<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 8, 1999
SECURITIES ACT FILE NO. 333-88483
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
------------------------
[X] PRE-EFFECTIVE AMENDMENT NO. 1 [ ] 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>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
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)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock ($.10 par value)........... 5,713,465 $13.90 $79,417,164 $22,078
Auction Market Preferred Stock, Series
B....................................... 1,500 $25,000(2) $37,500,000 $10,425
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
</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) Previously paid by wire transfer to the designated lockbox of the Securities
and Exchange Commission in Pittsburgh, Pennsylvania.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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
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: November 8, 1999
<PAGE> 3
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."
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 NOVEMBER 8, 1999.
<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................... 11
New Jersey Municipal Bonds............................. 11
Interest Rate and Credit Risk.......................... 11
Non-diversification.................................... 11
Rating Categories...................................... 11
Private Activity Bonds................................. 11
Leverage............................................... 11
Portfolio Management................................... 12
Inverse Floating Obligations........................... 13
Options and Futures Transactions....................... 13
Antitakeover Provisions................................ 13
AMPS Ratings Considerations............................ 13
COMPARISON OF THE FUNDS................................... 14
Financial Highlights................................... 14
Investment Objective and Policies...................... 18
Description of New Jersey Municipal Bonds and Municipal
Bonds................................................. 20
Special Considerations Relating to New Jersey Municipal
Bonds................................................. 21
Other Investment Policies.............................. 22
Information Regarding Options and Futures
Transactions.......................................... 23
Investment Restrictions................................ 25
AMPS Rating Agency Guidelines.......................... 27
Portfolio Composition.................................. 27
Portfolio Transactions................................. 28
Portfolio Turnover..................................... 29
Net Asset Value........................................ 29
Capital Stock.......................................... 30
Management of the Funds................................ 32
Code of Ethics......................................... 33
Voting Rights.......................................... 33
Stockholder Inquiries.................................. 34
Dividends and Distributions............................ 34
Automatic Dividend Reinvestment Plan................... 36
Mutual Fund Investment Option.......................... 37
Liquidation Rights of Holders of AMPS.................. 37
Tax Rules Applicable to the Funds and their
Stockholders.......................................... 38
AGREEMENT AND PLAN OF REORGANIZATION...................... 42
General................................................ 42
Procedure.............................................. 43
Terms of the Agreement and Plan of Reorganization...... 43
Potential Benefits to Common Stockholders of the Funds
as a Result of the Reorganization..................... 45
Surrender and Exchange of Stock Certificates........... 46
Tax Consequences of the Reorganization................. 47
Capitalization......................................... 48
</TABLE>
2
<PAGE> 6
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INFORMATION CONCERNING THE SPECIAL MEETINGS................. 48
Date, Time and Place of Meetings.......................... 48
Solicitation, Revocation and Use of Proxies............... 48
Record Date and Outstanding Shares........................ 49
Security Ownership of Certain Beneficial Owners and
Management............................................. 49
Voting Rights and Required Vote........................... 49
Appraisal Rights.......................................... 49
ADDITIONAL INFORMATION...................................... 50
Year 2000 Issues.......................................... 51
CUSTODIAN................................................... 51
TRANSFER AGENT, DIVIDEND DISBURSING AGENT AND REGISTRAR..... 51
LEGAL PROCEEDINGS........................................... 51
LEGAL OPINIONS.............................................. 51
EXPERTS..................................................... 51
</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 12, 1999.
Any person giving a proxy may revoke it at any time prior to its exercise
by executing a superseding proxy, by giving written notice of the revocation to
the Secretary of 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, voting together as a single
class, and a majority of the outstanding shares of MuniVest AMPS, voting
separately as a single class. Because of the requirement that the Agreement and
Plan of Reorganization be approved by stockholders of both Funds, the
Reorganization will not take place if stockholders of either Fund do not approve
the Agreement and Plan of Reorganization.
The Board of Directors of each of the Funds has fixed the close of business
on October 20, 1999 as the record date (the "Record Date") for the determination
of stockholders entitled to notice of, and to vote at, the Meetings or any
adjournment thereof. Stockholders on the Record Date will be entitled to one
vote for each share held, with no shares having cumulative voting rights. At the
Record Date, each Fund had outstanding the number of shares of Common Stock and
AMPS indicated in Exhibit I. To the knowledge of the management of each of the
Funds, no person owned beneficially more than 5% of the respective outstanding
shares of either class of capital stock of any Fund at the Record Date.
The Boards of Directors of the Funds know of no business other than that
discussed in Item 1 above that will be presented for consideration at the
Meetings. If any other matter is properly presented, it is the intention of the
persons named in the enclosed proxy to vote in accordance with their best
judgment.
ITEM 1: THE REORGANIZATION
SUMMARY
The following is a summary of certain information contained elsewhere in
this Proxy Statement and Prospectus and is qualified in its entirety by
reference to the more complete information contained in this Proxy Statement and
Prospectus and in the Agreement and Plan of Reorganization attached hereto as
Exhibit II.
In this Proxy Statement and Prospectus, the term "Reorganization" refers
collectively to (i) the acquisition of substantially all of the assets and the
assumption of substantially all of the liabilities of 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, respectively;
and (ii) the subsequent deregistration and dissolution of MuniVest.
At meetings of the Boards of Directors of each of the Funds, the
Reorganization was approved by the Board of Directors of MuniYield by a
unanimous vote and by the Board of Directors of MuniVest by the affirmative vote
of all of the Directors present at the meeting, representing more than
two-thirds of the total number of Directors. Subject to obtaining the necessary
approvals from the stockholders of both 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
4
<PAGE> 8
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 issued by or
on behalf of the state of New Jersey, its political subdivisions, agencies and
instrumentalities, and other qualifying issuers, each of which pays interest
that, in the opinion of bond counsel to the issuer, is exempt from Federal
income tax and New Jersey personal income taxes ("New Jersey Municipal Bonds").
MuniVest may invest up to 25% of its assets in municipal obligations rated below
investment grade. MuniYield does not invest 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 net
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 that has 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 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 PRO FORMA MUNIYIELD AS OF JUNE 30, 1999 (UNAUDITED)(a)
<TABLE>
<CAPTION>
PRO FORMA
MUNIYIELD MUNIVEST MUNIYIELD
--------- -------- ---------
<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 annual operating expenses for pro forma MuniYield are projections for a
12-month period.
(e) Based on net assets of each Fund and pro forma MuniYield excluding assets
attributable to AMPS. If assets attributable to AMPS are included, the
Investment Advisory Fees for each Fund and pro forma MuniYield would be
0.50% and the Total Annual Expenses would be 0.72%, 0.82% and 0.69%.
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
Pro Forma MuniYield*................................... $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 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
6
<PAGE> 10
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 New Jersey Municipal
Bonds. Under normal circumstances, at least 80% of
MuniYield's total assets will be invested in New
Jersey Municipal Bonds. The Fund intends to invest
primarily in long-term New Jersey Municipal Bonds and
other long-term municipal obligations exempt from
Federal income tax, but not New Jersey personal
income tax ("Municipal Bonds") with a maturity of
more than ten years. The weighted average maturity of
the Fund's portfolio was 21.24 years as of September
30, 1999. The average maturity of the Fund's
portfolio securities, and therefore the Fund's
portfolio as a whole, will vary based upon the
assessment of Fund Asset Management, L.P. ("FAM"),
the Fund's investment adviser, of economic and market
conditions. See "Comparison of the
Funds -- Investment Objectives and Policies."
MuniYield has outstanding Common Stock and one series
of AMPS, designated Series A ("MuniYield AMPS"). As
of September 30, 1999, MuniYield had net assets of
$186,584,058.
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
long-term investment grade 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. The Fund intends to invest
primarily in long-term New Jersey Municipal Bonds and
Municipal Bonds with a maturity of more than ten
years. The weighted average maturity of the Fund's
portfolio was 21.79 years as of September 30, 1999.
The average maturity of the Fund's portfolio
securities, and therefore the Fund's portfolio as a
whole, will vary based upon FAM's assessment of
economic and market conditions. See "Comparison of
the Funds -- Investment Objectives and Policies."
MuniVest has outstanding Common Stock and one series
of AMPS ("MuniVest AMPS"). As of September 30, 1999,
MuniVest had net assets of $109,673,688.
COMPARISON OF THE FUNDS....Investment Objectives and Policies. The Funds have
substantially similar investment objectives and
policies. Both Funds seek to provide stockholders
(including holders of AMPS) with 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 will normally
invest at least 80% of its assets in New Jersey
Municipal Bonds. MuniVest may invest up to 25% of its
assets in municipal bonds rated below investment
grade. MuniYield does not invest in municipal bonds
rated below investment grade. See "Comparison of the
Funds -- Investment Objectives and Policies."
7
<PAGE> 11
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 September 30,
1999, (i) the net asset value per share of MuniYield
Common Stock was $13.91 and the market price per
share was $13.0625; and (ii) the net asset value per
share of MuniVest Common Stock was $13.08 and the
market price per share was $12.125. 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>
October 27, 1999 MuniYield A 3.40%
October 19, 1999 MuniVest * 3.35%
</TABLE>
* No series designation
Advisory Fees. The investment adviser for each of
the Funds is FAM. The principal business address of
FAM is 800 Scudders Mill Road, Plainsboro, New Jersey
08536. FAM was organized as an investment adviser in
1977 and offers investment advisory services to more
than 50 registered investment companies. The Asset
Management Group of Merrill Lynch & Co., Inc. ("ML &
Co.") (which includes FAM) acts as investment adviser
for over 100 registered investment companies and also
offers portfolio management and portfolio analysis
services to individuals and institutional accounts.
FAM is responsible for the management of each Fund's
investment portfolio and for providing administrative
services to each Fund. Theodore R. Jaeckel, Jr.
serves as the portfolio manager for 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 Bank of New York receives a fee for
these services. The principal business addresses are
as follows: The Bank of New York, 90 Washington
Street, New York, New York 10286 (for its custodial
services) and 101 Barclay Street, New York, New York
10286 (for its transfer agency and auction agency
services). 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 net assets of
approximately $133.1 million excluding AMPS, and
0.72% based on net assets of approximately $193.1
million including AMPS, and the overall annualized
operating expense ratio for MuniVest was 1.23%, based
on net assets of approximately $76.1 million
excluding AMPS, and 0.82%, based on 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 pro forma
MuniYield would have been 1.01%, based on net assets
of approximately $209.2 million excluding AMPS, and
0.69%, based on 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."
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
9
<PAGE> 13
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 SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
AMOUNT
OUTSTANDING
AMOUNT HELD BY EXCLUSIVE OF AMOUNT
AMOUNT FUND FOR ITS OWN SHOWN IN PREVIOUS
TITLE OF CLASS AUTHORIZED ACCOUNT COLUMN
-------------- ----------- ------------------- -------------------
<S> <C> <C> <C>
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 Reorganization is subject to the receipt of
such ruling or of an opinion of counsel to the same
effect. The Reorganization will not affect the status
of 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."
10
<PAGE> 14
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 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. MuniYield does
not invest in municipal bonds rated below investment grade.
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 a 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
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
11
<PAGE> 15
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 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.
12
<PAGE> 16
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.
13
<PAGE> 17
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% 3.35% 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
======== ======== ======== ======== ========
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
charges.
*** Do not reflect the effect of dividends to Preferred Stock shareholders.
+ Includes Common and Preferred Stock average net assets.
# Aggregate total investment return.
14
<PAGE> 18
MuniYield (continued)
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR ENDED MAY 1, 1992+
NOVEMBER 30, TO NOVEMBER 30,
--------------------- ---------------
1994 1993 1992
---------- -------- ---------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSET VALUE:
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period........................ $ 15.88 $ 14.40 $ 14.18
---------- -------- --------
Investment income -- net.................................... 1.15 1.17 .62
Realized and unrealized gain (loss) on investments -- net... (2.67) 1.49 .31
---------- -------- --------
Total from investment operations............................ (1.52) 2.66 .93
---------- -------- --------
Less dividends and distributions to Common Stock
shareholders:
Investment income -- net.................................. (.93) (.96) (.44)
Realized gain on investments -- net....................... (.01) (.01) --
---------- -------- --------
Total dividends and distributions to Common Stock
shareholders.............................................. (.94) (.97) (.44)
---------- -------- --------
Capital charge resulting from issuance of Common Stock...... -- -- (.03)
---------- -------- --------
Effect of Preferred Stock activity:++
Dividends to Preferred Stock shareholders:
Investment income -- net................................ (.20) (.21) (.10)
Capital charge resulting from issuance of Preferred
Stock................................................... -- -- (.14)
---------- -------- --------
Total effect of Preferred Stock activity.................... (.20) (.21) (.24)
---------- -------- --------
Net asset value, end of period.............................. $ 13.22 $ 15.88 $ 14.40
========== ======== ========
Market price per share, end of period....................... $ 12.125 $ 15.625 $ 14.875
========== ======== ========
TOTAL INVESTMENT RETURN:**
Based on market price per share............................. (16.87%) 11.78% 2.19%#
========== ======== ========
Based on net asset value per share.......................... (10.82%) 17.35% 4.65%#
========== ======== ========
RATIOS TO AVERAGE NET ASSETS:***
Expenses, net of reimbursement.............................. .74% .69% .43%*
========== ======== ========
Expenses.................................................... .74% .69% .69%*
========== ======== ========
Investment income -- net.................................... 5.30% 5.26% 5.51%*
========== ======== ========
SUPPLEMENTAL DATA:
Net assets, net of Preferred Stock, end of period (in
thousands)................................................ $ 116,746 $140,214 $123,833
========== ======== ========
Preferred Stock outstanding, end of period (in thousands)... $ 60,000 $ 60,000 $ 60,000
========== ======== ========
Portfolio turnover.......................................... 15.06% 5.14% 27.13%
========== ======== ========
LEVERAGE:
Asset coverage per $1,000................................... $ 2,946 $ 3,337 $ 3,064
========== ======== ========
DIVIDENDS PER SHARE ON PREFERRED STOCK OUTSTANDING:+++
Investment income -- net.................................... $ 741 $ 774 $ 341
========== ======== ========
</TABLE>
- ---------------
* Annualized.
** Total investment returns based on market value, which can be significantly
greater or lesser than the net asset value, may result in substantially
different returns. Total investment returns exclude the effects of sales
charges.
*** Do not reflect the effect of dividends to Preferred Stock shareholders.
+ Commencement of Operations.
++ The Fund's Preferred Stock was issued on July 1, 1992.
+++ Dividends have been adjusted to reflect a two-for-one stock split that
occurred on December 1, 1994.
# Aggregate total investment return.
15
<PAGE> 19
MuniVest
The financial information in the table below, except for the six-month
period ended April 30, 1999, which is unaudited and has been provided by FAM,
has been audited in conjunction with the annual audits of the financial
statements of the Fund by Ernst & Young LLP ("E&Y"), independent auditors. The
following per share data and ratios have been derived from information provided
in the financial statements of the Fund.
<TABLE>
<CAPTION>
FOR THE SIX 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%
=========== ======= ======= ======= =======
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
charges.
*** Do not reflect the effect of dividends to Preferred Stock shareholders.
# Aggregate total investment return.
16
<PAGE> 20
MuniVest (continued)
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR APRIL 30, 1993+
ENDED OCTOBER 31, TO OCTOBER 31,
------------------ ---------------
1994 1993
------------------ ---------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period........................ $ 14.89 $ 14.18
--------- --------
Investment income -- net.................................... 1.00 .49
Realized and unrealized gain (loss) on investments -- net... (2.66) .81
--------- --------
Total from investment operations............................ (1.66) 1.30
--------- --------
Less dividends and distributions to Common Stock
shareholders:
Investment income -- net.................................. (.81) (.35)
Realized gain on investments -- net....................... (.04) --
--------- --------
Total dividends and distributions to Common Stock
shareholders.............................................. (.85) (.35)
--------- --------
Capital charge resulting from issuance of Common Stock...... -- (.04)
--------- --------
Effect of Preferred Stock activity:++
Dividends and distributions to Preferred Stock
Shareholders:
Investment income -- net................................ (.19) (.07)
Realized gain on investments -- net..................... (.01) --
Capital charge resulting from issuance of Preferred
Stock................................................... -- (.13)
--------- --------
Total effect of Preferred Stock activity.................... (.20) (.20)
--------- --------
Net asset value, end of period.............................. $ 12.18 $ 14.89
========= ========
Market price per share, end of period....................... $ 10.125 $ 15.00
========= ========
TOTAL INVESTMENT RETURN:
Based on market price per share............................. (27.74%) 2.38%#
========= ========
Based on net asset value per share.......................... (12.43%) 7.50%#
========= ========
RATIOS TO AVERAGE NET ASSETS:
Expenses, net of reimbursement.............................. .79% .48%*
========= ========
Expenses.................................................... .82% .84%*
========= ========
Investment income -- net.................................... 4.89% 4.85%*
========= ========
SUPPLEMENTAL DATA:
Net assets, net of Preferred Stock, end of period (in
thousands)................................................ $ 66,978 $ 81,637
========= ========
Preferred Stock outstanding, end of period (in thousands)... $ 37,500 $ 37,500
========= ========
Portfolio turnover.......................................... 68.75% 20.15%
========= ========
LEVERAGE:
Asset coverage per $1,000................................... $ 2,786 $ 3,177
========= ========
DIVIDENDS PER SHARE ON PREFERRED STOCK OUTSTANDING:+++
Investment income -- net.................................... $ 696 $ 240
========= ========
</TABLE>
- ---------------
* Annualized.
** Total investment returns based on market value, which can be significantly
greater or lesser than the net asset value, may result in substantially
different returns. Total investment returns exclude the effects of sales
charges.
*** Do not reflect the effect of dividends to Preferred Stock shareholders.
+ Commencement of Operations.
++ The Fund's Preferred Stock was issued on June 1, 1993.
+++ Dividends per share have been adjusted to reflect a two-for-one stock split
that occurred on December 1, 1994.
# 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)
August 31, 1999...................... 14.75 13.4375 15.00 13.98 (1.68) (5.04)
</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)
October 31, 1999..................... 13.5625 11.1875 13.68 12.39 (0.85) (8.71)
</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.
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.
18
<PAGE> 22
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 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. For purposes of a Fund's
investment objective and policies, Non-Municipal Tax-Exempt Securities that pay
interest that is exempt from Federal income taxes and New Jersey personal income
taxes will be considered "New Jersey Municipal Bonds" and Non-Municipal
Tax-Exempt Securities that pay interest that is exempt from Federal income taxes
will be considered "Municipal Bonds".
The New Jersey Municipal Bonds and Municipal Bonds in which each Fund
invests will be rated at the date of purchase in the four highest rating
categories of S&P, Moody's or Fitch or, if unrated, will be considered to be of
comparable quality by FAM. In the case of long-term debt, the investment grade
rating categories are AAA through BBB for S&P and Fitch and Aaa through Baa for
Moody's. In the case of short-term notes, the investment grade rating categories
are SP-1+ through SP-2 for S&P, MIG-1 through MIG-3 for Moody's and F-1+ through
F-3 for Fitch. In the case of tax-exempt commercial paper, the investment grade
rating categories are A-1+ through A-3 for S&P, Prime-1 through Prime-3 for
Moody's and F-1+ through F-3 for Fitch. Obligations ranked in the lowest
investment grade rating category (BBB, SP-2 and A-3 for S&P; Baa, MIG-3 and
Prime-3 for Moody's; and BBB and F-3 for Fitch), while considered "investment
grade," may have certain speculative characteristics. 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. MuniYield does not invest in New
Jersey Municipal Bonds and Municipal Bonds that are rated below investment
grade. 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 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.
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
19
<PAGE> 23
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. See "Risk Factors and Special
Considerations -- Leverage."
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 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
20
<PAGE> 24
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 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
Each 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 in high
quality New Jersey Municipal Bonds. Currently, New Jersey's general obligation
bonds are rated AA+ by S&P, Aa1 by Moody's and AA+
21
<PAGE> 25
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
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
22
<PAGE> 26
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 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
23
<PAGE> 27
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 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
24
<PAGE> 28
adversely affected by economic, political, legislative or other developments
which have a disparate impact on the respective markets for such securities.
Under regulations of the Commodity Futures Trading Commission, the futures
trading activities described herein will not result in a Fund being deemed a
"commodity pool," as defined under such regulations, provided that the Fund
adheres to certain restrictions. In particular, the Fund may purchase and sell
financial futures contracts and options thereon (i) for bona fide hedging
purposes, without regard to the percentage of the Fund's assets committed to
margin and option premiums, and (ii) for non-hedging purposes, if, immediately
thereafter the sum of the amount of initial margin deposits on the Fund's
existing futures positions and option premiums entered into for non-hedging
purposes do not exceed 5% of the market value of the liquidation value of the
Fund's portfolio, after taking into account unrealized profits and unrealized
losses on any such transactions. Margin deposits may consist of cash or
securities acceptable to the broker and the relevant contract market.
When a Fund purchases a financial futures contract, or writes a put option
or purchases a call option thereon, it will maintain an amount of cash, cash
equivalents (e.g., commercial paper and daily tender adjustable notes) or liquid
securities in a segregated account with the Fund's custodian, so that the amount
so segregated plus the amount of initial and variation margin held in the
account of its broker equals the market value of the financial futures contract,
thereby ensuring that the use of such financial futures contract is unleveraged.
Although certain risks are involved in options and futures transactions,
FAM believes that, because each Fund will engage in options and futures
transactions only for hedging purposes, the options and futures portfolio
strategies of a Fund will not subject the Fund to the risks associated with
speculation in options and futures transactions.
The volume of trading in the exchange markets with respect to New 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
25
<PAGE> 29
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, for the Common Stock and AMPS voting together
as a single class, "majority" means 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, but for the
AMPS voting separately as a class, "majority" means more than 50% of the
outstanding AMPS. Neither Fund may:
1. Make investments for the purpose of exercising control or
management.
2. Purchase securities of other investment companies, except in
connection with a merger, consolidation, acquisition or reorganization, or
by purchase in the open market of securities of closed-end investment
companies and only if immediately thereafter not more than 10% of the
Fund's total assets would be invested in such securities.
3. Purchase or sell real estate, real estate limited partnerships,
commodities or commodity contracts; provided, that the Fund may invest in
securities secured by real estate or interests therein or issued by
companies that invest in real estate or interests therein and the Fund may
purchase and sell financial futures contracts and options thereon.
4. Issue senior securities other than preferred stock or borrow
amounts in excess of 5% of its total assets taken at market value;
provided, however, that the Fund is authorized to borrow moneys in excess
of 5% of the value of its total assets for the purpose of repurchasing
shares of Common Stock or redeeming shares of preferred stock.
5. Underwrite securities of other issuers except insofar as the Fund
may be deemed an underwriter under the Securities Act of 1933 (the
"Securities Act") in selling portfolio securities.
6. Make loans to other persons, except that the Fund may purchase New
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.
For purposes of restriction (9), the exception for states, municipalities
and their political subdivisions applies only to tax-exempt securities issued by
such entities.
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
26
<PAGE> 30
compliance with the provisions of the Investment Company Act and the rules and
regulations thereunder. Included among such restricted transactions will be
purchases from or sales to Merrill Lynch of securities in transactions in which
it acts as principal. An exemptive order has been obtained that permits the
Funds to effect principal transactions with Merrill Lynch in high quality,
short-term, tax-exempt securities subject to conditions set forth in such order.
The Funds may consider in the future requesting an order permitting other
principal transactions with Merrill Lynch, but there can be no assurance that
such application will be made and, if made, that such order would be granted.
AMPS RATING AGENCY GUIDELINES
Each Fund intends that, so long as shares of its AMPS are outstanding, the
composition of its portfolio will reflect guidelines established by Moody's and
S&P in connection with the Fund's receipt of a rating for such shares on or
prior to their date of original issue of at least "aaa" from Moody's and AAA
from S&P. Moody's and S&P, which are nationally recognized statistical rating
organizations, issue ratings for various securities reflecting the perceived
creditworthiness of such securities. The guidelines for rating AMPS have been
developed by Moody's and S&P in connection with issuances of asset-backed and
similar securities, including debt obligations and variable rate preferred
stock, generally on a case-by-case basis through discussions with the 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 invested in short-term
27
<PAGE> 31
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.
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
28
<PAGE> 32
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
ENDED ENDED
YEAR ENDED YEAR ENDED 5/31/99 YEAR ENDED YEAR ENDED 4/30/99
11/30/97 11/30/98 (UNAUDITED) 10/31/97 10/31/98 (UNAUDITED)
- ---------- ---------- ----------- ---------- ---------- -----------
<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.
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
29
<PAGE> 33
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 September 30, 1999, the net asset value per share of MuniYield Common
Stock was $13.91 and the market price per share was $13.0625. The shares of
MuniVest Common Stock commenced trading on the NYSE on April 30, 1993. As of
September 30, 1999, the net asset value per share of MuniVest Common Stock was
$13.08 and the market price per share was $12.125.
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.
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<PAGE> 34
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>
October 27, 1999 MuniYield A 3.40%
October 19, 1999 MuniVest * 3.35%
</TABLE>
- ---------------
* No series designation.
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) 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
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<PAGE> 35
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. 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 registered investment
companies and offers services to individuals and institutional accounts. As of
September 1999, the Asset Management Group had a total of approximately $514
billion in investment company and other portfolio assets under management
(approximately $38.5 billion of which were invested in municipal securities).
This amount includes assets managed for certain affiliates of FAM. FAM is a
limited partnership, the partners of which are ML & Co. and Princeton Services,
Inc. FAM was organized as an investment adviser in 1977 and offers investment
advisory services to more than 50 registered investment companies. The principal
business address of FAM is 800 Scudders Mill Road, Plainsboro, New Jersey 08536.
Each Fund's investment advisory agreement with FAM provides that, subject
to the supervision of the Board of Directors of the Fund, FAM is responsible for
the actual management of the Fund's portfolio. The responsibility for making
decisions to buy, sell or hold a particular security for each Fund rests with
FAM, subject to review by the Board of Directors of the Fund.
FAM provides the portfolio management for each of the Funds. Such portfolio
management considers analyses from various sources (including brokerage firms
with which each Fund does business), makes the necessary investment decisions,
and places orders for transactions accordingly. FAM also is responsible for the
performance of certain administrative and management services for each Fund.
For the services provided by FAM under each Fund's investment advisory
agreement, each Fund pays a monthly fee at an annual rate of .50 of 1% of the
Fund's average weekly net assets (i.e., the average weekly value of the total
assets of the Fund, including assets acquired from the sale of preferred stock,
minus the sum of accrued liabilities of the Fund and accumulated dividends on
its shares of preferred stock). For purposes of this calculation, average weekly
net assets are
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<PAGE> 36
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 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.
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<PAGE> 37
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.
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.
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, (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, (iii) approve any plan of reorganization adversely affecting
such AMPS or (iv) take any action to change a fund's investment policies
requiring a vote of stockholders under Section 13(a) of the Investment Company
Act.
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 or a portion of its net investment income monthly to holders of a Fund's
Common Stock. Monthly distributions to holders of a Fund's Common Stock normally
consist of all or a portion of its net investment income remaining after the
payment of dividends (and any Additional Distribution) on the Fund's AMPS. A
Fund may at times pay out less than the entire amount of net investment income
earned in any particular period and may at times pay out such accumulated
undistributed income in addition to net investment income earned in other
periods in order to permit
34
<PAGE> 38
the Fund to maintain a more stable level of dividends to holders of Common
Stock. As a result, the dividend paid by a Fund to holders of its Common Stock
for any particular period may be more or less than the amount of net investment
income earned by the Fund during such period. For Federal tax purposes, the Fund
is required to distribute substantially all of its net investment income for
each year. All net realized long-term or short-term capital gains, if any, are
distributed pro rata at least annually 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, including any Additional Distribution, 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. If a Fund's ability to make
distributions on its Common Stock is limited, such limitation could under
certain circumstances impair the ability of the Fund to maintain its
qualification for taxation as a regulated investment company, which would have
adverse tax consequences for holders of a Fund's Common Stock. 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 a Federal
alternative minimum tax. However, each Fund is required to allocate net capital
gains and other income subject to regular Federal income tax and New Jersey
personal income taxes, if any, proportionately between shares of its Common
Stock and shares of its AMPS in accordance with the current position of the IRS
described herein. See "Tax Rules Applicable to the Funds and their Stockholders"
below. Each Fund notifies the Auction Agent of the amount of any net capital
gains or other taxable income to be included in any dividend on shares of AMPS
prior to the auction establishing the applicable rate for such dividend. The
Auction Agent in turn notifies each broker-dealer whenever it receives any such
notice from a Fund, and each broker-dealer then notifies its customers who are
holders of the Fund's AMPS. Each Fund also may include such income in a dividend
on shares of its AMPS without giving advance notice thereof if it increases the
dividend by an additional amount to offset the tax effect thereof. The amount of
taxable income allocable to shares of a Fund's AMPS will depend upon the amount
of such income realized by the Fund and other factors, but generally is not
expected to be significant.
For information concerning the manner in which dividends and distributions
to holders of each Fund's Common Stock may be reinvested automatically in shares
of the Fund's Common Stock, see "Automatic Dividend Reinvestment Plan" below.
Dividends and distributions will be subject to the tax treatment discussed
below, whether they are reinvested in shares of a Fund or received in cash.
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.
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<PAGE> 39
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 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
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<PAGE> 40
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 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
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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.
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
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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.
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 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
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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 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.
MuniVest may invest in high yield securities and both 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
high yield securities or 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
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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 a question 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.
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
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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 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.
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. The number of shares of MuniYield Common Stock
issued to MuniVest will have an aggregate net asset value equal to the aggregate
net asset value of the shares of Common Stock of MuniVest (except that cash will
be paid in lieu of fractional shares of MuniYield Common Stock), and the number
of shares of MuniYield Series B AMPS issued to MuniVest will have an aggregate
liquidation preference and value equal to the aggregate liquidation preference
and value of the MuniVest AMPS. 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 Fund, 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
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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 and the shares of MuniVest Common Stock would be valued at net asset value
for the purposes of the exchange, the holders of Common Stock of neither Fund
will be diluted as a result of 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, holders of AMPS of neither Fund will be diluted as a result of
the Reorganization. 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.
PROCEDURE
At meetings of the Board of Directors of each of the Funds, the Board of
Directors of each Fund, 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. The Board of Directors of MuniYield voted unanimously to approve
the Reorganization. The Board of Directors of MuniVest approved the
Reorganization by a vote of all the Directors present at the meeting,
representing more than two-thirds of the total number of Directors.
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.
43
<PAGE> 47
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 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 single
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
44
<PAGE> 48
Plan of Reorganization are subject to various conditions, including a
registration statement on Form N-14 being declared effective by the SEC,
approval by the stockholders of each of the Funds, a favorable IRS ruling or an
opinion of counsel being received as to tax matters, an opinion of counsel as to
securities matters being received and the continuing accuracy of various
representations and warranties of the Funds being confirmed by the respective
parties.
Postponement, Termination. Under the Agreement and Plan of Reorganization,
the Board of Directors of either Fund may cause the Reorganization to be
postponed or abandoned should such Board determine that it is in the best
interests of the stockholders of its respective Fund to do so. The Agreement and
Plan of Reorganization may be terminated, and the Reorganization abandoned at
any time (whether before or after adoption thereof by the stockholders of either
Fund) prior to the Exchange Date, or the Exchange Date may be postponed: (i) by
mutual consent of the Boards of Directors of both Funds or (ii) by the Board of
Directors of 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 pro forma MuniYield
based on net assets both excluding and including assets attributable to AMPS as
of June 30, 1999:
<TABLE>
<CAPTION>
TOTAL ANNUALIZED
OPERATING NET TOTAL ANNUALIZED NET
EXPENSE RATIO, ASSETS, EXCLUDING OPERATING ASSETS, 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
Pro Forma MuniYield(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.
45
<PAGE> 49
Based on the foregoing, each Fund's Board concluded that the Reorganization
is in the best interests of that Fund because the Reorganization presents no
significant risks or costs (including legal, accounting and administrative
costs) that would outweigh the benefits discussed above.
In approving the Reorganization, the Board of Directors of each Fund
determined that the Reorganization is in the best interests of that Fund and,
with respect to net asset value and liquidation preference, that the interests
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 approximately six months to 3 1/2 years 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 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 distributable with respect to such holder's shares of MuniVest
Common Stock, together with cash in lieu of any fractional shares of MuniYield
Common Stock. Promptly after the Exchange Date, the transfer agent for the
MuniYield Common Stock 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 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 will be deemed for all purposes to evidence ownership
of the number of full shares of MuniYield Common Stock 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 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, 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 are presented to MuniYield, they
will be canceled and exchanged for certificates representing MuniYield Common
Stock, and cash in lieu of fractional shares of MuniYield Common Stock, if any,
distributable with respect to such MuniVest Common Stock in the Reorganization.
46
<PAGE> 50
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 corporation
business (franchise) tax.
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.
47
<PAGE> 51
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 capitalization of
pro forma MuniYield as adjusted to give effect to the Reorganization.
PRO FORMA CAPITALIZATION OF MUNIYIELD AND MUNIVEST,
AND PRO FORMA MUNIYIELD AS OF MAY 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA MUNIYIELD 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 $(2,179,284) $213,996,038
Net Assets Attributable to AMPS.............. $ 60,000,000 $37,500,000 -- $ 97,500,000
Shares Outstanding:
Common Stock................................. 9,100,783 5,519,681 (274,345) 14,346,119(b)
AMPS
Series A.................................. 2,400 1,500(d) (1,500) 2,400
Series B.................................. N/A N/A 1,500 1,500(b)
Net Asset Value Per Share:
Common Stock................................. $ 15.09 $ 14.29 -- $ 14.92(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, undistributed realized
capital gains and accrual of estimated Reorganization expenses of $290,000.
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 of MuniYield consisting of 1,500 Series B
shares in exchange for the net assets of MuniVest. The estimated 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 net of Reorganization-related
expenses and distribution of undistributed net investment income of
$1,329,756 for MuniYield and $515,272 for MuniVest and undistributed
realized capital gains of $44,256 for MuniYield.
(d) MuniVest currently has one series of AMPS outstanding, with no series
designation.
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.
48
<PAGE> 52
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
(14 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 single class.
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.
APPRAISAL RIGHTS
Under Maryland law, stockholders of a 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 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.
49
<PAGE> 53
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 (although a vote
against the Reorganization is not required), 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. A vote against the Reorganization will not
be sufficient to satisfy the requirement of a written demand described in (iii).
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.
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 Shareholder Communications
Corporation, 17 State Street, New York, New York 10004 to aid in the
solicitation of proxies, at a cost to be borne by each of the Funds of
approximately $7,500, plus out-of-pocket expenses.
Broker-dealer firms, including Merrill Lynch, holding Fund shares in
"street name" for the benefit of their customers and clients will request the
instructions of such customers and clients on how to vote their shares on the
Reorganization before the Meetings. With respect to shares of Common Stock of
each Fund, broker-dealer firms, including Merrill Lynch, will not be permitted
to grant voting authority without instructions with respect to the approval of
the Agreement and Plan of Reorganization. Shares of AMPS held in "street name,"
however, may be voted without instructions under certain conditions by
broker-dealer firms with respect to the Reorganization and counted for purposes
of establishing a quorum if no instructions are received one business day before
the Meeting or, if adjourned, one business day before the day to which the
Meeting is adjourned. These conditions include, among others, that (i) at least
30% of the AMPS outstanding have voted on the Reorganization, (ii) less than 10%
of the AMPS outstanding have voted against the Reorganization and (iii) holders
of Common Stock have voted to approve the Reorganization. In such instances, the
broker-dealer firm will vote those shares of AMPS on Item 1 in the same
proportion as the votes cast by all holders of AMPS who voted on the
Reorganization. The Funds will include shares held of record by broker-dealers
as to which such authority has been granted in its tabulation of the total
number of shares present for purposes of determining whether the necessary
quorum of stockholders of each Fund exists. Proxies that are returned to a Fund
but that are marked "abstain" or on which a broker-dealer has declined to vote
on any proposal ("broker non-votes") will be counted as present for the purposes
of determining a quorum. Abstentions and broker non-votes will not be counted as
votes cast. Abstentions and broker non-votes will have the same effect as a vote
against the Reorganization.
50
<PAGE> 54
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.
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 either 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 six-year period then ended
and for the period May 1, 1992 to November 30, 1992 of MuniYield included in
this Proxy Statement and Prospectus have been so included in reliance on the
reports of Deloitte & Touche LLP
51
<PAGE> 55
("D&T"), independent auditors, given on their authority as experts in auditing
and accounting. The principal business address of D&T is 117 Campus Drive,
Princeton, New Jersey 08540. D&T will serve as the independent auditors for the
combined fund after the Reorganization.
Ernst & Young LLP, independent auditors, have audited the financial
statements and financial highlights of 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.
By Order of the Boards of Directors
ALICE A. PELLEGRINO
Secretary of MuniYield New Jersey Fund,
Inc., and MuniVest New Jersey Fund, Inc.
52
<PAGE> 56
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-33
Unaudited Financial Statements for Pro Forma MuniYield, as
of May 31, 1999........................................... F-42
</TABLE>
F-1
<PAGE> 57
AUDITED FINANCIAL STATEMENTS FOR
MUNIYIELD NEW JERSEY FUND, INC.
FOR THE FISCAL YEAR ENDED NOVEMBER 30, 1998
F-2
<PAGE> 58
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> 59
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> 60
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> 61
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> 62
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> 63
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> 64
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> 65
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> 66
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> 67
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> 68
UNAUDITED FINANCIAL STATEMENTS FOR
MUNIYIELD NEW JERSEY FUND, INC.
FOR THE SIX-MONTH PERIOD ENDED MAY 31, 1999
F-13
<PAGE> 69
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> 70
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> 71
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> 72
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.
See Notes to Financial Statements.
QUALITY PROFILE
The quality ratings of securities in the Fund as of May 31, 1999 were as
follows:
<TABLE>
<CAPTION>
Percent of
S&P Rating/Moody's Rating Net Assets
- ------------------------------------------------------------------------------------------
<S> <C>
AAA/Aaa ........................................................................... 57.3%
AA/Aa ............................................................................. 18.8
A/A ............................................................................... 12.4
BBB/Baa ........................................................................... 10.0
Other+ ............................................................................ 3.3
- ------------------------------------------------------------------------------------------
</TABLE>
+ Temporary investments in short-term municipal securities.
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
F-17
<PAGE> 73
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> 74
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> 75
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> 76
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> 77
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> 78
AUDITED FINANCIAL STATEMENTS FOR
MUNIVEST NEW JERSEY FUND, INC.
FOR THE FISCAL YEAR ENDED OCTOBER 31, 1998
F-23
<PAGE> 79
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> 80
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
</TABLE>
F-25
<PAGE> 81
<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>
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
</TABLE>
F-26
<PAGE> 82
<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>
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-27
<PAGE> 83
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
</TABLE>
F-28
<PAGE> 84
<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>
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-29
<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.
F-30
<PAGE> 86
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-31
<PAGE> 87
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-32
<PAGE> 88
UNAUDITED FINANCIAL STATEMENTS FOR
MUNIVEST NEW JERSEY FUND, INC.
FOR THE SIX-MONTH PERIOD ENDED APRIL 30, 1999
F-33
<PAGE> 89
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-34
<PAGE> 90
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
</TABLE>
F-35
<PAGE> 91
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
S&P Moody's Face Value
STATE Ratings Ratings Amount Issue (Note 1a)
<C> <C> <C> <C> <C>
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-36
<PAGE> 92
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
</TABLE>
F-37
<PAGE> 93
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
For the Six Months Ended April 30, 1999
<S> <C> <C> <C>
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-38
<PAGE> 94
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.
F-39
<PAGE> 95
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-40
<PAGE> 96
MuniVest New Jersey Fund, Inc., April 30, 1999
NOTES TO FINANCIAL STATEMENTS (concluded)
(e) Dividends and distributions--Dividends from net investment income are
declared and paid monthly. Distributions of capital gains are recorded on the
ex-dividend dates.
2. Investment Advisory Agreement and Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with Fund Asset
Management, L.P. ("FAM"). The general partner of FAM is Princeton Services, Inc.
("PSI"), an indirect wholly-owned subsidiary of Merrill Lynch & Co., Inc. ("ML &
Co."), which is the limited partner.
FAM is responsible for the management of the Fund's portfolio and
provides the necessary personnel, facilities, equipment and certain
other services necessary to the operations of the Fund. For such
services, the Fund pays a monthly fee at an annual rate of 0.50% of
the Fund's average weekly net assets, including proceeds from the
issuance of Preferred Stock.
Accounting services are provided to the Fund by FAM at cost.
Certain officers and/or directors of the Fund are officers and/or
directors of FAM, PSI, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the six months ended April 30, 1999 were $29,650,470 and
$31,212,075, respectively.
Net realized gains for the six months ended April 30, 1999 and net
unrealized gains as of April 30, 1999 were as follows:
<TABLE>
<CAPTION>
Realized Unrealized
Gains Gains
<S> <C> <C>
Long-term investments $ 659,143 $ 6,157,100
-------------- ------------
Total $ 659,143 $ 6,157,100
============== ============
</TABLE>
As of April 30, 1999, net unrealized appreciation for Federal
income tax purposes aggregated $6,157,100, of which $6,407,453
related to appreciated securities and $250,353 related to depreciated
securities. The aggregate cost of investments at April 30, 1999
for Federal income tax purposes was $110,907,956.
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 April 30, 1999 and
during the year ended October 31, 1998 increased by 14,564 and 7,164,
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
April 30, 1999 was 3.27%.
Shares issued and outstanding during the six months ended April 30, 1999 and
the year ended October 31, 1998 remained constant.
The Fund pays commissions to certain broker-dealers at the end of each auction
at an annual rate ranging from 0.25% to 0.375%, calculated on the proceeds of
each auction. For the six months ended April 30, 1999, Merrill Lynch, Pierce,
Fenner & Smith Inc., an affiliate of FAM, earned $19,781 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 May 6,1999, the Fund's Board of Directors declared an ordinary income
dividend to Common Stock shareholders in the amount of $.062475 per share,
payable on May 27, 1999 to shareholders of record as of May 21, 1999.
F-41
<PAGE> 97
UNAUDITED FINANCIAL STATEMENTS FOR
PRO FORMA MUNIYIELD AS OF
MAY 31, 1999
F-42
<PAGE> 98
COMBINED SCHEDULE OF INVESTMENTS FOR
MUNIYIELD NEW JERSEY FUND, INC. AND MUNIVEST NEW JERSEY FUND, INC.
MAY 31, 1999 (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
S&P MOODY'S FACE PRO FORMA
RATINGS RATINGS AMOUNT ISSUE MUNIYIELD++ MUNIVEST++ MUNIYIELD++
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NEW JERSEY -- 100.4%
AA A1 $2,000 Bernards Township, New Jersey, School $ 2,028 -- $ 2,028
District, GO, 5.30% due 1/01/2019
- ----------------------------------------------------------------------------------------------------------------
AAA Aaa 2,500 Camden County, New Jersey, Improvement -- $ 2,790 2,790
Authority, Lease Revenue Bonds (County
Guaranteed), 6.15% due 10/01/2004(d)(g)
- ----------------------------------------------------------------------------------------------------------------
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 2,273 2,063 4,336
Pollution Control Financing Authority
Revenue Bonds (Atlantic City Electric
Company Project), AMT, Series A, 7.20% due
11/01/2029(d)
- ----------------------------------------------------------------------------------------------------------------
AAA Aaa 1,000 Carteret, New Jersey, Board of Education -- 959 959
COP, Refunding Bonds, 4.75% due 4/15/2019(d)
- ----------------------------------------------------------------------------------------------------------------
AAA Aaa 2,500 Casino Reinvestment Development Authority, 2,533 -- 2,533
New Jersey, Parking Fee Revenue Bonds,
Series A, 5.25% due 10/01/2015(c)
- ----------------------------------------------------------------------------------------------------------------
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.), 5.32%** due 8/01/2017 -- 558 558
- ----------------------------------------------------------------------------------------------------------------
AAA Aaa 750 Essex County, New Jersey, Improvement 736 -- 736
Authority, Parking Facility Revenue
Refunding Bonds, 5% due 10/01/2022(a)
- ----------------------------------------------------------------------------------------------------------------
NR* Aaa 2,000 Essex County, New Jersey, Utilities 1,962 -- 1,962
Authority, Solid Waste Revenue Refunding
Bonds, Series A, 5% due 4/01/2022(c)
- ----------------------------------------------------------------------------------------------------------------
AA Aa2 1,000 Gloucester County, New Jersey, Industrial 1,027 -- 1,027
Pollution Contol Financing Authority,
Revenue Refunding Bonds (Mobil Oil Refining
Corp. Project), 5.625% due 12/01/2028
- ----------------------------------------------------------------------------------------------------------------
AAA Aaa 4,880 Hudson County, New Jersey, COP, Refunding 5,267 -- 5,267
(Correctional Facilities), 6.60% due
12/01/2021(d)
- ----------------------------------------------------------------------------------------------------------------
AAA NR* 7,875 Hudson County, New Jersey, Improvement 5,286 3,039 8,325
Authority, Facility Lease Revenue Refunding
Bonds, Residual Certificates, RIB, Series
34, 7.175% due 10/01/2024(b)(e)
- ----------------------------------------------------------------------------------------------------------------
AA Aa3 2,600 Jersey City, New Jersey, School, GO, 6.65% 2,830 -- 2,830
due 2/15/2002(g)
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
F-43
<PAGE> 99
COMBINED SCHEDULE OF INVESTMENTS FOR
MUNIYIELD NEW JERSEY FUND, INC. AND MUNIVEST NEW JERSEY FUND, INC.
MAY 31, 1999 (UNAUDITED) (CONTINUED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
S&P MOODY'S FACE PRO FORMA
RATINGS RATINGS AMOUNT ISSUE MUNIYIELD++ MUNIVEST++ MUNIYIELD++
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
AAA NR* $ 835 Metuchen, New Jersey, School District, GO, -- $ 842 $ 842
5.15% due 9/15/2019(b)
- ----------------------------------------------------------------------------------------------------------------
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 100 -- 100
Authority Revenue Bonds (Pooled Government
Loan Program), ACES, 3.10% due 8/01/2016(f)
- ----------------------------------------------------------------------------------------------------------------
AAA Aaa 1,690 New Jersey Casino Reinvestment Development -- 1,708 1,708
Authority, Parking Fee Revenue Bonds, Series
A, 5.25% due 10/01/2016(c)
- ----------------------------------------------------------------------------------------------------------------
New Jersey EDA, Economic Development Revenue
Refunding Bonds:
NR* Aa3 1,500 (Burlington Coat Factory), 6.125% due -- 1,641 1,641
9/01/2010
A-1+ P-1 1,000 (Stolthaven Project), VRDN, Series A, -- 1,000 1,000
4.20% due 1/15/2018(f)
- ----------------------------------------------------------------------------------------------------------------
New Jersey EDA, First Mortgage Revenue
Refunding Bonds, (Fellowship Village) Series
A:
BBB- NR* 1,250 5.50% due 1/01/2018 1,225 -- 1,225
BBB- NR* 5,000 5.50% due 1/01/2025 2,881 1,920 4,801
- ----------------------------------------------------------------------------------------------------------------
A1+ VMIG1+ 2,400 New Jersey EDA, Natural Gas Facilities 1,200 1,200 2,400
Revenue Bonds (NUI Corporation Project),
VRDN, AMT, Series A, 3.25% due
6/01/2026(a)(f)
- ----------------------------------------------------------------------------------------------------------------
AAA Aaa 8,900 New Jersey EDA, Natural Gas Facilities 5,523 4,308 9,831
Revenue Refunding Bonds (NUI Corporation
Project), Series A, 6.35% due 10/01/2022(a)
- ----------------------------------------------------------------------------------------------------------------
New Jersey EDA Revenue Bonds(d):
AAA Aaa 2,400 (Educational Testing Service), Series B, -- 2,700 2,700
6.25% due 5/15/2005(g)
NR* Aaa 7,385 (Saint Barnabas), Series A, 5.53%** due -- 2,202 2,202
7/01/2022
- ----------------------------------------------------------------------------------------------------------------
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
</TABLE>
F-44
<PAGE> 100
COMBINED SCHEDULE OF INVESTMENTS FOR
MUNIYIELD NEW JERSEY FUND, INC. AND MUNIVEST NEW JERSEY FUND, INC.
MAY 31, 1999 (UNAUDITED) (CONTINUED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
S&P MOODY'S FACE PRO FORMA
RATINGS RATINGS AMOUNT ISSUE MUNIYIELD++ MUNIVEST++ MUNIYIELD++
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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
- ----------------------------------------------------------------------------------------------------------------
New Jersey EDA, Revenue Refunding Bonds:
AAA Aaa 2,000 (Educational Testing Service), Series A, 1,920 -- 1,920
4.75% due 5/15/2018(d)
NR* NR* 1,250 First Mortgage, (Franciscan Oaks Project), -- $ 1,256 1,256
5.70% due 10/01/2017
NR* NR* 1,250 First Mortgage, (Franciscan Oaks Project), -- 1,251 1,251
5.75% due 10/01/2023
AAA Aaa 2,500 (RJW Health Care Corporation), 6.50% due 2,765 -- 2,765
7/01/2024(c)
- ----------------------------------------------------------------------------------------------------------------
NR* Aa1 15,250 New Jersey EDA, Solid Waste Disposal 11,686 4,892 16,578
Facilities Revenue Bonds (Garden State Paper
Company), 7.125% due 4/01/2022
- ----------------------------------------------------------------------------------------------------------------
BB Ba2 3,630 New Jersey EDA, Special Facility Revenue -- 3,583 3,583
Bonds (Continental Airlines Inc. Project),
AMT, 5.50% due 4/01/2028
- ----------------------------------------------------------------------------------------------------------------
New Jersey EDA, Water Facilities Revenue
Bonds, AMT:
AAA Aaa 4,000 (American Water Company Inc. Project), 6% 2,154 2,154 4,308
due 5/01/2036(b)
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 -- 1,519 1,519
2/01/2038(d)(e)(f)
- ----------------------------------------------------------------------------------------------------------------
A-1+ VMIG1+ 1,600 New Jersey EDA, Water Facilities Revenue 1,300 300 1,600
Refunding Bonds (United Water New Jersey
Inc. Project), VRDN, Series A, 3.35% due
11/01/2026(a)(f)
- ----------------------------------------------------------------------------------------------------------------
New Jersey Health Care Facilities Financing
Authority Revenue Bonds:
AAA Aaa 2,800 (Catholic Health East), Series E, 4.75% 2,592 -- 2,592
due 11/15/2029(a)
NR* Baa1 4,200 (Southern Ocean County Hospital), Series -- 4,392 4,392
A, 6.25% due 7/01/2023
- ----------------------------------------------------------------------------------------------------------------
New Jersey Health Care Facilities Financing
Authority, Revenue Refunding Bonds:
A- A3 6,060 (Atlantic City Medical Center), Series C, 6,538 -- 6,538
6.80% due 7/01/2011
BBB+ NR* 2,000 (Christian Health Care Center) Series A, 1,946 -- 1,946
5.25% due 7/01/2013
AAA Aaa 1,000 (Community Medical Center/Kimball), 5.25% 1,026 -- 1,026
due 7/01/2011(c)
AAA Aaa 1,000 (Community Medical Center/Kimball), 5.25% 1,022 -- 1,022
due 7/01/2012(c)
AAA Aaa 2,135 (Community Medical Center/Kimball), 5.25% 2,173 -- 2,173
due 7/01/2013(c)
BBB+ NR* 6,500 (Holy Name Hospital), 6% due 7/01/2025 3,611 3,095 6,706
</TABLE>
F-45
<PAGE> 101
COMBINED SCHEDULE OF INVESTMENTS FOR
MUNIYIELD NEW JERSEY FUND, INC. AND MUNIVEST NEW JERSEY FUND, INC.
MAY 31, 1999 (UNAUDITED) (CONTINUED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
S&P MOODY'S FACE PRO FORMA
RATINGS RATINGS AMOUNT ISSUE MUNIYIELD++ MUNIVEST++ MUNIYIELD++
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
AAA Aaa $5,000 (Jersey Shore Medical Center), 6.75% due -- $ 5,586 $ 5,586
7/01/2019(a)
AAA Aaa 1,000 (Monmouth Medical Center), Series C, 6.25% -- 1,115 1,115
due 7/01/2004(c)(g)
- ----------------------------------------------------------------------------------------------------------------
New Jersey Health Care Facilities Financing
Authority Revenue Refunding Bonds:
A NR* 1,750 (Palisades Medical Center Obligation $ 1,707 -- 1,707
Group), 5.25% due 7/01/2028
AAA Aaa 1,700 (Saint Barnabas Hospital), Series B, -- 630 630
5.04%** due 7/01/2018(d)
AAA Aaa 1,970 (Saint Barnabas Hospital), Series B, -- 654 654
5.04%** due 7/01/2020(d)
AAA Aaa 2,365 (Saint Barnabas Hospital), Series B, -- 744 744
5.04%** due 7/01/2021(d)
AAA Aaa 5,500 (Saint Barnabas Hospital), Series B, -- 1,554 1,554
5.05%** due 7/01/2023(d)
AAA Aaa 4,550 (Saint Barnabas Health Center), Series B, 2,364 1,854 4,218
4.75% due 7/01/2028(d)
BBB Baa2 2,450 (Saint Elizabeth Hospital Obligation 2,532 -- 2,532
Group), 6% due 7/01/2020
BBB Baa2 2,075 (Saint Elizabeth Hospital Obligation -- 2,137 2,137
Group), 6% due 7/01/2027
AAA Aaa 2,300 (Virtua Health Issue), 4.75% due -- 2,186 2,186
7/01/2018(c)
AAA Aaa 1,555 (Virtua Health Issue), 4.50% due 1,378 -- 1,378
7/01/2028(c)
- ----------------------------------------------------------------------------------------------------------------
AAA Aaa 2,000 New Jersey Sports and Exposition Authority -- 2,195 2,195
Convention Center, Luxury Tax Revenue Bonds,
Series A, 6.60% due 7/01/2002(d)(g)
- ----------------------------------------------------------------------------------------------------------------
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 5,384 1,636 7,020
Authority, Higher Educational Revenue
Refunding Bonds (Princeton University),
Series C, 6.375% due 7/01/2002(g)
</TABLE>
F-46
<PAGE> 102
COMBINED SCHEDULE OF INVESTMENTS FOR
MUNIYIELD NEW JERSEY FUND, INC. AND MUNIVEST NEW JERSEY FUND, INC.
MAY 31, 1999 (UNAUDITED) (CONTINUED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
S&P MOODY'S FACE PRO FORMA
RATINGS RATINGS AMOUNT ISSUE MUNIYIELD++ MUNIVEST++ MUNIYIELD++
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
New Jersey State Educational Facilities
Authority Revenue Bonds:
BBB+ NR* $6,250 (Drew University), Series E, 6.25% due $ 6,779 -- $ 6,779
7/01/2002(g)
AA+ Aaa 1,000 (Institute for Advanced Study), Series G, 980 -- 980
5% due 7/01/2028
- ----------------------------------------------------------------------------------------------------------------
AAA Aaa 2,240 New Jersey State Educational Facilities 2,318 -- 2,318
Authority Revenue Refunding Bonds (Seton
Hall University Project), 5.25% due
7/01/2013(a)
- ----------------------------------------------------------------------------------------------------------------
A A3 6,030 New Jersey State Educational Facilities 6,636 -- 6,636
Authority Revenue Bonds (Stevens Institute
of Technology), Series A, 6.80% due
7/01/2002(g)
- ----------------------------------------------------------------------------------------------------------------
AA+ Aa1 4,075 New Jersey State, GO, AMT, 7.05% due 2,414 $ 2,276 4,690
7/15/2015
- ----------------------------------------------------------------------------------------------------------------
NR* Aaa 7,675 New Jersey State Higher Education Assistance 5,050 2,702 7,752
Authority, Student Loan Revenue Bonds, RIB,
AMT, Series 18, 6.925% due 6/01/2017(a)(e)
- ----------------------------------------------------------------------------------------------------------------
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, 2,249 5,791 8,040
6.50% due 10/01/2016(c)
- ----------------------------------------------------------------------------------------------------------------
AA- Aa2 10,000 New Jersey State Transportation Trust Fund 7,544 2,515 10,059
Authority Revenue Bonds (Transportation
System), Series A, 5.125% due 6/15/2015
- ----------------------------------------------------------------------------------------------------------------
AA- Aa 1,865 New Jersey Wastewater Treatment Trust -- 2,091 2,091
Revenue Bonds, Series A, 6.50% due
4/01/2004(g)
- ----------------------------------------------------------------------------------------------------------------
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 -- 5,352 5,352
Commissioner's Refunding Bonds (Sewer
System), Series D, 5.875% due 12/01/2022(a)
- ----------------------------------------------------------------------------------------------------------------
AA- A1 5,000 Port Authority of New York and New Jersey, 4,520 1,130 5,650
Consolidated Revenue Bonds, 93rd Series,
6.125% due 6/01/2094
- ----------------------------------------------------------------------------------------------------------------
NR* Aaa 4,325 Port Authority of New York and New Jersey, 4,864 -- 4,864
RITR, AMT, 108th Series, 8.085% due
1/15/2017(c)(e)
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
F-47
<PAGE> 103
COMBINED SCHEDULE OF INVESTMENTS FOR
MUNIYIELD NEW JERSEY FUND, INC. AND MUNIVEST NEW JERSEY FUND, INC.
