<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 21, 1996
SECURITIES ACT FILE NO. 333-7817
INVESTMENT COMPANY ACT FILE NO. 811-6661
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------------
PRE-EFFECTIVE AMENDMENT NO. 1 /X/ POST-EFFECTIVE AMENDMENT NO. / /
(CHECK APPROPRIATE BOX OR BOXES)
------------------------
MUNIYIELD NEW YORK INSURED FUND II, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (609) 282-2800
800 SCUDDERS MILL ROAD
PLAINSBORO, NEW JERSEY 08536
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
------------------------
ARTHUR ZEIKEL
MUNIYIELD NEW YORK INSURED FUND II, 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. MARK B. GOLDFUS, ESQ.
BROWN & WOOD LLP MERRILL LYNCH ASSET MANAGEMENT
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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
MUNIYIELD NEW YORK INSURED FUND II, INC.
CROSS REFERENCE SHEET
PURSUANT TO RULE 481(A) UNDER THE SECURITIES ACT OF 1933
<TABLE>
<CAPTION>
FORM N-14 PROXY STATEMENT AND
ITEM NO. PROSPECTUS CAPTION
- ---------- ---------------------------------------
<S> <C> <C>
PART A
Item 1. Beginning of Registration Statement and
Outside Front Cover Page of
Prospectus............................ Registration Statement Cover Page;
Prospectus Cover Page
Item 2. Beginning and Outside Back Cover Page of
Prospectus............................ Table of Contents
Item 3. Fee Table, Synopsis Information and Risk
Factors............................... The Reorganization -- Summary; The
Reorganization -- Risk Factors and
Special Considerations
Item 4. Information about the Transaction....... The Reorganization -- Summary; The
Reorganization -- Agreement and Plan
of Reorganization
Item 5. Information about the Registrant........ Prospectus Cover Page; The
Reorganization -- Summary; The
Reorganization -- Comparison of the
Funds; Additional Information
Item 6. Information about the Company Being
Acquired.............................. Prospectus Cover Page; The
Reorganization -- Summary; The
Reorganization -- Comparison of the
Funds; Additional Information
Item 7. Voting Information...................... The Reorganization -- Summary; The
Reorganization -- Comparison of the
Funds; Information Concerning the
Annual Meetings; Additional
Information
Item 8. Interest of Certain Persons and
Experts............................... Not Applicable
Item 9. Additional Information Required for
Reoffering by Persons Deemed to be
Underwriters.......................... Not Applicable
PART B
Item 10. Cover Page.............................. Not Applicable
Item 11. Table of Contents....................... Not Applicable
Item 12. Additional Information about the
Registrant............................ The Reorganization -- Comparison of the
Funds
Item 13. Additional Information about the Company
Being Acquired........................ The Reorganization -- Comparison of the
Funds
Item 14. Financial Statements.................... Financial Statements
</TABLE>
PART C
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this Registration Statement.
<PAGE> 3
MUNIVEST NEW YORK INSURED FUND, INC.
MUNIYIELD NEW YORK INSURED FUND II, INC.
MUNIYIELD NEW YORK INSURED FUND III, INC.
P.O. BOX 9011
PRINCETON, NEW JERSEY 08543-9011
------------------------
NOTICE OF ANNUAL MEETINGS OF STOCKHOLDERS
------------------------
TO BE HELD ON SEPTEMBER 30, 1996
------------------------
TO THE STOCKHOLDERS OF
MUNIVEST NEW YORK INSURED FUND, INC.
MUNIYIELD NEW YORK INSURED FUND II, INC.
MUNIYIELD NEW YORK INSURED FUND III, INC.:
NOTICE IS HEREBY GIVEN that annual meetings of stockholders (the
"Meetings") of MuniVest New York Insured Fund, Inc. ("MuniVest New York
Insured"), MuniYield New York Insured Fund II, Inc. ("MuniYield New York Insured
II") and MuniYield New York Insured Fund III, Inc. ("MuniYield New York Insured
III") will be held at the offices of Merrill Lynch Asset Management, L.P., 800
Scudders Mill Road, Plainsboro, New Jersey on Monday, September 30, 1996 at
11:45 A.M., New York time (for MuniVest New York Insured), 12:00 noon, New York
time (for MuniYield New York Insured II) and 12:15 P.M., New York time (for
MuniYield New York Insured III) for the following purposes:
(1) To approve or disapprove an Agreement and Plan of Reorganization
(the "Agreement and Plan of Reorganization") contemplating (i) the
acquisition of all of the assets of MuniVest New York Insured by MuniYield
New York Insured II, and the assumption of all of the liabilities of
MuniVest New York Insured by MuniYield New York Insured II, in exchange
solely for an equal aggregate value of newly-issued shares of Common Stock
of MuniYield New York Insured II ("MuniYield New York Insured II Common
Stock") and shares of a newly-created series of Auction Market Preferred
Stock ("AMPS") of MuniYield New York Insured II to be designated Series B
("MuniYield New York Insured II Series B AMPS") and the distribution of
such MuniYield New York Insured II Common Stock to the holders of Common
Stock of MuniVest New York Insured and such MuniYield New York Insured II
Series B AMPS to the holders of AMPS of MuniVest New York Insured; (ii) the
acquisition of all of the assets of MuniYield New York Insured III by
MuniYield New York Insured II, and the assumption of all of the liabilities
of MuniYield New York Insured III by MuniYield New York Insured II, in
exchange solely for an equal aggregate value of newly-issued shares of
MuniYield New York Insured II Common Stock and shares of a newly-created
series of AMPS of MuniYield New York Insured II to be designated Series C
("MuniYield New York Insured II Series C AMPS") and the distribution of
such MuniYield New York Insured II Common Stock to the holders of Common
Stock of MuniYield New York Insured III and such MuniYield New York Insured
II Series C AMPS to the holders of AMPS of MuniYield New York Insured III;
and (iii) the redesignation of the currently outstanding series of AMPS of
MuniYield New York Insured II as Series A AMPS. A vote in favor of this
proposal also will constitute a vote in favor of the
<PAGE> 4
liquidation and dissolution of each of MuniVest New York Insured and
MuniYield New York Insured III and the termination of their respective
registration under the Investment Company Act of 1940;
(2) To elect a Board of Directors of MuniVest New York Insured,
MuniYield New York Insured II and MuniYield New York Insured III to serve
for the ensuing year;
(3) For the stockholders of MuniVest New York Insured and MuniYield
New York Insured III only: To consider and act upon a proposal to ratify
the selection of Ernst & Young LLP to serve as independent auditors of each
of MuniVest New York Insured and MuniYield New York Insured III for the
respective Fund's current fiscal year ending October 31, 1996; and
(4) For the stockholders of MuniYield New York Insured II only:
(a) in the event that proposal 1 is approved by the requisite number of
stockholders of each Fund and the Reorganization takes place prior to
October 31, 1996, to consider and act upon a proposal to ratify the
selection of Ernst & Young LLP to serve as independent auditors of the
combined fund for the fiscal year ending October 31, 1996; and
(b) in the event that proposal 1 is not approved by the requisite number of
stockholders of each Fund or the Reorganization does not take place prior
to October 31, 1996, to consider and act upon a proposal to ratify the
selection of Deloitte & Touche LLP to serve as independent auditors of
MuniYield New York Insured II for its current fiscal year ending October
31, 1996;
(5) To transact such other business as properly may come before the
Meetings or any adjournment thereof.
The Boards of Directors of MuniVest New York Insured, MuniYield New York
Insured II and MuniYield New York Insured III have fixed the close of business
on August 16, 1996 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 MuniVest New York Insured, MuniYield
New York Insured II and MuniYield New York Insured III entitled to vote at the
Meetings will be available and open to the examination of any stockholder of
MuniVest New York Insured, MuniYield New York Insured II or MuniYield New York
Insured III, respectively, for any purpose germane to the Meetings during
ordinary business hours from and after September 16, 1996, at the offices of
MuniYield New York Insured II, 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 MuniVest New York Insured, MuniYield New
York Insured II or MuniYield New York Insured III, as applicable.
By Order of the Boards of Directors
MARK B. GOLDFUS
Secretary
Plainsboro, New Jersey
Dated: August 21, 1996
<PAGE> 5
PROXY STATEMENT AND PROSPECTUS
MUNIVEST NEW YORK INSURED FUND, INC.
MUNIYIELD NEW YORK INSURED FUND II, INC.
MUNIYIELD NEW YORK INSURED FUND III, INC.
P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011
(609) 282-2800
------------------------
ANNUAL MEETINGS OF STOCKHOLDERS
------------------------
SEPTEMBER 30, 1996
This Joint Proxy Statement and Prospectus (this "Proxy Statement and
Prospectus") is furnished in connection with the solicitation of proxies on
behalf of the Boards of Directors of MuniVest New York Insured Fund, Inc., a
Maryland corporation ("MuniVest New York Insured"), MuniYield New York Insured
Fund II, Inc., a Maryland corporation ("MuniYield New York Insured II"), and
MuniYield New York Insured Fund III, Inc., a Maryland corporation ("MuniYield
New York Insured III"), for use at Annual Meetings of Stockholders (the
"Meetings") called to approve or disapprove the proposed reorganization whereby
(i) MuniYield New York Insured II will acquire all of the assets, and will
assume all of the liabilities, of MuniVest New York Insured, in exchange solely
for an equal aggregate value of newly-issued shares of Common Stock, par value
$.10 per share, of MuniYield New York Insured II ("MuniYield New York Insured II
Common Stock") and shares of a newly-created series of Auction Market Preferred
Stock ("AMPS") of MuniYield New York Insured II, with a par value of $.10 per
share and a liquidation preference of $25,000 per share plus an amount equal to
accumulated but unpaid dividends thereon (whether or not earned or declared) to
be designated Series B AMPS ("MuniYield New York Insured II Series B AMPS"), to
be issued by MuniYield New York Insured II; (ii) MuniYield New York Insured II
will acquire all of the assets, and will assume all of the liabilities, of
MuniYield New York Insured III, in exchange solely for an equal aggregate value
of newly-issued shares of MuniYield New York Insured II Common Stock and shares
of a newly-created series of AMPS of MuniYield New York Insured II, with a par
value of $.10 per share and a liquidation preference of $25,000 per share plus
an amount equal to accumulated but unpaid dividends thereon (whether or not
earned or declared) to be designated Series C AMPS ("MuniYield New York Insured
II Series C AMPS"), to be issued by MuniYield New York Insured II; (iii)
MuniYield New York Insured II will redesignate its currently outstanding series
of AMPS as Series A AMPS; and (iv) each of MuniVest New York Insured and
MuniYield New York Insured III will be deregistered and dissolved (collectively,
the "Reorganization"). MuniVest New York Insured, MuniYield New York Insured II
and MuniYield New York Insured III sometimes are referred to herein collectively
as the "Funds" and individually as a "Fund", each as applicable and each as the
context requires. This Proxy Statement and Prospectus also is being furnished in
connection with the election of a Board of Directors of each Fund and the
ratification of the selection of independent auditors for each Fund.
This Proxy Statement and Prospectus serves as a prospectus of MuniYield New
York Insured II under the Securities Act of 1933, as amended (the "Securities
Act"), in connection with the issuance of MuniYield New York Insured II Common
Stock, MuniYield New York Insured II Series B AMPS and MuniYield New York
Insured II Series C AMPS in the Reorganization.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR 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 AUGUST 21, 1996.
<PAGE> 6
(continued from previous page)
This Proxy Statement and Prospectus sets forth concisely the information
about MuniVest New York Insured, MuniYield New York Insured II and MuniYield New
York Insured III 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 MuniVest New York
Insured, MuniYield New York Insured II and MuniYield New York Insured III is 800
Scudders Mill Road, Plainsboro, New Jersey 08536, and the telephone number is
(609) 282-2800.
The aggregate net asset value of the MuniYield New York Insured II Common
Stock to be issued to MuniVest New York Insured and thereafter distributed to
the holders of shares of Common Stock, par value $.10 per share, of MuniVest New
York Insured ("MuniVest New York Insured Common Stock") will equal the aggregate
net asset value of the shares of MuniVest New York Insured Common Stock on the
date of the Reorganization. Similarly, it is intended that the aggregate
liquidation preference and value of the MuniYield New York Insured II Series B
AMPS to be issued to MuniVest New York Insured and thereafter distributed to the
holders of shares of AMPS of MuniVest New York Insured, with a liquidation
preference of $25,000 per share plus an amount equal to accumulated but unpaid
dividends thereon (whether or not earned or declared) ("MuniVest New York
Insured AMPS") will equal the aggregate liquidation preference and value of the
MuniVest New York Insured AMPS on the date of the Reorganization. As soon as
practicable after the receipt by MuniYield New York Insured II of all of
MuniVest New York Insured's assets and the assumption by MuniYield New York
Insured II of all of MuniVest New York Insured's liabilities, MuniVest New York
Insured will distribute the MuniYield New York Insured II Common Stock and
MuniYield New York Insured II Series B AMPS to MuniVest New York Insured's
stockholders as described under "The Reorganization". Thereafter, MuniVest New
York Insured will terminate its registration under the Investment Company Act of
1940, as amended (the "Investment Company Act"), and will liquidate and dissolve
in accordance with the laws of the State of Maryland.
In addition, the aggregate net asset value of the MuniYield New York
Insured II Common Stock to be issued to MuniYield New York Insured III and
thereafter distributed to the holders of shares of Common Stock, par value $.10
per share, of MuniYield New York Insured III ("MuniYield New York Insured III
Common Stock") will equal the aggregate net asset value of the shares of
MuniYield New York Insured III Common Stock on the date of the Reorganization.
Similarly, it is intended that the aggregate liquidation preference and value of
the MuniYield New York Insured II Series C AMPS to be issued to MuniYield New
York Insured III and thereafter distributed to the holders of shares of AMPS of
MuniYield New York Insured III, with a liquidation preference of $25,000 per
share plus an amount equal to accumulated but unpaid dividends thereon (whether
or not earned or declared) ("MuniYield New York Insured III AMPS") will equal
the aggregate liquidation preference and value of the MuniYield New York Insured
III AMPS on the date of the Reorganization. As soon as practicable after the
receipt by MuniYield New York Insured II of all of MuniYield New York Insured
III's assets and the assumption by MuniYield New York Insured II of all of
MuniYield New York Insured III's liabilities, MuniYield New York Insured III
will distribute the MuniYield New York Insured II Common Stock and MuniYield New
York Insured II Series C AMPS to MuniYield New York Insured III's stockholders
as described under "The Reorganization". Thereafter, MuniYield New York Insured
III will terminate its registration under the Investment Company Act and will
liquidate and dissolve in accordance with the laws of the State of Maryland.
MuniVest New York Insured, MuniYield New York Insured II and MuniYield New
York Insured III are non-diversified, leveraged, closed-end management
investment companies with virtually identical invest-
2
<PAGE> 7
ment objectives. Each of the Funds seeks to provide stockholders with as high a
level of current income exempt from Federal, New York State and New York City
income taxes as is consistent with their respective investment policies and
prudent investment management. Each of the Funds seeks to achieve its investment
objective by investing primarily in a portfolio of long-term municipal
obligations issued by or on behalf of the State of New York, its political
subdivisions, agencies and instrumentalities and by other qualifying issuers
that pay interest which, in the opinion of bond counsel to the issuer, is exempt
from Federal, New York State and New York City income taxes ("New York Municipal
Bonds"). There can be no assurance that after the Reorganization the surviving
fund will achieve the investment objective of either MuniVest New York Insured,
MuniYield New York Insured II or MuniYield New York Insured III.
MuniVest New York Insured Common Stock, MuniYield New York Insured II
Common Stock and MuniYield New York Insured III Common Stock are listed on the
New York Stock Exchange (the "NYSE") under the symbols "MVY", "MYT" and "MYY",
respectively. Subsequent to the Reorganization, shares of MuniYield New York
Insured II Common Stock will continue to be listed on the NYSE under the symbol
"MYT". Reports, proxy materials and other information concerning any of the
Funds may be inspected at the offices of the NYSE, 11 Wall Street, New York, New
York 10005.
3
<PAGE> 8
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
INTRODUCTION......................................................................... 6
THE REORGANIZATION................................................................... 8
SUMMARY......................................................................... 8
RISK FACTORS AND SPECIAL CONSIDERATIONS......................................... 20
Special Considerations Relating to New York Municipal Bonds................ 20
Effects of Leverage........................................................ 20
Portfolio Management....................................................... 21
Ratings Considerations..................................................... 21
COMPARISON OF THE FUNDS......................................................... 23
Financial Highlights....................................................... 23
Investment Objective and Policies.......................................... 29
Portfolio Insurance........................................................ 31
Description of Municipal Bonds............................................. 33
Special Considerations Relating to New York Municipal Bonds................ 33
Other Investment Policies.................................................. 34
Information Regarding Options and Futures Transactions..................... 35
Investment Restrictions.................................................... 39
Rating Agency Guidelines................................................... 40
Portfolio Composition...................................................... 41
Portfolio Transactions..................................................... 42
Portfolio Turnover......................................................... 43
Net Asset Value............................................................ 44
Capital Stock.............................................................. 44
Management of the Funds.................................................... 47
Voting Rights.............................................................. 49
Stockholder Inquiries...................................................... 50
Dividends and Distributions................................................ 50
Automatic Dividend Reinvestment Plan....................................... 51
Liquidation Rights of Holders of AMPS...................................... 53
Tax Rules Applicable to MuniVest New York Insured, MuniYield New York
Insured II, MuniYield New York Insured III and their Stockholders........ 53
AGREEMENT AND PLAN OF REORGANIZATION............................................ 57
General.................................................................... 57
Procedure.................................................................. 59
Terms of the Agreement and Plan of Reorganization.......................... 59
Potential Benefits to Common Stockholders of MuniVest New York Insured,
MuniYield New York Insured II and MuniYield New York Insured III as a
Result of the Reorganization............................................. 62
Surrender and Exchange of MuniVest New York Insured and MuniYield New York
Insured III Stock Certificates........................................... 64
Tax Consequences of the Reorganization..................................... 65
Capitalization............................................................. 67
</TABLE>
4
<PAGE> 9
<TABLE>
<CAPTION>
PAGE
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<S> <C>
ELECTION OF DIRECTORS................................................................ 68
Committee and Board Meetings.................................................... 73
Compliance with Section 16(a) of the Securities Exchange Act of 1934............ 73
Interested Persons.............................................................. 74
Compensation of Directors....................................................... 74
Officers of the Funds........................................................... 75
SELECTION OF INDEPENDENT AUDITORS.................................................... 76
INFORMATION CONCERNING THE ANNUAL MEETINGS........................................... 78
Date, Time and Place of Meetings................................................ 78
Solicitation, Revocation and Use of Proxies..................................... 78
Record Date and Outstanding Shares.............................................. 78
Security Ownership of Certain Beneficial Owners and Management of MuniVest New
York Insured, MuniYield New York Insured II and MuniYield New York Insured
III............................................................................ 78
Voting Rights and Required Vote................................................. 79
ADDITIONAL INFORMATION............................................................... 81
CUSTODIAN............................................................................ 82
TRANSFER AGENT, DIVIDEND DISBURSING AGENT AND REGISTRAR.............................. 82
LEGAL PROCEEDINGS.................................................................... 83
LEGAL OPINIONS....................................................................... 83
EXPERTS.............................................................................. 83
STOCKHOLDER PROPOSALS................................................................ 83
INDEX TO FINANCIAL STATEMENTS........................................................ F-1
EXHIBIT I AGREEMENT AND PLAN OF REORGANIZATION...................................... I-1
EXHIBIT II ECONOMIC CONDITIONS IN NEW YORK........................................... II-1
EXHIBIT III RATINGS OF MUNICIPAL BONDS AND COMMERCIAL PAPER.......................... III-1
EXHIBIT IV PORTFOLIO INSURANCE....................................................... IV-1
</TABLE>
5
<PAGE> 10
INTRODUCTION
This Proxy Statement and Prospectus is furnished in connection with the
solicitation of proxies on behalf of the Boards of Directors of MuniVest New
York Insured, MuniYield New York Insured II and MuniYield New York Insured III
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
September 30, 1996, at 11:45 A.M., New York time (for MuniVest New York
Insured), 12:00 noon, New York time (for MuniYield New York Insured II) and
12:15 P.M., New York time (for MuniYield New York Insured III). 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 August 26, 1996.
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 MuniVest New York Insured, MuniYield New York Insured II or
MuniYield New York Insured III, as applicable, at the address indicated above or
by voting in person at the appropriate Meeting. All properly executed proxies
received prior to the Meetings will be voted at the Meetings in accordance with
the instructions marked thereon or otherwise as provided therein. Unless
instructions to the contrary are marked, proxies will be voted "FOR" each of the
following proposals: (1) to approve the Agreement and Plan of Reorganization
among MuniVest New York Insured, MuniYield New York Insured II and MuniYield New
York Insured III (the "Agreement and Plan of Reorganization"); (2) to elect a
Board of Directors of each Fund to serve for the ensuing year; (3) for the
stockholders of MuniVest New York Insured and MuniYield New York Insured III
only: to ratify the selection of Ernst & Young LLP as the independent auditors
of MuniVest New York Insured or MuniYield New York Insured III, as applicable,
for the respective Fund's current fiscal year ending October 31, 1996; and (4)
for the stockholders of MuniYield New York Insured II only: (a) in the event
that proposal 1 is approved by the requisite number of stockholders of each Fund
and the Reorganization takes place prior to October 31, 1996, to consider and
act upon a proposal to ratify the selection of Ernst & Young LLP to serve as
independent auditors of the combined fund for the fiscal year ending October 31,
1996; and (b) in the event that proposal 1 is not approved by the requisite
number of stockholders of each Fund or the Reorganization does not take place
prior to October 31, 1996, to consider and act upon a proposal to ratify the
selection of Deloitte & Touche LLP to serve as independent auditors of MuniYield
New York Insured II for its current fiscal year ending October 31, 1996.
With respect to proposal 1, approval of the Agreement and Plan of
Reorganization will require the affirmative vote of stockholders representing
(i) a majority of the outstanding shares of MuniVest New York Insured Common
Stock and MuniVest New York Insured AMPS, voting together as a single class, and
a majority of the outstanding shares of MuniVest New York Insured AMPS, voting
separately as a class, (ii) a majority of the outstanding shares of MuniYield
New York Insured II Common Stock and AMPS of MuniYield New York Insured II, with
a liquidation preference of $25,000 per share plus an amount equal to
accumulated but unpaid dividends thereon (whether or not earned or declared)
("MuniYield New York Insured II AMPS") voting together as a single class, and a
majority of the outstanding shares of MuniYield New York Insured II AMPS, voting
separately as a class, and (iii) a majority of the outstanding shares of
MuniYield New York Insured III Common Stock and MuniYield New York Insured III
AMPS, voting together as a single class, and a majority of the outstanding
shares of MuniYield New York Insured III AMPS, voting separately as a class.
Because of the requirement that the Agreement and Plan of Reorganiza-
6
<PAGE> 11
tion be approved by stockholders of all three Funds, the Reorganization will not
take place if stockholders of any one Fund do not approve the Agreement and Plan
of Reorganization.
With respect to proposal 2, (i) holders of shares of MuniVest New York
Insured AMPS are entitled to elect two Directors of MuniVest New York Insured
and holders of shares of MuniVest New York Insured Common Stock and MuniVest New
York Insured AMPS, voting together as a single class, are entitled to elect the
remaining Directors of MuniVest New York Insured; (ii) holders of shares of
MuniYield New York Insured II AMPS are entitled to elect two Directors of
MuniYield New York Insured II and holders of shares of MuniYield New York
Insured II Common Stock and MuniYield New York Insured II AMPS, voting together
as a single class, are entitled to elect the remaining Directors of MuniYield
New York Insured II; and (iii) holders of shares of MuniYield New York Insured
III AMPS are entitled to elect two Directors of MuniYield New York Insured III
and holders of shares of MuniYield New York Insured III Common Stock and
MuniYield New York Insured III AMPS, voting together as a single class, are
entitled to elect the remaining Directors of MuniYield New York Insured III.
Assuming a quorum is present, (x) election of the two Directors of MuniVest New
York Insured, MuniYield New York Insured II or MuniYield New York Insured III,
as the case may be, to be elected by the holders of shares of MuniVest New York
Insured AMPS, MuniYield New York Insured II AMPS or MuniYield New York Insured
III AMPS, respectively, voting separately as a class, will require the
affirmative vote of a majority of the votes cast by the holders of shares of
that Fund's AMPS, represented at the Meetings and entitled to vote; and (y)
election of the remaining Directors of MuniVest New York Insured, MuniYield New
York Insured II or MuniYield New York Insured III, as the case may be, will
require the affirmative vote of a majority of the votes cast by the holders of
shares of their respective Common Stock and AMPS, represented at the Meetings
and entitled to vote, voting together as a single class.
With respect to proposal 3, (i) approval of the ratification of the
selection of Ernst & Young LLP as the independent auditors of MuniVest New York
Insured will require the affirmative vote of a majority of the votes cast by the
holders of shares of MuniVest New York Insured Common Stock and MuniVest New
York Insured AMPS represented at the Meetings and entitled to vote, voting
together as a single class; and (ii) approval of the ratification of the
selection of Ernst & Young LLP as the independent auditors of MuniYield New York
Insured III will require the affirmative vote of a majority of the votes cast by
the holders of shares of MuniYield New York Insured III Common Stock and
MuniYield New York Insured III AMPS represented at the Meetings and entitled to
vote, voting together as a single class.
With respect to proposal 4(a), (i) approval of the ratification of the
selection of Ernst & Young LLP as the independent auditors of the combined fund
will require the affirmative vote of a majority of the votes cast by the holders
of shares of MuniYield New York Insured II Common Stock and MuniYield New York
Insured II AMPS represented at the Meetings and entitled to vote, voting
together as a single class; and with respect to proposal 4(b), approval of the
ratification of the selection of Deloitte & Touche LLP as the independent
auditors of MuniYield New York Insured II will require the affirmative vote of a
majority of the votes cast by the holders of shares of MuniYield New York
Insured II Common Stock and MuniYield New York Insured II AMPS represented at
the Meetings and entitled to vote, voting together as a single class.
The Boards of Directors of MuniVest New York Insured, MuniYield New York
Insured II and MuniYield New York Insured III have fixed the close of business
on August 16, 1996 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
7
<PAGE> 12
shares having cumulative voting rights. As of the Record Date, there were issued
and outstanding 7,204,432 shares of MuniVest New York Insured Common Stock,
1,960 shares of MuniVest New York Insured AMPS, 11,114,832 shares of MuniYield
New York Insured II Common Stock, 2,800 shares of MuniYield New York Insured II
AMPS, 3,688,900 shares of MuniYield New York Insured III Common Stock and 1,000
shares of MuniYield New York Insured III AMPS. To the knowledge of the
management of each of MuniVest New York Insured, MuniYield New York Insured II
and MuniYield New York Insured III, no person owned beneficially more than 5% of
the respective outstanding shares of either class of capital stock of MuniVest
New York Insured, MuniYield New York Insured II or MuniYield New York Insured
III at the Record Date.
The Boards of Directors of MuniVest New York Insured, MuniYield New York
Insured II and MuniYield New York Insured III know of no business other than
that discussed in proposals 1, 2, 3 and 4 above which 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.
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 I.
In this Proxy Statement and Prospectus, the term "Reorganization" refers
collectively to (i) the acquisition of all of the assets and the assumption of
all of the liabilities of MuniVest New York Insured by MuniYield New York
Insured II and the subsequent distribution of MuniYield New York Insured II
Common Stock and MuniYield New York Insured II Series B AMPS to the holders of
MuniVest New York Insured Common Stock and MuniVest New York Insured AMPS,
respectively; (ii) the acquisition of all of the assets and the assumption of
all of the liabilities of MuniYield New York Insured III by MuniYield New York
Insured II and the subsequent distribution of MuniYield New York Insured II
Common Stock and MuniYield New York Insured II Series C AMPS to the holders of
MuniYield New York Insured III Common Stock and MuniYield New York Insured III
AMPS, respectively; (iii) the redesignation of the currently outstanding series
of MuniYield New York Insured II AMPS as Series A AMPS; and (iv) the subsequent
deregistration and dissolution of each of MuniVest New York Insured and
MuniYield New York Insured III.
At meetings of the Boards of Directors of MuniVest New York Insured and
MuniYield New York Insured III held on May 3, 1996, and at a meeting of the
Board of Directors of MuniYield New York Insured II held on June 21, 1996, the
Board of Directors of each of the Funds unanimously approved a proposal, as
applicable, that (i) MuniYield New York Insured II acquire all of the assets,
and assume all of the liabilities, of MuniVest New York Insured in exchange
solely for MuniYield New York Insured II Common Stock and MuniYield New York
Insured II Series B AMPS to be issued to MuniVest New York Insured and
thereafter distributed to the stockholders of MuniVest New York Insured; and/or
(ii) MuniYield New York Insured II acquire all of the assets, and assume all of
the liabilities, of MuniYield New York Insured III in exchange solely for
MuniYield New York Insured II Common Stock and MuniYield New
8
<PAGE> 13
York Insured II Series C AMPS to be issued to MuniYield New York Insured III and
thereafter distributed to the stockholders of MuniYield New York Insured III.
Subject to obtaining the necessary approvals from the stockholders of MuniVest
New York Insured, MuniYield New York Insured II and MuniYield New York Insured
III, the Board of Directors of each of MuniVest New York Insured and MuniYield
New York Insured III deemed advisable the deregistration of MuniVest New York
Insured or MuniYield New York Insured III, as applicable, under the Investment
Company Act and its respective dissolution under the laws of the State of
Maryland. The Reorganization requires approval of the stockholders of each of
the three Funds. The Reorganization will not take place if the stockholders of
any one Fund do not approve the Agreement and Plan of Reorganization.
MuniVest New York Insured, MuniYield New York Insured II and MuniYield New
York Insured III seek to provide stockholders with as high a level of current
income exempt from Federal, New York State and New York City income taxes as is
consistent with their respective investment policies and prudent investment
management. Each of the Funds seeks to achieve its investment objectives by
investing primarily in a portfolio of New York Municipal Bonds. At all times,
except during temporary defensive periods, at least 65% of each Fund's total
assets will be invested in New York Municipal Bonds. Under normal circumstances,
at least 80% of each Fund's total assets will be invested in New York Municipal
Bonds and other municipal bonds the interest on which, in the opinion of bond
counsel to the issuer, is exempt from Federal income taxes but not New York
State or New York City income taxes ("Municipal Bonds"), with remaining
maturities of one year or more which are covered by insurance guaranteeing the
timely payment of principal at maturity and interest. Unless otherwise
indicated, references herein to Municipal Bonds shall be deemed to include New
York Municipal Bonds.
MuniVest New York Insured, MuniYield New York Insured II and MuniYield New
York Insured III are non-diversified, leveraged, closed-end management
investment companies registered under the Investment Company Act. If the
stockholders of MuniVest New York Insured, MuniYield New York Insured II and
MuniYield New York Insured III approve the Reorganization, MuniYield New York
Insured II Common Stock, MuniYield New York Insured II Series B AMPS and
MuniYield New York Insured II Series C AMPS will be issued to MuniVest New York
Insured and MuniYield New York Insured III, as applicable, in exchange for the
assets of MuniVest New York Insured and MuniYield New York Insured III and
thereafter MuniVest New York Insured and MuniYield New York Insured III will
distribute these shares to its stockholders as provided in the Agreement and
Plan of Reorganization. After the Reorganization, each of MuniVest New York
Insured and MuniYield New York Insured III 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
MuniVest New York Insured, MuniYield New York Insured II and MuniYield New York
Insured III have determined that the Reorganization will potentially benefit the
holders of Common Stock of each of the Funds. Specifically, after the
Reorganization MuniVest New York Insured and MuniYield New York Insured III
stockholders will remain invested in a closed-end fund that has an investment
objective and policies virtually identical to those of MuniVest New York Insured
and MuniYield New York Insured III and which utilizes the same management
personnel. In addition, it is anticipated that common stockholders of MuniVest
New York Insured, MuniYield New York Insured II and MuniYield New York Insured
III will be subject to a reduced overall operating expense ratio based on the
combined assets of the surviving fund after the Reorganization. It is not
anticipated that the Reorganization will directly benefit the holders of shares
of MuniVest New York
9
<PAGE> 14
Insured AMPS, MuniYield New York Insured II AMPS or MuniYield New York Insured
III AMPS; however, the Reorganization will not adversely affect the holders of
shares of AMPS of any of the Funds and the expenses of the Reorganization will
not be borne by the holders of shares of AMPS of any of the Funds.
In deciding to recommend the Reorganization, the Boards of Directors of
MuniVest New York Insured, MuniYield New York Insured II and MuniYield New York
Insured III took into account the investment objective and policies of each of
the Funds, the expenses incurred both due to the Reorganization and on an
ongoing basis by the new and existing stockholders of MuniYield New York Insured
II and the potential benefits, including economies of scale, to the holders of
Common Stock and AMPS of MuniVest New York Insured, MuniYield New York Insured
II and MuniYield New York Insured III as a result of the Reorganization. The
Board of Directors of each of the Funds, including all of the Directors who are
not "interested persons", as defined in the Investment Company Act, of each of
the Funds, has determined that the Reorganization is in the best interests of
each of the Funds and of the holders of Common Stock and AMPS of each of the
Funds and that the interests of such stockholders will not be diluted as a
result of effecting the Reorganization.
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. Under the Agreement and Plan of Reorganization, however, the
Board of Directors of either MuniVest New York Insured, MuniYield New York
Insured II or MuniYield New York Insured III 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 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 MuniVest New York Insured, MuniYield New York Insured II and
MuniYield New York Insured III; (ii) by the Board of Directors of MuniVest New
York Insured if any condition to MuniVest New York Insured's obligations has not
been fulfilled or waived by such Board; (iii) by the Board of Directors of
MuniYield New York Insured II if any condition to MuniYield New York Insured
II's obligations has not been fulfilled or waived by such Board; or (iv) by the
Board of Directors of MuniYield New York Insured III if any condition to
MuniYield New York Insured III's obligations has not been fulfilled or waived by
such Board.
10
<PAGE> 15
PRO FORMA FEE TABLE FOR COMMON STOCKHOLDERS OF MUNIVEST NEW YORK INSURED,
MUNIYIELD NEW YORK INSURED II, MUNIYIELD NEW YORK INSURED III AND
THE COMBINED FUND AS OF APRIL 30, 1996 (UNAUDITED)(A)
<TABLE>
<CAPTION>
ACTUAL
-------------------------------------
MUNIYIELD
MUNIVEST NEW YORK MUNIYIELD
NEW YORK INSURED NEW YORK PRO FORMA
INSURED II INSURED III COMBINED
-------- -------- ----------- ---------
<S> <C> <C> <C> <C>
Common Stockholder Transaction Expenses:
Maximum Sales Load (as a percentage of the
offering price) imposed on purchases
of Common Stock........................... 5.50%(b) 5.50%(b) 5.50%(b) (c)
Dividend Reinvestment and Cash Purchase
Plan Fees................................. None None None None
Annual Fund Operating Expenses (as a
percentage of average net assets
attributable to Common Stock at April 30,
1996; annualized)(d);
Investment Advisory Fees..................... 0.75% 0.71% 0.73% 0.70%
Other Expenses
Transfer Agent Fees....................... 0.04% 0.03% 0.06% 0.02%
Custodian Fee............................. 0.01% 0.01% 0.01% 0.01%
Miscellaneous............................. 0.35% 0.27% 0.52% 0.24%
--- --- --- ---
Total Other Expenses......................... 0.40% 0.31% 0.59% 0.27%
--- --- --- ---
Total Annual Operating Expenses................ 1.15% 1.02% 1.32% 0.97%
=== === === ===
</TABLE>
- ---------------
(a) No information is presented with respect to AMPS because neither a Fund's
operating expenses nor expenses of the Reorganization will be borne by AMPS
holders of any of the Funds. Generally, AMPS are sold at a fixed
liquidation preference of $25,000 per share and investment return is set at
an auction.
(b) Sales load charged in the Fund's initial offering, subject to reductions
for bulk purchases. Shares of Common Stock purchased on the secondary
market are not subject to sales loads, but 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 actual annualized Fund operating expenses were derived from each Fund's
shareholder report dated as of April 30, 1996. The pro forma annual
operating expenses for the combined fund are projections for a 12-month
period.
11
<PAGE> 16
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, including the maximum sales load of $55 and
assuming (1) an operating expense ratio of 1.15% for
MuniVest New York Insured shares, 1.02% for MuniYield New
York Insured II shares, 1.32% for MuniYield New York
Insured III shares and 0.97% for shares of the combined
fund and (2) a 5% annual return throughout the period:
MuniVest New York Insured............................... $ 66 $90 $ 115 $187
MuniYield New York Insured II........................... $ 65 $86 $ 108 $173
MuniYield New York Insured III.......................... $ 68 $95 $ 123 $205
Combined Fund*.......................................... $ 64 $84 $ 106 $167
</TABLE>
- ---------------
* Assumes that the Reorganization had taken place on April 30, 1996
The foregoing Fee Table is intended to assist investors in understanding
the costs and expenses that a common stockholder of MuniVest New York Insured,
MuniYield New York Insured II or MuniYield New York Insured III 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 UTILIZES A
5% ANNUAL RATE OF RETURN AS MANDATED BY SECURITIES AND EXCHANGE COMMISSION (THE
"COMMISSION") REGULATIONS. THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION
OF PAST OR FUTURE EXPENSES OR ANNUAL RATES OF RETURN, AND ACTUAL EXPENSES OR
ANNUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE ASSUMED FOR PURPOSES OF
THE EXAMPLE. See "Comparison of the Funds" and "The Reorganization -- Potential
Benefits to Common Stockholders of MuniVest New York Insured, MuniYield New York
Insured II and MuniYield New York Insured III as a Result of the
Reorganization".
BUSINESS OF MUNIVEST
NEW YORK INSURED............ MuniVest New York Insured was incorporated
under the laws of the State of Maryland on
February 19, 1993 and commenced operations on
April 30, 1993. Like MuniYield New York
Insured II and MuniYield New York Insured
III, MuniVest New York Insured is a
non-diversified, leveraged, closed-end
management investment company whose
investment objective is to provide
stockholders with as high a level of current
income exempt from Federal, New York State
and New York City income taxes as is
consistent with its investment policies and
prudent investment management. Furthermore,
like MuniYield New York Insured II and
MuniYield New York Insured III, MuniVest New
York Insured seeks to achieve its investment
12
<PAGE> 17
objective by investing primarily in a
portfolio of New York Municipal Bonds. See
"Comparison of the Funds -- Investment
Objectives and Policies".
Like MuniYield New York Insured II and
MuniYield New York Insured III, MuniVest New
York Insured has outstanding both Common
Stock and AMPS. As of July 31, 1996, MuniVest
New York Insured had net assets of
$142,195,512.
BUSINESS OF MUNIYIELD
NEW YORK INSURED II......... MuniYield New York Insured II was incorporated
under the laws of the State of Maryland on
May 5, 1992 and commenced operations on June
26, 1992. Like MuniVest New York Insured and
MuniYield New York Insured III, MuniYield New
York Insured II is a non-diversified,
leveraged, closed-end management investment
company whose investment objective is to
provide stockholders with as high a level of
current income exempt from Federal, New York
State and New York City income taxes as is
consistent with its investment policies and
prudent investment management. Furthermore,
like MuniVest New York Insured and MuniYield
New York Insured III, MuniYield New York
Insured II seeks to achieve its investment
objective by investing primarily in a
portfolio of New York Municipal Bonds. See
"Comparison of the Funds -- Investment
Objectives and Policies".
Like MuniVest New York Insured and MuniYield
New York Insured III, MuniYield New York
Insured II has outstanding both Common Stock
and AMPS. As of July 31, 1996, MuniYield New
York Insured II had net assets of
$228,983,721.
BUSINESS OF MUNIYIELD
NEW YORK INSURED III........ MuniYield New York Insured III was incorporated
under the laws of the State of Maryland on
September 28, 1992 and commenced operations
on November 27, 1992. Like MuniVest New York
Insured and MuniYield New York Insured II,
MuniYield New York Insured III is a
non-diversified, leveraged, closed-end
management investment company whose
investment objective is to provide
stockholders with as high a level of current
income exempt from Federal, New York State
and New York City income taxes as is
consistent with its investment policies and
prudent investment management. Furthermore,
like MuniVest New York Insured and MuniYield
New York Insured II, MuniYield New York
Insured III seeks to achieve its investment
objective by investing primarily in a
portfolio of
13
<PAGE> 18
New York Municipal Bonds. See "Comparison of
the Funds -- Investment Objectives and
Policies".
Like MuniVest New York Insured and MuniYield
New York Insured II, MuniYield New York
Insured III has outstanding both Common Stock
and AMPS. As of July 31, 1996, MuniYield New
York Insured III had net assets of
$77,031,734.
COMPARISON OF THE FUNDS....... Investment Objectives and Policies. MuniVest
New York Insured, MuniYield New York Insured
II and MuniYield New York Insured III have
virtually identical investment objectives and
policies. All three Funds seek to provide
income exempt from Federal, New York State
and New York City income taxes and seek to
maintain as much of their respective
portfolios invested in New York Municipal
Bonds as possible. As of July 31, 1996, 99%
of MuniVest New York Insured's net assets,
99% of MuniYield New York Insured II's net
assets and 97% of MuniYield New York Insured
III's net assets were invested in New York
Municipal Bonds. The same investment
restrictions apply to each of MuniVest New
York Insured, MuniYield New York Insured II
and MuniYield New York Insured III. See
"Comparison of the Funds -- Investment
Objectives and Policies".
Capital Stock. MuniVest New York Insured,
MuniYield New York Insured II and MuniYield
New York Insured III each has outstanding
both Common Stock and AMPS. MuniVest New York
Insured Common Stock, MuniYield New York
Insured II Common Stock and MuniYield New
York Insured III Common Stock are all traded
on the NYSE. As of July 31, 1996, (i) the net
asset value per share of the MuniVest New
York Insured Common Stock was $12.94 and the
market price per share was $11.625, (ii) the
net asset value per share of the MuniYield
New York Insured II Common Stock was $14.30
and the market price per share was $13.00,
and (iii) the net asset value per share of
the MuniYield New York Insured III Common
Stock was $14.10 and the market price per
share was $12.50. MuniVest New York Insured
AMPS, MuniYield New York Insured II AMPS and
MuniYield New York Insured III AMPS have
liquidation preferences of $25,000 per share
and are sold principally at auctions. See
"Comparison of the Funds -- Capital Stock".
Auctions generally have been held and will be
held every seven days in the case of the
MuniVest New York Insured AMPS and the
MuniYield New York Insured II AMPS, and every
28 days
14
<PAGE> 19
in the case of the MuniYield New York Insured
III AMPS, unless the applicable Fund elects,
subject to certain limitations, to have a
special dividend period. As of the auction
held on August 1, 1996, the dividend rate on
the MuniVest New York Insured AMPS was 3.41%;
as of the auction held on August 2, 1996, the
dividend rate on the MuniYield New York
Insured II AMPS was 3.38%; and as of the
auction held on July 17, 1996, the dividend
rate on the MuniYield New York Insured III
AMPS was 3.451%.
Advisory Fees. The investment adviser for each
of the Funds is Fund Asset Management, L.P.
("FAM"). FAM is an affiliate of MLAM, and
both FAM and MLAM are owned and controlled by
Merrill Lynch & Co., Inc. ("ML & Co."). The
principal business address of FAM is 800
Scudders Mill Road, Plainsboro, New Jersey
08536. MLAM or FAM acts as the investment
adviser for more than 130 registered
investment companies. FAM also offers
portfolio management and portfolio analysis
services to individuals and institutions.
FAM is responsible for the management of each
Fund's investment portfolio and for providing
administrative services to each Fund. Roberto
Roffo serves as the portfolio manager for
each of MuniVest New York Insured and
MuniYield New York Insured III. Walter
O'Connor serves as the portfolio manager for
MuniYield New York Insured II.
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. Subsequent to the Reorganization,
FAM will continue to receive compensation at
the rate of 0.50% of the average weekly net
assets of the surviving 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 MuniVest
New York Insured in connection with its
Common Stock, and receives a fee for such
services. Boston EquiServe is the transfer
agent, dividend disbursing agent and
registrar for both MuniYield New York Insured
II and MuniYield New York Insured III in
connection with their respective Common
Stock. State Street Bank and Trust Company is
the custodian for the assets of MuniYield New
York Insured II and MuniYield New York
Insured III. IBJ Schroder Bank and Trust
Company is the transfer agent, registrar and
auction agent for
15
<PAGE> 20
MuniVest New York Insured, MuniYield New York
Insured II and MuniYield New York Insured III
in connection with their respective AMPS. The
principal business addresses are as follows:
The Bank of New York, 90 Washington Street,
New York, New York 10286 (for its custodial
services) and 101 Barclay Street, New York,
New York 10286 (for its transfer agency
services); Boston EquiServe, 150 Royall
Street, Canton, Massachusetts 02021; State
Street Bank and Trust Company, One Heritage
Drive, P2N, North Quincy, Massachusetts
02171; and IBJ Schroder Bank and Trust
Company, One State Street, New York, New York
10004. See "Comparison of the
Funds -- Management of the Funds".
Overall Expense Ratio. As of April 30, 1996,
the overall annualized operating expense
ratio for MuniVest New York Insured was
0.76%, based on average net assets of
approximately $145.0 million including AMPS,
and 1.15%, based on average net assets of
approximately $96.0 million excluding AMPS,
the overall annualized operating expense
ratio for MuniYield New York Insured II was
0.72%, based on average net assets of
approximately $234.6 million including AMPS,
and 1.02%, based on average net assets of
approximately $164.6 million excluding AMPS,
and the overall annualized operating expense
ratio for MuniYield New York Insured III was
0.90%, based on average net assets of
approximately $78.3 million including AMPS,
and 1.32%, based on average net assets of
approximately $53.3 million excluding AMPS.
If the Reorganization had taken place on
April 30, 1996, the overall operating expense
ratio for the combined fund on a pro forma
basis would have been 0.66%, based on average
net assets of approximately $457.9 million
including AMPS, and 0.97%, based on average
net assets of approximately $313.9 million
excluding AMPS.
Purchases and Sales of Common Stock and
AMPS. Purchase and sale procedures for
MuniVest New York Insured Common Stock,
MuniYield New York Insured II Common Stock
and MuniYield New York Insured III Common
Stock 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.
16
<PAGE> 21
Purchase and sale procedures for MuniVest New
York Insured AMPS, MuniYield New York Insured
II AMPS and MuniYield New York Insured III
AMPS also are identical. Such AMPS generally
are purchased and sold at separate auctions
conducted on a regular basis by IBJ Schroder
Bank and Trust Company, as the auction agent
for each Fund's AMPS (the "Auction Agent").
Unless otherwise permitted by the Funds,
existing and potential holders of AMPS only
may participate in auctions through their
broker-dealers. Broker-dealers submit the
orders of their respective customers who are
existing and potential holders of AMPS to the
Auction Agent. On or prior to each auction
date for the AMPS (the business day next
preceding the first day of each dividend
period), each holder may submit orders to
buy, sell or hold AMPS to its broker-dealer.
Outside of these auctions, shares of MuniVest
New York Insured AMPS, MuniYield New York
Insured II AMPS or MuniYield New York Insured
III 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 actually
will be developed and maintained by the
broker-dealers for the AMPS of any of the
Funds.
Ratings of AMPS. The MuniVest New York Insured
AMPS, the MuniYield New York Insured II AMPS
and the MuniYield New York Insured III AMPS
have each been assigned a rating of AAA from
Standard & Poor's Ratings Group ("S&P") and
"aaa" from Moody's Investors Service, Inc.
("Moody's"). See "Comparison of the
Funds -- Rating Agency Guidelines".
Portfolio Insurance. The policies are the same
for each Fund with respect to obtaining
insurance for portfolio securities. Under
normal circumstances, at least 80% of each
Fund's assets will be invested in Municipal
Bonds either (i) insured under an insurance
policy purchased by the Fund or (ii) insured
under an insurance policy obtained by the
issuer thereof or any other party. See
"Comparison of the Funds -- Investment
Objectives and Policies -- Portfolio
Insurance".
Portfolio Transactions. The portfolio
transactions in which MuniVest New York
Insured, MuniYield New York Insured II and
MuniYield New York Insured III may engage are
identical, as are the procedures for such
transactions. See "Comparison of the
Funds -- Portfolio Transactions".
17
<PAGE> 22
Dividends and Distributions. The methods of
dividend payment and distributions are
identical for MuniVest New York Insured,
MuniYield New York Insured II and MuniYield
New York Insured III, 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 as
of 15 minutes after the close of business on
the NYSE (generally, 4:00 P.M., New York
time) on each day during which the NYSE is
open for trading. For purposes of determining
the net asset value of a share of Common
Stock of each Fund, the value of the
securities held by the Fund plus any cash or
other assets (including interest accrued but
not yet received) minus all liabilities
(including accrued expenses) and the
aggregate liquidation value of the
outstanding shares of AMPS of the Fund is
divided by the total number of shares of
Common Stock of the Fund outstanding at such
time. Expenses, including the 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 MuniVest New York
Insured Common Stock, MuniYield New York
Insured II Common Stock and MuniYield New
York Insured III Common Stock are identical.
Similarly, the corresponding voting rights of
the holders of shares of MuniVest New York
Insured AMPS, MuniYield New York Insured II
AMPS and MuniYield New York Insured III AMPS
are identical. See "Comparison of the
Funds -- Capital Stock".
Stockholder Services. An automatic dividend
reinvestment plan is available to the holders
of shares of MuniVest New York Insured Common
Stock, MuniYield New York Insured II Common
Stock and MuniYield New York Insured III
Common Stock. The plans are identical for the
three 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 three Funds.
18
<PAGE> 23
OUTSTANDING SECURITIES OF MUNIVEST NEW YORK INSURED, MUNIYIELD NEW YORK INSURED
II
AND MUNIYIELD NEW YORK INSURED III AS OF JULY 31, 1996
<TABLE>
<CAPTION>
AMOUNT HELD AMOUNT OUTSTANDING
BY EXCLUSIVE OF AMOUNT
AMOUNT FUND FOR ITS SHOWN IN PREVIOUS
TITLE OF CLASS AUTHORIZED OWN ACCOUNT COLUMN
- ---------------------------------------------------- ----------- ------------ -------------------
<S> <C> <C> <C>
MuniVest New York Insured
Common Stock................................... 199,998,040 -0- 7,204,432
AMPS........................................... 1,960 -0- 1,960
MuniYield New York Insured II
Common Stock................................... 199,997,200 -0- 11,114,832
AMPS........................................... 2,800 -0- 2,800
MuniYield New York Insured III
Common Stock................................... 199,999,000 -0- 3,688,900
AMPS........................................... 1,000 -0- 1,000
</TABLE>
TAX CONSIDERATIONS............ MuniVest New York Insured, MuniYield New York
Insured II and MuniYield New York Insured III
have jointly requested a private letter
ruling from the IRS with respect to the
Reorganization to the effect that, among
other things, neither MuniVest New York
Insured, MuniYield New York Insured II nor
MuniYield New York Insured III will recognize
gain or loss on the transaction and MuniVest
New York Insured stockholders and MuniYield
New York Insured III stockholders will not
recognize gain or loss on the exchange of
their MuniVest New York Insured shares or
MuniYield New York Insured III shares for
MuniYield New York Insured II Common Stock
(except to the extent that a MuniVest New
York Insured or MuniYield New York Insured
III common stockholder receives cash
representing an interest in less than a full
share of MuniYield New York Insured II Common
Stock in the Reorganization), MuniYield New
York Insured II Series B AMPS or MuniYield
New York Insured II Series C AMPS. The
consummation of the Reorganization is subject
to the receipt of such ruling. The
Reorganization will not affect the status of
MuniYield New York Insured II as a regulated
investment company (a "RIC") under the
Internal Revenue Code of 1986, as amended
(the "Code"). Each of MuniVest New York
Insured and MuniYield New York Insured III
will liquidate pursuant to the
Reorganization. See "Agreement and Plan of
Reorganization -- Tax Consequences of the
Reorganization".
19
<PAGE> 24
RISK FACTORS AND SPECIAL CONSIDERATIONS
Since each of the three Funds invests primarily in a portfolio of Municipal
Bonds, any risks inherent in such investments are equally applicable to all
three 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 AMPS of any of the
Funds or create additional risks.
SPECIAL CONSIDERATIONS RELATING TO NEW YORK MUNICIPAL BONDS
Each of the Funds ordinarily invests substantially all of its total assets
in New York Municipal Bonds and, therefore, each Fund is more susceptible to
factors adversely affecting issuers of New York Municipal Bonds than is a
municipal bond investment company that is not concentrated in issuers of New
York Municipal Bonds to this degree. In recent years, New York State, New York
City and other New York public bodies have encountered financial difficulties
which could have an adverse effect with respect to the performance of each of
the Funds. As of August 15, 1996, Moody's, S&P and Fitch Investors Service, Inc.
("Fitch") rated New York City's general obligation bonds Baa1, BBB+ and A-,
respectively. On February 28, 1996, Fitch placed New York City's general
obligation bonds on FitchAlert with negative implications. On July 10, 1995, S&P
revised downward its rating on outstanding general obligation bonds of New York
City from "A-" to "BBB+". Moody's, S&P and Fitch currently rate New York State's
general obligation bonds A, A- and A+, respectively. FAM does not believe that
the current economic conditions in New York will have a significant adverse
effect on a Fund's ability to invest prudently in New York Municipal Bonds. See
Exhibit II -- "Economic and Financial Conditions in New York".
EFFECTS OF LEVERAGE
Utilization of leverage, through the issuance of AMPS, involves certain
risks to holders of MuniVest New York Insured Common Stock, MuniYield New York
Insured II Common Stock and MuniYield New York Insured III Common Stock. 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, fluctuations in the short-term and
medium-term dividend rates on, and the amount of taxable income allocable to,
the AMPS affect the yield to holders of Common Stock. So long as each Fund,
taking into account the costs associated with its AMPS and the Fund's operating
expenses, is able to realize a higher net return on its investment portfolio
than the then-current dividend rate on the AMPS, the effect of leverage is to
cause holders of the Fund's Common Stock to realize a higher current rate of
return than if the Fund were not leveraged. Similarly, since a pro rata portion
of each Fund's net realized capital gains on its investment assets generally is
payable to holders of the Fund's Common Stock, if increased net capital gains
are realized by the Fund because of increased capital for investment, the effect
of leverage will be to 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 does their relationship 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
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 increase substantially
relative to the long-term obligations in which each Fund may be invested. To the
extent that the current dividend rate on the AMPS approaches the net return on a
Fund's investment portfolio, the benefit of leverage to holders of Common Stock
is reduced,
20
<PAGE> 25
and if the current dividend rate on the AMPS were to exceed the net return on a
Fund's portfolio, the Fund's leveraged capital structure would result in a lower
rate of return to holders of Common Stock than if the Fund were not leveraged.
Similarly, since both the costs associated with the issuance of AMPS and any
decline in the value of a Fund's investments (including investments purchased
with the proceeds from any AMPS offering) are 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. Such decrease in net asset value likely would be
reflected in a greater decline in the market price for shares of Common Stock.
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 for the special tax
treatment afforded RICs under the Code. See "Agreement and Plan of
Reorganization -- Tax Consequences of the Reorganization". Each Fund intends,
however, to take all measures necessary to continue to make Common Stock
dividend payments. If a Fund's current investment income were not sufficient to
meet dividend requirements on either the Common Stock or the AMPS, it could be
necessary for the Fund 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 if (i) 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 that obtainable if the Common Stock
were unleveraged or (ii) the asset coverage (as defined in the Investment
Company Act) for the AMPS declines below 200% or the Fund fails to satisfy the
guidelines specified by Moody's and S&P in connection with their respective
rating of 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, in the absence of such extraordinary circumstances, to do
so.
PORTFOLIO MANAGEMENT
The portfolio management strategies of MuniVest New York Insured, MuniYield
New York Insured II and MuniYield New York Insured III 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.
RATINGS CONSIDERATIONS
MuniVest New York Insured, MuniYield New York Insured II and MuniYield New
York Insured III 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
21
<PAGE> 26
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. Neither the MuniVest New
York Insured Common Stock, the MuniYield New York Insured II Common Stock nor
the MuniYield New York Insured III Common Stock has been rated by a nationally
recognized statistical rating organization.
The Board of Directors of each of MuniVest New York Insured, MuniYield New
York Insured II and MuniYield New York Insured III, as the case may be, 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.
22
<PAGE> 27
COMPARISON OF THE FUNDS
FINANCIAL HIGHLIGHTS
MuniVest New York Insured
The financial information in the table below, except for the six-month
period ended April 30, 1996 and the leverage information which are unaudited and
have been provided by FAM, has been audited in conjunction with the annual
audits of the financial statements of the Fund by Ernst & Young LLP, independent
auditors. The following per share data and ratios have been derived from
information provided in the financial statements of the Fund.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED OCTOBER FOR THE PERIOD
FOR THE SIX MONTHS 31, APRIL 30, 1993+
ENDED APRIL 30, ----------------------------- TO OCTOBER 31,
1996 1995 1994 1993
------------------ --------- --------- ---------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSET VALUE:
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.... $ 13.14 $ 11.79 $ 14.90 $ 14.18
------- ------- ------- --------
Investment income -- net................ .49 1.00 1.03 .48
Realized and unrealized gain (loss) on
investments -- net.................... (.47) 1.36 (3.06) .80
------- ------- ------- --------
Total from investment operations........ .02 2.36 (2.03) 1.28
------- ------- ------- --------
Less dividends and distributions to
Common Stock shareholders:
Investment income -- net............ (.38) (.75) (.86) (.34)
Realized gain on
investments -- net................ -- -- (.04) --
------- ------- ------- --------
Total dividends and distributions to
Common Stock shareholders............. (.38) (.75) (.90) (.34)
------- ------- ------- --------
Capital charge resulting from issuance
of Common Stock......................... -- -- -- (.03)
------- ------- ------- --------
Effect of Preferred Stock activity:++
Dividends and distributions to
Preferred Stock shareholders:
Investment income -- net............ (.12) (.26) (.17) (.06)
Realized gain on
investments -- net................ -- -- (.01) --
Capital charge resulting from issuance
of Preferred Stock.................. -- -- -- (.13)
------- ------- ------- --------
Total effect of Preferred Stock
activity.............................. (.12) (.26) (.18) (.19)
------- ------- ------- --------
Net asset value, end of period.......... $ 12.66 $ 13.14 $ 11.79 $ 14.90
======= ======= ======= ========
Market price per share, end of period... $ 11.875 $ 12.00 $ 10.50 $ 14.75
======= ======= ======= ========
TOTAL INVESTMENT RETURN:**
Based on market price per share......... 2.05%# 21.97% (23.65)% .59%#
======= ======= ======= ========
Based on net asset value per share...... (.65)%# 18.94% (15.13)% 7.49%#
======= ======= ======= ========
RATIOS TO AVERAGE NET ASSETS:***
Expenses, net of reimbursement.......... .76%* .75% .64% .35%*
======= ======= ======= ========
Expenses................................ .76%* .77% .74% .79%*
======= ======= ======= ========
Investment income -- net................ 4.85%* 5.22% 5.06% 4.75%*
======= ======= ======= ========
</TABLE>
23
<PAGE> 28
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE SIX MONTHS FOR THE YEAR ENDED OCTOBER APRIL 30, 1993+
ENDED APRIL 30, 31, TO OCTOBER 31,
1996 1995 1994 1993
------- ------- ------- --------
<S> <C> <C> <C> <C>
SUPPLEMENTAL DATA:
Net assets, net of Preferred Stock, end
of period (in thousands).............. $ 91,188 $ 94,682 $ 84,920 $ 106,279
======= ======= ======= ========
Preferred Stock outstanding, end of
period (in thousands)................. $ 49,000 $ 49,000 $ 49,000 $ 49,000
======= ======= ======= ========
Portfolio turnover...................... 75.53% 192.08% 74.77% 10.81%
======= ======= ======= ========
DIVIDENDS PER SHARE ON PREFERRED STOCK
OUTSTANDING:+++
Investment income -- net................ $ 428 $ 938 $ 610 $ 242
======= ======= ======= ========
LEVERAGE:
Asset coverage per $1,000............... $ 2,861 $ 2,932 $ 2,733 $ 3,169
======= ======= ======= ========
</TABLE>
- ---------------
* Annualized.
** Total investment returns based on market value, which can be significantly
greater or less than the net asset value, may result in substantially
different returns. Total investment returns exclude the effects of sales
loads.
*** Does 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.
MuniYield New York Insured II
The financial information in the table below, except for the six-month
period ended April 30, 1996 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, independent auditors. The following per
share data and ratios have been derived from information provided in the
financial statements of the Fund.
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE SIX MONTHS FOR THE YEAR ENDED OCTOBER 31, JUNE 26, 1992+
ENDED APRIL 30, ---------------------------------- TO OCTOBER 31,
1996 1995 1994 1993 1992
------------------ -------- -------- -------- --------------
<S> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSET VALUE:
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period..... $ 14.63 $ 13.13 $ 15.89 $ 13.43 $ 14.18
------- ------- ------- ------- --------
Investment income -- net................. .52 1.07 1.07 1.11 .27
Realized and unrealized gain (loss) on
investments -- net..................... (.44) 1.50 (2.76) 2.46 (.66)
------- ------- ------- ------- --------
Total from investment operations......... .08 2.57 (1.69) 3.57 (.39)
------- ------- ------- ------- --------
Less dividends and distributions to
Common Stock shareholders:
Investment income -- net............. (.41) (.84) (.87) (.91) (.18)
Realized gain on
investments -- net................. -- -- (.01) -- --
------- ------- ------- ------- --------
</TABLE>
24
<PAGE> 29
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE SIX MONTHS JUNE 26, 1992+
ENDED APRIL 30, FOR THE YEAR ENDED OCTOBER 31, TO OCTOBER 31,
1996 1995 1994 1993 1992
------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Total dividends and distributions to
Common Stock shareholders.............. (.41) (.84) (.88) (.91) (.18)
------- ------- ------- ------- --------
Capital charge resulting from issuance of
Common Stock........................... -- -- -- -- (.03)
------- ------- ------- ------- --------
Effect of Preferred Stock activity:++
Dividends and distributions to
Preferred Stock shareholders:
Investment income -- net............... (.12) (.23) (.19) (.20) (.02)
Realized gain on investments -- net.... -- -- (.00)## -- --
Capital charge resulting from issuance
of Preferred Stock..................... -- -- -- -- (.13)
------- ------- ------- ------- --------
Total effect of Preferred Stock
activity............................... (.12) (.23) (.19) (.20) (.15)
------- ------- ------- ------- --------
Net asset value, end of period........... $ 14.18 $ 14.63 $ 13.13 $ 15.89 $ 13.43
======= ======= ======= ======= ========
Market price per share, end of period.... $ 13.125 $ 13.25 $ 11.00 $ 15.25 $ 13.75
======= ======= ======= ======= ========
TOTAL INVESTMENT RETURN:**
Based on market price per share.......... 2.11%# 28.61% (22.96)% 17.90% (7.17)%#
======= ======= ======= ======= ========
Based on net asset value per share....... (0.09)%# 18.96% (11.75)% 25.77% (4.09)%#
======= ======= ======= ======= ========
RATIOS TO AVERAGE NET ASSETS:***
Expenses, net of reimbursement........... .72%* .74% .74% .62% .13%*
======= ======= ======= ======= ========
Expenses................................. .72%* .74% .74% .70% .68%*
======= ======= ======= ======= ========
Investment income - net.................. 4.98%* 5.27% 5.09% 5.25% 5.05%*
======= ======= ======= ======= ========
SUPPLEMENTAL DATA:
Net assets, net of Preferred Stock, end
of period (in thousands)............... $157,621 $162,655 $145,977 $176,595 $146,633
======= ======= ======= ======= ========
Preferred Stock outstanding, end of
period (in thousands).................. $ 70,000 $ 70,000 $ 70,000 $ 70,000 $ 70,000
======= ======= ======= ======= ========
Portfolio turnover....................... 76.12% 110.76% 36.79% 3.33% 19.40%
======= ======= ======= ======= ========
DIVIDENDS PER SHARE ON PREFERRED STOCK
OUTSTANDING:+++
Investment income -- net................. $ 462 $ 910 $ 759 $ 809 $ 92
======= ======= ======= ======= ========
LEVERAGE:
Asset coverage per $1,000................ $ 3,252 $ 3,324 $ 3,085 $ 3,523 $ 3,095
======= ======= ======= ======= ========
</TABLE>
- ---------------
* Annualized.
** Total investment returns based on market value, which can be significantly
greater or less than the net asset value, may result in substantially
different returns. Total investment returns exclude the effects of sales
loads.
*** Does not reflect the effect of dividends to Preferred Stock shareholders.
+ Commencement of operations.
++ The Fund's Preferred Stock was issued on September 16, 1992.
+++ Dividends per share have been adjusted to reflect a two-for-one stock split
that occurred on December 1, 1994.
# Aggregate total investment return.
## Amount is less than $.01 per share.
25
<PAGE> 30
MuniYield New York Insured III
The financial information in the table below, except for the six-month
period ended April 30, 1996 and the leverage information which are unaudited and
have been provided by FAM, has been audited in conjunction with the annual
audits of the financial statements of the Fund by Ernst & Young LLP, independent
auditors. The following per share data and ratios have been derived from
information provided in the financial statements of the Fund.
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR ENDED NOVEMBER 27,
FOR THE SIX MONTHS OCTOBER 31, 1992+
ENDED APRIL 30, ------------------------- TO OCTOBER 31,
1996 1995 1994 1993
------------------ ------- ------- ---------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSET VALUE:
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period............ $ 14.27 $ 12.82 $ 15.51 $ 14.18
------- ------- ------- --------
Investment income -- net........................ .50 1.02 1.03 .85
Realized and unrealized gain (loss) on
investments -- net............................ (.48) 1.44 (2.59) 1.45
------- ------- ------- --------
Total from investment operations................ .02 2.46 (1.56) 2.30
------- ------- ------- --------
Less dividends and distributions to Common Stock
shareholders:
Investment income -- net.................... (.39) (.75) (.86) (.68)
Realized gain on investments -- net......... -- -- (.08) --
------- ------- ------- --------
Total dividends and distributions to Common
Stock shareholders............................ (.39) (.75) (.94) (.68)
------- ------- ------- --------
Capital charge resulting from issuance of Common
Stock........................................... -- -- -- (.05)
------- ------- ------- --------
Effect of Preferred Stock activity:++
Dividends and distributions to Preferred Stock
shareholders:
Investment income -- net.................... (.13) (.26) (.17) (.09)
Realized gain on investments -- net......... -- -- (.01) --
Capital charge resulting from issuance of
Preferred Stock............................. -- -- (.01) (.15)
------- ------- ------- --------
Total effect of Preferred Stock activity........ (.13) (.26) (.19) (.24)
------- ------- ------- --------
Net asset value, end of period.................. $ 13.77 $ 14.27 $ 12.82 $ 15.51
======= ======= ======= ========
Market price per share, end of period........... $ 12.125 $12.375 $10.625 $ 15.00
======= ======= ======= ========
TOTAL INVESTMENT RETURN:**
Based on market price per share................. .96%# 23.93% (24.11)% 4.69%#
======= ======= ======= ========
Based on net asset value per share.............. (.57)%# 18.44% (11.44)% 14.51%#
======= ======= ======= ========
RATIOS TO AVERAGE NET ASSETS:***
Expenses, net of reimbursement.................. .90%* .92% .88% .55%*
======= ======= ======= ========
Expenses........................................ .90%* .92% .88% .87%*
======= ======= ======= ========
Investment income -- net........................ 4.78%* 4.98% 4.88% 4.86%*
======= ======= ======= ========
</TABLE>
26
<PAGE> 31
<TABLE>
<CAPTION>
FOR THE PERIOD
NOVEMBER 27,
FOR THE SIX MONTHS FOR THE YEAR ENDED 1992+
ENDED APRIL 30, OCTOBER 31, TO OCTOBER 31,
1996 1995 1994 1993
------- ------- ------- --------
<S> <C> <C> <C> <C>
SUPPLEMENTAL DATA:
Net assets, net of Preferred Stock, end of
period (in thousands)......................... $ 50,810 $52,654 $47,301 $57,005
======= ======= ======= ========
Preferred Stock outstanding, end of period
(in thousands)................................ $ 25,000 $25,000 $25,000 $25,000
======= ======= ======= ========
Portfolio turnover.............................. 66.37% 176.98% 65.22% 11.06%
======= ======= ======= ========
DIVIDENDS PER SHARE ON PREFERRED STOCK
OUTSTANDING:+++
Investment income -- net........................ $ 483 $ 944 $ 625 $ 325
======= ======= ======= ========
LEVERAGE:
Asset coverage per $1,000....................... $ 3,032 $ 3,106 $ 2,892 $ 3,280
======= ======= ======= ========
</TABLE>
- ---------------
* Annualized.
** Total investment returns based on market value, which can be significantly
greater or less than the net asset value, may result in substantially
different returns. Total investment returns exclude the effects of sales
loads.
*** Does not reflect the effect of dividends to Preferred Stock shareholders.
+ Commencement of operations.
++ The Fund's Preferred Stock was issued on March 25, 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.
27
<PAGE> 32
PER SHARE DATA FOR COMMON STOCK*
TRADED ON THE NEW YORK STOCK EXCHANGE (UNAUDITED)
MuniVest New York Insured
<TABLE>
<CAPTION>
PREMIUM
(DISCOUNT)
TO NET
MARKET PRICE** NET ASSET VALUE ASSET VALUE
------------------ ---------------- ---------------
QUARTER ENDED HIGH LOW HIGH LOW HIGH LOW
- ------------------------------------ ------- ------- ------ ------ ----- ------
<S> <C> <C> <C> <C> <C> <C>
July 31, 1993....................... $ 15.25 $ 14.25 $14.54 $14.10 7.12% (0.21)%
October 31, 1993.................... 15.375 14.125 15.21 14.28 3.88 (3.65)
January 31, 1994.................... 15.00 13.50 15.07 14.37 2.80 (8.97)
April 30, 1994...................... 15.00 11.75 15.01 12.08 6.54 (8.99)
July 31, 1994....................... 13.00 11.625 13.61 12.40 2.10 (9.60)
October 31, 1994.................... 12.375 10.375 13.11 11.79 (3.92) (13.50)
January 31, 1995.................... 11.125 9.125 12.08 10.89 (0.63) (17.94)
April 30, 1995...................... 11.875 10.875 12.94 12.10 (5.01) (10.71)
July 31, 1995....................... 12.25 11.00 13.44 12.54 (5.60) (15.08)
October 31, 1995.................... 12.00 11.25 13.25 12.57 (8.06) (13.50)
January 31, 1996.................... 12.75 11.50 13.76 13.20 (6.87) (15.81)
April 30, 1996...................... 12.75 11.50 13.90 12.50 (3.92) (11.10)
July 31, 1996....................... 11.625 11.25 12.94 12.50 (9.73) (11.97)
</TABLE>
MuniYield New York Insured II
<TABLE>
<CAPTION>
PREMIUM
(DISCOUNT)
TO NET
MARKET PRICE** NET ASSET VALUE ASSET VALUE
------------------ ---------------- ---------------
QUARTER ENDED HIGH LOW HIGH LOW HIGH LOW
- -------------------------------------- ------- ------- ------ ------ ----- ------
<S> <C> <C> <C> <C> <C> <C>
January 31, 1993...................... $ 15.00 $ 13.75 $14.35 $13.44 6.08% (1.25)%
April 30, 1993........................ 15.75 14.50 15.42 14.35 4.31 (3.78)
July 31, 1993......................... 15.375 14.50 15.49 15.00 (0.36) (4.42)
October 31, 1993...................... 15.75 15.00 16.16 15.33 (1.25) (6.02)
January 31, 1994...................... 15.375 14.125 16.03 15.42 (1.34) (10.15)
April 30, 1994........................ 15.625 12.625 16.00 13.47 (0.78) (9.89)
July 31, 1994......................... 13.75 12.625 14.67 13.74 (2.26) (10.59)
October 31, 1994...................... 13.25 11.00 14.30 13.13 (5.49) (17.24)
January 31, 1995...................... 12.375 10.125 13.57 12.21 (4.39) (20.07)
April 30, 1995........................ 13.00 12.375 14.34 13.58 (5.19) (12.62)
July 31, 1995......................... 13.00 12.375 14.79 13.97 (9.60) (14.71)
October 31, 1995...................... 13.25 12.50 14.72 13.95 (7.97) (11.76)
January 31, 1996...................... 13.75 13.00 15.24 14.70 (8.25) (14.02)
April 30, 1996........................ 13.875 12.75 15.43 14.00 (6.73) (11.99)
July 31, 1996......................... 13.25 12.75 14.30 13.89 (6.09) (9.71)
</TABLE>
28
<PAGE> 33
MuniYield New York Insured III
<TABLE>
<CAPTION>
PREMIUM
(DISCOUNT)
TO NET
MARKET PRICE** NET ASSET VALUE ASSET VALUE
------------------ ---------------- ----------------
QUARTER ENDED HIGH LOW HIGH LOW HIGH LOW
- ----------------------------------- ------- ------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
January 31, 1993................... $15.125 $ 15.00 $14.38 $14.18 6.07% 4.31%
April 30, 1993..................... 16.00 14.125 15.06 14.34 6.24 (3.91)
July 31, 1993...................... 15.50 14.50 15.13 14.64 3.67 (3.59)
October 31, 1993................... 15.875 14.875 15.81 14.95 5.07 (4.71)
January 31, 1994................... 15.25 14.00 15.58 15.00 (1.21) (8.04)
April 30, 1994..................... 15.375 12.125 15.53 13.01 2.74 (11.04)
July 31, 1994...................... 13.75 12.50 14.32 13.33 0.88 (9.55)
October 31, 1994................... 13.125 10.625 13.96 12.82 (4.68) (17.64)
January 31, 1995................... 11.75 9.875 13.15 11.87 (4.49) (19.06)
April 30, 1995..................... 12.125 11.75 13.98 13.15 (6.91) (14.67)
July 31, 1995...................... 12.50 11.625 14.52 13.55 (11.42) (17.66)
October 31, 1995................... 13.00 11.75 14.35 13.56 (4.90) (15.13)
January 31, 1996................... 13.25 12.375 14.89 14.34 (8.87) (15.54)
April 30, 1996..................... 13.375 11.875 15.08 13.60 (8.05) (13.04)
July 31, 1996...................... 12.50 12.125 14.10 13.61 (8.83) (13.14)
</TABLE>
- ---------------
* Calculations are based upon shares of Common Stock outstanding at the end of
each quarter.
