<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 5, 1999
SECURITIES ACT FILE NO. -
INVESTMENT COMPANY ACT FILE NO. 811-6570
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 JERSEY 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 JERSEY 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:
<TABLE>
<S> <C>
FRANK P. BRUNO, ESQ. MICHAEL J. HENNEWINKEL, ESQ.
BROWN & WOOD LLP MERRILL LYNCH ASSET MANAGEMENT, L.P.
ONE WORLD TRADE CENTER 800 SCUDDERS MILL ROAD
NEW YORK, NY 10048-0557 PLAINSBORO, NJ 08536
</TABLE>
------------------------
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>
<S> <C> <C> <C> <C>
==============================================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
AMOUNT BEING OFFERING PRICE AGGREGATE OFFERING REGISTRATION
TITLE OF SECURITIES BEING REGISTERED REGISTERED(1) PER UNIT(1) PRICE(1) FEE(3)
- ------------------------------------------------------------------------------------------------------------------------------
Common Stock ($.10 par value)............. 5,713,465 $13.90 $79,417,164 $22,078
Auction Market Preferred Stock, Series 1,500 $25,000(2) $37,500,000 $10,425
B.......................................
==============================================================================================================================
</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> 2
MUNIYIELD NEW JERSEY FUND, INC.
MUNIVEST NEW JERSEY FUND, INC.
P.O. BOX 9011
PRINCETON, NEW JERSEY 08543-9011
------------------------
NOTICE OF SPECIAL MEETINGS OF STOCKHOLDERS
------------------------
TO BE HELD ON DECEMBER 15, 1999
TO THE STOCKHOLDERS OF
MUNIYIELD NEW JERSEY FUND, INC.
MUNIVEST NEW JERSEY FUND, INC.
NOTICE IS HEREBY GIVEN that special meetings of the stockholders (the
"Meetings") of MuniYield New Jersey Fund, Inc. ("MuniYield") and MuniVest New
Jersey Fund, Inc. ("MuniVest") 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 3:30 p.m. Eastern time (for MuniYield) and 2:30
p.m. Eastern time (for MuniVest) for the following purposes:
(1) To approve or disapprove an Agreement and Plan of Reorganization
(the "Agreement and Plan of Reorganization") contemplating the acquisition
of substantially all of the assets and the assumption of substantially all
of the liabilities of MuniVest by MuniYield, in exchange solely for an
equal aggregate value of newly-issued shares of MuniYield Common Stock and
shares of a newly-created series of Auction Market Preferred Stock ("AMPS")
of MuniYield to be designated Series B ("MuniYield Series B AMPS") and the
distribution by MuniVest of such MuniYield Common Stock to the holders of
Common Stock of MuniVest and such MuniYield Series B AMPS to the holders of
Series A AMPS of MuniVest. A vote in favor of this proposal also will
constitute a vote in favor of the liquidation and dissolution of MuniVest
and the termination of its registration under the Investment Company Act of
1940; and
(2) To transact such other business as properly may come before the
Meetings or any adjournment thereof.
The Boards of Directors of MuniYield and MuniVest 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 MuniYield and MuniVest entitled to
vote at the Meetings will be available and open to the examination of any
stockholder of MuniYield or MuniVest, respectively, for any purpose germane to
the Meetings during ordinary business hours from and after December 1, 1999, at
the offices of MuniYield, 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 MuniYield or MuniVest, as applicable.
By Order of the Boards of Directors
ALICE A. PELLEGRINO
Secretary of MuniYield New Jersey
Fund, Inc. and MuniVest New Jersey
Fund, Inc.
Plainsboro, New Jersey
Dated: , 1999
<PAGE> 3
SUBJECT TO COMPLETION
PRELIMINARY PROXY STATEMENT AND PROSPECTUS DATED
OCTOBER 5, 1999
PROXY STATEMENT AND PROSPECTUS
MUNIYIELD NEW JERSEY FUND, INC.
MUNIVEST NEW JERSEY FUND, INC.
P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011
(609) 282-2800
------------------------
SPECIAL MEETINGS OF STOCKHOLDERS
------------------------
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 two funds into one. The two funds are:
MuniYield New Jersey Fund, Inc. ("MuniYield"), which will be the
surviving fund; and
MuniVest New Jersey Fund, Inc. ("MuniVest").
MuniYield and MuniVest are sometimes referred to herein collectively as the
"Funds" and individually as a "Fund," each as applicable and each as the context
requires.
In the Reorganization, MuniYield will acquire substantially all of the
assets and assume substantially all of the liabilities of MuniVest solely in
exchange for shares of its common stock, par value $.10 per share ("MuniYield
Common Stock"), and shares of a 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 B ("MuniYield Series B
AMPS"). MuniVest will distribute the MuniYield Common Stock and MuniYield Series
B AMPS received in the Reorganization to its stockholders and will then
liquidate and dissolve and terminate its registration under the Investment
Company Act. MuniYield 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, MuniYield will issue shares of its common stock and
AMPS to MuniVest based on the value of the assets transferred to MuniYield by
MuniVest. These shares will then be distributed by MuniVest 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 MuniVest will receive MuniYield
Common Stock and a holder of AMPS of MuniVest will receive shares of MuniYield
Series B AMPS.
This Proxy Statement and Prospectus serves as a prospectus of MuniYield in
connection with the issuance of MuniYield Common Stock and MuniYield Series B
AMPS in the Reorganization.
------------------------
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED
THESE SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROXY STATEMENT AND
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
THE DATE OF THIS PROXY STATEMENT AND PROSPECTUS IS , 1999.
THE 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.
<PAGE> 4
The Proxy Statement and Prospectus sets forth information about MuniYield
and MuniVest 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 MuniYield and MuniVest is
800 Scudders Mill Road, Plainsboro, New Jersey 08536, and the telephone number
is (609) 282-2800.
The common stock of each of the Funds ("Common Stock") is listed on the New
York Stock Exchange (the "NYSE") under the symbols "MYJ" (MuniYield) and "MVJ"
(MuniVest). Subsequent to the Reorganization, shares of MuniYield Common Stock
will continue to be listed on the NYSE under the symbol "MYJ". 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.
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INTRODUCTION................................................ 4
ITEM 1: THE REORGANIZATION.................................. 4
SUMMARY................................................... 4
RISK FACTORS AND SPECIAL CONSIDERATIONS................... 12
New Jersey Municipal Bonds............................. 12
Interest Rate and Credit Risk.......................... 12
Non-diversification.................................... 12
Rating Categories...................................... 12
Private Activity Bonds................................. 12
Leverage............................................... 12
Portfolio Management................................... 13
Inverse Floating Obligations........................... 14
Options and Futures Transactions....................... 14
Antitakeover Provisions................................ 14
AMPS Ratings Considerations............................ 14
COMPARISON OF THE FUNDS................................... 15
Financial Highlights................................... 15
Investment Objective and Policies...................... 19
Description of New Jersey Municipal Bonds and Municipal
Bonds................................................. 21
Special Considerations Relating to New Jersey Municipal
Bonds................................................. 22
Other Investment Policies.............................. 22
Information Regarding Options and Futures
Transactions.......................................... 23
Investment Restrictions................................ 26
AMPS Rating Agency Guidelines.......................... 27
Portfolio Composition.................................. 28
Portfolio Transactions................................. 29
Portfolio Turnover..................................... 30
Net Asset Value........................................ 30
Capital Stock.......................................... 31
Management of the Funds................................ 33
Code of Ethics......................................... 34
Voting Rights.......................................... 35
Stockholder Inquiries.................................. 36
Dividends and Distributions............................ 36
Automatic Dividend Reinvestment Plan................... 37
Mutual Fund Investment Option.......................... 38
Liquidation Rights of Holders of AMPS.................. 39
Tax Rules Applicable to the Funds and their
Stockholders.......................................... 39
AGREEMENT AND PLAN OF REORGANIZATION...................... 45
General................................................ 45
Procedure.............................................. 46
Terms of the Agreement and Plan of Reorganization...... 46
Potential Benefits to Common Stockholders of the Funds
as a Result of the Reorganization..................... 48
Surrender and Exchange of Stock Certificates........... 49
Tax Consequences of the Reorganization................. 50
Capitalization......................................... 51
</TABLE>
2
<PAGE> 6
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INFORMATION CONCERNING THE SPECIAL MEETINGS................. 52
Date, Time and Place of Meetings.......................... 52
Solicitation, Revocation and Use of Proxies............... 52
Record Date and Outstanding Shares........................ 52
Security Ownership of Certain Beneficial Owners and
Management............................................. 52
Voting Rights and Required Vote........................... 52
ADDITIONAL INFORMATION...................................... 53
Year 2000 Issues.......................................... 54
CUSTODIAN................................................... 54
TRANSFER AGENT, DIVIDEND DISBURSING AGENT AND REGISTRAR..... 55
LEGAL PROCEEDINGS........................................... 55
LEGAL OPINIONS.............................................. 55
EXPERTS..................................................... 55
STOCKHOLDER PROPOSALS....................................... 55
</TABLE>
<TABLE>
<S> <C> <C>
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 JERSEY................. III-1
EXHIBIT IV RATINGS OF MUNICIPAL BONDS AND COMMERCIAL PAPER............. IV-1
</TABLE>
3
<PAGE> 7
INTRODUCTION
This Proxy Statement and Prospectus is furnished in connection with the
solicitation of proxies on behalf of the Boards of Directors of MuniYield and
MuniVest 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 MuniYield or MuniVest, 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
MuniYield and MuniVest (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 MuniYield Common Stock and MuniYield AMPS, Series A, voting together
as a single class, and a majority of the outstanding shares of MuniYield AMPS,
Series A, voting separately as a class, (ii) a majority of the outstanding
shares of MuniVest Common Stock and MuniVest AMPS, Series A voting together as a
single class, and a majority of the outstanding shares of MuniVest AMPS, Series
A, voting separately as a 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 MuniVest by MuniYield and
the subsequent distribution of MuniYield Common Stock and MuniYield Series B
AMPS to the holders of MuniVest Common Stock and MuniVest AMPS, Series A,
respectively; and (ii) the subsequent deregistration and dissolution of
MuniVest.
At meetings of the Boards of Directors of each of the Funds, the Board of
Directors of each of the Funds approved the Reorganization. Subject to obtaining
the necessary approvals from the stockholders of both
4
<PAGE> 8
Funds, the Board of Directors of MuniVest also deemed advisable the
deregistration of the Fund 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 Jersey 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 Jersey personal income taxes. Under normal circumstances, at least 80% of
each Fund's total assets will be invested in municipal obligations. MuniVest may
invest up to 25% of its assets in municipal obligations rated below investment
grade.
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) MuniYield Common Stock
and MuniYield Series B AMPS will be issued to MuniVest in exchange for the
assets of MuniVest; and (ii) MuniVest will distribute these shares to its
stockholders as provided in the Agreement and Plan of Reorganization. After the
Reorganization, MuniVest 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 MuniVest will remain invested in a closed-end fund with an
investment objective and policies substantially similar to MuniVest'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.
5
<PAGE> 9
PRO FORMA FEE TABLE FOR COMMON STOCKHOLDERS OF MUNIYIELD,
MUNIVEST, AND THE COMBINED FUND AS OF JUNE 30, 1999 (UNAUDITED)(a)
<TABLE>
<CAPTION>
PRO FORMA
MUNIYIELD MUNIVEST 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% 0.75% 0.73%
Interest Payments on Borrowed Funds....................... None None None
Other Expenses............................................ 0.32% 0.48% 0.28%
---- ---- ----
Total Annual Expenses....................................... 1.05% 1.23% 1.01%
==== ==== ====
</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 either Fund. 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 each
Fund and by the combined fund. If the Funds 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. Total Annual Expenses would be 0.72%, 0.82% and 0.69% 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:
MuniYield.............................................. $11 $33 $58 $128
MuniVest............................................... $13 $39 $68 $149
Combined Fund*......................................... $10 $32 $56 $124
</TABLE>
- ---------------
* Assumes that the Reorganization had taken place on June 30, 1999.
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
6
<PAGE> 10
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 MUNIYIELD...... MuniYield was incorporated under the laws of the
State of Maryland on February 24, 1992 and
commenced operations on May 4, 1992. MuniYield 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
Jersey personal income taxes. MuniYield seeks to
achieve its investment objective by investing
primarily in a portfolio of long-term investment
grade obligations, the interest on which, in the
opinion of bond counsel to the issuer, is exempt
from Federal income taxes and New Jersey personal
income taxes ("New Jersey Municipal Bonds"). Under
normal circumstances, at least 80% of MuniYield's
total assets will be invested in New Jersey
Municipal Bonds. See "Comparison of the Funds --
Investment Objectives and Policies."
MuniYield has outstanding Common Stock and one
series of AMPS, designated Series A ("MuniYield
AMPS"). As of August 31, 1999, MuniYield had net
assets of $188,756,514.
BUSINESS OF MUNIVEST....... MuniVest was incorporated under the laws of the
State of Maryland on February 19, 1993 and
commenced operations on April 30, 1993. MuniVest
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
Jersey personal income taxes. MuniVest seeks to
achieve its investment objective by investing
primarily in a portfolio of New Jersey Municipal
Bonds. Under normal circumstances, at least 80% of
MuniVest's total assets will be invested in New
Jersey Municipal Bonds. MuniVest may also invest
up to 25% of its assets in municipal bonds rated
below investment grade. See "Comparison of the
Funds -- Investment Objectives and Policies."
MuniVest has outstanding Common Stock and one
series of AMPS, designated Series A ("MuniVest
AMPS"). As of August 31, 1999, MuniVest had net
assets of $110,949,358.
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
Jersey personal income taxes and seek to maintain
as much of their respective portfolios invested in
New Jersey Municipal Bonds as possible. Each Fund
is subject to the requirement that 80% of its
assets be invested in New Jersey Municipal Bonds.
MuniVest may invest up to 25% of its assets in
municipal bonds rated below investment grade. 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
MuniYield Common Stock was $14.15 and the market
price per share
7
<PAGE> 11
was $13.5625; and (ii) the net asset value per
share of MuniVest Common Stock was $13.31 and the
market price per share was $12.75. 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 for each series of AMPS of each
of the Funds unless the applicable Fund elects,
subject to certain limitations, to have a special
dividend period. In connection with the
Reorganization, it is anticipated that a holder of
MuniVest AMPS will receive MuniYield AMPS with a
dividend payment date and an auction date that
fall on the same day of the week as that of the
MuniVest AMPS. 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>
AUCTION DATE FUND SERIES DIVIDEND RATE
------------ ---- ------ -------------
<S> <C> <C> <C> <C>
September 22, 1999 MuniYield A 3.65%
September 21, 1999 MuniVest A 3.50%
</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
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. Theodore R.
Jaeckel, Jr. serves as the portfolio manager for
each of MuniYield and MuniVest and 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 both
MuniYield and MuniVest. The Bank of New York is
also the transfer agent, registrar and auction
agent for each Fund's AMPS. The principal business
addresses are as follows: The Bank of New York, 90
Washington Street, New York, New York 10286 (for
its custodial services) and 101 Barclay Street,
New York, New York 10286 (for its transfer and
auction agency services). See "Comparison of the
Funds -- Management of the Funds."
8
<PAGE> 12
Overall Expense Ratio. As of June 30, 1999, the
overall annualized operating expense ratio for
MuniYield was 1.05%, based on average net assets
of approximately $133.1 million excluding AMPS,
and 0.72% based on average net assets of
approximately $193.1 million including AMPS, and
the overall annualized operating expense ratio for
MuniVest was 1.23%, based on average net assets of
approximately $76.1 million excluding AMPS, and
0.82%, based on average net assets of
approximately $113.6 million including AMPS. If
the Reorganization had taken place on June 30,
1999, the overall operating expense ratio for the
combined fund on a pro forma basis would have been
1.01%, based on average net assets of
approximately $209.2 million excluding AMPS, and
0.69%, based on average net assets of
approximately $306.7 million including AMPS.
Purchases and Sales of Common Stock and
AMPS. Purchase and sale procedures for the Common
Stock of both MuniYield and MuniVest 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 MuniYield
AMPS and MuniVest 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 MuniYield AMPS and MuniVest
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."
Ratings of Municipal Obligations. MuniYield will
invest only in municipal obligations that at the
time of purchase are considered investment grade.
MuniVest may invest up to 25% of its assets in
municipal obligations rated below investment
grade.
Portfolio Transactions. The portfolio
transactions in which MuniYield and MuniVest may
engage are similar, as are the procedures for such
transactions. See "Comparison of the
Funds -- Portfolio Transactions."
9
<PAGE> 13
Dividends and Distributions. The methods of
dividend payment and distributions are similar for
MuniYield and MuniVest, 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 MuniYield and MuniVest
Common Stock are virtually identical. Similarly,
the corresponding voting rights of the holders of
shares of MuniYield AMPS and MuniVest 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 MUNIYIELD AND MUNIVEST
AS OF AUGUST 31, 1999
<TABLE>
<CAPTION>
AMOUNT
OUTSTANDING
AMOUNT HELD BY EXCLUSIVE OF AMOUNT
AMOUNT FUND FOR ITS OWN SHOWN IN PREVIOUS
TITLE OF CLASS AUTHORIZED ACCOUNT COLUMN
-------------- ----------- ------------------- -------------------
<S> <C> <C> <C>
MuniYield
Common Stock.............................. 199,997,600 -0- 9,100,783
AMPS...................................... 2,400 -0- 2,400
MuniVest
Common Stock.............................. 199,998,500 -0- 5,519,681
AMPS...................................... 1,500 -0- 1,500
</TABLE>
TAX CONSIDERATIONS......... The Funds have jointly requested a private letter
ruling from the IRS with respect to the
Reorganization to the effect that, among other
things, neither Fund will recognize gain or loss
on the transaction and the stockholders of
MuniVest will not recognize gain or loss on the
exchange of their shares for MuniYield Common
Stock (except to the extent that a common
stockholder of MuniVest receives cash representing
an interest in less than a full share of MuniYield
Common Stock in the Reorganization) or MuniYield
AMPS. The consummation of the Reor-
10
<PAGE> 14
ganization 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 MuniYield as a regulated investment
company (a "RIC") under the Internal Revenue Code
of 1986, as amended (the "Code"). MuniVest will
liquidate pursuant to the Reorganization. See
"Agreement and Plan of Reorganization -- Tax
Consequences of the Reorganization."
11
<PAGE> 15
RISK FACTORS AND SPECIAL CONSIDERATIONS
Since both Funds invest primarily in a portfolio of New Jersey Municipal
Bonds, any risks inherent in such investments are equally applicable to both
Funds and will be similarly pertinent to the combined fund after the
Reorganization. It is expected that the Reorganization itself will not adversely
affect the rights of holders of shares of Common Stock or of any series of AMPS
of either Fund or create additional risks.
NEW JERSEY MUNICIPAL BONDS
MuniYield and MuniVest invest a substantial portion of their assets in New
Jersey Municipal Bonds. As a result, each Fund is more exposed to risks
affecting issuers of New Jersey Municipal Bonds than is a municipal bond fund
that invests more widely. See "Comparison of the Funds -- Special Considerations
Relating to New Jersey Municipal Bonds" and Exhibit III -- "Economic and Other
Conditions in New Jersey." If the Funds invest less than 80% of their assets in
New Jersey Municipal Bonds, the income provided by the Funds may not be exempt
from New Jersey 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.
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. In
addition, MuniVest may also invest up to 25% of its assets in municipal bonds
rated below investment grade or considered by FAM to be of comparable quality.
Investments in lower rated securities are considered speculative.
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.
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
12
<PAGE> 16
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 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
13
<PAGE> 17
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.
AMPS 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.
14
<PAGE> 18
COMPARISON OF THE FUNDS
FINANCIAL HIGHLIGHTS
MuniYield
The financial information in the table below, except for the six-month
period ended May 31, 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 FOR THE YEAR ENDED NOVEMBER 30
MONTHS ENDED -----------------------------------------
MAY 31, 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........................ $ 15.93 $ 15.51 $ 15.46 $ 15.56 $ 13.22
-------- -------- -------- -------- --------
Investment income -- net.................................... .53 1.13 1.14 1.14 1.17
Realized and unrealized gain (loss) on investments -- net... (.50) .42 .05 (.10) 2.33
-------- -------- -------- -------- --------
Total from investment operations............................ .03 1.55 1.19 1.04 3.50
-------- -------- -------- -------- --------
Less dividends and distributions to Common Stock
shareholders:
Investment income -- net................................... (.45) (.89) (.91) (.91) (.90)
Realized gain on investments -- net........................ (.31) -- -- -- --
-------- -------- -------- -------- --------
Total dividends and distributions to Common Stock
shareholders............................................... (.76) (.89) (.91) (.91) (.90)
-------- -------- -------- -------- --------
Effect of Preferred Stock activity:
Dividends and distributions to Preferred Stock
shareholders:
Investment income -- net................................. (.07) (.21) (.23) (.23) (.26)
Realized gain on investments -- net...................... (.04) (.03) -- -- --
-------- -------- -------- -------- --------
Total effect of Preferred Stock activity.................... (.11) (.24) (.23) (.23) (.26)
-------- -------- -------- -------- --------
Net asset value, end of period.............................. $ 15.09 $ 15.93 $ 15.51 $ 15.46 $ 15.56
======== ======== ======== ======== ========
Market price per share, end of period....................... $14.5625 $ 16.75 $15.5625 $ 14.50 $ 13.75
======== ======== ======== ======== ========
TOTAL INVESTMENT RETURN:**
Based on market price per share............................. (8.77%)# 13.89% 13.96% 12.34% 21.26%
======== ======== ======== ======== ========
Based on net asset value per share.......................... (.59%)# 8.68% 6.52% 5.84% 25.85%
======== ======== ======== ======== ========
RATIOS BASED ON AVERAGE NET ASSETS OF COMMON STOCK:
Total expenses***........................................... 1.02%* 1.02% 1.04% 1.04% 1.07%
======== ======== ======== ======== ========
Total investment income -- net***........................... 6.87%* 7.24% 7.48% 7.41% 7.86%
======== ======== ======== ======== ========
Amount of dividends to Preferred Stock Shareholders......... .97%* 1.37% 1.50% 1.48% 1.73%
======== ======== ======== ======== ========
Investment income -- net to Common Stock Shareholders....... 5.90%* 5.86% 5.98% 5.94% 6.13%
======== ======== ======== ======== ========
RATIOS BASED ON TOTAL AVERAGE NET ASSETS:+***
Total expenses.............................................. .72%* .71% .72% .72% .73%
======== ======== ======== ======== ========
Total investment income -- net.............................. 4.82%* 5.03% 5.14% 5.18% 5.40%
======== ======== ======== ======== ========
RATIOS BASED ON AVERAGE NET ASSETS OF PREFERRED STOCK:
Dividends to Preferred Stock Shareholders................... 2.27%* 3.19% 3.35% 3.37% 3.75%
======== ======== ======== ======== ========
SUPPLEMENTAL DATA:
Net assets, net of Preferred Stock, end of period (in
thousands)................................................. $137,311 $143,259 $137,633 $136,483 $137,355
======== ======== ======== ======== ========
Preferred Stock outstanding, end of period (in thousands)... $ 60,000 $ 60,000 $ 60,000 $ 60,000 $ 60,000
======== ======== ======== ======== ========
Portfolio turnover.......................................... 30.96% 46.83% 30.50% 49.76% 32.79%
======== ======== ======== ======== ========
DIVIDENDS PER SHARE ON PREFERRED STOCK OUTSTANDING..........
Investment income -- net.................................... $ 282 $ 798 $ 838 $ 837 $ 938
======== ======== ======== ======== ========
</TABLE>
15
<PAGE> 19
<TABLE>
<CAPTION>
FOR THE SIX FOR THE YEAR ENDED NOVEMBER 30
MONTHS ENDED -----------------------------------------
MAY 31, 1999 1998 1997 1996 1995
------------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
LEVERAGE:
Asset coverage per $1,000................................... $ 3,289 $ 3,388 $ 3,294 $ 3,275 $ 3,289
======== ======== ======== ======== ========
</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.
+ Includes Common and Preferred Stock average net assets.
# Aggregate total investment return.
MuniVest
The financial information in the table below, except for 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 FOR THE YEAR ENDED OCTOBER 31
MONTHS ENDED -------------------------------------
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........................ $ 14.72 $ 14.18 $ 13.78 $ 13.76 $ 12.18
----------- ------- ------- ------- -------
Investment income -- net.................................... .50 1.01 1.00 1.01 1.02
Realized and unrealized gain (loss) on investments -- net... (.21) .53 .40 .01 1.58
----------- ------- ------- ------- -------
Total from investment operations............................ .29 1.54 1.40 1.02 2.60
----------- ------- ------- ------- -------
Less dividends to Common Stock shareholders:
Investment income -- net................................... (.39) (.77) (.78) (.78) (.76)
----------- ------- ------- ------- -------
Total dividends to Common Stock shareholders................ (.39) (.77) (.78) (.78) (.76)
----------- ------- ------- ------- -------
Effect of Preferred Stock activity:
Dividends to Preferred Stock shareholders:
Investment income -- net................................... (.10) (.23) (.22) (.22) (.26)
----------- ------- ------- ------- -------
Total effect of Preferred Stock activity.................... (.10) (.23) (.22) (.22) (.26)
----------- ------- ------- ------- -------
Net asset value, end of period.............................. $ 14.52 $ 14.72 $ 14.18 $ 13.78 $ 13.76
=========== ======= ======= ======= =======
Market price per share, end of period....................... $ 14.0625 $14.875 $ 13.25 $ 12.25 $ 12.00
=========== ======= ======= ======= =======
TOTAL INVESTMENT RETURN:**
Based on market price per share............................. (2.89%)# 18.56% 14.78% 8.67% 26.66%
=========== ======= ======= ======= =======
Based on net asset value per share.......................... 1.33%# 9.63% 9.19% 6.61% 20.74%
=========== ======= ======= ======= =======
RATIOS TO AVERAGE NET ASSETS:***
Expenses, net of reimbursement.............................. .82%* .81% .83% .81% .84%
=========== ======= ======= ======= =======
Expenses.................................................... .82%* .81% .83% .81% .84%
=========== ======= ======= ======= =======
Investment income -- net.................................... 4.62%* 4.78% 4.82% 4.87% 5.20%
=========== ======= ======= ======= =======
SUPPLEMENTAL DATA:
Net assets, net of Preferred Stock, end of period (in
thousands)................................................. $ 80,163 $81,062 $77,988 $75,775 $75,657
=========== ======= ======= ======= =======
Preferred Stock outstanding, end of period (in thousands)... $ 37,500 $37,500 $37,500 $37,500 $37,500
=========== ======= ======= ======= =======
Portfolio turnover.......................................... 26.42% 54.73% 39.77% 99.56% 62.45%
=========== ======= ======= ======= =======
</TABLE>
16
<PAGE> 20
<TABLE>
<CAPTION>
FOR THE SIX FOR THE YEAR ENDED OCTOBER 31
MONTHS ENDED -------------------------------------
APRIL 30, 1999 1998 1997 1996 1995
-------------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
DIVIDENDS PER SHARE ON PREFERRED STOCK OUTSTANDING:
Investment income -- net.................................... $ 366 $ 860 $ 805 $ 818 $ 955
=========== ======= ======= ======= =======
LEVERAGE:
Asset coverage per $1,000................................... $ 3,138 $ 3,162 $ 3,080 $ 3,021 $ 3,018
=========== ======= ======= ======= =======
</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.
17
<PAGE> 21
PER SHARE DATA FOR COMMON STOCK*
TRADED ON THE NEW YORK STOCK EXCHANGE (UNAUDITED)
MuniYield
<TABLE>
<CAPTION>
PREMIUM
(DISCOUNT)
TO NET
MARKET PRICE ($)** NET ASSET VALUE ($) ASSET VALUE (%)
-------------------- -------------------- -----------------
QUARTER ENDED* HIGH LOW HIGH LOW HIGH LOW
- -------------- ------- ------- ------- ------- ----- ------
<S> <C> <C> <C> <C> <C> <C>
November 30, 1997........... 13.375 12.50 13.69 13.38 1.68 (2.08)
February 28, 1998........... 16.375 15.125 15.98 15.52 2.90 0.11
May 31, 1998................ 15.75 14.875 15.74 15.36 (0.27) (3.29)
August 31, 1998............. 16.3125 15.1875 15.96 15.652 1.52 (2.41)
November 30, 1998........... 16.9375 15.875 16.33 15.83 5.74 (0.78)
February 28, 1999........... 17.125 16.0625 16.04 15.40 7.94 3.70
May 31, 1999................ 15.875 14.25 15.75 15.08 3.49 (5.82)
</TABLE>
MuniVest
<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............ 12.875 12.125 14.05 13.65 (6.57) (12.96)
April 30, 1997.............. 13.25 12.125 14.10 13.44 (4.61) (8.99)
July 31, 1997............... 13.9375 12.50 14.43 13.63 (1.18) (7.51)
October 31, 1997............ 14.00 11.5625 14.32 14.05 (2.67) (6.56)
January 31, 1998............ 14.50 13.25 14.76 14.10 (0.34) (7.12)
April 30, 1998.............. 14.50 13.375 14.61 14.10 (0.28) (6.16)
July 31, 1998............... 14.00 13.4375 14.61 14.22 (1.55) (6.06)
October 31, 1998............ 15.125 13.6875 15.07 14.44 2.18 (5.12)
January 31, 1999............ 15.1875 14.3125 14.83 14.56 2.60 (3.07)
April 30, 1999.............. 14.25 14.00 14.79 14.45 1.53 (3.39)
July 31, 1999............... 14.0625 12.5625 14.51 13.71 (1.98) (7.98)
</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 predict 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.
18
<PAGE> 22
INVESTMENT OBJECTIVE AND POLICIES
The structure, organization and investment policies of both Funds are
substantially similar, with the differences between the Funds set forth below.
Each Fund seeks as a fundamental investment objective current income exempt from
Federal income tax and New Jersey personal income taxes. 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 Jersey Municipal Bonds. At all times, at least 80% of each
Fund's total assets will be invested in New Jersey 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 Jersey personal income taxes. To the
extent FAM considers that suitable New Jersey Municipal Bonds are not available
for investment, the Funds may purchase other long-term municipal obligations
exempt from Federal income tax, but not New Jersey 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 Jersey 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 Jersey
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 Jersey Municipal Bonds" or "Municipal Bonds"
for purposes of a Fund's investment objective and policies.
The investment grade New Jersey Municipal Bonds and Municipal Bonds in
which each Fund primarily invests are those New Jersey 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.
MuniVest may invest up to 25% of its assets in New Jersey Municipal Bonds
and Municipal Bonds that are rated below investment grade or, if unrated, are
considered to be of comparable quality by FAM. These high yield bonds are
commonly referred to as "junk bonds" and are regarded as predominantly
speculative as to the issuer's ability to make payments of principal and
interest. Consequently, although such bonds can be expected to provide higher
yields and be less subject to interest rate fluctuations, they may be subject to
greater market price fluctuations and risk of loss of principal than lower
yielding, higher rated fixed-income securities. Such securities are particularly
vulnerable to adverse changes in the issuer's industry and in general economic
conditions. Issuers of high yield bonds may be highly leveraged and may not have
available to them more traditional methods of financing. The risk of loss due to
default by the issuer is significantly greater for
19
<PAGE> 23
holders of these bonds because such securities may be unsecured and may be
subordinated to other creditors of the issuer. In addition, while the high yield
bonds in which MuniVest may invest normally will not include securities that, at
the time of investment, are in default or the issuers of which are in
bankruptcy, there can be no assurance that such events will not occur after
MuniVest purchases a particular security, in which case MuniVest may experience
losses and incur costs. Although MuniVest may invest up to 25% of its total
assets in lower-rated New Jersey Municipal Bonds and Municipal Bonds, the asset
coverage requirements established by nationally recognized statistical ratings
organizations ("NRSROs") who may rate MuniVest's preferred stock currently
limits such investments to less than 10% of total assets. Currently, there are
[no/ %] lower-rated bonds in MuniVest's portfolio.
High yield bonds frequently have call or redemption features that permit an
issuer to repurchase such bonds from MuniVest, which may decrease the net
investment to MuniVest and dividends to stockholders in the event that MuniVest
is required to replace a called security with a lower yielding security.
MuniVest may have difficulty disposing of certain high yield bonds because there
may be a thin trading market for such securities. Reduced secondary market
liquidity may have an adverse impact on market price and MuniVest's ability to
dispose of particular issues when necessary to meet its liquidity needs or in
response to a specific economic event such as a deterioration in the
creditworthiness of the issuer. In addition, market quotations are generally
available on many high yield bond issues only from a limited number of dealers
and may not necessarily represent firm bids of such dealers or prices for actual
sales. See Exhibit IV -- "Ratings of Municipal Bonds and Commercial Paper".
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 Jersey Municipal
Bonds and Municipal Bonds with a maturity of more than ten years. However, each
Fund may also invest in intermediate-term New Jersey 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 Jersey
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
20
<PAGE> 24
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.
DESCRIPTION OF NEW JERSEY MUNICIPAL BONDS AND MUNICIPAL BONDS
New Jersey 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 parks, 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 Jersey Municipal Bonds if the interest thereon is exempt from
Federal income tax and exempt from New Jersey 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 Jersey Municipal Bonds or
Municipal Bonds.
The two principal classifications of New Jersey 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 (other than
those of the State of New Jersey which has limited taxing powers) are typically
secured by the issuer's pledge of faith, credit and taxing power for the
repayment of principal and the payment of interest. Revenue or special
obligation bonds are typically payable only from the revenues derived from a
particular facility or class of facilities or, in some cases, from the proceeds
of a special excise tax or other specific revenue source such as from the user
of the facility being financed. PABs are in most cases revenue bonds and do not
generally constitute the pledge of the credit or taxing power of the issuer of
such bonds. The repayment of principal and the payment of interest on 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 Jersey 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 Jersey 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 the percentage of the Fund's assets that may be invested in New
Jersey 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 Jersey 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
21
<PAGE> 25
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 Jersey
Municipal Bonds and Municipal Bonds for investment by the Fund.
SPECIAL CONSIDERATIONS RELATING TO NEW JERSEY MUNICIPAL BONDS
The Fund ordinarily will invest at least 80% of its total assets in New
Jersey Municipal Bonds and, therefore, it is more susceptible to factors
adversely affecting issuers of New Jersey Municipal Bonds than is a municipal
bond fund that is not concentrated in issuers of New Jersey Municipal Bonds to
this degree. FAM does not believe that current economic conditions in New Jersey
will have a significant adverse effect on the Fund's ability to invest prudently
in New Jersey Municipal Bonds. Currently, New Jersey's general obligation bonds
are rated AA+ by S&P, Aa1 by Moody's and AA+ by Fitch. See Exhibit
III -- "Economic and Other Conditions in New Jersey" 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 (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 Jersey 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
Jersey 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 Jersey 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 Jersey 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 Jersey 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
22
<PAGE> 26
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 Jersey Municipal Bond or
Municipal Bond issuer's rights to call all or a portion of such New Jersey
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 Jersey Municipal Bonds or Municipal
Bonds, subject to certain conditions. A Call Right that is not exercised prior
to the maturity of the related New Jersey Municipal Bond or Municipal Bond will
expire without value. The economic effect of holding both the Call Right and the
related New Jersey Municipal Bond or Municipal Bond is identical to holding a
New Jersey Municipal Bond or Municipal Bond as a non-callable security.
