Consolidated City University System), Second Generation, Series A,
5.75% due 7/01/2018 (c) 1,517
AAA Aaa 2,875 (Hamilton College), 4.75% due 7/01/2018 (d) 2,766
</TABLE>
F-51
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
AAA NR* 6,270 (Mental Health Services Facilities Improvement), Series C, 5.125%
due 2/15/2011 (d) 6,520
AAA NR* 4,480 (Mental Health Services Facilities Improvement), Series C, 5.125%
due 8/15/2011 (d) 4,659
AAA NR* 4,710 (Mental Health Services Facilities Improvement), Series C, 5.125%
due 8/15/2012 (d) 4,863
AAA Aaa 10,000 (Mental Health Services Facilities Improvement), Series D, 4.75%
due 2/15/2025 (d) 9,418
AAA Aaa 1,500 (New York and Presbyterian Hospitals), 4.75% due 8/01/2027 (a)(h) 1,409
AAA Aaa 4,500 (State University Educational Facilities), Series A, 5.875%
due 5/15/2011 (b) 5,048
A- A3 1,500 (State University Educational Facilities), Series A, 5.50%
due 5/15/2019 1,584
A- A3 2,000 (State University Educational Facilities), Series A, 5.25%
due 5/15/2021 2,045
AAA Aaa 16,160 (State University Educational Facilities), Series A, 4.75%
due 5/15/2025 (d) 15,216
AAA Aaa 1,000 (Wyckoff), Series H, 5.125% due 2/15/2008 (d) 1,054
- ------------------------------------------------------------------------------------------------------------------
NR* Aaa 4,200 New York State Energy Research and Development Authority,
Facilities Revenue Bonds, RITR, Series 19, 7.77% due 8/15/2020 (f) 5,019
- ------------------------------------------------------------------------------------------------------------------
New York State Energy Research and Development Authority,
Gas Facilities Revenue Bonds:
AAA Aaa 12,000 (Brooklyn Union Gas Company), AMT, Series A, 6.75% due 2/01/2024 (d) 13,060
AAA Aaa 6,255 (Brooklyn Union Gas Company), AMT, Series B, 6.75% due 2/01/2024 (d) 6,810
NR* NR* 14,355 RITR, Series 9, 6.57% due 1/01/2021 (f) 15,577
- ------------------------------------------------------------------------------------------------------------------
New York State Energy Research and Development Authority, PCR
(Niagara Mohawk Power Corporation Project) (g):
A1+ NR* 500 DATES, Series A, 4.20% due 7/01/2015 500
A1+ NR* 100 VRDN, AMT, Series B, 4.25% due 7/01/2027 100
- ------------------------------------------------------------------------------------------------------------------
AAA Aaa 3,600 New York State Energy Research and Development Authority,
PCR, Refunding (Rochester Gas and Electric Project), AMT,
Series B, 6.50% due 5/15/2032 (d) 3,894
- ------------------------------------------------------------------------------------------------------------------
NR* Aa1 5,000 New York State Environmental Facilities Corporation, PCR, RITR,
Series RI-1, 7.195% due 6/15/2014 (f) 5,795
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
MuniYield New York Insured Fund II, Inc. April 30, 1999
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
<TABLE>
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NEW YORK (continued)
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
F-52
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
NR* Aaa $ 6,575 New York State Local Government Assistance Corporation, RITR, Series 22,
7.57% due 4/01/2024 (f) $ 7,739
- ------------------------------------------------------------------------------------------------------------------
New York State Medical Care Facilities, Finance Agency Revenue Bonds:
AAA Aaa 5,535 (Brookdale Hospital Medical Center), Series A, 6.85% due 2/15/2005 (e) 6,425
AAA Aaa 2,695 (Health Center Project--Second Mortgage), Series A, 6.375%
due 11/15/2019 (a) 3,070
AAA Aaa 1,475 (Mental Health Services), Series A, 6% due 2/15/2005 (d)(e) 1,648
AAA Aaa 25 (Mental Health Services), Series A, 6% due 2/15/2025 (d) 27
AAA NR* 2,945 (Mental Health Services), Series E, 6.50% due 8/15/2004 (c)(e) 3,356
AAA Aaa 55 (Mental Health Services), Series E, 6.50% due 8/15/2015 (c) 62
AAA Aaa 12,250 (New York Hospital Mortgage), Series A, 6.50% due 2/15/2005 (a)(e)(h) 13,999
AAA Aaa 12,850 (New York Hospital Mortgage), Series A, 6.80% due 2/15/2005 (a)(e)(h) 14,883
- ------------------------------------------------------------------------------------------------------------------
AAA Aaa 5,200 New York State Medical Care Facilities, Finance Agency Revenue
Refunding Bonds (Hospital and Nursing Home), Series C,
6.375% due 8/15/2029 (d)(h) 5,663
- ------------------------------------------------------------------------------------------------------------------
NR* Aa2 3,270 New York State Mortgage Agency, Homeowner Mortgage Revenue Bonds,
AMT, Series 44, 7.50% due 4/01/2026 3,552
- ------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,000 New York State Mortgage Agency, Homeowner Mortgage Revenue
Refunding Bonds, Series 43, 6.45% due 10/01/2017 (d)(h) 1,081
- ------------------------------------------------------------------------------------------------------------------
NR* NR* 2,000 New York State Mortgage Agency Revenue Bonds, RITR, AMT, Series 24,
7.07% due 10/01/2028 (f) 2,252
- ------------------------------------------------------------------------------------------------------------------
AAA Aaa 3,400 New York State Thruway Authority, General Revenue Bonds, Series C,
6% due 1/01/2005 (b)(e) 3,792
- ------------------------------------------------------------------------------------------------------------------
AAA Aaa 2,775 New York State Thruway Authority, Highway and Bridge Trust Fund
Revenue Bonds, Series A, 5% due 4/01/2009 (b) 2,908
- ------------------------------------------------------------------------------------------------------------------
AAA Aaa 2,000 New York State Thruway Authority, Service Contract Revenue Bonds
(Local Highway and Bridge), Series A-2, 5.375% due 4/01/2016 (d) 2,083
- ------------------------------------------------------------------------------------------------------------------
New York State Urban Development Corporation Revenue Bonds
(Correctional Facilities Service Contract), Series B (a):
AAA Aaa 6,520 4.75% due 1/01/2018 6,277
AAA Aaa 7,135 4.75% due 1/01/2028 6,699
- ------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,000 Niagara Falls, New York, GO (Water Treatment Plant), AMT,
7.25% due 11/01/2010 (d) 1,227
- ------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,260 North Country, New York, Development Authority, Solid Waste
Management System, Revenue Refunding Bonds, 6% due 5/15/2015 (c) 1,419
- ------------------------------------------------------------------------------------------------------------------
North Hempstead, New York, GO, Refunding, Series B (b):
AAA Aaa 1,745 6.40% due 4/01/2013 2,059
AAA Aaa 555 6.40% due 4/01/2017 656
- ------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,080 Oneida County, New York, GO, Refunding, 5.50% due 3/15/2009 (b) 1,171
- ------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,665 Oneida County, New York, IDA, Civic Facilities Revenue Bonds
(Mohawk Valley), Series A, 5.20% due 2/01/2013 (c) 1,712
- ------------------------------------------------------------------------------------------------------------------
Port Authority of New York and New Jersey, Consolidated Revenue Bonds:
</TABLE>
F-53
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
AAA Aaa 2,200 104th Series, 4.75% due 1/15/2026 (a) 2,082
AAA Aaa 6,200 116th Series, 4.50% due 10/01/2018 (b) 5,788
AAA Aaa 10,000 116th Series, 4.25% due 10/01/2026 (b) 8,712
AAA Aaa 4,740 AMT, 117th Series, Second Installment, 4.75% due 11/15/2016 (b) 4,586
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
MuniYield New York Insured Fund II, Inc. April 30, 1999
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
<TABLE>
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NEW YORK (continued)
- ------------------------------------------------------------------------------------------------------------------
NR* Aaa $ 4,000 Port Authority of New York and New Jersey, RITR, AMT, 108th Series,
7.235% due 1/15/2017 (c)(f) $ 4,597
- ------------------------------------------------------------------------------------------------------------------
A1+ VMIG1+ 8,700 Port Authority of New York and New Jersey, Special Obligation
Revenue Refunding Bonds, Versatile Structure Obligation, VRDN,
Series 2, 4.20% due 5/01/2019 (g) 8,700
- ------------------------------------------------------------------------------------------------------------------
AAA Aaa 2,500 Saint Lawrence County, New York, Industrial Development Civic
Facility Revenue Bonds (Saint Lawrence University Project),
Series A, 5.375% due 7/01/2018 (d) 2,571
- ------------------------------------------------------------------------------------------------------------------
Syracuse, New York, COP (Syracuse Hancock International Airport), AMT (b):
AAA Aaa 3,650 6.625% due 1/01/2012 3,943
AAA Aaa 3,120 6.50% due 1/01/2017 3,361
- ------------------------------------------------------------------------------------------------------------------
Triborough Bridge and Tunnel Authority, New York, General Purpose
Revenue Refunding Bonds:
A+ Aa3 1,000 Series B, 5% due 1/01/2020 997
AAA Aaa 2,000 Series Y, 6.125% due 1/01/2021 (i) 2,301
- ------------------------------------------------------------------------------------------------------------------
BBB+ Baa1 4,000 Triborough Bridge and Tunnel Authority, New York, Revenue Refunding Bonds
(Convention Center Project), Series E, 7.25% due 1/01/2010 4,696
- ------------------------------------------------------------------------------------------------------------------
Triborough Bridge and Tunnel Authority, New York, Special
Obligation Revenue Refunding Bonds:
AAA Aaa 1,030 6.25% due 1/01/2012 (a) 1,101
AAA Aaa 2,265 Series A, 5.125% due 1/01/2011 (d) 2,373
- ------------------------------------------------------------------------------------------------------------------
Total Investments (Cost--$551,169)--98.4% 576,497
Other Assets Less Liabilities--1.6% 9,293
--------
Net Assets--100.0% $585,790
========
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
F-54
<PAGE>
(a) AMBAC Insured.
(b) FGIC Insured.
(c) FSA Insured.
(d) MBIA Insured.
(e) Prerefunded.
(f) The interest rate is subject to change periodically and inversely based
upon prevailing market rates. The interest rate shown is the rate in
effect at April 30, 1999.
(g) The interest rate is subject to change periodically based upon prevailing
market rates. The interest rate shown is the rate in effect at April 30,
1999.
(h) FHA Insured.
(i) CAPMAC Insured.
(j) Connie Lee Insured.
* Not Rated.
+ Highest short-term rating by Moody's Investors Service, Inc.
See Notes to Financial Statements.
QUALITY PROFILE
The quality ratings of securities in the Fund as of April 30, 1999 were as
follows:
- --------------------------------------------------------------------------------
Percent of
S&P Rating/Moody's Rating Net Assets
- --------------------------------------------------------------------------------
AAA/Aaa.............................................................. 81.9%
AA/Aa................................................................ 3.1
A/A.................................................................. 5.7
BBB/Baa.............................................................. 1.0
NR (Not Rated)....................................................... 3.0
Other+............................................................... 3.7
- --------------------------------------------------------------------------------
+ Temporary investments in short-term municipal securities.
MuniYield New York Insured Fund II, Inc. April 30, 1999
FINANCIAL INFORMATION
Statement of Assets, Liabilities and Capital as of April 30, 1999
<TABLE>
<S> <C> <C> <C>
Assets: Investments, at value (identified cost--$551,168,935) (Note 1a).. $576,496,907
Cash ............................................................ 24,372
Interest receivable ............................................. 10,012,841
Prepaid expenses and other assets ............................... 57,051
------------
Total assets .................................................... 586,591,171
------------
</TABLE>
F-55
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Liabilities: Payables:
Dividends to shareholders (Note 1f) ........................... $ 502,502
Investment adviser (Note 2) ................................... 257,652 760,154
------------
Accrued expenses and other liabilities .......................... 41,006
------------
Total liabilities ............................................... 801,160
------------
- ---------------------------------------------------------------------------------------------------------------
Net Assets: Net assets ...................................................... $585,790,011
============
- ---------------------------------------------------------------------------------------------------------------
Capital: Capital Stock (200,000,000 shares authorized) (Note 4):
Preferred Stock, par value $.05 per share
(6,960 shares of AMPS* issued and outstanding
at $25,000 per share liquidation preference) .................. $174,000,000
Common Stock, par value $.10 per share (26,668,886
shares issued and outstanding)................................. $ 2,666,889
Paid-in capital in excess of par................................. 381,622,646
Undistributed investment income--net ............................ 2,325,604
Accumulated realized capital losses on investments--net.......... (153,100)
Unrealized appreciation on investments--net...................... 25,327,972
------------
Total--Equivalent to $15.44 net asset value per share of Common
Stock (market price--$15.3125)................................... 411,790,011
------------
Total capital.................................................... $585,790,011
============
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
*Auction Market Preferred Stock.
Statement of Operations
<TABLE>
<CAPTION>
For the Six Months Ended
April 30, 1999
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment Interest and amortization of premium and discount earned......... $ 15,530,179
Income
(Note 1d):
- ---------------------------------------------------------------------------------------------------------------
Expenses: Investment advisory fees (Note 2)................................ $ 1,473,593
Commission fees (Note 4)......................................... 211,241
Transfer agent fees.............................................. 65,815
Accounting services (Note 2)..................................... 59,474
Professional fees................................................ 38,592
Custodian fees................................................... 16,396
Listing fees..................................................... 15,492
Printing and shareholder reports................................. 12,651
Directors' fees and expenses..................................... 11,060
Pricing fees..................................................... 8,153
Other............................................................ 16,733
</TABLE>
F-56
<PAGE>
<TABLE>
<S> <C> <C> <C>
------------
Total expenses .................................................. 1,929,200
------------
Investment income--net........................................... 13,600,979
------------
- ---------------------------------------------------------------------------------------------------------------
Realized & Realized gain on investments--net ............................... 5,978,844
Unrealized Change in unrealized appreciation on investments--net ........... (12,591,233)
Gain (Loss) ------------
on Investment Net Increase in Net Assets Resulting from Operations ............ $ 6,988,590
- --Net (Notes ============
1b, 1d & 3):
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
MuniYield New York Insured Fund II, Inc. April 30, 1999
FINANCIAL INFORMATION (continued)
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
For the Six For the
Months Ended Year Ended
Increase (Decrease) in Net Assets: April 30, 1999 Oct. 31, 1998
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operations: Investment income--net..................................... $ 13,600,979 $ 26,653,137
Realized gain on investments--net.......................... 5,978,844 15,690,747
Change in unrealized appreciation on investments--net...... (12,591,233) (667,130)
------------ ------------
Net increase in net assets resulting from operations....... 6,988,590 41,676,754
------------ ------------
- ---------------------------------------------------------------------------------------------------------------
Dividends & Investment income--net:
Distributions to Common Stock............................................. (11,096,459) (20,787,847)
Shareholders Preferred Stock.......................................... (2,179,145) (5,533,891)
(Note 1f): Realized gain on investments--net:
Common Stock............................................. (2,992,978) (66,383)
Preferred Stock.......................................... (784,225) (18,055)
------------ ------------
Net decrease in net assets resulting from dividends and
distributions to shareholders.............................. (17,052,807) (26,406,176)
------------ ------------
- ---------------------------------------------------------------------------------------------------------------
Capital Stock Proceeds from issuance of Common Stock resulting
Transactions from reorganization ....................................... -- 83,897,738
(Notes 1e & 4): Offering costs from issuance of Common Stock
resulting from reorganization ............................. -- (262,206)
Proceeds from issuance of Preferred Stock resulting
</TABLE>
F-57
<PAGE>
<TABLE>
<S> <C> <C> <C>
from reorganization ....................................... -- 30,000,000
Value of shares issued to Common Stock shareholders
in reinvestment of dividends and distributions............. 1,196,443 --
------------ ------------
Net increase in net assets derived from capital
stock transactions ........................................ 1,196,443 113,635,532
------------ ------------
- ---------------------------------------------------------------------------------------------------------------
Net Assets: Total increase (decrease) in net assets.................... (8,867,774) 128,906,110
Beginning of period........................................ 594,657,785 465,751,675
------------ ------------
End of period*............................................. $585,790,011 $594,657,785
============ ============
- ---------------------------------------------------------------------------------------------------------------
*Undistributed investment income--net....................... $ 2,325,604 $ 2,000,229
============ ============
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
MuniYield New York Insured Fund II, Inc. April 30, 1999
FINANCIAL INFORMATION (concluded)
Financial Highlights
<TABLE>
<CAPTION>
For the Six
The following per share data and ratios have been derived Months Ended For the Year Ended October 31,
from information provided in the financial statements. April 30, ---------------------------------------
Increase (Decrease) in Net Asset Value: 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period......... $ 15.82 $ 15.18 $ 14.53 $ 14.63 $ 13.13
Operating -------- -------- -------- -------- --------
Performance: Investment income--net....................... .51 1.05 1.08 1.04 1.07
Realized and unrealized gain (loss) on
investments--net............................. (.25) .66 .66 (.09) 1.50
-------- -------- -------- -------- --------
Total from investment operations............. .26 1.71 1.74 .95 2.57
-------- -------- -------- -------- --------
Less dividends and distributions to Common
Stock shareholders:
Investment income--net...................... (.42) (.84) (.84) (.82) (.84)
Realized gain on investments--net........... (.11) --+ -- -- --
-------- -------- -------- -------- --------
Total dividends and distributions to
Common Stock shareholders.................... (.53) (.84) (.84) (.82) (.84)
-------- -------- -------- -------- --------
Capital charge resulting from issuance of
Common Stock ................................ -- (.01) (.02) -- --
-------- -------- -------- -------- --------
</TABLE>
F-58
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Effect of Preferred Stock activity:++
Dividends and distributions to Preferred
Stock shareholders:
Investment income--net................... (.08) (.22) (.23) (.23) (.23)
Realized gain on investments--net........ (.03) --+ -- -- --
-------- -------- -------- -------- --------
Total effect of Preferred Stock activity..... (.11) (.22) (.23) (.23) (.23)
-------- -------- -------- -------- --------
Net asset value, end of period............... $ 15.44 $ 15.82 $ 15.18 $ 14.53 $ 14.63
======== ======== ======== ======== ========
Market price per share, end of period........ $15.3125 $15.4375 $ 14.25 $ 13.375 $ 13.25
======== ======== ======== ======== ========
- ------------------------------------------------------------------------------------------------------------------------------
Total Investment Based on market price per share.............. 2.63%# 14.60% 13.15% 7.28% 28.61%
Return:** ======== ======== ======== ======== ========
Based on net asset value per share........... .98%# 10.24% 10.95% 5.55% 18.96%
======== ======== ======== ======== ========
- ------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Expenses..................................... .65%* .64% .68% .71% .74%
Net Assets:*** ======== ======== ======== ======== ========
Investment income--net....................... 4.61%* 4.81% 5.04% 5.00% 5.27%
======== ======== ======== ======== ========
- ------------------------------------------------------------------------------------------------------------------------------
Supplemental Net assets, net of Preferred Stock, end of
Data: period (in thousands)........................ $411,790 $420,658 $321,752 $161,472 $162,655
======== ======== ======== ======== ========
Preferred Stock outstanding, end of period
(in thousands)............................... $174,000 $174,000 $144,000 $ 70,000 $ 70,000
======== ======== ======== ======== ========
Portfolio turnover........................... 43.55% 136.43% 121.49% 118.28% 110.76%
======== ======== ======== ======== ========
- ------------------------------------------------------------------------------------------------------------------------------
Leverage: Asset coverage per $1,000................... $ 3,367 $ 3,418 $ 3,234 $ 3,307 $ 3,324
======== ======== ======== ======== ========
- ------------------------------------------------------------------------------------------------------------------------------
Dividends Per Share Series A--Investment income--net............. $ 313 $ 849 $ 865 $ 913 $ 910
On Preferred Stock ======== ======== ======== ======== ========
Outstanding: Series B--Investment income--net............. $ 312 $ 825 $ 643 -- --
======== ======== ======== ======== ========
Series C--Investment income--net............. $ 335 $ 785 $ 667 -- --
======== ======== ======== ======== ========
Series D--Investment income--net............. $ 296 $ 628 -- -- --
======== ======== ======== ======== ========
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
** Total investment returns based on market value, which can be
significantly greater or lesser than the net asset value, may result
in substantially different returns. Total investment returns exclude
the effects of sales loads.
*** Do not reflect the effect of dividends to Preferred Stock
shareholders.
+ Amount is less than $.01 per share.
++ The Fund's Preferred Stock was issued on September 16, 1992 (Series
A), January 27, 1997 (Series B and Series C) and February 9, 1998
(Series D).
# Aggregate total investment return.
F-59
<PAGE>
See Notes to Financial Statements.
MuniYield New York Insured Fund II, Inc. April 30, 1999
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
MuniYield New York Insured Fund II, Inc. (the "Fund") is registered under the
Investment Company Act of 1940 as a non-diversified, closed-end management
investment company. The Fund's financial statements are prepared in accordance
with generally accepted accounting principles which may require the use of
management accruals and estimates. These unaudited financial statements reflect
all adjustments which are, in the opinion of management, necessary to a fair
statement of the results for the interim period presented. All such adjustments
are of a normal recurring nature. The Fund determines and makes available for
publication the net asset value of its Common Stock on a weekly basis. The
Fund's Common Stock is listed on the New York Stock Exchange under the symbol
MYT. The following is a summary of significant accounting policies followed by
the Fund.
(a) Valuation of investments--Municipal bonds are traded primarily in the
over-the-counter markets and are valued at the most recent bid price or yield
equivalent as obtained by the Fund's pricing service from dealers that make
markets in such securities. Financial futures contracts and options thereon,
which are traded on exchanges, are valued at their closing prices as of the
close of such exchanges. Options written or purchased are valued at the last
sale price in the case of exchange-traded options. In the case of options traded
in the over-the-counter market, valuation is the last asked price (options
written) or the last bid price (options purchased). Securities with remaining
maturities of sixty days or less are valued at amortized cost, which
approximates market value. Securities and assets for which market quotations are
not readily available are valued at their fair value as determined in good faith
by or under the direction of the Board of Directors of the Fund, including
valuations furnished by a pricing service retained by the Fund, which may
utilize a matrix system for valuations. The procedures of the pricing service
and its valuations are reviewed by the officers of the Fund under the general
supervision of the Board of Directors.
(b) Derivative financial instruments--The Fund may engage in various portfolio
strategies to seek to increase its return by hedging its portfolio against
adverse movements in the debt markets. Losses may arise due to changes in
the value of the contract or if the counterparty does not perform under the
contract.
o Financial futures contracts--The Fund may purchase or sell financial futures
contracts and options on such futures contracts for the purpose of hedging the
market risk on existing securities or the intended purchase of securities.
Futures contracts are contracts for delayed delivery of securities at a specific
future date and at a specific price or yield. Upon entering into a contract, the
F-60
<PAGE>
Fund deposits and maintains as collateral such initial margin as required by the
exchange on which the transaction is effected. Pursuant to the contract, the
Fund agrees to receive from or pay to the broker an amount of cash equal to the
daily fluctuation in value of the contract. Such receipts or payments are known
as variation margin and are recorded by the Fund as unrealized gains or losses.
When the contract is closed, the Fund records a realized gain or loss equal to
the difference between the value of the contract at the time it was opened and
the value at the time it was closed.
o Options--The Fund is authorized to write covered call options and purchase put
options. When the Fund writes an option, an amount equal to the premium received
by the Fund is reflected as an asset and an equivalent liability. The amount of
the liability is sub sequently marked to market to reflect the current market
value of the option written.
When a security is purchased or sold through an exercise of an option, the
related premium paid (or received) is added to (or deducted from) the basis of
the security acquired or deducted from (or added to) the proceeds of the
security sold. When an option expires (or the Fund enters into a closing
transaction), the Fund realizes a gain or loss on the option to the extent of
the premiums received or paid (or gain or loss to the extent the cost of the
closing transaction exceeds the premium paid or received).
Written and purchased options are non-income producing investments.
(c) Income taxes--It is the Fund's policy to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no Federal income tax provision is required.
(d) Security transactions and investment income--Security transactions are
recorded on the dates the transactions are entered into (the trade dates).
Interest income is recognized on the accrual basis. Discounts and market
premiums are amortized into interest income. Realized gains and losses on
security transactions are determined on the identified cost basis.
(e) Offering costs--Direct expenses relating to the issuance of Common Stock
resulting from reorganization were charged to capital.
MuniYield New York Insured Fund II, Inc. April 30, 1999
NOTES TO FINANCIAL STATEMENTS (concluded)
(f) Dividends and distributions--Dividends from net investment income are
declared and paid monthly. Distributions of capital gains are recorded on the
ex-dividend dates.
2. Investment Advisory Agreement and Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with Fund Asset
Management, L.P. ("FAM"). The general partner of FAM is Princeton Services, Inc.
("PSI"), an indirect wholly-owned subsidiary of Merrill Lynch & Co., Inc. ("ML &
Co."), which is the limited partner.
FAM is responsible for the management of the Fund's portfolio and provides the
F-61
<PAGE>
necessary personnel, facilities, equipment and certain other services necessary
to the operations of the Fund. For such services, the Fund pays a monthly fee at
an annual rate of 0.50% of the Fund's average weekly net assets, including
proceeds from the issuance of Preferred Stock.
Accounting services are provided to the Fund by FAM at cost.
Certain officers and/or directors of the Fund are officers and/or directors of
FAM, PSI, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the six
months ended April 30, 1999 were $245,808,461 and $259,873,073, respectively.
Net realized gains for the six months ended April 30, 1999 and net unrealized
gains as of April 30, 1999 were as follows:
- --------------------------------------------------------------------------------
Realized Unrealized
Gains Gains
- --------------------------------------------------------------------------------
Long-term investments ............... $ 5,978,844 $25,327,972
----------- -----------
Total................................ $ 5,978,844 $25,327,972
=========== ===========
- --------------------------------------------------------------------------------
As of April 30, 1999, net unrealized appreciation for Federal income tax
purposes aggregated $25,327,972, of which $26,755,159 related to appreciated
securities and $1,427,187 related to depreciated securities. The aggregate cost
of investments at April 30, 1999 for Federal income tax purposes was
$551,168,935.
4. Capital Stock Transactions:
The Fund is authorized to issue 200,000,000 shares of capital stock, including
Preferred Stock, par value $.10 per share, all of which were initially
classified as Common Stock. The Board of Directors is authorized, however, to
reclassify any unissued shares of capital stock without approval of the holders
of Common Stock.
Common Stock
Shares issued and outstanding during the six months ended April 30, 1999
increased by 76,695 as a result of dividend reinvestment and during the year
ended October 31, 1998 increased by 5,397,154 pursuant to a plan of
reorganization.
Preferred Stock
Auction Market Preferred Stock ("AMPS") are shares of Preferred Stock of the
Fund, with a par value of $.05 per share and a liquidation preference of $25,000
per share, that entitle their holders to receive cash dividends at an annual
rate that may vary for the successive dividend periods. The yields in effect at
April 30, 1999 were as follows: Series A, 3.40%; Series B, 3.50%; Series C,
3.07%; and Series D, 3.00%.
F-62
<PAGE>
Shares issued and outstanding during the six months ended April 30, 1999
remained constant and during the year ended October 31, 1998 increased by 1,200
pursuant to a plan of reorganization.
The Fund pays commissions to certain broker-dealers at the end of each auction
at an annual rate ranging from 0.25% to 0.375%, calculated on the proceeds of
each auction. For the six months ended April 30, 1999, Merrill Lynch, Pierce,
Fenner & Smith Incorporated, an affiliate of FAM, earned $95,069 as commissions.
5. Acquisition of Taurus MuniNew York Holdings, Inc.:
On February 9, 1998, the Fund acquired all of the net assets of Taurus MuniNew
York Holdings, Inc. pursuant to a plan of reorganization. The acquisition was
accomplished by a tax-free exchange of 6,782,117 Common Stock shares and 1,200
AMPS shares of Taurus MuniNew York Holdings, Inc. for 5,397,154 Common Stock
shares and 1,200 AMPS shares of the Fund. Taurus MuniNew York Holdings, Inc.'s
net assets on that date of $113,898,593, including $9,119,231 of unrealized
appreciation and $458,687 of accumulated net realized capital losses, were
combined with those of the Fund. The aggregate net assets of the Fund
immediately after the acquisition amounted to $587,371,200.
6. Subsequent Event:
On May 6, 1999, the Fund's Board of Directors declared an ordinary income
dividend to Common Stock shareholders in the amount of $.068090 per share,
payable on May 27, 1999 to shareholders of record as of May 21, 1999.
F-63
<PAGE>
Unaudited Financial Statements for the Combined Fund on a Pro Forma Basis, as
of April 30, 1999
F-64
<PAGE>
COMBINED SCHEDULE OF INVESTMENTS FOR
MUNIYIELD NEW YORK INSURED FUND, INC. AND
MUNIYIELD NEW YORK INSURED FUND II, INC.
APRIL 30, 1999 (Unaudited)
(in Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MuniYield MuniYield Pro Forma for
New York New York Combined
New York--99.7% Insured++ Insured II++ Fund ++
- --------------------------------------------------------------------------------
S&P Moody's Face
Ratings Ratings Amount Issue Value Value Value
- --------------------------------------------------------------------------------
<C> <C> <C> <S> <C> <C> <C>
Albany County, New York,
Airport Authority,
Airport Revenue Bonds:
NR* Aaa 10,190 RITR, Series RI-7, 7.52%
due 12/15/2023(d)....... $ 7,188 $ 4,829 $12,017
AAA Aaa 4,565 Series B, 4.75% due
12/15/2018(e)........... 4,368 -- 4,368
A A2 1,275 Battery Park City
Authority, New York,
Revenue Refunding
Bonds, Junior Series A,
5.80% due 11/01/2022... -- 1,355 1,355
AAA Aaa 8,200 Buffalo and Fort Erie,
New York, Public Bridge
Authority, Toll Bridge
System Revenue Bonds,
5.75% due 1/01/2025(b). 8,725 -- 8,725
Buffalo, New York, GO
(General Improvement),
Series A(a):
AAA Aaa 3,020 4.50% due 2/01/2007..... -- 3,071 3,071
AAA Aaa 1,555 4.50% due 2/01/2008..... -- 1,579 1,579
AAA Aaa 1,605 4.75% due 2/01/2009..... -- 1,650 1,650
AAA Aaa 1,065 Buffalo, New York, GO,
Refunding, Series C,
4.25% due
12/01/2007(a).......... -- 1,067 1,067
Buffalo, New York, GO
(School), Series B(e):
AAA Aaa 1,160 4.50% due 2/01/2007..... -- 1,180 1,180
AAA Aaa 605 4.50% due 2/01/2008..... -- 614 614
AAA Aaa 635 4.75% due 2/01/2009..... -- 653 653
AAA Aaa 4,300 Buffalo, New York, Sewer
Authority Revenue
Refunding Bonds, Series
F, 6% due 7/01/2013(f). -- 4,897 4,897
Huntington, New York,
Refunding, GO(a):
NR* Aaa 715 5.50% due 4/15/2010..... -- 776 776
NR* Aaa 485 5.50% due 4/15/2011..... -- 526 526
NR* Aaa 460 5.50% due 4/15/2012..... -- 499 499
NR* Aaa 455 5.50% due 4/15/2013..... -- 494 494
NR* Aaa 450 5.50% due 4/15/2014..... -- 489 489
NR* Aaa 450 5.50% due 4/15/2015..... -- 489 489
Long Island Power
Authority, New York,
Electric System Revenue
Bonds:
NR* NR* 10,000 Series A, 5.50% due
12/01/2023(b)........... -- 10,507 10,507
AAA Aaa 10,000 Series A, 5.25% due
12/01/2026(a)........... 10,142 -- 10,142
A- Baa1 5,000 Series A, 5.50% due
12/01/2029.............. -- 5,134 5,134
AAA Aaa 14,300 Series A, 5.50% due
12/01/2029(b)........... -- 14,747 14,747
A1+ VMIG1+ 2,600 VRDN, Sub-Series 5,
4.25% due 5/01/2033(c).. -- 2,600 2,600
A1+ VMIG1+ 3,650 VRDN, Sub-Series 7,
4.10% due
4/01/2025(b)(c)......... 850 2,800 3,650
Metropolitan
Transportation
Authority, New York,
Commuter Facilities
Revenue Bonds:
AAA Aaa 9,570 Series A, 6.375% due
7/01/2004(b)(g)......... -- 10,805 10,805
AAA Aaa 18,270 Series C-1, 5.375% due
7/01/2027(f)............ 2,576 16,249 18,825
AAA- Aaa 6,360 Metropolitan
Transportation
Authority, New York,
Commuter Facilities
Revenue Refunding
Bonds, Series B, 4.75%
due 7/01/2026(f)....... 4,401 1,580 5,981
Metropolitan
Transportation
Authority, New York,
Transit Facilities
Revenue Bonds:
AAA Aaa 2,000 Series A, 6.10% due
7/01/2006(e)(g)......... -- 2,282 2,282
AAA Aaa 2,500 Series C-1, 5.50% due
7/01/2022(f)............ -- 2,618 2,618
</TABLE>
F-65
<PAGE>
COMBINED SCHEDULE OF INVESTMENTS FOR
MUNIYIELD NEW YORK INSURED FUND, INC. AND
MUNIYIELD NEW YORK INSURED FUND II, INC.
APRIL 30, 1999 (Unaudited)
(in Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MuniYield MuniYield Pro Forma for
New York New York Combined
New York (continued) Insured++ Insured II++ Fund ++
- --------------------------------------------------------------------------------
S&P Moody's Face
Ratings Ratings Amount Issue Value Value Value
- --------------------------------------------------------------------------------
<C> <C> <C> <S> <C> <C> <C>
AAA Aaa $ 3,555 Metropolitan
Transportation
Authority, New York,
Transit Facilities
Revenue Refunding
Bonds, Series A, 4.75%
due 7/01/2021(b)....... $ -- $ 3,377 $ 3,377
Metropolitan
Transportation
Authority, New York,
Transportation
Facilities Revenue
Bonds(g):
AAA Aaa 2,400 Series A, 6.10% due
7/01/2006(e)............ -- 2,738 2,738
AAA Aaa 20,000 Series O, 6.375% due
7/01/2004(b)............ -- 22,582 22,582
AAA Aaa 7,370 Metropolitan
Transportation
Authority, New York,
Transportation
Facilities Revenue
Refunding Bonds, Series
A, 4.75% due
7/01/2024(b)........... 6,946 -- 6,946
AAA Aaa 1,005 Mount Sinai, New York,
Union Free School
District, GO,
Refunding, 6.20% due
2/15/2019(a)........... -- 1,169 1,169
Nassau County, New York,
GO:
AAA Aaa 3,250 Series P, 6.50% due
11/01/2004(f)(g)........ -- 3,751 3,751
AAA Aaa 3,685 Series P, 6.50% due
11/01/2004(f)(g)........ -- 4,253 4,253
AAA Aaa 5,000 Series V, 5.25% due
3/01/2011(a)............ 5,250 -- 5,250
AAA Aaa 3,000 New York City, New York,
Cultural Resources --
Trust Revenue Refunding
Bonds (Museum of Modern
Art), Series A, 5.50%
due 1/01/2021(a)....... 3,139 3,139
New York City, New York,
GO, Refunding:
A- A3 3,870 Series B, 6.375% due
8/15/2012............... 4,281 -- 4,281
AAA Aaa 2,000 Series B, 7% due
2/01/2017(a)............ -- 2,183 2,183
AAA Aaa 2,000 Series B, 7% due
2/01/2018(a)............ -- 2,183 2,183
AAA Aaa 2,500 Series D, 5.25% due
8/01/2021(b)............ 2,533 -- 2,533
AAA Aaa 15,000 Series F, 5.375% due
8/01/2019(b)............ -- 15,412 15,412
New York City, New York,
GO, VRDN, Series B-2,
Sub-Series B-5(b)(c):
AAA VMIGI+ 400 4.10% due 8/15/2011..... 400 -- 400
A-1+ VMIGI+ 333 4.10% due 8/15/2022..... -- 333 333
AAA Aaa 5,950 New York City, New York,
Health and Hospital
Corporation Revenue
Refunding Bonds (Health
System), Series A,
5.125% due
2/15/2014(a)........... -- 6,116 6,116
New York City, New York,
IDA, Civic Facility
Revenue Bonds:
NR* Aaa 885 (Anti-Defamation League -- 928 928
Foundation), Series A,
5.50% due 6/01/2022(b)..
AAA Aaa 12,500 (USTA National Tennis -- 13,958 13,958
Center Project), 6.375%
due 11/15/2014(e).......
NR* A 7,485 New York City, New York,
IDA, Special Facilities
Revenue Bonds, RITR,
Series RI-6, 7.545% Due
1/01/2024(d)........... -- 8,381 8,381
New York City, New York,
Municipal Water Finance
Authority, Water and
Sewer System Revenue
Bonds:
NR* A-1 11,000 RITR, Series 21, 6.97%
due 6/15/2029(d)........ -- 12,611 12,611
AAA Aaa 1,050 Series A, 5% due
6/15/2027(f)............ -- 1,024 1,024
AAA Aaa 22,500 Series B, 5.75% due
6/15/2026(b)............ 24,161 -- 24,161
AAA Aaa 5,000 Series B, 5.50% due
6/15/2027(b)............ 5,222 -- 5,222
New York City, New York,
Municipal Water Finance
Authority, Water and
Sewer System Revenue
Refunding Bonds:
AAA Aaa 1,000 Series A, 5.375% due
6/15/2026(e)............ 1,025 -- 1,025
AAA Aaa 16,000 Series B, 5.25% due 10,122 6,073 16,195
6/15/2029(a)............
</TABLE>
F-66
<PAGE>
COMBINED SCHEDULE OF INVESTMENTS FOR
MUNIYIELD NEW YORK INSURED FUND, INC.
AND MUNIYIELD NEW YORK INSURED FUND III, INC.
APRIL 30, 1999 (Unaudited)
(in Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MuniYield MuniYield Pro Forma for
New York New York Combined
New York (continued) Insured++ Insured II++ Fund ++
- --------------------------------------------------------------------------------
S&P Moody's Face
Ratings Ratings Amount Issue Value Value Value
- --------------------------------------------------------------------------------
<C> <C> <C> <S> <C> <C> <C>
AAA NR* $15,000 Series B, 5.25% due 6/15/2029(e)................... $ $5,183 $15,183
AAA Aaa 1,750 Series D, 4.75% due 6/15/2025(b)................... -- 1,648 1,648
AAA Aaa 1,500 Series F, 5.50% due 6/15/2023(b)................... -- 1,553 1,553
NR* Aaa 14,585 New York City, New York, RITR, Series 33, 6.24% due
8/01/2027(b)(d)................................... 15,442 -- 15,442
New York City, New
York, Transitional Finance Authority Revenue Bonds
(Future Tax Secured):
AA Aa3 7,650 Series B, 5.125% due 11/01/2015.................... -- 7,806 7,806
AAA Aaa 11,635 Series B, 4.75% due 11/15/2023(f).................. 9,810 1,181 10,991
AAA Aaa 10,000 Series B, 4.50% due 11/15/2027(f).................. -- 9,020 9,020
NR* VMIG1+ 6,400 VRDN, Series C, 4.20% due 5/01/2028(c)............. -- 6,400 6,400
AAA Aaa 8,750 New York State Dormitory Authority, Lease Revenue
Bonds (Municipal Health Facilities Improvement
Program), Series 1, 4.75% due 1/15/2029(e)........ 8,195 -- 8,195
New York State Dormitory Authority Revenue Bonds:
NR* Aaa 1,000 (Brooklyn Hospital Center), 5.10% due -- 991 991
2/01/2019(a)(h)....................................
AAA NR* 2,460 (Champlain Valley Physicians), 5% due 7/01/2017(j). -- 2,454 2,454
AAA Aaa 6,290 (City University), Third Generation Reserves,
Series 1,
6.30% due 7/01/2004(a)(g).......................... -- 7,074 7,074
AAA Aaa 11,165 (City University), Third Generation Reserves,
Series 2,
6.875% due 7/01/2004(b)(g)......................... -- 12,911 12,911
AAA Aaa 7,000 (City University System), Third Resolution, Series
1,
6.25% due 7/01/2004(a)(g).......................... 4,510 3,382 7,892
AAA Aaa 2,000 (Ithaca College), 5.25% due 7/01/2026(a)........... 2,027 -- 2,027
AAA Aaa 12,000 (Memorial Sloan Kettering Cancer Center), 5.50% due
7/01/2023(b)....................................... -- 12,835 12,835
AAA Aaa 4,350 (Mental Health Services Facilities Improvement),
Series F,
4.50% due 8/15/2028(a)............................. -- 3,912 3,912
A- A3 2,340 (Mental Health Services Improvement), Series B, 6%
due 8/15/2016...................................... -- 2,620 2,620
AAA Aaa 6,000 (Mount Sinai School of Medicine), Series A, 5.15%
due 7/01/2024(b)................................... -- 6,119 6,119
AAA Aaa 3,105 (New School Social Research), 5.75% due
7/01/2026(b)....................................... 2,153 1,190 3,343
AAA Aaa 2,000 (New York University), Series A, 5.75% due
7/01/2027(b)....................................... -- 2,219 2,219
NR* Aaa 8,125 RIB, Series 1, 7.165% due 7/01/2027(b)(d).......... -- 9,921 9,921
AAA Aaa 6,000 (Siena College), 5.75% due 7/01/2026(b)............ 6,460 -- 6,460
BBB- Baa1 1,000 (State University Athletic Facilities), 7.25% due
7/01/2001(g)....................................... -- 1,092 1,092
AAA Aaa 2,000 (State University Educational Facilities), Series
B,
5.75% due 5/15/2004(f)(g).......................... -- 2,172 2,172
AAA Aaa 5,000 (State University Educational Facilities), Series
B, 4.75% due 5/15/2028(b)......................... -- 4,693 4,693
New York State Dormitory Authority Revenue
Refunding Bonds:
AAA Aaa 4,400 (City University System), Series C, 7.50% due
7/01/2010(f)....................................... 5,408 -- 5,408
AAA Aaa 4,980 (City University System), Series C, 7% due
7/01/2014(f)....................................... 5,271 -- 5,271
AAA Aaa 1,375 (Consolidated City University System), Second
Generation, Series A,
5.75% due 7/01/2018(e)............................. -- 1,517 1,517
AAA Aaa 2,875 (Hamilton College), 4.75% due 7/01/2018(b)......... -- 2,766 2,766
AAA NR* 4,250 (Hospital Mortgage-United Health Services
Hospitals),
5.375% due 8/01/2027()(h).......................... 4,356 -- 4,356
</TABLE>
F-67
<PAGE>
COMBINED SCHEDULE OF INVESTMENTS FOR
MUNIYIELD NEW YORK INSURED FUND, INC. AND
MUNIYIELD NEW YORK INSURED FUND II, INC.
APRIL 30, 1999 (Unaudited)
(in Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MuniYield MuniYield Pro Forma for
New York New York Combined
New York (continued) Insured++ Insured II++ Fund ++
- --------------------------------------------------------------------------------
S&P Moody's Face
Ratings Ratings Amount Issue Value Value Value
- --------------------------------------------------------------------------------
<C> <C> <C> <S> <C> <C> <C>
AAA NR* $ 6,270 (Mental Health Services
Facilities Improvement),
Series C,
5.125% due 2/15/2011(b). $ -- $ 6,520 $ 6,520
AAA Aaa 4,480 (Mental Health Services
Facilities Improvement),
Series C,
5.125% due 8/15/2011(b). -- 4,659 4,659
AAA Aaa 4,710 (Mental Health Services
Facilities Improvement),
Series C,
5.125% due 8/15/2012(b). -- 4,863 4,863
AAA Aaa 10,000 (Mental Health Services
Facilities Improvement),
Series D,
4.75% due 2/15/2025(b).. 9,418 9,418
AAA Aaa 1,500 (New York and
Presbyterian Hospitals),
4.75% due
8/01/2027(a)(h)......... -- 1,409 1,409
AAA Aaa 10,000 (North Shore University
Hospital), 5.25% due
11/01/2019(b)........... 10,095 -- 10,095
AAA Aaa 5,850 (St. Joseph's Hospital
Health Center), 5.25%
due 7/01/2018(b)........ 5,909 -- 5,909
AAA Aaa 4,500 (State University
Educational Facilities),
Series A, 5.875% due
5/15/2011(f)............ -- 5,048 5,048
A- A3 1,500 (State University
Educational Facilities),
Series A, 5.50% due
5/15/2019(f)............ -- 1,584 1,584
A- A3 2,000 (State University
Educational Facilities),
Series A, 5.25% due
5/15/2021............... -- 2,045 2,045
AAA Aaa 29,520 (State University
Educational
Facilities), Series A,
4.75% due 5/15/2025(b). 12,580 15,216 27,796
AAA Aaa 1,000 (Wyckoff), Series H,
5.125% due
2/15/2008(b)........... -- 1,054 1,054
NR* Aaa 4,200 New York State Energy
Research and
Development Authority,
Facilities Revenue
Bonds, RITR, Series 19,
7.77% due 8/15/2020(d). -- 5,019 5,019
New York State Energy
Research and
Development Authority,
Gas Facilities Revenue
Bonds(b):
AAA Aaa 12,000 (Brooklyn Union Gas
Company), AMT, Series
A, 6.75% due 2/01/2024. -- 13,059 13,059
AAA Aaa 16,505 (Brooklyn Union Gas
Company), AMT, Series
B, 6.75% due 2/01/2024. 11,159 6,810 17,969
NR* NR* 14,355 RITR, Series 9, 6.57%
due 1/01/2021(d)....... -- 15,577 15,577
New York State Energy
Research and
Development Authority,
PCR (Niagara Mohawk
Power Corporation
Project)(c):
A-1+ NR* 500 DATES, Series A, 4.20%
due 7/01/2015.......... -- 500 500
A-1+ NR* 100 VRDN, AMT, Series B,
4.25% due 7/01/2027.... -- 100 100
New York State Energy
Research and
Development Authority,
PCR, Refunding:
AA- VMIG1+ 1,200 (New York State Electric
& Gas), VRDN, Series D,
4.20% due
10/01/2029(c)........... 1,200 -- 1,200
NR* P1 4,900 (Niagara Mohawk
Corporation Project),
FLOATS, Series A, 4.20%
due 3/01/2027(c)........ 4,900 -- 4,900
AAA Aaa 3,600 (Rochester Gas and
Electric Project), AMT,
Series B, 6.50% due
5/15/2032(b)............ -- 3,894 3,894
NR* Aa1 5,000 New York State
Environmental
Facilities Corporation,
PCR, RITR, Series RI-1,
7.195% due
6/15/2014(d)........... -- 5,795 5,795
AAA Aaa 2,975 New York State
Environmental
Facilities Corporation,
Special Obligation
Revenue Refunding Bonds
(Riverbank State Park),
5.50% due 4/01/2016(a). 3,131 -- 3,131
NR* Aaa 6,575 New York State Local
Government Assistance
Corporation, RITR,
Series 22, 7.57% due
4/01/2024(a)(d)........ -- 7,739 7,739
New York State Medical
Care Facilities Finance
Agency Revenue Bonds:
AAA Aaa 5,535 (Brookdale Hospital
Medical Center), Series
A, 6.85% due
2/15/2005(g)........... -- 6,425 6,425
AAA Aaa 5,375 (Health Center Project-
Second Mortgage), Series
A, 6.375% due
11/15/2019(a)........... 3,053 3,070 6,123
</TABLE>
F-68
<PAGE>
COMBINED SCHEDULE OF INVESTMENTS FOR
MUNIYIELD NEW YORK INSURED FUND, INC. AND
MUNIYIELD NEW YORK INSURED FUND II, INC.