MAY 31, 1999 (UNAUDITED) (CONTINUED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
S&P MOODY'S FACE PRO FORMA
RATINGS RATINGS AMOUNT ISSUE MUNIYIELD++ MUNIVEST++ MUNIYIELD++
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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):
A-1+ 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
- ----------------------------------------------------------------------------------------------------------------
AA A1 2,700 Rutgers State University, New Jersey, 2,524 -- 2,524
Revenue Bonds, Series A, 4.75% due 5/01/2029
- ----------------------------------------------------------------------------------------------------------------
AA A1 2,275 Rutgers State University, New Jersey, 2,451 -- 2,451
Revenue Refunding Bonds (State University of
New Jersey), Series A, 6.50% due 5/01/2018
- ----------------------------------------------------------------------------------------------------------------
AAA Aaa 7,250 South Jersey Transportation Authority, New 4,620 2,431 7,051
Jersey, Transportation System Revenue
Refunding Bonds, 5% due 11/01/2029(a)
- ----------------------------------------------------------------------------------------------------------------
AA+ Aaa 635 Union County, New Jersey, Improvement 677 -- 677
Authority Revenue Refunding Bonds (County
Guaranteed Lease), 5.30% due 11/15/2006
- ----------------------------------------------------------------------------------------------------------------
NR* Aaa 3,440 Union County, New Jersey, Utilities 3,582 -- 3,582
Authority, RITR, Series 38, 7.07% due
6/01/2020(a)(e)
- ----------------------------------------------------------------------------------------------------------------
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, -- 2,371 2,371
Regional School District, GO, Refunding,
4.75% due 9/15/2024(b)
- ----------------------------------------------------------------------------------------------------------------
PUERTO RICO --
1.0%
AAA Aaa 3,500 Puerto Rico Electric Power Authority, Power 2,318 927 3,245
Revenue Refunding Bonds, Series EE, 4.50%
due 7/01/2002(d)
- ----------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (COST -- $305,581) -- 101.4% 200,941 117,108 318,049
LIABILITIES IN EXCESS OF OTHER ASSETS -- (1.4)% (3,630) (744) (6,553)
-------- -------- --------
NET ASSETS -- 100.0% $197,311 $116,364 $311,496
======== ======== ========
</TABLE>
<TABLE>
<S> <C>
(a) AMBAC Insured.
(b) FGIC Insured.
(c) FSA Insured.
(d) MBIA Insured.
</TABLE>
F-48
<PAGE> 104
COMBINED SCHEDULE OF INVESTMENTS FOR
MUNIYIELD NEW JERSEY FUND, INC. AND MUNIVEST NEW JERSEY FUND, INC.
MAY 31, 1999 (UNAUDITED) (CONCLUDED)
(IN THOUSANDS)
(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>
<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
VRDN Variable Rate Demand Notes
</TABLE>
F-49
<PAGE> 105
The following unaudited pro forma Combined Statement of Assets, Liabilities
and Capital has been derived from the Statements of Assets, Liabilities and
Capital of the respective Funds 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 ADJUSTMENTS MUNIYIELD
------------ ------------ ----------- ------------
<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 37,175 290,000(2) 343,958
------------ ------------ ----------- ------------
Total liabilities................... 7,149,307 2,612,450 2,179,284 11,941,041
------------ ------------ ----------- ------------
NET ASSETS:
Net Assets.......................... $197,311,095 $116,364,227 $(2,179,284) $311,496,038
============ ============ =========== ============
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 (262,566) 204,013,580
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 $(2,179,284) $311,496,038
============ ============ =========== ============
</TABLE>
F-50
<PAGE> 106
<TABLE>
<CAPTION>
PRO FORMA
MUNIYIELD MUNIVEST ADJUSTMENTS MUNIYIELD
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
Net asset value per share of Common
Stock............................. $15.09 $14.29 -- $14.92
============ ============ =========== ============
- ------------------------------------------------------------------------------------------------
* Identified Cost.................. $193,353,114 $112,227,693 $305,580,807
============ ============ =========== ============
+ Shares issued and outstanding.... 2,400 1,500 -- 3,900
============ ============ =========== ============
++ 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 net investment income and
undistributed realized capital gains.
(2) Reflects the charge for estimated Reorganization expenses of $290,000.
See Notes to Financial Statements.
F-51
<PAGE> 107
The following unaudited pro forma Combined Statement of Operations 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
FOR THE PERIOD FOR THE PERIOD
DECEMBER 1, 1998 DECEMBER 1, 1998 PRO FORMA
TO MAY 31, 1999 TO MAY 31, 1999 ADJUSTMENTS MUNIYIELD
---------------- ---------------- ----------- -----------
<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
----------- ----------- -------- -----------
REALIZED & UNREALIZED GAINS (LOSSES)
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 $ 621,676
=========== =========== ======== ===========
</TABLE>
- ---------------
(1) Reflects the anticipated savings as a result of the Reorganization through
fewer audits and consolidation of printing, accounting, and other services.
(2) This Pro Forma Combined Statement of Operations excludes non-recurring
estimated Reorganization expenses of $290,000.
See Notes to Financial Statements.
F-52
<PAGE> 108
MUNIYIELD NEW JERSEY FUND, INC.
COMBINED NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES:
MuniYield New Jersey Fund, Inc. (the "Fund," which term as used herein shall
refer to MuniYield New Jersey Fund, Inc. after giving effect to the
Reorganization) is registered under the Investment Company Act of 1940 as a
non-diversified, closed-end management investment company. The Fund's financial
statements are prepared in accordance with generally accepted accounting
principles which may require the use of management accruals and estimates. These
unaudited financial statements reflect all adjustments which are, in the opinion
of management, necessary to a fair statement of the results for the interim
period presented. The Fund 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-53
<PAGE> 109
(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-54
<PAGE> 110
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................................................... 9,100,783 2,400
MuniVest ................................................... 5,519,681 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 26,147
</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($)*
-----------------------------------------------------
FUND CECIL CRUM MEYER SUNDERLAND TOUCHTON WEISS
---- ----- ----- ----- ---------- -------- -----
<S> <C> <C> <C> <C> <C> <C>
MuniVest............................................... 4,500 4,500 4,500 4,500 4,500 4,500
</TABLE>
- ---------------
* No pension or retirement benefits are accrued as part of Fund expenses.
Set forth in the table below is information regarding the aggregate
compensation paid by all registered investment companies advised by FAM and its
affiliate, MLAM ("FAM/MLAM Advised Funds"), including the Funds, to the non-
affiliated Board members for the year ended December 31, 1998.
I-1
<PAGE> 111
MUNIYIELD:
<TABLE>
<CAPTION>
AGGREGATE COMPENSATION FROM FAM/MLAM
NAME OF BOARD MEMBER ADVISED FUNDS PAID TO BOARD MEMBERS($)(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. Colyer 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 (35 registered investment companies consisting of 35 portfolios); Mr.
Crum (17 registered investment companies consisting of 17 portfolios); Mr.
Meyer (35 registered investment companies consisting of 35 portfolios); Mr.
Sunderland (20 registered investment companies consisting of 36 portfolios);
Mr. Touchton (20 registered investment companies consisting of 36
portfolios); and Mr. Weiss (17 registered investment companies consisting of
17 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; Director,
Gilder Group LLC and related companies since 1999.
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> 112
<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, Quantec Limited from 1991 to
1999; Director, TIBCO from 1994 to 1996; Director, Genbel
Securities Limited and Genbel Bank since 1999.
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> 113
<TABLE>
<CAPTION>
DIRECTOR SINCE
--------------------
NAME, ADDRESS AND BIOGRAPHY AGE MUNIYIELD MUNIVEST
--------------------------- --- --------- --------
<S> <C> <C> <C>
Laurie Simon Hodrick........................................ 37 -- 1999*
809 Uris Hall, 3022 Broadway, New York, NY 10027.
Professor of Finance and Economics, Graduate School of
Business, Columbia University since 1998; Associate
Professor of Finance and Economics, Graduate School of
Business, Columbia University from 1996 to 1998; Associate
Professor of Finance, J.L. Kellogg Graduate School of
Management, Northwestern University from 1992 to 1996.
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 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>
* Ms. Hodrick was elected to the Board of MuniVest on November 4, 1999;
therefore, no other information is required to be provided about her in this
Exhibit I.
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> 114
<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. Jaeckel, 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> 115
EXHIBIT II
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made as of
the 5th day of November, 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").
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<PAGE> 116
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 audited 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> 117
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.
II-3
<PAGE> 118
(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
II-4
<PAGE> 119
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 AMPS and 199,998,500
shares have been designated as common stock, par
II-5
<PAGE> 120
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
18, 2000, or such earlier or later day and time as may be mutually agreed
upon in writing (the "Valuation Time").
(e) Recourse for liabilities assumed from 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 final 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 at the Valuation Time, all expenses incurred in
connection with the Reorganization, including, but not limited to, all costs
related to the preparation and distribution of the N-14 Registration Statement.
Such fees and expenses shall include the cost of preparing and filing a ruling
request with the Internal Revenue Service, legal and accounting fees, printing
costs, filing fees, stock exchange fees, rating agency fees, portfolio transfer
taxes (if any) and any similar expenses incurred in connection with the
Reorganization.
(b) If for any reason the Reorganization is not consummated, no party shall
be liable to any other party for any damages resulting therefrom, including,
without limitation, consequential damages.
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 within three days prior to the effective date of the N-14
Registration Statement and a similar letter dated within five days prior to
the Exchange Date, in form and substance satisfactory to them, to the
effect that (i) they are independent public accountants with respect to
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
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relating to 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 October 31, 1998 (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 November 1, 1998, 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
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material respects for the satisfaction of Federal, state and local taxes
for the period from November 1, 1998, 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 within three days prior to the effective date of the N-14
Registration Statement and a similar letter dated within five days prior to
the Exchange Date, in form and substance satisfactory to 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 31, 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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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: /s/ DONALD C. BURKE
------------------------------------
Donald C. Burke, Vice President and
Treasurer
Attest:/s/ ALICE A. PELLEGRINO
-----------------------------
Alice A. Pellegrino,
Secretary
MUNIVEST NEW JERSEY FUND, INC.
By: /s/ DONALD C. BURKE
------------------------------------
Donald C. Burke, Vice President and
Treasurer
Attest:/s/ ALICE A. PELLEGRINO
-----------------------------
Alice A. Pellegrino,
Secretary
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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 debt. 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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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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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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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:
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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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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:
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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> 141
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.
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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> 142
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 Bonds are in default on interest and/or principal payments. Such
DD bonds are extremely speculative and should be valued on the basis of
D their ultimate recovery value in liquidation or reorganization of the
obligor. "DDD" represents the highest potential for recovery on these
bonds, and "D" represents the lowest potential for recovery.
Plus (+) or Minus (-): Plus and minus signs are used with a rating symbol
to indicate the relative position of a credit within the rating category. Plus
and minus signs, however, are not used in the "DDD," "DD," or "D" categories.
IV-6
<PAGE> 143
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> 144
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.
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<C> <S>
1 (a) -- Articles of Incorporation of the Registrant, dated February
21, 1992.
(b) -- Form of Articles Supplementary creating the Series A AMPS.
(c) -- Form of Articles Supplementary creating additional Series A
AMPS.
(d) -- Articles of Amendment to Articles Supplementary creating the
Series A AMPS.
(e) -- Form of Articles Supplementary creating the Series B AMPS. (a)
2 -- By-Laws of the Registrant.
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. (b)
6 -- Form of Investment Advisory Agreement between Registrant and
Fund Asset Management, L.P.
7 (a) -- Form of Purchase Agreement for the Common Stock.
(b) -- Form of Purchase Agreement for the AMPS.
(c) -- Form of Merrill Lynch Standard Dealer Agreement.
8 -- Not applicable.
9 -- Custodian Contract between the Registrant and The Bank of
New York.
</TABLE>
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<PAGE> 145
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10 -- Not applicable.
11 -- Opinion and Consent of Brown & Wood LLP, counsel for the Registrant.
12 -- Private Letter Ruling from the Internal Revenue Service.*
13(a) -- Transfer Agency, Dividend Disbursing Agency and Shareholder Servicing Agency Agreement between the
Registrant and The Bank of New York.
(b) -- Form of Auction Agent Agreement.
(c) -- Form of Broker-Dealer Agreement.
(d) -- Form of Letter of Representations.
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. (c)
</TABLE>
- ---------------
* To be filed by amendment.
(a) Previously filed on October 5, 1999 as an exhibit to the Registrant's
Registration Statement on Form N-14 (File No. 333-88483).
(b) 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, filed as Exhibit (1)(a)
to the Registration Statement, and to Article II, Article III (sections 1,
2, 3, 5 and 17), Article VI, Article VII, Article XII, Article XIII and
Article XIV of the Registrant's By-Laws filed as Exhibit (2). Reference is
also made to the Form of Articles Supplementary filed as Exhibits 1(b), 1(c)
and 1(e) and to the Articles of Amendment to Articles Supplementary filed as
Exhibit 1(d) hereto.
(c) Included on the signature page of the Registrant's Registration Statement on
Form N-14 filed on October 5, 1999 and incorporated by reference herein.
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.
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<PAGE> 146
SIGNATURES
As required by the Securities Act of 1933, this Pre-Effective Amendment to
the Registration Statement has been signed on behalf of the Registrant, in the
Township of Plainsboro and State of New Jersey, on the 8th day of November,
1999.
MUNIYIELD NEW JERSEY FUND, INC.
(Registrant)
By /s/ TERRY K. GLENN
------------------------------------
(Terry K. Glenn,
President and Director)
As required by the Securities Act of 1933, this Pre-Effective Amendment to
the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
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<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
TERRY K. GLENN* President and Director
- ------------------------------------------------ (Principal Executive
(Terry K. Glenn) Officer)
DONALD C. BURKE* Vice President and Treasurer
- ------------------------------------------------ (Principal Financial and
(Donald C. Burke) Accounting Officer)
JAMES H. BODURTHA* Director
- ------------------------------------------------
(James H. Bodurtha)
HERBERT I. LONDON* Director
- ------------------------------------------------
(Herbert I. London)
ROBERT R. MARTIN* Director
- ------------------------------------------------
(Robert R. Martin)
JOSEPH L. MAY* Director
- ------------------------------------------------
(Joseph L. May)
ANDRE F. PEROLD* Director
- ------------------------------------------------
(Andre F. Perold)
ARTHUR ZEIKEL* Director
- ------------------------------------------------
(Arthur Zeikel)
*By: /s/ TERRY K. GLENN November 8, 1999
------------------------------------------
(Terry K. Glenn, Attorney-in-fact)
</TABLE>
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<PAGE> 147
COMMON STOCK
MUNIYIELD NEW JERSEY FUND, INC.
P.O. BOX 9011
PRINCETON, NEW JERSEY 08543-9011
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Terry K. Glenn, Donald C. Burke and Alice
A. Pellegrino as proxies, each with the power to appoint his or her substitute,
and hereby authorizes each of them to represent and to vote, as designated on
the reverse hereof, all of the Common Stock of MuniYield New 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.
By signing and dating the reverse side of this card, you authorize the
proxies to vote the proposal as marked, or if not marked, to vote "FOR" the
proposal, and to use their discretion to vote for any other matter as may
properly come before the meeting or any adjournment thereof. If you do not
intend to personally attend the meeting, please complete and return this card at
once in the enclosed envelope.
(Continued and to be signed on the reverse side)
<PAGE> 148
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.
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[ ] FOR [ ] AGAINST [ ] ABSTAIN
</TABLE>
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.
X
--------------------------------
Signature
Dated: X
-------------------------------- --------------------------------
Signature, if held jointly
SIGN, DATE, AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
<PAGE> 149
AUCTION MARKET
PREFERRED STOCK
MUNIYIELD NEW JERSEY FUND, INC.
P.O. BOX 9011
PRINCETON, NEW JERSEY 08543-9011
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Terry K. Glenn, Donald C. Burke and Alice
A. Pellegrino as proxies, each with the power to appoint his or her substitute,
and hereby authorizes each of them to represent and to vote, as designated on
the reverse hereof, all the Auction Market Preferred Stock of MuniYield New
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.
By signing and dating the reverse side of this card, you authorize the
proxies to vote the proposal as marked, or if not marked, to vote "FOR" the
proposal, and to use their discretion to vote for any other matter as may
properly come before the meeting or any adjournment thereof. If you do not
intend to personally attend the meeting, please complete and return this card at
once in the enclosed envelope.
(Continued and to be signed on the reverse side)
<PAGE> 150
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.
<TABLE>
<S> <C> <C>
[ ] FOR [ ] AGAINST [ ] ABSTAIN
</TABLE>
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.
X
--------------------------------
Signature
Dated: X
------------------------------------ --------------------------------
Signature, if held jointly
SIGN, DATE, AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
<PAGE> 151
COMMON STOCK
MUNIVEST NEW JERSEY FUND, INC.
P.O. BOX 9011
PRINCETON, NEW JERSEY 08543-9011
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Terry K. Glenn, Donald C. Burke and Alice
A. Pellegrino as proxies, each with the power to appoint his or her substitute,
and hereby authorizes each of them to represent and to vote, as designated on
the reverse hereof, all of the Common Stock of 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.
By signing and dating the reverse side of this card, you authorize the
proxies to vote the proposal as marked, or if not marked, to vote "FOR" the
proposal, and to use their discretion to vote for any other matter as may
properly come before the meeting or any adjournment thereof. If you do not
intend to personally attend the meeting, please complete and return this card at
once in the enclosed envelope.
(Continued and to be signed on the reverse side)
<PAGE> 152
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.
<TABLE>
<S> <C> <C>
[ ] FOR [ ] AGAINST [ ] ABSTAIN
</TABLE>
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.
X
--------------------------------
Signature
Dated: X
------------------------------------- --------------------------------
Signature, if held jointly
SIGN, DATE, AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
<PAGE> 153
AUCTION MARKET
PREFERRED STOCK
MUNIVEST NEW JERSEY FUND, INC.
P.O. BOX 9011
PRINCETON, NEW JERSEY 08543-9011
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Terry K. Glenn, Donald C. Burke and Alice
A. Pellegrino as proxies, each with the power to appoint his or her substitute,
and hereby authorizes each of them to represent and to vote, as designated on
the reverse hereof, all the Auction Market Preferred Stock of 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.
By signing and dating the reverse side of this card, you authorize the
proxies to vote the proposal as marked, or if not marked, to vote "FOR" the
proposal, and to use their discretion to vote for any other matter as may
properly come before the meeting or any adjournment thereof. If you do not
intend to personally attend the meeting, please complete and return this card at
once in the enclosed envelope.
(Continued and to be signed on the reverse side)
<PAGE> 154
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.
<TABLE>
<S> <C> <C>
[ ] FOR [ ] AGAINST [ ] ABSTAIN
</TABLE>
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.
X
--------------------------------
Signature
Dated: X
------------------------------------- --------------------------------
Signature, if held jointly
SIGN, DATE, AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
<PAGE> 155
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBERS DESCRIPTION
- ------- -----------
<C> <S> <C>
1(a) -- Articles of Incorporation of the Registrant, dated
February 21, 1992.
(b) -- Form of Articles Supplementary creating the Series A
AMPS.
(c) -- Form of Articles Supplementary creating additional Series
A AMPS.
(d) -- Articles of Amendment to Articles Supplementary creating
the Series A AMPS.
2 -- By-Laws of the Registrant.
6 -- Form of Investment Advisory Agreement between Registrant
and Fund Asset Management, L.P.
7(a) -- Form of Purchase Agreement for the Common Stock.
(b) -- Form of Purchase Agreement for the AMPS.
(c) -- Form of Merrill Lynch Standard Dealer Agreement.
9 -- Custodian Contract between the Registrant and the Bank of
New York.
11 -- Opinion and Consent of Brown & Wood LLP, counsel for the
Registrant.
13(a) -- Transfer Agency, Dividend Disbursing Agency and
Shareholder Servicing Agency Agreement between the
Registrant and the Bank of New York.
(b) -- Form of Auction Agent Agreement.
(c) -- Form of Broker-Dealer Agreement.
(d) -- Form of Letter of Representations.
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(a)
ARTICLES OF INCORPORATION
OF
MUNIYIELD NEW JERSEY FUND, INC.
ARTICLE I
THE UNDERSIGNED, LAURA C. SUTTON, whose post-office address
is One World Trade Center, New York, New York 10048-0557, being
at least eighteen (18) years of age, does hereby act as an
incorporator, under and by virtue of the General Laws of the
State of Maryland authorizing the formation of corporations and
with the intention of forming a corporation.
ARTICLE II
NAME
The name of the corporation is MUNIYIELD NEW JERSEY FUND, INC.
(the "Corporation").
ARTICLE III
PURPOSES AND POWERS
The purpose or purposes for which the Corporation is formed is to act
as a closed-end, management investment company under the federal Investment
Company Act of 1940, as amended, and to exercise and enjoy all of the powers,
rights and privileges granted to, or conferred upon, corporations by the General
Laws of the State of Maryland now or hereafter in force.
ARTICLE IV
PRINCIPAL OFFICE AND RESIDENT AGENT
The post-office address of the principal office of the Corporation in
the State of Maryland is c/o The Corporation Trust Incorporated, 32 South
Street, Baltimore, Maryland 21202. The name of the resident agent of the
Corporation in this State is The Corporation Trust Incorporated,
<PAGE> 2
a corporation of this State, and the post-office address of the resident agent
is The Corporation Trust Incorporated, 32 South Street, Baltimore, Maryland
21202.
ARTICLE V
CAPITAL STOCK
(1) The total number of shares of capital stock which the Corporation shall
have authority to issue is Two Hundred Million (200,000,000) shares, all of one
class called Common Stock, of the par value of Ten Cents ($0.10) per share and
of the aggregate par value of Twenty Million Dollars ($20,000,000).
(2) The Board of Directors may classify and reclassify any unissued shares
of capital stock into one or more additional or other classes or series as may
be established from time to time by setting or changing in any one or more
respects the designations, preferences, conversion or other rights, voting
powers, restrictions, limitations as to dividends, qualifications or terms or
conditions of redemption of such shares of stock and pursuant to such
classification or reclassification to increase or decrease the number of
authorized shares of any existing class or series.
(3) Unless otherwise expressly provided in the charter of the Corporation,
including any Articles Supplementary creating any class or series of capital
stock, the holders of each class or series of capital stock shall be entitled to
dividends and distributions in such amounts and at such times as may be
determined by the Board of Directors, and the dividends and distributions paid
with respect to the various classes or series of capital stock may vary among
such classes and series.
(4) Unless otherwise expressly provided in the charter of the Corporation,
including any Articles Supplementary creating any class or series of capital
stock, on each matter
2
<PAGE> 3
submitted to a vote of stockholders, each holder of a share of capital stock of
the Corporation shall be entitled to one vote for each share standing in such
holder's name on the books of the Corporation, irrespective of the class or
series thereof, and all shares of all classes and series shall vote together as
a single class; provided, however, that as to any matter with respect to which a
separate vote of any class or series is required by the Investment Company Act
of 1940, as amended, and in effect from time to time, or any rules, regulations
or orders issued thereunder, or by the Maryland General Corporation Law, such
requirement as to a separate vote by that class or series shall apply in lieu of
a general vote of all classes and series as described above.
(5) Notwithstanding any provision of the Maryland General Corporation Law
requiring a greater proportion than a majority of the votes of all classes or
series of capital stock of the Corporation (or of any class or series entitled
to vote thereon as a separate class or series) to take or authorize any action,
the Corporation is hereby authorized (subject to the requirements of the
Investment Company Act of 1940, as amended, and in effect from time to time, and
any rules, regulations and orders issued thereunder) to take such action upon
the concurrence of a majority of the aggregate number of shares of capital stock
of the Corporation entitled to vote thereon (or a majority of the aggregate
number of shares of a class or series entitled to vote thereon as a separate
class or series).
(6) Unless otherwise expressly provided in the charter of the Corporation,
including any Articles Supplementary creating any class or series of capital
stock, in the event of any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, the holders of all classes and
series of capital stock of the Corporation shall be entitled, after payment or
provision for payment of the debts and other liabilities of the Corporation, to
share ratably in the remaining net assets of the Corporation.
3
<PAGE> 4
(7) Any fractional shares shall carry proportionately all the rights of a
whole share, excepting any right to receive a certificate evidencing such
fractional share, but including, without limitation, the right to vote and the
right to receive dividends.
(8) All persons who shall acquire stock in the Corporation shall acquire
the same subject to the provisions of the charter and By-Laws of the
Corporation. As used in the charter of the Corporation, the terms "charter" and
"Articles of Incorporation" shall mean and include the Articles of Incorporation
of the Corporation as amended, supplemented and restated from time to time by
Articles of Amendment, Articles Supplementary, Articles of Restatement or
otherwise.
ARTICLE VI
PROVISIONS FOR DEFINING, LIMITING AND
REGULATING CERTAIN POWERS OF THE
CORPORATION AND OF THE DIRECTORS
AND STOCKHOLDERS
(1) The number of directors of the Corporation shall be three (3), which
number may be changed pursuant to the By-Laws of the Corporation but shall never
be less than three (3). The names of the directors who shall act until the first
annual meeting or until their successors are duly elected and qualify are:
Philip L. Kirstein
Mark B. Goldfus
Susan B. Baker
(2) The Board of Directors of the Corporation is hereby empowered to
authorize the issuance from time to time of shares of capital stock, whether now
or hereafter authorized, for such consideration as the Board of Directors may
deem advisable, subject to such limitations as may be set forth in these
Articles of Incorporation or in the By-Laws of the Corporation or in the General
Laws of the State of Maryland.
4
<PAGE> 5
(3) Each director and each officer of the Corporation shall be indemnified
by the Corporation to the full extent permitted by the General Laws of the State
of Maryland, subject to the requirements of the Investment Company Act of 1940,
as amended. No amendment of these Articles of Incorporation or repeal of any
provision hereof shall limit or eliminate the benefits provided to directors and
officers under this provision in connection with any act or omission that
occurred prior to such amendment or repeal.
(4) To the fullest extent permitted by the General Laws of the State of
Maryland, subject to the requirements of the Investment Company Act of 1940, as
amended, no director or officer of the Corporation shall be personally liable to
the Corporation or its security holders for money damages. No amendment of these
Articles of Incorporation or repeal of any provision hereof shall limit or
eliminate the benefits provided to directors, and officers under this provision
in connection with any act or omission that occurred prior to such amendment or
repeal.
(5) The Board of Directors of the Corporation may make, alter or repeal
from time to time any of the By-Laws of the Corporation except any particular
By-Law which is specified as not subject to alteration or repeal by the Board of
Directors, subject to the requirements of the Investment Company Act of 1940, as
amended.
(6) A director elected by the holders of capital stock may be removed (with
or without cause), but only by action taken by the holders of at least sixty-six
and two-thirds percent (66 2/3%) of the shares of capital stock then entitled to
vote in an election to fill that directorship.
5
<PAGE> 6
ARTICLE VII
DENIAL OF PREEMPTIVE RIGHTS
No shareholder of the Corporation shall by reason of his holding
shares of capital stock have any preemptive or preferential right to purchase
or subscribe to any shares of capital stock of the Corporation, now or
hereafter to be authorized, or any notes, debentures, bonds or other securities
convertible into shares of capital stock, now or hereafter to be authorized,
whether or not the issuance of any such shares, or notes, debentures, bonds or
other securities would adversely affect the dividend or voting rights of such
shareholder; and the Board of Directors may issue shares of any class of the
Corporation, or any notes, debentures, bonds, other securities convertible into
shares of any class, either whole or in part, to the existing shareholders.
ARTICLE VIII
DETERMINATION BINDING
Any determination made in good faith, so far as accounting matters
are involved, in accordance with accepted accounting practice by or pursuant to
the direction of the Board of Directors, as to the amount of assets, obligations
or liabilities of the Corporation, as to the amount of net income of the
Corporation from dividends and interest for any period or amounts at any time
legally available for the payment of dividends, as to the amount of any reserves
or charges set up and the propriety thereof, as to the time of or purpose for
creating reserves or as to the use, alteration or cancellation of any reserves
or charges (whether or not any obligation or liability for which such reserves
or charges shall have been created, shall have been paid or discharged or shall
be then or thereafter required to be paid or discharged), as to the price of any
security owned by the Corporation or as to any other matters relating to the
issuance, sale,
6
<PAGE> 7
redemption or other acquisition or disposition of securities or shares of
capital stock of the Corporation, and any reasonable determination made in good
faith by the Board of Directors as to whether any transaction constitutes a
purchase of securities on "margin," a sale of securities "short," or an
underwriting of the sale of, or a participation in any underwriting or selling
group in connection with the public distribution of, any securities, shall be
final and conclusive, and shall be binding upon the Corporation and all holders
of its capital stock, past, present and future, and shares of the capital stock
of the Corporation are issued and sold on the condition and understanding,
evidenced by the purchase of shares of capital stock or acceptance of share
certificates, that any and all such determinations shall be binding as
aforesaid. No provision of these Articles of Incorporation shall be effective to
(a) require a waiver of compliance with any provision of the Securities Act of
1933, as amended, or the Investment Company Act of 1940, as amended, or of any
valid rule, regulation or order of the Securities and Exchange Commission
thereunder or (b) protect or purport to protect any director or officer of the
Corporation against any liability to the Corporation or its security holders to
which he would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
his office.
ARTICLE IX
PERPETUAL EXISTENCE
The duration of the Corporation shall be perpetual.
ARTICLE X
PRIVATE PROPERTY OF STOCKHOLDERS
The private property of shareholders shall not be subject to payment
of corporate debts to any extent whatsoever.
7
<PAGE> 8
ARTICLE XI
CONVERSION TO OPEN-END COMPANY
Notwithstanding any other provisions of these Articles of
Incorporation or the By-Laws of the Corporation, a favorable vote of the holders
of at least sixty-six and two-thirds percent (66 2/3%) of the outstanding shares
of capital stock of the Corporation entitled to be voted on the matter shall be
required to approve, adopt or authorize an amendment to these Articles of
Incorporation of the Corporation that makes the Common Stock a "redeemable
security" (as that term is defined in section 2(a)(32) the Investment Company
Act of 1940, as amended) unless such action has previously 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 of the
Corporation, in which case the affirmative vote of the holders of a majority of
the outstanding shares of capital stock of the Corporation entitled to vote
thereon shall be required.
ARTICLE XII
MERGER, SALE OF ASSETS, LIQUIDATION
Notwithstanding any other provisions of these Articles of
Incorporation or the By-Laws of the Corporation, a favorable vote of the holders
of at least sixty-six and two-thirds percent (66 2/3%) of the outstanding shares
of capital stock of the Corporation entitled to be voted on the matter shall be
required to approve, adopt or authorize (i) a merger or consolidation or
statutory share exchange of the Corporation with any other corporation, (ii) a
sale of all or substantially all of the assets of the Corporation (other than in
the regular course of its investment activities), or (iii) a liquidation or
dissolution of the Corporation, unless such action has previously 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 of the
Corporation, in which case the
8
<PAGE> 9
affirmative vote of the holders of a majority of the outstanding shares of
capital stock of the Corporation entitled to vote thereon shall be required.
ARTICLE XIII
AMENDMENT
The Corporation reserves the right to amend, alter, change or repeal
any provision contained in these Articles of Incorporation, in the manner now or
hereafter prescribed by statute, including any amendment which alters the
contract rights, as expressly set forth in the charter, of any outstanding stock
and substantially adversely affects the stockholders' rights and all rights
conferred upon stockholders herein are granted subject to this reservation.
Notwithstanding any other provisions of these Articles of Incorporation or the
By-Laws of the Corporation (and notwithstanding the fact that a lesser
percentage may be specified by law, these Articles of Incorporation or the
By-Laws of the Corporation) the amendment or repeal of Section (5) of Article V,
Section (1), Section (3), Section (4), Section (5) and Section (6) of Article
VI, Article IX, Article X, Article XI, Article XII, or this Article XIII, of
these Articles of Incorporation shall require the affirmative vote of the
holders of at least sixty-six and two-thirds percent (66 2/3%) of the
outstanding shares of capital stock of the Corporation entitled to be voted on
the matter.
IN WITNESS WHEREOF, the undersigned incorporator of MuniYield New
Jersey Fund, Inc. hereby executes the foregoing Articles of Incorporation and
acknowledges the same to be her act and further acknowledges that, to the best
of her knowledge, the matters and facts set forth therein are true in all
material respects under the penalties of perjury.
Dated the 21st day
of February 1992.
/s/ Laura C. Sutton
---------------------------------
Laura C. Sutton
9
<PAGE> 1
EXHIBIT 1(b)
MUNIYIELD NEW JERSEY FUND, INC.
Articles Supplementary creating
Auction Market Preferred Stock(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 1,200 authorized and unissued shares of common stock
of the corporation as preferred stock of the Corporation and has authorized the
issuance of a series of preferred stock, par value $.10 per share, liquidation
preference $50,000 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.
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 1,200 shares of preferred stock, par value $.10 per share,
liquidation preference $50,000 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." Each share of Auction Market
Preferred Stock (sometimes referred to herein as "AMPS") shall be issued on
July 1, 1992; have an Initial Dividend Rate equal to 3.25% per annum; have
Initial Dividend Payment Dates as set forth herein; 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 shall constitute a separate
series of preferred stock of the Corporation, and each share of Auction Market
Preferred Stock, Series A 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 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
2
<PAGE> 3
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.
"Additional Dividend" has the meaning set forth in paragraph 2(e) of
these Articles Supplementary.
3
<PAGE> 4
"Adviser" means the Corporation's investment adviser which initially
shall be Fund Asset Management, Inc.
"Affiliate" shall mean 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 an Existing Holder of one or more shares of AMPS or a
Potential Holder that is identified as such in such holder's Purchaser's
Letter.
"AMPS" means the Auction Market Preferred Stock.
"AMPS Basic Maintenance Amount," as of any Valuation Date, means the
dollar amount equal to (i) the sum of (A) the product of the number of shares
of AMPS of each series and Other AMPS Outstanding on such Valuation Date
multiplied by the sum of (a) $50,000 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; (C) the aggregate amount of cash dividends that would
accumulate at the then current Maximum Applicable Rate 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
4
<PAGE> 5
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 payables for New
Jersey Municipal Bonds or Municipal Bonds purchased as of such Valuation Date)
less (ii) the sum of (A) the lesser of (1) the aggregate of (a) 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
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
(b) the Discounted Value of New Jersey Municipal Bonds or Municipal Bonds sold
as of or prior to such Valuation Date which generated receivables calculated
using the Moody's Discount Factor applicable to such New Jersey Municipal Bonds
or Municipal Bonds, 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 (a) and (2) the Discounted Value of such New Jersey
Municipal Bonds or Municipal Bonds calculated using the higher of the S&P
Discount Factor and the Moody's Discount Factor applicable to such New Jersey
Municipal Bonds or Municipal Bonds and (B) the Discounted Value of any of the
Corporation's assets irrevocably deposited by the Corporation for the payment
of the amount needed to redeem shares of AMPS subject to redemption or any of
(i)(B) through (i)(F).
5
<PAGE> 6
"AMPS Basic Maintenance Cure Date," with respect to the failure by the
Corporation to satisfy the AMPS Basic Maintenance Amount (as required by
paragraph 7(a) of these Articles Supplementary) as of a given Valuation Date,
means the sixth Business Day following such Valuation Date.
"AMPS Basic Maintenance Report" means a report signed by any of the
President, Treasurer, any Senior Vice President or any Vice President of the
Corporation which sets forth, as of the related Valuation Date, the assets of
the Corporation, the Market Value and the Discounted Value thereof (seriatim
and in aggregate), and the AMPS Basic Maintenance Amount.
"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
11(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 Schroder 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.
6
<PAGE> 7
"Auction Procedures" means the procedures for conducting Auctions set
forth in paragraph 11 of these Articles Supplementary.
"Broker-Dealer" shall mean any broker-dealer, or other entity
permitted by law to perform the functions required of a Broker-Dealer in
paragraph 11 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" shall mean an agreement between the Auction
Agent and a Broker-Dealer pursuant to which such Broker-Dealer agrees to follow
the procedures specified in paragraph 11 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.
"Common Stock" means the common stock, par value $.10 per share, of
the Corporation.
"Corporation" means MuniYield New Jersey Fund, Inc., a Maryland
corporation.
7
<PAGE> 8
"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 AAA, 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 Coverage Amount," as of any Valuation Date, means: (A)(i)
the aggregate amount of cash dividends that will accumulate on all shares of
Outstanding AMPS and Other AMPS, in each case to (but not including) the next
Dividend Payment Date therefor that follows such Valuation Date plus (ii) the
aggregate amount of all liabilities existing on such Valuation Date which are
payable on or prior to such next Dividend Payment Date less (B) the sum of (i)
the combined Market Value of Deposit Securities irrevocably deposited with the
Auction Agent for the payment of cash dividends on all shares of AMPS and Other
AMPS, (ii) the book value of receivables for New Jersey Municipal Bonds and
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 in any event on or
prior to such next Dividend Payment Date, and (iii) interest on New Jersey
Municipal Bonds and Municipal Bonds which is scheduled to be paid on or prior
to the next Dividend Payment Date.
"Dividend Coverage Assets," as of any Valuation Date, means, in the
case of shares of AMPS and Other AMPS, Deposit Securities with maturity or
tender payment dates not later in each case than the Dividend Payment Date
therefor that follows such Valuation Date.
8
<PAGE> 9
"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 Person who has signed a Purchaser's Letter
and is listed as the holder of record of shares of AMPS in the Stock Books.
"First Initial Dividend Payment Date" means August 3, 1992.
"Forward Commitment" has the meaning set forth in paragraph 9(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 each of the First Initial
Dividend Payment Date, the Last Initial Dividend Payment Date and the first day
of each calendar month during the Initial Dividend Period.
"Initial Dividend Period," with respect to each series of AMPS, has
the meaning set forth in paragraph 2(c)(i) of these Articles Supplementary and,
with respect to Other AMPS, has the equivalent meaning.
9
<PAGE> 10
"Initial Dividend Rate," with respect to each series of AMPS, means
the rate per annum specified herein applicable to the Initial Dividend Period
for such series of AMPS and, with respect to Other AMPS, has the equivalent
meaning.
"Initial Margin" means the amount of cash or securities deposited with
a broker as a margin payment at the time of purchase or sale of a futures
contract.
"Interest Equivalent" means a yield on a 360-day basis of a discount
basis security which is equal to the yield on an equivalent interest-bearing
security.
"Last Initial Dividend Payment Date" means June 10, 1993.
"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 $50,000 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
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;
10
<PAGE> 11
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 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 11(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.
"Minimum Liquidity Level" means, as of any Valuation Date, an
aggregate Market Value of the Corporation's Dividend Coverage Assets not less
than the Dividend Coverage Amount.
"Moody's" means Moody's Investors Service, Inc. or its successors.
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<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** VM1G-1*** SP-1+***
- ------------------------------------------- ------- ------- ----- ------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Seven weeks or less . . . . . . . . . . . 151% 159% 168% 202% 229% 136% 148%
Eight weeks or less but
greater than seven weeks . . . . . . . . 154 164 173 205 235 137 149
Nine 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 or VMIG-1
or, if not rated by Moody's, rated SP-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) no 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
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<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 (as defined for purposes of calculating
Moody's Eligible Assets), 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
$10,000,000. In addition, New Jersey Municipal Bonds and Municipal Bonds in
the Corporation's portfolio must be within the following diversification
requirements in order to be included within Moody's Eligible Assets:
<TABLE>
<CAPTION>
Minimum Maximum Maximum Maximum Maximum
Issue Size Underlying Issue Type County State
Rating ($ Millions) Obligor (%)(1) Concentration (%)(1)(3) Concentration (%)(1)(4) Concentration (1)(5)
- ------------------- ------------ -------------- ----------------------- ----------------------- --------------------
<S> <C> <C> <C> <C> <C>
Aaa . . . . . . 10 100 100 100 100
Aa . . . . . . 10 20 60 60 60
A . . . . . . . 10 10 40 40 40
Baa . . . . . . 10 6 20 20 20
Other (2) . . . 10 4 12 12 12
</TABLE>
- --------------------
(1) The referenced percentages represent maximum cumulative totals for the
related rating category and each lower rating category.
(2) New Jersey Municipal Bonds and Municipal Bonds not rated by Moody's but
rated BBB or BB+ by S&P.
(3) Does not apply to general obligation bonds.
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<PAGE> 14
(4) Applicable to general obligation bonds only.
(5) Does not apply to New Jersey Municipal Bonds.
For purposes of the maximum underlying obligor requirement described above, any
such 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. 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
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<PAGE> 15
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 Transaction" has the meaning set forth in paragraph
9(b) of these Articles Supplementary.
"Moody's Volatility Factor" means 177% during the Initial Dividend
Period until 49 days prior to the last day of such Dividend Period.
Thereafter, "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:
<TABLE>
<CAPTION>
% Change in Moody's Volatility
Marginal Tax Rate Factor
----------------------- --------------------------
<S> <C>
5% 292%
10 313
15 338
20 364
25 396
30 432
35 472
40 520
</TABLE>
15
<PAGE> 16
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-2 (File No. 33-47571) 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.
"Municipal Index" has the meaning set forth in paragraph 9(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).
"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 obligations issued by or
on behalf of the State of New Jersey, its political subdivisions, agencies and
instrumentalities and by
16
<PAGE> 17
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.
"Non-Call Period" has the meaning set forth under the definition of
"Specific Redemption Provisions."
"Non-Payment Period" means, with respect to 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 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
17
<PAGE> 18
(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)(1) of these Articles Supplementary.
"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" shall mean $50,000 per share plus an amount
equal to accumulated but unpaid dividends (whether or not earned or declared)
to the date fixed for
18
<PAGE> 19
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 moneys shall have been deposited in trust
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 an Existing Holder,
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.
"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" shall mean and include 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.
19
<PAGE> 20
"Potential Holder" shall mean any Person, including any Existing
Holder, (A) who shall have executed a Purchaser's Letter and (B) who may be
interested in acquiring shares of AMPS (or, in the case of an Existing Holder,
additional shares of AMPS).
"Preferred Stock" means the preferred stock of the Corporation, and
includes AMPS and Other AMPS.
"Premium Call Period" has the meaning set forth under the definition of
"Specific Redemption Provisions."
"Pricing Service" shall mean J.J. Kenny or any pricing service
designated by the Board of Directors of the Corporation provided the
Corporation obtains written assurance from S&P and Moody's that such
designation will not impair the rating then assigned by S&P and Moody's to the
AMPS.
"Purchaser's Letter" means a letter addressed to the Corporation, the
Auction Agent and a Broker-Dealer in which a Person agrees, among other things,
to offer to purchase, purchase, offer to sell and/or sell shares of AMPS as set
forth in paragraph 11 of these Articles Supplementary.
"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 August 21, 1992.
"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.
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<PAGE> 21
"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.
"Retroactive Taxable Allocation" has the meaning set forth in paragraph
2(e) of these Articles Supplementary.
"Right," with respect to 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 Corporation 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 or Moody's on
such Bond and (b) the S&P Exposure Period, in accordance with the tables set
forth below:
21
<PAGE> 22
<TABLE>
<CAPTION>
For New Jersey Municipal Bonds:
------------------------------
Rating Category
----------------------------------------------------
S&P Exposure Period AAA* AA* A* BBB*
------------------- ----------------------------------------------------
<S> <C> <C> <C> <C>
40 Business Days . . . . . . . . . . . . . . 202% 207% 222% 262%
22 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 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;
provided, however, such short-term New Jersey Municipal Bonds rated by Moody's
but not rated by S&P having a demand feature exercisable in 30 days or less
must be backed by a letter of credit, liquidity facility or guarantee from a
bank or other financial institution having a short-term rating of at least A-1+
from S&P; and further provided that such short-term New Jersey Municipal Bonds
rated by Moody's 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 and
(ii) no S&P Discount Factor will be applied to cash or to Receivables for New
Jersey Municipal Bonds Sold. "Receivables for New Jersey Municipal Bonds
Sold," for purposes of calculating S&P's 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 if such receivables are due within five
Business Days of such Valuation Date. The Corporation may adopt S&P Discount
Factors for Municipal Bonds provided that S&P advises the Corporation in
writing that such action will
22
<PAGE> 23
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-l
by Moody's, which need 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 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 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, is rated at least A by
Moody's (provided that such Moody's-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 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); (iv) is not subject
to a covered call or covered put option written by the corporation; (v) is not
part of a private placement of New Jersey Municipal Bonds; and (vi) 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 issued by an issuer with a total of at
least $50 million of securities Outstanding. 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
23
<PAGE> 24
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;
(2) New Jersey Municipal Bonds guaranteed or insured by
any one bond insurer will be considered S&P Eligible Assets only to
the extent the fair market value of such New Jersey Municipal Bonds
does not exceed 25% of the aggregate fair market value of the S&P
Eligible Assets; and
(3) 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 fair market value of such Bonds does not exceed
20% of the aggregate fair 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 fair market value of such Bonds in
each such sub-category does not exceed 20% of the aggregate fair
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. For purposes of the issue type category requirement
described above, New Jersey Municipal Bonds in the utility issue type
category will be classified within one of the three following
sub-categories: (i) electric, gas and combination issues (if the
combination issue includes
24
<PAGE> 25
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.
The Corporation may include 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 9(a)
of these Articles Supplementary.
"S&P Volatility Factor" means 199% during the Initial Dividend Period
and 304% thereafter, or such other potential dividend rate increase factor as
S&P advises the Corporation in writing is applicable.
"Securities Depository" means The Depository Trust Company or any
successor company or other entities elected by the Corporation as securities
depository for the shares of AMPS that agrees to follow the procedures required
to be followed by such securities depository in connection with the shares of
AMPS.
"7-Day Dividend Period" means a Dividend Period consisting of seven
days.
"Service" means the United States Internal Revenue Service.
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<PAGE> 26
"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 or 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 Corporation's option at a price per
share equal to $50,000 plus accumulated but unpaid dividends plus a premium
expressed as a percentage of $50,000, 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.
26
<PAGE> 27
"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 Kenny S&P 30 day High Grade Index or any
successor index (the "Kenny 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
27
<PAGE> 28
"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).
"Treasury Bonds" shall have the meaning set forth in paragraph 9(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 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
28
<PAGE> 29
quotation is published on the Business Day immediately preceding such date by
the Federal Reserve Bank of New York in its Composite 3:30 P.M. Quotations for
U.S. Government Securities report for such Business Day, or (ii) if such Yield
as so calculated is not available, the Alternate Treasury Note Rate on such
date. "Alternate Treasury Note Rate" on any date means the yield as calculated
by reference to the arithmetic average of the bid price quotations of the
actively traded, current coupon Treasury Note with a maturity most nearly
comparable to the length of the related Dividend Period, as determined by the
bid price quotations as of any time on the Business Day immediately preceding
such date, obtained from at least three recognized primary U.S. Government
securities dealers selected by the Auction Agent.
"Valuation Date" means, for purposes of determining whether the
Corporation is maintaining the AMPS Basic Maintenance Amount and the Minimum
Liquidity Level, 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, Dividend Coverage Amount,
Dividend Coverage Assets, Independent Accountants, Initial Margin, Market
Value, Maximum Potential Additional Dividend Liability, Minimum Liquidity
Level, Moody's Discount Factor, Moody's Eligible Assets, 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,
29
<PAGE> 30
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
to adjust, modify, alter or change 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
adjustment, modification, alteration or change will not adversely affect their
then-current ratings on the AMPS.
2. Dividends. (a) The Holders shall be entitled to receive, when,
as and if declared by the Board of 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 First
Initial Dividend Payment Date with respect to the AMPS. Dividends on the AMPS
during the Initial Dividend Period shall be payable on
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<PAGE> 31
each Initial Dividend Payment Date, except that (i) if any Initial Dividend
Payment Date is not a Business Day, then the Dividend Payment Date shall be the
next succeeding date if both such dates following such Initial Dividend Payment
Date are Business Days, or (ii) if the date following such Initial Dividend
Payment Date is not a Business Day, then the Dividend Payment Date will be the
date next preceding such Initial Dividend Payment Date if both such date and
such Initial Dividend Payment Date are Business Days or (iii) if such Initial
Dividend Payment Date and either the preceding date or the succeeding date are
not Business Days, then the Dividend Payment Date shall be the first Business
Day next preceding such Initial Dividend Payment Date that is next succeeded by
a Business Day. Following the Last 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 and
(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 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 (i) if such Normal Dividend Payment Date
is not a Business Day, then the Dividend Payment Date shall be the next
succeeding date if both such dates following the Normal Dividend Payment Date
are Business Days, or (ii) if the date following such Normal Dividend Payment
Date is not a Business Day, then the Dividend Payment Date will be the date
next preceding such Normal Dividend Payment Date if both such date and such
Normal Dividend Payment Date are Business Days or (iii) if such Normal Dividend
Payment Date and either the preceding date or the succeeding date are not
Business
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<PAGE> 32
Days, then the Dividend Payment Date shall be the first Business Day next
preceding such Normal Dividend Payment Date that is next succeeded by a
Business Day. 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 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 Last Initial Dividend Payment Date (the
"Initial Dividend Period"), the Applicable Rate shall be the Initial Dividend
Rate. Commencing on the Last 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
32
<PAGE> 33
Dividend Payment Date (or last Dividend Payment Date in a Dividend Period if
there is more than one Dividend Payment Date), shall be equal to the rate per
annum that results from implementation of the Auction Procedures.
The Applicable Dividend 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
33
<PAGE> 34
time shall be considered equivalent to payment to such person in New York
Clearing House (next-day) funds at the same time on the preceding Business Day,
and any payment made after 12:00 noon, New York City time, on any Business Day
shall be considered to have been made instead in the same form of funds and to
the same person before 12:00 noon, New York City time, on the next Business
Day.
(i) The amount of cash dividends per share of AMPS
payable (if declared) on each Dividend Payment Date of the Initial
Dividend Period, each 7-day Dividend Period and 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 such share was Outstanding
and the denominator of which will be 365, multiplying the amount so
obtained by $50,000, and rounding the amount so obtained to the
nearest cent. During any Long Term Dividend Period, the amount of
dividends per share payable on any Dividend Payment Date shall be
computed on the basis of a year consisting of twelve 30-day months.
(ii) 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 each series of AMPS be the number of days (other than seven)
evenly divisible by seven, and not fewer than seven or more than 364
in the case of a Short Term Dividend Period or one whole year or more
but not greater than five years in the case of a Long Term Dividend
Period, specified in such notice, provided that for any Auction
occurring after the initial Auction, the Corporation may not give a
Request for special Dividend Period of greater than 28
34
<PAGE> 35
days (and any such request shall be null and void) unless the
Corporation has received written confirmation from Moody's and S&P
that such action would not impair the ratings then assigned to the
AMPS by Moody's and S&P and unless 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 fourth Business Day
but not more than seven Business Days prior to an Auction Date for
AMPS and, in the case of a Long Term Dividend Period, shall be given
on or prior to the 14th 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 third 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
35
<PAGE> 36
would remain or become beneficial holders. If the Broker-Dealer(s)
shall not give the Corporation and the Auction Agent a Response by
such third 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 series of AMPS, the
Corporation may not give a Notice of Special Dividend Period in
respect of such Request for Special Dividend Period. In the event the
Response indicates that it is advisable that the Corporation give a
Notice of Special Dividend Period for the series of AMPS, the
Corporation may by no later than the second Business Day prior to such
Auction Date give a notice (a "Notice of Special Dividend Period") to
the Auction Agent, the Securities Depository and each Broker-Dealer
which notice will specify (i) the duration of the Special Dividend
Period, (ii) the Optional Redemption Price as specified in the related
Response and (iii) the Specific Redemption Provisions, if any, as
specified in the related Response. The Corporation 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 (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
36
<PAGE> 37
Broker-Dealers shall advise the Corporation is an approximately equal
rate for securities similar to the AMPS with an equal dividend
period), provided that, in calculating the aggregate Discounted Value
of Moody's Eligible Assets for this purpose, the Moody's Exposure
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. 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) of the prior sentence or if the Corporation
gives a Notice of Revocation with respect to a Notice of Special
Dividend Period for 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 charge, 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
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<PAGE> 38
payable pursuant to paragraph 2(c)(i) hereof, no interest, or sum of money in
lieu of interest, shall be payable in respect of any dividend payment on the
shares of AMPS that may be in arrears.
(ii) For so long as any share of AMPS is Outstanding, the
Corporation shall not declare, pay or set apart for payment any
dividend or other distribution (other than a dividend or distribution
paid in shares of, or options, warrants or rights to subscribe for or
purchase, Common Stock or other stock, if any, ranking junior to the
shares of AMPS as to dividends or upon liquidation) in respect of the
Common Stock or any other stock of the Corporation ranking junior to
or on a parity with the shares of AMPS as to dividends or upon
liquidation, or call for redemption, redeem, purchase or otherwise
acquire for consideration any shares of the Common Stock or any other
such junior stock (except by conversion into or exchange for stock of
the Corporation ranking junior to the shares of AMPS as to dividends
and upon liquidation) or any other such Parity Stock (except by
conversion into or exchange for stock of the Corporation ranking
junior to or on a parity with the shares of AMPS as to dividends and
upon liquidation), unless (A) immediately after such transaction, the
Corporation shall have S&P Eligible Assets and Moody's Eligible Assets
each with an aggregate Discounted Value equal to or greater than the
AMPS Basic Maintenance Amount and the Corporation shall maintain the
1940 Act AMPS Asset Coverage, (B) full cumulative dividends on shares
of AMPS and shares of Other AMPS 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
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Corporation has redeemed the full number of shares of AMPS required to
be redeemed by any provision for mandatory redemption contained
herein.
(e) Each dividend shall consist of (i) cash at the Applicable
Rate, (ii) an uncertificated right (a "Right") to receive an Additional
Dividend (as defined below) and (iii) any additional amounts as set forth in
paragraph 2(f) below. Each Right shall thereafter be independent of the share
or shares of AMPS on which the dividend was paid. The Corporation shall cause
to be maintained a record of each Right received by the respective Holders. A
Right may not be transferred other than by operation of law. If the
Corporation retroactively allocates any net capital gains or other taxable
income 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.
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<PAGE> 40
An "Additional Dividend" means payment to a present or former holder
of shares of AMPS of an amount which, when taken together with the aggregate
amount of Retroactive Taxable Allocations made to such holder with respect to
the fiscal year in question, would cause such holder's dividends in dollars
(after Federal and New 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 maximum marginal regular Federal and New Jersey income tax rate (taking
into account the Federal income tax deductibility of state taxes paid or
incurred) applicable to individuals or corporations, whichever is greater, in
effect during the fiscal year in question.
(f) Except as provided below, whenever the Corporation intends to
include any net capital gains or other taxable income 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 calculated
as if such income was a Retroactive Taxable Allocation and the additional
amount was an Additional Dividend.
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(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 $50,000 per share plus
accumulated but unpaid dividends (whether or not earned or declared) thereon to
date of distribution, and after such payment the holders of AMPS 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 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 as provided below:
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(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 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.
(iii) The Corporation shall redeem, out of funds legally
available therefor, at the Mandatory Redemption Pride per share,
shares of AMPS to the extent permitted under the 1940 Act and Maryland
law, on a date fixed by the Board of Directors, if the Corporation
fails to maintain S&P Eligible Assets and Moody's Eligible Assets each
with an aggregate Discounted Value equal to or greater than the AMPS
Basic Maintenance Amount as provided in paragraph 7(a) or to satisfy
the 1940 Act AMPS Asset Coverage as provided in paragraph 6 and such
failure is not cured on or before the AMPS Basic Maintenance Cure Date
or the 1940 Act Cure Date (herein respectively 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
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<PAGE> 43
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 say 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, Other AMPS and other Preferred Stock subject to
redemption pursuant to provisions similar to those contained in this
paragraph 4(a)(ii); provided that, shares of AMPS which may not be
redeemed at the option of the Corporation due to the designation of a
Non-Call Period applicable to such shares (A) will be subject to
mandatory redemption only to the extent that other shares are not
available to satisfy the number of shares required to be redeemed
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<PAGE> 44
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 with an
aggregate Discounted Value equal to or greater than the AMPS Basic Maintenance
Amount. In the event that less than all the Outstanding shares of a series of
AMPS are to be redeemed and there is more than one Holder, the shares of that
series of AMPS to be redeemed shall be selected by lot or such other method as
the Corporation shall deem fair and equitable.
(c) Whenever shares of AMPS are to be redeemed, the Corporation,
not less than 20 nor more than 30 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
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<PAGE> 45
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 a cash amount equal to the redemption payment for the shares
of AMPS as to which such Notice of Redemption has been given with irrevocable
instructions and authority to pay the redemption price to the Holders of such
shares, then upon the date of such deposit or, if no such deposit is made, then
upon such date fixed for redemption (unless the Corporation shall default in
making the redemption payment), all rights of the Holders of such shares as
shareholders of the Corporation by reason of the ownership of such shares will
cease and terminate (except their right to receive the redemption price in
respect thereof and any Additional Dividends, but without interest), and such
shares shall no longer be deemed Outstanding. The Corporation shall be
entitled to receive, from time to time, from the Auction Agent the interest, if
any, on such moneys 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
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<PAGE> 46
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 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
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<PAGE> 47
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, or increase the authorized or issued amount of, any class or series
of stock ranking prior to or on a parity with any series of Preferred Stock
with respect to payment of dividends or the distribution of assets on
liquidation, or increase the authorized amount of AMPS or any other Preferred
Stock, or (ii) amend, alter or repeal the provisions of the Charter, whether by
merger, consolidation or otherwise, so as to adversely affect any of the
contract rights expressly set forth in the Charter of holders of shares of AMPS
or any other Preferred Stock. To the extent permitted under the 1940 Act, in
the event shares of AMPS are issued in more than one series, the Corporation
shall not approve any of the actions set forth in clause (i) or (ii)
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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 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
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meeting shall be the close of business on the fifth Business Day
preceding the day on which such notice is mailed. At any such special
meeting and at each meeting held during a Voting Period, such Holders,
voting together as a class (to the exclusion of the holders of all
other securities and classes of capital stock of the Corporation),
shall be entitled to elect the number of directors prescribed in
paragraph 5(b) above. At any such meeting or adjournment thereof in
the absence of a quorum, a majority of such holders present in person
or by proxy shall have the power to adjourn the meeting without
notice, other than by an announcement at the meeting, to a date not
more than 120 days after the original record date.
(ii) For purposes of determining any rights of the Holders
to vote on any matter or the number of shares required to constitute a
quorum, whether such right is created by these Articles Supplementary,
by the other provisions of the Charter, by statute or otherwise, a
share of AMPS which is not Outstanding shall not be counted.