** As reported in the consolidated transaction reporting system.
As indicated in the tables above, since November 1, 1993 the MuniVest New
York Insured Common Stock, the MuniYield New York Insured II Common Stock and
the MuniYield New York Insured III Common Stock generally have traded at prices
close to net asset value, with small premiums or discounts to net asset value
being reflected in the market value of the shares from time to time. Since
November 1, 1993, share prices for MuniVest New York Insured Common Stock have
fluctuated between a maximum premium of 6.54% and a maximum discount of
(17.94%), share prices for MuniYield New York Insured II Common Stock have
traded at a maximum discount of (20.07%), and share prices for MuniYield New
York Insured III Common Stock have fluctuated between a maximum premium of 2.74%
and a maximum discount of (19.06%). Although there is no reason to believe that
this pattern should be affected by the Reorganization, it is not possible to
state 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 MuniVest New York
Insured, MuniYield New York Insured II and MuniYield New York Insured III are
virtually identical, with the minor differences between the three Funds set
forth below. Each Fund seeks as a fundamental investment objective as high a
level of current income exempt from Federal, New York State and New York City
income taxes as is consistent with the Fund's investment policies and prudent
investment management.
29
<PAGE> 34
The investment objective and policies of each of the three Funds are
identical. Each Fund seeks to achieve its investment objective by investing
primarily in a portfolio of New York Municipal Bonds. 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. At all times, except
during temporary defensive periods, at least 65% of each Fund's total assets
will be invested in New York Municipal Bonds. Under normal circumstances, at
least 80% of each Fund's total assets will be invested in New York Municipal
Bonds and Municipal Bonds with remaining maturities of one year or more which
are covered by insurance guaranteeing the timely payment of principal at
maturity and interest. 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, none of the Funds intends to realize significant investment
income not exempt from Federal, New York State and New York City income taxes.
Each Fund seeks to invest substantially all of its total assets in Municipal
Bonds except at times when, in the judgment of FAM, Municipal Bonds of
sufficient quality and quantity are unavailable for investment by the Fund. Each
Fund may invest 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 an alternative minimum tax.
The investment grade Municipal Bonds in which each Fund invests are those
Municipal Bonds rated at the date of purchase within the four highest rating
categories of S&P, Moody's or Fitch or, if unrated, are considered to be of
comparable quality by FAM. In the case of long-term debt, the investment grade
rating categories are AAA through BBB for S&P, Aaa through Baa3 for Moody's and
AAA through BBB- for Fitch. In the case of short-term notes, the investment
grade rating categories are SP-1 through SP-3 for S&P, MIG-1 through MIG-4 for
Moody's and F-1+ through F-4 for Fitch. In the case of tax-exempt commercial
paper, the investment grade rating categories are A through A-3 for S&P, Prime-1
through Prime-3 for Moody's and F-l+ through F-4 for Fitch. Obligations ranked
in the fourth highest rating category assigned long-term debt or in an
equivalent short-term rating category (BBB, SP-3 and A-3 for S&P; Baa, MIG-4 and
Prime-3 for Moody's; and BBB, F-3 and F-4 for Fitch), while considered
"investment grade," may have certain speculative characteristics. In assessing
the quality of Municipal Bonds with respect to the foregoing requirements, FAM
takes into account the portfolio insurance as well as the nature of any letters
of credit or similar credit enhancement to which particular Municipal Bonds are
entitled and the creditworthiness of the insurance company or other financial
institution which provided such credit enhancement. See Exhibit III -- "Ratings
of Municipal Bonds and Commercial Paper" and Exhibit IV -- "Portfolio
Insurance".
Each of the Funds may invest in variable rate demand obligations ("VRDOs")
and VRDOs in the form of participation interests ("Participating VRDOs") in
variable rate tax-exempt obligations held by a financial institution, typically
a commercial bank. The VRDOs in which each Fund may invest are tax-exempt
obligations (in the opinion of counsel to the issuer) which contain a floating
or variable interest rate adjustment formula and an unconditional 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%) of 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
30
<PAGE> 35
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.
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 the Funds.
On a temporary basis, each Fund may invest in short-term tax-exempt
securities, short-term U.S. Government securities, repurchase agreements or
cash. Such 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 and temporary defensive periods when, in the
opinion of FAM, prevailing market or economic conditions warrant.
Each Fund is classified as non-diversified within the meaning of the
Investment Company Act, which means that the Fund is not limited by such Act in
the proportion of its total assets that it may invest in securities of a single
issuer. However, each Fund's investments are limited so as to qualify the Fund
for the special tax treatment afforded RICs under the Code. See "Agreement and
Plan of Reorganization -- Tax Consequences of the Reorganization". 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 are 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 are invested in the securities (other than U.S. Government
securities) of a single issuer. A fund which 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 of
MuniVest New York Insured, MuniYield New York Insured II or MuniYield New York
Insured III assumes large positions in the securities of a small number of
issuers, the Fund's yield may fluctuate to a greater extent than that of a
diversified company as a result of changes in the financial condition or in the
market's assessment of the issuers.
PORTFOLIO INSURANCE
Under normal circumstances, at least 80% of each Fund's assets will be
invested in Municipal Bonds either (i) insured under an insurance policy
purchased by the Fund or (ii) insured under an insurance policy obtained by the
issuer thereof or any other party. The insurance policies in either instance
will be issued by insurance carriers that have total admitted assets (unaudited)
of at least $75,000,000 and capital and surplus (unaudited) of at least
$50,000,000 and insurance claims-paying ability ratings of AAA from S&P, Aaa
from Moody's or AAA from Fitch. See Exhibit IV to this Proxy Statement and
Prospectus for a brief description of S&P's and Moody's insurance claims-paying
ability ratings. Currently, a majority of the insured Municipal Bonds in each
Fund's portfolio are insured by the following insurance companies which satisfy
the foregoing requirements: AMBAC Indemnity Corporation, Financial Security
Assurance, Capital Guaranty Insurance Company, Financial Guaranty Insurance
Company and Municipal Bond Investors Assurance Corporation.
31
<PAGE> 36
Each Fund also may purchase Municipal Bonds covered by insurance issued by any
other insurance company which satisfies the foregoing requirements. A majority
of insured Municipal Bonds held by each Fund will be insured under policies
obtained by parties other than the Fund.
Each Fund may purchase, but has no obligation to purchase, separate mutual
fund insurance policies (the "Policies") from insurance companies meeting the
requirements set forth above which guarantee payment of principal and interest
on specified eligible Municipal Bonds purchased by the Fund. A Municipal Bond
will be eligible for coverage if it meets certain requirements of the insurance
company set forth in a Policy. In the event interest or principal on an insured
Municipal Bond is not paid when due, the insurer will be obligated under its
Policy to make such payment not later than 30 days after it has been notified
by, and provided with documentation from, the Fund that such nonpayment has
occurred.
The Policies will be effective only as to insured Municipal Bonds
beneficially owned by a Fund. In the event of a sale of any Municipal Bonds held
by a Fund, the issuer of the relevant Policy will be liable only for those
payments of interest and principal which are then due and owing. The Policies
will not guarantee the market value of the insured Municipal Bonds or the value
of the shares of the Fund.
The insurer will not have the right to withdraw coverage on securities
insured by its Policies and held by a Fund so long as such securities remain in
the Fund's portfolio. In addition, the insurer may not cancel its Policies for
any reason except failure to pay premiums when due. The Board of Directors of
each Fund reserves the right to terminate any of the Policies if it determines
that the benefits to the Fund of having its portfolio insured under such Policy
are not justified by the expense involved.
The premiums for the Policies are paid by a Fund and the yield on the
Fund's portfolio is reduced thereby. FAM estimates that the cost of the annual
premiums for the Policies of each Fund currently range from approximately .20 of
1% to .25 of 1% of the principal amount of the Municipal Bonds covered by such
Policies. The estimate is based on the expected composition of each Fund's
portfolio of Municipal Bonds. Additional information regarding the Policies is
set forth in Exhibit IV to this Proxy Statement and Prospectus. In instances in
which the Fund purchases Municipal Bonds insured under policies obtained by
parties other than the Fund, the Fund does not pay the premiums for such
policies; rather, the cost of such policies may be reflected in the purchase
price of the Municipal Bonds.
It is the intention of FAM to retain any insured securities which are in
default or in significant risk of default and to place a value on the insurance
which ordinarily will be the difference between the market value of the
defaulted security and the market value of similar securities which are not in
default. In certain circumstances, however, FAM may determine that an
alternative value for the insurance, such as the difference between the market
value of the defaulted security and its par value, is more appropriate. FAM will
be unable to manage the portfolio of a Fund to the extent it holds defaulted
securities, which may limit its ability in certain circumstances to purchase
other Municipal Bonds. See "Net Asset Value" below for a more complete
description of each Fund's method of valuing defaulted securities and securities
which have a significant risk of default.
There can be no assurance that insurance of the kind described above will
continue to be available to each Fund. In the event the Board of Directors of a
Fund determines that such insurance is unavailable or that the cost of such
insurance outweighs the benefits to the Fund, the Fund may discontinue its
policy of maintaining insurance for all or any of the Municipal Bonds held in
the Fund's portfolio. Although FAM periodically
32
<PAGE> 37
reviews the financial condition of each insurer, there can be no assurance that
the insurers will be able to honor their obligations under all circumstances.
The portfolio insurance reduces financial or credit risk (i.e., the
possibility that the owners of the insured Municipal Bonds will not receive
timely scheduled payments of principal or interest). However, the insured
Municipal Bonds are subject to market risk (i.e., fluctuations in market value
as a result of changes in prevailing interest rates).
DESCRIPTION OF MUNICIPAL BONDS
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 industrial development bonds are issued by or on behalf of
public authorities to finance various privately operated facilities, including
pollution control facilities. For purposes of this Proxy Statement and
Prospectus, such obligations are Municipal Bonds if the interest paid thereon is
exempt from Federal income tax, even though such bonds may be "private activity
bonds" as discussed below.
The two principal classifications of Municipal Bonds are "general
obligation" bonds and "revenue" or "special obligation" bonds. General
obligation bonds are secured by the issuer's pledge of faith, credit and taxing
power for the payment of principal and interest. Revenue or special obligation
bonds are payable only from the revenues derived from a particular facility or
class of facilities or, in some cases, from the proceeds from a special excise
tax or other specific revenue source such as from the user of the facility being
financed. Industrial development bonds are in most cases revenue bonds and
generally do not constitute the pledge of the credit or taxing power of the
issuer of such bonds. The payment of the principal and 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.
Municipal Bonds also may include "moral obligation" bonds which normally are
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 Municipal Bonds classified as "private activity
bonds" (in general, bonds that benefit non-governmental entities). Interest
received on certain tax-exempt securities which are classified as "private
activity bonds" may subject certain investors in the Fund to an alternative
minimum tax. There is no limitation on the percentage of each Fund's assets that
may be invested in Municipal Bonds which may subject certain investors to an
alternative minimum tax. See "Summary -- Tax Considerations" and "Agreement and
Plan of Reorganization -- Tax Consequences of the Reorganization".
Federal tax legislation has limited the types and volume of bonds the
interest on which qualifies for a Federal income tax exemption. As a result,
this legislation and legislation which may be enacted in the future may affect
the availability of Municipal Bonds for investment by the Funds.
SPECIAL CONSIDERATIONS RELATING TO NEW YORK MUNICIPAL BONDS
Each Fund ordinarily will invest at least 65% of its total assets in New
York Municipal Bonds and, therefore, is more susceptible to factors adversely
affecting issuers of New York Municipal Bonds than is a
33
<PAGE> 38
municipal bond investment company that is not concentrated in issuers of New
York Municipal Bonds to this degree. As of August 15, 1996, Moody's, S&P and
Fitch rated New York City's general obligation bonds Baa1, BBB+ and A-,
respectively. Moody's, S&P and Fitch currently rate New York State's outstanding
general obligation bonds A, A- and A+, respectively. Because each Fund's
portfolio will comprise investment grade securities, each Fund is expected to be
insulated from the market and credit risks that may exist in connection with
investments in non-investment grade New York Municipal Bonds. See Exhibit II
-- "Economic Conditions in New York".
OTHER INVESTMENT POLICIES
MuniVest New York Insured, MuniYield New York Insured II and MuniYield New
York Insured III 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 money in excess of 5% of the value of its
total assets for the purpose of repurchasing its Common Stock or redeeming its
AMPS. Borrowings by each Fund create an opportunity for greater total return
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. For so long as shares of a Fund's AMPS are rated by
Moody's or S&P, unless it receives written confirmation from Moody's or S&P, as
the case may be, that such action would not impair the ratings then assigned to
the shares of AMPS by Moody's or S&P, the issuing Fund will not borrow money
except for the purpose of clearing portfolio securities transactions (which
borrowings under any circumstances shall be limited to the lesser of $10 million
and an amount equal to 5% of the market value of the Fund's assets at the time
of such borrowings and further in the case of MuniVest New York Insured and
MuniYield New York Insured III, which borrowings shall be repaid within 60 days
and not be extended or renewed).
When-Issued Securities and Delayed Delivery Transactions. Each of the
Funds may purchase or sell 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 Municipal Bonds having a market value at all
times at least equal to the amount of the forward commitment.
Indexed and Inverse Floating Obligations. Each of the Funds may invest in
Municipal Bonds the return on which is based on a particular index of value or
interest rates. For example, each Fund may invest in Municipal Bonds that pay
interest based on an index of Municipal Bond interest rates or based on the
value of gold or some other product. The principal amount payable upon maturity
of certain 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 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 rate
bonds" 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, by a remarketing agent, or by reference to a short-term
tax-exempt interest rate index). Each Fund may purchase original issue inverse
floating rate bonds in both the primary and secondary markets and also
34
<PAGE> 39
may purchase in the secondary market synthetically-created inverse floating rate
bonds evidenced by custodial or trust receipts. Generally, interest rates on
inverse floating rate 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 which 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 rate bonds with shorter-term maturities or which contain 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 which allows FAM to vary the degree of investment
leverage relatively efficiently under different market conditions.
Call Rights. Each of the Funds may purchase a Municipal Bond issuer's
right to call all or a portion of such 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 the related Municipal Bonds,
subject to certain conditions. A Call Right that is not exercised prior to the
maturity of the related Municipal Bond will expire without value. The economic
effect of holding both the Call Right and the related Municipal Bond is
identical to holding a Municipal Bond as a non-callable security.
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 ("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 its Common Stock, the net asset value of its Common Stock
fluctuates. There can be no assurance that a Fund's hedging transactions will be
effective. In addition, because of the leveraged nature of each Fund's 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. For so long as a Fund's AMPS are rated by Moody's or S&P, as the case
may be, the Fund's use of options and financial futures contracts and options
thereon will be subject to certain limitations mandated by the rating agencies.
Furthermore, a Fund only will engage in hedging activities from time to time and
may not necessarily be engaging in hedging activities when movements in interest
rates occur.
Certain Federal income tax requirements may limit a Fund's ability to
engage in hedging transactions. Gains from transactions in financial futures
contracts or options thereon distributed to stockholders are taxable as ordinary
income or, in certain circumstances, as long-term capital gains to stockholders.
The following is a description of the transactions involving options and
financial futures contracts and options thereon in which each Fund may engage,
limitations on the use of such transactions and risks associated therewith. 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 Municipal Bonds it owns, thereby
giving the holder of the option the right to buy the underlying
35
<PAGE> 40
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 is authorized to purchase put options in
connection with its hedging activities. By buying a put, the Fund has a right to
sell the underlying security at the exercise price, thus limiting the Fund's
risk of loss through a decline in the market value of the security until the put
expires. The amount of any appreciation in the value of the underlying security
will be partially offset by the amount of the premium terminated by entering
into the closing sale transaction. In certain circumstances, the Fund may
purchase call options on securities held in its portfolio on which it has
written call options, or on securities which it intends to purchase. A Fund will
not purchase options on securities if, as a result of such purchase, the
aggregate cost of all outstanding options on securities held by the Fund would
exceed 5% of the market value of the Fund's total assets.
Financial Futures Contracts and Options Thereon. Each Fund is authorized
to purchase and sell certain financial futures contracts and options thereon
solely for the purposes of hedging its investments in 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 or
options thereon 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 or options thereon 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 or
options.
The purchase or sale of a financial futures contract or option thereon
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 or option thereon fluctuates making the long
and short positions in the financial futures contract or option thereon 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 Municipal Bonds which the
Fund holds or anticipates purchasing against adverse changes in interest rates.
36
<PAGE> 41
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 or options thereon,
such as financial futures contracts or options on other municipal bond indices
which may become available, if FAM should determine that there normally is
sufficient correlation between the prices of such financial futures contracts or
options thereon and the Municipal Bonds in which the Fund invests to make such
hedging appropriate.
Over-The-Counter Options. Each Fund is authorized to engage in transactions
involving financial futures contracts or options thereon on exchanges and in the
over-the-counter markets ("OTC options"). In general, exchange-traded contracts
are third-party contracts (i.e., performance of the parties' obligations is
guaranteed by an exchange or clearing corporation) with standardized strike
prices and expiration dates. OTC options transactions are two-party contracts
with price and terms negotiated by the buyer and seller.
Restrictions on OTC Options. Each Fund is authorized to engage in
transactions in OTC options only with member banks of the Federal Reserve System
and primary dealers in U.S. Government securities or with affiliates of such
banks or dealers which have capital of at least $50 million or whose obligations
are guaranteed by an entity having capital of at least $50 million. OTC options
and assets used to cover OTC options written by the Funds are considered by the
staff of the Commission 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. Utilization of financial futures contracts and options thereon involves
the risk of imperfect correlation in movements in the price of financial futures
contracts and options thereon and movements in the price of the security which
is the subject of the hedge. If the price of the financial futures contract or
option thereon 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 which 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 or options thereon have different maturities, ratings, geographic
compositions or other characteristics than the security being hedged. In
addition, the correlation may be affected by additions to or deletions from the
index which serves as a basis for a financial futures contract or option
thereon. 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 financial futures contracts or options and Municipal Bonds may be adversely
affected by economic, political, legislative or other developments which have a
disparate impact on the respective markets for such securities.
Under regulations of the Commodity Futures Trading Commission, the futures
trading activities described herein will not result in a Fund's 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
futures contracts and options thereon (i) for bona fide hedging purposes, and
(ii) for non-hedging purposes, if the aggregate initial margin and premiums
required to establish positions in such contracts and options does not exceed 5%
of the liquidation value of the Fund's portfolio, after taking into account
unrealized
37
<PAGE> 42
profits and unrealized losses on any such contracts and options. 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
short-term, high-grade, fixed-income 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 financial futures contracts and
options thereon, FAM believes that, because each Fund will engage in
transactions involving financial futures contracts and options thereon only for
hedging purposes, the options and futures portfolio strategies of a Fund will
not subject the Fund to certain risks frequently associated with speculation in
financial futures contracts and options thereon. A Fund may be restricted in
engaging in transactions involving financial futures contracts and options
thereon due to the requirement that less than 30% of its gross income in each
taxable year be derived from the sale or other disposition of securities held
for less than three months.
The volume of trading in the exchange markets with respect to 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.
Each Fund intends to enter into financial futures contracts and options
thereon, on an exchange or in the over-the-counter market, only if there appears
to be a liquid secondary market for such financial futures contracts or options.
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 a financial futures
contract position or the related option. The inability to close financial
futures contract positions or the related options 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 a financial
futures contract or the related option.
The liquidity of a secondary market in a financial futures contract or
option thereon may be adversely affected by "daily price fluctuation limits"
established by commodity exchanges which limit the amount of fluctuation in a
financial futures contract or option price during a single trading day. Once the
daily limit has been reached in the financial futures contract or option, no
trades may be entered into at a price beyond the limit, thus preventing the
liquidation of open financial futures contract positions or the related options.
Prices in the past have reached or exceeded the daily limit on a number of
consecutive trading days.
If it is not possible to close a financial futures contract position or the
related option 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 interest rates remain stable during the period
in which a financial futures contract or option thereon is held by a Fund or
moves in a direction opposite to that anticipated, the Fund may realize a loss
on the hedging transaction which is not fully
38
<PAGE> 43
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.
INVESTMENT RESTRICTIONS
MuniVest New York Insured, MuniYield New York Insured II and MuniYield New
York Insured III have identical investment restrictions. The following are
fundamental investment restrictions of each Fund and may not be changed without
the approval of the holders of a majority of the outstanding shares of Common
Stock and the outstanding shares of AMPS and any other preferred stock, voting
together as a single class, and a majority of the outstanding shares of AMPS and
any other preferred stock, voting separately as a class. (For this purpose and
under the Investment Company Act, "majority" means for each such class the
lesser of (i) 67% of the shares of each class of capital stock represented at a
meeting at which more than 50% of the outstanding shares of each class of
capital stock are represented or (ii) more than 50% of the outstanding shares of
each class of capital stock.) None of the Funds 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, however, 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 in selling
portfolio securities.
6. Make loans to other persons, except that the Fund may purchase
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 Municipal Bonds, U.S.
Government obligations and related indices or otherwise in connection with
bona fide hedging activities.
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<PAGE> 44
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, however, that for purposes of this restriction, states,
municipalities and their political subdivisions are not considered to be
part of any industry.
An additional investment restriction adopted by each Fund, which may be
changed by the Board of Directors, provides that the Fund may not 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 investment policies or the investment or use
of assets set forth above is adhered to at the time a transaction is effected,
later changes in percentage resulting from changing values will not be
considered a violation.
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 their
date of original issue of "aaa" from Moody's and AAA from S&P. Moody's and S&P,
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 stocks, 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 which 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.
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<PAGE> 45
PORTFOLIO COMPOSITION
Although the investment portfolios of all three 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 three investment portfolios. Of the Municipal Bonds owned by MuniVest New
York Insured, as of July 31, 1996, 90.7% are rated in the highest grade by
Moody's or S&P, 97.6% are rated in the highest two grades, 100% are rated in the
highest three grades, 100% are rated in the highest four grades, and none are
unrated. The comparable percentages for MuniYield New York Insured II are 88.7%
in the highest grade, 91.5% in the highest two grades, 100% in the highest three
grades, 100% in the highest four grades and none unrated. The comparable
percentages for MuniYield New York Insured III are 92.0% in the highest grade,
97.1% in the highest two grades, 100% in the highest three grades, 100% in the
highest four grades and none unrated.
There are small differences in concentration among the categories of
issuers of the Municipal Bonds held in the portfolios of the Funds. For MuniVest
New York Insured, as of July 31, 1996, the highest concentration of Municipal
Bonds was in General Obligation Bonds, Transportation and Hospitals/Healthcare,
accounting for 24%, 20%, and 14% of the Fund's portfolio, respectively; for
MuniYield New York Insured II, the highest concentration was in Transportation,
General Obligation and Education, accounting for 27%, 14% and 13% of the Fund's
portfolio, respectively; and for MuniYield New York Insured III, the highest
concentration was in Transportation, Hospitals/Healthcare and Education,
accounting for 28%, 24% and 12% of the Fund's portfolio, respectively.
MuniVest New York Insured
As of July 31, 1996, approximately 86% of the market value of MuniVest New
York Insured's portfolio was invested in long-term municipal obligations and
approximately 13% of the market value of MuniVest New York Insured's portfolio
was invested in short-term municipal obligations. The following table sets forth
certain information with respect to the composition of MuniVest New York
Insured's long-term municipal obligation investment portfolio as of July 31,
1996.
<TABLE>
<CAPTION>
NUMBER OF VALUE
S&P* MOODY'S* ISSUES (IN THOUSANDS) PERCENT
- ---- -------- ---------------- -------------- -------
<S> <C> <C> <C> <C>
AAA Aaa 32 $110,993 90.7%
A A 1 2,996 2.4
BBB Baa 2 8,389 6.9
--
-------- -----
35 $122,378 100.0%
== ======== =====
</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, BBB, BB, B and C ratings. Moody's rating categories may be
modified further by a 1, 2 or 3 in Aa, A, Baa, Ba and B ratings. See Exhibit
III -- "Ratings of Municipal Bonds and Commercial Paper".
MuniYield New York Insured II
As of July 31, 1996, approximately 89% of the market value of MuniYield New
York Insured II's portfolio was invested in long-term municipal obligations and
approximately 10% of the market value of
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<PAGE> 46
MuniYield New York Insured II's portfolio was invested in short-term municipal
obligations. The following table sets forth certain information with respect to
the composition of MuniYield New York Insured II's long-term municipal
obligation investment portfolio as of July 31, 1996.
<TABLE>
<CAPTION>
NUMBER OF VALUE
S&P* MOODY'S* ISSUES (IN THOUSANDS) PERCENT
- ---- -------- ---------------- -------------- -------
<S> <C> <C> <C> <C>
AAA Aaa 45 $181,030 88.7%
AA Aa 1 5,739 2,8
BBB Baa 3 17,405 8.5
------
-- --
---
49 $204,174 100.0%
=== == ========
</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, BBB, BB, B and C ratings. Moody's rating categories may be
modified further by a 1, 2 or 3 in Aa, A, Baa, Ba and B ratings. See Exhibit
III -- "Ratings of Municipal Bonds and Commercial Paper".
MuniYield New York Insured III
As of July 31, 1996, approximately 88% of the market value of MuniYield New
York Insured III's portfolio was invested in long-term municipal obligations and
approximately 9% of the market value of MuniYield New York Insured III's
portfolio was invested in short-term municipal obligations. The following table
sets forth certain information with respect to the composition of MuniYield New
York Insured III's long-term municipal obligation investment portfolio as of
July 31, 1996.
<TABLE>
<CAPTION>
NUMBER OF VALUE
S&P* MOODY'S* ISSUES (IN THOUSANDS) PERCENT
- ---- -------- ---------------- -------------- -------
<S> <C> <C> <C> <C>
AAA Aaa 28 $ 62,724 92.0%
AA Aa 1 3,444 5.1
A A 1 1,997 2.9
------
-- --
---
30 $ 68,165 100.0%
=== == ========
</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, BBB, BB, B and C ratings. Moody's rating categories may be
modified further by a 1, 2 or 3 in Aa, A, Baa, Ba and B ratings. See Exhibit
III -- "Ratings of Municipal Bonds and Commercial Paper".
PORTFOLIO TRANSACTIONS
The procedures for engaging in portfolio transactions are the same for
MuniVest New York Insured, MuniYield New York Insured II and MuniYield New York
Insured III. 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, MuniVest New York
42
<PAGE> 47
Insured, MuniYield New York Insured II and MuniYield New York Insured III do not
necessarily pay the lowest commission or spread available.
None of the Funds has any obligation to deal with any broker or dealer in
the execution of transactions in portfolio securities. Subject to obtaining the
best price and execution, securities firms which provide supplemental investment
research to FAM, including Merrill Lynch, Pierce, Fenner & Smith Incorporated
("Merrill Lynch"), may receive orders for transactions by a Fund. Information so
received will be in addition to, and not in lieu of, the services required to be
performed by FAM under its investment advisory agreements with the Funds, and
the expenses of FAM will not necessarily be reduced as a result of the receipt
of such supplemental information.
The securities in which each Fund primarily invests are traded in the
over-the-counter markets, and each Fund normally deals directly with the dealers
who make markets in the securities involved, except in those circumstances where
better prices and execution are available elsewhere. Under the Investment
Company Act, except as permitted by exemptive order, persons affiliated with a
Fund are prohibited from dealing with the Fund as principals in the purchase and
sale of securities. Since transactions in the over-the-counter markets usually
involve transactions with dealers acting as principals for their own account, a
Fund will 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.
MuniVest New York Insured, MuniYield New York Insured II and MuniYield New
York Insured III also may make loans to tax-exempt borrowers in individually
negotiated transactions with the borrower. 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 made a
determination not to seek such recapture. The Directors will reconsider this
matter from time to time.
Periodic auctions are conducted for the MuniVest New York Insured AMPS, the
MuniYield New York Insured II AMPS and the MuniYield New York Insured III 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
1/4 of 1%, 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 MuniVest New York Insured, MuniYield New York Insured II
nor MuniYield New York Insured III purchases securities for short-term trading
profits. However, any of the Funds may dispose of securities without regard to
the time that they have been held when such action, for defensive or other
reasons, appears advisable to FAM. While it is not possible to predict turnover
rates with any certainty,
43
<PAGE> 48
at present it is anticipated that each Fund's annual portfolio turnover rate,
under normal circumstances, will be less than 100%. (The portfolio turnover rate
is calculated by dividing the lesser of purchases or sales of portfolio
securities for the particular fiscal year by the monthly average of the value of
the portfolio securities owned by 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.) The portfolio turnover rate
for each of the years ended October 31, 1995 and 1994 was 192.08% and 74.77%,
respectively, for MuniVest New York Insured, 110.76% and 36.79%, respectively,
for MuniYield New York Insured II and 176.98% and 65.22%, respectively, for
MuniYield New York Insured III.
NET ASSET VALUE
The net asset value per share of Common Stock of each Fund is determined as
of 15 minutes after the close of business on the NYSE (generally, 4:00 P.M., New
York time) on each day during which the NYSE is open for trading. 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 Municipal Bonds in which each Fund invests are traded primarily in the
over-the-counter markets. In determining net asset value, each Fund utilizes the
valuations of portfolio securities furnished by a pricing service approved by
the Board of Directors. The pricing service typically values portfolio
securities at the bid price or the yield equivalent when quotations are readily
available. Municipal Bonds for which quotations are not readily available are
valued at fair market value on a consistent basis as determined by the pricing
service using a matrix system to determine valuations. The procedures of the
pricing service and its valuations are reviewed by the officers of each Fund
under the general supervision of the Board of Directors of the Fund. The Board
of Directors of each Fund has determined in good faith that the use of a pricing
service is a fair method of determining the valuation of portfolio securities.
Obligations with remaining maturities of 60 days or less are valued at amortized
cost, unless this method no longer produces fair valuations. 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.
CAPITAL STOCK
MuniVest New York Insured, MuniYield New York Insured II and MuniYield New
York Insured III each has outstanding both Common Stock and AMPS. MuniVest New
York Insured Common Stock, MuniYield New York Insured II Common Stock and
MuniYield New York Insured III Common Stock all are traded on the NYSE. The
shares of MuniVest New York Insured Common Stock commenced trading on the NYSE
on April 30, 1993. As of July 31, 1996, the net asset value per share of the
MuniVest New York Insured Common Stock was $12.94 and the market price per share
was $11.625. The shares of MuniYield New York Insured II Common Stock commenced
trading on the NYSE on June 26, 1992. As of July 31, 1996, the net asset value
per share of the MuniYield New York Insured II Common Stock was $14.30 and the
market price per share was $13.00. The shares of MuniYield New York Insured III
Common Stock
44
<PAGE> 49
commenced trading on the NYSE on November 27, 1992. As of July 31, 1996, the net
asset value per share of the MuniYield New York Insured III Common Stock was
$14.10 and the market price per share was $12.50.
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
Fund's offering of shares of AMPS, MuniVest New York Insured reclassified 1,960
shares of unissued capital stock as AMPS, MuniYield New York Insured II
reclassified 2,800 shares of unissued capital stock as AMPS, and MuniYield New
York Insured III reclassified 1,000 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. 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
MuniVest New York Insured AMPS, MuniYield New York Insured II AMPS and
MuniYield New York Insured III AMPS are structured identically to each other.
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. MuniVest New York Insured AMPS,
MuniYield New York Insured II AMPS and MuniYield New York Insured III AMPS all
have liquidation preferences of $25,000 per share; none of the Fund's AMPS are
traded on any stock exchange or over-the-counter. Each Fund's AMPS can be
purchased at an auction or through broker-dealers who maintain a secondary
market in the AMPS.
Auctions generally have been held and will be held every seven days in the
case of the MuniVest New York Insured AMPS and the MuniYield New York Insured II
AMPS, and every 28 days in the case of the MuniYield New York Insured III AMPS,
unless the applicable Fund elects, subject to certain limitations, to have a
special dividend period. As of the auction held on August 1, 1996, the dividend
rate on the MuniVest New York Insured AMPS was 3.41%; as of the auction held on
August 2, 1996, the dividend rate on the MuniYield New York Insured II AMPS was
3.38%; and as of the auction held on July 17, 1996, the dividend rate on the
MuniYield New York Insured III AMPS was 3.451%.
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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.
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 a vote of the holders of at least 66 2/3% of the votes
entitled to be voted on the matter. A Director elected by the holders of Common
Stock, AMPS and any other preferred 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 affirmative
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:
(i) a merger or consolidation or statutory share exchange of the Fund
with any other corporation or entity,
(ii) 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
(iii) 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 entire Board of Directors, 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 the holders of a majority of the shares of preferred stock 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 Articles of Incorporation. 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 entire Board of Directors) and the affirmative vote of a majority of the
votes entitled to be cast by holders of shares of preferred stock (including the
AMPS), voting separately as a 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
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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 also would 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 Commission for the full text of these provisions.
MANAGEMENT OF THE FUNDS
Directors and Officers. The Boards of Directors of MuniVest New York
Insured, MuniYield New York Insured II and MuniYield New York Insured III
currently consist of six persons, five of whom are not "interested persons", as
defined in the Investment Company Act, of any of the Funds. The Directors are
responsible for the overall supervision of the operations of MuniVest New York
Insured, MuniYield New York Insured II and MuniYield New York Insured III and
perform the various duties imposed on the directors of investment companies by
the Investment Company Act and under applicable Maryland law. MuniVest New York
Insured, MuniYield New York Insured II and MuniYield New York Insured III have
the same officers. For further information regarding the Directors and officers
of each Fund, see "Election of Directors".
Management and Advisory Arrangements. FAM serves as the investment adviser
for MuniVest New York Insured, MuniYield New York Insured II and MuniYield New
York Insured III pursuant to separate investment advisory agreements that,
except for their termination dates, are identical. FAM is an affiliate of MLAM,
and both FAM and MLAM are owned and controlled by ML & Co. FAM provides each
Fund with the same investment advisory and management services. FAM or MLAM acts
as the investment adviser for more than 130 registered investment companies. FAM
also offers portfolio management and portfolio analysis services to individuals
and institutions. As of July 31, 1996, FAM and MLAM had a total of approximately
$207.3 billion in investment company and other portfolio assets under management
(approximately $30.4 billion of which were invested in municipal securities),
including accounts of certain affiliates of FAM. 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 direction 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 MuniVest New York Insured,
MuniYield New York Insured II and MuniYield New York Insured III. Such portfolio
management considers analyses from various sources (including brokerage firms
with which each Fund does business), makes the necessary investment decisions,
and places orders for transactions accordingly. FAM also is responsible for the
performance of certain administrative and management services for each Fund.
For the services provided by FAM under each Fund's investment advisory
agreement, the Fund pays a monthly fee at an annual rate of .50 of 1% of the
Fund's average weekly net assets (i.e., the average weekly
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value of the total assets of the Fund, minus the sum of accrued liabilities of
the Fund and accumulated dividends on its shares of AMPS). For purposes of this
calculation, average weekly net assets are determined at the end of each month
on the basis of the average net assets of the Fund for each week during the
month. The assets for each weekly period are determined by averaging the net
assets at the last business day of a week with the net assets at the last
business day of the prior week.
Each Fund's investment advisory agreement obligates FAM to provide
investment advisory services and to pay all compensation of and furnish office
space for officers and employees of the Fund connected with investment and
economic research, trading and investment management of the Fund, as well as the
compensation of all 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, Commission 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 MuniVest New York Insured and FAM will continue from year to
year if approved annually (a) by the Board of Directors of MuniVest New York
Insured or by a majority of the outstanding shares of MuniVest New York Insured
Common Stock and MuniVest New York Insured AMPS, voting together as a single
class, and (b) by a majority of the Directors of MuniVest New York Insured 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 MuniVest New York
Insured.
Similarly, unless earlier terminated as described below, the investment
advisory agreement between MuniYield New York Insured II and FAM will continue
from year to year if approved annually (a) by the Board of Directors of
MuniYield New York Insured II or by a majority of the outstanding shares of
MuniYield New York Insured II Common Stock and MuniYield New York Insured II
AMPS, voting together as a single class, and (b) by a majority of the Directors
of MuniYield New York Insured II who are not parties to such contract or
"interested persons" 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 MuniYield New York
Insured II.
Similarly, unless earlier terminated as described below, the investment
advisory agreement between MuniYield New York Insured III and FAM will continue
from year to year if approved annually (a) by the Board of Directors of
MuniYield New York Insured III or by a majority of the outstanding shares of
MuniYield New York Insured III Common Stock and MuniYield New York Insured III
AMPS, voting together as a single class, and (b) by a majority of the Directors
of MuniYield New York Insured III who are not parties to such contract or
"interested persons" 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 MuniYield New York
Insured III.
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VOTING RIGHTS
Voting rights are identical for the holders of shares of MuniVest New York
Insured Common Stock, MuniYield New York Insured II Common Stock and MuniYield
New York Insured III Common Stock. Holders of each Fund's Common Stock are
entitled to one vote for each share held and will vote with the holders of any
outstanding shares of the Fund's AMPS or other preferred stock on each matter
submitted to a vote of holders of Common Stock, except as set forth below.
Stockholders of each Fund are entitled to one vote for each share held. The
shares of each Fund's Common Stock, AMPS and any other preferred stock do not
have cumulative voting rights, which means that the holders of more than 50% of
the shares of a Fund's Common Stock, AMPS and any other preferred stock voting
for the election of Directors can elect all of the Directors standing for
election by such holders, and, in such event, the holders of the remaining
shares of a Fund's Common Stock, AMPS and any other preferred stock will not be
able to elect any of such Directors.
Voting rights of the holders of MuniVest New York Insured AMPS, MuniYield
New York Insured II AMPS and MuniYield New York Insured III AMPS are identical.
Except as otherwise indicated below, and except as otherwise required by
applicable law, holders of shares of a Fund's AMPS will be entitled to one vote
per share on each matter submitted to a vote of the Fund's stockholders and will
vote together with the holders of shares of the Fund's Common Stock as a single
class.
In connection with the election of a Fund's Directors, holders of shares of
a Fund's AMPS and any other preferred stock, 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.
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STOCKHOLDER INQUIRIES
Stockholder inquiries with respect to MuniVest New York Insured, MuniYield
New York Insured II and MuniYield New York Insured III may be addressed to any
of the Funds by telephone at (609) 282-2800 or at the address set forth on the
cover page of this Proxy Statement and Prospectus.
DIVIDENDS AND DISTRIBUTIONS
The Funds' current policies with respect to dividends and distributions
relating to shares of their Common Stock are identical. Each Fund intends to
distribute all of its net investment income. Dividends from such net investment
income are declared and paid monthly to holders of a Fund's Common Stock.
Monthly distributions to holders of a Fund's Common Stock normally consist of
substantially all of the net investment income remaining after the payment of
dividends on the Fund's AMPS. All net realized long-term or short-term capital
gains, if any, are distributed at least annually, pro rata to holders of shares
of a Fund's Common Stock and AMPS. While any shares of a Fund's AMPS are
outstanding, the Fund may not declare any cash dividend or other distribution on
the Fund's Common Stock, unless at the time of such declaration (1) all
accumulated dividends on the Fund's AMPS have been paid, and (2) the net asset
value of the Fund's portfolio (determined after deducting the amount of such
dividend or other distribution) is at least 200% of the liquidation value of the
Fund's outstanding shares of AMPS. This limitation on a Fund's ability to make
distributions on its Common Stock under certain circumstances could impair the
ability of the Fund to maintain its qualification for taxation as a RIC. See
"Agreement and Plan of Reorganization -- Tax Consequences of the
Reorganization".
Similarly, the Funds' current policies with respect to dividends and
distributions relating to shares of their AMPS are identical. 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 the MuniVest
New York Insured AMPS, the MuniYield New York Insured II AMPS and the MuniYield
New York Insured III AMPS are paid through The Depository Trust Company ("DTC")
(or a successor securities depository) on each dividend payment date. DTC's
normal procedures now provide for it to distribute dividends in same-day funds
to agent members, who in turn are expected to distribute such dividends to the
person for whom they are acting as agent in accordance with the instructions of
such person. Prior to each dividend payment date, the relevant Fund is required
to deposit with the Auction Agent sufficient funds for the payment of such
declared dividends. None of the Funds intends to establish any reserves for the
payment of dividends, and no interest will be payable in respect of any dividend
payment or payment on the shares of a Fund's AMPS which may be in arrears.
Dividends paid by each Fund, to the extent paid from tax-exempt income
earned on New York Municipal Bonds, are exempt from Federal, New York State and
New York City income taxes, subject to the possible application of the
alternative minimum tax. However, each Fund is required to allocate net capital
gains and other income subject to regular Federal, New York State and New York
City 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. 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
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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 may be taxable to stockholders under certain
circumstances as discussed below, whether they are reinvested in shares of a
Fund or received in cash.
If MuniVest New York Insured, MuniYield New York Insured II or MuniYield
New York Insured III, as the case may be, retroactively allocates any net
capital gains or other income subject to regular Federal, New York State and New
York City income taxes to shares of its AMPS without having given advance notice
thereof as described above, which only may happen when such allocation is made
as a result of the redemption of all or a portion of the outstanding shares of
its AMPS or the liquidation of the Fund, the Fund will make certain payments to
holders of shares of its AMPS to which such allocation was made to offset
substantially the tax effect thereof. In no other instances will the Fund be
required to make payments to holders of shares of its AMPS to offset the tax
effect of any reallocation of net capital gains or other taxable income.
AUTOMATIC DIVIDEND REINVESTMENT PLAN
Pursuant to each Fund's Automatic Dividend Reinvestment Plan (each, the
"Plan"), unless a holder of a Fund's Common Stock elects otherwise, all dividend
and capital gains distributions are reinvested automatically by either The Bank
of New York or Boston EquiServe, as applicable, as agent for stockholders in
administering the Plan (as applicable, the "Plan Agent"), in additional shares
of the Fund's Common Stock. Holders of a Fund's Common Stock who elect not to
participate in the Plan receive all distributions in cash paid by check mailed
directly to the stockholder of record (or, if the shares are held in street or
other nominee name, then to such nominee) by The Bank of New York or Boston
EquiServe, as applicable, as dividend paying agent. Such stockholders may elect
not to participate in the Plan and to receive all distributions of dividends and
capital gains in cash by sending written instructions to The Bank of New York or
Boston EquiServe, as applicable, as dividend paying agent, at the address set
forth below. Participation in the Plan is completely voluntary and may be
terminated or resumed at any time without penalty by written notice if received
by the Plan Agent not less than ten days prior to any dividend record date;
otherwise, such termination 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
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"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
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
MuniVest New York Insured, MuniYield New York Insured II or MuniYield New York
Insured III 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 "Agreement and Plan of
Reorganization -- Tax Consequences of the Reorganization".
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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 above the 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 below the net asset value,
participants receive distributions in shares with a net asset value greater than
the value of any cash distribution they would have received on their shares.
However, there may be insufficient shares available in the market to make
distributions in shares at prices below the net asset value. Also, since none of
the Funds normally redeems its shares, the price on resale may be more or less
than the net asset value.
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.
LIQUIDATION RIGHTS OF HOLDERS OF AMPS
Upon any liquidation, dissolution or winding up of MuniVest New York
Insured, MuniYield New York Insured II or MuniYield New York Insured III, as the
case may be, whether voluntary or involuntary, the holders of shares of the
Fund's AMPS will be entitled to receive, out of the assets of the Fund available
for distribution to stockholders, before any distribution or payment is made
upon any shares of the Fund's Common Stock or any other capital stock of the
Fund ranking junior in right of payment upon liquidation to AMPS, $25,000 per
share together with the amount of any dividends accumulated but unpaid (whether
or not earned or declared) thereon to the date of distribution, and after such
payment the holders of AMPS will be entitled to no other payments except for any
additional dividends. If such assets of the Fund shall be insufficient to make
the full liquidation payment on the AMPS and liquidation payments on any other
outstanding class or series of preferred stock of the Fund ranking on a parity
with the AMPS as to payment upon liquidation, then such assets will be
distributed among the holders of shares of AMPS and the holders of shares of
such other class or series ratably in proportion to the respective preferential
amounts to which they are entitled. After payment of the full amount of
liquidation distribution to which they are entitled, the holders of shares of a
Fund's AMPS will not be entitled to any further participation in any
distribution of assets by the Fund except for any additional dividends. A
consolidation, merger or share exchange of a Fund with or into any other entity
or entities or a sale, whether for cash, shares of stock, securities or
properties, of all or substantially all or any part of the assets of the Fund
shall not be deemed or construed to be a liquidation, dissolution or winding up
of the Fund.
TAX RULES APPLICABLE TO MUNIVEST NEW YORK INSURED, MUNIYIELD NEW YORK INSURED
II, MUNIYIELD NEW YORK INSURED III AND THEIR STOCKHOLDERS
The tax consequences associated with investment in shares of MuniVest New
York Insured Common Stock, MuniYield New York Insured II Common Stock and
MuniYield New York Insured III Common Stock are identical. Similarly, the tax
consequences associated with investment in shares of MuniVest New York Insured
AMPS, MuniYield New York Insured II AMPS and MuniYield New York Insured III AMPS
are identical. Each of the Funds has elected and qualified for the special tax
treatment afforded RICs under the Code. As a result, in any taxable year in
which they distribute an amount equal to at least 90% of taxable net income and
90% of tax-exempt net income (see below), the Funds (but not their stockholders)
are not subject to Federal income tax to the extent that they distribute their
net investment income and net
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realized capital gains. In prior taxable years and in the taxable year of the
Reorganization, each Fund has distributed substantially all of its income.
MuniYield New York Insured II intends to continue to distribute substantially
all of its income in the taxable years following the Reorganization. If, at any
time when shares of a Fund's AMPS are outstanding the Fund does not meet the
asset coverage requirements of the Investment Company Act, the Fund is required
to suspend distributions to holders of shares of its Common Stock until the
asset coverage is restored. This can prevent the Fund from distributing at least
90% of its net income and therefore can jeopardize the Fund's qualification for
taxation as a RIC. Upon any failure to meet the asset coverage requirements, the
Funds may, and under certain circumstances are required to, redeem shares of
AMPS in order to maintain or restore the requisite asset coverage and avoid the
adverse consequences of failing to 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 the 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. Interest on
indebtedness incurred or continued to purchase or carry a Fund's shares is not
deductible for Federal income tax purposes to the extent attributable to
exempt-interest dividends. A tax adviser should be consulted with respect to
whether exempt-interest dividends retain the exclusion under Code Section 103(a)
if a 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.
Each Fund informs its stockholders annually as to the portion of the Fund's
distributions which constitutes exempt-interest dividends. Interest on
indebtedness incurred or continued to purchase or carry a Fund's shares is not
deductible for Federal, New York State or New York City income tax purposes.
The IRS, in a revenue ruling, held that certain AMPS would be treated as
stock for Federal income tax purposes. The terms of the MuniVest New York
Insured AMPS, the MuniYield New York Insured II AMPS and the MuniYield New York
Insured III AMPS are substantially similar, but not identical, to the AMPS
discussed in the revenue ruling, and in the opinion of Brown & Wood LLP, counsel
to all three Funds, the shares of each Fund's 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) 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
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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, New York State and New York City
income tax purposes. Distributions, if any, from an excess of net long-term
capital gains over net short-term capital losses derived from the sale of
securities or from certain transactions in futures or options ("capital gain
dividends") are taxable as long-term capital gains for Federal income tax
purposes, regardless of the length of time the stockholder has owned Fund
shares, and for New York State and New York City income tax purposes, will be
treated as capital gains which are taxed at ordinary income rates. Distributions
by a Fund, whether from exempt-interest income, ordinary income or capital
gains, will not be 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 capital gain dividends received by the stockholder. In addition, such
loss is disallowed to the extent of any exempt-interest 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
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.
Thus, each Fund is required to allocate a portion of its net capital gains and
other taxable income to the shares of its AMPS. Each Fund may notify the Auction
Agent of the amount of any net capital gains and other taxable income to be
included in any dividend on shares of its AMPS prior to the auction establishing
the applicable rate for such dividend. Except for the portion of any dividend
that a Fund informs the Auction Agent will be treated as capital gains or other
taxable income, the dividends paid on the shares of AMPS constitute exempt-
interest dividends. Alternatively, each Fund may include such income in a
dividend on shares of its AMPS without giving advance notice thereof if it
increases the dividend by an additional amount to offset the tax effect thereof.
The amount of net capital gains and ordinary income allocable to shares of a
Fund's AMPS (the "taxable distribution") depends upon the amount of such gains
and income realized by the Fund and the total dividends paid by the Fund on
shares of its Common Stock and shares of its AMPS during a taxable year, but the
taxable distribution generally is not significant.
In the opinion of Brown & Wood LLP, counsel to all three Funds, under
current law the manner in which each Fund allocates items of tax-exempt income,
net capital gains, and other taxable income, if any, between shares of its
Common Stock and shares of its 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
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gains and other taxable income between shares of its Common Stock and shares of
its 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 any reallocated
taxable income. Brown & Wood LLP has advised each Fund that, in its opinion, if
the IRS were to challenge in court the 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 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 regulated
investment company. 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 an 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 alternative minimum tax. Each Fund
purchases such "private activity bonds" and reports to stockholders within 60
days after its fiscal 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 an
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 an alternative
minimum tax on exempt-interest dividends paid by such Fund.
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.
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A loss realized on a sale or exchange of shares of a Fund is disallowed if
other Fund shares are acquired (whether under the Automatic Dividend
Reinvestment Plan or otherwise) within a 61-day period beginning 30 days before
and ending 30 days after the date that the shares are disposed of. In such a
case, the basis of the shares acquired will be adjusted to reflect the
disallowed loss.
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.
AGREEMENT AND PLAN OF REORGANIZATION
GENERAL
Under the Agreement and Plan of Reorganization (attached hereto as Exhibit
I), (i) MuniYield New York Insured II will acquire all of the assets, and will
assume all of the liabilities, of MuniVest New York Insured, in exchange solely
for an equal aggregate value of MuniYield New York Insured II Common Stock and
MuniYield New York Insured II Series B AMPS to be issued by MuniYield New York
Insured II; and (ii) MuniYield New York Insured II will acquire all of the
assets, and will assume all of the liabilities, of MuniYield New York Insured
III, in exchange solely for an equal aggregate value of MuniYield New York
Insured II Common Stock and MuniYield New York Insured II Series C AMPS to be
issued by MuniYield New York Insured II. Upon receipt by MuniVest New York
Insured and MuniYield New York Insured III of such shares, MuniVest New York
Insured and MuniYield New York Insured III will distribute the shares of
MuniYield New York Insured II Common Stock to the holders of MuniVest New York
Insured Common Stock and MuniYield New York Insured III Common Stock, the shares
of MuniYield New York Insured II Series B AMPS to the holders of MuniVest New
York Insured AMPS and the shares of MuniYield New York Insured II Series C AMPS
to the holders of MuniYield New York Insured III AMPS in exchange for their
shares in MuniVest New York Insured and MuniYield New York Insured III. Separate
Articles of Amendment to the Articles Supplementary establishing the powers,
rights and preferences of the MuniYield New York Insured II AMPS, redesignating
the currently outstanding MuniYield Insured II AMPS as Series A AMPS, and
separate Articles Supplementary to the Articles of Incorporation of MuniYield
New York Insured II establishing the powers, rights and preferences of the
MuniYield New York Insured II Series B AMPS and the MuniYield New York Insured
II Series C AMPS each will have been filed 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"), each of MuniVest New York
Insured and MuniYield New York Insured III will file Articles of Dissolution
with the Maryland Department to effect the formal dissolution of such Funds, and
will dissolve.
MuniVest New York Insured and MuniYield New York Insured III will each
distribute the shares of MuniYield New York Insured II Common Stock, MuniYield
New York Insured II Series B AMPS and MuniYield New York Insured II Series C
AMPS received by it pro rata to its holders of record of MuniVest New York
Insured Common Stock, MuniYield New York Insured III Common Stock, MuniVest New
York Insured AMPS and MuniYield New York Insured III AMPS, respectively, in
exchange for such stockholders' shares in MuniVest New York Insured and
MuniYield New York Insured III. Such distribution would be accomplished by
opening new accounts on the books of MuniYield New York Insured II in the names
of the common and preferred stockholders of MuniVest New York Insured and
MuniYield New York Insured III and transferring to those stockholder accounts
the MuniYield New York Insured II Common Stock,
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MuniYield New York Insured II Series B AMPS and MuniYield New York Insured II
Series C AMPS previously credited on those books to the account of MuniVest New
York Insured and MuniYield New York Insured III. Each newly-opened account on
the books of MuniYield New York Insured II for the previous holders of MuniVest
New York Insured Common Stock and MuniYield New York Insured III Common Stock
would represent the respective pro rata number of shares of MuniYield New York
Insured II Common Stock (rounded down, in the case of fractional shares, to the
next largest number of whole shares) due such holder of MuniVest New York
Insured Common Stock and MuniYield New York Insured III Common Stock. No
fractional shares of MuniYield New York Insured II Common Stock will be issued.
In lieu thereof, MuniVest New York Insured II's transfer agent, Boston
EquiServe, will aggregate all fractional shares of MuniYield New York Insured II
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
New York Insured Common Stock or MuniYield New York Insured III Common Stock
certificates. Similarly, each newly-opened account on the books of MuniYield New
York Insured II for the previous holders of MuniVest New York Insured AMPS would
represent the respective pro rata number of shares of MuniYield New York Insured
II Series B AMPS due such holder of MuniVest New York Insured AMPS, and each
newly-opened account on the books of MuniYield New York Insured II for the
previous holders of MuniYield New York Insured III AMPS would represent the
respective pro rata number of shares of MuniYield New York Insured II Series C
AMPS due such holder of MuniYield New York Insured III AMPS. See "Surrender and
Exchange of MuniVest New York Insured and MuniYield New York Insured III Stock
Certificates" below for a description of the procedures to be followed by
MuniVest New York Insured and MuniYield New York Insured III stockholders to
obtain their MuniYield New York Insured II Common Stock (and cash in lieu of
fractional shares, if any), MuniYield New York Insured II Series B AMPS or
MuniYield New York Insured II Series C AMPS, as the case may be.
Accordingly, as a result of the Reorganization, every holder of MuniVest
New York Insured Common Stock and MuniYield New York Insured III Common Stock
would own shares of MuniYield New York Insured II 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 New York Insured Common Stock or MuniYield
New York Insured III Common Stock immediately prior to the Exchange Date. Since
the MuniYield New York Insured II Common Stock would be issued at net asset
value in exchange for the net assets of MuniVest New York Insured and MuniYield
New York Insured III having a value equal to the aggregate net asset value of
those shares of MuniYield New York Insured II Common Stock, the net asset value
per share of MuniYield New York Insured II Common Stock should remain virtually
unchanged by the Reorganization. Similarly, since the MuniYield New York Insured
II 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 New York
Insured AMPS, and the MuniYield New York Insured II Series C AMPS would be
issued at a liquidation preference and value per share equal to the liquidation
preference and value per share of the MuniYield New York Insured III AMPS, the
respective liquidation preference and value per share of the MuniYield New York
Insured II Series B AMPS and the MuniYield New York Insured II Series C AMPS
will remain unchanged by the Reorganization. Thus, the Reorganization will
result in no dilution of net asset value of the MuniYield New York Insured II
Common Stock, other than to reflect the costs of the Reorganization, and will
result in no dilution of liquidation preference and value per share of the
MuniYield New York Insured II Series B AMPS
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or MuniYield New York Insured II Series C AMPS. However, as a result of the
Reorganization, a stockholder of any of the Funds likely will hold a reduced
percentage of ownership in the larger combined entity than he or she did in
either of the constituent Funds.
PROCEDURE
At meetings of the Boards of Directors of MuniVest New York Insured and
MuniYield New York Insured III held on May 3, 1996, and at a meeting of the
Board of Directors of MuniYield New York Insured II held on June 21, 1996, the
Board of Directors of each of the Funds, including all of the Directors who are
not "interested persons", as defined in the Investment Company Act, of MuniVest
New York Insured, MuniYield New York Insured II and MuniYield New York Insured
III unanimously approved the Agreement and Plan of Reorganization and the
submission of such Agreement and Plan of Reorganization to the Funds' respective
stockholders for approval.
Also on June 21, 1996, the Board of Directors of MuniYield New York Insured
II approved the filing of separate Articles Supplementary to MuniYield New York
Insured II's Articles of Incorporation establishing the powers, rights and
preferences of the MuniYield New York Insured II Series B AMPS and the MuniYield
New York Insured II Series C AMPS in order that they may be given to holders of
MuniVest New York Insured AMPS and MuniYield New York Insured III AMPS as part
of the Reorganization.
As a result of such Board approvals, MuniVest New York Insured, MuniYield
New York Insured II and MuniYield New York Insured III jointly filed a proxy
statement with the Commission soliciting a vote of the stockholders of MuniVest
New York Insured, MuniYield New York Insured II and MuniYield New York Insured
III to approve the Reorganization. The costs of such solicitation are to be paid
by MuniYield New York Insured II after the Reorganization so as to be borne
equally and exclusively on a per share basis by the holders of MuniVest New York
Insured Common Stock, MuniYield New York Insured II Common Stock and MuniYield
New York Insured III Common Stock. It is anticipated that annual meetings of
stockholders of MuniVest New York Insured, MuniYield New York Insured II and
MuniYield New York Insured III will be held on September 30, 1996. If the
stockholders of all three Funds approve the Reorganization, the Reorganization
will take place as soon as practicable after such approval, provided that the
Funds have obtained prior to that time a favorable private letter ruling from
the IRS concerning the tax consequences of the Reorganization as set forth in
the Agreement and Plan of Reorganization.
THE BOARDS OF DIRECTORS OF MUNIVEST NEW YORK INSURED, MUNIYIELD NEW YORK
INSURED II AND MUNIYIELD NEW YORK INSURED III 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 I.
Valuation of Assets and Liabilities. The respective assets of MuniVest New
York Insured, MuniYield New York Insured II and MuniYield New York Insured III
will be valued on the business day prior to the Exchange Date (the "Valuation
Date"). The valuation procedures are the same for all three Funds: net asset
value per share of the MuniVest New York Insured Common Stock, the MuniYield New
York Insured II
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Common Stock and the MuniYield New York Insured III Common Stock will be
determined as of 15 minutes after the close of business on the NYSE (generally,
4:00 P.M., New York time) on the Valuation Date. For the purpose of determining
the net asset value of a share of the MuniVest New York Insured Common Stock,
the MuniYield New York Insured II Common Stock or the MuniYield New York Insured
III Common Stock, the value of the securities held by the issuing Fund plus any
cash or other assets (including interest accrued but not yet received) minus all
liabilities (including accrued expenses) and the aggregate liquidation value of
the outstanding shares of AMPS of the issuing Fund is divided by the total
number of shares of Common Stock of the issuing Fund outstanding at such time.
Daily expenses, including the fees payable to FAM, will accrue on the Valuation
Date.
The 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 utilize 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. 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 MuniVest New York Insured,
MuniYield New York Insured II and MuniYield New York Insured III 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 New York Insured II Common Stock, MuniYield New
York Insured II Series B AMPS and MuniYield New York Insured II Series C
AMPS. On the Exchange Date, MuniYield New York Insured II will issue to
MuniVest New York Insured and MuniYield New York Insured III a number of shares
of MuniYield New York Insured II Common Stock the aggregate net asset value of
which will equal the respective aggregate net asset value of shares of MuniVest
New York Insured Common Stock or MuniYield New York Insured III Common Stock, as
applicable, on the Valuation Date. Each holder of MuniVest New York Insured
Common Stock and MuniYield New York Insured III Common Stock will receive the
number of shares of MuniYield New York Insured II Common Stock corresponding to
his or her proportionate interest in the respective aggregate net asset value of
the MuniVest New York Insured Common Stock or the MuniYield New York Insured III
Common Stock, as applicable.
On the Exchange Date, MuniYield New York Insured II also will issue (i) to
MuniVest New York Insured a number of shares of MuniYield New York Insured II
Series B AMPS the aggregate liquidation preference and value of which will equal
the aggregate liquidation preference and value of MuniVest New York Insured AMPS
on the Valuation Date, and (ii) to MuniYield New York Insured III a number of
shares of MuniYield New York Insured II Series C AMPS the aggregate liquidation
preference and value of which will equal the aggregate liquidation preference
and value of MuniYield New York Insured III AMPS on the Valuation Date. Each
holder of MuniVest New York Insured AMPS or MuniYield New York Insured III AMPS,
as the case may be, will receive the number of shares of MuniYield New York
Insured II Series B AMPS or MuniYield New York Insured II Series C AMPS
corresponding to his or her proportionate interest in the aggregate liquidation
preference and value of the MuniVest New York Insured AMPS or the MuniYield New
York Insured III AMPS. No sales charge or fee of any kind will be charged to
MuniVest
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New York Insured stockholders or MuniYield New York Insured III stockholders in
connection with their receipt of MuniYield New York Insured II Common Stock,
MuniYield New York Insured II Series B AMPS and MuniYield New York Insured II
Series C AMPS in the Reorganization. It is anticipated that the MuniYield New
York Insured II Series B AMPS will follow a similar auction schedule and
procedures as those presently followed by the MuniVest New York Insured AMPS,
and that the MuniYield New York Insured II Series C AMPS will follow a similar
auction schedule and procedures as those presently followed by the MuniYield New
York Insured III AMPS. As a result of the Reorganization, the last dividend
period for the MuniVest New York Insured AMPS and MuniYield New York Insured III
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 New York Insured II 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 to the IRS, Commission 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 MuniVest New York Insured
Common Stock, MuniYield New York Insured II Common Stock and MuniYield New York
Insured III Common Stock. Neither MuniVest New York Insured, MuniYield New York
Insured II nor MuniYield New York Insured III shall pay any expenses of its
respective stockholders arising out of or in connection with the Reorganization.
Required Approvals. Under MuniVest New York Insured's Articles of
Incorporation (as amended to date and including Articles Supplementary
establishing the powers, rights and preferences of the MuniVest New York Insured
AMPS), 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 MuniVest
New York Insured Common Stock and MuniVest New York Insured AMPS, voting
together as a single class, and of the MuniVest New York Insured AMPS, voting
separately as a class. Similarly, under MuniYield New York Insured II's Articles
of Incorporation (as amended to date and including Articles Supplementary
establishing the powers, rights and preferences of the MuniYield New York
Insured II AMPS), 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
MuniYield New York Insured II Common Stock and MuniYield New York Insured II
AMPS, voting together as a single class, and of the MuniYield New York Insured
II AMPS, voting separately as a class; and under MuniYield New York Insured
III's Articles of Incorporation (as amended to date and including Articles
Supplementary establishing the powers, rights and preferences of the MuniYield
New York Insured III AMPS), 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 MuniYield New York Insured III Common Stock and MuniYield New York
Insured III AMPS, voting together as a single class, and of the
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MuniYield New York Insured III AMPS, voting separately as a class. Because of
the requirement that the Agreement and Plan of Reorganization be approved by the
stockholders of all three Funds, the Reorganization will not take place if the
stockholders of any one Fund do not approve the Agreement and Plan of
Reorganization.
Deregistration and Dissolution. Following the transfer of the assets and
liabilities of MuniVest New York Insured and MuniYield New York Insured III to
MuniYield New York Insured II and the distribution of shares of MuniYield New
York Insured II Common Stock, MuniYield New York Insured II Series B AMPS and
MuniYield New York Insured II Series C AMPS to MuniVest New York Insured
stockholders and MuniYield New York Insured III stockholders, each of MuniVest
New York Insured and MuniYield New York Insured III 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 MuniVest New York Insured, MuniYield New York
Insured II and MuniYield New York Insured III pursuant to the Agreement and Plan
of Reorganization are subject to various conditions, including a registration
statement on Form N-14 being declared effective by the Commission, approval of
the stockholders of MuniVest New York Insured, MuniYield New York Insured II and
MuniYield New York Insured III, a favorable IRS ruling 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 MuniVest New
York Insured, MuniYield New York Insured II and MuniYield New York Insured III
being confirmed by the respective parties.
Postponement, Termination. Under the Agreement and Plan of Reorganization,
the Board of Directors of any of the Funds 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 any 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 three Funds; (ii) by the
Board of Directors of MuniVest New York Insured if any condition to MuniVest New
York Insured's obligations set forth in Section 9 of the Agreement and Plan of
Reorganization has not been fulfilled or waived by such Board; (iii) by the
Board of Directors of MuniYield New York Insured II if any condition to
MuniYield New York Insured II's obligations set forth in Section 10 of the
Agreement and Plan of Reorganization has not been fulfilled or waived by such
Board; or (iv) by the Board of Directors of MuniYield New York Insured III if
any condition to MuniYield New York Insured III's obligations set forth in
Section 11 of the Agreement and Plan of Reorganization has not been fulfilled or
waived by such Board.
POTENTIAL BENEFITS TO COMMON STOCKHOLDERS OF MUNIVEST NEW YORK INSURED,
MUNIYIELD NEW YORK INSURED II AND MUNIYIELD NEW YORK INSURED III 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 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 each of MuniVest
New York Insured and MuniYield New York Insured III, following the
Reorganization their respective stockholders will remain invested in a
closed-end fund that has investment objectives and policies similar to that of
MuniVest New York Insured and
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<PAGE> 67
MuniYield New York Insured III. 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 Municipal Bonds and the costs involved in a transaction such as
the Reorganization. The Boards noted the many similarities between the Funds,
including their virtually identical investment objectives and investment
policies, their common management and their similar portfolios of Municipal
Bonds. Based on these factors, the Boards concluded that the Reorganization (i)
presents no significant risks that would outweigh the benefits discussed above
and (ii) involves minimal costs (including relatively minor legal, accounting
and administrative costs).
The surviving fund that would result from the Reorganization would have a
larger asset base than any of the Funds has currently. Based on data presented
by FAM, the Board of each Fund believes that administrative expenses for a
larger combined fund would be less than the aggregate expenses for the
individual Funds, resulting in a lower expense ratio for common 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, as of April 30, 1996, the
total annualized operating expense ratio for MuniVest New York Insured was
0.76%, based on average net assets of approximately $145.0 million including
AMPS, and 1.15%, based on average net assets of approximately $96.0 million
excluding AMPS, the total annualized operating expense ratio for MuniYield New
York Insured II was 0.72%, based on average net assets of approximately $234.6
million including AMPS, and 1.02%, based on average net assets of approximately
$164.6 million excluding AMPS, and the total annualized operating expense ratio
for MuniYield New York Insured III was 0.90%, based on average net assets of
approximately $78.3 million including AMPS, and 1.32%, based on average net
assets of approximately $53.3 million excluding AMPS. If the Reorganization had
taken place on April 30, 1996, the overall operating expense ratio for the
combined fund on a pro forma basis would have been 0.66%, based on average net
assets of approximately $457.9 million including AMPS, and 0.97%, based on
average net assets of approximately $313.9 million excluding AMPS.
Management projections estimate that MuniYield New York Insured II will
have net assets in excess of $441.8 million upon completion of the
Reorganization. A larger asset base should provide benefits in portfolio
management. After the Reorganization, MuniYield New York Insured II should be
able to purchase large amounts of Municipal Bonds at more favorable prices than
any of the Funds separately and, with this greater purchasing power, request
improvements in the terms of the Municipal Bonds (e.g., added indenture
provisions covering call protection, sinking funds and audits for the benefit of
large holders) prior to purchase.
Based on the foregoing, the Boards concluded that the Reorganization
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, with respect to net asset value and liquidation preference, the
interests of existing stockholders of the Fund would not be diluted as a result
of the Reorganization. Although the Reorganization is expected to result in a
reduction in net asset value per share of the combined fund after the
Reorganization of approximately $.01 as a result of the estimated costs of the
Reorganization, management of each Fund advised its Board that it expects that
such costs would be recovered within 18 months after the Exchange Date due to a
decrease in the operating expense ratio.
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<PAGE> 68
It is not anticipated that the Reorganization directly would benefit the
holders of shares of MuniVest New York Insured AMPS, MuniYield New York Insured
II AMPS or MuniYield New York Insured III AMPS; however, the Reorganization will
not adversely affect the holders of shares of AMPS of any of the Funds and the
expenses of the Reorganization will not be borne by the holders of shares of
AMPS of any of the Funds.
SURRENDER AND EXCHANGE OF MUNIVEST NEW YORK INSURED AND MUNIYIELD NEW YORK
INSURED III STOCK CERTIFICATES
After the Exchange Date, each holder of an outstanding certificate or
certificates formerly representing shares of MuniVest New York Insured Common
Stock, MuniVest New York Insured AMPS, MuniYield New York Insured III Common
Stock or MuniYield New York Insured III AMPS, as the case may be, 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 New
York Insured II Common Stock, MuniYield New York Insured II Series B AMPS or
MuniYield New York Insured II Series C AMPS distributable with respect to such
holder's shares of MuniVest New York Insured Common Stock, MuniVest New York
Insured AMPS, MuniYield New York Insured III Common Stock or MuniYield New York
Insured III AMPS, together with cash in lieu of any fractional shares. Promptly
after the Exchange Date, the transfer agent for the MuniYield New York Insured
II Common Stock, the MuniYield New York Insured II Series B AMPS or the
MuniYield New York Insured II Series C AMPS, as the case may be, will mail to
each holder of certificates formerly representing shares of MuniVest New York
Insured Common Stock, MuniVest New York Insured AMPS, MuniYield New York Insured
III Common Stock or MuniYield New York Insured III AMPS, as the case may be, a
letter of transmittal for use in surrendering his or her certificates for
certificates representing shares of MuniYield New York Insured II Common Stock,
MuniYield New York Insured II Series B AMPS or MuniYield New York Insured II
Series C AMPS, as the case may be, and cash in lieu of any fractional shares.
PLEASE DO NOT SEND IN ANY STOCK CERTIFICATES AT THIS TIME. UPON
CONSUMMATION OF THE REORGANIZATION, MUNIVEST NEW YORK INSURED AND MUNIYIELD NEW
YORK INSURED III COMMON AND PREFERRED STOCKHOLDERS WILL BE FURNISHED WITH
INSTRUCTIONS FOR EXCHANGING THEIR MUNIVEST NEW YORK INSURED OR MUNIYIELD NEW
YORK INSURED III STOCK CERTIFICATES FOR MUNIYIELD NEW YORK INSURED II STOCK
CERTIFICATES AND, IF APPLICABLE, CASH IN LIEU OF FRACTIONAL SHARES.
From and after the Exchange Date, certificates formerly representing shares
of MuniVest New York Insured Common Stock, MuniVest New York Insured AMPS,
MuniYield New York Insured III Common Stock or MuniYield New York Insured III
AMPS, as the case may be, will be deemed for all purposes to evidence ownership
of the number of full shares of MuniYield New York Insured II Common Stock,
MuniYield New York Insured II Series B AMPS or MuniYield New York Insured II
Series C AMPS distributable with respect to such shares of MuniVest New York
Insured and MuniYield New York Insured III in the Reorganization, provided, that
until such MuniVest New York Insured or MuniYield New York Insured III stock
certificates have been so surrendered, no dividends payable to the holders of
record of MuniYield New York Insured II Common Stock, MuniYield New York Insured
II Series B AMPS or MuniYield New York Insured II Series C AMPS, as the case may
be, as of any date subsequent to the Exchange Date will be paid to the holders
of such outstanding MuniVest New York Insured or MuniYield New York Insured III
stock certificates. Dividends payable to holders of record of shares of
MuniYield New
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<PAGE> 69
York Insured II Common Stock, MuniYield New York Insured II Series B AMPS or
MuniYield New York Insured II Series C AMPS, as the case may be, as of any date
after the Exchange Date and prior to the exchange of certificates by any
MuniVest New York Insured or MuniYield New York Insured III stockholder will be
paid to such stockholder, without interest, at the time such stockholder
surrenders his or her MuniVest New York Insured or MuniYield New York Insured
III stock certificates for exchange.