APRIL 30, 1999 (Unaudited)
(in Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MuniYield MuniYield Pro Forma for
New York New York Combined
New York (continued) Insured++ Insured II++ Fund ++
- --------------------------------------------------------------------------------
S&P Moody's Face
Ratings Ratings Amount Issue Value Value Value
- --------------------------------------------------------------------------------
<C> <C> <C> <S> <C> <C> <C>
AAA Aaa $ 1,865 (Long-Term Health Care),
Series B, 6.45% due
11/01/2014(e).......... $ 2,024 $ -- $ 2,024
AAA Aaa 1,000 (Long-Term Health Care
Insured Program), Series
D, 6.50% due
11/01/2015(e)........... 1,096 -- 1,096
AAA Aaa 1,475 (Mental Health
Services), Series A, 6%
due 2/15/2005(b)(g).... -- 1,648 1,648
AAA Aaa 25 (Mental Health
Services), Series A, 6%
due 2/15/2025(b)....... -- 27 27
AAA Aaa 2,945 (Mental Health
Services), Series E,
6.50% due
8/15/2004(e)(g)........ -- 3,356 3,356
AAA Aaa 55 (Mental Health
Services), Series E,
6.50% due 8/15/2015(e). -- 62 62
AAA Aaa 1,000 (New York Hospital
Mortgage), Series A,
6.75% due
2/15/2005(a)(g)(h)..... 1,156 -- 1,156
AAA Aaa 12,850 (New York Hospital
Mortgage), Series A,
6.80% due
2/15/2005(a)(g)(h)..... -- 14,882 14,882
AAA Aaa 19,500 (New York Hospital
Mortgage), Series A,
6.50% due
2/15/2005(a)(g)(h)..... 8,397 13,999 22,396
AAA Aaa 15,200 New York State Medical
Care Facilities Finance
Agency Revenue
Refunding Bonds
(Hospital and Nursing
Home), Series C, 6.375%
due 8/15/2029(b)(h).... 10,891 5,663 16,554
NR* Aa2 3,270 New York State Mortgage
Agency, Homeowner
Mortgage Revenue Bonds,
AMT, Series 44, 7.50%
due 4/01/2026.......... -- 3,552 3,552
AAA Aaa 1,000 New York State Mortgage
Agency, Homeowner
Mortgage Revenue
Refunding Bonds, Series
43, 6.45% due
10/01/2017(b)(h)....... -- 1,081 1,081
NR* Aaa 9,900 New York State Mortgage
Agency Revenue Bonds,
RITR, AMT, Series 24,
7.07% due
10/01/2028(d).......... 8,895 2,252 11,147
AAA Aaa 3,400 New York State Thruway
Authority, General
Revenue Bonds, Series
C, 6% due
1/01/2005(f)(g)........ -- 3,792 3,792
A-1+ VMIG1+ 800 New York State Thruway
Authority, General
Revenue Bonds, VRDN,
4.20% due
1/01/2024(c)(f)........ 800 -- 800
New York State Thruway
Authority, Highway and
Bridge Trust Fund
Revenue Bonds(f):
AAA Aaa 2,775 Series A, 5% due
4/01/2009............... -- 2,908 2,908
AAA Aaa 3,000 Series B, 6% due
4/01/2004(g)............ 3,335 -- 3,335
AAA Aaa 8,000 Series B, 6.25% due
4/01/2004(g)........... 8,981 -- 8,981
AAA Aaa 2,000 New York State Thruway
Authority, Service
Contract Revenue Bonds
(Local Highway and
Bridge), Series A-2,
5.375% due
4/01/2016(b)........... -- 2,083 2,083
New York State Urban
Development Corporation
Revenue Bonds
(Correctional
Facilities Service
Contract), Series B(a):
AAA Aaa 6,520 4.75% due 1/01/2018..... -- 6,277 6,277
AAA Aaa 7,135 4.75% due 1/01/2028..... -- 6,699 6,669
AAA Aaa 6,500 New York State Urban -- 6,561
Development Corporation
Revenue Refunding Bonds
(Correctional Capital
Project), Series A,
5.25% due 1/01/2021(e). 6,561
AAA Aaa 1,000 Niagara Falls, New York,
GO (Water Treatment
Plant), AMT, 7.25% due
11/01/2010(b).......... -- 1,227 1,227
AAA Aaa 1,260 North Country, New York,
Development Authority,
Solid Waste Management
System Revenue
Refunding Bonds, 6% due
5/15/2015(e)........... -- 1,419 1,419
North Hempstead, New
York, GO, Refunding,
Series B(f):
AAA Aaa 1,745 6.40% due 4/01/2013..... -- 2,059 2,059
AAA Aaa 555 6.40% due 4/01/2017..... -- 656 656
AAA Aaa 1,080 Oneida County, New York,
GO, Refunding, 5.50%
due 3/15/2009(f)....... -- 1,171 1,171
</TABLE>
F-69
<PAGE>
COMBINED SCHEDULE OF INVESTMENTS FOR
MUNIYIELD NEW YORK INSURED FUND, INC. AND
MUNIYIELD NEW YORK INSURED FUND II, INC.
APRIL 30, 1999 (Unaudited)
(in Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MuniYield MuniYield Pro Forma for
New York New York Combined
New York (continued) Insured++ Insured II++ Fund ++
- --------------------------------------------------------------------------------
S&P Moody's Face
Ratings Ratings Amount Issue Value Value Value
- --------------------------------------------------------------------------------
<C> <C> <C> <S> <C> <C> <C>
AAA Aaa $ 1,665 Oneida County, New York,
IDA, Civic Facilities
Revenue Bonds (Mohawk
Valley), Series A,
5.20% due 2/01/2013(e). $ -- $ 1,712 $ 1,712
Port Authority of New
York and New Jersey,
Consolidated Revenue
Bonds:
AAA Aaa 2,200 104th Series, 4.75% due
1/15/2026(a)............ -- 2,082 2,082
AAA Aaa 6,200 116th Series, 4.50% due
10/01/2018(f)........... -- 5,788 5,788
AAA Aaa 10,000 116th Series, 4.25% due
10/01/2026(f)........... -- 8,712 8,712
AAA Aaa 2,180 AMT, 97th Series, 6.50%
due 7/15/2019(f)........ 2,414 -- 2,414
AAA Aaa 4,740 AMT, 117th Series,
Second Installment,
4.75% due 11/15/2016(f). -- 4,586 4,586
NR* Aaa 4,000 Port Authority of New 4,597 4,597
York and New Jersey,
RITR, AMT, 108th
Series, 7.235% due
1/15/2017(d)(e)........ --
A-1+ VMIG1+ 8,700 Port Authority of New
York and New Jersey,
Special Obligation
Revenue Refunding Bonds
(Versatile Structure
Obligation), VRDN,
Series 2, 4.25% due
5/01/2019(g)(c)........ -- 8,700 8,700
AAA Aaa 2,500 St. Lawrence County, New 2,571 2,571
York, Industrial
Development Civic
Facility Revenue Bond
(St. Lawrence
University Project)
Series A, 5.375% due
7/01/2018(b)........... --
Syracuse, New York, COP
(Syracuse Hancock
International Airport),
AMT(f):
AAA Aaa 3,650 6.625% due 1/01/2012.... -- 3,943 3,943
AAA Aaa 8,820 6.50% due 1/01/2017..... 6,140 3,361 9,501
AAA Aaa 3,000 Syracuse, New York, GO -- 3,115
Refunding, Series B,
5.25% due 10/01/2014... 3,115
AA+ VMIG1+ 500 Syracuse, New York, IDA,
Civic Facility Revenue
Bonds (Multi-Modal-
Syracuse University
Project), VRDN, 4.20%
due 3/01/2023(c)....... 500 -- 500
Triborough Bridge and
Tunnel Authority, New
York, General Purpose
Revenue Refunding
Bonds:
A+ Aa3 1,000 Series B, 5% due
1/01/2020............... -- 997 997
AAA Aaa 2,000 Series Y, 6.125% due
1/01/2021(i)............ -- 2,301 2,301
BBB+ Baa1 4,000 Triborough Bridge and 4,696 4,696
Tunnel Authority, New
York, Revenue Refunding
Bonds (Convention
Center Project), Series
E, 7.25% due 1/01/2010. --
Triborough Bridge and
Tunnel Authority, New
York, Special
Obligation Revenue
Refunding Bonds:
AAA Aaa 1,030 6.25% due 1/01/2012(a).. -- 1,101 1,101
AAA Aaa 2,265 Series A, 5.125% due
1/01/2011(b)............ -- 2,373 2,373
- --------------------------------------------------------------------------------
Total Investments (Cost -- $817,364) -- 99.7%.... 278,154 576,497 854,651
Other Assets Less Liabilities -- 0.3%............ (143) 9,293 2,872
-------- -------- --------
Net Assets -- 100.0%............................. $278,011 $585,790 $857,523
======== ======== ========
</TABLE>
F-70
<PAGE>
COMBINED SCHEDULE OF INVESTMENTS FOR
MUNIYIELD NEW YORK INSURED FUND, INC.
AND MUNIYIELD NEW YORK INSURED FUND III, INC.
APRIL 30, 1999 (Unaudited)
(in Thousands)
<TABLE>
<C> <S>
(a) AMBAC Insured.
(b) MBIA Insured.
(c) The interest rate is subject to change periodically based upon prevailing
market rates. The interest rate shown is the rate in effect at April 30,
1999.
(d) The interest rate is subject to change periodically and inversely based
upon prevailing market rates. The interest rate shown is the rate in
effect at April 30, 1999.
(e) FSA Insured.
(f) FGIC Insured.
(g) Prerefunded.
(h) FHA Insured.
(i) CAPMAC Insured.
(j) Connie Lee Insured.
+ Highest short-term rating by Moody's Investors Service, Inc.
++ Value as discussed in the Combined Notes to Financial Statements.
* Not Rated.
</TABLE>
See Notes to Financial Statements.
PORTFOLIO ABBREVIATIONS
To simplify the listings of MuniYield New York Insured Fund's portfolio
holdings in the Schedule of Investments, we have abbreviated the names of many
of the securities according to the list below.
<TABLE>
<C> <S>
AMT Alternative Minimum Tax (subject to)
COP Certificates of Participation
DATES Daily Adjustable Tax-Exempt Securities
FLOATS Floating Rate Securities
GO General Obligation Bonds
IDA Industrial Development Authority
PCR Pollution Control Revenue Bonds
RITR Residual Interest Trust Receipts
VRDN Variable Rate Demand Notes
</TABLE>
F-71
<PAGE>
The following unaudited pro forma Combined Statement of Assets, Liabilities
and Capital for the Combined Fund, has been derived from the Statements of
Assets, Liabilities and Capital of the respective Funds at April 30, 1999 and
such information has been adjusted to give effect to the Reorganization as if
the Reorganization had occurred at April 30, 1999. The pro forma Combined
Statement of Assets, Liabilities and Capital is presented for informational
purposes only and does not purport to be indicative of the financial condition
that actually would have resulted if the Reorganization had been consummated
at April 30, 1999. The pro forma Combined Statement of Assets, Liabilities and
Capital should be read in conjunction with the Funds' financial statements and
related notes thereto which are included in the Joint Proxy Statement and
Prospectus.
PRO FORMA COMBINED STATEMENT OF ASSETS, LIABILITIES AND CAPITAL
MUNIYIELD NEW YORK INSURED FUND, INC. AND
MUNIYIELD NEW YORK INSURED FUND II, INC.
As of April 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
New York New York Pro Forma for
Insured Insured II Adjustments Combined Fund
------------ ------------ ----------- -------------
<S> <C> <C> <C> <C>
Assets:
Investments, at value*
(Note 1a).............. $278,154,486 $576,496,907 $854,651,393
Cash.................... 23,465 24,372 47,837
Interest receivable..... 4,933,029 10,012,841
Prepaid expenses and
other assets 14,053 57,051 71,104
------------ ------------ ----------- ------------
Total assets............ 283,125,033 586,591,171 0 869,716,204
------------ ------------ ----------- ------------
Liabilities:
Payables:...............
Securities purchased... 4,949,109 0 4,949,109
Dividends to
shareholders (Note
1e)................... 26,656 502,502 6,054,631(1) 6,583,789
Investment adviser
(Note 2).............. 122,104 257,652 379,756
Accrued expenses and
other liabilities...... 16,072 41,006 57,078
------------ ------------ ----------- ------------
Total liabilities 5,113,941 801,160 6,054,631 11,969,732
------------ ------------ ----------- ------------
Net Assets:
$278,011,092 $585,790,011 $(6,054,631) $857,746,472
============ ============ =========== ============
Capital
Capital Stock
(200,000,000 shares of
each fund authorized;
400,000,000 shares as
adjusted):.............
Preferred Stock, par
value $.10 per share
of AMPS** issued and
outstanding + at
$25,000 per share
liquidation
preference............ $ 85,000,000 $174,000,000 $259,000,000
Common Stock, par value
$.10 per share issued
and outstanding++..... 1,256,065 2,666,889 50,294 3,973,248
Paid-in capital in
excess of par.......... 176,066,384 381,622,646 (50,294) 557,638,736
Undistributed investment
income--net............ 3,215,494 2,325,604 (5,541,098) 0
Undistributed
(accumulated) realized
capital gains (losses)
on investments-net .... 513,533 (153,100) (513,533) (153,100)
Unrealized appreciation
on investments-net..... 11,959,616 25,327,972 37,287,588
------------ ------------ ----------- ------------
Total Capital+++........ $278,011,092 $585,790,011 $(6,054,631) $857,746,472
============ ============ =========== ============
* Identified Cost..... $266,194,870 $551,168,935 $ -- $817,363,805
============ ============ =========== ============
+ AMPS** issued and
outstanding............ 3,400 6,960 -- 10,360
============ ============ =========== ============
++ Shares issued and
outstanding............ 12,560,647 26,668,886 502,949 $ 39,732,482
============ ============ =========== ============
+++ Net asset value per
Common Share........... $ 15.37 $ 15.44 -- $ 15.07
============ ============ =========== ============
</TABLE>
- --------
** Auction Market Preferred Shares.
(1)Assumes the distribution of undistributed investment income and
undistributed realized capital gains.
See Notes to Financial Statements.
F-72
<PAGE>
The following unaudited pro forma Combined Statement of Operations for the
Combined Fund has been derived from the statement of operations of the
respective Funds for the six months ended April 30, 1999 and such information
has been adjusted to give effect to the Reorganization as if the
Reorganization had occurred on November 1, 1998. The pro forma Combined
Statement of Operations is presented for informational purposes only and does
not purport to be indicative of the results of operations that actually would
have resulted if the Reorganization had been consummated on November 1, 1998
nor which may result from future operations. The pro forma Combined Statement
of Operations should be read in conjunction with the Funds' financial
statements and related notes thereto which are included in the Joint Proxy
Statement and Prospectus.
PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR MUNIYIELD NEW YORK INSURED FUND, INC. AND
MUNIYIELD NEW YORK INSURED FUND II, INC.
For the Six Months Ended April 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
MuniYield MuniYield Pro Forma
New York New York for
Insured Insured II Adjustments Combined Fund
---------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Investment Income (Note
1d):
Interest and amortization
of premium and discount
earned................... $7,480,963 $15,530,179 $ 0 $23,011,142
---------- ----------- -----------
Expenses:
Investment advisory fees
(Note 2)................. 699,084 1,473,593 2,172,677
Commission fees (Note 4).. 103,126 211,241 314,367
Transfer agent fees....... 29,056 65,815 94,871
Professional fees......... 34,807 38,592 (33,399)(1) 40,000
Accounting services (Note
2)....................... 38,210 59,474 (27,458)(1) 70,226
Directors' fees and
expenses................. 11,131 11,060 (11,060)(1) 11,131
Printing and shareholder
reports.................. 12,103 12,651 (2,754)(1) 22,000
Custodian fees............ 11,336 16,396 27,732
Listing fees.............. 11,951 15,492 27,443
Pricing fees.............. 3,868 8,153 12,021
Other..................... 16,656 16,733 33,389
---------- ----------- ------- -----------
Total expenses............ 971,382 1,929,200 (74,671) 2,825,857
---------- ----------- ------- -----------
Investment income--net.... 6,509,635 13,600,979 74,671 20,185,285
---------- ----------- ------- -----------
Realized & Unrealized Gain
(Loss) on Investments--
Net (Notes 1b, 1d & 3)
Realized gain on
investments--net......... 2,518,058 5,978,844 8,496,902
Change in unrealized
appreciation/depreciation
on investments--net...... (4,531,153) (12,591,233) (17,122,386)
---------- ----------- ------- -----------
Net Increase in Net Assets
Resulting from
Operations............... $4,496,540 $ 6,988,590 $74,671 $11,559,801
========== =========== ======= ===========
</TABLE>
- --------
(1) Reflects the anticipated savings of the Reorganization.
(2) These Pro Forma Combined Statements of Operations exclude non-recurring
estimated Reorganization expenses of $310,000 to be paid by New York
Insured subsequent to the Exchange Date.
F-73
<PAGE>
MUNIYIELD NEW YORK INSURED FUND, INC.
COMBINED NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
MuniYield New York Insured Fund, Inc. (the "Fund") is registered under the
Investment Company Act of 1940 as a non-diversified, closed-end management
investment company. The Fund's financial statements are prepared in accordance
with generally accepted accounting principles which may require the use of
management accruals and estimates. These unaudited financial statements
reflect all adjustments which are, in the opinion of management necessary to a
fair statement of the results for the interim period presented. All such
adjustments are of a normal recurring nature. The Fund will determine and make
available for publication the net asset value of its Common Shares on a weekly
basis. The Fund's Common Stock is listed on the New York Stock Exchange under
the symbol MYN. The following is a summary of significant accounting policies
followed by the Fund.
(a) Valuation of investments -- Municipal bonds are traded primarily in the
over-the-counter markets and are valued at the most recent bid price or yield
equivalent as obtained by the Fund's pricing service from dealers that make
markets in such securities. Financial futures contracts and options thereon,
which are traded on exchanges, are valued at their closing prices as of the
close of such exchanges. Options written or purchased are valued at the last
sale price in the case of exchange-traded options. In the case of options
traded in the over-the-counter market, valuation is the last asked price
(options written) or the last bid price (options purchased). Securities with
remaining maturities of sixty days or less are valued at amortized cost, which
approximates market value. Securities and assets for which market quotations
are not readily available are valued at fair value as determined in good faith
by or under the direction of the Board of Directors of the Fund, including
valuations furnished by a pricing service retained by the Fund, which may
utilize a matrix system for valuations. The procedures of the pricing service
and its valuations are reviewed by the officers of the Fund under the general
supervision of the Board of Directors.
(b) Derivative financial instruments -- The Fund may engage in various
portfolio strategies to seek to increase its return by hedging its portfolio
against adverse movements in the debt markets. Losses may arise due to changes
in the value of the contract or if the counterparty does not perform under the
contract.
. Financial futures contracts -- The Fund may purchase or sell financial
futures contracts and options on such futures contracts for the purpose
of hedging the market risk on existing securities or the intended
purchase of securities. Futures contracts are contracts for delayed
delivery of securities at a specific future date and at a specific price
or yield. Upon entering into a contract, the Fund deposits and maintains
as collateral such initial margin as required by the exchange on which
the transaction is effected. Pursuant to the contract, the Fund agrees
to receive from or pay to the broker an amount of cash equal to the
daily fluctuation in value of the contract. Such receipts or payments
are known as variation margin and are recorded by the Fund as unrealized
gains or losses. When the contract is closed, the Fund records a
realized gain or loss equal to the difference between the value of the
contract at the time it was opened and the value at the time it was
closed.
. Options -- The Fund is authorized to write covered call options and
purchase put options. When the Fund writes an option, an amount equal to
the premium received by the Fund is reflected as an asset and an
equivalent liability. The amount of the liability is subsequently marked
to market to reflect the current market value of the option written.
When a security is purchased or sold through an exercise of an option,
the related premium paid (or received) is added to (or deducted from)
the basis of the security acquired or deducted from (or added to) the
proceeds of the security sold. When an option expires (or the Fund
enters into a closing transaction), the Fund realizes a gain or loss on
the option to the extent of the premiums received or paid (or gain or
loss to the extent the cost of the closing transaction exceeds the
premium paid or received).
Written and purchased options are non-income producing investments.
F-74
<PAGE>
(c) Income taxes -- It is the Fund's policy to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and
to distribute substantially all of its taxable income to its shareholders.
Therefore, no Federal income tax provision is required.
(d) Security transactions and investment income -- Security transactions are
recorded on the dates the transactions are entered into (the trade dates).
Interest income is recognized on the accrual basis. Discounts and market
premiums are amortized into interest income. Realized gains and losses on
security, transactions are determined on the identified cost basis.
(e) Dividends and distributions -- Dividends from net investment income are
declared and paid monthly. Distribution of capital gains are recorded on the
ex-dividend dates. Distributions in excess of realized capital gains on
investments are due primarily to differing tax treatments for post-October
losses.
2. Investment Advisory Agreement and Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with Fund Asset
Management, L.P. ("FAM"). The general partner of FAM is Princeton Services,
Inc. ("PSI"), an indirect wholly-owned subsidiary of Merrill Lynch & Co., Inc.
("ML & Co."), which is the limited partner.
FAM is responsible for the management of the Fund's portfolio and provides
the necessary personnel, facilities, equipment and certain other services
necessary to the operations of the Fund. For such services, the Fund pays a
monthly fee at an annual rate of 0.50% of the Fund's average weekly net
assets, including proceeds from the issuance of Preferred Stock.
Accounting services are provided to the Fund by FAM at cost.
Certain officers and/or directors of the Fund are officers and/or directors
of FAM, PSI, and/or ML & Co.
F-75
<PAGE>
EXHIBIT I
INFORMATION PERTAINING TO EACH FUND
.General Information Pertaining to the Funds
<TABLE>
<CAPTION>
Defined Term Fiscal State of Meeting
Fund Used in Exhibit I Year End Organization Time
- ---- ------------------- -------- ------------ ---------
<S> <C> <C> <C> <C>
MuniYield New York Insured
Fund, Inc................. New York Insured 10/31 MD 3:45 p.m.
MuniYield New York Insured
Fund II, Inc.............. New York Insured II 10/31 MD 4:00 p.m.
</TABLE>
<TABLE>
<CAPTION>
Shares of Capital Stock
Outstanding as of
the Record Date
-------------------------
Common
Fund Stock AMPS
- ---- -------------- ----------
<S> <C> <C>
New York Insured....................................... 11,794,167 3,400
Series A.............................................. 1,700
Series B.............................................. 1,700
New York Insured II.................................... 10,816,667 6,960
Series A.............................................. 2,800
Series B.............................................. 1,960
Series C.............................................. 1,000
Series D.............................................. 1,200
</TABLE>
.Information Pertaining to Officers and Directors
<TABLE>
<CAPTION>
Year in Which Each Nominee Became a Member of the Board
---------------------------------------------------------------
Fund Bodurtha Glenn London Martin May Perold Zeikel
- ---- ---------- ------- -------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
New York Insured........ 1995 1999 1992 1993 1992 1992 1992
New York Insured II..... 1995 1999 1992 1993 1992 1992 1992
</TABLE>
Set forth in the table below is information regarding board and committee
meetings held and the aggregate fees and expenses paid by the Fund to non-
affiliated Board members during each Fund's most recently completed fiscal
year.
<TABLE>
<CAPTION>
Board Audit Committee
--------------------------- -------------------------
# # Per Aggregate
Meetings Annual Per Meeting Meetings Annual+ Meeting Fees and
Fund Held* Fee($) Fee($)** Held Fee($) Fee($)** Expenses($)
- ---- -------- ------ ----------- -------- ------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
New York Insured........ 6 2,500 250 4 500 125
New York Insured II..... 7 2,500 250 4 500 125
</TABLE>
- --------
* Includes meetings held via teleconferencing equipment.
** The fee is payable for each meeting attended in person. A fee is not paid
for telephonic meetings.
+ The Chairman of the Audit Committee receives an annual fee of $1,000.
Set forth in the table below is information regarding compensation paid by
the Fund to the non-affiliated Board members for the most recently completed
fiscal year.
<TABLE>
<CAPTION>
Compensation From Fund($)*
---------------------------------
Fund Bodurtha London Martin May Perold
- ---- -------- ------ ------ --- ------
<S> <C> <C> <C> <C> <C>
New York Insured.............................. 798 798 798 798 798
New York Insured II........................... 798 798 798 798 798
</TABLE>
- --------
* No pension or retirement benefits are accrued as part of Fund expenses.
I-1
<PAGE>
Set forth in the table below is information regarding the aggregate
compensation paid by all registered investment companies advised by FAM and
its affiliate, MLAM ("FAM/MLAM Advised Funds"), including the Funds, to the
non-affiliated Board members for the year ended December 31, 1998.
<TABLE>
<CAPTION>
Aggregate Compensation From FAM/MLAM Advised Funds
Name of Board Member Paid to Board members ($)(1)
- -------------------- --------------------------------------------------
<S> <C>
James H. Bodurtha............ $163,500
Herbert I. London............ $163,500
Robert R. Martin............. $163,500
Joseph L. May................ $163,500
Andre F. Perold.............. $163,500
</TABLE>
- --------
(1) The Directors serve on the boards of FAM/MLAM Advised Funds as follows:
Mr. Bodurtha (29 registered investment companies consisting of 47
portfolios); Mr. London (29 registered investment companies consisting of
47 portfolios); Mr. Martin (29 registered investment companies consisting
of 47 portfolios); Mr. May (29 registered investment companies consisting
of 47 portfolios); and Mr. Perold (29 registered investment companies
consisting of 47 portfolios).
Set forth in the table below is the information about the Directors of each
of the Funds.
<TABLE>
<CAPTION>
Principal Occupation During Past
Name and Address Age Five Years and Public Directorships(1)
- ---------------- --- --------------------------------------
<S> <C> <C>
Terry K. Glenn (1)*......... 59 Executive Vice President of FAM and MLAM (such terms
P.O. Box 9011 as used herein include their corporate predecessors)
Princeton, New Jersey since 1983; Executive Vice President and Director of
08543-9011 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.
James H. Bodurtha (1)(2).... 55 Director and Executive Vice President, The China
36 Popponesset Road Business Group, Inc. since 1996; Chairman and Chief
Cotuit, Massachusetts 02635 Executive Officer, China Enterprise Management
Corporation from 1993 to 1996; Chairman, Berkshire
Corporation since 1980; Partner, Squire, Sanders &
Dempsey from 1980 to 1993.
Herbert I. London (1)(2).... 60 John M. Olin Professor of Humanities, New York
2 Washington Square Village University since 1993 and Professor since 1980;
New York, New York 10012 President, Hudson Institute since 1997 and Trustee
thereof since 1980; Dean, Gallatin Division of New
York University from 1976 to 1993; Distinguished
Fellow, Herman Kahn Chair, Hudson Institute from
1984 to 1985; Director, Damon Corp. from 1991 to
1995; Overseer, Center for Naval Analyses from 1983
to 1993; Limited Partner, Hypertech LP in 1996.
Robert R. Martin (1)(2)..... 72 Chairman and Chief Executive Officer, Kinnard
513 Grand Hill Investments, Inc. from 1990 to 1993; Executive Vice
St. Paul, Minnesota 55103 President, Dain Bosworth from 1974 to 1989;
Director, Carnegie Capital Management from 1977 to
1985 and Chairman thereof in 1979; Director,
Securities Industry Association from 1981 to 1982
and Public Securities Association from 1979 to 1980;
Chairman of the Board, WTC Industries, Inc. in 1994;
Trustee, Northland College since 1992.
Joseph L. May (1)(2)........ 70 Attorney in private practice since 1984; President,
424 Church Street May and Athens Hosiery Mills Division. Wayne-Gossard
Suite 2000 Corporation from 1954 to 1983; Vice President,
Nashville, Tennessee 37219 Wayne-Gossard Corporation from 1972 to 1983;
Chairman, The May Corporation (personal holding
company) from 1972 to 1983; Director, Signal Apparel
Co. from 1972 to 1989.
Andre F. Perold (1)(2)...... 47 Professor, Harvard Business School since 1989 and
Morgan Hall Associate Professor from 1983 to 1989; Trustee, The
Solders Field Common Fund since 1989; Director, Quantec Limited
Boston, Massachusetts 02163 since 1991, TIBCO from 1994 to 1996 and Genbel
Securities Limited and Genbel Bank since 1999.
Arthur Zeikel (1)*.......... 67 Chairman of FAM and MLAM from 1997 to 1999;
300 Woodland Avenue President of FAM and MLAM from 1977 to 1997;
Westfield, New Jersey 07090 Chairman of Princeton Services from 1997 to 1999,
Director thereof from 1993 to 1999 and President
thereof from 1993 to 1997; Executive Vice President
of ML & Co. from 1990 to 1999.
</TABLE>
I-2
<PAGE>
- --------
(1) Each of the Directors is a director, trustee or member of an advisory board
of one or more additional investment companies for which FAM, MLAM or their
affiliates act as investment adviser. See "Compensation of Board Members"
herein.
(2) Member of Audit Committee of the Board of Directors.
* Interested person, as defined in the Investment Company Act, of each of the
Funds.
Set forth in the table below is information about the officers of each of the
Funds. The address of each officer is 800 Scudders Mill Road, Plainsboro, New
Jersey 08536.
<TABLE>
<CAPTION>
New York New York
Name and Biography Age Office Insured Insured II
- ------------------ --- --------------------- -------- ----------
<S> <C> <C> <C> <C>
Terry K. Glenn................... 59 President 1992* 1992*
Executive Vice President of MLAM
and FAM since 1983; Executive
Vice President and Director of
Princeton Services since 1993;
President of Princeton Funds
Distributor, Inc. ("PFD") since
1986 and Director thereof since
1991; President of Princeton
Administrators, L.P. since 1988.
Vincent R. Giordano.............. 54 Senior Vice President 1992 1992
Senior Vice President of FAM and
MLAM since 1984; Portfolio
Manager of FAM and MLAM since
1977; Senior Vice President of
Princeton Services since 1993.
Kenneth A. Jacob................. 48 Vice President 1993 1993
First Vice President of MLAM
since 1997; Vice President of
MLAM from 1984 to 1997; Vice
President of FAM since 1984.
Donald C. Burke.................. 39 Vice President 1993 1993
Senior Vice President and Treasurer 1999 1999
Treasurer of MLAM and FAM since
1999; Senior Vice President and
Treasurer of Princeton Services
since 1999; Vice President of
PFD since 1999; First Vice
President of MLAM from 1997 to
1999; Vice President of MLAM
from 1990 to 1997; Director of
Taxation of MLAM since 1990.
Walter C. O'Connor............... 37 Vice President 1995 --
Director (Municipal Tax Exempt
Fund Management) of MLAM since
1997; Vice President of MLAM
from 1993 to 1997; Assistant
Vice President of MLAM from 1991
to 1993.
Roberto W. Roffo................. 33 Vice President -- 1996
Vice President of MLAM since
1996.
Alice A. Pellegrino.............. 39 Secretary 1999 1999
Vice President of MLAM since
1999; Attorney associated with
MLAM since 1997; Associate with
Kirkpatrick & Lockhart LLP from
1992 to 1997.
</TABLE>
- --------
* Mr. Glenn was elected President of each Fund in 1999. Prior to that he served
as Executive Vice President of each Fund.
I-3
<PAGE>
EXHIBIT II
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made as of
the day of , 1999, by and between MuniYield New York Insured Fund,
Inc., a Maryland corporation ("New York Insured") and MuniYield New York
Insured Fund II, Inc., a Maryland corporation ("New York Insured II") (New
York Insured and New York Insured II are sometimes referred to herein
collectively as the "Funds").
PLAN OF REORGANIZATION
The reorganization will comprise the following:
(a)(1) the acquisition by New York Insured of substantially all of the
assets, and the assumption by New York Insured of substantially all of the
liabilities of New York Insured II in exchange solely for an equal
aggregate value of newly issued shares of (A) common stock, with a par
value of $0.10 per share, of New York Insured ("New York Insured Common
Stock"), (B) auction market preferred stock of New York Insured, with a
liquidation preference of $25,000 per share plus an amount equal to
accumulated but unpaid dividends thereon (whether or not earned or
declared) to be designated Series C ("New York Insured Series C AMPS"), (C)
auction market preferred stock of New York Insured, with a liquidation
preference of $25,000 per share plus an amount equal to accumulated but
unpaid dividends thereon (whether or not earned or declared) to be
designated Series D ("New York Insured Series D AMPS"), and (D) auction
market preferred stock of New York Insured, with a liquidation preference
of $25,000 per share plus an amount equal to accumulated but unpaid
dividends thereon (whether or not earned or declared) to be designated
Series E ("New York Insured Series E AMPS"), and (2) the subsequent
distribution by New York Insured II to New York Insured II stockholders of
(x) all of the New York Insured Common Stock received by New York Insured
II in exchange for such stockholders' shares of common stock, with a par
value of $0.10 per share, of New York Insured II ("New York Insured II
Common Stock"), (y) all of the New York Insured Series C AMPS received by
New York Insured II in exchange for such stockholders' shares of auction
market preferred stock of New York Insured II, with a liquidation
preference of $25,000 per share plus an amount equal to accumulated but
unpaid dividends thereon (whether or not earned or declared) designated
Series A ("New York Insured II Series A AMPS"), (z) all of the New York
Insured Series D AMPS received by New York Insured II in exchange for such
stockholders' shares of auction market preferred stock of New York Insured
II, with a liquidation preference of $25,000 per share plus an amount equal
to accumulated but unpaid dividends thereon (whether or not earned or
declared) designated Series B ("New York Insured II Series B AMPS") and
(xx) all of the New York Insured Series E AMPS received by New York Insured
II in exchange for such stockholders' shares of auction market preferred
stock, of New York Insured II, with a liquidation preference of $25,000 per
share plus an amount equal to accumulated but unpaid dividends thereon
(whether or not earned or declared) designated Series C ("New York Insured
II Series C AMPS") and such stockholders' shares of auction market
preferred stock, of New York Insured II, with a liquidation preference of
$25,000 per share plus an amount equal to accumulated but unpaid dividends
thereon (whether or not earned or declared) designated Series D ("New York
Insured II Series D AMPS" and together with New York Insured II Series A
AMPS, New York Insured II Series B AMPS and New York Insured II Series C
AMPS, the "New York Insured II AMPS"); all upon and subject to the terms
hereinafter set forth (collectively, the "Reorganization").
In the course of the Reorganization, New York Insured Common Stock, New York
Insured Series C AMPS, New York Insured Series D AMPS and New York Insured
Series E AMPS will be distributed to the stockholders of New York Insured II
as follows:
(a)(1) each holder of New York Insured II Common Stock will be entitled
to receive a number of shares of New York Insured Common Stock equal to the
aggregate net asset value of the New York Insured
II-1
<PAGE>
II Common Stock owned by such stockholder on the Exchange Date (as defined
in Section 7(a) of the Agreement); (2) each holder of New York Insured II
Series A AMPS will be entitled to receive a number of shares of New York
Insured Series C AMPS equal to the aggregate liquidation preference (and
aggregate value) of the New York Insured II Series A AMPS owned by such
stockholder on the Exchange Date; (3) each holder of New York Insured II
Series B AMPS will be entitled to receive a number of shares of New York
Insured Series D AMPS equal to the aggregate liquidation preference (and
aggregate value) of the New York Insured II Series B AMPS owned by such
stockholder on the Exchange Date; and (4) each holder of New York Insured
II Series C AMPS and New York Insured II Series D AMPS will be entitled to
receive a number of shares of New York Insured Series E AMPS equal to the
aggregate liquidation preference (and aggregate value) of the New York
Insured II Series C AMPS or New York Insured II Series D AMPS owned by such
stockholder on the Exchange Date.
It is intended that the Reorganization described in this Plan shall be a
reorganization within the meaning of Section 368(a)(1)(D) of the Internal
Revenue Code of 1986, as amended (the "Code"), and any successor provision.
Prior to the Exchange Date, New York Insured II shall declare a dividend or
dividends which, together with all such previous dividends, shall have the
effect of distributing to their respective stockholders all of their
respective net investment company taxable income to and including the Exchange
Date, if any (computed without regard to any deduction for dividends paid),
and all of its net capital gain, if any, realized to and including the
Exchange Date. In this regard and in connection with the Reorganization, the
last dividend period for the New York Insured II AMPS prior to the Exchange
Date may be shorter than the dividend period for such AMPS determined as set
forth in the applicable Articles Supplementary.
Articles Supplementary to New York Insured's Articles of Incorporation
establishing the powers, rights and preferences of the New York Insured Series
C AMPS, the New York Insured Series D AMPS and the New York Insured Series E
AMPS will have been filed with the State Department of Assessments and
Taxation of Maryland (the "Maryland Department") prior to the Exchange Date.
As promptly as practicable after the consummation of the Reorganization, New
York Insured II shall be dissolved in accordance with the laws of the State of
Maryland and will terminate its registration under the Investment Company Act
of 1940, as amended (the "1940 Act").
AGREEMENT
In order to consummate the Reorganization and in consideration of the
promises and the covenants and agreements hereinafter set forth, and intending
to be legally bound, each of the Funds hereby agrees as follows:
1. Representations and Warranties of New York Insured.
New York Insured represents and warrants to, and agrees with, New York
Insured II that:
(a) New York Insured is a corporation duly organized, validly existing
and in good standing in conformity with the laws of the State of Maryland,
and has the power to own all of its assets and to carry out this Agreement.
New York Insured has all necessary Federal, state and local authorizations
to carry on its business as it is now being conducted and to carry out this
Agreement.
(b) New York Insured is duly registered under the 1940 Act as a non-
diversified, closed-end management investment company (File No. 811-6500),
and such registration has not been revoked or rescinded and is in full
force and effect. New York Insured has elected and qualified for the
special tax treatment afforded regulated investment companies ("RICs")
under Sections 851-855 of the Code at all times since its inception and
intends to continue to so qualify until consummation of the Reorganization
and thereafter.
II-2
<PAGE>
(c) New York Insured II has been furnished with New York Insured's Annual
Report to Stockholders for the fiscal year ended October 31, 1998, and the
audited financial statements appearing therein, having been examined by
Deloitte & Touche LLP, independent public accountants, fairly present the
financial position of New York Insured as of the respective dates
indicated, in conformity with generally accepted accounting principles
applied on a consistent basis.
(d) New York Insured II has been furnished with New York Insured's Semi-
Annual Report to Stockholders for the six months ended April 30, 1999, and
the unaudited financial statements appearing therein fairly present the
financial position of New York Insured as of the respective dates
indicated, in conformity with generally accepted accounting principles
applied on a consistent basis.
(e) An unaudited statement of assets, liabilities and capital of New York
Insured and an unaudited schedule of investments of New York Insured, each
as of the Valuation Time (as defined in Section 3(d) of this Agreement),
will be furnished to New York Insured II, at or prior to the Exchange Date
for the purpose of determining the number of shares of New York Insured
Common Stock, New York Insured Series C AMPS, New York Insured Series D
AMPS, and New York Insured Series E AMPS to be issued to New York Insured
II pursuant to Section 4 of this Agreement; each will fairly present the
financial position of New York Insured as of the Valuation Time in
conformity with generally accepted accounting principles applied on a
consistent basis.
(f) New York Insured has full power and authority to enter into and
perform its obligations under this Agreement. The execution, delivery and
performance of this Agreement has been duly authorized by all necessary
action of its Board of Directors, and this Agreement constitutes a valid
and binding contract enforceable in accordance with its terms, subject to
the effects of bankruptcy, insolvency, moratorium, fraudulent conveyance
and similar laws relating to or affecting creditors' rights generally and
court decisions with respect thereto.
(g) There are no material legal, administrative or other proceedings
pending or, to the knowledge of New York Insured, threatened against it
which assert liability on the part of New York Insured or which materially
affect its financial condition or its ability to consummate the
Reorganization. New York Insured is not charged with or, to the best of its
knowledge, threatened with any violation or investigation of any possible
violation of any provisions of any Federal, state or local law or
regulation or administrative ruling relating to any aspect of its business.
(h) New York Insured is not obligated under any provision of its Articles
of Incorporation, as amended, or its by-laws, as amended, or a party to any
contract or other commitment or obligation, and is not subject to any order
or decree which would be violated by its execution of or performance under
this Agreement, except insofar as the Funds have mutually agreed to amend
such contract or other commitment or obligation to cure any potential
violation as a condition precedent to the Reorganization.
(i) There are no material contracts outstanding to which New York Insured
is a party that have not been disclosed in the N-14 Registration Statement
(as defined in subsection (k) below) or will not otherwise be disclosed to
New York Insured II prior to the Valuation Time.
(j) New York Insured has no known liabilities of a material amount,
contingent or otherwise, other than those shown on its statements of
assets, liabilities and capital referred to above, those incurred in the
ordinary course of its business as an investment company since August 31,
1999; and those incurred in connection with the Reorganization. As of the
Valuation Time, New York Insured will advise New York Insured II in writing
of all known liabilities, contingent or otherwise, whether or not incurred
in the ordinary course of business, existing or accrued as of such time.
(k) No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by New York Insured
of the Reorganization, except such as may be required under the
II-3
<PAGE>
Securities Act of 1933, as amended (the "1933 Act"), the Securities
Exchange Act of 1934, as amended (the "1934 Act") and the 1940 Act or state
securities laws (which term as used herein shall include the laws of the
District of Columbia and Puerto Rico).
(l) The registration statement filed by New York Insured on Form N-14
which includes the joint proxy statement of the Funds with respect to the
transactions contemplated herein and the prospectus of New York Insured
relating to the New York Insured Common Stock, New York Insured Series C
AMPS, New York Insured Series D AMPS and New York Insured Series E AMPS to
be issued pursuant to this Agreement (the "Joint Proxy Statement and
Prospectus"), and any supplement or amendment thereto or to the documents
therein (as amended or supplemented, the "N-14 Registration Statement"), on
its effective date, at the time of the stockholders' meetings referred to
in Section 6(a) of this Agreement and at the Exchange Date, insofar as it
relates to New York Insured (i) complied or will comply in all material
respects with the provisions of the 1933 Act, the 1934 Act and the 1940 Act
and the rules and regulations thereunder and (ii) did not or will not
contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading; and the Joint Proxy Statement and
Prospectus included therein did not or will not contain any untrue
statement of a material fact or omit to state any material fact necessary
to make the statements therein, in the light of the circumstances under
which they were made, not misleading; provided, however, that the
representations and warranties in this subsection only shall apply to
statements in or omissions from the N-14 Registration Statement made in
reliance upon and in conformity with information furnished by New York
Insured for use in the N-14 Registration Statement as provided in Section
6(e) of this Agreement.
(m) New York Insured is authorized to issue 200,000,000 shares of capital
stock, of which 1,700 shares have been designated as Series A AMPS, 1,700
shares have been designated as Series B AMPS and 199,996,600 have been
designated as common stock, par value $.10 per share; each outstanding
share of which is fully paid and nonassessable and has full voting rights.
(n) The shares of New York Insured Common Stock, New York Insured Series
C AMPS, New York Insured Series D AMPS and New York Insured Series E AMPS
to be issued to New York Insured II pursuant to this Agreement will have
been duly authorized and, when issued and delivered pursuant to this
Agreement, will be legally and validly issued and will be fully paid and
nonassessable and will have full voting rights, and no stockholder of New
York Insured will have any preemptive right of subscription or purchase in
respect thereof.
(o) At or prior to the Exchange Date, the New York Insured Common Stock
to be transferred to New York Insured II for distribution to the
stockholders of New York Insured II on the Exchange Date will be duly
qualified for offering to the public in all states of the United States in
which the sale of shares of the Funds presently are qualified, and there
will be a sufficient number of such shares registered under the 1933 Act
and, as may be necessary, with each pertinent state securities commission
to permit the transfers contemplated by this Agreement to be consummated.
(p) At or prior to the Exchange Date, the shares of New York Insured
Series C AMPS, New York Insured Series D AMPS and New York Insured Series E
AMPS to be transferred to New York Insured II on the Exchange Date will be
duly qualified for offering to the public in all states of the United
States in which the sale of AMPS of New York Insured II presently are
qualified, and there are a sufficient number of each series of New York
Insured AMPS registered under the 1933 Act and with each pertinent state
securities commission to permit the transfers contemplated by this
Agreement to be consummated.
(q) At or prior to the Exchange Date, New York Insured will have obtained
any and all regulatory, Director and stockholder approvals necessary to
issue the New York Insured Common Stock, New York Insured Series C AMPS,
New York Insured Series D AMPS and New York Insured Series E AMPS to New
York Insured II.
II-4
<PAGE>
2. Representations and Warranties of New York Insured II.
New York Insured II represents and warrants to, and agrees with New York
Insured that:
(a) New York Insured II is a corporation duly organized, validly existing
and in good standing in conformity with the laws of the State of Maryland,
and has the power to own all of its assets and to carry out this Agreement.
