<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 8, 1999
SECURITIES ACT FILE NO. 333-88449
INVESTMENT COMPANY ACT FILE NO. 811-07080
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM N-14
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
[X] PRE-EFFECTIVE AMENDMENT NO. 1 [ ] POST-EFFECTIVE AMENDMENT NO.
(CHECK APPROPRIATE BOX OR BOXES)
------------------------
MUNIYIELD MICHIGAN INSURED FUND, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
(609) 282-2800
(AREA CODE AND TELEPHONE NUMBER)
------------------------
800 SCUDDERS MILL ROAD
PLAINSBORO, NEW JERSEY 08536
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES:
NUMBER, STREET, CITY, STATE, ZIP CODE)
------------------------
TERRY K. GLENN
MUNIYIELD MICHIGAN INSURED FUND, INC.
800 SCUDDERS MILL ROAD, PLAINSBORO, NEW JERSEY 08536
MAILING ADDRESS: P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011
(NAME AND ADDRESS OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
FRANK P. BRUNO, ESQ. MICHAEL J. HENNEWINKEL, ESQ.
BROWN & WOOD LLP MERRILL LYNCH ASSET MANAGEMENT, L.P.
ONE WORLD TRADE CENTER 800 SCUDDERS MILL ROAD
NEW YORK, NY 10048-0557 PLAINSBORO, NJ 08536
</TABLE>
------------------------
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: As soon as practicable after
the Registration Statement becomes effective under the Securities Act of 1933.
------------------------
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
<TABLE>
<S> <C> <C> <C> <C>
==============================================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
AMOUNT BEING OFFERING PRICE AGGREGATE OFFERING REGISTRATION
TITLE OF SECURITIES BEING REGISTERED REGISTERED(1) PER UNIT(1) PRICE(1) FEE(3)
- ------------------------------------------------------------------------------------------------------------------------------
Common Stock ($.10 par value)............. 11,941,933 $14.25 $170,172,545 $47,308
Auction Market Preferred Stock, Series 2,000 $25,000(2) $50,000,000 $13,900
B.......................................
Auction Market Preferred Stock, Series 1,600 $25,000(2) $40,000,000 $11,120
C.......................................
==============================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the filing fee.
(2) Represents the liquidation preference of a share of preferred stock after
the reorganization.
(3) Previously paid by wire transfer to the designated lockbox of the Securities
and Exchange Commission in Pittsburgh, Pennsylvania.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
MUNIYIELD MICHIGAN INSURED FUND, INC.
MUNIVEST MICHIGAN INSURED FUND, INC.
MUNIHOLDINGS MICHIGAN INSURED FUND, INC.
P.O. BOX 9011
PRINCETON, NEW JERSEY 08543-9011
------------------------
NOTICE OF SPECIAL MEETINGS OF STOCKHOLDERS OF
MUNIYIELD MICHIGAN INSURED FUND, INC. AND
MUNIVEST MICHIGAN INSURED FUND, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS OF
MUNIHOLDINGS MICHIGAN INSURED FUND, INC.
TO BE HELD ON DECEMBER 15, 1999
TO THE STOCKHOLDERS OF
MUNIYIELD MICHIGAN INSURED FUND, INC.
MUNIVEST MICHIGAN INSURED FUND, INC.
MUNIHOLDINGS MICHIGAN INSURED FUND, INC.
NOTICE IS HEREBY GIVEN that a special meeting of stockholders of MuniYield
Michigan Insured Fund, Inc. ("MuniYield Michigan") and of MuniVest Michigan
Insured Fund, Inc. ("MuniVest Michigan"), and the annual meeting of stockholders
of MuniHoldings Michigan Insured Fund, Inc. ("MuniHoldings Michigan")
(collectively, the "Meetings"), will be held at the offices of Merrill Lynch
Asset Management, L.P., 800 Scudders Mill Road, Plainsboro, New Jersey on
Wednesday, December 15, 1999 at 3:15 p.m. Eastern time (for MuniYield Michigan),
2:15 p.m. Eastern time (for MuniVest Michigan), and 11:45 a.m. Eastern time (for
MuniHoldings Michigan) for the following purposes:
For the stockholders of MuniYield Michigan, MuniVest Michigan and
MuniHoldings Michigan:
(1) To approve or disapprove an Agreement and Plan of Reorganization
(the "Agreement and Plan of Reorganization") contemplating (i) the
acquisition of substantially all of the assets and the assumption of
substantially all of the liabilities of MuniVest Michigan by MuniYield
Michigan, in exchange solely for an equal aggregate value of newly-issued
shares of Common Stock of MuniYield Michigan ("MuniYield Michigan Common
Stock") and shares of a newly-created series of Auction Market Preferred
Stock ("AMPS") of MuniYield Michigan to be designated Series B ("MuniYield
Michigan Series B AMPS") and the distribution by MuniVest Michigan of such
MuniYield Michigan Common Stock to the holders of Common Stock of MuniVest
Michigan and such MuniYield Michigan Series B AMPS to the holders of AMPS
of MuniVest Michigan; (ii) the acquisition of substantially all of the
assets and the assumption of substantially all of the liabilities of
MuniHoldings Michigan by MuniYield Michigan, in exchange solely for an
equal aggregate value of newly-issued shares of MuniYield Michigan Common
Stock and shares of a newly-created series of AMPS of MuniYield Michigan to
be designated Series C ("MuniYield Michigan Series C AMPS") and the
distribution by MuniHoldings Michigan of such MuniYield Michigan Common
Stock to the holders of Common Stock of MuniHoldings Michigan and such
MuniYield Michigan Series C AMPS to the holders of Series A AMPS of
MuniHoldings Michigan and (iii) the designation of the currently
outstanding series of AMPS of MuniYield Michigan as Series A. A vote in
favor of this proposal also will constitute a vote in favor of the
liquidation and dissolution of each of MuniVest Michigan and MuniHoldings
Michigan and the termination of each Fund's respective registration under
the Investment Company Act of 1940;
For the stockholders of MuniHoldings Michigan only:
(2) To elect a Board of Directors of MuniHoldings Michigan to serve
for the ensuing year;
(3) To consider and act upon a proposal to ratify the selection of
Deloitte & Touche LLP to serve as independent auditors of MuniHoldings
Michigan for its current fiscal year; and
<PAGE> 3
At each of the Meetings:
(4) To transact such other business as properly may come before the
Meetings or any adjournment thereof.
The Boards of Directors of MuniYield Michigan, MuniVest Michigan and
MuniHoldings Michigan have fixed the close of business on October 20, 1999 as
the record date for the determination of stockholders entitled to notice of, and
to vote at, the Meetings or any adjournment thereof.
A complete list of the stockholders of MuniYield Michigan, MuniVest
Michigan and MuniHoldings Michigan entitled to vote at the Meetings will be
available and open to the examination of any stockholder of MuniYield Michigan,
MuniVest Michigan and MuniHoldings Michigan, respectively, for any purpose
germane to the Meetings during ordinary business hours from and after December
1, 1999, at the offices of MuniYield Michigan, 800 Scudders Mill Road,
Plainsboro, New Jersey.
You are cordially invited to attend the Meetings. STOCKHOLDERS WHO DO NOT
EXPECT TO ATTEND THE MEETINGS IN PERSON ARE REQUESTED TO COMPLETE, DATE AND SIGN
THE ENCLOSED FORM OF PROXY APPLICABLE TO THEIR FUND AND RETURN IT PROMPTLY IN
THE ENVELOPE PROVIDED FOR THAT PURPOSE. The enclosed proxy is being solicited on
behalf of the Board of Directors of MuniYield Michigan, MuniVest Michigan and
MuniHoldings Michigan, as applicable.
By Order of the Boards of Directors
ALICE A. PELLEGRINO
Secretary of MuniYield Michigan
Insured Fund, Inc.,
MuniVest Michigan Insured Fund, Inc.
and
MuniHoldings Michigan Insured Fund,
Inc.
Plainsboro, New Jersey
Dated: November 8, 1999
<PAGE> 4
PROXY STATEMENT AND PROSPECTUS
MUNIYIELD MICHIGAN INSURED FUND, INC.
MUNIVEST MICHIGAN INSURED FUND, INC.
MUNIHOLDINGS MICHIGAN INSURED FUND, INC.
P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011
(609) 282-2800
------------------------
SPECIAL MEETING OF STOCKHOLDERS OF
MUNIYIELD MICHIGAN INSURED FUND, INC.
AND
MUNIVEST MICHIGAN INSURED FUND, INC.
ANNUAL MEETING OF STOCKHOLDERS OF
MUNIHOLDINGS MICHIGAN INSURED FUND, INC.
DECEMBER 15, 1999
This Joint Proxy Statement and Prospectus is furnished to you as a
stockholder of one of the funds listed above. A Special Meeting of stockholders
of each of MuniYield Michigan Insured Fund, Inc. ("MuniYield Michigan") and
MuniVest Michigan Insured Fund, Inc. ("MuniVest Michigan") and an Annual Meeting
of the stockholders of MuniHoldings Michigan Insured Fund, Inc. ("MuniHoldings
Michigan") will be held on December 15, 1999 to consider several items that are
listed below and discussed in greater detail elsewhere in this Proxy Statement
and Prospectus. The Board of Directors of each of the funds is requesting its
stockholders to submit a proxy to be used at the Special or Annual Meetings, as
the case may be, to vote the shares held by the stockholder submitting the
proxy.