From and after the Exchange Date, there will be no transfers on the stock
transfer books of MuniVest New York Insured and MuniYield New York Insured III.
If, after the Exchange Date, certificates representing shares of MuniVest New
York Insured Common Stock, MuniVest New York Insured AMPS, MuniYield New York
Insured III Common Stock or MuniYield New York Insured III AMPS are presented to
MuniYield New York Insured II, they will be cancelled and exchanged for
certificates representing MuniYield New York Insured II Common Stock, MuniYield
New York Insured II Series B AMPS or MuniYield New York Insured II Series C
AMPS, as the case may be, and cash in lieu of fractional shares, if any,
distributable with respect to such MuniVest New York Insured Common Stock,
MuniVest New York Insured AMPS, MuniYield New York Insured III Common Stock or
MuniYield New York Insured III AMPS in the Reorganization.
TAX CONSEQUENCES OF THE REORGANIZATION
General. The Reorganization has been structured with the intention that it
qualify for Federal income tax purposes as a tax-free reorganization under
Section 368(a)(1)(C) of the Code. Each of the three Funds has elected and
qualified for the special tax treatment afforded RICs under the Code, and
MuniYield New York Insured II intends to continue to so qualify after the
Reorganization. MuniVest New York Insured, MuniYield New York Insured II and
MuniYield New York Insured III have jointly requested a private letter ruling
from the IRS that for Federal income tax purposes: (i) the Reorganization, as
described, will constitute a reorganization within the meaning of Section
368(a)(1)(C) of the Code, and each of MuniVest New York Insured, MuniYield New
York Insured II and MuniYield New York Insured III will be deemed a "party" to a
Reorganization within the meaning of Section 361(b) of the Code; (ii) in
accordance with Section 368(a) of the Code, no gain or loss will be recognized
to MuniVest New York Insured or MuniYield New York Insured III as a result of
the Reorganization or on the distribution of MuniYield New York Insured II
Common Stock, MuniYield New York Insured II Series B AMPS and MuniYield New York
Insured II Series C AMPS to MuniVest New York Insured stockholders and MuniYield
New York Insured III stockholders under Section 361(c)(1) of the Code; (iii)
under Section 1032 of the Code, no gain or loss will be recognized to MuniYield
New York Insured II 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 New York Insured or MuniYield New York Insured III on
the receipt of MuniYield New York Insured II Common Stock, MuniYield New York
Insured II Series B AMPS and MuniYield New York Insured II Series C AMPS in
exchange for their corresponding MuniVest New York Insured Common Stock,
MuniVest New York Insured AMPS, MuniYield New York Insured III Common Stock or
MuniYield New York Insured III AMPS (except to the extent that MuniVest New York
Insured common stockholders and MuniYield New York Insured III common
stockholders receive cash representing an interest in fractional shares of
MuniYield New York Insured II in the Reorganization); (v) in accordance with
Section 362(b) of the Code, the tax basis of the MuniVest New York Insured
assets and the MuniYield New York Insured III assets in the hands of MuniYield
New York Insured II will be the same as the tax basis of such assets in the
hands of MuniVest New York Insured and MuniYield New York Insured III
immediately prior to the
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<PAGE> 70
consummation of the Reorganization; (vi) in accordance with Section 358 of the
Code, immediately after the Reorganization, the tax basis of the MuniYield New
York Insured II Common Stock, MuniYield New York Insured II Series B AMPS and
MuniYield New York Insured II Series C AMPS received by the stockholders of
MuniVest New York Insured and MuniYield New York Insured III in the
Reorganization will be equal, in the aggregate, to the tax basis of the MuniVest
New York Insured Common Stock, MuniVest New York Insured AMPS, MuniYield New
York Insured III Common Stock and MuniYield New York Insured III AMPS
surrendered in exchange; (vii) in accordance with Section 1223 of the Code, a
stockholder's holding period for the MuniYield New York Insured II Common Stock,
MuniYield New York Insured II Series B AMPS and MuniYield New York Insured II
Series C AMPS will be determined by including the period for which such
stockholder held the MuniVest New York Insured Common Stock, MuniVest New York
Insured AMPS, MuniYield New York Insured III Common Stock or MuniYield New York
Insured III AMPS exchanged therefor, provided, that such MuniVest New York
Insured or MuniYield New York Insured III shares were held as a capital asset;
(viii) in accordance with Section 1223 of the Code, MuniYield New York Insured
II's holding period with respect to the MuniVest New York Insured assets and the
MuniYield New York Insured III assets transferred will include the period for
which such assets were held by MuniVest New York Insured and MuniYield New York
Insured III; (ix) the payment of cash to MuniVest New York Insured stockholders
and MuniYield New York Insured III stockholders in lieu of fractional shares of
MuniYield New York Insured II will be treated as though the fractional shares
were distributed as part of the Reorganization and then redeemed, with the
result that such MuniVest New York Insured and MuniYield New York Insured III
stockholders will have short- or long-term capital gain or loss to the extent
that the cash distribution differs from the basis allocable to the MuniYield New
York Insured II fractional shares; and (x) the taxable year of each of MuniVest
New York Insured and MuniYield New York Insured III will end on the effective
date of the Reorganization and pursuant to Section 381(a) of the Code and
regulations thereunder, MuniYield New York Insured II will succeed to and take
into account certain tax attributes of MuniVest New York Insured and MuniYield
New York Insured III, 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 MuniVest New York Insured, MuniYield New York Insured II,
MuniYield New York Insured III 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, the issuance of
MuniYield New York Insured II Series B AMPS and MuniYield New York Insured II
Series C AMPS pursuant to the Reorganization in addition to the already existing
MuniYield New York Insured II Series A AMPS will not cause distributions on any
series of AMPS to be treated as preferential dividends ineligible for the
dividends paid deduction. It is possible 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 New York Insured II could lose the special tax treatment
afforded RICs. In this case, dividends on the shares of AMPS would not be exempt
from Federal income tax. Additionally, MuniYield New York Insured II would be
subject to the alternative minimum tax.
Under Section 381(a) of the Code, MuniYield New York Insured II will
succeed to and take into account certain tax attributes of MuniVest New York
Insured and MuniYield New York Insured III, 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
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<PAGE> 71
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 New York Insured II.
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.
Status as a Regulated Investment Company. MuniVest New York Insured,
MuniYield New York Insured II and MuniYield New York Insured III have elected
and qualified for taxation as RICs under Sections 851-855 of the Code, and after
the Reorganization MuniYield New York Insured II intends to continue to so
qualify.
CAPITALIZATION
The following table sets forth as of April 30, 1996 (i) the capitalization
of MuniVest New York Insured, (ii) the capitalization of MuniYield New York
Insured II, (iii) the capitalization of MuniYield New York Insured III and (iv)
the pro forma capitalization of MuniYield New York Insured II as adjusted to
give effect to the Reorganization.
PRO FORMA CAPITALIZATION OF MUNIVEST NEW YORK INSURED, MUNIYIELD NEW YORK
INSURED II,
MUNIYIELD NEW YORK INSURED III AND THE COMBINED FUND AS OF APRIL 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
MUNIVEST MUNIYIELD MUNIYIELD COMBINED
NEW YORK NEW YORK NEW YORK PRO FORMA FUND AS
INSURED INSURED II INSURED III ADJUSTMENT ADJUSTED(A)
------------ ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Net Assets:.......................... $140,188,266 $227,620,698 $75,810,118 ($1,830,597) $441,788,485
Net Assets Attributable to Common
Stock............................ $ 91,188,266 $157,620,698 $50,810,118 ($1,830,597) $297,788,485
Net Assets Attributable to AMPS.... $ 49,000,000 $ 70,000,000 $25,000,000 -- $144,000,000
Shares Outstanding:
Common Stock....................... 7,204,432 11,114,832 3,688,900 -- 21,126,869(b)
AMPS
Series A......................... 1,960 2,800 1,000 -- 2,800
Series B......................... -- -- -- -- 1,960(b)
Series C......................... -- -- -- -- 1,000(b)
Net Asset Value Per Share:
Common Stock....................... $12.66 $14.18 $13.77 -- $14.10(c)
AMPS............................... $25,000 $25,000 $25,000 -- $25,000
</TABLE>
- ---------------
(a) The adjusted balances are presented as if the Reorganization had been
consummated on April 30, 1996 and are for informational purposes only.
Assumes distribution of undistributed net investment income and accrual of
estimated Reorganization expenses of $215,000. No assurance can be given as
to how many shares of MuniYield New York Insured II Common Stock that
MuniVest New York Insured stockholders and MuniYield New York Insured III
stockholders will receive on the Exchange Date, and the foregoing should not
be relied upon to reflect the number of shares of MuniYield New York Insured
II Common Stock that actually will be received on or after such date.
(b) Assumes the issuance of 10,012,037 shares of MuniYield New York Insured II
Common Stock and two newly-created series of AMPS consisting of 1,960 shares
and 1,000 shares, respectively, in exchange for the net assets of
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<PAGE> 72
each of MuniVest New York Insured and MuniYield New York Insured III. The
number of shares issued was based on the net asset value of each Fund, net
of distributions, on April 30, 1996.
(c) Net Asset Value Per Share of Common Stock after Reorganization-related
expenses and distribution of undistributed net investment income.
ELECTION OF DIRECTORS
At the Meetings, the Boards of Directors for MuniVest New York Insured,
MuniYield New York Insured II and MuniYield New York Insured III will be elected
to serve until the next Annual Meeting of Stockholders and until their
successors are elected and qualified. If the stockholders of MuniVest New York
Insured, MuniYield New York Insured II and MuniYield New York Insured III
approve the Reorganization, then the Board of Directors of MuniYield New York
Insured II elected at the Meetings will serve as the Board of the combined fund,
until its next Annual Meeting of Stockholders. If the stockholders of either
MuniVest New York Insured, MuniYield New York Insured II or MuniYield New York
Insured III vote against the Reorganization, then the Board of Directors of each
Fund elected at the Meetings will continue to serve until the next Annual
Meeting of Stockholders of each Fund. It is intended that all properly executed
proxies will be voted (unless such authority has been withheld in the proxy) as
follows:
With respect to the proxies of MuniVest New York Insured stockholders:
(1) All proxies of the holders of shares of MuniVest New York Insured AMPS,
voting separately as a class, will be voted in favor of the two persons
designated as Directors to be elected by the holders of shares of MuniVest New
York Insured AMPS; and
(2) All proxies of the holders of shares of MuniVest New York Insured
Common Stock and MuniVest New York Insured AMPS, voting together as a single
class, will be voted in favor of the four persons designated as Directors to be
elected by the holders of MuniVest New York Insured Common Stock and MuniVest
New York Insured AMPS.
With respect to the proxies of MuniYield New York Insured II stockholders:
(1) All proxies of the holders of shares of MuniYield New York Insured II
AMPS, voting separately as a class, will be voted in favor of the two persons
designated as Directors to be elected by the holders of shares of MuniYield New
York Insured II AMPS; and
(2) All proxies of the holders of shares of MuniYield New York Insured II
Common Stock and MuniYield New York Insured II AMPS, voting together as a single
class, will be voted in favor of the four persons designated as Directors to be
elected by the holders of MuniYield New York Insured II Common Stock and
MuniYield New York Insured II AMPS.
With respect to the proxies of MuniYield New York Insured III stockholders:
(1) All proxies of the holders of shares of MuniYield New York Insured III
AMPS, voting separately as a class, will be voted in favor of the two persons
designated as Directors to be elected by the holders of shares of MuniYield New
York Insured III AMPS; and
(2) All proxies of the holders of shares of MuniYield New York Insured III
Common Stock and MuniYield New York Insured III AMPS, voting together as a
single class, will be voted in favor of the four
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<PAGE> 73
persons designated as Directors to be elected by the holders of shares of
MuniYield New York Insured III Common Stock and MuniYield New York Insured III
AMPS.
The Boards of Directors of MuniVest New York Insured, MuniYield New York
Insured II and MuniYield New York Insured III know of no reason why any of these
nominees will be unable to serve, but in the event of any such unavailability,
the proxies received will be voted for such substitute nominee or nominees as
the Boards of Directors may recommend.
The same individuals currently serve as the Directors of both MuniVest New
York Insured and MuniYield New York Insured III. Certain information concerning
the nominees for the Boards of Directors of MuniVest New York Insured and
MuniYield New York Insured III, including their designated classes, is set forth
below.
TO BE ELECTED BY HOLDERS OF MUNIVEST NEW YORK INSURED AMPS,
VOTING SEPARATELY AS A CLASS, AS WELL AS BY HOLDERS
OF MUNIYIELD NEW YORK INSURED III AMPS,
VOTING SEPARATELY AS A CLASS
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY
OWNED AT THE
RECORD DATE
PRINCIPAL OCCUPATIONS -------------
DURING THE PAST FIVE YEARS DIRECTOR COMMON
NAME AND ADDRESS OF NOMINEE AGE AND PUBLIC DIRECTORSHIPS SINCE STOCK AMPS
- ------------------------------- --- ------------------------------- -------- ------ ----
<S> <C> <C> <C> <C> <C>
Donald Cecil(1)(2)............. 69 Special Limited Partner of 1992 0 0
Cumberland Associates Cumberland Partners (an
1114 Avenue of the Americas investment partnership) since
New York, New York 10036 1982; Member of Institute of
Chartered Financial Analysts;
Member and Chairman of
Westchester County (N.Y.)
Board of Transportation.
M. Colyer Crum(1)(2)........... 64 James R. Williston Professor of 1992 0 0
Soldiers Field Road Investment Management,
Boston, Massachusetts 02163 Harvard Business School, from
1971 to 1996; Director of
Cambridge Bancorp, Copley
Properties, Inc. and Sun Life
Assurance Company of Canada.
</TABLE>
(See footnotes on following page)
69
<PAGE> 74
TO BE ELECTED BY HOLDERS OF MUNIVEST NEW YORK INSURED AMPS
AND MUNIVEST NEW YORK INSURED COMMON STOCK,
VOTING TOGETHER AS A SINGLE CLASS, AS WELL AS BY HOLDERS OF
MUNIYIELD NEW YORK INSURED III AMPS
AND MUNIYIELD NEW YORK INSURED III COMMON STOCK,
VOTING TOGETHER AS A SINGLE CLASS
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY
OWNED AT THE
RECORD DATE
PRINCIPAL OCCUPATIONS -------------
DURING THE PAST FIVE YEARS DIRECTOR COMMON
NAME AND ADDRESS OF NOMINEE AGE AND PUBLIC DIRECTORSHIPS SINCE STOCK AMPS
- ------------------------------- --- ------------------------------- -------- ------ ----
<S> <C> <C> <C> <C> <C>
Edward H. Meyer(1)(2).......... 69 President of Grey Advertising 1992 0 0
Grey Advertising Inc. Inc. since 1968, Chief
777 Third Avenue Executive Officer since 1970
New York, New York 10017 and Chairman of the Board of
Directors since 1972;
Director of The May
Department Stores Company,
Bowne & Co., Inc. (financial
printers), Ethan Allen
Interiors, Inc. and Harman
International Industries,
Inc.
Jack B. Sunderland(1)(2)....... 67 President and Director of 1992 0 0
P.O. Box 7 American Independent Oil
West Cornwall, Connecticut Company, Inc. (an energy
06796 company) since 1987; Member
of Council on Foreign
Relations since 1971.
J. Thomas Touchton(1)(2)....... 57 Managing Partner of The Witt- 1992 0 0
Suite 3405 Touchton Company and its
One Tampa City Center predecessor, The Witt Co. (a
201 North Franklin Street private investment
Tampa, Florida 33602 partnership) since 1972;
Trustee Emeritus of
Washington and Lee
University; Director of TECO
Energy Inc. (an electric
utility holding company).
Arthur Zeikel(1)(3)............ 64 President of FAM (which term as 1992 0 0
800 Scudders Mill Road used herein includes its
Plainsboro, New Jersey 08536 corporate predecessors) since
1977; President of MLAM
(which term as used herein
includes its corporate
predecessors) since 1977;
President and Director of
Princeton Services since
1993; Executive Vice
President of ML & Co. since
1990; Director of MLFD since
1977.
</TABLE>
- ---------------
(1) Each of the nominees is a director, trustee or member of an advisory board
of certain other investment companies for which FAM or MLAM acts as
investment adviser. See "Compensation of Directors" below.
(2) Member of the Audit Committee of the Board of Directors.
(3) Interested person, as defined in the Investment Company Act, of the Fund.
70
<PAGE> 75
Certain information concerning the nominees for the Board of Directors of
MuniYield New York Insured II, including their designated classes, is set forth
below.
TO BE ELECTED BY HOLDERS OF MUNIYIELD NEW YORK INSURED II AMPS,
VOTING SEPARATELY AS A CLASS
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY
OWNED AT THE
RECORD DATE
PRINCIPAL OCCUPATIONS -------------
DURING THE PAST FIVE YEARS DIRECTOR COMMON
NAME AND ADDRESS OF NOMINEE AGE AND PUBLIC DIRECTORSHIPS SINCE STOCK AMPS
- ------------------------------- --- ------------------------------- -------- ------ ----
<S> <C> <C> <C> <C> <C>
Joseph L. May(1)(2)............ 67 Attorney in private practice 1992 0 0
424 Church Street since 1984; President, May and
Suite 2000 Athens Hosiery Mills
Nashville, Tennessee 37219 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(1)(2).......... 44 Professor, Harvard Business 1992 0 0
Morgan Hall School since 1989 and Associate
Soldiers Field Professor from 1983 to 1989;
Boston, Massachusetts 02163 Trustee, The Common Fund
since 1989; Director, Quantec
Limited since 1991 and
Teknekron Software Systems
since 1994.
</TABLE>
(See footnotes on page 73)
71
<PAGE> 76
TO BE ELECTED BY HOLDERS OF MUNIYIELD NEW YORK INSURED II AMPS AND MUNIYIELD NEW
YORK INSURED II
COMMON STOCK, VOTING TOGETHER AS A SINGLE CLASS
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY
OWNED AT THE
RECORD DATE
PRINCIPAL OCCUPATIONS -------------
DURING THE PAST FIVE YEARS DIRECTOR COMMON
NAME AND ADDRESS OF NOMINEE AGE AND PUBLIC DIRECTORSHIPS SINCE STOCK AMPS
- ------------------------------- --- ------------------------------- -------- ------ ----
<S> <C> <C> <C> <C> <C>
James H. Bodurtha(1)(2)........ 52 Chairman and Chief Executive 1992 0 0
124 Long Pond Road Officer, China Enterprise
Plymouth, Massachusetts 02360 Management Corporation since
1993; Chairman, Berkshire
Corporation since 1980;
Partner, Squire, Sanders &
Dempsey from 1980 to 1993.
Herbert I. London(1)(2)........ 57 Dean, Gallatin Division of New 1992 0 0
113-115 University Place York University from 1978 to
New York, New York 10003 1993 and Director from 1975
to 1976; John M. Olin
Professor of Humanities since
1993 and Professor since
1980, New York University;
Distinguished Fellow, Herman
Kahn Chair, Hudson Institute
from 1984 to 1985; Trustee,
Hudson Institute since 1980;
Overseer, Center for Naval
Analyses; Director, Damon
Corporation since 1991.
Robert R. Martin(1)(2)......... 69 Chairman and Chief Executive 1992 0 0
513 Grand Hill Officer, Kinnard Investments,
St. Paul, Minnesota 55102 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; Director, WTC
Industries, Inc. from 1994 to
1996; Trustee, Northland
College since 1992.
</TABLE>
(See footnotes on following page)
72
<PAGE> 77
TO BE ELECTED BY HOLDERS OF AMPS AND COMMON STOCK,
VOTING TOGETHER AS A SINGLE CLASS
(CONTINUED)
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY
OWNED AT THE
RECORD DATE
PRINCIPAL OCCUPATIONS DURING -------------
THE PAST FIVE YEARS DIRECTOR COMMON
NAME AND ADDRESS OF NOMINEE AGE AND PUBLIC DIRECTORSHIPS SINCE STOCK AMPS
- ------------------------------- --- ------------------------------- -------- ------ ----
<S> <C> <C> <C> <C> <C>
Arthur Zeikel(1)(3)............ 64 President of FAM since 1977; 1992 0 0
800 Scudders Mill Road President of MLAM since 1977;
Plainsboro, New Jersey 08536 President and Director of
Princeton Services since
1993; Executive Vice
President of ML & Co. since
1990; Director of MLFD since
1977.
</TABLE>
- ---------------
(1) Each of the nominees is a director, trustee or member of an advisory board
of certain other investment companies for which FAM or MLAM acts as
investment adviser. See "Compensation of Directors" below.
(2) Member of the Audit Committee of the Board of Directors.
(3) Interested person, as defined in the Investment Company Act, of the Fund.
COMMITTEE AND BOARD MEETINGS
The Board of Directors of each Fund has a standing Audit Committee, which
consists of the Directors who are not "interested persons", as defined in the
Investment Company Act, of the Fund. The principal purpose of the Audit
Committee is to review the scope of the annual audit conducted by each Fund's
independent auditors and the evaluation by such auditors of the accounting
procedures followed by the Fund. The non-interested Directors have retained
independent legal counsel to assist them in connection with these duties. None
of the Boards of Directors has a nominating committee. During the fiscal year
ended October 31, 1995, the Boards of Directors and the Audit Committees of
MuniVest New York Insured, MuniYield New York Insured II and MuniYield New York
Insured III each held four quarterly meetings. All of the Directors of each Fund
then in office attended at least 75% of the total number of meetings of the
Board of Directors and the total number of meetings held by all of the
committees of the Board on which they served during such period.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Securities Exchange Act"), requires each Fund's officers, Directors and persons
who own more than ten percent of a registered class of the Fund's equity
securities, to file reports of ownership and changes in ownership on Forms 3, 4
and 5 with the Commission and the NYSE. Officers, Directors and greater than ten
percent stockholders are required by Commission regulations to furnish the Fund
with copies of all Forms 3, 4 and 5 that they file.
Based solely on each Fund's review of the copies of such forms, and
amendments thereto, furnished to it during or with respect to its most recent
fiscal year, and written representations from certain reporting persons that
they were not required to file Forms 5 with respect to the most recent fiscal
year, each Fund believes that all of its officers, Directors, greater than ten
percent beneficial owners and other persons subject to Section 16
73
<PAGE> 78
of the Securities Exchange Act because of the requirements of Section 30 of the
Investment Company Act (i.e., any advisory board member, investment adviser or
affiliated person of the Fund's investment adviser), have complied with all
filing requirements applicable to them with respect to transactions during the
Fund's most recent fiscal year, except that James H. Bodurtha inadvertently
filed late a Form 3 to report his election as a Director of MuniYield New York
Insured II.
INTERESTED PERSONS
Each Fund considers Mr. Zeikel to be an "interested person" of the Fund
within the meaning of Section 2(a)(19) of the Investment Company Act as a result
of the positions he holds with FAM and its affiliates. Mr. Zeikel is the
President of each Fund, the President of FAM and the President of MLAM.
COMPENSATION OF DIRECTORS
FAM, the investment adviser for MuniVest New York Insured, MuniYield New
York Insured II and MuniYield New York Insured III, pays all compensation of all
officers of each Fund and all Directors of each Fund who are affiliated with ML
& Co. or its subsidiaries. MuniVest New York Insured pays each Director who is
not affiliated with FAM a fee of $2,500 per year plus $250 per regular meeting
attended, together with such Director's actual out-of-pocket expenses relating
to attendance at meetings. The Fund also pays each member of its Audit
Committee, which consists of all of the non-affiliated Directors, a fee of $500
per year plus $125 per meeting attended, together with such Director's
out-of-pocket expenses relating to attendance at meetings. These fees and
expenses for the fiscal year ended October 31, 1995 aggregated $22,627 for
MuniVest New York Insured.
MuniYield New York Insured II pays each Director who is not affiliated with
FAM a fee of $2,500 per year plus $250 per regular meeting attended, together
with such Director's actual out-of-pocket expenses relating to attendance at
meetings. The Fund also pays each member of its Audit Committee, which consists
of all of the non-affiliated Directors, a fee of $500 per year plus $125 per
meeting attended, together with such Director's out-of-pocket expenses relating
to attendance at meetings. These fees and expenses for the fiscal year ended
October 31, 1995 aggregated $23,759 for MuniYield New York Insured II.
MuniYield New York Insured III pays each Director who is not affiliated
with FAM a fee of $2,500 per year plus $250 per regular meeting attended,
together with such Director's actual out-of-pocket expenses relating to
attendance at meetings. The Fund also pays each member of its Audit Committee,
which consists of all of the non-affiliated Directors, a fee of $500 per year
plus $125 per meeting attended, together with such Director's out-of-pocket
expenses relating to attendance at meetings. These fees and expenses for the
fiscal year ended October 31, 1995 aggregated $21,468 for MuniYield New York
Insured III.
The following table sets forth, for the fiscal year ended October 31, 1995,
compensation paid by MuniVest New York Insured and MuniYield New York Insured
III to the non-affiliated Directors and, for the calendar year ended December
31, 1995, the aggregate compensation paid by all registered investment
74
<PAGE> 79
companies advised by FAM and its affiliate, MLAM ("FAM/MLAM Advised Funds"), to
the non-affiliated Directors.
<TABLE>
<CAPTION>
AGGREGATE COMPENSATION
FROM MUNIVEST NEW YORK
INSURED, MUNIYIELD
COMPENSATION COMPENSATION PENSION OR NEW YORK INSURED III
FROM MUNIVEST FROM MUNIYIELD RETIREMENT BENEFITS AND FAM/MLAM
NEW YORK NEW YORK ACCRUED AS PART OF ADVISED FUNDS PAID
NAME OF DIRECTOR INSURED INSURED III FUND EXPENSES TO DIRECTORS
- -------------------------------- ------------- -------------- ------------------- ----------------------
<S> <C> <C> <C> <C>
Donald Cecil(1)................. $ 4,500 $4,500 None $271,850
M. Colyer Crum(1)............... $ 4,500 $4,500 None $126,600
Edward H. Meyer(1).............. $ 4,500 $4,500 None $239,225
Jack B. Sunderland(1)........... $ 4,500 $4,500 None $134,600
J. Thomas Touchton(1)........... $ 4,500 $4,500 None $134,600
</TABLE>
- ---------------
(1) The Directors serve on the boards of MLAM/FAM Advised Funds as follows: Mr.
Cecil (36 registered investment companies consisting of 36 portfolios); Mr.
Crum (18 registered investment companies consisting of 18 portfolios); Mr.
Meyer (36 registered investment companies consisting of 36 portfolios); Mr.
Sunderland (20 registered investment companies consisting of 29 portfolios);
and Mr. Touchton (20 registered investment companies consisting of 29
portfolios).
The following table sets forth, for the fiscal year ended October 31, 1995,
compensation paid by MuniYield New York Insured II to the non-affiliated
Directors and, for the calendar year ended December 31, 1995, the aggregate
compensation paid by all FAM/MLAM Advised Funds to the non-affiliated Directors.
<TABLE>
<CAPTION>
AGGREGATE COMPENSATION
FROM MUNIYIELD NEW YORK
COMPENSATION PENSION OR INSURED II AND
FROM MUNIYIELD RETIREMENT BENEFITS FAM/MLAM ADVISED
NEW YORK ACCRUED AS PART OF FUNDS PAID
NAME OF DIRECTOR INSURED II FUND EXPENSES TO DIRECTORS
- ----------------------------------------------- -------------- ------------------- -----------------------
<S> <C> <C> <C>
James H. Bodurtha(1)........................... $5,000 None $ 157,500(2)
Herbert I. London(1)........................... $4,500 None $ 157,500
Robert R. Martin(1)............................ $4,500 None $ 157,500
Joseph L. May(1)............................... $4,500 None $ 157,500
Andre F. Perold(1)............................. $4,500 None $ 157,500
</TABLE>
- ---------------
(1) The Directors serve on the boards of MLAM/FAM Advised Funds as follows: Mr.
Bodurtha (22 registered investment companies consisting of 46 portfolios);
Mr. London (22 registered investment companies consisting of 46 portfolios);
Mr. Martin (22 registered investment companies consisting of 46 portfolios);
Mr. May (22 registered investment companies consisting of 46 portfolios);
and Mr. Perold (22 registered investment companies consisting of 46
portfolios).
(2) $157,500 represents the amount Mr. Bodurtha would have received if he had
been a Director for the entire calendar year ended December 31, 1995 and had
attended all Board and Audit Committee meetings held. Mr. Bodurtha was
elected to the Fund's Board of Directors on June 23, 1995.
OFFICERS OF THE FUNDS
The Boards of Directors of MuniVest New York Insured, MuniYield New York
Insured II and MuniYield New York Insured III have elected the following
officers of each of the Funds. The principal
75
<PAGE> 80
business address of each officer is 800 Scudders Mill Road, Plainsboro, New
Jersey 08536. The following sets forth information concerning each of these
officers:
<TABLE>
<CAPTION>
OFFICER
NAME AND PRINCIPAL OCCUPATION OFFICE AGE SINCE
- ----------------------------------------------------------- --------------- ---- -------
<S> <C> <C> <C>
Arthur Zeikel.............................................. President 64 1992
President of FAM since 1977; President of MLAM since
1977; President and Director of Princeton Services since
1993; Executive Vice President of ML & Co. since 1990;
Director of MLFD since 1977.
Terry K. Glenn............................................. Executive Vice 55 1992
Executive Vice President of FAM and of MLAM since 1983; President
Executive Vice President and Director of Princeton
Services since 1993; President of MLFD since 1986 and
Director thereof since 1991; President of Princeton
Administrators, L.P. since 1988.
Vincent R. Giordano........................................ Senior Vice 51 1992
Senior Vice President of FAM and of MLAM since 1984; President
Senior Vice President of Princeton Services since 1993.
Kenneth A. Jacob........................................... Vice President 45 1992
Vice President of FAM and of MLAM since 1984; employed by
MLAM since 1978.
Donald C. Burke............................................ Vice President 36 1993
Vice President and Director of Taxation of MLAM since
1990; Employee at Deloitte & Touche LLP from 1982 to
1990.
Walter O'Connor............................................ Portfolio 34 1993
Vice President of MLAM since 1993; Assistant Vice Manager(1)
President of MLAM from 1991 to 1993; Assistant Vice
President of Prudential Securities from 1984 to 1991.
Roberto Roffo.............................................. Portfolio 30 1992
Vice President of MLAM since 1996 and a Portfolio Manager Manager(1)
thereof since 1992; prior thereto, employee of State
Street Bank and Trust Company from 1989 to 1992.
Gerald M. Richard.......................................... Treasurer 47 1992
Senior Vice President and Treasurer of FAM and of MLAM
since 1984; Senior Vice President and Treasurer of
Princeton Services since 1993; Treasurer of MLFD since
1981 and Vice President thereof since 1984.
Mark B. Goldfus............................................ Secretary 49 1992
Vice President of FAM and of MLAM since 1985.
</TABLE>
- ---------------
(1) Mr. O'Connor is the Portfolio Manager of MuniYield New York Insured II and
Mr. Roffo is the Portfolio Manager of MuniVest New York Insured and
MuniYield New York Insured III.
SELECTION OF INDEPENDENT AUDITORS
The Board of Directors of MuniVest New York Insured, including a majority
of the Directors who are not "interested persons", as defined in the Investment
Company Act, of the Fund, has selected the firm of
76
<PAGE> 81
Ernst & Young LLP as independent auditors, to audit the financial statements of
the Fund for the current fiscal year ending October 31, 1996.
The Board of Directors of MuniYield New York Insured II, including a
majority of the Directors who are not "interested persons" of the Fund, has
selected the firm of Deloitte & Touche LLP as independent auditors, to audit the
financial statements of the Fund for the current fiscal year ending October 31,
1996. However, in the event that the Reorganization is approved by the requisite
number of stockholders of each Fund and the Reorganization takes place prior to
October 31, 1996, the Board of Directors of MuniYield New York Insured II,
including a majority of the Directors who are not "interested persons" of the
Fund, have selected the firm of Ernst & Young LLP as independent auditors, to
audit the financial statements of the combined fund for the fiscal year ending
October 31, 1996.
The Board of Directors of MuniYield New York Insured III, including a
majority of the Directors who are not "interested persons" of the Fund, has
selected the firm of Ernst & Young LLP as independent auditors, to audit the
financial statements of the Fund for the current fiscal year ending October 31,
1996.
The Funds know of no direct or indirect financial interest of such firms in
the Funds. Such appointment is subject to ratification or rejection by the
stockholders of the Funds. If the stockholders of MuniVest New York Insured,
MuniYield New York Insured II and MuniYield New York Insured III approve the
Reorganization, then the independent auditors selected at the Meetings for
MuniYield New York Insured II will serve as the independent auditors of the
combined fund until its next Annual Meeting of Stockholders. If the stockholders
of either MuniVest New York Insured, MuniYield New York Insured II or MuniYield
New York Insured III vote against the Reorganization, then the independent
auditors of each Fund selected at the Meetings will continue to serve until the
next Annual Meeting of Stockholders of each Fund. Unless a contrary
specification is made, the accompanying proxy will be voted in favor of
ratification of the selection of such auditors.
Deloitte & Touche LLP also acts as independent auditors for ML & Co. and
all of its subsidiaries and for most other investment companies for which FAM or
MLAM acts as investment adviser. The fees received by Deloitte & Touche LLP from
these other entities are substantially greater, in the aggregate, than the total
fees received by it from MuniYield New York Insured II. The Board of Directors
of MuniYield New York Insured II considered the fact that Deloitte & Touche LLP
has been retained as the independent auditors of ML & Co. and the other entities
described above in its evaluation of the independence of Deloitte & Touche LLP
with respect to MuniYield New York Insured II.
Ernst & Young LLP also acts as independent auditors for several other
investment companies for which FAM or MLAM acts as investment adviser. The fees
received by Ernst & Young LLP from these other entities are substantially
greater, in the aggregate, than the total fees received by it from MuniVest New
York Insured and MuniYield New York Insured III. The Board of Directors of each
of MuniVest New York Insured, MuniYield New York Insured II and MuniYield New
York Insured III considered the fact that Ernst & Young LLP has been retained as
the independent auditors of the other entities described above in its evaluation
of the independence of Ernst & Young LLP with respect to MuniVest New York
Insured, MuniYield New York Insured II or MuniYield New York Insured III, as
applicable.
Representatives of Deloitte & Touche LLP or Ernst & Young LLP, as
applicable, are expected to be present at the Meetings and will have the
opportunity to make a statement if they so desire and to respond to questions
from stockholders.
77
<PAGE> 82
INFORMATION CONCERNING THE ANNUAL MEETINGS
DATE, TIME AND PLACE OF MEETINGS
The Meetings will be held on September 30, 1996 at the offices of MLAM, 800
Scudders Mill Road, Plainsboro, New Jersey at 11:45 A.M., New York time (for
MuniVest New York Insured), 12:00 noon, New York time (for MuniYield New York
Insured II) and 12:15 P.M., New York time (for MuniYield New York Insured III).
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 or by submitting
a notice of revocation to the Secretary of MuniVest New York Insured, MuniYield
New York Insured II or MuniYield New York Insured III, as the case may be.
Although mere attendance at the Meetings will not revoke a proxy, a stockholder
present at the Meetings may withdraw his proxy and vote in person.
All shares represented by properly executed proxies, unless such proxies
previously have been revoked, will be voted at the Meetings in accordance with
the directions on the proxies; if no direction is indicated, the shares will be
voted "FOR" (i) the approval of the Agreement and Plan of Reorganization, (ii)
the election of Directors and (iii) the ratification of the selection of
Deloitte & Touche LLP or Ernst & Young LLP, as applicable, as independent
accountants.
It is not anticipated that any matters other than (i) the adoption of the
Agreement and Plan of Reorganization, (ii) the election of Directors and (iii)
the ratification of the selection of Deloitte & Touche LLP or Ernst & Young LLP,
as applicable, 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 MuniVest New York Insured Common Stock,
MuniVest New York Insured AMPS, MuniYield New York Insured II Common Stock,
MuniYield New York Insured II AMPS, MuniYield New York Insured III Common Stock
and MuniYield New York Insured III AMPS 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, there were 7,204,432 shares of MuniVest
New York Insured Common Stock, 1,960 shares of MuniVest New York Insured AMPS,
11,114,832 shares of MuniYield New York Insured II Common Stock, 2,800 shares of
MuniYield New York Insured II AMPS, 3,688,900 shares of MuniYield New York
Insured III Common Stock and 1,000 shares of MuniYield New York Insured III AMPS
issued and outstanding and entitled to vote.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF MUNIVEST NEW
YORK INSURED, MUNIYIELD NEW YORK INSURED II AND MUNIYIELD NEW YORK INSURED III
To the knowledge of MuniVest New York Insured, MuniYield New York Insured
II and MuniYield New York Insured III, at the date hereof, no person or entity
owns beneficially 5% or more of the shares of any of the MuniVest New York
Insured Common Stock, the MuniVest New York Insured AMPS, the
78
<PAGE> 83
MuniYield New York Insured II Common Stock, the MuniYield New York Insured II
AMPS, the MuniYield New York Insured III Common Stock or the MuniYield New York
Insured III AMPS.
On the Record Date, the Directors and officers of MuniVest New York Insured
as a group (12 persons) owned an aggregate of less than 1% of the outstanding
shares of MuniVest New York Insured Common Stock and MuniVest New York Insured
AMPS.
On the Record Date, the Directors and officers of MuniYield New York
Insured II as a group (12 persons) owned an aggregate of less than 1% of the
outstanding shares of MuniYield New York Insured II Common Stock and MuniYield
New York Insured II AMPS.
On the Record Date, the Directors and officers of MuniYield New York
Insured III as a group (12 persons) owned an aggregate of less than 1% of the
outstanding shares of MuniYield New York Insured III Common Stock and MuniYield
New York Insured III AMPS.
On the Record Date, Mr. Zeikel, a Director and officer 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 MuniVest
New York Insured Common Stock, MuniVest New York Insured AMPS, MuniYield New
York Insured II Common Stock, MuniYield New York Insured II AMPS, MuniYield New
York Insured III Common Stock and MuniYield New York Insured III AMPS is
entitled to one vote. Approval of the Agreement and Plan of Reorganization
requires the affirmative vote of stockholders representing (i) a majority of the
outstanding shares of MuniVest New York Insured Common Stock and MuniVest New
York Insured AMPS, voting together as a single class, and of the MuniVest New
York Insured AMPS, voting separately as a class, (ii) a majority of the
outstanding shares of MuniYield New York Insured II Common Stock and MuniYield
New York Insured II AMPS, voting together as a single class, and of the
MuniYield New York Insured II AMPS, voting separately as a class, and (iii) a
majority of the outstanding shares of MuniYield New York Insured III Common
Stock and MuniYield New York Insured III AMPS, voting together as a single
class, and of the MuniYield New York Insured III AMPS, voting separately as a
class.
Under Maryland law, stockholders of a registered investment company whose
shares are traded publicly on a national securities exchange, such as MuniVest
New York Insured and MuniYield New York Insured III, are not entitled to demand
the fair value of their shares upon a transfer of assets; therefore, the
MuniVest New York Insured and MuniYield New York Insured III common stockholders
will be bound by the terms of the Reorganization, if approved at the Meetings.
However, any common stockholder of MuniVest New York Insured or MuniYield New
York Insured III may sell his or her shares of Common Stock at any time on the
NYSE. Conversely, since the MuniVest New York Insured AMPS and MuniYield New
York Insured III AMPS are not traded publicly on a national securities exchange,
shareholders of MuniVest New York Insured AMPS and MuniYield New York Insured
III AMPS will be entitled to appraisal rights upon the consummation of the
Reorganization. As stockholders of the corporation acquiring the assets of
MuniVest New York Insured and of MuniYield New York Insured III, neither holders
of MuniYield New York Insured II Common Stock nor holders of MuniYield New York
Insured II AMPS are entitled to appraisal rights under Maryland law.
79
<PAGE> 84
Under Maryland law, a holder of MuniVest New York Insured AMPS or MuniYield
New York Insured III AMPS desiring to receive payment of the fair value of his
or her stock (an "objecting stockholder") (i) must file with MuniVest New York
Insured or MuniYield New York Insured III, as applicable, a written objection to
the Reorganization at or before the Meeting, (ii) must not vote in favor of the
Reorganization and (iii) must make written demand on MuniYield New York Insured
II 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 New York Insured II is required
promptly to give written notice to all objecting stockholders of the date that
the Articles of Transfer are accepted for record). An objecting stockholder who
fails to adhere to this procedure will be bound by the terms of the
Reorganization. An objecting stockholder ceases to have any rights of a
stockholder except the right to receive fair value for his or her shares and has
no right to receive any dividends or distributions 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 New York Insured II. Within 50 days after the Articles of Transfer
have been accepted for filing, an objecting stockholder who has not received
payment for his or her shares may petition a court located in Baltimore,
Maryland for an appraisal to determine the fair market value of his or her
stock.
For purposes of each Meeting, a quorum consists of a majority of the shares
entitled to vote at the Meeting, present in person or by proxy. If, by the time
scheduled for each Meeting, a quorum of the applicable Fund's stockholders is
not present or if a quorum is present but sufficient votes in favor of the
Agreement and Plan of Reorganization are not received from the stockholders of
the applicable Fund, the persons named as proxies may propose one or more
adjournments of the Meeting to permit further solicitation of proxies from
stockholders. Any such adjournment will require the affirmative vote of a
majority of the shares of the applicable Fund present in person or by proxy and
entitled to vote at the session of the Meeting to be adjourned. The persons
named as proxies will vote in favor of any such adjournment if they determine
that adjournment and additional solicitation are reasonable and in the interests
of the applicable Fund's stockholders.
With respect to the election of Directors, (i) holders of shares of
MuniVest New York Insured AMPS are entitled to elect two Directors of MuniVest
New York Insured and holders of shares of MuniVest New York Insured Common Stock
and MuniVest New York Insured AMPS, voting together as a single class, are
entitled to elect the remaining Directors of MuniVest New York Insured; (ii)
holders of shares of MuniYield New York Insured II AMPS are entitled to elect
two Directors of MuniYield New York Insured II and holders of shares of
MuniYield New York Insured II Common Stock and MuniYield New York Insured II
AMPS, voting together as a single class, are entitled to elect the remaining
Directors of MuniYield New York Insured II; and (iii) holders of shares of
MuniYield New York Insured III AMPS are entitled to elect two Directors of
MuniYield New York Insured III and holders of shares of MuniYield New York
Insured III Common Stock and MuniYield New York Insured III AMPS, voting
together as a single class, are entitled to elect the remaining Directors of
MuniYield New York Insured III. Assuming a quorum is present, (x) election of
the two Directors of MuniVest New York Insured, MuniYield New York Insured II or
MuniYield New York Insured III, as the case may be, to be elected by the holders
of shares of MuniVest New York Insured AMPS, MuniYield New York Insured II AMPS
or MuniYield New York Insured III AMPS, respectively, voting separately as a
class, will require the affirmative vote of a majority of the votes cast by the
holders of that Fund's AMPS, represented at the Meeting and entitled to vote;
and (y) election of the
80
<PAGE> 85
remaining Directors of MuniVest New York Insured, MuniYield New York Insured II
or MuniYield New York Insured III, as the case may be, will require the
affirmative vote of a majority of the votes cast by the holders of their
respective Common Stock and AMPS, represented at the Meetings and entitled to
vote, voting together as a single class.
Approval of the ratification of the selection of Ernst & Young LLP as the
independent auditors of MuniVest New York Insured will require the affirmative
vote of a majority of the votes cast by the holders of MuniVest New York Insured
Common Stock and MuniVest New York Insured AMPS represented at the Meetings and
entitled to vote, voting together as a single class; approval of the
ratification of the selection of Deloitte & Touche LLP as the independent
auditors of MuniYield New York Insured II (or, in the event that the
Reorganization is approved by the requisite number of stockholders of each Fund
and the Reorganization takes place prior to October 31, 1996, approval of Ernst
& Young LLP as the independent auditors of the combined fund) will require the
affirmative vote of a majority of the votes cast by the holders of MuniYield New
York Insured II Common Stock and MuniYield New York Insured II AMPS represented
at the Meetings and entitled to vote, voting together as a single class; and
approval of the ratification of the selection of Ernst & Young LLP as the
independent auditors of MuniYield New York Insured III will require the
affirmative vote of a majority of the votes cast by holders of MuniYield New
York Insured III Common Stock and MuniYield New York Insured III AMPS
represented at the Meetings and entitled to vote, voting together as a single
class.
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 New York Insured II, the surviving fund after the
Reorganization, so as to be borne equally and exclusively on a per share basis
by the holders of MuniVest New York Insured Common Stock, MuniYield New York
Insured II Common Stock and MuniYield New York Insured III Common Stock.
MuniVest New York Insured, MuniYield New York Insured II and MuniYield New
York Insured III likewise will reimburse banks, brokers and others for their
reasonable expenses in forwarding proxy solicitation materials to the beneficial
owners of shares of MuniVest New York Insured, MuniYield New York Insured II and
MuniYield New York Insured III and certain persons that MuniVest New York
Insured, MuniYield New York Insured II or MuniYield New York Insured III may
employ for their reasonable expenses in assisting in the solicitation of proxies
from such beneficial owners of shares of capital stock of MunIVest New York
Insured, MuniYield New York Insured II or MuniYield New York Insured III.
In order to obtain the necessary quorum at the Meetings (i.e., a majority
of the shares of each class of each Fund's securities entitled to vote at the
Meetings, present in person or by proxy), supplementary solicitation may be made
by mail, telephone, telegraph or personal interview by officers of the Fund. The
Funds also may hire proxy solicitors at the expense of MuniYield New York
Insured II. It is anticipated that the cost of such supplementary solicitation,
if any, will be nominal.
Broker-dealer firms, including Merrill Lynch, holding Fund shares in
"street name" for the benefit of their customers and clients will request the
instructions of such customers and clients on how to vote their shares on each
proposal before the Meetings. The Funds understand that, under the rules of the
NYSE, such broker-dealer firms may, without instructions from their customers
and clients, grant authority to the proxies
81
<PAGE> 86
designated to vote on the election of a Board of Directors of each Fund to serve
for the ensuing year (proposal 2) and the ratification of the selection of
Deloitte & Touche LLP or Ernst & Young LLP, as applicable, as independent
auditors for each Fund for the current fiscal year (proposals 3 and 4) if no
instructions have been received prior to the date specified in the broker-dealer
firm's request for voting instructions. 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 (proposal
1). The Funds will include shares held of record by broker-dealers as to which
such authority has been granted in its tabulation of the total number of shares
present for purposes of determining whether the necessary quorum of shareholders
of each Fund exists. Proxies which are returned to a Fund but which are marked
"abstain" or on which a broker-dealer has declined to vote on any proposal
("broker non-votes") will be counted as present for the purposes of determining
a quorum. Merrill Lynch has advised the Funds that it intends to exercise
discretion over shares held in its name for which no instructions have been
received by voting such shares on proposals 2, 3 and (in the case of MuniYield
New York Insured II) 4 in the same proportion as it has voted such shares for
which it has received instructions. However, abstentions and broker non-votes
will not be counted as votes cast. Abstentions and broker non-votes will not
have an effect on the vote on proposals 2, 3 and (in the case of MuniYield New
York Insured II) 4; however, abstentions and broker non-votes will have the same
effect as a vote against proposal 1.
This Proxy Statement and Prospectus does not contain all of the information
set forth in the registration statement and the exhibits relating thereto which
MuniYield New York Insured II has filed with the Commission under the Securities
Act and the Investment Company Act, to which reference is hereby made.
MuniVest New York Insured, MuniYield New York Insured II and MuniYield New
York Insured III are subject to the informational requirements of the Securities
Exchange Act, and in accordance therewith file reports and other information
with the Commission. Reports, proxy statements, registration statements and
other information filed by MuniVest New York Insured, MuniYield New York Insured
II and MuniYield New York Insured III can be inspected and copied at the public
reference facilities of the Commission in Washington, D.C. and at the New York
Regional Office of the Commission at Seven World Trade Center, New York, New
York 10048. Copies of such materials also can be obtained by mail from the
Public Reference Branch, Office of Consumer Affairs and Information Services,
Securities and Exchange Commission, Washington, D.C. 20549, at prescribed rates.
CUSTODIAN
The Bank of New York acts as the custodian for cash and securities of
MuniVest New York Insured. The principal business address of The Bank of New
York in such capacity is 90 Washington Street, New York, New York 10286. State
Street Bank and Trust Company acts as the custodian for cash and securities of
MuniYield New York Insured II and MuniYield New York Insured III. The principal
business address of State Street Bank and Trust Company in such capacity is One
Heritage Drive, P2N, North Quincy, Massachusetts 02171.
TRANSFER AGENT, DIVIDEND DISBURSING AGENT AND REGISTRAR
The Bank of New York serves as the transfer agent, dividend disbursing
agent and registrar with respect to the MuniVest New York Insured Common Stock,
pursuant to a registrar, transfer agency and service
82
<PAGE> 87
agreement with the Fund. The principal business address of The Bank of New York
in such capacity is 101 Barclay Street, New York, New York 10286.
Boston EquiServe serves as the transfer agent, dividend disbursing agent
and registrar with respect to the MuniYield New York Insured II Common Stock and
the MuniYield New York Insured III Common Stock, at the same rate for each Fund,
pursuant to separate registrar, transfer agency and service agreements with each
of the Funds. The principal business address of Boston EquiServe in such
capacity is 150 Royall Street, Canton, Massachusetts 02021.
IBJ Schroder Bank and Trust Company serves as the transfer agent, registrar
and auction agent to MuniVest New York Insured, MuniYield New York Insured II
and MuniYield New York Insured III, in connection with their respective AMPS, at
the same rate for each Fund, pursuant to separate registrar, transfer agency and
service agreements with each of the Funds. The principal business address of IBJ
Schroder Bank and Trust Company is One State Street, New York, New York 10004.
LEGAL PROCEEDINGS
There are no material legal proceedings to which MuniVest New York Insured,
MuniYield New York Insured II or MuniYield New York Insured III is a party.
LEGAL OPINIONS
Certain legal matters in connection with the Reorganization will be passed
upon for MuniVest New York Insured, MuniYield New York Insured II and MuniYield
New York Insured III by Brown & Wood LLP, New York, New York. Brown & Wood LLP
will rely as to matters of Maryland law on the opinion of Wilmer, Cutler &
Pickering, Baltimore, Maryland.
EXPERTS
The financial statements as of October 31, 1995 of MuniVest New York
Insured included in this Proxy Statement and Prospectus have been so included in
reliance on the reports of Ernst & Young LLP, independent auditors, given on
their authority as experts in auditing and accounting. The principal business
address of Ernst & Young LLP is 202 Carnegie Center, Princeton, New Jersey
08543.
The financial statements as of October 31, 1995 of MuniYield New York
Insured II included in this Proxy Statement and Prospectus have been so included
in reliance on the reports of Deloitte & Touche LLP, independent auditors, given
on their authority as experts in auditing and accounting. The principal business
address of Deloitte & Touche LLP is 117 Campus Drive, Princeton, New Jersey
08540.
The financial statements as of October 31, 1995 of MuniYield New York
Insured III included in this Proxy Statement and Prospectus have been so
included in reliance on the reports of Ernst & Young LLP, independent auditors,
given on their authority as experts in auditing and accounting.
83
<PAGE> 88
STOCKHOLDER PROPOSALS
If a stockholder of any of the Funds intends to present a proposal at the
1997 Annual Meeting of Stockholders of any of the Funds, all of which are
anticipated to be held in June, 1997, and desires to have the proposal included
in the Fund's proxy statement and form of proxy for that meeting, the
stockholder must deliver the proposal to the offices of the appropriate Fund by
February 15, 1997.
By Order of the Boards of Directors
MARK B. GOLDFUS
Secretary of each of the Funds
84
<PAGE> 89
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Audited Financial Statements for MuniVest New York Insured for the Fiscal Year Ended
October 31, 1995................................................................... F- 2
Unaudited Financial Statements for MuniVest New York Insured for the Six-Month Period
Ended April 30, 1996............................................................... F-12
Audited Financial Statements for MuniYield New York Insured II for the Fiscal Year
Ended October 31, 1995............................................................. F-20
Unaudited Financial Statements for MuniYield New York Insured II for the Six-Month
Period Ended April 30, 1996........................................................ F-30
Audited Financial Statements for MuniYield New York Insured III for the Fiscal Year
Ended October 31, 1995............................................................. F-38
Unaudited Financial Statements for MuniYield New York Insured III for the Six-Month
Period Ended April 30, 1996........................................................ F-48
Unaudited Financial Statements for the Combined Fund on a Pro Forma Basis as of April
30, 1996........................................................................... F-56
</TABLE>
F-1
<PAGE> 90
AUDITED FINANCIAL STATEMENTS FOR MUNIVEST NEW YORK INSURED
FOR THE FISCAL YEAR ENDED OCTOBER 31, 1995
F-2
<PAGE> 91
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Board of Directors,
MuniVest New York Insured Fund, Inc.
We have audited the accompanying statement of assets, liabilities and capital of
MuniVest New York Insured Fund, Inc., including the schedule of investments, as
of October 31, 1995, and the related statement of operations for the year then
ended, the statement 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. Our procedures included confirmation of securities owned as of
October 31, 1995 by correspondence with the custodian. 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 York Insured Fund, Inc. at October 31, 1995, 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
November 30, 1995
F-3
<PAGE> 92
MuniVest New York Insured Fund, Inc., October 31, 1995
<TABLE>
SCHEDULE OF INVESTMENTS (in Thousands)
<CAPTION>
S&P Moody's Face Value
STATE Ratings Ratings Amount Issue (Note 1a)
<S> <S> <S> <C> <S> <C>
New York--98.5% Metropolitan Transportation Authority, New York,
Commuter Facilities Revenue Bonds:
AAA Aaa $ 2,990 Refunding, Series A, 6.125% due 7/01/2012 (e) $ 3,113
BBB Baa1 1,000 (Service Contract), Series P, 5.75% due 7/01/2015 962
AAA Aaa 5,000 Metropolitan Transportation Authority, New York, Transport
Facilities Revenue Bonds, Series O, 6.375% due 7/01/2020 (e) 5,295
A1+ NR* 1,000 Nassau County, New York, IDA, Civic Facilities Revenue Bonds
(Cold Spring Harbor Laboratory Project), VRDN, 3.95% due 7/01/2019 (a) 1,000
AAA Aaa 3,685 Nassau County, New York, UT, Series P, 6.50% due 11/01/2011 (b) 4,028
AAA Aaa 2,000 New York City, New York, Educational Construction Fund Revenue Bonds,
Senior Sub-Series B, 5.625% due 4/01/2013 (e) 2,005
AAA Aaa 5,000 New York City, New York, IDA, Civic Facilities Revenue Bonds
(USTA National Tennis Center Project), 6.375% due 11/15/2014 (f) 5,295
A1+ NR* 400 New York City, New York, IDA, IDR, (Japan Airlines Company Ltd.
Project) VRDN, AMT, 4% due 11/01/2015 (a) 400
New York City, New York, Municipal Water Finance Authority,
Water and Sewer System Revenue Bonds (e):
AAA Aaa 3,000 Series B, 5.50% due 6/15/2019 2,938
AAA Aaa 4,000 Series F, 5.50% due 6/15/2023 3,895
New York City, New York, UT, Series B (Fiscal 92):
BBB+ Baa1 5,000 7.50% due 2/01/2006 5,539
AAA Aaa 2,000 7% due 2/01/2017 (c) 2,226
AAA Aaa 2,000 7% due 2/01/2018 (c) 2,226
New York State Dormitory Authority Revenue Bonds:
AAA Aaa 5,915 (City University), Third Generation Reserves, Series 2, 6.875%
due 7/01/2014 (e) 6,539
A1+ VMIG1++ 1,200 (Cornell University), VRDN, Series B, 3.90% due 7/01/2025 (a) 1,200
AAA Aaa 1,500 Refunding (State University Educational Facilities), Series A,
5.50% due 5/15/2010 (b) 1,521
AAA Aaa 4,500 Refunding (State University Educational Facilities), Series A,
5.875% due 5/15/2011 (b) 4,713
AAA Aaa 4,315 (Saint Vincent's Hospital and Medical Center), 5.80%
due 8/01/2025 (c) (d) 4,296
AAA Aaa 1,380 (State University Educational Facilities), Series A,
5.875% due 5/15/2011 (c) 1,445
AAA Aaa 6,640 New York State Energy Research and Development Authority,
Gas Facilities Revenue Bonds (Brooklyn Union Gas Company),
AMT, Series B, 6.75% due 2/01/2024 (e) 7,085
A1+ NR* 1,000 New York State Energy Research and Development Authority, PCR
(Niagara Power Corporation Project), VRDN, AMT, Series B, 3.95%
due 7/01/2027 (a) 1,000
AAA Aaa 3,585 New York State HFA, M/F Housing Secured Mortgage Revenue Bonds,
Series A, 6.30% due 8/15/2026 (c) 3,656
A Aaa 8,000 New York State Local Government Assistance Corporation Revenue
Bonds, Series A, 7.125% due 4/01/2002 (g) 9,289
New York State Medical Care Facilities, Finance Agency Revenue Bonds:
AAA Aaa 4,000 (Mental Health Services Facilities), Series C, 5.25% due 8/15/2014 (b) 3,776
AAA Aaa 3,500 (Montefiore Medical Center), Series A, 5.75% due 2/15/2025 (c) (d) 3,456
AAA Aaa 4,600 (New York Hospital Mortgage), Series A, 6.80% due 8/15/2024 (c) (d) 5,022
AAA Aaa 2,000 (New York Hospital Mortgage), Series A, 6.50% due 8/15/2029 (c) (d) 2,128
</TABLE>
F-4
<PAGE> 93
<TABLE>
<S> <S> <S> <C> <S> <C>
AAA Aaa 3,500 Refunding (Mental Health Services Facilities), Series F, 5.25%
due 2/15/2019 (e) 3,260
AAA Aaa 3,000 New York State Thruway Authority, General Revenue Bonds,
Series A, 5.50% due 1/01/2023 (b) 2,921
New York State Urban Development Corporation,
Revenue Refunding Bonds:
BBB Baa1 2,360 (Correctional Facilities), 5.50% due 1/01/2015 2,209
AAA Aaa 10,000 (Correctional Facilities), Series A, 6.50% due 1/01/2010 (f) 11,026
AAA Aaa 5,000 (Correctional Facilities), Series A, 5% due 1/01/2017 (c) 4,613
BBB Baa1 2,000 (Onondaga County Convention Project), 6.25% due 1/01/2020 2,013
AAA Aaa 1,000 Niagara Falls, New York, Water Treatment Plant, UT, AMT, 7.25%
due 11/01/2010 (e) 1,167
Port Authority of New York and New Jersey, Consolidated Bonds:
AAA Aaa 3,000 72nd Series, 7.40% due 10/01/2012 (c) 3,457
AAA Aaa 3,185 Refunding, UT, AMT, 97th Series, 6.50% due 7/15/2019 (b) 3,375
A1+ VMIG1++ 100 Port Authority of New York and New Jersey, Special Obligation
Revenue Bonds (Versatile Structure Obligation), VRDN, Series 2,
3.60% due 5/01/2019 (a) 100
A1+ VMIG1++ 1,800 Syracuse, New York, IDA, Civic Facility Revenue Bonds (Multi-Modal
Syracuse University Project), VRDN, 3.90% due 3/01/2023 (a) 1,800
Triborough Bridge and Tunnel Authority, New York, Special Obligation
Revenue Refunding Bonds:
AAA Aaa 5,475 Series A, 6.625% due 1/01/2017 (e) 5,903
AAA Aaa 5,150 Series B, 6.875% due 1/01/2015 (c) 5,650
Total Investments (Cost--$133,117)--98.5% 141,542
Other Assets Less Liabilities--1.5% 2,140
--------
Net Assets--100.0% $143,682
========
<FN>
(a)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, 1995.
(b)FGIC Insured.
(c)AMBAC Insured.
(d)FHA Insured.
(e)MBIA Insured.
(f)FSA Insured.
(g)Prerefunded.
*Not Rated.
++Highest short-term rating by Moody's Investors Service, Inc.
Ratings of issues shown have not been audited by Ernst & Young LLP.
See Notes to Financial Statements.
</TABLE>
Portfolio
Abbreviations
To simplify the listings of MuniVest New York Insured Fund, Inc.'s
portfolio holdings in the Schedule of Investments, we have
abbreviated the names of many of the securities according to
the list at right.
AMT Alternative Minimum Tax (subject to)
HFA Housing Finance Agency
IDA Industrial Development Authority
IDR Industrial Development Revenue Bonds
M/F Multi-Family
PCR Pollution Control Revenue Bonds
UT Unlimited Tax
VRDN Variable Rate Demand Notes
F-5
<PAGE> 94
MuniVest New York Insured Fund, Inc., October 31, 1995
<TABLE>
STATEMENT OF ASSETS, LIABILITIES AND CAPITAL
<CAPTION>
As of October 31, 1995
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$133,117,293) (Note 1a) $141,541,932
Cash 16,905
Interest receivable 2,417,981
Deferred organization expense (Note 1e) 15,660
Prepaid expenses and other assets 6,162
------------
Total assets 143,998,640
------------
Liabilities: Payables:
Dividends to shareholders (Note 1f) $ 181,481
Investment adviser (Note 2) 58,860 240,341
------------
Accrued expenses and other liabilities 76,122
------------
Total liabilities 316,463
------------
Net Assets: Net assets $143,682,177
============
Capital: Capital Stock (200,000,000 shares authorized) (Note 4):
Preferred Stock, par value $.10 per share (1,960 shares of AMPS*
issued and outstanding at $25,000 per share liquidation preference) $ 49,000,000
Common Stock, par value $.10 per share (7,204,432 shares issued and
outstanding) $ 720,443
Paid-in capital in excess of par 100,237,381
Undistributed investment income--net 532,766
Accumulated realized capital losses on investments--net (Note 5) (15,233,052)
Unrealized appreciation on investments--net 8,424,639
------------
Total--Equivalent to $13.14 net asset value per share of Common Stock
(market price--$12.00) 94,682,177
------------
Total capital $143,682,177
============
<FN>
*Auction Market Preferred Stock.
See Notes to Financial Statements.
</TABLE>
F-6
<PAGE> 95
<TABLE>
STATEMENT OF OPERATIONS
<CAPTION>
For the Year Ended October 31, 1995
<S> <S> <C> <C>
Investment Interest and amortization of premium and discount earned $ 8,281,991
Income (Note 1d):
Expenses: Investment advisory fees (Note 2) $ 694,712
Commission fees (Note 4) 124,283
Professional fees 76,825
Printing and shareholder reports 41,712
Transfer agent fees 37,045
Accounting services (Note 2) 22,673
Directors' fees and expenses 22,627
Listing fees 16,170
Custodian fees 13,211
Pricing fees 6,473
Amortization of organization expenses (Note 1e) 6,275
Other 10,918
----------
Total expenses before reimbursement 1,072,924
Reimbursement of expenses (Note 2) (34,961)
----------
Total expenses after reimbursement 1,037,963
-----------
Investment income--net 7,244,028
-----------
Realized & Realized loss on investments--net (8,401,860)
Unrealized Gain Change in unrealized appreciation/depreciation on investments--net 18,187,404
(Loss) on -----------
Investments--Net Net Increase in Net Assets Resulting from Operations $17,029,572
(Notes 1b, 1d ===========
& 3):
See Notes to Financial Statements.
</TABLE>
F-7
<PAGE> 96
MuniVest New York Insured Fund, Inc., October 31, 1995
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<CAPTION>
For the Year Ended October 31,
Increase (Decrease) in Net Assets: 1995 1994
<S> <S> <C> <C>
Operations: Investment income--net $ 7,244,028 $ 7,389,100
Realized loss on investments--net (8,401,860) (6,831,186)
Change in unrealized appreciation/depreciation on investments--net 18,187,404 (15,186,065)
------------ ------------
Net increase (decrease) in net assets resulting from operations 17,029,572 (14,628,151)
------------ ------------
Dividends & Investment income--net:
Distributions to Common Stock (5,428,929) (6,182,613)
Shareholders Preferred Stock (1,838,960) (1,194,786)
(Note 1f): Realized gain on investments--net:
Common Stock -- (267,833)
Preferred Stock -- (42,571)
------------ ------------
Net decrease in net assets resulting from dividends and distributions
to shareholders (7,267,889) (7,687,803)
------------ ------------
Capital Stock Offering and underwriting costs resulting from the issuance of
Transactions Preferred Stock -- 23,256
(Notes 1e & 4): Value of shares issued to Common Stock shareholders in reinvestment of
dividends and distributions -- 933,698
------------ ------------
Net increase in net assets derived from capital stock transactions -- 956,954
------------ ------------
Net Assets: Total increase (decrease) in net assets 9,761,683 (21,359,000)
Beginning of year 133,920,494 155,279,494
------------ ------------
End of year* $143,682,177 $133,920,494
============ ============
<FN>
*Undistributed investment income--net $ 532,766 $ 556,627
============ ============
See Notes to Financial Statements.
</TABLE>
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
For the
Period
The folowing per share data and ratios have been derived April 30,
from information provided in the financial statements. For the Year Ended 1993++ to
October 31, Oct. 31,
Increase (Decrease) in Net Asset Value: 1995 1994 1993
<S> <S> <C> <C> <C>
Per Share Net asset value, beginning of period $ 11.79 $ 14.90 $ 14.18
Operating -------- -------- --------
Performance: Investment income--net 1.00 1.03 .48
Realized and unrealized gain (loss) on investments--net 1.36 (3.06) .80
-------- -------- --------
</TABLE>
F-8
<PAGE> 97
<TABLE>
<S> <S> <C> <C> <C>
Total from investment operations 2.36 (2.03) 1.28
-------- -------- --------
Less dividends and distributions to Common Stock shareholders:
Investment income--net (.75) (.86) (.34)
Realized gain on investments--net -- (.04) --
-------- -------- --------
Total dividends and distributions to Common Stock shareholders (.75) (.90) (.34)
-------- -------- --------
Capital charge resulting from issuance of Common Stock -- -- (.03)
-------- -------- --------
Effect of Preferred Stock activity:++++
Dividends and distributions to Preferred Stock shareholders:
Investment income--net (.26) (.17) (.06)
Realized gain on investments--net -- (.01) --
Capital charge resulting from issuance of Preferred Stock -- -- (.13)
-------- -------- --------
Total effect of Preferred Stock activity (.26) (.18) (.19)
-------- -------- --------
Net asset value, end of period $ 13.14 $ 11.79 $ 14.90
======== ======== ========
Market price per share, end of period $ 12.00 $ 10.50 $ 14.75
======== ======== ========
Total Investment Based on market price per share 21.97% (23.65%) .59%+++
Return:** ======== ======== ========
Based on net asset value per share 18.94% (15.13%) 7.49%+++
======== ======== ========
Ratios to Average Expenses, net of reimbursement .75% .64% .35%*
Net Assets:*** ======== ======== ========
Expenses .77% .74% .79%*
======== ======== ========
Investment income--net 5.22% 5.06% 4.75%*
======== ======== ========
Supplemental Net assets, net of Preferred Stock, end of period (in thousands) $ 94,682 $ 84,920 $106,279
Data: ======== ======== ========
Preferred Stock outstanding, end of period (in thousands) $ 49,000 $ 49,000 $ 49,000
======== ======== ========
Portfolio turnover 192.08% 74.77% 10.81%
======== ======== ========
Dividends Investment income--net $ 938 $ 610 $ 242
Per Share on
Preferred Stock
Outstanding:++++++
<FN>
*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.
++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.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
F-9
<PAGE> 98
MuniVest New York Insured Fund, Inc., October 31, 1995
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
MuniVest New York Insured Fund, Inc. (the "Fund") is registered
under the Investment Company Act of 1940 as a non-diversified,
closed-end management investment company. The Fund determines
and makes available for publication the net asset value of its Common
Stock on a weekly basis. The Fund's Common Stock is listed on the
New York Stock Exchange under the symbol MVY. 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, which are traded on exchanges, are valued at their last sale
price as of the close of such exchanges or, lacking any sales, at the last
available bid price. Securities with remaining maturities of sixty
days or less are valued at amortized cost, which approximates market
value. Securities for which market quotations are not readily avail-
able are valued at fair value as determined in good faith by or under
the direction of the Board of Directors of the Fund, including valua-
tions 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
interest rate 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 con-
tract 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 require-
ments of the Internal Revenue Code applicable to regulated invest-
ment companies and to distribute substantially all of its taxable
income to its shareholders. Therefore, no Federal income tax pro-
vision is required.
(d) Security transactions and investment income--Security trans-
actions are recorded on the dates the transactions are entered into
(the trade dates). Interest income is recognized on the accrual basis.
Discounts and market premiums are amortized into interest income.
Realized gains and losses on security transactions are determined
on the identified cost basis.
(e) Deferred organization and offering expenses--Deferred organiza-
tion expenses are amortized on a straight-line basis over a five-year
period. Direct expenses relating to the public offering of the Fund's
Common and Preferred Stock were charged to capital at the time of
issuance of the shares.
F-10
<PAGE> 99
(f) Dividends and distributions--Dividends from net investment
income are declared and paid monthly. Distributions of capital gains
are recorded on the ex-dividend dates.
2. Investment Advisory Agreement and Transactions
with Affiliates:
The Fund has entered into an Investment Advisory Agreement with
Fund Asset Management, L.P. ("FAM"). The general partner of FAM is
Princeton Services, Inc. ("PSI"), an indirect wholly-owned subsidiary
of Merrill Lynch & Co., Inc. ("ML & Co."), which is the limited partner.
FAM is responsible for the management of the Fund's portfolio and
provides the 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. For the year ended October 31,
1995, FAM earned fees of $694,712, of which $34,961 was voluntarily
waived.
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, Merrill Lynch, Pierce, Fenner & Smith Inc.
("MLPF&S"), and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the year ended October 31, 1995 were $256,905,684 and
$246,827,975, respectively.
Net realized and unrealized gains (losses) as of October 31, 1995 were
as follows:
Realized Unrealized
Losses Gains
Long-term investments $(6,802,585) $8,424,639
Financial futures contracts (1,599,275) --
----------- ----------
Total $(8,401,860) $8,424,639
=========== ==========
As of October 31, 1995, net unrealized appreciation for Federal income
tax purposes aggregated $8,424,639, of which $8,432,656 related to
appreciated securities and $8,017 related to depreciated securities.
The aggregate cost of investments at October 31, 1995 for Federal
income tax purposes was $133,117,293.
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
For the year ended October 31, 1995, shares issued and outstanding
remained constant at 7,204,432. At October 31, 1995, total paid-in
capital amounted to $100,957,824.
Preferred Stock
Auction Market Preferred Stock ("AMPS") are shares of Preferred
Stock of the Fund 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, 1995 was 3.70%.
A two-for-one stock split occurred on December 1, 1994. As a result,
as of October 31, 1995, there were 1,960 AMPS authorized, issued and
outstanding with a liquidation preference of $25,000 per share, plus
accumulated and unpaid dividends of $24,836.
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, 1995, MLPF&S, an affiliate of FAM, earned $101,497 as
commissions.
5. Capital Loss Carryforward:
At October 31, 1995, the Fund had a capital loss carryforward of
approximately $13,810,000, of which $6,831,000 expires in 2002
and $6,979,000 expires in 2003. This amount will be available to offset
like amounts of any future taxable gains.
6. Subsequent Event:
On November 13, 1995, the Fund's Board of Directors declared an
ordinary income dividend to Common Stock shareholders in the
amount of $0.062339 per share, payable on November 29, 1995 to
shareholders of record as of November 24, 1995.