New York Insured II has all necessary Federal, state and local
authorizations to carry on its business as it is now being conducted and to
carry out this Agreement.
(b) New York Insured II is duly registered under the 1940 Act as a non-
diversified, closed-end management investment company (File No. 811-6661),
and such registration has not been revoked or rescinded and is in full
force and effect. New York Insured II has elected and qualified for the
special tax treatment afforded RICs under Sections 851-855 of the Code at
all times since its inception and intends to continue to so qualify through
its taxable year ending upon liquidation.
(c) As used in this Agreement, the term "New York Insured II Investments"
shall mean (i) the investments of New York Insured II shown on the schedule
of its investments as of the Valuation Time furnished to New York Insured;
and (ii) all other assets owned by New York Insured II or liabilities
incurred as of the Valuation Time.
(d) New York Insured II has full power and authority to enter into and
perform its obligations under this Agreement. The execution, delivery and
performance of this Agreement has been duly authorized by all necessary
action of its Board of Directors and this Agreement constitutes a valid and
binding contract enforceable in accordance with its terms, subject to the
effects of bankruptcy, insolvency, moratorium, fraudulent conveyance and
similar laws relating to or affecting creditors' rights generally and court
decisions with respect thereto.
(e) New York Insured has been furnished with New York Insured II's Annual
Report to Stockholders for the fiscal year ended October 31, 1998, and the
audited financial statements appearing therein, having been examined by
Ernst & Young LLP, independent public accountants, fairly present the
financial position of New York Insured II as of the respective dates
indicated, in conformity with generally accepted accounting principles
applied on a consistent basis.
(f) New York Insured has been furnished with New York Insured II's Semi-
Annual Report to Stockholders for the six months ended April 30, 1999, and
the unaudited financial statements appearing therein fairly present the
financial position of New York Insured II as of the respective dates
indicated, in conformity with generally accepted accounting principles
applied on a consistent basis.
(g) An unaudited statement of assets, liabilities and capital of New York
Insured II and an unaudited schedule of investments of New York Insured II,
each as of the Valuation Time, will be furnished to New York Insured at or
prior to the Exchange Date for the purpose of determining the number of
shares of New York Insured Common Stock and New York Insured Series C AMPS,
New York Insured Series D AMPS and New York Insured Series E AMPS to be
issued to New York Insured II pursuant to Section 4 of this Agreement; each
will fairly present the financial position of New York Insured II as of the
Valuation Time in conformity with generally accepted accounting principles
applied on a consistent basis.
(h) There are no material legal, administrative or other proceedings
pending or, to the knowledge of New York Insured II, threatened against it
which assert liability on the part of New York Insured II or which
materially affect its financial condition or its ability to consummate the
Reorganization. New York Insured II, is not charged with or, to the best of
its knowledge, threatened with any violation or investigation of any
possible violation of any provisions of any Federal, state or local law or
regulation or administrative ruling relating to any aspect of its business.
II-5
<PAGE>
(i) There are no material contracts outstanding to which New York Insured
II is a party that have not been disclosed in the N-14 Registration
Statement or will not otherwise be disclosed to New York Insured prior to
the Valuation Time.
(j) New York Insured II is not obligated under any provision of its
Articles of Incorporation, as amended, or its by-laws, as amended, or a
party to any contract or other commitment or obligation, and is not subject
to any order or decree which would be violated by its execution of or
performance under this Agreement, except insofar as the Funds have mutually
agreed to amend such contract or other commitment or obligation to cure any
potential violation as a condition precedent to the Reorganization.
(k) New York Insured II has no known liabilities of a material amount,
contingent or otherwise, other than those shown on its statements of
assets, liabilities and capital referred to above, those incurred in the
ordinary course of its business as an investment company since March 31,
1999 and those incurred in connection with the Reorganization. As of the
Valuation Time, New York Insured II will advise New York Insured in writing
of all known liabilities, contingent or otherwise, whether or not incurred
in the ordinary course of business, existing or accrued as of such time.
(l) New York Insured II has filed, or has obtained extensions to file,
all Federal, state and local tax returns which are required to be filed by
it, and has paid or has obtained extensions to pay, all Federal, state and
local taxes shown on said returns to be due and owing and all assessments
received by it, up to and including the taxable year in which the Exchange
Date occurs. All tax liabilities of New York Insured II have been
adequately provided for on its books, and no tax deficiency or liability of
New York Insured II has been asserted and no question with respect thereto
has been raised by the Internal Revenue Service or by any state or local
tax authority for taxes in excess of those already paid, up to and
including the taxable year in which the Exchange Date occurs.
(m) At both the Valuation Time and the Exchange Date, New York Insured II
will have full right, power and authority to sell, assign, transfer and
deliver the New York Insured II Investments. At the Exchange Date, subject
only to the obligation to deliver the New York Insured II Investments as
contemplated by this Agreement, New York Insured II will have good and
marketable title to all of the New York Insured II Investments, and New
York Insured will acquire all of the New York Insured II Investments free
and clear of any encumbrances, liens or security interests and without any
restrictions upon the transfer thereof (except those imposed by the Federal
or state securities laws and those imperfections of title or encumbrances
as do not materially detract from the value or use of the New York Insured
II Investments or materially affect title thereto).
(n) No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by New York Insured
II of the Reorganization, except such as may be required under the 1933
Act, the 1934 Act, the 1940 Act or state securities laws.
(o) The N-14 Registration Statement, on its effective date, at the time
of the stockholders' meetings referred to in Section 6(a) of this Agreement
and on the Exchange Date, insofar as it relates to New York Insured II (i)
complied or will comply in all material respects with the provisions of the
1933 Act, the 1934 Act and the 1940 Act and the rules and regulations
thereunder, and (ii) did not or will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading; and the
Joint Proxy Statement and Prospectus included therein did not or will not
contain any untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided,
however, that the representations and warranties in this subsection shall
apply only to statements in or omissions from the N-14 Registration
Statement made in reliance upon and in conformity with information
furnished by New York Insured II for use in the N-14 Registration Statement
as provided in Section 6(e) of this Agreement.
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(p) New York Insured II is authorized to issue 200,000,000 shares of
capital stock, of which 2,800 shares have been designated as Series A AMPS,
1,960 shares have been designated as Series B AMPS, 1,000 have been
designated as Series C AMPS, 1,200 have been designated as Series D AMPS
and 199,993,040 shares have been designated as common stock, par value $.10
per share; each outstanding share of which is fully paid and nonassessable
and has full voting rights.
(q) All of the issued and outstanding shares of New York Insured II
Common Stock and New York Insured II AMPS were offered for sale and sold in
conformity with all applicable Federal and state securities laws.
(r) The books and records of New York Insured II made available to New
York Insured and/or its counsel are substantially true and correct and
contain no material misstatements or omissions with respect to the
operations of New York Insured II.
(s) New York Insured II will not sell or otherwise dispose of any of the
shares of New York Insured Common Stock or New York Insured Series C AMPS,
New York Insured Series D AMPS and New York Insured Series E AMPS to be
received in the Reorganization, except in distribution to the stockholders
of New York Insured II, as provided in Section 3 of this Agreement.
3. The Reorganization.
(a) Subject to receiving the requisite approvals of the stockholders of each
of the Funds, and to the other terms and conditions contained herein, (i) New
York Insured II agrees to convey, transfer and deliver to New York Insured and
New York Insured agrees to acquire from New York Insured II on the Exchange
Date, all of the New York Insured II Investments (including interest accrued
as of the Valuation Time on debt instruments) and assume substantially all of
the liabilities of New York Insured II in exchange solely for that number of
shares of New York Insured Common Stock and New York Insured Series C AMPS,
New York Insured Series D AMPS and New York Insured Series E AMPS provided in
Section 4 of this Agreement.
Pursuant to this Agreement, as soon as practicable after the Exchange Date
(i) New York Insured II will distribute all shares of New York Insured Common
Stock and New York Insured Series C AMPS, New York Insured Series D AMPS and
New York Series E AMPS received by it to its stockholders in exchange for
their shares of New York Insured II Common Stock and New York Insured II AMPS.
Such distributions shall be accomplished by the opening of stockholder
accounts on the stock ledger records of New York Insured in the amounts due
the stockholders of New York Insured II based on their respective holdings in
New York Insured II as of the Valuation Time.
(b) Prior to the Exchange Date, New York Insured II shall declare a dividend
or dividends which, together with all such previous dividends, shall have the
effect of distributing to their respective stockholders all of their
respective net investment company taxable income to and including the Exchange
Date, if any (computed without regard to any deduction for dividends paid),
and all of its net capital gain, if any, realized to and including the
Exchange Date. In this regard and in connection with the Reorganization, the
last dividend period for the New York Insured II AMPS prior to the Exchange
Date may be shorter than the dividend period for such AMPS determined as set
forth in the applicable Articles Supplementary.
(c) New York Insured II will pay or cause to be paid to New York Insured any
interest New York Insured II receives on or after the Exchange Date with
respect to New York Insured II Investments transferred to New York Insured
hereunder.
(d) The Valuation Time shall be 4:00 p.m., Eastern time, on February ,
2000, or such earlier or later day and time as may be mutually agreed upon in
writing (the "Valuation Time").
(e) Recourse for liabilities assumed from New York Insured II by New York
Insured in the Reorganization will be limited to the net assets of New York
Insured II acquired by New York Insured. The known liabilities of
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New York Insured II, as of the Valuation Time, shall be confirmed in writing
to New York Insured pursuant to Section 2(j) of this Agreement.
(f) The Funds will jointly file Articles of Transfer with the Maryland
Department and any other such instrument as may be required by the State of
Maryland to effect the transfer of the New York Insured II Investments.
(g) New York Insured II will be dissolved following the Exchange Date by
filing Articles of Dissolution with the Maryland Department.
(h) New York Insured will file with the Maryland Department Articles
Supplementary to its Articles of Incorporation establishing the powers, rights
and preferences of the New York Insured Series C AMPS, the New York Insured
Series D AMPS and the New York Insured Series E AMPS prior to the closing of
the Reorganization.
(i) As promptly as practicable after the liquidation of New York Insured II
pursuant to the Reorganization, New York Insured II shall terminate its
respective registration under the 1940 Act.
4. Issuance and Valuation of New York Insured Common Stock, New York Insured
Series C AMPS, New York Insured Series D AMPS and New York Insured Series E
AMPS in the Reorganization.
Full shares of New York Insured Common Stock and New York Insured Series C
AMPS, New York Insured Series D AMPS and New York Insured Series E AMPS of an
aggregate net asset value or liquidation preference, as the case may be, equal
(to the nearest one ten thousandth of one cent) to the value of the assets of
New York Insured II acquired in the Reorganization determined as hereinafter
provided, reduced by the amount of liabilities of New York Insured II assumed
by New York Insured in the Reorganization, shall be issued to New York Insured
II by New York Insured in exchange for such assets of New York Insured II,
plus cash in lieu of fractional shares. New York Insured will issue to New
York Insured II (a) a number of shares of New York Insured II Common Stock,
the aggregate net asset value of which will equal the aggregate net asset
value of the shares of New York Insured II Common Stock, determined as set
forth below, (b) a number of shares of New York Insured Series C AMPS, the
aggregate liquidation preference and value of which will equal the aggregate
liquidation preference and value of the New York Insured II Series A AMPS,
determined as set forth below; (c) a number of shares of New York Insured
Series D AMPS, the aggregate liquidation preference and value of which will
equal the aggregate liquidation preference and value of the New York Insured
II Series B AMPS, determined as set forth below and (d) a number of shares of
New York Insured Series E AMPS, the aggregate liquidation preference and value
of which will equal the aggregate liquidation preference and value of the New
York Insured II Series C AMPS and New York Insured II Series D AMPS,
determined as set forth below.
The net asset value of each of the Funds and the liquidation preference and
value of the AMPS of each of the Funds shall be determined as of the Valuation
Time in accordance with the procedures described in (i) the prospectus New
York Insured, dated February 21, 1992, relating to the New York Insured Common
Stock and (ii) the final prospectus of New York Insured, dated April 6, 1992,
relating to the New York Insured AMPS, and no formula will be used to adjust
the net asset value so determined of any Fund to take into account differences
in realized and unrealized gains and losses. Values in all cases shall be
determined as of the Valuation Time. The value of New York Insured II
Investments to be transferred to New York Insured shall be determined by New
York Insured pursuant to the procedures utilized by New York Insured in
valuing and determining its own liabilities for purposes of the
Reorganization. Such valuation and determination shall be made by New York
Insured in cooperation with New York Insured II and shall be confirmed in
writing by New York Insured to New York Insured II. The net asset value per
share of the New York Insured Common Stock and the liquidation preference and
value per share of the New York Insured Series C AMPS, the New York Insured
Series D AMPS and the New York Insured Series E AMPS shall be determined in
accordance with such procedures and New York Insured shall certify the
computations involved. For purposes of determining the net asset value of a
share of Common Stock of each Fund, the value of the securities held by the
Fund plus any cash or other assets
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(including interest accrued but not yet received) minus all liabilities
(including accrued expenses) and the aggregate liquidation value of the
outstanding shares of AMPS of that Fund is divided by the total number of
shares of Common Stock of that Fund outstanding at such time.
New York Insured shall issue to New York Insured II separate certificates or
share deposit receipts for the New York Insured Common Stock and the New York
Insured Series C AMPS, the New York Insured Series D AMPS and the New York
Insured Series E AMPS, each registered in the name of New York Insured II. New
York Insured II then shall distribute the New York Insured Common Stock and
the New York Insured Series C AMPS, the New York Insured Series D AMPS and the
New York Insured Series E AMPS to the holders of New York Insured II Common
Stock and New York Insured II AMPS by redelivering the certificates or share
deposit receipts evidencing ownership of (i) the New York Insured Common Stock
to The Bank of New York, as the transfer agent and registrar for the New York
Insured Common Stock for distribution to the holders of New York Insured II
Common Stock on the basis of such holder's proportionate interest in the
aggregate net asset value of the Common Stock of New York Insured II and (ii)
the New York Insured Series C AMPS, New York Insured Series D AMPS and the New
York Insured Series E AMPS to The Bank of New York, as the transfer agent and
registrar for the New York Insured Series C AMPS, the New York Insured Series
D AMPS and the New York Insured Series E AMPS for distribution to the holders
of New York Insured II AMPS on the basis of such holder's proportionate
interest in the aggregate liquidation preference and value of the AMPS of New
York Insured II. With respect to any New York Insured II stockholder holding
certificates evidencing ownership of either New York Insured II Common Stock
or New York Insured II AMPS as of the Exchange Date, and subject to New York
Insured being informed thereof in writing by New York Insured II, New York
Insured will not permit such stockholder to receive new certificates
evidencing ownership of the New York Insured Common Stock or the New York
Insured Series C AMPS, New York Insured Series D AMPS and New York Insured
Series E AMPS, exchange New York Insured Common Stock or New York Insured
Series C AMPS, New York Insured Series D AMPS or New York Insured Series E
AMPS credited to such stockholder's account for shares of other investment
companies managed by Merrill Lynch Asset Management L.P. ("MLAM") or any of
its affiliates, or pledge or redeem such New York Insured Common Stock or New
York Insured Series C AMPS, New York Insured Series D AMPS or New York Insured
Series E AMPS, in any case, until notified by New York Insured II or its agent
that such stockholder has surrendered his or her outstanding certificates
evidencing ownership of New York Insured II Common Stock or New York Insured
II AMPS or, in the event of lost certificates, posted adequate bond. New York
Insured II, at its own expense, will request its stockholders to surrender
their outstanding certificates evidencing ownership of New York Insured II
Common Stock or New York Insured II AMPS, as the case may be, or post adequate
bond therefor.
Dividends payable to holders of record of shares of New York Insured Common
Stock, New York Insured Series C AMPS, New York Insured Series D AMPS, or New
York Insured Series E AMPS, as the case may be, as of any date after the
Exchange Date and prior to the exchange of certificates by any stockholder of
New York Insured II shall be payable to such stockholder without interest;
however, such dividends shall not be paid unless and until such stockholder
surrenders the stock certificates representing shares of common stock or AMPS
of New York Insured II, as the case may be, for exchange.
No fractional shares of New York Insured Common Stock will be issued to
holders of New York Insured II Common Stock. In lieu thereof, New York
Insured's transfer agent, The Bank of New York, will aggregate all fractional
shares of New York Insured Common Stock and sell the resulting full shares on
the New York Stock Exchange at the current market price for shares of New York
Insured Common Stock for the account of all holders of fractional interests,
and each such holder will receive such holder's pro rata share of the proceeds
of such sale upon surrender of such holder's certificates representing New
York Insured II Common Stock.
5. Payment of Expenses.
(a) With respect to expenses incurred in connection with the Reorganization,
(i) each Fund shall pay all expenses incurred that are attributable solely to
such Fund and the conduct of its business, and (ii) New York Insured shall
pay, subsequent to the Exchange Date and pro rata according to each Fund's net
assets on the Exchange Date, all expenses incurred in connection with the
Reorganization, including, but not limited to, all
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costs related to the preparation and distribution of the N-14 Registration
Statement. Such fees and expenses shall include the cost of preparing and
filing a ruling request with the Internal Revenue Service, legal and
accounting fees, printing costs, filing fees, stock exchange fees, rating
agency fees, portfolio transfer taxes (if any) and any similar expenses
incurred in connection with the Reorganization.
(b) If for any reason the Reorganization is not consummated, no party shall
be liable to any other party for any damages resulting therefrom, including,
without limitation, consequential damages.
6. Covenants of the Funds.
(a) Each Fund agrees to call an annual meeting of its stockholders as soon
as is practicable after the effective date of the N-14 Registration Statement
for the purpose of considering the Reorganization as described in this
Agreement.
(b) Each Fund covenants to operate its business as presently conducted
between the date hereof and the Exchange Date.
(c) New York Insured II agrees that following the consummation of the
Reorganization, it will dissolve in accordance with the laws of the State of
Maryland and any other applicable law, it will not make any distributions of
any shares of New York Insured Common Stock, New York Insured Series C AMPS,
New York Insured Series D AMPS or New York Insured Series E AMPS, as
applicable other than to its respective stockholders and without first paying
or adequately providing for the payment of all of its liabilities not assumed
by New York Insured, if any, and on and after the Exchange Date it shall not
conduct any business except in connection with its dissolution.
(d) New York Insured II undertakes that if the Reorganization is
consummated, it will file an application pursuant to Section 8(f) of the 1940
Act for an order declaring that New York Insured II has ceased to be a
registered investment company.
(e) New York Insured will file the N-14 Registration Statement with the
Securities and Exchange Commission (the "Commission") and will use its best
efforts to provide that the N-14 Registration Statement becomes effective as
promptly as practicable. Each Fund agrees to cooperate fully with the others,
and each will furnish to the others the information relating to itself to be
set forth in the N-14 Registration Statement as required by the 1933 Act, the
1934 Act, the 1940 Act, and the rules and regulations thereunder and the state
securities laws.
(f) New York Insured has no plan or intention to sell or otherwise dispose
of New York Insured II Investments, except for dispositions made in the
ordinary course of business.
(g) Each of the Funds agrees that by the Exchange Date all of its Federal
and other tax returns and reports required to be filed on or before such date
shall have been filed and all taxes shown as due on said returns either have
been paid or adequate liability reserves have been provided for the payment of
such taxes. In connection with this covenant, the Funds agree to cooperate
with each other in filing any tax return, amended return or claim for refund,
determining a liability for taxes or a right to a refund of taxes or
participating in or conducting any audit or other proceeding in respect of
taxes. New York Insured agrees to retain for a period of ten (10) years
following the Exchange Date all returns, schedules and work papers and all
material records or other documents relating to tax matters of New York
Insured II for its taxable period first ending after the Exchange Date and for
all prior taxable periods. Any information obtained under this subsection
shall be kept confidential except as otherwise may be necessary in connection
with the filing of returns or claims for refund or in conducting an audit or
other proceeding. After the Exchange Date, New York Insured II shall prepare,
or cause its agents to prepare, any Federal, state or local tax returns,
including any Forms 1099, required to be filed by such fund with respect to
its final taxable year ending with its complete liquidation and for any prior
periods or taxable years and further shall cause such tax returns and Forms
1099 to be duly filed with the appropriate taxing authorities.
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Notwithstanding the aforementioned provisions of this subsection, any expenses
incurred by New York Insured II (other than for payment of taxes) in
connection with the preparation and filing of said tax returns and Forms 1099
after the Exchange Date shall be borne by such Fund to the extent such
expenses have been accrued by such Fund in the ordinary course without regard
to the Reorganization; any excess expenses shall be borne by Fund Asset
Management, L.P. ("FAM") at the time such tax returns and Forms 1099 are
prepared.
(h) The Funds each agree to mail to its respective stockholders of record
entitled to vote at the annual meeting of stockholders at which action is to
be considered regarding this Agreement, in sufficient time to comply with
requirements as to notice thereof, a combined proxy statement and prospectus
which complies in all material respects with the applicable provisions of
Section 14(a) of the 1934 Act and Section 20(a) of the 1940 Act, and the rules
and regulations, respectively, thereunder.
(i) Following the consummation of the Reorganization, New York Insured will
stay in existence and continue its business as a non-diversified, closed-end
management investment company registered under the 1940 Act.
7. Exchange Date.
(a) Delivery of the assets of New York Insured II to be transferred,
together with any other New York Insured II Investments, and the shares of New
York Insured Common Stock, New York Insured Series C AMPS, New York Insured
Series D AMPS and New York Insured Series E AMPS to be issued as provided in
this Agreement, shall be made at the offices of Brown & Wood LLP, One World
Trade Center, New York, New York 10048, at 10:00 a.m. on the next full
business day following the Valuation Time, or at such other place, time and
date agreed to by the Funds, the date and time upon which such delivery is to
take place being referred to herein as the "Exchange Date." To the extent that
New York Insured II Investments, for any reason, are not transferable on the
Exchange Date, New York Insured II shall cause New York Insured II Investments
to be transferred to New York Insured's account with The Bank of New York at
the earliest practicable date thereafter.
(b) New York Insured II will deliver to New York Insured on the Exchange
Date confirmations or other adequate evidence as to the tax basis of New York
Insured II Investments delivered to New York Insured hereunder, certified by
Ernst & Young LLP.
(c) As soon as practicable after the close of business on the Exchange Date,
New York Insured II shall deliver to New York Insured a list of the names and
addresses of all of the stockholders of record of New York Insured II on the
Exchange Date and the number of shares of common stock and AMPS of New York
Insured II owned by each such stockholder, certified to the best of their
knowledge and belief by the applicable transfer agent for New York Insured II
or by its President.
8. Conditions of New York Insured II.
The obligations of New York Insured II hereunder shall be subject to the
following conditions:
(a) That this Agreement shall have been adopted, and the Reorganization
shall have been approved, by the affirmative vote of two-thirds of the
members of the Board of Directors of New York Insured II and by the
affirmative vote of (i) the holders of (a) a majority of the New York
Insured Common Stock and New York Insured AMPS, voting together as a single
class, and (b) a majority of the New York Insured AMPS, voting separately
as a class, in each case issued and outstanding and entitled to vote
thereon; (ii) the holders of (a) a majority of the New York Insured II
Common Stock and New York Insured II AMPS, voting together as a single
class, and (b) a majority of the New York Insured II AMPS, voting
separately as a class, in each case issued and outstanding and entitled to
vote thereon and further that each Fund shall have delivered to each other
Fund a copy of the resolution approving this Agreement adopted by such
Fund's Board of Directors, and a certificate setting forth the vote of such
Fund's stockholders obtained at its Annual Meeting, each certified by the
Secretary of the appropriate Fund.
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(b) That New York Insured II shall have received from New York Insured a
statement of assets, liabilities and capital, with values determined as
provided in Section 4 of this Agreement, together with a schedule of New
York Insured's investments, all as of the Valuation Time, certified on the
Fund's behalf by its President (or any Vice President) and its Treasurer,
and a certificate signed by New York Insured's President (or any Vice
President) and its Treasurer, dated as of the Exchange Date, certifying
that as of the Valuation Time and as of the Exchange Date there has been no
material adverse change in the financial position of New York Insured since
the date of New York Insured's most recent Semi-Annual Report as
applicable, other than changes in its portfolio securities since that date
or changes in the market value of its portfolio securities.
(c) That New York Insured shall have furnished to New York Insured II a
certificate signed by New York Insured's President (or any Vice President)
and its Treasurer, dated as of the Exchange Date, certifying that, as of
the Valuation Time and as of the Exchange Date all representations and
warranties of New York Insured made in this Agreement are true and correct
in all material respects with the same effect as if made at and as of such
dates, and that New York Insured has complied with all of the agreements
and satisfied all of the conditions on its part to be performed or
satisfied at or prior to each of such dates.
(d) That there shall not be any material litigation pending with respect
to the matters contemplated by this Agreement.
(e) That New York Insured II shall have received an opinion or opinions
of Brown & Wood LLP, as counsel to the Funds, in form and substance
satisfactory to New York Insured II and dated the Exchange Date, to the
effect that (i) each of the Funds is a corporation duly organized, validly
existing and in good standing in conformity with the laws of the State of
Maryland; (ii) the shares of New York Insured Common Stock, New York
Insured Series C AMPS, New York Insured Series D AMPS and New York Insured
Series E AMPS to be issued pursuant to this Agreement are duly authorized
and, upon delivery, will be validly issued and outstanding and fully paid
and nonassessable by New York Insured, and no stockholder of New York
Insured has any preemptive right to subscription or purchase in respect
thereof (pursuant to the Articles of Incorporation or the by-laws of New
York Insured or the state law of Maryland, or to the best of such counsel's
knowledge, otherwise); (iii) this Agreement has been duly authorized,
executed and delivered by each of the Funds, and represents a valid and
binding contract, enforceable in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency, reorganization or
other similar laws pertaining to the enforcement of creditors' rights
generally and court decisions with respect thereto; provided, such counsel
shall express no opinion with respect to the application of equitable
principles in any proceeding, whether at law or in equity; (iv) the
execution and delivery of this Agreement does not, and the consummation of
the Reorganization will not, violate any material provisions of Maryland
law or the Articles of Incorporation, as amended, the by-laws, as amended,
or any agreement (known to such counsel) to which either Fund is a party or
by which either Fund is bound, except insofar as the parties have agreed to
amend such provision as a condition precedent to the Reorganization; (v)
New York Insured II has the power to sell, assign, transfer and deliver the
assets transferred by it hereunder and, upon consummation of the
Reorganization in accordance with the terms of this Agreement, New York
Insured II will have duly transferred such assets and liabilities in
accordance with this Agreement; (vi) to the best of such counsel's
knowledge, no consent, approval, authorization or order of any United
States federal court, Maryland state court or governmental authority is
required for the consummation by the Funds of the Reorganization, except
such as have been obtained under the 1933 Act, the 1934 Act and the 1940
Act and the published rules and regulations of the Commission thereunder
and under Maryland law and such as may be required under state securities
laws; (vii) the N-14 Registration Statement has become effective under the
1933 Act, no stop order suspending the effectiveness of the N-14
Registration Statement has been issued and no proceedings for that purpose
have been instituted or are pending or contemplated under the 1933 Act, and
the N-14 Registration Statement, and each amendment or supplement thereto,
as of their respective effective dates, appear on their face to be
appropriately responsive in all material respects to the requirements of
the 1933 Act, the 1934 Act and the 1940 Act and the published rules and
regulations of the
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Commission thereunder; (viii) the descriptions in the N-14 Registration
Statement of statutes, legal and governmental proceedings and contracts and
other documents are accurate and fairly present the information required to
be shown; (ix) the information in the Joint Proxy Statement and Prospectus
under "Comparison of the Funds--Tax Rules Applicable to the Funds and their
Stockholders" and "Agreement and Plan of Reorganization--Tax Consequences
of the Reorganization," to the extent that it constitutes matters of law,
summaries of legal matters or legal conclusions, has been reviewed by such
counsel and is correct in all material respects as of the date of the Joint
Proxy Statement and Prospectus; (x) such counsel does not know of any
statutes, legal or governmental proceedings or contracts or other documents
related to the Reorganization of a character required to be described in
the N-14 Registration Statement which are not described therein or, if
required to be filed, filed as required; (xi) no Fund, to the knowledge of
such counsel, is required to qualify to do business as a foreign
corporation in any jurisdiction except as may be required by state
securities laws, and except where each has so qualified or the failure so
to qualify would not have a material adverse effect on such Fund or its
respective stockholders; (xii) such counsel does not have actual knowledge
of any material suit, action or legal or administrative proceeding pending
or threatened against any of the Funds, the unfavorable outcome of which
would materially and adversely affect such Fund; (xiii) all corporate
actions required to be taken by the Funds to authorize this Agreement and
to effect the Reorganization have been duly authorized by all necessary
corporate actions on the part of such Fund; and (xiv) such opinion is
solely for the benefit of the Funds and their Directors and officers. Such
opinion also shall state that (x) while such counsel cannot make any
representation as to the accuracy or completeness of statements of fact in
the N-14 Registration Statement or any amendment or supplement thereto,
nothing has come to their attention that would lead them to believe that,
on the respective effective dates of the N-14 Registration Statement and
any amendment or supplement thereto, (1) the N-14 Registration Statement or
any amendment or supplement thereto contained any untrue statement of a
material fact or omitted to state any material fact required to be stated
therein or necessary to make the statements therein not misleading; and (2)
the prospectus included in the N-14 Registration Statement contained any
untrue statement of a material fact or omitted to state any material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; and (y) such counsel does not
express any opinion or belief as to the financial statements or other
financial or statistical data relating to any Fund contained or
incorporated by reference in the N-14 Registration Statement. In giving the
opinion set forth above, Brown & Wood LLP may state that it is relying on
certificates of officers of a Fund with regard to matters of fact and
certain certificates and written statements of governmental officials with
respect to the good standing of a Fund.
(f) That New York Insured II shall have received either (a) a private
letter ruling from the Internal Revenue Service or (b) an opinion of Brown
& Wood LLP, to the effect that for Federal income tax purposes (i) the
transfer by New York Insured II of substantially all of its assets to New
York Insured in exchange solely for shares of New York Insured Common Stock
and New York Insured Series C AMPS, New York Insured Series D AMPS or New
York Insured Series E AMPS as provided in this Agreement will constitute a
reorganization within the meaning of Section 368(a)(1)(D) of the Code, and
the respective Funds will each be deemed to be a "party" to a
reorganization within the meaning of Section 368(b); (ii) in accordance
with Section 361(a) of the Code, no gain or loss will be recognized to New
York Insured II as a result of the asset transfer solely in exchange for
shares of New York Insured Common Stock and New York Insured Series C AMPS,
New York Insured Series D AMPS or New York Insured Series E AMPS, as the
case may be, or on the distribution of the New York Insured stock to
stockholders of New York Insured II under Section 361(c)(1); (iii) under
Section 1032 of the Code, no gain or loss will be recognized to New York
Insured on the receipt of assets of New York Insured II in exchange for its
shares; (iv) in accordance with Section 354(a)(1) of the Code, no gain or
loss will be recognized to the stockholders of New York Insured II on the
receipt of shares of New York Insured in exchange for their shares of New
York Insured II (except to the extent that common stockholders receive cash
representing an interest in fractional shares of New York Insured Common
Stock in the Reorganization); (v) in accordance with Section 362(b) of the
Code, the tax basis of New York Insured II's assets in the hands of New
York Insured will be the same as the tax basis of such assets in the hands
of New York Insured II immediately prior to the consummation of the
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Reorganization; (vi) in accordance with Section 358 of the Code,
immediately after the Reorganization, the tax basis of the shares of New
York Insured received by the stockholders of New York Insured II in the
Reorganization will be equal, in the aggregate, to the tax basis of the
shares of New York Insured II surrendered in exchange; (vii) in accordance
with Section 1223 of the Code, a stockholder's holding period for the
shares of New York Insured will be determined by including the period for
which such stockholder held New York Insured II shares exchanged therefor,
provided that such shares were held as a capital asset; (viii) in
accordance with Section 1223 of the Code, New York Insured's holding period
with respect to New York Insured II's assets transferred will include the
period for which such assets were held by New York Insured II; (ix) the
payment of cash to common stockholders of New York Insured II in lieu of
fractional shares of New York Insured Common Stock will be treated as
though the fractional shares were distributed as part of the Reorganization
and then redeemed, with the result that such stockholders will have short-
or long-term capital gain or loss to the extent that the cash distribution
differs from the stockholder's basis allocable to the New York Insured
fractional shares; and (x) the taxable year of New York Insured II will end
on the effective date of the Reorganization and pursuant to Section 381(a)
of the Code and regulations thereunder, New York Insured will succeed to
and take into account certain tax attributes of New York Insured II, such
as earnings and profits, capital loss carryovers and method of accounting.
(g) That all proceedings taken by each of the Funds and its counsel in
connection with the Reorganization and all documents incidental thereto
shall be satisfactory in form and substance to the other.
(h) That the N-14 Registration Statement shall have become effective
under the 1933 Act, and no stop order suspending such effectiveness shall
have been instituted or, to the knowledge of New York Insured, be
contemplated by the Commission.
(i) That New York Insured II shall have received from Ernst & Young LLP a
letter dated as of the effective date of the N-14 Registration Statement
and a similar letter dated within five days prior to the Exchange Date, in
form and substance satisfactory to them, to the effect that (i) they are
independent public accountants with respect to New York Insured within the
meaning of the 1933 Act and the applicable published rules and regulations
thereunder; (ii) in their opinion, the financial statements and
supplementary information of New York Insured included or incorporated by
reference in the N-14 Registration Statement and reported on by them comply
as to form in all material respects with the applicable accounting
requirements of the 1933 Act and the published rules and regulations
thereunder; (iii) on the basis of limited procedures agreed upon by the
Funds and described in such letter (but not an examination in accordance
with generally accepted auditing standards) consisting of a reading of any
unaudited interim financial statements and unaudited supplementary
information of New York Insured included in the N-14 Registration
Statement, and inquiries of certain officials of New York Insured
responsible for financial and accounting matters, nothing came to their
attention that caused them to believe that (a) such unaudited financial
statements and related unaudited supplementary information do not comply as
to form in all material respects with the applicable accounting
requirements of the 1933 Act and the published rules and regulations
thereunder, (b) such unaudited financial statements are not fairly
presented in conformity with generally accepted accounting principles,
applied on a basis substantially consistent with that of the audited
financial statements, or (c) such unaudited supplementary information is
not fairly stated in all material respects in relation to the unaudited
financial statements taken as a whole; and (iv) on the basis of limited
procedures agreed upon by the Funds and described in such letter (but not
an examination in accordance with generally accepted auditing standards),
the information relating to New York Insured appearing in the N-14
Registration Statement, which information is expressed in dollars (or
percentages derived from such dollars) (with the exception of performance
comparisons, if any), if any, has been obtained from the accounting records
of New York Insured or from schedules prepared by officials of New York
Insured having responsibility for financial and reporting matters and such
information is in agreement with such records, schedules or computations
made therefrom.
(j) That the Commission shall not have issued an unfavorable advisory
report under Section 25(b) of the 1940 Act, nor instituted or threatened to
institute any proceeding seeking to enjoin consummation of the
Reorganization under Section 25(c) of the 1940 Act, and no other legal,
administrative or other proceeding
II-14
<PAGE>
shall be instituted or threatened which would materially affect the
financial condition of New York Insured or would prohibit the
Reorganization.
(k) That New York Insured II shall have received from the Commission such
orders or interpretations as Brown & Wood LLP, as its counsel, deems
reasonably necessary or desirable under the 1933 Act and the 1940 Act in
connection with the Reorganization, provided, that such counsel shall have
requested such orders as promptly as practicable, and all such orders shall
be in full force and effect.
9. New York Insured Conditions.
The obligations of New York Insured hereunder shall be subject to the
following conditions:
(a) That this Agreement shall have been adopted, and the Reorganization
shall have been approved, by the Board of Directors and the stockholders of
each of the Funds as set forth in Section 8(a); and that New York Insured
II shall have delivered to New York Insured a copy of the resolution
approving this Agreement adopted by New York Insured II's Board of
Directors, and a certificate setting forth the vote of the stockholders of
New York Insured II obtained, each certified by its Secretary.
(b) That New York Insured II shall have furnished to New York Insured a
statement of its assets, liabilities and capital, with values determined as
provided in Section 4 of this Agreement, together with a schedule of
investments with their respective dates of acquisition and tax costs, all
as of the Valuation Time, certified on such Fund's behalf by its President
(or any Vice President) and its Treasurer, and a certificate signed by such
Fund's President (or any Vice President) and its Treasurer, dated as of the
Exchange Date, certifying that as of the Valuation Time and as of the
Exchange Date there has been no material adverse change in the financial
position of New York Insured II since the date of such Fund's most recent
Semi-Annual Report, as applicable, other than changes in New York Insured
II Investments since that date or changes in the market value of New York
Insured II Investments.
(c) That New York Insured II shall have furnished to New York Insured a
certificate signed by such Fund's President (or any Vice President) and its
Treasurer, dated the Exchange Date, certifying that as of the Valuation
Time and as of the Exchange Date all representations and warranties of New
York Insured II made in this Agreement are true and correct in all material
respects with the same effect as if made at and as of such dates and New
York Insured II has complied with all of the agreements and satisfied all
of the conditions on its part to be performed or satisfied at or prior to
such dates.
(d) That New York Insured II shall have delivered to New York Insured a
letter from Ernst & Young LLP, dated the Exchange Date, stating that such
firm has performed a limited review of the Federal, state and local income
tax returns of New York Insured II for the period ended (which returns
originally were prepared and filed by New York Insured II), and that based
on such limited review, nothing came to their attention which caused them
to believe that such returns did not properly reflect, in all material
respects, the Federal, state and local income taxes of New York Insured II
for the period covered thereby; and that for the period from , to and
including the Exchange Date and for any taxable year of New York Insured II
ending upon the liquidation of New York Insured II, such firm has performed
a limited review to ascertain the amount of applicable Federal, state and
local taxes, and has determined that either such amount has been paid or
reserves have been established for payment of such taxes, this review to be
based on unaudited financial data; and that based on such limited review,
nothing has come to their attention which caused them to believe that the
taxes paid or reserves set aside for payment of such taxes were not
adequate in all material respects for the satisfaction of Federal, state
and local taxes for the period from , to and including the Exchange Date
and for any taxable year of New York Insured II, ending upon the
liquidation of such fund or that such fund would not qualify as a regulated
investment company for Federal income tax purposes for the tax years in
question.
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(e) That there shall not be any material litigation pending with respect
to the matters contemplated by this Agreement.
(f) That New York Insured shall have received an opinion of Brown & Wood
LLP, as counsel to the Funds, in form and substance satisfactory to New
York Insured and dated the Exchange Date, with respect to the matters
specified in Section 8(e) of this Agreement and such other matters as New
York Insured reasonably may deem necessary or desirable.
(g) That New York Insured shall have received a private letter ruling
from the Internal Revenue Service or an opinion of Brown & Wood LLP with
respect to the matters specified in Section 8(f) of this Agreement.
(h) That New York Insured shall have received from Deloitte & Touche LLP
a letter dated as of the effective date of the N-14 Registration Statement
and a similar letter dated within five days prior to the Exchange Date, in
form and substance satisfactory to New York Insured, to the effect that (i)
they are independent public accountants with respect to New York Insured II
within the meaning of the 1933 Act and the applicable published rules and
regulations thereunder; (ii) in their opinion, the financial statements and
supplementary information of New York Insured II included or incorporated
by reference in the N-14 Registration Statement and reported on by them
comply as to form in all material respects with the applicable accounting
requirements of the 1933 Act and the published rules and regulations
thereunder; (iii) on the basis of limited procedures agreed upon by the
Funds and described in such letter (but not an examination in accordance
with generally accepted auditing standards) consisting of a reading of any
unaudited interim financial statements and unaudited supplementary
information of New York Insured II included in the N-14 Registration
Statement, and inquiries of certain officials of New York Insured II
responsible for financial and accounting matters, nothing came to their
attention that caused them to believe that (a) such unaudited financial
statements and related unaudited supplementary information do not comply as
to form in all material respects with the applicable accounting
requirements of the 1933 Act and the published rules and regulations
thereunder, (b) such unaudited financial statements are not fairly
presented in conformity with generally accepted accounting principles,
applied on a basis substantially consistent with that of the audited
financial statements, or (c) such unaudited supplementary information is
not fairly stated in all material respects in relation to the unaudited
financial statements taken as a whole; and (iv) on the basis of limited
procedures agreed upon by the Funds and described in such letter (but not
an examination in accordance with generally accepted auditing standards),
the information relating to New York Insured II appearing in the N-14
Registration Statement, which information is expressed in dollars (or
percentages derived from such dollars) (with the exception of performance
comparisons, if any), if any, has been obtained from the accounting records
of New York Insured II or from schedules prepared by officials of New York
Insured II having responsibility for financial and reporting matters and
such information is in agreement with such records, schedules or
computations made therefrom.
(i) That New York Insured II Investments to be transferred to New York
Insured shall not include any assets or liabilities which New York Insured,
by reason of charter limitations or otherwise, may not properly acquire or
assume.
(j) That the N-14 Registration Statement shall have become effective
under the 1933 Act and no stop order suspending such effectiveness shall
have been instituted or, to the knowledge of New York Insured II, be
contemplated by the Commission.
(k) That the Commission shall not have issued an unfavorable advisory
report under Section 25(b) of the 1940 Act, nor instituted or threatened to
institute any proceeding seeking to enjoin consummation of the
Reorganization under Section 25(c) of the 1940 Act, and no other legal,
administrative or other proceeding shall be instituted or threatened which
would materially affect the financial condition of New York Insured II or
would prohibit the Reorganization.
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<PAGE>
(l) That New York Insured shall have received from the Commission such
orders or interpretations as Brown & Wood LLP, as counsel to New York
Insured, deems reasonably necessary or desirable under the 1933 Act and the
1940 Act in connection with the Reorganization, provided, that such counsel
shall have requested such orders as promptly as practicable, and all such
orders shall be in full force and effect.
(m) That all proceedings taken by New York Insured II and its counsel in
connection with the Reorganization and all documents incidental thereto
shall be satisfactory in form and substance to New York Insured.
(n) That prior to the Exchange Date, New York Insured II shall have
declared a dividend or dividends which, together with all such previous
dividends, shall have the effect of distributing to its stockholders all of
its net investment company taxable income for the period to and including
the Exchange Date, if any (computed without regard to any deduction for
dividends paid), and all of its net capital gain, if any, realized to and
including the Exchange Date. In this regard, the last dividend period for
the New York Insured II AMPS may be shorter than the dividend period for
such AMPS determined as set forth in the applicable Articles Supplementary.
10. Indemnification.
(a) New York Insured II hereby agrees to indemnify and hold New York Insured
harmless from all loss, liability and expenses (including reasonable counsel
fees and expenses in connection with the contest of any claim) which New York
Insured may incur or sustain by reason of the fact that (i) New York Insured
shall be required to pay any corporate obligation of New York Insured II,
whether consisting of tax deficiencies or otherwise, based upon a claim or
claims against New York Insured II which were omitted or not fairly reflected
in the financial statements to be delivered to New York Insured in connection
with the Reorganization; (ii) any representations or warranties made by New
York Insured II in this Agreement should prove to be false or erroneous in any
material respect; (iii) any covenant of New York Insured II has been breached
in any material respect; or (iv) any claim is made alleging that (a) the N-14
Registration Statement included any untrue statement of a material fact or
omitted to state any material fact required to be stated therein or necessary
to make the statements therein attributable to such Fund not misleading or (b)
the Joint Proxy Statement and Prospectus delivered to the stockholders of the
Funds and forming a part of the N-14 Registration Statement included any
untrue statement of a material fact or omitted to state any material fact
necessary to make the statements therein attributable to such Fund, in the
light of the circumstances under which they were made, not misleading, except
with respect to (iv)(a) and (b) herein insofar as such claim is based on
written information furnished to New York Insured II by New York Insured.
(b) New York Insured hereby agrees to indemnify and hold New York Insured II
harmless from all loss, liability and expenses (including reasonable counsel
fees and expenses in connection with the contest of any claim) which New York
Insured II may incur or sustain by reason of the fact that (i) any
representations or warranties made by New York Insured in this Agreement
should prove false or erroneous in any material respect, (ii) any covenant of
New York Insured has been breached in any material respect, or (iii) any claim
is made alleging that (a) the N-14 Registration Statement included any untrue
statement of a material fact or omitted to state any material fact required to
be stated therein or necessary to make the statements therein, not misleading
or (b) the Joint Proxy Statement and Prospectus delivered to stockholders of
the Funds and forming a part of the N-14 Registration Statement included any
untrue statement of a material fact or omitted to state any material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, except with respect to (ii)(a) and
(b) herein insofar as such claim is based on written information furnished to
New York Insured by New York Insured II.
(c) In the event that any claim is made against New York Insured in respect
of which indemnity may be sought by New York Insured from New York Insured II
under Section 10(a) of this Agreement, or in the event that any claim is made
against New York Insured II in respect of which indemnity may be sought by New
York Insured II from New York Insured under Section 10(b) of this Agreement,
then the party seeking indemnification
II-17
<PAGE>
(the "Indemnified Party"), with reasonable promptness and before payment of
such claim, shall give written notice of such claim to the other party (the
"Indemnifying Party"). If no objection as to the validity of the claim is made
in writing to the Indemnified Party by the Indemnifying Party within thirty
(30) days after the giving of notice hereunder, then the Indemnified Party may
pay such claim and shall be entitled to reimbursement therefor, pursuant to
this Agreement. If, prior to the termination of such thirty-day period,
objection in writing as to the validity of such claim is made to the
Indemnified Party, the Indemnified Party shall withhold payment thereof until
the validity of such claim is established (i) to the satisfaction of the
Indemnifying Party, or (ii) by a final determination of a court of competent
jurisdiction, whereupon the Indemnified Party may pay such claim and shall be
entitled to reimbursement thereof, pursuant to this Agreement, or (iii) with
respect to any tax claims, within seven (7) calendar days following the
earlier of (A) an agreement between New York Insured and New York Insured II
seeking indemnification that an indemnity amount is payable, (B) an assessment
of a tax by a taxing authority, or (C) a "determination" as defined in Section
1313(a) of the Code. For purposes of this Section 10, the term "assessment"
shall have the same meaning as used in Chapter 63 of the Code and Treasury
Regulations thereunder, or any comparable provision under the laws of the
appropriate taxing authority. In the event of any objection by the
Indemnifying Party, the Indemnifying Party promptly shall investigate the
claim, and if it is not satisfied with the validity thereof, the Indemnifying
Party shall conduct the defense against such claim. All costs and expenses
incurred by the Indemnifying Party in connection with such investigation and
defense of such claim shall be borne by it. These indemnification provisions
are in addition to, and not in limitation of, any other rights the parties may
have under applicable law.