(iii) The terms of office of all persons who are directors
of the Corporation at the time of a special meeting of Holders and
holders of other Preferred Stock to elect directors shall continue,
notwithstanding the election at such meeting by the Holders and such
other holders of the number of directors that they are entitled to
elect, and the persons so elected by the Holders and such other
holders, together with the two incumbent directors elected by the
Holders and such other holders of Preferred Stock and the remaining
incumbent directors elected by the holders of the Common Stock and
Preferred Stock, shall constitute the duly elected directors of the
Corporation.
(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
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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)(ii).
(e) Exclusive Remedy. Unless otherwise required by law, the
Holders of shares of AMPS shall not have any rights or preferences other than
those specifically set forth herein. The Holders of shares of AMPS shall have
no preemptive rights or rights to cumulative voting. In the event that the
Corporation fails to pay any dividends on the shares of AMPS, the exclusive
remedy of the Holders shall be the right to vote for directors pursuant to the
provisions of this paragraph 5.
(f) Notification to S&P and Moody's. In the event a vote of
Holders of AMPS is required pursuant to the provisions of Section 13(a) of the
1940 Act, the Corporation shall, not later than ten Business Days prior to the
date on which such vote is to be taken, notify S&P and Moody's that such vote
is to be taken and the nature of the action with respect to which such vote is
to be taken and, not later than ten Business Days after the date on which such
vote is taken, notify S&P and Moody's of the result of such vote.
6. 1940 Act AMPS Asset Coverage. The Corporation shall maintain,
as of the last Business Day of each month in which any share of AMPS is
Outstanding, the 1940 Act AMPS Asset Coverage.
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
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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
the AMPS Basic Maintenance Amount on or prior to the AMPS Basic Maintenance
Cure Date.
(b) On or before 5:00 p.m., New York City time, on the third
Business Day after a Valuation Date on which the Corporation fails to satisfy
the AMPS Basic Maintenance Amount, the Corporation shall complete and deliver
to the Auction Agent, and Moody's and S&P, as the case may be, a complete AMPS
Basic Maintenance Report as of the date of such failure, which will be deemed
to have been delivered to the Auction Agent if the Auction Agent receives a
copy or telecopy, telex or other electronic, transcription thereof and on the
same day the Corporation mails to the Auction Agent for delivery on the next
Business Day the complete AMPS Basic Maintenance Report. The Corporation will
deliver an AMPS Basic Maintenance Report to the Auction Agent and Moody's and
S&P, as the case may be, on or before 5:00 p.m., New York City time, on the
third Business Day after a Valuation Date on which the Corporation cures its
failure to maintain Moody's Eligible Assets or S&P Eligible Assets, as the case
may be, with an aggregate Discounted Value equal to or greater than the AMPS
Basic Maintenance Amount or on which the Corporation fails to maintain Moody's
Eligible Assets or S&P Eligible Assets, as the case may be, with an aggregate
Discounted Value which exceeds the AMPS Basic 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. Whenever the Corporation delivers an
AMPS Basic Maintenance Report to S&P pursuant to this paragraph 7(b), it shall
also deliver a Certificate of Minimum Liquidity to S&P and the Auction Agent.
The Corporation shall also
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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 and a Certificate of Minimum Liquidity 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) and (with respect to S&P only
while S&P is rating the AMPS) such Certificate, (ii) that, in such Report (and
in such randomly selected Report), the Corporation correctly determined the
assets of the Corporation which constitute S&P Eligible Assets or Moody's
Eligible Assets, as the case may be, at such Quarterly Valuation Date in
accordance with these Articles Supplementary, (iii) that, in such Report (and
in such randomly selected Report), the Corporation determined whether the
Corporation had, at such Quarterly Valuation Date (and at 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) that (with respect to S&P only) in such Certificate, the Corporation
determined the Minimum
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Liquidity Level and the Corporation's Deposit Securities in accordance with
these Articles Supplementary, including maturity or tender date, (v) with
respect to the S&P Rating on New Jersey Municipal Bonds or Municipal Bonds, the
issuer name, issue size and coupon rate listed in such Report and (with respect
to S&P only) such Certificate, 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, (vi) 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 and (with respect to S&P only)
such Certificate, 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), (vii) 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 and (with respect to S&P
only) such Certificate to the bid or mean price listed in such Report and (with
respect to S&P only) such Certificate 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 (viii) with respect to such confirmation to Moody's, that the
Corporation has satisfied the requirements of paragraph 9(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 relating to any Valuation Date on which
the Corporation failed to maintain S&P Eligible Assets
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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 5:00 p.m., New
York City time, on the first Business Day after shares of Common Stock are
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<PAGE> 55
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. Minimum Liquidity Level. (a) For so long as any shares of
AMPS are rated by S&P, the Corporation shall be required to have, as of each
Valuation Date, Dividend Coverage Assets having in the aggregate a Market Value
not less than the Dividend Coverage Amount.
(b) As of each Valuation Date, as long as any shares of AMPS are
rated by S&P, the Corporation shall determine (i) the Market Value of the
Dividend Coverage Assets owned by the Corporation as of that Valuation Date,
(ii) the Dividend Coverage Amount on that Valuation Date, and (iii) whether the
Minimum Liquidity Level is met as of that Valuation Date. The calculations of
the Dividend Coverage Assets, the Dividend Coverage Amount and whether the
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<PAGE> 56
Minimum Liquidity Level is met shall be set forth in a certificate (a
"Certificate of Minimum Liquidity") dated as of the Valuation Date. The AMPS
Basic Maintenance Report and the Certificate of Minimum Liquidity may be
combined in one certificate. The Corporation shall cause the Certificate of
Minimum Liquidity to be delivered to S&P not later than the close of business
on the third Business Day after the Valuation Date applicable to such
Certificate pursuant to paragraph 7(b). The Minimum Liquidity Level shall be
deemed to be met as of any date of determination if the Corporation has timely
delivered a Certificate of Minimum Liquidity relating to such date which states
that the same has been met and which is not manifestly inaccurate. In the
event that a Certificate of Minimum Liquidity is not delivered to S&P when
required, the Minimum Liquidity Level shall be deemed not to have been met as
of the applicable date.
(c) If the Minimum Liquidity Level is not met as of any Valuation
Date, then the Corporation shall purchase or otherwise acquire Dividend
Coverage Assets to the extent necessary so that the Minimum Liquidity Level is
met as of the fifth Business Day following such Valuation Date. The
Corporation shall, by such fifth Business Day, provide to S&P a Certificate of
Minimum Liquidity setting forth the calculations of the Dividend Coverage
Assets and the Dividend Coverage Amount and showing that the Minimum Liquidity
Level is met as of such fifth Business Day together with a report of the
custodian of the Corporation's assets confirming the amount of the
Corporation's Dividend Coverage Assets as of such fifth Business Day.
9. Certain Other Restrictions.
(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
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<PAGE> 57
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 Corporation may purchase
or sell futures contracts based on the Bond Buyer Municipal Bond Index (the
"Municipal Index") or United States Treasury Bonds with remaining maturities of
ten years of more ("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 $100,000 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 thirty 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 and on the Municipal Index exceeding in number 25%
of the quotient of the Market Value of the Corporation's total assets
divided by
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<PAGE> 58
$100,000 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 thirty days preceding the
time of effecting such transaction as reported by The Wall Street
Journal;
(iii) the Corporation will engage in Closing Transactions
to close out any Outstanding futures contract which the Corporation
owns or has sold or any Outstanding option thereon owned by the
Corporation in the event (A) the Corporation does not have S&P
Eligible Assets with an aggregate Discounted Value equal to or greater
than the AMPS Basic Maintenance Amount on two consecutive Valuation
Dates and (B) the Corporation is required to pay Variation Margin on
the second such Valuation Date;
(iv) the Corporation will engage in a Closing Transaction
to close out any Outstanding futures contract or option thereon in the
month prior to the delivery month under the terms of such futures
contract or option thereon unless the Corporation holds the securities
deliverable under such terms; and
(v) when the Corporation writes a futures contract or
option thereon, it will either maintain an amount of cash, cash
equivalents or short-term, fixed-income securities in a segregated
account with the Corporation's custodian, so that the amount so
segregated plus the amount of Initial Margin and Variation Margin held
in the account of or on behalf of the Corporation's broker with
respect to such futures contract or option equals the Market Value of
the futures contract or option, or, in the event the Corporation
writes a futures contract or option thereon which requires delivery of
an underlying security, it shall hold such underlying security in its
portfolio.
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<PAGE> 59
For purposes of determining whether the Corporation has S&P Eligible
Assets with a Discounted Value that equals or exceeds the AMPS Basic
Maintenance Amount, the Discounted Value of cash or securities held for the
payment of Initial Margin or Variation Margin shall be zero and the aggregate
Discounted Value of S&P Eligible Assets shall be reduced by an amount equal to
(i) 30% of the aggregate settlement value, as marked to market, of any
Outstanding futures contracts based on the Municipal Index which are owned by
the Corporation plus (ii) 25% of the aggregate settlement value, as marked to
market, of any Outstanding futures contracts based on Treasury Bonds which
contracts are owned by the Corporation.
(b) For so long as any shares of AMPS are rated by Moody's, the
Corporation will not buy or sell futures contracts, write, purchase or sell
call options on futures contracts or purchase put options on futures contracts
or write call options (except covered call options) on portfolio securities
unless it receives written confirmation from Moody's that engaging in such
transactions would not impair the ratings then assigned to the shares of AMPS
by Moody's, except that the Corporation may purchase or sell exchange-traded
futures contracts based on the Municipal Index or Treasury Bonds and purchase,
write or sell exchange-traded put options on such futures contracts and
purchase, write or sell exchange-traded call options on such futures contracts
(collectively "Moody's Hedging Transactions"), subject to the following
limitations:
(i) the Corporation will not engage in any Moody's
Hedging Transaction based on the Municipal Index (other than Closing
Transactions) which would cause the Corporation at the time of such
transaction to own or have sold (A) Outstanding futures contracts
based on the Municipal Index exceeding in number 10% of the average
number of daily traded futures contracts based on the Municipal Index
in the thirty days preceding the time of effecting such transaction as
reported by The Wall Street Journal or
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<PAGE> 60
(B) Outstanding futures contracts based on the Municipal Index having
a Market Value exceeding 50% of the Market Value of all Moody's
Eligible Assets owned by the Corporation (other than Moody's Eligible
Assets already subject to a Moody's Hedging Transaction);
(ii) the Corporation will not engage in any Moody's
Hedging Transaction based on Treasury Bonds (other than Closing
Transactions) which would cause the Corporation at the time of such
transaction to own or have sold (A) Outstanding futures contracts
based on Treasury Bonds having an aggregate Market Value exceeding 20%
of the aggregate Market Value of Moody's Eligible Assets owned by the
Corporation and rated Aa by Moody's (or, if not rated by Moody's but
rated by S&P, rated AAA by S&P) or (B) Outstanding futures contracts
based on Treasury Bonds having an aggregate Market Value exceeding 40%
of the aggregate Market Value of all 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
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Outstanding option on a futures contract by no later than the first
Business Day of the month in which such option expires;
(v) the Corporation will engage in Moody's Hedging
Transactions only with respect to futures contracts or options thereon
having the next settlement date or the settlement date immediately
thereafter;
(vi) 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;
(vii) 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
(viii) 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
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written by the Corporation; (ii) assets subject to call options written by the
Corporation not meeting the requirements of clause (i) of this sentence shall
have no value; (iii) assets subject to put options written by the Corporation
shall be valued at the lesser of (A) the exercise price and (B) the Discounted
Value of the subject security; (iv) futures contracts shall be valued at the
lesser of (A) settlement price and (B) the Discounted Value of the subject
security, provided that, if a contract matures within 49 days after the date as
of which such valuation is made, where the Corporation is the seller the
contract 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.
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(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 9(b) of these Articles Supplementary), except that the Corporation
may enter into such contracts to purchase newly-issued securities on the date
such securities are issued ("Forward Commitments"), subject to the following
limitations:
(i) the Corporation will maintain in a segregated account
with its custodian cash, cash equivalents or short-term, fixed-income
securities rated P-1, MIG-1 or VMIG-1 by Moody's and maturing prior to
the date of the Forward Commitment with a Market Value that equals or
exceeds the amount of the Corporation's obligations under any Forward
Commitments to which it is from time to time a party or long-term
fixed income securities with a Discounted Value that equals or exceeds
the amount of the Corporation's obligations under any Forward
Commitment to which it is from time to time a party; and
(ii) the Corporation will not enter into a Forward
Commitment unless, after giving effect thereto the Corporation would
continue to have Moody's Eligible Assets with an aggregate Discounted
Value equal to or greater than the AMPS Basic Maintenance Account.
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.
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(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), (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.
10. 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.
11. Auction Procedures. (a) Certain definitions. As used in
this paragraph 11, the following terms shall have the following meanings,
unless the context otherwise requires:
(i) "AMPS" shall mean the shares of AMPS being auctioned
pursuant to this paragraph 11.
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(ii) "Auction Date" shall mean the first Business Day
preceding the first day of a Dividend Period.
(iii) "Available AMPS" shall have the meaning specified in
paragraph 11(d)(i) below.
(iv) "Bid" shall have the meaning specified in paragraph
11(b)(i) below.
(v) "Bidder" shall have the meaning specified in
paragraph 11(b)(i) below.
(vi) "Hold Order" shall have the meaning specified in
paragraph 11(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>
Applicable Applicable
Credit Ratings Percentage of Percentage of
- ------------------------------------------ Reference Rate - 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>
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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.
(viii) "Order" shall have the meaning specified in paragraph
11(b)(i) below.
(ix) "Sell Order" shall have the meaning specified in
paragraph 11(b)(i) below.
(x) "Submission Deadline" shall mean 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" shall have the meaning specified in
paragraph 11(d)(i) below.
(xii) "Submitted Hold Order" shall have the meaning
specified in paragraph 11(d)(i) below.
(xiii) "Submitted Order" shall have the meaning specified in
paragraph 11(d)(i) below.
(xiv) "Submitted Sell Order" shall have the meaning
specified in paragraph 11(d)(i) below.
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(xv) "Sufficient Clearing Bids" shall have the meaning
specified in paragraph 11(d)(i) below.
(xvi) "Winning Bid Rate" shall have the meaning specified
in paragraph 11(d)(i) below.
(b) Orders by Existing Holders and Potential Holders.
(i) On or prior to the Submission Deadline on each
Auction Date:
(A) each Existing Holder may submit to a Broker-Dealer
information as to:
(1) the number of Outstanding shares, if any, of
AMPS held by such Existing Holder which such Existing Holder
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 Existing Holder which such Existing Holder
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 Existing Holder; and/or
(3) the number of Outstanding shares, if any, of
AMPS held by such Existing Holder which such Existing Holder
offers to sell without regard to the Applicable Rate for the
next succeeding Dividend Period; and
(B) each Broker-Dealer, using a list of Potential Holders
that shall be maintained in good faith for the purpose of conducting a
competitive Auction, shall contact Potential Holders, including
Persons that are not Existing Holders, on such list to determine the
number of Outstanding shares, if any, of AMPS which each such
Potential Holder offers to purchase, provided that the Applicable Rate
for the next succeeding
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Dividend Period shall not be less than the rate per annum specified by
such Potential Holder.
For the purposes hereof, the communication to a Broker-Dealer of
information referred to in clause (A) or (B) of this paragraph 11(b)(i) is
hereinafter referred to as an "Order" and each Existing Holder and each
Potential Holder placing an Order is hereinafter referred to as a "Bidder"; an
Order containing the information referred to in clause (A)(1) of this paragraph
11(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 11(b)(i) is
hereinafter referred to as a "Bid"; and an Order containing the information
referred to in clause (A)(3) of this paragraph 11(b)(i) is hereinafter referred
to as a "Sell Order."
(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
11(e)(i)(D) of 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 11(e)(ii)(C) if
such specified rate per annum shall be higher than the Maximum
Applicable Rate and Sufficient Clearing Bids do not exist.
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(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
11(e)(ii)(C) if Sufficient Clearing Bids do not exist.
(C) A Bid by a Potential Holder shall constitute an
irrevocable offer to purchase:
(1) the number of Outstanding shares of AMPS
specified in such Bid if the Applicable Rate determined on
such Auction Date shall be higher than the rate per annum
specified in such Bid; or
(2) such number or a lesser number of Outstanding
shares of AMPS to be determined as set forth in paragraph
11(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 and specifying with respect to each order:
(A) the name of the Bidder placing such Order;
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(B) the aggregate number of Outstanding shares of AMPS
that are the subject of such order;
(C) to the extent that such Bidder is an Existing Holder:
(1) the number of Outstanding shares, if any, of
AMPS subject to any Hold Order placed by such Existing Holder;
(2) the number of Outstanding shares, if any, of
AMPS subject to any Bid placed by such Existing Holder and the
rate per annum specified in such Bid; and
(3) the number of Outstanding shares, if any, of
AMPS subject to any Sell Order placed by such Existing Holder;
and
(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) and a Sell Order (in the case of an Auction relating
to a Special Dividend Period) 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 11(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
11(c)(iv)(A) above and of the foregoing portion of this paragraph
11(c)(iv)(B) to any Bid or Bids specifying a lower rate or rates per
annum, the number of shares subject to each of such Bids shall be
reduced pro rata so that such Bids, in the aggregate, cover exactly
such remaining number
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of shares); and the number of shares, if any, subject to Bids not
valid under this paragraph 11(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 11(c)(iv)(A) and Bids referred to
in paragraph 11(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.
(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");
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<PAGE> 73
(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 clauses (1) and (2) above are each zero
because all of the Outstanding shares of AMPS are the subject
of Submitted Hold Orders), such Submitted Bids by Potential
Holders being hereinafter referred to collectively as
"Sufficient Clearing Bids"); and
(C) if Sufficient Clearing Bids exist, the lowest rate
per annum specified in the Submitted Bids (the "Winning Bid Rate")
that if:
(1) each Submitted Bid from Existing Holders
specifying the Winning Bid Rate and all other Submitted Bids
from Existing Holders specifying lower 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,
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<PAGE> 74
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 11(d)(i), the Auction Agent shall advise
the Corporation of the Maximum Applicable Rate and, based on such
determinations, the Applicable Rate for the next succeeding Dividend Period as
follows:
(A) if Sufficient Clearing Bids exist, that the
Applicable Rate for the next succeeding Dividend Period shall be equal
to the Winning Bid Rate;
(B) if Sufficient Clearing Bids do not exist (other than
because all of the Outstanding shares of AMPS are the subject of
Submitted Hold Orders), that the Applicable Rate for the next
succeeding Dividend Period shall be equal to the Maximum Applicable
Rate; or
(C) if all of the Outstanding shares of AMPS are the
subject of Submitted Hold Orders, that the Dividend Period next
succeeding the Auction shall automatically be the same length as the
immediately preceding Dividend Period and the Applicable Rate for the
next succeeding Dividend Period shall be equal to 59% of the Reference
Rate (or 90% 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 11(d)(i), the
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<PAGE> 75
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 11(e)(iii) and paragraph 11(e)(iv), Submitted
Bids and Submitted Sell Orders shall be accepted or rejected in the following
order of priority and all other Submitted Bids shall be rejected:
(A) the Submitted Sell Orders of Existing Holders shall
be accepted and the Submitted Bid of each of the Existing Holders
specifying any rate per annum that is higher than the Winning Bid Rate
shall be accepted, thus requiring each such Existing Holder to sell
the Outstanding shares of AMPS that are the subject of such Submitted
Sell Order or Submitted Bid;
(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
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<PAGE> 76
Outstanding shares of AMPS subject to Submitted Bids described in
paragraph 11(e)(i)(B) and paragraph 11(e)(i)(C), in which event the
Submitted Bids of each such Existing Holder shall be accepted, and
each such Existing Holder shall be required to sell Outstanding shares
of AMPS, but only in an amount equal to the difference between (1) the
number of Outstanding shares of AMPS then held by such Existing Holder
subject to such Submitted Bid and (2) the number of shares of AMPS
obtained by multiplying (x) the number of Remaining Shares by (y) a
fraction the numerator of which shall be the number of Outstanding
shares of AMPS held by such Existing Holder subject to such Submitted
Bid and the denominator of which shall be the sum of the numbers 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 11(e)(i)(B),
paragraph 11(e)(i)(C) and paragraph 11(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
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<PAGE> 77
of paragraph 11(e)(iii), Submitted Orders shall be accepted or rejected as
follows in the following order of priority and all other Submitted Bids shall
be rejected:
(A) the Submitted Bid of each Existing Holder specifying
any rate per annum that is equal to or lower than the Maximum
Applicable Rate shall be rejected, thus entitling such Existing Holder
to continue to hold the Outstanding 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 11(e)(ii)(A) and paragraph 11(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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<PAGE> 78
(iii) If, as a result of the procedures described in
paragraph 11(e)(i) or paragraph 11(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 11(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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<PAGE> 79
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 11 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 Existing Holders of AMPS. 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 11 or to or through a Broker-Dealer or to a Person
that has delivered a signed copy of a Purchaser's Letter to the Auction Agent,
provided that in the case of all transfers other than pursuant to Auctions such
Existing Holder, its Broker-Dealer 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 Existing Holder's beneficial ownership. Neither
the Corporation nor any affiliate shall submit an order in any Auction. Any
Existing Holder 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 Existing Holder thereof and
such Existing Holder thereupon will be entitled to receive certificates
therefor and required to deliver certificates therefor upon transfer or
exchange thereof.
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<PAGE> 80
12. Securities Depository; Stock Certificates. (a) If there
is a Securities Depository, one certificate for all of the shares of AMPS 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 and each Purchaser's Letter. 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 Existing Holder shall
receive certificates representing its ownership interest in such shares.
(b) If the Applicable Rate applicable to all shares of AMPS 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 12(a)) registered
in the names of the Existing Holders or their nominees and rescind the
stop-transfer instructions referred to in paragraph 12(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 its corporate seal to be hereunto affixed 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 June 24, 1992.
MUNIYIELD NEW JERSEY FUND, INC.
By
-----------------------------
Name:
Title: Vice-President
Attest:
- -----------------------------
Mark Goldfus
Secretary
81
<PAGE> 1
EXHIBIT 1(c)
MUNIYIELD NEW JERSEY FUND, INC.
Articles Supplementary creating
Auction Market Preferred Stock(R)
MUNIYIELD NEW JERSEY FUND, INC., a Maryland corporation having its
principal Maryland office in the City of Baltimore (the "Corporation"),
certifies to the Maryland State Department of Assessments and Taxation 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 1,200 authorized and unissued shares of common stock of the
Corporation as additional preferred stock of the Corporation and has authorized
the issuance of preferred stock, par value $.10 per share, liquidation
preference $50,000 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.
SECOND: The preferences, voting powers, restrictions, limitations as to
dividends, qualifications, and terms and conditions of redemption, of the shares
of such preferred stock shall be identical to the 1,200 shares of Auction Market
Preferred Stock previously reclassified and authorized by the Board of Directors
pursuant to Articles Supplementary dated June 24, 1992 and filed on June 25,
1992 with the Maryland State Department of Assessments and Taxation.
Accordingly, these Articles Supplementary hereby incorporate by reference such
previously filed Articles Supplementary beginning with the section entitled
"DESIGNATION" and continuing
- -----------------------
(R) Registered trademark of Merrill Lynch & Co., Inc.
<PAGE> 2
until the end of the final section entitled "Securities Depository; Stock
Certificates," with the following exception:
At page 2, in the section entitled "DESIGNATION," strike out the date
"July 1, 1992" and insert in lieu thereof the date "December 1, 1994";
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 November 30, 1994.
MUNIYIELD NEW JERSEY FUND, INC.
By
----------------------------
Name:
Title:
Attest:
- ------------------------
Name: Mark B. Goldfus
Title: Secretary
2
<PAGE> 1
EXHIBIT 1(d)
MUNIYIELD NEW JERSEY FUND, INC.
Articles of Amendment to Articles Supplementary creating
Auction Market Preferred Stock(R)
MUNIYIELD NEW JERSEY FUND, INC., a Maryland corporation having its
principal Maryland office in the City of Baltimore (the "Corporation"),
certifies to the Maryland State Department of Assessments and Taxation that:
FIRST: The Articles Supplementary, filed on June 25, 1992, and the
Articles Supplementary, filed on December 1, 1994, each creating 1,200 shares of
Auction Market Preferred Stock of the Corporation (collectively, the "Articles
Supplementary"), are hereby amended by these Articles of Amendment as follows:
In each instance in which "$.10" appears, delete "$.10" and substitute
"$.05" therefor;
In each instance in which "$50,000" appears, delete "$50,000" and
substitute "$25,000" therefor.
SECOND: The foregoing amendment to the Articles Supplementary has been
effected in the manner and by the vote required by the Corporation's Charter and
the laws of Maryland. Pursuant to Section 2-603 of the Code, the amendment of
the Articles Supplementary as hereinabove set forth has been duly advised,
approved and adopted by a majority of the entire Board of Directors of the
Corporation, there being no stock entitled to be voted on the Charter amendment
outstanding or subscribed for at the time of approval.
THIRD: Except as amended hereby, the Charter shall remain in full force
and effect.
- --------------------------------
(R) Registered trademark of Merrill Lynch & Co., Inc.
<PAGE> 2
FOURTH: The authorized capital stock of the Corporation has not been
increased by these Articles of Amendment.
FIFTH: These Articles of Amendment shall be effective contemporaneously
with the acceptance for recording or filing by the Maryland State Department of
Assessments and Taxation of the Corporation's Articles Supplementary dated
November 30, 1994.
The Senior Vice President acknowledges these Articles of Amendment to
be the corporate act of the Corporation and states that to the best of his
knowledge, information and belief the matters and facts set forth in these
Articles with respect to the authorization and approval of the amendment of the
Corporation's Articles Supplementary are true in all material respects, and that
this statement is made under the penalties of perjury.
2
<PAGE> 3
IN WITNESS WHEREOF, MUNIYIELD NEW JERSEY FUND, INC. has caused these
Articles to be signed in its name and on its behalf by its Senior Vice
President, a duly authorized officer of the Corporation, and attested by its
Secretary as of November 30, 1994.
MUNIYIELD NEW JERSEY FUND, INC.
By
---------------------------
Name: Vincent R. Giordano
Title: Senior Vice President
Attest:
- ----------------------------
Name: Mark B. Goldfus
Title: Secretary
3
<PAGE> 1
Exhibit 2
BY-LAWS
OF
MUNIYIELD NEW JERSEY FUND, INC.
ARTICLE I
Offices
Section 1. Principal Office. The principal office of the Corporation shall
be in the City of Baltimore, State of Maryland.
Section 2. Principal Executive Office. The principal executive office of
the Corporation shall be at 800 Scudders Mill Road, Plainsboro, New Jersey
08536.
Section 3. Other Offices. The Corporation may have such other offices in
such places as the Board of Directors may from time to time determine.
ARTICLE II
Meetings of Stockholders
Section 1. Annual Meeting. The annual meeting of the stockholders of the
Corporation for the election of directors and for the transaction of such other
business as may properly be brought before the meeting shall be held on such day
in May of each year as shall be designated annually by the Board of Directors.
Section 2. Special Meetings. Special meetings of the stockholders, unless
otherwise provided by law or by the Charter, may be called for any purpose or
purposes by a majority of the Board of Directors, the President, or on the
written request of the holders of the outstanding shares of capital stock of the
Corporation entitled to vote at such meeting to the extent permitted by Maryland
law.
<PAGE> 2
Section 3. Place of Meetings. The annual meeting and any special meeting of
the stockholders shall be held at such place within the United States as the
Board of Directors may from time to time determine.
Section 4. Notice of Meetings; Waiver of Notice. Notice of the place, date
and time of the holding of each annual and special meeting of the stockholders
and the purpose or purposes of each special meeting shall be given personally or
by mail, not less than ten nor more than ninety days before the date of such
meeting, to each stockholder entitled to vote at such meeting and to each other
stockholder entitled to notice of the meeting. Notice by mail shall be deemed to
be duly given when deposited in the United States mail addressed to the
stockholder at his address as it appears on the records of the Corporation, with
postage thereon prepaid.
Notice of any meeting of stockholders shall be deemed waived by any
stockholder who shall attend such meeting in person or by proxy, or who shall,
either before or after the meeting, submit a signed waiver of notice which is
filed with the records of the meeting. When a meeting is adjourned to another
time and place, unless the Board of Directors, after the adjournment, shall fix
a new record date for an adjourned meeting, or the adjournment is for more than
one hundred and twenty days after the original record date, notice of such
adjourned meeting need not be given if the time and place to which the meeting
shall be adjourned were announced at the meeting at which the adjournment is
taken.
Section 5. Quorum. At all meetings of the stockholders, the holders of a
majority of the shares of stock of the Corporation entitled to vote at the
meeting, present in person or by proxy, shall constitute a quorum for the
transaction of any business, except as otherwise provided by statute or by the
Charter. In the absence of a quorum no business may be transacted, except that
the holders of a majority of the shares of stock present in person or by proxy
and entitled to vote
2
<PAGE> 3
may adjourn the meeting from time to time, without notice other than
announcement thereat except as otherwise required by these By-Laws, until the
holders of the requisite amount of shares of stock shall be so present. At any
such adjourned meeting at which a quorum may be present any business may be
transacted which might have been transacted at the meeting as originally called.
The absence from any meeting, in person or by proxy, of holders of the number of
shares of stock of the Corporation in excess of a majority thereof which may be
required by the laws of the State of Maryland, the Investment Company Act of
1940, as amended, or other applicable statute, the Charter, or these By-Laws,
for action upon any given matter shall not prevent action at such meeting upon
any other matter or matters which may properly come before the meeting, if there
shall be present thereat, in person or by proxy, holders of the number of shares
of stock of the Corporation required for action in respect of such other matter
or matters.
Section 6. Organization. At each meeting of the stockholders, the Chairman
of the Board (if one has been designated by the Board), or in his absence or
inability to act, the President, or in the absence or inability to act of the
Chairman of the Board and the President, a Vice President, shall act as chairman
of the meeting. The Secretary, or in his absence or inability to act, any person
appointed by the chairman of the meeting, shall act as secretary of the meeting
and keep the minutes thereof.
Section 7. Order of Business. The order of business at all meetings of the
stockholders shall be as determined by the chairman of the meeting.
Section 8. Voting. Except as otherwise provided by statute or the Charter,
each holder of record of shares of stock of the Corporation having voting power
shall be entitled at each meeting of the stockholders to one vote for every
share of such stock standing in his name on the
3
<PAGE> 4
record of stockholders of the Corporation as of the record date determined
pursuant to Section 9 of this Article or if such record date shall not have been
so fixed, then at the later of (i) the close of business on the day on which
notice of the meeting is mailed or (ii) the thirtieth day before the meeting.
Each stockholder entitled to vote at any meeting of stockholders may
authorize another person or persons to act for him by a proxy signed by such
stockholder or his attorney-in-fact. No proxy shall be valid after the
expiration of eleven months from the date thereof, unless otherwise provided in
the proxy. Every proxy shall be revocable at the pleasure of the stockholder
executing it, except in those cases where such proxy states that it is
irrevocable and where an irrevocable proxy is permitted by law. Except as
otherwise provided by statute, the Charter or these By-Laws, any corporate
action to be taken by vote of the stockholders shall be authorized by a majority
of the total votes cast at a meeting of stockholders by the holders of shares
present in person or represented by proxy and entitled to vote on such action.
If a vote shall be taken on any question other than the election of
directors, which shall be by written ballot, then unless required by statute or
these By-Laws, or determined by the chairman of the meeting to be advisable, any
such vote need not be by ballot. On a vote by ballot, each ballot shall be
signed by the stockholder voting, or by his proxy, if there be such proxy, and
shall state the number of shares voted.
Section 9. Fixing of Record Date. The Board of Directors may set a record
date for the purpose of determining stockholders to vote at any meeting of the
stockholders. The record date, which may not be prior to the close of business
on the day the record date is fixed, shall be not more than ninety nor less than
ten days before the date of the meeting of the stockholders. All
4
<PAGE> 5
persons who were holders of record of shares at such time, and not others, shall
be entitled to vote at such meeting and any adjournment thereof.
Section 10. Inspectors. The Board may, in advance of any meeting of
stockholders, appoint one or more inspectors to act at such meeting or any
adjournment thereof. If the inspectors shall not be so appointed or if any of
them shall fail to appear or act, the chairman of the meeting may, and on the
request of any stockholder entitled to vote thereat shall, appoint inspectors.
Each inspector, before entering upon the discharge of his duties, shall take and
sign an oath to execute faithfully the duties of inspector at such meeting with
strict impartiality and according to the best of his ability. The inspectors
shall determine the number of shares outstanding and the voting powers of each,
the number of shares represented at the meeting, the existence of a quorum, the
validity and effect of proxies, and shall receive votes, ballots or consents,
hear and determine all challenges and questions arising in connection with the
right to vote, count and tabulate all votes, ballots or consents, determine the
result, and do such acts as are proper to conduct the election or vote with
fairness to all stockholders. On request of the chairman of the meeting or any
stockholder entitled to vote thereat, the inspectors shall make a report in
writing of any challenge, request or matter determined by them and shall execute
a certificate of any fact found by them. No director or candidate for the office
of director shall act as inspector of an election of directors. Inspectors need
not be stockholders.
Section 11. Consent of Stockholders in Lieu of Meeting. Except as otherwise
provided by statute or the Charter, any action required to be taken at any
annual or special meeting of stockholders, or any action which may be taken at
any annual or special meeting of such stockholders, may be taken without a
meeting, without prior notice and without a vote, if the following are filed
with the records of stockholders meetings: (i) a unanimous written consent
5
<PAGE> 6
which sets forth the action and is signed by each stockholder entitled to vote
on the matter and (ii) a written waiver of any right to dissent signed by each
stockholder entitled to notice of the meeting but not entitled to vote thereat.
ARTICLE III
Board of Directors
Section 1. General Powers. Except as otherwise provided in the Charter, the
business and affairs of the Corporation shall be managed under the direction of
the Board of Directors. All powers of the Corporation may be exercised by or
under authority of the Board of Directors except as conferred on or reserved to
the stockholders by law or by the Charter or these By-Laws.
Section 2. Number of Directors. The number of directors shall be fixed from
time to time by resolution of the Board of Directors adopted by a majority of
the directors then in office; provided, however, that the number of directors
shall in no event be less than three nor more than fifteen. Any vacancy created
by an increase in directors may be filled in accordance with Section 6 of this
Article III. No reduction in the number of directors shall have the effect of
removing any director from office prior to the expiration of his term unless
such director is specifically removed pursuant to Section 5 of this Article III
at the time of such decrease. Directors need not be stockholders. As long as any
preferred stock of the Corporation is outstanding, the number of directors shall
be not less than five.
Section 3. Election and Term of Directors. Directors shall be elected
annually, by written ballot at the annual meeting of stockholders, or a special
meeting held for that purpose. The term of office of each director shall be from
the time of his election and qualification until the annual election of
directors next succeeding his election and until his successor shall have
6
<PAGE> 7
been elected and shall have qualified, or until his death, or until he shall
have resigned, or until December 31 of the year in which he shall have reached
seventy-two years of age, or until he shall have been removed as hereinafter
provided in these By-Laws, or as otherwise provided by statute or the Charter.
Section 4. Resignation. A director of the Corporation may resign at any
time by giving written notice of his resignation to the Board or the Chairman of
the Board or the President or the Secretary. Any such resignation shall take
effect at the time specified therein or, if the time when it shall become
effective shall not be specified therein, immediately upon its receipt; and,
unless otherwise specified therein, the acceptance of such resignation shall not
be necessary to make it effective.
Section 5. Removal of Directors. Any director of the Corporation may be
removed (with or without cause) by the stockholders by a vote of sixty-six and
two-thirds percent (66 2/3%) of the outstanding shares of capital stock then
entitled to vote in the election of such director.
Section 6. Vacancies. Subject to the provisions of the Investment Company
Act of 1940, as amended, any vacancies in the Board, whether arising from death,
resignation, removal, an increase in the number of directors or any other cause,
shall be filled by a vote of the Board of Directors in accordance with the
Charter.
Section 7. Place of Meetings. Meetings of the Board may be held at such
place as the Board may from time to time determine or as shall be specified in
the notice of such meeting.
Section 8. Regular Meeting. Regular meetings of the Board may be held
without notice at such time and place as may be determined by the Board of
Directors.
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Section 9. Special Meetings. Special meetings of the Board may be called by
two or more directors of the Corporation or by the Chairman of the Board or the
President.
Section 10. Telephone Meetings. Members of the Board of Directors or of any
committee thereof may participate in a meeting by means of a conference
telephone or similar communications equipment if all persons participating in
the meeting can hear each other at the same time. Subject to the provisions of
the Investment Company Act of 1940, as amended, participation in a meeting by
these means constitutes presence in person at the meeting.
Section 11. Notice of Special Meetings. Notice of each special meeting of
the Board shall be given by the Secretary as hereinafter provided, in which
notice shall be stated the time and place of the meeting. Notice of each such
meeting shall be delivered to each director, either personally or by telephone
or any standard form of telecommunication, at least twenty-four hours before the
time at which such meeting is to be held, or by first-class mail, postage
prepaid, addressed to him at his residence or usual place of business, at least
three days before the day on which such meeting is to be held.
Section 12. Waiver of Notice of Meetings. Notice of any special meeting
need not be given to any director who shall, either before or after the meeting,
sign a written waiver of notice which is filed with the records of the meeting
or who shall attend such meeting. Except as otherwise specifically required by
these By-Laws, a notice or waiver or notice of any meeting need not state the
purposes of such meeting.
Section 13. Quorum and Voting. One-third, but not less than two, of the
members of the entire Board shall be present in person at any meeting of the
Board in order to constitute a quorum for the transaction of business at such
meeting, and except as otherwise expressly required by statute, the Charter,
these By-Laws, the Investment Company Act of 1940, as
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amended, or other applicable statute, the act of a majority of the directors
present at any meeting at which a quorum is present shall be the act of the
Board. In the absence of a quorum at any meeting of the Board, a majority of the
directors present thereat may adjourn such meeting to another time and place
until a quorum shall be present thereat. Notice of the time and place of any
such adjourned meeting shall be given to the directors who were not present at
the time of the adjournment and, unless such time and place were announced at
the meeting at which the adjournment was taken, to the other directors. At any
adjourned meeting at which a quorum is present, any business may be transacted
which might have been transacted at the meeting as originally called.
Section 14. Organization. The Board may, by resolution adopted by a
majority of the entire Board, designate a Chairman of the Board, who shall
preside at each meeting of the Board. In the absence or inability of the
Chairman of the Board to preside at a meeting, the President or, in his absence
of inability to act, another director chosen by a majority of the directors
present, shall act as chairman of the meeting and preside thereat. The Secretary
(or, in his absence or inability to act, any person appointed by the Chairman)
shall act as secretary of the meeting and keep the minutes thereof.
Section 15. Written Consent of Directors in Lieu of a Meeting. Subject to
the provisions of the Investment Company Act of 1940, as amended, any action
required or permitted to be taken at any meeting of the Board of Directors or of
any committee thereof may be taken without a meeting if all members of the Board
or committee, as the case may be, consent thereto in writing, and the writings
or writing are filed with the minutes of the proceedings of the Board or
committee.
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Section 16. Compensation. Directors may receive compensation for services
to the Corporation in their capacities as directors or otherwise in such manner
and in such amounts as may be fixed from time to time by the Board.
Section 17. Investment Policies. It shall be the duty of the Board of
Directors to direct that the purchase, sale, retention and disposal of portfolio
securities and the other investment practices of the Corporation are at all
times consistent with the investment policies and restrictions with respect to
securities investments and otherwise of the Corporation, as recited in the
Prospectus of the Corporation included in the registration statement of the
Corporation relating to the initial public offering of its capital stock, as
filed with the Securities and Exchange Commission (or as such investment
policies and restrictions may be modified by the Board of Directors, or, if
required, by majority vote of the stockholders of the Corporation in accordance
with the Investment Company Act of 1940, as amended) and as required by the
Investment Company Act of 1940, as amended. The Board however, may delegate the
duty of management of the assets and the administration of its day to day
operations to an individual or corporate management company and/or investment
adviser pursuant to a written contract or contracts which have obtained the
requisite approvals, including the requisite approvals of renewals thereof, of
the Board of Directors and/or the stockholders of the Corporation in accordance
with the provisions of the Investment Company Act of 1940, as amended.
ARTICLE IV
Committees
Section 1. Executive Committee. The Board may, by resolution adopted by a
majority of the entire board, designate an Executive Committee consisting of two
or more of the directors
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of the Corporation, which committee shall have and may exercise all the powers
and authority of the Board with respect to all matters other than:
(a) the submission to stockholders of any action requiring authorization of
stockholders pursuant to statute or the Charter;
(b) the filling of vacancies on the Board of Directors;
(c) the fixing of compensation of the directors for serving on the Board or
on any committee of the Board, including the Executive Committee;
(d) the approval or termination of any contract with an investment adviser
or principal underwriter, as such terms are defined in the Investment Company
Act of 1940, as amended, or the taking of any other action required to be taken
by the Board of Directors by the Investment Company Act of 1940, as amended;
(e) the amendment or repeal of these By-Laws or the adoption of new
By-Laws;
(f) the amendment or repeal of any resolution of the Board which by its
terms may be amended or repealed only by the Board;
(g) the declaration of dividends and the issuance of capital stock of the
Corporation; and
(h) the approval of any merger or share exchange which does not require
stockholder approval.
The Executive Committee shall keep written minutes of its proceedings and
shall report such minutes to the Board. All such proceedings shall be subject to
revision or alteration by the Board; provided, however, that third parties shall
not be prejudiced by such revision or alteration.
Section 2. Other Committees of the Board. The Board of Directors may from
time to time, by resolution adopted by a majority of the whole Board, designate
one or more other com-
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mittees of the Board, each such committee to consist of two or more directors
and to have such powers and duties as the Board of Directors may, by resolution,
prescribe.
Section 3. General. One-third, but not less than two, of the members of any
committee shall be present in person at any meeting of such committee in order
to constitute a quorum for the transaction of business at such meeting, and the
act of a majority present shall be the act of such committee. The Board may
designate a chairman of any committee and such chairman or any two members of
any committee may fix the time and place of its meetings unless the Board shall
otherwise provide. In the absence or disqualification of any member of any
committee, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. The Board shall
have the power at any time to change the membership of any committee, to fill
all vacancies, to designate alternate members to replace any absent or
disqualified member, or to dissolve any such committee. Nothing herein shall be
deemed to prevent the Board from appointing one or more committees consisting in
whole or in part of persons who are not directors of the Corporation; provided,
however, that no such committee shall have or may exercise any authority or
power of the Board in the management of the business or affairs of the
Corporation.
ARTICLE V
Officers, Agents and Employees
Section 1. Number of Qualifications. The officers of the Corporation shall
be a President, who shall be a director of the Corporation, a Secretary and a
Treasurer, each of whom shall be elected by the Board of Directors. The Board of
Directors may elect or appoint one or
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more Vice Presidents and may also appoint such other officers, agents and
employees as it may deem necessary or proper. Any two or more offices may be
held by the same person, except the offices of President and Vice President, but
no officer shall execute, acknowledge or verify any instrument in more than one
capacity. Such officers shall be elected by the Board of Directors each year at
its first meeting held after the annual meeting of stockholders, each to hold
office until the next meeting of the stockholders and until his successor shall
have been duly elected and shall have qualified, or until his death, or until he
shall have resigned, or have been removed, as hereinafter provided in these
By-Laws. The Board may from time to time elect, or delegate to the President the
power to appoint, such officers (including one or more Assistant Vice
Presidents, one or more Assistant Treasurers and one or more Assistant
Secretaries) and such agents, as may be necessary or desirable for the business
of the Corporation. Such officers and agents shall have such duties and shall
hold their offices for such terms as may be prescribed by the Board or by the
appointing authority.
Section 2. Resignations. Any officer of the Corporation may resign at any
time by giving written notice of resignation to the Board, the Chairman of the
Board, President or the Secretary. Any such resignation shall take effect at the
time specified therein or, if the time when it shall become effective shall not
be specified therein, immediately upon its receipt; and, unless otherwise
specified therein, the acceptance of such resignation shall be necessary to make
it effective.
Section 3. Removal of Officer, Agent or Employee. Any officer, agent or
employee of the Corporation may be removed by the Board of Directors with or
without cause at any time, and the Board may delegate such power of removal as
to agents and employees not elected or appointed by the Board of Directors. Such
removal shall be without prejudice to such person's
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contract rights, if any, but the appointment of any person as an officer, agent
or employee of the Corporation shall not of itself create contract rights.
Section 4. Vacancies. A vacancy in any office, whether arising from death,
resignation, removal or any other cause, may be filled for the unexpired portion
of the term of the office which shall be vacant, in the manner prescribed in
these By-Laws for the regular election or appointment to such office.
Section 5. Compensation. The compensation of the officers of the
Corporation shall be fixed by the Board of Directors, but this power may be
delegated to any officer in respect of other officers under his control.
Section 6. Bonds or Other Security. If required by the Board, any officer,
agent or employee of the Corporation shall give a bond or other security for the
faithful performance of his duties, in such amount and with such surety or
sureties as the Board may require.
Section 7. President. The President shall be the chief executive officer of
the Corporation. In the absence of the Chairman of the Board (or if there be
none), he shall preside at all meetings of the stockholders and of the Board of
Directors. He shall have, subject to the control of the Board of Directors,
general charge of the business and affairs of the Corporation. He may employ and
discharge employees and agents of the Corporation, except such as shall be
appointed by the Board, and he may delegate these powers.
Section 8. Vice President. Each Vice President shall have such powers and
perform such duties as the Board of Directors or the President may from time to
time prescribe.
Section 9. Treasurer. The Treasurer shall:
(a) have charge and custody of, and be responsible for, all the funds and
securities of the Corporation, except those which the Corporation has placed in
the custody of a bank or trust
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company or member of a national securities exchange (as that term is defined in
the Securities Exchange Act of 1934, as amended) pursuant to a written agreement
designating such bank or trust company or member of a national securities
exchange as custodian of the property of the Corporation;
(b) keep full and accurate accounts of receipts and disbursements in books
belonging to the Corporation;
(c) cause all moneys and other valuables to be deposited to the credit of
the Corporation;
(d) receive, and give receipts for, moneys due and payable, to the
Corporation from any source whatsoever;
(e) disburse the funds of the Corporation and supervise the investment of
its funds as ordered or authorized by the Board, taking proper vouchers
therefor; and
(f) in general, perform all the duties incident to the office of Treasurer
and such other duties as from time to time may be assigned to him by the Board
or the President.
Section 10. Secretary. The Secretary shall:
(a) keep or cause to be kept in one or more books provided for the purpose,
the minutes of all meetings of the Board, the Committees of the Board and the
stockholders;
(b) see that all notices are duly given in accordance with the provisions
of these By-Laws and as required by law;
(c) be custodian of the records and the seal of the Corporation and affix
and attest the seal to all stock certificates of the Corporation (unless the
seal of the corporation on such certificates shall be a facsimile, as
hereinafter provided) and affix and attest the seal to all other documents to be
executed on behalf of the Corporation under its seal;
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(d) see that the books, reports, statements, certificates and other
documents and records required by law to be kept and filed are properly kept and
filed; and
(e) in general, perform all the duties incident to the office of Secretary
and such other duties as from time to time may be assigned to him by the Board
or the President.
Section 11. Delegation of Duties. In case of the absence of any officer of
the Corporation, or for any other reason that the Board may deem sufficient, the
Board may confer for the time being the powers or duties, or any of them, of
such officer upon any other officer or upon any director.
ARTICLE VI
Indemnification
Each officer and director of the Corporation shall be indemnified by the
Corporation to the full extent permitted under the General Laws of the State of
Maryland, except that such indemnity shall not protect any such person against
any liability to the Corporation or any stockholder thereof to which such person
would otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office. Absent a court determination that an officer or director seeking
indemnification was not liable on the merits or guilty of willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in the
conduct of his office, the decision by the Corporation to indemnify such person
must be based upon the reasonable determination of independent legal counsel or
the vote of a majority of a quorum of the directors who are neither "interested
persons," as defined in Section 2(a)(19) of the Investment Company Act of 1940,
as amended, nor parties to the proceeding ("non-party independent directors"),
after review of the
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facts, that such officer or director is not guilty of willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of his office.
Each officer and director of the Corporation claiming indemnification
within the scope of this Article VI shall be entitled to advances from the
Corporation for payment of the reasonable expenses incurred by him in connection
with proceedings to which he is a party in the manner and to the full extent
permitted under the General Laws of the State of Maryland; provided, however,
that the person seeking indemnification shall provide to the Corporation a
written affirmation of his good faith belief that the standard of conduct
necessary for indemnification by the Corporation has been met and a written
undertaking to repay any such advance, if it should ultimately be determined
that the standard of conduct has not been met, and provided further that at
least one of the following additional conditions is met: (a) the person seeking
indemnification shall provide a security in form and amount acceptable to the
Corporation for his undertaking; (b) the Corporation is insured against losses
arising by reason of the advance; (c) a majority of a quorum of non-party
independent directors, or independent legal counsel in a written opinion, shall
determine, based on a review of facts readily available to the Corporation at
the time the advance is proposed to be made, that there is reason to believe
that the person seeking indemnification will ultimately be found to be entitled
to indemnification.
The Corporation may purchase insurance on behalf of an officer or director
protecting such person to the full extent permitted under the General Laws of
the State of Maryland, from liability arising from his activities as officer or
director of the Corporation. The Corporation, however, may not purchase
insurance on behalf of any officer or director of the Corporation that protects
or purports to protect such person from liability to the Corporation or to its
stockholders to which such officer or director would otherwise be subject by
reason of willful misfeasance,
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bad faith, gross negligence, or reckless disregard of the duties involved in the
conduct of his office.
The Corporation may indemnify or purchase insurance to the extent provided
in this Article VI on behalf of an employee or agent who is not an officer or
director of the Corporation.
ARTICLE VII
Capital Stock
Section 1. Stock Certificates. Each holder of stock of the Corporation
shall be entitled upon request to have a certificate or certificates, in such
form as shall be approved by the Board, representing the number of shares of
stock of the Corporation owned by him, provided, however, that certificates for
fractional shares will not be delivered in any case. The certificates
representing shares of stock shall be signed by or in the name of the
Corporation by the President or a Vice President and by the Secretary or an
Assistant Secretary or the Treasurer or an Assistant Treasurer and sealed with
the seal of the Corporation. Any or all of the signatures or the seal on the
certificate may be a facsimile. In case any officer, transfer agent or registrar
who has signed or whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer, transfer agent or registrar before such
certificate shall be issued, it may be issued by the Corporation with the same
effect as if such officer, transfer agent or registrar were still in office at
the date of issue.
Section 2. Books of Account and Record of Stockholders. There shall be kept
at the principal executive office of the Corporation correct and complete books
and records of account of all the business and transactions of the Corporation.
There shall be made available upon request of any stockholder, in accordance
with Maryland law, a record containing the number of
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shares of stock issued during a specified period not to exceed twelve months and
the consideration received by the Corporation for each such share.
Section 3. Transfers of Shares. Transfers of shares of stock of the
Corporation shall be made on the stock records of the Corporation only by the
registered holder thereof, or by his attorney thereunto authorized by power of
attorney duly executed and filed with the Secretary or with a transfer agent or
transfer clerk, and on surrender of the certificate or certificates, if issued
for such shares properly endorsed or accompanied by a duly executed stock
transfer power and the payment of all taxes thereon. Except as otherwise
provided by law, the Corporation shall be entitled to recognize the exclusive
right of a person in whose name any share or shares stand on the record of
stockholders as the owner of such share or shares for all purposes, including,
without limitation, the rights to receive dividends or other distributions, and
to vote as such owner, and the Corporation shall not be bound to recognize any
equitable or legal claim to or interest in any such share or shares on the part
of any other person.
Section 4. Regulations. The Board may make such additional rules and
regulations, not inconsistent with these By-Laws, as it may deem expedient
concerning the issue, transfer and registration of certificates for shares of
stock of the Corporation. It may appoint, or authorize any officer or officers
to appoint, one or more transfer agents or one or more transfer clerks and one
or more registrars and may require all certificates for shares of stock to bear
the signature or signatures of any of them.
Section 5. Lost, Destroyed or Mutilated Certificates. The holder of any
certificates representing shares of stock of the Corporation shall immediately
notify the Corporation of any loss, destruction or mutilation of such
certificate, and the Corporation may issue a new certificate of stock in the
place of any certificate theretofore issued by it which the owner thereof shall
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allege to have been lost or destroyed or which shall have been mutilated, and
the Board may, in its discretion, require such owner or his legal
representatives to give to the Corporation a bond in such sum, limited or
unlimited, and in such form and with such surety or sureties, as the Board in
its absolute discretion shall determine, to indemnify the Corporation against
any claim that may be made against it on account of the alleged loss or
destruction of any such certificate, or issuance of a new certificate. Anything
herein to the contrary notwithstanding, the Board, in its absolute discretion,
may refuse to issue any such new certificate, except pursuant to legal
proceedings under the laws of the State of Maryland.
Section 6. Fixing of a Record Date for Dividends and Distributions. The
Board may fix, in advance, a date not more than ninety days preceding the date
fixed for the payment of any dividend or the making of any distribution or the
allotment of rights to subscribe for securities of the Corporation, or for the
delivery of evidences of rights or evidences of interests arising out of any
change, conversion or exchange of common stock or other securities, as the
record date for the determination of the stockholders entitled to receive any
such dividend, distribution, allotment, rights or interests, and in such case
only the stockholders of record at the time so fixed shall be entitled to
receive such dividend, distribution, allotment, rights or interests.
Section 7. Information to Stockholders and Others. Any stockholder of the
Corporation or his agent may inspect and copy during usual business hours the
Corporation's By-Laws, minutes of the proceedings of its stockholders, annual
statements of its affairs, and voting trust agreements on file at its principal
office.
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ARTICLE VIII
Seal
The seal of the Corporation shall be circular in form and shall bear, in
addition to any other emblem or device approved by the Board of Directors, the
name of the Corporation, the year of its incorporation and the words "Corporate
Seal" and "Maryland". Said seal may be used by causing it or a facsimile thereof
to be impressed or affixed or in any other manner reproduced.
ARTICLE IX
Fiscal Year
Unless otherwise determined by the Board, the fiscal year of the
Corporation shall end on the 31st day of October.
ARTICLE X
Depositories and Custodians
Section 1. Depositories. The funds of the Corporation shall be deposited
with such banks or other depositories as the Board of Directors of the
Corporation may from time to time determine.
Section 2. Custodians. All securities and other investments shall be
deposited in the safekeeping of such banks or other companies as the Board of
Directors of the Corporation may from time to time determine. Every arrangement
entered into with any bank or other company for the safekeeping of the
securities and investments of the Corporation shall contain provisions complying
with the Investment Company Act of 1940, as amended, and the general rules and
regulations thereunder.
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ARTICLE XI
Execution of Instruments
Section 1. Checks, Notes, Drafts, etc. Checks, notes, drafts, acceptances,
bills of exchange and other orders or obligations for the payment of money shall
be signed by such officer or officers or person or persons as the Board of
Directors by resolution shall from time to time designate.
Section 2. Sale or Transfer of Securities. Stock certificates, bonds or
other securities at any time owned by the Corporation may be held on behalf of
the Corporation or sold, transferred or otherwise disposed of subject to any
limits imposed by these By-Laws and pursuant to authorization by the Board and,
when so authorized to be held on behalf of the Corporation or sold, transferred
or otherwise disposed of, may be transferred from the name of the Corporation by
the signature of the President or a Vice President or the Treasurer or pursuant
to any procedure approved by the Board of Directors, subject to applicable law.
ARTICLE XII
Independent Public Accountants
The firm of independent public accountants which shall sign or certify the
financial statements of the Corporation which are filed with the Securities and
Exchange Commission shall be selected annually by the Board of Directors and
ratified by the stockholders in accordance with the provisions of the Investment
Company Act of 1940, as amended.
ARTICLE XIII
Annual Statement
The books of account of the Corporation shall be examined by an independent
firm of public accountants at the close of each annual period of the Corporation
and at such other times
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as may be directed by the Board. A report to the stockholders based upon each
such examination shall be mailed to each stockholder of record of the
Corporation on such date with respect to each report as may be determined by the
Board, at his address as the same appears on the books of the Corporation. Such
annual statement shall also be available at the annual meeting of stockholders
and be placed on file at the Corporation's principal office in the State of
Maryland. Each such report shall show the assets and liabilities of the
Corporation as of the close of the annual or quarterly period covered by the
report and the securities in which the funds of the Corporation were then
invested. Such report shall also show the Corporation's income and expenses for
the period from the end of the Corporation's preceding fiscal year to the close
of the annual or quarterly period covered by the report and any other
information required by the Investment Company Act of 1940, as amended, and
shall set forth such other matters as the Board or such firm of independent
public accountants shall determine.
ARTICLE XIV
Amendments
These By-Laws or any of them may be amended, altered or repealed at any
regular meeting of the stockholders or at any special meeting of the
stockholders by a favorable vote of the holders of at least sixty-six and
two-thirds percent (66 2/3%) of the outstanding shares of capital stock of the
Corporation entitled to be voted on the matter, provided that notice of the
proposed amendment, alteration or repeal be contained in the notice of such
special meeting. These By-Laws may also be amended, altered or repealed by the
affirmative vote of a majority of the Board of Directors at any regular or
special meeting of the Board of Directors, except any particular By-Law which is
specified as not subject to alteration or repeal by the Board of Directors,
subject to the requirements of the Investment Company Act of 1940, as amended.
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<PAGE> 1
Exhibit 6
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made this ___ day of March, 1992, by and between MUNIYIELD
NEW JERSEY FUND, INC., a Maryland corporation (hereinafter referred to as the
"Fund"), and FUND ASSET MANAGEMENT, INC., a Delaware corporation (hereinafter
referred to as the "Investment Adviser").