F-11
<PAGE> 100
UNAUDITED FINANCIAL STATEMENTS FOR MUNIVEST NEW YORK INSURED
FOR THE SIX-MONTH PERIOD ENDED APRIL 30, 1996
F-12
<PAGE> 101
MuniVest New York Insured Fund, Inc., April 30, 1996
<TABLE>
SCHEDULE OF INVESTMENTS (in Thousands)
<CAPTION>
S&P Moody's Face Value
STATE Ratings Ratings Amount Issue (Note 1a)
<S> <S> <S> <C> <S> <C>
New York--105.8% AAA Aaa $ 2,000 Battery Park City Authority, New York, Revenue Refunding Bonds,
Senior Series A, 5.70% due 11/01/2020 (e) $ 1,926
AAA Aaa 2,400 Clifton Park, New York, Water Authority, Water System Revenue Bonds,
Series A, 6.375% due 10/01/2002 (b) (g) 2,652
Metropolitan Transportation Authority, New York, Commuter Facilities
Revenue Bonds:
AAA Aaa 3,500 (Grand Central Terminal), Series 1, 5.70% due 7/01/2024 (f) 3,372
AAA Aaa 2,990 Refunding, Series A, 6.125% due 7/01/2012 (e) 3,076
AAA Aaa 5,000 Metropolitan Transportation Authority, New York, Transport Facilities
Revenue Bonds, Series O, 6.375% due 7/01/2020 (e) 5,152
AAA Aaa 3,685 Nassau County, New York, UT, Series P, 6.50% due 11/01/2011 (b) 4,026
AAA Aaa 2,000 New York City, New York, Educational Construction Fund Revenue Bonds,
Senior Sub-Series B, 5.625% due 4/01/2013 (e) 1,973
AAA Aaa 5,000 New York City, New York, IDA, Civic Facilities Revenue Bonds (USTA
National Tennis Center Project), 6.375% due 11/15/2014 (f) 5,220
New York City, New York, Municipal Water Finance Authority, Water
and Sewer System Revenue Bonds:
AAA Aaa 2,000 Series B, 5.375% due 6/15/2019 (e) 1,847
AAA Aaa 2,340 Series B, 5.50% due 6/15/2019 (c) 2,203
AAA Aaa 3,000 Series B, 5.50% due 6/15/2019 (e) 2,824
AAA VMIG1++ 3,900 VRDN, Series A, 4.20% due 6/15/2025 (a) (b) 3,900
AAA VMIG1++ 970 VRDN, Series C, 4% due 6/15/2023 (a) (b) 970
AAA VMIG1++ 6,800 VRDN, Series G, 4.10% due 6/15/2024 (a) (b) 6,800
A1+ VMIG1++ 3,700 New York City, New York, Trust Cultural Resource Revenue Bonds
(Solomon R. Guggenheim), VRDN, Series B, 4.10% due 12/01/2015 (a) 3,700
New York City, New York, UT, Series B (Fiscal 92):
BBB+ Baa1 5,000 7.50% due 2/01/2006 5,480
AAA Aaa 2,000 7% due 2/01/2017 (c) 2,171
AAA Aaa 2,000 7% due 2/01/2018 (c) 2,171
New York City, New York, UT, Series C, Sub-Series C-1 (e) (g):
AAA Aaa 5,625 6.375% due 8/01/2002 6,190
AAA Aaa 4,455 6.375% due 8/01/2002 4,902
New York State Dormitory Authority Revenue Bonds:
AAA Aaa 5,915 (City University), Third Generation Reserves, Series 2, 6.875%
due 7/01/2014 (e) 6,414
A1+ VMIG1++ 3,100 (Cornell University), VRDN, Series B, 4.10% due 7/01/2025 (a) 3,100
BBB Baa1 5,000 (Department of Health), 5.75% due 7/01/2017 4,636
AAA Aaa 1,500 Refunding (State University Educational Facilities), Series A, 5.50%
due 5/15/2010 (b) 1,496
AAA Aaa 4,500 Refunding (State University Educational Facilities), Series A,
5.875% due 5/15/2011 (b) 4,627
AAA Aaa 4,315 (Saint Vincent's Hospital and Medical Center), 5.80% due
8/01/2025 (c) (d) 4,179
AAA Aaa 1,380 (State University Educational Facilities), Series A, 5.875% due
5/15/2011 (c) 1,419
AAA Aaa 5,000 New York State Energy Research and Development Authority, Gas
Facilities Revenue Bonds (Brooklyn Union Gas Company), AMT, Series B,
6.75% due 2/01/2024 (e) 5,286
BBB Baa1 5,910 New York State HFA, Service Contract Obligation Revenue Bonds, Series A,
5.50% due 9/15/2022 5,243
A1+ VMIG1++ 2,000 New York State Local Government Assistance Corporation, VRDN, Series B,
4.10% due 4/01/2025 (a) 2,000
</TABLE>
F-13
<PAGE> 102
MuniVest New York Insured Fund, Inc., April 30, 1996
<TABLE>
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
<CAPTION>
S&P Moody's Face Value
STATE Ratings Ratings Amount Issue (Note 1a)
<S> <S> <S> <C> <S> <C>
New York State Medical Care Facilities Finance Agency Revenue Bonds:
AAA Aaa 4,600 (New York Hospital Mortgage), Series A, 6.80% due 8/15/2024 (c) (d) 4,930
AAA Aaa 2,000 (New York Hospital Mortgage), Series A, 6.50% due 8/15/2029 (c) (d) 2,079
AAA Aaa 4,000 Refunding (Mental Health Services), Series F, 5.25% due 2/15/2021 (f) 3,591
New York New York State Urban Development Corporation Revenue Bonds:
(concluded) AAA Aaa $ 6,000 Refunding (Correctional Facilities), Series A, 5% due 1/01/2017 (c) $ 5,301
AAA Aaa 4,000 (Sports Facilities Assistance Program), Series A, 5.50% due
4/01/2019 (e) 3,757
AAA Aaa 1,000 Niagara Falls, New York, Water Treatment Plant, UT, AMT, 7.25% due
11/01/2010 (e) 1,154
Port Authority of New York and New Jersey, Consolidated Revenue
Bonds (c):
AAA Aaa 3,000 72nd Series, 7.40% due 10/01/2012 3,372
AAA Aaa 3,000 104th Series, Third Installment, 4.75% due 1/15/2026 2,497
A1+ VMIG1++ 1,300 Syracuse, New York, IDA, Civic Facility Revenue Bonds (Multi-Modal
Syracuse University Project), VRDN, 4.10% due 3/01/2023 (a) 1,300
Triborough Bridge and Tunnel Authority, New York, Special Obligation
Refunding Bonds:
AAA Aaa 5,475 Series A, 6.625% due 1/01/2017 (e) 5,798
AAA Aaa 5,150 Series B, 6.875% due 1/01/2015 (c) 5,537
Total Investments (Cost--$144,656)--105.8% 148,271
Liabilities in Excess of Other Assets--(5.8%) (8,083)
--------
Net Assets--100.0% $140,188
========
<FN>
(a)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, 1996.
(b)FGIC Insured.
(c)AMBAC Insured.
(d)FHA Insured.
(e)MBIA Insured.
(f)FSA Insured.
(g)Prerefunded.
++Highest short-term rating by Moody's Investors Service, Inc.
See Notes to Financial Statements.
</TABLE>
Portfolio
Abbreviations
To simplify the listings of MuniVest New York Insured Fund, Inc.'s
portfolio holdings in the Schedule of Investments, we have
abbreviated the names of many of the securities according to
the list at right.
AMT Alternative Minimum Tax (subject to)
HFA Housing Finance Agency
IDA Industrial Development Authority
UT Unlimited Tax
VRDN Variable Rate Demand Notes
F-14
<PAGE> 103
<TABLE>
STATEMENT OF ASSETS, LIABILITIES AND CAPITAL
<CAPTION>
As of April 30, 1996
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$144,656,130) (Note 1a) $148,271,406
Cash 96,615
Receivables:
Securities sold $ 3,701,344
Interest 2,332,396 6,033,740
------------
Deferred organization expense (Note 1e) 15,660
Prepaid expenses and other assets 6,404
------------
Total assets 154,423,825
------------
Liabilities: Payables:
Securities purchased 13,922,234
Dividends to shareholders (Note 1f) 185,827
Investment adviser (Note 2) 57,767 14,165,828
------------
Accrued expenses and other liabilities 69,731
------------
Total liabilities 14,235,559
------------
Net Assets: Net assets $140,188,266
============
Capital: Capital Stock (200,000,000 shares authorized) (Note 4):
Preferred Stock, par value $.10 per share (1,960 shares of AMPS*
issued and outstanding at $25,000 per share liquidation preference) $ 49,000,000
Common Stock, par value $.10 per share (7,204,432 shares issued and
outstanding) $ 720,443
Paid-in capital in excess of par 100,237,381
Undistributed investment income--net 496,565
Accumulated realized capital losses on investments--net (Note 5) (13,881,399)
Unrealized appreciation on investments--net 3,615,276
------------
Total--Equivalent to $12.66 net asset value per share of Common Stock
(market price--$11.875) 91,188,266
------------
Total capital $140,188,266
============
<FN>
*Auction Market Preferred Stock.
See Notes to Financial Statements.
</TABLE>
F-15
<PAGE> 104
MuniVest New York Insured Fund, Inc., April 30, 1996
<TABLE>
STATEMENT OF OPERATIONS
<CAPTION>
For the Six Months Ended April 30, 1996
<S> <S> <C> <C>
Investment Interest and amortization of premium and discount earned $ 4,060,417
Income (Note 1d):
Expenses: Investment advisory fees (Note 2) $ 360,184
Commission fees (Note 4) 61,864
Professional fees 39,417
Printing and shareholder reports 19,239
Transfer agent fees 17,617
Accounting services (Note 2) 15,812
Directors' fees and expenses 11,452
Listing fees 8,052
Custodian fees 5,723
Pricing fees 3,297
Amortization of organization expenses (Note 1e) 3,133
Other 6,943
------------
Total expenses 552,733
------------
Investment income--net 3,507,684
------------
Realized & Unreal- Realized gain on investments 1,351,653
ized Gain (Loss) on Change in unrealized appreciation on investments--net (4,809,363)
Investments--Net ------------
(Notes 1b, 1d & 3): Net Increase in Net Assets Resulting from Operations $ 49,974
============
See Notes to Financial Statements.
</TABLE>
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<CAPTION>
For the Six For the
Months Ended Year Ended
April 30, October 31,
Increase (Decrease) in Net Assets: 1996 1995
<S> <S> <C> <C>
Operations: Investment income--net $ 3,507,684 $ 7,244,028
Realized gain (loss) on investments--net 1,351,653 (8,401,860)
Change in unrealized appreciation/depreciation on investments--net (4,809,363) 18,187,404
------------ ------------
Net increase in net assets resulting from operations 49,974 17,029,572
------------ ------------
Dividends to Investment income--net:
Shareholders Common Stock (2,704,926) (5,428,929)
(Note 1f): Preferred Stock (838,959) (1,838,960)
------------ ------------
Net decrease in net assets resulting from dividends to shareholders (3,543,885) (7,267,889)
------------ ------------
Net Assets: Total increase (decrease) in net assets (3,493,911) 9,761,683
Beginning of period 143,682,177 133,920,494
------------ ------------
End of period* $140,188,266 $143,682,177
============ ============
<FN>
*Undistributed investment income--net $ 496,565 $ 532,766
============ ============
See Notes to Financial Statements.
</TABLE>
F-16
<PAGE> 105
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
For the For the
Six Period
The following per share data and ratios have been derived Months April 30,
from information provided in the financial statements. Ended For the Year Ended 1993++ to
April 30, October 31, Oct. 31,
Increase (Decrease) in Net Asset Value: 1996 1995 1994 1993
<S> <S> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 13.14 $ 11.79 $ 14.90 $ 14.18
Operating -------- -------- -------- --------
Performance: Investment income--net .49 1.00 1.03 .48
Realized and unrealized gain (loss) on investments--net (.47) 1.36 (3.06) .80
-------- -------- -------- --------
Total from investment operations .02 2.36 (2.03) 1.28
-------- -------- -------- --------
Less dividends and distributions to Common Stock
shareholders:
Investment income--net (.38) (.75) (.86) (.34)
Realized gain on investments--net -- -- (.04) --
-------- -------- -------- --------
Total dividends and distributions to Common Stock
shareholders (.38) (.75) (.90) (.34)
-------- -------- -------- --------
Capital charge resulting from issuance of Common Stock -- -- -- (.03)
-------- -------- -------- --------
Effect of Preferred Stock activity:++++
Dividends and distributions to Preferred Stock
shareholders:
Investment income--net (.12) (.26) (.17) (.06)
Realized gain on investments--net -- -- (.01) --
Capital charge resulting from issuance of Preferred
Stock -- -- -- (.13)
-------- -------- -------- --------
Total effect of Preferred Stock activity (.12) (.26) (.18) (.19)
-------- -------- -------- --------
Net asset value, end of period $ 12.66 $ 13.14 $ 11.79 $ 14.90
======== ======== ======== ========
Market price per share, end of period $ 11.875 $ 12.00 $ 10.50 $ 14.75
======== ======== ======== ========
Total Investment Based on market price per share 2.05%+++ 21.97% (23.65%) .59%+++
Return:** ======== ======== ======== ========
Based on net asset value per share (.65%)+++ 18.94% (15.13%) 7.49%+++
======== ======== ======== ========
Ratios to Average Expenses, net of reimbursement .76%* .75% .64% .35%*
Net Assets:*** ======== ======== ======== ========
Expenses .76%* .77% .74% .79%*
======== ======== ======== ========
Investment income--net 4.85%* 5.22% 5.06% 4.75%*
======== ======== ======== ========
Supplemental Net assets, net of Preferred Stock,
Data: end of period (in thousands) $ 91,188 $ 94,682 $ 84,920 $106,279
======== ======== ======== ========
Preferred Stock outstanding, end of period (in
thousands) $ 49,000 $ 49,000 $ 49,000 $ 49,000
======== ======== ======== ========
Portfolio turnover 75.53% 192.08% 74.77% 10.81%
======== ======== ======== ========
Leverage: Asset coverage per $1,000 $ 2,861 $ 2,932 $ 2,733 $ 3,169
======== ======== ======== ========
Dividends Investment income--net $ 428 $ 938 $ 610 $ 242
Per Share on ======== ======== ======== ========
Preferred Stock
Outstanding:++++++
<FN>
*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.
++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.
See Notes to Financial Statements.
</TABLE>
F-17
<PAGE> 106
MuniVest New York Insured Fund, Inc., April 30, 1996
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
MuniVest New York Insured Fund, Inc. (the "Fund") is registered
under the Investment Company Act of 1940 as a non-diversified,
closed-end management investment company. These unaudited finan-
cial 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 recur-
ring nature. The Fund determines and makes available for publica-
tion 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 MVY. 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, which are traded on exchanges, are valued at their last sale
price as of the close of such exchanges or, lacking any sales, at the last
available bid price. Securities with remaining maturities of sixty
days or less are valued at amortized cost, which approximates market
value. Securities for which market quotations are not readily avail-
able are valued at fair value as determined in good faith by or under
the direction of the Board of Directors of the Fund, including valua-
tions 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
interest rate 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 con-
tract 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 require-
ments of the Internal Revenue Code applicable to regulated invest-
ment companies and to distribute substantially all of its taxable
income to its shareholders. Therefore, no Federal income tax pro-
vision is required.
(d) Security transactions and investment income--Security trans-
actions 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-18
<PAGE> 107
(e) Deferred organization expenses--Deferred organization expenses
are amortized on a straight-line basis over a five-year period.
(f) Dividends and distributions--Dividends from net investment
income are declared and paid monthly. Distributions of capital gains
are recorded on the ex-dividend dates.
2. Investment Advisory Agreement and Transactions
with Affiliates:
The Fund has entered into an Investment Advisory Agreement with
Fund Asset Management, L.P. ("FAM"). The general partner of FAM is
Princeton Services, Inc. ("PSI"), an indirect wholly-owned subsidiary
of Merrill Lynch & Co., Inc. ("ML & Co."), which is the limited partner.
FAM is responsible for the management of the Fund's portfolio and
provides the 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.
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, Merrill Lynch, Pierce, Fenner & Smith Inc.
("MLPF&S"), and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the six months ended April 30, 1996 were $104,168,877 and
$109,980,495, respectively.
Net realized and unrealized gains as of April 30, 1996 were as
follows:
Realized Unrealized
Gains Gains
Long-term investments $1,145,578 $3,615,276
Financial futures contracts 206,075 --
---------- ----------
Total $1,351,653 $3,615,276
========== ==========
As of April 30, 1996, net unrealized appreciation for Federal income
tax purposes aggregated $3,615,276, of which $4,596,696 related to
appreciated securities and $981,420 related to depreciated securities.
The aggregate cost of investments at April 30, 1996 for Federal
income tax purposes was $144,656,130.
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
For the six months ended April 30, 1996, shares issued and outstand-
ing remained constant at 7,204,432. At April 30, 1996, total paid-in
capital amounted to $100,957,824.
Preferred Stock
Auction Market Preferred Stock ("AMPS") are shares of Preferred
Stock of the Fund 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, 1996 was 3.85%.
As of April 30, 1996, there were 1,960 AMPS authorized, issued and
outstanding with a liquidation preference of $25,000 per share, plus
accumulated and unpaid dividends of $25,844.
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, 1996, MLPF&S, an affiliate of FAM, earned $37,228 as
commissions.
5. Capital Loss Carryforward:
At October 31, 1995, the Fund had a net capital loss carryforward of
approximately $13,810,000, of which $6,831,000 expires in 2002, and
$6,979,000 expires in 2003. This amount will be available to offset
like amounts of any future taxable gains.
6. Subsequent Event:
On May 10, 1996, the Fund's Board of Directors declared an ordinary
income dividend to Common Stock shareholders in the amount of
$0.057601 per share, payable on May 30, 1996 to shareholders of
record as of May 21, 1996.
F-19
<PAGE> 108
AUDITED FINANCIAL STATEMENTS FOR MUNIYIELD NEW YORK INSURED II
FOR THE FISCAL YEAR ENDED OCTOBER 31, 1995
F-20
<PAGE> 109
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders of
MuniYield New York Insured Fund II, Inc.:
We have audited the accompanying statement of assets, liabilities and capital,
including the schedule of investments, of MuniYield New York Insured Fund II,
Inc. as of October 31, 1995, 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
three-year period then ended and the period June 26, 1992 (commencement of
operations) to October 31, 1992. 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 October
31, 1995 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 York
Insured Fund II, Inc. as of October 31, 1995, the results of its operations, the
changes in its net assets, and the financial highlights for the respective
stated periods in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
December 1, 1995
F-21
<PAGE> 110
MuniYield New York Insured Fund II, Inc. October 31, 1995
<TABLE>
SCHEDULE OF INVESTMENTS (in Thousands)
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
New York--100.6%
<S> <S> <C> <S> <C>
Metropolitan Transportation Authority, New York, Commuter Facilities Revenue
Refunding Bonds, Series B (c):
AAA Aaa $10,000 6.25% due 7/01/2017 $ 10,371
AAA Aaa 8,650 6.25% due 7/01/2022 8,941
Monroe County, New York, Public Improvement, UT (d):
AAA Aaa 2,000 6.15% due 6/01/2016 2,103
AAA Aaa 1,000 6.15% due 6/01/2017 1,048
AAA Aaa 3,250 Nassau County, New York, GO, UT, Series P, 6.50% due 11/01/2010 (b) 3,563
AAA Aaa 1,100 New Rochelle, New York, GO, UT, Series B, 6.15% due 8/15/2018 (c) 1,154
BBB+ Baa1 5,000 New York City, New York, GO, Series D, 6% due 2/15/2025 4,832
New York City, New York, IDA, Civic Facilities Revenue Bonds:
A1+ NR* 1,800 (National Audobon Society), VRDN, 3.90% due 12/01/2014 (a) 1,800
AAA Aaa 5,000 (USTA National Tennis Center Project), 6.375% due 11/15/2014 (f) 5,295
New York City, New York, Municipal Water Finance Authority, Water and Sewer
System Revenue Bonds:
AAA Aaa 3,500 Series A, 6.25% due 6/15/2021 (b) 3,589
AAA Aaa 2,480 Series A-1994, 7% due 6/15/2015 (b) 2,742
AAA Aaa 2,520 Series A-1994, 7% due 6/15/2001 (b)(h) 2,865
AAA Aaa 5,000 Series B, 5.50% due 6/15/2019 (c) 4,896
A1+ VMIG1++ 7,900 New York City, New York, Trust Cultural Resource Revenue Bonds (Solomon R.
Guggenheim), VRDN, Series B, 3.90% due 12/01/2015 (a) 7,900
New York State Dormitory Authority Revenue Bonds:
AAA Aaa 1,000 (City University), Third Generation Reserves, Series 2, 6.875% due 7/01/2014 (c) 1,105
AAA Aaa 2,825 (Consolidated City University System), Second Generation, Series A, 5.75%
due 7/01/2013 (b) 2,901
A1+ VMIG1++ 1,000 (Cornell University), VRDN, Series B, 3.90% due 7/01/2025 (a) 1,000
AAA Aaa 1,750 Refunding (Mount Sinai School of Medicine), 6.75% due 7/01/2009 (c) 1,926
BBB+ Baa1 2,000 Refunding (State University Educational Facilities), Series B, 7% due 5/15/2016 2,137
AAA Aaa 1,050 (Saint John's University), 6.875% due 7/01/2011 (d) 1,161
AA- Aa 2,400 (Vassar College), 7.25% due 7/01/2015 2,668
</TABLE>
PORTFOLIO ABBREVIATIONS
To simplify the listing of MuniYield New York Insured Fund II,
Inc.'s portfolio holdings in the Schedule of Investments, we have
abbreviated the names of many of the securities according to the
list at right.
AMT Alternative Minimum Tax (subject to)
COP Certificates of Participation
GO General Obligation Bonds
HFA Housing Finance Agency
IDA Industrial Development Agency
M/F Muli-Family
PCR Pollution Control Revenue Bonds
UT Unlimited Tax
VRDN Variable Rate Demand Notes
F-22
<PAGE> 111
MuniYield New York Insured Fund II, Inc. October 31, 1995
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
New York (continued)
<S> <S> <C> <S> <C>
New York State Energy Research and Development Authority, Facilities Revenue Bonds
(Con Edison Company Inc.), AMT, Series A:
AAA Aaa $ 4,450 6.75% due 1/15/2027 (c) $ 4,668
AAA Aaa 3,250 6.75% due 1/15/2027 (d) 3,409
AAA Aaa 10,000 New York State Energy Research and Development Authority, Gas Facilities Revenue Bonds
(Brooklyn Union Gas Company), AMT, Series A, 6.75% due 2/01/2024 (c) 10,669
A1+ NR* 3,800 New York State Energy Research and Development Authority, PCR (Niagara
Mohawk Power Corporation Project), VRDN, AMT, Series B, 3.95% due 7/01/2027 (a) 3,800
A1+ NR* 700 New York State Environmental Facilities Corporation, Resource Recovery Revenue Bonds
(OFS Equity Huntington Project), VRDN, AMT, 4.10% due 11/01/2014 (a) 700
AAA Aaa 1,325 New York State Environmental Facilities Corporation, Water Facilities Revenue Bonds
(New Rochelle Water Company Inc. Project), AMT, 6.40% due 12/01/2024 (d) 1,381
AAA Aa 1,000 New York State HFA, M/F Mortgage Housing Insured Revenue Refunding Bonds,
Series C, 6.45% due 8/15/2014 (e) 1,032
A A 3,250 New York State Local Government Assistance Corporation, Revenue Refunding Bonds,
Series B, 5.50% due 4/01/2021 3,125
New York State Medical Care Facilities, Finance Agency Revenue Bonds:
AAA Aaa 2,330 (Mental Health), Series F, 6.50% due 8/15/2012 (g) 2,472
AAA Aaa 9,805 (Mental Health Services Facilities Improvement), Series D, 5.90% due 8/15/2022 (d) 9,844
AAA Aaa 10,765 (Montefiore Medical Center), Series A, 5.75% due 2/15/2025 (d)(e) 10,629
AAA Aaa 6,250 (New York Hospital Mortgage), Series A, 6.80% due 8/15/2024 (d)(e) 6,823
AAA Aaa 8,500 (New York Hospital Mortgage), Series A, 6.50% due 8/15/2029 (d)(e) 9,045
AAA Aaa 5,200 Refunding (Hospital and Nursing Home), Series C, 6.375% due 8/15/2029 (c) 5,407
AAA Aaa 4,000 Refunding (Mental Health Services), Series F, 5.375% due 2/15/2014 (b) 3,836
AAA Aaa 1,290 Refunding (Mental Health Services), Series F, 5.375% due 2/15/2014 (c) 1,237
AAA Aaa 6,990 Refunding (Mental Health Services), Series F, 5.25% due 2/15/2019 (b) 6,510
AAA Aaa 4,715 New York State Power Authority, General Purpose and Revenue Bonds, Series Y, 6%
due 1/01/2020 (d) 4,764
New York State Thruway Authority, General Revenue Bonds:
AAA Aaa 4,000 Series A, 5.50% due 1/01/2023 (b) 3,895
AAA Aaa 2,125 Series B, 5% due 1/01/2020 (c) 1,936
AAA Aaa 8,000 New York State Thruway Authority, General Revenue Bonds (Highway and Bridge Trust Fund),
UT, Series B, 6.25% due 4/01/2012 (b) 8,457
New York State Urban Development Corporation Revenue Bonds:
AAA Aaa 8,675 (Correctional Facilities), 5.375% due 1/01/2012 (c) 8,541
BBB Baa1 12,375 (Correctional Facilities), Series 4, 5.375% due 1/01/2023 11,236
BBB Baa1 3,250 Refunding (Onondaga County Convention Project), 6.25% due 1/01/2020 3,272
NR* Baa 1,870 North Country, New York, Development Authority Revenue Bonds (Solid Waste
Management System), Series A, 6.75% due 7/01/1999 (h) 2,054
North Hempstead, New York, Revenue Refunding Bonds, Series B, UT (b):
AAA Aaa 1,745 6.40% due 4/01/2013 1,932
AAA Aaa 555 6.40% due 4/01/2017 617
</TABLE>
F-23
<PAGE> 112
MuniYield New York Insured Fund II, Inc. October 31, 1995
<TABLE>
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
New York (concluded)
<S> <S> <C> <S> <C>
Port Authority of New York and New Jersey, Consolidated Revenue Bonds:
AA- A1 $ 5,000 69th Series, 7.125% due 6/01/2025 $ 5,464
AA- A1 5,000 72nd Series, 7.35% due 10/01/2027 5,725
Syracuse, New York, COP, Revenue Bonds (Syracuse Hancock International
Airport), AMT (b):
AAA Aaa 3,650 6.625% due 1/01/2012 3,875
AAA Aaa 3,120 6.50% due 1/01/2017 3,266
A1+ VMIG1++ 1,400 Syracuse, New York, IDA, Civic Facility Revenue Bonds (Multi-Modal Syracuse University
Project), VRDN, 3.90% due 3/01/2023 (a) 1,400
Triborough Bridge and Tunnel Authority, New York, Special Obligation Revenue
Refunding Bonds:
AAA Aaa 6,575 6.25% due 1/01/2012 (d) 6,925
AAA Aaa 2,000 Series B, 6.875% due 1/01/2015 (c) 2,194
Total Investments (Cost--$222,807)--100.6% 234,137
Liabilities in Excess of Other Assets--(0.6%) (1,482)
--------
Net Assets--100.0% $232,655
========
<FN>
(a)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, 1995.
(b)FGIC Insured.
(c)MBIA Insured.
(d)AMBAC Insured.
(e)FHA Insured.
(f)FSA Insured.
(g)CGIC Insured.
(h)Prerefunded.
*Not Rated.
++Highest short-term rating by Moody's Investors Service, Inc.
Ratings of issues shown have not been audited by Deloitte & Touche LLP.
See Notes to Financial Statements.
</TABLE>
F-24
<PAGE> 113
MuniYield New York Insured Fund II, Inc. October 31, 1995
FINANCIAL INFORMATION
<TABLE>
Statement of Assets, Liabilities and Capital as of October 31, 1995
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$222,806,570) (Note 1a) $234,136,617
Cash 111,046
Interest receivable 3,687,706
Deferred organization expenses (Note 1e) 11,523
Prepaid expenses and other assets 9,311
------------
Total assets 237,956,203
------------
Liabilities: Payables:
Securities purchased $ 4,832,400
Dividends to shareholders (Note 1f) 303,021
Investment adviser (Note 2) 101,521 5,236,942
------------
Accrued expenses and other liabilities 64,506
------------
Total liabilities 5,301,448
------------
Net Assets: Net assets $232,654,755
============
Capital: Capital Stock (200,000,000 shares authorized) (Note 4):
Preferred Stock, par value $.10 per share (2,800 shares of
AMPS* issued and outstanding at $25,000 per liquidation
preference) $ 70,000,000
Common Stock, par value $.10 per share (11,114,832 shares
issued and outstanding) $ 1,111,483
Paid-in capital in excess of par 154,792,338
Undistributed investment income--net 862,691
Accumulated realized capital losses on investments--net (Note 5) (5,441,804)
Unrealized appreciation on investments--net 11,330,047
------------
Total--Equivalent to $14.63 net asset value per Common Stock
(market price--$13.25) 162,654,755
------------
Total capital $232,654,755
============
<FN>
*Auction Market Preferred Stock.
See Notes to Financial Statements.
</TABLE>
F-25
<PAGE> 114
MuniYield New York Insured Fund II, Inc. October 31, 1995
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Operations
<CAPTION>
For the Year Ended
October 31, 1995
<S> <S> <C> <C>
Investment Income Interest and amortization of premium and discount earned $ 13,490,414
(Note 1d):
Expenses: Investment advisory fees (Note 2) $ 1,123,249
Commission fees (Note 4) 198,848
Professional fees 80,927
Accounting services (Note 2) 67,618
Printing and shareholder reports 50,149
Transfer agent fees 49,734
Listing fees 24,726
Directors' fees and expenses 23,759
Custodian fees 12,091
Pricing fees 9,748
Amortization of organization expenses (Note 1e) 6,929
Other 10,440
------------
Total expenses 1,658,218
------------
Investment income--net 11,832,196
------------
Realized & Realized loss on investments--net (3,600,834)
Unrealized Change in unrealized appreciation/depreciation on investments--net 20,296,119
Gain (Loss) on ------------
Investments--Net Net Increase in Net Assets Resulting from Operations $ 28,527,481
(Notes 1b, ============
1d & 3):
</TABLE>
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
For the Year Ended October 31,
Increase (Decrease) in Net Assets: 1995 1994
<S> <S> <C> <C>
Operations: Investment income--net $ 11,832,196 $ 11,939,369
Realized loss on investments--net (3,600,834) (1,840,959)
Change in unrealized appreciation/depreciation on investments--net 20,296,119 (28,784,232)
------------ ------------
Net increase (decrease) in net assets resulting from operations 28,527,481 (18,685,822)
------------ ------------
Dividends &
Distributions to Investment income--net:
Shareholders Common Stock (9,302,093) (9,707,305)
(Note 1f): Preferred Stock (2,547,832) (2,124,906)
Realized gain on investments--net:
Common Stock -- (81,339)
Preferred Stock -- (18,298)
------------ ------------
Net decrease in net assets resulting from dividends and distributions
to shareholders (11,849,925) (11,931,848)
------------ ------------
Net Assets: Total increase (decrease) in net assets 16,677,556 (30,617,670)
Beginning of year 215,977,199 246,594,869
------------ ------------
End of year* $232,654,755 $215,977,199
============ ============
<FN>
*Undistributed investment income--net $ 862,691 $ 880,420
============ ============
See Notes to Financial Statements.
</TABLE>
F-26
<PAGE> 115
MuniYield New York Insured Fund II, Inc. October 31, 1995
FINANCIAL INFORMATION (concluded)
<TABLE>
Financial Highlights
<CAPTION>
For the
Period
The following per share data and ratios have been derived June 26,
from information provided in the financial statements. 1992++ to
For the Year Ended October 31, October 31,
Increase (Decrease) in Net Asset Value: 1995 1994 1993 1992
<S> <S> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 13.13 $ 15.89 $ 13.43 $ 14.18
Operating -------- -------- -------- --------
Performance: Investment income--net 1.07 1.07 1.11 .27
Realized and unrealized gain (loss) on
investments--net 1.50 (2.76) 2.46 (.66)
-------- -------- -------- --------
Total from investment operations 2.57 (1.69) 3.57 (.39)
-------- -------- -------- --------
Less dividends and distributions to Common Stock
shareholders:
Investment income--net (.84) (.87) (.91) (.18)
Realized gain on investments--net -- (.01) -- --
-------- -------- -------- --------
Total dividends and distributions to Common Stock
shareholders (.84) (.88) (.91) (.18)
-------- -------- -------- --------
Capital charge resulting from issuance of
Preferred Stock -- -- -- (.03)
-------- -------- -------- --------
Effect of Preferred Stock activity:++++
Dividends to Preferred Stock shareholders:
Investment income--net (.23) (.19) (.20) (.02)
Capital charge resulting from issuance
of Preferred Stock -- -- -- (.13)
-------- -------- -------- --------
Total effect of Preferred Stock activity (.23) (.19) (.20) (.15)
-------- -------- -------- --------
Net asset value, end of period $ 14.63 $ 13.13 $ 15.89 $ 13.43
======== ======== ======== ========
Market price per share, end of period $ 13.25 $ 11.00 $ 15.25 $ 13.75
======== ======== ======== ========
Total Investment Based on market price per share 28.61% (22.96%) 17.90% (7.17%)+++
Return:** ======== ======== ======== ========
Based on net asset value per share 18.96% (11.75%) 25.77% (4.09%)+++
======== ======== ======== ========
Ratios to Average Expenses, net of reimbursement .74% .74% .62% .13%*
Net Assets:*** ======== ======== ======== ========
Expenses .74% .74% .70% .68%*
======== ======== ======== ========
Investment income--net 5.27% 5.09% 5.25% 5.05%*
======== ======== ======== ========
Supplemental Net assets, net of Preferred Stock, end
Data: of period (in thousands) $162,655 $145,977 $176,595 $146,633
======== ======== ======== ========
Preferred Stock outstanding, end of period
(in thousands) $ 70,000 $ 70,000 $ 70,000 $ 70,000
======== ======== ======== ========
Portfolio turnover 110.76% 36.79% 3.33% 19.40%
======== ======== ======== ========
Dividends Per Share Investment income--net $ 910 $ 759 $ 809 $ 92
On Preferred Stock
Outstanding++++++
<FN>
*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.
++Commencement of Operations.
++++The Fund's Preferred Stock was issued on September 16, 1992.
++++++Dividends per share have been adjusted to reflect a two-for-one stock split.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
F-27
<PAGE> 116
MuniYield New York Insured Fund II, Inc. October 31, 1995
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
MuniYield New York Insured Fund II, Inc. (the "Fund") is registered
under the Investment Company Act of 1940 as a non-diversified,
closed-end management investment company. The Fund determines and
makes available for publication the net asset value of its Common
Stock on a weekly basis. The Fund's Common Stock is listed on the
New York Stock Exchange under the symbol MYT. The following is a
summary of significant accounting policies followed by the Fund.
(a) Valuation of investments--Municipal bonds are traded primarily
in the over-the-counter markets and are valued at the most recent
bid price or yield equivalent as obtained by the Fund's pricing
service from dealers that make markets in such securities. Financial
futures contracts and options thereon, which are traded on
exchanges, are valued at their closing prices as of the close of
such exchanges. Options, which are traded on exchanges, are valued
at their last sale price as of the close of such exchanges or,
lacking any sales, at the last available bid price. Securities with
remaining maturities of sixty days or less are valued at amortized
cost, which approximates market value. Securities for which market
quotations are not readily available are valued at their fair value
as determined in good faith by or under the direction of the Board
of Directors of the Fund, including valuations furnished by a
pricing service retained by the Fund, which may utilize a matrix
system for valuations. The procedures of the pricing service and its
valuations are reviewed by the officers of the Fund under the
general supervision of the Board of Directors.
(b) Derivative financial instruments--The Fund may engage in various
portfolio strategies to seek to increase its return by hedging its
portfolio against adverse movements in the debt markets. Losses may
arise due to changes in the value of the contract or if the
counterparty does not perform under the contract.
* Financial futures contracts--The Fund may purchase or sell
interest rate 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 sells 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-28
<PAGE> 117
MuniYield New York Insured Fund II, Inc. October 31, 1995
(e) Deferred organization expenses--Deferred organization expenses
are amortized on a straight-line basis over a five-year period.
(f) Dividends and distributions--Dividends from net investment
income are declared and paid monthly. Distributions of capital gains
are recorded on the ex-dividend dates.
2. Investment Advisory Agreement and
Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with Fund
Asset Management, L.P. ("FAM"). The general partner of FAM is
Princeton Services, Inc. ("PSI"), an indirect wholly-owned
subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is the
limited partner.
FAM is responsible for the management of the Fund's portfolio and
provides the 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.
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, Merrill Lynch, Pierce, Fenner & Smith Inc.
("MLPF&S"), and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the year ended October 31, 1995 were $250,525,811 and
$230,683,792, respectively.
Net realized and unrealized gains (losses) as of October 31, 1995
were as follows:
Realized Unrealized
Losses Gains
Long-term investments $(1,834,897) $11,330,047
Financial futures contracts (1,765,937) --
----------- -----------
Total $(3,600,834) $11,330,047
=========== ===========
As of October 31, 1995, net unrealized appreciation for Federal
income tax purposes aggregated $11,292,235, of which $11,309,819
related to appreciated securities and $17,584 related to depreciated
securities. The aggregate cost of investments at October 31, 1995
for Federal income tax purposes was $222,844,382.
4. Capital Stock Transactions:
The Fund is authorized to issue 200,000,000 shares of capital stock,
including Preferred Stock, par value $.10 per share, all of which
were initially classified as Common Stock. The Board of Directors is
authorized, however, to reclassify any unissued shares of capital
stock without approval of the holders of Common Stock.
Common Stock
For the year ended October 31, 1995, shares issued and outstanding
remained constant at 11,114,832. At October 31, 1995, total paid-in
capital amounted to $155,903,821.
Preferred Stock
Auction Market Preferred Stock ("AMPS") are shares of Preferred
Stock of the Fund 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, 1995 was 3.75%.
A two-for-one stock split occurred on December 1, 1994. As a result,
as of October 31, 1995, there were 2,800 AMPS shares authorized,
issued and outstanding with a liquidation preference of $25,000 per
share, plus accumulated and unpaid dividends of $14,384.
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, 1995, MLPF&S, an affiliate of FAM, earned $66,149 as
commissions.
5. Capital Loss Carryforward:
At October 31, 1995, the Fund had a capital loss carryforward of
approximately $3,616,000, of which $1,841,000 expires in 2002 and
$1,775,000 expires in 2003. This amount will be available to offset
like amounts of any future taxable gains.
6. Subsequent Event:
On November 13, 1995, the Fund's Board of Directors declared an
ordinary income dividend to Common Stock shareholders in the amount
of $0.069842 per share, payable on November 29, 1995 to shareholders
of record as of November 24, 1995.
F-29
<PAGE> 118
UNAUDITED FINANCIAL STATEMENTS FOR MUNIYIELD NEW YORK INSURED II
FOR THE SIX-MONTH PERIOD ENDED APRIL 30, 1996
F-30
<PAGE> 119
MuniYield New York Insured Fund II, Inc. April 30, 1996
<TABLE>
SCHEDULE OF INVESTMENTS (in Thousands)
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
New York--100.9%
<S> <S> <C> <S> <C>
AAA Aaa $ 4,000 Battery Park City Authority, New York, Revenue Refunding Bonds, Senior
Series A, 5.25% due 11/01/2017 (c) $ 3,636
Metropolitan Transportation Authority, New York, Commuter Facilities
Revenue Refunding Bonds, Series B (c):
AAA Aaa 10,000 6.25% due 7/01/2017 10,282
AAA Aaa 8,650 6.25% due 7/01/2022 8,877
AAA Aaa 5,500 Metropolitan Transportation Authority, New York, Transportation
Facilities Revenue Bonds, Series O, 6% due 7/01/2024 (c) 5,520
Monroe County, New York, Public Improvement, UT (d):
AAA Aaa 1,850 6.15% due 6/01/2016 1,918
AAA Aaa 1,000 6.15% due 6/01/2017 1,027
AAA Aaa 3,250 Nassau County, New York, GO, UT, Series P, 6.50% due 11/01/2010 (b) 3,560
AAA Aaa 1,100 New Rochelle, New York, GO, UT, Series B, 6.15% due 8/15/2018 (c) 1,130
A1+ VMIG1++ 1,500 New York City, New York, Cultural Resource Trust Revenue Bonds
(Solomon R. Guggenheim), VRDN, Series B, 3.90% due 12/01/2015 (a) 1,500
New York City, New York, GO, UT:
BBB+ Baa1 10,000 Series F, 6.625% due 2/15/2014 10,157
AAA Aaa 2,660 Series J, 6% due 2/15/2005 (c) 2,832
BBB+ Baa1 5,450 Series K, 6.25% due 4/01/2016 5,334
AAA Aaa 5,000 New York City, New York, IDA, Civic Facilities Revenue Bonds
(USTA National Tennis Center Project), 6.375% due 11/15/2014 (f) 5,220
New York City, New York, Municipal Water Finance Authority, Water
and Sewer System Revenue Bonds:
AAA Aaa 1,760 Series A, 7% due 6/15/2001 (b)(g) 1,962
AAA Aaa 2,480 Series A-1994, 7% due 6/15/2015 (b) 2,678
AAA Aaa 9,000 Series B, 5.50% due 6/15/2019 (c) 8,473
A1+ VMIG1++ 200 VRDN, Series C, 4% due 6/15/2022 (a)(b) 200
AAA VMIG1++ 1,600 VRDN, Series C, 4% due 6/15/2023 (a)(b) 1,600
New York State Dormitory Authority Revenue Bonds:
AAA Aaa 3,640 (City University), 6.25% due 7/01/2020 (d) 3,776
AAA Aaa 2,825 (Consolidated City University System), Second Generation
Series A, 5.75% due 7/01/2013 (b) 2,834
AAA Aaa 7,000 (Consolidated City University System), Third Generation Reserves,
Series 1, 5.375% due 7/01/2025 (d) 6,418
AAA Aaa 1,000 (Consolidated City University System), Third Generation Reserves,
Series 2, 6.875% due 7/01/2014 (c) 1,084
A1+ VMIG1++ 1,400 (Cornell University), VRDN, Series B, 4.10% due 7/01/2025 (a) 1,400
BBB Baa1 5,000 (Department of Health), 5.75% due 7/01/2017 4,636
AAA Aaa 3,650 (Mount Sinai School of Medicine), Series A, 5% due 7/01/2016 (c) 3,246
AAA Aaa 6,000 (Mount Sinai School of Medicine), Series A, 5.15% due 7/01/2024 (c) 5,370
AAA Aaa 1,750 Refunding (Mount Sinai School of Medicine), 6.75% due 7/01/2009 (c) 1,912
BBB+ Baa1 2,000 Refunding (State University Educational Facilities), Series B, 7%
due 5/15/2016 2,121
AAA Aaa 1,050 (Saint John's University), 6.875% due 7/01/2011 (d) 1,133
New York State Energy Research and Development Authority, Facilities
Revenue Bonds (Consolidated Edison Company Inc.), AMT, Series A:
AAA Aaa 4,450 6.75% due 1/15/2027 (c) 4,650
AAA Aaa 3,250 6.75% due 1/15/2027 (d) 3,396
</TABLE>
F-31
<PAGE> 120
MuniYield New York Insured Fund II, Inc. April 30, 1996
<TABLE>
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
New York (concluded)
<S> <S> <C> <S> <C>
AAA Aaa $ 10,000 New York State Energy Research and Development Authority, Gas
Facilities Revenue Bonds (Brooklyn Union Gas Company), AMT, Series A,
6.75% due 2/01/2024 (c) $ 10,571
A1+ NR* 200 New York State Environmental Facilities Corporation, Resource Recovery
Revenue Bonds (OFS Equity Huntington Project), VRDN, AMT, 4.10% due
11/01/2014 (a) 200
AAA Aaa 1,325 New York State Environmental Facilities Corporation, Water Facilities
Revenue Bonds (New Rochelle Water Company Inc. Project), AMT, 6.40%
due 12/01/2024 (d) 1,348
New York State Local Government Assistance Corporation, VRDN (a):
A1+ VMIG1++ 7,000 Series B, 4.10% due 4/01/2025 7,000
A1+ VMIG1++ 5,500 Series F, 3.90% due 4/01/2025 5,500
New York State Medical Care Facilities Finance Agency Revenue Bonds:
AAA Aaa 2,330 (Mental Health), Series F, 6.50% due 8/15/2012 (f) 2,442
AAA Aaa 3,390 (Montefiore Medical Center), Series A, 5.75% due 2/15/2025 (d)(e) 3,265
AAA Aaa 6,250 (New York Hospital Mortgage), Series A, 6.80% due 8/15/2024 (d)(e) 6,699
AAA Aaa 8,500 (New York Hospital Mortgage), Series A, 6.50% due 8/15/2029 (d)(e) 8,835
AAA Aaa 5,200 Refunding (Hospital and Nursing Home), Series C, 6.375% due 8/15/2029 (c) 5,370
AAA Aaa 7,125 New York State Thruway Authority, General Revenue Bonds, Series B, 5%
due 1/01/2020 (c) 6,246
New York State Thruway Authority, Highway and Bridge Trust Fund:
AAA Aaa 7,500 Series B, 5.125% due 4/01/2015 (c) 6,842
AAA Aaa 8,000 UT, Series B, 6.25% due 4/01/2012 (b) 8,429
AAA Aaa 8,675 New York State Urban Development Corporation, Revenue Refunding Bonds
(Correctional Facilities), 5.375% due 1/01/2012 (c) 8,367
North Hempstead, New York, Refunding, Series B, UT (b):
AAA Aaa 1,745 6.40% due 4/01/2013 1,896
AAA Aaa 555 6.40% due 4/01/2017 595
Port Authority of New York and New Jersey, Consolidated Revenue Bonds:
AA- A1 5,000 72nd Series, 7.35% due 10/01/2002 (g) 5,735
AAA Aaa 5,000 104th Series, Third Installment, 4.75% due 1/15/2026 (d) 4,162
Syracuse, New York, COP, Revenue Bonds (Syracuse Hancock International
Airport), AMT (b):
AAA Aaa 3,650 6.625% due 1/01/2012 3,795
AAA Aaa 3,120 6.50% due 1/01/2017 3,191
A1+ VMIG1++ 2,400 Syracuse, New York, IDA, Civic Facility Revenue Bonds (Multi-Modal
Syracuse University Project), VRDN, 3.90% due 3/01/2023 (a) 2,400
Triborough Bridge and Tunnel Authority, New York, Special Obligation
Refunding Bonds:
AAA Aaa 6,575 6.25% due 1/01/2012 (d) 6,821
AAA Aaa 2,000 Series B, 6.875% due 1/01/2015 (c) 2,151
Total Investments (Cost--$223,919)--100.9% 229,742
Liabilities in Excess of Other Assets--(0.9%) (2,121)
--------
Net Assets--100.0% $227,621
========
<FN>
(a)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, 1996.
(b)FGIC Insured.
(c)MBIA Insured.
(d)AMBAC Insured.
(e)FHA Insured.
(f)FSA Insured.
(g)Prerefunded.
*Not Rated.
++Highest short-term rating by Moody's Investors Service, Inc.
See Notes to Financial Statements.
</TABLE>
F-32
<PAGE> 121
MuniYield New York Insured Fund II, Inc. April 30, 1996
FINANCIAL INFORMATION
<TABLE>
Statement of Assets, Liabilities and Capital as of April 30, 1996
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$223,918,739) (Note 1a) $229,741,844
Receivables:
Securities sold $ 14,099,097
Interest 3,726,356 17,825,453
------------
Deferred organization expenses (Note 1e) 11,523
Prepaid registration fees and other assets 9,630
------------
Total assets 247,588,450
------------
Liabilities: Payables:
Securities purchased 19,479,545
Dividends to shareholders (Note 1f) 290,321
Investment adviser (Note 2) 99,931 19,869,797
------------
Accrued expenses and other liabilities 97,955
------------
Total liabilities 19,967,752
------------
Net Assets: Net assets $227,620,698
============
Capital: Capital Stock (200,000,000 shares authorized) (Note 4):
Preferred Stock, par value $.10 per share (2,800 shares
of AMPS* issued and outstanding at $25,000 per liquidation
preference) $ 70,000,000
Common Stock, par value $.10 per share (11,114,832 shares
issued and outstanding) $ 1,111,483
Paid-in capital in excess of par 154,792,338
Undistributed investment income--net 825,026
Accumulated realized capital losses on investments--net
(Note 5) (4,931,254)
Unrealized appreciation on investments--net 5,823,105
------------
Total--Equivalent to $14.18 net asset value per share of
Common Stock (market price--$13.125) 157,620,698
------------
Total capital $227,620,698
============
<FN>
*Auction Market Preferred Stock.
See Notes to Financial Statements.
</TABLE>
F-33
<PAGE> 122
MuniYield New York Insured Fund II, Inc. April 30, 1996
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Operations
<CAPTION>
For the Six Months Ended
April 30, 1996
<S> <S> <C> <C>
Investment Income Interest and amortization of premium and discount earned $ 6,667,867
(Note 1d):
Expenses: Investment advisory fees (Note 2) $ 582,804
Commission fees (Note 4) 88,965
Professional fees 40,793
Accounting services (Note 2) 28,451
Transfer agent fees 25,427
Printing and shareholder reports 24,753
Listing fees 12,344
Directors' fees and expenses 11,990
Custodian fees 6,660
Pricing fees 4,782
Amortization of organization expenses (Note 1e) 3,482
Other 7,519
------------
Total expenses 837,970
------------
Investment income--net 5,829,897
------------
Realized & Realized gain on investments--net 510,550
Unrealized Gain Change in unrealized appreciation on investments--net (5,506,942)
(Loss) on ------------
Investments--Net Net Increase in Net Assets Resulting from Operations $ 833,505
(Notes 1b, ============
1d & 3):
See Notes to Financial Statements.
</TABLE>
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
For the Six For the
Months Ended Year Ended
April 30, October 31,
Increase (Decrease) in Net Assets: 1996 1995
<S> <S> <C> <C>
Operations: Investment income--net $ 5,829,897 $ 11,832,196
Realized gain (loss) on investments--net 510,550 (3,600,834)
Change in unrealized appreciation/depreciation on investments
--net (5,506,942) 20,296,119
------------ ------------
Net increase in net assets resulting from operations 833,505 28,527,481
------------ ------------
Dividends to Investment income--net:
Shareholders Common Stock (4,574,298) (9,302,093)
(Note 1f): Preferred Stock (1,293,264) (2,547,832)
------------ ------------
Net decrease in net assets resulting from dividends
to shareholders (5,867,562) (11,849,925)
------------ ------------
Net Assets: Total increase (decrease) in net assets (5,034,057) 16,677,556
Beginning of period 232,654,755 215,977,199
------------ ------------
End of period* $227,620,698 $232,654,755
============ ============
<FN>
*Undistributed investment income--net $ 825,026 $ 862,691
============ ============
See Notes to Financial Statements.
</TABLE>
F-34
<PAGE> 123
MuniYield New York Insured Fund II, Inc. April 30, 1996
FINANCIAL INFORMATION (concluded)
<TABLE>
Financial Highlights
<CAPTION>
For the For the Period
The following per share data and ratios have been derived Six Months June 26,
from information provided in the financial statements. Ended 1992++ to
April 30, For the Year Ended October 31, Oct. 31,
Increase (Decrease) in Net Asset Value: 1996 1995 1994 1993 1992
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 14.63 $ 13.13 $ 15.89 $ 13.43 $ 14.18
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .52 1.07 1.07 1.11 .27
Realized and unrealized gain (loss) on
investments--net (.44) 1.50 (2.76) 2.46 (.66)
-------- -------- -------- -------- --------
Total from investment operations .08 2.57 (1.69) 3.57 (.39)
-------- -------- -------- -------- --------
Less dividends and distributions to
Common Stock shareholders:
Investment income--net (.41) (.84) (.87) (.91) (.18)
Realized gain on investments--net -- -- (.01) -- --
-------- -------- -------- -------- --------
Total dividends and distributions to
Common Stock shareholders (.41) (.84) (.88) (.91) (.18)
-------- -------- -------- -------- --------
Capital charge resulting from issuance
of Common Stock -- -- -- -- (.03)
-------- -------- -------- -------- --------
Effect of Preferred Stock activity:++++
Dividends and distributions to Preferred
Stock shareholders:
Investment income--net (.12) (.23) (.19) (.20) (.02)
Realized gain on investments--net -- -- (.00)+++++ -- --
Capital charge resulting from issuance of
Preferred Stock -- -- -- -- (.13)
-------- -------- -------- -------- --------
Total effect of Preferred Stock activity (.12) (.23) (.19) (.20) (.15)
-------- -------- -------- -------- --------
Net asset value, end of period $ 14.18 $ 14.63 $ 13.13 $ 15.89 $ 13.43
======== ======== ======== ======== ========
Market price per share, end of period $ 13.125 $ 13.25 $ 11.00 $ 15.25 $ 13.75
======== ======== ======== ======== ========
Total Investment Based on market price per share 2.11%+++ 28.61% (22.96%) 17.90% (7.17%)+++
Return:** ======== ======== ======== ======== ========
Based on net asset value per share (0.09%)+++ 18.96% (11.75%) 25.77% (4.09%)+++
======== ======== ======== ======== ========
Ratios to Average Expenses, net of reimbursement .72%* .74% .74% .62% .13%*
Net Assets:*** ======== ======== ======== ======== ========
Expenses .72%* .74% .74% .70% .68%*
======== ======== ======== ======== ========
Investment income--net 4.98%* 5.27% 5.09% 5.25% 5.05%*
======== ======== ======== ======== ========
Supplemental Net assets, net of Preferred Stock, end
Data: of period(in thousands) $157,621 $162,655 $145,977 $176,595 $146,633
======== ======== ======== ======== ========
Preferred Stock outstanding, end of
period (in thousands) $ 70,000 $ 70,000 $ 70,000 $ 70,000 $ 70,000
======== ======== ======== ======== ========
Portfolio turnover 76.12% 110.76% 36.79% 3.33% 19.40%
======== ======== ======== ======== ========
Leverage: Asset coverage per $1,000 $ 3,252 $ 3,324 $ 3,085 $ 3,523 $ 3,095
======== ======== ======== ======== ========
Dividends Investment income--net $ 462 $ 910 $ 759 $ 809 $ 92
Per Share ======== ======== ======== ======== ========
On Preferred
Stock
Outstanding:++++++
<FN>
++Commencement of Operations.
++++The Fund's Preferred Stock was issued on September 16, 1992.
++++++Dividends per share have been adjusted to reflect a two-for-
one stock split that occurred on December 1, 1994.
+++Aggregate total investment return.
+++++Amount is less than $.01 per share.
*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.
</TABLE>
F-35
<PAGE> 124
MuniYield New York Insured Fund II, Inc. April 30, 1996
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
MuniYield New York Insured Fund II, Inc. (the "Fund") is registered
under the Investment Company Act of 1940 as a non-diversified,
closed-end management investment company. These unaudited financial
statements reflect all adjustments which are, in the opinion of
management, necessary to a fair statement of the results for the
interim period presented. All such adjustments are of a normal
recurring nature. The Fund determines and makes available for
publication the net asset value of its Common Stock on a weekly
basis. The Fund's Common Stock is listed on the New York Stock
Exchange under the symbol MYT. The following is a summary of
significant accounting policies followed by the Fund.
(a) Valuation of investments--Municipal bonds are traded primarily
in the over-the-counter markets and are valued at the most recent
bid price or yield equivalent as obtained by the Fund's pricing
service from dealers that make markets in such securities. Financial
futures contracts and options thereon, which are traded on
exchanges, are valued at their closing prices as of the close of
such exchanges. Options, which are traded on exchanges, are valued
at their last sale price as of the close of such exchanges or,
lacking any sales, at the last available bid price. Securities with
remaining maturities of sixty days or less are valued at amortized
cost, which approximates market value. Securities for which market
quotations are not readily available are valued at their fair value
as determined in good faith by or under the direction of the Board
of Directors of the Fund, including valuations furnished by a
pricing service retained by the Fund, which may utilize a matrix
system for valuations. The procedures of the pricing service and its
valuations are reviewed by the officers of the Fund under the
general supervision of the Board of Directors.
(b) Derivative financial instruments--The Fund may engage in various
portfolio strategies to seek to increase its return by hedging its
portfolio against adverse movements in the debt markets. Losses may
arise due to changes in the value of the contract
or if the counterparty does not perform under the contract.
* Financial futures contracts--The Fund may purchase or sell
interest rate 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
F-36
<PAGE> 125
MuniYield New York Insured Fund II, Inc. April 30, 1996
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 five-year period.
(f) Dividends and distributions--Dividends from net investment
income are declared and paid monthly. Distributions of capital gains
are recorded on the ex-dividend dates.
2. Investment Advisory Agreement and
Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with Fund
Asset Management, L.P. ("FAM"). The general partner of FAM is
Princeton Services, Inc. ("PSI"), an indirect wholly-owned
subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is the
limited partner.
FAM is responsible for the management of the Fund's portfolio and
provides the 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.
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, Merrill Lynch, Pierce, Fenner & Smith Inc.
("MLPF&S"), and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the six months ended April 30, 1996 were $169,530,640 and
$171,674,292, respectively.
Net realized and unrealized gains as of April 30, 1996 were as
follows:
Realized Unrealized
Gains Gains
Long-term investments $ 77,525 $5,823,105
Financial futures contracts 433,025 --
---------- ----------
Total $ 510,550 $5,823,105
========== ==========
As of April 30, 1996, net unrealized appreciation for Federal income
tax purposes aggregated $5,823,105, of which $7,336,234 related to
appreciated securities and $1,513,129 related to depreciated
securities. The aggregate cost of investments as of April 30, 1996
for Federal income tax purposes was $223,918,739.
4. Capital Stock Transactions:
The Fund is authorized to issue 200,000,000 shares of capital stock,
including Preferred Stock, par value $.10 per share, all of which
were initially classified as Common Stock. The Board of Directors is
authorized, however, to reclassify any unissued shares of capital
stock without approval of the holders of Common Stock.
Common Stock
For the six months ended April 30, 1996, shares issued and
outstanding remained constant at 11,114,832. At April 30, 1996,
total paid-in capital amounted to $155,903,821.
Preferred Stock
Auction Market Preferred Stock ("AMPS") are shares of Preferred
Stock of the Fund 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, 1996 was 3.85%.
As of April 30, 1996, there were 2,800 AMPS shares authorized,
issued and outstanding with a liquidation preference of $25,000 per
share, plus accumulated and unpaid dividends of $14,768.
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, 1996, MLPF&S, an affiliate of FAM, earned $58,275 as
commissions.
5. Capital Loss Carryforward:
At October 31, 1995, the Fund had a net capital loss carryforward of
approximately $3,616,000, of which $1,841,000 expires in 2002 and
$1,775,000 expires in 2003. This amount will be available to offset
like amounts of any future taxable gains.
6. Subsequent Event:
On May 10, 1996, the Fund's Board of Directors declared an ordinary
income dividend to Common Stock shareholders in the amount of
$0.066419 per share, payable on May 30, 1996 to shareholders of
record as of May 21, 1996.
F-37
<PAGE> 126
AUDITED FINANCIAL STATEMENTS FOR MUNIYIELD NEW YORK INSURED III
FOR THE FISCAL YEAR ENDED OCTOBER 31, 1995
F-38
<PAGE> 127
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Board of Directors,
MuniYield New York Insured Fund III, Inc.
We have audited the accompanying statement of assets, liabilities and capital of
MuniYield New York Insured Fund III, Inc., including the schedule of
investments, as of October 31, 1995, and the related statement of operations for
the year then ended, the statement 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. Our procedures included confirmation of securities owned as of
October 31, 1995 by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
MuniYield New York Insured Fund III, Inc. at October 31, 1995, 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 4, 1995
F-39
<PAGE> 128
MuniYield New York Insured Fund III, Inc. October 31, 1995
<TABLE>
SCHEDULE OF INVESTMENTS (in Thousands)
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
New York--99.2%
<S> <S> <C> <S> <C>
AAA Aaa $1,250 Buffalo and Fort Erie, New York, Public Bridge Authority, Toll Bridge System
Revenue Bonds, 5.75% due 1/01/2025 (d) $ 1,253
AAA Aaa 2,070 Metropolitan Transportation Authority, New York, Commuter Facilities Revenue
Bonds, Series A, 6.375% due 7/01/2018 (d) 2,194
AAA Aaa 5,650 Metropolitan Transportation Authority, New York, Transportation Facilities
Revenue Bonds, Series J, 6.375% due 7/01/2010 (c) 6,073
AAA Aaa 2,000 Monroe County, New York, Public Improvement, GO, UT, 6.15% due 6/01/2018 (b) 2,097
AAA Aaa 1,005 Mount Sinai, New York, Union Free School District, Refunding, GO, UT,
6.20% due 2/15/2019 (b) 1,094
AAA Aaa 2,500 New York City, New York, IDA, Civic Facilities Revenue Bonds (USTA National
Tennis Center Project), 6.375% due 11/15/2014 (g) 2,647
A1+ NR* 400 New York City, New York, IDA, IDR (Japan Airlines Company Ltd. Project), VRDN,
AMT, 4.10% due 11/01/2015 (a) 400
AAA Aaa 2,500 New York City, New York, Municipal Water Finance Authority, Water and Sewer
System Revenue Bonds, Series B, 5.50% due 6/15/2019 (d) 2,448
New York State Dormitory Authority Revenue Bonds:
AAA Aaa 1,000 (City University), Second Generation, Series A, 5.75% due 7/01/2018 (e) 1,011
AAA Aaa 4,250 (City University), Third Generation Reserves, Series 2, 6.875% due 7/01/2014 (d) 4,698
BBB+ Baa1 1,000 Refunding (State University Educational Facilities), Series A, 6% due 5/15/2025 988
AAA Aaa 3,000 (Saint Vincent's Hospital and Medical Center), 5.80% due 8/01/2025 (b)(f) 2,987
BBB- Baa1 2,000 (Upstate Community Colleges), Series A, 6.25% due 7/01/2025 2,014
AAA Aaa 2,500 New York State Energy, Research and Development Authority, Facilities Revenue
Bonds (Con Edison Company Inc.), AMT, Series A, 6.75% due 1/15/2027 (d) 2,622
AAA Aaa 2,000 New York State Energy, Research and Development Authority, Gas Facilities Revenue
Bonds (Brooklyn Union Gas Company), AMT, Series A, 6.75% due 2/01/2024 (d) 2,134
</TABLE>
PORTFOLIO ABBREVIATIONS
To simplify the listings of MuniYield New York Insured Fund III,
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)
GO General Obligation Bonds
HFA Housing Finance Agency
IDA Industrial Development Authority
IDR Industrial Development Revenue Bonds
M/F Multi-Family
PCR Pollution Control Revenue Bonds
UT Unlimited Tax
VRDN Variable Rate Demand Notes
F-40
<PAGE> 129
MuniYield New York Insured Fund III, Inc. October 31, 1995
<TABLE>
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
New York (concluded)
<S> <S> <C> <S> <C>
New York State Energy, Research and Development Authority, PCR, VRDN (a):
A1+ NR* $ 900 (Niagara Mohawk Power Corporation Project), Series A, 3.85% due 7/01/2015 $ 900
A1+ VMIG1++ 1,100 Refunding (New York State Electric and Gas Company), Series C, 3.60% due 6/01/2029 1,100
AAA Aaa 2,500 New York State HFA, M/F Housing Secured Mortgage Revenue Bonds, AMT, Series A,
6.30% due 8/15/2026 (b) 2,550
BBB Baa1 2,500 New York State HFA, Service Contract Obligation Revenue Bonds, Series A, 5.50%
due 9/15/2022 2,300
New York State Medical Care Facilities, Finance Agency Revenue Bonds:
AAA Aaa 1,000 (Long-Term Health Care), Series A, 6.80% due 11/01/2014 (e) 1,087
AAA Aaa 1,865 (Long-Term Health Care), Series B, 6.45% due 11/01/2014 (e) 1,961
AAA Aaa 3,000 (Mental Health), Series E, 6.50% due 8/15/2015 (e) 3,199
AAA Aaa 2,000 (Mental Health), Series F, 6.50% due 8/15/2012 (e) 2,122
AAA Aaa 1,500 (Mental Health Services Facilities), Series E, 6.25% due 8/15/2019 (e) 1,538
AAA Aaa 6,000 (Montefiore Medical Center), Series A, 5.75% due 2/15/2025 (b)(f) 5,924
AAA Aaa 2,000 (New York Hospital Mortgage), Series A, 6.80% due 8/15/2024 (b)(f) 2,183
AAA Aaa 1,250 (New York Hospital Mortgage), Series A, 6.50% due 8/15/2029 (b)(f) 1,330
AAA Aaa 3,000 New York State Thruway Authority, General Revenue Bonds (Highway and Bridge Trust
Fund), UT, Series B, 6.25% due 4/01/2012 (c) 3,172
New York State Urban Development Corporation Revenue Bonds:
AAA Aaa 3,000 (Correctional Facilities), Series 5, 5.50% due 1/01/2025 (d) 2,927
BBB Baa1 3,000 Refunding (Correctional Facilities), 5.50% due 1/01/2015 2,804
BBB Baa1 2,000 Refunding (Onondaga County Convention Project), 6.25% due 1/01/2020 2,013
AA- A1 3,000 Port Authority of New York and New Jersey, Consolidated Revenue Bonds, 72nd Series,
7.35% due 10/01/2027 3,435
Triborough Bridge and Tunnel Authority, New York, Special Obligation Revenue Bonds:
AAA Aaa 1,500 Refunding, Series A, 6.625% due 1/01/2017 (d) 1,617
A1+ VMIG1++ 200 VRDN, 3.70% due 1/01/2024 (a)(c) 200
Total Investments (Cost--$73,225)--99.2% 77,022
Other Assets Less Liabilities--0.8% 632
-------
Net Assets--100.0% $77,654
=======
<FN>
(a)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, 1995.
(b)AMBAC Insured.
(c)FGIC Insured.
(d)MBIA Insured.
(e)CGIC Insured.
(f)FHA Insured.
(g)FSA Insured.
*Not Rated.
++Highest short-term rating by Moody's Investors Service, Inc.
Ratings of issues shown have not been audited by Ernst & Young LLP.
See Notes to Financial Statements.
</TABLE>
F-41
<PAGE> 130
MuniYield New York Insured Fund III, Inc. October 31, 1995
FINANCIAL INFORMATION
<TABLE>
Statement of Assets, Liabilities and Capital as of October 31, 1995
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$73,225,476) (Note 1a) $ 77,022,092
Cash 81,224
Interest receivable 1,196,612
Deferred organization expenses (Note 1e) 15,279
Prepaid expenses and other assets 4,205
------------
Total assets 78,319,412
------------
Liabilities: Payables:
Securities purchased $ 479,583
Dividends to shareholders (Note 1f) 97,010
Investment adviser (Note 2) 33,886 610,479
------------
Accrued expenses and other liabilities 55,261
------------
Total liabilities 665,740
------------
Net Assets: Net assets $ 77,653,672
============
Capital: Capital Stock (200,000,000 shares authorized) (Note 4):
Preferred Stock, par value $.10 per share (1,000 shares of
AMPS* issued and outstanding at $25,000 per share liquidation
preference) $ 25,000,000
Common Stock, par value $.10 per share (3,688,900 shares
issued and outstanding) $ 368,890
Paid-in capital in excess of par 51,141,408
Undistributed investment income--net 314,421
Accumulated realized capital losses on investments--net (Note 5) (2,967,663)
Unrealized appreciation on investments--net 3,796,616
------------
Total--Equivalent to $14.27 net asset value per share of
Common Stock (market price--$12.375) 52,653,672
------------
Total capital $ 77,653,672
============
<FN>
*Auction Market Preferred Stock.
See Notes to Financial Statements.
</TABLE>
F-42
<PAGE> 131
MuniYield New York Insured Fund III, Inc. October 31, 1995
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Operations
<CAPTION>
For the Year Ended
October 31, 1995
<S> <S> <C> <C>
Investment Income Interest and amortization of premium and discount earned $ 4,416,520
(Note 1d):
Expenses: Investment advisory fees (Note 2) $ 374,464
Professional fees 78,090
Commission fees (Note 4) 64,916
Transfer agent fees 40,338
Printing and shareholder reports 35,404
Accounting services (Note 2) 32,737
Directors' fees and expenses 21,468
Listing fees 16,902
Amortization of organization expenses (Note 1e) 7,338
Custodian fees 5,343
Pricing fees 4,736
Other 9,329
------------
Total expenses 691,065
------------
Investment income--net 3,725,455
------------
Realized & Realized loss on investments--net (1,996,988)
Unrealized Gain Change in unrealized appreciation/depreciation on investments--net 7,339,389
(Loss) on ------------
Investments Net Increase in Net Assets Resulting from Operations $ 9,067,856
- --Net (Notes 1b, ============
1d & 3):
See Notes to Financial Statements.
</TABLE>
F-43
<PAGE> 132
MuniYield New York Insured Fund III, Inc. October 31, 1995
FINANCIAL INFORMATION (continued)
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
For the Year Ended
October 31,
Increase (Decrease) in Net Assets: 1995 1994
<S> <S> <C> <C>
Operations: Investment income--net $ 3,725,455 $ 3,802,637
Realized loss on investments--net (1,996,988) (970,676)
Change in unrealized appreciation/depreciation on
investments--net 7,339,389 (8,602,309)
------------ ------------
Net increase (decrease) in net assets resulting from
operations 9,067,856 (5,770,348)
------------ ------------
Dividends & Investment income--net:
Distributions to Common Stock (2,771,523) (3,157,490)
Shareholders Preferred Stock (944,040) (624,540)
(Note 1f): Realized gain on investments--net:
Common Stock -- (285,706)
Preferred Stock -- (33,255)
------------ ------------
Net decrease in net assets resulting from dividends and
distributions to shareholders (3,715,563) (4,100,991)
------------ ------------
Capital Stock Value of shares issued to Common Stock shareholders in
Transactions reinvestment of dividends and distributions -- 197,662
(Notes 1e & 4): Offering costs resulting from the issuance of Preferred Stock -- (29,641)
------------ ------------
Net increase in net assets derived from capital stock
transactions -- 168,021
------------ ------------
Net Assets: Total increase (decrease) in net assets 5,352,293 (9,703,318)
Beginning of year 72,301,379 82,004,697
------------ ------------
End of year* $ 77,653,672 $ 72,301,379
============ ============
<FN>
*Undistributed investment income--net $ 314,421 $ 304,529
============ ============
See Notes to Financial Statements.
</TABLE>
F-44
<PAGE> 133
MuniYield New York Insured Fund III, Inc. October 31, 1995
FINANCIAL INFORMATION (concluded)
<TABLE>
Financial Highlights
<CAPTION>
For the
Period
The following per share data and ratios have been derived Nov. 27,
from information provided in the financial statements. For the Year Ended 1992++ to
October 31, Oct. 31,
Increase (Decrease) in Net Asset Value: 1995 1994 1993
<S> <S> <C> <C> <C>
Per Share Net asset value, beginning of period $ 12.82 $ 15.51 $ 14.18
Operating -------- -------- --------
Performance: Investment income--net 1.02 1.03 .85
Realized and unrealized gain (loss) on
investments--net 1.44 (2.59) 1.45
-------- -------- --------
Total from investment operations 2.46 (1.56) 2.30
-------- -------- --------
Less dividends and distributions to Common Stock
shareholders:
Investment income--net (.75) (.86) (.68)
Realized gain on investments--net -- (.08) --
-------- -------- --------
Total dividends and distributions to Common Stock
shareholders (.75) (.94) (.68)
-------- -------- --------
Capital charge resulting from issuance of
Common Stock -- -- (.05)
-------- -------- --------
Effect of Preferred Stock activity:++++
Dividends and distributions to Preferred Stock
shareholders:
Investment income--net (.26) (.17) (.09)
Realized gain on investments--net -- (.01) --
Capital charge resulting from issuance of
Preferred Stock -- (.01) (.15)
-------- -------- --------
Total effect of Preferred Stock activity (.26) (.19) (.24)
-------- -------- --------
Net asset value, end of period $ 14.27 $ 12.82 $ 15.51
======== ======== ========
Market price per share, end of period $ 12.375 $ 10.625 $ 15.00
======== ======== ========
Total Investment Based on market price per share 23.93% (24.11%) 4.69%+++
Return:** ======== ======== ========
Based on net asset value per share 18.44% (11.44%) 14.51%+++
======== ======== ========
Ratios to Average Expenses, net of reimbursement .92% .88% .55%*
Net Assets:*** ======== ======== ========
Expenses .92% .88% .87%*
======== ======== ========
Investment income--net 4.98% 4.88% 4.86%*
======== ======== ========
Supplemental Net assets, net of Preferred Stock, end of
Data: period (in thousands) $ 52,654 $ 47,301 $ 57,005
======== ======== ========
Preferred Stock outstanding, end of period
(in thousands) $ 25,000 $ 25,000 $ 25,000
======== ======== ========
Portfolio turnover 176.98% 65.22% 11.06%
======== ======== ========
Dividends Per Investment income--net $ 944 $ 625 $ 325
Share on
Preferred Stock
Outstanding:++++++
<FN>
*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.
++Commencement of Operations.
++++The Fund's Preferred Stock was issued on March 25, 1993.
++++++Dividends per share have been adjusted to reflect a two-for-
one stock split.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
F-45
<PAGE> 134
MuniYield New York Insured Fund III, Inc. October 31, 1995
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
MuniYield New York Insured Fund III, Inc. (the "Fund") is registered
under the Investment Company Act of 1940 as a non-diversified,
closed-end management investment company. The Fund determines and
makes available for publication the net asset value of its Common
Stock on a weekly basis. The Fund's Common Stock is listed on the
New York Stock Exchange under the symbol MYY. 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, which are traded on exchanges, are valued
at their last sale price as of the close of such exchanges or,
lacking any sales, at the last available bid price. Securities with
remaining maturities of sixty days or less are valued at amortized
cost, which approximates market value. Securities for which market
quotations are not readily available are valued at their fair value
as determined in good faith by or under the direction of the Board
of Directors of the Fund, including valuations furnished by a
pricing service retained by the Fund, which may utilize a matrix
system for valuations. The procedures of the pricing service and its
valuations are reviewed by the officers of the Fund under the
general supervision of the Board of Directors.