11. Termination, Postponement and Waivers.
(a) Notwithstanding anything contained in this Agreement to the contrary,
this Agreement may be terminated and the Reorganization abandoned at any time
(whether before or after adoption thereof by the stockholders of the Funds)
prior to the Exchange Date, or the Exchange Date may be postponed, (i) by
mutual consent of the Boards of Directors of the Funds, (ii) by the Board of
Directors of New York Insured II if any condition of New York Insured II's
obligations set forth in Section 8 of this Agreement has not been fulfilled or
waived by such Board; or (iii) by the Board of Directors of New York Insured
if any condition of New York Insured's obligations set forth in Section 9 of
this Agreement has not been fulfilled or waived by such Board.
(b) If the transactions contemplated by this Agreement have not been
consummated by August , 2000, this Agreement automatically shall terminate on
that date, unless a later date is mutually agreed to by the Boards of
Directors of the Funds.
(c) In the event of termination of this Agreement pursuant to the provisions
hereof, the same shall become void and have no further effect, and there shall
not be any liability on the part of any Fund or persons who are their
directors, trustees, officers, agents or stockholders in respect of this
Agreement.
(d) At any time prior to the Exchange Date, any of the terms or conditions
of this Agreement may be waived by the Board of Directors of either Fund
(whichever is entitled to the benefit thereof), if, in the judgment of such
Board after consultation with its counsel, such action or waiver will not have
a material adverse effect on the benefits intended under this Agreement to the
stockholders of their respective fund, on behalf of which such action is
taken. In addition, the Boards of Directors of the Funds have delegated to FAM
the ability to make non-material changes to the transaction if it deems it to
be in the best interests of the Funds to do so.
(e) The respective representations and warranties contained in Sections 1
and 2 of this Agreement shall expire with, and be terminated by, the
consummation of the Reorganization, and neither Fund nor any of its officers,
directors, trustees, agents or stockholders shall have any liability with
respect to such representations or warranties after the Exchange Date. This
provision shall not protect any officer, director, trustee, agent or
stockholder of either Fund against any liability to the entity for which that
officer, director, trustee, agent or stockholder so acts or to its
stockholders, to which that officer, director, trustee, agent or stockholder
otherwise would be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties in the conduct of such office.
II-18
<PAGE>
(f) If any order or orders of the Commission with respect to this Agreement
shall be issued prior to the Exchange Date and shall impose any terms or
conditions which are determined by action of the Boards of Directors of the
Funds to be acceptable, such terms and conditions shall be binding as if a
part of this Agreement without further vote or approval of the stockholders of
the Funds unless such terms and conditions shall result in a change in the
method of computing the number of shares of New York Insured Common Stock, New
York Insured Series C AMPS, New York Insured Series D AMPS and New York
Insured Series E AMPS to be issued to New York Insured II, as applicable, in
which event, unless such terms and conditions shall have been included in the
proxy solicitation materials furnished to the stockholders of the Funds prior
to the meetings at which the Reorganization shall have been approved, this
Agreement shall not be consummated and shall terminate unless the Funds
promptly shall call a special meeting of stockholders at which such conditions
so imposed shall be submitted for approval.
12. Other Matters.
(a) Pursuant to Rule 145 under the 1933 Act, and in connection with the
issuance of any shares to any person who at the time of the Reorganization is,
to its knowledge, an affiliate of a party to the Reorganization pursuant to
Rule 145(c), New York Insured will cause to be affixed upon the certificate(s)
issued to such person (if any) a legend as follows:
THESE SHARES ARE SUBJECT TO RESTRICTIONS ON TRANSFER UNDER THE SECURITIES
ACT OF 1933 AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED EXCEPT TO
MUNIYIELD NEW YORK INSURED FUND, INC. (OR ITS STATUTORY SUCCESSOR), OR ITS
PRINCIPAL UNDERWRITER UNLESS (I) A REGISTRATION STATEMENT WITH RESPECT
THERETO IS EFFECTIVE UNDER THE SECURITIES ACT OF 1933 OR (II) IN THE
OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE FUND, SUCH REGISTRATION
IS NOT REQUIRED.
and, further, that stop transfer instructions will be issued to New York
Insured's transfer agent with respect to such shares. New York Insured II will
provide New York Insured on the Exchange Date with the name of any stockholder
of New York Insured II who is to the knowledge of New York Insured II an
affiliate of New York Insured II on such date.
(b) All covenants, agreements, representations and warranties made under
this Agreement and any certificates delivered pursuant to this Agreement shall
be deemed to have been material and relied upon by each of the parties,
notwithstanding any investigation made by them or on their behalf.
(c) Any notice, report or demand required or permitted by any provision of
this Agreement shall be in writing and shall be made by hand delivery, prepaid
certified mail or overnight service, addressed to any Fund, at 800 Scudders
Mill Road, Plainsboro, New Jersey 08536, Attn: Terry K. Glenn, President.
(d) This Agreement supersedes all previous correspondence and oral
communications between the parties regarding the Reorganization, constitutes
the only understanding with respect to the Reorganization, may not be changed
except by a letter of agreement signed by each party and shall be governed by
and construed in accordance with the laws of the State of New York applicable
to agreements made and to be performed in said state.
(e) Copies of the Articles of Incorporation, as amended, and Articles
Supplementary of each Fund are on file with the Maryland Department and notice
is hereby given that this instrument is executed on behalf of the Directors of
each Fund.
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<PAGE>
This Agreement may be executed in any number of counterparts, each of which,
when executed and delivered, shall be deemed to be an original but all such
counterparts together shall constitute but one instrument.
Attest: MuniYield New York Insured Fund,
Inc.
_____________________________________
By:__________________________________
Attest: MuniYield New York Insured Fund II,
Inc.
_____________________________________
By:__________________________________
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EXHIBIT III
ECONOMIC AND OTHER CONDITIONS IN NEW YORK
The following information is a brief summary of factors affecting the
economy of New York City (the "City") or New York State (the "State" or "New
York"). Other factors will affect issuers. The summary is based primarily upon
one or more of the most recent publicly available offering statements relating
to debt offerings of State issuers, however, it has not been updated. The Fund
has not independently verified this information.
The State, some of its agencies, instrumentalities and public authorities
and certain of its municipalities have sometimes faced serious financial
difficulties that could have an adverse effect on the sources of payment for
or the market value of the New York Municipal Bonds in which the Fund invests.
New York City
General. More than any other municipality, the fiscal health of the City has
a significant effect on the fiscal health of the State. The City's current
financial plan assumes that, after strong growth in 1998-1999, moderate
economic growth will exist through calendar year 2003, with moderate job
growth and wage increases.
For each of the 1981 through 1998 fiscal years, the City had an operating
surplus, before discretionary and other transfers, and achieved balanced
operating results as reported in accordance with generally accepted accounting
principles ("GAAP"), after discretionary and other transfers. The City has
been required to close substantial gaps between forecast revenues and forecast
expenditures in order to maintain balanced operating results. There can be no
assurance that the City will continue to maintain balanced operating results
as required by State law without tax or other revenue increases or reductions
in City services or entitlement programs, which could adversely affect the
City's economic base.
Pursuant to the laws of the State, the Mayor is responsible for preparing
the City's financial plan, including the City's current financial plan for the
2000 through 2003 fiscal years (the "2000-2003 Financial Plan", "Financial
Plan" or "City Financial Plan"). The City's projections set forth in the City
Financial Plan are based on various assumptions and contingencies that are
uncertain and may not materialize. Changes in major assumptions could
significantly affect the City's ability to balance its budget as required by
State law and to meet its annual cash flow and financing requirements.
City's Financing Program. Implementation of the City Financial Plan is also
dependent upon the City's ability to market its securities successfully. The
City's program for financing capital projects for fiscal years 1999 through
2003 contemplates the issuance of $10.091 billion of general obligation bonds,
$5.340 billion of bonds to be issued by the New York City Transitional Finance
Authority (the "Transitional Finance Authority") and $2.8 billion of bonds to
be issued by the Tobacco Settlement Asset Securitization Corporation ("TSASC")
and paid from revenues received pursuant to a settlement of litigation with
the four leading cigarette companies. The Transitional Finance Authority and
TSASC were created to assist the City in financing its capital program while
keeping City indebtedness within the forecast level of the constitutional
restrictions on the amount of debt the City is authorized to incur.
Without additional borrowing capacity, under current projections the City
would reach the limit of its capacity to enter into new contractual
commitments in fiscal year 2000. If TSASC is not able to issue $2.8 billion of
bonds, the City will need to find another source of financing or substantially
curtail or halt its capital program. City officials have indicated that,
should their efforts to securitize a portion of City tobacco settlement
proceeds fail or not be accomplished in a timely manner, the City will request
that the State increase the borrowing authority of the Transitional Finance
Authority. Even with the ability to issue $2.8 billion in bonds by TSASC, the
City expects that it will be required to postpone a substantial part of its
capital program from the latter part of fiscal year 2001 to fiscal year 2002.
In addition, the City issues revenue notes and tax anticipation notes to
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finance its seasonal working capital requirements (See "Seasonal Financing
Requirements" within). The success of projected public sales of City bonds and
notes, New York City Municipal Water Finance Authority (the "Water Authority")
bonds and Transitional Finance Authority and other bonds will be subject to
prevailing market conditions. The City's planned capital and operating
expenditures are dependent upon the sale of its general obligation bonds and
notes, as well as Water Authority, Transitional Finance Authority and TSASC
bonds.
1998 Fiscal Year. For the 1998 fiscal year, the City had an operating
surplus, before discretionary and other transfers, and achieved balanced
operating results, after discretionary and other transfers, in accordance with
GAAP. The 1998 fiscal year is the eighteenth year that the City has achieved
an operating surplus, before discretionary and other transfers, and balanced
operating results, after discretionary and other transfers.
1999 Modification and 2000-2003 Financial Plan. The most recent quarterly
modification to the City's financial plan for the 1999 fiscal year (July 1,
1998-June 30, 1999) submitted to the New York State Financial Control Board
(the "Control Board") on June 14, 1999 (the "1999 Modification"), projects a
balanced budget in accordance with GAAP for the 1999 fiscal year.
On June 14, 1999, the City released the Financial Plan for the 2000 through
2003 fiscal years, which relates to the City and certain entities which
receive funds from the City. The Financial Plan projects revenues and
expenditures for the 2000 fiscal year balanced in accordance with GAAP, and
project gaps of $1.8 billion, $1.9 billion and $1.8 billion for fiscal years
2001 through 2003, respectively.
The 1999 Modification and the 2000-2003 Financial Plan includes a proposed
discretionary transfer in the 1999 fiscal year of $2.6 billion to pay debt
service due in fiscal year 2000, for budget stabilization purposes, a proposed
discretionary transfer in fiscal year 2000 to pay debt service due in fiscal
year 2001 totaling $429 million, and a proposed discretionary transfer in
fiscal year 2001 to pay debt service due in fiscal year 2002 totaling $345
million.
In addition, the Financial Plan sets forth gap-closing actions to eliminate
a previously projected gap for the 2000 fiscal year and to reduce projected
gaps for fiscal years 2001 through 2003 which include additional (i) City
agency actions, (ii) Federal revenue sharing and Medicaid aid and (iii) State
actions including Medicaid cost containment initiatives. The Financial Plan
also reflects a tax reduction program, which includes the elimination of the
City's non-residents earning tax, the proposed extension of current tax
reductions for owners of cooperative and condominium apartments and a proposed
income tax credit for low income wage earners.
Assumptions. The 2000-2003 Financial Plan is based on numerous assumptions,
including the condition of the City's and the region's economies and modest
employment growth and the concomitant receipt of economically sensitive tax
revenues in the amounts projected. The 2000-2003 Financial Plan is subject to
various other uncertainties and contingencies relating to, among other
factors, the extent, if any, to which wage increases for City employees exceed
the annual wage costs assumed for the 1999 through 2003 fiscal years;
continuation of projected interest earnings assumptions for pension fund
assets and current assumptions with respect to wages for City employees
affecting the City's required pension fund contributions; the willingness and
ability of the State to provide the aid contemplated by the Financial Plan and
to take various other actions to assist the City; the ability of Health and
Hospitals Corporation (the "HHC"), the Board of Education (the "BOE") and
other such agencies to maintain balanced budgets; the willingness of the
Federal government to provide the amount of Federal aid contemplated in the
Financial Plan; the impact on City revenues and expenditures of Federal and
State welfare reform and any future legislation affecting Medicare or other
entitlement programs; adoption of the City's budgets by the City Council in
substantially the forms submitted by the Mayor; the ability of the City to
implement cost reduction initiatives, and the success with which the City
controls expenditures; the impact of conditions in the real estate market on
real estate tax revenues; and unanticipated expenditures that may be incurred
as a result of the need to maintain the City's infrastructure. Certain of
these assumptions have been questioned by the City Comptroller and other
public officials.
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The Financial Plan assumes: (i) approval by the Governor and the State
Legislature of the extension of the 14% personal income tax surcharge, which
is scheduled to expire on December 31, 1999, and which is projected to provide
revenue of $572 million, $585 million, $600 million and $638 million in the
2000 through 2003 fiscal years, respectively; (ii) collection of projected
rent payments for the City's airports, totaling $365 million, $185 million and
$155 million in the 2001 through 2003 fiscal years, respectively, a
substantial portion of which may depend on the successful completion of
negotiations with The Port Authority of New York and New Jersey (the "Port
Authority") or the enforcement of the City's rights under the existing leases
through pending legal action; (iii) State and Federal approval of the State
and Federal gap-closing actions proposed by the City in the Financial Plan;
and (iv) receipt of the tobacco settlement funds providing revenues or
expenditure offsets in annual amounts ranging between $250 million and $300
million. In addition, the economic and financial condition of the City may be
affected by various financial, social, economic and political factors which
could have a material effect on the City.
Municipal Unions. The Financial Plan reflects the costs of the settlements
and arbitration awards with certain municipal unions and other bargaining
units, which together represent approximately 98% of the City's workforce, and
assumes that the City will reach agreement with its remaining municipal unions
under terms which are generally consistent with such settlements and
arbitration awards. These contracts are approximately five years in length and
have a total cumulative net increase of 13%. Assuming the City reaches similar
settlements with its remaining municipal unions, the cost of all settlements
for all City-funded employees would total $1.2 billion in the 1999 fiscal year
and exceed $2 billion thereafter. The Financial Plan provides no additional
wage increases for City employees after their contracts expire in fiscal years
2000 and 2001.
Intergovernmental Aid. The City depends on the State for aid both to enable
the City to balance its budget and to meet its cash requirements. There can be
no assurance that there will not be reductions in State aid to the City from
amounts projected; that State budgets will be adopted by the April 1 statutory
deadline, or interim appropriations enacted; or that any such reductions or
delays will not have adverse effects on the City's cash flow or expenditures.
In addition, the Federal budget negotiation process could result in reductions
or delays in the receipt of Federal grants which could have additional adverse
effects on the City's cash flow or revenues.
Year 2000 Computer Matters. The year 2000 presents potential operational
problems for computerized data files and computer programs which may recognize
the year 2000 as the year 1900, resulting in possible system failures or
miscalculations. In November 1996, the City's Year 2000 Project Office was
established to develop a project methodology, coordinate the efforts of City
agencies, review plans and oversee implementation of year 2000 projects. At
that time, the City also evaluated the capabilities of the City's Integrated
Financial Management System and Capital Projects Information System, which are
the City's central accounting, budgeting and payroll systems, identified the
potential impact of the year 2000 on these systems, and developed a plan to
replace these systems with a new system which is expected to be year 2000
compliant prior to December 31, 1999. The City has also performed an
assessment of its other mission-critical and high priority computer systems in
connection with making them year 2000 compliant, and the City's agencies have
developed and begun to implement both strategic and operational plans for non-
compliant application systems. In addition, the City Comptroller is conducting
audits of the progress of City agencies in achieving year 2000 compliance.
While these efforts may involve additional costs beyond those assumed in the
Financial Plan, the City believes, based on currently available information,
that such additional costs will not be material.
The Mayor's Office of Operations has stated that work has been completed,
and all or part of the necessary testing has been performed, on approximately
69% (current as of June 18, 1999) of the mission-critical and high priority
systems of Mayoral agencies. The City's computer systems may not all be year
2000 compliant in a timely manner and there could be an adverse impact on City
operations or revenues as a result. The City is in the process of developing
contingency plans for all mission-critical and high priority systems of
Mayoral agencies, if such systems are not year 2000 compliant by predetermined
dates. The City is also in the process of contacting its significant third
party vendors regarding the status of their compliance. Such compliance is not
within the City's control, and therefore the City cannot assure that there
will not be any adverse effects on the City resulting from any failure of
these third parties.
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Certain Reports. The City's financial plans have been the subject of
extensive public comment and criticism. From time to time, the Control Board
staff, the Office of the State Deputy Comptroller (the "OSDC"), the City
Comptroller, the City's Independent Budget Office (the "IBO") and others issue
reports and make public statements regarding the City's financial condition,
commenting on, among other matters, the City's financial plans, projected
revenues and expenditures and actions by the City to eliminate projected
operating deficits. Some of these reports and statements have warned that the
City may have underestimated certain expenditures and overestimated certain
revenues and have suggested that the City may not have adequately provided for
future contingencies. Certain of these reports have analyzed the City's future
economic and social conditions and have questioned whether the City has the
capacity to generate sufficient revenues in the future to meet the costs of
its expenditure increases and to provide necessary services.
On May 24, 1999, the City Comptroller issued a report on the City's
financial plan as previously updated in April 1999 (the "April Financial
Plan"). With respect to the 1999 fiscal year, the report identified a possible
surplus of $94 million, after $2.1 billion of discretionary transfers and
subsidy payments assumed in the April Financial Plan, due to the possibility
of higher than forecasted tax revenues. In addition, taking into account the
risks and additional resources identified in the report and the budget gaps
projected in the April Financial Plan, the report projected budget gaps of
between $1.8 billion and $3.0 billion, $1.8 billion and $3.1 billion, and $2.0
billion and $3.6 billion in fiscal years 2001 through 2003, respectively.
With respect to fiscal years 2000 through 2003, the report identified
baseline risks of between $698 million and $873 million, $1.0 billion and $2.2
billion, $978 million and $2.2 billion, and $1.1 billion and $2.7 billion,
respectively, depending upon whether the State approves the extension of the
14% personal income tax surcharge and whether the City incurs additional labor
costs as a result of the expiration of labor contracts starting in fiscal year
2001 which, if settled at the current forecast level of inflation, would
result in additional costs totaling $345 million in fiscal year 2001, $713
million in fiscal year 2002 and $1.1 billion in fiscal year 2003. Additional
risks identified in the report for fiscal years 2000 through 2003 include the
revenues from the non-residents earnings tax, which the State Legislature has
voted to repeal, at a potential cost to the City of between $360 million and
$398 million annually starting in fiscal year 2000; assumed payments from the
Port Authority relating to the City's claim for back rentals, which are the
subject of arbitration, State and Federal gap-closing actions proposed in the
April Financial Plan; possible increased overtime expenditures, the sale of
the New York City Coliseum in fiscal year 2001; and the write-down of
outstanding education aid receivables of approximately $100 million in each of
fiscal years 2002 and 2003. The report noted that these risks may be offset by
additional resources of approximately $900 million in each of fiscal years
2000 through 2002 and approximately $800 million in fiscal year 2003. The
report further noted that expenditure growth continued to exceed revenue
growth, and that deficits could increase if the economy deteriorates. In
addition, the report noted that HHC faces a number of uncertainties that may
have a negative impact on its long-term viability, including proposed State
and Federal reductions to both Medicaid and Medicare and a significant decline
in patient utilization. The decline in utilization has been primarily
reflected in Medicaid revenue which accounts for approximately 50% of HHC's
total revenues, and which has been adversely affected by a smaller welfare
population, local welfare cost containment initiatives and greater competition
for Medicaid funds among area hospitals. The report also indicated that a
possible negotiated settlement of a class action, filed on behalf of
approximately 63,000 persons challenging the Department of Corrections policy
of strip searching detainees arrested for non-felony offenses, may expose the
City to substantial costs from the settlement of litigation.
On August 25, 1998, the City Comptroller issued a report reviewing the
current condition of the City's major physical assets and the capital
expenditures required to bring them to a state of good repair. The report's
findings relate only to current infrastructure and do not address future
capacity or technology needs. The report estimated that the expenditure of
approximately $91.83 billion would be required over the next decade to bring
the City's infrastructure to a systematic state of good repair and address new
capital needs already identified. The report stated that the City's current
Ten-Year Capital Strategy, together with funding received from other sources,
is projected to provide approximately $52.08 billion. The report noted that
the City's ability to meet all
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capital obligations is limited by law, as well as funding capacity, and that
the issue for the City is how best to set priorities and manage limited
resources.
On May 20, 1999, the staff of the OSDC issued a report on the City's
Executive Budget for fiscal year 2000. The report notes that tax revenues are
likely to be higher than forecast by the City for fiscal years 1999 and 2000
by a total of $275 million, which may be needed to offset potential budget
risks, such as a possible delay in the receipt of the proceeds from the
tobacco settlement and shortfalls in Federal and State gap-closing aid assumed
in the April Financial Plan. With respect to the subsequent fiscal years in
the April Financial Plan, the report noted that, while the budget gaps have
been reduced to about $1.7 billion annually, they make no provision for wage
increases after the expiration of current contracts which, at the projected
rate of inflation, would increase costs by more than $1 billion by fiscal year
2003.
In addition, the report noted that it is anticipated that an independent
actuarial consulting firm reviewing the assumptions and methodologies to
compute City pension contributions will issue its report and will recommend
changes, such as a reduction in the pension fund investment earnings
assumption. These changes, in addition to those that the City Actuary may
recommend, could cost in excess of $500 million annually. In addition, the
report noted that legislation is under consideration that would increase
retirement benefits for certain City employees. Finally, the report noted that
the City remains vulnerable to an economic downturn which could result in a
significant shortfall in projected non-property tax revenues and higher
pension fund contributions and public assistance costs.
On May 27, 1999, the staff of the Control Board issued a report on the April
Financial Plan. The report noted that the City will end the 1999 fiscal year
with a substantial surplus and that the budget proposed by the Mayor for
fiscal year 2000 also appears to be balanced. However, the report noted that
the lack of a State budget left uncertainties as to the amount of
intergovernmental aid which will be available to the City in fiscal year 2000,
and that the proposed elimination by the State of the City's non-residents
earnings tax will require the City to make appropriate adjustments to its
revenue and expenditure forecasts. The report further noted that large gaps
still exist in subsequent fiscal years of the April Financial Plan, even
before accounting for known risks such as the impact of future collective
bargaining negotiations. Finally, the report noted that the City's business
and personal income taxes are particularly susceptible to the vagaries of the
financial markets and, if the economy falters, the City will likely experience
a decline in revenues and an increase in social service costs which will
increase the out-year gaps in the April Financial Plan.
On May 14, 1999, the IBO released a report providing its analysis of the
April Financial Plan. The report estimated a potential surplus of $356 million
in fiscal year 2000 and potential gaps of $2.3 billion, $3.0 billion and $3.1
billion for fiscal years 2001 through 2003, respectively, which reflect, among
other things, salary increases for City employees totaling $232 million, $607
million and $1.0 billion in fiscal years 2001 through 2003, respectively,
which are not included in the April Financial Plan. Uncertainties identified
in the report include Federal and State gap-closing actions assumed in the
April Financial Plan relating to Medicaid assistance or cost containment,
State tort reform legislation and State funding for low income uninsured
disabled children. The report noted that, while the strength of the local
economy is helping the City solve many of its near term budget problems,
persistently large projected out-year gaps remain a major concern for the
City, and even a modest slackening of the growth forecast for the next four
years could increase projected budget gaps.
Seasonal Financing Requirements. The City since 1981 has fully satisfied its
seasonal financing needs in the public credit markets, repaying all short-term
obligations within their fiscal year of issuance. The City issued $500 million
of short-term obligations in the 1999 fiscal year to finance the City's cash
flow needs for the 1999 fiscal year. The City issued $1.075 billion in short-
term obligations in fiscal year 1998 to finance the City's projected cash flow
needs for the 1998 fiscal year. The City issued $2.4 billion of short-term
obligations in fiscal year 1997. Seasonal financing requirements for the 1996
fiscal year increased to $2.4 billion from $2.2 billion and $1.75 billion in
the 1995 and 1994 fiscal years, respectively. The delay in the adoption of the
State's budget in certain past fiscal years has required the City to issue
short-term notes in amounts exceeding those expected early in such fiscal
years.
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Ratings. As of June 18, 1999, Moody's rated the City's outstanding general
obligation bonds A3, Standard & Poor's rated such bonds A- and Fitch rated
such bonds A. In July 1995, Standard & Poor's revised downward its ratings on
outstanding general obligation bonds of the City from A- to BBB+. In July
1998, Standard & Poor's revised its rating of City bonds upward to A-. Moody's
rating of City bonds was revised in February 1998 to A3 from Baa1. On March 8,
1999, Fitch revised its rating of City bonds upward to A. Such ratings reflect
only the view of Moody's, Standard & Poor's and Fitch, from which an
explanation of the significance of such ratings may be obtained. There is no
assurance that such ratings will continue for any given period of time or that
they will not be revised downward or withdrawn entirely. Any such downward
revision or withdrawal could have an adverse effect on the market prices of
City bonds.
Outstanding Indebtedness. As of March 31, 1999, the City and the Municipal
Assistance Corporation for the City of New York had respectively approximately
$26.8 and $3.2 billion of outstanding net long-term debt. As of May 19, 1999,
the Water Authority had approximately $8.7 billion aggregate principal amount
of outstanding bonds, inclusive of subordinate second resolution bonds, and a
$600 million commercial paper program.
Water, Sewer and Waste. Debt service on Water Authority obligations is
secured by fees and charges collected from the users of the City's water and
sewer system. State and Federal regulations require the City's water supply to
meet certain standards to avoid filtration. The City's water supply now meets
all technical standards and the City has taken the position that increased
regulatory, enforcement and other efforts to protect its water supply will
prevent the need for filtration. On May 6, 1997, the U.S. Environmental
Protection Agency granted the City a filtration avoidance waiver through April
15, 2002 in response to the City's adoption of certain watershed regulations.
The estimated incremental cost to the City of implementing this Watershed
Memorandum of Agreement, beyond investments in the watershed which were
planned independently, is approximately $400 million. The City has estimated
that if filtration of the upstate water supply system is ultimately required,
the construction expenditures required could be between $4 billion and $5
billion.
Legislation has been passed by the State which prohibits the disposal of
solid waste in any landfill located within the City after December 31, 2001.
The Financial Plan includes the estimated costs of phasing out the use of
landfills located within the City. A suit has been commenced against the City
by private individuals under the Resource Conservation and Recovery Act
seeking to compel the City to take certain measures or, alternatively, to
close the Fresh Kills landfill. If as a result of such litigation, the City is
required to close the landfill earlier than required by State legislation, the
City could incur additional costs during the Financial Plan period. Pursuant
to court order, the City prior to July 1999 was required to recycle 2,100 tons
per day of solid waste and is required to recycle 3,400 tons per day by July
1999 and 4,250 tons per day by July 2001. The City as of June 18, 1999 was
recycling slightly over 2,100 tons per day of solid waste. The City may seek
to obtain amendments to Local Law No. 19 to modify this requirement. If the
City is unable to obtain such amendments and is required to fully implement
Local Law No. 19, the City may incur substantial costs.
Litigation. The City is a defendant in a significant number of lawsuits.
Such litigation includes, but is not limited to, routine litigation incidental
to the performance of its governmental and other functions, actions commenced
and claims asserted against the City arising out of alleged constitutional
violations, alleged torts, alleged breaches of contracts and other alleged
violations of law and condemnation proceedings and other tax and miscellaneous
actions. While the ultimate outcome and fiscal impact, if any, on the City of
the proceedings and claims are not currently predictable, adverse
determination in certain of them might have a material adverse effect upon the
City's ability to carry out the City Financial Plan. The City has estimated
that its potential future liability on account of outstanding claims against
it as of June 30, 1998 amounted to approximately $3.5 billion.
New York State
Current Economic Outlook. The State's 1999-2000 Financial Plan is based upon
a June 1999 projection by the State Division of Budget of national and State
economic activity. The information in this section, obtained from the State's
Annual Information Statement, dated August 24, 1999, summarizes the national
and State
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economic situation and outlook upon which projections of receipts and certain
disbursements were made for the State's 1999-2000 Financial Plan. The State
Division of Budget expects that national economic growth will be quite robust
throughout calendar year 1999. Real Gross Domestic Product ("GDP") growth is
projected to be 4.0 percent in 1999, above the 1998 growth rate of 3.9
percent. In 2000, real GDP growth is expected to be 2.4 percent.
The forecast of the State's economy shows continued expansion during the
1999 calendar year, with employment growth gradually slowing as the year
progresses. The financial and business service sectors are expected to
continue to do well, while employment in the manufacturing sector is expected
to post a modest decline. On an average annual basis, the employment growth
rate in the State is expected to be somewhat lower than in 1998 and the
unemployment rate is expected to drop further to 5.1 percent. Personal income
is expected to record moderate gains in 1999. Wage growth in 1999 is expected
to be slower than in the previous year as the recent robust growth rate in
bonus payments moderates.
Overall employment growth in the State was 2.0 percent in 1998, but is
expected to drop to 1.7 percent in 1999 and to 1.3 percent in 2000. On the
national level, employment growth was 2.6 percent for 1998 and is projected to
be 2.1 percent and 1.8 percent for 1999 and 2000, respectively.
On an average annual basis, the State unemployment rate was 5.6 percent in
1998 and is projected to be 5.1 percent and 5.0 percent for 1999 and 2000,
respectively. For the nation as a whole, the unemployment rate was 4.5 percent
for 1998, and is projected to be 4.2 percent in 1999 and 4.1 percent in 2000.
Personal income in the State grew by 5.3 percent in 1998, and is projected
to grow by 4.7 percent in 1999 and 4.1 percent in 2000. For the nation,
personal income grew by 5.0 percent in 1998, and is projected to grow by 5.1
percent and 4.8 percent, respectively, for 1999 and 2000.
The forecast for continued growth, and any resultant impact on the State's
1999-2000 Financial Plan, contains some uncertainties. Stronger-than-expected
gains in employment and wages or in stock market prices could lead to
unanticipated strong growth in consumer spending. Inventory investment dues to
year 2000 computer matters may be significantly stronger than expected towards
the end of 1999 possibly followed by significant weakness early in 2000. Also,
improvements in foreign economies may be weaker-than-expected and therefore
may have unanticipated effects on the domestic economy. The inflation rate may
differ significantly from expectations due to the conflicting impacts of a
tight labor market and improved productivity growth as well as to the
direction and magnitude of fluctuations in oil prices. In addition, the State
economic forecast could over- or underestimate the level of future bonus
payments, financial sector profits or inflation growth, resulting in
unexpected economic impacts. Similarly, the State forecast could fail to
correctly estimate the amount of employment change in the banking, financial
and other business service sectors as well as the direction of employment
change that is likely to accompany telecommunications and energy deregulation.
The New York Economy. New York is the third most populous state in the
nation and has a relatively high level of personal wealth. The State's economy
is diverse, with a comparatively large share of the nation's finance,
insurance, transportation, communications and services employment, and a very
small share of the nation's farming and mining activity. The services sector
accounts for more than three of every ten nonagricultural jobs in New York and
has a noticeably higher proportion of total jobs than does the rest of the
nation. Manufacturing employment continues to decline in importance in New
York, as in most other states, and New York's economy is less reliant on this
sector than is the nation. Wholesale and retail trade is the second largest
sector in terms of nonagricultural jobs in New York but is considerably
smaller when measured by income share. The finance, insurance and real estate
sector is far more important in the State than in the nation as a whole.
Although this sector accounts for under one-tenth of all nonagricultural jobs
in the State, it contributes about one-fifth of all nonfarm labor and
proprietors' income. Farming is an important part of large regions of the
State, although it constitutes a very minor part of total State output.
Federal, State and local government together are the third largest sector in
terms of nonagricultural jobs, with the bulk of the employment accounted for
by local governments. The State is likely to be less affected than the nation
as a whole during an economic recession
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that is concentrated in manufacturing and construction, but likely to be more
affected during a recession that is concentrated in the service-producing
sector.
The 1999-2000 Fiscal Year. The State's 1999-2000 fiscal year began on April
1, 1999 and ends on March 31, 2000. On March 31, 1999, the State adopted the
debt service portion of the State budget for the 1999-2000 fiscal year; four
months later, on August 4, 1999, it enacted the remainder of the budget. The
Governor approved the budget as passed by the Legislature. Prior to passing
the budget in its entirety for the 1999-2000 fiscal year, the State enacted
appropriations that permitted the State to continue its operations. Following
the enactment of the budget, the State prepared a Financial Plan for the 1999-
2000 fiscal year (the "1999-2000 Financial Plan" or the "State Financial
Plan") that sets forth projected receipts and disbursements based on the
actions taken by the Legislature.
General Fund receipts, including transfers from other funds, are projected
to be $39.31 billion, an increase of $2.57 billion from the $36.74 billion
recorded in the 1998-1999 fiscal year. General Fund disbursements, including
transfers to other funds, are estimated at $37.36 billion, an increase of $868
million or 2.38 percent over the 1998-1999 fiscal year. The 1999-2000
Financial Plan projects the State to close the 1999-2000 fiscal year with a
closing balance of $2.85 billion in the General Fund.
Receipts. The $39.31 billion in total General Fund receipts includes $35.93
billion in tax receipts, $1.36 billion in miscellaneous receipts and $2.02
billion in transfers from other funds. The transfer of the $1.82 billion
surplus recorded in the 1998-1999 fiscal year to the 1999-2000 fiscal period
has the effect of exaggerating the growth in State receipts from year to year
by depressing reported 1998-1999 figures and inflating 1999-2000 projections.
Personal income taxes are imposed on the income of individuals, estates and
trusts and are based, with certain modifications, on Federal definitions of
income and deductions. Potential changes to Federal tax law could alter the
Federal definitions of income on which certain State taxes rely. Such changes
could have a significant impact on State revenues in the future. Net General
Fund personal income tax collections are projected to reach $22.95 billion in
the 1999-2000 fiscal year, well over half of all General Fund receipts and
nearly $2.87 billion above the reported 1998-1999 fiscal year collection
total. Much of this growth is associated with the $1.82 billion net impact of
the transfer of the surplus from 1998-1999 to 1999-2000 as partially offset by
the diversion of an additional $661 million in income tax receipts to the
School Tax Relief (STAR) fund. The STAR program was created in 1997 as a
State-funded local property tax relief program funded through the use of
personal income tax receipts. Adjusted for these transactions, the growth in
net income tax receipts is roughly $1.8 billion, an increase of almost 9
percent.
User taxes and fees are comprised of three-quarters of the State's four
percent sales and use tax, cigarette, alcoholic beverage, container, and auto
rental taxes, and a portion of the motor fuel excise levies. This category
also includes receipts from the motor vehicle registration fees and alcoholic
beverage license fees. Dedicated transportation funds outside of the General
Fund receive a portion of motor fuel tax and motor vehicle registration fees
and all of the highway use taxes. User taxes and fees are projected to total
$7.35 billion in 1999-2000, an increase of $105 million from reported
collection in the 1998-1999 fiscal year. The sales tax component of this
category accounts for virtually all of the 1999-2000 fiscal year growth.
Business taxes include franchise taxes based generally on net income of
general business, bank and insurance corporations, as well as gross-receipts-
based taxes on utilities and gallonage-based petroleum business taxes.
Business tax receipts are expected to total approximately $4.63 billion in
1999-2000, $230 million below 1998-1999 results. The year-over-year decline in
projected receipts in this category is largely attributable to statutory
changes.
Transfers from other funds to the General Fund consists primarily of tax
revenues in excess of debt service requirements, including the one percent
sales tax used to support payments to Local Government Assistance Corporation
(see Local Government Assistance Corporation within). Transfers from other
funds are expected to
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total $2.02 billion, or $99 million more than total receipts from this
category during 1998-1999. Total transfers of sale taxes in excess of LGAC
debt service requirements are expected to increase by approximately $93
million, while transfers from all other funds are expected to increase by $6
million.
Miscellaneous receipts include investment income, abandoned property
receipts, medical provider assessments, minor federal grants, receipts from
public authorities, and certain other license and fee revenues. Miscellaneous
receipts are expected to total $1.36 billion in the 1999-2000 fiscal year,
down $142 million from the prior year amount. This reflects the loss of non-
recurring receipts received in the 1998-1999 fiscal year and the growing
effects of the phase-out of the medical provider assessments, scheduled to be
eliminated in January 2000.
Other taxes include the estate and gift tax, the real property gains tax and
pari-mutuel taxes. Taxes in this category are projected to total $1 billion
for 1999-2000, $137 million below the 1998-1999 level. The primary factors
accounting for most of the expected decline include: an adverse tax tribunal
decision resulting in significant refunds of the now repealed real property
gains tax; pari-mutuel tax reductions enacted with the 1999-2000 budget; and
the effects of already enacted reductions in the estate and gift taxes.
Non-recurring Resources. The State Division of the Budget estimates that the
1999-2000 State Financial Plan contains actions that provide non-recurring
resources or savings totaling approximately $500 million, or 1.3 percent of
General Fund resources, the largest of which is the first phase of the
privatization of the Medical Malpractice Insurance Association. To the
greatest extent possible, one-time resources are expected to be utilized to
finance one-time costs, including Year 2000 compliance costs and certain
capital spending.
Disbursements. Grants to Local Governments is projected to constitute
approximately 68.5 percent of all 1999-2000 fiscal year General Fund
disbursements, and include payments to local governments, non-profit providers
and entitlement benefits to individuals. It is projected to be approximately
$25.60 billion for the 1999-2000 fiscal year, an increase of $910 million or
3.68 percent from the level for the 1998-1999 fiscal year. Under the 1999-2000
enacted budget, General Fund spending on school aid is projected at $10.52
billion on a State fiscal year basis, an increase of $831 million from the
prior year. Spending for Medicaid in 1999-2000 is projected to total $5.54
billion, essentially unchanged from the 1998-1999 fiscal year. Disbursements
for all other health and social welfare programs are projected to total $2.70
billion, a decrease of $252 million. Lower welfare spending, driven by State
and federal reforms and a robust economy, accounts for most of the decline.
State Operations is projected to constitute approximately 18.4 percent of
all 1999-2000 fiscal year General Fund disbursements. State Operations
reflects the costs of running the Executive, Legislative and Judicial branches
of government, including the prison system, mental hygiene institutions, and
the State University system (SUNY). It is projected to be approximately $6.89
billion for the 1999-2000 fiscal year. Personal service costs account for
approximately 73 percent of spending in this category. Spending in this
category is projected to increase by $207 million or 3.1 percent above 1998-
1999. The growth reflects $100 million in projected spending for new
collective bargaining agreements that the State expects to be ratified during
the 1999-2000 fiscal year. The annualized costs of current collective
bargaining agreements, growth in the Legislative and Judiciary budgets, and
staffing costs for the State's Year 2000 compliance programs also contribute
to the year-to-year growth in spending. The State's overall workforce is
projected to remain stable at approximately 191,300 persons.
General State Charges is projected to constitute approximately 5.5 percent
of all 1999-2000 fiscal year General Fund disbursements. This category
accounts primarily for the costs of providing fringe benefits to State
employees and retirees of the Executive, Legislature and Judiciary. It
includes employer contributions for pensions, social security, health
insurance, workers' compensation and unemployment insurance. This category
also covers State payments-in-lieu of-taxes to local governments for certain
State-owned lands, and the costs of defending lawsuits against the State and
its public officers. Disbursements in this category are estimated at $2.04
billion for the 1999-2000 fiscal year, a decrease of $222 million from the
1998-1999 fiscal year.
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Transfers to Other Funds from the General Fund are made primarily to finance
certain portions of State capital projects spending and debt service on long-
term bonds where these costs are not funded from other sources. State Debt
Service is projected to constitute approximately 6.1 percent of all 1999-2000
fiscal year General Fund disbursements. Capital/Other is projected to
constitute approximately 1.5 percent of all such General Fund disbursements.
Long-term debt service transfers are projected at $2.27 billion in the 1999-
2000 fiscal year, an increase of $183 million from 1998-1999. Transfers for
capital projects are projected to total $168 million in 1999-2000, a decline
of $78 million from the 1998-1999 fiscal year which is primarily due to the
delay of the receipt of payment of certain reimbursements in the 1998-1999
fiscal year.
Future Fiscal Years. State law requires the Governor to propose a balanced
budget each year. Preliminary analysis by the State Division of the Budget
indicates that the State will have a 2000-2001 fiscal year budget gap of
approximately $1.9 billion, or about $300 million above the 1999-2000
Executive Budget estimate (after adjusting for the projected costs of
collective bargaining). This estimate includes an assumption of the projected
costs of new collective bargaining agreements, $500 million in assumed
operating efficiencies, as well as the planned application of approximately
$615 million of the $1.82 billion tax reduction reserve. In recent years, the
State has closed projected budget gaps which the State Division of the Budget
estimates at $5.0 billion (1995-96), $3.9 billion (1996-97), $2.3 billion
(1997-98), and less than $1 billion (1998-99).
The State and the United University Professionals (UUP) union have reached a
tentative agreement on a new four-year labor contract. The State is continuing
negotiations with other unions representing State employees, the largest of
which is the Civil Service Employees Association (CSEA). CSEA previously
failed to ratify a tentative agreement on a new four-year contract earlier in
1999. The 1999-2000 Financial Plan has reserved $100 million for possible
collective bargaining agreements, and reserves are contained in the
preliminary outyear projection for 2000-2001 to cover the recurring costs of
any new agreements. To the extent these reserves are inadequate to finance
such agreements, the costs of new labor contracts could increase the size of
future budget gaps.
Sustained growth in the State's economy could contribute to closing
projected budget gaps over the next several years, both in terms of higher-
than-projected tax receipts and in lower-than-expected entitlement spending.
The State assumes that the 2000-2001 Financial Plan will achieve $500 million
in savings from initiatives by state agencies to deliver services more
efficiently, workforce management efforts, maximization of Federal and non-
General Fund spending offsets, and other actions necessary to help bring
projected disbursements and receipts into balance. The projections do not
assume any gap-closing benefit from the potential settlement of State claims
against the tobacco industry.
Special Considerations. Many complex political, social and economic forces
influence the State's economy and finances, which may in turn affect the
State's Financial Plan. These forces may affect the State unpredictably from
fiscal year to fiscal year and are influenced by governments, institutions,
and events that are not subject to the State's control. The Financial Plan is
also necessarily based upon forecasts of national and State economic activity.
Economic forecasts have frequently failed to predict accurately the timing and
magnitude of changes in the national and State economies.
The State Financial Plan is based upon forecasts of national and State
economic activity. Many uncertainties exist in forecasts of both the national
and the State economies, including consumer attitudes toward spending, the
extent of corporate and governmental restructuring, the condition of the
financial sector, Federal fiscal and monetary policies, the level of interest
rates, and the condition of the world economy, which could have an adverse
effect on the State. There can be no assurance that the State economy will not
experience results in the current or any future fiscal year that are worse
than predicted, with corresponding material and adverse effects on the State's
projections of receipts and disbursements.
Projections of total State receipts in the State Financial Plan are based on
the State tax structure in effect during the fiscal year and on assumptions
relating to basic economic factors and their historical relationships to State
tax receipts. Projections of total State disbursements are based on
assumptions relating to economic and
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demographic factors, potential collective bargaining agreements, levels of
disbursements for various services provided by local governments (where the
cost is partially reimbursed by the State), and the results of various
administrative and statutory mechanisms in controlling disbursements for State
operations.
An additional risk to the State Financial Plan arises from the potential
impact of certain litigation and of federal disallowances now pending against
the State, which could adversely affect the State's projections of receipts
and disbursements. The State Financial Plan assumes no significant litigation
or federal disallowance or other federal actions that could affect State
finances, but has significant reserves in the event of such an action.
The Personal Responsibility and Work Opportunity Reconciliation Act of 1996
created a new Temporary Assistance to Needy Families program (TANF) partially
funded with a fixed federal block grant to states. States are required to meet
work activity participation targets for their TANF caseload and conform with
certain other federal standards or face potential sanctions in the form of a
reduced federal block grant and increased State/local funding requirements.
Any future reduction could have an adverse impact on the State's Financial
Plan. However, the State has been able to demonstrate compliance with TANF
work requirements to date and does not now expect to be subject to associated
federal fiscal penalties.
Despite recent budgetary surpluses recorded by the State, actions affecting
the level of receipts and disbursements, the relative strength of the State
and regional economy, and actions by the Federal Government could impact
projected budget gaps for the State. To address a potential imbalance in any
given fiscal year, the State would be required to take actions to increase
receipts and/or reduce disbursements as it enacts the budget for that year,
and under the State Constitution, the Governor is required to propose a
balanced budget each year. There can be no assurance, however, that the State
Legislature will enact the Governor's proposals or that the State's actions
will be sufficient to preserve budgetary balance in any given fiscal year or
to align recurring receipts and disbursements in any given fiscal year.
To help guard against these risks, the State has projected reserves of $2.4
billion in the 1999-2000 fiscal year.
Year 2000 Computer Matters. New York State is currently addressing "Year
2000" ("Y2K") data processing compliance issues. Since its inception, the
computer industry has used a two-digit date convention to represent the year.
In the year 2000, the date field will contain "00" and, as a result, many
computer systems and equipment may not be able to process dates properly or
may fail since they may not be able to distinguish between the years 1900 and
2000. The Y2K issue not only affects computer programs, but also the hardware,
software and networks on which they operate. In addition, any system or
equipment that is dependent on an embedded chip, such as telecommunication
equipment and security systems, may also be adversely affected.