Repurchase Agreements. The Funds may invest in securities pursuant to
repurchase agreements. Repurchase agreements may be entered into only with a
member bank of the Federal Reserve System or a primary dealer in U.S. Government
securities or an affiliate thereof. Under such agreements, the seller agrees,
upon entering into the contract, to repurchase the security at a mutually
agreed-upon time and price, thereby determining the yield during the term of the
agreement. The Funds may not invest in repurchase agreements maturing in more
than seven days if such investments, together with all other illiquid
investments, would exceed 15% of the Fund's net assets. In the event of default
by the seller under a repurchase agreement, the Funds may suffer time delays and
incur costs or possible losses in connection with the disposition of the
underlying securities.
In general, for Federal and New Jersey 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
23
<PAGE> 27
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 Jersey 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 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 Jersey 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 Jersey 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
24
<PAGE> 28
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 Jersey Municipal Bonds
and Municipal Bonds in which the Fund invests to make such hedging appropriate.
Over-The-Counter Options. Each Fund may engage in options and futures
transactions on exchanges and in the over-the-counter markets ("OTC options").
In general, exchange-traded contracts are third-party contracts (i.e.,
performance of the parties' obligations is guaranteed by an exchange or clearing
corporation) with standardized strike prices and expiration dates. OTC option
transactions are two-party contracts with price and terms negotiated by the
buyer and seller.
Restrictions on OTC Options. Each Fund will engage in transactions in OTC
options only with banks or dealers that have capital of at least $50 million or
whose obligations are guaranteed by an entity having capital of at least $50
million. Certain OTC options and assets used to cover OTC options written by the
Funds are considered to be illiquid. The illiquidity of such options or assets
may prevent a successful sale of such options or assets, result in a delay of
sale, or reduce the amount of proceeds that otherwise might be realized.
Risk Factors in Financial Futures Contracts and Options Thereon. Use of
futures transactions involves the risk of imperfect correlation in movements in
the price of financial futures contracts and movements in the price of the
security that is the subject of the hedge. If the price of the financial futures
contract moves more or less 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 Jersey
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
25
<PAGE> 29
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 Jersey
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.
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
26
<PAGE> 30
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
Jersey Municipal Bonds, Municipal Bonds and other debt securities 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 Jersey Municipal 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 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 (4) above or except as may be necessary in connection with
transactions in financial futures contracts and options thereon.
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
27
<PAGE> 31
such shares on or prior to their date of original issue of at least "aaa" from
Moody's and AAA from S&P. Moody's and S&P, which are nationally recognized
statistical rating organizations, issue ratings for various securities
reflecting the perceived creditworthiness of such securities. The guidelines for
rating AMPS have been developed by Moody's and S&P in connection with issuances
of asset-backed and similar securities, including debt obligations and variable
rate preferred stock, generally on a case-by-case basis through discussions with
the issuers of these securities. The guidelines are designed to ensure that
assets underlying outstanding debt or preferred stock will be varied
sufficiently and will be of sufficient quality and amount to justify
investment-grade ratings. The guidelines do not have the force of law but have
been adopted by each Fund in order to satisfy current requirements necessary for
Moody's and S&P to issue the above-described ratings for 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.
PORTFOLIO COMPOSITION
There are small differences in concentration among the categories of
issuers of the New Jersey Municipal Bonds and Municipal Bonds held in the
portfolios of the Funds. For MuniYield, as of August 31, 1999, the highest
concentration of New Jersey Municipal Bonds and Municipal Bonds was in
Transportation, Hospitals/Healthcare and Education, accounting for 21%, 16%, and
14% of the Fund's portfolio, respectively, and for MuniVest, the highest
concentration was in Hospitals/Healthcare, Water and Sewer Utilities, and Other
Revenue Bonds, accounting for 27%, 13% and 12% 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 Jersey Municipal Bonds and Municipal Bonds held by each Fund, as of
a certain date.
MuniYield
As of August 31, 1999, approximately 98% of the market value of MuniYield's
portfolio was invested in long-term municipal obligations and approximately 2%
of the market value of MuniYield's portfolio was
28
<PAGE> 32
invested in short-term municipal obligations. The following table sets forth
certain information with respect to the composition of MuniYield'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 48 $110,375 60.0%
AA Aa 9 38,920 21.1
A A 4 15,745 8.6
BBB Baa 7 18,959 10.3
-- -------- -----
68 $183,999 100.0%
== ======== =====
</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."
MuniVest
As of August 31, 1999, approximately 99% of the market value of MuniVest's
portfolio was invested in long-term municipal obligations and approximately 1%
of the market value of MuniVest's portfolio was invested in short-term municipal
obligations. The following table sets forth certain information with respect to
the composition of MuniVest'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 37 $ 80,659 74.2%
AA Aa 6 12,961 12.0
BBB Baa 4 10,894 10.0
BB Ba 1 1,783 1.6
NR NR 2 2,390 2.2
-- -------- -----
50 $108,687 100.0%
== ======== =====
</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."
PORTFOLIO TRANSACTIONS
The procedures for engaging in portfolio transactions are the same for both
MuniYield and MuniVest. 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, MuniYield and MuniVest 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.
29
<PAGE> 33
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.
MuniYield and MuniVest 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 Funds brokerage commissions, dealer spreads
and other expenses of possible portfolio transactions, such as underwriting
commissions, by conducting portfolio transactions through affiliated entities,
including Merrill Lynch. For example, brokerage commissions received by Merrill
Lynch could be offset against the investment advisory fees paid by the Fund to
FAM. After considering all factors deemed relevant, the 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 MuniYield AMPS and MuniVest 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 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>
MUNIYIELD MUNIVEST
- ------------------------------------ ------------------------------------
SIX MONTHS SIX MONTHS
YEAR ENDED YEAR ENDED ENDED YEAR ENDED YEAR ENDED ENDED
11/30/97 11/30/98 5/31/99 10/31/97 10/31/98 4/30/99
- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
30.50% 46.83% 30.96% 39.77% 54.73% 26.42%
</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.
30
<PAGE> 34
The New Jersey 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 Jersey 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
MuniYield and MuniVest each has outstanding both Common Stock and AMPS.
MuniYield Common Stock and MuniVest Common Stock are traded on the NYSE. The
shares of MuniYield Common Stock commenced trading on the NYSE on May 4, 1992.
As of August 31, 1999, the net asset value per share of MuniYield Common Stock
was $14.15 and the market price per share was $13.5625. The shares of MuniVest
Common Stock commenced trading on the NYSE on April 30, 1993. As of August 31,
1999, the net asset value per share of MuniVest Common Stock was $13.31 and the
market price per share was $12.75.
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, MuniYield reclassified 2,400
shares of unissued capital stock as AMPS and MuniVest reclassified 1,500 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
MuniYield AMPS are structured identically to MuniVest AMPS. 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. MuniYield AMPS and MuniVest 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.
31
<PAGE> 35
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>
AUCTION DATE FUND SERIES DIVIDEND RATE
- ------------------ --------- ------ -------------
<S> <C> <C> <C>
September 22, 1999 MuniYield A 3.65%
September 21, 1999 MuniVest A 3.50%
</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.
Redemption Provisions
The redemption provisions pertaining to MuniYield AMPS are identical to
those pertaining to MuniVest 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)
32
<PAGE> 36
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 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 Board of Directors of MuniYield currently
consists of seven persons, five of whom are not "interested persons," as defined
in the Investment Company Act, and the Board of Directors of MuniVest currently
consists of eight persons, six of whom are not "interested persons" of MuniVest.
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. MuniYield and
MuniVest have the same slate of officers.
Theodore R. Jaeckel, Jr. serves as the portfolio manager for MuniYield and
MuniVest. Mr. Jaeckel will continue to serve as the portfolio manager of the
combined fund after the Reorganization. The portfolio manager is 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
, the Asset Management Group had a total of approximately $
billion in investment company and other portfolio assets under management
(approximately $ 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.
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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 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
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of each of the Funds within periods of trading by the Fund in the same (or
equivalent) security (15 or 30 days depending upon the transaction).
VOTING RIGHTS
Voting rights are identical for the holders of shares of MuniYield Common
Stock and the holders of shares of MuniVest 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.
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STOCKHOLDER INQUIRIES
Stockholder inquiries with respect to MuniYield and MuniVest 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.
DIVIDENDS AND DISTRIBUTIONS
MuniYield's current policy with respect to dividends and distributions
relating to shares of MuniYield Common Stock is identical to MuniVest's policy
with respect to shares of MuniVest 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
Funds and their Stockholders."
Similarly, MuniYield's current policy with respect to dividends and
distributions on shares of MuniYield AMPS is identical to MuniVest's current
policy with respect to shares of MuniVest 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 Jersey Municipal Bonds, are exempt from Federal income tax and New
Jersey 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 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.
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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.
If MuniYield or MuniVest, as the case may be, retroactively allocates any
net capital gains or other income subject to regular Federal income tax and New
Jersey 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 The Bank of New
York, as agent for stockholders in administering the Plan (the "Plan Agent"), in
additional shares of each Fund's Common Stock. The Bank of New York will remain
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, 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, 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
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exceeds the net asset value per share, the average per share purchase price paid
by the Plan Agent may exceed the net asset value of the Fund's shares, resulting
in the acquisition of fewer shares than if the dividend had been paid in
newly-issued shares on the dividend payment date. Because of the foregoing
difficulty with respect to open-market purchases, the Plan provides that if the
Plan Agent is unable to invest the full dividend amount in open-market purchases
during the purchase period or if the market discount shifts to a market premium
during the purchase period, the Plan Agent ceases making open-market purchases
and invests the uninvested portion of the dividend amount in newly-issued shares
at the close of business on the last purchase date.
The Plan Agent maintains all 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 MuniVest 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 MuniVest and
MuniYield, after the Reorganization, the stockholder's election with respect to
the dividends of MuniYield 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.
MUTUAL FUND INVESTMENT OPTION
A holder of MuniYield Common Stock or MuniVest 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
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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 MuniVest Common Stock who qualifies for
this option will have the same option with respect to the shares of MuniYield
Common Stock received in the Reorganization.
LIQUIDATION RIGHTS OF HOLDERS OF AMPS
Upon any liquidation, dissolution or winding up of MuniYield or MuniVest,
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. MuniYield and MuniVest 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. MuniYield intends to continue to
distribute substantially all of its income following the Reorganization. Under
present New Jersey law, a RIC, such as each Fund, pays a flat tax of $250 per
year. Each Fund might be subject to the New Jersey corporation business
(franchise) tax for any taxable year in which it does not qualify as a RIC.
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
"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.
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<PAGE> 43
The portion of exempt-interest dividends properly identified in a year-end
statement as directly attributable to interest on New Jersey Municipal Bonds and
the portion of distributions attributable to gains from New Jersey Municipal
Bonds ("New Jersey exempt-interest dividends") also will be exempt from New
Jersey personal income tax. In order to pass through tax-exempt interest for New
Jersey personal income tax purposes, each Fund, among other requirements, must
have not less than 80% of the aggregate principal amount of its investments
invested in New Jersey Municipal Bonds at the close of each quarter of the tax
year (the "80% Test"). For purposes of calculating whether the 80% Test is
satisfied, financial options, futures, forward contracts and similar financial
instruments relating to interest-bearing obligations are excluded from the
principal amount of the Fund's investments. Each Fund intends to comply with
this requirement so as to enable it to pass through interest exempt from both
Federal income tax and New Jersey personal income tax. In the event a Fund does
not so comply, distributions by that Fund may be taxable to stockholders for New
Jersey personal income tax purposes. However, regardless of whether the Fund
meets the 80% Test, all distributions attributable to interest earned on Federal
obligations will be exempt from New Jersey personal income tax. Stockholders
subject to income taxation by states other than New Jersey will realize a lower
after-tax rate of return than New Jersey stockholders since the dividends
distributed by a Fund will generally not be exempt, to any significant degree,
from income taxation by such other states. Each Fund will inform stockholders
annually as to the portion of the Fund's distributions that constitutes
exempt-interest dividends and the portion that is exempt from New Jersey
personal income tax. To the extent attributable to exempt-interest dividends,
interest on indebtedness incurred or continued to purchase or carry Fund shares
is not deductible for Federal income tax purposes and is not deductible for New
Jersey personal income tax purposes.
Exempt-interest dividends and gains paid to a corporate stockholder will be
subject to New Jersey corporation business (franchise) tax and, if applicable,
the New Jersey corporation income tax. Accordingly, investors in each Fund,
including, in particular, corporate investors that may be subject to the New
Jersey corporation business (franchise) tax and, if applicable, the New Jersey
corporation income tax, should consult their tax advisors with respect to the
application of such taxes to an investment in each Fund, to the receipt of Fund
dividends and as to their New Jersey tax situation in general and gains paid to
a corporate stockholder are subject to New Jersey corporation business
(franchise) tax and to New Jersey general corporation income tax.
On February 21, 1997, the Tax Court of New Jersey ruled against the
Director of the Division of Taxation holding against the New Jersey requirement
that fund investors pay state taxes on interest their funds earned from U.S.
government securities if the 80% Test was not met. As a result of the court
decision, the State of New Jersey could be forced to pay substantial amounts in
tax refunds to state residents who are mutual fund investors. At this time, the
effect of this litigation cannot be evaluated.
The IRS, in a revenue ruling, held that certain AMPS would be treated as
stock for Federal income tax purposes. The terms of the currently outstanding
AMPS of each of MuniYield and MuniVest, as well as the Series B AMPS to be
issued by MuniYield, are substantially similar, but not identical, to the AMPS
discussed in the revenue ruling. In the opinion of Brown & Wood LLP, counsel to
both Funds, the shares of each Fund's currently outstanding AMPS 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 purposes.
Distributions, if any, from an excess of net long-term capital gains over net
short-term capital losses derived from the sale of
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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. 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.
All or a portion of a Fund's gain from the sale or redemption of tax-exempt
obligations purchased at a market discount will be treated as ordinary income
rather than capital gain. This rule may increase the amount of ordinary income
dividends received by 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,
MuniYield will, likewise, so designate distributions with respect to its Common
Stock and its AMPS, Series A and B. 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 MuniYield 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 MuniYield, Series A
AMPS and the newly issued Series B 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
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income. Brown & Wood LLP has advised each Fund that, in its opinion, if the IRS
were to challenge in court a Fund's allocations of income and gain, the IRS
would be unlikely to prevail. The opinion of Brown & Wood LLP, however,
represents only its best legal judgment and is not binding on the IRS or the
courts.
The Code requires a RIC to pay a nondeductible 4% excise tax to the extent
it does not distribute during each calendar year 98% of its ordinary income,
determined on a calendar year basis, and 98% of its capital gains, determined in
general, on an October 31 year-end, plus certain undistributed amounts from
previous years. The required distributions, however, are based only on the
taxable income of a RIC. The excise tax, therefore, generally does not apply to
the tax-exempt income of RICs, such as the Funds, that pay exempt-interest
dividends.
The Code subjects interest received on certain otherwise tax-exempt
securities to a Federal alternative minimum tax. The alternative minimum tax
applies to interest received on "private activity bonds" issued after August 7,
1986. "Private activity bonds" are bonds which, although tax-exempt, are used
for purposes other than those generally performed by governmental units and
which benefit non-governmental entities (e.g., bonds used for industrial
development or housing purposes). Income received on such bonds is classified as
an item of "tax preference" which could subject investors in such bonds,
including 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 Jersey 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 MuniYield currently 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 MuniYield 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 a Federal
alternative minimum tax.
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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 MuniYield intends to continue to
treat a holder as receiving a dividend distribution in the amount of any
Additional Distribution only as and when such Additional Distribution is paid.
An Additional Distribution generally is designated by a Fund as an exempt-
interest dividend except as otherwise required by applicable law. However, the
IRS may assert that all or part of an Additional Distribution is a taxable
dividend either in the taxable year for which the allocation of taxable income
is made or in the taxable year in which the Additional Distribution is paid.
The value of shares acquired pursuant to a Fund's dividend reinvestment
plan is generally excluded from gross income to the extent that the cash amount
reinvested would be excluded from gross income. If, when a Fund's shares are
trading at a premium over net asset value, the Fund issues shares pursuant to
the dividend reinvestment plan that have a greater fair market value than the
amount of cash reinvested, it is possible that all or a portion of such discount
(which may not exceed 5% of the fair market value of the Fund's shares) could be
viewed as a taxable distribution. If the discount is viewed as a taxable
distribution, it is also possible that the taxable character of this discount
would be allocable to all of the 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 Jersey personal income
and corporation business (franchise) tax and the
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corporation income 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 New Jersey personal income tax,
corporation business (franchise) tax and the corporation income tax laws. The
Code and the Treasury Regulations, as well as the New Jersey personal income
tax, corporation business (franchise) tax and the corporation income 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.
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AGREEMENT AND PLAN OF REORGANIZATION
GENERAL
Under the Agreement and Plan of Reorganization (attached hereto as Exhibit
II), MuniYield will acquire substantially all of the assets, and will assume
substantially all of the liabilities, of MuniVest, in exchange solely for shares
of an equal aggregate value of MuniYield Common Stock and MuniYield Series B
AMPS to be issued by MuniYield. Upon receipt by MuniVest of such shares,
MuniVest will (i) distribute the shares of MuniYield Common Stock to the holders
of MuniVest Common Stock in exchange for their shares of Common Stock in
MuniVest and (ii) distribute the shares of MuniYield Series B AMPS to the
holders of MuniVest AMPS, in exchange for their shares of AMPS in MuniVest.
MuniYield will file Articles Supplementary establishing the powers, rights and
preferences of the MuniYield Series B 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"), MuniVest will file Articles of
Dissolution with the Maryland Department to effect the formal dissolution of
such Funds, and will dissolve.
MuniVest will distribute the shares of MuniYield Common Stock and the
shares of MuniYield Series B AMPS received by it pro rata to its holders of
record of MuniVest Common Stock and MuniVest AMPS, as applicable, in exchange
for such stockholders' shares in MuniVest. Such distribution would be
accomplished by opening new accounts on the books of MuniYield in the names of
the common and preferred stockholders of MuniVest and transferring to those
stockholder accounts the MuniYield Common Stock or MuniYield Series B AMPS
previously credited on those books to the account of MuniVest. Each newly-opened
account on the books of MuniYield for the previous holders of MuniVest Common
Stock would represent the respective pro rata number of shares of MuniYield
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 MuniYield Common Stock will be issued. In lieu thereof, MuniYield's
transfer agent, The Bank of New York, will aggregate all fractional shares of
MuniYield 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 MuniVest Common Stock certificates. Similarly, each newly-opened account on
the books of MuniYield for the previous holders of MuniVest AMPS would represent
the respective pro rata number of shares of MuniYield Series B AMPS due such
holder of MuniVest AMPS. See "Surrender and Exchange of Stock Certificates"
below for a description of the procedures to be followed by the stockholders of
MuniVest to obtain their MuniYield 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 MuniVest
Common Stock would own shares of MuniYield 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 MuniVest Common Stock immediately prior to the
Exchange Date. Since the MuniYield Common Stock would be issued at net asset
value in exchange for the net assets of MuniVest having a value equal to the
aggregate net asset value of those shares of MuniYield Common Stock, the net
asset value per share of MuniYield Common Stock should remain virtually
unchanged by the Reorganization. Similarly, since the MuniYield Series B AMPS
would be issued at a liquidation preference and value per share equal to the
liquidation preference and value per share of the MuniVest AMPS, the liquidation
preference and value per share of the MuniYield Series B AMPS, will remain
unchanged by the Reorganization. Thus, the Reorganization will result in no
dilution of net asset value of the MuniYield 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 MuniYield Series B AMPS.
However, as a result of the Reorganization, a stockholder of either Fund likely
will hold a reduced percentage of ownership in the larger combined entity than
he or she did in either of the constituent Funds.
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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, 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 MuniYield approved the filing of Articles
Supplementary establishing the powers, rights and preferences of the MuniYield
Series B AMPS in order that they may be distributed to holders of MuniVest 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 MuniYield 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
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 MUNIYIELD AND MUNIVEST RECOMMEND THAT THE
STOCKHOLDERS OF THE RESPECTIVE FUNDS APPROVE THE AGREEMENT AND PLAN OF
REORGANIZATION.
TERMS OF THE AGREEMENT AND PLAN OF REORGANIZATION
The following is a summary of the significant terms of the Agreement and
Plan of Reorganization. This summary is qualified in its entirety by reference
to the Agreement and Plan of Reorganization, attached hereto as Exhibit II.
Valuation of Assets and Liabilities. The respective assets of each of the
Funds will be valued on the business day prior to the Exchange Date (the
"Valuation Date"). The valuation procedures are the same for 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 Jersey 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 Jersey 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 MuniYield Common Stock and MuniYield Series B AMPS. On the
Exchange Date, MuniYield will issue to MuniVest a number of shares of MuniYield
Common Stock the aggregate net asset value of which will equal the respective
aggregate net asset value of shares of MuniVest Common Stock on
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the Valuation Date. Each holder of MuniVest Common Stock will receive the number
of shares of MuniYield Common Stock corresponding to his or her proportionate
interest in the aggregate net asset value of the MuniVest Common Stock.
On the Exchange Date, MuniYield also will issue to MuniVest a number of
shares of MuniYield Series B AMPS, the aggregate liquidation preference and
value of which will equal the aggregate liquidation preference and value of
MuniVest AMPS on the Valuation Date. Each holder of MuniVest AMPS will receive
the number of shares of MuniYield Series B AMPS corresponding to his or her
proportionate interest in the aggregate liquidation preference and value of the
MuniVest AMPS. No sales charge or fee of any kind will be charged to
stockholders of MuniVest in connection with their receipt of MuniYield Common
Stock or MuniYield Series B AMPS in the Reorganization. It is anticipated that
the auction for MuniYield Series B AMPS will be held on Tuesday, the same day as
the auction for the MuniVest Series A AMPS. The auction procedures for all of
the AMPS are similar. As a result of the Reorganization, the last dividend
period for the MuniVest 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.
Expenses. MuniYield 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 MuniVest and the distribution of shares of MuniYield Common Stock
and MuniYield Series B AMPS to stockholders of MuniVest, in accordance with the
foregoing, MuniVest 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
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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 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
MuniVest, following the Reorganization its stockholders will remain invested in
a closed-end fund that has investment objectives and policies substantially
similar to those of MuniVest. 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 Jersey 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 Jersey Municipal Bonds
and Municipal Bonds. The Boards also considered the relative tax positions of
the 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
OPERATING AVERAGE NET TOTAL ANNUALIZED ASSETS,
EXPENSE RATIO, ASSETS, EXCLUDING OPERATING INCLUDING
EXCLUDING AMPS EXPENSE RATIO, AMPS
FUND AMPS (IN MILLIONS) INCLUDING AMPS (IN MILLIONS)
---- ---------------- ----------------- ---------------- ----------------
<S> <C> <C> <C> <C>
MuniYield............................ 1.05% $133.1 0.72% $193.1
MuniVest............................. 1.23% $ 76.1 0.82% $113.6
Combined Fund(1)..................... 1.01% $209.2 0.69% $306.7
</TABLE>
- ---------------
(1) Assumes Reorganization had taken place on June 30, 1999.
Management projections estimate that MuniYield will have net assets in
excess of $306.7 million including assets attributable to AMPS upon completion
of the Reorganization. A larger asset base should provide benefits in portfolio
management. After the Reorganization, MuniYield should be able to purchase
larger amounts of New Jersey 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 Jersey 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.
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<PAGE> 52
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
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 $.02 as a result of the estimated costs of the Reorganization,
management of each Fund advised its Board that it expects that such costs would
be recovered within [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 MuniVest Common Stock Series A of
will be entitled to receive, upon surrender of his or her certificate or
certificates, a certificate or certificates representing the number of shares of
MuniYield Common Stock or MuniYield Series B AMPS distributable with respect to
such holder's shares of MuniVest Common Stock or MuniVest AMPS, together with
cash in lieu of any fractional shares of MuniVest Common Stock. Promptly after
the Exchange Date, the transfer agent for the MuniYield Common Stock or the
MuniYield Series B AMPS, as the case may be, will mail to each holder of
certificates formerly representing shares of MuniVest Common Stock a letter of
transmittal for use in surrendering his or her certificates for certificates
representing shares of MuniYield Common Stock, and cash in lieu of any
fractional shares of MuniYield 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.
<TABLE>
<CAPTION>
IF PRIOR TO THE REORGANIZATION YOU HELD: AFTER THE REORGANIZATION, YOU WILL HOLD:
- ---------------------------------------- ----------------------------------------
<S> <C>
MuniYield Common Stock MuniYield Common Stock
MuniYield Series A AMPS MuniYield Series A AMPS
MuniVest Common Stock MuniYield Common Stock
MuniVest Series A AMPS MuniYield Series B AMPS
</TABLE>
PLEASE DO NOT SEND IN ANY STOCK CERTIFICATES AT THIS TIME. UPON
CONSUMMATION OF THE REORGANIZATION, COMMON STOCKHOLDERS OF MUNIVEST WILL BE
FURNISHED WITH INSTRUCTIONS FOR EXCHANGING THEIR STOCK CERTIFICATES FOR
MUNIYIELD STOCK CERTIFICATES AND, IF APPLICABLE, CASH IN LIEU OF FRACTIONAL
SHARES.
From and after the Exchange Date, certificates formerly representing shares
of MuniVest Common Stock or MuniVest AMPS Series A will be deemed for all
purposes to evidence ownership of the number of full shares of MuniYield Common
Stock and MuniYield Series B AMPS distributable with respect to the shares of
MuniVest 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 MuniVest Common
Stock or MuniVest Series A 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 MuniYield Common Stock or MuniYield
Series B AMPS, as of any date after the Exchange Date and prior to the exchange
of certificates by any stockholder of MuniVest, 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 MuniVest. If, after the Exchange Date, certificates
representing shares of MuniVest Common Stock or MuniVest AMPS are presented to
MuniYield, they will be canceled and exchanged for certificates representing
MuniYield Common Stock or MuniYield Series B AMPS, as applicable, and cash in
lieu of fractional shares of
49
<PAGE> 53
MuniYield Common Stock, if any, distributable with respect to such MuniVest
Common Stock or MuniVest AMPS in the Reorganization.
TAX CONSEQUENCES OF THE REORGANIZATION
General. The Reorganization has been structured with the intention that it
qualify for Federal income tax purposes as a tax-free reorganization under
Section 368(a)(1)(C) of the Code. Each Fund has elected and qualified for the
special tax treatment afforded RICs under the Code, and MuniYield 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 MuniVest for MuniYield stock, as
described, will constitute a reorganization within the meaning of Section
368(a)(1)(C) of the Code, and MuniVest and MuniYield will be deemed a "party" to
a reorganization within the meaning of Section 368(b) of the Code; (ii) in
accordance with Section 361(a) of the Code, no gain or loss will be recognized
to MuniVest as a result of the Reorganization or on the distribution of
MuniYield Common Stock and MuniYield Series B AMPS to the stockholders of
MuniVest under Section 361(c)(1) of the Code; (iii) under Section 1032 of the
Code, no gain or loss will be recognized to MuniYield 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 MuniVest on the receipt of
MuniYield Common Stock and MuniYield Series B AMPS in exchange for their
corresponding shares of MuniVest Common Stock or MuniVest AMPS (except to the
extent that common stockholders receive cash representing an interest in
fractional shares of MuniYield in the Reorganization); (v) in accordance with
Section 362(b) of the Code, the tax basis of the assets of MuniVest in the hands
of MuniYield will be the same as the tax basis of such assets in the hands of
MuniVest 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 MuniYield Common Stock or MuniYield Series B AMPS received
by the stockholders of MuniVest in the Reorganization will be equal to the tax
basis of the MuniVest Common Stock or MuniVest AMPS surrendered in exchange;
(vii) in accordance with Section 1223 of the Code, a stockholder's holding
period for the MuniYield Common Stock and MuniYield Series B AMPS will be
determined by including the period for which such stockholder held the MuniVest
Common Stock or MuniVest AMPS exchanged therefor, provided that such shares were
held as a capital asset; (viii) in accordance with Section 1223 of the Code,
MuniYield's holding period with respect to MuniVest assets transferred will
include the period for which such assets were held by MuniVest; (ix) the payment
of cash to common stockholders of MuniVest in lieu of fractional shares of
MuniYield 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 MuniYield fractional shares; and (x) the taxable year of MuniVest will
end on the effective date of the Reorganization and pursuant to Section 381(a)
of the Code and regulations thereunder, MuniYield will succeed to and take into
account certain tax attributes of MuniVest, 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 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 MuniYield
Series B AMPS pursuant to the Reorganization in addition to the already existing
MuniYield Series A AMPS will not cause distributions on any series of MuniYield
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,
MuniYield could lose the special tax treatment afforded RICs. In this case,
dividends on the shares of MuniYield Common Stock and AMPS would not be exempt
from Federal income tax. Additionally, MuniYield would be subject to the
alternative minimum tax and might be subject to the New Jersey corporate
business (franchise tax).
50
<PAGE> 54
Under Section 381(a) of the Code, MuniYield will succeed to and take into
account certain tax attributes of MuniVest, including, but not limited to,
earnings and profits, any net operating loss carryovers, any capital loss
carryovers and method of accounting. The Code, however, contains special
limitations with regard to the use of net operating losses, capital losses and
other similar items in the context of certain reorganizations, including
tax-free reorganizations pursuant to Section 368(a)(1)(C) of the Code, which
could reduce the benefit of these attributes to MuniYield.
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 MuniYield intends to continue to so qualify.
CAPITALIZATION
The following table sets forth as of May 31, 1999 (i) the capitalization of
MuniYield, (ii) the capitalization of MuniVest and (iii) the pro forma
capitalization of the combined fund as adjusted to give effect to the
Reorganization.
PRO FORMA CAPITALIZATION OF MUNIYIELD AND MUNIVEST,
AND THE COMBINED FUND AS OF MAY 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
COMBINED
PRO FORMA FUND AS
MUNIYIELD MUNIVEST ADJUSTMENT ADJUSTED(a)
------------ ----------- ---------- ------------
<S> <C> <C> <C> <C>
Net Assets:
Net Assets Attributable to Common
Stock............................ $137,311,095 $78,864,224 $1,889,284 $214,286,038
Net Assets Attributable to AMPS..... $ 60,000,000 $37,500,000 -- $ 97,500,000
Shares Outstanding:
Common Stock........................ 9,100,783 5,519,681 -- 14,346,119(b)
AMPS
Series A......................... 2,400 1,500 2,400
Series B......................... N/A N/A 1,500(b)
Net Asset Value Per Share:
Common Stock........................ $ 15.09 $ 14.29 -- 14.94(c)
AMPS................................ $ 25,000 $ 25,000 -- $ 25,000
</TABLE>
- ---------------
(a) The adjusted balances are presented as if the Reorganization had been
consummated on May 31, 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
MuniYield Common Stock that stockholders of MuniVest will receive on the
Exchange Date, and the foregoing should not be relied upon to reflect the
number of shares of MuniYield Common Stock that actually will be received on
or after such date.
(b) Assumes the issuance of 5,245,336 shares of MuniYield Common Stock and one
newly-created series of AMPS consisting of 1,500 Series B shares in exchange
for the net assets of MuniVest. The number of shares issued was based on the
net asset value of each Fund, net of distributions, on May 31, 1999.
(c) Net Asset Value Per Share of Common Stock after distribution of
undistributed net investment income and undistributed realized capital
gains.
51
<PAGE> 55
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, the Directors and officers of MuniYield as a group
(12 persons) owned an aggregate of less than 1% of the outstanding shares of
MuniYield Common Stock and [owned no] MuniYield AMPS.
As of the Record Date, the Directors and officers of MuniVest as a group
(13 persons) owned an aggregate of less than 1% of the outstanding shares of
MuniVest Common Stock and [owned no] MuniVest AMPS.
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 MuniVest,
are not entitled to demand the fair value of their shares upon a transfer of
assets; therefore, the common stockholders of MuniVest will be bound by the
terms of the Reorganization, if approved at the Meetings. However, any common
stockholder of MuniVest may sell his or her shares of MuniVest Common Stock at
any time on the NYSE. Conversely, since the AMPS are not
52
<PAGE> 56
traded publicly on a national securities exchange, holders of AMPS issued by
MuniVest will be entitled to appraisal rights upon the consummation of the
Reorganization. As stockholders of the corporation acquiring the assets of
MuniVest, neither holders of MuniYield Common Stock nor holders of MuniYield
AMPS are entitled to appraisal rights under Maryland law.
Under Maryland law, a holder of MuniVest AMPS desiring to receive payment
of the fair value of his or her stock (an "objecting stockholder") (i) must file
with MuniVest 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 MuniYield 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 (MuniYield 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 MuniYield. 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.
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 MuniYield, the surviving fund after the Reorganization, so as to be
borne equally and exclusively on a per share basis by the holders of MuniYield
Common Stock and MuniVest 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 Shareholders
Communications Corporation, 17 State Street, New York, NY 10004 to aid in the
solicitation of proxies, at a cost to be borne by each of the Funds of
approximately $7,500, plus out-of-pocket expenses.
Broker-dealer firms, including Merrill Lynch, holding Fund shares in
"street name" for the benefit of their customers and clients will request the
instructions of such customers and clients on how to vote their shares on 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
53
<PAGE> 57
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
MuniYield has filed with the Commission under the Securities Act and the
Investment Company Act, to which reference is hereby made.
The Funds are subject to the informational requirements of the Exchange Act
and the Investment Company Act and in accordance therewith are required to file
reports, proxy statements and other information with the SEC. Any such reports,
proxy statements and other information can be inspected and copied at the public
reference facilities of the SEC at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the following regional offices of the SEC:
Regional Office, at Seven World Trade Center, Suite 1300, New York, New York
10048; Pacific Regional Office, at 5670 Wilshire Boulevard, 11th Floor, Los
Angeles, California 90036; and Midwest Regional Office, at Northwestern Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511.
Copies of such materials can be obtained from the public reference section of
the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
The SEC maintains a Web site at http://www.sec.gov containing reports, proxy and
information statements and other information regarding registrants, including
the Funds, that file electronically with the SEC. Reports, proxy statements and
other information concerning the Funds can also be inspected at the offices of
the New York Stock Exchange, 20 Broad Street, New York, New York 10005.
YEAR 2000 ISSUES
Many computer systems were designed using only two digits to designate
years. These systems may not be able to distinguish the Year 2000 from the Year
1900 (commonly known as the "Year 2000 Problem"). The Funds could be adversely
affected if the computer systems used by FAM or other Fund service providers do
not properly address this problem before January 1, 2000. FAM expects to have
addressed this problem before then, and does not anticipate that the services it
provides will be adversely affected. The Fund's other service providers have
told FAM that they also expect to resolve the Year 2000 Problem, and FAM will
continue to monitor the situation as the Year 2000 approaches. However, if the
problem has not been fully addressed, the Funds could be negatively affected.