(b) Derivative financial instruments--The Fund may engage in various
portfolio strategies to seek to increase its return by hedging its
portfolio against adverse movements in the debt markets. Losses may
arise due to changes in the value of the contract or if the
counterparty does not perform under the contract.
* Financial futures contracts--The Fund may purchase or sell
interest rate 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 and offering expenses--Deferred
organization expenses are amortized on a straight-line basis over a
five-year period.
F-46
<PAGE> 135
MuniYield New York Insured Fund III, Inc. October 31, 1995
Direct expenses relating to the public offering of
the Common and Preferred Stock were charged to capital at the time
of issuance.
(f) Dividends and distributions--Dividends from net investment
income are declared and paid monthly. Distributions of capital gains
are recorded on the ex-dividend dates.
2. Investment Advisory Agreement and
Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with Fund
Asset Management, L.P. ("FAM"). The general partner of FAM is
Princeton Services, Inc. ("PSI"), an indirect wholly-owned
subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is the
limited partner.
FAM is responsible for the management of the Fund's portfolio and
provides the 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.
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, Merrill Lynch, Pierce, Fenner & Smith Inc.
("MLPF&S"), and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the year ended October 31, 1995 were $125,994,076 and
$121,287,588, respectively.
Net realized and unrealized gains (losses) as of October 31,1995
were as follows:
Realized Unrealized
Losses Gains
Long-term investments $(1,440,405) $ 3,796,616
Short-term investments (645) --
Financial futures contracts (555,938) --
----------- -----------
Total $(1,996,988) $ 3,796,616
=========== ===========
As of October 31, 1995, net unrealized appreciation for Federal
income tax purposes aggregated $3,796,616, of which $3,798,974
related to appreciated securities and $2,358 related to depreciated
securities. The aggregate cost of investments at October 31, 1995
for Federal income tax purposes was $73,225,476.
4. Capital Stock Transactions:
The Fund is authorized to issue 200,000,000 shares of capital stock,
including Preferred Stock, par value $.10 per share, all of which
were initially classified as Common Stock. The Board of Directors is
authorized, however, to reclassify any unissued shares of capital
stock without approval of the holders of Common Stock.
Common Stock
For the year ended October 31, 1995, shares issued and outstanding
remained constant at 3,688,900. As of October 31, 1995, total paid-
in capital amounted to $51,510,298.
Preferred Stock
Auction Market Preferred Stock ("AMPS") are shares of Preferred
Stock of the Fund 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, 1995 was
3.745%.
A two-for-one stock split occurred on December 1, 1994. As a result,
as of October 31, 1995, there were 1,000 AMPS shares authorized,
issued and outstanding with a liquidation preference of $25,000 per
share, plus accumulated and unpaid dividends of $51,300.
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, 1995, MLPF&S, an affiliate of FAM, earned $50,359 as
commissions.
5. Capital Loss Carryforward:
At October 31, 1995, the Fund had a capital loss carryforward of
approximately $2,576,000, of which $971,000 expires in 2002 and
$1,605,000 expires in 2003. This amount will be available to offset
like amounts of any future taxable gains.
6. Subsequent Event:
On November 13, 1995, the Fund's Board of Directors declared an
ordinary income dividend to Common Stock shareholders in the amount
of $0.066621 per share, payable on November 29, 1995 to shareholders
of record as of November 24, 1995.
F-47
<PAGE> 136
UNAUDITED FINANCIAL STATEMENTS FOR MUNIYIELD NEW YORK INSURED III
FOR THE SIX-MONTH PERIOD ENDED APRIL 30, 1996
F-48
<PAGE> 137
MuniYield New York Insured Fund III, Inc. April 30, 1996
<TABLE>
SCHEDULE OF INVESTMENTS (in Thousands)
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
New York--98.6%
<S> <S> <C> <S> <C>
AAA Aaa $1,625 Battery Park City Authority, New York, Revenue Refunding Bonds, Senior
Series A, 5.25% due 11/01/2017 (d) $1,477
AAA Aaa 1,250 Buffalo and Fort Erie, New York, Public Bridge Authority, Toll Bridge
System Revenue Bonds, 5.75% due 1/01/2025 (d) 1,216
AAA Aaa 2,070 Metropolitan Transportation Authority, New York, Commuter Facilities
Revenue Bonds, Series A, 6.375% due 7/01/2018 (d) 2,135
AAA Aaa 5,650 Metropolitan Transportation Authority, New York, Transportation Facilities
Revenue Bonds, Series J, 6.375% due 7/01/2010 (c) 5,915
AAA Aaa 2,000 Monroe County, New York, Public Improvement, GO, UT, 6.15% due 6/01/2018 (b) 2,054
AAA Aaa 1,005 Mount Sinai, New York, Union Free School District, Refunding, GO, UT,
6.20% due 2/15/2019 (b) 1,059
New York City, New York, IDA, Civic Facilities Revenue Bonds:
A1+ NR* 2,900 (National Audobon Society), 4.10% due 12/01/2014 2,900
AAA Aaa 2,500 (USTA National Tennis Center Project), 6.375% due 11/15/2014 (f) 2,610
New York City, New York, Municipal Water Finance Authority, Water and
Sewer System Revenue Bonds:
AAA Aaa 3,000 Series B, 5.375% due 6/15/2019 (d) 2,771
A1+ VMIG1++ 200 VRDN, Series C, 4% due 6/15/2022 (a)(c) 200
New York State Dormitory Authority Revenue Bonds:
AAA Aaa 4,250 (City University), Third Generation Reserves, Series 2, 6.875%
due 7/01/2014 (d) 4,608
AAA Aaa 2,000 (Consolidated City University Systems), Second Generation, Series A,
5.375% due 7/01/2014 (c) 1,890
AAA Aaa 1,000 (Consolidated City University Systems), Second Generation, Series A,
5.75% due 7/01/2018 (f) 980
BBB Baa1 1,000 (Department of Health), 5.75% due 7/01/2017 927
AAA Aaa 3,000 (Mount Sinai School of Medicine), Series A, 5% due 7/01/2016 (d) 2,668
AAA Aaa 1,000 Refunding (Colgate University), 6% due 7/01/2016 (d) 1,028
AAA Aaa 3,000 (Saint Vincent's Hospital and Medical Center), 5.80% due 8/01/2025 (b)(g) 2,905
BBB- Baa1 2,500 (Upstate Community Colleges), Series A, 5.70% due 7/01/2021 2,291
AAA Aaa 2,500 New York State Energy Research and Development Authority, Facilities
Revenue Bonds (Consolidated Edison Company Inc.), AMT, Series A, 6.75%
due 1/15/2027 (d) 2,612
AAA Aaa 2,000 New York State Energy Research and Development Authority, Gas Facilities
Revenue Bonds (Brooklyn Union Gas Company), AMT, Series A, 6.75% due
2/01/2024 (d) 2,114
A1+ NR* 200 New York State Environmental Facilities Corporation, Resource Recovery
Revenue Bonds (OFS Equity Huntington Project), VRDN, AMT, 4.10% due
11/01/2014 (a) 200
AAA Aaa 1,000 New York State HFA, M/F Housing Secured Mortgage Revenue Bonds, AMT,
Series A, 6.30% due 8/15/2026 (b) 1,008
</TABLE>
PORTFOLIO ABBREVIATIONS
To simplify the listings of MuniYield New York Insured Fund III,
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)
GO General Obligation Bonds
HFA Housing Finance Agency
IDA Industrial Development Authority
M/F Multi-Family
UT Unlimited Tax
VRDN Variable Rate Demand Notes
F-49
<PAGE> 138
MuniYield New York Insured Fund III, Inc. April 30, 1996
<TABLE>
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
New York (concluded)
<S> <S> <C> <S> <C>
A1+ VMIG1++ $2,200 New York State Local Government Assistance Corporation, VRDN, Series F,
3.90% due 4/01/2025 (a) $ 2,200
New York State Medical Care Facilities, Finance Agency Revenue Bonds:
AAA Aaa 3,000 (Mental Health), Series E, 6.50% due 8/15/2015 (f) 3,123
AAA Aaa 2,000 (Mental Health), Series F, 6.50% due 8/15/2012 (f) 2,096
AAA Aaa 1,500 (Mental Health Services Facilities), Series E, 6.25% due 8/15/2019 (f) 1,530
AAA Aaa 2,000 (New York Hospital Mortgage), Series A, 6.80% due 8/15/2024 (b)(g) 2,144
AAA Aaa 1,250 (New York Hospital Mortgage), Series A, 6.50% due 8/15/2029 (b)(g) 1,299
AAA Aaa 3,000 New York State Thruway Authority, Highway and Bridge Trust Fund, UT,
Series B, 6.25% due 4/01/2012 (c) 3,161
New York State Urban Development Corporation Revenue Bonds:
AAA Aaa 5,000 (Correctional Capital Facilities), Series 5, 5.50% due 1/01/2025 (d) 4,666
BBB Baa1 3,000 Refunding (Correctional Facilities), Series 6, 5.375% due 1/01/2025 2,619
AA- A1 3,000 Port Authority of New York and New Jersey, Consolidated Revenue Bonds,
72nd Series, 7.35% due 10/01/2002 (e) 3,441
A1+ VMIG1++ 200 Port Authority of New York and New Jersey, Special Obligation Revenue
Bonds (Versatile Structure Obligation), VRDN, AMT, Series 1, 4.10% due
8/01/2028 (a) 200
Triborough Bridge and Tunnel Authority, New York, Special Obligation
Revenue Refunding Bonds:
AAA Aaa 1,500 Series A, 6.625% due 1/01/2017 (d) 1,589
AAA Aaa 1,000 Series B, 6.875% due 1/01/2015 (c) 1,075
Total Investments (Cost--$73,109)--98.6% 74,711
Other Assets Less Liabilities--1.4% 1,099
--------
Net Assets--100.0% $ 75,810
========
<FN>
(a)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, 1996.
(b)AMBAC Insured.
(c)FGIC Insured.
(d)MBIA Insured.
(e)Prerefunded.
(f)FSA Insured.
(g)FHA Insured.
*Not Rated.
++Highest short-term rating by Moody's Investors Service, Inc.
See Notes to Financial Statements.
</TABLE>
F-50
<PAGE> 139
MuniYield New York Insured Fund III, Inc. April 30, 1996
FINANCIAL INFORMATION
<TABLE>
Statement of Assets, Liabilities and Capital as of April 30, 1996
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$73,108,897) (Note 1a) $ 74,711,195
Cash 44,535
Receivables:
Securities sold $ 2,658,875
Interest 1,243,452 3,902,327
------------
Deferred organization expenses (Note 1e) 15,279
Prepaid expenses and other assets 4,610
------------
Total assets 78,677,946
------------
Liabilities: Payables:
Securities purchased 2,683,933
Dividends to shareholders (Note 1f) 92,725
Investment adviser (Note 2) 33,324 2,809,982
------------
Accrued expenses and other liabilities 57,846
------------
Total liabilities 2,867,828
------------
Net Assets: Net assets $ 75,810,118
============
Capital: Capital Stock (200,000,000 shares authorized) (Note 4):
Preferred Stock, par value $.10 per share (1,000 shares
of AMPS* issued and outstanding at $25,000 per share
liquidation preference) $ 25,000,000
Common Stock, par value $.10 per share (3,688,900 shares
issued and outstanding) $ 368,890
Paid-in capital in excess of par 51,141,408
Undistributed investment income--net 263,067
Accumulated realized capital losses on investments--net
(Note 5) (2,565,545)
Unrealized appreciation on investments--net 1,602,298
------------
Total--Equivalent to $13.77 net asset value per share of
Common Stock (market price--$12.125) 50,810,118
------------
Total capital $ 75,810,118
============
<FN>
*Auction Market Preferred Stock.
See Notes to Financial Statements.
</TABLE>
F-51
<PAGE> 140
MuniYield New York Insured Fund III, Inc. April 30, 1996
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Operations
<CAPTION>
For the Six Months Ended April 30, 1996
<S> <S> <C> <C>
Investment Income Interest and amortization of premium and discount earned $ 2,216,153
(Note 1d): ------------
Expenses: Investment advisory fees (Note 2) $ 194,621
Professional fees 40,536
Commission fees (Note 4) 31,546
Printing and shareholder reports 17,701
Transfer agent fees 16,447
Accounting services (Note 2) 15,975
Directors' fees and expenses 11,457
Listing fees 8,198
Amortization of organization expenses (Note 1e) 3,674
Custodian fees 2,486
Pricing fees 2,362
Other 5,751
------------
Total expenses 350,754
------------
Investment income--net 1,865,399
------------
Realized & Realized gain on investments--net 402,118
Unrealized Change in unrealized appreciation on investments--net (2,194,318)
Gain (Loss) ------------
on Investments Net Increase in Net Assets Resulting from Operations $ 73,199
- --Net (Notes 1b, ============
1d & 3):
See Notes to Financial Statements.
</TABLE>
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
For the Six For the
Months Ended Year Ended
Increase (Decrease) in Net Assets: April 30, 1996 Oct. 31, 1995
<S> <S> <C> <C>
Operations: Investment income--net $ 1,865,399 $ 3,725,455
Realized gain (loss) on investments--net 402,118 (1,996,988)
Change in unrealized appreciation/depreciation on
investments--net (2,194,318) 7,339,389
------------ ------------
Net increase in net assets resulting from operations 73,199 9,067,856
------------ ------------
Dividends to Investment income--net:
Shareholders Common Stock (1,433,753) (2,771,523)
(Note 1f): Preferred Stock (483,000) (944,040)
------------ ------------
Net decrease in net assets resulting from dividends to
shareholders (1,916,753) (3,715,563)
------------ ------------
Net Assets: Total increase (decrease) in net assets (1,843,554) 5,352,293
Beginning of period 77,653,672 72,301,379
------------ ------------
End of period* $ 75,810,118 $ 77,653,672
============ ============
<FN>
*Undistributed investment income--net $ 263,067 $ 314,421
============ ============
See Notes to Financial Statements.
</TABLE>
F-52
<PAGE> 141
MuniYield New York Insured Fund III, Inc. April 30, 1996
FINANCIAL INFORMATION (concluded)
<TABLE>
Financial Highlights
<CAPTION>
For the For the
Six Period
The following per share data and ratios have been derived Months Nov. 27,
from information provided in the financial statements. Ended For the Year Ended 1992++ to
April 30, October 31, Oct. 31,
Increase (Decrease) in Net Asset Value: 1996 1995 1994 1993
<S> <S> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 14.27 $ 12.82 $ 15.51 $ 14.18
Operating -------- -------- -------- --------
Performance: Investment income--net .50 1.02 1.03 .85
Realized and unrealized gain (loss) on
investments--net (.48) 1.44 (2.59) 1.45
-------- -------- -------- --------
Total from investment operations .02 2.46 (1.56) 2.30
-------- -------- -------- --------
Less dividends and distributions to Common Stock
shareholders:
Investment income--net (.39) (.75) (.86) (.68)
Realized gain on investments--net -- -- (.08) --
-------- -------- -------- --------
Total dividends and distributions to Common Stock
shareholders (.39) (.75) (.94) (.68)
-------- -------- -------- --------
Capital charge resulting from issuance of
Common Stock -- -- -- (.05)
-------- -------- -------- --------
Effect of Preferred Stock activity:++++
Dividends and distributions to Preferred
Stock shareholders:
Investment income--net (.13) (.26) (.17) (.09)
Realized gain on investments--net -- -- (.01) --
Capital charge resulting from issuance
of Preferred Stock -- -- (.01) (.15)
-------- -------- -------- --------
Total effect of Preferred Stock activity (.13) (.26) (.19) (.24)
-------- -------- -------- --------
Net asset value, end of period $ 13.77 $ 14.27 $ 12.82 $ 15.51
======== ======== ======== ========
Market price per share, end of period $ 12.125 $ 12.375 $ 10.625 $ 15.00
======== ======== ======== ========
Total Investment Based on market price per share .96%+++ 23.93% (24.11%) 4.69%+++
Return:** ======== ======== ======== ========
Based on net asset value per share (.57%)+++ 18.44% (11.44%) 14.51%+++
======== ======== ======== ========
Ratios to Average Expenses, net of reimbursement .90%* .92% .88% .55%*
Net Assets:*** ======== ======== ======== ========
Expenses .90%* .92% .88% .87%*
======== ======== ======== ========
Investment income--net 4.78%* 4.98% 4.88% 4.86%*
======== ======== ======== ========
Supplemental Net assets, net of Preferred Stock, end
Data: of period (in thousands) $ 50,810 $ 52,654 $ 47,301 $ 57,005
======== ======== ======== ========
Preferred Stock outstanding, end of period
(in thousands) $ 25,000 $ 25,000 $ 25,000 $ 25,000
======== ======== ======== ========
Portfolio turnover 66.37% 176.98% 65.22% 11.06%
======== ======== ======== ========
Leverage: Asset coverage per $1,000 $ 3,032 $ 3,106 $ 2,892 $ 3,280
======== ======== ======== ========
Dividends Per Investment income--net $ 483 $ 944 $ 625 $ 325
Share on ======== ======== ======== ========
Preferred Stock
Outstanding:++++++
<FN>
*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.
++Commencement of Operations.
++++The Fund's Preferred Stock was issued on March 25, 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.
See Notes to Financial Statements.
</TABLE>
F-53
<PAGE> 142
MuniYield New York Insured Fund III, Inc. April 30, 1996
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
MuniYield New York Insured Fund III, Inc. (the "Fund") is registered
under the Investment Company Act of 1940 as a non-diversified,
closed-end management investment company. 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 MYY. 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, which are traded on exchanges, are valued
at their last sale price as of the close of such exchanges or,
lacking any sales, at the last available bid price. Securities with
remaining maturities of sixty days or less are valued at amortized
cost, which approximates market value. Securities for which market
quotations are not readily available are valued at their fair value
as determined in good faith by or under the direction of the Board
of Directors of the Fund, including valuations furnished by a
pricing service retained by the Fund, which may utilize a matrix
system for valuations. The procedures of the pricing service and its
valuations are reviewed by the officers of the Fund under the
general supervision of the Board of Directors.
(b) Derivative financial instruments--The Fund may engage in various
portfolio strategies to seek to increase its return by hedging its
portfolio against adverse movements in the debt markets. Losses may
arise due to changes in the value of the contract or if the
counterparty does not perform under the contract.
* Financial futures contracts--The Fund may purchase or sell
interest rate 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
F-54
<PAGE> 143
MuniYield New York Insured Fund III, Inc. April 30, 1996
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 five-year period.
(f) Dividends and distributions--Dividends from net investment
income are declared and paid monthly. Distributions of capital gains
are recorded on the ex-dividend dates.
2. Investment Advisory Agreement and
Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with Fund
Asset Management, L.P. ("FAM"). The general partner of FAM is
Princeton Services, Inc. ("PSI"), an indirect wholly-owned
subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is the
limited partner.
FAM is responsible for the management of the Fund's portfolio and
provides the 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.
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, Merrill Lynch, Pierce, Fenner & Smith Inc.
("MLPF&S"), and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the six months ended April 30, 1996 were $47,482,276 and
$51,028,279, respectively.
Net realized and unrealized gains as of April 30, 1996 were as
follows:
Realized Unrealized
Gains Gains
Long-term investments $ 355,193 $ 1,602,298
Financial futures contracts 46,925 --
------------ ------------
Total $ 402,118 $ 1,602,298
============ ============
As of April 30, 1996, net unrealized appreciation for Federal income
tax purposes aggregated $1,602,298, of which $2,216,622 related to
appreciated securities and $614,324 related to depreciated
securities. The aggregate cost of investments at April 30, 1996 for
Federal income tax purposes was $73,108,897.
4. Capital Stock Transactions:
The Fund is authorized to issue 200,000,000 shares of capital stock,
including Preferred Stock, par value $.10 per share, all of which
were initially classified as Common Stock. The Board of Directors is
authorized, however, to reclassify any unissued shares of capital
stock without approval of the holders of Common Stock.
Common Stock
For the six months ended April 30, 1996, shares issued and
outstanding remained constant at 3,688,900. As of April 30, 1996,
total paid-in capital amounted to $51,510,298.
Preferred Stock
Auction Market Preferred Stock ("AMPS") are shares of Preferred
Stock of the Fund 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, 1996 was 3.77%.
As of April 30, 1996, there were 1,000 AMPS shares authorized,
issued and outstanding with a liquidation preference of $25,000 per
share.
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, 1996, MLPF&S, an affiliate of FAM, earned $25,068 as
commissions.
5. Capital Loss Carryforward:
At October 31, 1995, the Fund had a net capital loss carryforward of
approximately $2,576,000, of which $971,000 expires in 2002 and
$1,605,000 expires in 2003. This amount will be available to offset
like amounts of any future taxable gains.
6. Subsequent Event:
On May 10, 1996, the Fund's Board of Directors declared an ordinary
income dividend to Common Stock shareholders in the amount of
$0.062407 per share, payable on May 30, 1996 to shareholders of
record as of May 21, 1996.
F-55
<PAGE> 144
UNAUDITED FINANCIAL STATEMENTS FOR THE COMBINED FUND
ON A PRO FORMA BASIS AS OF APRIL 30, 1996
F-56
<PAGE> 145
The following unaudited pro forma Combined Schedule of Investments as of
April 30, 1996, represents a combining of the portfolios of each of the Funds as
of that date. No adjustments were required to arrive at the Pro Forma for
Combined Fund values. For additional information about the holdings of each Fund
see the Schedule of Investments for each of the Funds as of April 30, 1996
contained in this Joint Proxy Statement and Prospectus as follows: MuniVest New
York Insured (pages F-13 to F-14); MuniYield New York Insured II (pages F-31 to
F-32) and MuniYield New York Insured III (pages F-49 to F-50).
COMBINED SCHEDULE OF INVESTMENTS
MUNIVEST NEW YORK INSURED
MUNIYIELD NEW YORK INSURED II
MUNIYIELD NEW YORK INSURED III
SCHEDULE OF INVESTMENTS (UNAUDITED)
APRIL 30, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
MUNIYIELD PRO FORMA
NEW YORK MUNIYIELD MUNIVEST FOR
INSURED NEW YORK NEW YORK COMBINED
New York -- 102.1% II INSURED III INSURED FUND
- -----------------------------------------------------------------------------------------------------------
TOTAL FACE
AMOUNT ISSUE VALUE VALUE VALUE VALUE
- -----------------------------------------------------------------------------------------------------------
Battery Park City Authority, New York,
Revenue Refunding Bonds Senior Series A:
$ 5,625 5.25% due 11/01/2017(d)................. $ 3,636 $ 1,477 $ -- $ 5,113
2,000 5.70% due 11/01/2020(d)................. -- -- 1,926 1,926
1,250 Buffalo and Fort Erie, New York, Public
Bridge
Authority, Toll Bridge System Revenue
Bonds, 5.75% due 1/01/2025(d)........... -- 1,216 -- 1,216
2,400 Clifton Park, New York, Water Authority,
Water System Revenue Bonds, Series A,
6.375% due 10/01/2002(c)(e)............. -- -- 2,652 2,652
Metropolitan Transportation Authority, New
York, Commuter Facilities Revenue Bonds:
3,500 (Grand Central Terminal), Series 1,
5.70% due 7/01/2024(f)............... -- -- 3,372 3,372
2,990 Refunding, Series A, 6.125% due
7/01/2012(d)......................... -- -- 3,076 3,076
10,000 Refunding, Series B, 6.25% due
7/01/2017(d)......................... 10,282 -- -- 10,282
8,650 Refunding, Series B, 6.25% due
7/01/2022(d)......................... 8,877 -- -- 8,877
2,070 Series A, 6.375% due 7/01/2018(d)....... -- 2,135 -- 2,135
</TABLE>
F-57
<PAGE> 146
COMBINED SCHEDULE OF INVESTMENTS
MUNIVEST NEW YORK INSURED
MUNIYIELD NEW YORK INSURED II
MUNIYIELD NEW YORK INSURED III
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
MUNIYIELD PRO FORMA
NEW YORK MUNIYIELD MUNIVEST FOR
INSURED NEW YORK NEW YORK COMBINED
New York -- 102.1% II INSURED III INSURED FUND
- -----------------------------------------------------------------------------------------------------------
TOTAL FACE
AMOUNT ISSUE VALUE VALUE VALUE VALUE
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Metropolitan Transportation Authority, New
York, Transportation Facilities Revenue
Bonds:
$ 5,500 Refunding, Series O, 6% due
7/01/2024(d)......................... $ 5,520 $ -- $ -- $ 5,520
5,650 Series J, 6.375% due 7/01/2010(c)....... -- 5,915 -- 5,915
5,000 Series O, 6.375% due 7/01/2020(d)....... -- -- 5,152 5,152
Monroe County, New York, Public
Improvement, UT(b):
1,850 6.15% due 6/01/2016..................... 1,918 -- -- 1,918
1,000 6.15% due 6/01/2017..................... 1,027 -- -- 1,027
2,000 GO, 6.15% due 6/01/2018................. -- 2,054 -- 2,054
1,005 Mount Sinai, New York, Union Free School
District, Refunding, GO, UT, 6.20% due
2/15/2019(b)............................ -- 1,059 -- 1,059
Nassau County, New York, GO, UT,
Series P(c):
3,250 6.50% due 11/01/2010.................... 3,560 -- -- 3,560
3,685 6.50% due 11/01/2011.................... -- -- 4,026 4,026
1,100 New Rochelle, New York, GO, UT, Series B,
6.15% due 8/15/2018(c).................. 1,130 -- -- 1,130
2,000 New York City, New York, Educational
Construction Fund Revenue Bonds, Senior
Sub-Series B, 5.625% due 4/01/2013(d)... -- -- 1,973 1,973
New York City, New York, GO, UT:
2,660 Series J, 6% due 2/15/2005(d)........... 2,832 -- -- 2,832
10,000 Series F, 6.625% due 2/15/2014.......... 10,157 -- -- 10,157
5,450 Series K, 6.25% due 4/01/2016........... 5,334 -- -- 5,334
</TABLE>
F-58
<PAGE> 147
COMBINED SCHEDULE OF INVESTMENTS
MUNIVEST NEW YORK INSURED
MUNIYIELD NEW YORK INSURED II
MUNIYIELD NEW YORK INSURED III
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
MUNIYIELD PRO FORMA
NEW YORK MUNIYIELD MUNIVEST FOR
INSURED NEW YORK NEW YORK COMBINED
New York -- 102.1% II INSURED III INSURED FUND
- -----------------------------------------------------------------------------------------------------------
TOTAL FACE
AMOUNT ISSUE VALUE VALUE VALUE VALUE
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
New York City, New York IDA, Civic
Facilities Revenue Bonds:
$ 2,900 (National Audubon Society), CP, 4.10%
due 12/01/2014....................... $ -- $ 2,900 $ -- $ 2,900
12,500 (USTA National Tennis Center Project),
6.375% due 11/15/2014(f)............. 5,220 2,610 5,220 13,050
New York City, New York, Municipal Water
Finance Authority, Water and Sewer
System Revenue Bonds:
1,760 Series A, 7% due 6/15/2001(c)(e)........ 1,962 -- -- 1,962
2,480 Series A-1994, 7% due 6/15/2015(c)...... 2,678 -- -- 2,678
5,000 Series B, 5.375% due 6/15/2019(d)....... -- 2,771 1,847 4,618
2,340 Series B, 5.50% due 6/15/2019(b)........ -- -- 2,203 2,203
12,000 Series B, 5.50% due 6/15/2019(d)........ 8,473 -- 2,824 11,297
3,900 VRDN, Series A, 4.20% due
6/15/2025(a)(c)...................... -- -- 3,900 3,900
400 VRDN, Series C, 4% due 6/15/2022(a)(c).. 200 200 -- 400
2,570 VRDN, Series C, 4% due 6/15/2023(a)(c).. 1,600 -- 970 2,570
6,800 VRDN, Series G, 4.10% due
6/15/2024(a)(c)...................... -- -- 6,800 6,800
New York City, New York, Trust Cultural
Resource Revenue Bonds (Solomon R.
Guggenheim), VRDN, Series B(a):
1,500 3.90% due 12/01/2015.................... 1,500 -- -- 1,500
3,700 4.10% due 12/01/2015.................... -- -- 3,700 3,700
New York City, New York, UT, Series B
(Fiscal 92):
5,000 7.50% due 2/01/2006..................... -- -- 5,480 5,480
2,000 7% due 2/01/2017(b)....................... -- -- 2,171 2,171
</TABLE>
F-59
<PAGE> 148
COMBINED SCHEDULE OF INVESTMENTS
MUNIVEST NEW YORK INSURED
MUNIYIELD NEW YORK INSURED II
MUNIYIELD NEW YORK INSURED III
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
MUNIYIELD PRO FORMA
NEW YORK MUNIYIELD MUNIVEST FOR
INSURED NEW YORK NEW YORK COMBINED
New York -- 102.1% II INSURED III INSURED FUND
- -----------------------------------------------------------------------------------------------------------
TOTAL FACE
AMOUNT ISSUE VALUE VALUE VALUE VALUE
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 2,000 7% due 2/01/2018(b)....................... $ -- $ -- $ 2,171 $ 2,171
10,080 New York City, New York, UT, Series C,
Sub-Series C-1, 6.375% due
8/01/2002(d)(e)......................... -- -- 11,092 11,092
New York State Dormitory Authority Revenue
Bonds:
3,640 (City University), 6.25% due
7/01/2020(b)............................ 3,776 -- -- 3,776
2,000 (Consolidated City University System),
Second Generation, Series A, 5.375%
due 7/01/2014........................ -- 1,890 -- 1,890
1,000 (Consolidated City University System),
Second Generation, Series A, 5.75%
due 7/01/2018(g)..................... -- 980 -- 980
7,000 (Consolidated City University System),
Third Generation Reserves, Series 1,
5.375% due 7/01/2025(b).............. 6,418 -- -- 6,418
11,165 (Consolidated City University System),
Third Generation Reserves, Series 2,
6.875% due 7/01/2014(d).............. 1,084 4,608 6,414 12,106
2,825 (Consolidated City University System),
Second Generation, Series A, 5.75%
due 7/01/2013(c)..................... 2,834 -- -- 2,834
4,500 (Cornell University), VRDN, Series B,
4.10% due 7/01/2025(a)............... 1,400 -- 3,100 4,500
11,000 (Department of Health), 5.75% due
7/01/2017............................ 4,636 927 4,636 10,199
6,650 (Mount Sinai School of Medicine), Series
A, 5% due 7/01/2016(d)............... 3,246 2,668 -- 5,914
6,000 (Mount Sinai School of Medicine), Series
A, 5.15% due 7/01/2024(d)............ 5,370 -- -- 5,370
1,000 Refunding (Colgate University), 6% due
7/01/2016(d)......................... -- 1,028 -- 1,028
</TABLE>
F-60
<PAGE> 149
COMBINED SCHEDULE OF INVESTMENTS
MUNIVEST NEW YORK INSURED
MUNIYIELD NEW YORK INSURED II
MUNIYIELD NEW YORK INSURED III
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
MUNIYIELD PRO FORMA
NEW YORK MUNIYIELD MUNIVEST FOR
INSURED NEW YORK NEW YORK COMBINED
New York -- 102.1% II INSURED III INSURED FUND
- -----------------------------------------------------------------------------------------------------------
TOTAL FACE
AMOUNT ISSUE VALUE VALUE VALUE VALUE
- -----------------------------------------------------------------------------------------------------------
$ 1,750 Refunding (Mount Sinai School of
Medicine), 6.75% due 7/01/2009(c).... $ 1,912 $ -- $ -- $ 1,912
1,500 Refunding (State University Educational
Facilities), Series A, 5.50% due
5/15/2010(c)......................... -- -- 1,496 1,496
4,500 Refunding (State University Educational
Facilities), Series A, 5.875% due
5/15/2011(c)......................... -- -- 4,627 4,627
2,000 Refunding (State University Educational
Facilities), Series B, 7% due
5/15/2016............................ 2,121 -- -- 2,121
1,050 (Saint John's University), 6.875% due
7/01/2011(b)......................... 1,133 -- -- 1,133
1,380 (State University Educational
Facilities), Series A, 5.875% due
5/15/2011(b)......................... -- -- 1,419 1,419
7,315 (Saint Vincent's Hospital and Medical
Center), 5.80% due 8/01/2025(b)(h)... -- 2,905 4,179 7,084
2,500 (Upstate Community Colleges), Series A,
5.70% due 7/01/2021.................. -- 2,291 -- 2,291
New York State Energy Research and
Development Authority, Gas Facilities
Revenue Bonds, AMT:
12,000 (Brooklyn Union Gas Company), Series A,
6.75% due 2/01/2024(d)............... 10,571 2,114 -- 12,685
5,000 (Brooklyn Union Gas Company), Series B,
6.75% due 2/01/2024(d)............... -- -- 5,286 5,286
3,250 (Consolidated Edison Company Inc.),
Series A, 6.75% due 1/15/2027(b)..... 3,396 -- -- 3,396
6,950 (Consolidated Edison Company, Inc.),
Series A, 6.75% due 1/15/2027(d)..... 4,650 2,612 -- 7,262
</TABLE>
F-61
<PAGE> 150
COMBINED SCHEDULE OF INVESTMENTS
MUNIVEST NEW YORK INSURED
MUNIYIELD NEW YORK INSURED II
MUNIYIELD NEW YORK INSURED III
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
MUNIYIELD PRO FORMA
NEW YORK MUNIYIELD MUNIVEST FOR
INSURED NEW YORK NEW YORK COMBINED
New York -- 102.1% II INSURED III INSURED FUND
- -----------------------------------------------------------------------------------------------------------
TOTAL FACE
AMOUNT ISSUE VALUE VALUE VALUE VALUE
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 400 New York State Environmental Facilities
Corporation, Resource Recovery Revenue
Bonds (OFS Equity Huntington Project),
VRDN, AMT, 4.10% due 11/01/2014(a)...... $ 200 $ 200 $ -- $ 400
1,325 New York State Environmental Facilities
Corporation, Water Facilities Revenue
Bonds (New Rochelle Water Company, Inc.
Project), AMT, 6.40% due
12/01/2024(b)........................... 1,348 -- -- 1,348
1,000 New York State HFA, M/F Housing Secured
Mortgage Revenue Bonds, AMT, Series A,
6.30% due 8/15/2026(b).................. -- 1,008 -- 1,008
5,910 New York State HFA, Service Contract
Obligation Revenue Bonds, Series A,
5.50% due 9/15/2022..................... -- -- 5,243 5,243
New York State Local Government Assistance
Corporation, VRDN (a):
9,000 Series B, 4.10% due 4/01/2025........... 7,000 -- 2,000 9,000
7,700 Series F, 3.90% due 4/01/2025........... 5,500 2,200 -- 7,700
New York State Medical Care Facilities
Finance Agency Revenue Bonds:
3,000 (Mental Health), Series E, 6.50% due
8/15/2015(f)......................... -- 3,123 -- 3,123
1,500 (Mental Health Services Facilities),
Series E, 6.25% due 8/15/2019(f)..... -- 1,530 -- 1,530
4,330 (Mental Health), Series F, 6.50% due
8/15/2012(f)......................... 2,442 2,096 -- 4,538
3,390 (Montefiore Medical Center), Series A,
5.75% due 2/15/2025(d)(e)............ 3,265 -- -- 3,265
12,850 (New York Hospital Mortgage), Series A,
6.80% due 8/15/2024(b)(h)............ 6,699 2,144 4,930 13,773
</TABLE>
F-62
<PAGE> 151
COMBINED SCHEDULE OF INVESTMENTS
MUNIVEST NEW YORK INSURED
MUNIYIELD NEW YORK INSURED II
MUNIYIELD NEW YORK INSURED III
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
MUNIYIELD PRO FORMA
NEW YORK MUNIYIELD MUNIVEST FOR
INSURED NEW YORK NEW YORK COMBINED
New York -- 102.1% II INSURED III INSURED FUND
- -----------------------------------------------------------------------------------------------------------
TOTAL FACE
AMOUNT ISSUE VALUE VALUE VALUE VALUE
- -----------------------------------------------------------------------------------------------------------
$ 11,750 (New York Hospital Mortgage), Series A,
6.50% due 8/15/2029(b)(h)............ $ 8,835 $ 1,299 $ 2,079 $ 12,213
5,200 Refunding (Hospital and Nursing Home),
Series C, 6.375% due 8/15/2029(d).... 5,370 -- -- 5,370
4,000 Refunding (Mental Health Services),
Series F, 5.25% due 2/15/2021(f)..... -- -- 3,591 3,591
7,125 New York State Thruway Authority General
Revenue Bonds, Series B, 5% due
1/01/2020(d)......................... 6,246 -- -- 6,246
New York State Thruway Authority, Highway
and Bridge Trust Fund, Series B:
11,000 UT, 6.25% due 4/01/2012(c).............. 8,429 3,161 -- 11,590
7,500 5.125% due 4/01/2015(d)................. 6,842 -- -- 6,842
4,000 New York State Urban Development
Corporation Revenue Bonds (Sports
Facilities Assistance Program), Series
A, 5.50% due 4/01/2019(d)............... -- -- 3,757 3,757
New York State Urban Development
Corporation Revenue Bonds (Correctional
Facilities):
8,675 Refunding, 5.375% due 1/01/2012(d)...... 8,367 -- -- 8,367
3,000 Refunding, Series 6, 5.375% due
1/01/2025............................ -- 2,619 -- 2,619
6,000 Refunding, Series A, 5% due
1/01/2017(d)......................... -- -- 5,301 5,301
5,000 Series 5, 5.50% due 1/01/2025(d)........ -- 4,666 -- 4,666
1,000 Niagara Falls, New York, Water Treatment
Plant, UT, AMT, 7.25% due
11/01/2010(d)........................... -- -- 1,154 1,154
North Hempstead, New York, Refunding
Bonds, Series B, UT(c):
1,745 6.40% due 4/01/2013....................... 1,896 -- -- 1,896
555 6.40% due 4/01/2017....................... 595 -- -- 595
</TABLE>
F-63
<PAGE> 152
COMBINED SCHEDULE OF INVESTMENTS
MUNIVEST NEW YORK INSURED
MUNIYIELD NEW YORK INSURED II
MUNIYIELD NEW YORK INSURED III
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
MUNIYIELD PRO FORMA
NEW YORK MUNIYIELD MUNIVEST FOR
INSURED NEW YORK NEW YORK COMBINED
New York -- 102.1% II INSURED III INSURED FUND
- -----------------------------------------------------------------------------------------------------------
TOTAL FACE
AMOUNT ISSUE VALUE VALUE VALUE VALUE
- -----------------------------------------------------------------------------------------------------------
Port Authority of New York and New Jersey,
Consolidated Revenue Bonds:
$ 8,000 72nd Series, 7.35% due 10/01/2002......... $ 5,735 $ 3,441 $ -- $ 9,176
3,000 72nd Series, 7.40% due 10/01/2012(e)...... -- -- 3,372 3,372
8,000 104th Series, 3rd Installment, 4.75% due
1/15/2026............................ 4,162 -- 2,497 6,659
200 Port Authority of New York and New Jersey,
Special Obligation Revenue Bonds
(Versatile Structure Obligations), VRDN,
AMT, Series 1, 4.10% due 8/01/2028(a)... -- 200 -- 200
Syracuse, New York, COP, Revenue Bonds
(Syracuse Hancock International
Airport), AMT (c):
3,650 6.625% due 1/01/2012...................... 3,795 -- -- 3,795
3,120 6.50% due 1/01/2017....................... 3,191 -- -- 3,191
Syracuse, New York, IDA, Civic Facility
Revenue Bonds (Multi-Modal -- Syracuse
University Project), VRDN(a):
2,400 3.90% due 3/01/2023....................... 2,400 -- -- 2,400
1,300 4.10% due 3/01/2023....................... -- -- 1,300 1,300
</TABLE>
F-64
<PAGE> 153
COMBINED SCHEDULE OF INVESTMENTS
MUNIVEST NEW YORK INSURED
MUNIYIELD NEW YORK INSURED II
MUNIYIELD NEW YORK INSURED III
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
MUNIYIELD PRO FORMA
NEW YORK MUNIYIELD MUNIVEST FOR
INSURED NEW YORK NEW YORK COMBINED
New York -- 102.1% II INSURED III INSURED FUND
- -----------------------------------------------------------------------------------------------------------
TOTAL FACE
AMOUNT ISSUE VALUE VALUE VALUE VALUE
- -----------------------------------------------------------------------------------------------------------
Triborough Bridge and Tunnel Authority,
New York, Special Obligation Revenue
Refunding Bonds:
$ 6,575 6.25% due 1/01/2012(b).................... $ 6,821 $ -- $ -- $ 6,821
6,975 Series A, 6.625% due 1/01/2017(d)......... -- 1,589 5,798 7,387
5,150 Series B, 6.875% due 1/01/2015(b)......... -- -- 5,537 5,537
1,000 Series B, 6.875% due 1/01/2015(c)......... -- 1,075 -- 1,075
2,000 Series B, 6.875% due 1/01/2015(d)......... 2,151 -- -- 2,151
- -----------------------------------------------------------------------------------------------------------
Total Investments (Cost -- $441,684) --
102.1%.................................. $229,742 $ 74,711 $148,271 $452,724
======== ======== ======== ========
</TABLE>
F-65
<PAGE> 154
COMBINED SCHEDULE OF INVESTMENTS
MUNIVEST NEW YORK INSURED
MUNIYIELD NEW YORK INSURED II
MUNIYIELD NEW YORK INSURED III
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONCLUDED)
APRIL 30, 1996
(IN THOUSANDS)
<TABLE>
<C> <S>
(a) The interest rate is subject to change periodically based upon prevailing market rate.
The interest rate shown is the rate in effect at April 30, 1996.
(b) AMBAC Insured.
(c) FGIC Insured.
(d) MBIA Insured.
(e) Prerefunded.
(f) FSA Insured.
(g) Capital guaranteed.
(h) FHA Insured.
* Not Rated.
+ Highest short-term rating by Moody's Investors Service, Inc.
</TABLE>
To simplify the listings of the combined portfolios' holdings in the schedule of
Investments, we have abbreviated the names of many of the securities according
to the list at right.
<TABLE>
<S> <C>
AMT Alternative Minimum Tax (subject to)
COP Certificates of Participation
CP Commercial Paper
GO General Obligation Bonds
HFA Housing Finance Agency
IDA Industrial Development Authority
M/F Multi-Family
UT Unlimited Tax
VRDN Variable Rate Demand Notes
</TABLE>
F-66
<PAGE> 155
The following unaudited pro forma Combined Statement of Assets, Liabilities
and Capital for the Combined Fund has been derived from the Statements of
Assets, Liabilities and Capital of the Funds at April 30, 1996 and such
information has been adjusted to give effect to the Reorganization as if the
Reorganization had occurred at April 30, 1996. The pro forma Combined Statement
of Assets, Liabilities and Capital is presented for informational purposes only
and does not purport to be indicative of the financial condition that actually
would have resulted if the Reorganization had been consummated at April 30,
1996. 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 this Joint Proxy Statement and Prospectus.
COMBINED STATEMENT OF ASSETS, LIABILITIES AND CAPITAL
AS OF APRIL 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
MUNIYIELD
MUNIYIELD NEW YORK MUNIVEST PRO FORMA
NEW YORK INSURED NEW YORK FOR
INSURED II III INSURED ADJUSTMENTS COMBINED FUND
----------- ---------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Investments, at value...................................... $229,741,844 $74,711,195 $148,271,406 $ 0 $452,724,445
Cash....................................................... 0 44,535 96,615 0 141,150
Receivables:
Interest.................................................. 3,726,356 1,243,452 2,332,396 0 7,302,204
Securities sold........................................... 14,099,097 2,658,875 3,701,344 0 20,459,316
Deferred organization expenses............................. 11,523 15,279 15,660 (30,939) 11,523
Prepaid expenses and other assets.......................... 9,630 4,610 6,404 0 20,644
------------ ----------- ------------ ----------- ------------
Total assets........................................ 247,588,450 78,677,946 154,423,825 (30,939) 480,659,282
------------ ----------- ------------ ----------- ------------
LIABILITIES:
Payables:
Securities purchased...................................... 19,479,545 2,683,933 13,922,234 0 36,085,712
Dividends to shareholders................................. 290,321 92,725 185,827 1,584,658 (1) 2,153,531
Investment adviser........................................ 99,931 33,324 57,767 0 191,022
Accrued expenses and other liabilities..................... 97,955 57,846 69,731 215,000 (2) 440,532
------------ ----------- ------------ ----------- ------------
Total liabilities................................... 19,967,752 2,867,828 14,235,559 1,799,658 38,870,797
------------ ----------- ------------ ----------- ------------
Net Assets................................................. $227,620,698 $75,810,118 $140,188,266 $(1,830,597) $441,788,485
============ =========== ============ =========== ============
CAPITAL:
Capital Stock (200,000,000 shares of each fund authorized;
200,000,000 shares as adjusted); Preferred Stock, par
value $.05 per share (2,800 shares of MuniYield New York
Insured II AMPS,* 1,000 shares of MuniYield New York
Insured III AMPS,* and 1,960 shares of MuniVest New York
Insured AMPS* issued and outstanding at $25,000
liquidation preference; 5,760 shares for the combined fund
as adjusted).............................................. $ 70,000,000 $25,000,000 $ 49,000,000 $ 0 $144,000,000
Common Stock, par value, $.10 per share (11,114,832 shares
of MuniYield New York Insured II Common Stock, 3,688,900
shares of MuniYield New York Insured III Common Stock, and
7,204,432 shares of MuniVest New York Insured Common Stock
issued and outstanding; 21,126,869 shares for the combined
fund as adjusted)......................................... 1,111,483 368,890 720,443 (88,129) 2,112,687
Paid-in-capital in excess of par........................... 154,792,338 51,141,408 100,237,381 (157,810) 306,013,317
Undistributed investment income -- net..................... 825,026 263,067 496,565 (1,584,658) 0
Accumulated realized capital losses on
investments -- net........................................ (4,931,254) (2,565,545) (13,881,399) 0 (21,378,198)
Unrealized appreciation on investments -- net.............. 5,823,105 1,602,298 3,615,276 0 11,040,679
------------ ----------- ------------ ----------- ------------
Total -- Equivalent to $14.18 net asset value per share of
MuniYield New York Insured II Common Stock, $13.77 net
asset value per share of MuniYield New York Insured III
Common Stock, $12.66 net asset value per share of MuniVest
New York Insured Common Stock, and $14.10 net asset value
per share for the combined fund........................... 157,620,698 50,810,118 91,188,266 (1,830,597) 297,788,485
------------ ----------- ------------ ----------- ------------
Total capital.............................................. $227,620,698 $75,810,118 $140,188,266 $(1,830,597) $441,788,485
============ =========== =========== =========== ============
</TABLE>
- ---------------
* Auction Market Preferred Stock (AMPS).
(1) Assumes the distribution of undistributed net investment income.
(2) Reflects the charge for estimated Reorganization expenses of $215,000.
F-67
<PAGE> 156
The following unaudited pro forma combined statement of operations for the
Combined Fund has been derived from the statements of operations of the Funds
for the six months ended April 30, 1996, and such information has been adjusted
to give effect to the Reorganization as if the Reorganization had occurred on
November 1, 1995. The pro forma combined statement of operations is presented
for informational purposes only and does not purport to be indicative of the
results of operations that actually would have resulted if the Reorganization
had been consummated on November 1, 1995 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 this Joint Proxy Statement and Prospectus.
COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED APRIL 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
MUNIYIELD MUNIYIELD MUNIVEST PRO FORMA
NEW YORK NEW YORK NEW YORK FOR
INSURED II INSURED III INSURED ADJUSTMENTS COMBINED FUND
---------- ------------ --------- ------------ -------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest and amortization of
premium and discount
earned....................... $6,667,867 $ 2,216,153 $4,060,417 $ 0 $ 12,944,437
EXPENSES:
Investment advisory fees........ 582,804 194,621 360,184 1,137,609
Commission fees................. 88,965 31,546 61,864 182,375
Transfer agent fees............. 25,427 16,447 17,617 59,491
Professional fees............... 40,793 40,536 39,417 120,746
Accounting services............. 28,451 15,975 15,812 60,238
Directors' fees and expenses.... 11,990 11,457 11,452 34,899
Printing and shareholder
reports...................... 24,753 17,701 19,239 61,693
Custodian fees.................. 6,660 2,486 5,723 14,869
Listing fees.................... 12,344 8,198 8,052 28,594
Pricing fees.................... 4,782 2,362 3,297 10,441
Amortization of organization
expenses..................... 3,482 3,674 3,133 10,289
Other........................... 7,519 5,751 6,943 215,000(1) 235,213
---------- ---------- ---------- --------- ------------
Total expenses.................. 837,970 350,754 552,733 215,000 1,956,457
---------- ---------- ---------- --------- ------------
Investment income -- net........ 5,829,897 1,865,399 3,507,684 (215,000) 10,987,980
---------- ---------- ---------- --------- ------------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS -- NET:
Realized gain on
investments -- net........... 510,550 402,118 1,351,653 2,264,321
Change in unrealized
appreciation on
investments -- net........... (5,506,942) (2,194,318) (4,809,363) (12,510,623)
---------- ---------- ---------- --------- ------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS.... $ 833,505 $ 73,199 $ 49,974 $(215,000) $ 741,678
========== ========== ========== ========= ============
</TABLE>
- ---------------
(1) Reflects the charge for estimated Reorganization expenses of $215,000.
F-68
<PAGE> 157
EXHIBIT I
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as of
the 21st day of August, 1996, by and among MuniVest New York Insured Fund, Inc.,
a Maryland corporation ("MuniVest New York Insured"), MuniYield New York Insured
Fund II, Inc., a Maryland corporation ("MuniYield New York Insured II") and
MuniYield New York Insured Fund III, Inc., a Maryland corporation ("MuniYield
New York Insured III") (MuniVest New York Insured, MuniYield New York Insured II
and MuniYield New York Insured III are sometimes referred to herein collectively
as the "Funds").
PLAN OF REORGANIZATION
The reorganization will comprise (a) the acquisition by MuniYield New York
Insured II of all of the assets, and the assumption by MuniYield New York
Insured II of all of the liabilities, of MuniVest New York Insured in exchange
solely for an equal aggregate value of newly-issued shares of (i) common stock,
par value $.10 per share, of MuniYield New York Insured II ("MuniYield New York
Insured II Common Stock") and (ii) auction market preferred stock, with a
liquidation preference of $25,000 per share plus an amount equal to accumulated
but unpaid dividends thereon (whether or not earned or declared) to be
designated Series B, of MuniYield New York Insured II ("MuniYield New York
Insured II Series B AMPS"), (b) the subsequent distribution to MuniVest New York
Insured stockholders of (x) all of the MuniYield New York Insured II Common
Stock received by MuniVest New York Insured in exchange for their shares of
common stock, par value $.10 per share, of MuniVest New York Insured ("MuniVest
New York Insured Common Stock") and (y) all of the MuniYield New York Insured II
Series B AMPS received by MuniVest New York Insured in exchange for their shares
of auction market preferred stock, 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), of MuniVest New York Insured ("MuniVest New York
Insured AMPS"), (c) the acquisition by MuniYield New York Insured II of all of
the assets, and the assumption by MuniYield New York Insured II of all of the
liabilities, of MuniYield New York Insured III in exchange solely for an equal
aggregate value of newly-issued shares of (i) MuniYield New York Insured II
Common Stock and (ii) auction market preferred stock, with a liquidation
preference of $25,000 per share plus an amount equal to accumulated but unpaid
dividends thereon (whether or not earned or declared) to be designated Series C,
of MuniYield New York Insured II ("MuniYield New York Insured II Series C
AMPS"), (d) the subsequent distribution to MuniYield New York Insured III
stockholders of (x) all of the MuniYield New York Insured II Common Stock
received by MuniYield New York Insured III in exchange for their shares of
common stock, par value $.10 per share, of MuniYield New York Insured III
("MuniYield New York Insured III Common Stock") and (y) all of the MuniYield New
York Insured II Series C AMPS received by MuniYield New York Insured III in
exchange for their shares of auction market preferred stock, 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), of MuniYield New York
Insured III ("MuniYield New York Insured III AMPS"), and (e) the redesignation
of the existing series of auction market preferred stock, 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), of
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MuniYield New York Insured II (the "MuniYield New York Insured II AMPS") as
Series A AMPS, all upon and subject to the terms hereinafter set forth
(collectively, the "Reorganization").
In the course of the Reorganization, MuniYield New York Insured II Common
Stock and MuniYield New York Insured II Series B AMPS will be distributed to
MuniVest New York Insured stockholders as follows: (i) each holder of MuniVest
New York Insured Common Stock will be entitled to receive a number of shares of
MuniYield New York Insured II Common Stock equal to the aggregate net asset
value of the MuniVest New York Insured Common Stock owned by such stockholder on
the Exchange Date (as defined in Section 8(a) of this Agreement); and (ii) each
holder of MuniVest New York Insured AMPS will be entitled to receive a number of
shares of MuniYield New York Insured II Series B AMPS equal to the aggregate
liquidation preference (and aggregate value) of the MuniVest New York Insured
AMPS owned by such stockholder on the Exchange Date. In consideration therefor,
on the Exchange Date MuniYield New York Insured II shall acquire all of the
assets of MuniVest New York Insured and shall assume all of MuniVest New York
Insured's obligations and liabilities then existing, whether absolute, accrued,
contingent or otherwise.
Also in the course of the Reorganization, MuniYield New York Insured II
Common Stock and MuniYield New York Insured II Series C AMPS will be distributed
to MuniYield New York Insured III stockholders as follows: (i) each holder of
MuniYield New York Insured III Common Stock will be entitled to receive a number
of shares of MuniYield New York Insured II Common Stock equal to the aggregate
net asset value of the MuniYield New York Insured III Common Stock owned by such
stockholder on the Exchange Date (as defined in Section 8(a) of this Agreement);
and (ii) each holder of MuniYield New York Insured III AMPS will be entitled to
receive a number of shares of MuniYield New York Insured II Series C AMPS equal
to the aggregate liquidation preference (and aggregate value) of the MuniYield
New York Insured III AMPS owned by such stockholder on the Exchange Date. In
consideration therefor, on the Exchange Date MuniYield New York Insured II shall
acquire all of the assets of MuniYield New York Insured III and shall assume all
of MuniYield New York Insured III's obligations and liabilities then existing,
whether absolute, accrued, contingent or otherwise.
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 New York Insured and MuniYield New
York Insured III shall declare a dividend or dividends which, together with all
such previous dividends, shall have the effect of distributing to their
respective stockholders all of their respective net investment company taxable
income for the period from November 1, 1995 to and including the Exchange Date,
if any (computed without regard to any deduction or dividends paid), and all of
its net capital gain, if any, realized for the period from November 1, 1995 to
and including the Exchange Date. In this regard, the last dividend period for
the MuniVest New York Insured AMPS and MuniYield New York Insured III 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.
Separate Articles of Amendment to the Articles Supplementary establishing
the powers, rights and preferences of the MuniYield New York Insured II AMPS,
redesignating the existing series of MuniYield New York Insured II AMPS as
Series A AMPS, and separate Articles Supplementary to MuniYield
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New York Insured II's Articles of Incorporation establishing the powers, rights
and preferences of the MuniYield New York Insured II Series B AMPS and the
MuniYield New York Insured II Series C AMPS each 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 liquidation of each of MuniVest New
York Insured and MuniYield New York Insured III pursuant to the Reorganization,
each of MuniVest New York Insured and MuniYield New York Insured III shall be
dissolved in accordance with the laws of the State of Maryland and will
terminate its respective registration under the Investment Company Act of 1940,
as amended (the "1940 Act").
AGREEMENT
In order to consummate the Reorganization and in consideration of the
premises and the covenants and agreements hereinafter set forth, and intending
to be legally bound, MuniVest New York Insured, MuniYield New York Insured II
and MuniYield New York Insured III hereby agree as follows:
1. REPRESENTATIONS AND WARRANTIES OF MUNIVEST NEW YORK INSURED.
MuniVest New York Insured represents and warrants to, and agrees with,
MuniYield New York Insured II and MuniYield New York Insured III that:
(a) MuniVest New York Insured is a corporation duly organized, validly
existing and in good standing in conformity with the laws of the State of
Maryland, and has the power to own all of its assets and to carry out this
Agreement. MuniVest New York Insured has all necessary Federal, state and local
authorizations to carry on its business as it is now being conducted and to
carry out this Agreement.
(b) MuniVest New York Insured is duly registered under the 1940 Act as a
non-diversified, closed-end management investment company (File No. 811-7566),
and such registration has not been revoked or rescinded and is in full force and
effect. MuniVest New York Insured has elected and qualified for the special tax
treatment afforded regulated investment companies ("RICs") under Sections
851-855 of the Code at all times since its inception and intends to continue to
so qualify through its final taxable year ending upon liquidation.
(c) As used in this Agreement, the term "MuniVest New York Investments"
shall mean (i) the investments of MuniVest New York Insured shown on the
schedule of its investments as of the Valuation Time furnished to each of
MuniYield New York Insured II and MuniYield New York Insured III; and (ii) all
other assets owned by MuniVest New York Insured or liabilities incurred by
MuniVest New York Insured as of the Valuation Time.
(d) MuniVest New York Insured has full power and authority to enter into
and perform its obligations under this Agreement. The execution, delivery and
performance of this Agreement has been duly authorized by all necessary action
of its Board of Directors, and this Agreement constitutes a valid and binding
contract enforceable in accordance with its terms, subject to the effects of
bankruptcy, insolvency, moratorium, fraudulent conveyance and similar laws
relating to or affecting creditors' rights generally and court decisions with
respect thereto.
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(e) Each of MuniYield New York Insured II and MuniYield New York Insured
III has been furnished with MuniVest New York Insured's Annual Report to
Stockholders for the year ended October 31, 1995, and the audited financial
statements appearing therein, having been examined by Ernst & Young LLP,
independent public accountants, fairly present the financial position of
MuniVest New York Insured as of the respective dates indicated, in conformity
with generally accepted accounting principles applied on a consistent basis.
(f) Each of MuniYield New York Insured II and MuniYield New York Insured
III has been furnished with MuniVest New York Insured's Semi-Annual Report to
Stockholders for the six months ended April 30, 1996, and the unaudited
financial statements appearing therein fairly present the financial position of
MuniVest New York Insured 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
New York Insured and an unaudited schedule of investments of MuniVest New York
Insured, each as of the Valuation Time (as defined in Section 4(d) of this
Agreement) will be furnished to each of MuniYield New York Insured II and
MuniYield New York Insured III at or prior to the Exchange Date for the purpose
of determining the number of shares of MuniYield New York Insured II Common
Stock and MuniYield New York Insured II Series B AMPS to be issued to MuniVest
New York Insured pursuant to Section 5 of this Agreement; and each will fairly
present the financial position of MuniVest New York Insured 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 New York Insured, threatened against
MuniVest New York Insured which assert liability on the part of MuniVest New
York Insured or which materially affect its financial condition or its ability
to consummate the Reorganization. MuniVest New York Insured is not charged with
or, to the best of its knowledge, threatened with any violation or investigation
of any possible violation of any provisions of any Federal, state or local law
or regulation or administrative ruling relating to any aspect of its business.
(i) There are no material contracts outstanding to which MuniVest New York
Insured is a party that have not been disclosed in the N-14 Registration
Statement (as defined in subsection (o) below) or will not otherwise be
disclosed to MuniYield New York Insured II and MuniYield New York Insured III
prior to the Valuation Time.
(j) MuniVest New York Insured is not a party to or obligated under any
provision of its Articles of Incorporation, as amended, or its by-laws, as
amended, or 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 MuniVest New York Insured,
MuniYield New York Insured II and MuniYield New York Insured III 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 New York Insured has no known liabilities of a material
amount, contingent or otherwise, other than those shown on its statements of
assets, liabilities and capital referred to above, those incurred in the
ordinary course of its business as an investment company since April 30, 1996,
and those incurred in connection with the Reorganization. As of the Valuation
Time, MuniVest New York Insured will advise MuniYield New York Insured II and
MuniYield New York Insured III in writing of all known liabilities, contingent
or otherwise, whether or not incurred in the ordinary course of business,
existing or accrued as of such time.
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(l) MuniVest New York Insured 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 New York Insured have adequately been provided for
on its books, and no tax deficiency or liability of MuniVest New York Insured
has been asserted and no question with respect thereto has been raised by the
Internal Revenue Service (the "IRS") 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 New York
Insured will have full right, power and authority to sell, assign, transfer and
deliver the MuniVest New York Investments. At the Exchange Date, subject only to
the delivery of the MuniVest New York Investments as contemplated by this
Agreement, MuniVest New York Insured will have good and marketable title to all
of the MuniVest New York Investments, and MuniYield New York Insured II will
acquire all of the MuniVest New York 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 New York 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 New York
Insured of the Reorganization, except such as may be required under the
Securities Act of 1933, as amended (the "1933 Act"), the Securities Exchange Act
of 1934, as amended (the "1934 Act"), the 1940 Act or state securities laws
(which term as used herein shall include the laws of the District of Columbia
and Puerto Rico).
(o) The registration statement filed by MuniYield New York Insured II on
Form N-14 relating to the MuniYield New York Insured II Common Stock, MuniYield
New York Insured II Series B AMPS and MuniYield New York Insured II Series C
AMPS to be issued pursuant to this Agreement, which includes the joint proxy
statement of MuniVest New York Insured, MuniYield New York Insured II and
MuniYield New York Insured III and the prospectus of MuniYield New York Insured
II with respect to the transactions contemplated herein, and any supplement or
amendment thereto or to the documents therein (as amended, the "N-14
Registration Statement"), on its effective date, at the time of the
stockholders' meetings referred to in Section 7(a) of this Agreement and on the
Exchange Date, insofar as it relates to MuniVest New York Insured (i) complied
or will comply in all material respects with the provisions of the 1933 Act, the
1934 Act and the 1940 Act and the rules and regulations thereunder, and (ii) did
not or will not contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading; and the joint proxy statement and prospectus
included therein did not or will not contain any untrue statement of a material
fact or omit to state any material fact necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; provided, however, that the representations and warranties in this
subsection 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 New York Insured for use in the N-14 Registration
Statement as provided in Section 7(e) of this Agreement.
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(p) MuniVest New York Insured is authorized to issue 200,000,000 shares of
capital stock, of which 1,960 shares have been designated as AMPS, and
199,998,040 shares have been designated as common stock, par value $.10 per
share, each outstanding share of which is fully paid, nonassessable and has full
voting rights.
(q) All of the issued and outstanding shares of MuniVest New York Insured
Common Stock and MuniVest New York Insured AMPS were offered for sale and sold
in conformity with all applicable Federal and state securities laws.
(r) The books and records of MuniVest New York Insured made available to
MuniYield New York Insured II, MuniYield New York Insured III and/or their
counsel are substantially true and correct and contain no material misstatements
or omissions with respect to the operations of MuniVest New York Insured.
(s) MuniVest New York Insured will not sell or otherwise dispose of any of
the shares of MuniYield New York Insured II Common Stock or MuniYield New York
Insured II Series B AMPS to be received in the Reorganization, except in
distribution to the stockholders of MuniVest New York Insured as provided in
Section 5 of this Agreement.
2. REPRESENTATIONS AND WARRANTIES OF MUNIYIELD NEW YORK INSURED II.
MuniYield New York Insured II represents and warrants to, and agrees with,
MuniVest New York Insured and MuniYield New York Insured III that:
(a) MuniYield New York Insured II is a corporation duly organized, validly
existing and in good standing in conformity with the laws of the State of
Maryland, and has the power to own all of its assets and to carry out this
Agreement. MuniYield New York Insured II has all necessary Federal, state and
local authorizations to carry on its business as it is now being conducted and
to carry out this Agreement.
(b) MuniYield New York Insured II is duly registered under the 1940 Act as
a non-diversified, closed-end management investment company (File No. 811-6661),
and such registration has not been revoked or rescinded and is in full force and
effect. MuniYield New York Insured II has elected and qualified for the special
tax treatment afforded RICs under Sections 851-855 of the Code at all times
since its inception, and intends to continue to so qualify both until
consummation of the Reorganization and thereafter.
(c) As used in this Agreement, the term "MuniYield New York III
Investments" shall mean (i) the investments of MuniYield New York Insured III
shown on the schedule of its investments as of the Valuation Time furnished to
each of MuniVest New York Insured and MuniYield New York Insured II; and (ii)
all other assets owned by MuniYield New York Insured III or liabilities incurred
by MuniYield New York Insured III as of the Valuation Time.
(d) MuniYield New York Insured II has full power and authority to enter
into and perform its obligations under this Agreement. The execution, delivery
and performance of this Agreement has been duly authorized by all necessary
action of its Board of Directors and this Agreement constitutes a valid and
binding contract enforceable in accordance with its terms, subject to the
effects of bankruptcy, insolvency, moratorium, fraudulent conveyance and similar
laws relating to or affecting creditors' rights generally and court decisions
with respect thereto.
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(e) Each of MuniVest New York Insured and MuniYield New York Insured III
has been furnished with MuniYield New York Insured II's Annual Report to
Stockholders for the year ended October 31, 1995, and the audited financial
statements appearing therein, having been examined by Deloitte & Touche LLP,
independent public accountants, fairly present the financial position of
MuniYield New York Insured II as of the respective dates indicated, in
conformity with generally accepted accounting principles applied on a consistent
basis.
(f) Each of MuniVest New York Insured and MuniYield New York Insured III
has been furnished with MuniYield New York Insured II's Semi-Annual Report to
Stockholders for the six months ended April 30, 1996, and the unaudited
financial statements appearing therein fairly present the financial position of
MuniYield New York Insured II as of the respective dates indicated, in
conformity with generally accepted accounting principles applied on a consistent
basis.
(g) An unaudited statement of assets, liabilities and capital of MuniYield
New York Insured II and an unaudited schedule of investments of MuniYield New
York Insured II, each as of the Valuation Time (as defined in Section 4(d) of
this Agreement), will be furnished to each of MuniVest New York Insured and
MuniYield New York Insured III at or prior to the Exchange Date for the purpose
of determining the number of shares of MuniYield New York Insured II Common
Stock, MuniYield New York Insured II Series B AMPS and MuniYield New York
Insured II Series C AMPS to be issued pursuant to Section 5 of this Agreement;
each will fairly present the financial position of MuniYield New York Insured II
as of the Valuation Time in conformity with generally accepted accounting
principles applied on a consistent basis.
(h) There are no material legal, administrative or other proceedings
pending or, to the knowledge of MuniYield New York Insured II, threatened
against MuniYield New York Insured II which assert liability on the part of
MuniYield New York Insured II or which materially affect its financial condition
or its ability to consummate the Reorganization. MuniYield New York Insured II
is not charged with or, to the best of its knowledge, threatened with any
violation or investigation of any possible violation of any provisions of any
Federal, state or local law or regulation or administrative ruling relating to
any aspect of its business.
(i) MuniYield New York Insured II is not a party to or obligated under any
provision of its Articles of Incorporation, as amended, or its by-laws, as
amended, or 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 MuniVest New York Insured,
MuniYield New York Insured II and MuniYield New York Insured III have mutually
agreed to amend such contract or other commitment or obligation to cure any
potential violation as a condition precedent to the Reorganization.
(j) There are no material contracts outstanding to which MuniYield New York
Insured II is a party that have not been disclosed in the N-14 Registration
Statement or will not otherwise be disclosed to MuniVest New York Insured and
MuniYield New York Insured III prior to the Valuation Time.
(k) MuniYield New York Insured II has no known liabilities of a material
amount, contingent or otherwise, other than those shown on MuniYield New York
Insured II's 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, 1996 and those incurred in connection with the Reorganization.
As of the Valuation Time, MuniYield New York Insured II will advise MuniVest New
York Insured and MuniYield New York Insured III in writing of all known
liabilities, contingent or otherwise, whether or not incurred in the ordinary
course of business, existing or accrued as of such time.
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(l) No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by MuniYield New York
Insured II of the Reorganization, except such as may be required under the 1933
Act, the 1934 Act, the 1940 Act or state securities laws.
(m) The N-14 Registration Statement, on its effective date, at the time of
the stockholders' meetings referred to in Section 7(a) of this Agreement and at
the Exchange Date, insofar as it relates to MuniYield New York Insured II (i)
complied or will comply in all material respects with the provisions of the 1933
Act, the 1934 Act and the 1940 Act and the rules and regulations thereunder and
(ii) did not or will not contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary to make
the statements therein not misleading; and the joint proxy statement and
prospectus included therein did not or will not contain any untrue statement of
a material fact or omit to state any material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; provided, however, that the representations and warranties
in this subsection 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 New York Insured II for use in the N-14 Registration
Statement as provided in Section 7(e) of this Agreement.
(n) MuniYield New York Insured II is authorized to issue 200,000,000 shares
of capital stock, of which 2,800 shares have been designated as AMPS, and
199,997,200 shares have been designated as common stock, par value $.10 per
share, each outstanding share of which is fully paid, nonassessable and has full
voting rights.
(o) The MuniYield New York Insured II Common Stock, MuniYield New York
Insured II Series B AMPS and MuniYield New York Insured II Series C AMPS to be
issued to MuniVest New York Insured and MuniYield New York Insured III, as
applicable, 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 New York Insured II will have any
preemptive right of subscription or purchase in respect thereof.
(p) At or prior to the Exchange Date, the MuniYield New York Insured II
Common Stock to be transferred to MuniVest New York Insured and MuniYield New
York Insured III, as applicable, 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 MuniVest New York Insured and MuniYield New York Insured III presently
are qualified, and there are a sufficient number of such shares 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 the MuniYield New York Insured II
Series B AMPS to be transferred to MuniVest New York Insured on the Exchange
Date and the MuniYield New York Insured II Series C AMPS to be transferred to
MuniYield New York Insured II on the Exchange Date will each be duly qualified
for offering to the public in all states of the United States in which the sale
of shares of MuniVest New York Insured and MuniYield New York Insured II,
respectively, presently are qualified, and there are a sufficient number of such
shares registered under the 1933 Act and with each pertinent state securities
commission to permit the transfers contemplated by this Agreement to be
considered.
(r) At or prior to the Exchange Date, MuniYield New York Insured II will
have obtained any and all regulatory, Director and stockholder approvals
necessary to issue the MuniYield New York Insured II Common Stock, MuniYield New
York Insured II Series B AMPS and MuniYield New York Insured II Series C AMPS to
MuniVest New York Insured and MuniYield New York Insured III, as applicable.
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3. REPRESENTATIONS AND WARRANTIES OF MUNIYIELD NEW YORK INSURED III.
MuniYield New York Insured III represents and warrants to, and agrees with,
MuniVest New York Insured and MuniYield New York Insured II that:
(a) MuniYield New York Insured III 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 New York Insured III has all necessary Federal, state and
local authorizations to carry on its business as it is now being conducted and
to carry out this Agreement.
(b) MuniYield New York Insured III is duly registered under the 1940 Act as
a non-diversified, closed-end management investment company (File No. 811-7258),
and such registration has not been revoked or rescinded and is in full force and
effect. MuniYield New York Insured III 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 through its final taxable year ending upon liquidation.
(c) MuniYield New York Insured III has full power and authority to enter
into and perform its obligations under this Agreement. The execution, delivery
and performance of this Agreement has been duly authorized by all necessary
action of its Board of 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.
(d) Each of MuniVest New York Insured and MuniYield New York Insured II has
been furnished with MuniYield New York Insured III's Annual Report to
Stockholders for the year ended October 31, 1995, and the audited financial
statements appearing therein, having been examined by Ernst & Young LLP,
independent public accountants, fairly present the financial position of
MuniYield New York Insured III as of the respective dates indicated, in
conformity with generally accepted accounting principles applied on a consistent
basis.
(e) Each of MuniVest New York Insured and MuniYield New York Insured II has
been furnished with MuniYield New York Insured III's Semi-Annual Report to
Stockholders for the six months ended April 30, 1996, and the unaudited
financial statements appearing therein fairly present the financial position of
MuniYield New York Insured III as of the respective dates indicated, in
conformity with generally accepted accounting principles applied on a consistent
basis.
(f) An unaudited statement of assets, liabilities and capital of MuniYield
New York Insured III and an unaudited schedule of investments of MuniYield New
York Insured III, each as of the Valuation Time, will be furnished to each of
MuniVest New York Insured and MuniYield New York Insured II at or prior to the
Exchange Date for the purpose of determining the number of shares of MuniYield
New York Insured II Common Stock and MuniYield New York Insured II Series C AMPS
to be issued pursuant to Section 5 of this Agreement; and each will fairly
present the financial position of MuniYield New York Insured III as of the
Valuation Time in conformity with generally accepted accounting principles
applied on a consistent basis.
(g) There are no material legal, administrative or other proceedings
pending or, to the knowledge of MuniYield New York Insured III, threatened
against MuniYield New York Insured III which assert liability on the part of
MuniYield New York Insured III or which materially affect its financial
condition or its ability
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to consummate the Reorganization. MuniYield New York Insured III is not charged
with or, to the best of its knowledge, threatened with any violation or
investigation of any possible violation of any provisions of any Federal, state
or local law or regulation or administrative ruling relating to any aspect of
its business.