In April 1999 the State Comptroller released an audit on the State's Y2K
compliance. The audit, which reviewed the State's Y2K compliance activities
through October 1998, found that the State had made progress in achieving Y2K
compliance, but needed to improve its activities in several areas, including
data interchanges and contingency planning.
The Office for Technology ("OFT") will continue to monitor compliance
progress for the State's mission-critical and high-priority systems and is
reporting compliance progress to the Governor's office on a quarterly basis.
Mission-critical systems are those that may impact the public health, safety
and welfare of the State and its citizens, and for which failure could have a
material and adverse impact on State operations. High-priority systems are
critical for a State agency to fulfill its mission or deliver services. OFT
reported that as of June 1999, the State had completed over 98 percent of the
overall compliance effort for its mission-critical systems; 55 of the 56
systems are now Y2K compliant. As of June 1999, the State had completed 87
percent of the overall compliance effort on the high-priority systems; 236
systems are now Y2K compliant. The State has also procured independent
validation and verification services from a qualified vendor to perform an
automated review of code that has been fixed and a testing review process for
all mission-critical systems which is scheduled to be completed by September
1999.
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The State is also addressing a number of issues related to bringing its
mission-critical systems into compliance, including: testing throughout 1999
of over 800 data exchange interfaces with Federal, State, local and private
data partners; completing an inventory of priority equipment and systems that
may depend on embedded chips and may therefore need remediation in 1999; and
contacting critical vendors and supply partners to obtain Y2K compliance
status information and assurances. Since problems could be identified during
the compliance testing phase that could produce compliance delays, the State
agencies were required to complete contingency plans for priority systems and
business processes by the first quarter of calendar year 1999. These plans
have been completed and tested as of June 1999 and are being integrated into
the State Emergency Response Plan under the direction of the State Emergency
Management Office. In addition, the State Public Service Commission has
ordered that all State-regulated utilities complete Y2K activities for
mission-critical systems, including contingency plans, by July 1, 1999. The
Public Service Commission is currently reviewing these plans as part of their
Y2K regulatory and oversight role. The State has also been working with local
governments since December 1996 to raise awareness, promote action and provide
assistance with Y2K compliance.
While the State is taking what it believes to be appropriate action to
address Y2K compliance, there can be no guarantee that all of the State's
systems and equipment will be Y2K compliant and that there will not be an
adverse impact upon State operations or finances as a result. Since Y2K
compliance by outside parties is beyond the State's control to remediate, the
failure of outside parties to achieve Y2K compliance could have an adverse
impact on State operations or finances as well.
Prior Fiscal Years (GAAP-Basis). GAAP requires fund accounting for all
government resources and the modified accrual basis of accounting for
measuring the financial position and changes therein of governmental funds.
The modified accrual basis of accounting recognizes revenues when they become
measurable and available to finance expenditures, and expenditures when a
liability to pay for goods or services is incurred or a commitment to make aid
payments is made, regardless of when actually paid. There are four GAAP-
defined Governmental Fund types. The General Fund is the major operating fund
of the State and receives all receipts that are not required by law to be
deposited in another fund. Debt Service Funds account for the accumulation of
resources for the payment of general long-term debt service and related costs
and payments under lease-purchase and contractual-obligation financing
arrangements. Capital Project Funds account for financial resources of the
State to be used for the acquisition or construction of major capital
facilities (other than those financed by Special Revenue Funds, Proprietary
Funds and Fiduciary Funds). Special Revenue Funds account for the proceeds of
specific revenue sources (other than expendable trusts or major capital
projects), such as Federal grants, that are legally restricted to specified
purposes.
The State completed its 1998-1999 fiscal year with a combined governmental
funds operating surplus of $1.32 billion, which included operating surpluses
in the General Fund ($1.078 billion), in the Debt Service Funds ($209 million)
and in the Capital Projects Funds ($154 million) offset, in part, by an
operating deficit in Special Revenue Funds ($117 million). The State reported
an accumulated surplus of $1.645 billion in the General Fund.
The State completed its 1997-1998 fiscal year with a combined Governmental
Funds operating surplus of $1.80 billion, which included an operating surplus
in the General Fund of $1.56 billion, in Capital Projects Funds of $232
million and in Special Revenue Funds of $49 million, offset in part by an
operating deficit of $43 million in Debt Service Funds. The State reported an
accumulated surplus of $567 million in the General Fund for the first time
since it began reporting its operations on a GAAP-basis.
The State completed its 1996-1997 fiscal year with a combined Governmental
Funds operating surplus of $2.1 billion, which included an operating surplus
in the General Fund of $1.9 billion, in the Capital Projects Funds of $98
million and in the Special Revenue Funds of $65 million, offset in part by an
operating deficit of $37 million in the Debt Service Funds. The State reported
an accumulated deficit of $995 million in the General Fund.
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Prior Fiscal Years (Cash Basis). Cash basis accounting results in the
recording of receipts at the time money or checks are deposited in the State
Treasury and the recording of disbursements at the time a check is drawn,
regardless of the fiscal period to which the receipts or disbursements relate.
The State ended its 1998-1999 fiscal year on March 31, 1999 in balance on a
cash basis, with a General Fund cash surplus as reported by the State Division
of the Budget of $1.82 billion. The cash surplus was derived primarily from
higher-than-projected tax collections as a result of continued economic
growth, particularly in the financial markets and the securities industries.
General Fund receipts and transfers from other funds (net of tax refund
reserve account activity) for the 1998-1999 fiscal year totaled $36.74
billion, an increase of 6.34 percent from the 1997-1998 fiscal year levels.
General Fund disbursements and transfers to other funds totaled $36.49 billion
for the 1998-1999 fiscal year, an increase of 6.23 percent from the 1997-1998
fiscal year levels.
The State reported a General Fund closing cash balance of $892 million. The
closing fund balance excludes $2.31 billion that the State deposited into the
tax refund reserve account at the close of the 1998-1999 fiscal year to pay
for tax refunds in the 1999-2000 fiscal year. The tax refund reserve account
transaction has the effect of decreasing reported personal income tax receipts
in the 1998-1999 fiscal year, while increasing reported receipts in the 1999-
2000 fiscal year.
The State ended its 1997-1998 fiscal year balanced on a cash basis, with a
reported General Fund cash surplus of $2.04 billion resulting from revenue
growth and lower spending on welfare, Medicaid, and other entitlement
programs. General Fund receipts and transfers from other funds for the 1997-
1998 fiscal year (including net tax refund reserve account activity) totaled
$34.55 billion, an annual increase of $1.51 billion, or 4.57 percent over the
1996-1997 fiscal year. General Fund disbursements and transfers to other funds
were $34.35 billion, an annual increase of $1.45 billion or 4.41 percent. The
State closed a budget gap of approximately $2.3 billion for the 1997-1998
fiscal year. Gap-closing actions included cost containment in State Medicaid,
the use of the $1.4 billion 1996-1997 fiscal year budget surplus to finance
1997-1998 fiscal year spending, control on State agency spending and other
actions.
The State ended its 1996-1997 fiscal year balanced on a cash basis, with a
1996-1997 General Fund cash surplus as reported by the State Division of the
Budget of approximately $1.4 billion that was used to finance the 1997-1998
Financial Plan. The surplus resulted primarily from higher-than-expected
revenues and lower-than-expected spending for social service programs. General
Fund receipts and transfers from other funds for the 1996-1997 fiscal year
totaled $33.04 billion, an increase of 0.7 percent from the 1995-1996 fiscal
year (excluding deposits into the tax refund reserve account). General Fund
disbursements and transfers to other funds totaled $32.90 billion for the
1996-1997 fiscal year, an increase of 0.7 percent from the 1995-1996 fiscal
year.
Local Government Assistance Corporation. In 1990, as part of a State fiscal
reform program, legislation was enacted creating the Local Government
Assistance Corporation (the "LGAC"), a public benefit corporation empowered to
issue long-term obligations to fund certain payments to local governments
traditionally funded through the State's annual seasonal borrowing. The
legislation imposed a cap on the annual seasonal borrowing of the State at
$4.7 billion, except in cases where the Governor and the legislative leaders
have certified the need for additional borrowing and provided a schedule for
reducing it to the cap. If borrowing above the cap is thus permitted in any
fiscal year, it is required by law to be reduced to the cap by the fourth
fiscal year after the limit was first exceeded. This provision capping the
seasonal borrowing was included as a covenant with LGAC's bondholders in the
resolutions authorizing such bonds. As of June 1995, LGAC had issued bonds to
provide net proceeds of $4.7 billion, completing the program. The impact of
LGAC's borrowing, as well as other changes in revenue and spending patterns,
is that the State has been able to meet its cash flow needs throughout the
fiscal year without relying on short-term seasonal borrowing.
Financing Activities. State financing activities include general obligation
debt of the State and State-guaranteed debt, to which the full faith and
credit of the State has been pledged, as well as lease-purchase and
contractual-obligation financings, moral obligation financings and other
financings through public authorities and municipalities, where the State's
obligation to make payments for debt service is generally subject to annual
appropriation by the State Legislature.
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As of March 31, 1999, the total amount of outstanding general obligation
debt was approximately $4.825 billion, including $185 million in bond
anticipation notes. The total amount of moral obligation debt was $629 million
(down from $1.39 billion as of March 31, 1998). $25.902 billion of bonds
issued primarily in connection with lease-purchase and contractual-obligation
financing of State capital programs were outstanding.
For purposes of analyzing the financial condition of the State, debt of the
State and of certain public authorities may be classified as State-supported
debt, which includes general obligation debt of the State, LGAC debt and lease
purchase and contractual obligations of public authorities (and
municipalities) where debt service is paid from State appropriations
(including dedicated tax sources, and other revenues such as patient charges
and dormitory facilities rentals). In addition, a broader classification,
referred to as State-related debt, includes State-supported debt, as well as
certain types of contingent obligations, including moral obligation financing,
certain contingent contractual-obligation financing arrangements, and State-
guaranteed debt, where debt service is expected to be paid from other sources
and State appropriations are contingent in that they may be made and used only
under certain circumstances.
The total amount of State-supported debt outstanding grew from 3.48 percent
of personal income in the State in the 1989-1990 fiscal year to 6.21 percent
for the 1998-1999 fiscal year while State-related debt outstanding remained
relatively stable at 6.53 percent of personal income for the same period.
Thus, State-supported debt grew at a faster rate than personal income while
State-related obligations grew at a slightly slower rate. At the end of the
1998-1999 fiscal year, there was $37.74 billion of outstanding State-related
debt and $35.84 billion of outstanding State-supported debt.
During the prior ten years, State-supported long-term debt service increased
on an average annual basis by 8.8 percent to $3.39 billion by the 1998-1999
fiscal year while all governmental funds receipts increased on an average
annual basis of 5.3 percent. This resulted in a general trend of increases in
the ratio of debt service to receipts from fiscal year 1989-1990 to fiscal
year 1998-1999.
Public Authorities. The fiscal stability of the State is related, in part,
to the fiscal stability of its public authorities. Public authorities are not
subject to the constitutional restrictions on the incurring of debt which
apply to the State itself, and may issue bonds and notes within the amounts
of, and as otherwise restricted by, their legislative authorization. As of
December 31, 1998, there were 17 public authorities that had outstanding debt
of $100 million or more, and the aggregate outstanding debt, including
refunding bonds, of all State public authorities was $94 billion, up from $84
billion as of December 31, 1997. The State's access to the public credit
markets could be impaired and the market price of its outstanding debt may be
adversely affected if any of its public authorities were to default on their
respective obligations.
Ratings. As of June 15, 1999, Moody's and Standard & Poor's rated the
State's outstanding general obligation bonds A2 and A, respectively. Standard
& Poor's revised its ratings upward from A- to A on August 28, 1997. Ratings
reflect only the respective views of such organizations, and explanation of
the significance of such ratings must be obtained from the rating agency
furnishing the same. There is no assurance that a particular rating will
continue for any given period of time or that any such rating will not be
revised downward or withdrawn entirely if, in the judgment of the agency
originally establishing the rating, circumstances so warrant. A downward
revision or withdrawal of such ratings may have an effect on the market price
of the New York Municipal Bonds in which the Fund invests.
Litigation. The State is a defendant in numerous legal proceedings
including, but not limited to, claims asserted against the State arising from
alleged torts, alleged breaches of contracts, condemnation proceedings and
other alleged violations of State and Federal laws. State programs are
frequently challenged on State and Federal constitutional grounds. Adverse
developments in legal proceedings or the initiation of new proceedings could
affect the ability of the State to maintain a balanced State Financial Plan in
any given fiscal year. There can be no assurance that an adverse decision in
one or more legal proceedings would not exceed the amount the State reserves
for the payment of judgments or materially impair the State's financial
operations. In its audited
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financial statements for the fiscal year ended March 31, 1999, the State
reported its estimated liability for awarded and anticipated unfavorable
judgments at $895 million.
Other Localities. Certain localities outside the City have experienced
financial problems and have requested and received additional State assistance
during the last several State fiscal years. The potential impact on the State
of such actions by localities is not included in the projections of the State
receipts and disbursements for the State's 1999-2000 fiscal year.
In 1997, the total indebtedness of all localities in the State, other than
the City, was approximately $21.0 billion. A small portion (approximately $80
million) of that indebtedness represented borrowing to finance budgetary
deficits and was issued pursuant to enabling State legislation.
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EXHIBIT IV
RATINGS OF MUNICIPAL BONDS
Description of Moody's Investors Service, Inc.'s ("Moody's") Municipal Bond
Ratings
Aaa-Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa-Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
A-Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may
be present which suggest a susceptibility to impairment some time in the
future.
Baa-Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present, but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba-Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B-Bonds which are rated B generally lack characteristics of a desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa-Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal
or interest.
Ca-Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.
C-Bonds which arc rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Note: These bonds in the Aa, A, Baa, Ba and B groups which Moody's believes
possess the strongest investment attributes are designated by the symbols Aal,
Al, Baal, Bal and Bl.
Short-term Notes: The three ratings of Moody's for short-term notes are MIG
1/VMIG 1, MIG 2/VMIG 2, and MIG 3/VMIG 3; MIG 1 /VMIG 1 denotes "best quality,
enjoying strong protection from established cash flows"; MIG 2/VMIG 2 denotes
"high quality" with "ample margins of protection"; MIG 3/VMIG 3 instruments
are of "favorable quality . . . but . . . lacking the undeniable strength of
the preceding grades."
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Description of Moody's Commercial Paper Ratings
Moody's Commercial Paper ratings are opinions of the ability of issuers to
repay punctually promissory obligations not having an original maturity in
excess of nine months. Moody's employs the following three designations, all
judged to be investment grade, to indicate the relative repayment capacity of
rated issuers:
Issuers rated Prime-1 (or supporting institutions) have a superior ability
for repayment of short-term promissory obligations. Prime-1 repayment capacity
will often be evidenced by the following characteristics: leading market
positions in well established industries; high rates of return on funds
employed; conservative capitalization structures with moderate reliance on
debt and ample asset protection; broad margins, in earning coverage of fixed
financial charges and high internal cash generation; and with established
access to a range of financial markets and assured sources of alternate
liquidity.
Issuers rated Prime-2 (or supporting institutions) have a strong ability for
repayment of short-term promissory obligations. This will normally be
evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample alternate liquidity is maintained.
Issuers rated Prime-3 (or supporting institutions) have an acceptable
ability for repayment of short-term promissory obligations. The effects of
industry characteristics and market composition may be more pronounced.
Variability in earnings and profitability may result in changes to the level
of debt protection measurements and the requirement for relatively high
financial leverage. Adequate alternate liquidity is maintained.
Issuers rated Not Prime do not fall within any of the Prime rating
categories.
Description of Standard &Poor's, a Division of The McGraw-Hill Companies, Inc.
("Standard & Poor's"), Municipal Debt Ratings
A Standard & Poor's municipal debt rating is a current assessment of the
creditworthiness of an obligor with respect to a specific financial
obligation, a specific class of financial obligations or a specific program.
It takes into consideration the creditworthiness of guarantors, insurers, or
other forms of credit enhancement on the obligation.
The debt rating is not a recommendation to purchase, sell or hold a
financial obligation, inasmuch as it does not comment as to market price or
suitability for a particular investor.
The ratings are based on current information furnished by the issuer or
obtained by Standard & Poor's from other sources Standard & Poor's considers
reliable. Standard & Poor's does not perform an audit in connection with any
rating and may, on occasion, rely on unaudited financial information. The
ratings may be changed, suspended or withdrawn as a result of changes in, or
unavailability of, such information, or based on other circumstances.
The ratings are based, in varying degrees, on the following considerations:
I. Likelihood of default-capacity and willingness of the obligor as to
the timely payment of interest and repayment of principal in accordance
with the terms of the obligation;
II. Nature of and provisions of the obligation;
III. Protection afforded to, and relative position of, the obligation in
the event of bankruptcy, reorganization or other arrangement under the laws
of bankruptcy and other laws affecting creditors' rights.
AAA-Debt rated "AAA" has the highest rating assigned by Standard &
Poor's. Capacity of the obligor to meet its financial commitment on the
obligation is extremely strong.
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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 due date even if the
applicable grace period has not expired, unless Standard & Poors believes
that such payments will be made during such grace period. The "D" rating
also will be used upon the filing of a bankruptcy petition or the taking of
similar action if payments on an obligation are jeopardized.
Plus (+) or Minus (-): The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
Description of Standard & Poor's Commercial Paper Ratings
A Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more
than 365 days. Ratings are graded into several categories, ranging from "A-1"
for the highest quality obligations to "D" for the lowest. These categories
are as follows:
A-1-This designation indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus sign (+) designation.
A-2-Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1."
A-3-Issues carrying this designation have adequate capacity for timely
payment. They are, however, more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher designations.
B-Issues rated "B" are regarded as having only speculative capacity for
timely payment.
C-This rating is assigned to short-term debt obligations with a doubtful
capacity for payment.
D-Debt rated "D" is in payment default. The "D" rating category is used
when interest payments or principal payments are not made on the date due,
even if the applicable grace period has not expired unless Standard &
Poor's believes that such payments will be made during such grace period.
c-The "c" subscript is used to provide additional information to
investors that the bank may terminate its obligation to purchase tendered
bonds if the long-term credit rating of the issuer is below an investment-
grade level and/or the issuer's bonds are deemed taxable.
p-The letter "p" indicates that the rating is provisional. A provisional
rating assumes the successful completion of the project financed by the
debt being rated and indicates that payment of the debt service
requirements is largely or entirely dependent upon the successful, timely
completion of the project. This rating, however, while addressing credit
quality subsequent to completion of the project, makes no comment
IV-3
<PAGE>
on the likelihood of or the risk of default upon failure of such
completion. The investor should exercise his own judgment with respect to
such likelihood and risk.
Continuance of the ratings is contingent upon Standard & Poor's receipt
of an executed copy of the escrow agreement or closing documentation
confirming investments and cash flows.
r-The "r" highlights derivative, hybrid, and certain other obligations
that Standard & Poor's believes may experience high volatility or high
variability in expected returns as a result of noncredit risks. Examples of
such obligations are securities with principal or interest return indexed
to equities, commodities, or currencies; certain swaps and options; and
interest-only and principal-only mortgage securities. The absence of an "r"
symbol should not be taken as an indication that an obligation will exhibit
no volatility or variability in total return.
A commercial paper rating is not a recommendation to purchase or sell a
security. The ratings are based on current information furnished to Standard &
Poor's by the issuer or obtained by Standard & Poor's from other sources it
considers reliable. The ratings may be changed, suspended, or withdrawn as a
result of changes in, or unavailability of, such information.
A Standard & Poor's note rating reflects the liquidity factors and market
access risks unique to such notes. Notes due in three years or less will
likely receive a note rating. Notes maturing beyond three years will most
likely receive a long-term debt rating. The following criteria will be used in
making that assessment.
--Amortization schedule--the larger the final maturity relative to other
maturities, the more likely it will be treated as a note.
--Source of payment--the more dependent the issue is on the market for its
refinancing, the more likely it will be treated as a note.
Note rating symbols are as follows:
SP-1 Strong capacity to pay principal and interest. An issue determined to
possess a very strong capacity to pay debt service is given a plus (+)
designation.
SP-2 Satisfactory capacity to pay principal and interest with some
vulnerability to adverse financial and economic changes over the term
of the notes.
SP-3 Speculative capacity to pay principal and interest.
Description of Fitch IBCA, Inc.'s ("Fitch") Investment Grade Bond Ratings
Fitch investment grade bond ratings provide a guide to investors in
determining the credit risk associated with a particular security. The rating
represents Fitch's assessment of the issuer's ability to meet the obligations
of a specific debt issue or class of debt in a timely manner.
The rating takes into consideration special features of the issue, its
relationship to other obligations of the issuer, the current and prospective
financial condition and operating performance of the issuer and any guarantor,
as well as the economic and political environment that might affect the
issuer's future financial strength and credit quality.
Fitch ratings do not reflect any credit enhancement that may be provided by
insurance policies or financial guarantees unless otherwise indicated.
Bonds that have the same rating are of similar but not necessarily identical
credit quality since the rating categories do not fully reflect small
differences in the degrees of credit risk.
IV-4
<PAGE>
Fitch ratings are not recommendations to buy, sell, or hold any security.
Ratings do not comment on the adequacy of market price, the suitability of any
security for a particular investor, or the tax-exempt nature or taxability of
payments made in respect of any security.
Fitch ratings are based on information obtained from issuers, other
obligors, underwriters, their experts, and other sources Fitch believes to be
reliable. Fitch does not audit or verify the truth or accuracy of such
information. Ratings may be changed, suspended, or withdrawn as a result of
changes in, or the unavailability of, information or for other reasons.
AAA--Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and
repay principal, which is unlikely to be affected by reasonably foreseeable
events.
AA--Bonds considered to be investment grade and of very high credit quality.
The obligor's ability to pay interest and repay principal is very strong,
although not quite as strong as bonds rated "AAA." Because bonds rated in the
"AAA" and "AA" categories are not significantly vulnerable to foreseeable
future developments, short-term debt of these issuers is generally rated "F-
1+."
A--Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions
and circumstances than bonds with higher ratings.
BBB--Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have an adverse impact on these
bonds, and therefore impair timely payment. The likelihood that the ratings of
these bonds will fall below investment grade is higher than for bonds with
higher ratings.
Plus (+) or Minus (-): Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within the rating category. Plus
and minus signs, however, are not used in the "AAA" category.
NR Indicates that Fitch does not rate the specific issue.
Conditional
A conditional rating is premised on the successful completion of a project
or the occurrence of a specific event.
Suspended
A rating is suspended when Fitch deems the amount of information available
from the issuer to be inadequate for rating purposes.
Withdrawn
A rating will be withdrawn when an issue matures or is called or refinanced
and, at Fitch's discretion, when an issuer fails to furnish proper and timely
information.
FitchAlert
Ratings are placed on FitchAlert to notify investors of an occurrence that
is likely to result in a rating change and the likely direction of such
change. These are designated as "Positive," indicating a potential upgrade,
"Negative," for potential downgrade, or "Evolving," where ratings may be
raised or lowered. FitchAlert is relatively short-term, and should be resolved
within three to 12 months.
IV-5
<PAGE>
Ratings Outlook
An outlook is used to describe the most likely direction of any rating
change over the intermediate term. It is described as "Positive" or
"Negative." The absence of a designation indicates a stable outlook.
Description of Fitch's Speculative Grade Bond Ratings
Fitch speculative grade bond ratings provide a guide to investors in
determining the credit risk associated with a particular security. The ratings
("BB" to "C") represent Fitch's assessment of the likelihood of timely payment
of principal and interest in accordance with the terms of obligation for bond
issues not in default. For defaulted bonds, the rating ("DDD" to "D") is an
assessment of the ultimate recovery value through reorganization or
liquidation.
The rating takes into consideration special features of the issue, its
relationship to other obligations of the issuer, the current and prospective
financial condition and operating performance of the issuer and any guarantor,
as well as the economic and political environment that might affect the
issuer's future financial strength.
Bonds that have the rating are of similar but not necessarily identical
credit quality since rating categories cannot fully reflect the differences in
degrees of credit risk.
BB--Bonds are considered speculative. The obligor's ability to pay interest
and repay principal may be affected over time by adverse economic changes.
However, business and financial alternatives can be identified which could
assist the obligor in satisfying its debt service requirements.
B--Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued
timely payment of principal and interest reflects the obligor's limited margin
of safety and the need for reasonable business and economic activity
throughout the life of the issue.
CCC--Bonds have certain identifiable characteristics which, if not remedied,
may lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC--Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C--Bonds are in imminent default in payment of interest or principal.
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.
IV-6
<PAGE>
Fitch short-term ratings are as follows:
F-1+ Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely
payment.
F-1 Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues
rated "F-l+".
F-2 Good Credit Quality. Issues assigned this rating have a satisfactory
degree of assurance for timely payment, but the margin of safety is
not as great as for issues assigned "F-1+" and "F-l" ratings.
F-3 Fair Credit Quality. Issues assigned this rating have characteristics
suggesting that the degree of assurance for timely payment is
adequate; however, near-term adverse changes could cause these
securities to be rated below investment grade.
F-S Weak Credit Quality. Issues assigned this rating have characteristics
suggesting a minimal degree of assurance for timely payment and are
vulnerable to near-term adverse changes in financial and economic
conditions.
D Default. Issues assigned this rating are in actual or imminent
payment default.
LOC The symbol "LOC" indicates that the rating is based on a letter of
credit issued by a commercial bank.
IV-7
<PAGE>
EXHIBIT V
PORTFOLIO INSURANCE
Set forth below is further information with respect to the insurance
policies (the "Policies") that the Fund may obtain from several insurance
companies with respect to insured New York Municipal Bonds and Municipal Bonds
held by the Fund. The Fund has no obligation to obtain any such Policies, and
the terms of any Policies actually obtained may vary significantly from the
terms discussed below.
In determining eligibility for insurance, insurance companies will apply
their own standards. These standards correspond generally to the standards
such companies normally use in establishing the insurability of new issues of
New York Municipal Bonds and Municipal Bonds and are not necessarily the
criteria that would be used in regard to the purchase of such bonds by the
Fund. The Policies do not insure (i) municipal securities ineligible for
insurance and (ii) municipal securities no longer owned by the Fund.
The Policies do not guarantee the market value of the insured New York
Municipal Bonds and Municipal Bonds or the value of the shares of the Fund. In
addition, if the provider of an original issuance insurance policy is unable
to meet its obligations under such policy or if the rating assigned to the
insurance claims-paying ability of any such insurer deteriorates, the
insurance company will not have any obligation to insure any issue held by the
Fund that is adversely affected by either of the above described events. In
addition to the payment of premium, the policies may require that the Fund
notify the insurance company as to all New York Municipal Bonds and Municipal
Bonds in the Fund's portfolio and permit the insurance company to audit their
records. The insurance premiums will be payable monthly by the Fund in
accordance with a premium schedule to be furnished by the insurance company at
the time the Policies are issued. Premiums are based upon the amounts covered
and the composition of the portfolio.
The Fund will seek to utilize insurance companies that have insurance
claims-paying ability ratings of AAA from Standard & Poor's ("S&P") or Fitch
IBCA, Inc. ("Fitch") or Aaa from Moody's Investors Service, Inc. ("Moody's").
There can be no assurance, however, that insurance from insurance carriers
meeting these criteria will be at all times available.
An S&P insurance claims-paying ability rating is an assessment of an
operating insurance company's financial capacity to meet obligations under an
insurance policy in accordance with the terms. An insurer with an insurance
claims-paying ability rating of AAA has the highest rating assigned by S&P.
Capacity to honor insurance contracts is considered by S&P to be extremely
strong and highly likely to remain so over a long period of time. A Fitch
insurance claims-paying ability rating provides an assessment of an insurance
company's financial strength and, therefore, its ability to pay policy and
contract claims under the terms indicated. An insurer with an insurance
claims-paying ability rating of AAA has the highest rating assigned by Fitch.
The ability to pay claims is adjudged by Fitch to be extremely strong for
insurance companies with this highest rating. In the opinion of Fitch,
foreseeable business and economic risk factors should not have any material
adverse impact on the ability of these insurers to pay claims. In Fitch's
opinion, profitability, overall balance sheet strength, capitalization and
liquidity are all at very secure levels and are unlikely to be affected by
potential adverse underwriting, investment or cyclical events. A Moody's
insurance claims-paying ability rating is an opinion of the ability of an
insurance company to repay punctually senior policyholder obligations and
claims. An insurer with an insurance claims-paying ability rating of Aaa is
considered by Moody's to be of the best quality. In the opinion of Moody's,
the policy obligations of an insurance company with an insurance claims-paying
ability rating of Aaa carry the smallest degree of credit risk and, while the
financial strength of these companies is likely to change, such changes as can
be visualized are most unlikely to impair the company's fundamentally strong
position.
An insurance claims-paying ability rating of S&P, Fitch or Moody's does not
constitute an opinion on any specific contract in that such an opinion can
only be rendered upon the review of the specific insurance contract.
Furthermore, an insurance claims-paying ability rating does not take into
account deductibles, surrender or
V-1
<PAGE>
cancellation penalties or the timeliness of payment; nor does it address the
ability of a company to meet nonpolicy obligations (i.e., debt contracts).
The assignment of ratings by S&P, Fitch or Moody's to debt issues that are
fully or partially supported by insurance policies, contracts or guarantees is
a separate process from the determination of claims-paying ability ratings.
The likelihood of a timely flow of funds from the insurer to the trustee for
the bondholders is a key element in the rating determination for such debt
issues.
V-2
<PAGE>
PART C
OTHER INFORMATION
Item 15. Indemnification.
Section 2-418 of the General Corporation Law of the State of Maryland,
Article VI of the Registrant's Amended and Restated Articles of Incorporation,
a form of which was previously filed as an exhibit to the Common Stock
Registration Statement (defined below); Article VI of the Registrant's By-
Laws, which was previously filed as an exhibit to the Common Stock
Registration Statement, and the Investment Advisory Agreement, a form of which
was previously filed as an exhibit to the Common Stock Registration Statement,
provide for indemnification.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "1933 Act"), may be provided to directors, officers
and controlling persons of the Registrant, pursuant to the foregoing
provisions or otherwise, the Registrant 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 Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant 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 Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the 1933 Act and will be governed by the
final adjudication of such issue.
Reference is made to (i) Section 6 of the Purchase Agreement relating to the
Registrant's Common Stock, a form of which was filed as an exhibit to the
Common Stock Registration Statement, and (ii) Section 7 of the Purchase
Agreement relating to the Registrant's AMPS, a form of which was filed as an
exhibit to the AMPS Registration Statement (defined below), for provisions
relating to the indemnification of the underwriter.
Item 16. Exhibits.
<TABLE>
<C> <S>
1(a) --Articles of Incorporation of the Registrant, dated December 17,
1991.(a)
(b) --Articles of Amendment relating to name change.(a)
(c) --Articles of Amendment relating to name change.(b)
(d) --Form of Articles Supplementary creating the Series A AMPS and the
Series B AMPS.(c)
(e) --Form of Articles Supplementary creating the Series C AMPS, the Series
D AMPS and the Series E AMPS.
2 --By-Laws of the Registrant.(a)
3 --Not Applicable.
4 --Form of Agreement and Plan of Reorganization among the Registrant and
MuniYield New York Insured Fund II, Inc. (included in Exhibit II to the
Proxy Statement and Prospectus contained in this Registration
Statement).
5(a) --Copies of instruments defining the rights of stockholders, including
the relevant portions of the Articles of Incorporation and the By-Laws
of the Registrant.(c)
(b) --Form of specimen certificate for the Common Stock of the
Registrant.(a)
(c) --Form of specimen certificate for the AMPS of the Registrant.(c)
6 --Form of Investment Advisory Agreement between Registrant and Fund
Asset Management, L.P.(a)
7(a) --Form of Purchase Agreement for the Common Stock.(a)
(b) --Form of Purchase Agreement for the AMPS.(c)
(c) --Form of Merrill Lynch Standard Dealer Agreement.(a)
8 --Not applicable.
9 --Custodian Contract between the Registrant and The Bank of New York.(a)
</TABLE>
C-1
<PAGE>
<TABLE>
<C> <S>
10 --Not applicable.
11 --Opinion and Consent of Brown & Wood LLP, counsel for the Registrant.*
12 --Private Letter Ruling from the Internal Revenue Service.*
13(a) --Transfer Agency, Dividend Disbursing Agency and Shareholder Servicing
Agency Agreement between the Registrant and The Bank of New York.(a)
(b) --Form of Auction Agent Agreement between the Registrant and IBJ
Whitehall Bank & Trust Company.(c)
(c) --Form of Broker-Dealer Agreement.(c)
(d) --Form of Letter of Representations.(c)
14(a) --Consent of Deloitte & Touche LLP, independent auditors for the
Registrant.
(b) --Consent of Ernst & Young LLP, independent auditors for MuniYield New
York Insured Fund II, Inc.
15 --Not applicable.
16 --Power of Attorney (Included on the signature page of this Registration
Statement).
</TABLE>
- --------
* To be filed by amendment.
(a) Incorporated by reference to the Registrant's Registration Statement on
Form N-2 relating to the Registrant's Common Stock (File No. 33-43264)
(the "Common Stock Registration Statement"), filed on January 23, 1992.
(b) Incorporated by reference to Pre-Effective Amendment No. 1 to the Common
Stock Registration Statement, filed on February 21, 1992.
(c) Incorporated by reference to the Registrant's Registration Statement on
Form N-2 relating to the Registrant's Auction Market Preferred Stock (File
No. 333-45621) (the "AMPS Registration Statement"), filed on , 1992.
(d) Reference is made to Article V, Article VI (sections 2, 3, 4, 5 and 6),
Article VII, Article VIII, Article X, Article XI, Article XII and Article
XIII of the Registrant's Articles of Incorporation, previously filed as
Exhibit (1) to the Common Stock Registration Statement, and to Article II,
Article III (sections 1, 2, 3, 5 and 17), Article VI, Article VII, Article
XII, Article XIII and Article XIV of the Registrant's By-Laws previously
filed as Exhibit (2) to the Common Stock Registration Statement. Reference
is also made to the Form of Articles Supplementary filed as Exhibit 1(d)
to the AMPS Registration Statement and as Exhibit 1(e) hereto.
Item 17. Undertakings.
(1) The undersigned Registrant agrees that prior to any public reoffering of
the securities registered through use of a prospectus which is part of this
Registration Statement by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c) of the Securities Act of 1933,
as amended, the reoffering prospectus will contain information called for by
the applicable registration form for reofferings by persons who may be deemed
underwriters, in addition to the information called for by other items of the
applicable form.
(2) The undersigned Registrant agrees that every prospectus that is filed
under paragraph (1) above will be filed as part of an amendment to the
registration statement and will not be used until the amendment is effective,
and that, in determining any liability under the Securities Act of 1933, as
amended, each post-effective amendment shall be deemed to be a new
registration statement for the securities offered therein, and the offering of
securities at that time shall be deemed to be the initial bona fide offering
of them.
(3) The Registrant undertakes to file, by post-effective amendment, either a
copy of the Internal Revenue Service private letter ruling applied for or an
opinion of counsel as to certain tax matters, within a reasonable time after
receipt of such ruling or opinion.
C-2
<PAGE>
SIGNATURES
As required by the Securities Act of 1933, this Registration Statement has
been signed on behalf of the Registrant, in the Township of Plainsboro and
State of New Jersey, on the 4th day of October, 1999.
MuniYield New York Insured Fund,
Inc.
(Registrant)
/s/ Terry K. Glenn
By __________________________________
(Terry K. Glenn, President)
Each person whose signature appears below hereby authorizes Terry K. Glenn,
Donald C. Burke and Alice A. Pellegrino, or any of them, as attorney-in-fact,
to sign on his behalf, individually and in each capacity stated below, any
amendments to this Registration Statement (including post-effective
amendments) and to file the same, with all exhibits thereto, with the
Securities and Exchange Commission.
As required by the Securities Act of 1933, this Registration Statement has
been signed by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
Signatures Title Date
---------- ----- ----
<S> <C> <C>
/s/ Terry K. Glenn President and Director October 4, 1999
______________________________________ (Principal Executive
(Terry K. Glenn) Officer)
/s/ Donald C. Burke Treasurer (Principal October 4, 1999
______________________________________ Financial and Accounting
(Donald C. Burke) Officer)
/s/ James H. Bodurtha Director October 4, 1999
______________________________________
(James H. Bodurtha)
/s/ Herbert I. London Director October 4, 1999
______________________________________
(Herbert I. London)
/s/ Robert R. Martin Director October 4, 1999
______________________________________
(Robert R. Martin)
/s/ Joseph L. May Director October 4, 1999
______________________________________
(Joseph L. May)
/s/ Andre F. Perold Director October 4, 1999
______________________________________
(Andre F. Perold)
/s/ Arthur Zeikel Director October 4, 1999
______________________________________
(Arthur Zeikel)
</TABLE>
C-3
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Numbers Description
------- -----------
<C> <S>
--Form of Articles Supplementary creating the Series C, Series D and
1(e) Series E AMPS.
--Consent of Deloitte & Touche LLP, independent auditors for the
14(a) Registrant--attached.
(b) --Consent of Ernst & Young LLP, independent auditors for MuniYield New
York Fund II, Inc.
</TABLE>
<PAGE>
[Proxy Card Front]
COMMON STOCK
MUNIYIELD NEW YORK INSURED FUND, INC.
P.O. BOX 9011
PRINCETON, NEW JERSEY 08543-9011
PROXY
This proxy is solicited on behalf of the Board of Directors
The undersigned hereby appoints Terry K. Glenn, Donald C.
Burke and Alice A. Pellegrino as proxies, each with the power to
appoint his or her substitute, and hereby authorizes each of them to
represent and to vote, as designated on the reverse hereof, all of the
Common Stock of MuniYield New York Insured Fund, Inc. (the "Fund") held
of record by the undersigned on October 20, 1999 at the Special Meeting
of Stockholders of the Fund to be held on December 15, 1999, or any
adjournment thereof.
This proxy when properly executed will be voted in the manner
herein directed by the undersigned stockholder. If no direction is
made, this proxy will be voted "FOR" item 1.
(Continued and to be signed on the reverse side)
<PAGE>
[Proxy Card Reverse]
Please mark boxes /X/ or [X] in blue or black ink.
1. To consider and act upon a proposal to approve the Agreement and
Plan of Reorganization between the Fund and MuniYield New York
Insured Fund II, Inc.
FOR [_] AGAINST [_] ABSTAIN [_]
2. In the discretion of such proxies, upon such other business as
properly may come before the meeting or any adjournment thereof.
Please sign exactly as name appears hereon. When
shares are held by joint tenants, both should sign.
When signing as attorney or as executor,
administrator, trustee or guardian, please give full
title as such. If a corporation, please sign in full
corporate name by president or other authorized
officer. If a partnership, please sign in partnership
name by authorized persons.
Dated: ______________________________
X _____________________________________________
Signature
X _____________________________________________
Signature, if held jointly
Sign, date, and return the Proxy Card promptly using the enclosed envelope.
<PAGE>
[Proxy Card Front]
AUCTION MARKET
PREFERRED STOCK
MUNIYIELD NEW YORK INSURED FUND, INC.
P.O. BOX 9011
PRINCETON, NEW JERSEY 08543-9011
PROXY
This proxy is solicited on behalf of the Board of Directors
The undersigned hereby appoints Terry K. Glenn, Donald C. Burke and
Alice A. Pellegrino as proxies, each with the power to appoint his or her
substitute, and hereby authorizes each of them to represent and to vote, as
designated on the reverse hereof, all the Auction Market Preferred Stock of
MuniYield New York Insured Fund, Inc. (the "Fund") held of record by the
undersigned on October 20, 1999 at the Special Meeting of Stockholders of the
Fund to be held on December 15, 1999, or any adjournment thereof.
This proxy when properly executed will be voted in the manner herein
directed by the undersigned stockholder. If no direction is made, this proxy
will be voted "FOR" item 1.
(Continued and to be signed on the reverse side)
<PAGE>
[Proxy Card Reverse]
Please mark boxes /X/ or [X] in blue or black ink.
1. To consider and act upon a proposal to approve the Agreement and
Plan of Reorganization between the Fund and MuniYield New York
Insured Fund II, Inc.
FOR [_] AGAINST [_] ABSTAIN [_]
2. In the discretion of such proxies, upon such other business as
properly may come before the meeting or any adjournment thereof.
If the undersigned is a broker-dealer, it hereby instructs the
proxies, pursuant to Rule 452 of the New York Stock Exchange, to
vote any uninstructed Auction Market Preferred Stock, in the same
proportion as votes cast by holders of Auction Market Preferred
Stock, who have responded to this proxy solicitation.
Please sign exactly as name appears hereon. When
shares are held by joint tenants, both should sign.
When signing as attorney or as executor,
administrator, trustee or guardian, please give full
title as such. If a corporation, please sign in full
corporate name by president or other authorized
officer. If a partnership, please sign in partnership
name by authorized persons.
Dated: ______________________________
X _____________________________________________
Signature
X _____________________________________________
Signature, if held jointly
Sign, date, and return the Proxy Card promptly using the enclosed envelope.
<PAGE>
[Proxy Card Front]
COMMON STOCK
MUNIYIELD NEW YORK INSURED FUND II, INC.
P.O. BOX 9011
PRINCETON, NEW JERSEY 08543-9011
PROXY
This proxy is solicited on behalf of the Board of Directors
The undersigned hereby appoints Terry K. Glenn, Donald C.
Burke and Alice A. Pellegrino as proxies, each with the power to
appoint his or her substitute, and hereby authorizes each of them to
represent and to vote, as designated on the reverse hereof, all of the
Common Stock of MuniYield New York Insured Fund II, Inc. (the "Fund")
held of record by the undersigned on October 20, 1999 at the Special
Meeting of Stockholders of the Fund to be held on December 15, 1999, or
any adjournment thereof.
This proxy when properly executed will be voted in the manner
herein directed by the undersigned stockholder. If no direction is
made, this proxy will be voted "FOR" item 1.
(Continued and to be signed on the reverse side)
<PAGE>
[Proxy Card Reverse]
Please mark boxes /X/ or [X] in blue or black ink.
1. To consider and act upon a proposal to approve the Agreement and
Plan of Reorganization between the Fund and MuniYield New York
Insured Fund, Inc.
FOR [_] AGAINST [_] ABSTAIN [_]
2. In the discretion of such proxies, upon such other business as
properly may come before the meeting or any adjournment thereof.
Please sign exactly as name appears hereon. When
shares are held by joint tenants, both should sign.
When signing as attorney or as executor,
administrator, trustee or guardian, please give full
title as such. If a corporation, please sign in full
corporate name by president or other authorized
officer. If a partnership, please sign in partnership
name by authorized persons.
Dated: ______________________________
X _____________________________________________
Signature
X _____________________________________________
Signature, if held jointly
Sign, date, and return the Proxy Card promptly using the enclosed envelope.
<PAGE>
[Proxy Card Front]
AUCTION MARKET
PREFERRED STOCK
MUNIYIELD NEW YORK INSURED FUND II, INC.
P.O. BOX 9011
PRINCETON, NEW JERSEY 08543-9011
PROXY
This proxy is solicited on behalf of the Board of Directors
The undersigned hereby appoints Terry K. Glenn, Donald C. Burke and
Alice A. Pellegrino as proxies, each with the power to appoint his or her
substitute, and hereby authorizes each of them to represent and to vote, as
designated on the reverse hereof, all the Auction Market Preferred Stock of
MuniYield New York Insured Fund II, Inc. (the "Fund") held of record by the
undersigned on October 20, 1999 at the Special Meeting of Stockholders of the
Fund to be held on December 15, 1999, or any adjournment thereof.
This proxy when properly executed will be voted in the manner herein
directed by the undersigned stockholder. If no direction is made, this proxy
will be voted "FOR" item 1.
(Continued and to be signed on the reverse side)
<PAGE>
[Proxy Card Reverse]
Please mark boxes /X/ or [X] in blue or black ink.
1. To consider and act upon a proposal to approve the Agreement and
Plan of Reorganization between the Fund and MuniYield New York
Insured Fund, Inc.
FOR [_] AGAINST [_] ABSTAIN [_]
2. In the discretion of such proxies, upon such other business as
properly may come before the meeting or any adjournment thereof.
If the undersigned is a broker-dealer, it hereby instructs the
proxies, pursuant to Rule 452 of the New York Stock Exchange, to
vote any uninstructed Auction Market Preferred Stock, in the same
proportion as votes cast by holders of Auction Market Preferred
Stock, who have responded to this proxy solicitation.
Please sign exactly as name appears hereon. When
shares are held by joint tenants, both should sign.
When signing as attorney or as executor,
administrator, trustee or guardian, please give full
title as such. If a corporation, please sign in full
corporate name by president or other authorized
officer. If a partnership, please sign in partnership
name by authorized persons.
Dated: ______________________________
X _____________________________________________
Signature
X _____________________________________________
Signature, if held jointly
Sign, date, and return the Proxy Card promptly using the enclosed envelope.
<PAGE>
Exhibit (1)(E)
MUNIYIELD NEW YORK INSURED FUND, INC.
Articles Supplementary creating three series of
Auction Market Preferred Stock(R) ("AMPS(R)")
MUNIYIELD NEW YORK INSURED FUND, INC., a Maryland corporation having its
principal Maryland office in the City of Baltimore (the "Corporation"),
certifies to the State Department of Assessments and Taxation of Maryland that:
FIRST: Pursuant to authority expressly vested in the Board of Directors of
the Corporation by article fifth of its Charter, the Board of Directors has
reclassified 6,960 authorized and unissued shares of common stock of the
Corporation as preferred stock of the Corporation and has authorized the
issuance of three series of preferred stock, par value $.10 per share,
liquidation preference $25,000 per share plus an amount equal to accumulated but
unpaid dividends (whether or not earned or declared) thereon, to be designated
respectively: Auction Market Preferred Stock, Series C; Auction Market
Preferred Stock, Series D; and Auction Market Preferred Stock, Series E.
SECOND: The preferences, voting powers, restrictions, limitations as to
dividends, qualifications, and terms and conditions of redemption, of the shares
of each such series of preferred stock are as follows:
_____________________
(R) Registered trademark of Merrill Lynch & Co., Inc.