The Year 2000 Problem could also have a negative impact on the issuers of
securities in which the Funds invest, and this could hurt the Funds' investment
returns.
CUSTODIAN
The Bank of New York acts as the custodian for cash and securities for both
MuniYield and MuniVest. The principal business address of The Bank of New York
in such capacity is 90 Washington Street, New York, New York 10286.
54
<PAGE> 58
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 MuniYield and MuniVest,
pursuant to separate registrar, transfer agency and service agreements with each
of the Funds. The Bank of New York also serves as the transfer agent, registrar
and auction agent to MuniYield and MuniVest, in connection with their respective
AMPS. The principal business address of The Bank of New York in such capacity 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.
EXPERTS
The financial statements for the fiscal year ended November 30, 1998 and
the financial highlights for each of the years in the five-year period then
ended of MuniYield included in this Proxy Statement and Prospectus have been so
included in reliance on the reports of D&T, independent auditors, given 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 MuniVest as of October 31, 1998, as set
forth in their report which appears in this Proxy Statement and Prospectus. The
financial statements and financial highlights of MuniVest 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
November 18, 1999.
By Order of the Boards of Directors
ALICE A. PELLEGRINO
Secretary of MuniYield New Jersey
Fund, Inc., and MuniVest New Jersey
Fund, Inc.
55
<PAGE> 59
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Audited Financial Statements for MuniYield New Jersey Fund,
Inc. for the Fiscal Year Ended November 30, 1998.......... F-2
Unaudited Financial Statements for MuniYield New Jersey
Fund, Inc. for the Six-Month Period Ended May 31, 1999.... F-13
Audited Financial Statements for MuniVest New Jersey Fund,
Inc. for the Fiscal Year Ended October 31, 1998........... F-23
Unaudited Financial Statements for MuniVest New Jersey Fund,
Inc. for the Six-Month Period Ended April 30, 1999........ F-29
Unaudited Financial Statements for the Combined Fund on a
Pro Forma Basis, as of May 31, 1999....................... F-34
</TABLE>
F-1
<PAGE> 60
AUDITED FINANCIAL STATEMENTS FOR
MUNIYIELD NEW JERSEY FUND, INC.
FOR THE FISCAL YEAR ENDED NOVEMBER 30, 1998
F-2
<PAGE> 61
MUNIYIELD NEW JERSEY FUND, INC.
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders,
MuniYield New Jersey Fund, Inc.:
We have audited the accompanying statement of assets, liabilities and
capital, including the schedule of investments, of MuniYield New Jersey Fund,
Inc. as of November 30, 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 the financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and the financial
highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at November
30, 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, such financial statements and financial highlights present
fairly, in all material respects, the financial position of MuniYield New Jersey
Fund, Inc., as of November 30, 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
January 8, 1999
F-3
<PAGE> 62
MuniYield New Jersey Fund, Inc. November 30, 1998
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
Jersey
- --98.4%
- ----------------------------------------------------------------------------------------------------------------------------------
AA A1 $ 2,000 Bernards Township, New Jersey, School District, GO, UT, 5.30% due 1/01/2019 $ 2,052
- ----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,100 Camden County, New Jersey, Municipal Utilities Authority, Sewer Revenue
Refunding Bonds, County Agreement, 5.25% due 7/15/2017 (b) 1,140
- ----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 2,000 Cape May County, New Jersey, Industrial Pollution Control Financing Authority Revenue
Bonds (Atlantic City Electric Company Project), AMT, Series A, 7.20% due 11/01/2029 (d) 2,314
- ----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 2,500 Casino Reinvestment Development Authority, New Jersey, Parking Fee Revenue Bonds,
Series A, 5.25% due 10/01/2015 (c) 2,587
- ----------------------------------------------------------------------------------------------------------------------------------
East Orange, New Jersey, Board of Education, COP, Capital Appreciation (c):
AAA Aaa 1,420 5.30%** due 8/01/2016 602
AAA Aaa 1,000 5.34%** due 2/01/2019 369
AAA Aaa 2,845 5.202%** due 8/01/2026 712
- ----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 750 Essex County, New Jersey, Improvement Authority, Parking Facility Revenue Refunding
Bonds, 5% due 10/01/2022 (a) 754
- ----------------------------------------------------------------------------------------------------------------------------------
AA Aa2 1,000 Gloucester County, New Jersey, Industrial Pollution Control Financing Authority, Revenue
Refunding Bonds (Mobil Oil Refining Corp. Project), 5.625% due 12/01/2028 1,047
- ----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 4,880 Hudson County, New Jersey, COP, Refunding (Correctional Facilities), 6.60%
due 12/01/2021 (d) 5,321
- ----------------------------------------------------------------------------------------------------------------------------------
NR* Aaa 5,000 Hudson County, New Jersey, Improvement Authority, Facility Lease Revenue Bonds,
Residual Certificates, RIB, Series 34, 6.965% due 10/01/2024 (b)(e) 5,431
- ----------------------------------------------------------------------------------------------------------------------------------
AA Aa3 3,200 Jersey City, New Jersey, School, GO, UT, 6.65% due 2/15/2002 (g) 3,537
- ----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 2,825 Lacey Municipal Utilities Authority, New Jersey, Water Revenue Refunding Bonds,
5.20% due 12/01/2024 (d) 2,892
- ----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,120 Metuchen, New Jersey, School District, GO, UT, 5.20% due 9/15/2022 (b) 1,143
- ----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,750 Middlesex County, New Jersey, COP, 4.85% due 6/15/2028 (d) 1,734
- ----------------------------------------------------------------------------------------------------------------------------------
NR* VMIG1+ 100 Monmouth County, New Jersey, Improvement Authority Revenue Bonds (Pooled
Government Loan Program), ACES, 2.65% due 8/01/2016 (f) 100
- ----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,710 North Jersey District Water Supply Revenue Refunding Bonds (Wanaque North Project),
Series B, 6.50% due 11/15/2011 (d) 1,863
- ----------------------------------------------------------------------------------------------------------------------------------
BBB- NR* 2,000 New Jersey EDA, Economic Development Revenue Refunding Bonds (United
Methodist Homes), 5.125% due 7/01/2018 1,922
- ----------------------------------------------------------------------------------------------------------------------------------
New Jersey EDA, First Mortgage Revenue Refunding Bonds, Series A:
A NR* 1,000 (Cadbury Corp Project), 5.50% due 7/01/2018 1,018
BBB- NR* 1,250 (Fellowship Village), 5.50% due 1/01/2018 1,225
BBB- NR* 3,000 (Fellowship Village), 5.50% due 1/01/2025 2,931
- ----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 5,000 New Jersey EDA, Natural Gas Facilities Revenue Refunding Bonds (NUI Corporation),
Series A, 6.35% due 10/01/2022 (a) 5,616
- ----------------------------------------------------------------------------------------------------------------------------------
New Jersey EDA, Revenue Bonds, Capital Appreciation (Saint Barnabas Project) (d):
NR* Aaa 4,000 5.55%** due 7/01/2017 1,609
NR* Aaa 5,435 5.47%** due 7/01/2018 2,070
NR* Aaa 6,000 5.19%** due 7/01/2019 2,166
NR* Aaa 1,000 Series A, 5.18%** due 7/01/2023 293
NR* Aaa 4,350 Series A, 5.23%** due 7/01/2025 1,150
- ----------------------------------------------------------------------------------------------------------------------------------
New Jersey EDA, Revenue Refunding Bonds:
NR* NR* 2,000 (Educational Testing Service), Series A, 4.75% due 5/15/2018 (d) 1,965
AAA Aaa 2,500 (RJW Health Care Corporation), 6.50% due 7/01/2024 (c) 2,810
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
F-4
<PAGE> 63
MuniYield New Jersey Fund, Inc. November 30, 1998
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 Jersey (continued)
- -----------------------------------------------------------------------------------------------------------------------------------
NR* Aa1 $10,750 New Jersey EDA, Solid Waste Disposal Facilities Revenue Bonds (Garden State Paper
Company), AMT, 7.125% due 4/01/2022 $ 11,853
- -----------------------------------------------------------------------------------------------------------------------------------
New Jersey EDA, Water Facilities Revenue Bonds (b):
AAA Aaa 2,000 (American Water Company Inc. Project), AMT, 6% due 5/01/2036 2,184
AAA Aaa 2,500 RITR, Series 34, 6.92% due 5/01/2032 (e) 2,648
- -----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,555 New Jersey Health Care Facilities Financing Authority Revenue Bonds (Virtual
Health Issue), 4.50% due 7/01/2028 (c) 1,445
- -----------------------------------------------------------------------------------------------------------------------------------
New Jersey Health Care Facilities Financing Authority, Revenue Refunding Bonds:
A- A3 6,060 (Atlantic City Medical Center), Series C, 6.80% due 7/01/2011 6,690
A- Baa1 3,000 (Capital Health System Obligation Group), 5.25% due 7/01/2027 2,987
BBB NR* 2,000 (Christian Health Care Center), Series A, 5.25% due 7/01/2013 2,010
AAA Aaa 1,000 (Community Medical Center/Kimball), 5.25% due 7/01/2011 (c) 1,055
AAA Aaa 1,000 (Community Medical Center/Kimball), 5.25% due 7/01/2012 (c) 1,048
AAA Aaa 2,135 (Community Medical Center/Kimball), 5.25% due 7/01/2013 (c) 2,221
BBB+ NR* 3,500 (Holy Name Hospital), 6% due 7/01/2025 3,686
BBB Baa2 3,300 (Saint Elizabeth Hospital Obligation Group), 6% due 7/01/2020 3,492
- -----------------------------------------------------------------------------------------------------------------------------------
A+ Aa2 7,820 New Jersey Sports and Exposition Authority (State Contract), Series A, 6.50% due 3/01/2019 8,558
- -----------------------------------------------------------------------------------------------------------------------------------
New Jersey State Educational Facilities Authority, Higher Educational Revenue Bonds (g):
BBB Baa3 3,355 (Saint Peter's College), Series B, 6.80% due 7/01/2002 3,750
BBB Baa3 3,600 (Saint Peter's College), Series B, 6.85% due 7/01/2002 4,030
BBB+ A3 6,250 (Drew University), Series E, 6.25% due 7/01/2002 6,863
AAA Aaa 4,935 (Princeton University), Series C, 6.375% due 7/01/2002 5,457
- -----------------------------------------------------------------------------------------------------------------------------------
AA+ Aaa 2,310 New Jersey State Educational Facilities Authority, Revenue Bonds (Institute for
Advanced Study), Series G, 5% due 7/01/2028 2,327
- -----------------------------------------------------------------------------------------------------------------------------------
New Jersey State Educational Facilities Authority, Revenue Refunding Bonds:
AAA Aaa 2,240 (Seton Hall University Project), 5.25% due 7/01/2013 (a)(h) 2,350
A A3 6,030 (Stevens Institute of Technology), Series A, 6.80% due 7/01/2002 (g) 6,740
- -----------------------------------------------------------------------------------------------------------------------------------
AA+ Aa1 2,105 New Jersey State, GO, AMT, 7.05% due 7/15/2015 2,454
- -----------------------------------------------------------------------------------------------------------------------------------
NR* Aaa 5,000 New Jersey State Higher Education Assistance Authority, Student Loan Revenue Bonds,
RIB, Series 18, 6.665% due 6/01/2017 (a)(e) 5,086
- -----------------------------------------------------------------------------------------------------------------------------------
New Jersey State Housing and Mortgage Finance Agency, Home Buyer Revenue Bonds,
AMT (d):
AAA Aaa 3,640 Series M, 7% due 10/01/2026 3,985
AAA Aaa 1,940 Series U, 5.55% due 10/01/2011 2,050
AAA Aaa 3,335 Series U, 5.60% due 10/01/2012 3,523
- -----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 2,000 New Jersey State Transit Corporation, COP, 6.50% due 10/01/2016 (c) 2,322
- -----------------------------------------------------------------------------------------------------------------------------------
North Brunswick Township, New Jersey, GO, UT (g):
NR* A1 1,190 6.50% due 5/15/2002 1,310
NR* A1 1,400 6.50% due 5/15/2003 1,541
- -----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 6,230 Passaic Valley, New Jersey, Water Commission, Water Supply Revenue Refunding Bonds,
Series A, 6.40% due 12/15/2002 (b)(g) 6,958
- -----------------------------------------------------------------------------------------------------------------------------------
Port Authority of New York and New Jersey, Consolidated Revenue Bonds:
AA- A1 2,465 67th Series, 6.90% due 7/01/2011 2,579
AA- A1 1,000 69th Series, 7.125% due 6/01/2025 1,060
AA- A1 1,000 93rd Series, 6.125% due 6/01/2094 1,172
AAA Aaa 3,750 104th Series, 4.75% due 1/15/2026 (a) 3,639
AAA Aaa 2,000 116th Series, 4.25% due 10/01/2026 (b) 1,798
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
F-5
<PAGE> 64
MuniYield New Jersey Fund, Inc. November 30, 1998
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
<TABLE>
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
New Jersey (concluded)
- -----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa $ 4,325 Port Authority of New York and New Jersey, RITR, AMT, 108th Series, 7.885%
due 1/15/2017 (c)(e) $ 5,045
- -----------------------------------------------------------------------------------------------------------------------------------
Port Authority of New York and New Jersey, Special Obligation Revenue Bonds:
AAA Aaa 2,500 (JFK International Air Terminal Project), AMT, Series 6, 4th Installment, 5.75%
due 12/01/2025 (d) 2,649
A1+ VMIG1+ 1,400 Refunding (Versatile Structure Obligation), VRDN, Series 2, 3.25% due 5/01/2019 (f) 1,400
A1+ VMIG1+ 900 Refunding (Versatile Structure Obligation), VRDN, Series 3, 3.35% due 6/01/2020 (f) 900
- -----------------------------------------------------------------------------------------------------------------------------------
AA A1 2,275 Rutgers State University, New Jersey, Refunding (State University of New Jersey)
Series A, 6.50% due 5/01/2018 2,483
- -----------------------------------------------------------------------------------------------------------------------------------
AA+ Aaa 760 Union County, New Jersey, Improvement Authority, Revenue Refunding Bonds
(County Guaranteed Lease), 5.30% due 11/15/2006 825
- -----------------------------------------------------------------------------------------------------------------------------------
A1+ P1 400 Union County, New Jersey, Industrial Pollution Control Financing Authority, PCR,
Refunding (Exxon Project), VRDN, 2.90% due 10/01/2024 (f) 400
- -----------------------------------------------------------------------------------------------------------------------------------
NR* NR* 3,440 Union County, New Jersey, Utilities Authority, RITR, Series 38, 6.92% due 6/01/2020 (a)(e) 3,676
- -----------------------------------------------------------------------------------------------------------------------------------
AA- A3 3,100 University of Medicine and Dentistry, New Jersey, Revenue Bonds, Series E,
6.50% due 12/01/2001 (g) 3,405
- -----------------------------------------------------------------------------------------------------------------------------------
Puerto Rico--0.7%
- -----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,400 Puerto Rico Commonwealth, Infrastructure Financing Authority, Special Revenue
Bonds, Series A, 5% due 7/01/2028 (a) 1,402
- -----------------------------------------------------------------------------------------------------------------------------------
Total Investments (Cost--$187,560)--99.1% 201,429
Other Assets Less Liabilities--0.9% 1,830
--------
Net Assets--100.0% $203,259
========
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) AMBAC Insured.
(b) FGIC Insured.
(c) FSA Insured.
(d) MBIA Insured.
(e) 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 November 30, 1998.
(f) The interest rate is subject to change periodically based upon
prevailing market rates. The interest rate shown is the rate in
effect at November 30, 1998.
(g) Prerefunded.
(h) This issue will begin to accrue interest on June 1, 1999.
* Not Rated.
** Represents a zero coupon bond; the interest rate shown is the
effective yield at the time of purchase by the Fund.
+ Highest short-term rating by Moody's Investors Service, Inc.
Ratings of issues shown have not been audited by Deloitte & Touche LLP.
PORTFOLIO ABBREVIATIONS
To simplify the listings of MuniYield New Jersey 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.
ACES(SM) Adjustable Convertible Extendable Securities
AMT Alternative Minimum Tax (subject to)
COP Certificates of Participation
EDA Economic Development Authority
GO General Obligation Bonds
PCR Pollution Control Revenue Bonds
RIB Residual Interest Bonds
RITR Residual Interest Trust Receipts
UT Unlimited Tax
VRDN Variable Rate Demand Notes
See Notes to Financial Statements.
F-6
<PAGE> 65
MuniYield New Jersey Fund, Inc. November 30, 1998
FINANCIAL INFORMATION
Statement of Assets, Liabilities and Capital as of November 30, 1998
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets: Investments, at value (identified cost--$187,559,661) (Note 1a) ........ $201,429,314
Cash ................................................................... 55,111
Receivables:
Securities sold ...................................................... $ 3,784,678
Interest ............................................................. 3,512,998 7,297,676
------------
Prepaid expenses and other assets ...................................... 7,648
------------
Total assets ........................................................... 208,789,749
------------
- ---------------------------------------------------------------------------------------------------------------------------
Liabilities: Payables:
Securities purchased ................................................. 5,404,544
Investment adviser (Note 2) .......................................... 80,441 5,484,985
------------
Accrued expenses and other liabilities ................................. 45,543
------------
Total liabilities ...................................................... 5,530,528
------------
- ---------------------------------------------------------------------------------------------------------------------------
Net Assets: Net assets ............................................................. $203,259,221
------------
- ---------------------------------------------------------------------------------------------------------------------------
Capital: Capital Stock (200,000,000 shares authorized) (Note 4):
Preferred Stock, par value $.05 per share (2,400 shares of AMPS*
issued and outstanding at $25,000 per share liquidation preference) .. $ 60,000,000
Common Stock, par value $.10 per share (8,994,422 shares issued
and outstanding) ..................................................... $ 899,442
Paid-in capital in excess of par ....................................... 125,771,102
Undistributed investment income--net ................................... 1,232,997
Undistributed realized capital gains on investments--net ............... 1,486,027
Unrealized appreciation on investments--net ............................ 13,869,653
------------
Total--Equivalent to $15.93 net asset value per share of Common Stock
(market price--$16.75) ................................................. 143,259,221
------------
Total capital .......................................................... $203,259,221
============
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Auction Market Preferred Stock.
See Notes to Financial Statements.
F-7
<PAGE> 66
MuniYield New Jersey Fund, Inc. November 30, 1998
FINANCIAL INFORMATION (continued)
Statement of Operations
<TABLE>
<CAPTION>
For the Year Ended
November 30, 1998
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment Interest and amortization of premium and discount earned .. $ 11,506,942
Income
(Note 1d):
- --------------------------------------------------------------------------------------------------------------------
Expenses: Investment advisory fees (Note 2) ......................... $ 1,003,338
Commission fees (Note 4) .................................. 152,208
Professional fees ......................................... 90,740
Transfer agent fees ....................................... 33,726
Accounting services (Note 2) .............................. 29,116
Printing and shareholder reports .......................... 28,646
Directors' fees and expenses .............................. 23,089
Custodian fees ............................................ 15,266
Listing fees .............................................. 14,939
Pricing fees .............................................. 9,383
Other ..................................................... 15,550
------------
Total expenses ............................................ 1,416,001
------------
Investment income--net .................................... 10,090,941
------------
- --------------------------------------------------------------------------------------------------------------------
Realized & Realized gain on investments--net ......................... 3,971,836
Unrealized Change in unrealized appreciation on investments--net ..... (242,972)
Gain (Loss) on ------------
Investments--Net Net Increase in Net Assets Resulting from Operations ...... $ 13,819,805
(Notes 1b, 1d & 3): ============
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
F-8
<PAGE> 67
MuniYield New Jersey Fund, Inc. November 30, 1998
FINANCIAL INFORMATION (continued)
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
For the Year Ended November 30,
------------------------------
Increase (Decrease) in Net Assets: 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operations: Investment income--net ................................................. $ 10,090,941 $ 10,012,062
Realized gain on investments--net ...................................... 3,971,836 281,161
Change in unrealized appreciation on investments--net .................. (242,972) 197,125
------------- -------------
Net increase in net assets resulting from operations ................... 13,819,805 10,490,348
------------- -------------
- ------------------------------------------------------------------------------------------------------------------------------
Dividends & Investment income--net:
Distributions to Common Stock ......................................................... (7,921,213) (8,018,125)
Shareholders Preferred Stock ...................................................... (1,914,624) (2,010,600)
(Note 1e): Realized gain on investments--net:
Preferred Stock ...................................................... (260,736) --
------------- -------------
Net decrease in net assets resulting from dividends and distributions
to shareholders ........................................................ (10,096,573) (10,028,725)
------------- -------------
- ------------------------------------------------------------------------------------------------------------------------------
Capital Stock Value of shares issued to Common Stock shareholders in
Transactions reinvestment of dividends .............................................. 1,902,991 688,295
(Note 4): ------------- -------------
- ------------------------------------------------------------------------------------------------------------------------------
Net Assets: Total increase in net assets ........................................... 5,626,223 1,149,918
Beginning of year ...................................................... 197,632,998 196,483,080
------------- -------------
End of year* ........................................................... $ 203,259,221 $ 197,632,998
============= =============
- ------------------------------------------------------------------------------------------------------------------------------
*Undistributed investment income--net ................................... $ 1,232,997 $ 977,893
============= =============
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
F-9
<PAGE> 68
MuniYield New Jersey Fund, Inc. November 30, 1998
FINANCIAL INFORMATION (concluded)
Financial Highlights
The following per share data and ratios have been derived from information
provided in the financial statements.
<TABLE>
<CAPTION>
For the Year Ended November 30,
--------------------------------------------------------
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 ............. $ 15.51 $ 15.46 $ 15.56 $ 13.22 $ 15.88
Operating -------- -------- -------- -------- --------
Performance: Investment income--net ......................... 1.13 1.14 1.14 1.17 1.15
Realized and unrealized gain (loss) on
investments--net ............................... .42 .05 (.10) 2.33 (2.67)
-------- -------- -------- -------- --------
Total from investment operations ............... 1.55 1.19 1.04 3.50 (1.52)
-------- -------- -------- -------- --------
Less dividends and distributions to Common Stock
shareholders:
Investment income--net ...................... (.89) (.91) (.91) (.90) (.93)
Realized gain on investments--net ............ -- -- -- -- (.01)
-------- -------- -------- -------- --------
Total dividends and distributions to Common
Stock shareholders ............................. (.89) (.91) (.91) (.90) (.94)
-------- -------- -------- -------- --------
Effect of Preferred Stock activity:
Dividends and distributions to Preferred
Stock shareholders:
Investment income--net ..................... (.21) (.23) (.23) (.26) (.20)
Realized gain on investments--net .......... (.03) -- -- -- --
-------- -------- -------- -------- --------
Total effect of Preferred Stock activity ....... (.24) (.23) (.23) (.26) (.20)
-------- -------- -------- -------- --------
Net asset value, end of year ................... $ 15.93 $ 15.51 $ 15.46 $ 15.56 $ 13.22
======== ======== ======== ======== ========
Market price per share, end of year ............ $ 16.75 $15.5625 $ 14.50 $ 13.75 $ 12.125
======== ======== ======== ======== ========
- --------------------------------------------------------------------------------------------------------------------------------
Total Investment Based on market price per share ................ 13.89% 13.96% 12.34% 21.26% (16.87%)
Return:* ======== ======== ======== ======== ========
Based on net asset value per share ............. 8.68% 6.52% 5.84% 25.85% (10.82%)
======== ======== ======== ======== ========
- --------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Expenses ....................................... .71% .72% .72% .73% .74%
Net Assets:** ======== ======== ======== ======== ========
Investment income--net ......................... 5.03% 5.14% 5.18% 5.40% 5.30%
======== ======== ======== ======== ========
- --------------------------------------------------------------------------------------------------------------------------------
Supplemental Net assets, net of Preferred Stock, end of year
Data: (in thousands) ................................. $143,259 $137,633 $136,483 $137,355 $116,746
======== ======== ======== ======== ========
Preferred Stock outstanding, end of year
(in thousands) ................................. $ 60,000 $ 60,000 $ 60,000 $ 60,000 $ 60,000
======== ======== ======== ======== ========
Portfolio turnover ............................. 46.83% 30.50% 49.76% 32.79% 15.06%
======== ======== ======== ======== ========
- --------------------------------------------------------------------------------------------------------------------------------
Leverage: Asset coverage per $1,000 ...................... $ 3,388 $ 3,294 $ 3,275 $ 3,289 $ 2,946
======== ======== ======== ======== ========
- --------------------------------------------------------------------------------------------------------------------------------
Dividends Per Share Investment income--net ......................... $ 798 $ 838 $ 837 $ 938 $ 741
On Preferred Stock ======== ======== ======== ======== ========
Outstanding:+
- --------------------------------------------------------------------------------------------------------------------------------
</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 have been adjusted to reflect a two-for-one stock split
that occurred on December 1, 1994.
See Notes to Financial Statements.
F-10
<PAGE> 69
MuniYield New Jersey Fund, Inc. November 30, 1998
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
MuniYield New Jersey 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. 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 MYJ. 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.
(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).
F-11
<PAGE> 70
MuniYield New Jersey Fund, Inc. November 30, 1998
NOTES TO FINANCIAL STATEMENTS (concluded)
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.
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 November 30, 1998 were $98,934,773 and $91,635,207, respectively.
Net realized gains for the year ended November 30, 1998 and net unrealized gains
as of November 30, 1998 were as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Realized Unrealized
Gains Gains
- --------------------------------------------------------------------------------
<S> <C> <C>
Long-term investments ............................ $3,971,836 $13,869,653
---------- -----------
Total ............................................ $3,971,836 $13,869,653
========== ===========
- --------------------------------------------------------------------------------
</TABLE>
As of November 30, 1998, net unrealized appreciation for Federal income tax
purposes aggregated $13,869,653, of which $13,958,154 related to appreciated
securities and $88,501 related to depreciated securities. The aggregate cost of
investments at November 30, 1998 for Federal income tax purposes was
$187,559,661.
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 holders of
Common Stock.
Common Stock
Shares issued and outstanding during the years ended November 30, 1998 and
November 30, 1997 increased by 120,384 and 44,387, 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 yield in effect at
November 30, 1998 was 3.08%.
Shares issued and outstanding during the years ended November 30, 1998 and
November 30, 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 November 30, 1998, Merrill Lynch, Pierce,
Fenner & Smith Inc., an affiliate of FAM, earned $120,963 as commissions.
5. Subsequent Event:
On December 7, 1998, the Fund's Board of Directors declared an ordinary income
dividend and long-term capital gains distribution to Common Stock shareholders
in the amount of $.082711 and $.309188 per share, respectively, payable on
December 30, 1998 to shareholders of record as of December 23, 1998.
F-12
<PAGE> 71
UNAUDITED FINANCIAL STATEMENTS FOR
MUNIYIELD NEW JERSEY FUND, INC.
FOR THE SIX-MONTH PERIOD ENDED MAY 31, 1999
F-13
<PAGE> 72
MuniYield New Jersey Fund, Inc. May 31, 1999
SCHEDULE OF INVESTMENTS (in Thousands)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
- -----------------------------------------------------------------------------------------------------------------------------------
New Jersey--100.6%
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AA A1 $ 2,000 Bernards Township, New Jersey, School District, GO, 5.30% due 1/01/2019 $ 2,028
- -----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,100 Camden County, New Jersey, Municipal Utilities Authority, Sewer Revenue Refunding Bonds,
County Agreement, 5.25% due 7/15/2017 (b) 1,114
- -----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 2,000 Cape May County, New Jersey, Industrial Pollution Control Financing Authority Revenue
Bonds (Atlantic City Electric Company Project), AMT, Series A, 7.20% due 11/01/2029 (d) 2,273
- -----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 2,500 Casino Reinvestment Development Authority, New Jersey, Parking Fee Revenue Bonds,
Series A, 5.25% due 10/01/2015 (c) 2,533
- -----------------------------------------------------------------------------------------------------------------------------------
East Orange, New Jersey, Board of Education, COP, Capital Appreciation (c):
AAA Aaa 1,420 5.30%** due 8/01/2016 588
AAA Aaa 1,000 5.34%** due 2/01/2019 359
AAA Aaa 2,845 5.202%** due 8/01/2026 683
- -----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 750 Essex County, New Jersey, Improvement Authority, Parking Facility Revenue Refunding
Bonds, 5% due 10/01/2022 (a) 736
- -----------------------------------------------------------------------------------------------------------------------------------
NR* Aaa 2,000 Essex County, New Jersey, Utilities Authority, Solid Waste Revenue Refunding Bonds,
Series A, 5% due 4/01/2022 (c) 1,962
- -----------------------------------------------------------------------------------------------------------------------------------
AA Aa2 1,000 Gloucester County, New Jersey, Industrial Pollution Control Financing Authority, Revenue
Refunding Bonds (Mobil Oil Refining Corp. Project), 5.625% due 12/01/2028 1,027
- -----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 4,880 Hudson County, New Jersey, COP, Refunding (Correctional Facilities), 6.60% due 12/01/2021 (d) 5,267
- -----------------------------------------------------------------------------------------------------------------------------------
AAA NR* 5,000 Hudson County, New Jersey, Improvement Authority, Facility Lease Revenue Refunding
Bonds, Residual Certificates, RIB, Series 34, 7.175% due 10/01/2024 (b)(e) 5,286
- -----------------------------------------------------------------------------------------------------------------------------------
AA Aa3 2,600 Jersey City, New Jersey, School, GO, 6.65% due 2/15/2002 (g) 2,830
- -----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,750 Middlesex County, New Jersey, COP, 4.85% due 6/15/2023 (d) 1,680
- -----------------------------------------------------------------------------------------------------------------------------------
Middlesex County, New Jersey, Improvement Authority, Utility System Revenue
Bonds, Capital Appreciation (Perth Amboy Project), Series B (a):
AAA Aaa 1,000 5.16%** due 9/01/2023 280
AAA Aaa 500 5.16%** due 9/01/2024 133
AAA Aaa 1,000 5.16%** due 9/01/2025 251
AAA Aaa 1,300 5.16%** due 9/01/2026 309
- -----------------------------------------------------------------------------------------------------------------------------------
NR* VMIG1+ 100 Monmouth County, New Jersey, Improvement Authority Revenue Bonds (Pooled Government
Loan Program), ACES, 3.10% due 8/01/2016 (f) 100
- -----------------------------------------------------------------------------------------------------------------------------------
New Jersey EDA, First Mortgage Revenue Refunding Bonds, Series A:
BBB- NR* 1,250 (Fellowship Village), 5.50% due 1/01/2018 1,225
BBB- NR* 3,000 (Fellowship Village), 5.50% due 1/01/2025 2,881
- -----------------------------------------------------------------------------------------------------------------------------------
A1+ VMIG1+ 1,200 New Jersey EDA, Natural Gas Facilities Revenue Bonds (NUI Corporation Project), VRDN,
AMT, Series A, 3.25% due 6/01/2026 (a)(f) 1,200
- -----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 5,000 New Jersey EDA, Natural Gas Facilities, Revenue Refunding Bonds (NUI Corporation Project),
Series A, 6.35% due 10/01/2022 (a) 5,523
- -----------------------------------------------------------------------------------------------------------------------------------
New Jersey EDA, Revenue Bonds, Capital Appreciation (Saint Barnabas Project), Series A (d):
NR* Aaa 4,000 5.55%** due 7/01/2017 1,566
NR* Aaa 5,435 5.47%** due 7/01/2018 2,013
NR* Aaa 6,000 5.19%** due 7/01/2019 2,102
NR* Aaa 1,000 5.18%** due 7/01/2023 283
NR* Aaa 8,350 5.20%** due 7/01/2025 2,118
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
F-14
<PAGE> 73
MuniYield New Jersey Fund, Inc. May 31, 1999
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
- -----------------------------------------------------------------------------------------------------------------------------------
New Jersey (continued)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
New Jersey EDA, Revenue Refunding Bonds:
AAA Aaa $ 2,000 (Educational Testing Service), Series A, 4.75% due 5/15/2018 (d) $ 1,920
AAA Aaa 2,500 (RJW Health Care Corporation), 6.50% due 7/01/2024 (c) 2,765
- -----------------------------------------------------------------------------------------------------------------------------------
NR* Aa3 10,750 New Jersey EDA, Solid Waste Disposal Facilities Revenue Bonds (Garden State Paper
Company), 7.125% due 4/01/2022 11,686
- -----------------------------------------------------------------------------------------------------------------------------------
New Jersey EDA, Water Facilities Revenue Bonds, AMT (b):
AAA Aaa 2,000 (American Water Company Inc. Project), 6% due 5/01/2036 2,154
AAA Aaa 2,500 RITR, Series 34, 6.92% due 5/01/2032 (e) 2,543
- -----------------------------------------------------------------------------------------------------------------------------------
A1+ VMIG1+ 1,300 New Jersey EDA, Water Facilities Revenue Refunding Bonds (United Water
New Jersey Inc. Project), VRDN, Series A, 3.35% due 11/01/2026 (a)(f) 1,300
- -----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 2,800 New Jersey Health Care Facilities Financing Authority Revenue Bonds
(Catholic Health East), Series E, 4.75% due 11/15/2029 (a) 2,592
- -----------------------------------------------------------------------------------------------------------------------------------
New Jersey Health Care Facilities Financing Authority, Revenue Refunding Bonds:
A- A3 6,060 (Atlantic City Medical Center), Series C, 6.80% due 7/01/2011 6,538
BBB NR* 2,000 (Christian Health Care Center), Series A, 5.25% due 7/01/2013 1,946
AAA Aaa 1,000 (Community Medical Center/Kimball), 5.25% due 7/01/2011 (c) 1,026
AAA Aaa 1,000 (Community Medical Center/Kimball), 5.25% due 7/01/2012 (c) 1,022
AAA Aaa 2,135 (Community Medical Center/Kimball, 5.25% due 7/01/2013 (c) 2,173
BBB+ NR* 3,500 (Holy Name Hospital), 6% due 7/01/2025 3,611
A NR* 1,750 (Palisades Medical Center Obligation Group), 5.25% due 7/01/2028 1,707
AAA Aaa 2,550 (Saint Barnabas Health Center), Series B, 4.75% due 7/01/2028 (d) 2,364
BBB Baa2 2,450 (Saint Elizabeth Hospital Obligation Group), 6% due 7/01/2020 2,532
AAA Aaa 1,555 (Virtua Health Issue), 4.50% due 7/01/2028 (c) 1,378
- -----------------------------------------------------------------------------------------------------------------------------------
New Jersey Sports and Exposition Authority, Convention Center, Luxury Tax Revenue
Refunding Bonds (d):
AAA Aaa 3,200 5% due 9/01/2015 3,193
AAA Aaa 4,000 5% due 9/01/2019 3,949
- -----------------------------------------------------------------------------------------------------------------------------------
New Jersey State Educational Facilities Authority, Higher Educational Revenue Bonds
(Saint Peters College), Series B (g):
BBB Baa3 3,355 6.80% due 7/01/2002 3,692
BBB Baa3 3,600 6.85% due 7/01/2002 3,967
- -----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 4,935 New Jersey State Educational Facilities Authority, Higher Educational Revenue
Refunding Bonds (Princeton University), Series C, 6.375% due 7/01/2002 (g) 5,384
- -----------------------------------------------------------------------------------------------------------------------------------
New Jersey State Educational Facilities Authority Revenue Bonds:
BBB+ A3 6,250 (Drew University), Series E, 6.25% due 7/01/2002 (g) 6,779
AA+ Aaa 1,000 (Institute for Advanced Study), Series G, 5% due 7/01/2028 980
A A3 6,030 (Stevens Institute of Technology), Series A, 6.80% due 7/01/2002 (g) 6,636
- -----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 2,240 New Jersey State Educational Facilities Authority, Revenue Refunding Bonds
(Seton Hall University Project), 5.25% due 7/01/2013 (a) 2,318
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
F-15
<PAGE> 74
MuniYield New Jersey Fund, Inc. May 31, 1999
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
- -----------------------------------------------------------------------------------------------------------------------------------
New Jersey (concluded)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AA+ Aa1 $ 2,105 New Jersey State, GO, AMT, 7.05% due 7/15/2015 $ 2,414
- -----------------------------------------------------------------------------------------------------------------------------------
NR* Aaa 5,000 New Jersey State Higher Education Assistance Authority, Student Loan Revenue
Bonds, RIB, AMT, Series 18, 6.925% due 6/01/2017 (a)(e) 5,050
- -----------------------------------------------------------------------------------------------------------------------------------
New Jersey State Housing and Mortgage Finance Agency, Home Buyer Revenue
Bonds, AMT (d):
AAA Aaa 3,640 Series M, 7% due 10/01/2026 3,949
AAA Aaa 1,940 Series U, 5.55% due 10/01/2011 2,022
AAA Aaa 3,335 Series U, 5.60% due 10/01/2012 3,476
- -----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 2,000 New Jersey State Transit Corporation, COP, 6.50% due 10/01/2016 (c) 2,249
- -----------------------------------------------------------------------------------------------------------------------------------
AA- Aa2 7,500 New Jersey State Transportation Trust Fund Authority Revenue Bonds
(Transportation System), Series A, 5.125% due 6/15/2015 7,544
- -----------------------------------------------------------------------------------------------------------------------------------
North Brunswick Township, New Jersey, GO, UT:
NR* A1 1,190 6.50% due 5/15/2012 1,290
NR* A1 1,400 6.50% due 5/15/2013 1,517
- -----------------------------------------------------------------------------------------------------------------------------------
AA- A1 4,000 Port Authority of New York and New Jersey, Consolidated Revenue Bonds, 93rd
Series, 6.125% due 6/01/2094 4,520
- -----------------------------------------------------------------------------------------------------------------------------------
NR* Aaa 4,325 Port Authority of New York and New Jersey, RITR, AMT, 108th Series, 8.085%
due 1/15/2017 (c)(e) 4,864
- -----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 2,500 Port Authority of New York and New Jersey, Special Obligation Revenue Bonds
(JFK International Air Terminal Project), AMT, Series 6, 5.75% due 12/01/2025 (d) 2,611
- -----------------------------------------------------------------------------------------------------------------------------------
Port Authority of New York and New Jersey, Special Obligation Revenue Refunding Bonds
(Versatile Structure Obligation), VRDN (f):
A1+ VMIG1+ 200 AMT, Series 4, 3.30% due 4/01/2024 200
A1+ VMIG1+ 800 Series 3, 3.35% due 6/01/2020 800
A1+ VMIG1+ 3,000 Series 5, 3.35% due 8/01/2024 3,000
- -----------------------------------------------------------------------------------------------------------------------------------
AA A1 2,700 Rutgers State University, New Jersey, Revenue Bonds, Series A, 4.75%
due 5/01/2029 2,524
- -----------------------------------------------------------------------------------------------------------------------------------
AA A1 2,275 Rutgers State University, New Jersey, Revenue Refunding Bonds (State University
of New Jersey), Series A, 6.50% due 5/01/2018 2,451
- -----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 4,750 South Jersey Transportation Authority, New Jersey, Transportation System Revenue
Bonds, 5% due 11/01/2029 (a) 4,620
- -----------------------------------------------------------------------------------------------------------------------------------
AA+ Aaa 635 Union County, New Jersey, Improvement Authority, Revenue Refunding Bonds
(County Guaranteed Lease), 5.30% due 11/15/2006 677
- -----------------------------------------------------------------------------------------------------------------------------------
NR* Aaa 3,440 Union County, New Jersey, Utilities Authority, RITR, Series 38, 7.07%
due 6/01/2020 (e) 3,582
- -----------------------------------------------------------------------------------------------------------------------------------
West Windsor-Plainsboro, New Jersey, Regional School District, GO, Refunding:
AAA Aaa 2,500 4.75% due 9/15/2022 2,382
AAA Aaa 2,500 4.75% due 9/15/2023 2,376
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
F-16
<PAGE> 75
MuniYield New Jersey Fund, Inc. May 31, 1999
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
- -----------------------------------------------------------------------------------------------------------------------------------
Puerto Rico--1.2%
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AAA Aaa $ 2,500 Puerto Rico Electric Power Authority, Power Revenue Refunding Bonds, Series EE,
4.50% due 7/01/2018 (d) $ 2,318
- -----------------------------------------------------------------------------------------------------------------------------------
Total Investments (Cost--$193,353)--101.8% 200,941
Liabilities in Excess of Other Assets--(1.8%) (3,630)
--------
Net Assets--100.0% $197,311
========
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) AMBAC Insured.