(h) There are no material contracts outstanding to which MuniYield New York
Insured III is a party that have not been disclosed in the N-14 Registration
Statement or will not otherwise be disclosed to MuniVest New York Insured and
MuniYield New York Insured II prior to the Valuation Time.
(i) MuniYield New York Insured III is not a party to or obligated under any
provision of its Articles of Incorporation, as amended, or its by-laws, as
amended, or 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 MuniVest New York Insured,
MuniYield New York Insured II and MuniYield New York Insured III have mutually
agreed to amend such contract or other commitment or obligation to cure any
potential violation as a condition precedent to the Reorganization.
(j) MuniYield New York Insured III has no known liabilities of a material
amount, contingent or otherwise, other than those shown on its statements of
assets, liabilities and capital referred to above, those incurred in the
ordinary course of its business as an investment company since April 30, 1996,
and those incurred in connection with the Reorganization. As of the Valuation
Time, MuniYield New York Insured III will advise MuniVest New York Insured and
MuniYield New York Insured II in writing of all known liabilities, contingent or
otherwise, whether or not incurred in the ordinary course of business, existing
or accrued as of such time.
(k) MuniYield New York Insured III has filed, or has obtained extensions to
file, all Federal, state and local tax returns which are required to be filed by
it, and has paid or has obtained extensions to pay, all Federal, state and local
taxes shown on said returns to be due and owing and all assessments received by
it, up to and including the taxable year in which the Exchange Date occurs. All
tax liabilities of MuniYield New York Insured III have adequately been provided
for on its books, and no tax deficiency or liability of MuniYield New York
Insured III has been asserted and no question with respect thereto has been
raised by the IRS or by any state or local tax authority for taxes in excess of
those already paid, up to and including the taxable year in which the Exchange
Date occurs.
(l) At both the Valuation Time and the Exchange Date, MuniYield New York
Insured III will have full right, power and authority to sell, assign, transfer
and deliver the MuniYield New York III Investments. At the Exchange Date,
subject only to the delivery of the MuniYield New York III Investments as
contemplated by this Agreement, MuniYield New York Insured III will have good
and marketable title to all of the MuniYield New York III Investments, and
MuniYield New York Insured II will acquire all of the MuniYield New York III
Investments free and clear of any encumbrances, liens or security interests and
without any restrictions upon the transfer thereof (except those imposed by the
Federal or state securities laws and those imperfections of title or
encumbrances as do not materially detract from the value or use of the
Investments or materially affect title thereto).
(m) No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by MuniYield New York
Insured III of the Reorganization, except such as may be required under the 1933
Act, the 1934 Act, the 1940 Act or state securities laws.
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(n) The N-14 Registration Statement, on its effective date, at the time of
the stockholders' meetings referred to in Section 7(a) of this Agreement and on
the Exchange Date, insofar as it relates to MuniYield New York Insured III (i)
complied or will comply in all material respects with the provisions of the 1933
Act, the 1934 Act and the 1940 Act and the rules and regulations thereunder, and
(ii) did not or will not contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary to make
the statements therein not misleading; and the joint proxy statement and
prospectus included therein did not or will not contain any untrue statement of
a material fact or omit to state any material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; provided, however, that the representations and warranties
in this subsection shall apply only to statements in or omissions from the N-14
Registration Statement made in reliance upon and in conformity with information
furnished by MuniYield New York Insured III for use in the N-14 Registration
Statement as provided in Section 7(e) of this Agreement.
(o) MuniYield New York Insured III is authorized to issue 200,000,000
shares of capital stock, of which 1,000 shares have been designated as AMPS, and
199,999,000 shares have been designated as common stock, par value $.10 per
share, each outstanding share of which is fully paid, nonassessable and has full
voting rights.
(p) All of the issued and outstanding shares of MuniYield New York Insured
III Common Stock and MuniYield New York Insured III AMPS were offered for sale
and sold in conformity with all applicable Federal and state securities laws.
(q) The books and records of MuniYield New York Insured III made available
to MuniVest New York Insured, MuniYield New York Insured II and/or their counsel
are substantially true and correct and contain no material misstatements or
omissions with respect to the operations of MuniYield New York Insured III.
(r) MuniYield New York Insured III will not sell or otherwise dispose of
any of the shares of MuniYield New York Insured II Common Stock or MuniYield New
York Insured II Series C AMPS to be received in the Reorganization, except in
distribution to the stockholders of MuniYield New York Insured III as provided
in Section 5 of this Agreement.
4. THE REORGANIZATION.
(a) Subject to receiving the requisite approvals of the stockholders of
each of MuniVest New York Insured, MuniYield New York Insured II and MuniYield
New York Insured III and to the other terms and conditions contained herein (i)
MuniVest New York Insured agrees to convey, transfer and deliver to MuniYield
New York Insured II for the benefit of MuniYield New York Insured II, and
MuniYield New York Insured II agrees to acquire from MuniVest New York Insured
for the benefit of MuniYield New York Insured II, on the Exchange Date all of
the MuniVest New York Investments (including interest accrued as of the
Valuation Time on debt instruments), and assume all of the liabilities of
MuniVest New York Insured, in exchange solely for that number of shares of
MuniYield New York Insured II Common Stock and MuniYield New York Insured II
Series B AMPS provided in Section 5 of this Agreement; and (ii) MuniYield New
York Insured III agrees to convey, transfer and deliver to MuniYield New York
Insured II for the benefit of MuniYield New York Insured II, and MuniYield New
York Insured II agrees to acquire from MuniYield New York Insured III for the
benefit of MuniYield New York Insured II, on the Exchange Date all of the
MuniYield New York III Investments (including interest accrued as of the
Valuation Time on debt instruments), and assume all of the liabilities of
MuniYield New York Insured III, in
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exchange solely for that number of shares of MuniYield New York Insured II
Common Stock and MuniYield New York Insured II Series C AMPS provided in Section
5 of this Agreement.
Pursuant to this Agreement, as soon as practicable after the Exchange Date
(i) MuniVest New York Insured will distribute all shares of MuniYield New York
Insured II Common Stock and MuniYield New York Insured II Series B AMPS received
by it to its stockholders in exchange for their corresponding shares of MuniVest
New York Insured Common Stock and MuniVest New York Insured AMPS and (ii)
MuniYield New York Insured III will distribute all shares of MuniYield New York
Insured II Common Stock and MuniYield New York Insured II Series C AMPS received
by it to its stockholders in exchange for their corresponding shares of
MuniYield New York Insured III Common Stock and MuniYield New York Insured III
AMPS. Such distributions shall be accomplished by the opening of stockholder
accounts on the stock ledger records of MuniYield New York Insured II in the
amounts due the stockholders of MuniVest New York Insured and MuniYield New York
Insured III based on their respective holdings in such funds as of the Valuation
Time.
(b) Prior to the Exchange Date, MuniVest New York Insured and MuniYield New
York Insured III shall declare a dividend or dividends which, together with all
such previous dividends, shall have the effect of distributing to their
respective stockholders all of their respective net investment company taxable
income for the period from November 1, 1995 to and including the Exchange Date,
if any (computed without regard to any deduction or dividends paid), and all of
its net capital gain, if any, realized for the period from November 1, 1995 to
and including the Exchange Date. In this regard, the last dividend period for
the MuniVest New York Insured AMPS and MuniYield New York Insured III 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) Each of MuniVest New York Insured and MuniYield New York Insured III
will pay, or cause to be paid, to MuniYield New York Insured II any interest
such fund receives on or after the Exchange Date with respect to its respective
Investments transferred to MuniYield New York Insured II hereunder.
(d) The Valuation Time shall be 4:15 P.M., New York time, on October 25,
1996, or such earlier or later day and time as mutually may be agreed upon in
writing (the "Valuation Time").
(e) MuniYield New York Insured II will acquire all of the assets of, and
assume all of the known liabilities of, each of MuniVest New York Insured and
MuniYield New York Insured III, except that recourse for such liabilities will
be limited to MuniYield New York Insured II. The known liabilities of each of
MuniVest New York Insured and MuniYield New York Insured III as of the Valuation
Time shall be confirmed in writing to MuniYield New York Insured II pursuant to
Sections 1(k) and 3(k) of this Agreement.
(f) MuniYield New York Insured II will file with the Maryland Department
(i) separate Articles of Amendment to the Articles Supplementary establishing
the powers, rights and preferences of the MuniYield New York Insured II AMPS,
redesignating the existing series of MuniYield New York Insured II AMPS as
Series A AMPS and (ii) separate Articles Supplementary to its Articles of
Incorporation establishing the powers, rights and preferences of the MuniYield
New York Insured II Series B AMPS and MuniYield New York Insured II Series C
AMPS prior to the closing of the Reorganization.
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(g) MuniVest New York Insured, MuniYield New York Insured II and MuniYield
New York Insured III will jointly file Articles of Transfer with the Maryland
Department and any such other instrument as may be required by the State of
Maryland to effect the transfer of the MuniVest New York Investments and the
MuniYield New York III Investments to MuniYield New York Insured II.
(h) MuniVest New York Insured and MuniYield New York Insured III will each
be dissolved following the Exchange Date by filing separate Articles of
Dissolution with the Maryland Department.
(i) As promptly as practicable after the liquidation of each of MuniVest
New York Insured and MuniYield New York Insured III pursuant to the
Reorganization, MuniVest New York Insured and MuniYield New York Insured III
shall each terminate its respective registration under the 1940 Act.
5. ISSUANCE AND VALUATION OF MUNIYIELD NEW YORK INSURED II COMMON STOCK,
MUNIYIELD NEW YORK INSURED II SERIES B AMPS AND MUNIYIELD NEW YORK INSURED
II SERIES C AMPS IN THE REORGANIZATION.
Full shares of MuniYield New York Insured II Common Stock and MuniYield New
York Insured II 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 New York Insured acquired in the
Reorganization determined as hereinafter provided, reduced by the amount of
liabilities of MuniVest New York Insured assumed by MuniYield New York Insured
II, shall be issued by MuniYield New York Insured II in exchange for such assets
of MuniVest New York Insured, plus cash in lieu of fractional shares.
Full shares of MuniYield New York Insured II Common Stock and MuniYield New
York Insured II Series C AMPS of an aggregate net asset value or liquidation
preference, as the case may be, equal (to the nearest one ten thousandth of one
cent) to the value of the assets of MuniYield New York Insured III acquired in
the Reorganization determined as hereinafter provided, reduced by the amount of
liabilities of MuniYield New York Insured III assumed by MuniYield New York
Insured II, shall be issued by MuniYield New York Insured II in exchange for
such assets of MuniYield New York Insured III, plus cash in lieu of fractional
shares.
The net asset value of each of MuniVest New York Insured, MuniYield New
York Insured II and MuniYield New York Insured III shall be determined as of the
Valuation Time in accordance with the procedures described in (i) the prospectus
of MuniYield New York Insured II, dated June 19, 1992, relating to the MuniYield
New York Insured II Common Stock and (ii) the prospectus of MuniYield New York
Insured II, dated September 11, 1992, relating to the MuniYield New York Insured
II AMPS, and no formula will be used to adjust the net asset value so determined
of either MuniVest New York Insured, MuniYield New York Insured II or MuniYield
New York Insured III to take into account differences in realized and unrealized
gains and losses. Values in all cases shall be determined as of the Valuation
Time. The value of the MuniVest New York Investments and of the MuniYield New
York III Investments to be transferred to MuniYield New York Insured II shall be
determined by MuniYield New York Insured II pursuant to the procedures utilized
by MuniYield New York Insured II in valuing its own assets and determining its
own liabilities for purposes of the Reorganization. Such valuation and
determination shall be made by MuniYield New York Insured II in cooperation with
MuniVest New York Insured and MuniYield New York Insured III and shall be
confirmed in writing by MuniYield New York Insured II to MuniVest New York
Insured and MuniYield New York Insured III. The net asset value per share of the
MuniYield New York Insured II Common Stock and the liquidation preference per
share of the MuniYield New York
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Insured II Series B AMPS and MuniYield New York Insured II Series C AMPS shall
be determined in accordance with such procedures and MuniYield New York Insured
II shall certify the computations involved.
MuniYield New York Insured II shall issue to MuniVest New York Insured
separate certificates or share deposit receipts for the MuniYield New York
Insured II Common Stock and the MuniYield New York Insured II Series B AMPS,
each registered in the name of MuniVest New York Insured. MuniVest New York
Insured then shall distribute the MuniYield New York Insured II Common Stock and
the MuniYield New York Insured II Series B AMPS to its corresponding
stockholders of MuniVest New York Insured Common Stock and MuniVest New York
Insured AMPS by redelivering the certificates or share deposit receipts
evidencing ownership of (i) the MuniYield New York Insured II Common Stock to
State Street Bank and Trust Company, as the transfer agent and registrar for the
MuniYield New York Insured II Common Stock and (ii) the MuniYield New York
Insured II Series B AMPS to IBJ Schroder Bank and Trust Company, as the transfer
agent and registrar for the MuniYield New York Insured II Series B AMPS. With
respect to any MuniVest New York Insured stockholder holding certificates
evidencing ownership of either the MuniVest New York Insured Common Stock or the
MuniVest New York Insured AMPS as of the Exchange Date, and subject to MuniYield
New York Insured II being informed thereof in writing by MuniVest New York
Insured, MuniYield New York Insured II will not permit such stockholder to
receive new certificates evidencing ownership of the MuniYield New York Insured
II Common Stock or MuniYield New York Insured II Series B AMPS, exchange
MuniYield New York Insured II Common Stock or MuniYield New York Insured II
Series B AMPS credited to such stockholder's account for shares of other
investment companies managed by Merrill Lynch Asset Management, L.P. or any of
its affiliates, or pledge or redeem such MuniYield New York Insured II Common
Stock or MuniYield New York Insured II Series B AMPS, in any case, until
notified by MuniVest New York Insured or its agent that such stockholder has
surrendered his or her outstanding certificates evidencing ownership of the
MuniVest New York Insured Common Stock or the MuniVest New York Insured III AMPS
or, in the event of lost certificates, posted adequate bond. MuniVest New York
Insured, at its own expense, will request its stockholders to surrender their
outstanding certificates evidencing ownership of the MuniVest New York Insured
Common Stock or the MuniVest New York Insured AMPS, as the case may be, or post
adequate bond therefor.
MuniYield New York Insured II shall issue to MuniYield New York Insured III
separate certificates or share deposit receipts for the MuniYield New York
Insured II Common Stock and the MuniYield New York Insured II Series C AMPS,
each registered in the name of MuniYield New York Insured III. MuniYield New
York Insured III then shall distribute the MuniYield New York Insured II Common
Stock and the MuniYield New York Insured II Series C AMPS to its corresponding
stockholders of MuniYield New York Insured III Common Stock and MuniYield New
York Insured III AMPS by redelivering the certificates or share deposit receipts
evidencing ownership of (i) the MuniYield New York Insured II Common Stock to
State Street Bank and Trust Company, as the transfer agent and registrar for the
MuniYield New York Insured II Common Stock and (ii) the MuniYield New York
Insured II Series C AMPS to IBJ Schroder Bank and Trust Company, as the transfer
agent and registrar for the MuniYield New York Insured II Series C AMPS. With
respect to any MuniYield New York Insured III stockholder holding certificates
evidencing ownership of either the MuniYield New York Insured III Common Stock
or the MuniYield New York Insured III AMPS as of the Exchange Date, and subject
to MuniYield New York Insured II being informed thereof in writing by MuniYield
New York Insured III, MuniYield New York Insured II will not permit such
stockholder to receive new certificates evidencing ownership of the MuniYield
New York Insured II Common
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Stock or MuniYield New York Insured II Series C AMPS, exchange MuniYield New
York Insured II Common Stock or MuniYield New York Insured II Series C AMPS
credited to such stockholder's account for shares of other investment companies
managed by Merrill Lynch Asset Management, L.P. or any of its affiliates, or
pledge or redeem such MuniYield New York Insured II Common Stock or MuniYield
New York Insured II Series C AMPS, in any case, until notified by MuniYield New
York Insured III or its agent that such stockholder has surrendered his or her
outstanding certificates evidencing ownership of the MuniYield New York Insured
III Common Stock or the MuniYield New York Insured AMPS or, in the event of lost
certificates, posted adequate bond. MuniYield New York Insured III, at its own
expense, will request its stockholders to surrender their outstanding
certificates evidencing ownership of the MuniYield New York Insured III Common
Stock or the MuniYield New York Insured III AMPS, as the case may be, or post
adequate bond therefor.
Dividends payable to holders of record of shares of MuniYield New York
Insured II Common Stock, MuniYield New York Insured II Series B AMPS or
MuniYield New York Insured II Series C 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 New York Insured or MuniYield New York Insured III shall
be payable to such stockholder without interest; however, such dividends shall
not be paid unless and until such stockholder surrenders his or her stock
certificates of MuniVest New York Insured or MuniYield New York Insured III, as
the case may be, for exchange.
No fractional shares of MuniYield New York Insured II Common Stock will be
issued to holders of MuniVest New York Insured Common Stock or MuniYield New
York Insured III Common Stock. In lieu thereof, MuniYield New York Insured II's
transfer agent, State Street Bank and Trust Company, will aggregate all
fractional shares of MuniYield New York Insured II Common Stock and sell the
resulting full shares on the New York Stock Exchange at the current market price
for shares of MuniYield New York Insured II 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
MuniVest New York Insured Common Stock or MuniYield New York Insured III Common
Stock certificates.
6. PAYMENT OF EXPENSES.
(a) MuniYield New York Insured II 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 a
memorandum to the independent Directors of each of the Funds, the N-14
Registration Statement and a private letter ruling request to the IRS, expenses
incurred in connection with the deregistration and dissolution of each of
MuniVest New York Insured and MuniYield New York Insured III and the fees of
special counsel to the Reorganization. Such fees and expenses shall include
legal, accounting and state securities or blue sky 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.
Neither MuniVest New York Insured, MuniYield New York Insured II nor MuniYield
New York Insured III shall pay any expenses of its respective stockholders
arising out of or 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.
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7. COVENANTS OF MUNIVEST NEW YORK INSURED, MUNIYIELD NEW YORK INSURED II AND
MUNIYIELD NEW YORK INSURED III.
(a) MuniVest New York Insured, MuniYield New York Insured II and MuniYield
New York Insured III each agrees to call an annual meeting of its respective
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) MuniVest New York Insured, MuniYield New York Insured II and MuniYield
New York Insured III each covenants to operate its respective business as
presently conducted between the date hereof and the Exchange Date.
(c) Each MuniVest New York Insured and MuniYield New York Insured III
agrees that following the consummation of the Reorganization, it will liquidate
and dissolve in accordance with the laws of the State of Maryland and any other
applicable law, it will not make any distributions of any MuniYield New York
Insured II Common Stock, MuniYield New York Insured II Series B AMPS or
MuniYield New York Insured II Series C AMPS, as applicable, other than to the
stockholders of MuniVest New York Insured and MuniYield New York Insured III and
without first paying or adequately providing for the payment of all of the
liabilities of MuniVest New York Insured and of MuniYield New York Insured III
not assumed by MuniYield New York Insured II, if any, and on and after the
Exchange Date it shall not conduct any business except in connection with its
liquidation and dissolution.
(d) MuniVest New York Insured and MuniYield New York Insured III each
undertakes that if the Reorganization is consummated, it will file, or cause its
agents to file, an application pursuant to Section 8(f) of the 1940 Act for an
order declaring that such fund has ceased to be a registered investment company.
(e) MuniYield New York Insured II 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. MuniVest New York Insured, MuniYield New York
Insured II and MuniYield New York Insured III each agrees to cooperate fully
with the others, and each will furnish to the others the information relating to
itself to be set forth in the N-14 Registration Statement as required by the
1933 Act, the 1934 Act, the 1940 Act, and the rules and regulations thereunder
and the state securities or blue sky laws.
(f) MuniYield New York Insured II agrees to advise MuniVest New York
Insured or MuniYield New York Insured III, as applicable, promptly in writing if
at any time prior to the Exchange Date the assets of MuniVest New York Insured
or MuniYield New York Insured III include any assets which MuniYield New York
Insured II is not permitted, or reasonably believes to be unsuitable for it, to
acquire, including without limitation any security which, prior to its
acquisition by MuniVest New York Insured or MuniYield New York Insured III,
MuniYield New York Insured II has informed MuniVest New York Insured or
MuniYield New York Insured III is unsuitable for MuniYield New York Insured II
to acquire. Moreover, MuniYield New York Insured II has no plan or intention to
sell or otherwise dispose of the assets of MuniVest New York Insured and/or
MuniYield New York Insured III to be acquired in the Reorganization, except for
dispositions made in the ordinary course of business.
(g) MuniVest New York Insured, MuniYield New York Insured II and MuniYield
New York Insured III each agrees that by the Exchange Date all of its Federal
and other tax returns and reports required
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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 New York Insured II 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 New York Insured and MuniYield New York Insured III for their taxable
period first ending after the Exchange Date and for all prior taxable periods.
Any information obtained under this subsection shall be kept confidential except
as otherwise may be necessary in connection with the filing of returns or claims
for refund or in conducting an audit or other proceeding. After the Exchange
Date, each of MuniVest New York Insured and MuniYield New York Insured III 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 such Fund's 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 New York Insured or MuniYield New York Insured III (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 MuniYield
New York Insured II.
(h) MuniVest New York Insured, MuniYield New York Insured II and MuniYield
New York Insured III each agrees to mail to each of its respective stockholders
of record entitled to vote at that Fund's annual meeting of stockholders at
which action is to be considered regarding this Agreement, in sufficient time to
comply with requirements as to notice thereof, a combined Proxy Statement and
Prospectus which complies in all material respects with the applicable
provisions of Section 14(a) of the 1934 Act and Section 20(a) of the 1940 Act,
and the rules and regulations, respectively, thereunder.
(i) Following the consummation of the Reorganization, MuniYield New York
Insured II expects to stay in existence and continue its business as a
closed-end management investment company registered under the 1940 Act.
8. EXCHANGE DATE.
(a) Delivery of the assets of MuniVest New York Insured and MuniYield New
York Insured III to be transferred, together with any other MuniVest New York
Investments or MuniYield New York III Investments, and the MuniYield New York
Insured II Common Stock, MuniYield New York Insured II Series B AMPS and
MuniYield New York Insured II Series C AMPS to be issued, 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 MuniVest New York Insured,
MuniYield New York Insured II and MuniYield New York Insured III, the date and
time upon which such delivery is to take place being referred to herein as the
"Exchange Date". To the extent that any MuniVest New York Investments or
MuniYield New York III Investments, for any reason, are not transferable on the
Exchange Date, MuniVest New York Insured or MuniYield New York Insured III, as
applicable, shall cause such Investments to be transferred to MuniYield New York
Insured II's account with State Street Bank and Trust Company at the earliest
practicable date thereafter.
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(b) MuniVest New York Insured and MuniYield New York Insured III will
deliver to MuniYield New York Insured II on the Exchange Date confirmations or
other adequate evidence as to the tax basis of each of the MuniVest New York
Investments and MuniYield New York III Investments delivered to MuniYield New
York Insured II hereunder, certified by Ernst & Young LLP.
(c) MuniYield New York Insured II shall have made prior arrangements for
the delivery on the Exchange Date of the MuniVest New York Investments and
MuniYield New York III Investments to State Street Bank and Trust Company as the
custodian for MuniYield New York Insured II.
(d) As soon as practicable after the close of business on the Exchange
Date, (i) MuniVest New York Insured shall deliver to MuniYield New York Insured
II a list of the names and addresses of all of the stockholders of record of
MuniVest New York Insured on the Exchange Date and the number of shares of
MuniVest New York Insured Common Stock and/or MuniVest New York Insured AMPS
owned by each such stockholder, certified to the best of their knowledge and
belief by the transfer agent for the MuniVest New York Insured Common Stock or
the MuniVest New York Insured AMPS, as applicable, or by its President; and (ii)
MuniYield New York Insured III shall deliver to MuniYield New York Insured II a
list of the names and addresses of all of the stockholders of record of
MuniYield New York Insured III on the Exchange Date and the number of shares of
MuniYield New York Insured III Common Stock and/or MuniYield New York Insured
III AMPS owned by each such stockholder, certified to the best of their
knowledge and belief by the transfer agent for the MuniYield New York Insured
III Common Stock or the MuniYield New York Insured III AMPS, as applicable, or
by its President.
9. MUNIVEST NEW YORK INSURED CONDITIONS.
The obligations of MuniVest New York Insured hereunder shall be subject to
the following conditions:
(a) That this Agreement shall have been adopted, and the Reorganization
shall have been approved, by the affirmative vote of two-thirds of the members
of the Boards of Directors of each of MuniVest New York Insured, MuniYield New
York Insured II and MuniYield New York Insured III and by the affirmative vote
of (i) the holders of (a) a majority of the MuniVest New York Insured Common
Stock and MuniVest New York Insured AMPS, voting together as a single class, and
(b) a majority of the MuniVest New York Insured AMPS, voting separately as a
class, in each case issued and outstanding and entitled to vote thereon; (ii)
the holders of (a) a majority of the MuniYield New York Insured II Common Stock
and MuniYield New York Insured II AMPS, voting together as a single class, and
(b) a majority of the MuniYield New York Insured II AMPS, voting separately as a
class, in each case issued and outstanding and entitled to vote thereon; and
(iii) the holders of (a) a majority of the MuniYield New York Insured III Common
Stock and the MuniYield New York Insured III AMPS, voting together as a single
class, and (b) a majority of the MuniYield New York Insured III AMPS, voting
separately as a class, in each case issued and outstanding and entitled to vote
thereon; and further that (1) MuniVest New York Insured shall have delivered to
each of MuniYield New York Insured II and MuniYield New York Insured III a copy
of the resolution approving this Agreement adopted by MuniVest New York
Insured's Board of Directors, and a certificate setting forth the vote of
MuniVest New York Insured's stockholders obtained, each certified by the
Secretary of MuniVest New York Insured; (2) MuniYield New York Insured II shall
have delivered to each of MuniVest New York Insured and MuniYield New York
Insured III a copy of the resolution approving this Agreement adopted by
MuniYield New York Insured II's Board of Directors, and a certificate setting
forth the vote of MuniYield New York Insured II's stockholders obtained, each
certified by the Secretary of MuniYield New York
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Insured II; and (3) MuniYield New York Insured III shall have delivered to each
of MuniVest New York Insured and MuniYield New York Insured II a copy of the
resolution approving this Agreement adopted by MuniYield New York Insured III's
Board of Directors, and a certificate setting forth the vote of MuniYield New
York Insured III's stockholders obtained, each certified by the Secretary of
MuniYield New York Insured III.
(b) That each of MuniYield New York Insured II and MuniYield New York
Insured III shall have furnished to MuniVest New York Insured a statement of
assets, liabilities and capital, with values determined as provided in Section 5
of this Agreement, together with a schedule of its respective investments, all
as of the Valuation Time, certified on each Fund's behalf by its respective
President (or any Vice President) and its Treasurer, and a certificate signed by
the Fund's President (or any Vice President) and its Treasurer, dated as of the
Exchange Date, certifying that as of the Valuation Time and as of the Exchange
Date there has been no material adverse change in the financial position of the
Fund since October 31, 1995, other than changes in its portfolio securities
since that date or changes in the market value of its portfolio securities.
(c) That each of MuniYield New York Insured II and MuniYield New York
Insured III shall have furnished to MuniVest New York Insured a certificate
signed by its respective 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 New York
Insured II or MuniYield New York Insured III, respectively, 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 New York Insured II or
MuniYield New York Insured III, respectively, 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 date.
(d) That there shall not be any material litigation pending with respect to
the matters contemplated by this Agreement.
(e) That MuniVest New York Insured shall have received an opinion or
opinions of Brown & Wood LLP, as counsel to MuniVest New York Insured, MuniYield
New York Insured II and MuniYield New York Insured III, in form and substance
satisfactory to MuniVest New York Insured and dated the Exchange Date, to the
effect that (i) each of MuniVest New York Insured, MuniYield New York Insured II
and MuniYield New York Insured III is a corporation duly organized, validly
existing and in good standing in conformity with the laws of the State of
Maryland; (ii) the MuniYield New York Insured II Common Stock, MuniYield New
York Insured II Series B AMPS and MuniYield New York Insured II Series C 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 New York Insured II, and no stockholder of MuniYield New York Insured
II has any preemptive right to subscription or purchase in respect thereof
(pursuant to the Articles of Incorporation, as amended, or the by-laws of
MuniYield New York Insured II or, to the best of such counsel's knowledge,
otherwise); (iii) this Agreement has been duly authorized, executed and
delivered by each of MuniVest New York Insured, MuniYield New York Insured II
and MuniYield New York Insured III 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 equitable
principles; (iv) each of MuniVest New York Insured and MuniYield New York
Insured III has the power to sell, assign, transfer and deliver its respective
assets transferred by it hereunder and, upon consummation of the Reorganization
in accordance with the terms of this Agreement, each of MuniVest New York
Insured and MuniYield New York Insured III will have duly transferred its
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respective assets and liabilities in accordance with this Agreement; (v) to the
best of such counsel's knowledge, no consent, approval, authorization or order
of any United States federal or Maryland state court or governmental authority
is required for the consummation by MuniVest New York Insured, MuniYield New
York Insured II and MuniYield New York Insured III 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 or blue sky
laws; (vi) 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; (vii) 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; (viii)
such counsel do 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; (ix) the
execution and delivery of this Agreement does not, and the consummation of the
Reorganization will not, violate any material provision of the Articles of
Incorporation, as amended, the by-laws, as amended, or any agreement (known to
such counsel) to which either MuniVest New York Insured, MuniYield New York
Insured II or MuniYield New York Insured III is a party or by which either
MuniVest New York Insured, MuniYield New York Insured II or MuniYield New York
Insured III is bound, except insofar as the parties have agreed to amend such
provision as a condition precedent to the Reorganization; (x) neither MuniVest
New York Insured, MuniYield New York Insured II nor MuniYield New York Insured
III, 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 or blue sky laws, and except where each has so qualified or the
failure so to qualify would not have a material adverse effect on MuniVest New
York Insured, MuniYield New York Insured II, MuniYield New York Insured III or
their respective stockholders; (xi) to the best of such counsel's knowledge no
material suit, action or legal or administrative proceeding is pending or
threatened against MuniVest New York Insured, MuniYield New York Insured II or
MuniYield New York Insured III, the unfavorable outcome of which would
materially adversely affect MuniVest New York Insured, MuniYield New York
Insured II or MuniYield New York Insured III; and (xii) all corporate actions
required to be taken by MuniVest New York Insured, MuniYield New York Insured II
and MuniYield New York Insured III to authorize this Agreement and to effect the
Reorganization have been duly authorized by all necessary corporate actions on
the part of MuniVest New York Insured, MuniYield New York Insured II and
MuniYield New York Insured III. 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
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(y) such counsel do not express any opinion or belief as to the financial
statements, other financial data, statistical data or information relating to
MuniVest New York Insured, MuniYield New York Insured II or MuniYield New York
Insured III 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 MuniVest New York Insured,
MuniYield New York Insured II and MuniYield New York Insured III with regard to
matters of fact and certain certificates and written statements of governmental
officials with respect to the good standing of MuniVest New York Insured,
MuniYield New York Insured II and MuniYield New York Insured III and on the
opinion of Wilmer, Cutler & Pickering as to matters of Maryland law.
(f) That MuniVest New York Insured shall have received a private letter
ruling from the IRS, to the effect that for Federal income tax purposes (i) the
transfer of all of the MuniVest New York Investments and MuniYield New York III
Investments to MuniYield New York Insured II in exchange solely for MuniYield
New York Insured II Common Stock, MuniYield New York Insured II Series B AMPS
and MuniYield New York Insured II Series C AMPS as provided in this Agreement
will constitute a reorganization within the meaning of Section 368(a)(1)(C) of
the Code, and MuniVest New York Insured, MuniYield New York Insured II and
MuniYield New York Insured III will each be deemed a "party" to a Reorganization
within the meaning of Section 361(b) of the Code; (ii) in accordance with
Section 361(a) of the Code, (a) no gain or loss will be recognized to MuniVest
New York Insured as a result of the Reorganization or on the distribution of
MuniYield New York Insured II Common Stock and, MuniYield New York Insured II
Series B AMPS to MuniVest New York Insured stockholders under Section 361(c)(1)
of the Code and no gain or loss will be recognized to MuniYield New York Insured
II as a result of the Reorganization or on the distribution of MuniYield New
York Insured II Common Stock and MuniYield New York Insured II Series C AMPS to
MuniYield New York Insured III stockholders under Section 361(c)(1) of the Code,
(iii) under Section 1032 of the Code, no gain or loss will be recognized to
MuniYield New York Insured II 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 (a) the stockholders of MuniVest New York Insured on the receipt
of MuniYield New York Insured II Common Stock and MuniYield New York Insured II
Series B AMPS in exchange for their corresponding MuniVest New York Insured
Common Stock and MuniVest New York Insured AMPS or (b) to the stockholders of
MuniYield New York Insured III on the receipt of MuniYield New York Insured II
Common Stock and MuniYield New York Insured II Series C AMPS in exchange for
their corresponding shares of MuniYield New York Insured III Common Stock and
MuniYield New York Insured III AMPS, (except in each case to the extent that
MuniVest New York Insured stockholders and MuniYield New York Insured III
stockholders receive cash representing an interest in fractional shares of
MuniYield New York Insured II Common Stock in the Reorganization); (v) in
accordance with Section 362(b) of the Code, the tax basis of the MuniVest New
York Insured assets and the MuniYield New York Insured III assets in the hands
of MuniYield New York Insured II will be the same as the tax basis of such
assets in the hands of MuniVest New York Insured or MuniYield New York Insured
III 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 New York Insured II Common Stock, MuniYield New
York Insured II Series B AMPS and MuniYield New York Insured II Series C AMPS
received by the stockholders of MuniVest New York Insured and MuniYield New York
Insured III in the Reorganization will be equal, in the aggregate, to the tax
basis of the MuniVest New York Insured Common Stock, MuniVest New York Insured
AMPS, MuniYield New York Insured III Common Stock and MuniYield New York Insured
III AMPS surrendered, respectively, in exchange; (vii) in accordance with
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Section 1223 of the Code, a stockholder's holding period for the MuniYield New
York Insured II Common Stock, MuniYield New York Insured II Series B AMPS and
MuniYield New York Insured II Series C AMPS will be determined by including the
period for which such stockholder held the MuniVest New York Insured Common
Stock, MuniVest New York Insured AMPS, MuniYield New York Insured III Common
Stock or MuniYield New York Insured III AMPS exchanged therefor, as the case
maybe, provided, that such MuniVest New York Insured shares or MuniYield New
York Insured III shares were held as a capital asset; (viii) in accordance with
Section 1223 of the Code, MuniYield New York Insured II's holding period with
respect to the MuniVest New York Insured assets and MuniYield New York Insured
III assets transferred will include the period for which such assets were held
by MuniVest New York Insured or MuniYield New York Insured III; (ix) the payment
of cash to MuniVest New York Insured stockholders and MuniYield New York Insured
III stockholders in lieu of fractional shares of MuniYield New York Insured II
will be treated as though the fractional shares were distributed as part of the
Reorganization and then redeemed by MuniYield New York Insured II, with the
result that each MuniVest New York Insured stockholder and MuniYield New York
Insured III stockholder will have short- or long-term capital gain or loss to
the extent that the cash distribution differs from such stockholder's basis
allocable to the MuniYield New York Insured II fractional shares; and (x) the
taxable year of each of MuniVest New York Insured and MuniYield New York Insured
III will end on the effective date of the Reorganization and pursuant to Section
381(a) of the Code and regulations thereunder, MuniYield New York Insured II
will succeed to and take into account certain tax attributes of each of MuniVest
New York Insured and MuniYield New York Insured III, such as earnings and
profits, capital loss carryovers and method of accounting.
(g) That all proceedings taken by MuniYield New York Insured II, MuniYield
New York Insured III and their counsel in connection with the Reorganization and
all documents incidental thereto shall be satisfactory in form and substance to
MuniVest New York Insured.
(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 New York Insured II or MuniYield
New York Insured III, contemplated by the Commission.
(i) That MuniVest New York Insured shall have received from Deloitte &
Touche LLP a letter dated as of the effective date of the N-14 Registration
Statement and a similar letter dated within five days prior to the Exchange
Date, in form and substance satisfactory to MuniVest New York Insured, to the
effect that (i) they are independent public accountants with respect to
MuniYield New York Insured II within the meaning of the 1933 Act and the
applicable published rules and regulations thereunder; (ii) in their opinion,
the financial statements and supplementary information of MuniYield New York
Insured II included or incorporated by reference in the N-14 Registration
Statement and reported on by them comply as to form in all material respects
with the applicable accounting requirements of the 1933 Act and the published
rules and regulations thereunder; (iii) on the basis of limited procedures
agreed upon by MuniVest New York Insured, MuniYield New York Insured II and
MuniYield New York Insured III 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 New York Insured II included in the N-14
Registration Statement, and inquiries of certain officials of MuniYield New York
Insured II responsible for financial and accounting matters, nothing came to
their attention that caused them to believe that (a) such unaudited financial
statements and related unaudited supplementary information do not comply as to
form in all material respects with the applicable accounting requirements of
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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 MuniVest New York Insured, MuniYield
New York Insured II and MuniYield New York Insured III and described in such
letter (but not an examination in accordance with generally accepted auditing
standards), the information relating to MuniYield New York Insured II appearing
in the N-14 Registration Statement, which information is expressed in dollars
(or percentages derived from such dollars) concerning MuniYield New York Insured
II (with the exception of performance comparisons, if any), if any, has been
obtained from the accounting records of MuniYield New York Insured II or from
schedules prepared by officials of MuniYield New York Insured II having
responsibility for financial and reporting matters and such information is in
agreement with such records, schedules or computations made therefrom.
(j) That MuniVest New York Insured shall have received from Ernst & Young
LLP a letter dated as of the effective date of the N-14 Registration Statement
and a similar letter dated within five days prior to the Exchange Date, in form
and substance satisfactory to MuniVest New York Insured, to the effect that (i)
they are independent public accountants with respect to MuniYield New York
Insured III 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 New York Insured III
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
MuniVest New York Insured, MuniYield New York Insured II and MuniYield New York
Insured III 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 New York Insured III included in the N-14 Registration Statement,
and inquiries of certain officials of MuniYield New York Insured III 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 MuniVest New York Insured, MuniYield New York
Insured II and MuniYield New York Insured III and described in such letter (but
not an examination in accordance with generally accepted auditing standards),
the information relating to MuniYield New York Insured III appearing in the N-14
Registration Statement, which information is expressed in dollars (or
percentages derived from such dollars) concerning MuniYield New York Insured III
(with the exception of performance comparisons, if any), if any, has been
obtained from the accounting records of MuniYield New York Insured III or from
schedules prepared by officials of MuniYield New York Insured III having
responsibility for financial and reporting matters and such information is in
agreement with such records, schedules or computations made therefrom.
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(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, no other legal, administrative or other
proceeding shall be instituted or threatened which would materially affect the
financial condition of MuniYield New York Insured II or MuniYield New York
Insured III or would prohibit the Reorganization.
(l) That MuniVest New York Insured shall have received from the Commission
such orders or interpretations as Brown & Wood LLP, as counsel to MuniVest New
York Insured, deems reasonably necessary or desirable under the 1933 Act and the
1940 Act in connection with the Reorganization, provided, that such counsel
shall have requested such orders as promptly as practicable, and all such orders
shall be in full force and effect.
10. MUNIYIELD NEW YORK INSURED II CONDITIONS.
The obligations of MuniYield New York Insured II hereunder shall be subject
to the following conditions:
(a) That this Agreement shall have been adopted, and the Reorganization
shall have been approved, by all of the requisite votes set forth in Section
9(a) of this Agreement, and that all such certificates as set forth in such
Section shall have been obtained.
(b) That each of MuniVest New York Insured and MuniYield New York Insured
III shall have furnished to MuniYield New York Insured II a statement of assets,
liabilities and capital, with values determined as provided in Section 5 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 each
fund's behalf by its respective President (or any Vice President) and its
Treasurer, and a certificate of both such officers, dated the Exchange Date,
certifying that as of the Valuation Time and as of the Exchange Date there has
been no material adverse change in the financial position of the fund since
October 31, 1995, other than changes in such fund's Investments since that date
or changes in the market value of such fund's Investments.
(c) That each of MuniVest New York Insured and MuniYield New York Insured
III shall have furnished to MuniYield New York Insured II a certificate signed
by its respective 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 New York Insured or
MuniYield New York Insured III, respectively, 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 New York Insured or MuniYield New York Insured III,
respectively, 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 New York Insured shall have delivered to MuniYield New
York Insured II 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 New York Insured for the period ended
October 31, 1995 (which returns originally were prepared and filed by MuniVest
New York Insured), 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 New York Insured for the period covered thereby; and that for the
period from November 1, 1995 to and including the Exchange Date and for any
taxable year of MuniVest New York Insured ending upon the
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liquidation of MuniVest New York Insured, 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 established for
payment of such taxes, this review to be based on unaudited financial data; and
that based on such limited review, nothing has come to their attention which
caused them to believe that the taxes paid or reserves set aside for payment of
such taxes were not adequate in all material respects for the satisfaction of
Federal, state and local taxes for the period from November 1, 1995 to and
including the Exchange Date and for the final taxable year of MuniVest New York
Insured ending upon liquidation or that MuniVest New York Insured had not
qualified as a regulated investment company for Federal income tax purposes for
the period from November 1, 1995 through liquidation of MuniVest New York
Insured.
(e) That MuniYield New York Insured III shall have delivered to MuniYield
New York Insured II 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 MuniYield New York Insured III for the period ended
October 31, 1995 (which returns originally were prepared and filed by MuniYield
New York Insured III), 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
MuniYield New York Insured III for the period covered thereby; and that for the
period from November 1, 1995 to and including the Exchange Date and for any
taxable year of MuniYield New York Insured III ending upon the liquidation of
MuniYield New York Insured III, 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 established for
payment of such taxes, this review to be based on unaudited financial data; and
that based on such limited review, nothing has come to their attention which
caused them to believe that the taxes paid or reserves set aside for payment of
such taxes were not adequate in all material respects for the satisfaction of
Federal, state and local taxes for the period from November 1, 1995 to and
including the Exchange Date and for the final taxable year of MuniYield New York
Insured III ending upon liquidation or that MuniYield New York Insured III had
not qualified as a regulated investment company for Federal income tax purposes
for the period from November 1, 1995 through liquidation of MuniYield New York
Insured III.
(f) That there shall not be any material litigation pending with respect to
the matters contemplated by this Agreement.
(g) That MuniYield New York Insured II shall have received an opinion or
opinions of Brown & Wood LLP, as counsel to MuniVest New York Insured, MuniYield
New York Insured II and MuniYield New York Insured III, in form and substance
satisfactory to MuniYield New York Insured II and dated the Exchange Date, with
respect to the matters specified in Section 9(e) of this Agreement and such
other matters as MuniYield New York Insured II reasonably may deem necessary or
desirable.
(h) That MuniYield New York Insured II shall have received a private letter
ruling from the IRS with respect to the matters specified in Section 9(f) of
this Agreement.
(i) That MuniYield New York Insured II shall have received from Ernst &
Young LLP a letter dated as of the effective date of the N-14 Registration
Statement and a similar letter dated within five days prior to the Exchange
Date, in form and substance satisfactory to MuniYield New York Insured II, to
the effect that (i) they are independent public accountants with respect to
MuniVest New York Insured within the meaning of the 1933 Act and the applicable
published rules and regulations thereunder; (ii) in their opinion, the
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financial statements and supplementary information of MuniVest New York Insured
included or incorporated by reference in the N-14 Registration Statement and
reported on by them comply as to form in all material respects with the
applicable accounting requirements of the 1933 Act and the published rules and
regulations thereunder; (iii) on the basis of limited procedures agreed upon by
MuniVest New York Insured, MuniYield New York Insured II and MuniYield New York
Insured III 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 New York Insured included in the N-14 Registration Statement, and
inquiries of certain officials of MuniVest New York Insured responsible for
financial and accounting matters, nothing came to their attention that caused
them to believe that (a) such unaudited financial statements and related
unaudited supplementary information do not comply as to form in all material
respects with the applicable accounting requirements of the 1933 Act and the
published rules and regulations thereunder, (b) such unaudited financial
statements are not fairly presented in conformity with generally accepted
accounting principles, applied on a basis substantially consistent with that of
the audited financial statements, or (c) such unaudited supplementary
information is not fairly stated in all material respects in relation to the
unaudited financial statements taken as a whole; and (iv) on the basis of
limited procedures agreed upon by MuniVest New York Insured, MuniYield New York
Insured II and MuniYield New York Insured III and described in such letter (but
not an examination in accordance with generally accepted auditing standards),
the information relating to MuniVest New York Insured appearing in the N-14
Registration Statement, which information is expressed in dollars (or
percentages derived from such dollars) concerning MuniVest New York Insured
(with the exception of performance comparisons, if any), if any, has been
obtained from the accounting records of MuniVest New York Insured or from
schedules prepared by officials of MuniVest New York Insured having
responsibility for financial and reporting matters and such information is in
agreement with such records, schedules or computations made therefrom.
(j) That MuniYield New York Insured II shall have received from Ernst &
Young LLP a letter dated as of the effective date of the N-14 Registration
Statement and a similar letter dated within five days prior to the Exchange
Date, in form and substance satisfactory to MuniYield New York Insured II, with
respect to the matters pertaining to MuniYield New York Insured III specified in
Section 9(j) of this Agreement.
(k) That the MuniVest New York Investments and the MuniYield New York III
Investments to be transferred to MuniYield New York Insured II shall not include
any assets or liabilities which MuniYield New York Insured II, by reason of
charter limitations or otherwise, may not properly acquire or assume.
(l) 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 New York Insured or MuniYield New
York Insured III, contemplated by the Commission.
(m) 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, no other legal, administrative or other
proceeding shall be instituted or threatened which would materially affect the
financial condition of MuniVest New York Insured or MuniYield New York Insured
III or would prohibit the Reorganization.
(n) That MuniYield New York Insured II shall have received from the
Commission such orders or interpretations as Brown & Wood LLP, as counsel to
MuniYield New York Insured II, deems reasonably necessary or desirable under the
1933 Act and the 1940 Act in connection with the Reorganization, provided,
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that such counsel shall have requested such orders as promptly as practicable,
and all such orders shall be in full force and effect.
(o) That all proceedings taken by MuniVest New York Insured, MuniYield New
York Insured III and their counsel in connection with the Reorganization and all
documents incidental thereto shall be satisfactory in form and substance to
MuniYield New York Insured II.
(p) That prior to the Exchange Date, each of MuniVest New York Insured and
MuniYield New York Insured III 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 for the
period from November 1, 1995 to and including the Exchange Date, if any
(computed without regard to any deduction or dividends paid), and all of its net
capital gain, if any, realized for the period from November 1, 1995 to and
including the Exchange Date. In this regard, the last dividend period for the
MuniVest New York Insured AMPS and the MuniYield New York Insured III 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.
11. MUNIYIELD NEW YORK INSURED III CONDITIONS.
The obligations of MuniYield New York Insured III hereunder shall be
subject to the following conditions:
(a) That this Agreement shall have been adopted, and the Reorganization
shall have been approved, by all of the requisite votes set forth in Section
9(a) of this Agreement, and that all such certificates as set forth in such
Section shall have been obtained.
(b) That each of MuniVest New York Insured and MuniYield New York Insured
II shall have furnished to MuniYield New York Insured III a statement of assets,
liabilities and capital, with values determined as provided in Section 5 of this
Agreement, together with a schedule of its respective investments, all as of the
Valuation Time, certified on each fund's behalf by its respective President (or
any Vice President) and its Treasurer, and a certificate signed by the fund's
President (or any Vice President) and its Treasurer, dated as of the Exchange
Date, certifying that as of the Valuation Time and as of the Exchange Date there
has been no material adverse change in the financial position of the fund since
October 31, 1995, other than changes in its portfolio securities since that date
or changes in the market value of its portfolio securities.
(c) That each of MuniVest New York Insured and MuniYield New York Insured
II shall have furnished to MuniYield New York Insured III a certificate signed
by its respective 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 MuniVest New York Insured or
MuniYield New York Insured II, respectively, 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 MuniVest New York Insured or MuniYield New York Insured II,
respectively, 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 date.
(d) That there shall not be any material litigation pending with respect to
the matters contemplated by this Agreement.
(e) That MuniYield New York Insured III shall have received an opinion or
opinions of Brown & Wood LLP, as counsel to MuniVest New York Insured, MuniYield
New York Insured II and MuniYield New York
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Insured III, in form and substance satisfactory to MuniYield New York Insured
III and dated the Exchange Date, with respect to the matters specified in
Section 9(e) of this Agreement and such other matters as MuniYield New York
Insured III reasonably may deem necessary or desirable.
(f) That MuniYield New York Insured III shall have received a private
letter ruling from the IRS with respect to the matters specified in Section 9(f)
of this Agreement.
(g) That all proceedings taken by MuniVest New York Insured, MuniYield New
York Insured II and their counsel in connection with the Reorganization and all
documents incidental thereto shall be satisfactory in form and substance to
MuniYield New York Insured III.
(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 MuniVest New York Insured or MuniYield New
York Insured II, contemplated by the Commission.
(i) That MuniYield New York Insured III shall have received from Ernst &
Young LLP a letter dated as of the effective date of the N-14 Registration
Statement and a similar letter dated within five days prior to the Exchange
Date, in form and substance satisfactory to MuniYield New York Insured III, with
respect to the matters pertaining to MuniVest New York Insured specified in
Section 10(i) of this Agreement.
(j) That MuniYield New York Insured III shall have received from Deloitte &
Touche LLP a letter dated as of the effective date of the N-14 Registration
Statement and a similar letter dated within five days prior to the Exchange
Date, in form and substance satisfactory to MuniYield New York Insured III, with
respect to the matters pertaining to MuniYield New York Insured II specified in
Section 9(j) of this Agreement.
(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, no other legal, administrative or other
proceeding shall be instituted or threatened which would materially affect the
financial condition of MuniVest New York Insured or MuniYield New York Insured
II or would prohibit the Reorganization.
(l) That MuniYield New York Insured III shall have received from the
Commission such orders or interpretations as Brown & Wood LLP, as counsel to
MuniYield New York Insured III, 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.
12. TERMINATION, POSTPONEMENT AND WAIVERS.
(a) Notwithstanding anything contained in this Agreement to the contrary,
this Agreement may be terminated and the Reorganization abandoned at any time
(whether before or after adoption thereof by the stockholders of each of
MuniVest New York Insured, MuniYield New York Insured II or MuniYield New York
Insured III) prior to the Exchange Date, or the Exchange Date may be postponed,
(i) by mutual consent of the Boards of Directors of MuniVest New York Insured,
MuniYield New York Insured II and MuniYield New York Insured III; (ii) by the
Board of Directors of MuniVest New York Insured if any condition of MuniVest New
York Insured's obligations set forth in Section 9 of this Agreement has not been
fulfilled or waived by such Board; (iii) by the Board of Directors of MuniYield
New York Insured II if any
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condition of MuniYield New York Insured II's obligations set forth in Section 10
of this Agreement has not been fulfilled or waived by such Board; or (iii) by
the Board of Directors of MuniYield New York Insured III if any condition of
MuniYield New York Insured III's obligations set forth in Section 11 of this
Agreement has not been fulfilled or waived by such Board.
(b) If the transactions contemplated by this Agreement have not been
consummated by June 30, 1997, this Agreement automatically shall terminate on
that date, unless a later date is mutually agreed to by the Boards of Directors
of MuniVest New York Insured, MuniYield New York Insured II and MuniYield New
York Insured III.
(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 either MuniVest New York
Insured, MuniYield New York Insured II or MuniYield New York Insured III 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 MuniVest New York
Insured, MuniYield New York Insured II or MuniYield New York Insured III
(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 MuniVest New York Insured, MuniYield New
York Insured II and MuniYield New York Insured III have delegated to Fund Asset
Management, L.P. the ability to make non-material changes to the transaction if
it deems it to be in the best interests of MuniVest New York Insured, MuniYield
New York Insured II and MuniYield New York Insured III to do so.
(e) The respective representations and warranties contained in Sections 1,
2 and 3 of this Agreement shall expire with, and be terminated by, the
consummation of the Reorganization, and neither MuniVest New York Insured,
MuniYield New York Insured II nor MuniYield New York Insured III nor any of
their officers, directors or 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 or trustee, agent
or stockholder of MuniVest New York Insured, MuniYield New York Insured II or
MuniYield New York Insured III against any liability to the entity for which
that officer, director or trustee, agent or stockholder so acts or to its
stockholders to which that officer, director or 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 MuniVest
New York Insured, MuniYield New York Insured II and MuniYield New York Insured
III 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 MuniVest
New York Insured, MuniYield New York Insured II and MuniYield New York Insured
III, unless such terms and conditions shall result in a change in the method of
computing the number of shares of MuniYield New York Insured II Common Stock,
MuniYield New York Insured II Series B AMPS and MuniYield New York Insured II
Series C AMPS to be issued to MuniVest New York Insured and MuniYield New York
Insured III in which event, unless such terms and conditions shall have been
included in the proxy solicitation materials furnished to the stockholders of
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MuniVest New York Insured, MuniYield New York Insured II and MuniYield New York
Insured III prior to the meetings at which the Reorganization shall have been
approved, this Agreement shall not be consummated and shall terminate unless
MuniVest New York Insured, MuniYield New York Insured II and MuniYield New York
Insured III promptly shall call special meetings of stockholders at which such
conditions so imposed shall be submitted for approval.
13. 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 New York Insured II will cause to be affixed upon the
certificate(s) issued to such person (if any) a legend as follows:
THESE SHARES ARE SUBJECT TO RESTRICTIONS ON TRANSFER UNDER THE
SECURITIES ACT OF 1933 AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED
EXCEPT TO MUNIYIELD NEW YORK INSURED FUND II, 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 New
York Insured II's transfer agent with respect to such shares. MuniVest New York
Insured and MuniYield New York Insured III will provide MuniYield New York
Insured II on the Exchange Date with the name of any MuniVest New York Insured
stockholder or MuniYield New York Insured III stockholder who is to the
knowledge of such funds an affiliate of it 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 deemed to have been given if
delivered or mailed, first class postage prepaid, addressed to MuniVest New York
Insured, MuniYield New York Insured II or MuniYield New York Insured III, in
each case at 800 Scudders Mill Road, Plainsboro, New Jersey 08536, Attn: Arthur
Zeikel, 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, of MuniVest New
York Insured, MuniYield New York Insured II and MuniYield New York Insured III
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.
MUNIVEST NEW YORK INSURED FUND, INC.
<TABLE>
<S> <C>
Attest: By: /s/ ARTHUR ZEIKEL
/s/ MARK B. GOLDFUS -----------------------------------------
- ------------------------------------------- Arthur Zeikel
Mark B. Goldfus President
Secretary
</TABLE>
MUNIYIELD NEW YORK INSURED FUND II,
INC.
<TABLE>
<S> <C>
Attest: By: /s/ ARTHUR ZEIKEL
/s/ MARK B. GOLDFUS -----------------------------------------
- ------------------------------------------- Arthur Zeikel
Mark B. Goldfus President
Secretary
</TABLE>
MUNIYIELD NEW YORK INSURED FUND III,
INC.
<TABLE>
<S> <C>
Attest: By: /s/ ARTHUR ZEIKEL
/s/ MARK B. GOLDFUS -----------------------------------------
- ------------------------------------------- Arthur Zeikel
Mark B. Goldfus President
Secretary
</TABLE>
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EXHIBIT II
ECONOMIC CONDITIONS IN NEW YORK
The following information is a brief summary of factors affecting the
economy of the State of New York 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 publicly available offering statements relating
to debt offerings of state issuers; however, it has not been updated nor will it
be updated during the year. The Funds have not independently verified the
information.
In recent years, New York State (sometimes referred to herein as the
"State" or "New York"), some of its agencies, instrumentalities and public
authorities and certain of its municipalities have faced serious financial
difficulties that could have an adverse effect on the sources of payment for, or
the market value of, the New York Municipal Bonds in which each Fund invests.
NEW YORK CITY
General. More than any other municipality, the fiscal health of New York
City (sometimes referred to as the "City") has a significant effect on the
fiscal health of the State. The national economic downturn which began in July
1990 adversely affected the local economy, which had been declining since late
1989. As a result, the City experienced job losses in 1990 and 1991 and real
Gross City Product ("GCP") fell in those two years. Beginning in calendar year
1992, the improvement in the national economy helped stabilize conditions in the
City. Employment losses moderated toward year-end and real GCP increased,
boosted by strong wage gains. However, after noticeable improvements in the
City's economy during the calendar year 1994, economic growth slowed in calendar
year 1995, and the City's current four-year financial plan assumes that moderate
economic growth will continue through calendar year 2000.
For each of the 1981 through 1995 fiscal years, the City achieved balanced
operating results as reported in accordance with generally accepted accounting
principles ("GAAP"). The City was required to close substantial budget gaps in
recent fiscal years in order to maintain balanced operating results. For the
City's 1995 fiscal year, the City adopted a budget which halted the trend in
recent years of substantial increases in City spending from one year to the
next. There can be no assurance that the City will continue to maintain a
balanced budget as required by State law without additional reductions in City
services or entitlement programs or tax or other revenue increases which could
adversely affect the City's economic base.
Pursuant to the laws of the State, the Mayor is responsible for preparing
the City's four-year financial plan, including the City's current financial plan
for the 1997 through 2000 fiscal years (the "1997-2000 Financial Plan" or the
"City Financial Plan"). The City's projections set forth in the City Financial
Plan are based on various assumptions and contingencies which are uncertain and
which may not materialize. Changes in major assumptions could significantly
affect the City's ability to balance its budget as required by State law and to
meet its annual cash flow and financing requirements.
Implementation of the City Financial Plan is also dependent upon the City's
ability to market its securities successfully in the public credit markets. The
City's financing program for fiscal years 1997 through 2000 contemplates the
issuance of $5.7 billion of general obligation bonds and $4.5 billion of bonds
to be issued by the proposed New York City Infrastructure Finance Authority,
primarily to reconstruct and
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rehabilitate the City's infrastructure and physical assets and to make capital
investments. The creation of the Infrastructure Finance Authority, which is
subject to the enactment of legislation by the State, is being proposed by the
City as part of the City's effort to avoid certain State constitutional
limitations on the amount of debt the City is authorized to issue. In addition,
the City issues revenue notes and tax anticipation notes to finance its seasonal
working capital requirements. The success of projected public sales of City
bonds and notes will be subject to prevailing market conditions, and no
assurance can be given that such sales will be completed. If the City were
unable to sell its general obligation bonds and notes, it would be prevented
from meeting its planned operating and capital expenditures.
1997-2000 Financial Plan. The City Financial Plan for the 1997 through
2000 fiscal years projects revenues and expenditures for the 1997 fiscal year
(July 1, 1996-June 30, 1997) for the City balanced in accordance with GAAP and
reflects proposed actions to close a previously projected budget gap of
approximately $2.6 billion. Such gap closing actions primarily include spending
reductions for Medicaid and welfare programs, City agency spending reductions,
additional State aid, pension and debt service savings and the sale of certain
City assets. The City Financial Plan also sets forth projections for the 1998
through 2000 fiscal years and outlines a proposed gap-closing program to close
projected budget gaps of $1.7 billion, $2.7 billion and $3.4 billion for the
1998 through 2000 fiscal years, respectively, after successful implementation of
the gap-closing program for the 1997 fiscal year.
The City's projections set forth in the City Financial Plan are based on
various assumptions and contingencies which are uncertain and which may not
materialize. Changes in major assumptions could significantly affect the City's
ability to balance its budget as required by State law and to meet its annual
cash flow and financing requirements. Such assumptions and contingencies include
the condition of the regional and local economies, the impact on real estate tax
revenues of the real estate market, employment growth, wage increases for City
employees consistent with those assumed in the City Financial Plan, continuation
of interest earnings assumptions for pension fund assets, the ability of the
City's hospital and education entities to maintain balanced budgets, provision
of State and Federal aid, the impact of Federal welfare reforms on City revenues
and adoption of the budget by the City Council in substantially the form
submitted by the Mayor. The City Financial Plan also assumes the timely
extension by the State Legislature of the current rate structures for personal
income, corporation and sales taxes imposed by the City.
The City Financial Plan is also subject to the ability of the City to
implement the expenditure reductions, sell the assets and obtain the debt
service savings outlined in the City Financial Plan. In addition, the City may
incur expenditures which exceed those projected in the City Financial Plan.
There can be no assurance that additional gap-closing measures will not be
required to enable the City to achieve a balanced budget in a particular fiscal
year. Certain of the proposed actions are subject to negotiation with the City's
municipal unions. Various other actions proposed for the 1998 through 2000
fiscal years are subject to approval by the Governor and the State Legislature
and the proposed reductions in spending for entitlement programs may be subject
to legal challenge.
The City depends on the State for State aid both to enable the City to
balance its budget and to meet its cash requirements. If the State experiences
revenue shortfalls or spending increases beyond its projections during the
current or subsequent fiscal years, such developments could result in reductions
in anticipated State aid to the City. In addition, there can be no assurance
that State budgets in any given State fiscal year will be adopted by the April 1
statutory deadline and that there will not be adverse effects on the City's cash
flow and additional City expenditures as a result of such reductions or delays.
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The City's financial plans have been the subject of extensive public
comment and criticism. On July 16, 1996, the City Comptroller issued a report on
the City Financial Plan which identified budget risks of up to $941 million,
$2.58 billion, $3.53 billion and $4.31 billion for the City's 1997, 1998, 1999
and 2000 fiscal years, respectively. On July 18, 1996, the New York State
Financial Control Board issued a report on the City Financial Plan which
identified budget risks of $594 million, $1.08 billion, $851 million and $813
million for the City's 1997, 1998, 1999 and 2000 fiscal years, respectively. On
July 18, 1996, the Office of the State Deputy Comptroller of New York issued a
report on the City Financial Plan which identified budget risks of up to $848
million, $1.39 billion, $1.09 billion and $1.12 billion for the City's 1997,
1998, 1999 and 2000 fiscal years, respectively. Each of the reports noted that
the City Financial Plan achieves budget balance for the 1997 fiscal year only
with the inclusion of approximately $1.5 billion in non-recurring resources. It
is reasonable to expect that such reports will continue to be issued and to
engender public comment.
Ratings. As of August 15, 1996, Moody's Investors Service, Inc.
("Moody's") rated the City's outstanding general obligation bonds "Baa1",
Standard & Poor's Ratings Group ("Standard & Poor's") rated such bonds "BBB+"
and Fitch Investors Service, Inc. ("Fitch") rated such bonds "A-". On February
28, 1996, Fitch placed the City's general obligation bonds on FitchAlert with
negative implications. On July 10, 1995, Standard & Poor's revised downward its
ratings on outstanding general obligation bonds of the City from "A-" to "BBB+".
Such ratings reflect only the view of Moody's, Standard & Poor's and Fitch, from
which an explanation of the significance of such ratings may be obtained. There
is no assurance that such ratings will continue for any given period of time or
that they will not be revised downward or withdrawn entirely. Any such downward
revision or withdrawal could have an adverse effect on the market prices of City
bonds.
Outstanding Indebtedness. As of June 30, 1996, the City had approximately
$25.05 billion of long-term debt and as of June 30, 1995, the New York City
Municipal Water Finance Authority (the "Water Authority") had approximately
$6.05 billion of net long-term debt.
Debt service on Water Authority obligations is secured by fees and charges
collected from the users of the City's water and sewer system. State and Federal
regulations require the City's water supply to meet certain standards to avoid
filtration. The City's water supply now meets all technical standards and the
City's current efforts are directed toward protection of the watershed area. The
City has taken the position that increased regulatory, enforcement and other
efforts to protect its water supply, relating to such matters as land use and
sewage treatment, will preserve the high quality of water in the upstate water
supply system and prevent the need for filtration. The U.S. Environmental
Protection Agency has granted the City a waiver of filtration regulations
through 1999. If filtration of the City's water supply is ultimately required,
the capital expenditure required could be between $4 billion and $5 billion.
Such an expenditure could cause significant increases in City water and sewer
charges.
Litigation. The City is a defendant in a significant number of lawsuits.
Such litigation includes, but is not limited to, routine litigation incidental
to the performance of its governmental and other functions, actions commenced
and claims asserted against the City arising out of alleged constitutional
violations, alleged torts, alleged breaches of contracts and other alleged
violations of law and condemnation proceedings and other tax and miscellaneous
actions. While the ultimate outcome and fiscal impact, if any, on the
proceedings and claims are not currently predictable, adverse determination in
certain of them might have a material adverse effect upon the City's ability to
carry out the City Financial Plan. As of June 30, 1995, the City estimated its
potential future liability on account of all outstanding claims to be
approximately $2.5 billion.
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NEW YORK STATE
Current Economic Outlook. The national economy has resumed a more robust
rate of growth after a "soft landing" in 1995, with over 11 million jobs added
nationally since early 1992. The State economy has continued to expand, but
growth remains somewhat slower than in the nation. Although the State has added
approximately 240,000 jobs since late 1992, employment growth in the State has
been hindered during recent years by significant cutbacks in the computer and
instrument manufacturing, utility, defense and banking industries. Government
downsizing has also moderated these job gains.
The State expects modest economic growth in New York's economy during the
first half of the 1996 calendar year, but some slowdown is projected during the
second half of the year due to government cutbacks and tight fiscal constraints
on health and social services. On an average annual basis, the State's
employment growth is expected to be up slightly and personal income is expected
to record moderate gains from the 1995 rate. Overall employment growth is
projected to be 0.9 percent in 1996 and 0.6 percent in 1997 while personal
income growth is projected to be 6.2 percent in 1996 and 6.0 percent in 1997.
State Financial Plan for the 1996-1997 Fiscal Year. The State's budget for
the 1996-97 fiscal year (April 1, 1996 -March 31, 1997) was enacted by the
Legislature on July 13, 1996, more than three months after the start of the
fiscal year. Prior to adoption of the budget, the Legislature enacted
appropriations for disbursements considered to be necessary for State operations
and other purposes, including necessary appropriations for all State-supported
debt service. The State Financial Plan for the 1996-97 fiscal year (the "State
Financial Plan") is based on the State's budget as enacted by the Legislature
and signed into law by the Governor, as well as actual results for the first
quarter of the 1996-1997 fiscal year.
The State Financial Plan projects a General Fund balanced on a cash basis
with total projected receipts of $33.173 billion and total disbursements of
$33.123 billion, representing increases of $365 million and $444 million,
respectively, from the prior fiscal year. The State Financial Plan includes gap
closing actions to offset a previously projected budget gap of $3.9 billion for
the 1996-1997 fiscal year. Such gap closing actions include reductions in the
State workforce, spending reductions in health care and education programs,
projected increases in tax collections, pension and debt service savings and the
use of certain reserve funds. There can no assurance that additional gap closing
measures will not be required and there is no assurance that any such measures
will enable the State to achieve a balanced budget for its 1996-1997 fiscal
year.
The State Financial Plan is based upon forecasts of national and State
economic activity. Economic forecasts have frequently failed to predict
accurately the timing and magnitude of changes in the national and State
economies. Many uncertainties exist in forecasts of both the national and State
economies, including consumer attitudes toward spending, Federal financial and
monetary policies, the availability of credit and the condition of the world
economy, which could have an adverse effect on the State. There can be no
assurance that the State economy will not experience worse-than-predicted
results in the 1996-1997 and subsequent fiscal years, with corresponding
material and adverse effects on the State's projections of receipts and
disbursements.
Owing to these and other factors, the State may face substantial potential
budget gaps in future years resulting from a significant disparity between tax
revenues from a lower recurring receipts base and the spending required to
maintain State programs at mandated levels. Any such recurring imbalance would
be exacerbated by the use by the State of nonrecurring resources to achieve
budgetary balance in a particular fiscal year. To correct any recurring
budgetary imbalance, the State would need to take significant actions to
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align recurring receipts and disbursements in future fiscal years. There can be
no assurance, however, that the State's actions will be sufficient to preserve
budget balances in the then-current or future fiscal years.
The State Financial Plan contains actions that provide nonrecurring
resources or savings as well as actions that impose baseline losses of receipts.
The Division of the Budget estimates the net amount of nonrecurring resources
used in the State Financial Plan to be at least $1.3 billion. In addition to
these nonrecurring actions, the adoption of a three-year 20% reduction in the
State's personal income tax in 1995 in combination with business tax reductions
enacted in 1994 will reduce State tax receipts by as much as $4.5 billion by the
1997-1998 fiscal year.
1995-1996 Fiscal Year. The State ended its 1995-1996 fiscal year in
balance, with a reported 1995-1996 General Fund cash surplus of $445 million.
Prior to adoption of the State's 1995-1996 fiscal year budget, the State had
projected a potential budget gap of approximately $5 billion, which was closed
primarily through spending reductions, cost containment measures, State agency
actions and local assistance reforms.
1994-1995 Fiscal Year. In July, 1995, the State Comptroller issued its
audit of the State's 1994-1995 fiscal year prepared in accordance with generally
accepted auditing standards. The State completed its 1994-1995 fiscal year with
a General Fund operating deficit of $1.426 billion, as compared with an
operating surplus of $914 million for the previous fiscal year. The 1994-1995
fiscal year deficit was caused by several factors, including the use of $1.026
billion of the 1993-1994 fiscal year surplus in the 1994-1995 fiscal year and
the adoption of changes in accounting methodologies by the State Comptroller.
Local Government Assistance Corporation. In 1990, as part of a state
fiscal reform program, legislation was enacted creating the Local Government
Assistance Corporation ("LGAC"), a public benefit corporation empowered to issue
long-term obligations to fund certain payments to local governments
traditionally funded through the State's annual seasonal borrowing. As of June
1995, LGAC has issued bonds to provide net proceeds of $4.7 billion completing
the program. The impact of LGAC's borrowing is that the State is able to meet
its cash flow needs without relying on short-term seasonal borrowing.
Financing Activities. State financing activities include general
obligation debt of the State and State-guaranteed debt, to which the full faith
and credit of the State has been pledged, as well as lease-purchase and
contractual-obligation financings, moral obligation financings and other
financings through public authorities and municipalities, where the State's
obligation to make payments for debt service is generally subject to annual
appropriation by the State Legislature.
As of March 31, 1996, the total amount of outstanding general obligation
debt was approximately $5.047 billion, including $293 million in Bond
Anticipation Notes; the total amount of moral obligation debt was approximately
$7.269 billion; and $20.343 billion of bonds issued primarily in connection with
lease-purchase and contractual-obligation financing of State capital programs
were outstanding.
Public Authorities. The fiscal stability of the State is related, in part,
to the fiscal stability of its public authorities. The State anticipates that
its capital programs will be financed, in part, by State and public authorities
borrowings in the 1996-1997 fiscal year. Public authorities are not subject to
the constitutional restrictions on the incurrence of debt which apply to the
State itself, and may issue bonds and notes within the amounts of, and as
otherwise restricted by, their legislative authorization. As of September 30,
1995, the latest data available, there were 17 public authorities that had
outstanding debt of $100 million or more and the aggregate outstanding debt,
including refunding bonds, of these 17 public authorities was $73.45 billion.
The
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State's access to the public credit markets could be impaired and the market
price of its outstanding debt may be adversely affected, if any of its public
authorities were to default in their respective obligations.
Ratings. Currently, Moody's, Standard & Poor's and Fitch rate New York
State's outstanding general obligation bonds "A", "A-" and "A+", respectively.
Ratings reflect only the respective views of such organizations, and an
explanation of the significance of such ratings must be obtained from the rating
agency furnishing the same. There is no assurance that a particular rating will
continue for any given period of time or that any such rating will not be
revised downward or withdrawn entirely if, in the judgment of the agency
originally establishing the rating, circumstances so warrant. A downward
revision or withdrawal of such ratings may have an effect on the market price of
the New York Municipal Bonds in which each Fund invests.
Litigation. The State is a defendant in numerous legal proceedings
including, but not limited to, claims asserted against the State arising from
alleged torts, alleged breaches of contracts, condemnation proceedings and other
alleged violations of State and Federal laws. State programs are frequently
challenged on State and Federal constitutional grounds. Adverse developments in
legal proceedings or the initiation of new proceedings could affect the ability
of the State to maintain a balanced State Financial Plan in any given fiscal
year. The State believes that the State Financial Plan includes sufficient
reserves for the payment of judgments that may be required during the 1996-1997
fiscal year. There can be no assurance, however, that an adverse decision in one
or more legal proceedings would not exceed the amount of such reserves for the
payment of judgments or materially impair the State's financial operations.
Other Localities. Certain localities in addition to the City could have
financial problems leading to requests for additional State assistance during
the State's 1996-1997 fiscal year and thereafter. The potential impact on the
State of such actions by localities is not included in the projections of the
State receipts and disbursements in the State's 1996-1997 fiscal year.