The proposal to be considered at the Special Meetings of MuniYield Michigan
and MuniVest Michigan and at the Annual Meeting of MuniHoldings Michigan is:
1. To approve or disapprove an Agreement and Plan of Reorganization among
the funds;
The proposals to be considered only at the Annual Meeting of MuniHoldings
Michigan are:
2. To elect a Board of Directors for MuniHoldings Michigan;
3. To ratify the selection of the independent auditors of MuniHoldings
Michigan; and
At each of the Meetings:
4. To transact such other business as may properly come before the Meetings
or any adjournment thereof.
The Agreement and Plan of Reorganization that you are being asked to
consider involves a transaction that will be referred to in this Proxy Statement
and Prospectus as the Reorganization. The Reorganization involves the
combination of three funds into one. The three funds are:
MuniYield Michigan Insured Fund, Inc. ("MuniYield Michigan"), which
will be the surviving fund
MuniVest Michigan Insured Fund, Inc. ("MuniVest Michigan")
MuniHoldings Michigan Insured Fund, Inc. ("MuniHoldings Michigan")
MuniVest Michigan and MuniHoldings Michigan are sometimes referred to
herein collectively as the "Acquired Funds" and, together with MuniYield
Michigan, as the "Funds."
In the Reorganization, MuniYield Michigan will acquire substantially all of
the assets and assume substantially all of the liabilities of each of the
Acquired Funds solely in exchange for shares of its common stock, par value $.10
per share ("Common Stock"), and shares of two newly-created series of its
Auction Market Preferred Stock ("AMPS"), with a par value of $.10 per share and
a liquidation preference of $25,000 per share. The Acquired Funds will
distribute the Common Stock and AMPS of MuniYield Michigan received in the
Reorganization to their respective stockholders and will then liquidate and
dissolve and terminate their registration under the Investment Company Act of
1940, as amended (the "Investment Company Act"). MuniYield Michigan will
continue to operate as a registered closed-end investment company with the
investment objective and policies described in this Proxy Statement and
Prospectus.
In the Reorganization, MuniYield Michigan will issue shares of its Common
Stock and AMPS to each of the Acquired Funds based on the value of the assets
transferred to MuniYield Michigan by that Acquired Fund. These shares will then
be distributed by each Acquired Fund to its stockholders based on the value of
the shares held by each stockholder just prior to the Reorganization. A holder
of Common Stock of an Acquired Fund will receive Common Stock of MuniYield
Michigan and a holder of AMPS of an Acquired Fund will receive shares of one of
the newly-created series of AMPS of MuniYield Michigan.
This Proxy Statement and Prospectus serves as a prospectus of MuniYield
Michigan in connection with the issuance of MuniYield Michigan Common Stock and
two newly-created series of MuniYield Michigan AMPS in the Reorganization.
------------------------
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED
THESE SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROXY STATEMENT AND
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
The date of this Proxy Statement and Prospectus is November 5, 1999.
<PAGE> 5
The Proxy Statement and Prospectus sets forth information about each of the
Funds 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 each of the Funds is 800
Scudders Mill Road, Plainsboro, New Jersey 08536, and the telephone number is
(609) 282-2800.
The Common Stock of each of the Funds is listed on the New York Stock
Exchange (the "NYSE") under the symbols "MIY" (MuniYield Michigan), "MVM"
(MuniVest Michigan), and "MCG" (MuniHoldings Michigan). Subsequent to the
Reorganization, shares of MuniYield Michigan Common Stock will continue to be
listed on the NYSE under the symbol "MIY". Reports, proxy materials and other
information concerning any of the Funds may be inspected at the offices of the
NYSE, 20 Broad Street, New York, New York 10005.
<PAGE> 6
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INTRODUCTION................................................ 4
ITEM 1. THE REORGANIZATION.................................. 5
SUMMARY................................................... 5
RISK FACTORS AND SPECIAL CONSIDERATIONS................... 15
Michigan Municipal Bonds............................... 15
Interest Rate and Credit Risk.......................... 15
Non-diversification.................................... 15
Rating Categories...................................... 15
Private Activity Bonds................................. 15
Portfolio Insurance.................................... 15
Leverage............................................... 15
Portfolio Management................................... 16
Inverse Floating Obligations........................... 17
Options and Futures Transactions....................... 17
Antitakeover Provisions................................ 17
Ratings Considerations................................. 17
COMPARISON OF THE FUNDS................................... 18
Financial Highlights................................... 18
Investment Objective and Policies...................... 24
Portfolio Insurance.................................... 26
Description of Michigan Municipal Bonds and Municipal
Bonds................................................. 27
Special Considerations Relating to Michigan Municipal
Bonds................................................. 28
Other Investment Policies.............................. 28
Information Regarding Options and Futures
Transactions.......................................... 30
Investment Restrictions................................ 33
Rating Agency Guidelines............................... 34
Portfolio Composition.................................. 35
Portfolio Transactions................................. 36
Portfolio Turnover..................................... 37
Net Asset Value........................................ 37
Capital Stock.......................................... 38
Management of the Funds................................ 40
Code of Ethics......................................... 41
Voting Rights.......................................... 42
Stockholder Inquiries.................................. 43
Dividends and Distributions............................ 43
Automatic Dividend Reinvestment Plan................... 44
Mutual Fund Investment Option.......................... 46
Liquidation Rights of Holders of AMPS.................. 46
Tax Rules Applicable to the Funds and their
Stockholders.......................................... 46
AGREEMENT AND PLAN OF REORGANIZATION...................... 51
General................................................ 51
Procedure.............................................. 52
Terms of the Agreement and Plan of Reorganization...... 52
Potential Benefits to Common Stockholders of The Funds
as a Result of The Reorganization..................... 54
Surrender and Exchange of Stock Certificates........... 55
</TABLE>
2
<PAGE> 7
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Tax Consequences of the Reorganization................. 56
Capitalization......................................... 58
ITEM 2. ELECTION OF DIRECTORS............................... 58
Committee and Board Meetings.............................. 60
Compliance with Section 16(a) of the Securities Exchange
Act of 1934............................................ 60
Interested Persons........................................ 61
Compensation of Directors................................. 61
Officers of MuniHoldings Michigan......................... 61
ITEM 3. SELECTION OF INDEPENDENT AUDITORS................... 61
INFORMATION CONCERNING THE MEETINGS......................... 61
Date, Time and Place of Meetings.......................... 61
Solicitation, Revocation and Use of Proxies............... 62
Record Date and Outstanding Shares........................ 62
Security Ownership of Certain Beneficial Owners and
Management............................................. 62
Voting Rights and Required Vote........................... 62
Appraisal Rights.......................................... 63
ADDITIONAL INFORMATION...................................... 64
Year 2000 Issues.......................................... 65
CUSTODIAN................................................... 65
TRANSFER AGENT, DIVIDEND DISBURSING AGENT AND REGISTRAR..... 65
LEGAL PROCEEDINGS........................................... 65
LEGAL OPINIONS.............................................. 66
EXPERTS..................................................... 66
STOCKHOLDER PROPOSALS....................................... 66
</TABLE>
<TABLE>
<S> <C> <C>
INDEX TO FINANCIAL STATEMENTS............................................ F-1
EXHIBIT I INFORMATION PERTAINING TO EACH FUND......................... I-1
EXHIBIT II AGREEMENT AND PLAN OF REORGANIZATION........................ II-1
EXHIBIT III ECONOMIC AND OTHER CONDITIONS IN MICHIGAN................... III-1
EXHIBIT IV RATINGS OF MUNICIPAL BONDS AND COMMERCIAL PAPER............. IV-1
EXHIBIT V PORTFOLIO INSURANCE......................................... V-1
</TABLE>
3
<PAGE> 8
INTRODUCTION
This Proxy Statement and Prospectus is furnished in connection with the
solicitation of proxies on behalf of the Boards of Directors of MuniYield
Michigan, MuniVest Michigan and MuniHoldings Michigan for use at the Meetings to
be held at the offices of Merrill Lynch Asset Management, L.P. ("MLAM"), 800
Scudders Mill Road, Plainsboro, New Jersey on December 15, 1999, at the time
specified for each Fund in Exhibit I to this Proxy Statement and Prospectus. The
mailing address for each of the Funds is P.O. Box 9011, Princeton, New Jersey
08543-9011. The approximate mailing date of this Proxy Statement and Prospectus
is November 11, 1999.
Any person giving a proxy may revoke it at any time prior to its exercise
by executing a superseding proxy, by giving written notice of the revocation to
the Secretary of the applicable Fund, 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, (a) all proxies will be voted "FOR"
Item 1. to approve the Agreement and Plan of Reorganization among MuniYield
Michigan, MuniVest Michigan and MuniHoldings Michigan (the "Agreement and Plan
of Reorganization"); and (b) for the stockholders of MuniHoldings Michigan only,
all proxies submitted by MuniHoldings Michigan stockholders will be voted "FOR"
Item 2. to elect a Board of Directors of MuniHoldings Michigan to serve for the
ensuing year; and "FOR" Item 3. to ratify the selection of Deloitte & Touche LLP
as the independent auditors of MuniHoldings Michigan for its current fiscal
year.
With respect to Item 1, assuming a quorum is present at the Meetings,
approval of the Agreement and Plan of Reorganization will require the
affirmative vote of stockholders representing (i) a majority of the outstanding
shares of MuniYield Michigan Common Stock and MuniYield Michigan AMPS, voting
together as a single class, and a majority of the outstanding shares of
MuniYield Michigan AMPS, voting separately as a class, (ii) a majority of the
outstanding shares of MuniVest Michigan Common Stock and MuniVest Michigan AMPS,
voting together as a single class, and a majority of the outstanding shares of
MuniVest Michigan AMPS, voting separately as a class, and (iii) a majority of
the outstanding shares of MuniHoldings Michigan Common Stock and MuniHoldings
Michigan AMPS, voting together as a single class, and a majority of the
outstanding shares of MuniHoldings Michigan AMPS, voting separately as a class.