<PAGE>
DESIGNATION
Series C: A series of 2,800 shares of preferred stock, par value $.10 per
share, liquidation preference $25,000 per share plus an amount equal to
accumulated but unpaid dividends (whether or not earned or declared) thereon, is
hereby designated "Auction Market Preferred Stock, Series C." Each share of
Auction Market Preferred Stock, Series C (sometimes referred to herein as
"Series C AMPS") shall be issued on a date to be determined by the Board of
Directors of the Corporation or pursuant to their delegated authority; have an
Initial Dividend Rate and an Initial Dividend Payment Date as shall be
determined in advance of the issuance thereof by the Board of Directors of the
Corporation or pursuant to their delegated authority; and have such other
preferences, voting powers, limitations as to dividends, qualifications and
terms and conditions of redemption as are set forth in these Articles
Supplementary. The Auction Market Preferred Stock, Series C shall constitute a
separate series of preferred stock of the Corporation, and each share of Auction
Market Preferred Stock, Series C shall be identical.
Series D: A series of 1,960 shares of preferred stock, par value $.10 per
share, liquidation preference $25,000 per share plus an amount equal to
accumulated but unpaid dividends (whether or not earned or declared) thereon, is
hereby designated "Auction Market Preferred Stock, Series D." Each share of
Auction Market Preferred Stock, Series D (sometimes referred to herein as
"Series D AMPS") shall be issued on a date to be determined by the Board of
Directors of the Corporation or pursuant to their delegated authority; have an
Initial Dividend Rate and an Initial Dividend Payment Date as shall be
determined in advance of the issuance thereof by the Board of Directors of the
Corporation or pursuant to their delegated authority; and have such other
preferences, voting powers, limitations as to dividends, qualifications and
terms
2
<PAGE>
and conditions of redemption as are set forth in these Articles Supplementary.
The Auction Market Preferred Stock, Series D shall constitute a separate series
of preferred stock of the Corporation, and each share of Auction Market
Preferred Stock, Series D shall be identical.
Series E: A series of 2,200 shares of preferred stock, par value $.10 per
share, liquidation preference $25,000 per share plus an amount equal to
accumulated but unpaid dividends (whether or not earned or declared) thereon, is
hereby designated "Auction Market Preferred Stock, Series E." Each share of
Auction Market Preferred Stock, Series E (sometimes referred to herein as
"Series E AMPS") shall be issued on a date to be determined by the Board of
Directors of the Corporation or pursuant to their delegated authority; have an
Initial Dividend Rate and an Initial Dividend Payment Date as shall be
determined in advance of the issuance thereof by the Board of Directors of the
Corporation or pursuant to their delegated authority; and have such other
preferences, voting powers, limitations as to dividends, qualifications and
terms and conditions of redemption as are set forth in these Articles
Supplementary. The Auction Market Preferred Stock, Series E shall constitute a
separate series of preferred stock of the Corporation, and each share of Auction
Market Preferred Stock, Series E shall be identical.
1. Definitions. (a) Unless the context or use indicates another or
-----------
different meaning or intent, in these Articles Supplementary the following terms
have the following meanings, whether used in the singular or plural:
"`AA' Composite Commercial Paper Rate," on any date of determination,
means (i) the Interest Equivalent of the rate on commercial paper placed on
behalf of issuers whose corporate bonds are rated "AA" by S&P or "Aa" by Moody's
or the equivalent of such rating by
3
<PAGE>
another nationally recognized rating agency, as such rate is made available on a
discount basis or otherwise by the Federal Reserve Bank of New York for the
Business Day immediately preceding such date, or (ii) in the event that the
Federal Reserve Bank of New York does not make available such a rate, then the
arithmetic average of the Interest Equivalent of the rate on commercial paper
placed on behalf of such issuers, as quoted on a discount basis or otherwise by
Merrill Lynch, Pierce, Fenner & Smith Incorporated or its successors that are
Commercial Paper Dealers, to the Auction Agent for the close of business on the
Business Day immediately preceding such date. If one of the Commercial Paper
Dealers does not quote a rate required to determine the "AA" Composite
Commercial Paper Rate, the "AA" Composite Commercial Paper Rate will be
determined on the basis of the quotation or quotations furnished by any
Substitute Commercial Paper Dealer or Substitute Commercial Paper Dealers
selected by the Corporation to provide such rate or rates not being supplied by
the Commercial Paper Dealer. If the number of Dividend Period days shall be (i)
7 or more but fewer than 49 days, such rate shall be the Interest Equivalent of
the 30-day rate on such commercial paper; (ii) 49 or more but fewer than 70
days, such rate shall be the Interest Equivalent of the 60-day rate on such
commercial paper; (iii) 70 or more days but fewer than 85 days, such rate shall
be the arithmetic average of the Interest Equivalent on the 60-day and 90-day
rates on such commercial paper; (iv) 85 or more days but fewer than 99 days,
such rate shall be the Interest Equivalent of the 90-day rate on such commercial
paper; (v) 99 or more days but fewer than 120 days, such rate shall be the
arithmetic average of the Interest Equivalent of the 90-day and 120-day rates on
such commercial paper; (vi) 120 or more days but fewer than 141 days, such rate
shall be the Interest Equivalent of the 120-day rate on such commercial paper;
(vii) 141 or more days but fewer than 162 days, such rate shall be the
arithmetic average of the Interest Equivalent of the 120-day and
4
<PAGE>
180-day rates on such commercial paper; and (viii) 162 or more days but fewer
than 183 days, such rate shall be the Interest Equivalent of the 180-day rate on
such commercial paper.
"Accountant's Confirmation" has the meaning set forth in paragraph 7(c) of
these Articles Supplementary.
"Additional Dividend" has the meaning set forth in paragraph 2(e) of these
Articles Supplementary.
"Adviser" means the Corporation's investment adviser which initially shall
be Fund Asset Management, L.P.
"Affiliate" means any Person, other than Merrill Lynch, Pierce, Fenner &
Smith Incorporated or its successors, known to the Auction Agent to be
controlled by, in control of, or under common control with, the Corporation.
"Agent Member" means a member of the Securities Depository that will act on
behalf of a Beneficial Owner of one or more shares of AMPS or a Potential
Beneficial Owner.
"AMPS" means, as the case may be, the Auction Market Preferred Stock,
Series C; the Auction Market Preferred Stock, Series D; or the Auction Market
Preferred Stock, Series E.
"AMPS Basic Maintenance Amount," as of any Valuation Date, means the dollar
amount equal to (i) the sum of (A) the product of the number of shares of AMPS
of each series and Other AMPS Outstanding on such Valuation Date multiplied by
the sum of (a) $25,000 and (b) any applicable redemption premium attributable
to the designation of a Premium Call Period; (B) the aggregate amount of cash
dividends (whether or not earned or declared) that will have
5
<PAGE>
accumulated for each share of AMPS and Other AMPS Outstanding, in each case, to
(but not including) the end of the current Dividend Period for each series of
AMPS that follows such Valuation Date in the event the then current Dividend
Period will end within 49 calendar days of such Valuation Date or through the
49th day after such Valuation Date in the event the then current Dividend Period
for each series of AMPS will not end within 49 calendar days of such Valuation
Date; (C) in the event the then current Dividend Period will end within 49
calendar days of such Valuation Date, the aggregate amount of cash dividends
that would accumulate at the Maximum Applicable Rate applicable to a Dividend
Period of 28 or fewer days on any shares of AMPS and Other AMPS Outstanding from
the end of such Dividend Period through the 49th day after such Valuation Date,
multiplied by the larger of the Moody's Volatility Factor and the S&P Volatility
Factor, determined from time to time by Moody's and S&P, respectively (except
that if such Valuation Date occurs during a Non-Payment Period, the cash
dividend for purposes of calculation would accumulate at the then current Non-
Payment Period Rate); (D) the amount of anticipated expenses of the Corporation
for the 90 days subsequent to such Valuation Date (including any premiums
payable with respect to a Policy); (E) the amount of the Corporation's Maximum
Potential Additional Dividend Liability as of such Valuation Date; and (F) any
current liabilities as of such Valuation Date to the extent not reflected in any
of (i)(A) through (i)(E) (including, without limitation, and immediately upon
determination, any amounts due and payable by the Corporation pursuant to
repurchase agreements and any amounts payable for New York Municipal Bonds or
Municipal Bonds purchased as of such Valuation Date) less (ii) either (A) the
Discounted Value of any of the Corporation's assets, or (B) the face value of
any of the Corporation's assets if such assets mature prior to or on the date of
redemption of AMPS or payment of a liability and are either securities issued or
guaranteed by the United States
6
<PAGE>
Government or Deposit Securities, in both cases irrevocably deposited by
the Corporation for the payment of the amount needed to redeem shares of AMPS
subject to redemption or to satisfy any of (i)(B) through (i)(F). For Moody's
and S&P, the Corporation shall include as a liability an amount calculated semi-
annually equal to 150% of the estimated cost of obtaining other insurance
guaranteeing the timely payment of interest on a Moody's Eligible Asset or S&P
Eligible Asset and principal thereof to maturity with respect to Moody's
Eligible Assets and S&P Eligible Assets that (i) are covered by a Policy which
provides the Corporation with the option to obtain such other insurance and (ii)
are discounted by a Moody's Discount Factor or a S&P Discount Factor, as the
case may be, determined by reference to the insurance claims-paying ability
rating of the issuer of such Policy.
"AMPS Basic Maintenance Cure Date," with respect to the failure by the
Corporation to satisfy the AMPS Basic Maintenance Amount (as required by
paragraph 7(a) of these Articles Supplementary) as of a given Valuation Date,
means the sixth Business Day following such Valuation Date.
"AMPS Basic Maintenance Report" means a report signed by any of the
President, Treasurer, any Senior Vice President or any Vice President of the
Corporation which sets forth, as of the related Valuation Date, the assets of
the Corporation, the Market Value and the Discounted Value thereof (seriatim and
in aggregate), and the AMPS Basic Maintenance Amount.
7
<PAGE>
"Anticipation Notes" shall mean the following New York Municipal Bonds:
revenue anticipation notes, tax anticipation notes, tax and revenue anticipation
notes, grant anticipation notes and bond anticipation notes.
"Applicable Percentage" has the meaning set forth in paragraph 10(a)(vii)
of these Articles Supplementary.
"Applicable Rate" means the rate per annum at which cash dividends are
payable on the AMPS or Other AMPS, as the case may be, for any Dividend Period.
"Auction" means a periodic operation of the Auction Procedures.
"Auction Agent" means IBJ Whitehall Bank & Trust Company unless and until
another commercial bank, trust company or other financial institution appointed
by a resolution of the Board of Directors of the Corporation or a duly
authorized committee thereof enters into an agreement with the Corporation to
follow the Auction Procedures for the purpose of determining the Applicable Rate
and to act as transfer agent, registrar, dividend disbursing agent and
redemption agent for the AMPS and Other AMPS.
"Auction Procedures" means the procedures for conducting Auctions set forth
in paragraph 10 of these Articles Supplementary.
"Beneficial Owner" means a customer of a Broker-Dealer who is listed on the
records of that Broker-Dealer (or, if applicable, the Auction Agent) as a holder
of shares of AMPS or a Broker-Dealer that holds AMPS for its own account.
8
<PAGE>
"Broker-Dealer" means any broker-dealer, or other entity permitted by law
to perform the functions required of a Broker-Dealer in paragraph 10 of these
Articles Supplementary, that has been selected by the Corporation and has
entered into a Broker-Dealer Agreement with the Auction Agent that remains
effective.
"Broker-Dealer Agreement" means an agreement between the Auction Agent and
a Broker-Dealer pursuant to which such Broker-Dealer agrees to follow the
procedures specified in paragraph 10 of these Articles Supplementary.
"Business Day" means a day on which the New York Stock Exchange, Inc. is
open for trading and which is not a Saturday, Sunday or other day on which banks
in The City of New York are authorized or obligated by law to close.
"New York Municipal Bonds" means Municipal Bonds issued by or on behalf of
the State of New York, its political subdivisions, agencies and
instrumentalities and by other qualifying issuers that pay interest which, in
the opinion of bond counsel to the issuer, is exempt from Federal and New York
income taxes, and includes Inverse Floaters.
"Charter" means the Articles of Incorporation, as amended and supplemented
(including these Articles Supplementary), of the Corporation on file in the
State Department of Assessments and Taxation of Maryland.
"Code" means the Internal Revenue Code of 1986, as amended.
9
<PAGE>
"Commercial Paper Dealers" means Merrill Lynch, Pierce, Fenner & Smith
Incorporated and such other commercial paper dealer or dealers as the
Corporation may from time to time appoint, or, in lieu of any thereof, their
respective affiliates or successors.
"Common Stock" means the common stock, par value $.10 per share, of the
Corporation.
"Corporation" means MuniYield New York Insured Fund, Inc., a Maryland
corporation.
"Date of Original Issue" means, with respect to any share of AMPS or Other
AMPS, the date on which the Corporation originally issues such share.
"Deposit Securities" means cash and New York Municipal Bonds and Municipal
Bonds rated at least A2 (having a remaining maturity of 12 months or less), P-1,
VMIG-1 or MIG-1 by Moody's or A (having a remaining maturity of 12 months or
less), A-1+ or SP-1+ by S&P.
"Discounted Value" means (i) with respect to an S&P Eligible Asset, the
quotient of the Market Value thereof divided by the applicable S&P Discount
Factor and (ii) with respect to a Moody's Eligible Asset, the lower of par and
the quotient of the Market Value thereof divided by the applicable Moody's
Discount Factor.
"Dividend Payment Date," with respect to AMPS, has the meaning set forth in
paragraph 2(b)(i) of these Articles Supplementary and, with respect to Other
AMPS, has the equivalent meaning.
"Dividend Period" means the Initial Dividend Period, any 7-Day Dividend
Period, any 28-Day Dividend Period and any Special Dividend Period.
10
<PAGE>
"Existing Holder" means a Broker-Dealer or any such other Person as may be
permitted by the Corporation that is listed as the holder of record of shares of
AMPS in the Stock Books.
"Fitch" means Fitch IBCA, Inc. or its successors.
"Forward Commitment" has the meaning set forth in paragraph 8(c) of these
Articles Supplementary.
"Holder" means a Person identified as a holder of record of shares of AMPS
in the Stock Register.
"Independent Accountant" means a nationally recognized accountant, or firm
of accountants, that is, with respect to the Corporation, an independent public
accountant or firm of independent public accountants under the Securities Act of
1933, as amended.
"Initial Dividend Payment Date" means the Initial Dividend Payment Date as
determined by the Board of Directors of the Corporation with respect to each
series of AMPS or Other AMPS, as the case may be.
"Initial Dividend Period," with respect to each series of AMPS, has the
meaning set forth in paragraph 2(c)(i) of these Articles Supplementary and, with
respect to Other AMPS, has the equivalent meaning.
"Initial Dividend Rate," with respect to each series of AMPS, means the
rate per annum applicable to the Initial Dividend Period for such series of AMPS
and, with respect to Other AMPS, has the equivalent meaning.
11
<PAGE>
"Initial Margin" means the amount of cash or securities deposited with a
broker as a margin payment at the time of purchase or sale of a futures
contract.
"Interest Equivalent" means a yield on a 360-day basis of a discount basis
security which is equal to the yield on an equivalent interest-bearing security.
"Inverse Floaters" means trust certificates or other instruments evidencing
interests in one or more New York Municipal Bonds that qualify as S&P Eligible
Assets (and are not part of a private placement of New York Municipal Bonds and
satisfy the issuer and original size requirements of clause (vi) of the
definition of S&P Eligible Assets) the interest rates on which are adjusted at
short term intervals on a basis that is inverse to the simultaneous readjustment
of the interest rates on corresponding floating rate trust certificates or other
instruments issued by the same issuer, provided that the ratio of the aggregate
dollar amount of floating rate instruments to inverse floating rate instruments
issued by the same issuer does not exceed one to one at their time of original
issuance unless the floating rate instruments have only one reset remaining
until maturity.
"Long Term Dividend Period" means a Special Dividend Period consisting of a
specified period of one whole year or more but not greater than five years.
"Mandatory Redemption Price" means $25,000 per share of AMPS plus an amount
equal to accumulated but unpaid dividends (whether or not earned or declared) to
the date fixed for redemption and excluding Additional Dividends.
12
<PAGE>
"Marginal Tax Rate" means the maximum marginal regular Federal individual
income tax rate applicable to ordinary income or the maximum marginal regular
Federal corporate income tax rate, whichever is greater.
"Market Value" of any asset of the Corporation shall be the market value
thereof determined by the Pricing Service. Market Value of any asset shall
include any interest accrued thereon. The Pricing Service shall value portfolio
securities at the quoted bid prices or the mean between the quoted bid and asked
price or the yield equivalent when quotations are not readily available.
Securities for which quotations are not readily available shall be valued at
fair value as determined by the Pricing Service using methods which include
consideration of: yields or prices of municipal bonds of comparable quality,
type of issue, coupon, maturity and rating; indications as to value from
dealers; and general market conditions. The Pricing Service may employ
electronic data processing techniques and/or a matrix system to determine
valuations. In the event the Pricing Service is unable to value a security, the
security shall be valued at the lower of two dealer bids obtained by the
Corporation from dealers who are members of the National Association of
Securities Dealers, Inc. and who make a market in the security, at least one of
which shall be in writing. Futures contracts and options are valued at closing
prices for such instruments established by the exchange or board of trade on
which they are traded, or if market quotations are not readily available, are
valued at fair value on a consistent basis using methods determined in good
faith by the Board of Directors.
"Maximum Applicable Rate," with respect to AMPS, has the meaning set forth
in paragraph 10(a)(vii) of these Articles Supplementary and, with respect to
Other AMPS, has the equivalent meaning.
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<PAGE>
"Maximum Potential Additional Dividend Liability," as of any Valuation
Date, means the aggregate amount of Additional Dividends that would be due if
the Corporation were to make Retroactive Taxable Allocations, with respect to
any fiscal year, estimated based upon dividends paid and the amount of
undistributed realized net capital gains and other taxable income earned by the
Corporation, as of the end of the calendar month immediately preceding such
Valuation Date and assuming such Additional Dividends are fully taxable.
"Moody's" means Moody's Investors Service, Inc. or its successors.
"Moody's Discount Factor" means, for purposes of determining the Discounted
Value of any New York Municipal Bond or Municipal Bond which constitutes a
Moody's Eligible Asset, the percentage determined by reference to (a)(i) the
rating by Moody's or S&P on such Bond or (ii) in the event the Moody's Eligible
Asset is insured under a Policy and the terms of the Policy permit the
Corporation, at its option, to obtain other insurance guaranteeing the timely
payment of interest on such Moody's Eligible Asset and principal thereof to
maturity, the Moody's insurance claims-paying ability rating of the issuer of
the Policy or (iii) in the event the Moody's Eligible Asset is insured under an
insurance policy which guarantees the timely payment of interest on such Moody's
Eligible Asset and principal thereof to maturity, the Moody's insurance claims-
paying ability rating of the issuer of the insurance policy (provided that for
purposes of clauses (ii) and (iii) if the insurance claims-paying ability of an
issuer of a Policy or insurance policy is not rated by Moody's but is rated by
S&P, such issuer shall be deemed to have a Moody's insurance claims-paying
ability rating which is two full categories lower than the S&P insurance claims-
paying ability rating) and (b) the Moody's Exposure Period, in accordance with
the table set forth below:
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<PAGE>
<TABLE>
<CAPTION>
Rating Category
-----------------
Moody's Exposure Period Aaa* Aa* A* Baa* Other** VMIG-1*** SP-1+***
- ------------------------------- ----- ---- ---- ------ --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
7 weeks or less................ 151% 159% 168% 202% 229% 136% 148%
8 weeks or less but 154 164 173 205 235 137 149
greater than seven weeks.......
9 weeks or less but 158 169 179 209 242 138 150
greater than eight weeks.......
- ---------------
</TABLE>
* Moody's rating.
** New York Municipal Bonds and Municipal Bonds not rated by Moody's but rated
BBB or BBB+ by S&P.
*** New York Municipal Bonds and Municipal Bonds rated MIG-1, VMIG-1 or P-1 or,
if not rated by Moody's, rated SP-1+ or A-1+ by S&P which do not mature or
have a demand feature at par exercisable within the Moody's Exposure Period
and which do not have a long-term rating. For the purposes of the definition
of Moody's Eligible Assets, these securities will have an assumed rating of
"A" by Moody's.
;provided, however, in the event a Moody's Discount Factor applicable to a
Moody's Eligible Asset is determined by reference to an insurance claims-paying
ability rating in accordance with clause (a)(ii) or (a)(iii), such Moody's
Discount Factor shall be increased by an amount equal to 50% of the difference
between (a) the percentage set forth in the foregoing table under the applicable
rating category and (b) the percentage set forth in the foregoing table under
the rating category which is one category lower than the applicable rating
category.
Notwithstanding the foregoing, (i) no Moody's Discount Factor will be
applied to short-term New York Municipal Bonds and short-term Municipal Bonds,
so long as such New York Municipal Bonds and Municipal Bonds are rated at least
MIG-1, VMIG-1 or P-1 by Moody's and mature or have a demand feature at par
exercisable within the Moody's Exposure Period, and the Moody's Discount Factor
for such Bonds will be 125% if such Bonds are not rated by Moody's but are rated
A-1+ or SP-1+ or AA by S&P and mature or have a demand feature at par
exercisable within the Moody's Exposure Period, and (ii) no Moody's Discount
Factor will be applied to cash or to Receivables for New York Municipal Bonds or
Municipal Bonds Sold. "Receivables for New York Municipal Bonds or Municipal
Bonds Sold," for purposes of calculating Moody's Eligible Assets as of any
Valuation Date, means no more than
15
<PAGE>
the aggregate of the following: (i) the book value of receivables for New York
Municipal Bonds or Municipal Bonds sold as of or prior to such Valuation Date if
such receivables are due within five Business Days of such Valuation Date, and
if the trades which generated such receivables are (x) settled through clearing
house firms with respect to which the Corporation has received prior written
authorization from Moody's or (y) with counterparties having a Moody's long-term
debt rating of at least Baa3; and (ii) the Moody's Discounted Value of New York
Municipal Bonds or Municipal Bonds sold as of or prior to such Valuation Date
which generated receivables, if such receivables are due within five Business
Days of such Valuation Date but do not comply with either of conditions (x) or
(y) of the preceding clause (i).
"Moody's Eligible Asset" means cash, Receivables for New York Municipal
Bonds or Municipal Bonds Sold, a New York Municipal Bond or a Municipal Bond
that (i) pays interest in cash, (ii) is publicly rated Baa or higher by Moody's
or, if not rated by Moody's but rated by S&P, is rated at least BBB by S&P
(provided that, for purposes of determining the Moody's Discount Factor
applicable to any such S&P-rated New York Municipal Bond or S&P-rated Municipal
Bond, such New York Municipal Bond or Municipal Bond (excluding any short-term
New York Municipal Bond or Municipal Bond) will be deemed to have a Moody's
rating which is one full rating category lower than its S&P rating), (iii) does
not have its Moody's rating suspended by Moody's; and (iv) is part of an issue
of New York Municipal Bonds or Municipal Bonds of at least $10,000,000. In
addition, New York Municipal Bonds and Municipal Bonds in the Corporation's
portfolio must be within the following diversification requirements in order to
be included within Moody's Eligible Assets:
16
<PAGE>
<TABLE>
<CAPTION>
Minimum Maximum Maximum Maximum Maximum
Issue Size Underlying Issue Type County State or Territory
Rating ($ Millions) Obligor (%)(1) Concentration(%)(1)(3) Concentration(%)(1)(4) Concentration (1)(5)
- ----------- ------------ --------------- ---------------------- ---------------------- ----------------------
<S> <C> <C> <C> <C> <C>
Aaa........ 10 100 100 100 100
Aa......... 10 20 60 60 60
A.......... 10 10 40 40 40
Baa........ 10 6 20 20 20
Other(2)... 10 4 12 12 12
</TABLE>
- -----------------
(1) The referenced percentages represent maximum cumulative totals for the
related rating category and each lower rating category.
(2) New York Municipal Bonds and Municipal Bonds not rated by Moody's but rated
BBB or BBB+ by S&P.
(3) Does not apply to general obligation bonds.
(4) Applicable to general obligation bonds only.
(5) Does not apply to New York Municipal Bonds. Territorial bonds (other than
those issued by Puerto Rico and counted collectively) are each limited to
10% of Moody's Eligible Assets. For diversification purposes, Puerto Rico
will be treated as a state.
For purposes of the maximum underlying obligor requirement described above, any
New York Municipal Bond or Municipal Bond backed by the guaranty, letter of
credit or insurance issued by a third party will be deemed to be issued by such
third party if the issuance of such third party credit is the sole determinant
of the rating on such Bond. For purposes of the issue type concentration
requirement described above, New York Municipal Bonds and Municipal Bonds will
be classified within one of the following categories: health care issues
(teaching and non-teaching hospitals, public and private), housing issues
(single- and multi-family), educational facilities issues (public and private
schools), student loan issues, resource recovery issues, transportation issues
(mass transit, airport and highway bonds), industrial revenue/pollution control
bond issues, utility issues (including water, sewer and electricity), general
obligation issues, lease obligations/certificates of participation, escrowed
bonds and other issues ("Other Issues") not falling within one of the
aforementioned categories (includes special obligations to crossover, excise and
sales tax revenue, recreation revenue, special assessment and telephone revenue
bonds). In no event shall (a) more than 10% of Moody's Eligible Assets consist
of student loan issues, (b) more than 10% of Moody's Eligible Assets consist of
resource recovery issues or (c) more than 10% of Moody's Eligible Assets consist
of Other Issues.
17
<PAGE>
When the Corporation sells a New York Municipal Bond or Municipal Bond and
agrees to repurchase it at a future date, the Discounted Value of such Bond will
constitute a Moody's Eligible Asset and the amount the Corporation is required
to pay upon repurchase of such Bond will count as a liability for purposes of
calculating the AMPS Basic Maintenance Amount. When the Corporation purchases a
New York Municipal Bond or Municipal Bond and agrees to sell it at a future date
to another party, cash receivable by the Corporation thereby will constitute a
Moody's Eligible Asset if the long-term debt of such other party is rated at
least A2 by Moody's and such agreement has a term of 30 days or less; otherwise
the Discounted Value of such Bond will constitute a Moody's Eligible Asset.
Notwithstanding the foregoing, an asset will not be considered a Moody's
Eligible Asset if it is (i) held in a margin account, (ii) subject to any
material lien, mortgage, pledge, security interest or security agreement of any
kind, (iii) held for the purchase of a security pursuant to a Forward Commitment
or (iv) irrevocably deposited by the Corporation for the payment of dividends or
redemption.
"Moody's Exposure Period" means a period that is the same length or longer
than the number of days used in calculating the cash dividend component of the
AMPS Basic Maintenance Amount and shall initially be the period commencing on
and including a given Valuation Date and ending 48 days thereafter.
"Moody's Hedging Transactions" has the meaning set forth in paragraph 8(b)
of these Articles Supplementary.
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<PAGE>
"Moody's Volatility Factor" means 272% as long as there has been no
increase enacted to the Marginal Tax Rate. If such an increase is enacted but
not yet implemented, the Moody's Volatility Factor shall be as follows:
% Change in Marginal Moody's Volatility
Tax Rate Factor
-------------------- -------------------
less than or equal to 5% 292%
greater than 5% but less than or equal to 10% 313%
greater than 10% but less than or equal to 10% 15% 338%
greater than 15% but less than or equal to 10% 20% 364%
greater than 20% but less than or equal to 10% 25% 396%
greater than 25% but less than or equal to 10% 30% 432%
greater than 30% but less than or equal to 10% 35% 472%
greater than 35% but less than or equal to 10% 40% 520%
Notwithstanding the foregoing, the Moody's Volatility Factor may mean such other
potential dividend rate increase factor as Moody's advises the Corporation in
writing is applicable.
"Municipal Bonds" means "Municipal Bonds" as defined in the Corporation's
Registration Statement on Form N-14 (File No. 333- _______) relating to the AMPS
on file with the Securities and Exchange Commission, as such Registration
Statement may be amended from time to time, as well as short-term municipal
obligations and Inverse Floaters.
"Municipal Index" has the meaning set forth in paragraph 8(a) of these
Articles Supplementary.
"1940 Act" means the Investment Company Act of 1940, as amended from time
to time.
"1940 Act AMPS Asset Coverage" means asset coverage, as defined in section
18(h) of the 1940 Act, of at least 200% with respect to all outstanding senior
securities of the Corporation which are stock, including all outstanding shares
of AMPS and Other AMPS (or such other asset
19
<PAGE>
coverage as may in the future be specified in or under the 1940 Act as the
minimum asset coverage for senior securities which are stock of a closed-end
investment company as a condition of paying dividends on its common stock).
"1940 Act Cure Date," with respect to the failure by the Corporation to
maintain the 1940 Act AMPS Asset Coverage (as required by paragraph 6 of these
Articles Supplementary) as of the last Business Day of each month, means the
last Business Day of the following month.
"Non-Call Period" has the meaning set forth under the definition of
"Specific Redemption Provisions".
"Non-Payment Period" means, with respect to each series of AMPS, any period
commencing on and including the day on which the Corporation shall fail to (i)
declare, prior to the close of business on the second Business Day preceding any
Dividend Payment Date, for payment on or (to the extent permitted by paragraph
2(c)(i) of these Articles Supplementary) within three Business Days after such
Dividend Payment Date to the Holders as of 12:00 noon, New York City time, on
the Business Day preceding such Dividend Payment Date, the full amount of any
dividend on shares of AMPS payable on such Dividend Payment Date or (ii)
deposit, irrevocably in trust, in same-day funds, with the Auction Agent by
12:00 noon, New York City time, (A) on such Dividend Payment Date the full
amount of any cash dividend on such shares payable (if declared) on such
Dividend Payment Date or (B) on any redemption date for any shares of AMPS
called for redemption, the Mandatory Redemption Price per share of such AMPS or,
in the case of an optional redemption, the Optional Redemption Price per share,
and ending on and including the Business Day on which, by 12:00 noon, New York
City time, all
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<PAGE>
unpaid cash dividends and unpaid redemption prices shall have been so deposited
or shall have otherwise been made available to Holders in same-day funds;
provided that, a Non-Payment Period shall not end unless the Corporation shall
have given at least five days' but no more than 30 days' written notice of such
deposit or availability to the Auction Agent, all Existing Holders (at their
addresses appearing in the Stock Books) and the Securities Depository.
Notwithstanding the foregoing, the failure by the Corporation to deposit funds
as provided for by clauses (ii)(A) or (ii)(B) above within three Business Days
after any Dividend Payment Date or redemption date, as the case may be, in each
case to the extent contemplated by paragraph 2(c)(i) of these Articles
Supplementary, shall not constitute a "Non-Payment Period."
"Non-Payment Period Rate" means, initially, 200% of the applicable
Reference Rate (or 275% of such rate if the Corporation has provided
notification to the Auction Agent prior to the Auction establishing the
Applicable Rate for any dividend pursuant to paragraph 2(f) hereof that net
capital gains or other taxable income will be included in such dividend on
shares of AMPS), provided that the Board of Directors of the Corporation shall
have the authority to adjust, modify, alter or change from time to time the
initial Non-Payment Period Rate if the Board of Directors of the Corporation
determines and Moody's and S&P (and any Substitute Rating Agency in lieu of
Moody's or S&P in the event either of such parties shall not rate the AMPS)
advise the Corporation in writing that such adjustment, modification, alteration
or change will not adversely affect their then-current ratings on the AMPS.
"Normal Dividend Payment Date" has the meaning set forth in paragraph
2(b)(i) of these Articles Supplementary.
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<PAGE>
"Notice of Redemption" means any notice with respect to the redemption of
shares of AMPS pursuant to paragraph 4 of these Articles Supplementary.
"Notice of Revocation" has the meaning set forth in paragraph 2(c)(iii) of
these Articles Supplementary.
"Notice of Special Dividend Period" has the meaning set forth in paragraph
2(c)(iii) of these Articles Supplementary.
"Optional Redemption Price" means $25,000 per share plus an amount equal to
accumulated but unpaid dividends (whether or not earned or declared) to the date
fixed for redemption and excluding Additional Dividends plus any applicable
redemption premium attributable to the designation of a Premium Call Period.
"Other AMPS" means the auction rate preferred stock of the Corporation,
other than the AMPS.
"Outstanding" means, as of any date (i) with respect to AMPS, shares of
AMPS theretofore issued by the Corporation except, without duplication, (A) any
shares of AMPS theretofore cancelled or delivered to the Auction Agent for
cancellation, or redeemed by the Corporation, or as to which a Notice of
Redemption shall have been given and Deposit Securities shall have been
deposited in trust or segregated by the Corporation pursuant to paragraph 4(c)
and (B) any shares of AMPS as to which the Corporation or any Affiliate thereof
shall be a Beneficial Owner, provided that shares of AMPS held by an Affiliate
shall be deemed
22
<PAGE>
outstanding for purposes of calculating the AMPS Basic Maintenance Amount and
(ii) with respect to shares of other Preferred Stock, has the equivalent
meaning.
"Parity Stock" means the AMPS and each other outstanding series of
Preferred Stock the holders of which, together with the holders of the AMPS,
shall be entitled to the receipt of dividends or of amounts distributable upon
liquidation, dissolution or winding up, as the case may be, in proportion to the
full respective preferential amounts to which they are entitled, without
preference or priority one over the other.
"Person" means and includes an individual, a partnership, a corporation, a
trust, an unincorporated association, a joint venture or other entity or a
government or any agency or political subdivision thereof.
"Policy" means an insurance policy purchased by the Corporation which
guarantees the payment of principal and interest on specified New York Municipal
Bonds or Municipal Bonds during the period in which such New York Municipal
Bonds or Municipal Bonds are owned by the Corporation; provided, however, that,
as long as the AMPS are rated by Moody's and S&P, the Corporation will not
obtain any Policy unless Moody's and S&P advise the Corporation in writing that
the purchase of such Policy will not adversely affect their then-current rating
on the AMPS.
"Potential Beneficial Owner" means a customer of a Broker-Dealer or a
Broker-Dealer that is not a Beneficial Owner of shares of AMPS but that wishes
to purchase such shares, or that is a Beneficial Owner that wishes to purchase
additional shares of AMPS.
23
<PAGE>
"Potential Holder" means any Broker-Dealer or any such other Person as may
be permitted by the Corporation, including any Existing Holder, who may be
interested in acquiring shares of AMPS (or, in the case of an Existing Holder,
additional shares of AMPS).
"Preferred Stock" means the preferred stock of the Corporation, and
includes AMPS and Other AMPS.
"Premium Call Period" has the meaning set forth under the definition of
"Specific Redemption Provisions."
"Pricing Service" means J.J. Kenny or any pricing service designated by the
Board of Directors of the Corporation provided the Corporation obtains written
assurance from S&P and Moody's that such designation will not impair the rating
then assigned by S&P and Moody's to the AMPS.
"Quarterly Valuation Date" means the twenty-first day of the last month of
each fiscal quarter of the Corporation (or, if such day is not a Business Day,
the next succeeding Business Day) in each fiscal year of the Corporation,
commencing ___________, 2000.
"Receivables for New York Municipal Bonds Sold" has the meaning set forth
under the definition of S&P Discount Factor.
"Receivables for New York Municipal Bonds or Municipal Bonds Sold" has the
meaning set forth under the definition of Moody's Discount Factor.
"Reference Rate" means: (i) with respect to a Dividend Period or a Short
Term Dividend Period having 28 or fewer days, the higher of the applicable "AA"
Composite Commercial Paper
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<PAGE>
Rate and the Taxable Equivalent of the Short-Term Municipal Bond Rate, (ii) with
respect to any Short Term Dividend Period having more than 28 but fewer than 183
days, the applicable "AA" Composite Commercial Paper Rate, (iii) with respect to
any Short Term Dividend Period having 183 or more but fewer than 364 days, the
applicable U.S. Treasury Bill Rate and (iv) with respect to any Long Term
Dividend Period, the applicable U.S. Treasury Note Rate.
"Request for Special Dividend Period" has the meaning set forth in
paragraph 2(c)(iii) of these Articles Supplementary.
"Response" has the meaning set forth in paragraph 2(c)(iii) of these
Articles Supplementary.
"Retroactive Taxable Allocation" has the meaning set forth in paragraph
2(e) of these Articles Supplementary.
"Right," with respect to each series of AMPS, has the meaning set forth in
paragraph 2(e) of these Articles Supplementary and, with respect to Other AMPS,
has the equivalent meaning.
"S&P" means Standard & Poor's, a division of The McGraw Hill Companies,
Inc. or its successors.
"S&P Discount Factor" means, for purposes of determining the Discounted
Value of any New York Municipal Bond which constitutes an S&P Eligible Asset,
the percentage determined by reference to (a)(i) the rating by S&P, Moody's or
Fitch on such Bond or (ii) in the event the New York Municipal Bond is insured
under a Policy and the terms of the Policy permit the Corporation, at its
option, to obtain other permanent insurance guaranteeing the timely payment
25
<PAGE>
of interest on such New York Municipal Bond and principal thereof to maturity,
the S&P insurance claims-paying ability rating of the issuer of the Policy or
(iii) in the event the New York Municipal Bond is insured under an insurance
policy which guarantees the timely payment of interest on such New York
Municipal Bond and principal thereof to maturity, the S&P insurance claims-
paying ability rating of the issuer of the insurance policy and (b) the S&P
Exposure Period, in accordance with the tables set forth below:
<TABLE>
<CAPTION>
For New York Municipal Bonds:
- ------------------------------------------
Rating Category
------------------------------------------------
S&P Exposure Period AAA* AA* A* BBB*
- ------------------------------------------ -------------------------------------------------
<S> <C> <C> <C> <C>
45 Business Days 210% 215% 230% 270%
25 Business Days 190 195 210 250
10 Business Days 175 180 195 235
7 Business Days 170 175 190 230
3 Business Days 150 155 170 210
</TABLE>
- -------------------
* S&P rating.
Notwithstanding the foregoing, (i) the S&P Discount Factor for short-term
New York Municipal Bonds will be 115%, so long as such New York Municipal Bonds
are rated A-1+ or SP-1+ by S&P and mature or have a demand feature exercisable
in 30 days or less, or 120% so long as such New York Municipal Bonds are rated
A-1 or SP-1 by S&P and mature or have a demand feature exercisable in 30 days or
less, or 125% if such New York Municipal Bonds are not rated by S&P but are
rated VMIG-1, P-1 or MIG-1 by Moody's or F-1+ by Fitch; provided, however, such
short-term New York Municipal Bonds rated by Moody's or Fitch but not rated by
S&P having a demand feature exercisable in 30 days or less must be backed by a
letter of credit, liquidity facility or guarantee from a bank or other financial
institution having a short-term rating of at least A-1+ from S&P; and further
provided that such short-term
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<PAGE>
New York Municipal Bonds rated by Moody's or Fitch but not rated by S&P may
comprise no more than 50% of short-term New York Municipal Bonds that qualify as
S&P Eligible Assets, (ii) the S&P Discount Factor for Receivables for New York
Municipal Bonds Sold that are due in more than five Business Days from such
Valuation Date will be the S&P Discount Factor applicable to the New York
Municipal Bonds sold, and (iii) no S&P Discount Factor will be applied to cash
or to Receivables for New York Municipal Bonds Sold if such receivables are due
within five Business Days of such Valuation Date. "Receivables for New York
Municipal Bonds Sold," for purposes of calculating S&P Eligible Assets as of any
Valuation Date, means the book value of receivables for New York Municipal Bonds
sold as of or prior to such Valuation Date. The Corporation may adopt S&P
Discount Factors for Municipal Bonds other than New York Municipal Bonds
provided that S&P advises the Corporation in writing that such action will not
adversely affect its then current rating on the AMPS. For purposes of the
foregoing, Anticipation Notes rated SP-1 or, if not rated by S&P, rated VMIG-1
by Moody's or F-1+ by Fitch, which do not mature or have a demand feature
exercisable in 30 days and which do not have a long-term rating, shall be
considered to be short-term New York Municipal Bonds.
"S&P Eligible Asset" means cash, Receivables for New York Municipal Bonds
Sold or a New York Municipal Bond that (i) is interest bearing and pays interest
at least semi-annually; (ii) is payable with respect to principal and interest
in United States Dollars; (iii) is publicly rated BBB or higher by S&P or,
except in the case of Anticipation Notes that are grant anticipation notes or
bond anticipation notes which must be rated by S&P to be included in S&P
Eligible Assets, if not rated by S&P but rated by Moody's or Fitch, is rated at
least A by Moody's or Fitch (provided that such Moody's-rated or Fitch-rated New
York Municipal Bonds will be
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<PAGE>
included in S&P Eligible Assets only to the extent the Market Value of such New
York Municipal Bonds does not exceed 50% of the aggregate Market Value of the
S&P Eligible Assets; and further provided that, for purposes of determining the
S&P Discount Factor applicable to any such Moody's-rated or Fitch-rated New York
Municipal Bond, such New York Municipal Bond will be deemed to have an S&P
rating which is one full rating category lower than its Moody's rating or Fitch
rating); (iv) is not subject to a covered call or covered put option written by
the Corporation; (v) except for Inverse Floaters, is not part of a private
placement of New York Municipal Bonds; and (vi) except for Inverse Floaters, is
part of an issue of New York Municipal Bonds with an original issue size of at
least $20 million or, if of an issue with an original issue size below $20
million (but in no event below $10 million), is issued by an issuer with a total
of at least $50 million of securities outstanding. Notwithstanding the
foregoing:
(1) New York Municipal Bonds of any one issuer or guarantor
(excluding bond insurers) will be considered S&P Eligible Assets only to the
extent the Market Value of such New York Municipal Bonds does not exceed 10% of
the aggregate Market Value of the S&P Eligible Assets, provided that 2% is added
to the applicable S&P Discount Factor for every 1% by which the Market Value of
such New York Municipal Bonds exceeds 5% of the aggregate Market Value of the
S&P Eligible Assets;
(2) New York Municipal Bonds of any one issue type category (as
described below) will be considered S&P Eligible Assets only to the extent the
Market Value of such Bonds does not exceed 25% of the aggregate Market Value of
S&P Eligible Assets, except that New York Municipal Bonds falling within the
utility issue type category will be broken down into three sub-categories (as
described below) and such New York Municipal Bonds will be
28
<PAGE>
considered S&P Eligible Assets to the extent the Market Value of such Bonds in
each such sub-category does not exceed 25% of the aggregate Market Value of S&P
Eligible Assets and the Market Value of such Bonds in all three sub-categories
combined does not exceed 60% of the aggregate Market Value of S&P Eligible
Assets, except that New York Municipal Bonds falling within the transportation
issue type category will be broken down into two sub-categories (as described
below) and such New York Municipal Bonds will be considered S&P Eligible Assets
to the extent the Market Value of such Bonds in both sub-categories combined (as
described below) does not exceed 40% of the aggregate Market Value of S&P
Eligible Assets and except that New York Municipal Bonds falling within the
general obligation issue type category will be considered S&P Eligible Assets to
the extent the Market Value of such Bonds does not exceed 50% of the aggregate
Market Value of S&P Eligible Assets. For purposes of the issue type category
requirement described above, New York Municipal Bonds will be classified within
one of the following categories: health care issues, housing issues, educational
facilities issues, student loan issues, transportation issues, industrial
development bond issues, utility issues, general obligation issues, lease
obligations, escrowed bonds and other issues not falling within one of the
aforementioned categories. The general obligation issue type category includes
any issuer that is directly or indirectly guaranteed by the State of New York or
its political subdivisions. Utility issuers are included in the general
obligation issue type category if the issuer is directly or indirectly
guaranteed by the State of New York or its political subdivisions. For purposes
of the issue type category requirement described above, New York Municipal Bonds
in the utility issue type category will be classified within one of the three
following sub-categories: (i) electric, gas and combination issues (if the
combination issue includes an electric issue), (ii) water and sewer utilities
and combination issues (if the combination issue does not
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<PAGE>
include an electric issue), and (iii) irrigation, resource recovery, solid waste
and other utilities, provided that New York Municipal Bonds included in this
sub-category (iii) must be rated by S&P in order to be included in S&P Eligible
Assets. For purposes of the issue type category requirement described above, New
York Municipal Bonds in the transportation issue type category will be
classified within one of the two following sub-categories: (i) streets and
highways, toll roads, bridges and tunnels, airports and multi-purpose port
authorities (multiple revenue streams generated by toll roads, airports, real
estate, bridges), (ii) mass transit, parking, seaports and others. Exposure to
transportation sub-category (i) is limited to 25% of the aggregate Market Value
of S&P Eligible Assets, provided, however, exposure to transportation sub-
category (i) can exceed the 25% limit to the extent that exposure to
transportation sub-category (ii) is reduced, for a total exposure up to and not
exceeding 40% of the aggregate Market Value of S&P Eligible Assets for the
transportation issue type category; and
(3) New York Municipal Bonds which are escrow bonds or defeased bonds
may compose up to 100% of the aggregate Market Value of S&P Eligible Assets if
such Bonds initially are assigned a rating by S&P in accordance with S&P's legal
defeasance criteria or rerated by S&P as economic defeased escrow bonds and
assigned an AAA rating. New York Municipal Bonds may be rated as escrow bonds
by another nationally recognized rating agency or rerated as an escrow bond and
assigned the equivalent of an S&P AAA rating, provided that such equivalent
rated Bonds are limited to 50% of the aggregate Market Value of S&P Eligible
Assets and are deemed to have an AA S&P rating for purposes of determining the
S&P Discount Factor applicable to such New York Municipal Bonds. The
limitations on New York Municipal Bonds of any one issuer in clause (1) above is
not applicable to escrow bonds, however, economically defeased bonds that are
either initially rate or rerated by S&P or another nationally
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<PAGE>
recognized rating agency and assigned the same rating level as the issuer of the
Bonds will remain in its original issue type category set forth in clause (2)
above. New York Municipal Bonds that are legally defeased and secured by
securities issued or guaranteed by the United States Government are not required
to meet the minimum issuance size requirement set forth above.
The Corporation may include Municipal Bonds other than New York Municipal
Bonds as S&P Eligible Assets pursuant to guidelines and restrictions to be
established by S&P provided that S&P advises the Corporation in writing that
such action will not adversely affect its then current rating on the AMPS.
"S&P Exposure Period" means the maximum period of time following a
Valuation Date, including the Valuation Date and the AMPS Basic Maintenance Cure
Date, that the Corporation has under these Articles Supplementary to cure any
failure to maintain, as of such Valuation Date, the Discounted Value for its
portfolio at least equal to the AMPS Basic Maintenance Amount (as described in
paragraph 7(a) of these Articles Supplementary).