(b) FGIC Insured.
(c) FSA Insured.
(d) MBIA Insured.
(e) 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 May 31, 1999.
(f) The interest rate is subject to change periodically based upon prevailing
market rates. The interest rate shown is the rate in effect at May 31,
1999.
(g) Prerefunded.
* Not Rated.
** Represents a zero coupon; the interest rate shown reflects the effective
yield at the time of purchase by the Fund.
+ Highest short-term rating by Moody's Investors Service, Inc.
PORTFOLIO ABBREVIATIONS
To simplify the listings of MuniYield New Jersey 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.
ACES(SM) Adjustable Convertible Extendable Securities
AMT Alternative Minimum Tax (subject to)
COP Certificates of Participation
EDA Economic Development Authority
GO General Obligation Bonds
RIB Residual Interest Bonds
RITR Residual Interest Trust Receipts
UT Unlimited Tax
VRDN Variable Rate Demand Notes
See Notes to Financial Statements.
F-17
<PAGE> 76
MuniYield New Jersey Fund, Inc. May 31, 1999
FINANCIAL INFORMATION
Statement of Assets, Liabilities and Capital as of May 31, 1999
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets: Investments, at value (identified cost--$193,353,114) (Note 1a) ......... $200,940,955
Cash..................................................................... 92,507
Interest receivable...................................................... 3,419,292
Prepaid expenses and other assets........................................ 7,648
------------
Total assets ............................................................ 204,460,402
------------
- --------------------------------------------------------------------------------------------------------------------------
Liabilities: Payables:
Securities purchased................................................. $ 6,874,439
Dividends to shareholders (Note 1e).................................. 179,344
Investment adviser (Note 2).......................................... 78,741
------------
7,132,524
Accrued expenses and other liabilities................................... 16,783
------------
Total liabilities ....................................................... 7,149,307
------------
- --------------------------------------------------------------------------------------------------------------------------
Net Assets: Net assets............................................................... $197,311,095
============
- --------------------------------------------------------------------------------------------------------------------------
Capital: Capital Stock (200,000,000 shares authorized) (Note 4):
Preferred Stock, par value $.05 per share (2,400 shares of AMPS*
issued and outstanding at $25,000 per share liquidation preference).. $ 60,000,000
Common Stock, par value $.10 per share (9,100,783 shares issued
and outstanding)..................................................... $ 910,078
Paid-in capital in excess of par......................................... 127,439,164
Undistributed investment income--net .................................... 1,329,756
Undistributed realized capital gains on investments--net................. 44,256
Unrealized appreciation on investments--net.............................. 7,587,841
------------
Total--Equivalent to $15.09 net asset value per share of Common Stock
(market price--$14.5625)................................................. 137,311,095
------------
Total capital............................................................ $197,311,095
============
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Auction Market Preferred Stock.
See Notes to Financial Statements.
F-18
<PAGE> 77
MuniYield New Jersey Fund, Inc. May 31, 1999
FINANCIAL INFORMATION (continued)
Statement of Operations
<TABLE>
<CAPTION>
For the Six Months Ended
May 31, 1999
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment Income Interest and amortization of premium and discount earned $ 5,537,561
(Note 1d):
- ---------------------------------------------------------------------------------------------------------------------------------
Expenses: Investment advisory fees (Note 2)...................................... $ 499,819
Commission fees (Note 4)............................................... 76,201
Professional fees...................................................... 37,317
Accounting services (Note 2)........................................... 32,749
Transfer agent fees.................................................... 16,610
Printing and shareholder reports....................................... 12,778
Directors' fees and expenses........................................... 11,635
Listing fees........................................................... 8,323
Custodian fees......................................................... 7,993
Pricing fees........................................................... 6,139
Other.................................................................. 8,917
------------
Total expenses ........................................................ 718,481
------------
Investment income--net.................................................. 4,819,080
------------
- ---------------------------------------------------------------------------------------------------------------------------------
Realized & Realized gain on investments--net ...................................... 1,741,499
Unrealized Change in unrealized appreciation on investments--net .................. (6,281,812)
Gain (Loss) on ------------
Investments--Net Net Increase in Net Assets Resulting from Operations .................. $ 278,767
(Notes 1b, 1d & 3): ============
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
For the Six For the
Months Ended Year Ended
Increase (Decrease) in Net Assets: May 31, 1999 Nov. 30, 1998
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operations: Investment income--net........................................... $ 4,819,080 $ 10,090,941
Realized gain on investments--net................................ 1,741,499 3,971,836
Change in unrealized appreciation on investments--net............ (6,281,812) (242,972)
------------ ------------
Net increase in net assets resulting from operations............. 278,767 13,819,805
------------ ------------
- ---------------------------------------------------------------------------------------------------------------------------------
Dividends & Investment income--net:
Distributions to Common Stock................................................... (4,044,465) (7,921,213)
Shareholders Preferred Stock................................................ (677,856) (1,914,624)
(Note 1e): Realized gain on investments--net:
Common Stock................................................... (2,790,654) --
Preferred Stock................................................ (392,616) (260,736)
------------ ------------
Net decrease in net assets resulting from dividends and
distributions to shareholders ................................... (7,905,591) (10,096,573)
------------ ------------
- ---------------------------------------------------------------------------------------------------------------------------------
Capital Stock Value of shares issued to Common Stock shareholders in
Transactions reinvestment of dividends and distributions...................... 1,678,698 1,902,991
(Note 4): ------------ ------------
- ---------------------------------------------------------------------------------------------------------------------------------
Net Assets: Total increase (decrease) in net assets.......................... (5,948,126) 5,626,223
Beginning of period.............................................. 203,259,221 197,632,998
------------ ------------
End of period*................................................... $197,311,095 $203,259,221
============ ============
- ---------------------------------------------------------------------------------------------------------------------------------
* Undistributed investment income--net............................. $ 1,329,756 $ 1,232,997
============ ============
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
F-19
<PAGE> 78
MuniYield New Jersey Fund, Inc. May 31, 1999
FINANCIAL INFORMATION (concluded)
Financial Highlights
<TABLE>
<CAPTION>
For the
The following per share data and ratios have been derived Six Months
from information provided in the financial statements. Ended
May 31,
Increase (Decrease) in Net Asset Value: 1999
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Per Share Net asset value, beginning of period .............. $ 15.93
Operating ---------
Performance: Investment income--net ............................ .53
Realized and unrealized gain (loss) on
investments--net .................................. (.50)
---------
Total from investment operations .................. .03
---------
Less dividends and distributions to Common Stock
shareholders:
Investment income--net .......................... (.45)
Realized gain on investments--net ............... (.31)
---------
Total dividends and distributions to Common
Stock shareholders ................................ (.76)
---------
Effect of Preferred Stock activity:
Dividends and distributions to Preferred
Stock shareholders:
Investment income--net ........................ (.07)
Realized gain on investments--net ............. (.04)
---------
Total effect of Preferred Stock activity .......... (.11)
---------
Net asset value, end of period .................... $ 15.09
=========
Market price per share, end of period ............. $ 14.5625
=========
- -------------------------------------------------------------------------------------------
Total Investment Based on market price per share ................... (8.77%)++
Return:** =========
Based on net asset value per share ................ (.59%)++
=========
- -------------------------------------------------------------------------------------------
Ratios Based on Total expenses*** ................................. 1.02%*
Average Net Assets =========
Of Common Stock: Total investment income--net*** ................... 6.87%*
=========
Amount of dividends to Preferred Stock shareholders .97%*
=========
Investment income--net, to Common Stock
shareholders ...................................... 5.90%*
=========
- -------------------------------------------------------------------------------------------
Ratios Based on Total expenses .................................... .72%*
Total Average Net =========
Assets:+*** Total investment income--net ...................... 4.82%*
=========
- -------------------------------------------------------------------------------------------
Ratios Based on Dividends to Preferred Stock shareholders ......... 2.27%*
Average Net Assets =========
Of Preferred Stock:
- -------------------------------------------------------------------------------------------
Supplemental Net assets, net of Preferred Stock, end of period
Data: (in thousands) .................................... $ 137,311
=========
Preferred Stock outstanding, end of period
(in thousands) .................................... $ 60,000
=========
Portfolio turnover ................................ 30.96%
=========
- -------------------------------------------------------------------------------------------
Leverage: Asset coverage per $1,000 ......................... $ 3,289
=========
- -------------------------------------------------------------------------------------------
Dividends Per Share Investment income--net ............................ $ 282
On Preferred Stock =========
Outstanding:
- -------------------------------------------------------------------------------------------
</TABLE>
The following per share data and ratios have been derived
from information provided in the financial statements.
<TABLE>
<CAPTION>
For the Year Ended
November 30,
----------------------------------------------------
Increase (Decrease) in Net Asset Value: 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period .............. $ 15.51 $ 15.46 $ 15.56 $ 13.22
Operating --------- --------- --------- ---------
Performance: Investment income--net ............................ 1.13 1.14 1.14 1.17
Realized and unrealized gain (loss) on
investments--net .................................. .42 .05 (.10) 2.33
--------- --------- --------- ---------
Total from investment operations .................. 1.55 1.19 1.04 3.50
--------- --------- --------- ---------
Less dividends and distributions to Common Stock
shareholders:
Investment income--net .......................... (.89) (.91) (.91) (.90)
Realized gain on investments--net ............... -- -- -- --
--------- --------- --------- ---------
Total dividends and distributions to Common
Stock shareholders ................................ (.89) (.91) (.91) (.90)
--------- --------- --------- ---------
Effect of Preferred Stock activity:
Dividends and distributions to Preferred
Stock shareholders:
Investment income--net ........................ (.21) (.23) (.23) (.26)
Realized gain on investments--net ............. (.03) -- -- --
--------- --------- --------- ---------
Total effect of Preferred Stock activity .......... (.24) (.23) (.23) (.26)
--------- --------- --------- ---------
Net asset value, end of period .................... $ 15.93 $ 15.51 $ 15.46 $ 15.56
========= ========= ========= =========
Market price per share, end of period ............. $ 16.75 $ 15.5625 $ 14.50 $ 13.75
========= ========= ========= =========
- ------------------------------------------------------------------------------------------------------------------------------
Total Investment Based on market price per share ................... 13.89% 13.96% 12.34% 21.26%
Return:** ========= ========= ========= =========
Based on net asset value per share ................ 8.68% 6.52% 5.84% 25.85%
========= ========= ========= =========
- ------------------------------------------------------------------------------------------------------------------------------
Ratios Based on Total expenses*** ................................. 1.02% 1.04% 1.04% 1.07%
Average Net Assets ========= ========= ========= =========
Of Common Stock: Total investment income--net*** ................... 7.24% 7.48% 7.41% 7.86%
========= ========= ========= =========
Amount of dividends to Preferred Stock shareholders 1.37% 1.50% 1.48% 1.73%
========= ========= ========= =========
Investment income--net, to Common Stock
shareholders ...................................... 5.86% 5.98% 5.94% 6.13%
========= ========= ========= =========
- ------------------------------------------------------------------------------------------------------------------------------
Ratios Based on Total expenses .................................... .71% .72% .72% .73%
Total Average Net ========= ========= ========= =========
Assets:+*** Total investment income--net ...................... 5.03% 5.14% 5.18% 5.40%
========= ========= ========= =========
- ------------------------------------------------------------------------------------------------------------------------------
Ratios Based on Dividends to Preferred Stock shareholders ......... 3.19% 3.35% 3.35% 3.75%
Average Net Assets ========= ========= ========= =========
Of Preferred Stock:
- ------------------------------------------------------------------------------------------------------------------------------
Supplemental Net assets, net of Preferred Stock, end of period
Data: (in thousands) .................................... $ 143,259 $ 137,633 $ 136,483 $ 137,355
========= ========= ========= =========
Preferred Stock outstanding, end of period
(in thousands) .................................... $ 60,000 $ 60,000 $ 60,000 $ 60,000
========= ========= ========= =========
Portfolio turnover ................................ 46.83% 30.50% 49.76% 32.79%
========= ========= ========= =========
- ------------------------------------------------------------------------------------------------------------------------------
Leverage: Asset coverage per $1,000 ......................... $ 3,388 $ 3,294 $ 3,275 $ 3,289
========= ========= ========= =========
- ------------------------------------------------------------------------------------------------------------------------------
Dividends Per Share Investment income--net ............................ $ 798 $ 838 $ 837 $ 938
On Preferred Stock ========= ========= ========= =========
Outstanding:
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
+ Includes Common and Preferred Stock average net assets.
++ Aggregate total investment return.
* 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.
See Notes to Financial Statements.
F-20
<PAGE> 79
MuniYield New Jersey Fund, Inc. May 31, 1999
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
MuniYield New Jersey 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
MYJ. 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.
(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).
F-21
<PAGE> 80
MuniYield New Jersey Fund, Inc. May 31, 1999
Interest income is recognized on the accrual basis. Discounts and market
premiums are amortized into interest income. Realized gains and losses on secu-
rity 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.
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 May 31, 1999 were $59,618,608 and $59,608,172, respectively.
Net realized gains for the six months ended May 31, 1999 and net unrealized
gains as of May 31, 1999 were as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Realized Unrealized
Gains Gains
- --------------------------------------------------------------------------------
<S> <C> <C>
Long-term investments..... $1,741,499 $7,587,841
---------- ----------
Total..................... $1,741,499 $7,587,841
========== ==========
- --------------------------------------------------------------------------------
</TABLE>
As of May 31, 1999, net unrealized appreciation for Federal income tax purposes
aggregated $7,587,841, of which $8,698,339 related to appreciated securities and
$1,110,498 related to depreciated securities. The aggregate cost of investments
at May 31, 1999 for Federal income tax purposes was $193,353,114.
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 holders of
Common Stock.
Common Stock
Shares issued and outstanding during the six months ended May 31, 1999 and the
year ended November 30, 1998 increased by 106,361 and 120,384, 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 yield in effect at
May 31, 1999 was 3.23%.
Shares issued and outstanding during the six months ended May 31, 1999 and the
year ended November 30, 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 May 31, 1999, Merrill Lynch, Pierce,
Fenner & Smith Incorporated, an affiliate of FAM, earned $50,924 as commissions.
5. Subsequent Event:
On June 9, 1999, the Fund's Board of Directors declared an ordinary income
dividend to Common Stock shareholders in the amount of $.069000 per share,
payable on June 29, 1999 to shareholders of record as of June 23, 1999.
F-22
<PAGE> 81
AUDITED FINANCIAL STATEMENTS FOR
MUNIVEST NEW JERSEY FUND, INC.
FOR THE FISCAL YEAR ENDED OCTOBER 31, 1998
F-23
<PAGE> 82
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Board of Directors,
MuniVest New Jersey Fund, Inc.
We have audited the accompanying statement of assets, liabilities and
capital of MuniVest New Jersey Fund, Inc., including the schedule of
investments, as of October 31, 1998, and the related statement of operations for
the year then ended, the statements of changes in net assets for each of the two
years in the period then ended and financial highlights for each of the periods
indicated therein. 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 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 corresponding 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 present fairly, in all material respects, the financial position of
MuniVest New Jersey Fund, Inc. at October 31, 1998, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended and financial highlights for each of the
indicated periods, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Princeton, New Jersey
December 1, 1998
F-24
<PAGE> 83
MuniVest New Jersey Fund, Inc., October 31, 1998
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS (in Thousands)
S&P Moody's Face Value
STATE Ratings Ratings Amount Issue (Note 1a)
<S> <C> <C> <C> <C> <C>
New Jersey--99.4% AAA Aaa $ 2,500 Camden County, New Jersey, Improvement Authority, Lease Revenue
Bonds (County Guaranteed), 6.15% due 10/01/2004 (d)(f) $ 2,834
AAA Aaa 1,000 Camden County, New Jersey, Municipal Utilities Authority,
Sewer Revenue Refunding Bonds, 5.20% due 7/15/2015 (b) 1,035
AAA Aaa 1,815 Cape May County, New Jersey, Industrial Pollution Control
Financing Authority Revenue Bonds (Atlantic City Electric
Company Project), AMT, Series A, 7.20% due 11/01/2029 (d) 2,103
AAA Aaa 1,425 East Orange, New Jersey, Board of Education (AGH Leasing
Inc.), COP, 5.32%** due 8/01/2017 (c) 566
NR* Aaa 2,875 Hudson County, New Jersey, Improvement Authority, Facility
Lease Revenue Bonds, Residual Certificates, RIB, Series 34,
7.285% due 10/01/2024 (b)(e) 3,103
AA Aa3 3,200 Jersey City, New Jersey, School GO, UT, 6.65% due 2/15/2002 (f) 3,547
AAA Aaa 835 Metuchen, New Jersey, School District, GO, UT, 5.15% due
9/15/2019 (b) 847
AAA Aaa 1,600 Middlesex County, New Jersey, COP, 6.125% due 2/15/2004 (d)(f) 1,782
AAA Aaa 1,690 New Jersey Casino Reinvestment Development Authority,
Parking Fee Revenue Bonds, Series A, 5.25% due 10/01/2016 1,738
New Jersey EDA, First Mortgage Revenue Bonds:
NR* NR* 1,250 (Franciscan Oaks Project), 5.70% due 10/01/2017 1,253
NR* NR* 1,250 (Franciscan Oaks Project), 5.75% due 10/01/2023 1,253
BBB- NR* 2,000 Refunding (Fellowship Village), Series A, 5.50% due
1/01/2025 2,011
New Jersey EDA, Natural Gas Revenue Refunding Bonds (NUI
Corporation), Series A:
AAA Aaa 3,900 6.35% due 10/01/2022 (a) 4,385
AAA Aaa 1,000 AMT, 5.70% due 6/01/2032 (d) 1,058
New Jersey EDA, Revenue Bonds:
AAA Aaa 2,400 (Educational Testing Service), Series B, 6.25% due
5/15/2025 2,695
NR* Aa3 1,500 Refunding (Burlington Coat Factory), 6.125% due 9/01/2010 1,673
AAA Aaa 1,000 Refunding (Educational Testing Service), Series A,
4.75% due 5/15/2018 (d) 980
BBB- NR* 1,000 Refunding (United Methodist Homes), 5.125% due 7/01/2018 (d) 978
NR* Aaa 7,385 (Saint Barnabas), Series A, 5.625%** due 7/01/2022 (d) 2,267
NR* Aa1 4,500 New Jersey EDA, Solid Waste Disposal Facilities Revenue
Bonds (Garden State Paper Company), AMT, 7.125% due 4/01/2022 4,970
BB- Ba2 3,630 New Jersey EDA, Special Facility Revenue Bonds (Continental
Airlines Inc. Project), AMT, 5.50% due 4/01/2028 3,573
New Jersey EDA, Water Facilities Revenue Bonds, AMT:
AAA Aaa 2,000 (American Water Company Inc. Project), 6% due 5/01/2036 (b) 2,184
AAA Aaa 2,855 RITR, Series 34, 6.92% due 5/01/2032 (b)(e) 3,015
AAA Aaa 1,500 RITR, Series 35, 6.87% due 2/01/2038 (d)(e) 1,576
A1+ VMIG1++ 1,900 New Jersey EDA, Water Facilities Revenue Refunding Bonds
(United Water New Jersey Inc. Project), VRDN, Series A,
3.65% due 11/01/2026 (a)(g) 1,900
New Jersey Health Care Facilities Financing Authority
Revenue Bonds:
A- Baa1 3,135 Refunding (Capital Health System Obligation Group), 5.25%
due 7/01/2027 3,089
AAA Aaa 2,500 Refunding (Hackensack Medical Center), 6.625% due
7/01/2001 (b)(f) 2,735
BBB+ NR* 3,000 Refunding (Holy Name Hospital), 6% due 7/01/2025 3,165
AAA Aaa 5,000 Refunding (Jersey Shore Medical Center), 6.75% due
7/01/2019 (a) 5,689
AAA Aaa 1,000 Refunding (Monmouth Medical Center), Series C, 6.25%
due 7/01/2024 (c) 1,113
BBB Baa2 2,075 Refunding (Saint Elizabeth Hospital Obligation Group),
6% due 7/01/2027 2,200
NR* Baa1 4,200 (Southern Ocean County Hospital), Series A, 6.25% due
7/01/2023 4,466
AAA Aaa 2,000 New Jersey Sports and Exposition Authority, Luxury Tax
Revenue Refunding Bonds (Convention Center), Series A,
6.60% due 7/01/2015 (d) 2,210
A+ Aa2 2,000 New Jersey Sports and Exposition Authority, Revenue
Refunding Bonds (State Contract), Series A, 6% due 3/01/2021 2,113
New Jersey State Educational Facilities Authority
Revenue Bonds:
AAA Aaa 1,500 (Higher Education--Princeton University), Series C,
6.375% due 7/01/2002 (f) 1,664
AA+ Aaa 1,000 (Institute for Advanced Study), Series G, 5% due
7/01/2028 997
BBB Baa3 1,000 Refunding (Saint Peter's College), 5.375% due 7/01/2018 1,016
AA+ Aaa 1,000 New Jersey State Educational Facilities Authority, Revenue
Refunding Bonds (Institute for Advanced Study), Series F,
5% due 7/01/2018 1,005
AA+ Aa1 1,970 New Jersey State, GO, UT, AMT, 7.05% due 7/15/2014 2,312
NR* Aaa 2,675 New Jersey State Higher Education Assistance Authority,
Student Loan Revenue Bonds, RIB, Series 18, 6.935% due
6/01/2017 (e) 2,721
AAA Aaa 2,700 New Jersey State Housing and Mortgage Finance Agency,
Home Buyer Revenue Bonds, AMT, Series M, 7% due 10/01/2026 (d) 2,953
AAA Aaa 5,150 New Jersey State Transit Corporation, COP (Raymond Plaza
East, Incorporated), 6.50% due 10/01/2016 (c) 6,003
AA- Aa1 1,865 New Jersey Wastewater Treatment Trust Revenue Bonds,
Series A, 6.50% due 4/01/2004 (f) 2,127
AAA Aaa 5,000 Passaic Valley, New Jersey, Sewer Commissioner's Refunding
Bonds (Sewer System), Series D, 5.875% due 12/01/2022 (a) 5,435
Port Authority of New York and New Jersey, Consolidated
Revenue Bonds:
AA- A1 1,500 76th Series, AMT, 6.50% due 11/01/2026 1,605
AA- A1 1,000 93rd Series, 6.125% due 6/01/2094 1,173
AAA Aaa 1,000 104th Series, 3rd Installment, 4.75% due 1/15/2026 964
AAA Aaa 2,500 Port Authority of New York and New Jersey, Special
Obligation Revenue Bonds (JFK International Air Terminal
Project), AMT, Series 6, 3rd Installment, 5.75% due
12/01/2022 2,656
Port Authority of New York and New Jersey, Special
Obligation Revenue Refunding Bonds (Versatile Structure
Obligation), VRDN (g):
A1+ VMIG1++ 1,200 3.70% due 8/01/2024 1,200
A1+ VMIG1++ 1,100 Series 2, 3.70% due 5/01/2019 1,100
NR* P1 900 Series 4, 3.80% due 4/01/2024 900
AA- A3 1,750 University of Medicine and Dentistry, New Jersey, Revenue
Bonds, Series E, 6.50% due 12/01/2001 (f) 1,927
Total Investments (Cost--$109,905)--99.4% 117,864
Other Assets Less Liabilities--0.6% 698
--------
Net Assets--100.0% $118,562
========
</TABLE>
(a) AMBAC Insured.
(b) FGIC Insured.
(c) FSA Insured.
(d) MBIA Insured
(e) 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.
(f) Prerefunded.
(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.
++ Highest short-term rating by Moody's Investors Service, Inc.
* Not Rated.
** Represents a zero coupon bond; the interest rate shown is the effective
yield at the time of purchase by the Fund.
Ratings of issues shown have not been audited by Ernst & Young LLP.
PORTFOLIO ABBREVIATIONS
To simplify the listings of MuniVest New Jersey Fund, Inc.'s portfolio holdings
in the Schedule of Investments, we have abbreviated the names of the securities
according to the list at right.
AMT Alternative Minimum Tax (subject to)
COP Certificates of Participation
GO General Obligation Bonds
EDA Economic Development Authority
RIB Residual Interests Bonds
RITR Residual Interest Trust Receipts
UT Unlimited Tax
VRDN Variable Rate Demand Notes
See Notes to Financial Statements.
F-25
<PAGE> 84
MuniVest New Jersey Fund, Inc., October 31, 1998
<TABLE>
<CAPTION>
STATEMENT OF ASSETS, LIABILITIES AND CAPITAL
As of October 31, 1998
<S> <C> <C> <C>
Assets: Investments, at value (identified cost--$109,904,691) (Note 1a) $117,863,958
Cash 71,950
Interest receivable 1,722,984
Prepaid expenses and other assets 10,063
------------
Total assets 119,668,955
------------
Liabilities: Payables:
Securities purchased $ 983,563
Investment adviser (Note 2) 52,198 1,035,761
------------
Accrued expenses and other liabilities 71,047
------------
Total liabilities 1,106,808
------------
Net Assets: Net assets $118,562,147
============
Capital: Capital Stock (200,000,000 shares authorized) (Note 4):
Preferred Stock, par value $.05 per share (1,500 shares of
AMPS* issued and outstanding at $25,000 per share
liquidation preference) $ 37,500,000
Common Stock, par value $.10 per share (5,505,117 shares
issued and outstanding) $ 550,512
Paid-in capital in excess of par 76,624,760
Undistributed investment income--net 507,070
Accumulated realized capital losses on investments--net
(Note 5) (4,579,462)
Unrealized appreciation on investments--net 7,959,267
------------
Total--Equivalent to $14.72 net asset value per share of
Common Stock (market price--$14.875) 81,062,147
------------
Total capital $118,562,147
============
</TABLE>
*Auction Market Preferred Stock.
See Notes to Financial Statements.
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
For the Year Ended October 31, 1998
<S> <C> <C> <C>
Investment Interest and amortization of premium and discount earned $ 6,525,037
Income (Note 1d):
Expenses: Investment advisory fees (Note 2) $ 584,293
Commission fees (Note 4) 95,160
Professional fees 90,208
Accounting services (Note 2) 66,692
Directors' fees and expenses 26,147
Transfer agent fees 18,224
Listing fees 13,475
Printing and shareholder reports 11,981
Custodian fees 9,630
Pricing fees 6,431
Amortization of organization expenses (Note 1e) 2,715
Other 15,277
------------
Total expenses 940,233
------------
Investment income--net 5,584,804
------------
Realized & Realized gain on investments--net 2,170,081
Unrealized Gain on Change in unrealized appreciation on investments--net 743,792
Investments--Net ------------
(Notes 1b, Net Increase in Net Assets Resulting from Operations $ 8,498,677
1d & 3): ============
See Notes to Financial Statements.
</TABLE>
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<CAPTION>
For the Year Ended
October 31,
Increase (Decrease) in Net Assets: 1998 1997
<S> <C> <C> <C>
Operations: Investment income--net $ 5,584,804 $ 5,519,134
Realized gain on investments--net 2,170,081 36,113
Change in unrealized appreciation on investments--net 743,792 2,137,716
------------ ------------
Net increase in net assets resulting from operations 8,498,677 7,692,963
------------ ------------
Dividends to Investment income--net:
Shareholders Common Stock (4,239,104) (4,272,415)
(Note 1f): Preferred Stock (1,290,390) (1,207,695)
------------ ------------
Net decrease in net assets resulting from dividends to
shareholders (5,529,494) (5,480,110)
------------ ------------
Capital Stock Value of shares issued to Common Stock shareholders in
Transactions reinvestment of dividends 105,388 --
(Note 4): ------------ ------------
Net Assets: Total increase in net assets 3,074,571 2,212,853
Beginning of year 115,487,576 113,274,723
------------ ------------
End of year* $118,562,147 $115,487,576
============ ============
*Undistributed investment income--net $ 507,070 $ 451,760
============ ============
See Notes to Financial Statements.
</TABLE>
F-26
<PAGE> 85
MuniVest New Jersey Fund, Inc., October 31, 1998
FINANCIAL HIGHLIGHTS
The following per share data and ratios have been derived
from information provided in the financial statements.
<TABLE>
<CAPTION>
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 $ 14.18 $ 13.78 $ 13.76 $ 12.18 $ 14.89
Operating --------- --------- --------- --------- ---------
Performance: Investment income--net 1.01 1.00 1.01 1.02 1.00
Realized and unrealized gain (loss) on
investments--net .53 .40 .01 1.58 (2.66)
--------- --------- --------- --------- ---------
Total from investment operations 1.54 1.40 1.02 2.60 (1.66)
--------- --------- --------- --------- ---------
Less dividends and distributions to Common
Stock shareholders:
Investment income--net (.77) (.78) (.78) (.76) (.81)
Realized gain on investments--net -- -- -- -- (.04)
--------- --------- --------- --------- ---------
Total dividends and distributions to
Common Stock shareholders (.77) (.78) (.78) (.76) (.85)
--------- --------- --------- --------- ---------
Effect of Preferred Stock activity:
Dividends and distributions to Preferred
Stock shareholders:
Investment income--net (.23) (.22) (.22) (.26) (.19)
Realized gain on investments--net -- -- -- -- (.01)
--------- --------- --------- --------- ---------
Total effect of Preferred Stock activity (.23) (.22) (.22) (.26) (.20)
--------- --------- --------- --------- ---------
Net asset value, end of year $ 14.72 $ 14.18 $ 13.78 $ 13.76 $ 12.18
========= ========= ========= ========= =========
Market price per share, end of year $ 14.875 $ 13.25 $ 12.25 $ 12.00 $ 10.125
========= ========= ========= ========= =========
Total Investment Based on market price per share 18.56% 14.78% 8.67% 26.66% (27.74%)
Return:* ========= ========= ========= ========= =========
Based on net asset value per share 9.63% 9.19% 6.61% 20.74% (12.43%)
========= ========= ========= ========= =========
Ratios to Average Expenses, net of reimbursement .81% .83% .81% .84% .79%
Net Assets:** ========= ========= ========= ========= =========
Expenses .81% .83% .81% .84% .82%
========= ========= ========= ========= =========
Investment income--net 4.78% 4.82% 4.87% 5.20% 4.89%
========= ========= ========= ========= =========
Supplemental Net assets, net of Preferred Stock, end
Data: of year (in thousands) $ 81,062 $ 77,988 $ 75,775 $ 75,657 $ 66,978
========= ========= ========= ========= =========
Preferred Stock outstanding, end of year
(in thousands) $ 37,500 $ 37,500 $ 37,500 $ 37,500 $ 37,500
========= ========= ========= ========= =========
Portfolio turnover 54.73% 39.77% 99.56% 62.45% 68.75%
========= ========= ========= ========= =========
Leverage: Asset coverage per $1,000 $ 3,162 $ 3,080 $ 3,021 $ 3,018 $ 2,786
========= ========= ========= ========= =========
Dividends Investment income--net $ 860 $ 805 $ 818 $ 955 $ 696
Per Share on ========= ========= ========= ========= =========
Preferred Stock
Outstanding:++
</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.