Because of the requirement that the Agreement and Plan of Reorganization 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 Item 2, holders of shares of AMPS of MuniHoldings Michigan
are entitled to elect two Directors of MuniHoldings Michigan, and holders of
shares of AMPS and Common Stock of MuniHoldings Michigan, voting together as a
single class, are entitled to elect the remaining Directors of MuniHoldings
Michigan. Assuming a quorum is present, election of the two Directors of
MuniHoldings Michigan to be elected by the holders of AMPS, voting separately as
a class, will require the affirmative vote of a plurality of the votes cast by
the holders of AMPS of MuniHoldings Michigan, represented at the Meeting and
entitled to vote; and election of the remaining Directors of MuniHoldings
Michigan will require the affirmative vote of a plurality of the votes cast by
the holders of shares of Common Stock and AMPS of MuniHoldings Michigan,
represented at the Meeting and entitled to vote, voting together as a single
class. A "plurality of the votes cast" means the candidates must receive more
votes than any other candidates for the same positions, but not necessarily a
majority of votes cast.
With respect to Item 3, assuming a quorum is present, approval of the
ratification of the selection of Deloitte & Touche LLP as independent auditors
of MuniHoldings Michigan will require the affirmative vote of a majority of the
votes cast by the holders of shares of Common Stock and AMPS of MuniHoldings
Michigan represented at the Meeting in person or by proxy, and entitled to vote,
voting together as a single class.
The Board of Directors of each of the Funds has fixed the close of business
on October 20, 1999 as the record date (the "Record Date") for the determination
of stockholders entitled to notice of, and to vote at, the Meetings or any
adjournment thereof. Stockholders on the Record Date will be entitled to one
vote for each share held, with no shares having cumulative voting rights. At the
Record Date, each Fund had outstanding
4
<PAGE> 9
the number of shares of Common Stock and AMPS indicated in Exhibit I. To the
knowledge of the management of each of the Funds, no person owned beneficially
more than 5% of the respective outstanding shares of either class of capital
stock of any Fund at the Record Date.
The Boards of Directors of the Funds know of no business other than that
discussed in Items 1, 2, and 3 above that will be presented for consideration at
the Meetings. If any other matter is properly presented, it is the intention of
the persons named in the enclosed proxy to vote in accordance with their best
judgment.
The class of stockholders solicited and entitled to vote on each proposal
is outlined in the chart below:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
MUNIYIELD MICHIGAN MUNIVEST MICHIGAN MUNIHOLDINGS MICHIGAN
- ---------------------------------------------------------------------------------------------------------------
COMMON COMMON COMMON
ITEM STOCK AMPS STOCK AMPS STOCK AMPS
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1. Approval of Agreement and
Plan of Reorganization...... Yes Yes Yes Yes Yes Yes
- ---------------------------------------------------------------------------------------------------------------
2. Election of Directors(1).... No No No No Yes Yes
- ---------------------------------------------------------------------------------------------------------------
3. Ratification of Selection of
Independent Auditors........ No No No No Yes Yes
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Seven directors of MuniHoldings Michigan are to be elected: two Directors
are to be elected by the holders of MuniHoldings Michigan AMPS voting
separately as a class; and the remaining five Directors are to be elected by
holders of MuniHoldings Michigan Common Stock and AMPS, voting together as a
single class.
ITEM 1. THE REORGANIZATION
SUMMARY
The following is a summary of certain information contained elsewhere in
this Proxy Statement and Prospectus and is qualified in its entirety by
reference to the more complete information contained in this Proxy Statement and
Prospectus and in the Agreement and Plan of Reorganization attached hereto as
Exhibit II.
In this Proxy Statement and Prospectus, the term "Reorganization" refers
collectively to (i) the acquisition of substantially all of the assets and the
assumption of substantially all of the liabilities of MuniVest Michigan by
MuniYield Michigan and the subsequent distribution of MuniYield Michigan Common
Stock and MuniYield Michigan Series B AMPS to the holders of MuniVest Michigan
Common Stock and MuniVest Michigan AMPS, respectively; (ii) the acquisition of
substantially all of the assets and the assumption of substantially all of the
liabilities of MuniHoldings Michigan by MuniYield Michigan and the subsequent
distribution of MuniYield Michigan Common Stock and MuniYield Michigan Series C
AMPS to the holders of MuniHoldings Michigan Common Stock and MuniHoldings
Michigan AMPS, Series A, respectively; (iii) the designation of the currently
outstanding series of MuniYield Michigan AMPS as Series A AMPS and (iv) the
subsequent deregistration and dissolution of each of MuniVest Michigan and
MuniHoldings Michigan.
At meetings of the Boards of Directors of each of the Funds, the
Reorganization was approved by the Board of Directors of MuniHoldings Michigan
by a unanimous vote and by the Board of MuniVest Michigan and MuniYield Michigan
by the affirmative vote of all of the Directors present at the meeting,
representing in each case more than two-thirds of the total number of Directors.
Subject to obtaining the necessary approvals from the stockholders of each of
the Funds, the Board of Directors of each Acquired Fund also deemed advisable
the deregistration of the Fund under the Investment Company Act of 1940, as
amended (the "Investment Company Act") and its dissolution under the laws of the
State of Maryland. The Reorganization requires approval of the stockholders of
each of the three Funds. The Reorganization will not take place if the
stockholders of any one Fund do not approve the Agreement and the Plan of
Reorganization.
5
<PAGE> 10
Each of the Funds seeks to provide stockholders with current income exempt
from Federal and Michigan income taxes. Each of the Funds seeks to achieve its
investment objective by investing primarily in a portfolio of long-term,
investment grade municipal obligations, the interest on which, in the opinion of
bond counsel to the issuer, is exempt from Federal and Michigan income taxes.
Each of the Funds is a non-diversified, leveraged, closed-end management
investment company registered under the Investment Company Act. If the
stockholders of the Funds approve the Reorganization, (i) MuniYield Michigan
Common Stock and MuniYield Michigan Series B AMPS will be issued to MuniVest
Michigan in exchange for the assets of MuniVest Michigan; (ii) MuniYield
Michigan Common Stock and MuniYield Michigan Series C AMPS will be issued to
MuniHoldings Michigan in exchange for the assets of MuniHoldings Michigan; and
(iii) MuniVest Michigan and MuniHoldings Michigan will distribute these shares
to their respective stockholders as provided in the Agreement and Plan of
Reorganization. After the Reorganization, each of MuniVest Michigan and
MuniHoldings Michigan will terminate its registration under the Investment
Company Act and its incorporation under Maryland law.
Based upon their evaluation of all relevant information, the Directors of
each of the Funds have determined that the Reorganization will potentially
benefit the holders of Common Stock of that Fund. Specifically, after the
Reorganization, stockholders of each of the Acquired Funds will remain invested
in a closed-end fund that has an investment objective and policies substantially
similar to the Acquired Fund's investment objective and policies and that uses
substantially the same management personnel. In addition, it is anticipated that
common stockholders of each of the Funds will be subject to a reduced overall
operating expense ratio based on the anticipated pro forma combined total
operating expenses and the total combined assets of the surviving fund after the
Reorganization. The Boards also considered the relative tax positions of the
Funds' portfolios. It is not anticipated that the Reorganization will directly
benefit the holders of shares of AMPS of any of the Funds; however, the
Reorganization will not adversely affect the holders of shares of any series 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.
If all of the requisite approvals are obtained, it is anticipated that the
Reorganization will occur as soon as practicable after such approval, provided
that the Funds have obtained prior to that time a favorable private letter
ruling from the Internal Revenue Service (the "IRS") concerning the tax
consequences of the Reorganization as set forth in the Agreement and Plan of
Reorganization or an opinion of counsel to the same effect. Under the Agreement
and Plan of Reorganization, however, the Board of Directors of any Fund may
cause the Reorganization to be postponed or abandoned in certain circumstances
should such Board determine that it is in the best interests of the stockholders
of that Fund to do so. The Agreement and Plan of Reorganization may be
terminated, and the Reorganization abandoned, whether before or after approval
by the Funds' stockholders, at any time prior to the Exchange Date (as defined
below), (i) by mutual consent of the Boards of Directors of all of the Funds or
(ii) by the Board of Directors of any Fund if any condition to that Fund's
obligations has not been fulfilled or waived by such Fund's Board of Directors.
6
<PAGE> 11
PRO FORMA FEE TABLE FOR COMMON STOCKHOLDERS OF MUNIYIELD MICHIGAN,
MUNIVEST MICHIGAN, MUNIHOLDINGS MICHIGAN AND
PRO FORMA MUNIYIELD MICHIGAN AS OF JUNE 30, 1999 (UNAUDITED)(A)
<TABLE>
<CAPTION>
ACTUAL
------------------------------------- PRO FORMA
MUNIYIELD MUNIVEST MUNIHOLDINGS MUNIYIELD
MICHIGAN MICHIGAN MICHIGAN MICHIGAN
--------- -------- ------------ ---------
<S> <C> <C> <C> <C>
COMMON STOCKHOLDER TRANSACTION EXPENSES
Maximum Sales Load (as a percentage of
offering price)....................... None(b) None(b) None(b) None(c)
Dividend Reinvestment Plan Fees.......... None None None None
ANNUAL EXPENSES (AS A PERCENTAGE OF NET
ASSETS ATTRIBUTABLE TO COMMON STOCK AT
JUNE 30, 1999)(d)
Investment Advisory Fees(e).............. 0.73% 0.75% 0.91% 0.76%
Interest Payments on Borrowed Funds...... None None None None
Other Expenses........................... 0.37% 0.39% 0.53% 0.28%
---- ---- ---- ----
Total Annual Expenses(e)................... 1.10% 1.14% 1.44% 1.04%
==== ==== ==== ====
</TABLE>
- ---------------
(a) No information is presented with respect to AMPS because no Fund's
operating expenses or expenses of the Reorganization will be borne by the
holders of AMPS of any of the Funds. Generally, AMPS are sold at a fixed
liquidation preference of $25,000 per share and investment return is set at
an auction.