W I T N E S S E T H:
WHEREAS, the Fund is engaged in business as a closed-end management
investment company registered under the Investment Company Act of 1940, as
amended (hereinafter referred to as the "Investment Company Act"); and
WHEREAS, the Investment Adviser is engaged principally in rendering
management and investment advisory services and is registered as an investment
adviser under the Investment Adviser's Act of 1940; and
WHEREAS, the Fund desires to retain the Investment Adviser to provide
management and investment advisory services to the Fund in the manner and on the
terms hereinafter set forth; and
WHEREAS, the Investment Adviser is willing to provide management, and
investment advisory services to the Fund on the terms and conditions hereinafter
set forth;
NOW, THEREFORE, in consideration of the premises and the covenants
hereinafter contained, the Fund and the Investment Adviser hereby agree as
follows:
ARTICLE I
Duties of the Investment Adviser
The Fund hereby employs the Investment Adviser to act as a manager
and investment adviser of the Fund and to furnish, or arrange for affiliates to
furnish, the management and
<PAGE> 2
investment advisory services described below, subject to the policies of, review
by and overall control of the Board of Directors of the Fund, for the period and
on the terms and conditions set forth in this Agreement. The Investment Adviser
hereby accepts such employment and agrees during such period, at its own
expense, to render, or arrange for the rendering of, such services and to assume
the obligations herein set forth for the compensation provided for herein. The
Investment Adviser and its affiliates shall for all purposes herein be deemed to
be independent contractors and shall, unless otherwise expressly provided or
authorized, have no authority to act for or represent the Fund in any way or
otherwise be deemed agents of the Fund.
(a) Investment Advisory Services. The Investment Adviser shall perform (or
arrange for the performance by affiliates of) the management and administrative
services necessary for the operation of the Fund including administering
shareholder accounts and handling shareholder relations. The Investment Adviser
shall provide the Fund with office space, facilities, equipment and necessary
personnel and such other services as the Investment Adviser, subject to review
by the Board of Directors, shall from time to time determine to be necessary or
useful to perform its obligations under this Agreement. The Investment Adviser
shall also, on behalf of the Fund, conduct relations with custodians,
depositories, transfer agents, pricing agents, dividend disbursing agents, other
shareholder servicing agents, accountants, attorneys, underwriters, brokers and
dealers, corporate fiduciaries, insurers, banks and such other persons in any
such other capacity deemed to be necessary or desirable. The Investment Adviser
shall generally monitor the Fund's compliance with investment policies and
restrictions as set forth in filings made by the Fund under the Federal
securities laws. The Investment Adviser shall make reports to the Board of
Directors of its performance of obligations hereunder and furnish advice and
2
<PAGE> 3
recommendations with respect to such other aspects of the business and affairs
of the Fund as it shall determine to be desirable.
(b) Investment Advisory Services. The Investment Adviser shall provide (or
arrange for affiliates to provide) the Fund with such investment research,
advice and supervision as the latter may from time to time consider necessary
for the proper supervision of the assets of the Fund, shall furnish continuously
an investment program for the Fund and shall determine from time to time which
securities shall be purchased, sold or exchanged and what portion of the assets
of the Fund shall be held in the various securities in which the Fund invests,
options, futures, options on futures or cash, subject always to the restrictions
of the Articles of Incorporation and By-Laws of the Fund, as amended from time
to time, the provisions of the Investment Company Act and the statements
relating to the Fund's investment objectives, investment policies and investment
restrictions as the same are set forth in filings made by the Fund under the
Federal securities laws. The Investment Adviser shall make decisions for the
Fund as to foreign currency matters and make determinations as to foreign
exchange contracts, foreign currency options, foreign currency futures and
related options on foreign currency futures. The Investment Adviser shall make
decisions for the Fund as to the manner in which voting rights, rights to
consent to corporate action and any other rights pertaining to the Fund's
portfolio securities shall be exercised. Should the Directors at any time,
however, make any definite determination as to investment policy and notify the
Investment Adviser thereof in writing, the Investment Adviser shall be bound by
such determination for the period, if any, specified in such notice or until
similarly notified that such determination has been revoked. The Investment
Adviser shall take, on behalf of the Fund, all actions which it deems necessary
to implement the investment policies determined as provided above, and in
particular to place all
3
<PAGE> 4
orders for the purchase or sale of portfolio securities for the Fund's account
with brokers or dealers selected by it, and to that end, the Investment Adviser
is authorized as the agent of the Fund to give instructions to the Custodian of
the Fund as to deliveries of securities and payments of cash for the account of
the Fund. In connection with the selection of such brokers or dealers and the
placing of such orders with respect to assets of the Fund, the Investment
Adviser is directed at all times to seek to obtain execution and prices within
the policy guidelines determined by the Board of Directors and set forth in
filings made by the Fund under the Federal securities laws. Subject to this
requirement and the provisions of the Investment Company Act, the Securities
Exchange Act of 1934, as amended, and other applicable provisions of law, the
Investment Adviser may select brokers or dealers with which it or the Fund is
affiliated.
ARTICLE II
Allocation of Charges and Expenses
(a) The Investment Adviser. The Investment Adviser assumes and shall pay
for maintaining the staff and personnel necessary to perform its obligations
under this Agreement, and shall at its own expense, provide the office space,
facilities, equipment and necessary personnel which it is obligated to provide
under Article I hereof, and shall pay all compensation of officers of the Fund
and all Directors of the Fund who are affiliated persons of the Investment
Adviser.
(b) The Fund. The Fund assumes and shall pay or cause to be paid all other
expenses of the Fund including, without limitation: taxes, expenses for legal
and auditing services, costs of printing proxies, stock certificates,
shareholder reports, prospectuses, charges of the custodian, any sub-custodian
and transfer agent, expenses of portfolio transactions, Securities and Exchange
Commission fees, expenses of registering the shares under Federal, state and
foreign laws, fees
4
<PAGE> 5
and actual out-of-pocket expenses of Directors who are not affiliated persons of
the Investment Adviser, accounting and pricing costs (including the daily
calculation of the net asset value), insurance, interest, brokerage costs,
litigation and other extraordinary or non-recurring expenses, and other expenses
properly payable by the Fund. It is also understood that the Fund will reimburse
the Investment Adviser for its costs in providing accounting services to the
Fund.
ARTICLE III
Compensation of the Investment Adviser
(a) Investment Advisory Fee. For the services rendered, the facilities
furnished and expenses assumed by the Investment Adviser, the Fund shall pay to
the Investment Adviser at the end of each calendar month a fee based upon the
average weekly value of the net assets of the Fund at the annual rate of 0.50 of
1.0% (0.50%) of the average weekly net assets of the Fund (i.e., the average
weekly value of the total assets of the Fund, minus the sum of accrued
liabilities of the Fund and accumulated dividends on shares of outstanding
preferred stock), commencing on the day following effectiveness hereof. For
purposes of this calculation, average weekly net assets is determined at the end
of each month on the basis of the average net assets of the Fund for each week
during the month. The assets for each weekly period are determined by averaging
the net assets at the last business day of a week with the net assets at the
last business day of the prior week. It is understood that the liquidation
preference of any outstanding preferred stock (other than accumulated dividends)
is not considered a liability in determining the Fund's average weekly net
assets. If this Agreement becomes effective subsequent to the first day of a
month or shall terminate before the last day of a month, compensation for that
part of the month this Agreement is in effect shall be prorated in a manner
consistent with the calculation of the fee as set forth above. Subject to the
provisions of subsection (b) hereof, payment of the Investment
5
<PAGE> 6
Adviser's compensation for the preceding month shall be made as promptly as
possible after completion of the computations contemplated by subsection (b)
hereof. During any period when the determination of net asset value is suspended
by the Board of Directors, the average net asset value of a share for the last
week prior to such suspension shall for this purpose be deemed to be the net
asset value at the close of each succeeding week until it is again determined.
(b) Expense Limitations. In the event the operating expenses of the Fund,
including amounts payable to the Investment Adviser pursuant to subsection (a)
hereof, for any fiscal year ending on a date on which this Agreement is in
effect exceed the expense limitations applicable to the Fund imposed by
applicable state securities laws or regulations thereunder, as such limitations
may be raised or lowered from time to time, the Investment Adviser shall reduce
its management and investment advisory fee by the extent of such excess and, if
required pursuant to any such laws or regulations, will reimburse the Fund in
the amount of such excess; provided, however, to the extent permitted by law,
there shall be excluded from such expenses the amount of any interest, taxes,
brokerage fees and commissions and extraordinary expenses (including but not
limited to legal claims and liabilities and litigation costs and any
indemnification related, thereto) paid or payable by the Fund. Whenever the
expenses of the Fund exceed a pro rata portion of the applicable annual expense
limitations, the estimated amount of reimbursement under such limitations shall
be applicable as an offset against the monthly payment of the fee due to the
Investment Adviser. Should two or more such expenses limitations be applicable
at the end of the last business day of the month, that expense limitation which
results in the largest reduction in the Investment Adviser's fee shall be
applicable.
6
<PAGE> 7
ARTICLE IV
Limitation of Liability of the Investment Adviser
The Investment Adviser shall not be liable for any error of judgment or
mistake of law or for any loss arising out of any investment or for any act or
omission in the management of the Fund, except for willful misfeasance, bad
faith or gross negligence in the performance of its duties, or by reason of
reckless disregard of its obligations and duties hereunder. As used in this
Article IV, the term "Investment Adviser" shall include any affiliates of the
Investment Adviser performing services for the Fund contemplated hereby and
directors, officers and employees of the Investment Adviser and such affiliates.
ARTICLE V
Activities of the Investment Adviser
The services of the Investment Adviser to the Fund are not to be deemed to
be exclusive: the Investment Adviser and any person controlled by or under
common control with the Investment Adviser (for purposes of this Article V
referred to as "affiliates") are free to render services to others. It is
understood that Directors, officers, employees and shareholders of the Fund are
or may become interested in the Investment Adviser and its affiliates, as
directors, officers, employees, partners and shareholders or otherwise, and that
directors, officers, employees, partners and shareholders of the Investment
Adviser and its affiliates are or may become similarly interested in the Fund,
and that the Investment Adviser and directors, officers, employees, partners and
shareholders of its affiliates may become interested in the Fund as shareholder
or otherwise.
7
<PAGE> 8
ARTICLE VI
Duration and Termination of this Agreement
This Agreement shall become effective as of the date first above written
and shall remain in force until ________________ and thereafter, but only so
long as such continuance is specifically approved at least annually by (i) the
Board of Directors of the Fund, or by the vote of a majority of the outstanding
voting securities of the Fund, and (ii) a majority of those Directors who are
not parties to this Agreement or interested persons of any such party cast in
person at a meeting called for the purpose of voting on such approval.
This Agreement may be terminated at any time, without the payment of any
penalty, by the Board of Directors or by vote of a majority of the outstanding
voting securities of the Fund, or by the Investment Adviser, on sixty days'
written notice to the other party. This Agreement shall automatically terminate
in the event of its assignment.
ARTICLE VII
Amendments of this Agreement
This Agreement may be amended by the parties only if such amendment is
specifically approved by (i) the vote of a majority of outstanding voting
securities of the Fund, and (ii) a majority of those Directors who are not
parties to this Agreement or interested persons of any such party cast in person
at a meeting called for the purpose of voting on such approval.
ARTICLE VIII
Definitions of Certain Terms
The terms "vote of a majority of the outstanding voting securities"
"assignment", "affiliated person" and "interested person", when used in this
Agreement, shall have the respective meanings specified in the Investment
Company Act and the Rules and Regulations
8
<PAGE> 9
thereunder, subject, however, to such exemptions as may be granted by the
Securities and Exchange Commission under said Act.
ARTICLE IX
Governing Law
This Agreement shall be construed in accordance with laws of the State of
New York and the applicable provisions of the Investment Company Act. To the
extent that the applicable laws of the State of New York, or any of the
provisions herein, conflict with the applicable provisions of the Investment
Company Act, the latter shall control.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written.
MUNIYIELD NEW JERSEY FUND, INC.
By
---------------------------------
(Authorized Signatory)
FUND ASSET MANAGEMENT, INC.
By
-----------------------------------
(Authorized Signatory)
9
<PAGE> 1
EXHIBIT 7(a)
Shares
MuniYield New Jersey Fund, Inc.
(a Maryland corporation)
Common Stock
(Par Value $0.10 Per Share)
PURCHASE AGREEMENT
March __, 1992
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
Merrill Lynch World Headquarters
World Financial Center
North Tower
New York, NY 10281-1305
Dear Ladies and Gentlemen:
MuniYield New Jersey Fund, Inc., a Maryland corporation (the
"Fund"), and Fund Asset Management, Inc., a Delaware corporation (the
"Adviser"), each confirms its agreement with Merrill Lynch & Co., Merrill
Lynch, Pierce, Fenner & Smith Incorporated (the "Underwriter"), with respect to
the sale by the Fund and the purchase by the Underwriter of _________ shares of
common stock, par value $.10 per share, of the Fund (the "Common Stock") and,
with respect to the grant by the Fund to the Underwriter of the option
described in Section 2 hereof to purchase all or any part of _________
additional shares of Common Stock to cover overallotments. The aforesaid
_________ shares (the "Initial Shares"), together with all or any part of the
_________ additional shares of Common Stock subject to the option described in
Section 2 hereof (the "Option Shares"), are collectively hereinafter called the
"Shares".
Prior to the purchase and public offering of the Shares by the
Underwriter, the Fund and the Underwriter shall enter into an agreement
substantially in the form of Exhibit A hereto (the "Pricing Agreement"). The
Pricing Agreement may take the form of an exchange of any standard form of
written telecommunication between the Fund and the Underwriter and shall
specify such applicable information as is indicated in Exhibit A hereto. The
offering of the Shares will be governed by this Agreement, as supplemented by
the Pricing Agreement. From and after the date of the execution and delivery of
the Pricing Agreement, this Agreement shall be deemed to incorporate the
Pricing Agreement.
The Fund has filed with the Securities and Exchange Commission
(the "Commission") a registration statement on Form N-2 (No. 33-___) and a
related preliminary prospectus for the registration of the Shares under the
Securities Act of 1933, as amended (the "1933 Act"), and a notification on Form
N-8A of registration of the Fund as an investment company under the Investment
Company Act of 1940, as amended (the "1940 Act"), and the rules and regulations
of the Commission under the 1940 Act (together with the rules and regulations
under the 1933 Act,
<PAGE> 2
the "Rules and Regulations") and has filed such amendments to such registration
statement on Form N-2, if any, and such amended preliminary prospectuses as may
have been required to the date hereof. The Fund will prepare and file such
additional amendments thereto and such amended prospectuses as may hereafter be
required. Such registration statement (as amended, if applicable) and the
prospectus constituting a part thereof (including in each case the information,
if any, deemed to be part thereof pursuant to Rule 430A(b) of the Rules and
Regulations), as from time to time amended or supplemented pursuant to the 1933
Act, are hereinafter referred to as the "Registration Statement" and the
"Prospectus", respectively, except that if any revised prospectus shall be
provided to the Underwriter by the Fund for use in connection with the offering
of the Shares which differs from the Prospectus on file at the Commission at
the time the Registration Statement becomes effective (whether such revised
prospectus is required to be filed by the Fund pursuant to Rule 497(b) or Rule
497(h) of the Rules and Regulations), the term "Prospectus" shall refer to each
such revised prospectus from and after the time it is first provided to the
Underwriter for such use.
The Fund understands that the Underwriter proposes to make a public
offering of the Shares as soon as the Underwriter deems advisable after the
Registration Statement becomes effective and the Pricing Agreement has been
executed and delivered.
SECTION 1. Representations and Warranties. (a) The Fund and the
Adviser each severally represents and warrants to the Underwriter as of the
date hereof and as of the date of the Pricing Agreement (such later date being
hereinafter referred to as the "Representation Date") as follows:
(i) At the time the Registration Statement becomes
effective and at the Representation Date, the Registration Statement
will comply in all material respects with the requirements of the 1933
Act, the 1940 Act and the Rules and Regulations and will not contain
an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading. At the time the Registration Statement becomes
effective, at the Representation Date and at Closing Time referred to
in Section 2, the Prospectus (unless the term "Prospectus" refers to a
prospectus which has been provided to the Underwriter by the Fund for
use in connection with the offering of the Shares which differs from
the Prospectus on file with the Commission at the time the
Registration Statement becomes effective, in which case at the time
such prospectus is first provided to the Underwriter for such use)
will not contain an untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made,
not misleading; provided, however, that the representations and
warranties in this subsection shall not apply to statements in or
omissions from the Registration Statement or Prospectus made in
reliance upon and in conformity with information furnished to the Fund
in writing by the Underwriter expressly for use in the Registration
Statement or Prospectus.
(ii) The accountants who certified the statement of assets
and liabilities included in the Registration Statement are independent
public accountants as required by the 1933 Act and the Rules and
Regulations.
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<PAGE> 3
(iii) The statement of assets and liabilities included in the
Registration Statement presents fairly the financial position of the
Fund as at the date indicated and said statement has been prepared in
conformity with generally accepted accounted principles.
(iv) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus, except as
otherwise stated therein, (A) there has been no material adverse
change in the condition, financial or otherwise, of the Fund, or in
the earnings, business affairs or business prospects of the Fund,
whether or not arising in the ordinary course of business, (B) there
have been no transactions entered into by the Fund which are material
to the Fund other than those in the ordinary course of business, and
(C) there has been no dividend or distribution of any kind declared,
paid or made by the Fund on any class of its capital stock.
(v) The Fund has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of Maryland with corporate power and authority to own, lease and
operate its properties and conduct its business as described in the
Registration Statement; the Fund is duly qualified as a foreign
corporation to transact business and is in good standing in each
jurisdiction in which such qualification is required; and the Fund has
no subsidiaries.
(vi) The Fund is registered with the Commission under the
1940 Act as a closed-end non-diversified management investment
company, and no order of suspension or revocation of such registration
has been issued or proceedings therefor initiated or threatened by the
Commission.
(vii) The authorized, issued and outstanding capital stock of
the Fund is as set forth in the Prospectus under the caption
"Description of Capital Stock"; the Shares have been duly authorized
for issuance and sale to the Underwriter pursuant to this Agreement
and, when issued and delivered by the Fund pursuant to this Agreement
against payment of the consideration set forth in the Pricing
Agreement, will be validly issued and fully paid and nonassessable;
the Shares conform in all material respects to all statements relating
thereto contained in the Registration Statement; and the issuance of
the Shares is not subject to preemptive rights.
(viii) The Fund is not in violation of its articles of
incorporation, as amended (the "Charter") or in default in the
performance or observance of any material obligation, agreement,
covenant or condition contained in any material contract, indenture,
mortgage, loan agreement, note, lease or other instrument to which it
is a party or by which it or its properties may be bound; and the
execution and delivery of this Agreement, the Pricing Agreement and
the Investment Advisory Agreement and the Custodial Agreement referred
to in the Registration Statement (as used herein, the "Advisory
Agreement" and the "Custody Agreement", respectively) and the
consummation of the transactions contemplated herein and therein have
been duly authorized by all necessary corporate action and will not
conflict with or constitute a breach of, or default under, or result
in the creation or imposition of any lien, charge or encumbrance upon
any property or assets of the Fund pursuant to any material contract,
indenture, mortgage, loan agreement, note, lease or other instrument
to which the Fund is
3
<PAGE> 4
a party or by which it may be bound or to which any of the property or
assets of the Fund is subject, nor will such action result in any
violation of the provisions of the Charter or by-laws, as amended, of
the Fund (the "By-Laws") or, to the best knowledge of the Fund and the
Adviser, any law, administrative regulation or administrative or court
decree; and no consent, approval, authorization or order of any court
or governmental authority or agency is required for consummation by
the Fund of the transactions contemplated by this Agreement, the
Pricing Agreement, the Advisory Agreement and the Custody Agreement,
except such as has been obtained under the 1940 Act or as may be
required under the 1933 Act, state securities or Blue Sky laws or
foreign securities laws in connection with the purchase and
distribution of the Shares by the Underwriter.
(ix) The Fund owns or possesses or has obtained all material
governmental licenses, permits, consents, orders, approvals and other
authorizations necessary to lease or own, as the case may be, and to
operate its properties and to carry on its businesses as contemplated
in the Prospectus.
(x) There is no action, suit or proceeding before or by any
court or governmental agency or body, domestic or foreign, now
pending, or, to the knowledge of the Fund, threatened against or
affecting, the Fund, which might result in any material adverse change
in the condition, financial or otherwise, business affairs or business
prospects of the Fund, or might materially and adversely affect the
properties or assets of the Fund; and there are no material contracts
or documents of the Fund which are required to be filed as exhibits to
the Registration Statement by the 1933 Act, the 1940 Act or by the
Rules and Regulations which have not been so filed.
(xi) The Fund owns or possesses, or can acquire on
reasonable terms, adequate trademarks, service marks and trade names
necessary to conduct its business as described in the Registration
Statement, and the Fund has not received any notice of infringement of
or conflict with asserted rights of others with respect to any
trademarks, service marks or trade names which, singly or in the
aggregate, if the subject of an unfavorable decision, ruling or
finding, would materially adversely affect the conduct of the
business, operations, financial condition or income of the Fund.
(b) The Adviser represents and warrants to the Underwriter as
of the date hereof and as of the Representation Date as follows:
(i) The Adviser has been duly incorporated as a corporation
under the laws of the State of Delaware with corporate power and
authority to conduct its business as described in the Prospectus.
(ii) The Adviser is duly registered as an investment adviser
under the Investment Advisers Act of 1940, as amended (the "Advisers
Act"), and is not prohibited by the Advisers Act or the 1940 Act, or
the rules and regulations under such acts, from acting under the
Advisory Agreement for the Fund as contemplated by the Prospectus.
(iii) This Agreement has been duly authorized, executed and
delivered by the Adviser; the Advisory Agreement has been duly
authorized, executed and delivered by
4
<PAGE> 5
the Adviser and constitutes a valid and binding obligation of the
Adviser, enforceable in accordance with its terms, subject, as to
enforcement, to bankruptcy, insolvency, reorganization or other laws
relating to or affecting creditors' rights and to general equity
principles; and neither the execution and delivery of this Agreement,
or the Advisory Agreement nor the performance by the Adviser of its
obligations hereunder or thereunder will conflict with, or result in a
breach of any of the terms and provisions of, or constitute, with or
without the giving of notice or lapse of time or both, a default
under, any agreement or instrument to which the Adviser is a party or
by which it is bound, or any law, order, rule or regulation applicable
to it of any jurisdiction, court, federal or state regulatory body,
administrative agency or other governmental body, stock exchange or
securities association having jurisdiction over the Adviser or its
respective properties or operations.
(iv) The Adviser has the financial resources available to it
necessary for the performance of its services and obligations as
contemplated in the Prospectus.
(v) Any advertisement approved by the Adviser for use in
the public offering of the Shares pursuant to Rule 482 under the Rules
and Regulations (an "Omitting Prospectus") complies with the
requirements of such Rule 482.
(c) Any certificate signed by any officer of the Fund or the
Adviser and delivered to the Underwriter shall be deemed a
representation and warranty by the Fund or the Adviser, as the case
may be, to the Underwriter, as to the matters covered thereby.
SECTION 2. Sale and Delivery to the Underwriter; Closing. On the
basis of the representations and warranties herein contained and subject to the
terms and conditions herein set forth, the Fund agrees to sell the Initial
Shares to the Underwriter, and the Underwriter agrees to purchase the Initial
Shares from the Fund, at the price per share set forth in the Pricing
Agreement.
(a) If the Fund has elected not to rely upon Rule 430A under
the Rules and Regulations, the initial public offering prices and the
purchase price per share to be paid by the Underwriter for the Shares
has been determined and set forth in the Pricing Agreement, dated the
date hereof, and an amendment to the Registration Statement and the
Prospectus will be filed before the Registration Statement becomes
effective.
(b) If the Fund has elected to rely upon Rule 430A under the
Rules and Regulations, the purchase price per share to be paid by the
Underwriter for the Shares shall be an amount equal to the applicable
initial public offering price, less an amount per share to be
determined by agreement between the Underwriter and the Fund. The
applicable initial public offering price per share shall be a fixed
price based upon the number of Shares purchased in a single
transaction to be determined by agreement between the Underwriter and
the Fund. The initial public offering prices and the purchase price,
when so determined, shall be set forth in the Pricing Agreement. In
the event that such prices have not been agreed upon and the Pricing
Agreement has not been executed and delivered by all parties thereto
by the close of business on the fourth business day following the date
of this Agreement, this Agreement shall terminate forthwith, without
5
<PAGE> 6
liability of any party to any other party, except as provided in
Section 4, unless otherwise agreed to by the Fund, the Adviser and the
Underwriter.
In addition, on the basis of the representations and warranties herein
contained and subject to the terms and conditions herein set forth, the Fund
hereby grants an option to the Underwriter to purchase all or any part of the
Option Shares at the price per share set forth above. The option hereby granted
will expire 45 days after the date hereof (or, if the Fund has elected to rely
upon Rule 430A under the Rules and Regulations, 45 days after the execution of
the Pricing Agreement) and may be exercised only for the purpose of covering
over-allotments which may be made in connection with the offering and
distribution of the Initial Shares upon notice by the Underwriter to the Fund
setting forth the number of Option Shares as to which the Underwriter is then
exercising the option and the time, date and place of payment and delivery for
such Option Shares. Any such time and date of delivery (a "Date of Delivery")
shall be determined by the Underwriter but shall not be later than seven full
business days after the exercise of said option, nor in any event prior to
Closing Time, as hereinafter defined, unless otherwise agreed upon by the
Underwriter and the Fund.
Payment of the purchase price for, and delivery of certificates for,
the Initial Shares shall be made at the office of Brown & Wood, One World Trade
Center, New York, New York 10048-0557, or at such other place as shall be
agreed upon by the Underwriter and the Fund, at 10:00 A.M. on the fifth
business day (unless postponed in accordance with the provisions of Section 10)
following the date the Registration Statement becomes effective (or, if the
Fund has elected to rely upon Rule 430A under the Rules and Regulations, the
fifth business day after execution of the Pricing Agreement), or such other
time not later than ten business days after such date as shall be agreed upon
by the Underwriter and the Fund (such time and date of payment and delivery
being herein called "Closing Time"). In addition, in the event that any or all
of the Option Shares are purchased by the Underwriter, payment of the purchase
price for, and delivery of certificates for, such Option Shares shall be made
at the above-mentioned office of Brown & Wood, or at such other place as shall
be mutually agreed upon by the Fund and the Underwriter, on each Date of
Delivery as specified in the notice from the Underwriter to the Fund. Payment
shall be made to the Fund by check or checks drawn in New York Clearing House
or similar next day funds and payable to the order of the Fund, against
delivery to the Underwriter of certificates for the Shares to be purchased by
it. Certificates for the Initial Shares and Option Shares shall be in such
denominations and registered in such names as the Underwriter may request in
writing at least two business days before Closing Time or the Date of Delivery,
as the case may be. The certificates for the Initial Shares and the Option
Shares will be made available by the Fund for examination and packaging by the
Underwriter not later than 10:00 A.M. on the last business day prior to Closing
Time or the Date of Delivery, as the case may be.
SECTION 3. Covenants of the Fund. The Fund covenants with the
Underwriter as follows:
(a) The Fund will use its best efforts to cause the
Registration Statement to become effective under the 1933 Act, and
will advise the Underwriter promptly as to the time at which the
Registration Statement and any amendments thereto (including any
post-effective amendment) becomes so effective and, if required, to
cause the issuance of
6
<PAGE> 7
any orders exempting the Fund from any provisions of the 1940 Act and
will advise the Underwriter promptly as to the time at which any such
orders are granted.
(b) The Fund will notify the Underwriter immediately, and
confirm the notice in writing, (i) of the effectiveness of the
Registration Statement and any amendment thereto (including any
post-effective amendment), (ii) of the receipt of any comments from
the Commission, (iii) of any request by the Commission for any
amendment to the Registration Statement or any amendment or supplement
to the Prospectus or for additional information, (iv) of the issuance
by the Commission of any stop order suspending the effectiveness of
the Registration Statement or the initiation of any proceedings for
that purpose, and (v) of the issuance by the Commission of an order of
suspension or revocation of the notification on Form N-8A of
registration of the Fund as an Investment Company under the 1940 Act
or the initiation of any proceeding for that purpose. The Fund will
make every reasonable effort to prevent the issuance of any stop order
described in subsection (iv) hereunder or any order of suspension or
revocation described in subsection (v) hereunder and, if any such stop
order or order of suspension or revocation is issued, to obtain the
lifting thereof at the earliest possible moment.
(c) The Fund will give the Underwriter notice of its intention
to file any amendment to the Registration Statement (including any
post-effective amendment) or any amendment or supplement to the
Prospectus (including any revised prospectus which the Fund proposes
for use by the Underwriter in connection with the offering of the
Shares, which differs from the prospectus on file at the Commission at
the time the Registration Statement becomes effective, whether such
revised prospectus is required to be filed pursuant to Rule 497(b) or
Rule 497(h) of the Rules and Regulations), whether pursuant to the
1940 Act, the 1933 Act, or otherwise, and will furnish the Underwriter
with copies of any such amendment or supplement a reasonable amount of
time prior to such proposed filing or use, as the case may be, and
will not file any such amendment or supplement to which the
Underwriter shall reasonably object.
(d) The Fund will deliver to the Underwriter, as soon as
practicable, two signed copies of the notification of registration and
registration statement as originally filed and of each amendment
thereto, in each case with two sets of the exhibits filed therewith,
and will also deliver to the Underwriter a conformed copy of the
registration statement as originally filed and of each amendment
thereto (but without exhibits to the registration statement or any
such amendment) for the Underwriter.
(e) The Fund will furnish to the Underwriter, from time to
time during the period when the Prospectus is required to be delivered
under the 1933 Act, such number of copies of the Prospectus (as
amended or supplemented) as the Underwriter may reasonably request for
the purposes contemplated by the 1933 Act or the Rules and
Regulations.
(f) If any event shall occur as a result of which it is
necessary, in the opinion of counsel for the Underwriter, to amend or
supplement the Prospectus in order to make the Prospectus not
misleading in the light of the circumstances existing at the time it
is delivered to a purchaser, the Fund will forthwith amend or
supplement the Prospectus by
7
<PAGE> 8
preparing and furnishing to the Underwriter a reasonable number of
copies of an amendment or amendments of or a supplement or supplements
to, the Prospectus in form and substance satisfactory to counsel for
the Underwriter, so that, as so amended or supplemented, the
Prospectus will not contain an untrue statement of a material fact or
omit to state a material fact necessary in order to make the
statements therein, in the light of the circumstances existing at the
time the Prospectus is delivered to a purchaser, not misleading.
(g) The Fund will endeavor, in cooperation with the
Underwriter, to qualify the Shares for offering and sale under the
applicable securities laws of such states and other jurisdictions of
the United States as the Underwriter may designate, and will maintain
such qualifications in effect for a period of not less than one year
after the date hereof. The Fund will file such statements and reports
as may be required by the laws of each jurisdiction in which the
Shares have been qualified as above provided.
(h) The Fund will make generally available to its security
holders as soon as practicable, but no later than 60 days after the
close of the period covered thereby, an earnings statement (in form
complying with the provisions of Rule 158 of the Rules and
Regulations) covering a twelve-month period beginning not later than
the first day of the Funds's fiscal quarter next following the
"effective" date (as defined in said Rule 158) of the Registration
Statement.
(i) Between the date of this Agreement and the termination of
any trading restrictions or Closing Time, whichever is later, the Fund
will not, without your prior consent, offer or sell, or enter into any
agreement to sell, any equity or equity related securities of the Fund
other than the Shares and shares of Common Stock issued in
reinvestment of dividends or distributions.
(j) If , at the time that the Registration Statement becomes
effective, any information shall have been omitted therefrom in
reliance upon Rule 430A of the Rules and Regulations, then immediately
following the execution of the Pricing Agreement, the Fund will
prepare, and file or transmit for filing with the Commission in
accordance with such Rule 430A and Rule 497(h) of the Rules and
Regulations, copies of an amended Prospectus, or, if required by such
Rule 430A, a post-effective amendment to the Registration Statement
(including an amended Prospectus), containing all information so
omitted.
(k) The Fund will use its best efforts to effect the listing
of the Shares on the New York Stock Exchange so that trading on such
Exchange will begin no later than three weeks from the date of the
Prospectus.
SECTION 4. Payment of Expenses. The Fund will pay all expenses
incident to the performance of its obligations under this Agreement, including,
but not limited to, expenses relating to (i) the printing and filing of the
Registration Statement as originally filed and of each amendment thereto, (ii)
the printing of this Agreement and the Pricing Agreement, (iii) the
preparation, issuance and delivery of the certificates for the Shares to the
Underwriter, (iv) the fees and disbursements of the Fund's counsel and
accountants, (v) the qualification of the Shares
8
<PAGE> 9
under securities laws in accordance with the provisions of Section 3(g) of this
Agreement, including filing fees and any reasonable fees or disbursements of
counsel for the Underwriter in connection therewith and in connection with the
preparation of the Blue Sky Survey, (vi) the printing and delivery to the
Underwriter of copies of the Registration Statement as originally filed and of
each amendment thereto, of the preliminary prospectus, and of the Prospectus
and any amendments or supplements thereto, (vii) the printing and delivery to
the Underwriter of copies of the Blue Sky Survey, (viii) the fees and expenses
incurred with respect to the filing with the National Association of Securities
Dealers, Inc. and (ix) the fees and expenses incurred with respect to the
listing of the Shares on the New York Stock Exchange.
If this Agreement is terminated by the Underwriter in accordance with
the provisions of Section 5 or Section 9 (a) (i) , the Fund or the Adviser
shall reimburse the Underwriter for all of their reasonable out-of-pocket
expenses, including the reasonable fees and disbursements of counsel for the
Underwriter. In the event the transactions contemplated hereunder are not
consummated, the Adviser agrees to pay all of the costs and expenses set forth
in the first paragraph of this Section 4 which the Fund would have paid if such
transactions were consummated.
SECTION 5. Conditions of Underwriter's Obligations. The
obligations of the Underwriter hereunder are subject to the accuracy of the
representations and warranties of the Fund and the Adviser herein contained, to
the performance by the Fund and the Adviser of their respective obligations
hereunder, and to the following further conditions:
(a) The Registration Statement shall have become effective not
later than 5:30 P.M., New York City time, on the date of this
Agreement, or at a later time and date not later, however, than 5:30
P.M. on the first business day following the date hereof, or at such
later time and date as may be approved by the Underwriter, and at
Closing Time no stop order suspending the effectiveness of the
Registration Statement shall have been issued under the 1933 Act or
proceedings therefor initiated or threatened by the Commission. If the
Fund has elected to rely upon Rule 430A of the Rules and Regulations,
the prices of the Shares and any price-related information previously
omitted from the effective Registration Statement pursuant to such
Rule 430A shall have been transmitted to the Commission for filing
pursuant to Rule 497 (h) of the Rules and Regulations within the
prescribed time period, and prior to Closing Time the Fund shall have
provided evidence satisfactory to the Underwriter of such timely
filing, or a post-effective amendment providing such information shall
have been promptly filed and declared effective in accordance with the
requirements of Rule 430A of the Rules and Regulations.
(b) At Closing Time, the Underwriter shall have received:
(1) The favorable opinion, dated as of Closing Time,
of Brown & Wood, counsel for the Fund and the Underwriter, to
the effect that:
(i) The Fund has been duly incorporated and is
validly existing as a corporation in good standing under
the laws of the State of Maryland.
9
<PAGE> 10
(ii) The Fund has corporate power and authority to
own, lease and operate its properties and conduct its
business as described in the Registration Statement and the
Prospectus.
(iii) The Fund is duly qualified as a foreign
corporation to transact business and is in good standing in
each jurisdiction in which such qualification is required.
(iv) The Shares have been duly authorized for
issuance and sale to the Underwriter pursuant to this
Agreement and, when issued and delivered by the Fund
pursuant to this Agreement against payment of the
consideration set forth in the Pricing Agreement, will be
validly issued and fully paid and nonassessable; the
issuance of the Shares is not subject to preemptive rights;
and the authorized capital stock conforms as to legal
matters in all material respects to the description thereof
in the Registration Statement under the caption
"Description of Capital Stock".
(v) This Agreement and the Pricing Agreement have
each been duly authorized, executed and delivered by the
Fund and each complies with all applicable provisions of
the 1940 Act.
(vi) The Registration Statement is effective under
the 1933 Act and, to the best of their knowledge and
information, no stop order suspending the effectiveness of
the Registration Statement has been issued under the 1933
Act or proceedings therefor initiated or threatened by the
Commission.
(vii) At the time the Registration Statement became
effective and at the Representation Date, the Registration
Statement (other than the financial statements included
therein, as to which no opinion need be rendered) complied
as to form in all material respects with the requirements
of the 1933 Act and the 1940 Act and the Rules and
Regulations.
(viii) To the best of their knowledge and
information, there are no legal or governmental proceedings
pending or threatened against the Fund which are required
to be disclosed in the Registration Statement, other than
those disclosed therein.
(ix) To the best of their knowledge and
information, there are no contracts, indentures, mortgages,
loan agreements, notes, leases or other instruments of the
Fund required to be described or referred to in the
Registration Statement or to be filed as exhibits thereto
other than those described or referred to therein or filed
as exhibits thereto, the descriptions thereof are correct
in
10
<PAGE> 11
all material respects, references thereto are correct, and
no default exists in the due performance or observance of
any material obligation, agreement, covenant or condition
contained in any contract, indenture, loan agreement, note
or lease so described, referred to or filed.
(x) No consent, approval, authorization or order
of any court or governmental authority or agency is
required in connection with the sale of the Shares to the
Underwriter, except such as has been obtained under the
1933 Act, the 1940 Act or the Rules and Regulations or such
as may be required under state or foreign securities laws;
and to the best of their knowledge and information, the
execution and delivery of this Agreement, the Pricing
Agreement, the Advisory Agreement and the Custody Agreement
and the consummation of the transactions contemplated
herein and therein will not conflict with or constitute a
breach of, or default under, or result in the creation or
imposition of any lien, charge or encumbrance upon any
property or assets of the Fund pursuant to, any contract,
indenture, mortgage, loan agreement, note, lease or other
instrument to which the Fund is a party or by which it may
be bound or to which any of the property or assets of the
Fund is subject, nor will such action result in any
violation of the provisions of the Charter or By-Laws of
the Fund, or any law or administrative regulation, or, to
the best of their knowledge and information, administrative
or court decree.
(xi) The Advisory Agreement and the Custody
Agreement have each been duly authorized and approved by
the Fund and comply as to form in all material respects
with all applicable provisions of the 1940 Act, and both
have been duly executed by the Fund.
(xii) The Fund is registered with the Commission
under the 1940 Act as a closed-end non-diversified
management investment company, and all required action has
been taken by the Fund under the 1933 Act, the 1940 Act and
the Rules and Regulations to make the public offering and
consummate the sale of the Shares pursuant to this
Agreement; the provisions of the Charter and By-Laws of the
Fund comply as to form in all material respects with the
requirements of the 1940 Act; and, to the best of their
knowledge and information, no order of suspension or
revocation of such registration under the 1940 Act,
pursuant to Section 8 (e) of the 1940 Act, has been issued
or proceedings therefor initiated or threatened by the
Commission.
(xiii) The information in the Prospectus under the
caption "Taxes", to the extent that it constitutes matters
of law or legal
11
<PAGE> 12
conclusions, has been reviewed by them and is correct in
all material respects.
(2) The favorable opinion, dated as of Closing Time,
of Philip L. Kirstein, Esq., General Counsel to the Adviser,
in form and substance satisfactory to counsel for the
Underwriter, to the effect that:
(i) The Adviser has been duly organized as a
corporation under the laws of the State of Delaware with
corporate power and authority to conduct its business as
described in the Registration Statement and the Prospectus.
(ii) The Adviser is duly registered as an
investment adviser under the Advisers Act and is not
prohibited by the Advisers Act or the 1940 Act, or the
rules and regulations under such Acts, from acting under
the Advisory Agreement for the Fund as contemplated by the
Prospectus.
(iii) This Agreement and the Advisory Agreement
have been duly authorized, executed and delivered by the
Adviser, and the Advisory Agreement constitutes a valid and
binding obligation of the Adviser, enforceable in
accordance with its terms, subject, as to enforcement, to
bankruptcy, insolvency, reorganization or other laws
relating to or affecting creditors' rights and to general
equity principles; and, to the best of his knowledge and
information, neither the execution and delivery of this
Agreement or the Advisory Agreement nor the performance by
the Adviser of its obligations hereunder or thereunder will
conflict with, or result in a breach of, any of the terms
and provisions of, or constitute, with or without giving
notice or lapse of time or both, a default under, any
agreement or instrument to which the Adviser is a party or
by which the Adviser is bound, or any law, order, rule or
regulation applicable to the Adviser of any jurisdiction,
court, federal or state regulatory body, administrative
agency or other governmental body, stock exchange or
securities association having jurisdiction over the Adviser
or its properties or operations.
(iv) To the best of his knowledge and information,
the description of the Adviser in the Registration
Statement and the Prospectus does not contain any untrue
statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the
statements therein not misleading.
(3) In giving their opinion required by sub-section
(b)(1) of this Section, Brown & Wood shall additionally state
that nothing has come to their attention that would lead them
to believe that the Registration Statement (other than the
financial statements included therein, as to which no opinion
need be rendered), at
12
<PAGE> 13
the time it became effective or at the Representation Date,
contained an untrue statement of a material fact or omitted to
state a material fact required to be stated therein or
necessary to make the statements therein not misleading or
that the Prospectus (other than the financial statement
included therein, as to which no opinion need be rendered), at
the Representation Date (unless the term "Prospectus" refers
to a prospectus which has been provided to the Underwriter by
the Fund for use in connection with the offering of the Shares
which differs from the Prospectus on file at the Commission at
the time the Registration Statement becomes effective, in
which case at the time they are first provided to the
Underwriter for such use) or at Closing Time, included an
untrue statement of a material fact or omitted to state a
material fact necessary in order to make the statements
therein, in the light of the circumstances under which they
were made, not misleading. In giving their opinion, Brown &
Wood may rely as to matters involving the laws of the State of
Maryland upon the opinion of Venable, Baetjer & Howard.
Venable, Baetjer & Howard and Brown & Wood may rely, as to
matters of fact, upon certificates and written statements of
officers and employees of and accountants for the Fund and the
Adviser and of public officials.
(c) At Closing Time, (i) the Registration Statement and the
Prospectus shall contain all statements which are required to be
stated therein in accordance with the 1933 Act, the 1940 Act and the
Rules and Regulations and in all material respects shall conform to
the requirements of the 1933 Act, the 1940 Act and the Rules and
Regulations and neither the Registration Statement nor the Prospectus
shall 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 no action, suit or
proceeding at law or in equity shall be pending or, to the knowledge
of the Fund or the Adviser, threatened against the Fund or the Adviser
which would be required to be set forth in the Prospectus other than
as set forth therein, (ii) there shall not have been, since the
respective dates as of which information is given in the Registration
Statement and the Prospectus, any material adverse change in the
condition, financial or otherwise, of the Fund or in its earnings,
business affairs or business prospects, whether or not arising in the
ordinary course of business, from that set forth in the Registration
Statement and Prospectus, (iii) the Adviser shall have the financial
resources available to it necessary for the performance of its
services and obligations as contemplated in the Registration Statement
and the Prospectus and (iv) no proceedings shall be pending or, to the
knowledge of the Fund or the Adviser, threatened against the Fund or
the Adviser before or by any Federal, state or other commission, board
or administrative agency wherein an unfavorable decision, ruling or
finding would materially and adversely affect the business, property,
financial condition or income of either the Fund or the Adviser other
than as set forth in the Registration Statement and the Prospectus;
and the Underwriter shall have received, at Closing Time, a
certificate of the President or Treasurer of the Fund and of the
President or a Vice President of the Adviser dated as of Closing Time,
evidencing compliance with the appropriate provisions of this
subsection (c).
(d) At Closing Time, the Underwriter shall have received
certificates, dated as of Closing Time, (i) of the President or
Treasurer of the Fund to the effect that the representations and
warranties of the Fund contained in Section 1 (a) are true and correct
13
<PAGE> 14
with the same force and effect as though expressly made at and as of
Closing Time and, (ii) of the President or a Vice President of the
Adviser to the effect that the representations and warranties of the
Adviser contained in Sections 1(a) and (b) are true and correct with
the same force and effect as though expressly made at and as of
Closing Time.
(e) At the time of execution of this Agreement, the
Underwriter shall have received from _____________ a letter, dated
such date in form and substance satisfactory to the Underwriter, to
the effect that:
(i) they are independent accountants with respect to the
Fund within the meaning of the 1933 Act and the Rules and Regulations;
(ii) in their opinion, the statement of assets and
liabilities examined by them and included in the Registration
Statement complies as to form in all material respects with the
applicable accounting requirements of the 1933 Act and the 1940 Act
and the Rules and Regulations; and
(iii) they have performed specified procedures, not
constituting an audit, including a reading of the latest available
interim financial statements of the Fund, a reading of the minute
books of the Fund, inquiries of officials of the Fund responsible for
financial accounting matters and such other inquiries and procedures
as may be specified in such letter, and on the basis of such
inquiries and procedures nothing came to their attention that caused
them to believe that at the date of the latest available statement of
assets and liabilities read by such accountants, or at a subsequent
specified date not more than five days prior to the date of this
Agreement, there was any change in the capital stock or net assets of
the Fund as compared with amounts shown on the statement of net assets
included in the Prospectus.
(f) At Closing Time, the Underwriter shall have received from
____________ a letter, dated as of Closing Time, to the effect that
they reaffirm the statements made in the letter furnished pursuant to
subsection (e) of this Section, except that the "specified date"
referred to shall be a date not more than five days prior to Closing
Time.
(g) At Closing Time, all proceedings taken by the Fund and the
Adviser in connection with the organization and registration of the
Fund under the 1940 Act and the issuance and sale of the Shares as
herein and therein contemplated shall be satisfactory in form and
substance to the Underwriter.
(h) In the event the Underwriter exercises its option provided
in Section 2 hereof to purchase all or any portion of the Option
Shares, the representations and warranties of the Fund and the Adviser
contained herein and the statements in any certificate furnished by
the Fund and the Adviser hereunder shall be true and correct as of
each Date of Delivery, and the Underwriter shall have received:
(1) Certificates, dated the Date of Delivery, of the
President or Treasurer of the Fund and of the President or a
Vice President of the Adviser confirming that the information
contained in the certificate delivered by each of them at
14
<PAGE> 15
Closing Time pursuant to Sections 5(c) and (d), as the case
may be, remains true as of such Date of Delivery.
(2) The favorable opinion of Brown & Wood, counsel
for the Fund and Philip L. Kirstein, Esq., General Counsel to
the Adviser, each in form and substance satisfactory to the
Underwriter, dated such Date of Delivery, relating to the
Option Shares and otherwise to the same effect as the opinions
required by Sections 5(b)(1) and (2), respectively.
(3) A letter from ____________ in form and substance
satisfactory to the Underwriter and dated such Date of
Delivery, substantially the same in scope and substance as the
letter furnished to the Underwriter pursuant to Section 5(e),
except that the "specified date" in the letter furnished
pursuant to this Section 5(h)(3) shall be a date not more than
five days prior to such Date of Delivery.
If any condition specified in this Section shall not have been
fulfilled when and as required to be fulfilled, this Agreement may be
terminated by the Underwriter by notice to the Fund at any time at or prior to
Closing Time, and such termination shall be without liability of any party to
any other party except as provided in Section 4.
SECTION 6. Indemnification. (a) The Fund and the Adviser,
jointly and severally, agree to indemnify and hold harmless the Underwriter and
each person, if any, who controls the Underwriter within the meaning of Section
15 of the 1933 Act as follows:
(i) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, arising out of any untrue statement
or alleged untrue statement of a material fact contained in the
Registration Statement (or any amendment thereto), including the
information deemed to be part of the Registration Statement pursuant
to Rule 430A of the Rules and Regulations, if applicable, or the
omission or alleged omission therefrom of a material fact required to
be stated therein or necessary to make the statements therein not
misleading or arising out of any untrue statement or alleged untrue
statement of a material fact contained in any preliminary prospectus
or the Prospectus (or any amendment or supplement thereto) or the
omission or alleged omission therefrom of a material fact necessary in
order to make the statements therein, in the light of the
circumstances under which they were made, not misleading;
(ii) against any and all loss, liability, claim, damage and
expense whatsoever as incurred to the extent of the aggregate amount
paid in settlement of any litigation, or investigation or proceeding
by any governmental agency or body, commenced or threatened, or of any
claim whatsoever based upon any such untrue statement or omission, or
any such alleged untrue statement or omission, if such settlement is
effected with the written consent of the indemnifying party; and
(iii) against any and all expense whatsoever (including the
fees and disbursements of counsel chosen by the Underwriter)
reasonably incurred in investigating, preparing or defending against
any litigation, or investigation or proceeding
15
<PAGE> 16
by any governmental agency or body, commenced or threatened, or any
claim whatsoever based upon any such untrue statement or omission, or
any such alleged untrue statement or omission, to the extent that any
such expense is not paid under (i) or (ii) above;
provided, however, that this indemnity agreement does not apply to any loss,
liability, claim, damage or expense to the extent arising out of any untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished to the Fund by the
Underwriter expressly for use in the Registration Statement (or any amendment
thereto) or any preliminary prospectus or the Prospectus (or any amendment or
supplement thereto).
(b) The Underwriter agrees, severally and not jointly, to
indemnify and hold harmless the Fund and the Adviser, their respective
directors, each of the Fund's officers who signed the Registration
Statement, and each person, if any, who controls the Fund or the
Adviser within the meaning of Section 15 of the 1933 Act, against any
and all loss, liability, claim, damage and expense described in the
indemnity contained in subsection (a) of this Section, as incurred,
but only with respect to untrue statements or omissions, or alleged
untrue statements or omissions, made in the Registration Statement (or
any amendment thereto) or any preliminary prospectus or the Prospectus
(or any amendment or supplement thereto) in reliance upon and in
conformity with written information furnished to the Fund by the
Underwriter expressly for use in the Registration Statement (or any
amendment thereto) or any preliminary prospectus or the Prospectus (or
any amendment or supplement thereto).
(c) In addition to the foregoing indemnification, the Adviser
also agrees to indemnify and hold harmless the Underwriter and each
person, if any, who controls the Underwriter within the meaning of
Section 15 of the 1933 Act, against any and all loss, liability,
claim, damage and expense described in the indemnity contained in
subsection (a) of this Section, with respect to any Omitting
Prospectus or any advertising materials approved by the Adviser for
use in connection with the public offering of the Shares.
(d) Each indemnified party shall give notice as promptly as
reasonably practicable to each indemnifying party of any action
commenced against it in respect of which indemnity may be sought
hereunder, but failure to so notify an indemnifying party shall not
relieve it from any liability which it may have otherwise than on
account of this indemnity agreement. An indemnifying party may
participate at its own expense in the defense of any such action.
In no event shall the indemnifying parties be liable for the fees and
expenses of more than one counsel (in addition to any local counsel) separate
from their own counsel for all indemnified parties in connection with any one
action or separate but similar or related actions in the same jurisdiction
arising out of the same general allegations or circumstances.
SECTION 7. Contribution. In order to provide for just and
equitable contribution in circumstances in which the indemnity agreement
provided for in Section 6 is for any reason held to be unenforceable by the
indemnified parties although applicable in accordance with its terms, the Fund,
the Adviser and the Underwriter shall contribute to the aggregate losses,
liabilities,
16
<PAGE> 17
claims, damages and expenses of the nature contemplated by said indemnity
agreement as incurred by the Fund, the Adviser and the Underwriter, as
incurred, in such proportion that the Underwriter is responsible for that
portion represented by the percentage that the aggregate underwriting
compensation payable pursuant to Section 2 hereof bears to the aggregate
initial public offering price of the Shares sold under this Agreement and the
Fund and the Adviser are responsible for the balance; provided, however, that
no person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the 1933 Act) shall be entitled to contribution from any person who
was not guilty of such fraudulent misrepresentation. For purposes of this
Section, each person, if any, who controls the Underwriter within the meaning
of Section 15 of the 1933 Act shall have the same rights to contribution as the
Underwriter, and each director of the Fund and the Adviser, respectively, each
officer of the Fund who signed the Registration Statement, and each person, if
any, who controls the Fund or the Adviser within the meaning of Section 15 of
the 1933 Act shall have the same rights to contribution as the Fund and the
Adviser, respectively.
SECTION 8. Representations, Warranties and Agreements to Survive
Delivery. All representations, warranties and agreements contained in this
Agreement or the Pricing Agreement, or contained in certificates of officers of
the Fund or the Adviser submitted pursuant hereto, shall remain operative and
in full force and effect, regardless of any investigation made by or on behalf
of the Underwriter or controlling person, or by or on behalf of the Fund or the
Adviser and shall survive delivery of the Shares to the Underwriter.
SECTION 9. Termination of Agreement. (a) The Underwriter, by
notice to the Fund, may terminate this Agreement at any time at or prior to
Closing Time (i) if there has been, since the date of this Agreement or since
the respective dates as of which information is given in the Registration
Statement, any material adverse change in the condition, financial or
otherwise, or in the earnings, business affairs or business prospects of the
Fund or the Adviser, whether or not arising in the ordinary course of business,
or (ii) if there has occurred any material adverse change in the financial
markets in the United States or elsewhere or any outbreak of hostilities or
other calamity or crisis or any escalation of existing hostilities the effect
of which is such as to make it, in the Underwriter's judgment, impracticable to
market the Shares or enforce contracts for the sale of the Shares, or (iii) if
trading in the Common Stock has been suspended by the Commission or if trading
generally on either the American Stock Exchange or the New York Stock Exchange
has been suspended, or minimum or maximum prices for trading have been fixed,
or maximum ranges for prices for securities have been required, by either of
said exchanges or by order of the Commission or any other governmental
authority, or if a banking moratorium has been declared by Federal or New York
authorities.
(b) If this Agreement is terminated pursuant to this Section,
such termination shall be without liability of any party to any other
party except as provided in Section 4.
SECTION 10. Notices. All notices and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
mailed or transmitted by any standard form of written telecommunication.
Notices to the Underwriter shall be directed to Merrill Lynch World
Headquarters, North Tower, World Financial Center, New York, New York 10281,
Attention: Theresa Lang, Director; notices to the Fund or the Adviser shall be
directed to each of
17
<PAGE> 18
them at 800 Scudders Mill Road, Plainsboro, New Jersey 08536, Attention: Arthur
Zeikel, President.
SECTION 11. Parties. This Agreement and the Pricing Agreement
shall inure to the benefit of and be binding upon the Underwriter, the Fund,
the Adviser and their respective successors. Nothing expressed or mentioned in
this Agreement or the Pricing Agreement is intended or shall be construed to
give any person, firm or corporation, other than the parties hereto and their
respective successors and the controlling persons and officers and directors
referred to in Sections 6 and 7 and their heirs and legal representatives, any
legal or equitable right, remedy or claim under or in respect of this Agreement
or any provision herein contained. This Agreement and the Pricing Agreement and
all conditions and provisions hereof are intended to be for the sole and
exclusive benefit of the parties hereto and thereto and their respective
successors, and said controlling persons and officers and directors and their
heirs and legal representatives, and for the benefit of no other person, firm
or corporation. No purchaser of Shares from the Underwriter shall be deemed to
be a successor by reason merely of such purchase.
SECTION 12. Governing Law and Time. This Agreement and the
Pricing Agreement shall be governed by the laws of the State of New York
applicable to agreements made and to be performed in said State. Specified
times of day refer to New York City time.
18
<PAGE> 19
If the foregoing is in accordance with your understanding of our
Agreement, please sign and return to us a counterpart hereof, whereupon this
instrument, along with all counterparts, will become a single binding agreement
among the Underwriter, the Fund and the Adviser in accordance with its terms.
Very truly yours,
MUNIYIELD NEW JERSEY FUND, INC.
By:
--------------------------------------------
(Authorized Officer)
FUND ASSET MANAGEMENT, INC.
By:
--------------------------------------------
(Authorized Officer)
Confirmed and Accepted, as of the
date first above written:
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By:
--------------------------------------------
Vice President
Investment Banking Group
19
<PAGE> 20
Exhibit A
Shares
MuniYield New Jersey Fund, Inc.
(a Maryland corporation)
Common Stock
(Par Value $.10 Per Share)
PRICING AGREEMENT
March __, 1992.
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
Merrill Lynch World Headquarters
World Financial Center
North Tower
New York, NY 10281-1305
Dear Ladies and Gentlemen:
Reference is made to the Purchase Agreement, dated March __, 1992 (the
"Purchase Agreement"), relating to the purchase by Merrill Lynch & Co., Merrill
Lynch, Pierce, Fenner & Smith Incorporated, (the "Underwriter"), of the above
shares of Common Stock, par value $.10 per share (the "Initial Shares"), of
MuniYield New Jersey Fund, Inc. (the "Fund") and relating to the option granted
to the Underwriter to purchase up to an additional _________ shares of Common
Stock, par value $.10 per share, of the Fund to cover over-allotments in
connection with the sale of the Initial Shares (the "Option Shares"). The
Initial Shares and all or any part of the Option Shares are collectively herein
referred to as the "Shares".
Pursuant to Section 2 of the Purchase Agreement, the Fund agrees with
the Underwriter as follows:
1. The applicable initial public offering price per
share for the Shares, determined as provided in said Section 2, shall
be as follows:
(a) $_____ for purchases in single transactions of less
than _________ Shares;
(b) _________ for purchases in single transactions of
_________ or more Shares but less than _________
Shares; and
(c) _________ for purchases in single transactions of
_________ or more Shares.
2. The purchase price per share for the Shares to be
paid by the Underwriter shall be _________ being an amount equal to
the applicable initial public offering price set forth above less (i)
_________ per share for purchases, in single transactions of less
20
<PAGE> 21
than _________ Shares; (ii) _________ per share for purchases in
single transactions of _________ or more Shares but less than
_________ Shares and (iii) _________ per share for purchases in single
transactions of _________ or more Shares.
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Fund a counterpart hereof, whereupon
this instrument, along with all counterparts, will become a binding agreement
between the Underwriter and the Fund in accordance with its terms.
Very truly yours,
MUNIYIELD NEW JERSEY FUND, INC.