Fiscal difficulties experienced by the City of Yonkers ("Yonkers") resulted
in the creation of the Financial Control Board for Yonkers (the "Yonkers Board")
by the State in 1984. The Yonkers Board is charged with oversight of the fiscal
affairs of Yonkers. Future actions taken by the Governor or the State
Legislature to assist Yonkers could result in allocation of State resources in
amounts that cannot yet be determined.
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EXHIBIT III
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 as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A -- Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment 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 the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Caa -- Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to principal
or interest.
Ca -- Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
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.
Con. (...) -- Bonds for which the security depends upon the completion of
some act or the fulfillment of some condition are rated conditionally. These are
bonds secured by (a) earnings of projects under construction, (b) earnings of
projects unseasoned in operation experience, (c) rentals which begin when
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facilities are completed, or (d) payments to which some other limiting condition
attaches. Parenthetical rating denotes probable credit stature upon completion
of construction or elimination of basis of condition.
Note: Those bonds in the Aa, A, Baa, Ba and B groups which Moody's believes
possess the strongest investment attributes are designated by the symbols Aa1,
A1, Baa1, Ba1 and B1.
Short-term Notes and Variable Rate Demand Obligations: The four ratings of
Moody's for short-term notes and VRDOs are MIG-1/VMIG-1, MIG-2/VMIG-2,
MIG-3/VMIG-3, and MIG-4/VMIG-4; 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"; MIG-4/VMIG-4 instruments are of "adequate quality, carrying specific
risk but having protection . . . and not distinctly or predominantly
speculative".
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 related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. Prime-1 repayment
capacity will normally 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 earnings 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 related supporting institutions) have a strong
capacity 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 related supporting institutions) have an
acceptable capacity 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 in
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 RATINGS GROUP'S ("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 obligation. This
assessment may take into consideration obligors such as guarantors, insurers, or
lessees.
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The debt rating is not a recommendation to purchase, sell or hold a
security, 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 for other reasons.
The ratings are based, in varying degrees, on the following considerations:
I. Likelihood of default-capacity and willingness of the obligor as
to the timely payment of interest and repayment of principal in accordance
with the terms of the obligation;
II. Nature of and provisions of the obligation;
III. Protection afforded to, and relative position of, the obligation
in the event of bankruptcy, reorganization or other arrangement under the
laws of bankruptcy and other laws affecting creditors' rights.
AAA -- Debt rated "AAA" has the highest rating assigned by Standard &
Poor's. Capacity to pay interest and repay principal is extremely
strong.
AA -- Debt rated "AA" has a very strong capacity to pay interest and
repay principal and differs from the highest rated issues only in small
degree.
A -- Debt rated "A" has a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than debt in
higher-rated categories.
BBB -- Debt rated "BBB" is regarded as having an adequate capacity to
pay interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than for debt in
higher-rated categories.
BB, B, CCC, CC, C -- Debt rated "BB", "B", "CCC", "CC" and "C" is
regarded, on balance, as predominately speculative with respect to
capacity to pay interest and repay principal in accordance with the
terms of the obligation. "BB" indicates the lowest degree of speculation
and "C" the highest degree of speculation. While such debt will likely
have some quality and protective characteristics, these are outweighed
by large uncertainties or major risk exposures to adverse conditions.
BB -- Debt rated "BB" has less near-term vulnerability to default than
other speculative issues. However, it faces major ongoing uncertainties
or exposure to adverse business, financial, or economic conditions which
could lead to inadequate capacity to meet timely interest and principal
payments. The "BB" rating category is also used for debt subordinated to
senior debt that is assigned an actual or implied "BBB-" rating.
B -- Debt rated "B" has a greater vulnerability to default but currently
has the capacity to meet interest payments and principal repayments.
Adverse business, financial, or economic conditions will
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likely impair capacity or willingness to pay interest and repay
principal. The "B" rating category is also used for debt subordinated to
senior debt that is assigned an actual or implied "BB" or "BB-" rating.
CCC -- Debt rated "CCC" has a currently identifiable vulnerability to
default, and is dependent upon favorable business, financial and
economic conditions to meet timely payment of interest and repayment of
principal. In the event of adverse business, financial, or economic
conditions, it is not likely to have the capacity to pay interest and
repay principal. The "CCC" rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied "B" or
"B-" rating.
CC -- The rating "CC" is typically applied to debt subordinated to
senior debt that is assigned an actual or implied "CCC" rating.
C -- The rating "C" is typically applied to debt subordinated to senior
debt which is assigned an actual or implied "CCC-" debt rating. The "C"
rating may be used to cover a situation where a bankruptcy petition has
been filed but debt service payments are continued.
C1 -- The rating "C1" is reserved for income bonds on which no interest
is being paid.
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. The "D" rating also will be used upon the filing of a
bankruptcy petition if debt service payments are jeopardized.
Plus (+) or Minus (-): The ratings from "AA" to "CCC" may be modified by
the addition of a plus or minus sign to show relative standing within the major
rating categories.
DESCRIPTION OF STANDARD & POOR'S COMMERCIAL PAPER RATINGS
A Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more than
365 days. Ratings are graded into several categories, ranging from "A-1" for the
highest quality obligations to "D" for the lowest. The three designations in the
"A" category are as follows:
A-1 -- This highest category indicates that the degree of safety
regarding timely payment is strong. Those issues determined to possess
extremely strong safety characteristics are denoted with a "+" 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.
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D -- Debt rated "D" is in payment default. The "D" rating category is
used when interest payments or principal payments are not made on the date
due, even if the applicable grace period has not expired, unless Standard &
Poor's believes that such payments will be made during such grace period.
A commercial paper rating is not a recommendation to purchase or sell a
security. The ratings are based on current information furnished to Standard &
Poor's by the issuer or obtained 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 municipal note rating reflects the liquidity concerns
and market access risks unique to such notes. Notes due in three years or less
will likely receive a note rating. Notes maturing beyond three years will most
likely receive a long-term debt rating. The following criteria will be used in
making that assessment.
Amortization schedule (the larger the final maturity relative to other
maturities, the more likely it will be treated as a note).
Source of payment (the more dependent the issue is on the market for its
refinancing, the more likely it will be treated as a note).
Note rating symbols are as follows:
SP-1 A very strong, or strong, capacity to pay principal and interest.
Issues that possess overwhelming safety characteristics will be given
a "+" designation.
SP-2 A satisfactory capacity to pay principal and interest.
SP-3 A speculative capacity to pay principal and interest.
DESCRIPTION OF FITCH INVESTORS SERVICE, INC.'S ("FITCH") INVESTMENT GRADE BOND
RATINGS
Fitch investment grade bond ratings provide a guide to investors in
determining the credit risk associated with a particular security. The rating
represents Fitch's assessment of the issuer's ability to meet the obligations of
a specific debt issue or class of debt in a timely manner.
The rating takes into consideration special features of the issue, its
relationship to other obligations of the issuer, the current and prospective
financial condition and operating performance of the issuer and any guarantor,
as well as the economic and political environment that might affect the issuer's
future financial strength and credit quality.
Fitch ratings do not reflect any credit enhancement that may be provided by
insurance policies or financial guarantees unless otherwise indicated.
Bonds that have the same rating are of similar but not necessarily
identical credit quality since the rating categories do not fully reflect small
differences in the degrees of credit risk.
Fitch ratings are not recommendations to buy, sell, or hold any security.
Ratings do not comment on the adequacy of market price, the suitability of any
security for a particular investor, or the tax-exempt nature or taxability of
payments made in respect of any security.
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Fitch ratings are based on information obtained from issuers, other
obligors, underwriters, their experts, and other sources Fitch believes to be
reliable. Fitch does not audit or verify the truth or accuracy of such
information. Ratings may be changed, suspended, or withdrawn as a result of
changes in, or the unavailability of, information or for other reasons.
AAA -- Bonds considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by
reasonably foreseeable events.
AA -- Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated "AAA". Because bonds
rated in the "AAA" and "AA" categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is
generally rated "F-1+".
A -- Bonds considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.
BBB -- Bonds considered to be investment grade and of satisfactory
credit quality. The obligor's ability to pay interest and repay principal
is considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these
bonds, and therefore impair timely payment. The likelihood that the ratings
of these bonds will fall below investment grade is higher than for bonds
with higher ratings.
Plus (+) or Minus (-): Plus and minus signs are used with a rating symbol
to indicate the relative position of a credit within the rating category. Plus
and minus signs, however, are not used in the "AAA" category.
Credit Trend Indicator: Credit trend indicators show whether credit fundamentals
are improving, stable, declining, or uncertain, as follows:
<TABLE>
<S> <C> <C>
Improving [ARROW UP]
Stable [ARROW LEFT/RIGHT]
Declining [ARROW DOWN]
Uncertain [ARROW UP/DOWN]
</TABLE>
Credit trend indicators are not predictions that any rating change will
occur, and have a longer-term time frame than issues placed on FitchAlert.
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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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.
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 same rating are of similar but not necessarily
identical credit quality since rating categories cannot fully reflect the
differences in degrees of credit risk.
BB -- Bonds are considered speculative. The obligor's ability to pay
interest and repay principal may be affected over time by adverse economic
changes. However, business and financial alternatives can be identified which
could assist the obligor in satisfying its debt service requirements.
B -- Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.
CCC -- Bonds have certain identifiable characteristics which, if not
remedied, may lead to default. The ability to meet obligations requires an
advantageous business and economic environment.
CC -- Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C -- Bonds are in imminent default in payment of interest or principal.
DDD, DD, and D -- Bonds are in default on interest and/or principal
payments. Such bonds are extremely speculative and should be valued on the basis
of their ultimate recovery value in liquidation or reorganization of the
obligor. "DDD" represents the highest potential for recovery on these bonds, and
"D" represents the lowest potential for recovery.
Plus (+) or Minus (-): Plus and minus signs are used with a rating symbol
to indicate the relative position of a credit within the rating category. Plus
and minus signs, however, are not used in the "DDD," "DD," or "D" categories.
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DESCRIPTION OF FITCH'S INVESTMENT GRADE 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:
<TABLE>
<S> <C> <C>
F-1+ Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1 Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated
"F-1+".
F-2 Good Credit Quality. Issues assigned this rating have a satisfactory
degree of assurance for timely payment, but the margin of safety is not as
great as for issues assigned "F-1+" and "F-1" ratings.
F-3 Fair Credit Quality. Issues assigned this rating have characteristics
suggesting that the degree of assurance for timely payment is adequate;
however, near-term adverse changes could cause these securities to be rated
below investment grade.
F-4 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.
</TABLE>
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EXHIBIT IV
PORTFOLIO INSURANCE
Set forth below is further information with respect to the Mutual Fund
Insurance Policies (the "Policies") which each Fund may obtain from several
insurance companies with respect to insured Municipal Bonds held by the Fund.
Each Fund has no obligation to obtain any such Policies and the terms of any
Policies actually obtained may vary significantly from the terms described
below.
In determining eligibility for insurance, insurance companies will apply
their own standards which correspond generally to the standards they normally
use in establishing the insurability of new issues of Municipal Bonds and which
are not necessarily the criteria which would be used in regard to the purchase
of such bonds by the Funds. The Policies do not insure (i) municipal securities
ineligible for insurance and (ii) municipal securities no longer owned by a
Fund.
The Policies do not guarantee the market value of the insured Municipal
Bonds or the value of the shares of the Funds. In addition, if the provider of
an original issuance insurance policy is unable to meet its obligations under
such policy or if the rating assigned to the insurance claims-paying ability of
any such insurer deteriorates, the insurance company will not have any
obligation to insure any issue held by a Fund which is adversely affected by
either of the above described events. In addition to the payment of premiums,
the Policies may require that a Fund notify the insurance company as to all
Municipal Bonds in the Fund's portfolio and permit the insurance company to
audit their records. The insurance premiums will be payable monthly by each Fund
in accordance with a premium schedule to be furnished by the insurance company
at the time the Policies are issued. Premiums are based upon the amounts covered
and the composition of the portfolio.
The insurance companies will have insurance claims-paying ability ratings
of AAA from Standard & Poor's Ratings Group ("S&P"), Aaa from Moody's Investors
Service, Inc. ("Moody's") or AAA from Fitch Investors Service, Inc. ("Fitch").
An S&P insurance claims-paying ability rating is an assessment of an
operating insurance company's financial capacity to meet obligations under an
insurance policy in accordance with the terms. An insurer with an insurance
claims-paying ability rating of AAA has the highest rating assigned by S&P.
Capacity to honor insurance contracts is adjudged by S&P to be extremely strong
and highly likely to remain so over a long period of time. A Moody's insurance
claims-paying ability rating is an opinion of the ability of an insurance
company to repay punctually senior policyholder obligations and claims. An
insurer with an insurance claims-paying ability rating of Aaa is adjudged by
Moody's to be of the best quality. In the opinion of Moody's, the policy
obligations of an insurance company with an insurance claims-paying ability
rating of Aaa carry the smallest degree of credit risk and, while the financial
strength of these companies is likely to change, such changes as can be
visualized are most unlikely to impair the company's fundamentally strong
position. A Fitch insurance claims-paying ability rating provides an assessment
of an insurance company's financial strength and, therefore, its ability to pay
policy and contract claims under the terms indicated. An insurer with an
insurance claims-paying ability rating of AAA has the highest rating assigned by
Fitch. The ability to pay claims is adjudged by Fitch to be extremely strong for
insurance companies with this highest rating. In the opinion of Fitch,
foreseeable business and economic risk factors should not have any material
adverse impact on the ability of these insurers to pay claims. In Fitch's
opinion, profitability, overall balance sheet strength,
IV-1
<PAGE> 203
capitalization and liquidity are all at very secure levels and are unlikely to
be affected by potential adverse underwriting, investment or cyclical events.
An insurance claims-paying ability rating by S&P, Moody's or Fitch does not
constitute an opinion on any specific contract in that such an opinion can only
be rendered upon the review of the specific insurance contract. Furthermore, an
insurance claims-paying ability rating does not take into account deductibles,
surrender or cancellation penalties or the timeliness of payment; nor does it
address the ability of a company to meet nonpolicy obligations (i.e. debt
contracts.)
The assignment of ratings by S&P, Moody's or Fitch to debt issues that are
fully or partially supported by insurance policies, contracts or guarantees is a
separate process from the determination of claims-paying ability ratings. The
likelihood of a timely flow of funds from the insurer to the trustee for the
bondholders is a key element in the rating determination for such debt issues.
IV-2
<PAGE> 204
COMMON STOCK
MUNIVEST NEW YORK INSURED FUND, INC.
P.O. BOX 9011
PRINCETON, NEW JERSEY 08543-9011
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Arthur Zeikel, Terry K. Glenn and Mark B.
Goldfus as proxies, each with the power to appoint his substitute, and hereby
authorizes each of them to represent and to vote, as designated hereon, all of
the shares of Common Stock of MuniVest New York Insured Fund, Inc. (the "Fund")
held of record by the undersigned on August 16, 1996 at the Annual Meeting of
Stockholders of the Fund to be held on September 30, 1996, 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 PROPOSALS 1, 2 AND 3.
1. To consider and act upon a proposal to approve the Agreement and Plan of
Reorganization among the Fund, MuniYield New York Insured Fund II, Inc. and
MuniYield New York Insured Fund III, Inc.
FOR / / AGAINST / / ABSTAIN / /
2. To consider and act upon a proposal to elect the following persons as
Directors of the Fund:
<TABLE>
<S> <C>
FOR all nominees listed WITHHOLD AUTHORITY
to vote for all nominees listed below /
below (except as marked to the contrary below) / / /
</TABLE>
(INSTRUCTION: To withhold authority to vote for any individual nominee,
strike a line through the nominee's name in the list below.)
Edward H. Meyer, Jack B. Sunderland, J. Thomas Touchton and Arthur Zeikel
(Continued and to be signed on the reverse side)
<PAGE> 205
3. To consider and act upon a proposal to ratify the selection of Ernst & Young
LLP as the independent auditors of the Fund to serve for the current fiscal
year ending October 31, 1996.
FOR / / AGAINST / / ABSTAIN / /
4. In the discretion of such proxies, upon such other business as properly may
come before the meeting or any adjournment thereof.
Please sign exactly as name
appears hereon. When shares are
held by joint tenants, both
should sign. When signing as
attorney or as executor,
administrator, trustee or
guardian, please give full title
as such. If a corporation,
please sign in full corporate
name by president or other
authorized officer. If a
partnership, please sign in
partnership name by authorized
persons.
Dated:
- ------------------------------------------------------------------------- , 1996
X
--------------------------------
Signature
X
--------------------------------
Signature, if held jointly
PLEASE MARK BOXES /X/ OR [X] IN BLUE OR BLACK INK. SIGN, DATE AND RETURN
THE PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
<PAGE> 206
AUCTION MARKET
PREFERRED STOCK
MUNIVEST NEW YORK INSURED FUND, INC.
P.O. BOX 9011
PRINCETON, NEW JERSEY 08543-9011
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Arthur Zeikel, Terry K. Glenn and Mark B.
Goldfus as proxies, each with the power to appoint his substitute, and hereby
authorizes each of them to represent and to vote, as designated hereon, all of
the shares of Auction Market Preferred Stock of MuniVest New York Insured Fund,
Inc. (the "Fund") held of record by the undersigned on August 16, 1996 at the
Annual Meeting of Stockholders of the Fund to be held on September 30, 1996, 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 PROPOSALS 1, 2 AND 3.
1. To consider and act upon a proposal to approve the Agreement and Plan of
Reorganization among the Fund, MuniYield New York Insured Fund II, Inc. and
MuniYield New York Insured Fund III, Inc.
FOR / / AGAINST / / ABSTAIN / /
2. To consider and act upon a proposal to elect the following persons as
Directors of the Fund:
<TABLE>
<S> <C>
FOR all nominees listed below WITHHOLD AUTHORITY
to vote for all nominees listed below /
(except as marked to the contrary below) / / /
</TABLE>
(INSTRUCTION: To withhold authority to vote for any individual nominee,
strike a line through the nominee's name in the list below.)
Donald Cecil, M. Colyer Crum, Edward H. Meyer, Jack B. Sunderland, J. Thomas
Touchton and Arthur Zeikel
(Continued and to be signed on the reverse side)
<PAGE> 207
3. To consider and act upon a proposal to ratify the selection of Ernst & Young
LLP as the independent auditors of the Fund to serve for the current fiscal
year ending October 31, 1996.
FOR / / AGAINST / / ABSTAIN / /
4. In the discretion of such proxies, upon such other business as properly may
come before the meeting or any adjournment thereof.
Please sign exactly as name
appears hereon. When shares are
held by joint tenants, both
should sign. When signing as
attorney or as executor,
administrator, trustee or
guardian, please give full title
as such. If a corporation,
please sign in full corporate
name by president or other
authorized officer. If a
partnership, please sign in
partnership name by authorized
persons.
Dated:
- ------------------------------------------------------------------------- , 1996
X
--------------------------------
Signature
X
--------------------------------
Signature, if held jointly
PLEASE MARK BOXES /X/ OR [X] IN BLUE OR BLACK INK. SIGN, DATE AND RETURN
THE PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
<PAGE> 208
COMMON STOCK
MUNIYIELD NEW YORK INSURED FUND II, INC.
P.O. BOX 9011
PRINCETON, NEW JERSEY 08543-9011
P R O X Y
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Arthur Zeikel, Terry K. Glenn and Mark B.
Goldfus as proxies, each with the power to appoint his substitute, and hereby
authorizes each of them to represent and to vote, as designated hereon, all of
the shares of Common Stock of MuniYield New York Insured Fund II, Inc. (the
"Fund") held of record by the undersigned on August 16, 1996 at the Annual
Meeting of Stockholders of the Fund to be held on September 30, 1996, 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 PROPOSALS 1, 2, 3 and 4.
1. To consider and act upon a proposal to approve the Agreement and Plan of
Reorganization among the Fund, MuniVest New York Insured Fund, Inc. and
MuniYield New York Insured Fund III, Inc.
FOR / / AGAINST / / ABSTAIN / /
2. To consider and act upon a proposal to elect the following persons as
Directors of the Fund:
<TABLE>
<S> <C>
FOR all nominees listed below WITHHOLD AUTHORITY
(except as marked to the contrary below) / / to vote for all nominees listed below / /
</TABLE>
(INSTRUCTION: To withhold authority to vote for any individual nominee,
strike a line through the nominee's name in the list below.)
James H. Bodurtha, Herbert I. London, Robert R. Martin and Arthur Zeikel
(Continued and to be signed on the reverse side)
<PAGE> 209
3. In the event that proposal 1 has been approved by the requisite number of
stockholders of each fund and the Reorganization has taken place prior to
October 31, 1996, to consider and act upon a proposal to ratify the selection
of Ernst & Young LLP as the independent auditors of the combined fund to
serve for the fiscal year ending October 31, 1996.
FOR / / AGAINST / / ABSTAIN / /
4. In the event that proposal 1 has not been approved by the requisite number of
stockholders of each fund or the Reorganization has not taken place prior to
October 31, 1996, to consider and act upon a proposal to ratify the selection
of Deloitte & Touche LLP as the independent auditors of the Fund to serve for
the current fiscal year ending October 31, 1996.
FOR / / AGAINST / / ABSTAIN / /
5. In the discretion of such proxies, upon such other business as properly may
come before the meeting or any adjournment thereof.
Please sign exactly as name
appears hereon. When shares are
held by joint tenants, both should
sign. When signing as attorney or
as executor, administrator,
trustee or guardian, please give
full title as such. If a
corporation, please sign in full
corporate name by president or
other authorized officer. If a
partnership, please sign in
partnership name by authorized
persons.
Dated: _____________________, 1996
X
----------------------------------
Signature
X
----------------------------------
Signature, if held jointly
PLEASE MARK BOXES /X/ OR [X] IN BLUE OR BLACK INK. SIGN, DATE AND RETURN
THE PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
<PAGE> 210
AUCTION MARKET
PREFERRED STOCK
MUNIYIELD NEW YORK INSURED FUND II, INC.
P.O. BOX 9011
PRINCETON, NEW JERSEY 08543-9011
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Arthur Zeikel, Terry K. Glenn and Mark B.
Goldfus as proxies, each with the power to appoint his substitute, and hereby
authorizes each of them to represent and to vote, as designated hereon, all of
the shares of Auction Market Preferred Stock of MuniYield New York Insured Fund
II, Inc. (the "Fund") held of record by the undersigned on August 16, 1996 at
the Annual Meeting of Stockholders of the Fund to be held on September 30, 1996,
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 PROPOSALS 1, 2, 3 and 4.
1. To consider and act upon a proposal to approve the Agreement and Plan of
Reorganization among the Fund, MuniVest New York Insured Fund, Inc. and
MuniYield New York Insured Fund III, Inc.
FOR / / AGAINST / / ABSTAIN / /
2. To consider and act upon a proposal to elect the following persons as
Directors of the Fund:
<TABLE>
<S> <C>
FOR all nominees listed below WITHHOLD AUTHORITY
to vote for all nominees listed below /
(except as marked to the contrary below) / / /
</TABLE>
(INSTRUCTION: To withhold authority to vote for any individual nominee, strike a
line through the nominee's name in the list below.)
James H. Bodurtha, Herbert I. London, Robert R. Martin, Joseph L. May, Andre F.
Perold and Arthur Zeikel
3. In the event that proposal 1 has been approved by the requisite number of
stockholders of each fund and the Reorganization has taken place prior to
October 31, 1996, to consider and act upon a proposal to ratify the selection
of Ernst & Young LLP as the independent auditors of the combined fund to
serve for the fiscal year ending October 31, 1996.
FOR / / AGAINST / / ABSTAIN / /
(Continued and to be signed on the reverse side)
<PAGE> 211
4. In the event that proposal 1 has not been approved by the requisite number of
stockholders of each fund or the Reorganization has not taken place prior to
October 31, 1996, to consider and act upon a proposal to ratify the selection
of Deloitte & Touche LLP as the independent auditors of the Fund to serve for
the current fiscal year ending October 31, 1996.
FOR / / AGAINST / / ABSTAIN / /
5. In the discretion of such proxies, upon such other business as properly may
come before the meeting or any adjournment thereof.
Please sign exactly as name
appears hereon. When shares are
held by joint tenants, both
should sign. When signing as
attorney or as executor,
administrator, trustee or
guardian, please give full title
as such. If a corporation,
please sign in full corporate
name by president or other
authorized officer. If a
partnership, please sign in
partnership name by authorized
persons.
Dated:
- ------------------------------------------------------------------------- , 1996
X
--------------------------------
Signature
X
--------------------------------
Signature, if held jointly
PLEASE MARK BOXES /X/ OR [X] IN BLUE OR BLACK INK. SIGN, DATE AND RETURN
THE PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
<PAGE> 212
COMMON STOCK
MUNIYIELD NEW YORK INSURED FUND III, 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 Arthur Zeikel, Terry K. Glenn and Mark B.
Goldfus as proxies, each with the power to appoint his substitute, and hereby
authorizes each of them to represent and to vote, as designated hereon, all of
the shares of Common Stock of MuniYield New York Insured Fund III, Inc. (the
"Fund") held of record by the undersigned on August 16, 1996 at the Annual
Meeting of Stockholders of the Fund to be held on September 30, 1996, 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 PROPOSALS 1, 2 AND 3.
1. To consider and act upon a proposal to approve the Agreement and Plan of
Reorganization among the Fund, MuniVest New York Insured Fund, Inc. and
MuniYield New York Insured Fund II, Inc.
FOR / / AGAINST / / ABSTAIN / /
2. To consider and act upon a proposal to elect the following persons as
Directors of the Fund:
<TABLE>
<S> <C>
FOR all nominees listed below WITHHOLD AUTHORITY
(except as marked to the contrary below) / / to vote for all nominees listed below / /
</TABLE>
(INSTRUCTION: To withhold authority to vote for any individual nominee,
strike a line through the nominee's name in the list below.)
Edward H. Meyer, Jack B. Sunderland, J. Thomas Touchton and Arthur Zeikel
3. To consider and act upon a proposal to ratify the selection of Ernst & Young
LLP as the independent auditors of the Fund to serve for the current fiscal
year ending October 31, 1996.
FOR / / AGAINST / / ABSTAIN / /
(Continued and to be signed on the reverse side)
<PAGE> 213
4. In the discretion of such proxies, upon such other business as properly may
come before the meeting or any adjournment thereof.
Please sign exactly as name
appears hereon. When shares are
held by joint tenants, both
should sign. When signing as
attorney or as executor,
administrator, trustee or
guardian, please give full title
as such. If a corporation,
please sign in full corporate
name by president or other
authorized officer. If a
partnership, please sign in
partnership name by authorized
persons.
Dated:
------------------ , 1996
X
--------------------------------
Signature
X
--------------------------------
Signature, if held jointly
PLEASE MARK BOXES /X/ OR [X] IN BLUE OR BLACK INK. SIGN, DATE AND RETURN
THE PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
<PAGE> 214
AUCTION MARKET
PREFERRED STOCK
MUNIYIELD NEW YORK INSURED FUND III, 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 Arthur Zeikel, Terry K. Glenn and Mark B.
Goldfus as proxies, each with the power to appoint his substitute, and hereby
authorizes each of them to represent and to vote, as designated hereon, all of
the shares of Auction Market Preferred Stock of MuniYield New York Insured Fund
III, Inc. (the "Fund") held of record by the undersigned on August 16, 1996 at
the Annual Meeting of Stockholders of the Fund to be held on September 30, 1996,
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 PROPOSALS 1, 2 AND 3.
1. To consider and act upon a proposal to approve the Agreement and Plan of
Reorganization among the Fund, MuniVest New York Insured Fund, Inc. and
MuniYield New York Insured Fund II, Inc.
FOR / / AGAINST / / ABSTAIN / /
2. To consider and act upon a proposal to elect the following persons as
Directors of the Fund:
<TABLE>
<S> <C>
FOR all nominees listed below WITHHOLD AUTHORITY
(except as marked to the contrary below) / / to vote for all nominees listed below / /
</TABLE>
(INSTRUCTION: To withhold authority to vote for any individual nominee,
strike a line through the nominee's name in the list below.)
Donald Cecil, M. Colyer Crum, Edward H. Meyer, Jack B. Sunderland, J. Thomas
Touchton and Arthur Zeikel
(Continued and to be signed on the reverse side)
<PAGE> 215
3. To consider and act upon a proposal to ratify the selection of Ernst & Young
LLP as the independent auditors of the Fund to serve for the current fiscal
year ending October 31, 1996.
FOR / / AGAINST / / ABSTAIN / /
4. In the discretion of such proxies, upon such other business as properly may
come before the meeting or any adjournment thereof.
Please sign exactly as name
appears hereon. When shares are
held by joint tenants, both
should sign. When signing as
attorney or as executor,
administrator, trustee or
guardian, please give full title
as such. If a corporation,
please sign in full corporate
name by president or other
authorized officer. If a
partnership, please sign in
partnership name by authorized
persons.
Dated:
------------------ , 1996
X
--------------------------------
Signature
X
--------------------------------
Signature, if held jointly
PLEASE MARK BOXES /X/ OR [X] IN BLUE OR BLACK INK. SIGN, DATE AND RETURN
THE PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
<PAGE> 216
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 Articles of Incorporation, Article VI of the
Registrant's By-Laws and the Registrant's Investment Advisory Agreement with
Fund Asset Management, Inc. (now known as Fund Asset Management, L.P.; the
"Investment Adviser") provide for indemnification.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Securities Act"), may be provided to directors,
officers and controlling persons of each Fund, pursuant to the foregoing
provisions or otherwise, each Fund has been advised that in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act and, therefore, is unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by a Fund 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, unless in the opinion of its counsel the matter has been settled by
controlling precedent, will submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
Reference is made to (i) Section Six of the Purchase Agreement relating to
the Registrant's Common Stock, a form of which previously was filed as an
exhibit to the Common Stock Registration Statement (as defined below), and (ii)
Section Seven of the Purchase Agreement relating to the Registrant's AMPS, a
form of which previously was filed as an exhibit to the AMPS Registration
Statement (as defined below), for provisions relating to the indemnification of
the underwriter.
ITEM 16. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- -----------
<S> <C> <C>
1 (a) -- Articles of Incorporation of the Registrant(a)
(b) -- Articles Supplementary creating Series A AMPS of the Registrant(b)
(c) -- Form of Articles Supplementary creating Series B and Series C AMPS of the Registrant
2 -- By-Laws of the Registrant(a)
3 -- Not applicable
4 -- Form of Agreement and Plan of Reorganization between the Registrant, MuniVest New
York Insured Fund, Inc. and MuniYield New York Insured Fund III, Inc.(c)
5 (a) -- Form of Certificate for Common Stock(d)
(b) -- Form of Certificate for AMPS(f)
(c) -- Portions of the Articles of Incorporation and the By-Laws of the Registrant defining
the rights of holders of shares of the Registrant(e)
6 -- Investment Advisory Agreement between the Registrant and the Investment Adviser(a)
7 (a) -- Purchase Agreement between the Registrant, the Investment Adviser and Merrill Lynch,
Pierce, Fenner & Smith Incorporated ("Merrill Lynch") relating to the Registrant's
Common Stock(d)
(b) -- Form of Purchase Agreement between the Registrant, the Investment Adviser and
Merrill Lynch relating to the Registrant's AMPS(f)
(c) -- Merrill Lynch Standard Dealer Agreement(a)
8 -- Not applicable
9 -- Custodian Contract between the Registrant and State Street Bank and Trust Company(d)
10 -- Not applicable
</TABLE>
C-1
<PAGE> 217
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- -----------
<S> <C> <C>
11 -- Opinion and Consent of Brown & Wood LLP, counsel for the Registrant
12 -- Private Letter Ruling from the Internal Revenue Service(g)
13 (a) -- Registrar, Transfer Agency and Service Agreement between the Registrant and State
Street Bank and Trust Company relating to the Registrant's Common Stock(d)
(b) -- Form of Auction Agent Agreement(f)
(c) -- Form of Broker-Dealer Agreement(f)
(d) -- Form of Letter of Representations(f)
14 (a) -- Consent of Deloitte & Touche LLP, independent auditors for the Registrant
(b) -- Consent of Ernst & Young LLP, independent auditors for MuniVest New York Insured
Fund, Inc. and MuniYield New York Insured Fund III, Inc.
15 -- Not applicable
16 -- Power of Attorney(h)
</TABLE>
- ---------------
(a) Incorporated by reference to the Registrant's registration statement on Form
N-2 relating to the Registrant's Common Stock (File Nos. 33-47744 and
811-6661), filed with the Securities and Exchange Commission (the
"Commission") on May 8, 1992 (the "Common Stock Registration Statement").
(b) Incorporated by reference to Pre-Effecive Amendment No. 1 to the
Registrant's registration statement on Form N-2 relating to the Registrant's
AMPS (File Nos. 33-50304 and 811-6661) (the "AMPS Registration Statement")
filed with the Commission on August 28, 1992.
(c) Included as Exhibit I to the Proxy Statement and Prospectus included in this
Registration Statement.
(d) Incorporated by reference to Pre-Effective Amendment No. 2 to the Common
Stock Registration Statement filed with the Commission on June 19, 1992.
(e) Reference is made to Article V, Article VI (sections 2, 3, 4, 5 and 6),
Article VII, Article VIII, Article IX, Article X, Article XI, Article XII
and Article XIII of the Registrant's Articles of Incorporation, previously
filed as Exhibit 1(a) to the Common Stock Registration Statement; and to
Article II, Article III (sections 1, 3, 5 and 17), Article VI, Article VII,
Article XII, Article XIII and Article XIV of the Registrant's By-Laws,
previously filed as Exhibit 1(b) to the Common Stock Registration Statement.
(f) Incorporated by reference to Registrant's AMPS Registration Statement filed
with the Commission on July 31, 1992.
(g) To be filed by post-effective amendment.
(h) Included on the signature page of the Registrant's Registration Statement on
Form N-14 filed on July 9, 1996 and incorporated by reference herein.
ITEM 17. UNDERTAKINGS.
(a) The Registrant undertakes to suspend offering of the shares of Common
Stock covered hereby until it amends its Prospectus contained herein if (1)
subsequent to the effective date of this Registration Statement, its net asset
value per share of Common Stock declines more than 10 percent from its net asset
value per share of Common Stock as of the effective date of this Registration
Statement, or (2) its net asset value per share of Common Stock increases to an
amount greater than its net proceeds as stated in the Prospectus contained
herein.
(b) The Registrant undertakes that:
(1) For the purpose of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of a
registration statement in reliance upon Rule 430A and contained in the form
of prospectus filed by the Registrant pursuant to Rule 497(h) under the
Securities Act shall be deemed to be a part of the registration statement
as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
C-2
<PAGE> 218
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 20th day of August, 1996.
MUNIYIELD NEW YORK INSURED FUND II, INC.
(Registrant)
By: /s/ GERALD M. RICHARD
--------------------------------------
(Gerald M. Richard, Treasurer)
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.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- --------------------------------- --------------------------------------- ----------------
<S> <C> <C>
ARTHUR ZEIKEL* President (Principal Executive Officer)
- --------------------------------- and Director
(Arthur Zeikel)
/s/ GERALD M. RICHARD Treasurer (Principal Financial and August 20, 1996
- --------------------------------- Accounting Officer)
(Gerald M. Richard)
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)
*By: /s/ GERALD M. RICHARD August 20, 1996
- ---------------------------------
(Gerald M. Richard,
Attorney-in-Fact)
</TABLE>
<PAGE> 219
EXHIBIT INDEX
<TABLE>
<CAPTION>
ITEM NO. DESCRIPTION
- ----------- -----------------------------------------------------------------------------
<S> <C> <C> <C>
1 (c) -- Form of Articles Supplementary creating Series B and Series C AMPS of the
Registrant
11 -- Opinion and Consent of Brown & Wood LLP, counsel for the Registrant
14 (a) -- Consent of Deloitte & Touche LLP, independent auditors for the Registrant
(b) -- Consent of Ernst & Young LLP, independent auditors for MuniVest New York
Insured Fund, Inc. and MuniYield New York Insured Fund III, Inc.
</TABLE>
<PAGE> 1
Exhibit 1(C)
MUNIYIELD NEW YORK INSURED FUND II, INC.
Articles Supplementary creating two series of
Auction Market Preferred Stock(Registered Trademark)
MUNIYIELD NEW YORK INSURED FUND II, 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 2,960 authorized and unissued shares of common stock
of the Corporation as preferred stock of the Corporation and has authorized the
issuance of two series of preferred stock, par value $.10 per share,
liquidation preference $25,000 per share plus an amount equal to accumulated
but unpaid dividends (whether or not earned or declared) thereon, to be
designated respectively: Auction Market Preferred Stock, Series B; and Auction
Market Preferred Stock, Series C.
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:
_____________________
(Registered Trademark) Registered trademark of Merrill Lynch & Co., Inc.
<PAGE> 2
DESIGNATION
Series B: A series of 1,960 shares of preferred stock, par value $.10
per share, liquidation preference $25,000 per share plus an amount equal to
accumulated but unpaid dividends (whether or not earned or declared) thereon,
is hereby designated "Auction Market Preferred Stock, Series B." Each share of
Auction Market Preferred Stock, Series B (sometimes referred to herein as
"Series B AMPS") shall be issued on a date to be determined by the Board of
Directors of the Corporation or pursuant to their delegated authority; have an
Initial Dividend Rate and an Initial Dividend Payment Date as shall be
determined in advance of the issuance thereof by the Board of Directors of the
Corporation or pursuant to their delegated authority; and have such other
preferences, voting powers, limitations as to dividends, qualifications and
terms and conditions of redemption as are set forth in these Articles
Supplementary. The Auction Market Preferred Stock, Series B shall constitute a
separate series of preferred stock of the Corporation, and each share of
Auction Market Preferred Stock, Series B shall be identical.
Series C: A series of 1,000 shares of preferred stock, par value $.10
per share, liquidation preference $25,000 per share plus an amount equal to
accumulated but unpaid dividends (whether or not earned or declared) thereon,
is hereby designated "Auction Market Preferred Stock, Series C." Each share of
Auction Market Preferred Stock, Series C (sometimes referred to herein as
"Series C AMPS") shall be issued on a date to be determined by
2
<PAGE> 3
the Board of Directors of the Corporation or pursuant to their delegated
authority; have an Initial Dividend Rate and an Initial Dividend Payment Date
as shall be determined in advance of the issuance thereof by the Board of
Directors of the Corporation or pursuant to their delegated authority; and have
such other preferences, voting powers, limitations as to dividends,
qualifications and terms and conditions of redemption as are set forth in these
Articles Supplementary. The Auction Market Preferred Stock, Series C shall
constitute a separate series of preferred stock of the Corporation, and each
share of Auction Market Preferred Stock, Series C shall be identical.
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
3
<PAGE> 4
quoted on a discount basis or otherwise by Merrill Lynch, Pierce, Fenner &
Smith Incorporated or its successors that are Commercial Paper Dealers, to the
Auction Agent for the close of business on the Business Day immediately
preceding such date. If one of the Commercial Paper Dealers does not quote a
rate required to determine the "AA" Composite Commercial Paper Rate, the "AA"
Composite Commercial Paper Rate will be determined on the basis of the
quotation or quotations furnished by any Substitute Commercial Paper Dealer or
Substitute Commercial Paper Dealers selected by the Corporation to provide such
rate or rates not being supplied by the Commercial Paper Dealer. If the number
of Dividend Period days shall be (i) 7 or more but fewer than 49 days, such
rate shall be the Interest Equivalent of the 30-day rate on such commercial
paper; (ii) 49 or more but fewer than 70 days, such rate shall be the Interest
Equivalent of the 60-day rate on such commercial paper; (iii) 70 or more days
but fewer than 85 days, such rate shall be the arithmetic average of the
Interest Equivalent on the 60-day and 90-day rates on such commercial paper;
(iv) 85 or more days but fewer than 99 days, such rate shall be the Interest
Equivalent of the 90-day rate on such commercial paper; (v) 99 or more days but
fewer than 120 days, such rate shall be the arithmetic average of the Interest
Equivalent of the 90-day and 120-day rates on such commercial paper; (vi) 120
or more days but fewer than 141 days, such rate shall be the Interest
Equivalent of the 120-day rate on such commercial paper; (vii) 141 or more days
but fewer than 162 days,
4
<PAGE> 5
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.
"Adviser" means the Corporation's investment adviser which initially
shall be Fund Asset Management, L.P.
"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 a Beneficial Owner of one or more shares of AMPS or a
Potential Beneficial Owner.
"AMPS" means, as the case may be, the Auction Market Preferred Stock,
Series B; or the Auction Market Preferred Stock, Series C.
"AMPS Basic Maintenance Amount," as of any Valuation Date, means the
dollar amount equal to (i) the sum of (A) the product of the number of shares
of AMPS and Other AMPS Outstanding on such Valuation Date multiplied by the sum
of (a) $25,000 and (b) any applicable redemption premium attributable to the
designation
5
<PAGE> 6
of a Premium Call Period; (B) the aggregate amount of cash dividends (whether
or not earned or declared) that will have accumulated for each share of AMPS
and Other AMPS Outstanding, in each case, to (but not including) the end of the
current Dividend Period that follows such Valuation Date in the event the then
current Dividend Period will end within 49 calendar days of such Valuation Date
or through the 49th day after such Valuation Date in the event the then current
Dividend Period will not end within 49 calendar days of such Valuation Date;
(C) in the event the then current Dividend Period will end within 49 calendar
days of such Valuation Date, the aggregate amount of cash dividends that would
accumulate at the Maximum Applicable Rate applicable to a Dividend Period of 28
or fewer days on any shares of AMPS and Other AMPS Outstanding from the end of
such Dividend Period through the 49th day after such Valuation Date, multiplied
by the larger of the Moody's Volatility Factor and the S&P Volatility Factor,
determined from time to time by Moody's and S&P, respectively (except that if
such Valuation Date occurs during a Non-Payment Period, the cash dividend for
purposes of calculation would accumulate at the then current Non-Payment Period
Rate); (D) the amount of anticipated expenses of the Corporation for the 90
days subsequent to such Valuation Date (including any premiums payable with
respect to a Policy); (E) the amount of the Corporation's Maximum Potential
Additional Dividend Liability as of such Valuation Date; and (F) any current
liabilities as of such Valuation Date to the extent not reflected in any of
(i)(A)
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<PAGE> 7
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 York Municipal Bonds or
Municipal Bonds purchased as of such Valuation Date) less (ii) either (A) the
Discounted Value of any of the Corporation's assets, or (B) the face value of
any of the Corporation's assets if such assets mature prior to or on the date
of redemption of AMPS or payment of a liability and are either securities
issued or guaranteed by the United States Government or Deposit Securities, in
both cases irrevocably deposited by the Corporation for the payment of the
amount needed to redeem shares of AMPS subject to redemption or any of (i)(B)
through (i)(F). For Moody's, the Corporation shall include as a liability an
amount calculated semi-annually equal to 150% of the estimated cost of
obtaining other insurance guaranteeing the timely payment of interest on a
Moody's Eligible Asset and principal thereof to maturity with respect to
Moody's Eligible Assets that (i) are covered by a Policy which provides the
Corporation with the option to obtain such other insurance and (ii) are
discounted by a Moody's Discount Factor determined by reference to the
insurance claims-paying ability rating of the issuer of such Policy.
"AMPS Basic Maintenance Cure Date," with respect to the failure by the
Corporation to satisfy the AMPS Basic Maintenance Amount (as required by
paragraph 7(a) of these Articles Supple-
7
<PAGE> 8
mentary) 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 York Municipal
Bonds: revenue anticipation notes, tax anticipation notes, tax and revenue
anticipation notes, grant anticipation notes and bond anticipation notes.
"Applicable Percentage" has the meaning set forth in paragraph
10(a)(vii) of these Articles Supplementary.
"Applicable Rate" means the rate per annum at which cash dividends are
payable on the AMPS or Other AMPS, as the case may be, for any Dividend Period.
"Auction" means a periodic operation of the Auction Procedures.
"Auction Agent" means IBJ 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
8
<PAGE> 9
disbursing agent and redemption agent for the AMPS and Other AMPS.
"Auction Procedures" means the procedures for conducting Auctions set
forth in paragraph 10 of these Articles Supplementary.
"Beneficial Owner" means a customer of a Broker-Dealer who is listed
on the records of that Broker-Dealer (or, if applicable, the Auction Agent) as
a holder of shares of AMPS or a Broker-Dealer that holds AMPS for its own
account.
"Broker-Dealer" shall mean any broker-dealer, or other entity
permitted by law to perform the functions required of a Broker-Dealer in
paragraph 10 of these Articles Supplementary, that has been selected by the
Corporation and has entered into a Broker-Dealer Agreement with the Auction
Agent that remains effective.
"Broker-Dealer Agreement" 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 10 of these Articles Supplementary.
"Business Day" means a day on which the New York Stock Exchange, Inc.
is open for trading and which is not a Saturday, Sunday or other day on which
banks in The City of New York are authorized or obligated by law to close.
"Charter" means the Articles of Incorporation, as amended and
supplemented (including these Articles Supplementary), of the
9
<PAGE> 10
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 York Insured Fund II, Inc., a
Maryland corporation.
"Date of Original Issue" means, with respect to any share of AMPS or
Other AMPS, the date on which the Corporation originally issues such share.
"Deposit Securities" means cash and New York Municipal Bonds and
Municipal Bonds rated at least A, P-1, VMIG-1 or MIG-1 by Moody's or A, A-1+ or
SP-1+ by S&P.
"Discounted Value" means (i) with respect to an S&P Eligible Asset,
the quotient of the Market Value thereof divided by the applicable S&P Discount
Factor and (ii) with respect to a Moody's Eligible Asset, the lower of par and
the quotient of the Market Value thereof divided by the applicable Moody's
Discount Factor.
"Dividend Payment Date," with respect to AMPS, has the meaning set
forth in paragraph 2(b)(i) of these Articles Supplementary and, with respect to
Other AMPS, has the equivalent meaning.
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<PAGE> 11
"Dividend Period" means the Initial Dividend Period, any 7Day Dividend
Period, any 28-Day Dividend Period and any Special Dividend Period.
"Existing Holder" means a Broker-Dealer or any such other Person as
may be permitted by the Corporation that is listed as the holder of record of
shares of AMPS in the Stock Books.
"Forward Commitment" has the meaning set forth in paragraph 8(c) of
these Articles Supplementary.
"Holder" means a Person identified as a holder of record of shares of
AMPS in the Stock Register.
"Independent Accountant" means a nationally recognized accountant, or
firm of accountants, that is, with respect to the Corporation, an independent
public accountant or firm of independent public accountants under the
Securities Act of 1933, as amended.
"Initial Dividend Payment Date" means the Initial Dividend Payment
Date as determined by the Board of Directors of the Corporation with respect to
each series of AMPS or Other AMPS, as the case may be.
"Initial Dividend Period," with respect to the AMPS, has the meaning
set forth in paragraph 2(c)(i) of these Articles Supplementary and, with
respect to Other AMPS, has the equivalent meaning.
"Initial Dividend Rate," with respect to each series of AMPS, means
the rate per annum applicable to the Initial Dividend
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<PAGE> 12
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.
"Long Term Dividend Period" means a Special Dividend Period consisting
of a specified period of one whole year or more but not greater than five
years.
"Mandatory Redemption Price" means $25,000 per share of AMPS plus an
amount equal to accumulated but unpaid dividends (whether or not earned or
declared) to the date fixed for redemption and excluding Additional Dividends.
"Marginal Tax Rate" means the maximum marginal regular Federal
individual income tax rate applicable to ordinary income or the maximum
marginal regular Federal corporate income tax rate, whichever is greater.
"Market Value" of any asset of the Corporation shall be the market
value thereof determined by the Pricing Service. Market Value of any asset
shall include any interest accrued thereon. The Pricing Service shall value
portfolio securities at the quoted bid prices or the mean between the quoted
bid and asked price or the yield equivalent when quotations are not readily
available. Securities for which quotations are not readily
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<PAGE> 13
available shall be valued at fair value as determined by the Pricing Service
using methods which include consideration of:
yields or prices of municipal bonds of comparable quality, type of issue,
coupon, maturity and rating; indications as to value from dealers; and general
market conditions. The Pricing Service may employ electronic data processing
techniques and/or a matrix system to determine valuations. In the event the
Pricing Service is unable to value a security, the security shall be valued at
the lower of two dealer bids obtained by the Corporation from dealers who are
members of the National Association of Securities Dealers, Inc. and make a
market in the security, at least one of which shall be in writing. Futures
contracts and options are valued at closing prices for such instruments
established by the exchange or board of trade on which they are traded, or if
market quotations are not readily available, are valued at fair value on a
consistent basis using methods determined in good faith by the Board of
Directors.
"Maximum Applicable Rate," with respect to AMPS, has the meaning set
forth in paragraph 10(a)(vii) of these Articles Supplementary and, with respect
to Other AMPS, has the equivalent meaning.
"Maximum Potential Additional Dividend Liability," as of any Valuation
Date, means the aggregate amount of Additional Dividends that would be due if
the Corporation were to make Retroactive Taxable Allocations, with respect to
any fiscal year, estimated based upon dividends paid and the amount of
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<PAGE> 14
undistributed realized net capital gains and other taxable income earned by the
Corporation, as of the end of the calendar month immediately preceding such
Valuation Date and assuming such Additional Dividends are fully taxable.
"Moody's" means Moody's Investors Service, Inc. or its successors.
"Moody's Discount Factor" means, for purposes of determining the
Discounted Value of any New York Municipal Bond or Municipal Bond which
constitutes a Moody's Eligible Asset, the percentage determined by reference to
(a)(i) the rating by Moody's or S&P on such Bond or (ii) in the event the
Moody's Eligible Asset is insured under a Policy and the terms of the Policy
permit the Corporation, at its option, to obtain other insurance guaranteeing
the timely payment of interest on such Moody's Eligible Asset and principal
thereof to maturity, the Moody's insurance claims-paying ability rating of the
issuer of the Policy or (iii) in the event the Moody's Eligible Asset is
insured under an insurance policy which guarantees the timely payment of
interest on such Moody's Eligible Asset and principal thereof to maturity, the
Moody's insurance claims-paying ability rating of the issuer of the insurance
policy (provided that for purposes of clauses (ii) and (iii) if the insurance
claims-paying ability of an issuer of a Policy or insurance policy is not rated
by Moody's but is rated by S&P, such issuer shall be deemed to have a Moody's
insurance claims-paying ability rating which is two full categories lower than
the S&P insurance claims-paying
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<PAGE> 15
ability rating) and (b) the Moody's Exposure Period, in accordance with the
table set forth below:
<TABLE>
<CAPTION>
Rating Category
-------------------------------------
Moody's Exposure Period Aaa* Aa* A* Baa* Other** VMIG-1*** SP-1+***
----------------------- ---- --- ---- ---- ------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
7 weeks or less............ 151% 159% 168% 202% 229% 136% 148%
8 weeks or less but
greater than seven weeks... 154 164 173 205 235 137 149
9 weeks or less but
greater than eight weeks... 158 169 179 209 242 138 150
</TABLE>
_______________
* Moody's rating.
** New York Municipal Bonds and Municipal Bonds not rated by Moody's but
rated BBB or BBB+ by S&P.
*** New York Municipal Bonds and Municipal Bonds rated MIG-1, VMIG-1 or
P-1 or, if not rated by Moody's, rated SP-1+ or A-1+ by S&P which do
not mature or have a demand feature at par exercisable within the
Moody's Exposure Period and which do not have a long-term rating. For
the purposes of the definition of Moody's Eligible Assets, these
securities will have an assumed rating of "A" by Moody's.
; provided, however, in the event a Moody's Discount Factor applicable to a
Moody's Eligible Asset is determined by reference to an insurance claims-paying
ability rating in accordance with clause (a)(ii) or (a)(iii), such Moody's
Discount Factor shall be increased by an amount equal to 50% of the difference
between (a) the percentage set forth in the foregoing table under the
applicable rating category and (b) the percentage set forth in the foregoing
table under the rating category which is one category lower than the applicable
rating category.
Notwithstanding the foregoing, (i) no Moody's Discount Factor will be
applied to short-term New York Municipal Bonds and short-term Municipal Bonds,
so long as such New York Municipal Bonds and Municipal Bonds are rated at least
MIG-1, VMIG-1 or P-1 by Moody's and mature or have a demand feature at par
exercisable within the Moody's Exposure Period, and the Moody's Discount Factor
for such Bonds will be 125% if such Bonds are not rated by
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<PAGE> 16
Moody's but are rated A-1+ or SP-1+ or AA by S&P and mature or have a demand
feature at par exercisable within the Moody's Exposure Period, and (ii) no
Moody's Discount Factor will be applied to cash or to Receivables for New York
Municipal Bonds or Municipal Bonds Sold. "Receivables for New York Municipal
Bonds or Municipal Bonds Sold," for purposes of calculating Moody's Eligible
Assets as of any Valuation Date, means no more than the aggregate of the
following: (i) the book value of receivables for New York Municipal Bonds or
Municipal Bonds sold as of or prior to such Valuation Date if such receivables
are due within five Business Days of such Valuation Date, and if the trades
which generated such receivables are (x) settled through clearing house firms
with respect to which the Corporation has received prior written authorization
from Moody's or (y) with counterparties having a Moody's long-term debt rating
of at least Baa3; and (ii) the Moody's Discounted Value of New York Municipal
Bonds or Municipal Bonds sold as of or prior to such Valuation Date which
generated receivables, if such receivables are due within five Business Days of
such Valuation Date but do not comply with either of conditions (x) or (y) of
the preceding clause (i).
"Moody's Eligible Asset" means cash, Receivables for New York
Municipal Bonds or Municipal Bonds Sold, a New York Municipal Bond or a
Municipal Bond that (i) pays interest in cash, (ii) is publicly rated Baa or
higher by Moody's or, if not rated by Moody's but rated by S&P, is rated at
least BBB by S&P
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<PAGE> 17
(provided that, for purposes of determining the Moody's Discount Factor
applicable to any such S&P-rated New York Municipal Bond or S&P-rated Municipal
Bond, such New York Municipal Bond or Municipal Bond (excluding any short-term
New York Municipal Bond or Municipal Bond) will be deemed to have a Moody's
rating which is one full rating category lower than its S&P rating), (iii) does
not have its Moody's rating suspended by Moody's; and (iv) is part of an issue
of New York Municipal Bonds or Municipal Bonds of at least $10,000,000. In
addition, New York Municipal Bonds and Municipal Bonds in the Corporation's
portfolio must be within the following diversification requirements in order to
be included within Moody's Eligible Assets:
<TABLE>
<CAPTION>
Minimum Maximum Maximum Maximum Maximum
Issue Size Underlying Issue Type County State or Territory
Rating ($ Millions) Obligor (%)(1) Concentration(%)(1)(3) Concentration(%)(1)(4) Concentration (1)(5)
- ------ ------------ -------------- ---------------------- ---------------------- --------------------
<S> <C> <C> <C> <C> <C>
Aaa . . . . . . . . . . 10 100 100 100 100
Aa . . . . . . . . . . 10 20 60 60 60
A . . . . . . . . . . . 10 10 40 40 40
Baa . . . . . . . . . . 10 6 20 20 20
Other(2) . . . . . . . 10 4 12 12 12
</TABLE>
_________________
(1) The referenced percentages represent maximum cumulative totals
for the related rating category and each lower rating category.
(2) New York Municipal Bonds and Municipal Bonds not rated by Moody's
but rated BBB or BBB+ by S&P.
(3) Does not apply to general obligation bonds.
(4) Applicable to general obligation bonds only.
(5) Does not apply to New York Municipal Bonds. Territorial bonds
(other than those issued by Puerto Rico and counted collectively)
are each limited to 10% of Moody's Eligible Assets. For
diversification purposes, Puerto Rico will be treated as a state.
For purposes of the maximum underlying obligor requirement described above, any
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
York Municipal Bonds and Municipal Bonds will be
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<PAGE> 18
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 York Municipal Bond or Municipal Bond
and agrees to repurchase it at a future date, the Discounted Value of such Bond
will constitute a Moody's Eligible Asset and the amount the Corporation is
required to pay upon repurchase of such Bond will count as a liability for
purposes of calculating the AMPS Basic Maintenance Amount. When the
Corporation purchases a New York Municipal Bond or Municipal Bond and agrees to
sell it at a future date to another party, cash receivable by the Corporation
thereby will constitute a Moody's
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<PAGE> 19
Eligible Asset if the long-term debt of such other party is rated at least A2
by Moody's and such agreement has a term of 30 days or less; otherwise the
Discounted Value of such Bond will constitute a Moody's Eligible Asset.
Notwithstanding the foregoing, an asset will not be considered a
Moody's Eligible Asset if it is (i) held in a margin account, (ii) subject to
any material lien, mortgage, pledge, security interest or security agreement of
any kind, (iii) held for the purchase of a security pursuant to a Forward
Commitment or (iv) irrevocably deposited by the Corporation for the payment of
dividends or redemption.
"Moody's Exposure Period" means a period that is the same length or
longer than the number of days used in calculating the cash dividend component
of the AMPS Basic Maintenance Amount and shall initially be the period
commencing on and including a given Valuation Date and ending 48 days
thereafter.
"Moody's Hedging Transactions" has the meaning set forth in paragraph
8(b) of these Articles Supplementary.
"Moody's Volatility Factor" means 272% as long as there has been no
increase enacted to the Marginal Tax Rate. If such an increase is enacted but
not yet implemented, the Moody's Volatility Factor shall be as follows:
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<PAGE> 20
<TABLE>
<CAPTION>
% Change in
Marginal Tax Moody's Volatility
Rate Factor
------------ ----------------------
<S> <C>
#5% 292%
>5% but #10% 313%
>10% but #15% 338%
>15% but #20% 364%
>20% but #25% 396%
>25% but #30% 432%
>30% but #35% 472%
>35% but #40% 520%
</TABLE>
Notwithstanding the foregoing, the Moody's Volatility Factor may mean such
other potential dividend rate increase factor as Moody's advises the
Corporation in writing is applicable.
"Municipal Bonds" means "Municipal Bonds" as defined in the
Corporation's Registration Statement on Form N-14 (File No. 33-_____) 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 8(a) of these
Articles Supplementary.
"1940 Act" means the Investment Company Act of 1940, as amended from
time to time.
"1940 Act AMPS Asset Coverage" means asset coverage, as defined in
section 18(h) of the 1940 Act, of at least 200% with respect to all outstanding
senior securities of the Corporation which are stock, including all outstanding
shares of AMPS and Other AMPS (or such other asset coverage as may in the
future be specified in or under the 1940 Act as the minimum asset coverage
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<PAGE> 21
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 York Municipal Bonds" means municipal obligations issued by or on
behalf of the State of New York, its political subdivisions, agencies and
instrumentalities and by other qualifying issuers that pay interest which, in
the opinion of bond counsel to the issuer, is exempt from Federal and New York
income taxes.
"Non-Call Period" has the meaning set forth under the definition of
"Specific Redemption Provisions".
"Non-Payment Period" means, with respect to the AMPS, any period
commencing on and including the day on which the Corporation shall fail to (i)
declare, prior to the close of business on the second Business Day preceding
any Dividend Payment Date, for payment on or (to the extent permitted by
paragraph 2(c)(i) of these Articles Supplementary) within three Business Days
after such Dividend Payment Date to the Holders as of 12:00 noon, New York City
time, on the Business Day preceding such Dividend Payment Date, the full amount
of any dividend on shares of AMPS payable on such Dividend Payment Date or (ii)
deposit, irrevocably in trust, in same-day funds, with the
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<PAGE> 22
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 clauses (ii)(A) or (ii)(B)
above within three Business Days after any Dividend Payment Date or redemption
date, as the case may be, in each case to the extent contemplated by paragraph
2(c)(i) of these Articles Supplementary, shall not constitute a "Non-Payment
Period."
"Non-Payment Period Rate" means, initially, 200% of the applicable
Reference Rate (or 275% of such rate if the Corporation has provided
notification to the Auction Agent prior to the Auction establishing the
Applicable Rate for any dividend
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<PAGE> 23
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 (or
any Substitute Rating Agency in lieu of Moody's or S&P in the event either of
such parties shall not rate the AMPS) advise the Corporation in writing that
such adjustment, modification, alteration or change will not adversely affect
their then-current ratings on the AMPS.
"Normal Dividend Payment Date" has the meaning set forth in paragraph
2(b)(i) of these Articles Supplementary.
"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 $25,000 per share plus an
amount equal to accumulated but unpaid dividends (whether or not earned or
declared) to the date fixed for redemption and excluding Additional Dividends
plus any applicable redemption premium attributable to the designation of a
Premium Call Period.
23
<PAGE> 24
"Other AMPS" means the auction rate preferred stock of the
Corporation, other than the AMPS.
"Outstanding" means, as of any date (i) with respect to AMPS, shares
of AMPS theretofore issued by the Corporation except, without duplication, (A)
any shares of AMPS theretofore cancelled or delivered to the Auction Agent for
cancellation, or redeemed by the Corporation, or as to which a Notice of
Redemption shall have been given and Deposit Securities shall have been
deposited in trust or aggregated by the Corporation pursuant to paragraph 4(c)
and (B) any shares of AMPS as to which the Corporation or any Affiliate thereof
shall be a Beneficial Owner, provided that shares of AMPS held by an Affiliate
shall be deemed outstanding for purposes of calculating the AMPS Basic
Maintenance Amount and (ii) with respect to shares of other Preferred Stock,
has the equivalent meaning.
"Parity Stock" means the AMPS and each other outstanding series of
Preferred Stock the holders of which, together with the holders of the AMPS,
shall be entitled to the receipt of dividends or of amounts distributable upon
liquidation, dissolution or winding up, as the case may be, in proportion to
the full respective preferential amounts to which they are entitled, without
preference or priority one over the other.
"Person" means and includes an individual, a partnership, a
corporation, a trust, an unincorporated association, a joint venture or other
entity or a government or any agency or political subdivision thereof.
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<PAGE> 25
"Policy" means an insurance policy purchased by the Corporation which
guarantees the payment of principal and interest on specified New York
Municipal Bonds or Municipal Bonds during the period in which such New York
Municipal Bonds or Municipal Bonds are owned by the Corporation; provided,
however, that, as long as the AMPS are rated by Moody's and S&P, the
Corporation will not obtain any Policy unless Moody's and S&P advise the
Corporation in writing that the purchase of such Policy will not adversely
affect their then-current rating on the AMPS.
"Potential Beneficial Owner" means a customer of a Broker-Dealer or a
Broker-Dealer that is not a Beneficial Owner of shares of AMPS but that wishes
to purchase such shares, or that is a Beneficial Owner that wishes to purchase
additional shares of AMPS.
"Potential Holder" means any Broker-Dealer or any such other Person as
may be permitted by the Corporation, including any Existing Holder, who may be
interested in acquiring shares of AMPS (or, in the case of an Existing Holder,
additional shares of AMPS).
"Preferred Stock" means the preferred stock of the Corporation, and
includes AMPS and Other AMPS.
"Premium Call Period" has the meaning set forth under the definition
of "Specific Redemption Provisions".
"Pricing Service" shall mean J.J. Kenny or any pricing service
designated by the Board of Directors of the Corporation
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<PAGE> 26
provided the Corporation obtains written assurance from S&P and Moody's that
such designation will not impair the rating then assigned by S&P and Moody's to
the AMPS.
"Quarterly Valuation Date" means the last Business Day of the last
month of each fiscal quarter of the Corporation in each fiscal year of the
Corporation, commencing October 31, 1996.
"Receivables for New York Municipal Bonds Sold" has the meaning set
forth under the definition of S&P Discount Factor.
"Receivables for New York Municipal Bonds or Municipal Bonds Sold"
has the meaning set forth under the definition of Moody's Discount Factor.
"Reference Rate" means: (i) with respect to a Dividend Period or a
Short Term Dividend Period having 28 or fewer days, the higher of the
applicable "AA" Composite Commercial Paper 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.
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<PAGE> 27
"Retroactive Taxable Allocation" has the meaning set forth in
paragraph 2(e) of these Articles Supplementary.
"Right," with respect to the AMPS, has the meaning set forth in
paragraph 2(e) of these Articles Supplementary and, with respect to Other AMPS,
has the equivalent meaning.
"S&P" means Standard & Poor's Ratings Group or its successors.
"S&P Discount Factor" means, for purposes of determining the
Discounted Value of any New York Municipal Bond which constitutes an S&P
Eligible Asset, the percentage determined by reference to (a)(i) the rating by
S&P or Moody's on such Bond or (ii) in the event the New York Municipal Bond is
insured under a Policy and the terms of the Policy permit the Corporation, at
its option, to obtain other permanent insurance guaranteeing the timely payment
of interest on such New York Municipal Bond and principal thereof to maturity,
the S&P insurance claims-paying ability rating of the issuer of the Policy or
(iii) in the event the New York Municipal Bond is insured under an insurance
policy which guarantees the timely payment of interest on such New York
Municipal Bond and principal thereof to maturity, the S&P insurance
claims-paying ability rating of the issuer of the insurance policy and (b) the
S&P Exposure Period, in accordance with the tables set forth below:
27
<PAGE> 28
For New York Municipal Bonds:
<TABLE>
<CAPTION>
Rating Category
------------------------------------------------
S&P Exposure Period AAA* AA* A* BBB*
- ------------------- ------------------------------------------------
<S> <C> <C> <C> <C>
40 Business Days . . . . . . . . . . . . . . . . 210% 215% 230% 270%
22 Business Days . . . . . . . . . . . . . . . . 190 195 210 250
10 Business Days . . . . . . . . . . . . . . . . 175 180 195 235
7 Business Days . . . . . . . . . . . . . . . . 170 175 190 230
3 Business Days . . . . . . . . . . . . . . . . 150 155 170 210
</TABLE>
___________________
* S&P rating.
Notwithstanding the foregoing, (i) the S&P Discount Factor for
short-term New York Municipal Bonds will be 115%, so long as such New York
Municipal Bonds are rated A-1+ or SP-1+ by S&P and mature or have a demand
feature exercisable in 30 days or less, or 125% if such New York Municipal
Bonds are not rated by S&P but are rated VMIG-1, P-1 or MIG-1 by Moody's;
provided, however, such short-term New York 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 York Municipal Bonds
rated by Moody's but not rated by S&P may comprise no more than 50% of
short-term New York Municipal Bonds that qualify as S&P Eligible Assets and
(ii) no S&P Discount Factor will be applied to cash or to Receivables for New
York Municipal Bonds Sold. "Receivables for New York Municipal Bonds Sold,"
for purposes of calculating S&P Eligible Assets as of any Valuation Date, means
the book value of receivables for New York Municipal Bonds sold as of or prior
to
28
<PAGE> 29
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 other than New York Municipal Bonds provided that S&P advises
the Corporation in writing that such action will not adversely affect its then
current rating on the AMPS. For purposes of the foregoing, Anticipation Notes
rated SP-1+ or, if not rated by S&P, rated VMIG-1 by Moody's, which do not
mature or have a demand feature exercisable in 30 days and which do not have a
long-term rating, shall be considered to be short-term New York Municipal
Bonds.
"S&P Eligible Asset" means cash, Receivables for New York Municipal
Bonds Sold or a New York Municipal Bond that (i) is interest bearing and pays
interest at least semi-annually; (ii) is payable with respect to principal and
interest in United States Dollars; (iii) is publicly rated BBB or higher by S&P
or, except in the case of Anticipation Notes that are grant anticipation notes
or bond anticipation notes which must be rated by S&P to be included in S&P
Eligible Assets, if not rated by S&P but rated by Moody's, is rated at least A
by Moody's (provided that such Moody's-rated New York Municipal Bonds will be
included in S&P Eligible Assets only to the extent the Market Value of such New
York Municipal Bonds does not exceed 50% of the aggregate Market Value of the
S&P Eligible Assets; and further provided that, for purposes of determining the
S&P Discount Factor applicable to any such Moody's-rated New York Municipal
Bond, such New York Municipal Bond will be deemed to have an S&P
29
<PAGE> 30
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 York Municipal
Bonds; and (vi) is part of an issue of New York Municipal Bonds with an
original issue size of at least $20 million or, if of an issue with an original
issue size below $20 million (but in no event below $10 million), is issued by
an issuer with a total of at least $50 million of securities outstanding.
Notwithstanding the foregoing:
(1) New York Municipal Bonds of any one issuer or guarantor
(excluding bond insurers) will be considered S&P Eligible Assets only
to the extent the Market Value of such New York Municipal Bonds does
not exceed 10% of the aggregate Market Value of the S&P Eligible
Assets, provided that 2% is added to the applicable S&P Discount
Factor for every 1% by which the Market Value of such New York
Municipal Bonds exceeds 5% of the aggregate Market Value of the S&P
Eligible Assets; and
(2) New York Municipal Bonds of any one issue type category
(as described below) will be considered S&P Eligible Assets only to
the extent the Market Value of such Bonds does not exceed 20% of the
aggregate Market Value of S&P Eligible Assets, except that New York
Municipal Bonds falling within the utility issue type category will be
broken down into three sub-categories (as described below) and such
New York Municipal Bonds will be considered S&P
30
<PAGE> 31
Eligible Assets to the extent the Market Value of such Bonds in each
such sub-category does not exceed 20% of the aggregate Market Value of
S&P Eligible Assets. For purposes of the issue type category
requirement described above, New York Municipal Bonds will be
classified within one of the following categories: health care
issues, housing issues, educational facilities issues, student loan
issues, transportation issues, industrial development bond issues,
utility issues, general obligation issues, lease obligations, escrowed
bonds and other issues not falling within one of the aforementioned
categories. For purposes of the issue type category requirement
described above, New York Municipal Bonds in the utility issue type
category will be classified within one of the three following
sub-categories: (i) electric, gas and combination issues (if the
combination issue includes an electric issue), (ii) water and sewer
utilities and combination issues (if the combination issue does not
include an electric issue), and (iii) irrigation, resource recovery,
solid waste and other utilities, provided that New York Municipal
Bonds included in this sub-category (iii) must be rated by S&P in
order to be included in S&P Eligible Assets.
The Corporation may include Municipal Bonds other than New York
Municipal Bonds as S&P Eligible Assets pursuant to guidelines and restrictions
to be established by S&P provided
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<PAGE> 32
that S&P advises the Corporation in writing that such action will not adversely
affect its then current rating on the AMPS.
"S&P Exposure Period" means the maximum period of time following a
Valuation Date, including the Valuation Date and the AMPS Basic Maintenance
Cure Date, that the Corporation has under these Articles Supplementary to cure
any failure to maintain, as of such Valuation Date, the Discounted Value for
its portfolio at least equal to the AMPS Basic Maintenance Amount (as described
in paragraph 7(a) of these Articles Supplementary).
"S&P Hedging Transactions" has the meaning set forth in paragraph 8(a)
of these Articles Supplementary.
"S&P Volatility Factor" means 277% or such other potential dividend
rate increase factor as S&P advises the Corporation in writing is applicable.
"Securities Depository" means The Depository Trust Company or any
successor company or other entities elected by the Corporation as securities
depository for the shares of AMPS that agrees to follow the procedures required
to be followed by such securities depository in connection with the shares of
AMPS.
"Service" means the United States Internal Revenue Service.
"7-Day Dividend Period" means, with respect to Series B AMPS, a
Dividend Period consisting of seven days.
"Short Term Dividend Period" means a Special Dividend Period
consisting of a specified number of days (other than seven in the case of
Series B AMPS and other than 28 in the case of Series C
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<PAGE> 33
AMPS), evenly divisible by seven and not fewer than seven nor more than 364.
"Special Dividend Period" means a Dividend Period consisting of (i) a
specified number of days (other than seven in the case of Series B AMPS and
other than 28 in the case of Series C AMPS), evenly divisible by seven and not
fewer than seven nor more than 364 or (ii) a specified period of one whole year
or more but not greater than five years (in each case subject to adjustment as
provided in paragraph 2(b)(i)).
"Specific Redemption Provisions" means, with respect to a Special
Dividend Period either, or any combination of, (i) a period (a "Non- Call
Period") determined by the Board of Directors of the Corporation, after
consultation with the Auction Agent and the Broker-Dealers, during which the
shares of AMPS subject to such Dividend Period shall not be subject to
redemption at the option of the Corporation and (ii) a period (a "Premium Call
Period"), consisting of a number of whole years and determined by the Board of
Directors of the Corporation, after consultation with the Auction Agent and the
Broker-Dealers, during each year of which the shares of AMPS subject to such
Dividend Period shall be redeemable at the Corporation's option at a price per
share equal to $25,000 plus accumulated but unpaid dividends plus a premium
expressed as a percentage of $25,000, as determined by the Board of Directors
of the Corporation after consultation with the Auction Agent and the
Broker-Dealers.
33
<PAGE> 34
"Stock Books" means the books maintained by the Auction Agent setting
forth at all times a current list, as determined by the Auction Agent, of
Existing Holders of the AMPS.
"Stock Register" means the register of Holders maintained on behalf of
the Corporation by the Auction Agent in its capacity as transfer agent and
registrar for the AMPS.
"Subsequent Dividend Period," with respect to AMPS, has the meaning
set forth in paragraph 2(c)(i) of these Articles Supplementary and, with
respect to Other AMPS, has the equivalent meaning.
"Substitute Commercial Paper Dealers" means such Substitute Commercial
Paper Dealer or Dealers as the Corporation may from time to time appoint or, in
lieu of any thereof, their respective affiliates or successors.