(b) Shares of Common Stock purchased in the secondary market may be subject to
brokerage commissions or other charges.
(c) No sales load will be charged on the issuance of shares in the
Reorganization. Shares of Common Stock are not available for purchase from
the Funds but may be purchased through a broker-dealer subject to
individually negotiated commission rates.
(d) The annual operating expenses for pro forma MuniYield Michigan are
projections for a 12-month period.
(e) Based on net assets as of June 30, 1999 of each Fund and pro forma
MuniYield Michigan, excluding assets attributable to AMPS. If assets
attributable to AMPS are included, the Investment Advisory Fee for
MuniYield Michigan, MuniVest Michigan and pro forma MuniYield Michigan
would be 0.50% and the Investment Advisory Fee for MuniHoldings Michigan
would be 0.55%. The Total Annual Expenses for each Fund and pro forma
MuniYield Michigan would be 0.75%, 0.76%, 0.87% and 0.69%, respectively.
7
<PAGE> 12
EXAMPLE:
CUMULATIVE EXPENSES PAID ON SHARES OF COMMON STOCK
FOR THE PERIODS INDICATED:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
An investor would pay the following expenses on a $1,000
investment, assuming (1) the operating expense ratio
for each Fund (as a percentage of net assets
attributable to Common Stock) set forth in the table
above and (2) a 5% annual return throughout the period:
MuniYield Michigan.................................. $11 $35 $61 $134
MuniVest Michigan................................... $12 $36 $63 $139
MuniHoldings Michigan............................... $15 $46 $79 $172
Pro Forma MuniYield Michigan*....................... $11 $33 $57 $127
</TABLE>
- ---------------
* Assumes that the Reorganization had taken place on June 30, 1999.
The foregoing Fee Table is intended to assist investors in understanding
the costs and expenses that a common stockholder of each of the Funds will bear
directly or indirectly as compared to the costs and expenses that would be borne
by such investors taking into account the Reorganization. THE EXAMPLE SET FORTH
ABOVE ASSUMES THAT SHARES OF COMMON STOCK WERE PURCHASED IN THE INITIAL
OFFERINGS AND THE REINVESTMENT OF ALL DIVIDENDS AND DISTRIBUTIONS AND USES A 5%
ANNUAL RATE OF RETURN AS MANDATED BY SECURITIES AND EXCHANGE COMMISSION (THE
"SEC") REGULATIONS. THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF
PAST OR FUTURE EXPENSES OR ANNUAL RATES OF RETURN. ACTUAL EXPENSES OR ANNUAL
RATES OF RETURN MAY BE MORE OR LESS THAN THOSE ASSUMED FOR PURPOSES OF THE
EXAMPLE. See "Comparison of the Funds" and "The Reorganization -- Potential
Benefits to Common Stockholders of the Funds as a Result of the Reorganization."
8
<PAGE> 13
BUSINESS OF MUNIYIELD
MICHIGAN................. MuniYield Michigan was incorporated under the laws
of the State of Maryland on July 1, 1992 and
commenced operations on October 30, 1992.
MuniYield Michigan is a non-diversified,
leveraged, closed-end management investment
company whose investment objective is to provide
stockholders with current income exempt from
Federal and Michigan income taxes. MuniYield
Michigan seeks to achieve its investment objective
by investing primarily in a portfolio of long-term
investment grade obligations, the interest on
which, in the opinion of bond counsel to the
issuer, is exempt from Federal and Michigan income
taxes ("Michigan Municipal Bonds"). Under normal
circumstances, at least 80% of MuniYield
Michigan's total assets will be invested in
municipal obligations with remaining maturities of
one year or more that are covered by insurance
guaranteeing the timely payment of principal at
maturity and interest. The Fund intends to invest
primarily in long-term Michigan Municipal Bonds
and other long-term municipal obligations exempt
from Federal but not Michigan income taxes
("Municipal Bonds") with a maturity of more than
ten years. The weighted average maturity of the
Fund's portfolio was 17.69 years as of September
30, 1999. The average maturity of the Fund's
portfolio securities, and therefore the Fund's
portfolio as a whole, will vary based upon the
assessment of Fund Asset Management, L.P. ("FAM"),
the Fund's investment adviser, of economic and
market conditions. See "Comparison of the
Funds -- Investment Objectives and Policies."
MuniYield Michigan has outstanding Common Stock
and one series of AMPS, which shall be referred to
herein as "MuniYield Michigan AMPS." As of
September 30, 1999, MuniYield Michigan had net
assets of $155,951,395.
BUSINESS OF MUNIVEST
MICHIGAN................. MuniVest Michigan was incorporated under the laws
of the State of Maryland on February 19, 1993 and
commenced operations on April 30, 1993. MuniVest
Michigan is a non-diversified, leveraged,
closed-end management investment company whose
investment objective is to provide stockholders
with current income exempt from Federal and
Michigan income taxes. MuniVest Michigan seeks to
achieve its objective by investing primarily in a
portfolio of Michigan Municipal Bonds. Under
normal circumstances at least 80% of MuniVest
Michigan's total assets will be invested in
municipal obligations with remaining maturities of
one year or more that are covered by insurance
guaranteeing the timely payment of principal at
maturity and interest. The Fund intends to invest
primarily in long-term Michigan Municipal Bonds
and Municipal Bonds with a maturity of more than
ten years. The weighted average maturity of the
Fund's portfolio was 16.99 years as of September
30, 1999. The average maturity of the Fund's
portfolio securities, and therefore the Fund's
portfolio as a whole, will vary based upon FAM's
assessment of economic and market conditions. See
"Comparison of the Funds -- Investment Objectives
and Policies."
MuniVest Michigan has outstanding Common Stock and
one series of AMPS, which shall be referred to
herein as "MuniVest Michigan AMPS." As of
September 30, 1999, MuniVest Michigan had net
assets of $146,556,996.
9
<PAGE> 14
BUSINESS OF MUNIHOLDINGS
MICHIGAN................. MuniHoldings Michigan was incorporated under the
laws of the State of Maryland on November 23, 1998
and commenced operations on January 29, 1999.
MuniHoldings Michigan is a non-diversified,
leveraged, closed-end management investment
company whose investment objective is to provide
stockholders with current income exempt from
Federal and Michigan income taxes. MuniHoldings
Michigan seeks to achieve its investment objective
by investing primarily in a portfolio of Michigan
Municipal Bonds. Under normal circumstances, at
least 80% of MuniHoldings Michigan's total assets
will be invested in municipal obligations with
remaining maturities of one year or more that are
covered by insurance guaranteeing the timely
payment of principal at maturity and interest. The
Fund intends to invest primarily in long-term
Michigan Municipal Bonds and Municipal Bonds with
a maturity of more than ten years. The weighted
average maturity of the Fund's portfolio was 22.14
years as of September 30, 1999. The average
maturity of the Fund's portfolio securities, and
therefore the Fund's portfolio as a whole, will
vary based upon FAM's assessment of economic and
market conditions. See "Comparison of the Funds --
Investment Objectives and Policies."
MuniHoldings Michigan has outstanding Common Stock
and one series of AMPS, designated Series A, which
shall be referred to herein as "MuniHoldings
Michigan AMPS." As of September 30, 1999,
MuniHoldings Michigan had net assets of
$97,156,114.
COMPARISON OF THE FUNDS.... Investment Objectives and Policies. The Funds
have substantially similar investment objectives
and policies. All three Funds seek to provide
stockholders (including holders of AMPS) with
current income exempt from Federal and Michigan
income taxes and seek to maintain as much of their
respective portfolios invested in Michigan
Municipal Bonds as possible. Under normal
circumstances, each Fund maintains at least 65% of
its net assets in Michigan Municipal Bonds and at
least 80% of its assets in Municipal Bonds. See
"Comparison of the Funds -- Investment Objectives
and Policies."
Capital Stock. Each Fund has outstanding both
Common Stock and AMPS. The Common Stock of each of
the Funds is traded on the NYSE. As of September
30, 1999, (i) the net asset value per share of
MuniYield Michigan Common Stock was $14.26 and the
market price per share was $12.875; (ii) the net
asset value per share of MuniVest Michigan Common
Stock was $13.07 and the market price per share
was $11.6875; and (iii) the net asset value per
share of MuniHoldings Michigan Common Stock was
$12.83 and the market price per share was
$11.8125. The AMPS of each of the Funds have a
liquidation preference 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 for each series of AMPS of each
of the Funds unless the applicable Fund elects,
subject to certain limitations, to have a special
dividend period. See "Comparison of the
Funds -- Capital Stock." The following table
provides information about the dividend rates for
each series of AMPS of each of the Funds as of a
recent auction.
10
<PAGE> 15
<TABLE>
<CAPTION>
DIVIDEND
AUCTION DATE FUND SERIES RATE
------------ --------------------- ------ --------
<S> <C> <C> <C>
October 19, 1999 MuniYield Michigan * 3.40%
October 15, 1999 MuniVest Michigan * 2.75%
October 20, 1999 MuniHoldings Michigan A 2.40%
</TABLE>
---------------------------------------------
* No series designation.