By:
-----------------------------------------
(Authorized Officer)
Confirmed and Accepted, as of the
date first above written:
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By:
--------------------------------------------
Vice President
Investment Banking Group
21
<PAGE> 1
EXHIBIT 7(b)
$60,000,000
MUNIYIELD NEW JERSEY FUND, INC.
(a Maryland corporation)
AUCTION MARKET PREFERRED STOCK ["AMPS"(R)]
1,200 Shares
Liquidation Preference $50,000 Per Share
PURCHASE AGREEMENT
June 23, 1992
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Merrill Lynch World Headquarters
World Financial Center
North Tower
New York, New York 10281-1201
Dear Sirs:
MuniYield New Jersey Fund, Inc., a Maryland corporation (the
"Fund"), and Fund Asset Management, Inc., a Delaware corporation (the
"Adviser"), each confirms its agreement with Merrill Lynch & Co., Merrill Lynch,
Pierce, Fenner & Smith Incorporated (the "Underwriter") with respect to the sale
by the Fund and the purchase by the Underwriter of 1,200 shares of auction
market preferred stock (the "Shares") of the Fund, with a par value of $.10 per
share and a liquidation preference of $50,000 per share, plus an amount equal to
accumulated but unpaid dividends (whether or not earned or declared).
Prior to the purchase and public offering of the Shares by the
Underwriter, the Fund and the Underwriter shall enter into an agreement
substantially in the form of Exhibit A hereto (the "Pricing Agreement"). The
Pricing Agreement may take the form of an exchange of any standard form of
written telecommunication between the Fund and the Underwriter and shall specify
such applicable information as is indicated in Exhibit A hereto. The offering of
the Shares will be governed by this Agreement, as supplemented by the Pricing
Agreement. From and after the date of the execution and delivery of the Pricing
Agreement, this Agreement shall be deemed to incorporate the Pricing Agreement.
The Fund has filed with the Securities and Exchange Commission (the
"Commission") a notification on Form N-8A of registration of the Fund as an
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act") and a registration statement on Form N-2 (No. 33-47571) and a
related preliminary prospectus for the registration of the Shares
- ----------
(R) Registered trademark of Merrill Lynch & Co., Inc.
<PAGE> 2
under the Securities Act of 1933, as amended (the "1933 Act"), and the 1940 Act,
and the rules and regulations of the Commission under the 1933 Act and the 1940
Act (the "Rules and Regulations") and has filed such amendments to such
registration statement on Form N-2, if any, and such amended preliminary
prospectuses as may have been required to the date hereof. The Fund will prepare
and file such additional amendments thereto and such amended prospectuses as may
hereafter be required. Such registration statement (as amended at the time it
becomes effective, if applicable) and the prospectus constituting a part thereof
(including in each case the information, if any, deemed to be part thereof
pursuant to Rule 430A(b) of the Rules and Regulations), as from time to time
amended or supplemented pursuant to the 1933 Act, are hereinafter referred to as
the "Registration Statement" and the "Prospectus", respectively, except that if
any revised prospectus shall be provided to the Underwriter by the Fund for use
in connection with the offering of the Shares which differs from the Prospectus
on file at the Commission at the time the Registration Statement becomes
effective (whether such revised prospectus is required to be filed by the Fund
pursuant to Rule 497(b) or Rule 497(h) of the Rules and Regulations), the term
"Prospectus" shall refer to such revised prospectus from and after the time it
is first provided to the Underwriter for such use.
The Fund understands that the Underwriter proposes to make a public
offering of the Shares as soon as the Underwriter deems advisable after the
Registration Statement becomes effective and the Pricing Agreement has been
executed and delivered.
SECTION 1. Representations and Warranties. (a) The Fund and the
Adviser each severally represents and warrants to the Underwriter as of the date
hereof and as of the date of the Pricing Agreement (such later date being
hereinafter referred to as the "Representation Date") as follows:
(i) At the time the Registration Statement becomes effective
and at the Representation Date, the Registration Statement will
comply in all material respects with the requirements of the 1933
Act, the 1940 Act and the Rules and Regulations and will not contain
an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the
statements therein not misleading. At the time the Registration
Statement becomes effective, at the Representation Date and at
Closing Time as defined in Section 2, the Prospectus (unless the
term "Prospectus" refers to a prospectus which has been provided to
the Underwriter by the Fund for use in connection with the offering
of the Shares which differs from the Prospectus on file with the
Commission at the time the Registration Statement becomes effective,
in which case at the time it is first provided to the Underwriter
for such use) will not contain an untrue statement of a material
fact or omit to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which
they were made, not misleading; provided, however, that the
representations and warranties in this subsection shall not apply to
statements in or omissions from the Registration Statement or
Prospectus made in reliance upon and in conformity with information
furnished to the Fund in writing by the Underwriter expressly for
use in the Registration Statement or Prospectus.
2
<PAGE> 3
(ii) The accountants who certified the statement of assets and
liabilities included in the Registration Statement are independent
public accountants as required by the 1933 Act and the Rules and
Regulations.
(iii) The financial statements included in the Registration
Statement present fairly the financial position of the Fund as at
the date indicated and the results of its operations for the period
specified; such financial statements have been prepared in
conformity with generally accepted accounting principles; and the
information in the Prospectus under the headings "Description of
Capital Stock" and "Portfolio Composition" has been fairly
presented.
(iv) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus, except as
otherwise stated therein, (A) there has been no material adverse
change in the condition, financial or otherwise, of the Fund, or in
the earnings, business affairs or business prospects of the Fund,
whether or not arising in the ordinary course of business, (B) there
have been no transactions entered into by the Fund which are
material to the Fund other than those in the ordinary course of
business and (C) except for regular monthly dividends on the
outstanding shares of common stock, par value $.10 per share
("Common Shares") of the Fund, there has been no dividend or
distribution of any kind declared, paid or made by the Fund or any
class of its capital stock.
(v) The Fund has been duly organized and is validly existing
as a corporation in good standing under the laws of the State of
Maryland, with corporate power and authority to own, lease and
operate its properties and conduct its business as described in the
Registration Statement; the Fund is duly qualified as a foreign
corporation to transact business and is in good standing in each
jurisdiction in which such qualification is required; and the Fund
has no subsidiaries.
(vi) The Fund is registered with the Commission under the 1940
Act as a closed-end, non-diversified management investment company,
and no order of suspension or revocation of such registration has
been issued or proceedings therefor initiated or threatened by the
Commission.
(vii) The authorized, issued and outstanding capital stock of
the Fund is as set forth in the Prospectus under the caption
"Description of Capital Stock"; the outstanding Common Shares have
been duly authorized and validly issued and are fully paid and
non-assessable; the Shares have been duly authorized for issuance
and sale to the Underwriter pursuant to this Agreement and, when
issued and delivered by the Fund pursuant to this Agreement against
payment of the consideration set forth in the Pricing Agreement,
will be validly issued and fully paid and nonassessable; the Common
Shares and the Shares conform in all material respects to all
statements relating thereto contained in the Registration Statement;
and the issuance of the Shares to be purchased by the Underwriter is
not subject to preemptive rights.
(viii) The Fund is not in violation of its charter, as amended
(the "Charter") or by-laws, as amended (the "By-Laws") or in default
in the performance or observance of
3
<PAGE> 4
any material obligation, agreement, covenant or condition contained
in any contract, indenture, mortgage, loan agreement, note, lease or
other instrument to which it is a party or by which it or its
properties may be bound; and the execution and delivery of this
Agreement, the Pricing Agreement and the Investment Advisory
Agreement, the Custodian Agreement, the Auction Agent Agreement and
the Depository Agreement referred to in the Registration Statement
(the "Advisory Agreement", "Auction Agreement", "Custodian
Agreement" and "Letter of Representations", respectively), and the
consummation of the transactions contemplated herein and therein,
will not conflict with or constitute a breach of, or default under,
or result in the creation or imposition of any lien, charge or
encumbrance upon any property or assets of the Fund pursuant to any
contract, indenture, mortgage, loan agreement, note, lease or other
instrument to which the Fund is a party or by which it may be bound
or to which any of the property or assets of the Fund is subject,
nor will such action result in any violation of the provisions of
the Charter or By-laws of the Fund or, to the best knowledge of the
Fund and the Adviser, any law, administrative regulation or
administrative or court decree; and no consent, approval,
authorization or order of any court or governmental authority or
agency is required for the consummation by the Fund of the
transactions contemplated by this Agreement, the Pricing Agreement,
the Advisory Agreement, the Custodian Agreement, the Auction
Agreement and the Letter of Representations, except such as has been
obtained under the 1940 Act or as may be required under the 1933 Act
or state securities or Blue Sky laws in connection with the purchase
and distribution of the Shares by the Underwriter.
(ix) The Fund owns or possesses or has obtained all material
governmental licenses, permits, consents, orders, approvals and
other authorizations necessary to lease or own, as the case may be,
and to operate its properties and to carry on its businesses as
contemplated in the Prospectus and the Fund has not received any
notice of proceedings relating to the revocation or modification of
any such licenses, permits, covenants, orders, approvals or
authorizations.
(x) There is no action, suit or proceeding before or by any
court or governmental agency or body, domestic or foreign, now
pending, or, to the knowledge of the Fund or the Adviser, threatened
against or affecting, the Fund, which might result in any material
adverse change in the condition, financial or otherwise, business
affairs or business prospects of the Fund, or might materially and
adversely affect the properties or assets of the Fund; and there are
no material contracts or documents of the Fund which are required to
be filed as exhibits to the Registration Statement by the 1933 Act,
the 1940 Act or by the Rules and Regulations which have not been so
filed.
(xi) The Fund owns or possesses, or can acquire on reasonable
terms, adequate trademarks, service marks and trade names necessary
to conduct the business now operated by it, and the Fund has not
received any notice of infringement of or conflict with asserted
rights of others with respect to any trademarks, service marks and
trade names which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would materially and
adversely affect the conduct of the business, operations, financial
condition or income of the Fund.
4
<PAGE> 5
(xii) The Fund intends to, and will, direct the investment of
the proceeds of the offering described in the Registration Statement
in such a manner as to comply with the requirements of Subchapter M
of the Internal Revenue Code of 1986, as amended ("Subchapter M of
the Code"), and intends to qualify as a regulated investment company
under Subchapter M of the Code.
(xiii) This Agreement, the Pricing Agreement, the Advisory
Agreement and the Custodian Agreement have each been duly
authorized, executed and delivered by the Fund and each complies
with all applicable provisions of the 1940 Act.
(xiv) The Auction Agreement and the Letter of Representation
have each been duly authorized for execution and delivery by the
Fund and, when executed and delivered by the Fund, will constitute a
valid and binding obligation of the Fund, enforceable in accordance
with its terms, subject, as to enforcement, to bankruptcy,
insolvency, reorganization or other laws relating to or affecting
creditors' rights and to general equity principles.
(b) The Adviser represents and warrants to the Underwriter as of the
date hereof and as of the Representation Date as follows:
(i) The Adviser has been duly incorporated under the laws of
the State of Delaware with corporate power and authority to conduct
its business as described in the Prospectus.
(ii) The Adviser is duly registered as an investment adviser
under the Investment Advisers Act of 1940, as amended (the "Advisers
Act"), and is not prohibited by the Advisers Act or the 1940 Act or
the rules and regulations under such acts from acting under the
Advisory Agreement for the Fund as contemplated by the Prospectus.
(iii) This Agreement has been duly authorized, executed and
delivered by the Adviser; the Advisory Agreement is in full force
and effect and constitutes a valid and binding obligation of the
Adviser, enforceable in accordance with its terms, subject, as to
enforcement, to bankruptcy, insolvency, reorganization or other laws
relating to or affecting creditors' rights and to general equity
principles; and neither the execution and delivery of this Agreement
nor the performance by the Adviser of its obligations hereunder or
under the Advisory Agreement will conflict with, or result in a
breach of any of the terms and provisions of, or constitute, with or
without the giving of notice or lapse of time or both, a default
under, any agreement or instrument to which the Adviser is a party
or by which it is bound, or any law, order, rule or regulation
applicable to it of any jurisdiction, court, federal or state
regulatory body, administrative agency or other governmental body,
stock exchange or securities association having jurisdiction over
the Adviser or its respective properties or operations.
(iv) The Adviser has the financial resources available to it
necessary for the performance of its services and obligations as
contemplated in the Prospectus.
5
<PAGE> 6
(c) Any certificate signed by any officer of the Fund or the Adviser
and delivered to the Underwriter shall be deemed a representation and warranty
by the Fund or the Adviser, as the case may be, to the Underwriter as to the
matters covered thereby.
SECTION 2. Sale and Delivery to the Underwriter; Closing. (a) On the
basis of the representations and warranties herein contained and subject to the
terms and conditions herein set forth, the Fund agrees to sell the Shares to the
Underwriter and the Underwriter agrees to purchase the Shares from the Fund, at
the price per share set forth in the Pricing Agreement.
(i) If the Fund has elected not to rely upon rule 430A under
the Rules and Regulations, the initial public offering price and the
purchase price per share to be paid by the Underwriter for the
Shares each has been determined and set forth in the Pricing
Agreement, dated the date hereof, and an amendment to the
Registration Statement and the Prospectus will be filed before the
Registration Statement becomes effective.
(ii) If the Fund has elected to rely upon rule 430A under the
Rules and Regulations, the purchase price per share to be paid by
the Underwriter for the Shares shall be an amount equal to the
initial public offering price, less an amount per share to be
determined by agreement between the Underwriter and the Fund. The
initial public offering price per share shall be a fixed price to be
determined by agreement between the Underwriter and the Fund. The
initial public offering price and the purchase price, when so
determined, shall be set forth in the Pricing Agreement. In the
event that such prices have not been agreed upon and the Pricing
Agreement has not been executed and delivered by all parties thereto
by the close of business on the fourth business day following the
date of this Agreement, this Agreement shall terminate forthwith,
without liability of any party to any other party, except as
provided in Section 5, unless otherwise agreed to by the Fund, the
Adviser and the Underwriter.
(b) Payment of the purchase price for, and delivery of certificates
for, the Shares shall be made at the office of Brown & Wood LLP, One World Trade
Center, New York, New York 10048-0557 or at such other place as shall be agreed
upon by the Underwriter and the Fund, at 10:00 A.M. on the fifth business day
following the date the Registration Statement becomes effective (or, if the Fund
has elected to rely upon rule 430A under the Rules and Regulations, the fifth
business day after execution of the Pricing Agreement), or such other time not
later than ten business days after such date as shall be agreed upon by the
Underwriter and the Fund (such time and date of payment and delivery being
herein called "Closing Time"). Payment shall be made to the Fund by Federal
funds or checks or similar same-day funds and payable to the order of the Fund,
against delivery to the Underwriter of the certificates for the Shares to be
purchased by it. The Shares shall be represented by a certificate registered in
the name of Cede & Co., as nominee for The Depository Trust Company. The
certificate for the Shares will be made available for examination by the
Underwriter not later than 10:00 A.M. on the last business day prior to Closing
Time.
6
<PAGE> 7
SECTION 3. Covenants of the Fund. The Fund covenants with the
Underwriter as follows:
(a) The Fund will use its best efforts (i) to cause the Registration
Statement to become effective under the 1933 Act, and will advise the
Underwriter promptly as to the time at which the Registration Statement and any
amendments thereto (including any post-effective amendment) becomes so effective
and (ii) if required, to cause the issuance of any orders exempting the Fund
from any provisions of the 1940 Act and will advise the Underwriter promptly as
to the time at which any such orders are granted.
(b) The Fund will notify the Underwriter immediately, and confirm
the notice in writing, (i) of the effectiveness of the Registration Statement
and any amendments thereto (including any post-effective amendment), (ii) of the
receipt of any comments from the Commission, (iii) of any request by the
Commission for any amendment to the Registration Statement or any amendment or
supplement to the Prospectus or for additional information, (iv) of the issuance
by the Commission of any stop order suspending the effectiveness of the
Registration Statement or the initiation of any proceedings for that purpose and
(v) of the issuance by the Commission of an order of suspension or revocation of
the notification on Form N-8A of registration of the Fund as an investment
company under the 1940 Act or initiation of any proceeding for that purpose. The
Fund will make every reasonable effort to prevent the issuance of any stop order
described in subsection (iv) hereunder or any order of suspension or revocation
described in subsection (v) hereunder and, if any stop order or order of
suspension or revocation is issued, to obtain the lifting thereof at the
earliest possible moment.
(c) The Fund will give the Underwriter notice of its intention to
file any amendment to the Registration Statement (including any post-effective
amendment) or any amendment or supplement to the Prospectus (including any
revised prospectus which the Fund proposes for use by the Underwriter in
connection with the offering of the Shares which differs from the prospectus on
file at the Commission at the time the Registration Statement becomes effective,
whether such revised prospectus is required to be filed pursuant to Rule 497(b)
or rule 497(h) of the Rules and Regulations) whether pursuant to the 1940 Act,
the 1933 Act, or otherwise, and will furnish the Underwriter with copies of any
such amendment or supplement a reasonable amount of time prior to such proposed
filing or use, as the case may be, and will not file any such amendment or
supplement to which the Underwriter or counsel for the Underwriter shall
reasonably object.
(d) The Fund will deliver to the Underwriter, as soon as
practicable, two signed copies of the registration statement as originally filed
and of each amendment thereto, in each case with two sets of the exhibits filed
therewith, and will also deliver to the Underwriter a conformed copy of the
registration statement as originally filed and of each amendment thereto (but
without exhibits to the registration statement or to any such amendment) for the
Underwriter.
(e) The Fund will furnish to the Underwriter, from time to time
during the period when the Prospectus is required to be delivered under the 1933
Act, such number of copies of the Prospectus (as amended or supplemented) as the
Underwriter may reasonably request for the purposes contemplated by the 1933 Act
or the Rules and Regulations.
7
<PAGE> 8
(f) If any event shall occur as a result of which it is necessary,
in the opinion of counsel for the Underwriter, to amend or supplement the
Prospectus in order to make the Prospectus not misleading in the light of the
circumstances existing at the time it is delivered to a purchaser, the Fund will
forthwith amend or supplement the Prospectus by preparing and furnishing to the
Underwriter a reasonable number of copies of an amendment or amendments of, or a
supplement or supplements to, the Prospectus (in form and substance satisfactory
to counsel for the Underwriter), so that, as so amended or supplemented, the
Prospectus will not contain an untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements therein, in the
light of the circumstances existing at the time the Prospectus is delivered to a
purchaser, not misleading.
(g) The Fund will endeavor, in cooperation with the Underwriter, to
qualify the Shares for offering and sale under the applicable securities laws of
such states and other jurisdictions of the United States as the Underwriter may
designate, and will maintain such qualifications in effect for a period of not
less than one year after the date hereof. The Fund will file such statements and
reports as may be required by the laws of each jurisdiction in which the Shares
have been qualified as above provided.
(h) The Fund will make generally available to its security holders
as soon as practicable, but not later than 60 days after the close of the period
covered thereby, an earnings statement (in form complying with the provisions of
Rule 158 of the Rules and Regulations) covering a twelve-month period beginning
not later than the first day of the Fund's fiscal quarter next following the
"effective" date (as defined is said Rule 158) of the Registration Statement.
(i) Between the date of this Agreement and the termination of any
trading restrictions or Closing Time, whichever is later, the Fund will not,
without your prior consent, offer or sell or enter into any agreement to sell
any equity or equity related securities of the Fund other than the Shares and
Common Shares issued in reinvestment of dividends or distributions.
(j) If, at the time that the Registration Statement becomes
effective, any information shall have been omitted therefrom in reliance upon
Rule 430A of the Rules and Regulations, then immediately following the execution
of the Pricing Agreement, the Fund will prepare and file or transmit for filing
with the Commission in accordance with such Rule 430A and Rule 497(h) of the
Rules and Regulations, copies of an amended Prospectus, or, if required by such
Rule 430A, a post-effective amendment to the Registration Statement (including
an amended Prospectus) containing all information so omitted.
(k) The Fund will use its best efforts to maintain its qualification
as a regulated investment company under Subchapter M of the Code.
SECTION 4. Covenants of the Underwriter. The Underwriter covenants
and agrees with the Fund as follows:
(a) It will sell Shares only to a person who has agreed to execute
and deliver, whose Broker-Dealer (as defined in the Prospectus) has agreed to
execute and deliver or who has already executed and delivered a Master
Purchaser's Letter (as defined in the Prospectus) in accordance with the terms
of the Prospectus.
8
<PAGE> 9
(b) No later than Closing Time, it will execute and deliver a Master
Purchaser's Letter in accordance with the terms of the prospectus.
(c) No later than the second business day succeeding Closing Time,
it will provide the Fund and the Auction Agent (as defined in the Prospectus)
with a list of the persons to whom it has sold Shares, the number of Shares sold
to each such person and the number of Shares it is holding as of the date of
such notice.
SECTION 5. Payment of Expenses. The Fund will pay all expenses
incident to the performance of its obligations under this Agreement, including,
but not limited to, expenses relating to (i) the printing and filing of the
registration statement as originally filed and of each amendment thereto, (ii)
the preparation, issuance and delivery of the certificates for the Shares to the
Underwriter, (iii) the fees and disbursements of the Fund's counsel and
accountants, (iv) the qualification of the Shares under securities laws in
accordance with the provisions of Section 3(g) of this Agreement, including
filing fees and any fees or disbursements of counsel for the Underwriter in
connection therewith and in connection with the preparation of the Blue Sky
Survey, (v) the printing and delivery to the Underwriter of copies of the
registration statement as originally filed and of each amendment thereto, of the
preliminary prospectuses, and of the Prospectus and any amendments or
supplements thereto, (vi) the printing and delivery to the Underwriter of copies
of the Blue Sky Survey and (vii) the fees charged by rating agencies for the
rating of the Shares.
If this Agreement is terminated by the Underwriter in accordance
with the provisions of Section 6 or Section 10(a)(i), the Fund or the Adviser
shall reimburse the Underwriter for all of their out-of-pocket expenses,
including the reasonable fees and disbursements of counsel for the Underwriter.
In the event the transactions contemplated hereunder are not consummated, the
Adviser agrees to pay all of the costs and expenses set forth in the first
paragraph of this Section 5 which the Fund would have paid if such transactions
had been consummated.
SECTION 6. Conditions of Underwriter's Obligations. The obligations
of the Underwriter hereunder are subject to the accuracy of the representations
and warranties of the Fund and the Adviser herein contained, to the performance
by the Fund and the Adviser of their respective obligations hereunder, and to
the following further conditions:
(a) The Registration Statement shall have become effective not later
than 5:30 P.M., New York City time, on the date hereof or at such later time and
date as may be approved by the Underwriter, and at Closing Time no stop order
suspending the effectiveness of the Registration Statement shall have been
issued under the 1933 Act or proceedings therefor initiated or threatened by the
Commission. If the Fund has elected to rely upon Rule 430A of the Rules and
Regulations, the price of the Shares and any price-related information
previously omitted from the effective Registration Statement pursuant to such
Rule 430A shall have been transmitted to the Commission for filing pursuant to
Rule 497(h) of the Rules and Regulations within the prescribed time period, and
prior to Closing Time the Fund shall have provided evidence satisfactory to the
Underwriter of such timely filing, or a post-effective amendment providing such
information shall have been promptly filed and declared effective in accordance
with the requirements of Rule 430A of the Rules and Regulations.
9
<PAGE> 10
(b) At Closing Time, the Underwriter shall have received:
(i) The favorable opinion, dated as of Closing Time, of Brown
& Wood LLP, counsel for the Fund and the Underwriter, to the effect
that:
(1) The Fund has been duly organized and is
validly existing as a corporation in good standing under
the laws of the State of Maryland.
(2) The Fund has corporate power and
authority to own, lease and operate its properties and
conduct its business as described in the Prospectus.
(3) The Fund is duly qualified as a foreign
corporation to transact business and is in good standing
in each jurisdiction in which such qualification is
required, except where the failure to so qualify would
not have a material adverse effect on the condition,
financial or otherwise, business affairs or business
prospects of the Fund.
(4) The outstanding Common Shares have been
duly authorized and validly issued and are fully paid
and non-assessable.
(5) The Shares have been duly authorized for
issuance and sale to the Underwriter pursuant to this
Agreement and, when issued and delivered by the Fund
pursuant to this Agreement against payment of the
consideration set forth in the Pricing Agreement, will
be validly issued and fully paid and non-assessable; the
issuance of the Shares is not subject to preemptive or
other similar rights; and the authorized capital stock
conforms in all material respects to the description
thereof in the Registration Statement.
(6) This Agreement and the Pricing Agreement
each has been duly authorized, executed and delivered by
the Fund and each complies with all applicable
provisions of the 1940 Act.
(7) The Registration Statement is effective
under the 1933 Act and, to the best of their knowledge
and information, no stop order suspending the
effectiveness of the Registration Statement has been
issued under the 1933 Act and no proceedings for that
purpose have been instituted, are pending or are
contemplated.
(8) At the time the Registration Statement
became effective and at the Representation Date, the
Registration Statement (other than the financial
statements included therein, as to which no opinion need
be rendered) complied as to form in all material
respects with the requirements of the 1933 Act, the 1940
Act and the Rules and Regulations.
(9) To the best of their knowledge and
information, there are no legal or governmental
proceedings pending or threatened against the Fund which
are required to be disclosed in the Registration
Statement, other than those disclosed therein.
10
<PAGE> 11
(10) To the best of their knowledge and
information, there are no contracts, indentures,
mortgages, loan agreements, notes, leases or other
instruments of the Fund required to be described or
referred to in the Registration Statement or to be filed
as exhibits thereto other than those described or
referred to therein or filed as exhibits thereto, the
descriptions thereof or references thereto are correct,
and no default exists in the due performance or
observance of any material obligation, agreement,
covenant or condition contained in any contract,
indenture, loan agreement, note or lease so described,
referred to or filed.
(11) No consent, approval, authorization or
order of any court or governmental authority or agency
is required in connection with the sale of the Shares to
the Underwriter, except such as has been obtained under
the 1933 Act, the 1940 Act or the Rules and Regulations
or such as may be required under state securities laws;
and to the best of their knowledge and information, the
execution and delivery of this Agreement, the Pricing
Agreement, the Advisory Agreement, the Custodian
Agreement, the Auction Agreement and the Depository
Agreement and the consummation of the transactions
contemplated herein and therein will not conflict with
or constitute a breach of, or default under, or result
in the creation or imposition of any lien, charge or
encumbrance upon any property or assets of the Fund
pursuant to any contract, indenture, mortgage, loan
agreement, note, lease or other instrument to which the
Fund is a party or by which it may be bound or to which
any of the property or assets of the Fund is subject,
nor will such action result in any violation of the
provisions of the Charter or By-Laws of the Fund, or any
law, administrative regulation or administrative or
court decree.
(12) The Advisory Agreement and the
Custodian Agreement have each been duly authorized,
executed and delivered by the Fund and each complies
with all applicable provisions of the 1940 Act.
(13) The Fund is registered with the
Commission under the 1940 Act as a closed-end
non-diversified management investment company, and all
required action has been taken by the Fund under the
1933 Act, the 1940 Act and the Rules and Regulations to
make the public offering and consummate the sale of the
Shares pursuant to this Agreement; the provisions of the
Charter and By-Laws of the Fund comply as to form in all
material respects with the requirements of the 1940 Act;
and, to the best of their knowledge and information, no
order of suspension or revocation of such registration
under the 1940 Act, pursuant to Section 8(e) thereof,
has been issued or proceedings therefor initiated or
threatened by the Commission.
(14) The information in the Prospectus under
the caption "Taxes" to the extent that it constitutes
matters of law or legal conclusions, has been reviewed
by them and is correct in all material respects.
(15) The Auction Agreement and the
Depository Agreement each have been duly authorized,
executed and delivered by the Fund and each constitutes
a valid and binding obligation of the Fund, enforceable
in accordance with its
11
<PAGE> 12
terms, subject, as to enforcement, to bankruptcy,
insolvency, reorganization or other laws relating to or
affecting creditors' rights and to general equity
principles.
(ii) The favorable opinion, dated as of the Closing Time, of
Shanley & Fisher, special counsel for the Fund, to the effect that:
(1) The information in the Prospectus under
the caption "Taxes" to the extent that it constitutes
matters of New Jersey law or legal conclusions involving
matters of New Jersey law, has been reviewed by them and
is correct in all material respects.
(2) Nothing has come to their attention that
would lead them to believe that the information in the
Registration Statement under the caption "Investment
Objective and Policies -- Special Considerations
Relating to New Jersey Municipal Bonds" and in Appendix
A entitled "Economic Conditions in New Jersey", at the
time it became effective or at the Representation Date,
contained an untrue statement of a material fact or
omitted to state a material fact required to be stated
therein or necessary to make the statements therein not
misleading or that the information under such caption
and in such appendix in the Prospectus, at the
Representation Date (unless the term "Prospectus" refers
to a prospectus which has been provided to the
Underwriter by the Fund for use in connection with the
offering of the Shares which differs from the Prospectus
on file at the Commission at the time the Registration
Statement becomes effective, in which case at the time
they are first provided to the Underwriter for such use)
or at Closing Time, included an untrue statement of a
material fact or omitted to state a material fact
necessary in order to make the statements therein, in
the light of the circumstances under which they were
made, not misleading.
(iii) The favorable opinion, dated as of Closing Time, of
Philip L. Kirstein, Esq., General Counsel to the Adviser, in form
and substance satisfactory to counsel for the Underwriter, to the
effect that:
(1) The Adviser has been duly organized as a
corporation under the laws of the State of Delaware with
corporate power and authority to conduct its business as
described in the Registration Statement and the
Prospectus.
(2) The Adviser is duly registered as an
investment adviser under the Advisers Act and is not
prohibited by the Advisers Act or the 1940 Act or the
rules and regulations under such Acts from acting under
the Advisory Agreement for the Fund as contemplated by
the Prospectus.
(3) This Agreement has been duly authorized,
executed and delivered by the Adviser; the Advisory
Agreement is in full force and effect and constitutes a
valid and binding obligation of the Adviser, enforceable
in accordance with its terms, subject, as to
enforcement, to bankruptcy, insolvency, reorganization
or other laws relating to or affecting creditors' rights
and to general equity principles; and, to the best of
his knowledge and information, neither the execution and
12
<PAGE> 13
delivery of this Agreement or the Advisory Agreement nor
the performance by the Adviser of its obligations
hereunder or thereunder will conflict with, or result in
a breach of, any of the terms and provisions of, or
constitute, with or without giving notice or lapse of
time or both, a default under, any agreement or
instrument to which it is a party or by which the
Adviser is bound, or any law, order, rule or regulation
applicable to the Adviser of any Jurisdiction, court,
Federal or state regulatory body, administrative agency
or the governmental body, stock exchange or securities
association have jurisdiction over the Adviser or its
respective properties or operations.
(4) To the best of his knowledge and
information, the description of the Adviser in the
Registration Statement and the Prospectus does not
contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein
or necessary to make the statements therein not
misleading.
(iv) In giving their opinion required by subsection (b)(i) of
this Section, Brown & Wood LLP shall additionally state that nothing
has come to their attention that would lead them to believe that the
Registration Statement (excluding the financial statements and
financial schedules included therein, as to which such counsel need
express no belief), at the time it became effective or at the
Representation Date, contained an untrue statement of a material
fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not misleading
or that the Prospectus (except for the financial statements and
financial schedules included therein as to which such counsel need
express no belief), at the Representation Date (unless the term
"Prospectus" refers to a prospectus which has been provided to the
Underwriter by the Fund for use in connection with the offering of
the Shares which differs from the Prospectus on file at the
Commission at the time the Registration Statement becomes effective,
in which case at the time it is first provided to the Underwriter
for such use) or at Closing Time, included an untrue statement of a
material fact or omitted to state a material fact necessary in order
to make the statements therein, in the light of the circumstances
under which they were made, not misleading. In giving their opinion,
Brown & Wood LLP may rely, as to all matters governed by the law of
the State of Maryland, upon the opinion of Venable, Baetjer and
Howard and Brown & Wood LLP may rely, as to matters of fact upon
certificates and written statements of officers and employees of and
accountants of the Fund and the Advisor and of public officials.
(c) At Closing Time (i) the Registration Statement and the
Prospectus shall contain all statements which are required to be stated therein
in accordance with the 1933 Act, the 1940 Act and the Rule and Regulations and
in all material respects shall conform to the requirements of the 1933 Act, the
1940 Act and the Rules and Regulations and the Prospectus shall not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements therein in the light of the circumstances under which
they were made, not misleading and no action, suit or proceeding at law or in
equity shall be pending or, to the knowledge of the Fund or the Adviser,
threatened against the Fund or the Adviser which would be required to be set
forth in the Prospectus other than as set forth therein, (ii) there shall not
have been, since the respective dates as of which information is given in the
Registration Statement and the Prospectus, any material adverse change in the
condition, financial or otherwise, of the Fund or
13
<PAGE> 14
in its earnings, business affairs or business prospects, whether or not arising
in the ordinary course of business, from that set forth in the Registration
Statement and Prospectus, (iii) the Adviser shall have the financial resources
available to it necessary for the performance of its services and obligations as
contemplated in the Registration Statement and the Prospectus, (iv) no
proceedings shall be pending or, to the knowledge of the Fund or the Adviser,
threatened against the Fund or the Adviser before or by any Federal, state or
other commission, board or administrative agency wherein an unfavorable
decision, ruling or finding would materially and adversely affect the business,
property, financial condition or income of either the Fund or the Adviser other
than as set forth in the Registration Statement and the Prospectus and (v)
Moody's Investors Service, Inc. ("Moody's") and Standard & Poor's Corporation
("S&P") shall have confirmed that the Shares have been rated "aaa" and AAA
respectively, by such agencies; and the Underwriter shall have received, at
Closing Time, a certificate of the President or Treasurer of the Fund and of the
President or a Vice President of the Adviser dated as of Closing Time,
evidencing compliance with the appropriate provisions of this subsection (c),
together with true and correct copies of letters from Moody's and S&P confirming
their rating.
(d) At Closing Time, the Underwriter shall have received
certificates, dated as of Closing Time, (i) of the President or Treasurer of the
Fund to the effect that the representations and warranties of the Fund contained
in Section 1(a) are true and correct with the same force and effect as though
expressly made at and as of Closing Time and (ii) of the President or a Vice
President of the Adviser contained in Sections 1(a) and (b) are true and correct
with the same force and effect as though expressly made at and as of Closing
Time.
(e) At the time of execution of this Agreement, the Underwriters
shall have received from Deloitte & Touche a letter, dated the date hereof, in
form and substance satisfactory to the Underwriter, to the effect that:
(i) they are independent accountants with respects to the Fund
within the meaning of the 1933 Act and the Rules and Regulations;
(ii) in their opinion, the statement of assets and liabilities
examined by them and included in the Registration Statement complies
as to form in all material respects with the applicable accounting
requirements of the 1933 Act and 1940 Act and the Rules and
Regulations;
(iii) they have performed specified procedures, not
constituting an audit, including a reading of the latest available
interim financial statements of the Fund, a reading of the minute
books of the Fund, inquiries of officials of the Fund responsible
for financial accounting matters and such other inquiries and
procedures as may be specified in such letter, and on the basis of
such inquiries and procedures nothing came to their attention that
caused them to believe that (A) the unaudited financial statements
as of May 31, 1992, and for the period ended May 31, 1992, included
in the Registration Statement do not comply as to form in all
material respects with the applicable accounting requirements of the
1933 Act and the 1933 Act Regulations applicable to unaudited
interim financial statements included in registration statements or
are not in conformity with generally accepted accounting principles
applied on a basis substantially consistent with that of the audited
financed statements included in the Registration
14
<PAGE> 15
Statement and (B) during the period from May 31, 1992 to a specified
date not more than five days prior to the date of this Agreement,
there was any change in the capital stock or net assets of the Fund,
or any increase in the long-term debt of the Fund, as compared with
amounts shown on the unaudited financial statements included in the
Registration Statement, except for changes which the Registration
Statement disclosed have occurred or may occur; and
(iv) in addition to the procedures referred to in clause (iii)
above, they have performed other specified procedures, not
constituting an audit, with respect to certain amounts, percentages,
numerical data, financial information and financial statements
appearing in the Registration Statement, which have previously been
specified by you and which shall be specified in such letter, and
have compared certain of such items with, and have found such items
to be in agreement with, the accounting and financial records of the
Fund.
(f) At Closing Time, the Underwriter shall have received from
Deloitte & Touche a letter, dated as of Closing Time, to the effect that they
reaffirm the statements made in the letter furnished pursuant to subsection (e)
of this Section, except that the "specified date" referred to shall be a date
not more than five days prior to Closing Time.
(g) At Closing Time, counsel for the Underwriter shall have been
furnished with such documents and opinions as they may reasonably require for
the purpose of enabling them to pass upon the issuance and sale of the Shares as
herein contemplated and to pass upon related proceedings, or in order to
evidence the accuracy of any of the representations or warranties, or the
fulfillment of any of the conditions, herein contained; and all proceedings
taken by the Fund and the Adviser in connection with the organization and
registration of the Fund under the 1940 Act and the issuance and sale of the
Shares as herein contemplated shall be satisfactory in form and substance to the
Underwriter and counsel for the Underwriter.
If any condition specified in this Section shall not have been
fulfilled when and as required to be fulfilled, this Agreement may be terminated
by the Underwriter by notice to the Fund at any time at or prior to Closing
Time, and such termination shall be without liability of any party to any other
party except as provided in Section 5.
SECTION 7. Indemnification. (a) The Fund and the Adviser, jointly
and severally, agree to indemnify and hold harmless the Underwriter and each
person, if any, who controls the Underwriter within the meaning of Section 15 of
the 1933 Act as follows:
(i) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, arising out of any untrue statement
or alleged untrue statement of a material fact contained in the
Registration Statement (or any amendment thereto), including the
information deemed to be part of the Registration Statement pursuant
to Rule 430A of the Rules and Regulations, if applicable, or the
omission or alleged omission therefrom of a material fact required
to be stated therein or necessary to make the statements therein not
misleading or arising out of any untrue statement or alleged untrue
statement of a material fact contained in any preliminary prospectus
or the Prospectus (or any amendment or supplement thereto) or the
omission or alleged
15
<PAGE> 16
omission therefrom of a material fact necessary in order to make the
statements therein, in the light of the circumstances under which
they were made, not misleading;
(ii) against any and all loss, liability claim, damage and
expense whatsoever as incurred to the extent of the aggregate amount
paid in settlement of any litigation, or investigation or proceeding
by any governmental agency or body, commenced or threatened or of
any claim whatsoever based upon any such untrue statement or
omission, or any such alleged untrue statement or omission, if such
settlement is effected with the written consent of the Fund; and
(iii) against any and all expense whatsoever (including the
fees and disbursements of counsel chosen by the Underwriter)
reasonably incurred in investigating, preparing or defending against
any litigation or investigation or proceeding by any governmental
agency or body, commenced or threatened, or any claim whatsoever
based upon any such untrue statement or omission, to the extent such
alleged untrue statement or omission, to the extent that any such
expense is not paid under (i) or (ii) above;
provided, however, that this indemnity agreement does not apply to any loss,
liability, claim, damage or expense to the extent arising out of any untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished to the Fund by the
Underwriter expressly for use in the Registration Statement (or any amendment
thereto) or any preliminary prospectus or the Prospectus (or any amendment or
supplement thereto).
(b) The Underwriter severally agrees to indemnify and hold harmless
the Fund and the Adviser, their respective directors, each of the Fund's
officers who signed the Registration Statement, and each person, if any, who
controls the Fund or the Adviser within the meaning of Section 15 of the 1933
Act, against any and all loss, liability, claim, damage and expense described in
the indemnity contained in subsection (a) of this Section, as incurred, but only
with respect to untrue statements or omissions, or alleged untrue statements or
omissions, made in the Registration Statement (or any amendment or supplement
thereto) or any preliminary prospectus or the Prospectus (or any amendment or
supplement thereto) in reliance upon and in conformity with written information
furnished to the Fund by the Underwriter expressly for use in the Registration
Statement (or any amendment thereto) or any preliminary prospectus or the
Prospectus (or any amendment or supplement thereto).
(c) Each indemnified party shall give notice as promptly as
reasonably practicable to each indemnifying party of any action commenced
against it in respect of which indemnity may be sought hereunder, but failure to
so notify an indemnifying party shall not relieve it from any liability which it
may have otherwise than on account of this indemnity agreement. An indemnifying
party may participate at its own expense in the defense of such action. In no
event shall the indemnifying parties be liable for the fees and expenses of more
than one counsel (in addition to any local counsel) separate from their own
counsel for all indemnified parties in connection with any one action or
separate but similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances.
16
<PAGE> 17
SECTION 8. Contribution. In order to provide for just and equitable
contribution in circumstances in which the indemnity agreement provided for in
Section 7 is for any reason held to be enforceable by the indemnified parties
although applicable in accordance with its terms, the Fund and the Underwriter
shall contribute to the aggregate losses, liabilities, claims, damages and
expenses of the nature contemplated by said indemnity agreement as incurred by
the Fund and the Underwriter, as incurred, in such proportions that the
Underwriter is responsible for that portion represented by the percentage that
the underwriting compensation payable pursuant to Section 2 hereof bears to the
initial public offering price appearing on the cover page of the Prospectus and
the Fund is responsible for the balance; provided, however, that no person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the 1933 Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. Notwithstanding provisions of this
Section 8, no Underwriter shall be required to contribute any amount in excess
of the amount by which the total price at which the Shares underwritten by it
and distributed to the public were offered to the public exceeds the amount of
any damages which such Underwriter has otherwise been required to pay in respect
of such losses, liabilities, claims, damages and expenses. For purposes of this
Section, each person, if any, who controls the Underwriter within the meaning of
Section 15, of the 1933 Act shall have the same rights to contribution as the
Underwriter, and each director of the Fund, each officer of the Fund who signed
the Registration Statement, and each person, if any, who controls the Fund
within the meaning of Section 15 of the 1933 Act shall have the same rights to
contribution as the Underwriter, and each director of the Fund, each officer of
the Fund who signed the Registration Statement, and each person, if any, who
controls the Fund within the meaning of Section 15 of the 1933 Act shall have
the same rights to contribution as the Fund.
SECTION 9. Representations, Warranties and Agreements to Survive
Delivery. All representations, warranties and agreements contained in this
Agreement and the Pricing Agreement, or contained in certificates of officers of
the Fund or the Adviser submitted pursuant hereto, shall remain operative and in
full force and effect, regardless of any investigation made by or on behalf of
the Underwriter or controlling person, or by or on behalf of the Fund or the
Adviser and shall survive delivery of the Shares to the Underwriter.
SECTION 10. Termination of Agreement. (a) The Underwriter, by notice
to the Fund, may terminate this Agreement at any time or prior to Closing Time
(i) if there has been, since the date of this Agreement or since the respective
dates as of which information is given in the Registration Statement, any
material adverse change in the condition, financial or otherwise, or in the
earnings, business affairs or business prospects of the Fund or the Adviser,
whether or not arising in the ordinary course of business, or (ii) if there has
occurred any material adverse change in the financial markets in the United
States or any outbreak of hostilities or escalation thereof or other calamity or
crisis the effect of which is such as to make it, in the Underwriter's judgment,
impracticable to market the Shares or enforce contracts for the sale of the
Shares, or (iii) if trading in the Common Shares has been suspended by the
Commission or if trading generally on either the American Stock Exchange or the
New York Stock Exchange has been suspended, or minimum or maximum prices for
trading have been fixed, or maximum ranges for prices for securities have been
required, by either of said exchanges or by order of the Commission or any other
governmental authority, or if a banking moratorium has been declared by Federal
or New York authorities.
17
<PAGE> 18
(b) If this Agreement is terminated pursuant to this Section, such
termination shall be without liability of any party to any other party except as
provided in Section 5.
SECTION 11. Notices. All notices and other communications hereunder
shall be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of written telecommunication. Notices to the
Underwriter shall be directed to Merrill Lynch & Co., Merrill Lynch, Pierce,
Fenner & Smith Incorporated at Merrill Lynch World Headquarters, North Tower,
World Financial Center, New York, New York 10281-1201, Attention: Richard Doyle,
Vice President; notices to the Fund or the Adviser shall be directed to each of
them at 800 Scudders Mill Road, Plainsboro, New Jersey, 08536, Attention:
Arthur Zeikel.
SECTION 12. Parties. This Agreement and the Pricing Agreement shall
inure to the benefit of and be binding upon the Underwriter, the Fund, the
Adviser and their respective successors. Nothing expressed or mentioned in this
Agreement or the Pricing Agreement is intended or shall be construed to give any
person, firm or corporation, other than the parties hereto and their respective
successors and the controlling persons and officers and directors referred to in
Sections 7 and 8 and their heirs and legal representatives, any legal or
equitable right, remedy or claim under or in respect of this Agreement or any
provision herein contained. This Agreement and the Pricing Agreement and all
conditions and provisions hereof are intended to be for the sole and exclusive
benefit of the parties hereto and thereto and their respective successors, and
said controlling persons and officers and directors and their heirs and legal
representatives, and for the benefit of no other person, firm or corporation. No
purchaser of Shares from the Underwriter shall be deemed to be a successor by
reason merely of such purchase.
SECTION 13. Governing Law and Time. This Agreement and the Pricing
Agreement shall be governed by the laws of the State of New York applicable to
agreements made and to be performed in said State. Specified times of day refer
to New York City time.
18
<PAGE> 19
If the foregoing is in accordance with your understanding of our
Agreement, please sign and return to us a counterpart hereof, whereupon this
instrument, along with all counterparts, will become a binding agreement among
the Underwriter, the Fund and the Adviser in accordance with its terms.
Very truly yours,
MUNIYIELD NEW JERSEY FUND, INC.
By:
---------------------------------
Authorized Officer
FUND ASSET MANAGEMENT, INC.
By:
---------------------------------
Authorized Officer
CONFIRMED AND ACCEPTED,
as of the date first above written:
By: Merrill Lynch, Pierce, Fenner & Smith
Incorporated
By:
---------------------------------------------
Vice President
Investment Banking
19
<PAGE> 1
EXHIBIT 7(c)
Revised October 29,1990
LOGO MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
MERRILL LYNCH WORLD HEADQUARTERS
NORTH TOWER
WORLD FINANCIAL CENTER
NEW YORK, N.Y. 10281-1305
STANDARD DEALER AGREEMENT
Dear Sirs:
In connection with public offerings of securities underwritten by us,
or by a group of underwriters (the "Underwriters") represented by us, you may
be offered the opportunity to purchase a portion of such securities, as
principal, at a discount from the offering price representing a selling
concession or reallowance granted as consideration for services rendered by you
in the sale of such securities. We request that you agree to the following
terms and provisions, and make the following representations, which, together
with any additional terms and provisions set forth in any wire or letter sent
to you in connection with a particular offering, will govern all such purchases
of securities and the reoffering thereof by you.
Your subscription to, or purchase of, such securities will constitute
your reaffirmation of this Agreement.
1. When we are acting as representative (the "Representative") of the
Underwriters in offering securities to you, it should be understood that all
offers are made subject to prior sale of the subject securities, when, as and
if such securities are delivered to and accepted by the Underwriters and
subject to the approval of legal matters by their counsel. In such cases, any
order from you for securities will be strictly subject to confirmation and we
reserve the right in our uncontrolled discretion to reject any order in whole
or in part. Upon release by us, you may reoffer such securities at the offering
price fixed by us. With our consent, you may allow a discount, not in excess of
the reallowance fixed by us, in selling such securities to other dealers,
provided that in doing so you comply with the Rules of Fair Practice of the
National Association of Securities Dealers, Inc. (the "NASD"). Upon our
request, you will advise us of the identity of any dealer to whom you allow
such a discount and any Underwriter or dealer from whom you receive such a
discount. After the securities are released for sale to the public, we may vary
the offering price and other selling terms.
2. You represent that you are a dealer actually engaged in the
investment banking or securities business and that you are either (i) a member
in good standing of the NASD or (ii) a dealer with its principal place of
business located outside the United States, its territories or possessions and
not registered under the Securities Exchange Act of 1934 (a "non-member foreign
dealer") or (iii) a bank not eligible for membership in the NASD. If you are a
non-member foreign dealer, you agree to make no sales of securities within the
United States, its territories or its possessions or to persons who are
nationals thereof or residents therein. Non-member foreign dealers and banks
agree, in making any sales, to comply with the NASD's interpretation with
respect to free-riding and withholding. In accepting a selling concession where
we are acting as Representative of the Underwriters, in accepting a reallowance
from us whether or not we are acting as such Representative, and in allowing a
discount to any other person, you agree to comply with the provisions of
Section 24 of Article III of the Rules of Fair Practice of the NASD, and, in
addition, if you are a non-member foreign dealer or bank, you agree to comply,
as though you were a member of the NASD, with the provisions of Sections 8 and
36 of Article III of such Rules of Fair Practice and to comply with Section 25
of Article III thereof as that Section applies to a non-member
<PAGE> 2
foreign dealer or bank. You represent that you are fully familiar with the
above provisions of the Rules of Fair Practice of the NASD.
3. If the securities have been registered under the Securities Act of
1933 (the "1933 Act"), in offering and selling such securities, you are not
authorized to give any information or make any representation not contained in
the prospectus relating thereto. You confirm that you are familiar with the
rules and policies of the Securities and Exchange Commission relating to the
distribution of preliminary and final prospectuses, and you agree that you will
comply therewith in any offering covered by this Agreement. If we are acting as
Representative of the Underwriters, we will make available to you, to the
extent made available to us by the issuer of the securities, such number of
copies of the prospectus or offering documents, for securities not registered
under the 1933 Act, as you may reasonably request.
4. If we are acting as Representative of the Underwriters of
securities of an issuer that is not required to file reports under the
Securities Exchange Act of 1934 (the " 1934 Act"), you agree that you will not
sell any of the securities to any account over which you have discretionary
authority.
5. Payment for securities purchased by you is to be made at our
office, One Liberty Plaza, 165 Broadway, New York, N.Y. 10006 (or at such other
place as we may advise), at the offering price less the concession allowed to
you, on such date as we may advise, by certified or official bank check in New
York Clearing House funds (or such other funds as we may advise), payable to
our order, against delivery of the securities to be purchased by you. We shall
have authority to make appropriate arrangements for payment for and/or delivery
through the facility of The Depository Trust Company or any such other
depository or similar facility for the securities.
6. In the event that, prior to the completion of the distribution of
securities covered by this Agreement, we purchase in the open market or
otherwise any securities delivered to you, if we are acting as Representative
of the Underwriters, you agree to repay to us for the accounts of the
Underwriters the amount of the concession allowed to you plus brokerage
commissions and any transfer taxes paid in connection with such purchase.
7. At any time prior to the completion of the distribution of
securities covered by this Agreement you will, upon our request as
Representative of the Underwriters, report to us the amount of securities
purchased by you which then remains unsold and will, upon our request, sell to
us for the account of one or more of the Underwriters such amount of such
unsold securities as we may designate, at the offering price less an amount to
be determined by us not in excess of the concession allowed to you.
8. If we are acting as Representative of the Underwriters, upon
application to us, we will inform you of the states and other jurisdictions of
the United States in which it is believed that the securities being offered are
qualified for sale under, or are exempt from the requirements of, their
respective securities laws, but we assume no responsibility with respect to
your right to sell securities in any jurisdiction. We shall have authority to
file with the Department of State of the State of New York a Further State
Notice with respect to the securities, if necessary.
9. You agree that in connection with any offering of securities
covered by this Agreement you will comply, with the applicable provisions of
the 1933 Act and the 1934 Act and the applicable rules and regulations of the
Securities and Exchange Commission thereunder, the applicable rules and
regulations of the NASD, and the applicable rules of any securities exchange
having jurisdiction over the offering.
10. We shall have full authority to take such action as we may deem
advisable in respect of all matters pertaining to any offering covered by this
Agreement. We shall be under no liability to you except for our lack of good
faith and for obligations assumed by us in this Agreement, except that you do
not waive any rights that you may have under the 1933 Act or the rules and
regulations thereunder.
<PAGE> 3
11. Any notice from us shall be deemed to have been duly given if
mailed or transmitted by any standard form of written telecommunications to you
at the above address or at such other address as you shall specify to us in
writing.
12. With respect to any offering of securities covered by this
Agreement, the price restrictions contained in Paragraph 1 hereof and the
provisions of Paragraphs 6 and 7 hereof shall terminate as to such offering at
the close of business on the 45th day after the securities are released for
sale or, as to any or all such provisions, at such earlier time as we may
advise. All other provisions of this Agreement shall remain operative and in
full force and effect with respect to such offering.
<PAGE> 4
13. This Agreement shall be governed by the laws of the State of New
York.
Please confirm your agreement hereto by signing the enclosed duplicate
copy hereof in the place provided below and returning such signed duplicate
copy to us at World Headquarters, North Tower, World Financial Center, New
York, N.Y. 10281-1305, Attention: Corporate Syndicate. Upon receipt thereof,
this instrument and such signed duplicate copy will evidence the agreement
between us.
Very truly yours,
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By:
---------------------------------
Name: Fred F. Hessinger
Confirmed and accepted as of the
day of , 19
- ----------------------------------------------------------
Name of Dealer
- ----------------------------------------------------------
Authorized Officer or Partner
(if not Officer or Partner, attach copy of
Instrument of Authorization)
4
<PAGE> 1
EXHIBIT 9
CUSTODY AGREEMENT
Agreement made as of this third day of April, 1992 between MUNIYIELD
NEW JERSEY FUND, INC., a corporation organized and existing under the laws of
the State of Maryland, having its principal office and place of business at
(hereinafter called the "Fund"), and THE BANK OF NEW YORK, a New York
corporation authorized to do a banking business, having its principal office
and place of business at 48 Wall Street, New York, New York 10286 (hereinafter
called the "Custodian").
W I T N E S S E T H :
that for and in consideration of the mutual promises hereinafter set forth the
Fund and the Custodian agree as follows:
ARTICLE I
DEFINITIONS
Whenever used in this Agreement, the following words and phrases,
unless the context otherwise requires, shall have the following meanings:
1. "Authorized Person" shall be deemed to include any person,
whether or not such person is an Officer or employee of the Fund, duly
authorized by the Board of Directors of the Fund to give Oral Instructions and
Written Instructions on behalf of the Fund and listed in the Certificate
annexed hereto as Appendix A or such other Certificate as may be received by
the Custodian from time to time.
2. "Book-Entry System" shall mean the Federal Reserve/Treasury
book-entry system for United States and federal agency securities, its
successor or successors and its nominee or nominees.
3. "Call Option" shall mean an exchange traded option with
respect to Securities other than Stock Index Options, Futures Contracts, and
Futures Contract Options entitling the holder, upon timely exercise and payment
of the exercise price, as specified therein, to purchase from the writer
thereof the specified underlying Securities.
4. "Certificate" shall mean any notice, instruction, or other
instrument in writing, authorized or required by this Agreement to be given to
the Custodian which is actually received by the Custodian and signed on behalf
of the Fund by any two Officers.
5. "Clearing Member" shall mean a registered broker-dealer which
is a clearing member under the rules of O.C.C. and a member of a national
securities exchange qualified to
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act as a custodian for an investment company, or any broker-dealer reasonably
believed by the Custodian to be such a clearing member.
6. "Collateral Account" shall mean a segregated account so
denominated which is specifically allocated to a Series and pledged to the
Custodian as security for, and in consideration of, the Custodian's issuance of
(a) any Put Option guarantee letter or similar document described in paragraph
8 of Article V herein, or (b) any receipt described in Article V or VIII
herein.
7. "Covered Call Option" shall mean an exchange trade option
entitling the holder, upon timely exercise and payment of the exercise price,
as specified therein, to purchase from the writer thereof the specified
underlying Securities (excluding Futures Contracts) which are owned by the
writer thereof and subject to appropriate restrictions.
8. "Depository" shall mean The Depository Trust Company ("DTC"),
a clearing agency registered with the Securities and Exchange Commission, its
successor or successors and its nominee or nominees. The term "Depository"
shall further mean and include any other person authorized to act as a
depository under the Investment Company Act of 1940, its successor or
successors and its nominee or nominees, specifically identified in a certified
copy of a resolution of the Fund's Board of Directors specifically approving
deposits therein by the Custodian.
9. "Financial Futures Contract" shall mean the firm commitment
to buy or sell fixed income securities including, without limitation, U.S.
Treasury Bills, U.S. Treasury Notes, U.S. Treasury Bonds, domestic bank
certificates of deposit, and Eurodollar certificates of deposit, during a
specified month at an agreed upon price.
10. "Futures Contract" shall mean a Financial Futures Contract
and/or Stock Index Futures Contracts.
11. "Futures Contract Option" shall mean an option with respect
to a Futures Contract.
12. "Margin Account" shall mean a segregated account in the name
of a broker, dealer, futures commission merchant, or a Clearing Member, or in
the name of the Fund for the benefit of a broker, dealer, futures commission
merchant, or Clearing Member, or otherwise, in accordance with an agreement
between the Fund, the Custodian and a broker, dealer, futures commission
merchant or a Clearing Member (a "Margin Account Agreement"), separate and
distinct from the custody account, in which certain Securities and/or money of
the Fund shall be deposited and withdrawn from time to time in connection with
such transactions as the Fund may from time to time determine. Securities held
in the Book-Entry System or the Depository shall be deemed to have been
deposited in, or withdrawn from, a Margin Account upon the Custodian's
effecting an appropriate entry in its books and records.
13. "Money Market Security" shall be deemed to include, without
limitation, certain Reverse Repurchase Agreements, debt obligations issued or
guaranteed as to interest and principal by the government of the United States
or agencies or instrumentalities thereof, any tax, bond or revenue anticipation
note issued by any state or municipal government or public
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<PAGE> 3
authority, commercial paper, certificates of deposit and bankers' acceptances,
repurchase agreements with respect to the same and bank time deposits, where
the purchase and sale of such securities normally requires settlement in
federal funds on the same day as such purchase or sale.
14. "O.C.C." shall mean the Options Clearing Corporation, a
clearing agency registered under Section 17A of the Securities Exchange Act of
1934, its successor or successors, and its nominee or nominees.