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
MuniVest New Jersey 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 Common Stock is listed on the New York Stock Exchange under
the symbol MVJ. 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.
(c) Income taxes--It is the Fund's policy to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no Federal income tax provision is required.
(d) Security transactions and investment income--Security transactions are
recorded on the dates the transactions are entered into (the trade dates).
Interest income is recognized on the accrual basis. Discounts and market
premiums are amortized into interest income. Realized gains and losses on
security transactions are determined on the identified cost basis.
(e) Deferred organization expenses--Deferred organization expenses are amortized
on a straight-line basis over a period not exceeding five years.
(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.
F-27
<PAGE> 86
MuniVest New Jersey Fund, Inc., October 31, 1998
NOTES TO FINANCIAL STATEMENTS (concluded)
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 $63,279,165 and
$62,265,934, respectively.
Net realized gains for the year ended October 31, 1998 and net
unrealized gains as of October 31, 1998 were as follows:
<TABLE>
<CAPTION>
Realized Unrealized
Gains Gains
<S> <C> <C>
Long-term investments $ 2,170,081 $ 7,959,267
-------------- ------------
Total $ 2,170,081 $ 7,959,267
============== ============
</TABLE>
As of October 31, 1998, net unrealized appreciation for Federal
income tax purposes aggregated $7,959,267, of which $7,999,457
related to appreciated securities and $40,190 related to depreciated
securities. The aggregate cost of investments at October 31, 1998
for Federal income tax purposes was $109,904,691.
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 holders of Common Stock.
Common Stock
Shares issued and outstanding during the year ended October 31, 1998
increased by 7,164 as a result of dividend reinvestment and during
the year ended October 31, 1997 remained constant.
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 yield in effect at October
31, 1998 was 3.23%.
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 $61,756 as commissions.
5. Capital Loss Carryforward:
At October 31, 1998, the Fund had a net capital loss carryforward of
approximately $3,113,000, of which $783,000 expires in 2002 and
$2,330,000 expires in 2003. This amount will be available to offset
like amounts of any future taxable gains.
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 $.066112 per share, payable on November 27, 1998 to shareholders
of record as of November 20, 1998.
F-28
<PAGE> 87
UNAUDITED FINANCIAL STATEMENTS FOR
MUNIVEST NEW JERSEY FUND, INC.
FOR THE SIX-MONTH PERIOD ENDED APRIL 30, 1999
F-29
<PAGE> 88
MuniVest New Jersey Fund, Inc., April 30, 1999
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS (in Thousands)
S&P Moody's Face Value
STATE Ratings Ratings Amount Issue (Note 1a)
<S> <C> <C> <C> <S> <C>
New AAA Aaa $2,500 Camden County, New Jersey, Improvement Authority, Lease Revenue
Jersey--98.7% Bonds (County Guaranteed), 6.15% due 10/01/2004 (d)(e) $ 2,816
AAA Aaa 1,000 Camden County, New Jersey, Municipal Utilities Authority, Sewer
Revenue Refunding Bonds, 5.20% due 7/15/2015 (b) 1,033
AAA Aaa 1,815 Cape May County, New Jersey, Industrial Pollution Control
Financing Authority Revenue Bonds (Atlantic City Electric
Company Project), AMT, Series A, 7.20% due 11/01/2029 (d) 2,084
AAA Aaa 1,000 Carteret, New Jersey, Board of Education COP, Refunding Bonds,
4.75% due 4/15/2019 (d) 966
AAA Aaa 1,690 Casino Reinvestment Development Authority, New Jersey, Parking
Fee Revenue Bonds, Series A, 5.25% due 10/01/2016 (c) 1,734
AAA Aaa 1,425 East Orange, New Jersey, Board of Education, COP, 5.32%** due
8/01/2017 (c) 570
Aaa NR* 2,875 Hudson County, New Jersey, Improvement Authority, Facility
Lease Revenue Refunding Bonds, RIB, Series 34, 6.485% due
10/01/2024 (b)(f) 3,121
AAA NR* 835 Metuchen, New Jersey, School District, GO, UT, 5.15% due
9/15/2019 (b) 845
AAA Aaa 1,600 Middlesex County, New Jersey, COP, 6.125% due 2/15/2004 (d)(e) 1,769
New Jersey EDA, Economic Development Revenue Refunding Bonds:
NR* Aa3 1,500 (Burlington Coat Factory), 6.125% due 9/01/2010 1,658
A1+ P1 1,000 (Stolthaven Project), VRDN, Series A, 4.20% due 1/15/2018 (g) 1,000
A1+ VMIG1++ 2,000 New Jersey EDA, Natural Gas Facilities Revenue Bonds (NUI
Corporation Project), VRDN, AMT, Series A, 4% due
6/01/2026 (a)(g) 2,000
AAA Aaa 3,900 New Jersey EDA, Natural Gas Facilities Revenue Refunding
Bonds (NUI Corporation), Series A, 6.35% due 10/01/2022 (a) 4,353
New Jersey EDA, Revenue Bonds (d):
AAA Aaa 2,400 (Educational Testing Service), Series B, 6.25% due
5/15/2005 (e) 2,726
NR* Aaa 7,385 (Saint Barnabas), Series A, 5.53%** due 7/01/2022 2,230
New Jersey EDA, Revenue Refunding Bonds (First Mortgage):
BBB- NR* 2,000 (Fellowship Village), Series A, 5.50% due 1/01/2025 1,936
NR* NR* 1,250 (Franciscan Oaks Project), 5.70% due 10/01/2017 1,261
NR* NR* 1,250 (Franciscan Oaks Project), 5.75% due 10/01/2023 1,256
</TABLE>
F-30
<PAGE> 89
MuniVest New Jersey Fund, Inc., April 30, 1999
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
S&P Moody's Face Value
STATE Ratings Ratings Amount Issue (Note 1a)
<S> <C> <C> <C> <C> <C>
New Jersey NR* Aa3 $4,500 New Jersey EDA, Solid Waste Disposal Facilities Revenue
(concluded) Bonds (Garden State Paper Company), AMT, 7.125% due 4/01/2022 $ 4,921
BB Ba2 3,630 New Jersey EDA, Special Facility Revenue Bonds (Continental
Airlines Inc. Project), AMT, 5.50% due 4/01/2028 3,611
New Jersey EDA, Water Facilities Revenue Bonds, AMT:
AAA Aaa 2,000 (American Water Company Inc. Project), 6% due 5/01/2036 (b) 2,175
AAA Aaa 2,855 RITR, Series 34, 6.92% due 5/01/2032 (b)(f) 2,986
AAA Aaa 1,500 RITR, Series 35, 6.87% due 2/01/2038 (d)(f) 1,561
A1+ VMIG1++ 2,300 New Jersey EDA, Water Facilities Revenue Refunding Bonds
(United Water New Jersey Inc. Project), VRDN, Series A,
4.05% due 11/01/2026 (a)(g) 2,300
NR* Baa1 4,200 New Jersey Health Care Facilities Financing Authority
Revenue Bonds (Southern Ocean County Hospital), Series A,
6.25% due 7/01/2023 4,405
New Jersey Health Care Facilities Financing Authority,
Revenue Refunding Bonds:
BBB+ NR* 3,000 (Holy Name Hospital), 6% due 7/01/2025 3,107
AAA Aaa 5,000 (Jersey Shore Medical Center), 6.75% due 7/01/2019 (a) 5,640
AAA Aaa 1,000 (Monmouth Medical Center), Series C, 6.25% due
7/01/2004 (c)(e) 1,124
AAA Aaa 1,700 (Saint Barnabas Hospital), Series B, 5.04%** due
7/01/2018 (d) 645
AAA Aaa 1,970 (Saint Barnabas Hospital), Series B, 5.04%** due
7/01/2020 (d) 670
AAA Aaa 2,365 (Saint Barnabas Hospital), Series B, 5.04%** due
7/01/2021 (d) 760
AAA Aaa 5,500 (Saint Barnabas Hospital), Series B, 5.05%** due
7/01/2023 (d) 1,589
BBB Baa2 2,075 (Saint Elizabeth Hospital Obligation Group), 6% due
7/01/2027 2,145
AAA Aaa 2,300 (Virtua Health Issue), 4.75% due 7/01/2018 (c) 2,216
AAA Aaa 2,000 New Jersey Sports and Exposition Authority, Convention
Center, Luxury Tax Revenue Bonds, Series A, 6.60% due
7/01/2002 (d)(e) 2,211
New Jersey Sports and Exposition Authority, Convention
Center, Luxury Tax Revenue Refunding Bonds (d):
AAA Aaa 2,000 5% due 9/01/2015 2,024
AAA Aaa 2,205 5% due 9/01/2019 2,197
New Jersey State Educational Facilities Authority, Revenue
Refunding Bonds:
AAA Aaa 1,500 (Higher Education--Princeton University), Series C, 6.375%
due 7/01/2002 (e) 1,648
AA+ Aaa 1,000 (Institute for Advanced Study), Series F, 5% due 7/01/2018 1,003
AAA Aaa 2,225 (Ramapo College), Series G, 4.625% due 7/01/2022 (a) 2,108
AA+ Aa1 1,970 New Jersey State, GO, UT, AMT, 7.05% due 7/15/2014 2,298
NR* Aaa 2,675 New Jersey State Higher Education Assistance Authority, Student
Loan Revenue Bonds, RIB, AMT, Series 18, 6.235% due 6/01/2017
(a)(f) 2,728
AAA Aaa 2,700 New Jersey State Housing and Mortgage Finance Agency Revenue
Bonds (Home Buyer), AMT, Series M, 7% due 10/01/2026 (d) 2,938
AAA Aaa 5,150 New Jersey State Transit Corporation, COP, 6.50% due
10/01/2016 (c) 5,870
AA- Aa2 2,500 New Jersey State Transportation Trust Fund Authority Revenue
Bonds (Transportation System), Series A, 5.125% due 6/15/2015 2,563
AA- Aa 1,865 New Jersey Wastewater Treatment Trust Revenue Bonds, Series A,
6.50% due 4/01/2004 (e) 2,109
AAA Aaa 5,000 Passaic Valley, New Jersey, Sewer Commissioner's Revenue
Refunding Bonds (Sewer System), Series D, 5.875% due
12/01/2022 (a) 5,400
AA- A1 1,000 Port Authority of New York and New Jersey, Consolidated
Revenue Bonds, 93rd Series, 6.125% due 6/01/2094 1,144
AAA Aaa 2,500 Port Authority of New York and New Jersey, Special Obligation
Revenue Bonds (JFK International Air Terminal Project),
AMT, Series 6, 5.75% due 12/01/2022 (d) 2,674
Port Authority of New York and New Jersey, Special Obligation
Revenue Refunding Bonds (Versatile Structure Obligation),
VRDN (g):
A1+ VMIG1++ 200 Series 3, 4.20% due 6/01/2020 200
A1+ VMIG1++ 1,400 Series 5, 4.20% due 8/01/2024 1,400
AAA Aaa 2,500 West Windsor-Plainsboro, New Jersey, Regional School District,
GO, Refunding, 4.75% due 9/15/2024 (b) 2,393
Puerto AAA Aaa 1,000 Puerto Rico Electric Power Authority, Power Revenue
Rico--0.8% Refunding Bonds, Series EE, 4.50% due 7/01/2002 (d) 944
Total Investments (Cost--$110,908)--99.5% 117,065
Other Assets Less Liabilities--0.5% 598
--------
Net Assets--100.0% $117,663
========
</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
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.
* Not Rated.
** Represents a zero coupon bond; the interest rate shown is the effective
yield at the time of purchase by the Fund.
++ Highest short-term rating by Moody's Investors Service, Inc.
Portfolio
Abbreviations
To simplify the listings of MuniVest New Jersey Fund, Inc.'s
portfolio holdings in the Schedule of Investments, we have
abbreviated the names of many of the securities according to the
list at right.
AMT Alternative Minimum Tax
(subject to)
COP Certificates of Participation
EDA Economic Development Authority
GO General Obligation Bonds
RIB Residual Interest Bonds
RITR Residual Interest Trust Receipts
UT Unlimited Tax
VRDN Variable Rate Demand Notes
See Notes to Financial Statements.
F-31
<PAGE> 90
MuniVest New Jersey Fund, Inc., April 30, 1999
<TABLE>
<CAPTION>
STATEMENT OF ASSETS, LIABILITIES AND CAPITAL
As of April 30, 1999
<S> <C> <C> <C>
Assets: Investments, at value (identified cost--$110,907,956) (Note 1a) $117,065,056
Cash 89,994
Interest receivable 1,630,920
Prepaid expenses and other assets 10,063
------------
Total assets 118,796,033
------------
Liabilities: Payables:
Securities purchased $ 963,585
Dividends to shareholders (Note 1e) 104,622
Investment adviser (Note 2) 51,727 1,119,934
------------
Accrued expenses and other liabilities 12,940
------------
Total liabilities 1,132,874
------------
Net Assets: Net assets $117,663,159
============
Capital: Capital Stock (200,000,000 shares authorized) (Note 4):
Preferred Stock, par value $.05 per share (1,500 shares of
AMPS* issued and outstanding at $25,000
per share liquidation preference) $ 37,500,000
Common Stock, par value $.10 per share (5,519,681 shares
issued and outstanding) $ 551,968
Paid-in capital in excess of par 76,836,982
Undistributed investment income--net 537,428
Accumulated realized capital losses on investments--net
(Note 5) (3,920,319)
Unrealized appreciation on investments--net 6,157,100
------------
Total--Equivalent to $14.52 net asset value per share of
Common Stock (market price--$14.0625) 80,163,159
------------
Total capital $117,663,159
============
</TABLE>
*Auction Market Preferred Stock.
See Notes to Financial Statements.
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
For the Six Months Ended April 30, 1999
<S> <C> <C> <C>
Investment Interest and amortization of premium and discount earned $ 3,214,908
Income (Note 1d):
Expenses: Investment advisory fees (Note 2) $ 295,098
Commission fees (Note 4) 47,295
Professional fees 44,426
Accounting services (Note 2) 26,467
Transfer agent fees 18,787
Directors' fees and expenses 13,627
Printing and shareholder reports 13,225
Listing fees 8,062
Custodian fees 5,045
Pricing fees 3,956
Other 8,869
------------
Total expenses 484,857
------------
Investment income--net 2,730,051
------------
Realized & Realized gain on investments--net 659,143
Unrealized Change in unrealized appreciation on investments--net (1,802,167)
Gain (Loss) on ------------
Investments--Net Net Increase in Net Assets Resulting from Operations $ 1,587,027
(Notes 1b, ============
1d & 3):
</TABLE>
See Notes to Financial Statements.
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
For the Six For the
Months Ended Year Ended
April 30, October 31,
Increase (Decrease) in Net Assets: 1999 1998
<S> <C> <C> <C>
Operations: Investment income--net $ 2,730,051 $ 5,584,804
Realized gain on investments--net 659,143 2,170,081
Change in unrealized appreciation on investments--net (1,802,167) 743,792
------------ ------------
Net increase in net assets resulting from operations 1,587,027 8,498,677
------------ ------------
Dividends to Investment income--net:
Shareholders Common Stock (2,150,198) (4,239,104)
(Note 1e): Preferred Stock (549,495) (1,290,390)
------------ ------------
Net decrease in net assets resulting from dividends to
shareholders (2,699,693) (5,529,494)
------------ ------------
Capital Stock Value of shares issued to Common Stock shareholders in
Transactions reinvestment of dividends 213,678 105,388
(Note 4): ------------ ------------
Net Assets: Total increase (decrease) in net assets (898,988) 3,074,571
Beginning of period 118,562,147 115,487,576
------------ ------------
End of period* $117,663,159 $118,562,147
============ ============
*Undistributed investment income--net $ 537,428 $ 507,070
============ ============
</TABLE>
See Notes to Financial Statements.
F-32
<PAGE> 91
MuniVest New Jersey Fund, Inc., April 30, 1999
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
The following per share data and ratios have been derived For the Six
from information provided in the financial statements. Months Ended
April 30, For the Year Ended October 31,
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 $ 14.72 $ 14.18 $ 13.78 $ 13.76 $ 12.18
Operating --------- --------- --------- --------- ---------
Performance: Investment income--net .50 1.01 1.00 1.01 1.02
Realized and unrealized gain (loss) on
investments--net (.21) .53 .40 .01 1.58
--------- --------- --------- --------- ---------
Total from investment operations .29 1.54 1.40 1.02 2.60
--------- --------- --------- --------- ---------
Less dividends to Common Stock
shareholders:
Investment income--net (.39) (.77) (.78) (.78) (.76)
--------- --------- --------- --------- ---------
Total dividends to Common Stock
shareholders (.39) (.77) (.78) (.78) (.76)
--------- --------- --------- --------- ---------
Effect of Preferred Stock activity:
Dividends to Preferred Stock
shareholders:
Investment income--net (.10) (.23) (.22) (.22) (.26)
--------- --------- --------- --------- ---------
Total effect of Preferred Stock activity (.10) (.23) (.22) (.22) (.26)
--------- --------- --------- --------- ---------
Net asset value, end of period $ 14.52 $ 14.72 $ 14.18 $ 13.78 $ 13.76
========= ========= ========= ========= =========
Market price per share, end of period $ 14.0625 $ 14.875 $ 13.25 $ 12.25 $ 12.00
========= ========= ========= ========= =========
Total Investment Based on market price per share (2.89%)++ 18.56% 14.78% 8.67% 26.66%
Return:** ========= ========= ========= ========= =========
Based on net asset value per share 1.33%++ 9.63% 9.19% 6.61% 20.74%
========= ========= ========= ========= =========
Ratios to Average Expenses, net of reimbursement .82%* .81% .83% .81% .84%
Net Assets:*** ========= ========= ========= ========= =========
Expenses .82%* .81% .83% .81% .84%
========= ========= ========= ========= =========
Investment income--net 4.62%* 4.78% 4.82% 4.87% 5.20%
========= ========= ========= ========= =========
Supplemental Net assets, net of Preferred Stock,
Data: end of period (in thousands) $ 80,163 $ 81,062 $ 77,988 $ 75,775 $ 75,657
========= ========= ========= ========= =========
Preferred Stock outstanding, end
of period (in thousands) $ 37,500 $ 37,500 $ 37,500 $ 37,500 $ 37,500
========= ========= ========= ========= =========
Portfolio turnover 26.42% 54.73% 39.77% 99.56% 62.45%
========= ========= ========= ========= =========
Leverage: Asset coverage per $1,000 $ 3,138 $ 3,162 $ 3,080 $ 3,021 $ 3,018
========= ========= ========= ========= =========
Dividends Investment income--net $ 366 $ 860 $ 805 $ 818 $ 955
Per Share on ========= ========= ========= ========= =========
Preferred Stock
Outstanding:
</TABLE>
* Annualized.
** Total investment returns based on market value, which can be significantly
greater or lesser than the net asset value, may result in substantially
different returns. Total investment returns exclude the effects of sales
loads.
*** Do not reflect the effect of dividends to Preferred Stock shareholders.
++ Aggregate total investment return.
See Notes to Financial Statements.
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
MuniVest New Jersey 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's Common Stock is listed
on the New York Stock Exchange under the symbol MVJ. 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 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.
(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.
F-33
<PAGE> 92
UNAUDITED FINANCIAL STATEMENTS FOR
THE COMBINED FUND ON A
PRO FORMA BASIS, AS OF
MAY 31, 1999
F-34
<PAGE> 93
COMBINED SCHEDULE OF INVESTMENTS FOR
MUNIYIELD NEW JERSEY FUND, INC. AND MUNIVEST NEW JERSEY FUND, INC.
MAY 31, 1999 (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
MUNIYIELD MUNIVEST PRO FORMA
S&P MOODY'S FACE NEW JERSEY NEW JERSEY FOR COMBINED
RATINGS RATINGS AMOUNT ISSUE FUND++ FUND++ FUNDS++
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NEW JERSEY -- 100.4%
AA A1 $ 2,000 Bernards Township, New Jersey, School
District, GO, 5.30% due 1/01/2019 $ 2,028 -- $ 2,028
- ---------------------------------------------------------------------------------------------------------------
AAA Aaa 2,500 Camden County, New Jersey, Improvement
Authority, Lease Revenue Bonds (County
Guaranteed), 6.15% due 10/01/2004(d)(g) -- $ 2,790 2,790
- ---------------------------------------------------------------------------------------------------------------
Camden County, New Jersey, Municipal
Utilities Authority, Sewer Revenue
Refunding Bonds(b):
AAA Aaa 1,000 5.20% due 7/15/2015 -- 1,014 1,014
AAA Aaa 1,100 County Agreement, 5.25% due 7/15/2017 1,114 -- 1,114
- ---------------------------------------------------------------------------------------------------------------
AAA Aaa 3,815 Cape May County, New Jersey, Industrial
Pollution Control Financing Authority
Revenue Bonds (Atlantic City Electric
Company Project), AMT, Series A, 7.20% due
11/01/2029(d) 2,273 2,063 4,336
- ---------------------------------------------------------------------------------------------------------------
AAA Aaa 1,000 Carteret, New Jersey, Board of Education
COP, Refunding Bonds, 4.75% due
4/15/2019(d) -- 959 959
- ---------------------------------------------------------------------------------------------------------------
AAA Aaa 2,500 Casino Reinvestment Development Authority,
New Jersey, Parking Fee Revenue Bonds,
Series A, 5.25% due 10/01/2015(c) 2,533 -- 2,533
- ---------------------------------------------------------------------------------------------------------------
East Orange, New Jersey, Board of
Education, COP, Capital Appreciation (c):
AAA Aaa 1,420 5.30%** due 8/01/2016 588 -- 588
AAA Aaa 1,000 5.34%** due 2/01/2019 359 -- 359
AAA Aaa 2,845 5.202%** due 8/01/2026 683 -- 683
AAA Aaa 1,425 (AGH Leasing Inc.), 0% due 8/01/2017 -- 558 558
- ---------------------------------------------------------------------------------------------------------------
AAA Aaa 750 Essex County, New Jersey, Improvement
Authority, Parking Facility Revenue
Refunding Bonds, 5% due 10/01/2022(a) 736 -- 736
- ---------------------------------------------------------------------------------------------------------------
NR* Aaa 2,000 Essex County, New Jersey, Utilities
Authority, Solid Waste Revenue Refunding
Bonds, Series A, 5% due 4/01/2022(c) 1,962 -- 1,962
- ---------------------------------------------------------------------------------------------------------------
AA Aa2 1,000 Gloucester County, New Jersey, Industrial
Pollution Contol Financing Authority,
Revenue Refunding Bonds (Mobil Oil
Refining Corp. Project), 5.625% due
12/01/2028 1,027 -- 1,027
- ---------------------------------------------------------------------------------------------------------------
AAA Aaa 4,880 Hudson County, New Jersey, COP, Refunding
(Correctional Facilities), 6.60% due
12/01/2021(d) 5,267 -- 5,267
- ---------------------------------------------------------------------------------------------------------------
AAA NR* 7,875 Hudson County, New Jersey, Improvement
Authority, Facility Lease Revenue
Refunding Bonds, Residual Certificates,
RIB, Series 34, 7.175% due
10/01/2024(b)(e) 5,286 3,039 8,325
- ---------------------------------------------------------------------------------------------------------------
AA Aa3 2,600 Jersey City, New Jersey, School, GO, 6.65%
due 2/15/2002(g) 2,830 -- 2,830
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
F-35
<PAGE> 94
<TABLE>
<CAPTION>
MUNIYIELD MUNIVEST PRO FORMA
S&P MOODY'S FACE NEW JERSEY NEW JERSEY FOR COMBINED
RATINGS RATINGS AMOUNT ISSUE FUND++ FUND++ FUNDS++
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
AAA NR* 835 Metuchen, New Jersey, School District, GO,
5.15% due 9/15/2019(b) -- 842 842
- ---------------------------------------------------------------------------------------------------------------
Middlesex County, New Jersey, COP(d):
AAA Aaa 1,600 6.125% due 2/15/2004(g) -- 1,754 1,754
AAA Aaa 1,750 4.85% due 6/15/2023 1,680 -- 1,680
- ---------------------------------------------------------------------------------------------------------------
Middlesex County, New Jersey, Improvement
Authority, Utility System Revenue Bonds,
Capital Appreciation (Perth Amboy
Project), Series B (a):
AAA Aaa 1,000 5.16%** due 9/01/2023 280 -- 280
AAA Aaa 500 5.16%** due 9/01/2024 133 -- 133
AAA Aaa 1,000 5.16%** due 9/01/2025 251 -- 251
AAA Aaa 1,300 5.16%** due 9/01/2026 309 -- 309
- ---------------------------------------------------------------------------------------------------------------
NR** VMIG1+ 100 Monmouth County, New Jersey, Improvement
Authority Revenue Bonds (Pooled Government
Loan Program), ACES, 3.10% due
8/01/2016(f) 100 -- 100
- ---------------------------------------------------------------------------------------------------------------
AAA Aaa 1,690 New Jersey Casino Reinvestment Development
Authority, Parking Fee Revenue Bonds,
Series A, 5.25% due 10/01/2016(c) -- 1,708 1,708
- ---------------------------------------------------------------------------------------------------------------
New Jersey EDA, Economic Development
Revenue Refunding Bonds:
NR* Aa3 1,500 (Burlington Coat Factory), 6.125% due
9/01/2010 -- 1,641 1,641
A-1+ P-1 1,000 (Stolthaven Project), VRDN, Series A,
4.20% due 1/15/2018(f) -- 1,000 1,000
- ---------------------------------------------------------------------------------------------------------------
New Jersey EDA, First Mortgage Revenue
Refunding Bonds, Series A:
BBB- NR* 1,250 (Fellowship Village), 5.50% due
1/01/2018 1,225 -- 1,225
BBB- NR* 5,000 (Fellowship Village), 5.50% due
1/01/2025 2,881 1,920 4,801
- ---------------------------------------------------------------------------------------------------------------
A1+ VMIG1+ 2,400 New Jersey EDA, Natural Gas Facilities
Revenue Bonds (NUI Corporation Project),
VRDN, AMT, Series A, 3.25% due
6/01/2026(a)(f) 1,200 1,200 2,400
- ---------------------------------------------------------------------------------------------------------------
AAA Aaa 8,900 New Jersey EDA, Natural Gas Facilities
Revenue Refunding Bonds (NUI Corporation
Project), Series A, 6.35% due
10/01/2022(a) 5,523 4,308 9,831
- ---------------------------------------------------------------------------------------------------------------
New Jersey EDA Revenue Bonds(d):
AAA Aaa 2,400 (Educational Testing Service), Series B,
6.25% due 5/15/2005(g) -- 2,700 2,700
NR* Aaa 7,385 (Saint Barnabas), Series A, 0% due
7/01/2022** -- 2,202 2,202
- ---------------------------------------------------------------------------------------------------------------
New Jersey EDA, Revenue Bonds, Capital
Appreciation (Saint Barnabas Project),
Series A (d):
NR* Aaa 4,000 5.55%** due 7/01/2017 1,566 -- 1,566
NR* Aaa 5,435 5.47%** due 7/01/2018 2,013 -- 2,013
NR* Aaa 6,000 5.19%** due 7/01/2019 2,102 -- 2,102
NR* Aaa 1,000 5.18%** due 7/01/2023 283 -- 283
NR* Aaa 8,350 5%** due 7/01/2025 2,118 -- 2,118
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
F-36
<PAGE> 95
<TABLE>
<CAPTION>
MUNIYIELD MUNIVEST PRO FORMA
S&P MOODY'S FACE NEW JERSEY NEW JERSEY FOR COMBINED
RATINGS RATINGS AMOUNT ISSUE FUND++ FUND++ FUNDS++
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
New Jersey EDA, Revenue Refunding Bonds:
AAA Aaa 2,000 (Educational Testing Service), Series A,
4.75% due 5/15/2018(d) 1,920 -- 1,920
NR* NR* 1,250 First Mortgage, (Franciscan Oaks
Project), 5.70% due 10/01/2017 -- 1,256 1,256
NR* NR* 1,250 First Mortgage, (Franciscan Oaks
Project), 5.75% due 10/01/2023 -- 1,251 1,251
AAA Aaa 2,500 (RJW Health Care Corporation), 6.50% due
7/01/2024(c) 2,765 -- 2,765
- ---------------------------------------------------------------------------------------------------------------
NR* Aa1 15,250 New Jersey EDA, Solid Waste Disposal
Facilities Revenue Bonds (Garden State
Paper Company), 7.125% due 4/01/2022 11,686 4,892 16,578
- ---------------------------------------------------------------------------------------------------------------
BB Ba2 3,630 New Jersey EDA, Special Facility Revenue
Bonds (Continental Airlines Inc. Project),
AMT, 5.50% due 4/01/2028 -- 3,583 3,583
- ---------------------------------------------------------------------------------------------------------------
New Jersey EDA, Water Facilities Revenue
Bonds, AMT:
AAA Aaa 4,000 (American Water Company Inc. Project),
6% due 5/01/2036(b) 2,154 2,154 4,308
AAA Aaa 5,355 RITR, Series 34, 6.92% due
5/01/2032(b)(e) 2,543 2,904 5,447
AAA Aaa 1,500 RITR, Series 35, 6.87% due
2/01/2038(d)(f) -- 1,519 1,519
- ---------------------------------------------------------------------------------------------------------------
A-1+ VMIG1+ 1,600 New Jersey EDA, Water Facilities Revenue
Refunding Bonds (United Water New Jersey
Inc. Project), VRDN, Series A, 3.35% due
11/01/2026(a)(f) 1,300 300 1,600
- ---------------------------------------------------------------------------------------------------------------
New Jersey Health Care Facilities
Financing Authority Revenue Bonds:
AAA Aaa 2,800 (Catholic Health East), Series E, 4.75%
due 11/15/2029(a) 2,592 -- 2,592
NR* Baa1 4,200 (Southern Ocean County Hospital), Series
A, 6.25% due 7/01/2023 -- 4,392 4,392
- ---------------------------------------------------------------------------------------------------------------
New Jersey Health Care Facilities
Financing Authority, Revenue Refunding
Bonds:
A- A3 6,060 (Atlantic City Medical Center), Series
C, 6.80% due 7/01/2011 6,538 -- 6,538
BBB NR* 2,000 (Christian Health Care Center) Series A,
5.25% due 7/01/2013 1,946 -- 1,946
AAA Aaa 1,000 (Community Medical Center/Kimball),
5.25% due 7/01/2011(c) 1,026 -- 1,026
AAA Aaa 1,000 (Community Medical Center/Kimball),
5.25% due 7/01/2012(c) 1,022 -- 1,022
AAA Aaa 2,135 (Community Medical Center/Kimball),
5.25% due 7/01/2013(c) 2,173 -- 2,173
BBB+ NR* 6,500 (Holy Name Hospital), 6% due 7/01/2025 3,611 3,095 6,706
AAA Aaa 5,000 (Jersey Shore Medical Center), 6.75% due
7/01/2019(a) -- 5,586 5,586
AAA Aaa 1,000 (Monmouth Medical Center), Series C,
6.25% due 7/01/2004(c)(g) -- 1,115 1,115
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
F-37
<PAGE> 96
<TABLE>
<CAPTION>
MUNIYIELD MUNIVEST PRO FORMA
S&P MOODY'S FACE NEW JERSEY NEW JERSEY FOR COMBINED
RATINGS RATINGS AMOUNT ISSUE FUND++ FUND++ FUNDS++
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
New Jersey Health Care Facilities
Financing Authority Revenue Refunding
Bonds:
A NR* 1,750 (Palisades Medical Center Obligation
Group), 5.25% due 7/01/2028 1,707 -- 1,707
AAA Aaa 1,700 (Saint Barnabas Hospital), Series B, 0%
due 7/01/2018(d)** -- 630 630
AAA Aaa 1,970 (Saint Barnabas Hospital), Series B, 0%
due 7/01/2020(d)** -- 654 654
AAA Aaa 2,365 (Saint Barnabas Hospital), Series B, 0%
due 7/01/2021(d)** -- 744 744
AAA Aaa 5,500 (Saint Barnabas Hospital), Series B, 0%
due 7/01/2023(d)** -- 1,554 1,554
AAA Aaa 4,550 (Saint Barnabas Health Center), Series
B, 4.75% due 7/01/2028(d) 2,364 1,854 4,218
BBB Baa2 2,450 (Saint Elizabeth Hospital Obligation
Group), 6% due 7/01/2020 2,532 -- 2,532
BBB Baa2 2,075 (Saint Elizabeth Hospital Obligation
Group), 6% due 7/01/2027 -- 2,137 2,137
AAA Aaa 2,300 (Virtua Health Issue), 4.75% due
7/01/2018(c) -- 2,186 2,186
AAA Aaa 1,555 (Virtua Health Issue), 4.50% due
7/01/2028(c) 1,378 -- 1,378
- ---------------------------------------------------------------------------------------------------------------
AAA Aaa 2,000 New Jersey Sports and Exposition Authority
Convention Center, Luxury Tax Revenue
Bonds, Series A, 6.60% due 7/01/2002(d)(g) -- 2,195 2,195
- ---------------------------------------------------------------------------------------------------------------
New Jersey Sports and Exposition Authority
Convention Center, Luxury Tax Revenue
Refunding Bonds (d):
AAA Aaa 5,200 5% due 9/01/2015 3,193 1,995 5,188
AAA Aaa 6,205 5% due 9/01/2019 3,949 2,177 6,126
- ---------------------------------------------------------------------------------------------------------------
New Jersey State Educational Facilities
Authority Revenue Refunding Bonds
(Institute for Advanced Study):
AA+ Aaa 1,000 Series F, 5% due 7/01/2018 -- 992 992
AAA Aaa 2,225 Series G, 4.625% due 7/01/2022(a) -- 2,065 2,065
- ---------------------------------------------------------------------------------------------------------------
New Jersey State Educational Facilities
Authority, Higher Educational Revenue
Bonds (Saint Peters College), Series B(g):
BBB Baa3 3,355 6.80% due 7/01/2002 3,692 -- 3,692
BBB Baa3 3,600 6.85% due 7/01/2002 3,967 -- 3,967
- ---------------------------------------------------------------------------------------------------------------
AAA Aaa 6,435 New Jersey State Educational Facilities
Authority, Higher Educational Revenue
Refunding Bonds (Princeton University),
Series C, 6.375% due 7/01/2002(g) 5,384 1,636 7,020
New Jersey State Educational Facilities
Authority Revenue Bonds:
BBB+ NR* 6,250 (Drew University), Series E, 6.25% due
7/01/2002(g) 6,779 -- 6,779
AA+ Aaa 1,000 (Institute for Advanced Study), Series
G, 5% due 7/01/2028 980 -- 980
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
F-38
<PAGE> 97
<TABLE>
<CAPTION>
MUNIYIELD MUNIVEST PRO FORMA
S&P MOODY'S FACE NEW JERSEY NEW JERSEY FOR COMBINED
RATINGS RATINGS AMOUNT ISSUE FUND++ FUND++ FUNDS++
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
AAA Aaa 2,240 New Jersey State Educational Facilities
Authority Revenue Refunding Bonds (Seton
Hall University Project), 5.25% due
7/01/2013(a) 2,318 -- 2,318
- ---------------------------------------------------------------------------------------------------------------
A A3 6,030 New Jersey State Educational Facilities
Authority Revenue Bonds (Stevens Institute
of Technology), Series A, 6.80% due
7/01/2002(g) 6,636 -- 6,636
- ---------------------------------------------------------------------------------------------------------------
AA+ Aa1 4,075 New Jersey State, GO, AMT, 7.05% due
7/15/2015 2,414 2,276 4,690
- ---------------------------------------------------------------------------------------------------------------
NR* Aaa 7,675 New Jersey State Higher Education
Assistance Authority, Student Loan Revenue
Bonds, RIB, AMT, Series 18, 6.925% due
6/01/2017(a)(e) 5,050 2,702 7,752
- ---------------------------------------------------------------------------------------------------------------
New Jersey State Housing and Mortgage
Finance Agency, Home Buyer Revenue Bonds,
AMT(d):
AAA Aaa 6,340 Series M, 7% due 10/01/2026 3,949 2,929 6,878
AAA Aaa 1,940 Series U, 5.55% due 10/01/2011 2,022 -- 2,022
AAA Aaa 3,335 Series U, 5.60% due 10/01/2012 3,476 -- 3,476
- ---------------------------------------------------------------------------------------------------------------
AAA Aaa 7,150 New Jersey State Transit Corporation, COP,
6.50% due 10/01/2016(c) 2,249 5,791 8,040
- ---------------------------------------------------------------------------------------------------------------
AA- Aa2 10,000 New Jersey State Transportation Trust Fund
Authority Revenue Bonds (Transportation
System), Series A, 5.125% due 6/15/2015 7,544 2,515 10,059
- ---------------------------------------------------------------------------------------------------------------
AA- Aa 1,865 New Jersey Wastewater Treatment Trust
Revenue Bonds, Series A, 6.50% due
4/01/2004(g) -- 2,091 2,091
- ---------------------------------------------------------------------------------------------------------------
North Brunswick Township, New Jersey, GO:
NR* A1 1,190 6.50% due 5/15/2012 1,290 -- 1,290
NR* A1 1,400 6.50% due 5/15/2013 1,517 -- 1,517
- ---------------------------------------------------------------------------------------------------------------
AAA Aaa 5,000 Passaic Valley, New Jersey, Sewer
Commissioner's Refunding Bonds (Sewer
System), Series D, 5.875% due
12/01/2022(a) -- 5,352 5,352
- ---------------------------------------------------------------------------------------------------------------
AA- A1 5,000 Port Authority of New York and New Jersey,
Consolidated Revenue Bonds, 93rd Series,
6.125% due 6/01/2094 4,520 1,130 5,650
- ---------------------------------------------------------------------------------------------------------------
NR* Aaa 4,325 Port Authority of New York and New Jersey,
RITR, AMT, 108th Series, 8.085% due
1/15/2017(c)(e) 4,864 -- 4,864
- ---------------------------------------------------------------------------------------------------------------
Port Authority of New York and New Jersey,
Special Obligation Revenue Bonds (JFK
International Air Terminal Project), AMT,
Series 6(d):
AAA Aaa 2,500 5.75% due 12/01/2022 -- 2,629 2,629
AAA Aaa 2,500 5.75% due 12/01/2025 2,611 -- 2,611
- ---------------------------------------------------------------------------------------------------------------
Port Authority of New York and New Jersey,
Special Obligation Revenue Refunding Bonds
(Versatile Structure Obligation), VRDN
(f):
A1+ VMIG1+ 200 AMT, Series 4, 3.30% due 4/01/2024 200 -- 200
A-1+ VMIG1+ 800 Series 3, 3.35% due 6/01/2020 800 -- 800
A-1+ VMIG1+ 4,400 Series 5, 3.35% due 8/01/2024 3,000 1,400 4,400
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
F-39
<PAGE> 98
<TABLE>
<CAPTION>
MUNIYIELD MUNIVEST PRO FORMA
S&P MOODY'S FACE NEW JERSEY NEW JERSEY FOR COMBINED
RATINGS RATINGS AMOUNT ISSUE FUND++ FUND++ FUNDS++
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
AA A1 2,700 Rutgers State University, New Jersey,
Revenue Bonds, Series A, 4.75% due
5/01/2029 2,524 -- 2,524
- ---------------------------------------------------------------------------------------------------------------
AA A1 2,275 Rutgers State University, New Jersey,
Revenue Refunding Bonds (State University
of New Jersey), Series A, 6.50% due
5/01/2018 2,451 -- 2,451
- ---------------------------------------------------------------------------------------------------------------
AAA Aaa 7,250 South Jersey Transportation Authority, New
Jersey, Transportation System Revenue
Refunding Bonds, 5% due 11/01/2029(a) 4,620 2,431 7,051
- ---------------------------------------------------------------------------------------------------------------
AA+ Aaa 635 Union County, New Jersey, Improvement
Authority Revenue Refunding Bonds (County
Guaranteed Lease), 5.30% due 11/15/2006 677 -- 677
- ---------------------------------------------------------------------------------------------------------------
NR* Aaa 3,440 Union County, New Jersey, Utilities
Authority, RITR, Series 38, 7.07% due
6/01/2020(a)(e) 3,582 -- 3,582
- ---------------------------------------------------------------------------------------------------------------
West Windsor-Plainsboro, New Jersey,
Regional School District, GO, Refunding:
AAA Aaa 2,500 4.75% due 9/15/2022 2,382 -- 2,382
AAA Aaa 2,500 4.75% due 9/15/2023 2,376 -- 2,376
- ---------------------------------------------------------------------------------------------------------------
AAA Aaa 2,500 West Windsor-Plainsboro, New Jersey,
Regional School District, GO, Refunding,
4.75% due 9/15/2024(b) -- 2,371 2,371
- ---------------------------------------------------------------------------------------------------------------
PUERTO
RICO -- 1.0%
AAA Aaa 3,500 Puerto Rico Electric Power Authority,
Power Revenue Refunding Bonds, Series EE,
4.50% due 7/01/2002(d) 2,318 927 3,245
- ---------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (COST -- $305,581) -- 101.4% 200,941 117,108 318,049
LIABILITIES IN EXCESS OF OTHER ASSETS -- (1.4)% (3,630) (744) (4,374)
-------- -------- --------
NET ASSETS -- 100.0% 197,311 116,364 $313,675
======== ======== ========
342885
</TABLE>
<TABLE>
<S> <C>
(a) AMBAC Insured.