Advisory Fees. The investment adviser for each of
the Funds is FAM. The principal business address
of FAM is 800 Scudders Mill Road, Plainsboro, New
Jersey 08536. FAM was organized as an investment
adviser in 1977 and offers investment advisory
services to more than 50 registered investment
companies. The Asset Management Group of Merrill
Lynch & Co., Inc. ("ML & Co.") (which includes
FAM) acts as investment adviser for over 100
registered investment companies and also offers
portfolio management and portfolio analysis
services to individuals and institutional
accounts.
FAM is responsible for the management of each
Fund's investment portfolio and for providing
administrative services to each Fund. Fred K.
Stuebe serves as the portfolio manager for
MuniYield Michigan and MuniVest Michigan. Fred K.
Stuebe and Robert A. DiMella serve as the
portfolio managers for MuniHoldings Michigan.
After the Reorganization, Mr. Stuebe will serve as
portfolio manager of the combined fund.
Pursuant to separate investment advisory
agreements between each Fund and FAM, MuniYield
Michigan and MuniVest Michigan each pay FAM a
monthly fee at the annual rate of 0.50% of such
Fund's average weekly net assets, including assets
acquired from the sale of AMPS. MuniHoldings
Michigan pays FAM a monthly fee at the annual rate
of 0.55% of such Fund's average weekly net assets,
including assets acquired from the sale of AMPS.
Subsequent to the Reorganization, FAM will
continue to receive compensation at the rate of
0.50% of the average weekly net assets, including
assets acquired from the sale of AMPS, of the
combined fund. For MuniHoldings Michigan, this
represents a fee reduction. See "Comparison of the
Funds -- Management of the Funds."
Other Significant Fees. The Bank of New York is
the custodian, transfer agent, dividend disbursing
agent and registrar for the Common Stock of each
Fund. The Bank of New York is also the transfer
agent, dividend disbursing agent, registrar and
auction agent for each Fund's AMPS. The principal
business addresses are as follows: The Bank of New
York, 90 Washington Street, New York, New York
10286 (for its custodial services) and 101 Barclay
Street, New York, New York 10286 (for its transfer
agency and auction agency services). See
"Comparison of the Funds -- Management of the
Funds."
Overall Expense Ratio. As of June 30, 1999, the
overall annualized operating expense ratio for
MuniYield Michigan was 1.10%, based on net assets
of approximately $110.2 million excluding AMPS,
and 0.75%, based on net assets of approximately
$160.2 million including AMPS; the overall
annualized operating expense ratio for MuniVest
Michigan was 1.14%, based on net assets of
approximately $100.3 million excluding AMPS, and
0.76%, based on net assets of approximately $150.3
11
<PAGE> 16
million including AMPS; the overall annualized
operating expense ratio for MuniHoldings Michigan
was 1.44%, based on net assets of approximately
$61.0 million excluding AMPS, and 0.87%, based on
net assets of approximately $101.0 million
including AMPS. If the Reorganization had taken
place on June 30, 1999, the estimated annualized
operating expense ratio for pro forma MuniYield
Michigan would have been 1.04%, based on net
assets of approximately $271.5 million excluding
AMPS, and 0.69%, based on net assets of
approximately $411.5 million including AMPS.
Purchases and Sales of Common Stock and
AMPS. Purchase and sale procedures for the Common
Stock of each of the Funds are identical, and
investors typically purchase and sell shares of
Common Stock of the 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 the Funds through
privately negotiated transactions with existing
stockholders.
Purchase and sale procedures for the AMPS of each
of the Funds also are identical. Such AMPS
generally are purchased and sold at separate
auctions conducted on a regular basis by The Bank
of New York, as the auction agent for each Fund's
AMPS (the "Auction Agent"). Unless otherwise
permitted by the Funds, existing and potential
holders of AMPS 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 AMPS may be purchased or sold through
broker-dealers for the AMPS in a secondary trading
market maintained by the broker-dealers. However,
there can be no assurance that a secondary market
will develop or if it does develop, that it will
provide holders with a liquid trading market for
the AMPS of any of the Funds.
Ratings of AMPS. The AMPS of each Fund have been
assigned a rating of AAA from Standard & Poor's
("S&P"). The AMPS of MuniYield Michigan and
MuniVest Michigan have each been assigned a rating
of "aa1" from Moody's Investors Service, Inc.
("Moody's"). The AMPS of MuniHoldings Michigan
have been assigned a rating of "aaa" from Moody's.
It is anticipated that following the
Reorganization the AMPS of the combined fund will
be rated AAA by S&P and "aaa" by Moody's. See
"Comparison of the Funds -- Rating Agency
Guidelines."
Portfolio Insurance. Each of the Funds has a
similar policy with respect to obtaining insurance
for portfolio securities. Under normal
circumstances, at least 80% of each Fund's assets
will be invested in municipal obligations either
(i) insured under an insurance policy purchased by
the Fund or (ii) insured under an insurance policy
obtained by the issuer thereof or any other party.
See "Comparison of the Funds -- Investment
Objectives and Policies -- Portfolio Insurance."
12
<PAGE> 17
Ratings of Municipal Obligations. Each of the
Funds will invest only in municipal obligations
that at the time of purchase are considered
investment grade.
Portfolio Transactions. The portfolio
transactions in which the Funds may engage are
similar, as are the procedures for such
transactions. See "Comparison of the
Funds -- Portfolio Transactions."
Dividends and Distributions. The methods of
dividend payment and distributions are similar for
all of the Funds, both with respect to the Common
Stock and the AMPS of each Fund. See "Comparison
of the Funds -- Dividends and Distributions."
Net Asset Value. The net asset value per share of
Common Stock of each Fund is determined after the
close of business on the NYSE (generally, 4:00
p.m., Eastern time) on the last business day in
each week. For purposes of determining the net
asset value of a share of Common Stock of each
Fund, the value of the securities held by the Fund
plus any cash or other assets (including interest
accrued but not yet received) minus all
liabilities (including accrued expenses) and the
aggregate liquidation value of the outstanding
shares of AMPS of the Fund is divided by the total
number of shares of Common Stock of the Fund
outstanding at such time. Expenses, including fees
payable to FAM, are accrued daily. See "Comparison
of the Funds -- Net Asset Value."
Voting Rights. The corresponding voting rights of
the holders of shares of each Fund's Common Stock
are substantially similar. Likewise, the
corresponding voting rights of the holders of
shares of each Fund's AMPS are substantially
similar. See "Comparison of the Funds -- Capital
Stock."
Stockholder Services. An automatic dividend
reinvestment plan is available to holders of
shares of each Fund's Common Stock. The plans are
similar 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.
13
<PAGE> 18
OUTSTANDING SECURITIES OF MUNIYIELD MICHIGAN, MUNIVEST MICHIGAN AND MUNIHOLDINGS
MICHIGAN
AS OF SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
AMOUNT
OUTSTANDING
AMOUNT HELD BY EXCLUSIVE OF AMOUNT
AMOUNT FUND FOR ITS OWN SHOWN IN PREVIOUS
TITLE OF CLASS AUTHORIZED ACCOUNT COLUMN
- -------------- ----------- ---------------- -------------------
<S> <C> <C> <C>
MuniYield Michigan
Common Stock................................... 199,998,000 -0- 7,431,634
AMPS........................................... 2,000 -0- 2,000
MuniVest Michigan
Common Stock................................... 199,998,000 -0- 7,387,697
AMPS........................................... 2,000 -0- 2,000
MuniHoldings Michigan
Common Stock................................... 199,998,400 -0- 4,453,667
AMPS........................................... 1,600 -0- 1,600
</TABLE>
TAX CONSIDERATIONS......... The Funds have jointly requested a private letter
ruling from the IRS with respect to the
Reorganization to the effect that, among other
things, no Fund will recognize gain or loss on the
transaction and the stockholders of the Acquired
Funds will not recognize gain or loss on the
exchange of their shares for MuniYield Michigan
Common Stock (except to the extent that a common
stockholder in an Acquired Fund receives cash
representing an interest in less than a full share
of MuniYield Michigan Common Stock in the
Reorganization) or MuniYield Michigan AMPS. The
consummation of the Reorganization is subject to
the receipt of such ruling or of an opinion of
counsel to the same effect. The Reorganization
will not affect the status of MuniYield Michigan
as a regulated investment company (a "RIC") under
the Internal Revenue Code of 1986, as amended (the
"Code"). Each of the Acquired Funds will liquidate
pursuant to the Reorganization. See "Agreement and
Plan of Reorganization -- Tax Consequences of the
Reorganization."
14
<PAGE> 19
RISK FACTORS AND SPECIAL CONSIDERATIONS
Since each of the three Funds invests primarily in a portfolio of Michigan
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 of any
series of AMPS of any of the Funds or create additional risks.
MICHIGAN MUNICIPAL BONDS
Each of the Funds ordinarily invests at least 65% of its portfolio in
Michigan Municipal Bonds. As a result, each Fund is more exposed to risks
affecting issuers of Michigan Municipal Bonds than is a municipal bond fund that
invests more widely. See "Comparison of the Funds -- Special Considerations
Relating to Michigan Municipal Bonds" and Exhibit III -- "Economic and Other
Conditions in Michigan."
INTEREST RATE AND CREDIT RISK
Each Fund invests in municipal bonds, which are subject to interest rate
and credit risk. Interest rate risk is the risk that prices of municipal bonds
generally increase when interest rates decline and decrease when interest rates
increase. Prices of longer-term securities generally change more in response to
interest rate changes than prices of shorter-term securities. Credit risk is the
risk that the issuer will be unable to pay the interest or principal when due.
The degree of credit risk depends on both the financial condition of the issuer
and the terms of the obligation.