15. "Officers" shall be deemed to include the President, any Vice
President, the Secretary, the Treasurer, the Controller, any Assistant
Secretary, any Assistant Treasurer and any other person or persons, whether or
not any such other person is an officer of the Fund, duly authorized by the
Board of Directors of the Fund to execute any Certificate, instruction, notice
or other instrument on behalf of the Fund and listed in the Certificate annexed
hereto as Appendix B or such other Certificate as may be received by the
Custodian from time to time.
16. "Option" shall mean a Call Option, Covered Call Option, Stock
Index Option and/or a Put Option.
17. "Oral Instructions" shall mean verbal instructions actually
received by the Custodian from an Authorized Person or from a person reasonably
believed by the Custodian to be an Authorized Person.
18. "Put Option" shall mean an exchange traded option with
respect to Securities other than Stock Index Options, Futures Contracts, and
Futures Contract Options entitling the holder, upon timely exercise and tender
of the specified underlying Securities, to sell such Securities to the writer
thereof for the exercise price.
19. "Reverse Repurchase Agreement" shall mean an agreement
pursuant to which the Fund sells Securities and agrees to repurchase such
Securities at a described or specified date and price.
20. "Security" shall be deemed to include, without limitation,
Money Market Securities, Call Options, Put Options, Stock Index Options, Stock
Index Futures Contracts, Stock Index Futures Contract Options, Financial
Futures Contracts, Financial Futures Contract Options, Reverse Repurchase
Agreements, common stocks and other securities having characteristics similar
to common stocks, preferred stocks, debt obligations issued by state or
municipal governments and by public authorities (including, without
limitation, general obligation bonds, revenue bonds and industrial bonds and
industrial development bonds), bonds, debentures, notes, mortgages or other
obligations, and any certificates, receipts, warrants or other instruments
representing rights to receive, purchase, sell or subscribe for the same, or
evidencing or representing any other rights or interest therein, or any
property or assets.
21. "Senior Security Account" shall mean an account maintained
and specifically allocated to a Series under the terms of this Agreement as a
segregated account, by recordation or otherwise, within the custody account in
which certain Securities and/or other assets of the Fund specifically allocated
to such Series shall be deposited and withdrawn from time to time in accordance
with Certificates received by the Custodian in connection with such
transactions as the Fund may from time to time determine.
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<PAGE> 4
22. "Series" shall mean the various portfolios, if any, of the
Fund as described from time to time in the current and effective prospectus for
the Fund.
23. "Shares" shall mean the shares of capital stock of the Fund,
each of which is in the case of a Fund having Series allocated to a particular
Series.
24. "Stock Index Futures Contract" shall mean a bilateral
agreement pursuant to which the parties agree to take or make delivery of an
amount of cash equal to a specified dollar amount times the difference between
the value of a particular stock index at the close of the last business day of
the contract and the price at which the futures contract is originally struck.
25. "Stock Index Option" shall mean an exchange traded option
entitling the holder, upon timely exercise, to receive an amount of cash
determined by reference to the difference between the exercise price and the
value of the index on the date of exercise.
26. "Written Instructions" shall mean written communications
actually received by the Custodian from an Authorized Person or from a person
reasonably believed by the Custodian to be an Authorized Person by telex or any
other such system whereby the receiver of such communications is able to verify
by codes or otherwise with a reasonable degree of certainty the identity of the
sender of such communication.
ARTICLE II
APPOINTMENT OF CUSTODIAN
1. The Fund hereby constitutes and appoints the Custodian as
custodian of the Securities and moneys at any time owned by the Fund during the
period of this Agreement.
2. The Custodian hereby accepts appointment as such custodian
and agrees to perform the duties thereof as hereinafter set forth.
ARTICLE III
CUSTODY OF CASH AND SECURITIES
1. Except as otherwise provided in paragraph 7 of this Article
and in Article VIII, the Fund will deliver or cause to be delivered to the
Custodian all Securities and all moneys owned by it, at any time during the
period of this Agreement, and shall specify with respect to such Securities and
money the Series to which the same are specifically allocated. The Custodian
shall segregate, keep and maintain the assets of the Series separate and apart.
The Custodian will not be responsible for any Securities and moneys not
actually received by it. The Custodian will be entitled to reverse any credits
made on the Fund's behalf where such credits have been previously made and
moneys are not finally collected. The Fund shall deliver to the Custodian a
certified resolution of the Board of Directors of the Fund, substantially in
the form
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<PAGE> 5
of Exhibit A hereto, approving, authorizing and instructing the Custodian on a
continuous and on-going basis to deposit in the Book-Entry System all
Securities eligible for deposit therein, regardless of the Series to which the
same are specifically allocated and to utilize the Book-Entry System to the
extent possible in connection with its performance hereunder, including,
without limitation, in connection with settlements of purchases and sales of
Securities, loans of Securities, and deliveries and returns of Securities
collateral. Prior to a deposit of Securities specifically allocated to a Series
in the Depository, the Fund shall deliver to the Custodian a certified
resolution of the Board of Directors of the Fund, substantially in the form of
Exhibit B hereto, approving, authorizing and instructing the Custodian on a
continuous and on-going basis until instructed to the contrary by a Certificate
actually received by the Custodian to deposit in the Depository all Securities
specifically allocated to such Series eligible for deposit therein, and to
utilize the Depository to the extent possible with respect to such Securities
in connection with its performance hereunder, including, without limitation, in
connection with settlements of purchases and sales of Securities, loans of
Securities, and deliveries and returns of Securities collateral. Securities and
moneys deposited in either the Book-Entry System or the Depository will be
represented in accounts which include only assets held by the Custodian for
customers, including, but not limited to, accounts in which the Custodian acts
in a fiduciary or representative capacity. Prior to the Custodian's accepting,
utilizing and acting with respect to Clearing Member confirmations for Options
and transactions in Options for a Series as provided in this Agreement, the
Custodian shall have received a certified resolution of the Fund's Board of
Directors, substantially in the form of Exhibit C hereto, approving,
authorizing and instructing the Custodian on a continuous and on-going basis,
until instructed to the contrary by a Certificate actually received by the
Custodian, to accept, utilize and act in accordance with such confirmations as
provided in this Agreement with respect to such Series.
2. The Custodian shall establish and maintain separate accounts,
in the name of each Series, and shall credit to the separate account for each
Series all moneys received by it for the account of the Fund with respect to
such Series. Money credited to a separate account for a Series shall be
disbursed by the Custodian only:
(a) As hereinafter provided;
(b) Pursuant to Certificates setting forth the name and
address of the person to whom the payment is to be made, the Series account
from which payment is to be made, and the purpose for which payment is to be
made; or
(c) In payment of the fees and in reimbursement of the
expenses and liabilities of the Custodian attributable to such Series.
3. Promptly after the close of business on each day the
Custodian shall furnish the Fund with confirmations and a summary, on a per
Series basis, of all transfers to or from the account of the Fund for a Series,
either hereunder or with any co-custodian or sub-custodian appointed in
accordance with this Agreement during said day. Where Securities are
transferred to the account of the Fund for a Series, the Custodian shall also
by book-entry or otherwise identify as belonging to such Series a quantity of
Securities in a fungible bulk of Securities registered in the name of the
Custodian (or its nominee) or shown on the Custodian's account on the books of
the Book-Entry System or the Depository. At least monthly and from time to
time,
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<PAGE> 6
the Custodian shall furnish the Fund with a detailed statement, on a per
Series basis, of the Securities and moneys held by the Custodian for the Fund.
4. Except as otherwise provided in paragraph 7 of this Article
and in Article VIII, all Securities held by the Custodian hereunder, which are
issued or issuable only in bearer form, except such Securities as are held in
the Book-Entry System, shall be held by the Custodian in that form; all other
Securities held hereunder may be registered in the name of the Fund, in the
name of any duly appointed registered nominee of the Custodian as the Custodian
may from time to time determine, or in the name of the Book-Entry System or the
Depository or their successor or successors, or their nominee or nominees. The
Fund agrees to furnish to the Custodian appropriate instruments to enable the
Custodian to hold or deliver in proper form for transfer, or to register in the
name of its registered nominee or in the name of the Book-Entry System or the
Depository any Securities which it may hold hereunder and which may from time
to time be registered in the name of the Fund. The Custodian shall hold all
such Securities specifically allocated to a Series which are not held in the
Book-Entry System or in the Depository in a separate account in the name of
such Series physically segregated at all times from those of any other person
or persons.
5. Except as otherwise provided in this Agreement and unless
otherwise instructed to the contrary by a Certificate, the Custodian by itself,
or through the use of the Book-Entry System or the Depository with respect to
Securities held hereunder and therein deposited, shall with respect to all
Securities held for the Fund hereunder in accordance with preceding paragraph
4:
(a) Collect all income due or payable;
(b) Present for payment and collect the amount payable
upon such Securities which are called, but only if either (i) the Custodian
receives a written notice of such call, or (ii) notice of such call appears in
one or more of the publications listed in Appendix C annexed hereto, which may
be amended at any time by the Custodian without the prior notification or
consent of the Fund;
(c) Present for payment and collect the amount payable
upon all Securities which mature;
(d) Surrender Securities in temporary form for
definitive Securities;
(e) Execute, as custodian, any necessary declarations or
certificates of ownership under the Federal Income Tax Laws or the laws or
regulations of any other taxing authority now or hereafter in effect; and
(f) Hold directly, or through the Book-Entry System or
the Depository with respect to Securities therein deposited, for the account of
a Series, all rights and similar securities issued with respect to any
Securities held by the Custodian for such Series hereunder.
6. Upon receipt of a Certificate and not otherwise, the
Custodian, directly or through the use of the Book-Entry System or the
Depository, shall:
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<PAGE> 7
(a) Execute and deliver to such persons as may be
designated in such Certificate proxies, consents, authorizations, and any other
instruments whereby the authority of the Fund as owner of any Securities held
by the Custodian hereunder for the Series specified in such Certificate may be
exercised;
(b) Deliver any Securities held by the Custodian
hereunder for the Series specified in such Certificate in exchange for other
Securities or cash issued or paid in connection with the liquidation,
reorganization, refinancing, merger, consolidation or recapitalization of any
corporation, or the exercise of any conversion privilege and receive and hold
hereunder specifically allocated to such Series any cash or other Securities
received in exchange;
(c) Deliver any Securities held by the Custodian
hereunder for the Series specified in such Certificate to any protective
committee, reorganization committee or other person in connection with the
reorganization, refinancing, merger, consolidation, recapitalization or sale of
assets of any corporation, and receive and hold hereunder specifically
allocated to such Series such certificates of deposit, interim receipts or
other instruments or documents as may be issued to it to evidence such
delivery;
(d) Make such transfers or exchanges of the assets of
the Series specified in such Certificate, and take such other steps as shall be
stated in such Certificate to be for the purpose of effectuating any duly
authorized plan of liquidation, reorganization, merger, consolidation or
recapitalization of the Fund; and
(e) Present for payment and collect the amount payable
upon Securities not described in preceding paragraph 5(b) of this Article which
may be called as specified in the Certificate.
7. Notwithstanding any provision elsewhere contained herein, the
Custodian shall not be required to obtain possession of any instrument or
certificate representing any Futures Contract, any Option, or any Futures
Contract Option until after it shall have determined, or shall have received a
Certificate from the Fund stating, that any such instruments or certificates are
available. The Fund shall deliver to the Custodian such a Certificate no later
than the business day preceding the availability of any such instrument or
certificate. Prior to such availability, the Custodian shall comply with Section
17(f) of the Investment Company Act of 1940, as amended, in connection with the
purchase, sale, settlement, closing out or writing of Futures Contracts,
Options, or Futures Contract Options by making payments or deliveries specified
in Certificates received by the Custodian in connection with any such purchase,
sale, writing, settlement or closing out upon its receipt from a broker, dealer,
or futures commission merchant of a statement or confirmation reasonably
believed by the Custodian to be in the form customarily used by brokers,
dealers, or futures commission merchants with respect to such Futures Contracts,
Options, or Futures Contract Options, as the case may be, confirming that such
Security is held by such broker, dealer or futures commission merchant, in
book-entry form or otherwise, in the name of the Custodian (or any nominee of
the Custodian) as custodian for the Fund, provided, however, that
notwithstanding the foregoing, payments to or deliveries from the Margin
Account, and payments with respect to Securities to which a Margin Account
relates, shall be made in accordance with the terms and conditions of the Margin
Account Agreement. Whenever any such instruments or certificates are available,
the Custodian shall, notwithstanding
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<PAGE> 8
any provision in this Agreement to the contrary, make payment for any Futures
Contract, Option, or Futures Contract Option for which such instruments or such
certificates are available only against the delivery to the Custodian of such
instrument or such certificate, and deliver any Futures Contract, Option or
Futures Contract Option for which such instruments or such certificates are
available only against receipt by the Custodian of payment therefor. Any such
instrument or certificate delivered to the Custodian shall be held by the
Custodian hereunder in accordance with, and subject to, the provisions of this
Agreement.
ARTICLE IV
PURCHASE AND SALE OF INVESTMENTS OF THE FUND
OTHER THAN OPTIONS, FUTURES CONTRACTS AND
FUTURES CONTRACT OPTIONS
1. Promptly after each purchase of Securities by the Fund, other
than a purchase of an Option, a Futures Contract, or a Futures Contract Option,
the Fund shall deliver to the Custodian (i) with respect to each purchase of
Securities which are not Money Market Securities, a Certificate, and (ii) with
respect to each purchase of Money Market Securities, a Certificate, Oral
Instructions or Written Instructions, specifying with respect to each such
purchase: (a) the Series to which such Securities are to be specifically
allocated; (b) the name of the issuer and the title of the Securities; (c) the
number of shares or the principal amount purchased and accrued interest, if
any; (d) the date of purchase and settlement; (e) the purchase price per unit;
(f) the total amount payable upon such purchase; (g) the name of the person
from whom or the broker through whom the purchase was made, and the name of the
clearing broker, if any; and (h) the name of the broker to whom payment is to
be made. The Custodian shall, upon receipt of Securities purchased by or for
the Fund, pay to the broker specified in the Certificate out of the moneys held
for the account of such Series the total amount payable upon such purchase,
provided that the same conforms to the total amount payable as set forth in
such Certificate, Oral Instructions or Written Instructions.
2. Promptly after each sale of Securities by the Fund, other
than a sale of any Option, Futures Contract, Futures Contract Option, or any
Reverse Repurchase Agreement, the Fund shall deliver to the Custodian (i) with
respect to each sale of Securities which are not Money Market Securities, a
Certificate, and (ii) with respect to each sale of Money Market Securities, a
Certificate, Oral Instructions or Written Instructions, specifying with respect
to each such sale: (a) the Series to which such Securities were specifically
allocated; (b) the name of the issuer and the title of the Security; (c) the
number of shares or principal amount sold, and accrued interest, if any; (d)
the date of sale; (e) the sale price per unit; (f) the total amount payable to
the Fund upon such sale; (g) the name of the broker through whom or the person
to whom the sale was made, and the name of the clearing broker, if any; and (h)
the name of the broker to whom the Securities are to be delivered. The
Custodian shall deliver the Securities specifically allocated to such Series to
the broker specified in the Certificate upon the total amount payable to the
Fund upon such sale, provided that the same conforms to the total amount
payable as set forth in such Certificate, Oral Instructions or Written
Instructions.
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ARTICLE V
OPTIONS
1. Promptly after the purchase of any Option by the Fund, the
Fund shall deliver to the Custodian a Certificate specifying with respect to
each Option purchased: (a) the Series to which such Option is specifically
allocated; (b) the type of Option (put or call); (c) the name of the issuer and
the title and number of shares subject to such Option or, in the case of a
Stock Index Option, the stock index to which such Option relates and the number
of Stock Index Options purchased; (d) the expiration date; (e) the exercise
price; (f) the dates of purchase and settlement; (g) the total amount payable
by the Fund in connection with such purchase; (h) the name of the Clearing
Member through whom such Option was purchased; and (i) the name of the broker
to whom payment is to be made. The Custodian shall pay, upon receipt of a
Clearing Member's statement confirming the purchase of such Option held by such
Clearing Member for the account of the Custodian (or any duly appointed and
registered nominee of the Custodian) as custodian for the Fund, out of moneys
held for the account of the Series to which such option is to be specifically
allocated, the total amount payable upon such purchase to the Clearing Member
through whom the purchase was made, provided that the same conforms to the
total amount payable as set forth in such Certificate.
2. Promptly after the sale of any Option purchased by the Fund
pursuant to paragraph 1 hereof, the Fund shall deliver to the Custodian a
Certificate specifying with respect to each such sale: (a) the Series to which
such Option was specifically allocated; (b) the type of Option (put or call);
(c) the name of the issuer and the title and number of shares subject to such
Option or, in the case of a Stock Index Option, the stock index to which such
Option relates and the number of Stock Index Options sold; (d) the date of
sale; (e) the sale price; (f) the date of settlement; (g) the total amount
payable to the Fund upon such sale; and (h) the name of the Clearing Member
through whom the sale was made. The Custodian shall consent to the delivery of
the Option sold by the Clearing Member which previously supplied the
confirmation described in preceding paragraph 1 of this Article with respect to
such Option against payment to the Custodian of the total amount payable to the
Fund, provided that the same conforms to the total amount payable as set forth
in such Certificate.
3. Promptly after the exercise by the Fund of any Call Option
purchased by the Fund pursuant to paragraph 1 hereof, the Fund shall deliver to
the Custodian a Certificate specifying with respect to such Call Option: (a)
the Series to which such Call Option was specifically allocated; (b) the name
of the issuer and the title and number of shares subject to the Call Option;
(c) the expiration date; (d) the date of exercise and settlement; (e) the
exercise price per share; (f) the total amount to be paid by the Fund upon such
exercise; and (g) the name of the Clearing Member through whom such Call Option
was exercised. The Custodian shall, upon receipt of the Securities underlying
the Call Option which was exercised, pay out of the moneys held for the account
of the Series to which such Call Option was specifically allocated the total
amount payable to the Clearing Member through whom the Call Option was
exercised, provided that the same conforms to the total amount payable as set
forth in such Certificate.
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<PAGE> 10
4. Promptly after the exercise by the Fund of any Put Option
purchased by the Fund pursuant to paragraph 1 hereof, the Fund shall deliver to
the Custodian a Certificate specifying with respect to such Put Option: (a) the
Series to which such Put Option was specifically allocated; (b) the name of the
issuer and the title and number of shares subject to the Put Option; (c) the
expiration date; (d) the date of exercise and settlement; (e) the exercise
price per share; (f) the total amount to be paid to the Fund upon such
exercise; and (g) the name of the Clearing Member through whom such Put Option
was exercised. The Custodian shall, upon receipt of the amount payable upon the
exercise of the Put Option, deliver or direct the Depository to deliver the
Securities specifically allocated to such Series, provided the same conforms to
the amount payable to the Fund as set forth in such Certificate.
5. Promptly after the exercise by the Fund of any Stock Index
Option purchased by the Fund pursuant to paragraph 1 hereof, the Fund shall
deliver to the Custodian a Certificate specifying with respect to such Stock
Index Option: (a) the Series to which such Stock Index Option was specifically
allocated; (b) the type of Stock Index Option (put or call); (c) the number of
Options being exercised; (d) the stock index to which such Option relates; (e)
the expiration date; (f) the exercise price; (g) the total amount to be
received by the Fund in connection with such exercise; and (h) the Clearing
Member from whom such payment is to be received.
6. Whenever the Fund writes a Covered Call Option, the Fund
shall promptly deliver to the Custodian a Certificate specifying with respect
to such Covered Call Option: (a) the series for which such Covered Call Option
was written; (b) the name of the issuer and the title and number of shares for
which the Covered Call Option was written and which underlie the same; (c) the
expiration date; (d) the exercise price; (e) the premium to be received by the
Fund; (f) the date such Covered Call Option was written; and (g) the name of
the Clearing Member through whom the premium is to be received. The Custodian
shall deliver or cause to be delivered, in exchange for receipt of the premium
specified in the Certificate with respect to such Covered Call Option, such
receipts as are required in accordance with the customs prevailing among
Clearing Members dealing in Covered Call Options and shall impose, or direct
the Depository to impose, upon the underlying Securities specified in the
Certificate specifically allocated to such Series such restrictions as may be
required by such receipts. Notwithstanding the foregoing, the Custodian has the
right, upon prior written notification to the Fund, at any time to refuse to
issue any receipts for Securities in the possession of the Custodian and not
deposited with the Depository underlying a Covered Call Option.
7. Whenever a Covered Call Option written by the Fund and
described in the preceding paragraph of this Article is exercised, the Fund
shall promptly deliver to the Custodian a Certificate instructing the Custodian
to deliver, or to direct the Depository to deliver, the Securities subject to
such Covered Call Option and specifying: (a) the Series for which such Covered
Call Option was written; (b) the name of the issuer and the title and number of
shares subject to the Covered Call Option; (c) the Clearing Member to whom the
underlying Securities are to be delivered; and (d) the total amount payable to
the Fund upon such delivery. Upon the return and/or cancellation of any
receipts delivered pursuant to paragraph 6 of this Article, the Custodian shall
deliver, or direct the Depository to deliver, the underlying Securities as
specified in the Certificate against payment of the amount to be received as
set forth in such Certificate.
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<PAGE> 11
8. Whenever the Fund writes a Put Option, the Fund shall
promptly deliver to the Custodian a Certificate specifying with respect to such
Put Option: (a) the Series for which such Put option was written; (b) the name
of the issuer and the title and number of shares for which the Put Option is
written and which underlie the same; (c) the expiration date; (d) the exercise
price; (e) the premium to be received by the Fund; (f) the date such Put Option
is written; (g) the name of the Clearing Member through whom the premium is to
be received and to whom a Put Option guarantee letter is to be delivered; (h)
the amount of cash, and/or the amount and kind of Securities, if any,
specifically allocated to such Series to be deposited in the Senior Security
Account for such Series; and (i) the amount of cash and/or the amount and kind
of Securities specifically allocated to such Series to be deposited into the
Collateral Account for such Series. The Custodian shall, after making the
deposits into the Collateral Account specified in the Certificate, issue a Put
Option guarantee letter substantially in the form utilized by the Custodian on
the date hereof, and deliver the same to the Clearing Member specified in the
Certificate against receipt of the premium specified in said Certificate.
Notwithstanding the foregoing, the Custodian shall be under no obligation to
issue any Put Option guarantee letter or similar document if it is unable to
make any of the representations contained therein.
9. Whenever a Put Option written by the Fund and described in
the preceding paragraph is exercised, the Fund shall promptly deliver to the
Custodian a Certificate specifying: (a) the Series to which such Put Option was
written; (b) the name of the issuer and title and number of shares subject to
the Put Option; (c) the Clearing Member from whom the underlying Securities are
to be received; (d) the total amount payable by the Fund upon such delivery;
(e) the amount of cash and/or the amount and kind of Securities specifically
allocated to such Series to be withdrawn from the Collateral Account for such
Series and (f) the amount of cash and/or the amount and kind of Securities,
specifically allocated to such Series, if any, to be withdrawn from the Senior
Security Account. Upon the return and/or cancellation of any Put Option
guarantee letter or similar document issued by the Custodian in connection with
such Put Option, the Custodian shall pay out of the moneys held for the account
of the Series to which such Put Option was specifically allocated the total
amount payable to the Clearing Member specified in the Certificate as set forth
in such Certificate against delivery of such Securities, and shall make the
withdrawals specified in such Certificate.
10. Whenever the Fund writes a Stock Index Option, the Fund shall
promptly deliver to the Custodian a Certificate specifying with respect to such
Stock Index Option: (a) the Series for which such Stock Index Option was
written; (b) whether such Stock Index Option is a put or a call; (c) the number
of options written; (d) the stock index to which such Option relates; (e) the
expiration date; (f) the exercise price; (g) the Clearing Member through whom
such Option was written; (h) the premium to be received by the Fund; (i) the
amount of cash and/or the amount and kind of Securities, if any, specifically
allocated to such Series to be deposited in the Senior Security Account for
such Series; (j) the amount of cash and/or the amount and kind of Securities,
if any, specifically allocated to such Series to be deposited in the Collateral
Account for such Series; and (k) the amount of cash and/or the amount and kind
of Securities, if any, specifically allocated to such Series to be deposited in
a Margin Account, and the name in which such account is to be or has been
established. The Custodian shall, upon receipt of the premium specified in the
Certificate, make the deposits, if any, into the Senior Security Account
specified in the Certificate, and either (1) deliver such receipts, if any,
which the Custodian has specifically agreed to issue, which are in accordance
with the customs prevailing among Clearing
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<PAGE> 12
Members in Stock Index Options and make the deposits into the Collateral
Account specified in the Certificate, or (2) make the deposits into the Margin
Account specified in the Certificate.
11. Whenever a Stock Index Option written by the Fund and
described in the preceding paragraph of this Article is exercised, the Fund
shall promptly deliver to the Custodian a Certificate specifying with respect
to such Stock Index Option: (a) the Series for which such Stock Index Option
was written; (b) such information as may be necessary to identify the Stock
Index Option being exercised; (c) the Clearing Member through whom such Stock
Index Option is being exercised; (d) the total amount payable upon such
exercise, and whether such amount is to be paid by or to the Fund; (e) the
amount of cash and/or amount and kind of Securities, if any, to be withdrawn
from the Margin Account; and (f) the amount of cash and/or amount and kind of
Securities, if any, to be withdrawn from the Senior Security Account for such
Series; and the amount of cash and/or the amount and kind of Securities, if
any, to be withdrawn from the Collateral Account for such Series. Upon the
return and/or cancellation of the receipt, if any, delivered pursuant to the
preceding paragraph of this Article, the Custodian shall pay out of the moneys
held for the account of the Series to which such Stock Index Option was
specifically allocated to the Clearing Member specified in the Certificate the
total amount payable, if any, as specified therein.
12. Whenever the Fund purchases any Option identical to a
previously written Option described in paragraph 6, 8 or 10 of this Article
in a transaction expressly designated as a "Closing Purchase Transaction" in
order to liquidate its position as a writer of an Option, the Fund shall
promptly deliver to the Custodian a Certificate specifying with respect to the
Option being purchased: (a) that the transaction is a Closing Purchase
Transaction; (b) the Series for which the Option was written; (c) the name of
the issuer and the title and number of shares subject to the Option, or, in the
case of a Stock Index Option, the stock index to which such Option relates and
the number of Options held; (d) the exercise price; (e) the premium to be paid
by the Fund; (f) the expiration date; (g) the type of Option (put or call); (h)
the date of such purchase; (i) the name of the Clearing Member to whom the
premium is to be paid; and (j) the amount of cash and/or the amount and kind
of Securities, if any, to be withdrawn from the Collateral Account, a specified
Margin Account, or the Senior Security Account for such Series. Upon the
Custodian's payment of the premium and the return and/or cancellation of any
receipt issued pursuant to paragraphs 6, 8 or 10 of this Article with respect
to the option being liquidated through the Closing Purchase Transaction, the
Custodian shall remove, or direct the Depository to remove, the previously
imposed restrictions on the Securities underlying the Call Option.
13. Upon the expiration, exercise, or consummation of a Closing
Transaction with respect to, any Option purchased or written by the Fund and
described in this Article, the Custodian shall delete such Option from the
statements delivered to the Fund pursuant to paragraph 3 Article III herein,
and upon the return and/or cancellation of any receipts issued by the
Custodian, shall make such withdrawals from the Collateral Account, and the
Margin Account and/or the Senior Security Account as may be specified in a
Certificate received in connection with such expiration, exercise, or
consummation.
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<PAGE> 13
ARTICLE VI
FUTURES CONTRACTS
1. Whenever the Fund shall enter into a Futures Contract, the
Fund shall deliver to the Custodian a Certificate specifying with respect to
such Futures Contract (or with respect to any number of identical Futures
Contract(s)): (a) the Series for which the Futures Contract is being entered;
(b) the category of Futures Contract (the name of the underlying stock index or
financial instrument); (c) the number of identical Futures Contracts entered
into; (d) the delivery or settlement date of the Futures Contract(s); (e) the
date the Futures Contract(s) was (were) entered into and the maturity date; (f)
whether the Fund is buying (going long) or selling (going short) on such
Futures Contract(s); (g) the amount of cash and/or the amount and kind of
Securities, if any, to be deposited in the Senior Security Account for such
Series; (h) the name of the broker, dealer, or futures commission merchant
through whom the Futures Contract was entered into; and (i) the amount of fee
or commission, if any, to be paid and the name of the broker, dealer, or
futures commission merchant to whom such amount is to be paid. The Custodian
shall make the deposits, if any, to the Margin Account in accordance with the
terms and conditions of the Margin Account Agreement. The Custodian shall make
payment out of the moneys specifically allocated to such Series of the fee or
commission, if any, specified in the Certificate and deposit in the Senior
Security Account for such Series the amount of cash and/or the amount and kind
of Securities specified in said Certificate.
2. (a) Any variation margin payment or similar payment
required to be made by the Fund to a broker, dealer, or futures commission
merchant with respect to an outstanding Futures Contract, shall be made by the
Custodian in accordance with the terms and conditions of the Margin Account
Agreement.
(b) Any variation margin payment or similar payment from
a broker, dealer, or futures commission merchant to the Fund with respect to an
outstanding Futures Contract, shall be received and dealt with by the Custodian
in accordance with the terms and conditions of the Margin Account Agreement.
3. Whenever a Futures Contract held by the Custodian hereunder
is retained by the Fund until delivery or settlement is made on such Futures
Contract, the Fund shall deliver to the Custodian a Certificate specifying: (a)
the Futures Contract and the Series to which the same relates; (b) with respect
to a Stock Index Futures Contract, the total cash settlement amount to be paid
or received, and with respect to a Financial Futures Contract, the Securities
and/or amount of cash to be delivered or received; (c) the broker, dealer, or
futures commission merchant to or from whom payment or delivery is to be made
or received; and (d) the amount of cash and/or Securities to be withdrawn from
the Senior Security Account for such Series. The Custodian shall make the
payment or delivery specified in the Certificate, and delete such Futures
Contract from the statements delivered to the Fund pursuant to paragraph 3 of
Article III herein.
4. Whenever the Fund shall enter into a Futures Contract to
offset a Futures Contract held by the Custodian hereunder, the Fund shall
deliver to the Custodian a Certificate specifying: (a) the items of information
required in a Certificate described in paragraph 1 of this Article, and
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<PAGE> 14
(b) the Futures Contract being offset. The Custodian shall make payment out of
the money specifically allocated to such Series of the fee or commission, if
any, specified in the Certificate and delete the Futures Contract being offset
from the statements delivered to the Fund pursuant to paragraph 3 of Article
III herein, and make such withdrawals from the Senior Security Account for such
Series as may be specified in such Certificate. The withdrawals, if any, to be
made from the Margin Account shall be made by the Custodian in accordance with
the terms and conditions of the Margin Account Agreement.
ARTICLE VII
FUTURES CONTRACT OPTIONS
1. Promptly after the purchase of any Futures Contract Option by
the Fund, the Fund shall promptly deliver to the Custodian a Certificate
specifying with respect to such Futures Contract Option: (a) the Series to
which such Option is specifically allocated; (b) the type of Futures Contract
Option (put or call); (c) the type of Futures Contract and such other
information as may be necessary to identify the Futures Contract underlying the
Futures Contract Option purchased; (d) the expiration date; (e) the exercise
price; (f) the dates of purchase and settlement; (g) the amount of premium to
be paid by the Fund upon such purchase; (h) the name of the broker or futures
commission merchant through whom such option was purchased; and (i) the name of
the broker, or futures commission merchant, to whom payment is to be made. The
Custodian shall pay out of the moneys specifically allocated to such Series,
the total amount to be paid upon such purchase to the broker or futures
commissions merchant through whom the purchase was made, provided that the same
conforms to the amount set forth in such Certificate.
2. Promptly after the sale of any Futures Contract Option
purchased by the Fund pursuant to paragraph 1 hereof, the Fund shall promptly
deliver to the Custodian a Certificate specifying with respect to each such
sale: (a) Series to which such Futures Contract Option was specifically
allocated; (b) the type of Futures Contract Option (put or call); (c) the type
of Futures Contract and such other information as may be necessary to identify
the Futures Contract underlying the Futures Contract Option; (d) the date of
sale; (e) the sale price; (f) the date of settlement; (g) the total amount
payable to the Fund upon such sale; and (h) the name of the broker or futures
commission merchant through whom the sale was made. The Custodian shall consent
to the cancellation of the Futures Contract Option being closed against payment
to the Custodian of the total amount payable to the Fund, provided the same
conforms to the total amount payable as set forth in such Certificate.
3. Whenever a Futures Contract Option purchased by the Fund
pursuant to paragraph 1 is exercised by the Fund, the Fund shall promptly
deliver to the Custodian a Certificate specifying: (a) the Series to which such
Futures Contract Option was specifically allocated; (b) the particular Futures
Contract Option (put or call) being exercised; (c) the type of Futures Contract
underlying the Futures Contract Option; (d) the date of exercise; (e) the name
of the broker or futures commission merchant through whom the Futures Contract
Option is exercised; (f) the net total amount, if any, payable by the Fund; (g)
the amount, if any, to be received by the Fund; and (h) the amount of cash
and/or the amount and kind of Securities to be
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<PAGE> 15
deposited in the Senior Security Account for such Series. The Custodian shall
make, out of the moneys and Securities specifically allocated to such Series,
the payments, if any, and the deposits, if any, into the Senior Security
Account as specified in the Certificate. The deposits, if any, to be made to
the Margin Account shall be made by the Custodian in accordance with the terms
and conditions of the Margin Account Agreement.
4. Whenever the Fund writes a Futures Contract Option, the Fund
shall promptly deliver to the Custodian a Certificate specifying with respect
to such Futures Contract Option: (a) the Series for which such Futures Contract
Option was written; (b) the type of Futures Contract Option (put or call); (c)
the type of Futures Contract and such other information as may be necessary to
identify the Futures Contract underlying the Futures Contract Option; (d) the
expiration date; (e) the exercise price; (f) the premium to be received by the
Fund; (g) the name of the broker or futures commission merchant through whom
the premium is to be received; and (h) the amount of cash and/or the amount and
kind of Securities, if any, to be deposited in the Senior Security Account for
such Series. The Custodian shall, upon receipt of the premium specified in the
Certificate, make out of the moneys and Securities specifically allocated to
such Series the deposits into the Senior Security Account, if any, as specified
in the Certificate. The deposits, if any, to be made to the Margin Account
shall be made by the Custodian in accordance with the terms and conditions of
the Margin Account Agreement.
5. Whenever a Futures Contract Option written by the Fund which
is a call is exercised, the Fund shall promptly deliver to the Custodian a
Certificate specifying: (a) the Series to which such Futures Contract Option
was specifically allocated; (b) the particular Futures Contract Option
exercised; (c) the type of Futures Contract underlying the Futures Contract
Option; (d) the name of the broker or futures commission merchant through whom
such Futures Contract Option was exercised; (e) the net total amount, if any,
payable to the Fund upon such exercise; (f) the net total amount, if any,
payable by the Fund upon such exercise; and (g) the amount of cash and/or the
amount and kind of Securities to be deposited in the Senior Security Account
for such Series. The Custodian shall, upon its receipt of the net total amount
payable to the Fund, if any, specified in such Certificate make the payments,
if any, and the deposits, if any, into the Senior Security Account as specified
in the Certificate. The deposits, if any, to be made to the Margin Account
shall be made by the Custodian in accordance with the terms and conditions of
the Margin Account Agreement.
6. Whenever a Futures Contract Option which is written by the
Fund and which is a put is exercised, the Fund shall promptly deliver to the
Custodian a Certificate specifying: (a) the Series to which such option was
specifically allocated; (b) the particular Futures Contract Option exercised;
(c) the type of Futures Contract underlying such Futures Contract Option; (d)
the name of the broker or futures commission merchant through whom such Futures
Contract Option is exercised; (e) the net total amount, if any, payable to the
Fund upon such exercise; (f) the net total amount, if any, payable by the Fund
upon such exercise; and (g) the amount and kind of Securities and/or cash to be
withdrawn from or deposited in, the Senior Security Account for such Series, if
any. The Custodian shall, upon its receipt of the net total amount payable to
the Fund, if any, specified in the Certificate, make out of the moneys and
Securities specifically allocated to such Series, the payments, if any, and the
deposits, if any, into the Senior Security Account as specified in the
Certificate. The deposits to and/or withdrawals from the Margin
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<PAGE> 16
Account, if any, shall be made by the Custodian in accordance with the terms
and conditions of the Margin Account Agreement.
7. Whenever the Fund purchases any Futures Contract Option
identical to a previously written Futures Contract Option described in this
Article in order to liquidate its position as a writer of such Futures Contract
Option, the Fund shall promptly deliver to the Custodian a Certificate
specifying with respect to the Futures Contract Option being purchased: (a) the
Series to which such option is specifically allocated; (b) that the transaction
is a closing transaction; (c) the type of Futures Contract and such other
information as may be necessary to identify the Futures Contract underlying the
Futures Option Contract; (d) the exercise price; (e) the premium to be paid by
the Fund; (f) the expiration date; (g) the name of the broker or futures
commission merchant to whom the premium is to be paid; and (h) the amount of
cash and/or the amount and kind of Securities, if any, to be withdrawn from the
Senior Security Account for such Series. The Custodian shall effect the
withdrawals from the Senior Security Account specified in the Certificate. The
withdrawals, if any, to be made from the Margin Account shall be made by the
Custodian in accordance with the terms and conditions of the Margin Account
Agreement.
8. Upon the expiration, exercise, or consummation of a closing
transaction with respect to, any Futures Contract Option written or purchased
by the Fund and described in this Article, the Custodian shall (a) delete such
Futures Contract Option from the statements delivered to the Fund pursuant to
paragraph 3 of Article III herein and, (b) make such withdrawals from and/or in
the case of an exercise such deposits into the Senior Security Account as may
be specified in a Certificate. The deposits to and/or withdrawals from the
Margin Account, if any, shall be made by the Custodian in accordance with the
terms and conditions of the Margin Account Agreement.
9. Futures Contracts acquired by the Fund through the exercise
of a Futures Contract Option described in this Article shall be subject to
Article VI hereof.
ARTICLE VIII
SHORT SALES
1. Promptly after any short sales by any Series of the Fund, the
Fund shall promptly deliver to the Custodian a Certificate specifying: (a) the
Series for which such short sale was made; (b) the name of the issuer and the
title of the Security; (c) the number of shares or principal amount sold, and
accrued interest or dividends, if any; (d) the dates of the sale and
settlement; (e) the sale price per unit; (f) the total amount credited to the
Fund upon such sale, if any; (g) the amount of cash and/or the amount and kind
of Securities, if any, which are to be deposited in a Margin Account and the
name in which such Margin Account has been or is to be established; (h) the
amount of cash and/or the amount and kind of Securities, if any, to be
deposited in a Senior Security Account; and (i) the name of the broker through
whom such short sale was made. The Custodian shall upon its receipt of a
statement from such broker confirming such sale and that the total amount
credited to the Fund upon such sale, if any, as specified in the
16
<PAGE> 17
Certificate is held by such broker for the account of the Custodian (or any
nominee of the Custodian) as custodian of the Fund, issue a receipt or make the
deposits into the Margin Account and the Senior Security Account specified in
the Certificate.
2. In connection with the closing-out of any short sale, the
Fund shall promptly deliver to the Custodian a Certificate specifying with
respect to each such closing out: (a) the Series for which such transaction is
being made; (b) the name of the issuer and the title of the Security; (c) the
number of shares or the principal amount, and accrued interest or dividends, if
any, required to effect such closing-out to be delivered to the broker; (d) the
dates of closing-out and settlement; (e) the purchase price per unit; (f) the
net total amount payable to the Fund upon such closing-out; (g) the net total
amount payable to the broker upon such closing-out; (h) the amount of cash and
the amount and kind of Securities to be withdrawn, if any, from the Margin
Account; (i) the amount of cash and/or the amount and kind of Securities, if
any, to be withdrawn from the Senior Security Account; and (j) the name of the
broker through whom the Fund is effecting such closing-out. The Custodian
shall, upon receipt of the net total amount payable to the Fund upon such
closing-out, and the return and/or cancellation of the receipts, if any, issued
by the Custodian with respect to the short sale being closed-out, pay out of
the moneys held for the account of the Fund to the broker the net total amount
payable to the broker, and make the withdrawals from the Margin Account and the
Senior Security Account, as the same are specified in the Certificate.
ARTICLE IX
REVERSE REPURCHASE AGREEMENTS
1. Promptly after the Fund enters a Reverse Repurchase Agreement
with respect to Securities and money held by the Custodian hereunder, the Fund
shall deliver to the Custodian a Certificate or in the event such Reverse
Repurchase Agreement is a Money Market Security, a Certificate, Oral
Instructions, or Written Instructions specifying: (a) the Series for which the
Reverse Repurchase Agreement is entered; (b) the total amount payable to the
Fund in connection with such Reverse Repurchase Agreement and specifically
allocated to such Series; (c) the broker or dealer through or with whom the
Reverse Repurchase Agreement is entered; (d) the amount and kind of Securities
to be delivered by the Fund to such broker or dealer; (e) the date of such
Reverse Repurchase Agreement; and (f) the amount of cash and/or the amount and
kind of Securities, if any, specifically allocated to such Series to be
deposited in a Senior Security Account for such Series in connection with such
Reverse Repurchase Agreement. The Custodian shall, upon receipt of the total
amount payable to the Fund specified in the Certificate, Oral Instructions, or
Written Instructions make the delivery to the broker or dealer, and the
deposits, if any, to the Senior Security Account, specified in such
Certificate, Oral Instructions, or Written Instructions.
2. Upon the termination of a Reverse Repurchase Agreement
described in preceding paragraph 1 of this Article, the Fund shall promptly
deliver a Certificate or, in the event such Reverse Repurchase Agreement is a
Money Market Security, a Certificate, Oral Instructions, or Written
Instructions to the Custodian specifying: (a) the Reverse Repurchase Agreement
being
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<PAGE> 18
terminated and the Series for which same was entered; (b) the total amount
payable by the Fund in connection with such termination; (c) the amount and
kind of Securities to be received by the Fund and specifically allocated to
such Series in connection with such termination; (d) the date of termination;
(e) the name of the broker or dealer with or through whom the Reverse
Repurchase Agreement is to be terminated; and (f) the amount of cash and/or the
amount and kind of Securities to be withdrawn from the Senior Security
Account for such Series. The Custodian shall, upon receipt of the amount and
kind of Securities to be received by the Fund specified in the Certificate,
Oral Instructions, or Written Instructions, make the payment to the broker or
dealer, and the withdrawals, if any, from the Senior Security Account,
specified in such Certificate, Oral Instructions, or Written Instructions.
ARTICLE X
LOAN OF PORTFOLIO SECURITIES OF THE FUND
1. Promptly after each loan of portfolio Securities specifically
allocated to a Series held by the Custodian hereunder, the Fund shall deliver
or cause to be delivered to the Custodian a Certificate specifying with respect
to each such loan: (a) the Series to which the loaned Securities are
specifically allocated; (b) the name of the issuer and the title of the
Securities; (c) the number of shares or the principal amount loaned; (d) the
date of loan and delivery; (e) the total amount to be delivered to the
Custodian against the loan of the Securities, including the amount of cash
collateral and the premium, if any, separately identified; and (f) the name of
the broker, dealer, or financial institution to which the loan was made. The
Custodian shall deliver the Securities thus designated to the broker, dealer or
financial institution to which the loan was made upon receipt of the total
amount designated as to be delivered against the loan of Securities. The
Custodian may accept payment in connection with a delivery otherwise than
through the Book-Entry System or Depository only in the form of a certified or
bank cashier's check payable to the order of the Fund or the Custodian drawn on
New York Clearing House funds and may deliver Securities in accordance with the
customs prevailing among dealers in securities.
2. Promptly after each termination of the loan of Securities by
the Fund, the Fund shall deliver or cause to be delivered to the Custodian a
Certificate specifying with respect to, each such loan termination and return
of Securities: (a) the Series to which the loaned Securities are specifically
allocated; (b) the name of the issuer and the title of the Securities to be
returned; (c) the number of shares or the principal amount to be returned; (d)
the date of termination; (e) the total amount to be delivered by the Custodian
(including the cash collateral for such Securities minus any offsetting credits
as described in said Certificate); and (f) the name of the broker, dealer, or
financial institution from which the Securities will be returned. The Custodian
shall receive all Securities returned from the broker, dealer, or financial
institution to which such Securities were loaned and upon receipt thereof shall
pay, out of the moneys held for the account of the Fund, the total amount
payable upon such return of Securities as set forth in the Certificate.
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<PAGE> 19
ARTICLE XI
CONCERNING MARGIN ACCOUNTS, SENIOR SECURITY
ACCOUNTS, AND COLLATERAL ACCOUNTS
1. The Custodian shall, from time to time, make such deposits
to, or withdrawals from, a Senior Security Account as specified in a
Certificate received by the Custodian. Such Certificate shall specify the
Series for which such deposit or withdrawal is to be made, and the amount of
cash and/or the amount and kind of Securities specifically allocated to such
Series to be deposited in, or withdrawn from, such Senior Security Account for
such Series. In the event that the Fund fails to specify in a Certificate the
Series, the name of the issuer, the title and the number of shares or the
principal amount of any particular Securities to be deposited by the Custodian
into, or withdrawn from, a Senior Securities Account, the Custodian shall be
under no obligation to make any such deposit or withdrawal and shall so notify
the Fund.
2. The Custodian shall make deliveries or payments from a Margin
Account to the broker, dealer, futures commission merchant or Clearing Member
in whose name, or for whose benefit, the account was established as specified
in the Margin Account Agreement.
3. Amounts received by the Custodian as payments or
distributions with respect to Securities deposited in any Margin Account shall
be dealt with in accordance with the terms and conditions of the Margin Account
Agreement.
4. The Custodian shall have a continuing lien and security
interest in and to any property at any time held by the Custodian in any
Collateral Account described herein. In accordance with applicable law the
Custodian may enforce its lien and realize on any such property whenever the
Custodian has made payment or delivery pursuant to any Put Option guarantee
letter or similar document or any receipt issued hereunder by the Custodian. In
the event the Custodian should realize on any such property net proceeds which
are less than the Custodian's obligations under any Put Option guarantee letter
or similar document or any receipt, such deficiency shall be a debt owed the
Custodian by the Fund within the scope of Article XIV herein.
5. On each business day the Custodian shall furnish the Fund
with a statement with respect to each Margin Account in which money or
Securities are held specifying as of the close of business on the previous
business day: (a) the name of the Margin Account; (b) the amount and kind of
Securities held therein; and (c) the amount of money held therein. The
Custodian shall make available upon request to any broker, dealer, or futures
commission merchant specified in the name of a Margin Account a copy of the
statement furnished the Fund with respect to such Margin Account.
6. Promptly after the close of business on each business day in
which cash and/or Securities are maintained in a Collateral Account for any
Series, the Custodian shall furnish the Fund with a statement with respect to
such Collateral Account specifying the amount of cash and/or the amount and
kind of Securities held therein. No later than the close of business next
succeeding the delivery to the Fund of such statement, the Fund shall furnish
to the Custodian a
19
<PAGE> 20
Certificate or Written Instructions specifying the then market value of the
Securities described in such statement. In the event such then market value is
indicated to be less than the Custodian's obligation with respect to any
outstanding Put Option guarantee letter or similar document, the Fund shall
promptly specify in a Certificate the additional cash and/or Securities to be
deposited in such Collateral Account to eliminate such deficiency.
ARTICLE XII
PAYMENT OF DIVIDENDS OR DISTRIBUTIONS
1. The Fund shall furnish to the Custodian a copy of the
resolution of the Board of Directors of the Fund, certified by the Secretary or
any Assistant Secretary, either (i) setting forth with respect to the Series
specified therein the date of the declaration of a dividend or distribution,
the date of payment thereof, the record date as of which shareholders entitled
to payment shall be determined, the amount payable per Share of such Series to
the shareholders of record as of that date and the total amount payable to the
Dividend Agent and any sub-dividend agent or co-dividend agent of the Fund on
the payment date, or (ii) authorizing with respect to the Series specified
therein the declaration of dividends and distributions on a daily basis and
authorizing the Custodian to rely on Oral Instructions, Written Instructions or
a Certificate setting forth the date of the declaration of such dividend or
distribution, the date of payment thereof, the record date as of which
shareholders entitled to payment shall be determined, the amount payable per
Share of such Series to the shareholders of record as of that date and the
total amount payable to the Dividend Agent on the payment date.
2. Upon the payment date specified in such resolution, Oral
Instructions, Written Instructions or Certificate, as the case may be, the
Custodian shall pay out of the moneys held for the account of each Series the
total amount payable to the Dividend Agent, and any sub-dividend agent or
co-dividend agent of the Fund with respect to such Series.
ARTICLE XIII
SALE OF SHARES
1. Whenever the Fund shall sell any Shares, it shall deliver to
the Custodian a Certificate duly specifying:
(a) The Series, the number of Shares sold, trade date, and
price; and
(b) The amount of money to be received by the Custodian
for the sale of such Shares and specifically allocated to the separate account
in the name of such Series.
2. Upon receipt of such money from the Transfer Agent, the
Custodian shall credit such money to the separate account in the name of the
Series for which such money was received.
20
<PAGE> 21
3. Upon issuance of any Shares of any Series described in the
foregoing provisions of this Article, the Custodian shall pay, out of the money
held for the account of such Series, all original issue or other taxes required
to be paid by the Fund in connection with such issuance upon the receipt of a
Certificate specifying the amount to be paid.
ARTICLE XIV
OVERDRAFTS OR INDEBTEDNESS
1. If the Custodian should in its sole discretion advance funds
on behalf of any Series which results in an overdraft because the moneys held
by the Custodian in the separate account for such Series shall be insufficient
to pay the total amount payable upon a purchase of Securities specifically
allocated to such Series, as set forth in a Certificate, Oral Instructions, or
Written Instructions or which results in an overdraft in the separate account
of such Series for some other reason, or if the Fund is for any other reason
indebted to the Custodian with respect to a Series, including any indebtedness
to The Bank of New York under the Fund's Cash Management and Related Services
Agreement (except a borrowing for investment or for temporary or emergency
purposes using Securities as collateral pursuant to a separate agreement and
subject to the provisions of paragraph 2 of this Article), such overdraft or
indebtedness shall be deemed to be a loan made by the Custodian to the Fund for
such Series payable on demand and shall bear interest from the date incurred at
a rate per annum (based on a 360-day year for the actual number of days
involved) equal to 1/2% over Custodian's prime commercial lending rate in
effect from time to time, such rate to be adjusted on the effective date of any
change in such prime commercial lending rate but in no event to be less than 6%
per annum. In addition, the Fund hereby agrees that the Custodian shall have a
continuing lien and security interest in and to any property specifically
allocated to such Series at any time held by it for the benefit of such Series
or in which the Fund may have an interest which is then in the Custodian's
possession or control or in possession or control of any third party acting in
the Custodian's behalf. The Fund authorizes the Custodian, in its sole
discretion, at any time to charge any such overdraft or indebtedness together
with interest due thereon against any balance of account standing to such
Series' credit on the Custodian's books.
2. The Fund will cause to be delivered to the Custodian by any
bank (including, if the borrowing is pursuant to a separate agreement, the
Custodian) from which it borrows money for investment or for temporary or
emergency purposes using Securities held by the Custodian hereunder as
collateral for such borrowings, a notice or undertaking in the form currently
employed by any such bank setting forth the amount which such bank will loan to
the Fund against delivery of a stated amount of collateral. The Fund shall
promptly deliver to the Custodian a Certificate specifying with respect to each
such borrowing: (a) the Series to which such borrowing relates; (b) the name of
the bank; (c) the amount and terms of the borrowing, which may be set forth by
incorporating by reference an attached promissory note, duly endorsed by the
Fund, or other loan agreement; (d) the time and date, if known, on which the
loan is to be entered into; (e) the date on which the loan becomes due and
payable; (f) the total amount payable to the Fund on the borrowing date; (g)
the market value of Securities to be delivered as collateral for such loan,
including the name of the issuer, the title and the number of shares or the
21
<PAGE> 22
principal amount of any particular Securities; and (h) a statement specifying
whether such loan is for investment purposes or for temporary or emergency
purposes and that such loan is in conformance with the Investment Company Act
of 1940 and the Fund's prospectus. The Custodian shall deliver on the borrowing
date specified in a Certificate the specified collateral and the executed
promissory note, if any, against delivery by the lending bank of the total
amount of the loan payable, provided that the same conforms to the total amount
payable as set forth in the Certificate. The Custodian may, at the option of
the lending bank, keep such collateral in its possession, but such collateral
shall be subject to all rights therein given the lending bank by virtue of any
promissory note or loan agreement. The Custodian shall deliver such Securities
as additional collateral as may be specified in a Certificate to collateralize
further any transaction described in this paragraph. The Fund shall cause all
Securities released from collateral status to be returned directly to the
Custodian, and the Custodian shall receive from time to time such return of
collateral as may be tendered to it. In the event that the Fund fails to
specify in a Certificate the Series, the name of the issuer, the title and
number of shares or the principal amount of any particular Securities to be
delivered as collateral by the Custodian, the Custodian shall not be under any
obligation to deliver any Securities.
ARTICLE XV
CONCERNING THE CUSTODIAN
1. Except as hereinafter provided, neither the Custodian nor its
nominee shall be liable for any loss or damage, including counsel fees,
resulting from its action or omission to act or otherwise, either hereunder or
under any Margin Account Agreement, except for any such loss or damage arising
out of its own negligence or willful misconduct. The Custodian may, with
respect to questions of law arising hereunder or under any Margin Account
Agreement, apply for and obtain the advice and opinion of counsel to the Fund
or of its own counsel, at the expense of the Fund, and shall be fully protected
with respect to anything done or omitted by it in good faith in conformity with
such advice or opinion. The Custodian shall be liable to the Fund for any loss
or damage resulting from the use of the Book-Entry System or any Depository
arising by reason of any negligence, misfeasance or willful misconduct on the
part of the Custodian or any of its employees or agents.
2. Without limiting the generality of the foregoing, the
Custodian shall be under no obligation to inquire into, and shall not be liable
for:
(a) The validity of the issue of any Securities
purchased, sold, or written by or for the Fund, the legality of the purchase,
sale or writing thereof, or the propriety of the amount paid or received
therefor;
(b) The legality of the sale or redemption of any Shares,
or the propriety of the amount to be received or paid therefor;
(c) The legality of the declaration or payment of any
dividend by the Fund;
(d) The legality of any borrowing by the Fund using
Securities as collateral;
22
<PAGE> 23
(e) The legality of any loan of portfolio Securities, nor
shall the Custodian be under any duty or obligation to see to it that any cash
collateral delivered to it by a broker, dealer, or financial institution or held
by it at any time as a result of such loan of portfolio Securities of the Fund
is adequate collateral for the Fund against any loss it might sustain as a
result of such loan. The Custodian specifically, but not by way of limitation,
shall not be under any duty or obligation periodically to check or notify the
Fund that the amount of such cash collateral held by it for the Fund is
sufficient collateral for the Fund, but such duty or obligation shall be the
sole responsibility of the Fund. In addition, the Custodian shall be under no
duty or obligation to see that any broker, dealer or financial institution to
which portfolio Securities of the Fund are lent pursuant to Article XIV of this
Agreement makes payment to it of any dividends or interest which are payable to
or for the account of the Fund during the period of such loan or at the
termination of such loan, provided, however, that the Custodian shall promptly
notify the Fund in the event that such dividends or interest are not paid and
received when due; or
(f) The sufficiency or value of any amounts of money
and/or Securities held in any Margin Account, Senior Security Account or
Collateral Account in connection with transactions by the Fund. In addition, the
Custodian shall be under no duty or obligation to see that any broker, dealer,
futures commission merchant or Clearing Member makes payment to the Fund of any
variation margin payment or similar payment which the Fund may be entitled to
receive from such broker, dealer, futures commission merchant or Clearing
Member, to see that any payment received by the Custodian from any broker,
dealer, futures commission merchant or Clearing Member is the amount the Fund is
entitled to receive, or to notify the Fund of the Custodian's receipt or
non-receipt of any such payment.
3. The Custodian shall not be liable for, or considered to be
the Custodian of, any money, whether or not represented by any check, draft, or
other instrument for the payment of money, received by it on behalf of the Fund
until the Custodian actually receives and collects such money directly or by
the final crediting of the account representing the Fund's interest at the
Book-Entry System or the Depository.
4. The Custodian shall have no responsibility and shall not be
liable for ascertaining or acting upon any calls, conversions, exchange,
offers, tenders, interest rate changes or similar matters relating to
Securities held in the Depository, unless the Custodian shall have actually
received timely notice from the Depository. In no event shall the Custodian
have any responsibility or liability for the failure of the Depository to
collect, or for the late collection or late crediting by the Depository of any
amount payable upon Securities deposited in the Depository which may mature or
be redeemed, retired, called or otherwise become payable. However, upon receipt
of a Certificate from the Fund of an overdue amount on Securities held in the
Depository the Custodian shall make a claim against the Depository on behalf of
the Fund, except that the Custodian shall not be under any obligation to appear
in, prosecute or defend any action suit or proceeding in respect to any
Securities held by the Depository which in its opinion may involve it in
expense or liability, unless indemnity satisfactory to it against all expense
and liability be furnished as often as may be required.
5. The Custodian shall not be under any duty or obligation to
take action to effect collection of any amount due to the Fund from the
Transfer Agent of the Fund nor to take any
23
<PAGE> 24
action to effect payment or distribution by the Transfer Agent of the Fund of
any amount paid by the Custodian to the Transfer Agent of the Fund in
accordance with this Agreement.
6. The Custodian shall not be under any duty or obligation to
take action to effect collection of any amount, if the Securities upon which
such amount is payable are in default, or if payment is refused after due
demand or presentation, unless and until (i) it shall be directed to take such
action by a Certificate and (ii) it shall be assured to its satisfaction of
reimbursement of its costs and expenses in connection with any such action.
7. The Custodian may appoint one or more banking institutions as
Depository or Depositories, as Sub-Custodian or Sub-Custodians, or as
Co-Custodian or Co-Custodians including, but not limited to, banking
institutions located in foreign countries, of Securities and moneys at any time
owned by the Fund, upon such terms and conditions as may be approved in a
Certificate or contained in an agreement executed by the Custodian, the Fund
and the appointed institution.