(b) FGIC Insured.
(c) FSA Insured.
(d) MBIA Insured.
(e) 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 May 31, 1999.
(f) The interest rate is subject to change periodically based
upon prevailing market rates. The interest rate shown is the
rate in effect at May 31, 1999.
(g) Prerefunded.
* Not Rated.
** Represents a zero coupon or step bond; the interest rate
shown reflects the effective yield at the time of purchase
by the Fund.
+ Highest short-term rating by Moody's Investors Service, Inc.
++ Value as discussed in the Combined Notes to Financial
Statements.
See Notes to Financial Statements.
</TABLE>
F-40
<PAGE> 99
<TABLE>
<S> <C>
PORTFOLIO
ABBREVIATIONS
To simplify the listings of MuniYield New Jersey Fund's
portfolio holdings in the Schedule of Investments, we have
abbreviated the names of many of the securities according to
the list below.
ACES Adjustable Convertible Extendable Securities
AMT Alternative Minimum Tax (subject to)
COP Certificates of Participation
EDA Economic Development Authority
GO General Obligation Bonds
RIB Residual Interest Bonds
RITR Residual Interest Trust Receipts
UT Unlimited Tax
VRDN Variable Rate Demand Notes
</TABLE>
F-41
<PAGE> 100
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 May 31, 1999 and such
information has been adjusted to give effect to the Reorganization as if the
Reorganization had occurred at May 31, 1999. The pro forma Combined Statement of
Assets, Liabilities and Capital is presented for informational purposes only and
does not purport to be indicative of the financial condition that actually would
have resulted if the Reorganization had been consummated at May 31, 1999. The
pro forma Combined Statement of Assets, Liabilities and Capital should be read
in conjunction with the Funds' financial statements and related notes thereto
which are included in the Joint Proxy Statement and Prospectus.
PRO FORMA COMBINED STATEMENT OF ASSETS, LIABILITIES AND CAPITAL
FOR MUNIYIELD NEW JERSEY FUND, INC. AND MUNIVEST NEW JERSEY FUND, INC.,
AS OF MAY 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
MUNIYIELD MUNIVEST FOR
NEW JERSEY NEW JERSEY ADJUSTMENTS COMBINED FUND
------------ ------------ ----------- -------------
<S> <C> <C> <C> <C>
ASSETS:
Investments, at value* (Note 1a).... $200,940,955 $117,108,016 $318,048,971
Cash................................ 92,507 19,612 112,119
Interest receivable................. 3,419,292 1,838,986 5,258,278
Prepaid expenses and other assets... 7,648 10,063 17,711
------------ ------------ ----------- ------------
Total assets........................ 204,460,402 118,976,677 323,437,079
------------ ------------ ----------- ------------
LIABILITIES:
Payables:
Securities purchased.............. 6,874,439 2,431,350 9,305,789
Dividends to shareholders (Note
1e)............................ 179,344 97,481 1,889,284(1) 2,166,109
Investment adviser (Note 2)....... 78,741 46,444 125,185
Accrued expenses and other
liabilities....................... 16,783 37,175 53,958
------------ ------------ ----------- ------------
Total liabilities................... 7,149,307 2,612,450 1,889,284 11,651,041
------------ ------------ ----------- ------------
NET ASSETS:
Net Assets.......................... $197,311,095 $116,364,227 $ 1,889,284 $311,786,038
============ ============ =========== ============
CAPITAL
Capital Stock (200,000,000 shares of
each Fund authorized; 200,000,000
shares as adjusted)
Preferred Stock, par value $.05 per
share of AMPS** issued and
outstanding+ at $25,000 per share
liquidation preference............ $ 60,000,000 $ 37,500,000 $ 97,500,000
Common Stock par value $.10 per
share issued and outstanding++.... 910,078 551,968 (27,434) 1,434,612
Paid-in capital in excess of par.... 127,439,164 76,836,982 27,434 204,303,580
Undistributed investment
income -- net..................... 1,329,756 515,272 (1,845,028) 0
Undistributed (accumulated) realized
capital gains (losses) on
investments -- net................ 44,256 (3,920,318) (44,256) (3,920,318)
Unrealized appreciation on
investments -- net................ 7,587,841 4,880,323 12,468,164
------------ ------------ ----------- ------------
Total capital....................... $197,311,095 $116,364,227 $ 1,889,284 $311,786,038
============ ============ =========== ============
</TABLE>
F-42
<PAGE> 101
<TABLE>
<CAPTION>
PRO FORMA
MUNIYIELD MUNIVEST FOR
NEW JERSEY NEW JERSEY ADJUSTMENTS COMBINED FUND
------------ ------------ ----------- -------------
<S> <C> <C> <C> <C>
Net asset value per share of Common
Stock............................. $15.09 $14.29 -- $14.94
============ ============ =========== ============
- -------------------------------------------------------------------------------------------------
* Identified Cost.................. $193,353,114 $112,227,693 $112,227,693
+ Shares issued and outstanding.... 2,400 1,500 -- 1,500
++ Shares issued and outstanding.... 9,100,783 5,519,681 (274,345) 14,346,119
- -------------------------------------------------------------------------------------------------
** Auction Market Preferred Stock.
</TABLE>
(1) Assumes the distribution of undistributed investment income and
undistributed realized capital gains.
See Notes to Financial Statements.
The following unaudited pro forma Combined Statement of Operations for the
Combined Fund has been derived from the statement of operations of the
respective Funds for the period December 1, 1998 to May 31, 1999 and such
information has been adjusted to give effect to the Reorganization as if the
Reorganization had occurred on December 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 December 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 JERSEY FUND, INC. AND MUNIVEST NEW JERSEY FUND, INC.,
(UNAUDITED)
<TABLE>
<CAPTION>
MUNIYIELD MUNIVEST
NEW JERSEY NEW JERSEY
FOR THE PERIOD FOR THE PERIOD PRO FORMA
DECEMBER 1, 1998 DECEMBER 1, 1998 FOR
TO MAY 31, 1999 TO MAY 31, 1999 ADJUSTMENTS COMBINED FUND
---------------- ---------------- ----------- -------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME (NOTE 1D):
Interest and amortization of premium
and discount earned............... $ 5,537,561 $ 3,209,856 $ 8,747,417
----------- ----------- -----------
EXPENSES:
Investment advisory fees (Note 2)... 499,819 294,600 794,419
Commission fees..................... 76,201 47,260 123,461
Professional fees................... 37,317 45,470 (44,487)(1) 38,300
Accounting services (Note 2)........ 32,749 26,491 (15,240)(1) 44,000
Transfer agent fees................. 16,610 18,868 35,478
Directors' fees and expenses........ 11,635 13,702 (13,702)(1) 11,635
Printing and shareholder reports.... 12,778 13,246 (3,026)(1) 22,998
Listing fees........................ 8,323 8,056 16,379
Custodian fees...................... 7,993 4,757 12,750
Pricing fees........................ 6,139 4,216 10,355
Other............................... 8,917 8,375 17,292
----------- ----------- -------- -----------
Total expenses...................... 718,481 485,041 (76,455) 1,127,067
----------- ----------- -------- -----------
Investment income -- net............ 4,819,080 2,724,815 76,455 7,620,350
----------- ----------- -------- -----------
</TABLE>
F-43
<PAGE> 102
<TABLE>
<CAPTION>
MUNIYIELD MUNIVEST
NEW JERSEY NEW JERSEY
FOR THE PERIOD FOR THE PERIOD PRO FORMA
DECEMBER 1, 1998 DECEMBER 1, 1998 FOR
TO MAY 31, 1999 TO MAY 31, 1999 ADJUSTMENTS COMBINED FUND
---------------- ---------------- ----------- -------------
<S> <C> <C> <C> <C>
REALIZED & UNREALIZED GAINS (LOSS)
ON INVESTMENTS -- NET (NOTES 1B &
1D)
Realized gain on
investments -- net................ 1,741,499 507,077 2,248,576
Change in unrealized
appreciation/depreciation on
investments -- net................ (6,281,812) (2,965,438) (9,247,250)
----------- ----------- -------- -----------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS..................... $ 278,767 $ 266,454 $ 76,455 $ 621,675
=========== =========== ======== ===========
</TABLE>
- ---------------
(1) Reflects the anticipated savings of the Reorganization.
(2) These Pro Forma Combined Statements of Operations exclude non-recurring
estimated Reorganization expenses of $290,000, which will be paid by
MuniYield subsequent to the Reorganization.
See Notes to Financial Statements.
F-44
<PAGE> 103
MUNIYIELD NEW JERSEY FUND, INC.
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES:
MuniYield New Jersey 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
MYJ. 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-45
<PAGE> 104
(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. 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.
F-46
<PAGE> 105
EXHIBIT I
INFORMATION PERTAINING TO EACH FUND
GENERAL INFORMATION PERTAINING TO THE FUNDS
<TABLE>
<CAPTION>
DEFINED TERM FISCAL
USED IN YEAR STATE OF MEETING
FUND EXHIBIT I END ORGANIZATION TIME
---- ----------------- ------ ------------ ---------
<S> <C> <C> <C> <C>
MuniYield New Jersey Fund, Inc. ................... MuniYield 11/30 MD 3:30 p.m.
MuniVest New Jersey Fund, Inc. .................... MuniVest 10/31 MD 2:30 p.m.
</TABLE>
<TABLE>
<CAPTION>
SHARES OF CAPITAL STOCK
OUTSTANDING AS OF
THE RECORD DATE
------------------------
FUND COMMON STOCK AMPS
---- -------------- -------
<S> <C> <C>
MuniYield................................................... 2,400
MuniVest ................................................... 1,500
</TABLE>
INFORMATION PERTAINING TO OFFICERS AND DIRECTORS
Set forth in the table below is information regarding board and committee
meetings held and the aggregate fees and expenses paid by the Fund to
non-affiliated Board members during each Fund's most recently completed fiscal
year.
<TABLE>
<CAPTION>
BOARD AUDIT COMMITTEE
------------------------------- -------------------------------
# # AGGREGATE
MEETINGS ANNUAL PER MEETING MEETINGS ANNUAL PER MEETING FEES AND
FUND HELD* FEE($) FEE($)** HELD FEE($) FEE($)** EXPENSES($)
---- -------- ------ ----------- -------- ------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
MuniYield.................. 8 2,500 250 4 500 125 23,089
MuniVest .................. 5 2,500 250 4 500 125 940,233
</TABLE>
- ---------------
* Includes meetings held via teleconferencing equipment.
** The Chairman of the Audit Committee receives an annual fee of $1,000.
*** The fee is payable for each meeting attended in person. A fee is not paid
for telephonic meetings.
Set forth in the table below is information regarding compensation paid by
the Fund to the non-affiliated Board members for the most recently completed
fiscal year.
<TABLE>
<CAPTION>
COMPENSATION FROM MUNIYIELD($)*
-------------------------------------------
FUND BODURTHA LONDON MARTIN MAY PEROLD
---- -------- ------ ------ ----- ------
<S> <C> <C> <C> <C> <C>
MuniYield............................................. 4,500 4,500 4,500 4,500 4,500
</TABLE>
<TABLE>
<CAPTION>
COMPENSATION FROM MUNIVEST($)*
-----------------------------------------------------
FUND CECIL CRUM MEYER SUNDERLAND TOUCHTON WEISS
---- ----- ----- ----- ---------- -------- -----
<S> <C> <C> <C> <C> <C> <C>
MuniVest..................................... 4,500 4,500 4,500 4,500 4,500 4,500
</TABLE>
- ---------------
* No pension or retirement benefits are accrued as part of Fund expenses.
Set forth in the table below is information regarding the aggregate
compensation paid by all registered investment companies advised by FAM and its
affiliate, MLAM ("FAM/MLAM Advised Funds"), including the Funds, to the
non-affiliated Board members for the year ended December 31, 1998.
I-1
<PAGE> 106
MUNIYIELD:
<TABLE>
<CAPTION>
AGGREGATE COMPENSATION FROM FAM/MLAM
NAME OF BOARD MEMBER ADVISED FUNDS PAID TO BOARD MEMBERS($)(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).
MUNIVEST:
<TABLE>
<CAPTION>
AGGREGATE COMPENSATION FROM FAM/MLAM
NAME OF BOARD MEMBER ADVISED FUNDS PAID TO BOARD MEMBERS($)(1)
-------------------- -----------------------------------------
<S> <C>
Donald Cecil.............................................. 277,808
M. Coyler Crum............................................ 116,600
Edward H. Meyer........................................... 214,558
Jack B. Sunderland........................................ 133,600
J. Thomas Touchton........................................ 133,600
Fred G. Weiss............................................. 140,842
</TABLE>
- ---------------
(1) The Directors serve on the boards of FAM/MLAM Advised Funds as follows: Mr.
Cecil (34 registered investment companies consisting of 34 portfolios); Mr.
Crum (16 registered investment companies consisting of 16 portfolios); Mr.
Meyer (34 registered investment companies consisting of 34 portfolios); Mr.
Sunderland (19 registered investment companies consisting of 31 portfolios);
Mr. Touchton (19 registered investment companies consisting of 31
portfolios); and Mr. Weiss (16 registered investment companies consisting of
16 portfolios).
Set forth in the table below is information about the Directors of each of
the Funds. Unless otherwise noted, the address of each Director is 800 Scudders
Mill Road, Plainsboro, New Jersey 08536.
<TABLE>
<CAPTION>
DIRECTOR SINCE
--------------------
NAME, ADDRESS AND BIOGRAPHY AGE MUNIYIELD MUNIVEST
--------------------------- --- --------- --------
<S> <C> <C> <C>
James H. Bodurtha........................................... 55 1995 --
36 Popponesset Road, Cotuit, Massachusetts 02635. Director
and Executive Vice President, The China Business Group,
Inc. since 1996; Chairman and Chief Executive Officer,
China Enterprise Management Corporation from 1993 to 1996;
Chairman, Berkshire Corporation since 1980; Partner,
Squire, Sanders & Dempsey from 1980 to 1993.
Herbert I. London........................................... 60 1992 --
2 Washington Square Village, New York, New York 10012.
John M. Olin Professor of Humanities at New York
University since 1993 and Professor thereof since 1980;
Dean, Gallatin Division of New York University from 1976
to 1993; Distinguished Fellow, Herman Kahn Chair at Hudson
Institute from 1984 to 1985; Director, Damon Corporation
from 1991 to 1995; Overseer, Center for Naval Analyses
from 1983 to 1993; Limited Partner, Hypertech LP in 1996.
</TABLE>
I-2
<PAGE> 107
<TABLE>
<CAPTION>
DIRECTOR SINCE
--------------------
NAME, ADDRESS AND BIOGRAPHY AGE MUNIYIELD MUNIVEST
--------------------------- --- --------- --------
<S> <C> <C> <C>
Robert R. Martin............................................ 72 1993 --
513 Grand Hill, St. Paul, Minnesota 55102. Chairman and
Chief Executive Officer, Kinnard Investments, Inc. from
1990 to 1993; Executive Vice President, Dain Bosworth from
1974 to 1989; Director, Carnegie Capital Management from
1977 to 1985 and Chairman thereof in 1979; Director,
Securities Industry Association from 1981 to 1982 and
Public Securities Association from 1979 to 1980; Chairman
of the Board, WTC Industries, Inc. in 1994; Trustee,
Northland College since 1992.
Joseph L. May............................................... 70 1992 --
424 Church Street, Suite 2000, Nashville, Tennessee 37219.
Attorney in private practice since 1984; President, May
and Athens Hosiery Mills Division, Wayne-Gossard
Corporation from 1954 to 1983; Vice President,
Wayne-Gossard Corporation from 1972 to 1983; Chairman, The
May Corporation (personal holding company) from 1972 to
1983; Director, Signal Apparel Co. from 1972 to 1989.
Andre F. Perold............................................. 47 1992 --
Morgan Hall, Soldiers Field, Boston, Massachusetts 02163.
Professor, Harvard Business School since 1989 and
Associate Professor from 1983 to 1989; Trustee, The Common
Fund since 1989; Director of Quantec Limited since 1991
and TIBCO from 1994 to 1996.
Terry K. Glenn.............................................. 59 1999 1999
Executive Vice President of MLAM and FAM since 1983;
Executive Vice President and Director of Princeton
Services, Inc. ("Princeton Services") since 1993;
President of Princeton Funds Distributor, Inc. ("PFD")
since 1986 and Director thereof since 1991; President of
Princeton Administrators, L.P. since 1988.
Arthur Zeikel............................................... 67 1992 1993
300 Woodland Avenue, Westfield, New Jersey 07090. Chairman
of FAM and MLAM from 1997 to 1999; President of FAM and
MLAM from 1977 to 1997; Chairman of Princeton Services
from 1997 to 1999, Director thereof from 1993 to 1999 and
President thereof from 1993 to 1997; Executive Vice
President of Merrill Lynch & Co., Inc. from 1990 to 1999.
Donald Cecil................................................ 72 -- 1993
1114 Avenue of the Americas, New York, New York 10036.
Special Limited Partner of Cumberland Associates (an
investment partnership) since 1982; Member of Institute of
Chartered Financial Analysts; Member and Chairman of
Westchester County (N.Y.) Board of Transportation.
M. Colyer Crum.............................................. 67 -- 1993
104 Westcliff Road, Weston, Massachusetts 02193. Currently
James R. Williston Professor of Investment Management
Emeritus at Harvard Business School; James R Williston
Professor of Investment Management at Harvard Business
School from 1971 to 1996; Director of Cambridge Bancorp,
Copley Properties, Inc. and Sun Life Assurance Company of
Canada.
</TABLE>
I-3
<PAGE> 108
<TABLE>
<CAPTION>
DIRECTOR SINCE
--------------------
NAME, ADDRESS AND BIOGRAPHY AGE MUNIYIELD MUNIVEST
--------------------------- --- --------- --------
<S> <C> <C> <C>
Edward H. Meyer............................................. 72 -- 1993
777 Third Avenue, New York, New York 10017. President of
Grey Advertising Inc. since 1968, Chief Executive Officer
since 1970 and Chairman of the Board of Directors since
1972; Director of The May Department Stores Company, Bowne
& Co., Inc. (financial printers), Harman International
Industries, Inc. and Ethan Allen Interiors, Inc.
Jack B. Sunderland.......................................... 70 -- 1993
P.O. Box 7, West Cornwall, Connecticut 06796. President
and Director of American Independent Oil Company, Inc. (an
energy company) since 1987; Member of Council on Foreign
Relations since 1971.
J. Thomas Touchton.......................................... 60 -- 1993
Suite 3405, One Tampa City Center, 201 North Franklin
Street, Tampa, Florida 33062. Managing Partner of The Witt
Touchton Company and its predecessor, The Witt Co. (a
private investment partnership), since 1972; Trustee
Emeritus of Washington and Lee University; Director of
TECO Energy, Inc. (an electric utility holding company).
Fred G. Weiss............................................... 58 -- 1998
16410 Maddalena Place, Delray Beach, Florida 33446.
Managing Director of FGW Associates since 1997; Vice
President, Planning Investment, and Development of Warner
Lambert Co. from 1979 to 1997.
</TABLE>
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>
OFFICER SINCE
--------------------
NAME AND BIOGRAPHY AGE OFFICE MUNIYIELD MUNIVEST
------------------ --- -------------- --------- --------
<S> <C> <C> <C> <C>
Terry K. Glenn......................................... 59 President 1992* 1993*
Executive Vice President of MLAM and FAM since 1983;
Executive Vice President and Director of Princeton
Services since 1993; President of PFD since 1986 and
Director thereof since 1991; President of Princeton
Administrators, L.P. since 1988.
Vincent R. Giordano.................................... 55 Senior Vice 1992 1993
Senior Vice President of FAM and MLAM since 1984; President
Portfolio Manager of FAM and MLAM since 1977; Senior
Vice President of Princeton Services since 1993.
Kenneth A. Jacob....................................... 48 Vice President 1992 1993
First Vice President of MLAM since 1997; Vice
President of MLAM from 1984 to 1997; Vice President
of FAM since 1984.
</TABLE>
I-4
<PAGE> 109
<TABLE>
<CAPTION>
OFFICER SINCE
--------------------
NAME AND BIOGRAPHY AGE OFFICE MUNIYIELD MUNIVEST
------------------ --- -------------- --------- --------
<S> <C> <C> <C> <C>
Donald C. Burke........................................ 39 Vice President 1993 1993
Senior Vice President and Treasurer of MLAM and FAM Treasurer 1999 1999
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.
Theodore R. Jaeckal, Jr................................ 40 Vice President 1997 1997
Director (Municipal Tax-Exempt Fund Management) of
MLAM since 1997; Vice President of MLAM from 1991 to
1997.
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-5
<PAGE> 110
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 Jersey Fund, Inc.,
a Maryland corporation ("MuniYield") and MuniVest New Jersey Fund, Inc., a
Maryland corporation ("MuniVest") (MuniYield and MuniVest are sometimes referred
to herein collectively as the "Funds").
PLAN OF REORGANIZATION
The reorganization will comprise the following:
(1) the acquisition by MuniYield of substantially all of the assets, and
the assumption by MuniYield of substantially all of the liabilities of MuniVest
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 MuniYield ("MuniYield
Common Stock") and (B) auction market preferred stock of MuniYield, with a
liquidation preference of $25,000 per share plus an amount equal to accumulated
by unpaid dividends thereon (whether or not earned or declared) to be designated
Series B ("MuniYield Series B AMPS"), and (2) the subsequent distribution by
MuniVest to MuniVest stockholders of (x) all of the MuniYield Common Stock
received by MuniVest in exchange for such stockholders' shares of common stock,
with a par value of $0.10 per share, of MuniVest ("MuniVest Common Stock") and
(y) all of the MuniYield Series B AMPS received by MuniVest in exchange for such
stockholders' shares of auction market preferred stock of MuniVest, 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 ("MuniVest AMPS");
all upon and subject to the terms hereinafter set forth (collectively, the
"Reorganization").
In the course of the Reorganization, MuniYield Common Stock and MuniYield
Series B AMPS will be distributed to the stockholders of MuniVest as follows:
(1) each holder of MuniVest Common Stock will be entitled to receive a
number of shares of MuniYield Common Stock equal to the aggregate net asset
value of the MuniVest Common Stock owned by such stockholder on the
Exchange Date (as defined in Section 7(a) of the Agreement) and (2) each
holder of MuniVest AMPS will be entitled to receive a number of shares of
MuniYield Series B AMPS equal to the aggregate liquidation preference (and
aggregate value) of the MuniVest 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)(C) of the Internal
Revenue Code of 1986, as amended (the "Code"), and any successor provision.
Prior to the Exchange Date, MuniVest shall declare a dividend or dividends
which, together with all such previous dividends, shall have the effect of
distributing to its stockholders all of MuniVest's 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 MuniVest
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 MuniYield's Articles of Incorporation
establishing the powers, rights and preferences of the MuniYield Series B 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,
MuniVest 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").
II-1
<PAGE> 111
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 MUNIYIELD.
MuniYield represents and warrants to, and agrees with, MuniVest that:
(a) MuniYield 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.
MuniYield 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) MuniYield is duly registered under the 1940 Act as a
non-diversified, closed-end management investment company (File No.
811-6570), and such registration has not been revoked or rescinded and is
in full force and effect. MuniYield has elected and qualified for the
special tax treatment afforded regulated investment companies ("RICs")
under Sections 851-855 of the Code at all times since its inception and
intends to continue to so qualify until consummation of the Reorganization
and thereafter.
(c) MuniVest has been furnished with MuniYield's Annual Report to
Stockholders for the fiscal year ended November 30, 1998, and the audited
financial statements appearing therein, having been examined by Deloitte &
Touche LLP, independent public accountants, fairly present the financial
position of MuniYield as of the respective dates indicated, in conformity
with generally accepted accounting principles applied on a consistent
basis.
(d) MuniVest has been furnished with MuniYield's Semi-Annual Report to
Stockholders for the six months ended May 31, 1999, and the unaudited
financial statements appearing therein fairly present the financial
position of MuniYield 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
MuniYield and an unaudited schedule of investments of MuniYield, each as of
the Valuation Time (as defined in Section 3(d) of this Agreement), will be
furnished to MuniVest, at or prior to the Exchange Date for the purpose of
determining the number of shares of MuniYield Common Stock and MuniYield
Series B AMPS to be issued to MuniVest pursuant to Section 4 of this
Agreement; each will fairly present the financial position of MuniYield as
of the Valuation Time in conformity with generally accepted accounting
principles applied on a consistent basis.
(f) MuniYield 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 MuniYield, threatened against it which
assert liability on the part of MuniYield or which materially affect its
financial condition or its ability to consummate the Reorganization.
MuniYield 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) MuniYield 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,
II-2
<PAGE> 112
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 MuniYield is
a party that have not been disclosed in the N-14 Registration Statement (as
defined in subsection (l) below) or will not otherwise be disclosed to
MuniVest prior to the Valuation Time.
(j) MuniYield 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 May 31,
1999; and those incurred in connection with the Reorganization. As of the
Valuation Time, MuniYield will advise MuniVest 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 MuniYield of the
Reorganization, except such as may be required under the Securities Act of
1933, as amended (the "1933 Act"), the Securities Exchange Act of 1934, as
amended (the "1934 Act") and the 1940 Act or state securities laws (which
term as used herein shall include the laws of the District of Columbia and
Puerto Rico).
(l) The registration statement filed by MuniYield on Form N-14 which
includes the joint proxy statement of the Funds with respect to the
transactions contemplated herein and the prospectus of MuniYield relating
to the MuniYield Common Stock and MuniYield Series B 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 MuniYield (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 MuniYield for use in the N-14 Registration
Statement as provided in Section 6(e) of this Agreement.
(m) MuniYield is authorized to issue 200,000,000 shares of capital
stock, of which 2,400 shares have been designated as Series A AMPS and
199,997,600 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 MuniYield Common Stock and MuniYield Series B AMPS
to be issued to MuniVest 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 MuniYield will have any
preemptive right of subscription or purchase in respect thereof.
(o) At or prior to the Exchange Date, the MuniYield Common Stock to be
transferred to MuniVest for distribution to the stockholders of MuniVest 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.
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(p) At or prior to the Exchange Date, the shares of MuniYield Series B
AMPS to be transferred to MuniVest 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 MuniVest presently are qualified, and there are a
sufficient number of MuniYield AMPS Series B 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, MuniYield will have obtained any
and all regulatory, Director and stockholder approvals necessary to issue
the MuniYield Common Stock and MuniYield Series B AMPS to MuniVest.
2. REPRESENTATIONS AND WARRANTIES OF MUNIVEST
MuniVest represents and warrants to, and agrees with MuniYield that:
(a) MuniVest 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.
MuniVest 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) MuniVest is duly registered under the 1940 Act as a
non-diversified, closed-end management investment company (File No.
811-7574), and such registration has not been revoked or rescinded and is
in full force and effect. MuniVest 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 "MuniVest Investments" shall
mean (i) the investments of MuniVest shown on the schedule of its
investments as of the Valuation Time furnished to MuniYield; and (ii) all
other assets owned by MuniVest or liabilities incurred as of the Valuation
Time.
(d) MuniVest 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) MuniYield has been furnished with MuniVest'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 MuniVest as of the respective dates indicated, in conformity
with generally accepted accounting principles applied on a consistent
basis.
(f) MuniYield has been furnished with MuniVest'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 MuniVest 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
MuniVest and an unaudited schedule of investments of MuniVest, each as of
the Valuation Time, will be furnished to MuniYield at or prior to the
Exchange Date for the purpose of determining the number of shares of
MuniYield Common Stock and MuniYield Series B AMPS to be issued to MuniVest
pursuant to Section 4 of this Agreement; each will fairly present the
financial position of MuniVest 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 MuniVest, threatened against it which
assert liability on the part of MuniVest or which materially affect its
financial condition or its ability to consummate the Reorganization.