NON-DIVERSIFICATION
Each Fund is registered as a "non-diversified" investment company. This
means that the Fund may invest a greater percentage of its assets in a single
issuer than a diversified investment company. Since a Fund may invest a
relatively high percentage of its assets in a limited number of issuers, the
Fund may be more exposed to the effects of any single economic, political or
regulatory occurrence than a more widely-diversified fund. Even as a
non-diversified fund, each Fund must still meet the diversification requirements
of applicable Federal income tax law.
RATING CATEGORIES
The Funds intend to invest in municipal bonds that are rated investment
grade by S&P, Moody's or Fitch IBCA, Inc. ("Fitch") or are considered by FAM to
be of comparable quality. Obligations rated in the lowest investment grade
category may have certain speculative characteristics.
PRIVATE ACTIVITY BONDS
Each Fund may invest all or a portion of its assets in certain tax-exempt
securities classified as "private activity bonds." These bonds may subject
certain investors in a Fund to a Federal alternative minimum tax.
PORTFOLIO INSURANCE
Each of the Funds is subject to certain investment restrictions imposed by
guidelines of the insurance companies that issue portfolio insurance. The Funds
do not believe these guidelines prevent FAM from managing the Funds' portfolios
in accordance with the Funds' investment objective and policies.
LEVERAGE
Use of leverage, through the issuance of AMPS, involves certain risks to
holders of Common Stock of each of the Funds. For example, each Fund's issuance
of AMPS may result in higher volatility of the net asset value of its Common
Stock and potentially more volatility in the market value of its Common Stock.
In addition, changes in the short-term and medium-term dividend rates on, and
the amount of taxable income allocable to, the AMPS will affect the yield to
holders of Common Stock. Under certain circumstances, when
15
<PAGE> 20
a Fund is required to allocate taxable income to holders of AMPS, the Fund may
be required to make an additional distribution to such holders in an amount
approximately equal to the tax liability resulting from that allocation (an
"Additional Distribution"). Leverage will allow holders of each Fund's Common
Stock to realize a higher current rate of return than if the Fund were not
leveraged as long as the Fund, while accounting for its costs and operating
expenses, is able to realize a higher net return on its investment portfolio
than the then-current dividend rate (and any Additional Distribution) paid on
the AMPS. Similarly, since a pro rata portion of each Fund's net realized
capital gains is generally payable to holders of the Fund's Common Stock, the
use of leverage will increase the amount of such gains distributed to holders of
the Fund's Common Stock. However, short-term, medium-term and long-term interest
rates change from time to time as do their relationships to each other (i.e.,
the slope of the yield curve) depending upon such factors as supply and demand
forces, monetary and tax policies and investor expectations. Changes in any or
all of such factors could cause the relationship between short-term, medium-term
and long-term rates to change (i.e., to flatten or to invert the slope of the
yield curve) so that short-term and medium-term rates may substantially increase
relative to the long-term obligations in which each Fund may be invested. To the
extent that the current dividend rate (and any Additional Distribution) on the
AMPS approaches the net return on a Fund's investment portfolio, the benefit of
leverage to holders of Common Stock will be decreased. If the current dividend
rate (and any Additional Distribution) on the AMPS were to exceed the net return
on a Fund's portfolio, holders of Common Stock would receive a lower rate of
return than if the Fund were not leveraged. Similarly, since both the costs of
issuing AMPS and any decline in the value of a Fund's investments (including
investments purchased with the proceeds from any AMPS offering) will be borne
entirely by holders of the Fund's Common Stock, the effect of leverage in a
declining market would result in a greater decrease in net asset value to
holders of Common Stock than if the Fund were not leveraged. If a Fund is
liquidated, holders of that Fund's AMPS will be entitled to receive liquidating
distributions before any distribution is made to holders of Common Stock of that
Fund.
In an extreme case, a decline in net asset value could affect each Fund's
ability to pay dividends on its Common Stock. Failure to make such dividend
payments could adversely affect the Fund's qualification as a RIC under the
Federal tax laws. See "Comparison of the Funds -- Tax Rules Applicable to the
Funds and their Stockholders." However, each Fund intends to take all measures
necessary to make Common Stock dividend payments. If a Fund's current investment
income is ever insufficient to meet dividend payments on either the Common Stock
or the AMPS, the Fund may have to liquidate certain of its investments. In
addition, each Fund has the authority to redeem its AMPS for any reason and may
redeem all or part of its AMPS under the following circumstances:
- if the Fund anticipates that its leveraged capital structure will result
in a lower rate of return for any significant amount of time to holders
of the Common Stock than the Fund can obtain if the Common Stock were not
leveraged,
- if the asset coverage for the AMPS declines below 200%, either as a
result of a decline in the value of the Fund's portfolio investments or
as a result of the repurchase of Common Stock in tender offers or
otherwise, or
- in order to maintain the asset coverage established by Moody's and S&P in
rating the AMPS.
Redemption of the AMPS or insufficient investment income to make dividend
payments, may reduce the net asset value of the Common Stock and require the
Fund to liquidate a portion of its investments at a time when it may be
disadvantageous to do so.
PORTFOLIO MANAGEMENT
The portfolio management strategies of the Funds are the same. In the event
of an increase in short-term or medium-term rates or other change in market
conditions to the point where a Fund's leverage could adversely affect holders
of Common Stock as noted above, or in anticipation of such changes, each Fund
may attempt to shorten the average maturity of its investment portfolio, which
would tend to offset the negative impact of leverage on holders of its Common
Stock. Each Fund also may attempt to reduce the degree to which it is leveraged
by redeeming AMPS pursuant to the provisions of the Fund's Articles
Supplementary
16
<PAGE> 21
establishing the rights and preferences of the AMPS or otherwise purchasing
shares of AMPS. Purchases and sales or redemptions of AMPS, whether on the open
market or in negotiated transactions, are subject to limitations under the
Investment Company Act. If market conditions subsequently change, each Fund may
sell previously unissued shares of AMPS or shares of AMPS that the Fund
previously issued but later repurchased or redeemed.
INVERSE FLOATING OBLIGATIONS
A Fund's investments in "inverse floating obligations" or "residual
interest bonds" provide investment leverage because their market value increases
or decreases in response to market changes at a greater rate than fixed rate,
long term tax exempt securities. The market values of such securities are more
volatile than the market values of fixed rate, tax exempt securities.
OPTIONS AND FUTURES TRANSACTIONS
Each Fund may engage in certain options and futures transactions to reduce
its exposure to interest rate movements. If a Fund incorrectly forecasts market
values, interest rates or other factors, that Fund's performance could suffer.
Each Fund also may suffer a loss if the other party to the transaction fails to
meet its obligations. The Funds are not required to use hedging and may choose
not to do so.
ANTITAKEOVER PROVISIONS
The Articles of Incorporation of each of the Funds (in each case the
"Charter") include provisions that could limit the ability of other entities or
persons to acquire control of that Fund or to change the composition of its
Board of Directors. Such provisions could limit the ability of stockholders to
sell their shares at a premium over prevailing market prices by discouraging a
third party from seeking to obtain control of the Fund.
RATINGS CONSIDERATIONS
The AMPS of each of the Funds have received a rating of AAA from S&P. The
AMPS of MuniYield Michigan and MuniVest Michigan have received a rating of
"aa1," and the AMPS MuniHoldings Michigan have received a rating of "aaa," from
Moody's. It is anticipated that the AMPS of the combined fund will receive a
rating of "aaa" from Moody's. In order to maintain these ratings, the Funds are
required to maintain portfolio holdings meeting specified guidelines of such
rating agencies. These guidelines may impose asset coverage requirements that
are more stringent than those imposed by the Investment Company Act.
As described by Moody's and S&P, a preferred stock rating is an assessment
of the capacity and willingness of an issuer to pay preferred stock obligations.
The ratings of the AMPS are not recommendations to purchase, hold or sell shares
of AMPS, inasmuch as the ratings do not comment as to market price or
suitability for a particular investor, nor do the rating agency guidelines
address the likelihood that a holder of shares of AMPS will be able to sell such
shares in an auction. The ratings are based on current information furnished to
Moody's and S&P by the Funds and FAM and information obtained from other
sources. The ratings may be changed, suspended or withdrawn as a result of
changes in, or the unavailability of, such information. The Common Stock of the
Funds has not been rated by a nationally recognized statistical rating
organization.
The Board of Directors of each of the Funds, without stockholder approval,
may amend, alter or repeal certain definitions or restrictions which have been
adopted by the Fund pursuant to the rating agency guidelines, in the event the
Fund receives confirmation from the rating agencies that any such amendment,
alteration or repeal would not impair the ratings then assigned to shares of
AMPS.
17
<PAGE> 22
COMPARISON OF THE FUNDS
FINANCIAL HIGHLIGHTS
MuniYield Michigan
The financial information in the table below, except for the six month
period ended April 30, 1999, which is unaudited and has been provided by FAM,
has been audited in conjunction with the annual audits of the financial
statements of the Fund by Ernst & Young LLP, independent auditors. The following
per share data and ratios have been derived from information provided in the
financial statements of the Fund.