"Substitute Rating Agency" and "Substitute Rating Agencies" mean a
nationally recognized statistical rating organization or two nationally
recognized statistical rating organizations, respectively, selected by Merrill
Lynch, Pierce, Fenner & Smith Incorporated or its affiliates and successors,
after consultation with the Corporation, to act as the substitute rating agency
or substitute rating agencies, as the case may be, to determine the credit
ratings of the shares of AMPS.
"Taxable Equivalent of the Short-Term Municipal Bond Rate" on any date
means 90% of the quotient of (A) the per annum rate expressed on an interest
equivalent basis equal to the Kenny S&P 30 day High Grade Index (the "Kenny
Index") or any successor
34
<PAGE> 35
index, made available for the Business Day immediately preceding such date but
in any event not later than 8:30 A.M., New York City time, on such date by
Kenny Information Systems Inc. or any successor thereto, based upon 30-day
yield evaluations at par of bonds the interest on which is excludable for
regular Federal income tax purposes under the Code of "high grade" component
issuers selected by Kenny Information Systems Inc. or any such successor from
time to time in its discretion, which component issuers shall include, without
limitation, issuers of general obligation bonds but shall exclude any bonds the
interest on which constitutes an item of tax preference under Section 57(a)(5)
of the Code, or successor provisions, for purposes of the "alternative minimum
tax," divided by (B) 1.00 minus the Marginal Tax Rate (expressed as a decimal);
provided, however, that if the Kenny Index is not made so available by 8:30
A.M., New York City time, on such date by Kenny Information Systems Inc. or any
successor, the Taxable Equivalent of the Short-Term Municipal Bond Rate shall
mean the quotient of (A) the per annum rate expressed on an interest equivalent
basis equal to the most recent Kenny Index so made available for any preceding
Business Day, divided by (B) 1.00 minus the Marginal Tax Rate (expressed as a
decimal). The Corporation may not utilize a successor index to the Kenny Index
unless Moody's and S&P provide the Corporation with written confirmation that
the use of such successor index will not adversely affect the then-current
respective Moody's and S&P ratings of the AMPS.
35
<PAGE> 36
"Treasury Bonds" shall have the meaning set forth in paragraph 8(a) of
these Articles Supplementary.
"28-Day Dividend Period" means, with respect to Series C AMPS, a
Dividend Period consisting of 28 days.
"U.S. Treasury Bill Rate" on any date means (i) the Interest
Equivalent of the rate on the actively traded Treasury Bill with a maturity
most nearly comparable to the length of the related Dividend Period, as such
rate is made available on a discount basis or otherwise by the Federal Reserve
Bank of New York in its Composite 3:30 P.M. Quotations for U.S. Government
Securities report for such Business Day, or (ii) if such yield as so calculated
is not available, the Alternate Treasury Bill Rate on such date. "Alternate
Treasury Bill Rate" on any date means the Interest Equivalent of the yield as
calculated by reference to the arithmetic average of the bid price quotations
of the actively traded Treasury Bill with a maturity most nearly comparable to
the length of the related Dividend Period, as determined by bid price
quotations as of any time on the Business Day immediately preceding such date,
obtained from at least three recognized primary U.S. Government securities
dealers selected by the Auction Agent.
"U.S. Treasury Note Rate" on any date means (i) the yield as
calculated by reference to the bid price quotation of the actively traded,
current coupon Treasury Note with a maturity most nearly comparable to the
length of the related Dividend Period, as such bid price quotation is published
on the Business
36
<PAGE> 37
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, each Business Day
commencing with the Date of Original Issue.
"Variation Margin" means, in connection with an outstanding futures
contract owned or sold by the Corporation, the amount of cash or securities
paid to or received from a broker (subsequent to the Initial Margin payment)
from time to time as the price of such futures contract fluctuates.
(b) The foregoing definitions of Accountant's Confirmation, AMPS
Basic Maintenance Amount, AMPS Basic Maintenance Cure Date, AMPS Basic
Maintenance Report, Deposit Securities, Discounted Value, Independent
Accountant, Initial Margin, Market Value, Maximum Potential Additional Dividend
Liability, Moody's Eligible
37
<PAGE> 38
Asset, Moody's Exposure Period, Moody's Hedging Transactions, Moody's
Volatility Factor, S&P Discount Factor, S&P Eligible Asset, S&P Exposure
Period, S&P Hedging Transactions, S&P Volatility Factor, Valuation Date and
Variation Margin have been determined by the Board of Directors of the
Corporation in order to obtain a "aaa" rating from Moody's and a AAA rating
from S&P on the AMPS on their Date of Original Issue; and the Board of
Directors of the Corporation shall have the authority, without shareholder
approval, to amend, alter or repeal from time to time the foregoing definitions
and the restrictions and guidelines set forth thereunder if Moody's and S&P or
any Substitute Rating Agency advises the Corporation in writing that such
amendment, alteration or repeal will not adversely affect their then-current
ratings on the AMPS.
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
38
<PAGE> 39
the Corporation's investments. To the extent permitted under the Code,
dividends on shares of AMPS will be designated as exempt-interest dividends.
For the purposes of this section, the term "net tax-exempt income" shall
exclude capital gains of the Corporation.
(b) (i) Cash dividends on shares of AMPS shall accumulate
from the Date of Original Issue and shall be payable, when, as and if declared
by the Board of Directors, out of funds legally available therefor, commencing
on the Initial Dividend Payment Date with respect to each series of AMPS.
Following the Initial Dividend Payment Date for each series of AMPS, dividends
on such series of AMPS will be payable, at the option of the Corporation,
either (i) with respect to any 7-Day Dividend Period, any 28-Day Dividend
Period and any Short Term Dividend Period of 35 or fewer days, on the day next
succeeding the last day thereof or (ii) with respect to any Short Term Dividend
Period of more than 35 days and with respect to any Long Term Dividend Period,
monthly on the first Business Day of each calendar month during such Short Term
Dividend Period or Long Term Dividend Period and on the day next succeeding the
last day thereof (each such date referred to in clause (i) or (ii) being herein
referred to as a "Normal Dividend Payment Date"), except that if such Normal
Dividend Payment Date is not a Business Day, then (i) the Dividend Payment Date
shall be the first Business Day next succeeding such Normal Dividend Payment
Date if such Normal Dividend Payment Date is a Monday, Tuesday, Wednesday or
39
<PAGE> 40
Thursday, or (ii) the Dividend Payment Date shall be the first Business Day
next preceding such Normal Dividend Payment Date if such Normal Dividend
Payment Date is a Friday. Although any particular Dividend Payment Date may
not occur on the originally scheduled date because of the exceptions discussed
above, the next succeeding Dividend Payment Date, subject to such exceptions,
will occur on the next following originally scheduled date. If for any reason
a Dividend Payment Date cannot be fixed as described above, then the Board of
Directors shall fix the Dividend Payment Date. The Board of Directors by
resolution may change a Dividend Payment Date if such change does not adversely
affect the contract rights of Holders of shares of AMPS set forth in the
Charter. The Initial Dividend Period, 7-Day Dividend Periods, 28-Day Dividend
Periods and Special Dividend Periods are hereinafter sometimes referred to as
Dividend Periods. Each dividend payment date determined as provided above is
hereinafter referred to as a "Dividend Payment Date."
(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.
40
<PAGE> 41
(c) (i) During the period from and including the Date of
Original Issue to but excluding the Initial Dividend Payment Date for each
series of AMPS (the "Initial Dividend Period"), the Applicable Rate shall be
the Initial Dividend Rate. Commencing on the Initial Dividend Payment Date for
each series of AMPS, the Applicable Rate for each subsequent dividend period
(hereinafter referred to as a "Subsequent Dividend Period"), which Subsequent
Dividend Period shall commence on and include a Dividend Payment Date and shall
end on and include the calendar day prior to the next Dividend Payment Date (or
last Dividend Payment Date in a Dividend Period if there is more than one
Dividend Payment Date), shall be equal to the rate per annum that results from
implementation of the Auction Procedures.
The Applicable Rate for each Dividend Period commencing during a
Non-Payment Period shall be equal to the Non-Payment Period Rate; and each
Dividend Period, commencing after the first day of, and during, a Non-Payment
Period shall be a 7-Day Dividend Period in the case of Series B AMPS and a
28-Day Dividend Period in the case of Series C AMPS, provided that if the
preceding Dividend Period for Series C AMPS is a Special Dividend Period of
less than 28 days, the Dividend Period commencing during a Non-Payment Period
will be the same length as such preceding Dividend Period. Except in the case
of the 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
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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 Dividend Rate for the Dividend Period commencing during the
Non-Payment Period resulting from such failure shall be the Non-Payment Period
Rate. For the purposes of the foregoing, payment to a person in same-day funds
on any Business Day at any time shall be considered equivalent to payment to
such person in New York Clearing House (next-day) funds at the same time on the
preceding Business Day, and any payment made after 12:00 noon, New York City
time, on any Business Day shall be considered to have been made instead in the
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same form of funds and to the same person before 12:00 noon, New York City
time, on the next Business Day.
(ii) The amount of cash dividends per share of any series of AMPS payable
(if declared) on the Initial Dividend Payment Date and on each Dividend Payment
Date of each 28-Day 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 or part thereof that such share was outstanding
and the denominator of which will be 365, multiplying the amount so obtained by
$25,000, and rounding the amount so obtained to the nearest cent. During any
Long Term Dividend Period, the amount of dividends per share of AMPS payable
(if declared) on any Dividend Payment Date shall be computed by multiplying the
Applicable Rate for such Dividend Period by a fraction, the numerator of which
will be such number of days in such part of such Dividend Period that such
share was outstanding and for which dividends are payable on such Dividend
Payment Date and the denominator of which will be 360, multiplying the amount
so obtained by $25,000, and rounding the amount so obtained to the nearest
cent.
(iii) With respect to each Dividend Period that is a Special Dividend
Period, the Corporation may, at its sole option and to the extent permitted by
law, by telephonic and written notice (a "Request for Special Dividend Period")
to the Auction Agent and to each Broker-Dealer, request that the next
succeeding Dividend
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Period for the AMPS be the number of days (other than seven in the case of
Series B AMPS and other than 28 in the case of Series C AMPS), evenly divisible
by seven, and not fewer than seven nor more than 364 in the case of a Short
Term Dividend Period or one whole year or more but not greater than five years
in the case of a Long Term Dividend Period, specified in such notice, provided
that the Corporation may not give a Request for Special Dividend Period (and
any such request shall be null and void) unless, for any Auction occurring
after the initial Auction, Sufficient Clearing Bids were made in the last
occurring Auction and unless full cumulative dividends, any amounts due with
respect to redemptions, and any Additional Dividends payable prior to such date
have been paid in full. Such Request for Special Dividend Period, in the case
of a Short Term Dividend Period, shall be given on or prior to the second
Business Day but not more than seven Business Days prior to an Auction Date for
AMPS and, in the case of a Long Term Dividend Period, shall be given on or
prior to the second Business Day but not more than 28 days prior to an Auction
Date for the AMPS. Upon receiving such Request for Special Dividend Period,
the Broker-Dealer(s) shall jointly determine whether, given the factors set
forth below, it is advisable that the Corporation issue a Notice of Special
Dividend Period for the series of AMPS as contemplated by such Request for
Special Dividend Period and the Optional Redemption Price of the AMPS during
such Special Dividend Period and the Specific Redemption Provisions and shall
give the Corporation and the
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Auction Agent written notice (a "Response") of such determination by no later
than the second Business Day prior to such Auction Date. In making such
determination the Broker-Dealer(s) will consider (1) existing short-term and
long-term market rates and indices of such short-term and long-term rates, (2)
existing market supply and demand for short-term and long-term securities, (3)
existing yield curves for short-term and long-term securities comparable to the
AMPS, (4) industry and financial conditions which may affect the AMPS, (5) the
investment objective of the Corporation, and (6) the Dividend Periods and
dividend rates at which current and potential beneficial holders of the AMPS
would remain or become beneficial holders. If the Broker-Dealer(s) shall not
give the Corporation and the Auction Agent a Response by such second Business
Day or if the Response states that given the factors set forth above it is not
advisable that the Corporation give a Notice of Special Dividend Period for the
AMPS, the Corporation may not give a Notice of Special Dividend Period in
respect of such Request for Special Dividend Period. In the event the Response
indicates that it is advisable that the Corporation give a Notice of Special
Dividend Period for the AMPS, the Corporation may by no later than the second
Business Day prior to such Auction Date give a notice (a "Notice of Special
Dividend Period") to the Auction Agent, the Securities Depository and each
Broker-Dealer which notice will specify (i) the duration of the Special
Dividend Period, (ii) the Optional Redemption Price as specified in the related
Response
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and (iii) the Specific Redemption Provisions, if any, as specified in the
related Response. The Corporation also shall provide a copy of such Notice of
Special Dividend Period to Moody's and S&P. The Corporation shall not give a
Notice of Special Dividend Period and, if the Corporation has given a Notice of
Special Dividend Period, the Corporation is required to give telephonic and
written notice of its revocation (a "Notice of Revocation") to the Auction
Agent, each Broker-Dealer, and the Securities Depository on or prior to the
Business Day prior to the relevant Auction Date if (x) either the 1940 Act AMPS
Asset Coverage is not satisfied or the Corporation shall fail to maintain S&P
Eligible Assets and Moody's Eligible Assets each with an aggregate Discounted
Value at least equal to the AMPS Basic Maintenance Amount, in each case on each
of the two Valuation Dates immediately preceding the Business Day prior to the
relevant Auction Date on an actual basis and on a pro forma basis giving effect
to the proposed Special Dividend Period (using as a pro forma dividend rate
with respect to such Special Dividend Period the dividend rate which the
Broker-Dealers shall advise the Corporation is an approximately equal rate for
securities similar to the AMPS with an equal dividend period), provided that,
in calculating the aggregate Discounted Value of Moody's Eligible Assets for
this purpose, the Moody's Exposure 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
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deposited with the Auction Agent by the close of business on the third Business
Day preceding the related Auction Date or (z) the Broker-Dealer(s) jointly
advise the Corporation that after consideration of the factors listed above
they have concluded that it is advisable to give a Notice of Revocation. The
Corporation also shall provide a copy of such Notice of Revocation to Moody's
and S&P. If the Corporation is prohibited from giving a Notice of Special
Dividend Period as a result of any of the factors enumerated in clause (x), (y)
or (z) above or if the Corporation gives a Notice of Revocation with respect to
a Notice of Special Dividend Period for any series of AMPS, the next succeeding
Dividend Period will be a 7-Day Dividend Period in the case of Series B AMPS
and a 28-Day Dividend Period in the case of Series C AMPS, provided that if the
then current Dividend Period for Series C AMPS in a Special Dividend Period of
less than 28 days, the next succeeding Dividend Period for such series of AMPS
will be the same length as such current Dividend Period. In addition, in the
event Sufficient Clearing Bids are not made in the applicable Auction or such
Auction is not held for any reason, such next succeeding Dividend Period will
be a 7-Day Dividend Period (in the case of Series B AMPS) or a 28-Day Dividend
Period (in the case of Series C AMPS) and the Corporation may not again give a
Notice of Special Dividend Period for the AMPS (and any such attempted notice
shall be null and void) until Sufficient Clearing Bids have been made in an
Auction with respect to a 7-Day Dividend Period (in the case of
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Series B AMPS) or a 28-Day Dividend Period (in the case of Series C AMPS).
(d) (i) Holders shall not be entitled to any dividends,
whether payable in cash, property or stock, in excess of full cumulative
dividends and applicable late charges, as herein provided, on the shares of
AMPS (except for Additional Dividends as provided in paragraph 2(e) hereof and
additional payments as provided in paragraph 2(f) hereof). Except for the late
charge payable pursuant to paragraph 2(c)(i) hereof, no interest, or sum of
money in lieu of interest, shall be payable in respect of any dividend payment
on the shares of AMPS that may be in arrears.
(ii) For so long as any share of AMPS is Outstanding, the
Corporation shall not declare, pay or set apart for payment any dividend or
other distribution (other than a dividend or distribution paid in shares of, or
options, warrants or rights to subscribe for or purchase, Common Stock or other
stock, if any, ranking junior to the shares of AMPS as to dividends or upon
liquidation) in respect of the Common Stock or any other stock of the
Corporation ranking junior to or on a parity with the shares of AMPS as to
dividends or upon liquidation, or call for redemption, redeem, purchase or
otherwise acquire for consideration any shares of the Common Stock or any other
such junior stock (except by conversion into or exchange for stock of the
Corporation ranking junior to the shares of AMPS as to dividends and upon
liquidation) or any other such Parity Stock (except by conversion into or
exchange for stock of the
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Corporation ranking junior to or on a parity with the shares of AMPS as to
dividends and upon liquidation), unless (A) immediately after such transaction,
the Corporation shall have S&P Eligible Assets and Moody's Eligible Assets each
with an aggregate Discounted Value equal to or greater than the AMPS Basic
Maintenance Amount and the Corporation shall maintain the 1940 Act AMPS Asset
Coverage, (B) full cumulative dividends on shares of AMPS and shares of Other
AMPS due on or prior to the date of the transaction have been declared and paid
or shall have been declared and sufficient funds for the payment thereof
deposited with the Auction Agent, (C) any Additional Dividend required to be
paid under paragraph 2(e) below on or before the date of such declaration or
payment has been paid and (D) the Corporation has redeemed the full number of
shares of AMPS required to be redeemed by any provision for mandatory
redemption contained herein.
(e) Each dividend shall consist of (i) cash at the Applicable
Rate, (ii) an uncertificated right (a "Right") to receive an Additional
Dividend (as defined below), and (iii) any additional amounts as set forth in
paragraph 2(f) below. Each Right shall thereafter be independent of the share
or shares of AMPS on which the dividend was paid. The Corporation shall cause
to be maintained a record of each Right received by the respective Holders. A
Right may not be transferred other than by operation of law. If the
Corporation retroactively allocates any net capital gains or other income
subject to regular Federal
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income taxes to shares of AMPS without having given advance notice thereof to
the Auction Agent as described in paragraph 2(f) hereof solely by reason of the
fact that such allocation is made as a result of the redemption of all or a
portion of the outstanding shares of AMPS or the liquidation of the Corporation
(the amount of such allocation referred to herein as a "Retroactive Taxable
Allocation"), the Corporation will, within 90 days (and generally within 60
days) after the end of the Corporation's fiscal year for which a Retroactive
Taxable Allocation is made, provide notice thereof to the Auction Agent and to
each holder of a Right applicable to such shares of AMPS (initially Cede & Co.
as nominee of The Depository Trust Company) during such fiscal year at such
holder's address as the same appears or last appeared on the Stock Books of the
Corporation. The Corporation will, within 30 days after such notice is given
to the Auction Agent, pay to the Auction Agent (who will then distribute to
such holders of Rights), out of funds legally available therefor, an amount
equal to the aggregate Additional Dividend with respect to all Retroactive
Taxable Allocations made to such holders during the fiscal year in question.
An "Additional Dividend" means payment to a present or former holder
of shares of AMPS of an amount which, when taken together with the aggregate
amount of Retroactive Taxable Allocations made to such holder with respect to
the fiscal year in question, would cause such holder's dividends in dollars
(after Federal, New York State and New York City income tax
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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 had been excludable from the gross income of
such holder. Such Additional Dividend shall be calculated (i) without
consideration being given to the time value of money; (ii) assuming that no
holder of shares of AMPS is subject to the Federal alternative minimum tax with
respect to dividends received from the Corporation; and (iii) assuming that
each Retroactive Taxable Allocation would be taxable in the hands of each
holder of shares of AMPS at the greater of: (x) the maximum combined marginal
regular Federal, New York State and New York City individual income tax rate
applicable to ordinary income or capital gains depending on the taxable
character of the distribution (including any surtax); or (y) the maximum
combined marginal regular Federal, New York State and New York City corporate
income tax rate applicable to ordinary income or capital gains depending on the
taxable character of the distribution (taking into account in both (x) and (y)
the Federal income tax deductibility of state taxes paid or incurred but not
any phase out of, or provision limiting, personal exemptions, itemized
deductions, or the benefit of lower tax brackets and assuming the taxability of
Federally tax-exempt dividends for corporations for New York State and New York
City income tax purposes).
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(f) Except as provided below, whenever the Corporation intends to
include any net capital gains or other income subject to regular Federal income
taxes in any dividend on shares of AMPS, the Corporation will notify the
Auction Agent of the amount to be so included at least five Business Days prior
to the Auction Date on which the Applicable Rate for such dividend is to be
established. The Corporation may also include such income in a dividend on
shares of AMPS without giving advance notice thereof if it increases the
dividend by an additional amount calculated as if such income was a Retroactive
Taxable Allocation and the additional amount was an Additional Dividend,
provided that the Corporation will notify the Auction Agent of the additional
amounts to be included in such dividend at least five Business Days prior to
the applicable Dividend Payment Date.
(g) No fractional shares of AMPS shall be issued.
3. Liquidation Rights. Upon any liquidation, dissolution or
winding up of the Corporation, whether voluntary or involuntary, the Holders
shall be entitled to receive, out of the assets of the Corporation available
for distribution to shareholders, before any distribution or payment is made
upon any Common Stock or any other capital stock ranking junior in right of
payment upon liquidation to the AMPS, the sum of $25,000 per share plus
accumulated but unpaid dividends (whether or not earned or declared) thereon to
the date of distribution, and after such payment the Holders will be entitled
to no other payments other than Additional Dividends as provided in paragraph
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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:
(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
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option of the Corporation during (A) the Initial Dividend Period with
respect to a series of shares, or (B) a Non-Call Period to which such
share is subject. In addition, holders of AMPS which are redeemed
shall be entitled to receive Additional Dividends to the extent
provided herein. The Corporation may not give a Notice of Redemption
relating to an optional redemption as described in this paragraph
4(a)(i) unless, at the time of giving such Notice of Redemption, the
Corporation has available Deposit Securities with maturity or tender
dates not later than the day preceding the applicable redemption date
and having a value not less than the amount due to Holders by reason
of the redemption of their shares of AMPS on such redemption date.
(ii) The Corporation shall redeem, out of funds legally
available therefor, at the Mandatory Redemption Price per share,
shares of AMPS to the extent permitted under the 1940 Act and Maryland
law, on a date fixed by the Board of Directors, if the Corporation
fails to maintain S&P Eligible Assets and Moody's Eligible Assets each
with an aggregate Discounted Value equal to or greater than the AMPS
Basic Maintenance Amount as provided in paragraph 7(a) or to satisfy
the 1940 Act AMPS Asset Coverage as provided in paragraph 6 and such
failure is not cured on or before the AMPS Basic Maintenance Cure Date
or the 1940 Act Cure Date (herein collectively referred to as a "Cure
Date"), as the case may be. In addition, holders of AMPS so redeemed
shall
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be entitled to receive Additional Dividends to the extent provided
herein. The number of shares of AMPS to be redeemed shall be equal to
the lesser of (i) the minimum number of shares of AMPS the redemption
of which, if deemed to have occurred immediately prior to the opening
of business on the Cure Date, together with all shares of other
Preferred Stock subject to redemption or retirement, would result in
the Corporation having S&P Eligible Assets and Moody's Eligible Assets
each with an aggregate Discounted Value equal to or greater than the
AMPS Basic Maintenance Amount or satisfaction of the 1940 Act AMPS
Asset Coverage, as the case may be, on such Cure Date (provided that,
if there is no such minimum number of shares of AMPS and shares of
other Preferred Stock the redemption of which would have such result,
all shares of AMPS and shares of other Preferred Stock then
Outstanding shall be redeemed), and (ii) the maximum number of shares
of AMPS, together with all shares of other Preferred Stock subject to
redemption or retirement, that can be redeemed out of funds expected
to be legally available therefor on such redemption date. In
determining the number of shares of AMPS required to be redeemed in
accordance with the foregoing, the Corporation shall allocate the
number required to be redeemed which would result in the Corporation
having S&P Eligible Assets and Moody's Eligible Assets each with an
aggregate Discounted Value equal to or greater than the AMPS Basic
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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 and (B) will be selected for redemption in an
ascending order of outstanding number of days in the Non-Call Period (with
shares with the lowest number of days to be redeemed first) and by lot in the
event of shares having an equal number of days in such Non-Call Period. The
Corporation shall effect such redemption on a Business Day which is not later
than 35 days after such Cure Date, except that if the Corporation does not have
funds legally available for the redemption of all of the required number of
shares of AMPS and shares of other Preferred Stock which are subject to
mandatory redemption or the Corporation otherwise is unable to effect such
redemption on or prior to 35 days after such Cure Date, the Corporation shall
redeem those shares of AMPS which it is unable to redeem on the earliest
practicable date on which it is able to effect such redemption out of funds
legally available therefor.
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(b) Notwithstanding any other provision of this paragraph 4, no
shares of AMPS may be redeemed pursuant to paragraph 4(a)(i) of these Articles
Supplementary (i) unless all dividends in arrears on all remaining outstanding
shares of Parity Stock shall have been or are being contemporaneously paid or
declared and set apart for payment and (ii) if redemption thereof would result
in the Corporation's failure to maintain Moody's Eligible Assets or S&P
Eligible Assets with an aggregate Discounted Value equal to or greater than the
AMPS Basic Maintenance Amount. In the event that less than all the outstanding
shares of a series of AMPS are to be redeemed and there is more than one
Holder, the shares of that series of AMPS to be redeemed shall be selected by
lot or such other method as the Corporation shall deem fair and equitable.
(c) Whenever shares of AMPS are to be redeemed, the Corporation,
not less than 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 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
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on the shares to be redeemed shall cease to accumulate on such redemption date
(except that holders may be entitled to Additional Dividends) and (vi) the
provision of these Articles Supplementary pursuant to which such shares are
being redeemed. No defect in the Notice of Redemption or in the mailing or
publication thereof shall affect the validity of the redemption proceedings,
except as required by applicable law.
If the Notice of Redemption shall have been given as aforesaid and,
concurrently or thereafter, the Corporation shall have deposited in trust with
the Auction Agent, or segregated in an account at the Corporation's custodian
bank for the benefit of the Auction Agent, Deposit Securities (with a right of
substitution) having an aggregate Discounted Value (utilizing in the case of
S&P an S&P Exposure Period of 22 Business Days) equal to the redemption payment
for the shares of AMPS as to which such Notice of Redemption has been given
with irrevocable instructions and authority to pay the redemption price to the
Holders of such shares, then upon the date of such deposit or, if no such
deposit is made, then upon such date fixed for redemption (unless the
Corporation shall default in making the redemption payment), all rights of the
Holders of such shares as shareholders of the Corporation by reason of the
ownership of such 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,
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from the Auction Agent the interest, if any, on such Deposit Securities
deposited with it and the Holders of any shares so redeemed shall have no claim
to any of such interest. In case the Holder of any shares so called for
redemption shall not claim the redemption payment for his shares within one
year after the date of redemption, the Auction Agent shall, upon demand, pay
over to the Corporation such amount remaining on deposit and the Auction Agent
shall thereupon be relieved of all responsibility to the Holder of such shares
called for redemption and such Holder thereafter shall look only to the
Corporation for the redemption payment.
5. Voting Rights. (a) General. Except as otherwise provided in
the Charter or By-Laws, each Holder of shares of AMPS shall be entitled to one
vote for each share held on each matter submitted to a vote of shareholders of
the Corporation, and the holders of outstanding shares of Preferred Stock,
including AMPS, and of shares of Common Stock shall vote together as a single
class; provided that, at any meeting of the shareholders of the Corporation
held for the election of directors, the holders of outstanding shares of
Preferred Stock, including AMPS, shall be entitled, as a class, to the
exclusion of the holders of all other securities and classes of capital stock
of the Corporation, to elect two directors of the Corporation. Subject to
paragraph 5(b) hereof, the holders of outstanding shares of capital stock of
the Corporation, including the holders of outstanding shares
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of Preferred Stock, including AMPS, voting as a single class, shall elect the
balance of the directors.
(b) Right to Elect Majority of Board of Directors. During any
period in which any one or more of the conditions described below shall exist
(such period being referred to herein as a "Voting Period"), the number of
directors constituting the Board of Directors shall be automatically increased
by the smallest number that, when added to the two directors elected
exclusively by the holders of shares of Preferred Stock, would constitute a
majority of the Board of Directors as so increased by such smallest number; and
the holders of shares of Preferred Stock shall be entitled, voting separately
as one class (to the exclusion of the holders of all other securities and
classes of capital stock of the Corporation), to elect such smallest number of
additional directors, together with the two directors that such holders are in
any event entitled to elect. A Voting Period shall commence:
(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
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(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 (other than with respect to the issuance of AMPS authorized hereby),
or increase the authorized or issued aggregate stated capital amount of (other
than with respect to the issuance of AMPS authorized hereby), 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 aggregate stated capital amount of AMPS
or any other Preferred Stock, or (ii) amend, alter or repeal the provisions of
the Charter, whether by merger, consolidation or otherwise, so as to adversely
affect any of the contract rights expressly set forth in the Charter of holders
of shares of AMPS or any other Preferred Stock. To the extent permitted under
the 1940 Act, in the event shares of more than
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one series of AMPS are outstanding, the Corporation shall not approve any of
the actions set forth in clause (i) or (ii) which adversely affects the
contract rights expressly set forth in the Charter of a Holder of shares of a
series of AMPS differently than those of a Holder of shares of any other series
of AMPS without the affirmative vote of the holders of at least a majority of
the shares of AMPS of each series adversely affected and outstanding at such
time (each such adversely affected series voting separately as a class). The
Corporation shall notify Moody's and S&P ten Business Days prior to any such
vote described in clause (i) or (ii). Unless a higher percentage is provided
for under the Charter, the affirmative vote of the holders of a majority of the
outstanding shares of Preferred Stock, including AMPS, voting together as a
single class, will be required to approve any plan of reorganization (including
bankruptcy proceedings) adversely affecting such shares or any action requiring
a vote of security holders under Section 13(a) of the 1940 Act. The class vote
of holders of shares of Preferred Stock, including AMPS, described above will
in each case be in addition to a separate vote of the requisite percentage of
shares of Common Stock and shares of Preferred Stock, including AMPS, voting
together as a single class necessary to authorize the action in question.
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(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 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.
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(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 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
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<PAGE> 65
paragraph 5(b) above shall cease, subject to the provisions of the
last sentence of paragraph 5(b).
(e) Exclusive Remedy. Unless otherwise required by law, the
Holders of shares of AMPS shall not have any rights or preferences other than
those specifically set forth herein. The Holders of shares of AMPS shall have
no preemptive rights or rights to cumulative voting. In the event that the
Corporation fails to pay any dividends on the shares of AMPS, the exclusive
remedy of the Holders shall be the right to vote for directors pursuant to the
provisions of this paragraph 5.
(f) Notification to S&P and Moody's. In the event a vote of Holders
of AMPS is required pursuant to the provisions of Section 13(a) of the 1940
Act, the Corporation shall, not later than ten Business Days prior to the date
on which such vote is to be taken, notify S&P and Moody's that such vote is to
be taken and the nature of the action with respect to which such vote is to be
taken and, not later than ten Business Days after the date on which such vote
is taken, notify S&P and Moody's of the result of such vote.
6. 1940 Act AMPS Asset Coverage. The Corporation shall maintain,
as of the last Business Day of each month in which any share of AMPS is
outstanding, the 1940 Act AMPS Asset Coverage.
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
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<PAGE> 66
or greater than the AMPS Basic Maintenance Amount and (ii) Moody's Eligible
Assets having an aggregate Discounted Value equal to or greater than the AMPS
Basic Maintenance Amount. Upon any failure to maintain the required Discounted
Value, the Corporation will use its best efforts to alter the composition of
its portfolio to reattain a Discounted Value at least equal to the AMPS Basic
Maintenance Amount on or prior to the AMPS Basic Maintenance Cure Date.
(b) On or before 5:00 p.m., New York City time, on the third Business
Day after a Valuation Date on which the Corporation fails to satisfy the AMPS
Basic Maintenance Amount, the Corporation shall complete and deliver to the
Auction Agent, and Moody's and S&P, as the case may be, a complete AMPS Basic
Maintenance Report as of the date of such failure, which will be deemed to have
been delivered to the Auction Agent if the Auction Agent receives a copy or
telecopy, telex or other electronic transcription thereof and on the same day
the Corporation mails to the Auction Agent for delivery on the next Business
Day the complete AMPS Basic Maintenance Report. The Corporation will deliver
an AMPS Basic Maintenance Report to the Auction Agent and Moody's and S&P, as
the case may be, on or before 5:00 p.m., New York City time, on the third
Business Day after a Valuation Date on which the Corporation cures its failure
to maintain Moody's Eligible Assets or S&P Eligible Assets, as the case may be,
with an aggregate Discounted Value equal to or greater than the AMPS Basic
Maintenance Amount or on which the Corporation fails to
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maintain Moody's Eligible Assets or S&P Eligible Assets, as the case may be,
with an aggregate Discounted Value which exceeds the AMPS Basic Maintenance
Amount by 5% or more. The Corporation will also deliver an AMPS Basic
Maintenance Report to the Auction Agent, Moody's and S&P as of each Quarterly
Valuation Date on or before the third Business Day after such date.
Additionally, on or before 5:00 p.m., New York City time, on the third Business
Day after the first day of a Special Dividend Period, the Corporation will
deliver an AMPS Basic Maintenance Report to S&P and the Auction Agent. The
Corporation shall also provide Moody's and S&P with an AMPS Basic Maintenance
Report when specifically requested by either Moody's or S&P. A failure by the
Corporation to deliver an AMPS Basic Maintenance Report under this paragraph
7(b) shall be deemed to be delivery of an AMPS Basic Maintenance Report
indicating the Discounted Value for S&P Eligible Assets and Moody's Eligible
Assets of the Corporation is less than the AMPS Basic Maintenance Amount, as of
the relevant Valuation Date.
(c) Within ten Business Days after the date of delivery of an AMPS
Basic Maintenance Report in accordance with paragraph 7(b) above relating to a
Quarterly Valuation Date, the Independent Accountant will confirm in writing to
the Auction Agent, S&P and Moody's (i) the mathematical accuracy of the
calculations reflected in such Report (and in any other AMPS Basic Maintenance
Report, randomly selected by the Independent Accountant, that was delivered by
the Corporation during the
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quarter ending on such Quarterly Valuation Date), (ii) that, in such Report
(and in such randomly selected Report), the Corporation correctly determined
the assets of the Corporation which constitute S&P Eligible Assets or Moody's
Eligible Assets, as the case may be, at such Quarterly Valuation Date in
accordance with these Articles Supplementary, (iii) that, in such Report (and
in such randomly selected Report), the Corporation determined whether the
Corporation had, at such Quarterly Valuation Date (and at the Valuation Date
addressed in such randomly selected Report) in accordance with these Articles
Supplementary, S&P Eligible Assets of an aggregate Discounted Value at least
equal to the AMPS Basic Maintenance Amount and Moody's Eligible Assets of an
aggregate Discounted Value at least equal to the AMPS Basic Maintenance Amount,
(iv) with respect to the S&P ratings on New York Municipal Bonds or Municipal
Bonds, the issuer name, issue size and coupon rate listed in such Report, that
the Independent Accountant has requested that S&P verify such information and
the Independent Accountant shall provide a listing in its letter of any
differences, (v) with respect to the Moody's ratings on New York Municipal
Bonds or Municipal Bonds, the issuer name, issue size and coupon rate listed in
such Report, that such information has been verified by Moody's (in the event
such information is not verified by Moody's, the Independent Accountant will
inquire of Moody's what such information is, and provide a listing in its
letter of any differences), (vi) with respect to the bid or mean price (or such
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<PAGE> 69
alternative permissible factor used in calculating the Market Value) provided
by the custodian of the Corporation's assets to the Corporation for purposes of
valuing securities in the Corporation's portfolio, the Independent Accountant
has traced the price used in such Report to the bid or mean price listed in
such Report as provided to the Corporation and verified that such information
agrees (in the event such information does not agree, the Independent
Accountant will provide a listing in its letter of such differences) and (vii)
with respect to such confirmation to Moody's, that the Corporation has
satisfied the requirements of paragraph 8(b) of these Articles Supplementary
(such confirmation is herein called the "Accountant's Confirmation").
(d) Within ten Business Days after the date of delivery to the
Auction Agent, S&P and Moody's of an AMPS Basic Maintenance Report in
accordance with paragraph 7(b) above relating to any Valuation Date on which
the Corporation failed to maintain S&P Eligible Assets with an aggregate
Discounted Value and Moody's Eligible Assets with an aggregate Discounted Value
equal to or greater than the AMPS Basic Maintenance Amount, and relating to the
AMPS Basic Maintenance Cure Date with respect to such failure, the Independent
Accountant will provide to the Auction Agent, S&P and Moody's an Accountant's
Confirmation as to such AMPS Basic Maintenance Report.
(e) If any Accountant's Confirmation delivered pursuant to
subparagraph (c) or (d) of this paragraph 7 shows that an error was made in the
AMPS Basic Maintenance Report for a particular
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<PAGE> 70
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
repurchased by the Corporation, the Corporation will complete and deliver to
S&P and Moody's an AMPS Basic Maintenance Report
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as of the close of business on such date that Common Stock is repurchased.
(g) For so long as shares of AMPS are rated by Moody's, in
managing the Corporation's portfolio, the Adviser will not alter the
composition of the Corporation's portfolio if, in the reasonable belief of the
Adviser, the effect of any such alteration would be to cause the Corporation to
have Moody's Eligible Assets with an aggregate Discounted Value, as of the
immediately preceding Valuation Date, less than the AMPS Basic Maintenance
Amount as of such Valuation Date; provided, however, that in the event that, as
of the immediately preceding Valuation Date, the aggregate Discounted Value of
Moody's Eligible Assets exceeded the AMPS Basic Maintenance Amount by five
percent or less, the Adviser will not alter the composition of the
Corporation's portfolio in a manner reasonably expected to reduce the aggregate
Discounted Value of Moody's Eligible Assets unless the Corporation shall have
confirmed that, after giving effect to such alteration, the aggregate
Discounted Value of Moody's Eligible Assets would exceed the AMPS Basic
Maintenance Amount.
8. Certain Other Restrictions.
(a) For so long as any shares of AMPS are rated by S&P, the
Corporation will not purchase or sell futures contracts, write, purchase or
sell options on futures contracts or write put options (except covered put
options) or call options (except covered call options) on portfolio securities
unless it receives written confirmation from S&P that engaging in such
transactions
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<PAGE> 72
will not impair the ratings then assigned to the shares of AMPS by S&P, except
that the Corporation may purchase or sell futures contracts based on the Bond
Buyer Municipal Bond Index (the "Municipal Index") or United States Treasury
Bonds or Notes ("Treasury Bonds") and write, purchase or sell put and call
options on such contracts (collectively, "S&P Hedging Transactions"), subject
to the following limitations:
(i) the Corporation will not engage in any S&P Hedging
Transaction based on the Municipal Index (other than transactions
which terminate a futures contract or option held by the Corporation
by the Corporation's taking an opposite position thereto ("Closing
Transactions")), which would cause the Corporation at the time of such
transaction to own or have sold the least of (A) more than 1,000
outstanding futures contracts based on the Municipal Index, (B)
outstanding futures contracts based on the Municipal Index exceeding
in number 25% of the quotient of the Market Value of the Corporation's
total assets divided by $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 30 days preceding the time of effecting such transaction as
reported by The Wall Street Journal;
(ii) the Corporation will not engage in any S&P Hedging
Transaction based on Treasury Bonds (other than Closing Transactions)
which would cause the Corporation at the time
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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 $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 30 days preceding the time of effecting such transaction
as reported by The Wall Street Journal;
(iii) the Corporation will engage in Closing Transactions
to close out any outstanding futures contract which the Corporation
owns or has sold or any outstanding option thereon owned by the
Corporation in the event (A) the Corporation does not have S&P
Eligible Assets with an aggregate Discounted Value equal to or greater
than the AMPS Basic Maintenance Amount on two consecutive Valuation
Dates and (B) the Corporation is required to pay Variation Margin on
the second such Valuation Date;
(iv) the Corporation will engage in a Closing Transaction
to close out any outstanding futures contract or option thereon in the
month prior to the delivery month under the terms of such futures
contract or option thereon unless the Corporation holds the securities
deliverable under such terms; and
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(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.
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,
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purchase or sell call options on futures contracts or purchase put options on
futures contracts or write call options (except covered call options) on
portfolio securities unless it receives written confirmation from Moody's that
engaging in such transactions would not impair the ratings then assigned to the
shares of AMPS by Moody's, except that the Corporation may purchase or sell
exchange-traded futures contracts based on the Municipal Index or Treasury
Bonds and purchase, write or sell exchange-traded put options on such futures
contracts and purchase, write or sell exchange-traded call options on such
futures contracts (collectively, "Moody's Hedging Transactions"), subject to
the following limitations:
(i) the Corporation will not engage in any Moody's
Hedging Transaction based on the Municipal Index (other than Closing
Transactions) which would cause the Corporation at the time of such
transaction to own or have sold (A) outstanding futures contracts
based on the Municipal Index exceeding in number 10% of the average
number of daily traded futures contracts based on the Municipal Index
in the 30 days preceding the time of effecting such transaction as
reported by The Wall Street Journal or (B) outstanding futures
contracts based on the Municipal Index having a Market Value exceeding
50% of the Market Value of all Municipal Bonds constituting Moody's
Eligible Assets owned by the Corporation (other than Moody's Eligible
Assets already subject to a Moody's Hedging Transaction);
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(ii) the Corporation will not engage in any Moody's
Hedging Transaction based on Treasury Bonds (other than Closing
Transactions) which would cause the Corporation at the time of such
transaction to own or have sold (A) outstanding futures contracts
based on Treasury Bonds having an aggregate Market Value exceeding 20%
of the aggregate Market Value of Moody's Eligible Assets owned by the
Corporation and rated Aa by Moody's (or, if not rated by Moody's but
rated by S&P, rated AAA by S&P) or (B) outstanding futures contracts
based on Treasury Bonds having an aggregate Market Value exceeding 40%
of the aggregate Market Value of all Municipal Bonds constituting
Moody's Eligible Assets owned by the Corporation (other than Moody's
Eligible Assets already subject to a Moody's Hedging Transaction) and
rated Baa or A by Moody's (or, if not rated by Moody's but rated by
S&P, rated A or AA by S&P) (for purposes of the foregoing clauses (i)
and (ii), the Corporation shall be deemed to own the number of futures
contracts that underlie any outstanding options written by the
Corporation);
(iii) the Corporation will engage in Closing Transactions
to close out any outstanding futures contract based on the Municipal
Index if the amount of open interest in the Municipal Index as
reported by The Wall Street Journal is less than 5,000;
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(iv) the Corporation will engage in a Closing Transaction
to close out any outstanding futures contract by no later than the
fifth Business Day of the month in which such contract expires and
will engage in a Closing Transaction to close out any outstanding
option on a futures contract by no later than the first Business Day
of the month in which such option expires;
(v) the Corporation will engage in Moody's Hedging
Transactions only with respect to futures contracts or options thereon
having the next settlement date or the settlement date immediately
thereafter;
(vi) the Corporation will not engage in options and
futures transactions for leveraging or speculative purposes and will
not write any call options or sell any futures contracts for the
purpose of hedging the anticipated purchase of an asset prior to
completion of such purchase; and
(vii) the Corporation will not enter into an option or
futures transaction unless, after giving effect thereto, the
Corporation would continue to have Moody's Eligible Assets with an
aggregate Discounted Value equal to or greater than the AMPS Basic
Maintenance Amount.
For purposes of determining whether the Corporation has Moody's
Eligible Assets with an aggregate Discounted Value that equals or exceeds the
AMPS Basic Maintenance Amount, the Discounted Value of Moody's Eligible Assets
which the Corporation
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is obligated to deliver or receive pursuant to an outstanding futures contract
or option shall be as follows: (i) assets subject to call options written by
the Corporation which are either exchange-traded and "readily reversible" or
which expire within 49 days after the date as of which such valuation is made
shall be valued at the lesser of (a) Discounted Value and (b) the exercise
price of the call option written by the Corporation; (ii) assets subject to
call options written by the Corporation not meeting the requirements of clause
(i) of this sentence shall have no value; (iii) assets subject to put options
written by the Corporation shall be valued at the lesser of (A) the exercise
price and (B) the Discounted Value of the subject security; (iv) futures
contracts shall be valued at the lesser of (A) settlement price and (B) the
Discounted Value of the subject security, provided that, if a contract matures
within 49 days after the date as of which such valuation is made, where the
Corporation is the seller the contract may be valued at the settlement price
and where the Corporation is the buyer the contract may be valued at the
Discounted Value of the subject securities; and (v) where delivery may be made
to the Corporation with any security of a class of securities, the Corporation
shall assume that it will take delivery of the security with the lowest
Discounted Value.
For purposes of determining whether the Corporation has Moody's
Eligible Assets with an aggregate Discounted Value that equals or exceeds the
AMPS Basic Maintenance Amount, the following amounts shall be subtracted from
the aggregate
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Discounted Value of the Moody's Eligible Assets held by the Corporation: (i)
10% of the exercise price of a written call option; (ii) the exercise price of
any written put option; (iii) where the Corporation is the seller under a
futures contract, 10% of the settlement price of the futures contract; (iv)
where the Corporation is the purchaser under a futures contract, the settlement
price of assets purchased under such futures contract; (v) the settlement price
of the underlying futures contract if the Corporation writes put options on a
futures contract; and (vi) 105% of the Market Value of the underlying futures
contracts if the Corporation writes call options on a futures contract and does
not own the underlying contract.
(c) For so long as any shares of AMPS are rated by Moody's, the
Corporation will not enter into any contract to purchase securities for a fixed
price at a future date beyond customary settlement time (other than such
contracts that constitute Moody's Hedging Transactions that are permitted under
paragraph 8(b) of these Articles Supplementary), except that the Corporation
may enter into such contracts to purchase newly-issued securities on the date
such securities are issued ("Forward Commitments"), subject to the following
limitations:
(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
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amount of the Corporation's obligations under any Forward Commitments
to which it is from time to time a party or long-term fixed income
securities with a Discounted Value that equals or exceeds the amount
of the Corporation's obligations under any Forward Commitment to which
it is from time to time a party; and
(ii) the Corporation will not enter into a Forward
Commitment unless, after giving effect thereto, the Corporation would
continue to have Moody's Eligible Assets with an aggregate Discounted
Value equal to or greater than the AMPS Basic Maintenance Amount.
For purposes of determining whether the Corporation has Moody's
Eligible Assets with an aggregate Discounted Value that equals or exceeds the
AMPS Basic Maintenance Amount, the Discounted Value of all Forward Commitments
to which the Corporation is a party and of all securities deliverable to the
Corporation pursuant to such Forward Commitments shall be zero.
(d) For so long as shares of AMPS are rated by S&P or
Moody's, the Corporation will not, unless it has received written confirmation
from S&P and/or Moody's, as the case may be, that such action would not impair
the ratings then assigned to shares of AMPS by S&P and/or Moody's, as the case
may be, (i) borrow money except for the purpose of clearing transactions in
portfolio securities (which borrowings shall under any circumstances be limited
to the lesser of $10 million and an amount equal to 5% of the Market Value of
the Corporation's
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assets at the time of such borrowings and which borrowings shall be repaid
within 60 days and not be extended or renewed and shall not cause the aggregate
Discounted Value of Moody's Eligible Assets and S&P Eligible Assets to be less
than the AMPS Basic Maintenance Amount), (ii) engage in short sales of
securities, (iii) lend any securities, (iv) issue any class or series of stock
ranking prior to or on a parity with the AMPS with respect to the payment of
dividends or the distribution of assets upon dissolution, liquidation or
winding up of the Corporation, (v) reissue any AMPS previously purchased or
redeemed by the Corporation, (vi) merge or consolidate into or with any other
corporation or entity, (vii) change the Pricing Service or (viii) engage in
reverse repurchase agreements.
9. Notice. All notices or communications, unless otherwise
specified in the By-Laws of the Corporation or these Articles Supplementary,
shall be sufficiently given if in writing and delivered in person or mailed by
first-class mail, postage prepaid. Notice shall be deemed given on the earlier
of the date received or the date seven days after which such notice is mailed.
10. Auction Procedures. (a) Certain definitions. As used in
this paragraph 10, the following terms shall have the following meanings,
unless the context otherwise requires:
(i) "AMPS" shall mean the shares of AMPS being auctioned
pursuant to this paragraph 10.
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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 10(d)(i) below.
(iv) "Bid" shall have the meaning specified in paragraph
10(b)(i) below.
(v) "Bidder" shall have the meaning specified in paragraph
10(b)(i) below.
(vi) "Hold Order" shall have the meaning specified in paragraph
10(b)(i) below.
(vii) "Maximum Applicable Rate" for any Dividend Period will be
the Applicable Percentage of the Reference Rate. The Applicable
Percentage will be determined based on (i) the lower of the credit
rating or ratings assigned on such date to such shares by Moody's and
S&P (or if Moody's or S&P or both shall not make such rating
available, the equivalent of either or both of such ratings by a
Substitute Rating Agency or two Substitute Rating Agencies or, in the
event that only one such rating shall be available, such rating) and
(ii) whether the Corporation has provided notification to the Auction
Agent prior to the Auction establishing the Applicable Rate for any
dividend pursuant to paragraph 2(f) hereof that net capital gains or
other taxable income will be included in such dividend on shares of
AMPS as follows:
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<TABLE>
<CAPTION>
Applicable Applicable
Percentage of Percentage of
Credit Ratings Reference Reference
- ----------------------------------- Rate - Rate -
Moody's S&P No Notification Notification
- -------------- ---------------- ---------------- -------------
<S> <C> <C> <C>
"aa3" or higher AA- or higher 110% 150%
"a3" to "a1" A- to A+ 125% 160%
"baa3" to "baa1" BBB- to BBB+ 150% 250%
Below "baa3" Below BBB- 200% 275%
</TABLE>
The Corporation shall take all reasonable action necessary to enable
S&P and Moody's to provide a rating for the AMPS. If either S&P or Moody's
shall not make such a rating available, or neither S&P nor Moody's shall make
such a rating available, Merrill Lynch, Pierce, Fenner & Smith Incorporated or
its affiliates and successors, after consultation with the Corporation, shall
select a nationally recognized statistical rating organization or two
nationally recognized statistical rating organizations to act as a Substitute
Rating Agency or Substitute Rating Agencies, as the case may be.
(viii) "Order" shall have the meaning specified in paragraph 10(b)(i)
below.
(ix) "Sell Order" shall have the meaning specified in paragraph
10(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
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obtained by it for the Auction to be conducted on such Auction Date.
(xi) "Submitted Bid" shall have the meaning specified in
paragraph 10(d)(i) below.
(xii) "Submitted Hold Order" shall have the meaning specified in
paragraph 10(d)(i) below.
(xiii) "Submitted Order" shall have the meaning specified in
paragraph 10(d)(i) below.
(xiv) "Submitted Sell Order" shall have the meaning specified in
paragraph 10(d)(i) below.
(xv) "Sufficient Clearing Bids" shall have the meaning specified
in paragraph 10(d)(i) below.
(xvi) "Winning Bid Rate" shall have the meaning specified in
paragraph 10(d)(i) below.
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(b) Orders by Beneficial Owners, Potential Beneficial Owners,
Existing Holders and Potential Holders.
(i) Unless otherwise permitted by the Corporation, Beneficial
Owners and Potential Beneficial Owners may only participate in Auctions through
their Broker-Dealers. Broker-Dealers will submit the Orders of their
respective customers who are Beneficial Owners and Potential Beneficial Owners
to the Auction Agent, designating themselves as Existing Holders in respect of
shares subject to Orders submitted or deemed submitted to them by Beneficial
Owners and as Potential Holders in respect of shares subject to Orders
submitted to them by Potential Beneficial Owners. A Broker-Dealer may also
hold shares of AMPS in its own account as a Beneficial Owner. A Broker-Dealer
may thus submit Orders to the Auction Agent as a Beneficial Owner or a
Potential Beneficial Owner and therefore participate in an Auction as an
Existing Holder or Potential Holder on behalf of both itself and its customers.
On or prior to the Submission Deadline on each Auction Date:
(A) each Beneficial Owner may submit to its Broker-Dealer
information as to:
(1) the number of Outstanding shares, if any, of
AMPS held by such Beneficial Owner which such Beneficial Owner
desires to continue to hold without regard to the Applicable
Rate for the next succeeding Dividend Period;
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(2) the number of Outstanding shares, if any, of
AMPS held by such Beneficial Owner which such Beneficial Owner
desires to continue to hold, provided that the Applicable Rate
for the next succeeding Dividend Period shall not be less than
the rate per annum specified by such Beneficial Owner; and/or
(3) the number of Outstanding shares, if any, of
AMPS held by such Beneficial Owner which such Beneficial Owner
offers to sell without regard to the Applicable Rate for the
next succeeding Dividend Period; and
(B) each Broker-Dealer, using a list of Potential Beneficial
Owners that shall be maintained in good faith for the purpose of
conducting a competitive Auction, shall contact Potential Beneficial
Owners, including Persons that are not Beneficial Owners, on such list
to determine the number of Outstanding shares, if any, of AMPS which
each such Potential Beneficial Owner offers to purchase, provided that
the Applicable Rate for the next succeeding Dividend Period shall not
be less than the rate per annum specified by such Potential Beneficial
Owner.
For the purposes hereof, the communication by a Beneficial Owner or
Potential Beneficial Owner to a Broker-Dealer, or the communication by a
Broker-Dealer acting for its own account to the Auction Agent, of information
referred to in clause (A) or (B) of this paragraph 10(b)(i) is hereinafter
referred to as an
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"Order" and each Beneficial Owner and each Potential Beneficial Owner placing
an Order, including a Broker-Dealer acting in such capacity for its own
account, is hereinafter referred to as a "Bidder"; an Order containing the
information referred to in clause (A)(1) of this paragraph 10(b)(i) is
hereinafter referred to as a "Hold Order"; an Order containing the information
referred to in clause (A)(2) or (B) of this paragraph 10(b)(i) is hereinafter
referred to as a "Bid"; and an Order containing the information referred to in
clause (A)(3) of this paragraph 10(b)(i) is hereinafter referred to as a "Sell
Order". Inasmuch as a Broker-Dealer participates in an Auction as an Existing
Holder or a Potential Holder only to represent the interests of a Beneficial
Owner or Potential Beneficial Owner, whether it be its customers or itself, all
discussion herein relating to the consequences of an Auction for Existing
Holders and Potential Holders also applies to the underlying beneficial
ownership interests represented.
(ii) (A) A Bid by an Existing Holder shall constitute an
irrevocable offer to sell:
(1) the number of Outstanding shares of AMPS specified in
such Bid if the Applicable Rate determined on such Auction Date shall
be less than the rate per annum specified in such Bid; or
(2) such number or a lesser number of Outstanding shares of
AMPS to be determined as set forth in paragraph 10(e)(i)(D) if the
Applicable Rate determined on such
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Auction Date shall be equal to the rate per annum specified therein; or
(3) a lesser number of Outstanding shares of AMPS to be
determined as set forth in paragraph 10(e)(ii)(C) if such specified
rate per annum shall be higher than the Maximum Applicable Rate and
Sufficient Clearing Bids do not exist.
(B) A Sell Order by an Existing Holder shall constitute
an irrevocable offer to sell:
(1) the number of Outstanding shares of AMPS specified in
such Sell Order; or
(2) such number or a lesser number of Outstanding shares
of AMPS to be determined as set forth in paragraph
10(e)(ii)(C) if Sufficient Clearing Bids do not exist.
(C) A Bid by a Potential Holder shall constitute an
irrevocable offer to purchase:
(1) the number of Outstanding shares of AMPS specified in
such Bid if the Applicable Rate determined on such Auction
Date shall be higher than the rate per annum specified in such
Bid; or
(2) such number or a lesser number of Outstanding shares
of AMPS to be determined as set forth in paragraph 10(e)(i)(E)
if the Applicable Rate determined on such Auction Date shall
be equal to the rate per annum specified therein.
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(c) Submission of Orders by Broker-Dealers to Auction Agent.
(i) Each Broker-Dealer shall submit in writing or through the Auction
Agent's Auction Processing System to the Auction Agent prior to the Submission
Deadline on each Auction Date all Orders obtained by such Broker-Dealer,
designating itself (unless otherwise permitted by the Corporation) as an
Existing Holder in respect of shares subject to Orders submitted or deemed
submitted to it by Beneficial Owners and as a Potential Holder in respect of
shares subject to Orders submitted to it by Potential Beneficial Owners, and
specifying with respect to each Order:
(A) the name of the Bidder placing such Order (which shall be
the Broker-Dealer unless otherwise permitted by the Corporation);
(B) the aggregate number of Outstanding shares of AMPS that
are the subject of such Order;
(C) to the extent that such Bidder is an Existing Holder:
(1) the number of Outstanding shares, if any, of
AMPS subject to any Hold Order placed by such Existing
Holder;
(2) the number of Outstanding shares, if any, of
AMPS subject to any Bid placed by such Existing Holder and the
rate per annum specified in such Bid; and
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(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.
(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
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including the number of Outstanding shares of AMPS held by such
Existing Holder; provided that if more than one Hold Order is
submitted on behalf of such Existing Holder and the number of shares
of AMPS subject to such Hold Orders exceeds the number of Outstanding
shares of AMPS held by such Existing Holder, the number of shares of
AMPS subject to each of such Hold Orders shall be reduced pro rata so
that such Hold Orders, in the aggregate, will cover exactly the number
of Outstanding shares of AMPS held by such Existing Holder;
(B) any Bids submitted on behalf of such Existing Holder
shall be considered valid, in the ascending order of their respective
rates per annum if more than one Bid is submitted on behalf of such
Existing Holder, up to and including the excess of the number of
Outstanding shares of AMPS held by such Existing Holder over the
number of shares of AMPS subject to any Hold Order referred to in
paragraph 10(c)(iv)(A) above (and if more than one Bid submitted on
behalf of such Existing Holder specifies the same rate per annum and
together they cover more than the remaining number of shares that can
be the subject of valid Bids after application of paragraph
10(c)(iv)(A) above and of the foregoing portion of this paragraph
10(c)(iv)(B) to any Bid or Bids specifying a lower rate or rates per
annum, the number of shares subject to each of such Bids shall be
reduced pro rata so that such Bids, in the aggregate, cover
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exactly such remaining number of shares); and the number of shares, if
any, subject to Bids not valid under this paragraph 10(c)(iv)(B) shall
be treated as the subject of a Bid by a Potential Holder; and
(C) any Sell Order shall be considered valid up to and
including the excess of the number of Outstanding shares of AMPS held
by such Existing Holder over the number of shares of AMPS subject to
Hold Orders referred to in paragraph 10(c)(iv)(A) and Bids referred to
in paragraph 10(c)(iv)(B); provided that if more than one Sell Order
is submitted on behalf of any Existing Holder and the number of shares
of AMPS subject to such Sell Orders is greater than such excess, the
number of shares of AMPS subject to each of such Sell Orders shall be
reduced pro rata so that such Sell Orders, in the aggregate, cover
exactly the number of shares of AMPS equal to such excess.
(v) If more than one Bid is submitted on behalf of any Potential
Holder, each Bid submitted shall be a separate Bid with the rate per annum and
number of shares of AMPS therein specified.
(vi) Any Order submitted by a Beneficial Owner as a Potential
Beneficial Owner to its Broker-Dealer, or by a Broker-Dealer to the Auction
Agent, prior to the Submission Deadline on any Auction Date shall be
irrevocable.
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(d) Determination of Sufficient Clearing Bids, Winning Bid
Rate and Applicable Rate.
(i) Not earlier than the Submission Deadline on each Auction Date,
the Auction Agent shall assemble all Orders submitted or deemed submitted to it
by the Broker-Dealers (each such Order as submitted or deemed submitted by a
Broker-Dealer being hereinafter referred to individually as a "Submitted Hold
Order", a "Submitted Bid" or a "Submitted Sell Order", as the case may be, or
as a "Submitted Order") and shall determine:
(A) the excess of the total number of Outstanding shares of
AMPS over the number of Outstanding shares of AMPS that are the
subject of Submitted Hold Orders (such excess being hereinafter
referred to as the "Available AMPS");
(B) from the Submitted Orders whether the number of
Outstanding shares of AMPS that are the subject of Submitted Bids by
Potential Holders specifying one or more rates per annum equal to or
lower than the Maximum Applicable Rate exceeds or is equal to the sum
of:
(1) the number of Outstanding shares of AMPS that
are the subject of Submitted Bids by Existing Holders
specifying one or more rates per annum higher than the Maximum
Applicable Rate, and
(2) the number of Outstanding shares of AMPS that
are subject to Submitted Sell Orders (if such excess or such
equality exists (other than because the number of Outstanding
shares of AMPS in clause (1) above and this
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<PAGE> 94
clause (2) are each zero because all of the Outstanding shares
of AMPS are the subject of Submitted Hold Orders), such
Submitted Bids by Potential Holders being hereinafter referred
to collectively as "Sufficient Clearing Bids"); and
(C) if Sufficient Clearing Bids exist, the lowest rate per
annum specified in the Submitted Bids (the "Winning Bid Rate") that
if:
(1) each Submitted Bid from Existing Holders
specifying the Winning Bid Rate and all other Submitted Bids
from Existing Holders specifying lower rates per annum were
rejected, thus entitling such Existing Holders to continue to
hold the shares of AMPS that are the subject of such Submitted
Bids, and
(2) each Submitted Bid from Potential Holders
specifying the Winning Bid Rate and all other Submitted Bids
from Potential Holders specifying lower rates per annum were
accepted, thus entitling the Potential Holders to purchase the
shares of AMPS that are the subject of such Submitted Bids,
would result in the number of shares subject to all Submitted Bids specifying
the Winning Bid Rate or a lower rate per annum being at least equal to the
Available AMPS.
(ii) Promptly after the Auction Agent has made the determinations pursuant
to paragraph 10(d)(i), the Auction Agent shall advise the Corporation of the
Maximum Applicable Rate and,
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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 10(d)(i), the Submitted Bids and Submitted Sell Orders shall be
accepted or rejected and
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the Auction Agent shall take such other action as set forth below:
(i) If Sufficient Clearing Bids have been made, subject to the
provisions of paragraph 10(e)(iii) and paragraph 10(e)(iv), Submitted Bids and
Submitted Sell Orders shall be accepted or rejected in the following order of
priority and all other Submitted Bids shall be rejected:
(A) the Submitted Sell Orders of Existing Holders shall be
accepted and the Submitted Bid of each of the Existing Holders
specifying any rate per annum that is higher than the Winning Bid Rate
shall be accepted, thus requiring each such Existing Holder to sell
the Outstanding shares of AMPS that are the subject of such Submitted
Sell Order or Submitted Bid;
(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
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that are the subject of such Submitted Bid, unless the number of
Outstanding shares of AMPS subject to all such Submitted Bids shall be
greater than the number of Outstanding shares of AMPS ("Remaining
Shares") equal to the excess of the Available AMPS over the number of
Outstanding shares of AMPS subject to Submitted Bids described in
paragraph 10(e)(i)(B) and paragraph 10(e)(i)(C), in which event the
Submitted Bids of each such Existing Holder shall be accepted, and
each such Existing Holder shall be required to sell Outstanding shares
of AMPS, but only in an amount equal to the difference between (1) the
number of Outstanding shares of AMPS then held by such Existing Holder
subject to such Submitted Bid and (2) the number of shares of AMPS
obtained by multiplying (x) the number of Remaining Shares by (y) a
fraction the numerator of which shall be the number of Outstanding
shares of AMPS held by such Existing Holder subject to such Submitted
Bid and the denominator of which shall be the sum of the 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
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of Outstanding shares of AMPS subject to Submitted Bids described in
paragraph 10(e)(i)(B), paragraph 10(e)(i)(C) and paragraph 10(e)(i)(D)
by (y) a fraction the numerator of which shall be the number of
Outstanding shares of AMPS subject to such Submitted Bid and the
denominator of which shall be the sum of the number of Outstanding
shares of AMPS subject to such Submitted Bids made by all such
Potential Holders that specified rates per annum equal to the Winning
Bid Rate.
(ii) If Sufficient Clearing Bids have not been made (other than
because all of the Outstanding shares of AMPS are subject to Submitted Hold
Orders), subject to the provisions of paragraph 10(e)(iii), Submitted Orders
shall be accepted or rejected as follows in the following order of priority and
all other Submitted Bids shall be rejected:
(A) the Submitted Bid of each Existing Holder specifying
any rate per annum that is equal to or lower than the Maximum
Applicable Rate shall be rejected, thus 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
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<PAGE> 99
shares of AMPS that are the subject of such Submitted Bid; and
(C) the Submitted Bids of each Existing Holder specifying any
rate per annum that is higher than the Maximum Applicable Rate shall
be accepted and the Submitted Sell Orders of each Existing Holder
shall be accepted, in both cases only in an amount equal to the
difference between (1) the number of Outstanding shares of AMPS then
held by such Existing Holder subject to such Submitted Bid or
Submitted Sell Order and (2) the number of shares of AMPS obtained by
multiplying (x) the difference between the Available AMPS and the
aggregate number of Outstanding shares of AMPS subject to Submitted
Bids described in paragraph 10(e)(ii)(A) and paragraph 10(e)(ii)(B) by
(y) a fraction the numerator of which shall be the number of
Outstanding shares of AMPS held by such Existing Holder subject to
such Submitted Bid or Submitted Sell Order and the denominator of
which shall be the number of Outstanding shares of AMPS subject to all
such Submitted Bids and Submitted Sell Orders.
(iii) If, as a result of the procedures described in paragraph 10(e)(i) or
paragraph 10(e)(ii), any Existing Holder 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
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down the number of shares of AMPS to be purchased or sold by any Existing
Holder or Potential Holder on such Auction Date so that each Outstanding share
of AMPS purchased or sold by each Existing Holder or Potential Holder on such
Auction Date shall be a whole share of AMPS.
(iv) If, as a result of the procedures described in paragraph
10(e)(i), any Potential Holder would be entitled or required to purchase less
than a whole share of AMPS on any Auction Date, the Auction Agent shall, in
such manner as in its sole discretion it shall determine, allocate shares of
AMPS for purchase among Potential Holders so that only whole shares of AMPS are
purchased on such Auction Date by any Potential Holder, even if such allocation
results in one or more of such Potential Holders not purchasing any shares of
AMPS on such Auction Date.
(v) Based on the results of each Auction, the Auction Agent shall
determine, with respect to each Broker-Dealer that submitted Bids or Sell Orders
on behalf of Existing Holders or Potential Holders, the aggregate number of
Outstanding shares of AMPS to be purchased and the aggregate number of the
Outstanding shares of AMPS to be sold by such Potential Holders and Existing
Holders and, to the extent that such aggregate number of Outstanding shares to
be purchased and such aggregate number of Outstanding shares to be sold differ,
the Auction Agent shall determine to which other Broker-Dealer or Broker-Dealers
acting for one or more purchasers such Broker-Dealer shall deliver, or from
which other Broker-Dealer or Broker-Dealers acting for one
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or more sellers such Broker-Dealer shall receive, as the case may be,
Outstanding shares of AMPS.
(f) Miscellaneous. The Corporation may interpret the provisions of
this paragraph 10 to resolve any inconsistency or ambiguity, remedy any formal
defect or make any other change or modification that does not substantially
adversely affect the rights of Beneficial Owners of AMPS. A Beneficial Owner
or an Existing Holder (A) may sell, transfer or otherwise dispose of shares of
AMPS only pursuant to a Bid or Sell Order in accordance with the procedures
described in this paragraph 10 or to or through a Broker-Dealer, provided that
in the case of all transfers other than pursuant to Auctions such Beneficial
Owner or Existing Holder, its Broker-Dealer, if applicable, or its Agent Member
advises the Auction Agent of such transfer and (B) except as otherwise required
by law, shall have the ownership of the shares of AMPS held by it maintained in
book entry form by the Securities Depository in the account of its Agent
Member, which in turn will maintain records of such Beneficial Owner's
beneficial ownership. Neither the Corporation nor any Affiliate shall submit
an Order in any Auction. Any Beneficial Owner that is an Affiliate shall not
sell, transfer or otherwise dispose of shares of AMPS to any Person other than
the Corporation. All of the Outstanding shares of AMPS shall be represented by
a single certificate registered in the name of the nominee of the Securities
Depository unless otherwise required by law or unless there is no Securities
Depository. If there is no Securities
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Depository, at the Corporation's option and upon its receipt of such documents
as it deems appropriate, any shares of AMPS may be registered in the Stock
Register in the name of the Beneficial Owner thereof and such Beneficial Owner
thereupon will be entitled to receive certificates therefor and required to
deliver certificates therefor upon transfer or exchange thereof.
12. Securities Depository; Stock Certificates. (a) If there is a
Securities Depository, one certificate for all of the shares of AMPS of each
series shall be issued to the Securities Depository and registered in the name
of the Securities Depository or its nominee. Additional certificates may be
issued as necessary to represent shares of AMPS. All such certificates shall
bear a legend to the effect that such certificates are issued subject to the
provisions restricting the transfer of shares of AMPS contained in these
Articles Supplementary. Unless the Corporation shall have elected, during a
Non-Payment Period, to waive this requirement, the Corporation will also issue
stop-transfer instructions to the Auction Agent for the shares of AMPS. Except
as provided in paragraph (b) below, the Securities Depository or its nominee
will be the Holder, and no Beneficial Owner shall receive certificates
representing its ownership interest in such shares.
(b) If the Applicable Rate applicable to all shares of AMPS of a
series shall be the Non-Payment Period Rate or there is no Securities
Depository, the Corporation may at its option issue one or more new
certificates with respect to such shares (without
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the legend referred to in paragraph 11(a)) registered in the names of the
Beneficial Owners or their nominees and rescind the stop-transfer instructions
referred to in paragraph 11(a) with respect to such shares.
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IN WITNESS WHEREOF, MUNIYIELD NEW YORK INSURED FUND II, 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 , 1996.
MUNIYIELD NEW YORK INSURED
FUND II, INC.
By _______________________
Name:
Title:
Attest:
___________________________
Mark B. Goldfus
Secretary
<PAGE> 1
EXHIBIT 11
BROWN & WOOD LLP
One World Trade Center
New York, N.Y. 10048-0557
Telephone: 212-839-5300
Facsimile: 212-839-5599
August 20, 1996
MuniYield New York Insured Fund II, Inc.
800 Scudders Mill Road
Plainsboro, New Jersey 08536
Ladies and Gentlemen:
We have acted as counsel for MuniYield New York Insured Fund II, Inc.
("MuniYield New York Insured II") in connection with its proposed acquisition
of all of the assets and assumption of all of the liabilities of each of
MuniVest New York Insured Fund, Inc. ("MuniVest New York Insured") and
MuniYield New York Insured Fund III, Inc. ("MuniYield New York Insured III"),
in exchange for newly-issued shares of common stock and auction market
preferred stock of MuniYield New York Insured II (collectively, the
"Reorganization"). This opinion is furnished in connection with MuniYield New
York Insured II's Registration Statement on Form N-14 under the Securities Act
of 1933, as amended (File No. 333-7817; the "Registration Statement"),
relating to shares of common stock and auction market preferred stock of
MuniYield New York Insured II, each par value $0.10 per share (collectively,
the "Shares"), to be issued in the Reorganization.
As counsel for MuniYield New York Insured II, 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 MuniYield New York
Insured II, as amended and supplemented, the By-Laws of MuniYield New York
Insured II, 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 among MuniYield New York
Insured II, MuniVest New York Insured and MuniYield New York Insured III set
forth in the joint proxy statement and prospectus constituting a part of the
Registration Statement (the "Joint 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
<PAGE> 2
non-assessable shares of common stock or auction market preferred stock, as the
case may be, of MuniYield New York Insured II.
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 Joint Proxy Statement
and Prospectus constituting parts thereof.
Very truly yours,
/s/ BROWN & WOOD LLP
2
<PAGE> 1
Exhibit 14(a)
INDEPENDENT AUDITORS' CONSENT
MuniYield New York Insured Fund II, Inc.:
We consent to the use in this Registration Statement on Form N-14 of our report
dated December 1, 1995 appearing in the Proxy Statement and Prospectus, which
is a part of such Registration Statement, and to the reference to us under the
captions "The Reorganization--Comparison of the Funds--Financial Highlights"
and "Experts" also appearing in such Proxy Statement and Prospectus.
/s/ DELOITTE & TOUCHE LLP
Deloitte & Touche LLP
Princeton, New Jersey
August 20, 1996
<PAGE> 1
Exhibit 14(b)
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "The
Reorganization--Comparison of the Funds--Financial Highlights", "Selection of
Independent Auditors" and "Experts" and to the use of our reports on MuniVest
New York Insured Fund, Inc. and MuniYield New York Insured Fund III, Inc. dated
November 30, 1995 and December 4, 1995, respectively, in the Registration
Statement (Form N-14 No. 333-7817) and related Joint Proxy Statement and
Prospectus of MuniYield New York Insured Fund II, Inc. dated August 21, 1996.
/s/ ERNST & YOUNG LLP
Ernst & Young LLP
Princeton, New Jersey
August 15, 1996