MuniVest, is not charged with or, to the best of its knowledge, threatened
with any violation or investigation of any possible violation of any
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provisions of any Federal, state or local law or regulation or
administrative ruling relating to any aspect of its business.
(i) There are no material contracts outstanding to which MuniVest is a
party that have not been disclosed in the N-14 Registration Statement or
will not otherwise be disclosed to MuniYield prior to the Valuation Time.
(j) MuniVest 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) MuniVest 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 April 30, 1999 and
those incurred in connection with the Reorganization. As of the Valuation
Time, MuniVest will advise MuniYield 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) MuniVest 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 MuniVest have been adequately provided
for on its books, and no tax deficiency or liability of MuniVest 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, MuniVest will
have full right, power and authority to sell, assign, transfer and deliver
the MuniVest Investments. At the Exchange Date, subject only to the
obligation to deliver the MuniVest Investments as contemplated by this
Agreement, MuniVest will have good and marketable title to all of the
MuniVest Investments, and MuniYield will acquire all of the MuniVest
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 MuniVest 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 MuniVest 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 MuniVest (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 MuniVest for use in the N-14 Registration Statement as
provided in Section 6(e) of this Agreement.
(p) MuniVest is authorized to issue 200,000,000 shares of capital
stock, of which 1,500 shares have been designated as Series A AMPS and
199,998,500 shares have been designated as common stock, par
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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 MuniVest Common Stock
and MuniVest AMPS were offered for sale and sold in conformity with all
applicable Federal and state securities laws.
(r) The books and records of MuniVest made available to MuniYield
and/or its counsel are substantially true and correct and contain no
material misstatements or omissions with respect to the operations of
MuniVest.
(s) MuniVest will not sell or otherwise dispose of any of the shares
of MuniYield Common Stock or MuniYield Series B AMPS to be received in the
Reorganization, except in distribution to the stockholders of MuniVest, 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) MuniVest agrees to convey, transfer and deliver to MuniYield
and MuniYield agrees to acquire from MuniVest on the Exchange Date, all of
the MuniVest Investments (including interest accrued as of the Valuation
Time on debt instruments) and assume substantially all of the liabilities
of MuniVest in exchange solely for that number of shares of MuniYield
Common Stock and MuniYield Series B AMPS provided in Section 4 of this
Agreement.
Pursuant to this Agreement, as soon as practicable after the Exchange
Date (i) MuniVest will distribute all shares of MuniYield Common Stock and
MuniYield Series B AMPS received by it to its stockholders in exchange for
their shares of MuniVest Common Stock and MuniVest AMPS. Such distributions
shall be accomplished by the opening of stockholder accounts on the stock
ledger records of MuniYield in the amounts due the stockholders of MuniVest
based on their respective holdings in MuniVest as of the Valuation Time.
(b) Prior to the Exchange Date, MuniVest shall declare 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 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 MuniVest 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) MuniVest will pay or cause to be paid to MuniYield any interest
MuniVest receives on or after the Exchange Date with respect to MuniVest
Investments transferred to MuniYield 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 MuniVest by MuniYield in the
Reorganization will be limited to the net assets of MuniVest acquired by
MuniYield. The known liabilities of MuniVest, as of the Valuation Time,
shall be confirmed in writing to MuniYield pursuant to Section 2(k) 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 MuniVest Investments.
(g) MuniVest will be dissolved following the Exchange Date by filing
Articles of Dissolution with the Maryland Department.
(h) MuniYield will file with the Maryland Department Articles
Supplementary to its Articles of Incorporation establishing the powers,
rights and preferences of the MuniYield Series B AMPS prior to the closing
of the Reorganization.
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(i) As promptly as practicable after the liquidation of MuniVest
pursuant to the Reorganization, MuniVest shall terminate its respective
registration under the 1940 Act.
4. ISSUANCE AND VALUATION OF MUNIYIELD COMMON STOCK AND MUNIYIELD SERIES B AMPS
IN THE REORGANIZATION.
Full shares of MuniYield Common Stock and MuniYield Series B 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
MuniVest acquired in the Reorganization determined as hereinafter provided,
reduced by the amount of liabilities of MuniVest assumed by MuniYield in the
Reorganization, shall be issued to MuniVest by MuniYield in exchange for such
assets of MuniVest, plus cash in lieu of fractional shares. MuniYield will issue
to MuniVest (a) a number of shares of MuniYield Common Stock, the aggregate net
asset value of which will equal the aggregate net asset value of the shares of
MuniVest Common Stock, determined as set forth below and (b) a number of shares
of MuniYield Series B AMPS, the aggregate liquidation preference and value of
which will equal the aggregate liquidation preference and value of the MuniVest
AMPS, determined as set forth below.
The net asset value of each of the Funds and the liquidation preference and
value of the AMPS of each of the Funds shall be determined as of the Valuation
Time in accordance with the procedures described in (i) the prospectus of
MuniYield, dated April 24, 1992, relating to the MuniYield Common Stock and (ii)
the final prospectus of MuniYield, dated June 24, 1992, relating to the
MuniYield 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 MuniVest Investments to be transferred to MuniYield
shall be determined by MuniYield pursuant to the procedures utilized by
MuniYield in valuing its own assets and determining its own liabilities for
purposes of the Reorganization. Such valuation and determination shall be made
by MuniYield in cooperation with MuniVest and shall be confirmed in writing by
MuniYield to MuniVest. The net asset value per share of the MuniYield Common
Stock and the liquidation preference and value per share of the MuniYield Series
B AMPS shall be determined in accordance with such procedures and MuniYield
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 (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.
MuniYield shall issue to MuniVest separate certificates or share deposit
receipts for the MuniYield Common Stock and the MuniYield Series B AMPS, each
registered in the name of MuniVest. MuniVest then shall distribute the MuniYield
Common Stock and the MuniYield Series B AMPS to the holders of MuniVest Common
Stock and MuniVest AMPS by redelivering the certificates or share deposit
receipts evidencing ownership of (i) the MuniYield Common Stock to The Bank of
New York, as the transfer agent and registrar for the MuniYield Common Stock for
distribution to the holders of MuniVest Common Stock on the basis of such
holder's proportionate interest in the aggregate net asset value of the Common
Stock of MuniVest and (ii) the MuniYield Series B AMPS to The Bank of New York,
as the transfer agent and registrar for the MuniYield Series B AMPS for
distribution to the holders of MuniVest AMPS on the basis of such holder's
proportionate interest in the aggregate liquidation preference and value of the
AMPS of MuniVest. With respect to any MuniVest stockholder holding certificates
evidencing ownership of either MuniVest Common Stock or MuniVest AMPS as of the
Exchange Date, and subject to MuniYield being informed thereof in writing by
MuniVest, MuniYield will not permit such stockholder to receive new certificates
evidencing ownership of the MuniYield Common Stock or the MuniYield Series B
AMPS, exchange MuniYield Common Stock or MuniYield Series B 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 MuniYield Common Stock or MuniYield Series B AMPS, in any case,
until notified by MuniVest or its agent that such stockholder has surrendered
his or her outstanding certificates evidencing ownership of MuniVest Common
Stock or MuniVest AMPS or, in the event of lost
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certificates, posted adequate bond. MuniVest, at its own expense, will request
its stockholders to surrender their outstanding certificates evidencing
ownership of MuniVest Common Stock or MuniVest AMPS, as the case may be, or post
adequate bond therefor.
Dividends payable to holders of record of shares of MuniYield Common Stock
or MuniYield Series B 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
MuniVest 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 MuniVest, as
the case may be, for exchange.
No fractional shares of MuniYield Common Stock will be issued to holders of
MuniVest Common Stock. In lieu thereof, MuniYield's transfer agent, The Bank of
New York, will aggregate all fractional shares of MuniYield Common Stock and
sell the resulting full shares on the New York Stock Exchange at the current
market price for shares of MuniYield 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 MuniVest 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)
MuniYield shall pay, subsequent to the Exchange Date and pro rata according to
each Fund's net assets on the Exchange Date, all expenses incurred in connection
with the Reorganization, including, but not limited to, all costs related to the
preparation and distribution of the N-14 Registration Statement. Such fees and
expenses shall include the cost of preparing and filing a ruling request with
the Internal Revenue Service, legal and accounting fees, printing costs, filing
fees, stock exchange fees, rating agency fees, portfolio transfer taxes (if any)
and any similar expenses incurred in connection with the Reorganization.
(b) If for any reason the Reorganization is not consummated, no party shall
be liable to any other party for any damages resulting therefrom, including,
without limitation, consequential damages.
6. COVENANTS OF THE FUNDS.
(a) Each Fund agrees to call a special 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) MuniVest 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
MuniYield Common Stock or MuniYield Series B AMPS, as applicable other than to
its stockholders and without first paying or adequately providing for the
payment of all of its liabilities not assumed by MuniYield, if any, and on and
after the Exchange Date it shall not conduct any business except in connection
with its dissolution.
(d) MuniVest 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 MuniVest has ceased to be a registered investment company.
(e) MuniYield 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 other, and each will
furnish to the other the information relating to itself to be set forth in the
N-14 Registration Statement as required by the 1933 Act, the 1934 Act, the 1940
Act, and the rules and regulations thereunder and the state securities laws.
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(f) MuniYield has no plan or intention to sell or otherwise dispose of
MuniVest 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. MuniYield 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 MuniVest 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, MuniVest shall prepare, or cause its agents to prepare, any Federal, state
or local tax returns, including any Forms 1099, required to be filed by such
fund with respect to its final taxable year ending with its complete liquidation
and for any prior periods or taxable years and further shall cause such tax
returns and Forms 1099 to be duly filed with the appropriate taxing authorities.
Notwithstanding the aforementioned provisions of this subsection, any expenses
incurred by MuniVest (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 special 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, MuniYield 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 MuniVest to be transferred, together with any
other MuniVest Investments, and the shares of MuniYield Common Stock and
MuniYield Series B 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 MuniVest Investments, for any reason, are
not transferable on the Exchange Date, MuniVest shall cause MuniVest Investments
to be transferred to MuniYield's account with The Bank of New York at the
earliest practicable date thereafter.
(b) MuniVest will deliver to MuniYield on the Exchange Date confirmations
or other adequate evidence as to the tax basis of MuniVest Investments delivered
to MuniYield hereunder, certified by Ernst & Young LLP.
(c) As soon as practicable after the close of business on the Exchange
Date, MuniVest shall deliver to MuniYield a list of the names and addresses of
all of the stockholders of record of MuniVest on the Exchange Date and the
number of shares of common stock and AMPS of MuniVest owned by each such
stockholder, certified to the best of their knowledge and belief by the
applicable transfer agent for MuniVest or by its President.
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8. MUNIVEST CONDITIONS.
The obligations of MuniVest 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 each of the Funds
and by the affirmative vote of (i) the holders of (a) a majority of the
MuniYield Common Stock and MuniYield AMPS, voting together as a single
class, and (b) a majority of the MuniYield 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 MuniVest Common Stock and
MuniVest AMPS, voting together as a single class, and (b) a majority of the
MuniVest 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 special
meeting, each certified by the Secretary of the appropriate Fund.
(b) That MuniVest shall have received from MuniYield a statement of
assets, liabilities and capital, with values determined as provided in
Section 4 of this Agreement, together with a schedule of MuniYield'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 MuniYield'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 MuniYield since the date of
MuniYield's most recent Annual or Semi-Annual Report as applicable, other
than changes in its portfolio securities since that date or changes in the
market value of its portfolio securities.
(c) That MuniYield shall have furnished to MuniVest a certificate
signed by MuniYield'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 MuniYield
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 MuniYield 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 MuniVest shall have received an opinion or opinions of Brown
& Wood LLP, as counsel to the Funds, in form and substance satisfactory to
MuniVest 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 MuniYield Common Stock and MuniYield Series B 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
MuniYield, and no stockholder of MuniYield has any preemptive right to
subscription or purchase in respect thereof (pursuant to the Articles of
Incorporation or the by-laws of MuniYield 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) MuniVest 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,
MuniVest will have duly transferred such assets and liabilities in
accordance with this
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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 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," (other than information related to New
Jersey law or legal conclusions involving matters of New Jersey law as to
which we express no opinion) to the extent that it constitutes matters of
law, summaries of legal matters or legal conclusions, has been reviewed by
such counsel and is correct in all material respects as of the date of the
Joint Proxy Statement and Prospectus; (x) such counsel does not know of any
statutes, legal or governmental proceedings or contracts or other documents
related to the Reorganization of a character required to be described in
the N-14 Registration Statement which are not described therein or, if
required to be filed, filed as required; (xi) no Fund, to the knowledge of
such counsel, is required to qualify to do business as a foreign
corporation in any jurisdiction except as may be required by state
securities laws, and except where each has so qualified or the failure so
to qualify would not have a material adverse effect on such Fund or its
respective 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 MuniVest 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
MuniVest of substantially all of its assets to MuniYield in exchange solely
for shares of MuniYield Common Stock and MuniYield Series B AMPS as
provided in this Agreement will constitute a reorganization within the
meaning of Section 368(a)(1)(C) of the Code, and the respective Funds will
each be deemed to be a "party" to a reorganization within the meaning of
Section 368(b); (ii) in accordance with Section 361(a) of the Code, no gain
or loss will be recognized to MuniVest as a result of
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the asset transfer solely in exchange for shares of MuniYield Common Stock
and MuniYield Series B AMPS, as the case may be, or on the distribution of
the MuniYield stock to stockholders of MuniVest under Section 361(c)(1);
(iii) under Section 1032 of the Code, no gain or loss will be recognized to
MuniYield on the receipt of assets of MuniVest 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 MuniVest on the receipt of shares of
MuniYield in exchange for their shares of MuniVest (except to the extent
that common stockholders receive cash representing an interest in
fractional shares of MuniYield Common Stock in the Reorganization); (v) in
accordance with Section 362(b) of the Code, the tax basis of MuniVest's
assets in the hands of MuniYield will be the same as the tax basis of such
assets in the hands of MuniVest immediately prior to the consummation of
the Reorganization; (vi) in accordance with Section 358 of the Code,
immediately after the Reorganization, the tax basis of the shares of
MuniYield received by the stockholders of MuniVest in the Reorganization
will be equal, in the aggregate, to the tax basis of the shares of MuniVest
surrendered in exchange; (vii) in accordance with Section 1223 of the Code,
a stockholder's holding period for the shares of MuniYield will be
determined by including the period for which such stockholder held MuniVest
shares exchanged therefor, provided, that such shares were held as a
capital asset; (viii) in accordance with Section 1223 of the Code,
MuniYield's holding period with respect to MuniVest's assets transferred
will include the period for which such assets were held by MuniVest; (ix)
the payment of cash to common stockholders of MuniVest in lieu of
fractional shares of MuniYield 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 MuniYield fractional
shares; and (x) the taxable year of MuniVest will end on the effective date
of the Reorganization and pursuant to Section 381(a) of the Code and
regulations thereunder, MuniYield will succeed to and take into account
certain tax attributes of MuniVest, 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 MuniYield, be contemplated by
the Commission.
(i) That MuniVest shall have received from Deloitte & Touche LLP a
letter dated as of the effective date of the N-14 Registration Statement
and a similar letter dated within five days prior to the Exchange Date, in
form and substance satisfactory to them, to the effect that (i) they are
independent public accountants with respect to MuniYield 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 MuniYield 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 MuniYield included in the N-14 Registration Statement, and
inquiries of certain officials of MuniYield 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
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MuniYield 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 MuniYield or from schedules
prepared by officials of MuniYield having responsibility for financial and
reporting matters and such information is in agreement with such records,
schedules or computations made therefrom.
(j) That the Commission shall not have issued an unfavorable advisory
report under Section 25(b) of the 1940 Act, nor instituted or threatened to
institute any proceeding seeking to enjoin consummation of the
Reorganization under Section 25(c) of the 1940 Act, and no other legal,
administrative or other proceeding shall be instituted or threatened which
would materially affect the financial condition of MuniYield or would
prohibit the Reorganization.
(k) That MuniVest 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. MUNIYIELD CONDITIONS.
The obligations of MuniYield 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
MuniVest shall have delivered to MuniYield a copy of the resolution
approving this Agreement adopted by MuniVest's Board of Directors, and a
certificate setting forth the vote of the stockholders of MuniVest
obtained, each certified by its Secretary.
(b) That MuniVest shall have furnished to MuniYield 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 MuniVest since the date of such Fund's most recent Annual or
Semi-Annual Report, as applicable, other than changes in the MuniVest
Investments since that date or changes in the market value of MuniVest
Investments.
(c) That MuniVest shall have furnished to MuniYield 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 MuniVest 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 MuniVest 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 MuniVest shall have delivered to MuniYield 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 MuniVest for the period ended (which returns
originally were prepared and filed by MuniVest), 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 MuniVest for the
period covered thereby; and that for the period from , to and
including the Exchange Date and for any taxable year of MuniVest ending
upon the liquidation of MuniVest, 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
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the satisfaction of Federal, state and local taxes for the period from
, to and including the Exchange Date and for any taxable year of
MuniVest, ending upon the liquidation of such fund or that such fund would
not qualify as a regulated investment company for Federal income tax
purposes for the tax years in question.
(e) That there shall not be any material litigation pending with
respect to the matters contemplated by this Agreement.
(f) That MuniYield shall have received an opinion of Brown & Wood LLP,
as counsel to the Funds, in form and substance satisfactory to MuniYield
and dated the Exchange Date, with respect to the matters specified in
Section 8(e) of this Agreement and such other matters as MuniYield
reasonably may deem necessary or desirable.
(g) That MuniYield 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 MuniYield 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 MuniYield, to the effect that (i) they are
independent public accountants with respect to MuniVest 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 MuniVest 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
MuniVest included in the N-14 Registration Statement, and inquiries of
certain officials of MuniVest 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 MuniVest 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 MuniVest or from schedules prepared by officials of MuniVest having
responsibility for financial and reporting matters and such information is
in agreement with such records, schedules or computations made therefrom.
(i) That MuniVest Investments to be transferred to MuniYield shall not
include any assets or liabilities which MuniYield, 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 MuniVest, 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 MuniVest or would
prohibit the Reorganization.
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(l) That MuniYield shall have received from the Commission such orders
or interpretations as Brown & Wood LLP, as counsel to MuniYield, 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 MuniVest and its counsel in
connection with the Reorganization and all documents incidental thereto
shall be satisfactory in form and substance to MuniYield.
(n) That prior to the Exchange Date, MuniVest 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 MuniVest AMPS may be shorter than the dividend period for such AMPS
determined as set forth in the applicable Articles Supplementary.
10. INDEMNIFICATION.
(a) MuniVest hereby agrees to indemnify and hold MuniYield harmless from
all loss, liability and expenses (including reasonable counsel fees and expenses
in connection with the contest of any claim) which MuniYield may incur or
sustain by reason of the fact that (i) MuniYield shall be required to pay any
corporate obligation of MuniVest, whether consisting of tax deficiencies or
otherwise, based upon a claim or claims against MuniVest which were omitted or
not fairly reflected in the financial statements to be delivered to MuniYield in
connection with the Reorganization; (ii) any representations or warranties made
by MuniVest in this Agreement should prove to be false or erroneous in any
material respect; (iii) any covenant of MuniVest 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 MuniVest by MuniYield.
(b) MuniYield hereby agrees to indemnify and hold MuniVest harmless from
all loss, liability and expenses (including reasonable counsel fees and expenses
in connection with the contest of any claim) which MuniVest may incur or sustain
by reason of the fact that (i) any representations or warranties made by
MuniYield in this Agreement should prove false or erroneous in any material
respect, (ii) any covenant of MuniYield 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 (iii)(a) and (b) herein insofar as such claim is based on
written information furnished to MuniYield by MuniVest.
(c) In the event that any claim is made against MuniYield in respect of
which indemnity may be sought by MuniYield from MuniVest under Section 10(a) of
this Agreement, or in the event that any claim is made against MuniVest in
respect of which indemnity may be sought by MuniVest from MuniYield under
Section 10(b) of this Agreement, then the party seeking indemnification (the
"Indemnified Party"), with reasonable promptness and before payment of such
claim, shall give written notice of such claim to the other party (the
"Indemnifying Party"). If no objection as to the validity of the claim is made
in writing to the Indemnified Party by the Indemnifying Party within thirty (30)
days after the giving of notice hereunder, then the Indemnified Party may pay
such claim and shall be entitled to reimbursement therefor, pursuant to this
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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
MuniYield and MuniVest 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 MuniVest if any condition of MuniVest'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 MuniYield if any condition of MuniYield's obligations set
forth in Section 9 of this Agreement have not been fulfilled or waived by such
Board.
(b) If the transactions contemplated by this Agreement have not been
consummated by August , 2000, this Agreement automatically shall terminate on
that date, unless a later date is mutually agreed to by the Boards of 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.
(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 MuniYield Common Stock or
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MuniYield Series B AMPS, 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), MuniYield 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 JERSEY 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 MuniYield's
transfer agent with respect to such shares. MuniVest will provide MuniYield on
the Exchange Date with the name of any stockholder of MuniVest who is to the
knowledge of MuniVest an affiliate of MuniVest 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> 127
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.
MUNIYIELD NEW JERSEY FUND, INC.
By:
------------------------------------
Attest:
--------------------------------
MUNIVEST NEW JERSEY FUND, INC.
By:
------------------------------------
Attest:
--------------------------------
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<PAGE> 128
EXHIBIT III
ECONOMIC AND OTHER CONDITIONS IN NEW JERSEY
The following information is a brief summary of factors affecting the
economy of the State of New Jersey and does not purport to be a complete
description of such factors. 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 New Jersey issuers, however, it has not
been updated nor will it be updated during the year. The Fund has not
independently verified the information.
New Jersey (sometimes referred to herein as the "State") personal income
tax rates were reduced so that beginning with the tax year 1996, personal income
tax rates are, depending upon a taxpayer's level of income and filing status,
30%, 15% or 9% lower than 1993 tax rates.
The State operates on a fiscal year beginning July 1 and ending June 30.
For example, "Fiscal Year 2000" refers to the State's fiscal year beginning July
1, 1999 and ending June 30, 2000.
The General Fund is the fund into which all State revenues, not otherwise
restricted by statute, are deposited and from which appropriations are made. The
largest part of the total financial operations of the State is accounted for in
the General Fund. Revenues received from taxes and unrestricted by statute, most
federal revenues, and certain miscellaneous revenue items are recorded in the
General Fund.
The State's undesignated General Fund balance was $442 million for Fiscal
Year 1996, $281 million for Fiscal Year 1997 and $228 million for Fiscal Year
1998. For the Fiscal Year 1999 and the Fiscal Year 2000, the balance in the
undesignated General Fund is estimated to be $207 million and $171 million,
respectively.
The State finances certain capital projects primarily through the sale of
the general obligation bonds of the State. These bonds are backed by the full
faith and credit of the State. Certain state tax revenues and certain other fees
are pledged to meet the principal payments, interest payments and redemption
premium payments, if any, required to fully pay the bonds. No general obligation
debt can be issued by the State without prior voter approval, except that no
voter approval is required for any law authorizing the creation of a debt for
the purpose of refinancing all or a portion of outstanding debt of the State, so
long as such law requires that the refinancing provide a debt service savings.
The State of New Jersey has implemented a plan to address the Year 2000
data processing problem and ensure the continuation of government operations
into the Year 2000 and beyond. Planning for the Year 2000 commenced in 1997 with
the requirement that the various State departments submit comprehensive three
year action plans identifying all year 2000 impacts, strategies and timeframes
for addressing these impacts and estimates of cost. The State imposed a
moratorium during Fiscal Year 1998 on all non-year 2000 related data processing
activities to ensure availability of resources for Year 2000 compliance.
Agencies were directed to review current and ongoing technology initiatives in
light of the moratorium and suspend all those that are not considered mission
critical. This moratorium will remain in effect until each agency can certify
that it is Year 2000 compliant. As of May 31, 1999, the testing, validation and
implementation of 83% of all centrally maintained State systems was complete.
Departmental systems are in varying stages of implementation. The total
estimated cost to the State to achieve Year 2000 compliance is $120 million of
which approximately $81.1 million of expenditures were incurred as of May 31,
1999. Colleges and universities, authorities, municipal, county and local
sub-divisions will address Year 2000 issues separately.
The State's economic base is diversified, consisting of a variety of
manufacturing, construction and service industries, supplemented by rural areas
with selective commercial agriculture.
During 1998 a continuation of the national business expansion, a strong
business climate in New Jersey and positive developments in surrounding
metropolitan areas were major sources of State economic growth.
Average employment in 1998 increased by 76.5 thousand jobs compared to
1997. Job gains were spread across a number of industries with particularly
strong growth in business services (20,900) and in wholesale and retail trade
(18,000).
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<PAGE> 129
For the last decade, New Jersey's job growth has been concentrated in five
clusters of economic activity -- high technology, health, financial,
entertainment and logistics. One of every three of the State's workers are in
these sectors, and as a whole these sectors accounted for a 19% increase in
employment over the past decade compared to a 4% employment growth for all other
State industries.
Personal income in New Jersey, spurred by strong labor markets increased by
5.4% in 1998, a rate comparable to the national rate of increase. As a result,
retail sales rose by an estimated 6.2%. Low inflation, now less than 2%,
continues to benefit New Jersey consumers and businesses and low interest rates
boost housing and consumer durable goods expenditures. Home building had its
best year of the decade.
Joblessness fell in terms of both its absolute level and its rate, and by
the end of 1998, New Jersey's unemployment rate was at or below that of the
nation.
The outlook for 1999/2000 is for continued, although more moderate economic
growth. Job gains in the State may be constrained at times by labor shortages in
skilled technical areas, will be in the 50,000 range and personal income growth
will slow to an average of 4.3%.
Major caveats and uncertainties in the economic forecast for 1999/2000 have
increased. The national conditions in energy, agriculture, and manufactured
exports, particularly to Asian markets, are threats to the U.S. economy.
However, these areas of economic activity are under-represented in New Jersey
and hence the State has been able to avoid the immediate and direct effects of
those problems.
Other areas of concern include possible significant shifts in consumer and
investor confidence, unstable and potentially deflationary international
economic conditions, and the prospect of leaner profits for U.S. corporations.
In addition, the restructuring of major industries will continue spurred by the
imperative of cost containment, globalization of competition and deregulation.
Thus, 1999/2000 contains more risk than the recent past, but the momentum and
measures of the State's economic health are favorable.
The New Jersey outlook is based largely on expected national economic
performance and on recent State strategic policy actions aimed at infrastructure
improvements, effective education and training of New Jersey's workforce, and
those maintaining a competitive business climate. Investments in each of these
policy areas are seen as vital to maintaining the long-term health of the
State's economy.
Tort, Contract and Other Claims. At any given time, there are various
numbers of claims and cases pending against the State, State agencies and
employees, seeking recovery of monetary damages that are primarily paid out of
the fund created pursuant to the New Jersey Tort Claims Act (N.J.S.A. 59:1-1,
et. seq.). The State does not formally estimate its reserve representing
potential exposure for these claims and cases. The State is unable to estimate
its exposure for these claims and cases.
The State routinely receives notices of claim seeking substantial sums of
money. The majority of those claims have historically proven to be of
substantially less value than the amount originally claimed. Under the New
Jersey Tort Claims Act, any tort litigation against the State must be preceded
by a notice of claim, which affords the State the opportunity for a six-month
investigation prior to the filing of any suit against it.
In addition, at any given time, there are various numbers of contract and
other claims against the State and State agencies, including environmental
claims asserted against the State, among other parties, arising from the alleged
disposal of hazardous waste. Claimants in such matters are seeking recovery of
monetary damages or other relief which, if granted, would require the
expenditure of funds. The State is unable to estimate its exposure for these
claims.
At any given time, there are various numbers of claims and cases pending
against the University of Medicine and Dentistry and its employees, seeking
recovery of monetary damages that are primarily paid out of the Self Insurance
Reserve Fund created pursuant to the New Jersey Tort Claims Act (N.J.S.A.
59:1-1, et. seq.). An independent study estimated an aggregate potential
exposure of $87,880,000 for tort and medical malpractice claims pending as of
July 1, 1998. In addition, at any given time, there are various numbers of
contract and other claims against the University of Medicine and Dentistry,
seeking recovery of monetary damages or other relief which, if granted, would
require the expenditure of funds. The State is unable to estimate its exposure
for these claims.
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Buena Regional Commercial Township et al. v. New Jersey Department of
Education et al. This lawsuit was filed in Superior Court, Chancery Division,
Cumberland County. This lawsuit was filed December 9, 1997, on behalf of 17
rural school districts seeking the same type of relief as has been mandated to
be provided to the poor urban school districts in Abbott v. Burke. The
plaintiffs requested a declaratory judgement stating that the chancery court
retain jurisdiction, pending the remanding of the matter to the Commissioner of
Education for a hearing. The petition was then amended to include three more
rural districts for a total of 20. The State and plaintiffs entered into a
consent order to transfer the matter to the Commissioner of Education for
resolution. The chancery court did not retain jurisdiction. Once the matter was
transferred to the Commissioner, plaintiffs moved to amend their pleadings and
have done so three times. With each new pleading, the State has answered with a
motion to dismiss. Decisions on the first two motions to dismiss were rendered
moot by plaintiffs' filing of a subsequent amended pleading. There has been no
decision on the last motion to dismiss filed. The State is unable at this time
to estimate its exposure for this claim and intends to defend this suit
vigorously.
Similar complaints have been filed individually by the school districts of
Dover and Pennsville. The matter concerning Dover is presently pending before
the Commissioner of Education and the parties are awaiting a decision on the
State's motion to dismiss. Pennsville is also pending before the Commissioner of
Education. The State is unable, at this time, to estimate its exposure for these
claims. The State intends to vigorously defend these matters.
Verner Stubaus, et al. v. State of New Jersey, et al. Plaintiffs, 25
middle income school districts, filed a complaint alleging that the State's
system of funding for their schools is violative of the constitutional rights of
equal protection and a thorough and efficient education. The complaint was filed
April 20, 1998. On June 23, 1998, plaintiffs filed an amended complaint removing
one and adding eighteen school district plaintiffs. The State defendants filed a
motion to dismiss the amended complaint on September 18, 1998. The motion was
argued on January 29, 1999 and the court reserved its decision. The State will
vigorously defend this matter. The State is unable, at this time, to estimate
its exposure for these claims.
United Hospitals et al. v. State of New Jersey and William Waldman. These
cases represent challenges by 19 State hospitals to Medicaid hospital
reimbursement since 1995. The matters were filed in the Appellate Division of
the Superior Court of New Jersey. The hospitals challenge all of the following:
(i) whether the State complied with certain federal requirements for Medicaid
reimbursement; (ii) whether the State's reimbursement regulations, N.J.A.C.
10:52-1 et seq., including the regulations' interpretation of marginal loss are
arbitrary, capricious and unreasonable, (iii) whether the Department of Human
Services ("DHS") incorrectly calculated the rates; (iv) whether DHS denied
hospitals a meaningful appeal process; (v) whether the 1996-97 State
Appropriations Act (L.1996, c.42) violates the New Jersey Constitution with
respect to the provision for Medicaid reimbursement to hospitals; and (vi)
whether DHS violated the Medicaid State Plan, filed with the U.S. Department of
Health and Human Services, in implementing hospital rates since 1995. The State
intends to vigorously defend these actions.
Abbott Districts' Early Childhood Plan Appeals. Abbott districts, in
furtherance of the Court's decision in Abbott v. Burke and DOE regulations, have
developed operational plans for the provision of early childhood programs. In
February of 1999, the Department of Education informed each of the districts of
the Department's concerns regarding each district's plan, and asked that amended
plans be submitted to the Department. The Abbott districts have filed individual
petitions of appeal with the Commissioner. Issues on appeal include the quality
of community care providers, the requirement that districts collaborate with
DHS-licensed facilities, the use of certificated teachers, requests for full day
preschool, accreditation of early childhood programs, and as-applied
constitutional challenges to N.J.A.C. 6:19A-1 et seq.In response to the filed
petitions, the State has filed answers or motions in lieu of answers. The
matters are being transmitted to the Office of Administrative Law for further
proceedings. To date, thirteen districts have filed petitions. Additionally, the
Education Law Center has filed petitions on behalf of students in each of the
three State-operated school districts of Newark, Jersey City and Paterson and on
behalf of the students of West New York. The State is unable to estimate its
exposure for these claims and intends to defend the suits vigorously.
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<PAGE> 131
United Healthcare System, Inc. v. Fishman and Guhl. This Chapter 11 case
commenced two years ago when United Hospital closed. Through the adversary
complaint, United seeks to expunge proofs of claim filed in the Chapter 11 case
in 1997 by the Department of Health and Senior Services and the Department of
Human Services. United moreover asserts claims for turnover of the property of
the debtor's estate and declaratory relief. United wants the bankruptcy court to
take jurisdiction of and decide Medicaid reimbursement matters pending in New
Jersey state administrative proceedings or on appeal in the New Jersey appellate
courts. The pending Medicaid matters have an alleged potential exposure of
approximately $90 million. United also seeks turnover of monies collected by the
Department of Health and Senior Services pursuant to a statutory charge of a $10
per adjusted hospital admission in 1995-97 and an assessment of .53% of annual
hospital operating revenue in 1994-97. The State has filed a motion to dismiss.
The State intends to vigorously defend this action and also to oppose federal
bankruptcy court jurisdiction.
Currently, the State's general obligation bonds are rated AA+ by Standard &
Poor's, Aa1 by Moody's and AA+ by Fitch IBCA. From time to time agencies may
change their ratings.
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EXHIBIT IV
RATINGS OF MUNICIPAL BONDS AND COMMERCIAL PAPER
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S ("MOODY'S") MUNICIPAL BOND
RATINGS
Aaa Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally
referred to as "gilt edge." Interest payments are protected by a
large or by an exceptionally stable margin and principal is secure.
While the various protective elements are likely to change, such
changes can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are
generally known as high grade bonds. They are rated lower than the
best bonds because margins of protection may not be as large as in
Aaa securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities.
A Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and interest are
considered adequate, but elements may be present which suggest a
susceptibility to impairment some time in the future.
Baa Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly
secured. Interest payments and principal security appear adequate
for the present, but certain protective elements may be lacking or
may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact
have speculative characteristics as well.
Ba Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very moderate
and thereby not well safeguarded during both good and bad times
over the future. Uncertainty of position characterizes bonds in
this class.
B Bonds which are rated B generally lack characteristics of a
desirable investment. Assurance of interest and principal payments
or of maintenance of other terms of the contract over any long
period of time may be small.
Caa Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect
to principal or interest.
Ca Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or
have other marked shortcomings.
C Bonds which are rated C are the lowest rated class of bonds and
issues so rated can be regarded as having extremely poor prospects
of ever attaining any real investment standing.
Note: These bonds in the Aa, A, Baa, Ba and B groups which Moody's
believes possess the strongest investment attributes are designated by the
symbols Aal, Al, Baal, Bal and Bl.