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS FOR THE YEAR ENDED OCTOBER 31,
ENDED -----------------------------------------
APRIL 30, 1999 1998 1997 1996 1995
-------------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSET VALUE:
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period..................... $ 15.93 $ 15.51 $ 15.16 $ 15.13 $ 13.70
-------- -------- -------- -------- --------
Investment income -- net................................. .51 1.07 1.09 1.11 1.13
Realized and unrealized gain (loss) on
investments -- net..................................... (.21) .46 .33 .03 1.71
-------- -------- -------- -------- --------
Total from investment operations......................... .30 1.53 1.42 1.14 2.84
-------- -------- -------- -------- --------
Less dividends and distributions to Common Stock
shareholders:
Investment income -- net............................... (.44) (.83) (.84) (.87) (.86)
Realized gain on investments -- net.................. (.21) -- -- -- (.26)
In excess of realized gain on investments -- net..... -- (.04) -- -- --
-------- -------- -------- -------- --------
Total dividends and distributions to Common Stock
shareholders........................................... (.65) (.87) (.84) (.87) (1.12)
-------- -------- -------- -------- --------
Effect of Preferred Stock activity:
Dividends and distributions to Preferred Stock
shareholders:
Investment income -- net............................. (.07) (.21) (.23) (.24) (.23)
Realized gain on investments -- net.................. (.03) -- -- -- (.06)
In excess of realized gain on investments -- net..... -- (.03) -- -- --
-------- -------- -------- -------- --------
Total effect of Preferred Stock activity................. (.10) (.24) (.23) (.24) (.29)
-------- -------- -------- -------- --------
Net asset value, end of period........................... $ 15.48 $ 15.93 $ 15.51 $ 15.16 $ 15.13
======== ======== ======== ======== ========
Market price per share, end of period.................... $14.8125 $ 15.875 $ 14.50 $ 14.25 $ 13.50
======== ======== ======== ======== ========
TOTAL INVESTMENT RETURN:**
Based on market price per share.......................... (2.71)%# 16.03% 8.00% 12.14% 23.73%
======== ======== ======== ======== ========
Based on net asset value per share....................... 1.32%# 8.85% 8.58% 6.45% 20.20%
======== ======== ======== ======== ========
RATIOS TO AVERAGE NET ASSETS:***
Expenses................................................. .76%* .74% .74% .75% .78%
======== ======== ======== ======== ========
Investment income -- net................................. 4.67%* 4.79% 4.96% 5.03% 5.44%
======== ======== ======== ======== ========
SUPPLEMENTAL DATA:
Net assets, net of Preferred Stock, end of period (in
thousands)............................................. $115,032 $117,511 $114,392 $111,834 $111,600
======== ======== ======== ======== ========
Preferred Stock outstanding, end of period (in
thousands)............................................. $ 50,000 $ 50,000 $ 50,000 $ 50,000 $ 50,000
======== ======== ======== ======== ========
Portfolio turnover....................................... 22.93% 41.65% 16.68% 21.82% 41.11%
======== ======== ======== ======== ========
DIVIDENDS PER SHARE ON PREFERRED STOCK OUTSTANDING
Investment income -- net................................. $ 278 $ 782 $ 849 $ 882 $ 836
======== ======== ======== ======== ========
LEVERAGE:
Asset coverage per $1,000................................ $ 3,301 $ 3,360 $ 3,288 $ 3,237 $ 3,232
======== ======== ======== ======== ========
</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
charges.
*** Do not reflect the effect of dividends to Preferred Stock shareholders.
# Aggregate total investment return.
18
<PAGE> 23
MuniYield Michigan (continued)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
OCTOBER 31, FOR THE PERIOD
-------------------- FEBRUARY 28, 1992+ TO
1994 1993 OCTOBER 31, 1992
-------- -------- -----------------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSET VALUE:
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period........................ $ 16.59 $ 14.22 $ 14.18
-------- -------- --------
Investment income -- net.................................... 1.20 1.21 .77
Realized and unrealized gain (loss) on investments -- net... (2.44) 2.41 .14
-------- -------- --------
Total from investment operations............................ (1.24) 3.62 .91
-------- -------- --------
Less dividends and distributions to Common Stock
shareholders:
Investment income -- net................................ (.96) (1.00) (.56)
Realized gain on investments -- net..................... (.10) (.05) --
In excess of realized gain on investments -- net........ -- -- --
-------- -------- --------
Total dividends and distributions to Common Stock
shareholders.............................................. (1.06) (1.05) (.56)
-------- -------- --------
Capital charge resulting from issuance of Common Stock...... -- -- (.03)
-------- -------- --------
Effect of Preferred Stock activity:++
Dividends and distributions to Preferred Stock
shareholders:
Investment income -- net................................ (.22) (.19) (.13)
Realized gain on investments -- net..................... (.02) (.01) --
In excess of realized gain on investments -- net........ -- -- --
Capital charge resulting from issuance of Preferred
Stock................................................... -- -- (.15)
-------- -------- --------
Total effect of Preferred Stock activity.................... (.24) (.20) (.28)
-------- -------- --------
Net asset value, end of period.............................. $ 14.05 $ 16.59 $ 14.22
======== ======== ========
Market price per share, end of period....................... $ 12.625 $ 16.625 $ 14.875
======== ======== ========
TOTAL INVESTMENT RETURN:**
Based on market price per share............................. (18.40)% 19.54% 3.05%#
======== ======== ========
Based on net asset value per share.......................... (9.00)% 24.78% 4.21%#
======== ======== ========
RATIOS TO AVERAGE NET ASSETS:***
Expenses, net of reimbursement.............................. .76% .74% .54%*
======== ======== ========
Expenses.................................................... .76% .74% .72%*
======== ======== ========
Investment income -- net.................................... 5.25% 5.32% 5.66%*
======== ======== ========
SUPPLEMENTAL DATA:
Net assets, net of Preferred Stock, end of period (in
thousands)................................................ $108,467 $128,078 $106,938
======== ======== ========
Preferred Stock outstanding, end of period (in thousands)... $ 55,000 $ 55,000 $ 55,000
======== ======== ========
Portfolio turnover.......................................... 18.88% 12.88% 22.49%
======== ======== ========
LEVERAGE:
Asset coverage per $1,000................................... $ 2,972 $ 3,329 $ 2,944
======== ======== ========
DIVIDENDS PER SHARE ON PREFERRED STOCK OUTSTANDING:+++
Investment income -- net.................................... $ 765 $ 647 $ 444
======== ======== ========
</TABLE>
- ---------------
* Annualized.
** Total investment returns based on market value, which can be significantly
greater or lesser than the net asset value, may result in substantially
different returns. Total investment returns exclude the effects of sales
charges.
*** Do not reflect the effect of dividends to Preferred Stock shareholders.
+ Commencement of operations.
++ The Fund's Preferred Stock was issued on April 10, 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.
19
<PAGE> 24
MuniVest Michigan
The financial information in the table below, except for the six month
period ended April 30, 1999 which is unaudited and has been provided by FAM, has
been audited in conjunction with the annual audits of the financial statements
of the Fund by Deloitte & Touche LLP, independent auditors. The following per
share data and ratios have been derived from information provided in the
financial statements of the Fund.
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS FOR THE YEAR ENDED OCTOBER 31,
ENDED -----------------------------------------
APRIL 30, 1999 1998 1997 1996 1995
-------------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSET VALUE:
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period..................... $ 14.46 $ 13.95 $ 13.65 $ 13.65 $ 11.83
-------- -------- -------- -------- --------
Investment income -- net................................. .47 .98 1.01 1.01 1.01
Realized and unrealized gain loss on
investments -- net..................................... (.19) .51 .30 -+ 1.82
-------- -------- -------- -------- --------
Total from investment
operations............................................. .28 1.49 1.31 1.01 2.83
-------- -------- -------- -------- --------
Less dividends to Common Stock shareholders:
Investment income -- net............................. (.37) (.75) (.78) (.77) (.76)
-------- -------- -------- -------- --------
Effect of Preferred Stock activity:
Dividends to Preferred Stock shareholders:
Investment income -- net............................... (.10) (.23) (.23) (.24) (.25)
-------- -------- -------- -------- --------
Total effect of Preferred Stock activity................. (.10) (.23) (.23) (.24) (.25)
-------- -------- -------- -------- --------
Net asset value, end of period........................... $ 14.27 $ 14.46 $ 13.95 $ 13.65 $ 13.65
======== ======== ======== ======== ========
Market price per share, end of period.................... $ 13.25 $ 14.625 $ 13.313 $ 12.375 $ 12.25
======== ======== ======== ======== ========
TOTAL INVESTMENT RETURN:**
Based on market price per share.......................... (6.93)%# 16.12% 14.32% 7.40% 27.59%
======== ======== ======== ======== ========
Based on net asset value per
share.................................................. 1.37%# 9.56% 8.60% 6.32% 23.18%
======== ======== ======== ======== ========
RATIOS TO AVERAGE NET ASSETS***
Expenses................................................. .79%* .76% .75% .77% .77%
======== ======== ======== ======== ========
Investment income -- net................................. 4.50%* 4.65% 4.89% 4.91% 5.21%
======== ======== ======== ======== ========
SUPPLEMENTAL DATA:
Net assets, net of Preferred Stock, end of period (in
thousands)............................................. $105,387 $106,834 $102,924 $100,702 $100,729
======== ======== ======== ======== ========
Preferred Stock outstanding, end of period (in
thousands)............................................. $ 50,000 $ 50,000 $ 50,000 $ 50,000 $ 50,000
======== ======== ======== ======== ========
Portfolio turnover....................................... 24.64% 48.30% 22.43% 47.10% 53.85%
======== ======== ======== ======== ========
DIVIDENDS PER SHARE ON PREFERRED STOCK OUTSTANDING:
Investment income -- net................................. $ 377 $ 836 $ 835 $ 886 $ 939
======== ======== ======== ======== ========
LEVERAGE:
Asset coverage per $1,000................................ $ 3,108 $ 3,137 $ 3,058 $ 3,014 $ 3,015
======== ======== ======== ======== ========
</TABLE>
- ---------------
* Annualized.
** Total investment returns based on market value, which can be significantly
greater or lesser than the net asset value, may result in substantially
different returns. Total investment returns exclude the effects of sales
charges.