"S&P Hedging Transactions" has the meaning set forth in paragraph 8(a) of
these Articles Supplementary.
"S&P Volatility Factor" means 277% or such other potential dividend rate
increase factor as S&P advises the Corporation in writing is applicable.
"Securities Depository" means The Depository Trust Company or any successor
company or other entities elected by the Corporation as securities depository
for the shares of
31
<PAGE>
AMPS that agrees to follow the procedures required to be followed by such
securities depository in connection with the shares of AMPS.
"Service" means the United States Internal Revenue Service.
"7-Day Dividend Period" means, with respect to Series C AMPS and Series D
AMPS, a Dividend Period consisting of seven days.
"Short Term Dividend Period" means a Special Dividend Period consisting of
a specified number of days (other than seven in the case of Series C AMPS and
Series D AMPS and other than 28 in the case of Series E AMPS) evenly divisible
by seven and not fewer than seven nor more than 364.
"Special Dividend Period" means a Dividend Period consisting of (i) a
specified number of days (other than seven in the case of Series C AMPS and
Series D AMPS and other than 28 in the case of Series E AMPS), evenly divisible
by seven and not fewer than seven nor more than 364 or (ii) a specified period
of one whole year or more but not greater than five years (in each case subject
to adjustment as provided in paragraph 2(b)(i)).
"Specific Redemption Provisions" means, with respect to a Special Dividend
Period either, or any combination of, (i) a period (a "Non-Call Period")
determined by the Board of Directors of the Corporation, after consultation with
the Auction Agent and the Broker-Dealers, during which the shares of AMPS
subject to such Dividend Period shall not be subject to redemption at the option
of the Corporation and (ii) a period (a "Premium Call Period"), consisting of a
number of whole years and determined by the Board of Directors of the
32
<PAGE>
Corporation, after consultation with the Auction Agent and the Broker-Dealers,
during each year of which the shares of AMPS subject to such Dividend Period
shall be redeemable at the Corporation's option at a price per share equal to
$25,000 plus accumulated but unpaid dividends plus a premium expressed as a
percentage of $25,000, as determined by the Board of Directors of the
Corporation after consultation with the Auction Agent and the Broker-Dealers.
"Stock Books" means the books maintained by the Auction Agent setting forth
at all times a current list, as determined by the Auction Agent, of Existing
Holders of the AMPS.
"Stock Register" means the register of Holders maintained on behalf of the
Corporation by the Auction Agent in its capacity as transfer agent and registrar
for the AMPS.
"Subsequent Dividend Period," with respect to AMPS, has the meaning set
forth in paragraph 2(c)(i) of these Articles Supplementary and, with respect to
Other AMPS, has the equivalent meaning.
"Substitute Commercial Paper Dealers" means such Substitute Commercial
Paper Dealer or Dealers as the Corporation may from time to time appoint or, in
lieu of any thereof, their respective affiliates or successors.
"Substitute Rating Agency" and "Substitute Rating Agencies" mean a
nationally recognized statistical rating organization or two nationally
recognized statistical rating organizations, respectively, selected by Merrill
Lynch, Pierce, Fenner & Smith Incorporated or its affiliates and successors,
after consultation with the Corporation, to act as the substitute rating
33
<PAGE>
agency or substitute rating agencies, as the case may be, to determine the
credit ratings of the shares of AMPS.
"Taxable Equivalent of the Short-Term Municipal Bond Rate" on any date
means 90% of the quotient of (A) the per annum rate expressed on an interest
equivalent basis equal to the Kenny S&P 30-day High Grade Index (the "Kenny
Index") or any successor index, made available for the Business Day immediately
preceding such date but in any event not later than 8:30 A.M., New York City
time, on such date by Kenny Information Systems Inc. or any successor thereto,
based upon 30-day yield evaluations at par of bonds the interest on which is
excludable for regular Federal income tax purposes under the Code of "high
grade" component issuers selected by Kenny Information Systems Inc. or any such
successor from time to time in its discretion, which component issuers shall
include, without limitation, issuers of general obligation bonds but shall
exclude any bonds the interest on which constitutes an item of tax preference
under Section 57(a)(5) of the Code, or successor provisions, for purposes of the
"alternative minimum tax," divided by (B) 1.00 minus the Marginal Tax Rate
(expressed as a decimal); provided, however, that if the Kenny Index is not made
so available by 8:30 A.M., New York City time, on such date by Kenny Information
Systems Inc. or any successor, the Taxable Equivalent of the Short-Term
Municipal Bond Rate shall mean the quotient of (A) the per annum rate expressed
on an interest equivalent basis equal to the most recent Kenny Index so made
available for any preceding Business Day, divided by (B) 1.00 minus the Marginal
Tax Rate (expressed as a decimal). The Corporation may not utilize a successor
index to the Kenny Index unless Moody's and S&P provide the Corporation with
written confirmation that the use of
34
<PAGE>
such successor index will not adversely affect the then-current respective
Moody's and S&P ratings of the AMPS.
"Treasury Bonds" has the meaning set forth in paragraph 8(a) of these
Articles Supplementary.
"28-Day Dividend Period" means, with respect to Series E AMPS, a Dividend
Period consisting of 28 days.
"U.S. Treasury Bill Rate" on any date means (i) the Interest Equivalent of
the rate on the actively traded Treasury Bill with a maturity most nearly
comparable to the length of the related Dividend Period, as such rate is made
available on a discount basis or otherwise by the Federal Reserve Bank of New
York in its Composite 3:30 P.M. Quotations for U.S. Government Securities report
for such Business Day, or (ii) if such yield as so calculated is not available,
the Alternate Treasury Bill Rate on such date. "Alternate Treasury Bill Rate"
on any date means the Interest Equivalent of the yield as calculated by
reference to the arithmetic average of the bid price quotations of the actively
traded Treasury Bill with a maturity most nearly comparable to the length of the
related Dividend Period, as determined by bid price quotations as of any time on
the Business Day immediately preceding such date, obtained from at least three
recognized primary U.S. Government securities dealers selected by the Auction
Agent.
"U.S. Treasury Note Rate" on any date means (i) the yield as calculated by
reference to the bid price quotation of the actively traded, current coupon
Treasury Note with a maturity most nearly comparable to the length of the
related Dividend Period, as such bid price quotation is published on the
Business Day immediately preceding such date by the Federal Reserve Bank of
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New York in its Composite 3:30 P.M. Quotations for U.S. Government Securities
report for such Business Day, or (ii) if such yield as so calculated is not
available, the Alternate Treasury Note Rate on such date. "Alternate Treasury
Note Rate" on any date means the yield as calculated by reference to the
arithmetic average of the bid price quotations of the actively traded, current
coupon Treasury Note with a maturity most nearly comparable to the length of the
related Dividend Period, as determined by the bid price quotations as of any
time on the Business Day immediately preceding such date, obtained from at least
three recognized primary U.S. Government securities dealers selected by the
Auction Agent.
"Valuation Date" means, for purposes of determining whether the Corporation
is maintaining the AMPS Basic Maintenance Amount, each Business Day commencing
with the Date of Original Issue.
"Variation Margin" means, in connection with an outstanding futures
contract owned or sold by the Corporation, the amount of cash or securities paid
to or received from a broker (subsequent to the Initial Margin payment) from
time to time as the price of such futures contract fluctuates.
(b) The foregoing definitions of Accountant's Confirmation, AMPS Basic
Maintenance Amount, AMPS Basic Maintenance Cure Date, AMPS Basic Maintenance
Report, Deposit Securities, Discounted Value, Independent Accountant, Initial
Margin, Inverse Floaters, Market Value, Maximum Potential Additional Dividend
Liability, Moody's Discount Factor, Moody's Eligible Asset, Moody's Exposure
Period, Moody's Hedging Transactions, Moody's Volatility Factor, S&P Discount
Factor, S&P Eligible Asset, S&P Exposure Period,
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S&P Hedging Transactions, S&P Volatility Factor, Valuation Date and Variation
Margin have been determined by the Board of Directors of the Corporation in
order to obtain a "aaa" rating from Moody's and a AAA rating from S&P on the
AMPS on their Date of Original Issue; and the Board of Directors of the
Corporation shall have the authority, without shareholder approval, to amend,
alter or repeal from time to time the foregoing definitions and the restrictions
and guidelines set forth thereunder if Moody's and S&P or any Substitute Rating
Agency advises the Corporation in writing that such amendment, alteration or
repeal will not adversely affect their then current ratings on the AMPS.
2. Dividends. (a) The Holders shall be entitled to receive, when, as and
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if declared by the Board of Directors of the Corporation, out of funds legally
available therefor, cumulative dividends each consisting of (i) cash at the
Applicable Rate, (ii) a Right to receive cash as set forth in paragraph 2(e)
below, and (iii) any additional amounts as set forth in paragraph 2(f) below,
and no more, payable on the respective dates set forth below. Dividends on the
shares of AMPS so declared and payable shall be paid (i) in preference to and in
priority over any dividends declared and payable on the Common Stock, and (ii)
to the extent permitted under the Code and to the extent available, out of net
tax-exempt income earned on the Corporation's investments. To the extent
permitted under the Code, dividends on shares of AMPS will be designated as
exempt-interest dividends. For the purposes of this section, the term "net tax-
exempt income" shall exclude capital gains of the Corporation.
(b) (i) Cash dividends on shares of AMPS shall accumulate from the Date of
Original Issue and shall be payable, when, as and if declared by the Board of
Directors, out of funds legally available therefor, commencing on the Initial
Dividend Payment Date with respect to
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each series of AMPS. Following the Initial Dividend Payment Date for each series
of AMPS, dividends on each series of AMPS will be payable, at the option of the
Corporation, either (i) with respect to any 7-Day Dividend Period, any 28-Day
Dividend Period and any Short Term Dividend Period of 35 or fewer days, on the
day next succeeding the last day thereof or (ii) with respect to any Short Term
Dividend Period of more than 35 days and with respect to any Long Term Dividend
Period, monthly on the first Business Day of each calendar month during such
Short Term Dividend Period or Long Term Dividend Period and on the day next
succeeding the last day thereof (each such date referred to in clause (i) or
(ii) being herein referred to as a "Normal Dividend Payment Date"), except that
if such Normal Dividend Payment Date is not a Business Day, then the Dividend
Payment Date shall be the first Business Day next succeeding such Normal
Dividend Payment Date. Although any particular Dividend Payment Date may not
occur on the originally scheduled date because of the exceptions discussed
above, the next succeeding Dividend Payment Date, subject to such exceptions,
will occur on the next following originally scheduled date. If for any reason a
Dividend Payment Date cannot be fixed as described above, then the Board of
Directors shall fix the Dividend Payment Date. The Board of Directors by
resolution prior to authorization of a dividend by the Board of Directors may
change a Dividend Payment Date if such change does not adversely affect the
contract rights of the Holders of shares of AMPS set forth in the Charter. The
Initial Dividend Period, 7-Day Dividend Periods, 28-Day Dividend Periods and
Special Dividend Periods are hereinafter sometimes referred to as Dividend
Periods. Each dividend payment date determined as provided above is hereinafter
referred to as a "Dividend Payment Date."
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(ii) Each dividend shall be paid to the Holders as they appear in the
Stock Register as of 12:00 noon, New York City time, on the Business Day
preceding the Dividend Payment Date. Dividends in arrears for any past Dividend
Period may be declared and paid at any time, without reference to any regular
Dividend Payment Date, to the Holders as they appear on the Stock Register on a
date, not exceeding 15 days prior to the payment date therefor, as may be fixed
by the Board of Directors of the Corporation.
(c) (i) During the period from and including the Date of Original Issue
to but excluding the Initial Dividend Payment Date for each series of AMPS (the
"Initial Dividend Period"), the Applicable Rate shall be the Initial Dividend
Rate. Commencing on the Initial Dividend Payment Date for each series of AMPS,
the Applicable Rate for each subsequent dividend period (hereinafter referred to
as a "Subsequent Dividend Period"), which Subsequent Dividend Period shall
commence on and include a Dividend Payment Date and shall end on and include the
calendar day prior to the next Dividend Payment Date (or last Dividend Payment
Date in a Dividend Period if there is more than one Dividend Payment Date),
shall be equal to the rate per annum that results from implementation of the
Auction Procedures.
The Applicable Rate for each Dividend Period commencing during a Non-
Payment Period shall be equal to the Non-Payment Period Rate; and each Dividend
Period, commencing after the first day of, and during, a Non-Payment Period
shall be a 7-Day Dividend Period in the case of Series C AMPS and Series D AMPS
and a 28-day Dividend Period in the case of Series E AMPS, provided that if the
preceding Dividend Period for Series E AMPS is a Special Dividend Period of less
than 28 days, the Dividend Period commencing during a Non-Payment Period will be
the same length as such preceding Dividend Period. Except in the case of the
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willful failure of the Corporation to pay a dividend on a Dividend Payment Date
or to redeem any shares of AMPS on the date set for such redemption, any amount
of any dividend due on any Dividend Payment Date (if, prior to the close of
business on the second Business Day preceding such Dividend Payment Date, the
Corporation has declared such dividend payable on such Dividend Payment Date to
the Holders of such shares of AMPS as of 12:00 noon, New York City time, on the
Business Day preceding such Dividend Payment Date) or redemption price with
respect to any shares of AMPS not paid to such Holders when due may be paid to
such Holders in the same form of funds by 12:00 noon, New York City time, on any
of the first three Business Days after such Dividend Payment Date or due date,
as the case may be, provided that, such amount is accompanied by a late charge
calculated for such period of non-payment at the Non-Payment Period Rate applied
to the amount of such non-payment based on the actual number of days comprising
such period divided by 365. In the case of a willful failure of the Corporation
to pay a dividend on a Dividend Payment Date or to redeem any shares of AMPS on
the date set for such redemption, the preceding sentence shall not apply and the
Applicable Rate for the Dividend Period commencing during the Non-Payment Period
resulting from such failure shall be the Non-Payment Period Rate. For the
purposes of the foregoing, payment to a person in same-day funds on any Business
Day at any time shall be considered equivalent to payment to such person in New
York Clearing House (next-day) funds at the same time on the preceding Business
Day, and any payment made after 12:00 noon, New York City time, on any Business
Day shall be considered to have been made instead in the same form of funds and
to the same person before 12:00 noon, New York City time, on the next Business
Day.
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(ii) The amount of cash dividends per share of any series of AMPS
payable (if declared) on the Initial Dividend Payment Date, each 7-Day Dividend
Period, each 28-Day Dividend Period and each Dividend Payment Date of each Short
Term Dividend Period shall be computed by multiplying the Applicable Rate for
such Dividend Period by a fraction, the numerator of which will be the number of
days in such Dividend Period or part thereof that such share was outstanding and
the denominator of which will be 365, multiplying the amount so obtained by
$25,000, and rounding the amount so obtained to the nearest cent. During any
Long Term Dividend Period, the amount of cash dividends per share of AMPS
payable (if declared) on any Dividend Payment Date shall be computed by
multiplying the Applicable Rate for such Dividend Period by a fraction, the
numerator of which will be such number of days in such part of such Dividend
Period that such share was outstanding and for which dividends are payable on
such Dividend Payment Date and the denominator of which will be 360, multiplying
the amount so obtained by $25,000, and rounding the amount so obtained to the
nearest cent.
(iii) With respect to each Dividend Period that is a Special Dividend
Period, the Corporation may, at its sole option and to the extent permitted by
law, by telephonic and written notice (a "Request for Special Dividend Period")
to the Auction Agent and to each Broker-Dealer, request that the next succeeding
Dividend Period for a series of AMPS be a number of days (other than seven in
the case of Series C AMPS and Series D AMPS and other than 28 in the case of
Series E AMPS), evenly divisible by seven, and not fewer than seven nor more
than 364 in the case of a Short Term Dividend Period or one whole year or more
but not greater than five years in the case of a Long Term Dividend Period,
specified in such notice, provided that the Corporation may not give a Request
for Special Dividend Period of greater
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than 28 days (and any such request shall be null and void) unless, for any
Auction occurring after the initial Auction, Sufficient Clearing Bids were made
in the last occurring Auction and unless full cumulative dividends, any amounts
due with respect to redemptions, and any Additional Dividends payable prior to
such date have been paid in full. Such Request for Special Dividend Period, in
the case of a Short Term Dividend Period, shall be given on or prior to the
second Business Day but not more than seven Business Days prior to an Auction
Date for a series of AMPS and, in the case of a Long Term Dividend Period, shall
be given on or prior to the second Business Day but not more than 28 days prior
to an Auction Date for the AMPS. Upon receiving such Request for Special
Dividend Period, the Broker-Dealer(s) shall jointly determine whether, given the
factors set forth below, it is advisable that the Corporation issue a Notice of
Special Dividend Period for the series of AMPS as contemplated by such Request
for Special Dividend Period and the Optional Redemption Price of the AMPS during
such Special Dividend Period and the Specific Redemption Provisions and shall
give the Corporation and the Auction Agent written notice (a "Response") of such
determination by no later than the second Business Day prior to such Auction
Date. In making such determination the Broker-Dealer(s) will consider (1)
existing short-term and long-term market rates and indices of such short-term
and long-term rates, (2) existing market supply and demand for short-term and
long-term securities, (3) existing yield curves for short-term and long-term
securities comparable to the AMPS, (4) industry and financial conditions which
may affect the AMPS, (5) the investment objective of the Corporation, and (6)
the Dividend Periods and dividend rates at which current and potential
beneficial holders of the AMPS would remain or become beneficial holders. If the
Broker-Dealer(s) shall not give the Corporation and the Auction Agent a Response
by such second Business Day or if the Response states that given the factors set
forth above it is not
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advisable that the Corporation give a Notice of Special Dividend Period for the
series of AMPS, the Corporation may not give a Notice of Special Dividend Period
in respect of such Request for Special Dividend Period. In the event the
Response indicates that it is advisable that the Corporation give a Notice of
Special Dividend Period for the series of AMPS, the Corporation may by no later
than the second Business Day prior to such Auction Date give a notice (a "Notice
of Special Dividend Period") to the Auction Agent, the Securities Depository and
each Broker-Dealer which notice will specify (i) the duration of the Special
Dividend Period, (ii) the Optional Redemption Price as specified in the related
Response and (iii) the Specific Redemption Provisions, if any, as specified in
the related Response. The Corporation also shall provide a copy of such Notice
of Special Dividend Period to Moody's and S&P. The Corporation shall not give a
Notice of Special Dividend Period and, if the Corporation has given a Notice of
Special Dividend Period, the Corporation is required to give telephonic and
written notice of its revocation (a "Notice of Revocation") to the Auction
Agent, each Broker-Dealer, and the Securities Depository on or prior to the
Business Day prior to the relevant Auction Date if (x) either the 1940 Act AMPS
Asset Coverage is not satisfied or the Corporation shall fail to maintain S&P
Eligible Assets and Moody's Eligible Assets each with an aggregate Discounted
Value at least equal to the AMPS Basic Maintenance Amount, in each case on each
of the two Valuation Dates immediately preceding the Business Day prior to the
relevant Auction Date on an actual basis and on a pro forma basis giving effect
to the proposed Special Dividend Period (using as a pro forma dividend rate with
respect to such Special Dividend Period the dividend rate which the Broker-
Dealers shall advise the Corporation is an approximately equal rate for
securities similar to the AMPS with an equal dividend period), provided that, in
calculating the aggregate Discounted Value of Moody's Eligible Assets for this
purpose, the Moody's Exposure
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Period shall be deemed to be one week longer, (y) sufficient funds for the
payment of dividends payable on the immediately succeeding Dividend Payment Date
have not been irrevocably deposited with the Auction Agent by the close of
business on the third Business Day preceding the related Auction Date or (z) the
Broker-Dealer(s) jointly advise the Corporation that after consideration of the
factors listed above they have concluded that it is advisable to give a Notice
of Revocation. The Corporation also shall provide a copy of such Notice of
Revocation to Moody's and S&P. If the Corporation is prohibited from giving a
Notice of Special Dividend Period as a result of any of the factors enumerated
in clause (x), (y) or (z) above or if the Corporation gives a Notice of
Revocation with respect to a Notice of Special Dividend Period for any series of
AMPS, the next succeeding Dividend Period will be a 7-Day Dividend Period in the
csae of Series C AMPS and Series D AMPS and a 28-Day Dividend Period in the case
of Series E AMPS, provided that if the then current Dividend Period for Series E
AMPS is a Special Dividend Period of less than 28 days, the next succeeding
Dividend Period for such series of AMPS will be the same length as such current
Dividend Period. In addition, in the event Sufficient Clearing Bids are not made
in the applicable Auction or such Auction is not held for any reason, such next
succeeding Dividend Period will be a 7-Day Dividend Period (in the case of
Series C AMPS and Series D AMPS) or a 28-Day Dividend Period (in the case of
Series E AMPS) and the Corporation may not again give a Notice of Special
Dividend Period for the AMPS (and any such attempted notice shall be null and
void) until Sufficient Clearing Bids have been made in an Auction with respect
to a 7-Day Dividend Period (in the case of Series C AMPS and Series D AMPS) or a
28-Day Dividend Period (in the case of Series E AMPS).
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(d) (i) Holders shall not be entitled to any dividends, whether payable
in cash, property or stock, in excess of full cumulative dividends and
applicable late charges, as herein provided, on the shares of AMPS (except for
Additional Dividends as provided in paragraph 2(e) hereof and additional
payments as provided in paragraph 2(f) hereof). Except for the late charge
payable pursuant to paragraph 2(c)(i) hereof, no interest, or sum of money in
lieu of interest, shall be payable in respect of any dividend payment on the
shares of AMPS that may be in arrears.
(ii) For so long as any share of AMPS is Outstanding, the Corporation
shall not declare, pay or set apart for payment any dividend or other
distribution (other than a dividend or distribution paid in shares of, or
options, warrants or rights to subscribe for or purchase, Common Stock or other
stock, if any, ranking junior to the shares of AMPS as to dividends or upon
liquidation) in respect of the Common Stock or any other stock of the
Corporation ranking junior to or on a parity with the shares of AMPS as to
dividends or upon liquidation, or call for redemption, redeem, purchase or
otherwise acquire for consideration any shares of the Common Stock or any other
such junior stock (except by conversion into or exchange for stock of the
Corporation ranking junior to the shares of AMPS as to dividends and upon
liquidation) or any other such Parity Stock (except by conversion into or
exchange for stock of the Corporation ranking junior to or on a parity with the
shares of AMPS as to dividends and upon liquidation), unless (A) immediately
after such transaction, the Corporation shall have S&P Eligible Assets and
Moody's Eligible Assets each with an aggregate Discounted Value equal to or
greater than the AMPS Basic Maintenance Amount and the Corporation shall
maintain the 1940 Act AMPS Asset Coverage, (B) full cumulative dividends on
shares of AMPS and shares of Other AMPS
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due on or prior to the date of the transaction have been declared and paid or
shall have been declared and sufficient funds for the payment thereof deposited
with the Auction Agent, (C) any Additional Dividend required to be paid under
paragraph 2(e) below on or before the date of such declaration or payment has
been paid and (D) the Corporation has redeemed the full number of shares of AMPS
required to be redeemed by any provision for mandatory redemption contained
herein.
(e) Each dividend shall consist of (i) cash at the Applicable Rate, (ii) an
uncertificated right (a "Right") to receive an Additional Dividend (as defined
below), and (iii) any additional amounts as set forth in paragraph 2(f) below.
Each Right shall thereafter be independent of the share or shares of AMPS on
which the dividend was paid. The Corporation shall cause to be maintained a
record of each Right received by the respective Holders. A Right may not be
transferred other than by operation of law. If the Corporation retroactively
allocates any net capital gains or other income subject to regular Federal
income taxes to shares of AMPS without having given advance notice thereof to
the Auction Agent as described in paragraph 2(f) hereof solely by reason of the
fact that such allocation is made as a result of the redemption of all or a
portion of the outstanding shares of AMPS or the liquidation of the Corporation
(the amount of such allocation referred to herein as a "Retroactive Taxable
Allocation"), the Corporation will, within 90 days (and generally within 60
days) after the end of the Corporation's fiscal year for which a Retroactive
Taxable Allocation is made, provide notice thereof to the Auction Agent and to
each holder of a Right applicable to such shares of AMPS (initially Cede & Co.
as nominee of The Depository Trust Company) during such fiscal year at such
holder's address as the same appears or last appeared on the Stock Books of the
Corporation. The Corporation will, within
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30 days after such notice is given to the Auction Agent, pay to the Auction
Agent (who will then distribute to such holders of Rights), out of funds legally
available therefor, an amount equal to the aggregate Additional Dividend with
respect to all Retroactive Taxable Allocations made to such holders during the
fiscal year in question.
An "Additional Dividend" means payment to a present or former holder of
shares of AMPS of an amount which, when taken together with the aggregate amount
of Retroactive Taxable Allocations made to such holder with respect to the
fiscal year in question, would cause such holder's dividends in dollars (after
Federal and New York income tax consequences) from the aggregate of both the
Retroactive Taxable Allocations and the Additional Dividend to be equal to the
dollar amount of the dividends which would have been received by such holder if
the amount of the aggregate Retroactive Taxable Allocations would have been
excludable from the gross income of such holder. Such Additional Dividend shall
be calculated (i) without consideration being given to the time value of money;
(ii) assuming that no holder of shares of AMPS is subject to the Federal
alternative minimum tax with respect to dividends received from the Corporation;
and (iii) assuming that each Retroactive Taxable Allocation would be taxable in
the hands of each holder of shares of AMPS at the greater of: (x) the maximum
combined marginal regular Federal and New York individual income tax rate
applicable to ordinary income or capital gains depending on the taxable
character of the distribution (including any surtax); or (y) the maximum
combined marginal regular Federal and New York corporate income tax rate
applicable to ordinary income or capital gains depending on the taxable
character of the distribution (taking into account in both (x) and (y) the
Federal income tax deductibility of state taxes paid or incurred but not any
phase out of, or provision limiting, personal exemptions,
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itemized deductions, or the benefit of lower tax brackets and assuming the
taxability of Federally tax-exempt dividends for corporations for New York state
income tax purposes).
(f) Except as provided below, whenever the Corporation intends to include
any net capital gains or other income subject to regular Federal income taxes in
any dividend on shares of AMPS, the Corporation will notify the Auction Agent of
the amount to be so included at least five Business Days prior to the Auction
Date on which the Applicable Rate for such dividend is to be established. The
Corporation may also include such income in a dividend on shares of a series of
AMPS without giving advance notice thereof if it increases the dividend by an
additional amount calculated as if such income was a Retroactive Taxable
Allocation and the additional amount was an Additional Dividend, provided that
the Corporation will notify the Auction Agent of the additional amounts to be
included in such dividend at least five Business Days prior to the applicable
Dividend Payment Date.
(g) No fractional shares of AMPS shall be issued.
3. Liquidation Rights. Upon any liquidation, dissolution or winding up of
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the Corporation, whether voluntary or involuntary, the Holders shall be entitled
to receive, out of the assets of the Corporation available for distribution to
shareholders, before any distribution or payment is made upon any Common Stock
or any other capital stock ranking junior in right of payment upon liquidation
to the AMPS, the sum of $25,000 per share plus accumulated but unpaid dividends
(whether or not earned or declared) thereon to the date of distribution, and
after such payment the Holders will be entitled to no other payments other than
Additional Dividends as provided in paragraph 2(e) hereof. If upon any
liquidation, dissolution or winding up of the
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Corporation, the amounts payable with respect to the AMPS and any other
Outstanding class or series of Preferred Stock of the Corporation ranking on a
parity with the AMPS as to payment upon liquidation are not paid in full, the
Holders and the holders of such other class or series will share ratably in any
such distribution of assets in proportion to the respective preferential amounts
to which they are entitled. After payment of the full amount of the liquidating
distribution to which they are entitled, the Holders will not be entitled to any
further participation in any distribution of assets by the Corporation except
for any Additional Dividends. A consolidation, merger or statutory share
exchange of the Corporation with or into any other corporation or entity or a
sale, whether for cash, shares of stock, securities or properties, of all or
substantially all or any part of the assets of the Corporation shall not be
deemed or construed to be a liquidation, dissolution or winding up of the
Corporation.
4. Redemption. (a) Shares of AMPS shall be redeemable by the Corporation
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as provided below:
(i) To the extent permitted under the 1940 Act and Maryland law, upon
giving a Notice of Redemption, the Corporation at its option may redeem shares
of AMPS, in whole or in part, out of funds legally available therefor, at the
Optional Redemption Price per share, on any Dividend Payment Date; provided that
no share of AMPS may be redeemed at the option of the Corporation during (A) the
Initial Dividend Period with respect to a series of shares or (B) a Non-Call
Period to which such share is subject. In addition, holders of AMPS which are
redeemed shall be entitled to receive Additional Dividends to the extent
provided herein. The Corporation may not give a Notice of Redemption relating
to an optional redemption as described in this paragraph 4(a)(i) unless, at the
time of giving such Notice of Redemption, the
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Corporation has available Deposit Securities with maturity or tender dates not
later than the day preceding the applicable redemption date and having a value
not less than the amount due to Holders by reason of the redemption of their
shares of AMPS on such redemption date.
(ii) The Corporation shall redeem, out of funds legally available
therefor, at the Mandatory Redemption Price per share, shares of AMPS to the
extent permitted under the 1940 Act and Maryland law, on a date fixed by the
Board of Directors, if the Corporation fails to maintain S&P Eligible Assets and
Moody's Eligible Assets each with an aggregate Discounted Value equal to or
greater than the AMPS Basic Maintenance Amount as provided in paragraph 7(a) or
to satisfy the 1940 Act AMPS Asset Coverage as provided in paragraph 6 and such
failure is not cured on or before the AMPS Basic Maintenance Cure Date or the
1940 Act Cure Date (herein collectively referred to as a "Cure Date"), as the
case may be. In addition, holders of AMPS so redeemed shall be entitled to
receive Additional Dividends to the extent provided herein. The number of
shares of AMPS to be redeemed shall be equal to the lesser of (i) the minimum
number of shares of AMPS the redemption of which, if deemed to have occurred
immediately prior to the opening of business on the Cure Date, together with all
shares of other Preferred Stock subject to redemption or retirement, would
result in the Corporation having S&P Eligible Assets and Moody's Eligible Assets
each with an aggregate Discounted Value equal to or greater than the AMPS Basic
Maintenance Amount or satisfaction of the 1940 Act AMPS Asset Coverage, as the
case may be, on such Cure Date (provided that, if there is no such minimum
number of shares of AMPS and shares of other Preferred Stock the redemption of
which would have such result, all shares of AMPS and shares of other Preferred
Stock then Outstanding shall be redeemed), and (ii) the maximum number of shares
of AMPS, together with
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all shares of other Preferred Stock subject to redemption or retirement, that
can be redeemed out of funds expected to be legally available therefor on such
redemption date. In determining the number of shares of AMPS required to be
redeemed in accordance with the foregoing, the Corporation shall allocate the
number required to be redeemed which would result in the Corporation having S&P
Eligible Assets and Moody's Eligible Assets each with an aggregate Discounted
Value equal to or greater than the AMPS Basic Maintenance Amount or satisfaction
of the 1940 Act AMPS Asset Coverage, as the case may be, pro rata among shares
of AMPS of all series, Other AMPS and other Preferred Stock subject to
redemption pursuant to provisions similar to those contained in this paragraph
4(a)(ii); provided that, shares of AMPS which may not be redeemed at the option
of the Corporation due to the designation of a Non-Call Period applicable to
such shares (A) will be subject to mandatory redemption only to the extent that
other shares are not available to satisfy the number of shares required to be
redeemed and (B) will be selected for redemption in an ascending order of
outstanding number of days in the Non-Call Period (with shares with the lowest
number of days to be redeemed first) and by lot in the event of shares having an
equal number of days in such Non-Call Period. The Corporation shall effect such
redemption on a Business Day which is not later than 35 days after such Cure
Date, except that if the Corporation does not have funds legally available for
the redemption of all of the required number of shares of AMPS and shares of
other Preferred Stock which are subject to mandatory redemption or the
Corporation otherwise is unable to effect such redemption on or prior to 35 days
after such Cure Date, the Corporation shall redeem those shares of AMPS which it
is unable to redeem on the earliest practicable date on which it is able to
effect such redemption out of funds legally available therefor.
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(b) Notwithstanding any other provision of this paragraph 4, no shares of
AMPS may be redeemed pursuant to paragraph 4(a)(i) of these Articles
Supplementary (i) unless all dividends in arrears on all remaining outstanding
shares of Parity Stock shall have been or are being contemporaneously paid or
declared and set apart for payment and (ii) if redemption thereof would result
in the Corporation's failure to maintain Moody's Eligible Assets or S&P Eligible
Assets with an aggregate Discounted Value equal to or greater than the AMPS
Basic Maintenance Amount. In the event that less than all the outstanding
shares of a series of AMPS are to be redeemed and there is more than one Holder,
the shares of that series of AMPS to be redeemed shall be selected by lot or
such other method as the Corporation shall deem fair and equitable.
(c) Whenever shares of AMPS are to be redeemed, the Corporation, not less
than 17 nor more than 60 days prior to the date fixed for redemption, shall mail
a notice ("Notice of Redemption") by first-class mail, postage prepaid, to each
Holder of shares of AMPS to be redeemed and to the Auction Agent. The
Corporation shall cause the Notice of Redemption to also be published in the
eastern and national editions of The Wall Street Journal. The Notice of
--------------- -------
Redemption shall set forth (i) the redemption date, (ii) the amount of the
redemption price, (iii) the aggregate number of shares of AMPS of such series to
be redeemed, (iv) the place or places where shares of AMPS of such series are to
be surrendered for payment of the redemption price, (v) a statement that
dividends on the shares to be redeemed shall cease to accumulate on such
redemption date (except that holders may be entitled to Additional Dividends)
and (vi) the provision of these Articles Supplementary pursuant to which such
shares are being redeemed.
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No defect in the Notice of Redemption or in the mailing or publication thereof
shall affect the validity of the redemption proceedings, except as required by
applicable law.
If the Notice of Redemption shall have been given as aforesaid and,
concurrently or thereafter, the Corporation shall have deposited in trust with
the Auction Agent, or segregated in an account at the Corporation's custodian
bank for the benefit of the Auction Agent, Deposit Securities (with a right of
substitution) having an aggregate Discounted Value (utilizing in the case of S&P
an S&P Exposure Period of 22 Business Days) equal to the redemption payment for
the shares of AMPS as to which such Notice of Redemption has been given with
irrevocable instructions and authority to pay the redemption price to the
Holders of such shares, then upon the date of such deposit or, if no such
deposit is made, then upon such date fixed for redemption (unless the
Corporation shall default in making the redemption payment), all rights of the
Holders of such shares as shareholders of the Corporation by reason of the
ownership of such shares will cease and terminate (except their right to receive
the redemption price in respect thereof and any Additional Dividends, but
without interest), and such shares shall no longer be deemed outstanding. The
Corporation shall be entitled to receive, from time to time, from the Auction
Agent the interest, if any, on such Deposit Securities deposited with it and the
Holders of any shares so redeemed shall have no claim to any of such interest.
In case the Holder of any shares so called for redemption shall not claim the
redemption payment for his shares within one year after the date of redemption,
the Auction Agent shall, upon demand, pay over to the Corporation such amount
remaining on deposit and the Auction Agent shall thereupon be relieved of all
responsibility to the Holder of such shares called for redemption and such
Holder thereafter shall look only to the Corporation for the redemption payment.
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5. Voting Rights. (a) General. Except as otherwise provided in the
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Charter or By-Laws, each Holder of shares of AMPS shall be entitled to one vote
for each share held on each matter submitted to a vote of shareholders of the
Corporation, and the holders of outstanding shares of Preferred Stock, including
AMPS, and of shares of Common Stock shall vote together as a single class;
provided that, at any meeting of the shareholders of the Corporation held for
the election of directors, the holders of outstanding shares of Preferred Stock,
including AMPS, shall be entitled, as a class, to the exclusion of the holders
of all other securities and classes of capital stock of the Corporation, to
elect two directors of the Corporation. Subject to paragraph 5(b) hereof, the
holders of outstanding shares of capital stock of the Corporation, including the
holders of outstanding shares of Preferred Stock, including AMPS, voting as a
single class, shall elect the balance of the directors.
(b) Right to Elect Majority of Board of Directors. During any period in
---------------------------------------------
which any one or more of the conditions described below shall exist (such period
being referred to herein as a "Voting Period"), the number of directors
constituting the Board of Directors shall be automatically increased by the
smallest number that, when added to the two directors elected exclusively by the
holders of shares of Preferred Stock, would constitute a majority of the Board
of Directors as so increased by such smallest number; and the holders of shares
of Preferred Stock shall be entitled, voting separately as one class (to the
exclusion of the holders of all other securities and classes of capital stock of
the Corporation), to elect such smallest number of additional directors,
together with the two directors that such holders are in any event entitled to
elect. A Voting Period shall commence:
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(i) if at any time accumulated dividends (whether or not earned or
declared, and whether or not funds are then legally available in an amount
sufficient therefor) on the outstanding shares of AMPS equal to at least two
full years' dividends shall be due and unpaid and sufficient cash or specified
securities shall not have been deposited with the Auction Agent for the payment
of such accumulated dividends; or
(ii) if at any time holders of any other shares of Preferred Stock are
entitled to elect a majority of the directors of the Corporation under the 1940
Act.
Upon the termination of a Voting Period, the voting rights described in
this paragraph 5(b) shall cease, subject always, however, to the reverting of
such voting rights in the Holders upon the further occurrence of any of the
events described in this paragraph 5(b).
(c) Right to Vote with Respect to Certain Other Matters. So long as any
---------------------------------------------------
shares of AMPS are outstanding, the Corporation shall not, without the
affirmative vote of the holders of a majority of the shares of Preferred Stock
Outstanding at the time, voting separately as one class: (i) authorize, create
or issue any class or series of stock ranking prior to or on a parity with any
series of Preferred Stock with respect to payment of dividends or the
distribution of assets on liquidation, or increase the authorized amount of AMPS
or any other Preferred Stock, 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 shares of AMPS or any other Preferred Stock. To the extent permitted under
the 1940 Act, in the event shares of more than one series of AMPS are
outstanding, the Corporation shall not approve any of the actions set forth in
clause (i) or (ii) which adversely affects the contract
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rights expressly set forth in the Charter of a Holder of shares of a series of
AMPS differently than those of a Holder of shares of any other series of AMPS
without the affirmative vote of the holders of at least a majority of the shares
of AMPS of each series adversely affected and outstanding at such time (each
such adversely affected series voting separately as a class). The Corporation
shall notify Moody's and S&P ten Business Days prior to any such vote described
in clause (i) or (ii). Unless a higher percentage is provided for under the
Charter, the affirmative vote of the holders of a majority of the outstanding
shares of Preferred Stock, including AMPS, voting together as a single class,
will be required to approve any plan of reorganization (including bankruptcy
proceedings) adversely affecting such shares or any action requiring a vote of
security holders under Section 13(a) of the 1940 Act. The class vote of holders
of shares of Preferred Stock, including AMPS, described above will in each case
be in addition to a separate vote of the requisite percentage of shares of
Common Stock and shares of Preferred Stock, including AMPS, voting together as a
single class necessary to authorize the action in question.
(d) Voting Procedures.
-----------------
(i) As soon as practicable after the accrual of any right of the
holders of shares of Preferred Stock to elect additional directors as described
in paragraph 5(b) above, the Corporation shall call a special meeting of such
holders and instruct the Auction Agent to mail a notice of such special meeting
to such holders, such meeting to be held not less than 10 nor more than 20 days
after the date of mailing of such notice. If the Corporation fails to send such
notice to the Auction Agent or if the Corporation does not call such a special
meeting, it may be called by any such holder on like notice. The record date
for determining the holders entitled to notice
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of and to vote at such special meeting shall be the close of business on the
fifth Business Day preceding the day on which such notice is mailed. At any such
special meeting and at each meeting held during a Voting Period, such Holders,
voting together as a class (to the exclusion of the holders of all other
securities and classes of capital stock of the Corporation), shall be entitled
to elect the number of directors prescribed in paragraph 5(b) above. At any such
meeting or adjournment thereof in the absence of a quorum, a majority of such
holders present in person or by proxy shall have the power to adjourn the
meeting without notice, other than by an announcement at the meeting, to a date
not more than 120 days after the original record date.
(ii) For purposes of determining any rights of the Holders to vote on
any matter or the number of shares required to constitute a quorum, whether such
right is created by these Articles Supplementary, by the other provisions of the
Charter, by statute or otherwise, a share of AMPS which is not Outstanding shall
not be counted.
(iii) The terms of office of all persons who are directors of the
Corporation at the time of a special meeting of Holders and holders of other
Preferred Stock to elect directors shall continue, notwithstanding the election
at such meeting by the Holders and such other holders of the number of directors
that they are entitled to elect, and the persons so elected by the Holders and
such other holders, together with the two incumbent directors elected by the
Holders and such other holders of Preferred Stock and the remaining incumbent
directors elected by the holders of the Common Stock and Preferred Stock, shall
constitute the duly elected directors of the Corporation.
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(iv) Simultaneously with the expiration of a Voting Period, the terms
of office of the additional directors elected by the Holders and holders of
other Preferred Stock pursuant to paragraph 5(b) above shall terminate, the
remaining directors shall constitute the directors of the Corporation and the
voting rights of the Holders and such other holders to elect additional
directors pursuant to paragraph 5(b) above shall cease, subject to the
provisions of the last sentence of paragraph 5(b).
(e) Exclusive Remedy. Unless otherwise required by law, the Holders of
----------------
shares of AMPS shall not have any rights or preferences other than those
specifically set forth herein. The Holders of shares of AMPS shall have no
preemptive rights or rights to cumulative voting. In the event that the
Corporation fails to pay any dividends on the shares of AMPS, the exclusive
remedy of the Holders shall be the right to vote for directors pursuant to the
provisions of this paragraph 5.
(f) Notification to S&P and Moody's. In the event a vote of Holders of
-------------------------------
AMPS is required pursuant to the provisions of Section 13(a) of the 1940 Act,
the Corporation shall, not later than ten Business Days prior to the date on
which such vote is to be taken, notify S&P and Moody's that such vote is to be
taken and the nature of the action with respect to which such vote is to be
taken and, not later than ten Business Days after the date on which such vote is
taken, notify S&P and Moody's of the result of such vote.
6. 1940 Act AMPS Asset Coverage. The Corporation shall maintain, as of
----------------------------
the last Business Day of each month in which any share of AMPS is outstanding,
the 1940 Act AMPS Asset Coverage.
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7. AMPS Basic Maintenance Amount. (a) The Corporation shall maintain, on
-----------------------------
each Valuation Date, and shall verify to its satisfaction that it is maintaining
on such Valuation Date, (i) S&P Eligible Assets having an aggregate Discounted
Value equal to or greater than the AMPS Basic Maintenance Amount and (ii)
Moody's Eligible Assets having an aggregate Discounted Value equal to or greater
than the AMPS Basic Maintenance Amount. Upon any failure to maintain the
required Discounted Value, the Corporation will use its best efforts to alter
the composition of its portfolio to reattain a Discounted Value at least equal
to the AMPS Basic Maintenance Amount on or prior to the AMPS Basic Maintenance
Cure Date.
(b) On or before 5:00 p.m., New York City time, on the third Business Day
after a Valuation Date on which the Corporation fails to satisfy the AMPS Basic
Maintenance Amount, the Corporation shall complete and deliver to the Auction
Agent, and Moody's and S&P, as the case may be, a complete AMPS Basic
Maintenance Report as of the date of such failure, which will be deemed to have
been delivered to the Auction Agent if the Auction Agent receives a copy or
telecopy, telex or other electronic transcription thereof and on the same day
the Corporation mails to the Auction Agent for delivery on the next Business Day
the complete AMPS Basic Maintenance Report. The Corporation will deliver an
AMPS Basic Maintenance Report to the Auction Agent and Moody's and S&P, as the
case may be, on or before 5:00 p.m., New York City time, on the third Business
Day after a Valuation Date on which the Corporation cures its failure to
maintain Moody's Eligible Assets or S&P Eligible Assets, as the case may be,
with an aggregate Discounted Value equal to or greater than the AMPS Basic
Maintenance Amount or on which the Corporation fails to maintain Moody's
Eligible Assets or S&P Eligible Assets, as the case may be, with an aggregate
Discounted Value which exceeds the AMPS Basic
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Maintenance Amount by 5% or more. The Corporation will also deliver an AMPS
Basic Maintenance Report to the Auction Agent, Moody's and S&P as of each
Quarterly Valuation Date on or before the third Business Day after such date.
Additionally, on or before 5:00 p.m., New York City time, on the third Business
Day after the first day of a Special Dividend Period, the Corporation will
deliver an AMPS Basic Maintenance Report to S&P and the Auction Agent. The
Corporation shall also provide Moody's and S&P with an AMPS Basic Maintenance
Report when specifically requested by either Moody's or S&P. A failure by the
Corporation to deliver an AMPS Basic Maintenance Report under this paragraph
7(b) shall be deemed to be delivery of an AMPS Basic Maintenance Report
indicating the Discounted Value for S&P Eligible Assets and Moody's Eligible
Assets of the Corporation is less than the AMPS Basic Maintenance Amount, as of
the relevant Valuation Date.