8. The Custodian shall not be under any duty or obligation (a)
to ascertain whether any Securities at any time delivered to, or held by it,
for the account of the Fund and specifically allocated to a Series are such as
properly may be held by the Fund or such Series under the provisions of its
then current prospectus, or (b) to ascertain whether any transactions by the
Fund, whether or not involving the Custodian, are such transactions as may
properly be engaged in by the Fund.
9. The Custodian shall be entitled to receive and the Fund
agrees to pay to the Custodian all out-of-pocket expenses and such compensation
as may be agreed upon from time to time between the Custodian and the Fund. The
Custodian may charge such compensation and any expenses with respect to a
series incurred by the Custodian in the performance of its duties pursuant to
such agreement against any money specifically allocated to such Series. Unless
and until the Fund instructs the Custodian by a Certificate to apportion any
loss, damage, liability or expense among the Series in a specified manner, the
Custodian shall also be entitled to charge against any money held by it for the
account of a Series such Series' pro rata share (based on such Series net asset
value at the time of the charge to the aggregate net asset value of all Series
at that time) of the amount of any loss, damage, liability or expense,
including counsel fees, for which it shall be entitled to reimbursement under
the provisions of this Agreement. The expenses for which the Custodian shall be
entitled to reimbursement hereunder shall include, but are not limited to, the
expenses of sub-custodians and foreign branches of the Custodian incurred in
settling outside of New York City transactions involving the purchase and sale
of Securities of the Fund.
10. The Custodian shall be entitled to rely upon any Certificate,
notice or other instrument in writing received by the Custodian and reasonably
believed by the Custodian to be a Certificate. The Custodian shall be entitled
to rely upon any Oral Instructions and any Written Instructions actually
received by the Custodian hereinabove provided for. The Fund agrees to forward
to the Custodian a Certificate or facsimile thereof confirming such Oral
Instructions or Written Instructions in such manner so that such Certificate or
facsimile thereof is received by the Custodian, whether by hand delivery,
telecopier or other similar device, or otherwise, by the close of business of
the same day that such Oral Instructions or Written Instructions are given to
24
<PAGE> 25
the Custodian. The Fund agrees that the fact that such confirming instructions
are not received by the Custodian shall in no way affect the validity of the
transactions or enforceability of the transactions hereby authorized by the
Fund. The Fund agrees that the Custodian shall incur no liability to the Fund
in acting upon Oral Instructions or Written Instructions given to the Custodian
hereunder concerning such transactions provided such instructions reasonably
appear to have been received from an Authorized Person.
11. The Custodian shall be entitled to rely upon any instrument,
instruction or notice received by the Custodian and reasonably believed by the
Custodian to be given in accordance with the terms and conditions of any Margin
Account Agreement. Without limiting the generality of the foregoing, the
Custodian shall be under no duty to inquire into, and shall not be liable for,
the accuracy of any statements or representations contained in any such
instrument or other notice including, without limitation, any specification of
any amount to be paid to a broker, dealer, futures commission merchant or
Clearing Member.
12. The books and records pertaining to the Fund which are in the
possession of the Custodian shall be the property of the Fund. Such books and
records shall be prepared and maintained as required by the Investment Company
Act of 1940, as amended, and other applicable securities laws and rules and
regulations. The Fund, or the Fund's authorized representatives, shall have
access to such books and records during the Custodian's normal business hours.
Upon the reasonable request of the Fund, copies of any such books and records
shall be provided by the Custodian to the Fund or the Fund's authorized
representative, and the Fund shall reimburse the Custodian its expenses of
providing such copies.
13. The Custodian shall provide the Fund with any report obtained
by the Custodian on the system of internal accounting control of the Book-Entry
System, the Depository, or O.C.C., and with such reports on its own systems of
internal accounting control as the Fund may reasonably request from time to
time.
14. Subject to the foregoing provisions of this Agreement, the
Custodian may deliver and receive Securities, and receipts with respect to such
Securities, and arrange for payments to be made and received by the Custodian
in accordance with the customs prevailing from time to time among brokers or
dealers in such Securities.
15. The Custodian shall have no duties or responsibilities
whatsoever except such duties and responsibilities as are specifically set
forth in this Agreement, and no covenant or obligation shall be implied in this
Agreement against the Custodian.
ARTICLE XVI
TERMINATION
1. Either of the parties hereto may terminate this Agreement by
giving to the other party a notice in writing specifying the date of such
termination, which shall be not less than ninety (90) days after the date of
giving of such notice. In the event such notice is given by the Fund, it shall
be accompanied by a copy of a resolution of the Board of Directors of the Fund,
25
<PAGE> 26
certified by the Secretary or any Assistant Secretary, electing to terminate
this Agreement and designating a successor custodian or custodians, each of
which shall be a bank or trust company having not less than $2,000,000
aggregate capital, surplus and undivided profits. In the event such notice is
given by the Custodian, the Fund shall, on or before the termination date,
deliver to the Custodian a copy of a resolution of the Board of Directors of
the Fund, certified by the Secretary or any Assistant Secretary, designating a
successor custodian or custodians. In the absence of such designation by the
Fund, the Custodian may designate a successor custodian which shall be a bank
or trust company having not less than $2,000,000 aggregate capital, surplus and
undivided profits. Upon the date set forth in such notice this Agreement shall
terminate, and the Custodian shall upon receipt of a notice of acceptance by
the successor custodian on that date deliver directly to the successor
custodian all Securities and moneys then owned by the Fund and held by it as
Custodian, after deducting all fees, expenses and other amounts for the payment
or reimbursement of which it shall then be entitled.
2. If a successor custodian is not designated by the Fund or the
Custodian in accordance with the preceding paragraph, the Fund shall upon the
date specified in the notice of termination of this Agreement and upon the
delivery by the Custodian of all Securities (other than Securities held in the
Book-Entry System which cannot be delivered to the Fund) and moneys then owned
by the Fund be deemed to be its own custodian and the Custodian shall thereby
be relieved of all duties and responsibilities pursuant to this Agreement,
other than the duty with respect to Securities held in the Book-Entry System
which cannot be delivered to the Fund to hold such Securities hereunder in
accordance with this Agreement.
ARTICLE XVII
MISCELLANEOUS
1. Annexed hereto as Appendix A is a Certificate signed by two
of the present Officers of the Fund under its corporate seal, setting forth the
names and the signatures of the present Authorized Persons. The Fund agrees to
furnish to the Custodian a new Certificate in similar form in the event that
any such present Authorized Person ceases to be an Authorized Person or in the
event that other or additional Authorized Persons are elected or appointed.
Until such new Certificate shall be received, the Custodian shall be fully
protected in acting under the provisions of this Agreement upon Oral
Instructions or signatures of the present Authorized Persons as set forth in
the last delivered Certificate.
2. Annexed hereto as Appendix B is a Certificate signed by two
of the present Officers of the Fund under its corporate seal, setting forth the
names and the signatures of the present Officers of the Fund. The Fund agrees
to furnish to the Custodian a new Certificate in similar form in the event any
such present Officer ceases to be an Officer of the Fund, or in the event that
other or additional Officers are elected or appointed. Until such new
Certificate shall be received, the Custodian shall be fully protected in acting
under the provisions of this Agreement upon the signatures of the Officers as
set forth in the last delivered Certificate.
26
<PAGE> 27
3. Any notice or other instrument in writing, authorized or
required by this Agreement to be given to the Custodian, shall be sufficiently
given if addressed to the Custodian and mailed or delivered to it at its
offices at 90 Washington Street, New York, New York 10286, or at such other
place as the Custodian may from time to time designate in writing.
4. Any notice or other instrument in writing, authorized or
required by this Agreement to be given to the Fund shall be sufficiently given
if addressed to the Fund and mailed or delivered to it at its office at the
address for the Fund first above written, or at such other place as the Fund
may from time to time designate in writing.
5. This Agreement may not be amended or modified in any manner
except by a written agreement executed by both parties with the same formality
as this Agreement and approved by a resolution of the Board of Directors of the
Fund.
6. This Agreement shall extend to and shall be binding upon the
parties hereto, and their respective successors and assigns; provided, however,
that this Agreement shall not be assignable by the Fund without the written
consent of the Custodian, or by the Custodian without the written consent of
the Fund, authorized or approved by a resolution of the Fund's Board of
Directors.
7. This Agreement shall be construed in accordance with the laws
of the State of New York.
8. This Agreement may be executed in any number of counterparts,
each of which shall be deemed to be an original, but such counterparts shall,
together, constitute only one instrument.
27
<PAGE> 28
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective corporate Officers, thereunto duly authorized
and their respective corporate seals to be hereunto affixed, as of the day and
year first above written.
MUNIYIELD NEW JERSEY FUND, INC.
By:
-----------------------------
[SEAL]
Attest:
- -----------------------------
THE BANK OF NEW YORK
By:
-----------------------------
[SEAL]
Attest:
- -----------------------------
28
<PAGE> 29
APPENDIX A
I,
, President and I,
, Secretary of MUNIYIELD NEW JERSEY FUND, INC., a Maryland
corporation (the "Fund"), do hereby certify that:
The following individuals have been duly authorized by the Board of
Directors of the Fund in conformity with the Fund's Articles of Incorporation
and By-Laws to give Oral Instructions and Written Instructions on behalf of the
Fund, and the signatures set forth opposite their respective names are their
true and correct signatures:
Name Signature
- ----------------------- ---------------------------
<PAGE> 30
APPENDIX B
I, , President and I,
, Secretary of MUNIYIELD NEW JERSEY FUND, INC., a Maryland
corporation (the "Fund"), do hereby certify that:
The following individuals serve in the following positions with the
Fund and each has been duly elected or appointed by the Board of Directors of
the Fund to each such position and qualified therefor in conformity with the
Fund's Articles of Incorporation and By-Laws, and the signatures set forth
opposite their respective names are their true and correct signatures:
Name Position Signature
- ----------------------- ----------------- -------------------
<PAGE> 31
APPENDIX C
I, ,a Vice
President with THE BANK OF NEW YORK do hereby designate the following
publications:
The Bond Buyer
Depository Trust Company Notices
Financial Daily Card Service
JJ Kenney Municipal Bond Service
London Financial Times
New York Times
Standard & Poor's Called Bond Record
Wall Street Journal
<PAGE> 32
EXHIBIT A
CERTIFICATION
The undersigned, , hereby certifies that
he or she is the duly elected and acting Secretary of MUNIYIELD NEW JERSEY
FUND, INC., a Maryland corporation (the "Fund"), and further certifies that the
following resolution was adopted by the Board of Directors of the Fund at a
meeting duly held on March , 1992, at which a quorum was at all times present
and that such resolution has not been modified or rescinded and is in full
force and effect as of the date hereof.
RESOLVED, that The Bank of New York, as Custodian pursuant to
a Custody Agreement between The Bank of New York and the Fund dated
as of March 1992, (the "Custody Agreement") is authorized and
instructed on a continuous and ongoing basis to deposit in the
Book-Entry System, as defined in the Custody Agreement, all securities
eligible for deposit therein, regardless of the Series to which the
same are specifically allocated, and to utilize the Book-Entry System
to the extent possible in connection with its performance thereunder,
including, without limitation, in connection with settlements of
purchases and sales of securities, loans of securities, and deliveries
and returns of securities collateral.
IN WITNESS WHEREOF, I have hereunto set my hand and the seal of
MUNIYIELD NEW JERSEY FUND, INC. as of the day of March, 1992.
-----------------------------------
[SEAL]
<PAGE> 33
EXHIBIT B
CERTIFICATION
The undersigned, hereby certifies that he
or she is the duly elected and acting Secretary of MUNIYIELD NEW JERSEY FUND,
INC., a Maryland corporation (the "Fund"), and further certifies that the
following resolution was adopted by the Board of Directors of the Fund at a
meeting duly held on March 1992, at which a quorum was at all times present and
that such resolution has not been modified or rescinded and is in full force
and effect as of the date hereof.
RESOLVED, that The Bank of New York, as Custodian pursuant to
a Custody Agreement between The Bank of New York and the Fund dated as
of March 1, 1992 (the "Custody Agreement") is authorized and
instructed on a continuous and ongoing basis until such time as it
receives a Certificate, as defined in the Custody Agreement, to the
contrary to deposit in the Depository, as defined in the Custody
Agreement, all securities eligible for deposit therein, regardless of
the Series to which the same are specifically allocated, and to
utilize the Depository to the extent possible in connection with its
performance thereunder, including, without limitation, in connection
with settlements of purchases and sales of securities, loans of
securities, and deliveries and returns of securities collateral.
IN WITNESS WHEREOF, I have hereunto set my hand and the seal of
MUNIYIELD NEW JERSEY FUND, INC. as of the day of March, 1992.
-----------------------------------
, Secretary
[SEAL]
<PAGE> 34
EXHIBIT C
CERTIFICATION
The undersigned, , hereby certifies that
he or she is the duly elected and acting Secretary of MUNIYIELD NEW JERSEY FUND
INC., a Maryland corporation (the "Fund"), and further certifies that the
following resolution was adopted by the Board of Directors of the Fund at a
meeting duly held on March , 1992, at which a quorum was at all times present
and that such resolution has not been modified or rescinded and is in full
force and effect as of the date hereof.
RESOLVED, that The Bank of New York, as Custodian pursuant to
a Custody Agreement between The Bank of New York and the Fund dated as
of March , 1992, (the "Custody Agreement") is authorized and
instructed on a continuous and ongoing basis until such time as it
receives a Certificate, as defined in the Custody Agreement, to the
contrary, to accept, utilize and act with respect to Clearing Member
confirmations for Options and transaction in Options, regardless of
the Series to which the same are specifically allocated, as such terms
are defined in the Custody Agreement, as provided in the Custody
Agreement.
IN WITNESS WHEREOF, I have hereunto set my hand and the seal of
MUNIYIELD NEW JERSEY FUND, INC. as of the day of March, 1992.
-----------------------------------
, Secretary
[SEAL]
<PAGE> 1
BROWN & WOOD LLP
ONE WORLD TRADE CENTER
NEW YORK, N.Y. 10048-0557
TELEPHONE: 212-839-5300
FACSIMILE: 212-839-5589
November 8, 1999
MuniYield New Jersey Fund, Inc.
800 Scudders Mill Road
Plainsboro, New Jersey 08536
Ladies and Gentlemen:
We have acted as counsel for MuniYield New Jersey Fund, Inc. (the
"Fund") in connection with the proposed acquisition by the Fund of substantially
all of the assets and the assumption by the Fund of substantially all of the
liabilities of MuniVest New Jersey Fund, Inc. ("MuniVest"), in exchange for
newly-issued shares of common stock and auction market preferred stock of the
Fund (collectively the "Reorganization"). This opinion is furnished in
connection with the Fund's Registration Statement on Form N-14 under the
Securities Act of 1933, as amended (File No. 333-88483) (the "Registration
Statement"), relating to shares of common stock and auction market preferred
stock of the Fund, each par value $0.10 per share (the "Shares"), to be issued
in the Reorganization.
As counsel for the Fund, we are familiar with the proceedings taken by
it and to be taken by it in connection with the authorization, issuance and sale
of the Shares. In addition, we have examined and are familiar with the Articles
of Incorporation of the Fund, as amended and supplemented, the By-Laws of the
Fund, as amended, and such other documents as we have deemed relevant to the
matters referred to in this opinion.
Based upon the foregoing, we are of the opinion that subsequent to the
approval of the Agreement and Plan of Reorganization between the Fund and
MuniVest set forth in the joint proxy statement and prospectus constituting a
part of the Registration Statement (the "Proxy Statement and Prospectus"), the
Shares, upon issuance in the manner referred to in the Registration Statement,
for consideration not less than the par value thereof, will be legally issued,
fully paid and non-assessable shares of common stock or auction market preferred
stock, as the case may be, of the Fund.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name in the Proxy Statement and
Prospectus constituting a part thereof.
Very truly yours,
/s/ Brown & Wood LLP
---------------------
Brown & Wood LLP
<PAGE> 1
EXHIBIT 13 (a)
AGREEMENT, made as of ______________ between MuniYield New Jersey Fund, Inc. a
corporation organized and existing under the laws of the state of Maryland
(hereinafter referred to as the "Customer"), and The Bank of New York, a New
York trust company (hereinafter referred to as the "Bank").
W I T N E S S E T H:
That for and in consideration of the mutual promises hereinafter set forth, the
parties hereto covenant and agree as follows:
ARTICLE I
DEFINITIONS
Whenever used in this Agreement, the following words and phrases shall have the
following meanings:
1. "Business Day" shall be deemed to be each day on which the Bank is
open for business.
2. "Certificate" shall mean any notice, instruction, or other instrument
in writing, authorized or required by this Agreement to be given to the Bank by
the Customer which is signed by any Officer, as hereinafter defined, and
actually received by the Bank.
3. "Officer" shall be deemed to be the Customer's Chief Executive Officer,
President, any Vice President, the Secretary, the Treasurer, the Controller, any
Assistant Treasurer and any Assistant Secretary duly authorized by the Board of
Directors of the Customer to execute any Certificate, instruction, notice or
other instrument on behalf of the Customer and named in a Certificate, as such
Certificate may be amended from time to time.
4. "Prospectus" shall mean the last Customer prospectus actually received
by the Bank from the Customer with respect to which the Customer has indicated a
registration statement under the Securities Act of 1933, as amended, has become
effective, including the statement of Additional Information incorporated by
reference therein.
5. "Shares" shall mean all or any part of each class of the shares of
capital stock of the Customer which from time to time are authorized and/or
issued by the Customer and identified in a Certificate of the Secretary of the
Customer under corporate seal, as such Certificate may be amended from time to
time.
ARTICLE II
APPOINTMENT OF BANK
1. The Customer hereby constitutes and appoints the Bank as its agent to
perform the services described herein and as more particularly described in
Schedule I attached hereto (the "Services"), and the Bank hereby accepts
appointment as such agent and agrees to perform the Services in accordance with
the terms hereinafter set forth.
<PAGE> 2
2. In connection with such appointment, the Customer shall deliver the
following documents to the Bank on or about the closing date of the initial
public offering:
(a) A certified copy of the Certificate of Incorporation or other
document evidencing the Customer's form of organization (the "Charter") and all
amendments thereto;
(b) A certified copy of the By-Laws of the Customer;
(c) A certified copy of a resolution of the Board of Directors of
the Customer appointing the Bank to perform the Services and authorizing the
execution and delivery of this Agreement;
(d) A Certificate signed by the Secretary of the Customer
specifying: the number of authorized Shares, the number of such authorized
Shares issued and currently outstanding, and the names and specimen signatures
of all persons duly authorized by the Board of Directors of the Customer to
execute any Certificate on behalf of the Customer, which Certificate may be
amended from time to time;
(e) A Specimen Share certificate for each class of Shares in the
form approved by the Board of Directors of the Customer, together with a
Certificate signed by the Secretary of the Customer as to such approval;
(f) A copy of the Customer's Registration Statement, filed by the
Customer with the Securities and Exchange Commission under the Securities Act
of 1933, as amended.
(g) An opinion of counsel for the Customer with respect to the
validity of the authorized and outstanding Shares, whether such Shares are
fully paid and non-assessable and the status of such Shares under the
Securities Act of 1933, as amended, and any other applicable law or regulation
(i.e., if subject to registration, that they have been registered and that the
Registration Statement has become effective or, if exempt, the specific grounds
therefor).
3. The Customer shall furnish the Bank with a sufficient supply of blank
Share certificates and from time to time will renew such supply upon request of
the Bank. Such blank Share certificates shall be properly signed, by facsimile
or otherwise, by officers of the Customer authorized by law or by the By-Laws
to sign Share certificates, and, if required, shall bear the corporate seal or
a facsimile thereof.
ARTICLE III
AUTHORIZATION AND ISSUANCE OF SHARES
1. The Customer shall deliver to the Bank a certified copy of the
amendment to the Charter giving effect to such increase, decrease or change, on
or before the effective date of any increase, decrease or other change in the
total number of Shares authorized to be issued.
(a) A certified copy of the amendment to the Charter giving
effect to such increase, decrease or change;
2
<PAGE> 3
(b) An opinion of counsel for the Customer with respect to the
validity of the Shares and the status of such Shares under the Securities Act
of 1933, as amended, and any other applicable federal law or regulations (i.e.,
if subject to registration, that they have been registered and that the
Registration Statement has become effective or, if exempt, the specific grounds
therefor); and
(c) In the case of an increase, if the appointment of the Bank
was theretofore expressly limited, a certified copy of a resolution of the
Board of Directors of the Customer increasing the authority of the Bank.
2. Prior to the issuance of any additional Shares pursuant to stock
dividends, stock splits or otherwise, and prior to any reduction in the number
of Shares outstanding, the Customer shall deliver the following documents to the
Bank.
(a) A certified copy of the resolutions adopted by the Board of
Directors and/or the shareholders of the Customer authorizing such issuance of
additional Shares of the Customer or such reduction, as the case may be;
(b) A certified copy of the order or consent, if applicable, of
each governmental or regulatory authority required by law as a prerequisite to
the issuance or reduction of such Shares; and
(c) An opinion of counsel for the Customer with respect to the
validity of the Shares and the status of such the Shares under the Securities
Act of 1933, as amended, and any other applicable law or regulation (i.e., if
subject to registration, that they have been registered and that the
Registration Statement has become effective, or, if exempt, the specific
grounds therefor).
ARTICLE IV
RECAPITALIZATION OR CAPITAL ADJUSTMENT
1. In the case of any negative stock split, recapitalization or other
capital adjustment requiring a change in the form of Share certificates, the
Bank will issue Share certificates in the new form in exchange for, or upon
transfer of, outstanding Share certificates in the old form, upon receiving:
(a) A Certificate authorizing the issuance of Share certificates
in the new form;
(b) A certified copy of any amendment to the Charter with respect
to the change;
(c) Specimen Share certificates for each class of Shares in the
new form approved by the Board of Directors of the Customer, with a Certificate
signed by the Secretary of the Customer as to such approval;
(d) A certified copy of the order or consent of each governmental
or regulatory authority required by law as a prerequisite to the issuance of
the Shares in the new form, and an opinion of counsel for the Customer that the
order or consent of no other governmental or regulatory authority is required;
and
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<PAGE> 4
(e) An opinion of counsel for the Customer with respect to the
validity of the Shares in the new form and the status of such Shares under the
Securities Act of 1933, as amended, and any other applicable law or regulation
(i.e., if subject to registration that the Shares have been registered and that
the Registration Statement has become effective or, if exempt, the specific
grounds therefor).
2. The Customer shall furnish the Bank with a sufficient supply of blank
Share certificates in the new form, and from time to time will replenish such
supply upon the request of the Bank. Such blank Share certificates shall be
properly signed, by facsimile or otherwise, by Officers of the Customer
authorized by law or by the By-Laws to sign Share Certificates and, if
required, shall bear the corporate seal or a facsimile thereof.
ARTICLE V
ISSUANCE AND TRANSFER OF SHARES
1. (a) The Bank will issue Share certificates upon receipt of a
Certificate from an Officer, but shall not be required to issue Share
certificates after it has received from an appropriate federal or state
authority written notification that the sale of Shares has been suspended or
discontinued, and the Bank shall be entitled to rely upon such written
notification. The Bank shall not be responsible for the payment of any original
issue or other taxes required to be paid by the Customer in connection with the
issuance of any shares.
(b) Shares will be transferred upon presentation to the Bank of
Share certificates in form deemed by the Bank properly endorsed for transfer,
accompanied by such documents as the Bank deems necessary to evidence the
authority of the person making such transfer, and bearing satisfactory evidence
of the payment of applicable stock transfer taxes. In the case of small estates
where no administration is contemplated, the Bank may, when furnished with an
appropriate surety bond, and without further approval of the Customer, transfer
Shares registered in the name of the decedent where the current market value of
the Shares being transferred does not exceed such amount as may from time to
time be prescribed by the various states. The Bank reserves the right to refuse
to transfer Shares until it is satisfied that the endorsements on Share
certificates are valid and genuine, and for that purpose it may require, unless
otherwise instructed by an Officer of the Customer, a guaranty of signature by
a member firm of the New York Stock Exchange or by a bank or trust company
acceptable to the Bank. The Bank also reserves the right to refuse to transfer
Shares until it is satisfied that the requested transfer is legally authorized,
and it shall incur no liability for the refusal in good faith to make transfers
which the Bank, in its judgment, deems improper or unauthorized, or until it is
satisfied that there is no basis to any claims adverse to such transfer. The
Bank may, in effecting transfers of Shares, rely upon those provisions of the
Uniform Act for the Simplification of Fiduciary Security Transfers or the
Uniform Commercial Code, as the same may be amended from time to time,
applicable to the transfer of securities, and the Customer shall indemnify the
Bank for any act done or omitted by it in good faith in reliance upon such
laws.
(c) All certificates representing Shares that are subject to
restrictions on transfer (e.g., securities acquired pursuant to an investment
representation, securities held by controlling persons, securities subject to
stockholders' agreements, etc.), other than the general restrictions on the
transferability of the Shares described in the Prospectus, shall be stamped
with a legend
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<PAGE> 5
describing the extent and conditions of the restrictions or referring to the
source of such restrictions. The Bank assumes no responsibility with respect to
the transfer of restricted securities where counsel for the Customer advises
that such transfer may be properly effected.
(d) Notwithstanding the foregoing or any other provision
contained in this Agreement to the contrary, the Bank shall be fully protected
by the Customer in not requiring any instruments, documents, assurances,
endorsements or guarantees, including, without limitation, any signature
guarantees, in connection with a transfer of Shares whenever the Bank
reasonably believes that requiring the same would be inconsistent with the
transfer procedures as described in the Prospectus.
ARTICLE VI
DIVIDENDS AND DISTRIBUTIONS
1. Customer shall furnish to the Bank a copy of a resolution of its Board
of Directors, certified by the Secretary or any Assistant Secretary, either (i)
setting forth the date of the declaration of a dividend or distribution, the
date of accrual or payment, as the case may be, the record date as of which
shareholders entitled to payment, or accrual, as the case may be, shall be
determined, the amount per Share of such dividend or distribution, the payment
date on which all previously accrued and unpaid dividends are to be paid, and
the total amount, if any, payable to the Bank on such payment date, or (ii)
authorizing the declaration of dividends and distributions on a periodic basis
and authorizing the Bank to rely on a Certificate setting forth the information
described in subsection (i) of this paragraph.
2. Prior to the payment date specified in such Certificate or resolution,
as the case may be, the Customer shall, in the case of a cash dividend or
distribution, pay to the Bank an amount of cash, sufficient for the Bank to
make the payment, specified in such Certificate or resolution, to the
shareholders of record as of such payment date. The Bank will, upon receipt of
any such cash, (i) in the case of shareholders who are participants in a
dividend reinvestment and/or cash purchase plan of the Customer, reinvest such
cash dividends or distributions in accordance with the terms of such plan, and
(ii) in the case of shareholders who are not participants in any such plan,
make payment of such cash dividends or distributions to the shareholders of
record as of the record date by mailing a check, payable to the registered
shareholder, to the address of record or dividend mailing address. The Bank
shall not be able for any improper payment made in accordance with a
Certificate or resolution described in the preceding paragraph. If the Bank
shall not receive sufficient cash prior to the payment date to make payments of
any cash dividend or distribution pursuant to subsections (i) and (ii) above to
all shareholders of the Customer as of the record date, the Bank shall, upon
notifying the Customer, withhold payment to all shareholders of the Customer as
of the record date until sufficient cash is provided to the Bank.
3. It is understood that the Bank shall in no way be responsible for the
determination of the rate or form of dividends or distributions due to the
shareholders.
4. It is understood that the Bank shall file such appropriate information
returns concerning the payment of dividends and distributions with the proper
federal, state and local authorities as are required by law to be filed by the
Customer but shall in no way be responsible for the
5
<PAGE> 6
collection or withholding of taxes due on such dividends or distributions due
to shareholders, except and only to the extent required of it by applicable
law.
ARTICLE VII
CONCERNING THE CUSTOMER
1. The Customer shall promptly deliver to the Bank written notice of any
change in the Officers authorized to sign Share certificates, Certificates,
notifications or requests, together with a specimen signature of each new
Officer. In the event any Officer who shall have signed manually or whose
facsimile signature shall have been affixed to blank Share certificates shall
die, resign or be removed prior to issuance of such Share certificates, the
Bank may issue such Share certificates as the Share certificates of the
Customer notwithstanding such death, resignation or removal, and the Customer
shall promptly deliver to the Bank such approvals, adoptions or ratifications
as may be required by law.
2. Each copy of the Charter of the Customer and copies of all amendments
thereto shall be certified by the Secretary of State (or other appropriate
official) of the state of incorporation, and if such Charter and/or amendments
are required by law also to be filed with a county or other officer or official
body, a certificate of such filing shall be filed with a certified copy
submitted to the Bank. Each copy of the By-Laws and copies of all amendments
thereto, and copies of resolutions of the Board of Directors of the Customer,
shall be certified by the Secretary or an Assistant Secretary of the Customer
under the corporate seal.
3. It shall be the sole responsibility of the Customer to deliver to the
Bank the Customer's currently effective Prospectus and, for purposes of this
Agreement, the Bank shall not be deemed to have notice of any information
contained in such Prospectus until it is actually received by the Bank.
ARTICLE VIII
CONCERNING THE BANK
1. The Bank shall not be liable and shall be fully protected in acting
upon any oral instruction, writing or document reasonably believed by it to be
genuine and to have been given, signed or made by the proper person or persons
and shall not be held to have any notice of any change of authority of any
person until receipt of written notice thereof from an Officer of the Customer.
It shall also be protected in processing Share certificates which it reasonably
believes to bear the proper manual or facsimile signatures of the duly
authorized officers of the Customer and the proper countersignature of the
Bank.
2. The Bank may establish such additional procedures, rules and
regulations governing the transfer or registration of Share certificates as it
may deem advisable and consistent with such rules and regulations generally
adopted by bank transfer agents.
3. The Bank may keep such records as it deems advisable but not
inconsistent with resolutions adopted by the Board of Directors of the
Customer. The Bank may deliver to the Customer from time to time at its
discretion, for safekeeping or disposition by the Customer in accordance with
law, such records, papers, Share certificates which have been cancelled in
transfer or exchange and other documents accumulated in the execution of its
duties hereunder as
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<PAGE> 7
the Bank may deem expedient, other than those which the Bank is itself required
to maintain pursuant to applicable laws and regulations, and the Customer shall
assume all responsibility for any failure thereafter to produce any record,
paper, cancelled Share certificate or other document so returned, if and when
required. The records maintained by the Bank pursuant to this paragraph which
have not been previously delivered to the Customer pursuant to the foregoing
provisions of this paragraph shall be considered to be the property of the
Customer, shall be made available upon request for inspection by the Officers,
employees and auditors of the Customer, and shall be delivered to the Customer
upon request and in any event upon the date of termination of this Agreement,
as specified in Article IX of this Agreement, in the form and manner kept by
the Bank on such date of termination or such earlier date as may be requested
by the Customer.
4. The Bank may employ agents or attorneys-in-fact at the reasonable
expense of the Customer, and shall not be liable for any loss or expense
arising out of or in connection with, the actions or omissions to act of its
agents or attorneys-in-fact, so long as the Bank acts in good faith and without
negligence or willful misconduct in connection with the selection of such
agents or attorneys-in-fact.
5. The Bank shall not be liable for any loss or damage, including
reasonable attorney's fees, resulting from its actions or omissions to act or
otherwise, except for any loss or damage arising out of its own negligence or
willful misconduct.
6. The Customer shall indemnify and hold harmless the Bank from and
against any and all claims (whether with or without basis in fact or law),
costs, demands, expenses and liabilities, including reasonable attorney's fees,
which the Bank may sustain or incur or which may be asserted against the Bank
by reason of or as a result of any action taken or omitted to be taken by the
Bank without its own negligence or willful misconduct in reliance upon (i) any
provision of this agreement, (ii) the Prospectus, (iii) any instrument, order
or Share certificate reasonably believed by it to be genuine and to be signed,
countersigned or executed by any duly authorized Officer of the Customer, (iv)
any Certificate or other instructions of an Officer, (v) any opinion of legal
counsel for the Customer or the Bank, or (vi) any law, act, regulation or any
interpretation of the same even though such law, act or regulation may
thereafter have been altered, changed, amended or repealed.
7. Specifically, but not by way of limitation, the Customer shall
indemnify and hold harmless the Bank from and against any and all claims
(whether with or without basis in fact or law), costs, demands, expenses and
liabilities, including reasonable attorney's fees, of any and every nature
which the Bank may sustain or incur or which may be asserted against the Bank
in connection with the genuineness of a Share certificate, the Bank's capacity
and authorization to issue Shares and the form and amount of authorized Shares.
8. At any time the Bank may apply to an Officer of the Customer for
written instructions with respect to any matter arising in connection with the
Bank's duties and obligations under this Agreement, and the Bank shall not be
liable for any action taken or omitted to be taken by the Bank in good faith in
accordance with such instructions. Such application by the Bank for
instructions from an Officer of the Customer may, at the option of the Bank,
set forth in writing any action proposed to be taken or omitted to be taken by
the Bank with respect to its duties or obligations under this Agreement and the
date on and/or after which such action shall be taken,
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<PAGE> 8
and the Bank shall not be liable for any action taken or omitted to be taken in
accordance with a proposal included in any such application on or after the
date specified therein unless, prior to taking or omitting to take any such
action, the Bank has received written instructions in response to such
application specifying the action to be taken or omitted. The Bank may consult
counsel to the Customer or its own counsel, at the expense of the Customer, and
shall be fully protected with respect to anything done or omitted by it in good
faith in accordance with the advice or opinion of such counsel.
9. When mail is used for delivery of non-negotiable Share certificates,
the value of which does not exceed the limits of the Bank's Blanket Bond, the
Bank shall send such non-negotiable Share certificates by first class mail, and
such deliveries will be covered while in transit by the Bank's Blanket Bond.
Non-negotiable Share certificates, the value of which exceed the limits of the
Bank's Blanket Bond, will be sent by insured registered mail. Negotiable Share
certificates will be sent by insured registered mail. The Bank shall advise the
Customer of any Share certificates returned as undeliverable after being mailed
as herein provided for.
10. The Bank may issue new Share certificates in place of Share
certificates represented to have been lost, stolen or destroyed upon receiving
instructions in writing from an Officer and indemnity satisfactory to the Bank.
Such instructions from the Customer shall be in such form as approved by the
Board of Directors of the Customer in accordance with applicable law or the
By-Laws of the Customer governing such matters. If the Bank receives written
notification from the owner of the lost, stolen or destroyed Share certificate
within a reasonable time after he has notice of it, the Bank shall promptly
notify the Customer and shall act pursuant to written instructions signed by an
Officer. If the Customer receives such written notification from the owner of
the lost, stolen or destroyed Share certificate within a reasonable time after
he has notice of it, the Customer shall promptly notify the Bank and the Bank
shall act pursuant to written instructions signed by an Officer. The Bank shall
not be liable for any act done or omitted by it pursuant to the written
instructions described herein. The Bank may issue new Share certificates in
exchange for, and upon surrender of, mutilated Share certificates.
11. The Bank will issue and mail subscription warrants for Shares, Shares
representing stock dividends, exchanges or splits, or act as conversion agent
upon receiving written instructions from an Officer and such other documents as
the Bank may deem necessary.
12. The Bank will supply shareholder lists to the Customer from time to
time upon receiving a request therefor from an Officer of the Customer.
13. In case of any requests or demands for the inspection of the
shareholder records of the Customer, the Bank will notify the Customer and
endeavor to secure instructions from an officer as to such inspection. The Bank
reserves the right, however, to exhibit the shareholder records to any person
whenever it is advised by its counsel that there is a reasonable likelihood
that the Bank will be held liable for the failure to exhibit the shareholder
records to such person.
14. At the request of an Officer, the Bank will address and mail such
appropriate notices to shareholders as the Customer may direct.
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<PAGE> 9
15. Notwithstanding any provisions of this Agreement to the contrary, the
Bank shall be under no duty or obligation to inquire into, and shall not be
liable for:
(a) The legality of the issue, sale or transfer of any Shares,
the sufficiency of the amount to be received in connection therewith, or the
authority of the Customer to request such issuance, sale or transfer;
(b) The legality of the purchase of any Shares, the sufficiency
of the amount to be paid in connection therewith, or the authority of the
Customer to request such purchase;
(c) The legality of the declaration of any dividend by the
Customer, or the legality of the issue of any Shares in payment of any stock
dividend; or
(d) The legality of any recapitalization or readjustment of the
Shares.
16. The Bank shall be entitled to receive and the Customer hereby agrees
to pay to the Bank for its performance hereunder (i) out-of-pocket expenses
(including reasonable attorney's fees and expenses) incurred in connection with
this Agreement and its performance hereunder, and (ii) the compensation for
services as set forth in Schedule I.
17. The Bank shall not be responsible for any money, whether or not
represented by any check, draft or other instrument for the payment of money,
received by it on behalf of the Customer, until the Bank actually receives and
collects such funds.
18. The Bank shall have no duties or responsibilities whatsoever except
such duties and responsibilities as are specifically set forth in this
Agreement, and no covenant or obligation shall be implied against the Bank in
connection with this Agreement.
ARTICLE IX
TERMINATION
Either of the parties hereto may terminate this Agreement by giving to the
other party a notice in writing specifying the date of such termination, which
shall be not less than 60 days after the date of receipt of such notice. In the
event such notice is given by the Customer, it shall be accompanied by a copy
of a resolution of the Board of Directors of the Customer, certified by the
Secretary electing to terminate this Agreement and designating a successor
transfer agent or transfer agents. In the event such notice is given by the
Bank, the Customer shall, on or before the termination date, deliver to the
Bank a copy of a resolution of its Board of Directors certified by the
Secretary designating a successor transfer agent or transfer agents. In the
absence of such designation by the Customer, the Bank may designate a successor
transfer agent. If the Customer fails to designate a successor transfer agent
and if the Bank is unable to find a successor transfer agent, the Customer
shall, upon the date specified in the notice of termination of this Agreement
and delivery of the records maintained hereunder, be deemed to be its own
transfer agent and the Bank shall thereafter be relieved of all duties and
responsibilities hereunder. Upon termination hereof, the Customer shall pay to
the Bank such compensation as may be due to the Bank as of the date of such
termination, and shall reimburse the Bank for any disbursements and expenses
made or incurred by the Bank and payable or reimbursable hereunder.
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<PAGE> 10
ARTICLE X
MISCELLANEOUS
1. The Customer agrees that prior to effecting any change in the
Prospectus which would increase or alter the duties and obligations of the Bank
hereunder, it shall advise the Bank of such proposed change at least ten
business days prior to the intended date of the same, and shall proceed with
such change only if it shall have received the written consent of the Bank
thereto.
2. The indemnities contained herein shall be continuing obligations of
the Customer, its successors and assigns, notwithstanding the termination of
this Agreement.
3. Any notice or other instrument in writing, authorized or required by
this Agreement to be given to the Customer shall be sufficiently given if
addressed to the Customer and mailed or delivered to it at 800 Scudders Mill
Road, Plainsboro, NJ 08536 or at such place as the Customer may from time to
time designate in writing.
4. Any notice or other instrument in writing, authorized or required by
this Agreement to be given to the Bank shall be sufficiently given if addressed
to the Bank and mailed or delivered to it at its office at 101 Barclay Street
(22W), New York, New York 10286 or at such other place as the Bank may from
time to time designate in writing.
5. This Agreement may not be amended or modified in any manner except by
a written agreement duly authorized and executed by both parties. Any duly
authorized Officer may amend any Certificate naming Officers authorized to
execute and deliver Certificates, instructions, notices or other instruments,
and the Secretary or any Assistant Secretary may amend any Certificate listing
the shares of capital stock of the Customer, for which the Bank performs
Services hereunder.
6. This Agreement shall extend to and shall be binding upon the parties
hereto and their respective successors and assigns; provided however, that this
Agreement shall not be assignable by either party without the prior written
consent of the other party.
7. This Agreement shall be governed by and construed in accordance with
the laws of the State of New York.
8. This Agreement may be executed in any number of counterparts each of
which shall be deemed to be an original; but such counterparts, together, shall
constitute only one instrument.
9. The provisions of this Agreement are intended to benefit only the Bank
and the Customer, and no rights shall be granted to any other person, by virtue
of this Agreement.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective corporate officer, thereunto duly authorized and
their respective corporate seals to be hereunto affixed, as of the day and year
first above written.
Attest: MUNIYIELD NEW JERSEY FUND, INC.
- --------------------------- By:
--------------------------------
Title:
-----------------------------
Attest: THE BANK OF NEW YORK
- ------------------------- By:
--------------------------------
Title:
-----------------------------
11
<PAGE> 1
EXHIBIT 13(b)
- --------------------------------------------------------------------------------
AUCTION AGENT AGREEMENT
between
MUNIYIELD NEW JERSEY FUND, INC.
and
IBJ SCHRODER BANK & TRUST COMPANY
Dated as of July 1, 1992
Relating to
Auction Market Preferred Stock(R)
("AMPS"(R))
of
MUNIYIELD NEW JERSEY FUND, INC.
- --------------------------------------------------------------------------------
(R)Registered trademark of Merrill Lynch & Co., Inc.
1
<PAGE> 2
THIS AUCTION AGENT AGREEMENT dated as of July 1, 1992, between
MUNIYIELD NEW JERSEY FUND, INC., a Maryland corporation (the "Company"), and
IBJ SCHRODER BANK & TRUST COMPANY, a New York banking corporation.
The Company proposes to duly authorize and issue 1,200 shares
of Auction Market Preferred Stock(R) (the "AMPS"), with a par value of $.10
per share and a liquidation preference of $50,000 per share plus an amount
equal to accumulated but unpaid dividends (whether or not earned or declared)
pursuant to the Company's Articles Supplementary (as defined below). The
Company desires that IBJ Schroder Bank & Trust Company perform certain duties
as agent in connection with the Auction of shares of AMPS (the "Auction Agent")
and as the transfer agent, registrar, dividend disbursing agent and redemption
agent with respect to the shares of AMPS (the "Paying Agent") upon the terms
and conditions of this Agreement, and hereby appoints IBJ Schroder Bank & Trust
Company as said Auction Agent and Paying Agent in accordance with those terms
and conditions (hereinafter generally referred to as the "Auction Agent" except
in Sections 3 and 4 below).
NOW, THEREFORE, in consideration of the premises and the
mutual covenants contained herein, the Company and the Auction Agent agree as
follows:
- ---------------
(R)Registered trademark of Merrill Lynch & Co., Inc.
1
<PAGE> 3
1. Definitions and Rules of Construction.
1.A. Terms Defined by Reference to
Articles Supplementary
Capitalized terms not defined herein shall have the respective
meanings specified in the Articles Supplementary.
1.B. Terms Defined Herein.
As used herein and in the Settlement Procedures (as defined below),
the following terms shall have the following meanings, unless the context
otherwise requires:
1. "Affiliate" shall mean any Person, other than Merrill
Lynch, Pierce, Fenner & Smith Incorporated, made known to the Auction
Agent to be controlled by, in control of or under common control with,
the Company, or its successors.
2. "Agent Member" of any Person shall mean such Person's agent
member of the Securities Depository who is identified as such in such
Person's Purchaser's Letter.
3. "Articles Supplementary" shall mean the Articles
Supplementary of the Company, establishing the powers, preferences and
rights of the AMPS, filed on June 25, 1992, in the Office of the State
Department of Assessments and Taxation of the State of Maryland.
4. "Auction" shall have the meaning specified in Section 2.1
hereof.
5. "Auction Procedures" shall mean the Auction Procedures
that are set forth in Paragraph 11 of the Articles Supplementary.
6. "Authorized Officer" shall mean each Senior Vice
President, Vice President, Assistant Vice President, Trust Officer,
and Assistant Secretary and Assistant Treasurer of the Auction Agent
assigned to its Corporate Trust and Agency Group and every other
officer or employee of the Auction Agent designated as an "Authorized
Officer" for purposes hereof in a communication to the Company.
7. "Broker-Dealer Agreement" shall mean each agreement
between the Auction Agent and a Broker-Dealer substantially in the
form attached hereto as Exhibit A.
8. "Company Officer" shall mean the Chairman and Chief
Executive Officer, the President, each Vice President (whether or not
designated by a number or word or words added before or after the
title "Vice President"), the Secretary, the Treasurer, each Assistant
Secretary and each Assistant Treasurer of the Company and every other
officer or employee of the Company designated as a "Company Officer"
for purposes hereof in a notice from the Company to the Auction Agent.
9. "Holder" shall be a holder of record of one or more shares
of AMPS, listed as such in the stock register maintained by the Paying
Agent pursuant to Section 4.6.
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<PAGE> 4
10. "Purchaser's Letter" shall mean a letter addressed to the
Company, the Auction Agent and a Broker-Dealer, substantially in the
form attached to the Broker-Dealer Agreement as Exhibit A.
11. "Settlement Procedures" shall mean the Settlement
Procedures attached to the Broker- Dealer Agreement as Exhibit B.
1.C. Rules of Construction.
Unless the context or use indicates another or different meaning or
intent, the following rules shall apply to the construction of this Agreement:
1. Words importing the singular number shall include the
plural number and vice versa.
2. The captions and headings herein are solely for
convenience of reference and shall not constitute a part of this
Agreement nor shall they affect its meaning, construction or effect.
3. The words "hereof," "herein," "hereto," and other words of
similar import refer to this Agreement as a whole.
4. All references herein to a particular time of day shall be
to New York City time.
2. The Auction.
2.A. Purpose; Incorporation by Reference of Auction
Procedures and Settlement Procedures.
1. The Articles Supplementary provide that the Applicable
Rate on shares AMPS for each Dividend Period therefor after the
Initial Dividend Period shall be the rate per annum that a commercial
bank, trust company, or other financial institution appointed by the
Company advises results from implementation of the Auction Procedures.
The Board of Directors of the Company has adopted a resolution
appointing IBJ Schroder Bank & Trust Company as Auction Agent for
purposes of the Auction Procedures. The Auction Agent hereby accepts
such appointment and agrees that, on each Auction Date, it shall
follow the procedures set forth in this Section 2 and the Auction
Procedures for the purpose of determining the Applicable Rate for the
AMPS, for the next Dividend Period therefor. Each periodic operation
of such procedures is hereinafter referred to as an "Auction."
2. All of the provisions contained in the Auction. Procedures
and the Settlement Procedures are incorporated herein by reference in
their entirety and shall be deemed to be a part hereof to the same
extent as if such provisions were fully set forth herein.
2.B. Preparation for Each Auction; Maintenance
of Registry of Beneficial Owners.
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<PAGE> 5
1. Pursuant to Section 2.5 hereof, the Company shall not
designate any Person to act as a Broker-Dealer without prior written
approval of the Auction Agent (which approval shall not be withheld
unreasonably). At the time of closing of the initial issuance and sale
of the AMPS (the "Closing"), the Company shall provide the Auction
Agent with a list of the Broker-Dealers previously approved by the
Auction Agent and shall cause to be delivered to the Auction Agent for
execution by the Auction Agent a Broker-Dealer Agreement signed by
each such Broker-Dealer. The Auction Agent shall keep such list
current and accurate, and shall indicate thereon, or on a separate
list, the identity of each Existing Holder, if any, whose most recent
Order was submitted by a Broker-Dealer on such list and resulted in
such Existing Holder continuing to hold or purchasing shares of AMPS.
Not later than five days prior to any Auction Date for which any
change in such list of Broker-Dealers is to be effective, the Company
shall notify the Auction Agent in writing of such change and, if any
such change is the addition of a Broker-Dealer to such list, the
Company shall cause to be delivered to the Auction Agent for execution
by the Auction Agent a Broker-Dealer Agreement signed by such
Broker-Dealer. The Auction Agent shall have entered into a
Broker-Dealer Agreement with each Broker-Dealer prior to the
participation of any such Broker-Dealer in any Auction.
2. In the event that the Auction Date for any Auction
shall be changed after the Auction Agent shall have given the notice
referred to in clause (vii) of Paragraph (a) of the Settlement
Procedures, the Auction Agent, by such means as the Auction Agent
deems practicable, shall give notice of such change to the
Broker-Dealers not later than the earlier of 9:15 A.M. on the new
Auction Date or 9:15 A.M. on the old Auction Date.
3. With respect to each Dividend Period that is a
Special Dividend Period, the Company 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 will be a number of days (other than seven), evenly
divisible by seven, and not fewer than seven nor more than 364 in the
case of a Short Term Dividend Period or one whole year or more but not
greater than five years in the case of a Long Term Dividend Period,
specified in such notice, provided that for any Auction occurring
after the initial Auction, the Company may not give a Request for
Special Dividend Period (and any such request shall be null and void)
unless the Company has received written confirmation from S&P that
such action would not impair the rating then assigned to the AMPS by
S&P and unless sufficient Clearing Bids were made in the last
occurring Auction and unless full cumulative dividends, any amounts
due with respect to mandatory 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 fourth 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 14th day but not more than 28 days prior to the Auction Date for
the AMPS. Upon receiving such Request for Special Dividend Period,
the Broker-Dealers shall jointly determine whether given the factors
set forth in Paragraph 2(c)(iii) of the Articles Supplementary it is
advisable that the Company issue a Notice of Special Dividend Period
for the AMPS as contemplated by such Request for Special
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<PAGE> 6
Dividend Period and the Optional Redemption Price of the AMPS during
such Special Dividend Period and the Specific Redemption Provisions
and shall give the Company and the Auction Agent written notice (a
"Response") of such determination by no later than the third Business
Day prior to such Auction Date. If the Broker-Dealer(s) shall not give
the Company and the Auction Agent a Response by such third Business
Day or if the Response states that given the factors referred to above
it is not advisable that the Company give a Notice of Special Dividend
Period (as defined below) for the AMPS, the Company 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 Company give a Notice of Special Dividend Period
for the AMPS, the Company 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 Company
shall not give a Notice of Special Dividend Period, or, if such Notice
of Special Dividend Period shall have already been given, shall give
telephonic and written notice (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 Coverage is not satisfied or the company
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 Company is an approximately
equal rate for securities similar to the AMPS with an equal dividend
period), provided that in calculating the aggregate Discounted Value
of Moody's Eligible Assets for this purpose, the Moody's Exposure
Period shall be deemed to be one week longer, (y) sufficient funds for
the payment of dividends payable on the immediately succeeding
Dividend Payment Date have not been irrevocably deposited with the
Auction Agent by the close of business on the third Business Day
preceding the related Auction Date or (z) the Broker-Dealer(s) jointly
advise the Company that after consideration of the factors referred to
above they have concluded that it is advisable to give a Notice of
Revocation. If the company is prohibited from giving a Notice of
Special Dividend Period as a result of the factors enumerated in
clause (x), (y) or (z) of the preceding sentence or if the Company
gives a Notice of Revocation with respect to a Notice of Special
Dividend Period, the next succeeding Dividend Period will be a 7-day
Dividend Period. In addition, in the event sufficient Clearing Bids
are not made in any Auction or an Auction is not held for any reason,
the next succeeding Dividend Period will be a 7-day Dividend Period
and the Company may not again give a Notice of Special Dividend Period
(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.
4.a. Except as otherwise provided in Paragraph 2(f) of
the Articles Supplementary, whenever the Company intends to include
any net capital gains or other taxable income in any dividend on
shares of AMPS, the Company will notify the Auction
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<PAGE> 7
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. Whenever the Auction Agent receives
such notice from the company, it will in turn notify each
Broker-Dealer, who, on or prior to such Auction Date, in accordance
with its Broker-Dealer Agreement, will notify its Existing Holders and
Potential Holders believed to be interested in submitting an Order in
the Auction to be held on such Auction Date.
b. If the Company makes a Retroactive Taxable Allocation,
the company will, within 90 days (and generally within 60 days) after
the end of its fiscal year for which a Retroactive Taxable Allocation
is made provide notice thereof to the Auction Agent and to each holder
of shares (initially the Securities Depository) during such fiscal year
at such holder's address as the same appears or last appeared on the
stock books of the Company. The Company 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 shares of AMPS), out of funds
legally available therefor, a cash amount equal to the aggregate
Additional Dividend with respect to all Retroactive Taxable Allocations
made to such holders during the fiscal year in question.
5.a. On each Auction Date, the Auction Agent shall
determine the Reference Rate and the Maximum Applicable Rate. If the
Reference Rate is not quoted on an interest basis but is quoted on a
discount basis, the Auction Agent shall convert the quoted rate to an
Interest Equivalent, as set forth in Paragraph 1 of the Articles
Supplementary; or, if the rate obtained by the Auction Agent is not
quoted on an interest or discount basis, the Auction Agent shall
convert the quoted rate to an interest rate after consultation with
the Company as to the method of such conversion. Not later than 9:30
A.M. on each Auction Date, the Auction Agent shall notify the Company
and the Broker-Dealers of the Reference Rate so determined and the
Maximum Applicable Rate.
(ii) If the Reference Rate is the applicable "AA"
Composite Commercial Paper Rate and such rate is to be based on rates
supplied by Commercial Paper Dealers and one or more of the Commercial
Paper Dealers shall not provide a quotation for the determination of
the applicable "AA" Composite Commercial Paper Rate, the Auction
Agent shall immediately notify the Company so that the Company can
determine whether to select a Substitute Commercial Paper Dealer or
Substitute Commercial Paper Dealers to provide the quotation or
quotations not being supplied by any Commercial Paper Dealer or
Commercial Paper Dealers. The Company shall promptly advise the
Auction Agent of any such selection. If the Company does not select
any such Substitute Commercial Paper Dealer or Substitute Commercial
Paper Dealers, then the rates shall be supplied by the remaining
Commercial Paper Dealer or Commercial Paper Dealers.
(iii) If, after the date of this Agreement, there is any
change in the prevailing rating of AMPS by either of the rating
agencies (or substitute or successor rating agencies) referred to in
the definition of the Maximum Applicable Rate, thereby resulting in
any change in the corresponding applicable percentage for the AMPS, as
set forth in said definition (the "Percentage"), the Company shall
notify the Auction Agent in writing of such change in the Percentage
prior to 9:00 A.M. on the Auction Date for AMPS next succeeding such
change. The Percentage for the AMPS on the date of this Agreement is
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<PAGE> 8
as specified in paragraph 11(a)(vii) of the Articles Supplementary.
The Auction Agent shall be entitled to rely on the last Percentage of
which it has received notice from the Company (or, in the absence of
such notice, the Percentage set forth in the preceding sentence) in
determining the Maximum Applicable Rate as set forth in Section 2.2
(e)(i) hereof.
6.a. The Auction Agent shall maintain a current registry
of the beneficial owners of the shares of AMPS who shall constitute
the Existing Holders for purposes of each Auction. The Company shall
use its best efforts to provide or cause to be provided to the Auction
Agent within ten days following the date of Closing a list of the
initial Existing Holders of the AMPS, and the Broker-Dealer of each
such Existing Holder through which such Existing Holder purchased such
shares. The Auction Agent may rely upon, as evidence of the identities
of the Existing Holders, such list, the results of each Auction and
notices from any Existing Holder, the Agent Member of any Existing
Holder or the Broker-Dealer of any Existing Holder with respect to
such Existing Holder's transfer of any shares of AMPS to another
Person.
b. In the event of any partial redemption of any AMPS, upon
notice by the Company to the Auction Agent of such partial redemption,
the Auction Agent shall promptly request the Securities Depository to
notify the Auction Agent of the identities of the Agent Members (and
the respective numbers of shares) from the accounts of which shares
have been called for redemption and the person or department at such
Agent Member to contact regarding such redemption and, at least two
Business Days prior to the Auction preceding the date of redemption
with respect to shares being partially redeemed, the Auction Agent
shall request each Agent Member so identified to disclose to the
Auction Agent (upon selection by such Agent Member of the Existing
Holders whose shares are to be redeemed) the number of shares of such
AMPS of each such Existing Holder, if any, to be redeemed by the
Company; provided the Auction Agent has been furnished with the name
and telephone number of a person or department at such Agent Member
from which it is to request such information. If necessary to procure
such information, the Auction Agent shall deliver to each Agent Member
a facsimile copy of the Purchaser's Letter of each Existing Holder
represented by such Agent Member, which authorizes and instructs such
Agent Member to release such information to the Auction Agent. In the
absence of receiving any such information with respect to an Existing
Holder, from such Existing Holder's Agent Member or otherwise, the
Auction Agent may continue to treat such Existing Holder as the
beneficial owner of the number of shares of AMPS shown in the Auction
Agent's registry of beneficial owners.
c. The Auction Agent shall register a transfer of the
beneficial ownership of shares of AMPS from an Existing Holder to
another Person only if such transfer is made to a Person that has
delivered a signed Purchaser's Letter to the Auction Agent and only if
(A) such transfer is pursuant to an Auction or (B) such transfer is
made other than pursuant to an Auction, the Auction Agent has been
notified in writing in a notice substantially in the form of Exhibit D
to the Broker-Dealer Agreements, by such Existing Holder, the Agent
Member of such Existing Holder, or the Broker-Dealer of such Existing
Holder of such transfer. The Auction Agent is not required to accept
any notice of transfer delivered for an Auction unless it is received
by the Auction Agent by 3:00
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<PAGE> 9
P.M. on the Business Day next preceding the applicable Auction Date.
The Auction Agent shall rescind a transfer made on the registry of the
beneficial owners of any shares of AMPS if the Auction Agent has been
notified in writing in a notice substantially in the form of Exhibit E
to the Broker-Dealer Agreement by the Agent Member or the
Broker-Dealer of any Person that (i) purchased any shares of AMPS and
the seller failed to deliver such shares or (ii) sold any shares of
AMPS and the purchaser failed to make payment to such Person upon
delivery to the purchaser of such shares.
7. The Auction Agent may request that the Broker-Dealers, as
set forth in Section 3.2(c) of the Broker-Dealer Agreements, provide
the Auction Agent with a list of their respective customers that such
Broker-Dealers believe are Existing Holders of shares of AMPS. The
Auction Agent shall keep confidential any such information and shall
not disclose any such information so provided to any Person other than
the relevant Broker-Dealer and the Company, provided that the Auction
Agent reserves the right to disclose any such information if it is
advised by its counsel that its failure to do so would (i) be unlawful
or (ii) expose it to liability, unless the Company or the relevant
Broker-Dealer shall have offered indemnification satisfactory to the
Auction Agent.