Short-term Notes: The three ratings of Moody's for short-term notes are
MIG 1/VMIG 1, MIG 2/ VMIG 2, and MIG 3/VMIG 3; MIG 1/VMIG 1 denotes "best
quality, enjoying strong protection from established cash flows"; MIG 2/VMIG 2
denotes "high quality" with "ample margins of protection"; MIG 3/ VMIG 3
instruments are of "favorable quality ... but ... lacking the undeniable
strength of the preceding grades."
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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.
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<PAGE> 134
<TABLE>
<S> <C>
AAA Debt rated "AAA" has the highest rating assigned by Standard
& Poor's. Capacity of the obligor to meet its financial
commitment on the obligation is extremely strong.
AA Debt rated "AA" differs from the highest-rated issues only
in small degree. The obligor's capacity to meet its
financial commitment on the obligation is very strong.
A Debt rated "A" is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions
than debt in higher-rated categories. However, the obligor's
capacity to meet its financial commitment on the obligation
is still strong.
BBB Debt rated "BBB" exhibits adequate protection parameters.
However, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity
of the obligor to meet its financial commitment on the
obligation.
BB Debt rated "BB," "B," "CCC," "CC", and "C" are regarded as
B having significant speculative characteristics. "BB"
CCC indicates the least degree of speculation and "C" the
CC highest degree of speculation. While such debt will likely
C have some quality and protective characteristics, these may
be outweighed by large uncertainties or major risk exposures
to adverse conditions.
D Debt rated "D" is in payment default. The "D" rating
category is used when payments on an obligation are not made
on the date due even if the applicable grace period has not
expired, unless Standard & Poor's believes that such
payments will be made during such grace period. The "D"
rating also will be used upon the filing of a bankruptcy
petition or the taking of similar action if payments on an
obligation are jeopardized.
</TABLE>
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:
<TABLE>
<S> <C>
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.
</TABLE>
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<PAGE> 135
<TABLE>
<S> <C>
c The "c" subscript is used to provide additional information to investors that the bank may
terminate its obligation to purchase tendered bonds if the long-term credit rating of the issuer
is below an investment-grade level and/or the issuer's bonds are deemed taxable.
p The letter "p" indicates that the rating is provisional. A provisional rating assumes the
successful completion of the project financed by the debt being rated and indicates that payment
of the debt service requirements is largely or entirely dependent upon the successful, timely
completion of the project. This rating, however, while addressing credit quality subsequent to
completion of the project, makes no comment on the likelihood of or the risk of default upon
failure of such completion. The investor should exercise his own judgment with respect to such
likelihood and risk.
Continuance of the ratings is contingent upon Standard & Poor's receipt of an executed copy of
the escrow agreement or closing documentation confirming investments and cash flows.
r The "r" highlights derivative, hybrid, and certain other obligations that Standard & Poor's
believes may experience high volatility or high variability in expected returns as a result of
noncredit risks. Examples of such obligations are securities with principal or interest return
indexed to equities, commodities, or currencies; certain swaps and options; and interest-only
and principal-only mortgage securities. The absence of an "r" symbol should not be taken as an
indication that an obligation will exhibit no volatility or variability in total return.
</TABLE>
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:
<TABLE>
<S> <C>
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.
</TABLE>
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.
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<PAGE> 136
Fitch ratings do not reflect any credit enhancement that may be provided by
insurance policies or financial guarantees unless otherwise indicated.
Bonds that have the same rating are of similar but not necessarily
identical credit quality since the rating categories do not fully reflect small
differences in the degrees of credit risk.
Fitch ratings are not recommendations to buy, sell, or hold any security.
Ratings do not comment on the adequacy of market price, the suitability of any
security for a particular investor, or the tax-exempt nature or taxability of
payments made in respect of any security.
Fitch ratings are based on information obtained from issuers, other
obligors, underwriters, their experts, and other sources Fitch believes to be
reliable. Fitch does not audit or verify the truth or accuracy of such
information. Ratings may be changed, suspended, or withdrawn as a result of
changes in, or the unavailability of, information or for other reasons.
<TABLE>
<S> <C>
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.
</TABLE>
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.
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<PAGE> 137
FITCHALERT
Ratings are placed on FitchAlert to notify investors of an occurrence that
is likely to result in a rating change and the likely direction of such change.
These are designated as "Positive," indicating a potential upgrade, "Negative,"
for potential downgrade, or "Evolving," where ratings may be raised or lowered.
FitchAlert is relatively short-term, and should be resolved within three to 12
months.
RATINGS OUTLOOK
An outlook is used to describe the most likely direction of any rating
change over the intermediate term. It is described as "Positive" or "Negative."
The absence of a designation indicates a stable outlook.
DESCRIPTION OF FITCH'S SPECULATIVE GRADE BOND RATINGS
Fitch speculative grade bond ratings provide a guide to investors in
determining the credit risk associated with a particular security. The ratings
("BB" to "C") represent Fitch's assessment of the likelihood of timely payment
of principal and interest in accordance with the terms of obligation for bond
issues not in default. For defaulted bonds, the rating ("DDD" to "D") is an
assessment of the ultimate recovery value through reorganization or liquidation.
The rating takes into consideration special features of the issue, its
relationship to other obligations of the issuer, the current and prospective
financial condition and operating performance of the issuer and any guarantor,
as well as the economic and political environment that might affect the issuer's
future financial strength.
Bonds that have the rating are of similar but not necessarily identical
credit quality since rating categories cannot fully reflect the differences in
degrees of credit risk.
BB Bonds are considered speculative. The obligor's ability to pay
interest and repay principal may be affected over time by adverse
economic changes. However, business and financial alternatives can
be identified which could assist the obligor in satisfying its debt
service requirements.
B Bonds are considered highly speculative. While bonds in this class
are currently meeting debt service requirements, the probability of
continued timely payment of principal and interest reflects the
obligor's limited margin of safety and the need for reasonable
business and economic activity throughout the life of the issue.
CCC Bonds have certain identifiable characteristics which, if not
remedied, may lead to default. The ability to meet obligations
requires an advantageous business and economic environment.
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.
IV-6
<PAGE> 138
DESCRIPTION OF FITCH'S SHORT-TERM RATINGS
Fitch's short-term ratings apply to debt obligations that are payable on
demand or have original maturities of up to three years, including commercial
paper, certificates of deposit, medium-term notes, and municipal and investment
notes.
The short-term rating places greater emphasis than a long-term rating on
the existence of liquidity necessary to meet the issuer's obligations in a
timely manner.
Fitch short-term ratings are as follows:
F-1+ Exceptionally Strong Credit Quality. Issues assigned this rating
are regarded as having the strongest degree of assurance for timely
payment.
F-1 Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than
issues rated "F-l+".
F-2 Good Credit Quality. Issues assigned this rating have a
satisfactory degree of assurance for timely payment, but the margin
of safety is not as great as for issues assigned "F-1+" and "F-l"
ratings.
F-3 Fair Credit Quality. Issues assigned this rating have
characteristics suggesting that the degree of assurance for timely
payment is adequate; however, near-term adverse changes could cause
these securities to be rated below investment grade.
F-S Weak Credit Quality. Issues assigned this rating have
characteristics suggesting a minimal degree of assurance for timely
payment and are vulnerable to near-term adverse changes in
financial and economic conditions.
D Default. Issues assigned this rating are in actual or imminent
payment default.
LOC The symbol "LOC" indicates that the rating is based on a letter of
credit issued by a commercial bank.
IV-7
<PAGE> 139
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>
<S> <C>
1(a)--Articles of Incorporation of the Registrant, dated February
21, 1992.(a)
(b)--Form of Articles Supplementary creating the Series A AMPS.
(c)
(c)--Form of Articles Supplementary creating the Series B AMPS.
2 --By-Laws of the Registrant.(a)
3 --Not Applicable.
4 --Form of Agreement and Plan of Reorganization among the
Registrant and MuniVest New Jersey Fund, Inc. (included in
Exhibit II to the Proxy Statement and Prospectus contained
in this Registration Statement)
5 --Copies of instruments defining the rights of stockholders,
including the relevant portions of the Articles of
Incorporation and the By-Laws of the Registrant. (d)
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. (b)
10 --Not applicable.
</TABLE>
C-1
<PAGE> 140
<TABLE>
<C> <C> <S>
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. (b)
(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 MuniVest New Jersey Fund, 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. 33-45956) (the
"Common Stock Registration Statement"), filed on February 26, 1992.
(b) Incorporated by reference to Pre-Effective Amendment No. 2 to the Common
Stock Registration Statement, filed on April 24, 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.
33-47571) (the "AMPS Registration Statement"), filed on June 15, 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(b) to
the AMPS Registration Statement and as Exhibit 1(c) 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> 141
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 1st day of October, 1999.
MUNIYIELD NEW JERSEY FUND, INC.
(Registrant)
By /s/ TERRY K. GLENN
------------------------------------
(Terry K. Glenn, President)
Each person whose signature appears below hereby authorizes Terry K. Glenn,
Donald C. Burke and Alice A. Pellegrino, or any of them, as attorney-in-fact, to
sign on his behalf, individually and in each capacity stated below, any
amendments to this Registration Statement (including post-effective amendments)
and to file the same, with all exhibits thereto, with the Securities and
Exchange Commission.
As required by the Securities Act of 1933, this Registration Statement has
been signed by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
/s/ TERRY K. GLENN President and Director October 1, 1999
- ------------------------------------------------ (Principal Executive
(Terry K. Glenn) Officer)
/s/ DONALD C. BURKE Treasurer (Principal Financial October 1, 1999
- ------------------------------------------------ and Accounting Officer)
(Donald C. Burke)
/s/ JAMES H. BODURTHA Director October 1, 1999
- ------------------------------------------------
(James H. Bodurtha)
/s/ HERBERT I. LONDON Director October 1, 1999
- ------------------------------------------------
(Herbert I. London)
/s/ ROBERT R. MARTIN Director October 1, 1999
- ------------------------------------------------
(Robert R. Martin)
/s/ JOSEPH L. MAY Director October 1, 1999
- ------------------------------------------------
(Joseph L. May)
/s/ ANDRE F. PEROLD Director October 1, 1999
- ------------------------------------------------
(Andre F. Perold)
/s/ ARTHUR ZEIKEL Director October 1, 1999
- ------------------------------------------------
(Arthur Zeikel)
</TABLE>
C-3
<PAGE> 142
[Proxy Card Front]
COMMON STOCK
MUNIYIELD NEW JERSEY FUND, INC.
P.O. BOX 9011
PRINCETON, NEW JERSEY 08543-9011
P R O X Y
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 Jersey Fund, Inc.
(the "Fund") held of record by the undersigned on October 20, 1999 at a 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> 143
[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 MuniVest New Jersey
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> 144
[Proxy Card Front]
AUCTION MARKET
PREFERRED STOCK
MUNIYIELD NEW JERSEY FUND, INC.
P.O. BOX 9011
PRINCETON, NEW JERSEY 08543-9011
P R O X Y
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
Jersey Fund, Inc. (the "Fund") held of record by the undersigned on October 20,
1999 at a 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> 145
[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 MuniVest New Jersey
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> 146
[Proxy Card Front]
COMMON STOCK
MUNIVEST NEW JERSEY FUND, INC.
P.O. BOX 9011
PRINCETON, NEW JERSEY 08543-9011
P R O X Y
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 MuniVest New Jersey Fund, Inc.
(the "Fund") held of record by the undersigned on October 20, 1999 at a 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> 147
[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 Jersey
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> 148
[Proxy Card Front]
AUCTION MARKET
PREFERRED STOCK
MUNIVEST NEW JERSEY FUND, INC.
P.O. BOX 9011
PRINCETON, NEW JERSEY 08543-9011
P R O X Y
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 MuniVest New
Jersey Fund, Inc. (the "Fund") held of record by the undersigned on October 20,
1999 at a 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> 149
[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 Jersey
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> 150
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBERS DESCRIPTION
- ------- -----------
<C> <S>
1(c) -- Form of Articles Supplementary creating the Series B
AMPS.
14(a) -- Consent of Deloitte & Touche LLP, independent auditors
for the Registrant.
(b) -- Consent of Ernst & Young LLP, independent auditors for
MuniVest New Jersey Fund, Inc.
</TABLE>
C-4
<PAGE> 1
EXHIBIT 1(c)
MUNIYIELD NEW JERSEY FUND, INC.
Articles Supplementary creating one series of
Auction Market Preferred Stock(R) ("AMPS(R)")
MUNIYIELD NEW JERSEY 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 1,500 authorized and unissued shares of common stock of the
Corporation as preferred stock of the Corporation and has authorized the
issuance of one 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 Auction
Market Preferred Stock, Series B.
SECOND: The preferences, voting powers, restrictions, limitations as to
dividends, qualifications, and terms and conditions of redemption, of the shares
of such series of preferred stock are as follows:
- ----------
(R) Registered trademark of Merrill Lynch & Co., Inc.
<PAGE> 2
DESIGNATION
A series of 1,500 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 B." Each share of Auction
Market Preferred Stock, Series B (sometimes referred to herein as "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 B shall constitute a separate series of preferred stock
of the Corporation, and each share of Auction Market Preferred Stock, Series B
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 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
2
<PAGE> 3
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 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.
3
<PAGE> 4
"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 the Auction Market Preferred Stock, Series B.
"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
and Other AMPS Outstanding on such Valuation Date multiplied by the sum of (a)
$25,000 and (b) any applicable redemption premium attributable to the
designation of a Premium Call Period; (B) the aggregate amount of cash dividends
(whether or not earned or declared) that will have accumulated for each share of
AMPS and Other AMPS Outstanding, in each case, to (but not including) the end of
the current Dividend Period 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 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
4
<PAGE> 5
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; (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 Jersey 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 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).
"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.
5
<PAGE> 6
"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.
"Anticipation Notes" shall mean the following New Jersey 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.
6
<PAGE> 7
"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.
"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.
"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.
"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.
7
<PAGE> 8
"Common Stock" means the common stock, par value $.10 per share, of the
Corporation.
"Corporation" means MuniYield New Jersey 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 Jersey 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 and any Special Dividend Period.
"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.
8
<PAGE> 9
"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 the AMPS
or Other AMPS, as the case may be.
"Initial Dividend Period," with respect to the 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 the AMPS, means the rate per annum
applicable to the Initial Dividend Period for the AMPS and, with respect to
Other AMPS, has the equivalent meaning.
"Initial Margin" means the amount of cash or securities deposited with a
broker as a margin payment at the time of purchase or sale of a futures
contract.
"Interest Equivalent" means a yield on a 360-day basis of a discount basis
security which is equal to the yield on an equivalent interest-bearing security.
9
<PAGE> 10
"Inverse Floaters" means trust certificates or other instruments evidencing
interests in one or more New Jersey Municipal Bonds that qualify as S&P Eligible
Assets (and are not part of a private placement of New Jersey Municipal Bonds
and satisfy the issuer and original issue size or ratings requirements of clause
(vi) of the definition of S&P Eligible Assets) the interest rates on which are
adjusted at short term intervals on a basis that is inverse to the simultaneous
readjustment of the interest rates on corresponding floating rate trust
certificates or other instruments issued by the same issuer, provided that the
ratio of the aggregate dollar amount of floating rate instruments to inverse
floating rate instruments issued by the same issuer does not exceed one to one
at their time of original issuance unless the floating rate instruments have
only one reset remaining until maturity.
"Long Term Dividend Period" means a Special Dividend Period consisting of a
specified period of one whole year or more but not greater than five years.
"Mandatory Redemption Price" means $25,000 per share of AMPS plus an amount
equal to accumulated but unpaid dividends (whether or not earned or declared) to
the date fixed for redemption and excluding Additional Dividends.
"Marginal Tax Rate" means the maximum marginal regular Federal individual
income tax rate applicable to ordinary income or the maximum marginal regular
Federal corporate income tax rate, whichever is greater.
"Market Value" of any asset of the 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
10
<PAGE> 11
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.
"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.
11
<PAGE> 12
"Moody's Discount Factor" means, for purposes of determining the Discounted
Value of any New Jersey Municipal Bond or Municipal Bond which constitutes a
Moody's Eligible Asset, the percentage determined by reference to (a) the rating
by Moody's or S&P on such Bond and (b) the Moody's Exposure Period, in
accordance with the table set forth below:
<TABLE>
<CAPTION>
Rating Category
---------------
Moody's Exposure Period Aaa* Aa* A* Baa* Other** VMIG-1** SP-1+***
- ----------------------- ---- --- -- ---- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
7 weeks or less................................ 151% 159% 168% 202% 229% 136% 148%
8 weeks or less but greater than seven weeks... 154 164 173 205 235 137 149
9 weeks or less but greater than eight weeks... 158 169 179 209 242 138 150
</TABLE>
- ---------------------
* Moody's rating.
** New Jersey Municipal Bonds and Municipal Bonds not rated by Moody's
but rated BBB or BBB+ by S&P.
*** New Jersey 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.
Notwithstanding the foregoing, (i) a 102% Moody's Discount Factor will be
applied to short-term New Jersey Municipal Bonds and short-term Municipal Bonds,
so long as such New Jersey 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 Jersey Municipal Bonds
or Municipal Bonds Sold. "Receivables for New Jersey Municipal Bonds or
Municipal Bonds Sold," for purposes of calculating Moody's Eligible Assets as of
any Valuation Date, means no more than the aggregate of the following: (i) the
book value of receivables for New Jersey 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
12
<PAGE> 13
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 Jersey 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 Jersey Municipal
Bonds or Municipal Bonds Sold, a New Jersey 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 Jersey Municipal Bond or S&P-rated
Municipal Bond, such New Jersey Municipal Bond or Municipal Bond (excluding any
short-term New Jersey 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 Jersey Municipal Bonds or Municipal Bonds of at least
$10,000,000. In addition, New Jersey Municipal Bonds and Municipal Bonds in the
Corporation's portfolio must be within the following diversification
requirements in order to be included within Moody's Eligible Assets:
<TABLE>
<CAPTION>
Minimum Maximum Maximum Maximum Maximum
Issue Size Underlying Issue Type County State or Territory
($ 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 Jersey Municipal Bonds and Municipal Bonds not rated by Moody's but
rated BBB or BBB+ by S&P.
13
<PAGE> 14
(3) Does not apply to general obligation bonds.
(4) Applicable to general obligation bonds only.
(5) Does not apply to New Jersey 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 Jersey 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 Jersey 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.
When the Corporation sells a New Jersey 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. For so long as the
AMPS are rated by Moody's, the Corporation will not enter into any such reverse
14
<PAGE> 15
repurchase agreements unless it has received written confirmation from Moody's
that such transactions would not impair the rating then assigned the AMPS by
Moody's. When the Corporation purchases a New Jersey 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.
"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:
15
<PAGE> 16
<TABLE>
<CAPTION>
% Change in Marginal Moody's Volatility
Tax Rate Factor
-------------------- ------------------
<S> <C>
-<5% 292%
>5% but <10% 313%
-
>10% but <15% 338%
-
>15% but <20% 364%
-
>20% but <25% 396%
-
>25% but <30% 432%
-
>30% but <35% 472%
-
>35% but <40% 520%
-
</TABLE>
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 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).
16
<PAGE> 17
"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.
"New Jersey Municipal Bonds" means Municipal Bonds issued by or on behalf
of the State of New Jersey, 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 Jersey
income taxes, and includes Inverse Floaters.
"Non-Call Period" has the meaning set forth under the definition of
"Specific Redemption Provisions."
"Non-Payment Period" means, with respect to the 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 unpaid cash
17
<PAGE> 18
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
clause (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.
18
<PAGE> 19
"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 outstanding for purposes of calculating the AMPS Basic
Maintenance Amount and (ii) with respect to shares of other Preferred Stock, has
the equivalent meaning.
19
<PAGE> 20
"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.
"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.
"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, par value $.10 per share, 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
20
<PAGE> 21
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 Jersey Municipal Bonds Sold" has the meaning set forth
under the definition of S&P Discount Factor.
"Receivables for New Jersey Municipal Bonds or Municipal Bonds Sold" has
the meaning set forth under the definition of Moody's Discount Factor.
"Reference Rate" means: (i) with respect to a Dividend Period or a Short
Term Dividend Period having 28 or fewer days, the higher of the applicable "AA"
Composite Commercial Paper Rate and the Taxable Equivalent of the Short-Term
Municipal Bond Rate, (ii) with respect to any Short Term Dividend Period having
more than 28 but fewer than 183 days, the applicable "AA" Composite Commercial
Paper Rate, (iii) with respect to any Short Term Dividend Period having 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.
21
<PAGE> 22
"Retroactive Taxable Allocation" has the meaning set forth in paragraph
2(e) of these Articles Supplementary.
"Right," with respect to the 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 Jersey Municipal Bond which constitutes an S&P Eligible Asset,
the percentage determined by reference to (a) the rating by S&P, Moody's or
Fitch on such Bond and (b) the S&P Exposure Period, in accordance with the
tables set forth below:
<TABLE>
<CAPTION>
For New Jersey Municipal Bonds:
- -------------------------------
Rating Category
-------------------------------------------
S&P Exposure Period AAA* AA* A* BBB*
- ------------------- -------------------------------------------
<S> <C> <C> <C> <C>
45 Business Days 202% 207% 222% 262%
25 Business Days 182 187 202 242
10 Business Days 167 172 187 227
7 Business Days 162 167 182 222
3 Business Days 142 147 162 202
</TABLE>
- ------
* S&P rating.
Notwithstanding the foregoing, (i) the S&P Discount Factor for short-term
New Jersey Municipal Bonds will be 115%, so long as such New Jersey 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 Jersey 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 Jersey 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,
22
<PAGE> 23
however, such short-term New Jersey 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-l+ from
S&P; and further provided that such short-term New Jersey Municipal Bonds rated
by Moody's or Fitch but not rated by S&P may comprise no more than 50% of
short-term New Jersey Municipal Bonds that qualify as S&P Eligible Assets, (ii)
the S&P Discount Factor for Receivables for New Jersey 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 Jersey Municipal Bonds sold, and (iii) no
S&P Discount Factor will be applied to cash or to Receivables for New Jersey
Municipal Bonds Sold if such receivables are due within five Business Days of
such Valuation Date. "Receivables for New Jersey Municipal Bonds Sold," for
purposes of calculating, S&P Eligible Assets as of any Valuation Date, means the
book value of receivables for New Jersey 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 Jersey 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 Jersey
Municipal Bonds.
"S&P Eligible Asset" means cash, Receivables for New Jersey Municipal Bonds
Sold or a New Jersey 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
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<PAGE> 24
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 Jersey Municipal Bonds will be included in S&P Eligible Assets only to the
extent the Market Value of such New Jersey 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 Jersey Municipal Bond, such New Jersey
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 Jersey Municipal
Bonds; and (vi) except for Inverse Floaters, is part of an issue of New Jersey
Municipal Bonds with an original issue size of at least $10 million or, if of an
issue with an original issue size below $10 million (but in no event below $5
million), is either (a) issued by an issuer with a total of at least $25 million
of securities outstanding, or (b) rated at least A by S&P with all such New
Jersey Municipal Bonds not constituting more than 20% of the aggregate Market
Value of S&P Eligible Assets. Notwithstanding the foregoing:
(1) New Jersey 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 Jersey 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 Jersey Municipal Bonds exceeds 5% of the aggregate Market Value of the
S&P Eligible Assets;
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<PAGE> 25
(2) New Jersey 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 Jersey Municipal Bonds falling within the
utility issue type category will be broken down into three sub-categories (as
described below) and such New Jersey Municipal Bonds will be considered S&P
Eligible Assets to the extent the Market Value of such Bonds in each such
sub-category does not exceed 25% of the aggregate Market Value of S&P Eligible
Assets, except that New Jersey Municipal Bonds falling within the
transportation issue type category will be broken down into two sub-categories
(as described below) and such New Jersey 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 Jersey
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 Jersey
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 Jersey 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 Jersey or
its political subdivisions. For purposes of the issue type category requirement
described above, New Jersey Municipal Bonds in the utility issue
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<PAGE> 26
type category will be classified within one of the three following
sub-categories: (i) electric, gas and combination issues (if the combination
issue includes an electric issue), (ii) water and sewer utilities and
combination issues (if the combination issue does not include an electric
issue), and (iii) irrigation, resource recovery, solid waste and other
utilities, provided that New Jersey 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
Jersey 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) in the preceding sentence is limited to 25% of
thef aggregate Market Value of S&P Eligible Assets, provided, however, exposure
to transportation sub-category (ii) in the preceding sentence 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 Jersey 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 Jersey 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
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<PAGE> 27
Assets and are deemed to have an AA S&P rating for purposes of determining the
S&P Discount Factor applicable to such New Jersey Municipal Bonds. The
limitations on New Jersey Municipal Bonds of any one issuer in clause (1) above
is not applicable to escrow bonds, however, economically defeased bonds that
are either initially rated or rerated by S&P or another nationally recognized
rating agency and assigned the same rating level as the issuer of the Bonds
will remain in its original issue type category set forth in clause (2) above.
New Jersey 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 Jersey 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.
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<PAGE> 28
"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 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 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) evenly divisible by seven and not
fewer than seven nor more than 364.
"Special Dividend Period" means a Dividend Period consisting of (i) a
specified number of days (other than seven), evenly divisible by seven and not
fewer than seven nor more than 364 or (ii) a specified period of one whole year
or more but not greater than five years (in each case subject to adjustment as
provided in paragraph 2(b)(i)).
"Specific Redemption Provisions" means, with respect to a Special Dividend
Period either, or any combination of, (i) a period (a "Non-Call Period")
determined by the Board of 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
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
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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 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
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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 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.
"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
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<PAGE> 31
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 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.
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"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, 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.
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2. Dividends. (a) The Holders shall be entitled to receive, when, as and
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 the AMPS. Following the Initial Dividend
Payment Date for the AMPS, dividends on the AMPS will be payable, at the option
of the Corporation, either (i) with respect to any 7-Day Dividend Period and any
Short Term Dividend Period of 35 or fewer days, on the day next succeeding the
last day thereof or (ii) with respect to any Short Term Dividend Period of more
than 35 days and with respect to any Long Term Dividend Period, monthly on the
first Business Day of each calendar month during such Short Term Dividend Period
or Long Term Dividend Period and on the day next succeeding the last day thereof
(each such date referred to in clause (i) or (ii) being herein referred to as a
"Normal Dividend Payment Date"), except that if such Normal Dividend Payment
Date is not a Business Day, then the Dividend Payment Date shall be
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<PAGE> 34
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 and Special Dividend Periods are hereinafter sometimes
referred to as Dividend Periods. Each dividend payment date determined as
provided above is hereinafter referred to as a "Dividend Payment Date."
(ii) Each dividend shall be paid to the Holders as they appear in the
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 (the "Initial Dividend Period"),
the Applicable Rate shall be the Initial Dividend Rate. Commencing on the
Initial Dividend Payment Date, 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
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<PAGE> 35
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. Except in the case of the 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
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equivalent to payment to such person in New York Clearing House (next-day) funds
at the same time on the preceding Business Day, and any payment made after 12:00
noon, New York City time, on any Business Day shall be considered to have been
made instead in the same form of funds and to the same person before 12:00 noon,
New York City time, on the next Business Day.
(ii) The amount of cash dividends per share of AMPS payable (if declared)
on the Initial Dividend Payment Date, each 7-Day Dividend Period and each
Dividend Payment Date of each Short Term Dividend Period shall be computed by
multiplying the Applicable Rate for such Dividend Period by a fraction, the
numerator of which will be the number of days in such Dividend Period or part
thereof that such share was outstanding and the denominator of which will be
365, multiplying the amount so obtained by $25,000, and rounding the amount so
obtained to the nearest cent. During any Long Term Dividend Period, the amount
of cash dividends per share of AMPS payable (if declared) on any Dividend
Payment Date shall be computed by multiplying the Applicable Rate for such
Dividend Period by a fraction, the 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 the AMPS be a number of days (other than seven), evenly
divisible by seven, and not fewer than seven nor more than 364 in the case of a
Short Term Dividend Period or one whole year or more but not greater than five
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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 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 the 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
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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 advisable that the Corporation give a Notice of Special
Dividend Period for the 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 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
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securities similar to the AMPS with an equal dividend period), provided that, in
calculating the aggregate Discounted Value of Moody's Eligible Assets for this
purpose, the Moody's Exposure Period shall be deemed to be one week longer, (y)
sufficient funds for the payment of dividends payable on the immediately
succeeding, Dividend Payment Date have not been irrevocably deposited with the
Auction Agent by the close of business on the third Business Day preceding the
related Auction Date or (z) the Broker-Dealer(s) jointly advise the 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 the AMPS, the next succeeding Dividend Period will be a 7-Day Dividend
Period. In addition, in the event Sufficient Clearing Bids are not made in the
applicable Auction or such Auction is not held for any reason, such next
succeeding Dividend Period will be a 7-Day Dividend Period and the 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.
(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,
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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 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.
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(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 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
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such holder's dividends in dollars (after Federal and New Jersey 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 Jersey 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 Jersey corporate income tax rate applicable to ordinary income or capital
gains depending on the taxable character of the distribution (taking into
account in both (x) and (y) the Federal income tax deductibility of state taxes
paid or incurred but not any phase out of, or provision limiting, personal
exemptions, itemized deductions, or the benefit of lower tax brackets and
assuming the taxability of Federally tax-exempt dividends for corporations for
New Jersey 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 AMPS without
giving advance notice thereof if it increases the dividend by an additional
amount
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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
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 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
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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
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 such share 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 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
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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 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
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<PAGE> 46
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.
(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.
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(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 to be redeemed,
(iv) the place or places where shares of AMPS 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. 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
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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.
5. Voting Rights. (a) General. Except as otherwise provided in the
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
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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:
(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 the AMPS or any other
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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 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 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
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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 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
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holders of the Common Stock and Preferred Stock, shall constitute the duly
elected directors of the Corporation.
(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.
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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.
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
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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 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
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Corporation determined whether the Corporation had, at such Quarterly Valuation
Date (and at 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
Jersey 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 Jersey 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 equals or exceeds the AMPS Basic Maintenance Amount reflected
thereon. Also, on or before
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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 will not impair
the ratings then assigned to the shares of AMPS by S&P, except that the
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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 the 30 days preceding the time of effecting such transaction
as reported by The Wall Street Journal;
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<PAGE> 59
(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.
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
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<PAGE> 60
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 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);
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(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;
(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;
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(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 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,
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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 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:
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(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, 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
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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 shares of 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 shares of 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 prepared by the Corporation in accordance with this
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 stocks
(inclusive of Common Stock and Preferred Stock); (x) the occurrence of any
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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.
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.
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(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:
<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 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.
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(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.
(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.
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(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 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
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(B) each Broker-Dealer, using a list of Potential Beneficial
Owners that shall be maintained in good faith for the purpose of
conducting a competitive Auction, shall contact Potential Beneficial
Owners, including Persons that are not Beneficial Owners, on such list
to determine the number of Outstanding shares, if any, of AMPS which
each such Potential Beneficial Owner offers to purchase, provided that
the Applicable Rate for the next succeeding Dividend Period shall not
be less than the rate per annum specified by such Potential Beneficial
Owner.
For the purposes hereof, the communication by a Beneficial Owner or
Potential Beneficial Owner to a Broker-Dealer, or the communication by a
Broker-Dealer acting for its 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.
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(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
(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.
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(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.
(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;
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(C) to the extent that such Bidder is an Existing Holder:
(1) the number of Outstanding shares, if any, of AMPS subject to
any Hold Order placed by such Existing Holder;
(2) the number of Outstanding shares, if any, of AMPS subject to
any Bid placed by such Existing Holder and the rate per annum
specified in such Bid; and
(3) the number of Outstanding shares, if any, of AMPS subject to
any Sell Order placed by such Existing Holder; and
(D) to the extent such Bidder is a Potential Holder, the rate per
annum specified in such Potential Holder's Bid.
(ii) If any rate per annum specified in any Bid contains more
than three figures to the right of the decimal point, the Auction Agent shall
round such rate up to the next highest one-thousandth (.001) of 1%.
(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.
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(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 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
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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) 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.
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(d) Determination of Sufficient Clearing Bids, Winning Bid Rate and
Applicable Rate.
(i) Not earlier than the Submission Deadline on each Auction Date,
the Auction Agent shall assemble all Orders submitted or deemed submitted to it
by the Broker-Dealers (each such Order as submitted or deemed submitted by a
Broker-Dealer being hereinafter referred to individually as a "Submitted Hold
Order", a "Submitted Bid" or a "Submitted Sell Order", as the case may be, or as
a "Submitted Order") and shall determine:
(A) the excess of the total number of Outstanding 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
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Submitted Hold Orders), such Submitted Bids by Potential Holders
being hereinafter referred to collectively as "Sufficient
Clearing Bids"); and
(C) if Sufficient Clearing Bids exist, the lowest rate per annum
specified in the Submitted Bids (the "Winning Bid Rate") that if:
(1) each Submitted Bid from Existing Holders specifying the
Winning Bid Rate and all other Submitted Bids from Existing
Holders specifying lower rates per annum were rejected, thus
entitling such Existing Holders to continue to hold the 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;
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(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 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:
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(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;
(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
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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 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:
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(A) the Submitted Bid of each Existing Holder specifying any
rate per annum that is equal to or lower than the Maximum
Applicable Rate shall be rejected, thus entitling such Existing
Holder to continue to hold the Outstanding 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.
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(iii) If, as a result of the procedures described in paragraph
10(e)(i) or paragraph 10(e)(ii), any Existing Holder would be entitled or
required to sell, or any Potential Holder would be entitled or required to
purchase, a fraction of a share of AMPS on any Auction Date, the Auction Agent
shall, in such manner as in its sole discretion it shall determine, round up or
down the number of 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
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or Broker-Dealers acting for one or more sellers such Broker-Dealer shall
receive, as the case may be, Outstanding shares of AMPS.
(f) Miscellaneous. The Corporation may interpret the provisions of this
paragraph 10 to resolve any inconsistency or ambiguity, remedy any formal defect
or make any other change or modification that does not substantially adversely
affect the rights of Beneficial Owners of AMPS. A Beneficial Owner or an
Existing Holder (A) may sell, transfer or otherwise dispose of 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 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
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 JERSEY 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 the 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 JERSEY FUND, INC.
By
--------------------------------
Vice President
Attest:
- -----------------------------
Alice E. Pellegrino
Secretary
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EXHIBIT 14(a)
INDEPENDENT AUDITORS' CONSENT
MuniYield New Jersey Fund, Inc.:
We consent to the use in this Registration Statement on Form N-14 of our report
dated January 8, 1999 appearing in the Proxy Statement and Prospectus, which is
a part of such Registration Statement, and to the reference to us under the
captions "Comparison of the Funds - Financial Highlights" and "Experts" also
appearing in such Proxy Statement and Prospectus.
Deloitte & Touche LLP
Princeton, New Jersey
September 30, 1999
<PAGE> 1
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
MuniVest New Jersey Fund, Inc. included in the Registration Statement (Form
N-14 No. 333-0000) and related combined Preliminary Proxy Statement and
Prospectus of MuniYield New Jersey Fund, Inc. and MuniVest New Jersey Fund,
Inc. filed with the Securities and Exchange Commission.
/s/ Ernst & Young LLP
MetroPark, New Jersey
October 1, 1999