(c) Within ten Business Days after the date of delivery of an AMPS Basic
Maintenance Report in accordance with paragraph 7(b) above relating to a
Quarterly Valuation Date, the Independent Accountant will confirm in writing to
the Auction Agent, S&P and Moody's (i) the mathematical accuracy of the
calculations reflected in such Report (and in any other AMPS Basic Maintenance
Report, randomly selected by the Independent Accountant, that was delivered by
the Corporation during the quarter ending on such Quarterly Valuation Date),
(ii) that, in such Report (and in such randomly selected Report), the
Corporation correctly determined the assets of the Corporation which constitute
S&P Eligible Assets or Moody's Eligible Assets, as the case may be, at such
Quarterly Valuation Date in accordance with these Articles Supplementary, (iii)
that, in such Report (and in such randomly selected Report), the Corporation
determined whether the Corporation had, at such Quarterly Valuation Date (and at
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the Valuation Date addressed in such randomly selected Report) in accordance
with these Articles Supplementary, S&P Eligible Assets of an aggregate
Discounted Value at least equal to the AMPS Basic Maintenance Amount and Moody's
Eligible Assets of an aggregate Discounted Value at least equal to the AMPS
Basic Maintenance Amount, (iv) with respect to the S&P ratings on New York
Municipal Bonds or Municipal Bonds, the issuer name, issue size and coupon rate
listed in such Report, that the Independent Accountant has requested that S&P
verify such information and the Independent Accountant shall provide a listing
in its letter of any differences, (v) with respect to the Moody's ratings on New
York Municipal Bonds or Municipal Bonds, the issuer name, issue size and coupon
rate listed in such Report, that such information has been verified by Moody's
(in the event such information is not verified by Moody's, the Independent
Accountant will inquire of Moody's what such information is, and provide a
listing in its letter of any differences), (vi) with respect to the bid or mean
price (or such alternative permissible factor used in calculating the Market
Value) provided by the custodian of the Corporation's assets to the Corporation
for purposes of valuing securities in the Corporation's portfolio, the
Independent Accountant has traced the price used in such Report to the bid or
mean price listed in such Report as provided to the Corporation and verified
that such information agrees (in the event such information does not agree, the
Independent Accountant will provide a listing in its letter of such differences)
and (vii) with respect to such confirmation to Moody's, that the Corporation has
satisfied the requirements of paragraph 8(b) of these Articles Supplementary
(such confirmation is herein called the "Accountant's Confirmation").
(d) Within ten Business Days after the date of delivery to the Auction
Agent, S&P and Moody's of an AMPS Basic Maintenance Report in accordance with
paragraph 7(b) above
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relating to any Valuation Date on which the Corporation failed to maintain S&P
Eligible Assets with an aggregate Discounted Value and Moody's Eligible Assets
with an aggregate Discounted Value equal to or greater than the AMPS Basic
Maintenance Amount, and relating to the AMPS Basic Maintenance Cure Date with
respect to such failure, the Independent Accountant will provide to the Auction
Agent, S&P and Moody's an Accountant's Confirmation as to such AMPS Basic
Maintenance Report.
(e) If any Accountant's Confirmation delivered pursuant to subparagraph (c)
or (d) of this paragraph 7 shows that an error was made in the AMPS Basic
Maintenance Report for a particular Valuation Date for which such Accountant's
Confirmation as required to be delivered, or shows that a lower aggregate
Discounted Value for the aggregate of all S&P Eligible Assets or Moody's
Eligible Assets, as the case may be, of the Corporation was determined by the
Independent Accountant, the calculation or determination made by such
Independent Accountant shall be final and conclusive and shall be binding on the
Corporation, and the Corporation shall accordingly amend and deliver the AMPS
Basic Maintenance Report to the Auction Agent, S&P and Moody's promptly
following receipt by the Corporation of such Accountant's Confirmation.
(f) On or before 5:00 p.m., New York City time, on the first Business Day
after the Date of Original Issue of the shares of AMPS, the Corporation will
complete and deliver to S&P and Moody's an AMPS Basic Maintenance Report as of
the close of business on such Date of Original Issue. Within five Business Days
of such Date of Original Issue, the Independent Accountant will confirm in
writing to S&P and Moody's (i) the mathematical accuracy of the calculations
reflected in such Report and (ii) that the aggregate Discounted Value of S&P
Eligible Assets and the aggregate Discounted Value of Moody's Eligible Assets
reflected thereon
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equals or exceeds the AMPS Basic Maintenance Amount reflected thereon. Also, on
or before 5:00 p.m., New York City time, on the first Business Day after shares
of Common Stock are repurchased by the Corporation, the Corporation will
complete and deliver to S&P and Moody's an AMPS Basic Maintenance Report as of
the close of business on such date that Common Stock is repurchased.
(g) For so long as shares of AMPS are rated by Moody's, in managing the
Corporation's portfolio, the Adviser will not alter the composition of the
Corporation's portfolio if, in the reasonable belief of the Adviser, the effect
of any such alteration would be to cause the Corporation to have Moody's
Eligible Assets with an aggregate Discounted Value, as of the immediately
preceding Valuation Date, less than the AMPS Basic Maintenance Amount as of such
Valuation Date; provided, however, that in the event that, as of the immediately
preceding Valuation Date, the aggregate Discounted Value of Moody's Eligible
Assets exceeded the AMPS Basic Maintenance Amount by five percent or less, the
Adviser will not alter the composition of the Corporation's portfolio in a
manner reasonably expected to reduce the aggregate Discounted Value of Moody's
Eligible Assets unless the Corporation shall have confirmed that, after giving
effect to such alteration, the aggregate Discounted Value of Moody's Eligible
Assets would exceed the AMPS Basic Maintenance Amount.
8. Certain Other Restrictions and Requirements.
-------------------------------------------
(a) For so long as any shares of AMPS are rated by S&P, the Corporation
will not purchase or sell futures contracts, write, purchase or sell options on
futures contracts or write put options (except covered put options) or call
options (except covered call options) on portfolio securities unless it receives
written confirmation from S&P that engaging in such transactions
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will not impair the ratings then assigned to the shares of AMPS by S&P, except
that the Corporation may purchase or sell futures contracts based on the Bond
Buyer Municipal Bond Index (the "Municipal Index") or United States Treasury
Bonds or Notes ("Treasury Bonds") and write, purchase or sell put and call
options on such contracts (collectively, "S&P Hedging Transactions"), subject to
the following limitations:
(i) the Corporation will not engage in any S&P Hedging Transaction
based on the Municipal Index (other than transactions which terminate a futures
contract or option held by the Corporation by the Corporation's taking an
opposite position thereto ("Closing Transactions")), which would cause the
Corporation at the time of such transaction to own or have sold the least of (A)
more than 1,000 outstanding futures contracts based on the Municipal Index, (B)
outstanding futures contracts based on the Municipal Index exceeding in number
25% of the quotient of the Market Value of the Corporation's total assets
divided by $1,000 or (C) outstanding futures contracts based on the Municipal
Index exceeding in number 10% of the average number of daily traded futures
contracts based on the Municipal Index in the 30 days preceding the time of
effecting such transaction as reported by The Wall Street Journal;
-----------------------
(ii) the Corporation will not engage in any S&P Hedging Transaction
based on Treasury Bonds (other than Closing Transactions) which would cause the
Corporation at the time of such transaction to own or have sold the lesser of
(A) outstanding futures contracts based on Treasury Bonds exceeding in number
50% of the quotient of the Market Value of the Corporation's total assets
divided by $100,000 ($200,000 in the case of the two-year United States Treasury
Note) or (B) outstanding futures contracts based on Treasury Bonds exceeding in
number 10% of the average number of daily traded futures contracts based on
Treasury Bonds in
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the 30 days preceding the time of effecting such transaction as reported by The
---
Wall Street Journal;
- -------------------
(iii) the Corporation will engage in Closing Transactions to close
out any outstanding futures contract which the Corporation owns or has sold or
any outstanding option thereon owned by the Corporation in the event (A) the
Corporation does not have S&P Eligible Assets with an aggregate Discounted Value
equal to or greater than the AMPS Basic Maintenance Amount on two consecutive
Valuation Dates and (B) the Corporation is required to pay Variation Margin on
the second such Valuation Date;
(iv) the Corporation will engage in a Closing Transaction to close
out any outstanding futures contract or option thereon in the month prior to the
delivery month under the terms of such futures contract or option thereon unless
the Corporation holds the securities deliverable under such terms; and
(v) when the Corporation writes a futures contract or option
thereon, it will either maintain an amount of cash, cash equivalents or high
grade (rated A or better by S&P), fixed-income securities in a segregated
account with the Corporation's custodian, so that the amount so segregated plus
the amount of Initial Margin and Variation Margin held in the account of or on
behalf of the Corporation's broker with respect to such futures contract or
option equals the Market Value of the futures contract or option, or, in the
event the Corporation writes a futures contract or option thereon which requires
delivery of an underlying security, it shall hold such underlying security in
its portfolio.
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For purposes of determining whether the Corporation has S&P Eligible Assets
with a Discounted Value that equals or exceeds the AMPS Basic Maintenance
Amount, the Discounted Value of cash or securities held for the payment of
Initial Margin or Variation Margin shall be zero and the aggregate Discounted
Value of S&P Eligible Assets shall be reduced by an amount equal to (i) 30% of
the aggregate settlement value, as marked to market, of any outstanding futures
contracts based on the Municipal Index which are owned by the Corporation plus
(ii) 25% of the aggregate settlement value, as marked to market, of any
outstanding futures contracts based on Treasury Bonds which contracts are owned
by the Corporation.
(b) For so long as any shares of AMPS are rated by Moody's, the Corporation
will not buy or sell futures contracts, write, purchase or sell call options on
futures contracts or purchase put options on futures contracts or write call
options (except covered call options) on portfolio securities unless it receives
written confirmation from Moody's that engaging in such transactions would not
impair the ratings then assigned to the shares of AMPS by Moody's, except that
the Corporation may purchase or sell exchange-traded futures contracts based on
the Municipal Index or Treasury Bonds and purchase, write or sell exchange-
traded put options on such futures contracts and purchase, write or sell
exchange-traded call options on such futures contracts (collectively, "Moody's
Hedging Transactions"), subject to the following limitations:
(i) the Corporation will not engage in any Moody's Hedging Transaction
based on the Municipal Index (other than Closing Transactions) which would cause
the Corporation at the time of such transaction to own or have sold (A)
outstanding futures contracts based on the Municipal Index exceeding in number
10% of the average number of daily traded futures contracts based on the
Municipal Index in the 30 days preceding the time of effecting
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such transaction as reported by The Wall Street Journal or (B) outstanding
-----------------------
futures contracts based on the Municipal Index having a Market Value exceeding
50% of the Market Value of all Municipal Bonds constituting Moody's Eligible
Assets owned by the Corporation (other than Moody's Eligible Assets already
subject to a Moody's Hedging Transaction);
(ii) the Corporation will not engage in any Moody's Hedging
Transaction based on Treasury Bonds (other than Closing Transactions) which
would cause the Corporation at the time of such transaction to own or have sold
(A) outstanding futures contracts based on Treasury Bonds having an aggregate
Market Value exceeding 20% of the aggregate Market Value of Moody's Eligible
Assets owned by the Corporation and rated Aa by Moody's (or, if not rated by
Moody's but rated by S&P, rated AAA by S&P) or (B) outstanding futures contracts
based on Treasury Bonds having an aggregate Market Value exceeding 40% of the
aggregate Market Value of all Municipal Bonds constituting Moody's Eligible
Assets owned by the Corporation (other than Moody's Eligible Assets already
subject to a Moody's Hedging Transaction) and rated Baa or A by Moody's (or, if
not rated by Moody's but rated by S&P, rated A or AA by S&P) (for purposes of
the foregoing clauses (i) and (ii), the Corporation shall be deemed to own the
number of futures contracts that underlie any outstanding options written by the
Corporation);
(iii) the Corporation will engage in Closing Transactions to close
out any outstanding futures contract based on the Municipal Index if the amount
of open interest in the Municipal Index as reported by The Wall Street Journal
-----------------------
is less than 5,000;
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(iv) the Corporation will engage in a Closing Transaction to close
out any outstanding futures contract by no later than the fifth Business Day of
the month in which such contract expires and will engage in a Closing
Transaction to close out any outstanding option on a futures contract by no
later than the first Business Day of the month in which such option expires;
(v) the Corporation will engage in Moody's Hedging Transactions
only with respect to futures contracts or options thereon having the next
settlement date or the settlement date immediately thereafter;
(vi) the Corporation will not engage in options and futures
transactions for leveraging or speculative purposes and will not write any call
options or sell any futures contracts for the purpose of hedging the anticipated
purchase of an asset prior to completion of such purchase; and
(vii) the Corporation will not enter into an option or futures
transaction unless, after giving effect thereto, the Corporation would continue
to have Moody's Eligible Assets with an aggregate Discounted Value equal to or
greater than the AMPS Basic Maintenance Amount.
For purposes of determining whether the Corporation has Moody's Eligible
Assets with an aggregate Discounted Value that equals or exceeds the AMPS Basic
Maintenance Amount, the Discounted Value of Moody's Eligible Assets which the
Corporation is obligated to deliver or receive pursuant to an outstanding
futures contract or option shall be as follows: (i) assets subject to call
options written by the Corporation which are either exchange-traded and "readily
reversible" or which expire within 49 days after the date as of which such
valuation is made shall
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be valued at the lesser of (a) Discounted Value and (b) the exercise price of
the call option written by the Corporation; (ii) assets subject to call options
written by the Corporation not meeting the requirements of clause (i) of this
sentence shall have no value; (iii) assets subject to put options written by the
Corporation shall be valued at the lesser of (A) the exercise price and (B) the
Discounted Value of the subject security; (iv) futures contracts shall be valued
at the lesser of (A) settlement price and (B) the Discounted Value of the
subject security, provided that, if a contract matures within 49 days after the
date as of which such valuation is made, where the Corporation is the seller the
contract may be valued at the settlement price and where the Corporation is the
buyer the contract may be valued at the Discounted Value of the subject
securities; and (v) where delivery may be made to the Corporation with any
security of a class of securities, the Corporation shall assume that it will
take delivery of the security with the lowest Discounted Value.
For purposes of determining whether the Corporation has Moody's Eligible
Assets with an aggregate Discounted Value that equals or exceeds the AMPS Basic
Maintenance Amount, the following amounts shall be subtracted from the aggregate
Discounted Value of the Moody's Eligible Assets held by the Corporation: (i)
10% of the exercise price of a written call option; (ii) the exercise price of
any written put option; (iii) where the Corporation is the seller under a
futures contract, 10% of the settlement price of the futures contract; (iv)
where the Corporation is the purchaser under a futures contract, the settlement
price of assets purchased under such futures contract; (v) the settlement price
of the underlying futures contract if the Corporation writes put options on a
futures contract; and (vi) 105% of the Market Value of the underlying
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futures contracts if the Corporation writes call options on a futures contract
and does not own the underlying contract.
(c) For so long as any shares of AMPS are rated by Moody's, the Corporation
will not enter into any contract to purchase securities for a fixed price at a
future date beyond customary settlement time (other than such contracts that
constitute Moody's Hedging Transactions that are permitted under paragraph 8(b)
of these Articles Supplementary), except that the Corporation may enter into
such contracts to purchase newly-issued securities on the date such securities
are issued ("Forward Commitments"), subject to the following limitations:
(i) the Corporation will maintain in a segregated account with its
custodian cash, cash equivalents or short-term, fixed-income securities rated P-
1, MIG-1 or VMIG-1 by Moody's and maturing prior to the date of the Forward
Commitment with a Market Value that equals or exceeds the amount of the
Corporation's obligations under any Forward Commitments to which it is from time
to time a party or long-term fixed income securities with a Discounted Value
that equals or exceeds the amount of the Corporation's obligations under any
Forward Commitment to which it is from time to time a party; and
(ii) the Corporation will not enter into a Forward Commitment unless,
after giving effect thereto, the Corporation would continue to have Moody's
Eligible Assets with an aggregate Discounted Value equal to or greater than the
AMPS Basic Maintenance Amount.
For purposes of determining whether the Corporation has Moody's Eligible
Assets with an aggregate Discounted Value that equals or exceeds the AMPS Basic
Maintenance Amount,
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the Discounted Value of all Forward Commitments to which the Corporation is a
party and of all securities deliverable to the Corporation pursuant to such
Forward Commitments shall be zero.
(d) For so long as shares of AMPS are rated by S&P or Moody's, the
Corporation will not, unless it has received written confirmation from S&P
and/or Moody's, as the case may be, that such action would not impair the
ratings then assigned to shares of AMPS by S&P and/or Moody's, as the case may
be, (i) borrow money except for the purpose of clearing transactions in
portfolio securities (which borrowings shall under any circumstances be limited
to the lesser of $10 million and an amount equal to 5% of the Market Value of
the Corporation's assets at the time of such borrowings and which borrowings
shall be repaid within 60 days and not be extended or renewed and shall not
cause the aggregate Discounted Value of Moody's Eligible Assets and S&P Eligible
Assets to be less than the AMPS Basic Maintenance Amount), (ii) engage in short
sales of securities, (iii) lend any securities, (iv) issue any class or series
of stock ranking prior to or on a parity with the AMPS with respect to the
payment of dividends or the distribution of assets upon dissolution, liquidation
or winding up of the Corporation, (v) reissue any AMPS previously purchased or
redeemed by the Corporation, (vi) merge or consolidate into or with any other
corporation or entity, (vii) change the Pricing Service or (viii) engage in
reverse repurchase agreements.
(e) For so long as AMPS are rated by Moody's, the Corporation agrees to
provide Moody's with the following, unless the Corporation has received written
confirmation from Moody's that the provision of such information is no longer
required and that the current rating then assigned to the AMPS by Moody's would
not be impaired: a notification letter at least 30 days prior to any material
change in the Charter; a copy of the AMPS Basic Maintenance Report
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<PAGE>
prepared by the Corporation in accordance with these Articles Supplementary; and
a notice upon the occurrence of any of the following events: (i) any failure by
the Corporation to declare or pay any dividends on the AMPS or successfully
remarket the AMPS; (ii) any mandatory or optional redemption of the AMPS
effected by the Corporation; (iii) any assumption of control of the Board of
Directors of the Corporation by the holders of the AMPS; (iv) a general
unavailability of dealer quotes on the assets of the Corporation; (v) any
material auditor discrepancies on valuations; (vi) the dividend rate on the AMPS
equals or exceeds 95% of the Aaa Composite Commercial Paper Rate; (vii) the
occurrence of any Special Dividend Period; (viii) any change in the Maximum
Applicable Rate or the Reference Rate; (ix) the acquisition by any person of
beneficial ownership of more than 5% of the Corporation's voting stock
(inclusive of Common Stock and Preferred Stock); (x) the occurrence of any
change in Internal Revenue Service rules with respect to the payment of
Additional Dividends; (xi) any change in the Pricing Service employed by the
Corporation; (xii) any change in the Investment Adviser; (xiii) any increase of
greater than 40% to the maximum marginal Federal income tax rate applicable to
individuals or corporations; and (xiv) the maximum marginal Federal income tax
rate applicable to individuals or corporations is increased to a rate in excess
of 50%.
9. Notice. All notices or communications, unless otherwise specified in
------
the By-Laws of the Corporation or these Articles Supplementary, shall be
sufficiently given if in writing and delivered in person or mailed by first-
class mail, postage prepaid. Notice shall be deemed given on the earlier of the
date received or the date seven days after which such notice is mailed.
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10. Auction Procedures. (a) Certain definitions. As used in this
------------------ -------------------
paragraph 10, the following terms shall have the following meanings, unless the
context otherwise requires:
(i) "AMPS" means the shares of AMPS being auctioned pursuant to
this paragraph 10.
(ii) "Auction Date" means the first Business Day preceding the first
day of a Dividend Period.
(iii) "Available AMPS" has the meaning specified in paragraph
10(d)(i) below.
(iv) "Bid" has the meaning specified in paragraph 10(b)(i) below.
(v) "Bidder" has the meaning specified in paragraph 10(b)(i) below.
(vi) "Hold Order" has the meaning specified in paragraph 10(b)(i)
below.
(vii) "Maximum Applicable Rate" for any Dividend Period will be the
Applicable Percentage of the Reference Rate. The Applicable Percentage will be
determined based on (i) the lower of the credit rating or ratings assigned on
such date to such shares by Moody's and S&P (or if Moody's or S&P or both shall
not make such rating available, the equivalent of either or both of such ratings
by a Substitute Rating Agency or two Substitute Rating Agencies or, in the event
that only one such rating shall be available, such rating) and (ii) whether the
Corporation has provided notification to the Auction Agent prior to the Auction
establishing the Applicable Rate for any dividend pursuant to paragraph 2(f)
hereof that net capital gains or other taxable income will be included in such
dividend on shares of AMPS as follows:
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<TABLE>
<CAPTION>
Credit Ratings Applicable Percentage Applicable Percentage
--------------- of Reference Rate - of Reference Rate -
Moody's S&P No Notification Notification
- ---------------------- ----------------------- ------------------------ ----------------------
<S> <C> <C> <C>
"aa3" or higher AA- or higher 110% 150%
"a3" to "a1" A- to A+ 125% 160%
"baa3" to "baa1" BBB- to BBB+ 150% 250%
Below "baa3" Below BBB- 200% 275%
</TABLE>
The Corporation shall take all reasonable action necessary to enable S&P
and Moody's to provide a rating for each series of the AMPS. If either S&P or
Moody's shall not make such a rating available, or neither S&P nor Moody's shall
make such a rating available, Merrill Lynch, Pierce, Fenner & Smith Incorporated
or its affiliates and successors, after consultation with the Corporation, shall
select a nationally recognized statistical rating organization or two nationally
recognized statistical rating organizations to act as a Substitute Rating Agency
or Substitute Rating Agencies, as the case may be.
(viii) "Order" has the meaning specified in paragraph 10(b)(i) below.
(ix) "Sell Order" has the meaning specified in paragraph 10(b)(i)
below.
(x) "Submission Deadline" means 1:00 P.M., New York City time, on
any Auction Date or such other time on any Auction Date as may be specified by
the Auction Agent from time to time as the time by which each Broker-Dealer must
submit to the Auction Agent in writing all Orders obtained by it for the Auction
to be conducted on such Auction Date.
(xi) "Submitted Bid" has the meaning specified in paragraph
10(d)(i) below.
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(xii) "Submitted Hold Order" has the meaning specified in paragraph
10(d)(i) below.
(xiii) "Submitted Order" has the meaning specified in paragraph
10(d)(i) below.
(xiv) "Submitted Sell Order" has the meaning specified in paragraph
10(d)(i) below.
(xv) "Sufficient Clearing Bids" has the meaning specified in
paragraph 10(d)(i) below.
(xvi) "Winning Bid Rate" has the meaning specified in paragraph
10(d)(i) below.
(b) Orders by Beneficial Owners, Potential Beneficial Owners, Existing
Holders and Potential Holders.
(i) Unless otherwise permitted by the Corporation, Beneficial Owners
and Potential Beneficial Owners may only participate in Auctions through their
Broker-Dealers. Broker-Dealers will submit the Orders of their respective
customers who are Beneficial Owners and Potential Beneficial Owners to the
Auction Agent, designating themselves as Existing Holders in respect of shares
subject to Orders submitted or deemed submitted to them by Beneficial Owners and
as Potential Holders in respect of shares subject to Orders submitted to them by
Potential Beneficial Owners. A Broker-Dealer may also hold shares of AMPS in
its own account as a Beneficial Owner. A Broker-Dealer may thus submit Orders
to the Auction Agent as a Beneficial Owner or a Potential Beneficial Owner and
therefore participate in an
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Auction as an Existing Holder or Potential Holder on behalf of both itself and
its customers. On or prior to the Submission Deadline on each Auction Date:
(A) each Beneficial Owner may submit to its Broker-Dealer information
as to:
(1) the number of Outstanding shares, if any, of AMPS held by
such Beneficial Owner which such Beneficial Owner desires to continue
to hold without regard to the Applicable Rate for the next succeeding
Dividend Period;
(2) the number of Outstanding shares, if any, of AMPS held by
such Beneficial Owner which such Beneficial Owner desires to continue
to hold, provided that the Applicable Rate for the next succeeding
Dividend Period shall not be less than the rate per annum specified by
such Beneficial Owner; and/or
(3) the number of Outstanding shares, if any, of AMPS held by
such Beneficial Owner which such Beneficial Owner offers to sell
without regard to the Applicable Rate for the next succeeding Dividend
Period; and
(B) each Broker-Dealer, using a list of Potential Beneficial Owners
that shall be maintained in good faith for the purpose of conducting a
competitive Auction, shall contact Potential Beneficial Owners,
including Persons that are not Beneficial Owners, on such list to
determine the number of Outstanding shares, if any, of AMPS which each
such Potential Beneficial Owner offers to purchase, provided that the
Applicable Rate for the next succeeding Dividend Period shall not be
less than the rate per annum specified by such Potential Beneficial
Owner.
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<PAGE>
For the purposes hereof, the communication by a Beneficial Owner or
Potential Beneficial Owner to a Broker-Dealer, or the communication by a Broker-
Dealer acting for its own account to the Auction Agent, of information referred
to in clause (A) or (B) of this paragraph 10(b)(i) is hereinafter referred to as
an "Order" and each Beneficial Owner and each Potential Beneficial Owner placing
an Order, including a Broker-Dealer acting in such capacity for its own account,
is hereinafter referred to as a "Bidder"; an Order containing the information
referred to in clause (A)(1) of this paragraph 10(b)(i) is hereinafter referred
to as a "Hold Order"; an Order containing the information referred to in clause
(A)(2) or (B) of this paragraph 10(b)(i) is hereinafter referred to as a "Bid";
and an Order containing the information referred to in clause (A)(3) of this
paragraph 10(b)(i) is hereinafter referred to as a "Sell Order". Inasmuch as a
Broker-Dealer participates in an Auction as an Existing Holder or a Potential
Holder only to represent the interests of a Beneficial Owner or Potential
Beneficial Owner, whether it be its customers or itself, all discussion herein
relating to the consequences of an Auction for Existing Holders and Potential
Holders also applies to the underlying beneficial ownership interests
represented.
(ii) (A) A Bid by an Existing Holder shall constitute an irrevocable
offer to sell:
(1) the number of Outstanding shares of AMPS specified in such Bid if
the Applicable Rate determined on such Auction Date shall be less than
the rate per annum specified in such Bid; or
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(2) such number or a lesser number of Outstanding shares of AMPS to
be determined as set forth in paragraph 10(e)(i)(D) if the Applicable
Rate determined on such Auction Date shall be equal to the rate per
annum specified therein; or
(3) a lesser number of Outstanding shares of AMPS to be determined as
set forth in paragraph 10(e)(ii)(C) if such specified rate per annum
shall be higher than the Maximum Applicable Rate and Sufficient
Clearing Bids do not exist.
(B) A Sell Order by an Existing Holder shall constitute an
irrevocable offer to sell:
(1) the number of Outstanding shares of AMPS specified in such
Sell Order; or
(2) such number or a lesser number of Outstanding shares of AMPS
to be determined as set forth in paragraph 10(e)(ii)(C) if Sufficient
Clearing Bids do not exist.
(C) A Bid by a Potential Holder shall constitute an irrevocable offer
to purchase:
(1) the number of Outstanding shares of AMPS specified in such
Bid if the Applicable Rate determined on such Auction Date shall be
higher than the rate per annum specified in such Bid; or
(2) such number or a lesser number of Outstanding shares of AMPS
to be determined as set forth in paragraph 10(e)(i)(E) if the
Applicable Rate determined on such Auction Date shall be equal to the
rate per annum specified therein.
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<PAGE>
(c) Submission of Orders by Broker-Dealers to Auction Agent.
(i) Each Broker-Dealer shall submit in writing or through the Auction
Agent's Auction Processing System to the Auction Agent prior to the Submission
Deadline on each Auction Date all Orders obtained by such Broker-Dealer,
designating itself (unless otherwise permitted by the Corporation) as an
Existing Holder in respect of shares subject to Orders submitted or deemed
submitted to it by Beneficial Owners and as a Potential Holder in respect of
shares subject to Orders submitted to it by Potential Beneficial Owners, and
specifying with respect to each Order:
(A) the name of the Bidder placing such Order (which shall be the
Broker-Dealer unless otherwise permitted by the Corporation);
(B) the aggregate number of Outstanding shares of AMPS that are the
subject of such Order;
(C) to the extent that such Bidder is an Existing Holder:
(1) the number of Outstanding shares, if any, of AMPS subject to
any Hold Order placed by such Existing Holder;
(2) the number of Outstanding shares, if any, of AMPS subject to
any Bid placed by such Existing Holder and the rate per annum
specified in such Bid; and
(3) the number of Outstanding shares, if any, of AMPS subject to
any Sell Order placed by such Existing Holder; and
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<PAGE>
(D) to the extent such Bidder is a Potential Holder, the rate per
annum specified in such Potential Holder's Bid.
(ii) If any rate per annum specified in any Bid contains more than
three figures to the right of the decimal point, the Auction Agent shall round
such rate up to the next highest one-thousandth (.001) of 1%.
(iii) If an Order or Orders covering all of the Outstanding shares of
AMPS held by an Existing Holder are not submitted to the Auction Agent prior to
the Submission Deadline, the Auction Agent shall deem a Hold Order (in the case
of an Auction relating to a Dividend Period which is not a Special Dividend
Period of 28 days or more) and a Sell Order (in the case of an Auction relating
to a Special Dividend Period of 28 days or more) to have been submitted on
behalf of such Existing Holder covering the number of Outstanding shares of AMPS
held by such Existing Holder and not subject to Orders submitted to the Auction
Agent.
(iv) If one or more Orders on behalf of an Existing Holder covering
in the aggregate more than the number of Outstanding shares of AMPS held by such
Existing Holder are submitted to the Auction Agent, such Order shall be
considered valid as follows and in the following order of priority:
(A) any Hold Order submitted on behalf of such Existing Holder shall
be considered valid up to and including the number of Outstanding
shares of AMPS held by such Existing Holder; provided that if more
than one Hold Order is submitted on behalf of such Existing Holder and
the number of shares of AMPS subject to such Hold Orders exceeds the
number of Outstanding shares of AMPS
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held by such Existing Holder, the number of shares of AMPS subject to
each of such Hold Orders shall be reduced pro rata so that such Hold
Orders, in the aggregate, will cover exactly the number of Outstanding
shares of AMPS held by such Existing Holder;
(B) any Bids submitted on behalf of such Existing Holder shall be
considered valid, in the ascending order of their respective rates per
annum if more than one Bid is submitted on behalf of such Existing
Holder, up to and including the excess of the number of Outstanding
shares of AMPS held by such Existing Holder over the number of shares
of AMPS subject to any Hold Order referred to in paragraph
10(c)(iv)(A) above (and if more than one Bid submitted on behalf of
such Existing Holder specifies the same rate per annum and together
they cover more than the remaining number of shares that can be the
subject of valid Bids after application of paragraph 10(c)(iv)(A)
above and of the foregoing portion of this paragraph 10(c)(iv)(B) to
any Bid or Bids specifying a lower rate or rates per annum, the number
of shares subject to each of such Bids shall be reduced pro rata so
that such Bids, in the aggregate, cover exactly such remaining number
of shares); and the number of shares, if any, subject to Bids not
valid under this paragraph 10(c)(iv)(B) shall be treated as the
subject of a Bid by a Potential Holder; and
(C) any Sell Order shall be considered valid up to and including the
excess of the number of Outstanding shares of AMPS held by such
Existing Holder over the number of shares of AMPS subject to Hold
Orders referred to in paragraph 10(c)(iv)(A)
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and Bids referred to in paragraph 10(c)(iv)(B); provided that if more
than one Sell Order is submitted on behalf of any Existing Holder and
the number of shares of AMPS subject to such Sell Orders is greater
than such excess, the number of shares of AMPS subject to each of such
Sell Orders shall be reduced pro rata so that such Sell Orders, in the
aggregate, cover exactly the number of shares of AMPS equal to such
excess.
(v) If more than one Bid is submitted on behalf of any Potential
Holder, each Bid submitted shall be a separate Bid with the rate per annum and
number of shares of AMPS therein specified.
(vi) Any Order submitted by a Beneficial Owner as a Potential
Beneficial Owner to its Broker-Dealer, or by a Broker-Dealer to the Auction
Agent, prior to the Submission Deadline on any Auction Date shall be
irrevocable.
(d) Determination of Sufficient Clearing Bids, Winning Bid Rate and
---------------------------------------------------------------
Applicable Rate.
- ---------------
(i) Not earlier than the Submission Deadline on each Auction Date,
the Auction Agent shall assemble all Orders submitted or deemed submitted to it
by the Broker-Dealers (each such Order as submitted or deemed submitted by a
Broker-Dealer being hereinafter referred to individually as a "Submitted Hold
Order", a "Submitted Bid" or a "Submitted Sell Order", as the case may be, or as
a "Submitted Order") and shall determine:
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(A) the excess of the total number of Outstanding shares of AMPS over
the number of Outstanding shares of AMPS that are the subject of
Submitted Hold Orders (such excess being hereinafter referred to as
the "Available AMPS");
(B) from the Submitted Orders whether the number of Outstanding shares
of AMPS that are the subject of Submitted Bids by Potential Holders
specifying one or more rates per annum equal to or lower than the
Maximum Applicable Rate exceeds or is equal to the sum of:
(1) the number of Outstanding shares of AMPS that are the subject
of Submitted Bids by Existing Holders specifying one or more rates per
annum higher than the Maximum Applicable Rate, and
(2) the number of Outstanding shares of AMPS that are subject to
Submitted Sell Orders (if such excess or such equality exists (other
than because the number of Outstanding shares of AMPS in clause (1)
above and this clause (2) are each zero because all of the Outstanding
shares of AMPS are the subject of Submitted Hold Orders), such
Submitted Bids by Potential Holders being hereinafter referred to
collectively as "Sufficient Clearing Bids"); and
(C) if Sufficient Clearing Bids exist, the lowest rate per annum
specified in the Submitted Bids (the "Winning Bid Rate") that if:
(1) each Submitted Bid from Existing Holders specifying the
Winning Bid Rate and all other Submitted Bids from Existing Holders
specifying lower
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<PAGE>
rates per annum were rejected, thus entitling such Existing Holders to
continue to hold the shares of AMPS that are the subject of such
Submitted Bids, and
(2) each Submitted Bid from Potential Holders specifying the
Winning Bid Rate and all other Submitted Bids from Potential Holders
specifying lower rates per annum were accepted, thus entitling the
Potential Holders to purchase the shares of AMPS that are the subject
of such Submitted Bids, would result in the number of shares subject
to all Submitted Bids specifying the Winning Bid Rate or a lower rate
per annum being at least equal to the Available AMPS.
(ii) Promptly after the Auction Agent has made the determinations
pursuant to paragraph 10(d)(i), the Auction Agent shall advise the Corporation
of the Maximum Applicable Rate and, based on such determinations, the Applicable
Rate for the next succeeding Dividend Period as follows:
(A) if Sufficient Clearing Bids exist, that the Applicable Rate for
the next succeeding Dividend Period shall be equal to the Winning Bid
Rate;
(B) if Sufficient Clearing Bids do not exist (other than because all
of the Outstanding shares of AMPS are the subject of Submitted Hold
Orders), that the Applicable Rate for the next succeeding Dividend
Period shall be equal to the Maximum Applicable Rate; or
(C) if all of the Outstanding shares of AMPS are the subject of
Submitted Hold Orders, that the Dividend Period next succeeding the
Auction shall automatically
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be the same length as the immediately preceding Dividend Period and
the Applicable Rate for the next succeeding Dividend Period shall be
equal to 40% of the Reference Rate (or 60% of such rate if the
Corporation has provided notification to the Auction Agent prior to
the Auction establishing the Applicable Rate for any dividend pursuant
to paragraph 2(f) hereof that net capital gains or other taxable
income will be included in such dividend on shares of AMPS) on the
date of the Auction.
(e) Acceptance and Rejection of Submitted Bids and Submitted Sell Orders
--------------------------------------------------------------------
and Allocation of Shares. Based on the determinations made pursuant to
- ------------------------
paragraph 10(d)(i), the Submitted Bids and Submitted Sell Orders shall be
accepted or rejected and the Auction Agent shall take such other action as set
forth below:
(i) If Sufficient Clearing Bids have been made, subject to the
provisions of paragraph 10(e)(iii) and paragraph 10(e)(iv), Submitted Bids and
Submitted Sell Orders shall be accepted or rejected in the following order of
priority and all other Submitted Bids shall be rejected:
(A) the Submitted Sell Orders of Existing Holders shall be accepted
and the Submitted Bid of each of the Existing Holders specifying any
rate per annum that is higher than the Winning Bid Rate shall be
accepted, thus requiring each such Existing Holder to sell the
Outstanding shares of AMPS that are the subject of such Submitted Sell
Order or Submitted Bid;
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(B) the Submitted Bid of each of the Existing Holders specifying any
rate per annum that is lower than the Winning Bid Rate shall be
rejected, thus entitling each such Existing Holder to continue to hold
the Outstanding shares of AMPS that are the subject of such Submitted
Bid;
(C) the Submitted Bid of each of the Potential Holders specifying any
rate per annum that is lower than the Winning Bid Rate shall be
accepted;
(D) the Submitted Bid of each of the Existing Holders specifying a
rate per annum that is equal to the Winning Bid Rate shall be
rejected, thus entitling each such Existing Holder to continue to hold
the Outstanding shares of AMPS that are the subject of such Submitted
Bid, unless the number of Outstanding shares of AMPS subject to all
such Submitted Bids shall be greater than the number of Outstanding
shares of AMPS ("Remaining Shares") equal to the excess of the
Available AMPS over the number of Outstanding shares of AMPS subject
to Submitted Bids described in paragraph 10(e)(i)(B) and paragraph
10(e)(i)(C), in which event the Submitted Bids of each such Existing
Holder shall be accepted, and each such Existing Holder shall be
required to sell Outstanding shares of AMPS, but only in an amount
equal to the difference between (1) the number of Outstanding shares
of AMPS then held by such Existing Holder subject to such Submitted
Bid and (2) the number of shares of AMPS obtained by multiplying (x)
the number of Remaining Shares by (y) a fraction the numerator of
which shall be the number of Outstanding shares of AMPS held by such
Existing Holder subject to such Submitted Bid and the denominator of
which shall be the sum of the
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number of Outstanding shares of AMPS subject to such Submitted Bids
made by all such Existing Holders that specified a rate per annum
equal to the Winning Bid Rate; and
(E) the Submitted Bid of each of the Potential Holders specifying a
rate per annum that is equal to the Winning Bid Rate shall be accepted
but only in an amount equal to the number of Outstanding shares of
AMPS obtained by multiplying (x) the difference between the Available
AMPS and the number of Outstanding shares of AMPS subject to Submitted
Bids described in paragraph 10(e)(i)(B), paragraph 10(e)(i)(C) and
paragraph 10(e)(i)(D) by (y) a fraction the numerator of which shall
be the number of Outstanding shares of AMPS subject to such Submitted
Bid and the denominator of which shall be the sum of the number of
Outstanding shares of AMPS subject to such Submitted Bids made by all
such Potential Holders that specified rates per annum equal to the
Winning Bid Rate.
(ii) If Sufficient Clearing Bids have not been made (other than
because all of the Outstanding shares of AMPS are subject to Submitted Hold
Orders), subject to the provisions of paragraph 10(e)(iii), Submitted Orders
shall be accepted or rejected as follows in the following order of priority and
all other Submitted Bids shall be rejected:
(A) the Submitted Bid of each Existing Holder specifying any rate per
annum that is equal to or lower than the Maximum Applicable Rate shall
be rejected, thus
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entitling such Existing Holder to continue to hold the Outstanding
shares of AMPS that are the subject of such Submitted Bid;
(B) the Submitted Bid of each Potential Holder specifying any rate
per annum that is equal to or lower than the Maximum Applicable Rate
shall be accepted, thus requiring such Potential Holder to purchase
the Outstanding shares of AMPS that are the subject of such Submitted
Bid; and
(C) the Submitted Bids of each Existing Holder specifying any rate
per annum that is higher than the Maximum Applicable Rate shall be
accepted and the Submitted Sell Orders of each Existing Holder shall
be accepted, in both cases only in an amount equal to the difference
between (1) the number of Outstanding shares of AMPS then held by such
Existing Holder subject to such Submitted Bid or Submitted Sell Order
and (2) the number of shares of AMPS obtained by multiplying (x) the
difference between the Available AMPS and the aggregate number of
Outstanding shares of AMPS subject to Submitted Bids described in
paragraph 10(e)(ii)(A) and paragraph 10(e)(ii)(B) by (y) a fraction
the numerator of which shall be the number of Outstanding shares of
AMPS held by such Existing Holder subject to such Submitted Bid or
Submitted Sell Order and the denominator of which shall be the number
of Outstanding shares of AMPS subject to all such Submitted Bids and
Submitted Sell Orders.
(iii) If, as a result of the procedures described in paragraph
10(e)(i) or paragraph 10(e)(ii), any Existing Holder
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<PAGE>
would be entitled or required to sell, or any Potential Holder would be entitled
or required to purchase, a fraction of a share of AMPS on any Auction Date, the
Auction Agent shall, in such manner as in its sole discretion it shall
determine, round up or down the number of shares of AMPS to be purchased or sold
by any Existing Holder or Potential Holder on such Auction Date so that each
Outstanding share of AMPS purchased or sold by each Existing Holder or Potential
Holder on such Auction Date shall be a whole share of AMPS.
(iv) If, as a result of the procedures described in paragraph
10(e)(i), any Potential Holder would be entitled or required to purchase less
than a whole share of AMPS on any Auction Date, the Auction Agent shall, in such
manner as in its sole discretion it shall determine, allocate shares of AMPS for
purchase among Potential Holders so that only whole shares of AMPS are purchased
on such Auction Date by any Potential Holder, even if such allocation results in
one or more of such Potential Holders not purchasing any shares of AMPS on such
Auction Date.
(v) Based on the results of each Auction, the Auction Agent shall
determine, with respect to each Broker-Dealer that submitted Bids or Sell Orders
on behalf of Existing Holders or Potential Holders, the aggregate number of
Outstanding shares of AMPS to be purchased and the aggregate number of the
Outstanding shares of AMPS to be sold by such Potential Holders and Existing
Holders and, to the extent that such aggregate number of Outstanding shares to
be purchased and such aggregate number of Outstanding shares to be sold differ,
the Auction Agent shall determine to which other Broker-Dealer or Broker-Dealers
acting for one or more purchasers such Broker-Dealer shall deliver, or from
which other Broker-Dealer or Broker-Dealers acting for one or more sellers such
Broker-Dealer shall receive, as the case may be, Outstanding shares of AMPS.
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(f) Miscellaneous. The Corporation may interpret the provisions of this
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paragraph 10 to resolve any inconsistency or ambiguity, remedy any formal defect
or make any other change or modification that does not substantially adversely
affect the rights of Beneficial Owners of AMPS. A Beneficial Owner or an
Existing Holder (A) may sell, transfer or otherwise dispose of shares of AMPS
only pursuant to a Bid or Sell Order in accordance with the procedures described
in this paragraph 10 or to or through a Broker-Dealer, provided that in the case
of all transfers other than pursuant to Auctions such Beneficial Owner or
Existing Holder, its Broker-Dealer, if applicable, or its Agent Member advises
the Auction Agent of such transfer and (B) except as otherwise required by law,
shall have the ownership of the shares of AMPS held by it maintained in book
entry form by the Securities Depository in the account of its Agent Member,
which in turn will maintain records of such Beneficial Owner's beneficial
ownership. Neither the Corporation nor any Affiliate shall submit an Order in
any Auction. Any Beneficial Owner that is an Affiliate shall not sell, transfer
or otherwise dispose of shares of AMPS to any Person other than the Corporation.
All of the Outstanding shares of AMPS of a series shall be represented by a
single certificate registered in the name of the nominee of the Securities
Depository unless otherwise required by law or unless there is no Securities
Depository. If there is no Securities Depository, at the Corporation's option
and upon its receipt of such documents as it deems appropriate, any shares of
AMPS may be registered in the Stock Register in the name of the Beneficial Owner
thereof and such Beneficial Owner thereupon will be entitled to receive
certificates therefor and required to deliver certificates therefor upon
transfer or exchange thereof.
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11. Securities Depository; Stock Certificates. (a) If there is a
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Securities Depository, one certificate for all of the shares of AMPS of each
series shall be issued to the Securities Depository and registered in the name
of the Securities Depository or its nominee. Additional certificates may be
issued as necessary to represent shares of AMPS. All such certificates shall
bear a legend to the effect that such certificates are issued subject to the
provisions restricting the transfer of shares of AMPS contained in these
Articles Supplementary. Unless the Corporation shall have elected, during a
Non-Payment Period, to waive this requirement, the Corporation will also issue
stop-transfer instructions to the Auction Agent for the shares of AMPS. Except
as provided in paragraph (b) below, the Securities Depository or its nominee
will be the Holder, and no Beneficial Owner shall receive certificates
representing its ownership interest in such shares.
(b) If the Applicable Rate applicable to all shares of AMPS of a series
shall be the Non-Payment Period Rate or there is no Securities Depository, the
Corporation may at its option issue one or more new certificates with respect to
such shares (without the legend referred to in paragraph 11(a)) registered in
the names of the Beneficial Owners or their nominees and rescind the stop-
transfer instructions referred to in paragraph 11(a) with respect to such
shares.
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IN WITNESS WHEREOF, MUNIYIELD NEW YORK INSURED FUND, INC. has caused these
presents to be signed in its name and on its behalf by a duly authorized
officer, and attested by its Secretary, and the said officers of the Corporation
further acknowledge said instrument to be the corporate act of the Corporation,
and state under penalties of perjury that to the best of their knowledge,
information and belief the matters and facts herein set forth with respect to
approval are true in all material respects, all on ___________, 2000.
MUNIYIELD NEW YORK INSURED FUND, INC.
By _______________________________________
Vice President
Attest:
___________________________
Alice A. Pellegrino
Secretary
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EXHIBIT (14)(A)
INDEPENDENT AUDITORS' CONSENT
MuniYield New York Insured Fund, Inc.:
We consent to the use in this Registration Statement on Form N-14 of our report
dated December 4, 1998 appearing in the Proxy Statement and Prospectus, which is
a part of such Registration Statement, and to the reference to us under the
captions "Comparison of the Funds - Financial Highlights" and "Experts" also
appearing in such Proxy Statement and Prospectus.
/s/ Deloitte & Touche LLP
Princeton, New Jersey
September 30, 1999
<PAGE>
EXHIBIT (14)(B)
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "The Reorganization-
Comparison of the Funds-Financial Highlights", "Selection of Independent
Auditors"" and "Experts" and to the use of our report dated December 1, 1998
for MuniYield New York Insured Fund II, Inc. included in the Registration
Statement (Form N-14 No. 333-0000) and related combined Preliminary Proxy
Statement and Prospectus of MuniYield New York Insured Fund, Inc. and MuniYield
New York Insured Fund II, Inc. filed with the Securities and Exchange
Commission.
/s/ Ernst & Young LLP
MetroPark, New Jersey
September 27, 1999