2.3 Auction Schedule.
The Auction Agent shall conduct Auctions in accordance with the
schedule set forth below. Such schedule may be changed by the Auction Agent
with the consent of the Company, which consent shall not be unreasonably
withheld. The Auction Agent shall give notice of any such change to each
Broker-Dealer. Such notice shall be received prior to the first Auction Date on
which any such change shall be effective.
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<TABLE>
<CAPTION>
Time Event
---- -----
<S> <C>
By 9:30 A.M. Auction Agent advises the Company and the Broker-Dealers of
the Reference Rate and the Maximum Applicable Rate as set
forth in Section 2.2(e)(i) hereof.
9:30 A.M. - 1:00 P.M. Auction Agent assembles information communicated to it by
Broker-Dealers as provided in Paragraph 11(c)(i) of the
Articles Supplementary. Submission deadline is 1:00 P.M.
Not earlier than Auction Agent makes determination 1:00 P.M. pursuant to
1:00 P.M. Paragraph 11(d)(i) of the Articles Supplementary.
By approximately Auction Agent advises Company of results of Auction as
3:00 P.M. provided in Paragraph 11(d)(ii) of the Articles
Supplementary. Submitted Bids and Submitted Sell Orders are
accepted and rejected in whole or in part and shares of AMPS
allocated as provided in Paragraph 11(e) of the Articles
Supplementary.
By approximately 10:00 A.M. Auction Agent gives notice of Auction results as set forth
on the next succeeding in Section 2.4 hereof.
Business Day
</TABLE>
2.4 Notice of Auction Results.
On each Auction Date, the Auction Agent shall notify Broker-Dealers of
the results of the Auction held on such date by telephone or through the
Auction Agent's Auction Processing System as set forth in Paragraph (a) of the
Settlement Procedures.
2.5 Broker-Dealers.
(a) Not later than 12:00 noon on each Auction Date, the
Company shall pay to the Auction Agent in New York Clearing House or
similar next-day funds an amount in cash equal to (i) in the case of
any Auction Date immediately preceding a 7-day Dividend Period or
Short-Term Dividend Period, the product of (A) a fraction the
numerator of which is the number of days in such Dividend Period
(calculated by counting the first day of such Dividend Period but
excluding the last day thereof) and the denominator of which is 360,
times (B) 1/4 of 1%, times (C) $50,000, times (D) the sum of the
aggregate number of Outstanding Shares of AMPS for which the Auction
is conducted and (ii) in the case of any Long Term Dividend Period,
the amount determined by mutual consent of
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<PAGE> 11
the Company and the Broker-Dealers pursuant to Section 3.5 of the
Broker-Dealer Agreements. In lieu of making such payment in New York
Clearing House or similar next-day funds, the Company may make such
payment by noon on the Business Day immediately following the Auction
Date in the form of Federal funds or similar same-day funds. The
Auction Agent shall apply such moneys as set forth in Section 3.5 of
the Broker-Dealer Agreements and shall thereafter remit to the Company
any remaining funds paid to the Auction Agent pursuant to this Section
2.5(a).
(b) The Company shall not designate any Person to act as
a Broker-Dealer without the prior written approval of the Auction
Agent, which written approval shall not be unreasonably withheld. The
Company may designate an Affiliate and Merrill Lynch, Pierce, Fenner &
Smith Incorporated to act as a Broker-Dealer.
(c) The Auction Agent shall terminate any Broker-Dealer
Agreement as set forth therein if so directed by the Company.
(d) Subject to Section 2.5(b) hereof, the Auction Agent
shall from time to time enter into such Broker-Dealer Agreements as
the Company shall request.
(e) The Auction Agent shall maintain a list of
Broker-Dealers.
2.6. Ownership of Shares of AMPS and Submission of Bids
by Company and Affiliates.
Neither the Company nor any Affiliate of the Company may submit any
Sell Order or Bid, directly or indirectly, in any Auction, except that an
Affiliate of the Company that is a Broker-Dealer may submit a Sell Order or Bid
on behalf of an Existing Holder or Potential Holder. The Company shall notify
the Auction Agent if the Company or, to the best of the Company's knowledge,
any Affiliate of the Company becomes an Existing Holder of any shares of AMPS.
Any shares of AMPS redeemed, purchased or otherwise acquired (i) by the Company
shall not be reissued or (ii) by its Affiliates shall not be transferred (other
than to the Company). The Auction Agent shall have no duty or liability with
respect to enforcement of this Section 2.6.
2.7 Access to and Maintenance of Auction Records.
The Auction Agent shall afford to the Company, its agents, independent
public accountants and counsel, access at reasonable times during normal
business hours to review and make extracts or copies (at the Company's sole
cost and expense) of all books, records, documents and other information
concerning the conduct and results of Auctions, provided that any such agent,
accountant, or counsel shall furnish the Auction Agent with a letter from the
Company requesting that the Auction Agent afford such person access. The
Auction Agent shall maintain records relating to any Auction for a period of
two years after such Auction (unless requested by the Company to maintain such
records for such longer period not in excess of four years, then for such
longer period), and such records shall, in reasonable detail, accurately and
fairly reflect the actions taken by the Auction Agent hereunder. The Company
agrees to keep any information regarding the customers of any Broker-Dealer
received from the Auction Agent in connection with this Agreement or any
Auction confidential and shall not disclose such information or permit the
disclosure of such information without the prior written consent of the
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<PAGE> 12
applicable Broker-Dealer to anyone except such agent, accountant or counsel
engaged to audit or review the results of Auctions as permitted by this Section
2.7; provided that the Company reserves the right to disclose any such
information if it is advised by its counsel that its failure to do so would (i)
be unlawful or (ii) expose it to liability, unless the Broker-Dealer shall have
offered indemnification satisfactory to the Company. Any such agent, accountant
or counsel, before having access to such information, shall agree to keep such
information confidential and not to disclose such information or permit
disclosure of such information without the prior written consent of the
applicable Broker-Dealer; provided that such agent, accountant or counsel may
reserve the right to disclose any such information if it is advised by its
counsel that its failure to do so would (i) be unlawful or (ii) expose it to
liability, unless the Broker-Dealer shall have offered indemnification
satisfactory to such agent, accountant or counsel.
3. The Auction Agent as Paying Agent.
3.1 Paying Agent.
The Board of Directors of the Company has adopted a resolution
appointing IBJ Schroder Bank & Trust Company as transfer agent, registrar,
dividend disbursing agent and redemption agent for the Company in connection
with any shares of AMPS (the "Paying Agent"). The Paying Agent hereby accepts
such appointment and agrees to act in accordance with its standard procedures
and the provisions of the Articles Supplementary which are specified herein as
Paying Agent with respect to the shares of AMPS and as set forth in this
Section 3.
3.2 The Company's Notices to Paying Agent.
Whenever any shares of AMPS are to be redeemed, the Company shall
promptly deliver to the Paying Agent the Notice of Redemption, which will be
mailed by the Company to each Holder, at least five days prior to the date such
Notice of Redemption is required to be mailed by the Articles Supplementary.
The Paying Agent shall have no responsibility to confirm or verify the accuracy
of any such notice.
3.3 Company to Provide Funds for Dividends,
Redemptions and Additional Dividends.
a. Not later than noon, on the Business Day immediately
preceding each Dividend Payment Date, the Company shall deposit with
the Paying Agent an aggregate amount of New York Clearing House or
similar next-day funds equal to the declared dividends to be paid to
Holders on such Dividend Payment Date and shall give the Paying Agent
irrevocable instructions to apply such funds to the payment of such
dividends on such Dividend Payment Date. In lieu of making such
deposit in New York Clearing House or similar next-day funds, the
Company may make such deposit by noon on each Dividend Payment Date in
the form of Federal funds or similar same-day funds.
b. If the Company shall give the Notice of Redemption
then, by noon of the Business Day immediately preceding the date fixed
for redemption, the Company shall deposit in trust with the Paying
Agent an aggregate amount of New York Clearing House or similar next-
day funds sufficient to redeem such shares of AMPS called for
redemption and shall give the Paying Agent irrevocable instructions
and authority to pay the
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<PAGE> 13
redemption price to the Holders of shares of AMPS called for
redemption upon surrender of the certificate or certificates therefor.
In lieu of making such deposit in New York Clearing House or similar
next-day funds, the Company may make such deposit by noon on the date
fixed for redemption in the form of Federal funds or similar same-day
funds.
c. If the Company provides notice to the Auction Agent
of a Retroactive Taxable Allocation, the Company shall, within 30 days
after such notice is given and by noon of the Business Day immediately
preceding the date fixed for payment of an Additional Dividend,
deposit in trust with the Paying Agent an aggregate amount of New York
Clearing House or similar next-day funds equal to such Additional
Dividend and shall give the Paying Agent irrevocable instructions and
authority to pay the Additional Dividends to Holders (or former
Holders) of AMPS entitled thereto. In lieu of making such deposit in
New York Clearing House or similar next-day funds, the Company may
make such deposit by noon on the date fixed for payment of an
Additional Dividend in the form of Federal funds or similar same-day
funds.
3.4 Disbursing Dividends, Redemption Price
and Additional Dividends.
After receipt of the New York Clearing House or similar next-day funds
(or Federal funds or similar same-day funds) and instructions from the Company
described in Sections 3.3(a), (b) and (c) above, the Paying Agent shall pay to
the Holders (or former Holders) entitled thereto (i) on each corresponding
Dividend Payment Date, dividends on the AMPS, (ii) on any date fixed for
redemption, the redemption price of any shares of AMPS called for redemption
and (iii) on the date fixed for payment of an Additional Dividend, such
Additional Dividend. The amount of dividends for any Dividend Period to be paid
by the Paying Agent to Holders will be determined by the Company as set forth
in Paragraph 2 of the Articles Supplementary. The redemption price to be paid
by the Paying Agent to the Holders of any shares of AMPS called for redemption
will be determined as set forth in Paragraph 4 of the Articles Supplementary.
The amount of Additional Dividends to be paid by the Paying Agent in the event
of a Retroactive Taxable Allocation to Holders will be determined by the
Company pursuant to Paragraph 2(e) of the Articles Supplementary. The Company
shall notify the Paying Agent in writing of a decision to redeem any shares of
AMPS on or prior to the date specified in Section 3.2 above, and such notice by
the Company to the Paying Agent shall contain the information required to be
stated in the Notice of Redemption required to be mailed by the Company to such
Holders. The Paying Agent shall have no duty to determine the redemption price
and may rely on the amount thereof set forth in the Notice of Redemption.
4. The Paying Agent as Transfer Agent and Registrar.
4.1 Original Issue of Stock Certificates.
On the Date of Original Issue, one certificate for the AMPS shall be
issued by the Company and registered in the name of Cede & Co., as nominee of
the Securities Depository, and countersigned by the Paying Agent.
12
<PAGE> 14
4.2 Registration of Transfer or Exchange of Shares.
Except as provided in this Section 4.2, the shares of the AMPS shall
be registered solely in the name of the Securities Depository or its nominee.
If the Securities Depository shall give notice of its intention to resign as
such, and if the Company shall not have selected a substitute Securities
Depository acceptable to the Paying Agent prior to such resignation, then upon
such resignation, the shares of the AMPS may, at the Company's request, be
registered for transfer or exchange, and new certificates thereupon shall be
issued in the name of the designated transferee or transferees, upon surrender
of the old certificates in form deemed by the Paying Agent properly endorsed
for transfer with (a) all necessary endorsers' signatures guaranteed in such
manner and form as the Paying Agent may require by a guarantor reasonably
believed by the Paying Agent to be responsible, (b) such assurances as the
Paying Agent shall deem necessary or appropriate to evidence the genuineness
and effectiveness of each necessary endorsement and (c) satisfactory evidence
of compliance with all applicable laws to the collection of taxes in connection
with any registration of transfer and exchange or funds necessary for the
payment of such taxes. If the certificates for shares of AMPS are not held by
the Securities Depository or its nominee, payments upon transfer of shares in
an Auction shall be made in same day funds to the Auction Agent against
delivery of certificates therefor.
4.3 Removal of Legend.
Any request for removal of a legend indicating a restriction transfer
from a certificate evidencing shares of AMPS shall be accompanied by an opinion
of counsel stating that such legend may be removed and such shares transferred
free of the restriction described in such legend, said opinion to be delivered
under cover of a letter from a Company Officer authorizing the Paying Agent to
remove the legend on the basis of said opinion.
4.4 Lost Stock Certificates.
The Paying Agent shall issue and register replacement certificates for
certificates represented to have been lost, stolen or destroyed, upon the
fulfillment of such requirements as shall be deemed appropriate by the Company
and the Paying Agent, subject at all times to provisions of law, the By-Laws of
the Company governing such matters and resolutions adopted by the Company with
respect to lost securities. The Paying Agent may issue new certificates in
exchange for and upon the cancellation of mutilated certificates. Any request
by the Company to the Paying Agent to issue a replacement or new certificate
pursuant to this Section 4.4 shall be deemed to be a representation and
warranty by the Company to the Paying Agent that such issuance will comply with
such provisions of applicable law and the By-Laws and resolutions of the
Company.
4.5 Disposition of Cancelled Certificates; Record Retention.
The Paying Agent shall retain stock certificates which have been
cancelled in transfer or in exchange and accompanying documentation in
accordance with applicable rules and regulations of the Securities and Exchange
Commission for two calendar years from the date of such cancellation. The
Paying Agent shall, upon written request from the Company, afford to the
Company, its agents and counsel access at reasonable times during normal
business hours to
13
<PAGE> 15
review and make extracts or copies (at the Company's sole cost and expense) of
such certificates and accompanying documentation. Upon request by the Company
at any time after the expiration of this two-year period, the Paying Agent
shall deliver to the Company the cancelled certificates and accompanying
documentation. The Company shall, at its expense, retain such records for a
minimum additional period of four calendar years from the date of delivery of
the records to the Company and shall make such records available during this
period at any time, or from time to time, for reasonable periodic, special, or
other examinations by representatives of the Securities and Exchange
Commission. The Company shall also undertake to furnish to the Securities and
Exchange Commission, upon demand, at either the principal office or at any
regional office, complete, correct and current hard copies of any and all such
records. Thereafter such records shall not be destroyed by the Company without
the approval of the Paying Agent, which shall not be unreasonably withheld, but
will be safely stored for possible future reference.
4.6 Stock Register.
The Paying Agent shall maintain the stock register, which shall
contain a list of the Holders, the number of shares held by each Holder and the
address of each Holder. The Paying Agent shall record in the stock register any
change of address of a Holder upon notice by such Holder. In case of any
written request, or demand for the inspection of the stock register or any
other books of the Company in the possession of the Paying Agent, the Paying
Agent will notify the Company and secure instructions as to permitting or
refusing such inspection. The Paying Agent reserves the right, however, to
exhibit the stock register or other records to any person in case it is advised
by its counsel that its failure to do so would (i) be unlawful or (ii) expose
it to liability, unless the Company shall have offered indemnification
satisfactory to the Paying Agent.
4.7 Return of Funds.
Any funds deposited with the Paying Agent by the Company for any
reason under this Agreement, including for the payment of dividends or the
redemption of shares of AMPS, that remain with the Paying Agent after 12 months
shall be repaid to the Company upon the written request of the Company.
5. Representations and Warranties.
(a) The Company represents and warrants to the Auction Agent that:
(i) the Company is a duly incorporated and validly
existing corporation in good standing under the laws of the State of
Maryland and has full power to execute and deliver this Agreement and
to authorize, create and issue the shares of AMPS;
(ii) the Company is registered with the Securities and
Exchange Commission under the Investment Company Act of 1940, as
amended, as a closed-end non-diversified management investment
company;
(iii) this Agreement has been duly and validly authorized,
executed and delivered by the Company and constitutes the legal, valid
and binding obligation of the Company, enforceable against the Company
in accordance with its terms, subject as to
14
<PAGE> 16
such enforceability to bankruptcy, insolvency, reorganization and
other laws of general applicability relating to or affecting
creditors' rights and to general equitable principles;
(iv) the form of certificate evidencing the shares of AMPS
comply with all applicable laws of the State of Maryland;
(v) the shares of AMPS have been duly and validly
authorized by the Company and, upon completion of the initial sale of
the shares of such AMPS and receipt of payment therefor, will be
validly issued, fully paid and nonassessable;
(vi) the offering of the shares of AMPS has been
registered under the Securities Act of 1933, as amended, and no further
action by or before any governmental body or authority of the United
States or of any state thereof is required in connection with the
execution and delivery of this Agreement or the issuance of the shares
of AMPS except as required by applicable state securities or insurance
laws, all of which have been taken;
(vii) the execution and delivery of this Agreement and the
issuance and delivery of the shares of AMPS do not and will not
conflict with, violate, or result in a breach of, the terms,
conditions or provisions of, or constitute a default under, the
Charter or the By-Laws of the Company, any law or regulation
applicable to the Company, any order or decree of any court or public
authority having jurisdiction over the Company, or any mortgage,
indenture, contract, agreement or undertaking to which the Company is
a party or by which it is bound; and
(viii) no taxes are payable upon or in respect of the
execution of this Agreement or the issuance of the shares of AMPS.
(b) The Auction Agent represents and warrants to the
Company that the Auction Agent is duly organized and is validly
existing as a banking corporation in good standing under the laws of
the State of New York and has the corporate power to enter into and
perform its obligations under this Agreement.
6. The Auction Agent.
6.1 Duties and Responsibilities.
(a) The Auction Agent is acting solely as agent for the
Company hereunder and owes no fiduciary duties to any Person except as
provided by this Agreement.
(b) The Auction Agent undertakes to perform such duties
and only such duties as are specifically set forth in this Agreement,
and no implied covenants or obligations shall be read into this
Agreement against the Auction Agent.
(c) In the absence of bad faith or negligence on its
part, the Auction Agent shall not be liable for any action taken,
suffered or omitted or for any error of judgment made by it in the
performance of its duties under this Agreement. The Auction Agent
15
<PAGE> 17
shall not be liable for any error of judgment made in good faith
unless the Auction Agent shall have been negligent in ascertaining (or
failing to ascertain) the pertinent facts.
6.2 Rights of the Auction Agent.
(a) The Auction Agent may rely and shall be protected in
acting or refraining from acting upon any communication authorized
hereby and upon any written instruction, notice, request, direction,
consent, report, certificate, share certificate or other instrument,
paper or document reasonably believed by it to be genuine. The Auction
Agent shall not be liable for acting upon any telephone communication
authorized hereby which the Auction Agent believes in good faith to
have been given by the Company or by a Broker-Dealer. The Auction
Agent may record telephone communications with the Company or with the
Broker-Dealers or both.
(b) The Auction Agent may consult with counsel of its
choice, and the written advice of such counsel shall be full and
complete authorization and protection in respect of any action taken,
suffered or omitted by it hereunder in good faith and in reliance
thereon.
(c) The Auction Agent shall not be required to advance,
expend or risk its own funds or otherwise incur or become exposed to
financial liability in the performance of its duties hereunder. The
Auction Agent shall be under no liability for interest on any money
received by it hereunder except as otherwise agreed to in writing with
the Company.
(d) The Auction Agent may perform its duties and exercise
its rights hereunder either directly or by or through agents or
attorneys.
6.3 Auction Agent's Disclaimer.
The Auction Agent makes no representation as to the validity adequacy
of this Agreement, the Broker-Dealer Agreements or AMPS.
6.4 Compensation, Expenses and Indemnification.
(a) The Company shall pay the Auction Agent from time to
time such compensation for all services rendered by it under this
Agreement and the Broker-Dealer Agreements as shall be set forth in a
separate writing signed by the Company and the Auction Agent, subject
to adjustment if the AMPS are no longer held of record by the
Securities Depository or its nominee or if there shall be such other
change as shall materially increase the Auction Agent's obligations
hereunder or under the Broker-Dealer Agreements.
(b) The Company shall reimburse the Auction Agent upon
its request for all reasonable expenses, disbursements and advances
incurred or made by the Auction Agent in accordance with any provision
of this Agreement and the Broker-Dealer Agreements (including the
reasonable compensation, expenses and disbursements of its agents and
16
<PAGE> 18
counsel), except any expense, disbursement and advances attributable
to its negligence or bad faith.
(c) The Company shall indemnify the Auction Agent for,
and hold it harmless against, any loss, liability or expense incurred
without negligence or bad faith on its part, arising out of or in
connection with its agency under this Agreement and the Broker-Dealer
Agreements, including the costs and expenses of defending itself
against any claim or liability in connection with its exercise or
performance of any of its duties hereunder and thereunder, except such
as may result from its negligence or bad faith.
7. Miscellaneous.
7.1 Term of Agreement.
(a) The term of this Agreement is unlimited unless it
shall be terminated as provided in this Section 7.1. The Company may
terminate this Agreement at any time by so notifying the Auction
Agent, provided that if any AMPS remain outstanding the Company has
entered into an agreement in substantially the form of this Agreement
with a successor auction agent. The Auction Agent may terminate this
Agreement upon prior notice to the Company on the date specified in
such notice, which shall be no earlier than 60 days after delivery of
such notice. If the Auction Agent resigns while any shares of AMPS
remain outstanding, the Company shall use its best efforts to enter
into an agreement with a successor auction agent containing
substantially the same terms and conditions as this Agreement.
(b) Except as otherwise provided in this Section 7.1(b),
the respective rights and duties of the Company and the Auction Agent
under this Agreement shall cease upon termination of this Agreement.
The Company's representations, warranties, covenants and obligations
to the Auction Agent under Sections 5 and 6.4 hereof shall survive the
termination hereof. Upon termination of this Agreement, the Auction
Agent shall (i) resign as Auction Agent under the Broker-Dealer
Agreements, (ii) at the Company's request, promptly deliver to the
Company copies of all books and records maintained by it in connection
with its duties hereunder, and (iii) at the request of the Company,
promptly transfer to the Company or any successor auction agent any
funds deposited by the Company with the Auction Agent (whether in its
capacity as Auction Agent or Paying Agent) pursuant to this Agreement
which have not previously been distributed by the Auction Agent in
accordance with this Agreement.
7.2 Communications.
Except for (i) communications authorized to be made by telephone
pursuant to this Agreement or the Auction Procedures and (ii) communications in
connection with Auctions (other than those expressly required to be in
writing), all notices, requests and other communications to any party hereunder
shall be in writing (including telecopy or similar writing) and shall be, given
to such party addressed to it at its address, or telecopy number set forth
below:
17
<PAGE> 19
<TABLE>
<S> <C>
If to the Company, MuniYield New Jersey Fund, Inc.
addressed: 800 Scudders Mill Road
Plainsboro, New Jersey 08536
Attention: Treasurer
Telephone No.: (609) 282-2800
Telecopier No.: (609) 282-3472
If to the Auction IBJ Schroder Bank & Trust Company
Agent, addressed: One State Street
New York, New York 10004
Attention: Auction Window
Subcellar 1
Telephone No.: (212) 858-2272
Telecopier No.: (212) 797-1148
</TABLE>
or such other address or telecopy number as such party may hereafter specify
for such purpose by notice to the other party. Each such notice, request or
communication shall be effective when delivered at the address specified
herein. Communications shall be given on behalf of the Company by a Company
Officer and on behalf of the Auction Agent by an Authorized Officer.
7.3 Entire Agreement.
This Agreement contains the entire agreement between the parties
relating to the subject matter hereof, and there are no other representations,
endorsements, promises, agreements or understandings, oral, written or inferred
between the parties relating to the subject matter hereof except for agreements
relating to the compensation of the Auction Agent.
7.4 Benefits.
Nothing herein, express or implied, shall give to any person, other
than the Company, the Auction Agent and their respective successors and
assigns, any benefit of any legal or equitable right, remedy or claim
hereunder.
7.5 Amendment; Waiver.
(a) This Agreement shall not be deemed or construed to be
modified, amended, rescinded, cancelled or waived, in whole or in
part, except by a written instrument signed by a duly authorized
representative of the party to be charged. The Company shall notify
the Auction Agent of any change in the Articles Supplementary prior to
the effective date of any such change. If any such change in the
Articles Supplementary materially increases the Auction Agent's
obligations hereunder, the Company shall obtain the written consent of
the Auction Agent prior to the effective date of such change.
(b) Failure of either party hereto to exercise any right
or remedy hereunder in the event of a breach hereof by the other party
shall not constitute a waiver of any such right or remedy with respect
to any subsequent breach.
18
<PAGE> 20
7.6 Successors and Assigns.
This Agreement shall be binding upon, inure to the benefit of, and be
enforceable by, the respective successors and permitted assigns of each of the
Company and the Auction Agent. This Agreement may not be assigned by either
party hereto absent the prior written consent of the other party, which consent
shall not be unreasonably withheld.
7.7 Severability.
If any clause, provision or section hereof shall be ruled invalid or
unenforceable by any court of competent jurisdiction, the invalidity or
unenforceability of such clause, provision or section shall not affect any of
the remaining clauses, provisions or sections hereof.
7.8 Execution in Counterparts.
This Agreement may be executed in several counterparts, each of which
shall be an original and all of which shall constitute but one and the same
instrument.
7.9 Governing Law.
This Agreement 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.
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<PAGE> 21
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered by their proper and duly authorized officers as
of the date first above written.
MUNIYIELD NEW JERSEY FUND, INC.
By:
----------------------------------
Title: Treasurer
IBJ SCHRODER BANK & TRUST COMPANY
By:
----------------------------------
Title: Assistant Vice President
<PAGE> 1
EXHIBIT 13(c)
- --------------------------------------------------------------------------------
BROKER-DEALER AGREEMENT
BETWEEN
IBJ SCHRODER BANK & TRUST COMPANY
AND
------------------------------------------
DATED AS OF JULY 1, 1992
RELATING TO
AUCTION MARKET PREFERRED STOCK(R)
("AMPS"(R))
OF
MUNIYIELD NEW JERSEY FUND, INC.
- --------------------------------------------------------------------------------
(R)Registered trademark of Merrill Lynch & Co., Inc.
<PAGE> 2
BROKER-DEALER AGREEMENT dated as of July 1, 1992 between IBJ Schroder Bank
& Trust Company, a New York banking corporation (the "Auction Agent"), not in
its individual capacity but solely as agent of MuniYield New Jersey Fund, Inc.,
a Maryland corporation (the "Company"), pursuant to authority granted to it in
the Auction Agent Agreement dated as of July 1, 1992, between the Company and
the Auction Agent (the "Auction Agent Agreement") and
__________________________________________(together with its successors and
assigns hereinafter referred to as "BD").
The Company has duly authorized and issued 1,200 shares of Auction Market
Preferred Stock(R), with a par value of $.10 per share and a liquidation
preference of $50,000 per share plus accumulated but unpaid dividends (whether
or not earned or declared), (the "AMPS") pursuant to the Company's Articles
Supplementary (as defined below).
The Company's Articles Supplementary provide that the dividend rate on the
AMPS for each Dividend Period therefor after the Initial Dividend Period shall
be the Applicable Rate therefor, which in each case, in general, shall be the
rate per annum that a commercial bank, trust company or other financial
institution appointed by the Company advises results from implementation of the
Auction Procedures (as defined below). The Board of Directors of the Company
has adopted a resolution appointing IBJ Schroder Bank & Trust Company as
Auction Agent for purposes of the Auction Procedures, and pursuant to Section
2.5(d) of the Auction Agent Agreement, the Company has requested and directed
the Auction Agent to execute and deliver this Agreement.
The Auction Procedures require the participation of one or more
Broker-Dealers.
- -----------------
(R)Registered trademark of Merrill Lynch & Co., Inc.
2
<PAGE> 3
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
the Auction Agent and BD agree as follows:
1. Definitions and Rules of Construction.
1.1 Terms Defined by Reference to the Articles Supplementary.
Capitalized terms not defined herein shall have the respective meanings
specified in the Articles Supplementary of the Company.
1.2 Terms Defined Herein. As used herein and in the Settlement
Procedures (as defined below), the following terms shall have the following
meanings, unless the context otherwise requires:
(a) "Articles Supplementary" shall mean the Articles Supplementary,
as amended, of the Company, establishing the powers, preferences and rights of
the AMPS filed on June 25, 1992 in the office of the State Department of
Assessments and Taxation of the State of Maryland.
(b) "Auction" shall have the meaning specified in Section 2.1 hereof.
(c) "Auction Procedures" shall mean the Auction Procedures that are
set forth in Paragraph 11 of the Articles Supplementary.
(d) "Authorized Officer" shall mean each Senior Vice President, Vice
President, Assistant Vice President, Trust Officer, Assistant Secretary and
Assistant Treasurer of the Auction Agent assigned to its Corporate Trust and
Agency Group and every other officer or employee of the Auction Agent
designated as an "Authorized Officer" for purposes of this Agreement in a
communication to BD.
(e) "BD Officer" shall mean each officer or employee of BD designated
as a "BD Officer" for purposes of this Agreement in a communication to the
Auction Agent.
(f) "Broker-Dealer Agreement" shall mean this Agreement and any
substantially similar agreement between the Auction Agent and a Broker-Dealer.
(g) "Purchaser's Letter" shall mean a letter addressed to the
Company, the Auction Agent and a Broker-Dealer, substantially in the form
attached hereto as Exhibit A.
(h) "Settlement Procedures" shall mean the Settlement Procedures
attached hereto as Exhibit B.
1.3 Rules of Construction. Unless the context or use indicates
another or different meaning or intent, the following rules shall apply to the
construction of this Agreement:
(a) Words importing the singular number shall include the plural
number and vice versa.
3
<PAGE> 4
(b) The captions and headings herein are solely for convenience of
reference and shall not constitute a part of this Agreement nor shall they
affect its meaning, construction or effect.
(c) The words "hereof," "herein," "hereto," and other words of
similar import refer to this Agreement as a whole.
(d) All references herein to a particular time of day shall be to New
York City time.
2. Notification of Dividend Period and Advance Notice of Allocation
of Taxable Income.
(a) The provisions contained in paragraph 2 of the Articles
Supplementary concerning the notification of a Special Dividend Period will be
followed by the Auction Agent and BD and the provisions contained therein are
incorporated herein by reference in their entirety and shall be deemed to be a
part of this Agreement to the same extent as if such provisions were fully set
forth herein.
(b) Except as otherwise provided in paragraph 2(f) of the Articles
Supplementary, whenever the Company intends to include any net capital gains or
other taxable income in any dividend on the shares of AMPS, the Company 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. Whenever the Auction Agent receives such notice from the
Company, it will in turn notify BD, who, on or prior to such Auction Date, will
notify its Existing Holders and Potential Holders believed to be interested in
submitting an Order in the Auction to be held on such Auction Date.
3. The Auction.
3.1 Purpose; Incorporation by Reference of Auction Procedures and
Settlement Procedures.
(a) On each Auction Date, the provisions of the Auction Procedures
will be followed by the Auction Agent for the purpose of determining the
Applicable Rate for the AMPS, for the next Dividend Period therefor. Each
periodic operation of such procedures is hereinafter referred to as an
"Auction."
(b) All of the provisions contained in the Auction Procedures and the
Settlement Procedures are incorporated herein by reference in their entirety
and shall be deemed to be a part of this Agreement to the same extent as if
such provisions were fully set forth herein.
(c) BD is delivering herewith a Purchaser's Letter executed by BD
and, in the case of Merrill Lynch, Pierce, Fenner & Smith Incorporated, a list
of persons to whom BD will initially sell the shares of AMPS, the number of
shares of AMPS BD will sell to each such person and the number of shares of
AMPS BD will hold for its own account. BD agrees to act as, and assumes the
obligations of and limitations and restrictions placed upon, a Broker-Dealer
under this Agreement. BD understands that other Persons meeting the
requirements specified in the definition of "Broker-Dealer" contained in
paragraph 1 of the Articles Supplementary may
4
<PAGE> 5
execute a Broker-Dealer Agreement and a Purchaser's Letter and participate as
Broker-Dealers in Auctions.
(d) BD and other Broker-Dealers may participate in Auctions for their
own accounts, provided that BD or such other Broker-Dealers, as the case may
be, has executed a Purchaser's Letter. However, the Company may by notice to BD
and all other Broker-Dealers prohibit all Broker-Dealers from submitting Bids
in Auctions for their own accounts, provided that Broker-Dealers may continue
to submit Hold Orders and Sell Orders.
3.2 Preparation for Each Auction.
(a) Not later than 9:30 A.M. on each Auction Date for the AMPS, the
Auction Agent shall advise BD by telephone of the Reference Rate and the
Maximum Applicable Rate in effect on such Auction Date.
(b) In the event that the Auction Date for any Auction shall be
changed after the Auction Agent has given the notice referred to in clause
(vii) of paragraph (a) of the Settlement Procedures, the Auction Agent, by such
means as the Auction Agent deems practicable, shall give notice of such change
to BD not later than the earlier of 9:15 A.M. on the new Auction Date or later
than 9:15 A.M. on the old Auction Date. Thereafter, BD shall promptly notify
customers of BD that BD believes are Existing Holders of shares of AMPS of such
change in the Auction Date.
(c) The Auction Agent from time to time may request BD to provide it
with a list of the respective customers BD believes are Existing Holders of
shares of AMPS. BD shall comply with any such request, and the Auction Agent
shall keep confidential any such information, including information received as
to the identity of Bidders in any Auction, and shall not disclose any such
information so provided to any Person other than the Company; provided that the
Auction Agent reserves the right to disclose any such information if it is
advised by its counsel that its failure to do so would (i) be unlawful or (ii)
expose it to liability unless the Company or BD shall have offered
indemnification satisfactory to the Auction Agent; and such information shall
not be used by the Auction Agent or its officers, employees, agents or
representatives for any purpose other than such purposes as are described
herein. The Auction Agent shall transmit any list of customers BD believes are
Existing Holders of shares of AMPS and information related thereto only to its
officers, employees, agents or representatives in the Corporate Trust and
Agency Group who need to know such information for the purposes of acting in
accordance with this Agreement and shall prevent the transmission of such
information to others and shall cause its officers, employees, agents and
representatives to abide by the foregoing confidentiality restrictions;
provided, however, that the Auction Agent shall have no responsibility or
liability for the actions of any of its officers, employees, agents or
representatives after they have left the employ of the Auction Agent.
(d) The Auction Agent is not required to accept the Purchaser's
Letter for any Potential Holder for an Auction unless it is received by the
Auction Agent by 3:00 P.M. on the Business Day next preceding such Auction.
5
<PAGE> 6
3.3 Auction Schedule; Method of Submission of Orders.
(a) The Company and the Auction Agent shall conduct Auctions for the
AMPS in accordance with the schedule set forth below. Such schedule may be
changed at any time by the Auction Agent with the consent of the Company, which
consent shall not be unreasonably withheld. The Auction Agent shall give notice
of any such change to BD. Such notice shall be received prior to the first
Auction Date on which any such change shall be effective.
<TABLE>
<CAPTION>
Time Event
---- -----
<S> <C>
By 9:30 A.M. Auction Agent advises the Company and
Broker-Dealers of Reference Rate
and the Maximum Applicable Rate as set
forth in Section 3.2(a)
hereof.
9:30 A.M.-1:00 P.M. Auction Agent assembles information
communicated to it by Broker-Dealers
as provided in Paragraph 11(c)(i) of
the Articles Supplementary. Submission
Deadline is 1:00 P.M.
Not earlier than 1:00 P.M. Auction Agent makes determinations
pursuant to Paragraph 11(d)(i) of
the Articles Supplementary.
By approximately 3:00 P.M. Auction Agent advises Company
of results of Auction as
provided in Paragraph 11(d)(ii)
of the Articles Supplementary.
Submitted Bids and Submitted Sell
Orders are accepted and rejected in
whole or in part and shares of AMPS
are allocated as provided in
Paragraph 11(e) of the Articles
Supplementary.
By approximately 10:00 A.M. on the next Auction Agent gives notice of Auction
succeeding Business Day results as set forth in Section
3.4(a) hereof.
</TABLE>
(b) BD agrees to maintain a list of Potential Holders and to contact
the Potential Holders on such list on or prior to each Auction Date for the
purposes set forth in Paragraph 11 of the Articles Supplementary.
6
<PAGE> 7
(c) BD agrees not to sell, assign or dispose of any shares of AMPS to
any Person who has not delivered a signed Purchaser's Letter to the Auction
Agent.
(d) BD shall submit orders to the Auction Agent in writing in
substantially the form attached hereto as Exhibit C. BD shall submit separate
Orders to the Auction Agent for each Potential Holder or Existing Holder on
whose behalf BD is submitting an Order and shall not net or aggregate the
Orders of Potential Holders or Existing Holders on whose behalf BD is
submitting Orders.
(e) BD shall deliver to the Auction Agent (i) a written notice,
substantially in the form attached hereto as Exhibit D, of transfers of shares
of AMPS, made through BD by an Existing Holder to another Person other than
pursuant to an Auction, and (ii) a written notice, substantially in the form
attached hereto as Exhibit E, of the failure of shares of AMPS to be
transferred to or by any Person that purchased or sold shares of or through BD
pursuant to an Auction. The Auction Agent is not required to accept any notice
delivered pursuant to the terms of the foregoing sentence with respect to an
Auction unless it is received by the Auction Agent by 3:00 P.M. on the Business
Day next preceding the applicable Auction Date.
3.4 Notice of Auction Results.
(a) On each Auction Date, the Auction Agent shall notify BD by
telephone as set forth in paragraph (a) of the Settlement Procedures. On the
Business Day next succeeding such Auction Date, the Auction Agent shall notify
BD in writing of the disposition of all Orders submitted by BD in the Auction
held on such Auction Date.
(b) BD shall notify each Existing Holder or Potential Holder on whose
behalf BD has submitted an Order as set forth in paragraph (b) of the
Settlement Procedures and take such other action as is required of BD pursuant
to the Settlement Procedures.
If any Existing Holder selling shares of AMPS in an Auction fails to
deliver such shares, the BD of any Person that was to have purchased shares of
such AMPS in such Auction may deliver to such Person a number of whole shares of
AMPS that is less than the number of shares that otherwise was to be purchased
by such Person. In such event, the number of shares of AMPS to be so delivered
shall be determined by such BD. Delivery of such lesser number of shares shall
constitute good delivery. Upon the occurrence of any such failure to deliver
shares, such BD shall deliver to the Auction Agent the notice required by
Section 3.3(e)(ii) hereof. Notwithstanding the foregoing terms of this Section
3.4(b), any delivery or non-delivery of shares of AMPS which represents any
departure from the results of an Auction, as determined by the Auction Agent,
shall be of no effect unless and until the Auction Agent shall have been
notified of such delivery or non-delivery in accordance with the terms of
Section 3.3(e) hereof. The Auction Agent shall have no duty or liability with
respect to enforcement of this Section 3.4(b).
3.5 Service Charge to Be Paid to BD. On the Business Day next
succeeding each Auction Date, the Auction Agent shall pay to BD from moneys
received from the Company an amount equal to: (a) in the case of any Auction
Date immediately preceding a 7-day Dividend Period or Short Term Dividend
Period, the product of (i) a fraction the numerator of which is the
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<PAGE> 8
number of days in such Dividend Period (calculated by counting the first day of
such Dividend Period but excluding the last day thereof) and the dominator of
which is 360, times (ii) 1/4 of 1%, times (iii) $50,000, times (iv) the sum
of (A) the aggregate number of AMPS placed by BD in the applicable Auction that
were (x) the subject of a Submitted Bid of an Existing Holder submitted by BD
and continued to be held as a result of such submission and (y) the subject of
a Submitted Bid of a Potential Holder submitted by BD and were purchased as a
result of such submission plus (B) the aggregate number of AMPS subject to
valid Hold Orders (determined in accordance with Paragraph 11 of the Articles
Supplementary) submitted to the Auction Agent by BD plus (C) the number of AMPS
deemed to be subject to Hold Orders by Existing Holders pursuant to Paragraph
11 of the Articles Supplementary that were acquired by such Existing Holders
through BD and (b) in the case of any Auction Date immediately preceding a Long
Term Dividend Period, that amount as mutually agreed upon by the Company and
BD, based on the selling concession that would be applicable to an underwriting
of fixed or variable rate preferred shares with a similar final maturity or
variable rate dividend period, at the commencement of such Long Term Dividend
Period.
For purposes of subclause (a)(iv)(C) of the foregoing sentence, if any
Existing Holder who acquired shares of AMPS through BD transfers those shares
to another Person other than pursuant to an Auction, then the Broker-Dealer for
the shares so transferred shall continue to be BD, provided, however, that if
the transfer was effected by, or if the transferee is, a Broker-Dealer other
than BD, then such Broker-Dealer shall be the Broker-Dealer for such shares.
4. The Auction Agent.
4.1 Duties and Responsibilities.
(a) The Auction Agent is acting solely as agent for the Company
hereunder and owes no fiduciary duties to any other Person by reason of this
Agreement.
(b) The Auction Agent undertakes to perform such duties and only such
duties as are specifically set forth in this Agreement, and no implied
covenants or obligations shall be read into this Agreement against the Auction
Agent.
(c) In the absence of bad faith or negligence on its part, the
Auction Agent shall not be liable for any action taken, suffered, or omitted or
for any error of judgment made by it in the performance of its duties under
this Agreement. The Auction Agent shall not be liable for any error of judgment
made in good faith unless the Auction Agent shall have been negligent in
ascertaining (or failing to ascertain) the pertinent facts.
4.2 Rights of the Auction Agent.
(a) The Auction Agent may rely and shall be protected in acting or
refraining from acting upon any communication authorized by this Agreement and
upon any written instruction, notice, request, direction, consent, report,
certificate, share certificate or other instrument, paper or document believed
by it to be genuine. The Auction Agent shall not be liable for acting upon any
telephone communication authorized by this Agreement which the Auction Agent
believes in good faith to have been given by the Company or by a Broker-Dealer.
The Auction Agent may record telephone communications with the Broker-Dealers.
8
<PAGE> 9
(b) The Auction Agent may consult with counsel of its own choice, and
the advice of such counsel shall be full and complete authorization and
protection in respect of any action taken, suffered or omitted by it hereunder
in good faith and in reliance thereon.
(c) The Auction Agent shall not be required to advance, expend or
risk its own funds or otherwise incur or become exposed to financial liability
in the performance of its duties hereunder.
(d) The Auction Agent may perform its duties and exercise its rights
hereunder either directly or by or through agents or attorneys.
4.3 Auction Agent's Disclaimer. The Auction Agent makes no
representation as to the validity or adequacy of this Agreement or the AMPS.
5. Miscellaneous.
5.1 Termination. Any party may terminate this Agreement at any time
upon five days' prior notice to the other party; provided, however, that if BD
is Merrill Lynch, Pierce, Fenner & Smith Incorporated, neither BD nor the
Auction Agent may terminate this Agreement without first obtaining prior
written consent of the Company of such termination, which consent shall not be
unreasonably withheld.
5.2 Participant in Securities Depository; Payment of Dividends in
Same-Day Funds.
(a) BD is, and shall remain for the term of this Agreement, a member
of, or participant in, the Securities Depository (or an affiliate of such a
member or participant).
(b) BD represents that it (or if such BD does not act as Agent
Member, one of its affiliates) shall make all dividend payments on the AMPS
available in same-day funds on each Dividend Payment Date to customers that use
such BD or affiliate as Agent Member.
5.3 Agent Member. At the date hereof, BD is a participant of the
Securities Depository.
5.4 Communications. Except for (i) communications authorized to be
made by telephone pursuant to this Agreement or the Auction Procedures and (ii)
communications in connection with the Auctions (other than those expressly
required to be in writing), all notices, requests and other communications to
any party hereunder shall be in writing (including telecopy or similar writing)
and shall be given to such party, addressed to it, at its address or telecopy
number set forth below:
If to BD
addressed:
9
<PAGE> 10
If to the Auction IBJ Schroder Bank & Trust Company
Agent, addressed: One State Street
New York, New York 10004
Attention: Auction Window
Subcellar 1
Telecopier No.: (212) 797-1148
Telephone No.: (212) 858-2272
or such other address or telecopy number as such party may hereafter specify
for such purpose by notice to the other party. Each such notice, request or
communication shall be effective when delivered at the address specified
herein. Communications shall be given on behalf of BD by a BD Officer and on
behalf of the Auction Agent by an Authorized Officer. BD may record telephone
communications with the Auction Agent.
5.5 Entire Agreement. This Agreement contains the entire agreement
between the parties relating to the subject matter hereof, and there are no
other representations, endorsements, promises, agreements or understandings,
oral, written or inferred, between the parties relating to the subject matter
hereof.
5.6 Benefits. Nothing in this Agreement, express or implied, shall
give to any person, other than the Company, the Auction Agent and BD and their
respective successors and assigns, any benefit of any legal or equitable right,
remedy or claim, under this Agreement.
5.7 Amendment; Waiver.
(a) This Agreement shall not be deemed or construed to be modified,
amended, rescinded, cancelled or waived, in whole or in part, except by a
written instrument signed by a duly authorized representative of the party to
be charged.
(b) Failure of either party to this Agreement to exercise any right
or remedy hereunder in the event of a breach of this Agreement by the other
party shall not constitute a waiver of any such right or remedy with respect to
any subsequent breach.
5.8 Successors and Assigns. This Agreement shall be binding upon,
inure to the benefit of, and be enforceable by, the respective successors and
permitted assigns of each of BD and the Auction Agent. This Agreement may not
be assigned by either party hereto absent the prior written consent of the
other party; provided, however, that this Agreement may be assigned by the
Auction Agent to a successor Auction Agent selected by the Company without the
consent of BD.
5.9 Severability. If any clause, provision or section of this
Agreement shall be ruled invalid or unenforceable by any court of competent
jurisdiction, the invalidity or unenforceability of such clause, provision or
section shall not affect any remaining clause, provision or section hereof.
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<PAGE> 11
5.10 Execution in Counterparts. This Agreement may be executed in
several counterparts, each of which shall be an original and all of which shall
constitute but one and the same instrument.
6. Governing Law. This Agreement 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.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their proper and duly authorized officers as of
the date first above written.
IBJ SCHRODER BANK & TRUST
COMPANY
By:
-----------------------------------------
Title:
By:
-----------------------------------------
Title:
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<PAGE> 1
EXHIBIT 13(d)
LETTER OF REPRESENTATIONS
MUNIYIELD NEW JERSEY FUND, INC.
AND
IBJ SCHRODER BANK & TRUST COMPANY
July 1, 1992
The Depository Trust Company
55 Water Street
New York, New York 10041
Attention: General Counsel's Office
Re: MuniYield New Jersey Fund, Inc. Issuance of
Auction Market Preferred Stock ["AMPS"](R)
Ladies and Gentlemen:
The purpose of this letter is to set forth certain matters relating
to the issuance and sales by MuniYield New Jersey Fund, Inc., a Maryland
corporation (the "Issuer"), of 1,200 shares of Auction Market Preferred Stock
(the "AMPS"). A description of the AMPS and the related offering are contained
in a prospectus, dated June 24, 1992 (the "Prospectus"). IBJ Schroder Bank &
Trust Company, in its capacity as Auction Agent (as defined in the Prospectus),
will act as the transfer agent, registrar, dividend disbursing agent and
redemption agent with respect to the shares of AMPS. The shares of AMPS are
being distributed through The Depository Trust Company ("DTC") by Merrill Lynch
& Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated (the "Underwriters").
To induce DTC to accept the shares of AMPS as eligible for deposit
at DTC and to act in accordance with its rules (the "DTC Rules") with respect to
the shares of AMPS, the Issuer and the Auction Agent make the following
representations to DTC:
1. Prior to the issuance of the shares of AMPS on July 1,
1992, the Issuer shall cause the Underwriter to deposit
with DTC one share certificate representing the AMPS,
registered in the name of DTC's nominee, Cede & Co.,
which will respectively represent the total number of
shares of AMPS and said certificate shall remain in
DTC's custody.
2. The Prospectus describes provisions for the solicitation
of consents from, and voting by, holders of the shares
of AMPS under certain circumstances. The Issuer
- -----------------------------------
(R) Registered Trademark of Merrill Lynch & Co., Inc.
<PAGE> 2
shall establish a record date or record dates for such
purposes and give DTC notice of such record date or
dates not less than 15 calendar days in advance of such
record date or dates to the extent practicable.
3. In the event of a full or partial redemption of
outstanding shares of AMPS, the Issuer shall give DTC
notice of such event not less than 20 days prior to the
redemption date.
4. In the event of a partial redemption of shares of AMPS
outstanding, the Issuer shall send to DTC a notice
specifying: the number of shares of AMPS to be redeemed
and the date such notice is to be mailed to shareholders
of the Issuer or published by the Issuer ("Publication
Date"). Such notice shall be sent to DTC by a secure
means (e.g., legible facsimile transmission, registered
or certified mail, overnight express delivery or hand
delivery) in a timely manner designed to assure that
such notice is in DTC's possession no later than the
close of business on the Business Day (as defined in the
Prospectus) before the Publication Date. (The Issuer
shall have a method to verify subsequently the use of
such means and timeliness of the notice.) In the event
of a partial redemption, the Publication Date shall not
be less than 20 days prior to the redemption date.
5. The Prospectus indicates that the dividend rate for the
shares of AMPS may vary from time to time. Absent other
existing arrangements with DTC, the Issuer or the
Auction Agent shall give DTC notice of each such change
in the dividend rate on the same day the new rate is
determined by telephone to the Supervisor of the
Dividend Announcement Section at (212) 709-1270 and such
notice shall be followed by prompt written confirmation
sent by a secure means as described in paragraph 4 above
to:
Manager, Announcements, Dividend Department
The Depository Trust Company
7 Hanover Square, 22nd Floor
New York, New York 10004
6. The Prospectus indicates that each purchaser of shares
of AMPS will be required to sign a Purchaser's Letter
(as defined in the Prospectus) that contains provisions
restricting transfer of the shares of AMPS purchased.
The Issuer and the Auction Agent acknowledge that as
long as Cede & Co. is the sole record owner of the
shares of AMPS, Cede & Co. shall be entitled to all
voting rights applicable to the shares of AMPS and to
receive the full amount of all dividends, Additional
Dividends, liquidation proceeds and redemption proceeds
payable with respect to the shares of AMPS. The Issuer
and the Auction Agent acknowledge that DTC shall treat
any DTC Participant (defined in the DTC Rules to mean,
generally, securities brokers and dealers, banks, trust
companies, clearing corporations and certain other
organizations for whom DTC, directly or indirectly,
holds securities) having shares of AMPS credited to its
DTC account as entitled to the full benefits of
ownership of such shares even if the credits of shares
of AMPS to the DTC account of such DTC Participant
result from transfers or failures to transfer in
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<PAGE> 3
violation of the provisions of the Purchaser's Letter.
Without limiting the generality of the preceding
sentence, the Issuer and the Auction Agent acknowledge
that DTC shall treat any DTC Participant having shares
of AMPS credited to its account as entitled to receive
dividends, distributions and voting rights, if any, in
respect of such shares and, subject to Section 13
hereof, to receive certificates evidencing such shares
of AMPS if such certificates are to be issued in
accordance with the Issuer's Charter (as defined in the
Prospectus). (The treatment by DTC of the effects of the
crediting by it of shares of AMPS to the accounts of DTC
Participants described in the preceding two sentences
shall not affect the rights of the Issuer, participants
in Auctions (as defined in the Prospectus) relating to
the shares of AMPS, purchasers, sellers or holders of
shares of AMPS against any DTC Participant.) DTC shall
have no responsibility to ascertain that any transfer of
shares of AMPS is made in accordance with the provisions
of the Purchaser's Letter.
7. The Prospectus indicates that in the event the Issuer
retroactively allocates any net capital gains or other
taxable income to shares of AMPS without having given
advance notice thereof to the Auction Agent as described
in the Prospectus 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 Issuer (the amount of such allocation
referred to herein as a "Retroactive Taxable
Allocation"), the Issuer will, within 90 days (and
generally within 60 days) after the end of the Issuer's
fiscal year for which a Retroactive Taxable Allocation
is made, provide notice thereof to the Auction Agent and
to each holder of shares of such series (initially Cede
& Co. as nominee of DTC) during such fiscal year at such
holder's address as the same appears or last appeared on
the stock books of the Issuer. The Issuer 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 such shares of AMPS), out of funds
legally available therefor, an amount equal to the
aggregate Additional Dividend (as defined in the
Prospectus) with respect to all Retroactive Taxable
Allocations made to such holders during the fiscal year
in question.
8. The issuer will notify DTC, at least 10 business days
prior to the payment date for any Additional Dividends,
of (i) the record date for holders of shares of AMPS
entitled to receive Additional Dividends, (ii) the
amount of Additional Dividends payable on a per share
basis to such holders and (iii) the CUSIP number set
forth on the share certificate representing such shares
of AMPS.
9. The Prospectus indicates that in the event a Response
(as defined in the Prospectus) indicates that it is
advisable that the Issuer give a Notice of Special
Dividend Period (as defined in the Prospectus) for the
AMPS, the Issuer may by no later than the second day
prior to such Auction Date give a Notice of Special
Dividend (as defined in the Prospectus) to the Auction
Agent, DTC 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
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<PAGE> 4
response. The Issuer is required to give telephonic and
written notice (a "Notice of Revocation") to the Auction
Agent, each Broker-Dealer, and DTC on or prior to the
Business Day prior to the relevant Auction Date under
the circumstances specified in the Prospectus.
10. All notices and payment advices sent to DTC shall
contain the CUSIP number set forth on the share
certificate representing the AMPS.
11. Notices to DTC by facsimile transmission shall be sent
to (212) 709-1093 or (212) 709-1094. The Issuer or
Auction Agent shall call (212) 709-6884 to confirm
such receipt of notice. Except as provided in
paragraph 5 hereof, notices to DTC by any other means
shall be sent to:
Manager, Reorganization Department
Reorganization Window
The Depository Trust Company
7 Hanover Square, 23rd Floor
New York, New York 10004
12. Dividend payments shall be received by Cede & Co., as
nominee of DTC, or its registered assigns in same-day
funds on each payment date or the equivalent as agreed
between the Issuer or the Auction Agent and DTC
("Fed-Funds"). Such payment shall be made payable to the
order of "Cede & Co." Absent any other agreement between
the Issuer or the Auction Agent and DTC such payments
shall be addressed as follows:
Manager, Cash Receipts, Dividends
The Depository Trust Company
7 Hanover Square, 24th Floor
New York, New York 10004
13. Redemption payments shall be made in Federal Funds in
the manner set forth in the SDFS Paying Agent Operating
Procedures, a copy of which has previously been provided
to the Auction Agent.
14. DTC may direct the Issuer or the Auction Agent to use
any other telephone number for facsimile transmission,
address, or department of DTC as the number, address or
department to which payments of dividends, redemption
proceeds or notices may be sent.
15. In the event of a redemption necessitating a reduction
in the number of shares of AMPS outstanding, DTC in its
discretion may (a) request the Issuer to execute and
deliver a new share certificate representing the
remaining outstanding shares of AMPS or (b) may make
appropriate notations on the certificate indicating the
date and amounts of such reductions. In the case of
redemption of all of the shares, DTC will surrender the
Certificate to the Auction Agent for cancellation if
required.
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<PAGE> 5
16. In the event the Issuer determines that beneficial
owners of the shares of AMPS (generally, the Existing
Holders as defined in the Issuer's Charter) shall be
able to obtain a certificate representing such shares of
AMPS (as provided for in the Issuer's Charter), the
Issuer or the Auction Agent shall notify DTC of the
availability of a share certificate representing such
shares of AMPS, as the case may be, and shall issue,
transfer and exchange such certificate as required by
DTC and others in appropriate amounts.
17. DTC may determine to discontinue providing its services
as securities depository with respect to the shares of
AMPS at any time by giving reasonable notice to the
Issuer or the Auction Agent (at which time DTC will
confirm with the Auction Agent the aggregate amount of
the respective shares of AMPS outstanding). Under such
circumstances the Issuer or the Auction Agent will
cooperate with DTC in taking appropriate action to
provide for a substitute or successor securities
depository or to make available one or more separate
certificates evidencing the shares of AMPS, to any DTC
Participant having such shares credited to its DTC
account.
18. The Issuer hereby authorizes DTC to provide to the
Auction Agent position listings of its DTC Participants
with respect to the shares of AMPS from time to time at
the request of the Auction Agent and at DTC's customary
fee, and also authorizes DTC, in the event of a partial
redemption of shares of AMPS, to provide, and DTC hereby
agrees to provide the Auction Agent, upon request, with
the names of those DTC Participants whose positions in
such shares of AMPS have been selected for redemption by
DTC. DTC agrees to use its best efforts to notify the
Auction Agent of those DTC Participants whose positions
in the shares of AMPS have been selected for redemption
by DTC. The Issuer authorizes the Auction Agent to
provide DTC with such signatures, exemplars of
signatures and authorizations to act as may be deemed
necessary by DTC to permit DTC to discharge its
obligations to its DTC Participants and appropriate
regulatory authorities.
This authorization, unless revoked by the Issuer, shall
continue with respect to the shares of AMPS while any
such shares are on deposit at DTC, until and unless the
Auction Agent shall no longer be acting. In such event,
the Issuer shall provide DTC with similar evidence of
the authorization of any successor thereto so to act.
19. Nothing herein shall be deemed to require the Auction
Agent to advance funds on behalf of the Issuer.
Very truly yours,
MUNIYIELD NEW JERSEY FUND, INC.
as Issuer
By:
-----------------------------------
Title: Treasurer
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IBJ SCHRODER BANK & TRUST COMPANY
as Auction Agent
By:
-----------------------------------
Title: Assistant Vice President
Received and Accepted:
THE DEPOSITORY TRUST COMPANY
By:
-----------------------------------
Title: General Counsel
cc: Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
6
<PAGE> 1
EXHIBIT 14(a)
INDEPENDENT AUDITORS' CONSENT
MuniYield New Jersey Fund, Inc.:
We consent to the use in this Pre-Effective Amendment No. 1 to Registration
Statement No. 333-88483 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
November 8, 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", 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. 333-88483) and related combined 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
November 5, 1999