*** Do not reflect the effect of dividends to Preferred Stock shareholders.
+ Amount is less than $.01 per share.
# Aggregate total investment return.
20
<PAGE> 25
MuniVest Michigan (continued)
<TABLE>
<CAPTION>
FOR THE FOR THE PERIOD
YEAR ENDED APRIL 30, 1993+ TO
OCTOBER 31, 1994 OCTOBER 31, 1993
---------------- ------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSET VALUE:
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period........................ $ 14.89 $ 14.18
------- --------
Investment income -- net.................................... 1.01 .47
Realized and unrealized gain (loss) on investments -- net... (3.06) .80
------- --------
Total from investment operations............................ (2.05) 1.27
------- --------
Less dividends to Common Stock shareholders:
Investment income -- net.................................. (.84) (.33)
------- --------
Capital charge resulting from issuance of Common Stock...... -- (.03)
------- --------
Effect of Preferred Stock activity:++
Dividends to Preferred Stock shareholders:
Investment income -- net................................ (.17) (.07)
Capital charge resulting from issuance of Preferred
Stock................................................. -- (.13)
------- --------
Total effect of Preferred Stock activity.................... (.17) (.20)
------- --------
Net asset value, end of period.............................. $ 11.83 $ 14.89
======= ========
Market price per share, end of period....................... $ 10.25 $ 15.125
======= ========
TOTAL INVESTMENT RETURN:**
Based on market price per share............................. (27.71)% 3.10%#
======= ========
Based on net asset value per share.......................... (15.25)% 7.37%#
======= ========
RATIOS TO AVERAGE NET ASSETS:***
Expenses, net of reimbursement.............................. .76% .56%*
======= ========
Expenses.................................................... .76% .78%*
======= ========
Investment income -- net.................................... 4.98% 4.67%*
======= ========
SUPPLEMENTAL DATA:
Net assets, net of Preferred Stock, end of period (in
thousands)................................................ $87,313 $108,647
======= ========
Preferred Stock outstanding, end of period (in thousands)... $50,000 $ 50,000
======= ========
Portfolio turnover.......................................... 49.03% 15.34%
======= ========
DIVIDENDS PER SHARE ON PREFERRED STOCK OUTSTANDING:+++
Investment income -- net.................................... $ 615 $ 255
======= ========
LEVERAGE:
Asset coverage per $1,000................................... $ 2,746 $ 3,173
======= ========
</TABLE>
- ---------------
* Annualized.
** Total investment returns based on market value, which can be significantly
greater or lesser than the net asset value may result in substantially
different returns. Total investment returns exclude the effects of sales
charges.
*** Do not reflect the effect of dividends to Preferred Stock shareholders.
+ Commencement of operations.
++ The Fund's Preferred Stock were 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.
21
<PAGE> 26
MuniHoldings Michigan
The financial information in the table below is unaudited and has been
provided by FAM. 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
JANUARY 29, 1999+ TO
MARCH 31, 1999
--------------------
<S> <C>
INCREASE (DECREASE) IN NET ASSET VALUE:
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period........................ $ 15.00
Investment income -- net.................................... .16
Realized and unrealized loss on investments -- net.......... (.18)
--------
Total from investment operations............................ (.02)
--------
Capital charge resulting from issuance of Common Stock...... (.05)
--------
Effect of Preferred Stock activity:++
Dividends to Preferred Stock shareholders:
Investment income -- net.................................. (.03)
Capital charge resulting from issuance of Preferred
Stock.................................................. (.10)
--------
Total effect of Preferred Stock activity.................... (.13)
--------
Net asset value, end of period.............................. $ 14.80
========
Market price per share, end of period....................... $15.4375
========
TOTAL INVESTMENT RETURN:**
Based on market price per share............................. 2.92%#
========
Based on net asset value per share.......................... (1.33%)#
========
RATIOS TO AVERAGE NET ASSETS***.............................
Expenses, net of reimbursement.............................. .18%*
========
Expenses.................................................... .84%*
========
Investment income -- net.................................... 5.12%*
========
SUPPLEMENTAL DATA:
Net assets, net of Preferred Stock, end of period (in
thousands)................................................ $ 65,898
========
Preferred Stock outstanding, end of period (in thousands)... $ 40,000
========
Portfolio turnover.......................................... 20.53%
========
DIVIDENDS PER SHARE ON PREFERRED STOCK OUTSTANDING:
Investment income -- net.................................... $ 80
========
LEVERAGE:
Asset coverage per $1,000................................... $ 2,647
========
</TABLE>
- ---------------
* Annualized.
** Total investment returns based on market value, which can be significantly
greater or lesser than the net asset value, may result in substantially
different returns. Total investment returns exclude the effects of sales
charges.
*** Does not reflect the effect of dividends to Preferred Stock shareholders.
+ Commencement of operations.
++ The Fund's Preferred Stock was issued on February 22, 1999.
# Aggregate total investment return.
22
<PAGE> 27
PER SHARE DATA FOR COMMON STOCK*
TRADED ON THE NEW YORK STOCK EXCHANGE (UNAUDITED)
MuniYield Michigan
<TABLE>
<CAPTION>
PREMIUM
(DISCOUNT)
TO NET
MARKET PRICE ($)** NET ASSET VALUE ($) ASSET VALUE (%)
-------------------- -------------------- -----------------
QUARTER ENDED* HIGH LOW HIGH LOW HIGH LOW
- -------------- ------- ------- ------- ------- ----- ------
<S> <C> <C> <C> <C> <C> <C>
January 31, 1997........... 14.00 13.625 15.22 14.98 (5.30) (9.29)
April 30, 1997............. 13.625 13.125 14.90 14.70 (8.56) (11.08)
July 31, 1997.............. 14.75 14.25 15.75 15.28 (5.86) (9.00)
October 31, 1997........... 14.75 14.00 15.56 15.32 (6.03) (8.22)
January 31, 1998........... 16.0625 14.8125 16.03 15.73 (0.16) (7.66)
April 30, 1998............. 14.4375 13.9375 15.77 15.30 1.20 (8.95)
July 31, 1998.............. 15.00 14.5625 15.75 15.64 (4.40) (8.94)
October 31, 1998........... 16.625 15.3125 16.29 15.89 (0.35) (6.05)
January 31, 1999........... 16.125 15.50 15.79 15.56 4.82 (1.21)
April 30, 1999............. 15.25 14.625 15.59 15.48 1.15 (5.24)
July 31, 1999.............. 14.00 13.6875 14.97 14.80 (4.97) (8.07)
August 1, 1999 through
October 22, 1999......... 13.8125 12.0625 14.78 13.80 (5.46) (11.89)
</TABLE>
MuniVest Michigan
<TABLE>
<CAPTION>
PREMIUM
(DISCOUNT)
TO NET
MARKET PRICE ($)** NET ASSET VALUE ($) ASSET VALUE (%)
-------------------- -------------------- -----------------
QUARTER ENDED* HIGH LOW HIGH LOW HIGH LOW
- -------------- ------- ------- ------- ------- ----- ------
<S> <C> <C> <C> <C> <C> <C>
January 31, 1997........... 12.50 12.00 13.69 13.46 (8.33) (12.73)
April 30, 1997............. 12.625 12.00 13.39 13.21 (5.52) (10.20)
July 31, 1997.............. 13.00 12.5625 14.16 13.72 9.83 (10.27)
October 31, 1997........... 13.75 13.125 13.99 13.76 (1.43) (8.94)
January 31, 1998........... 13.6875 13.3125 14.48 14.20 (3.26) (6.21)
April 30, 1998............. 13.8125 12.75 14.26 13.80 (1.91) (10.27)
July 31, 1998.............. 13.375 13.125 14.24 14.15 (2.64) (8.39)
October 31, 1998........... 14.6875 13.625 14.80 14.43 1.14 (7.55)
January 31, 1999........... 14.25 13.5625 14.57 14.33 0.68 (7.68)
April 30, 1999............. 13.75 13.1875 14.39 14.27 0.75 (7.15)
July 31, 1999.............. 12.75 12.625 13.73 13.56 (2.14) (9.45)
August 1, 1999 through
October 22, 1999......... 12.625 11.0625 13.54 12.60 (5.97) (11.73)
</TABLE>
(footnotes on following page)
23
<PAGE> 28
MuniHoldings Michigan
<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, 1999+.......... 15.00 15.00 15.02 15.00 (0.13) (0.13)
April 30, 1999............. 15.50 14.50 14.86 14.67 8.77 (1.16)
July 31, 1999.............. 13.75 12.375 13.84 13.67 1.01 (8.10)
August 1, 1999 through
October 22, 1999......... 12.9375 10.9375 13.64 11.92 (2.14) (9.56)
</TABLE>
- ---------------
* Calculations are based upon shares of Common Stock outstanding at the end of
each quarter.
** As reported in the consolidated transaction operating system.
+ For the period January 29, 1999 to January 31, 1999
As indicated in the tables above, for the periods shown the Common Stock of
the Funds generally has traded at prices close to net asset value, with premiums
or discounts to net asset value of generally less than 10% being reflected in
the market value of the shares from time to time. Although there is no reason to
believe that this pattern should be affected by the Reorganization, it is not
possible to predict whether shares of the surviving fund will trade at a premium
or discount to net asset value following the Reorganization, or what the extent
of any such premium or discount might be.
INVESTMENT OBJECTIVE AND POLICIES
The structure, organization and investment policies of the Funds are
substantially similar, with the differences among the three Funds set forth
below. Each Fund seeks as a fundamental investment objective current income
exempt from Federal and Michigan income taxes. The investment objective of each
Fund is a fundamental policy that may not be changed without a vote of a
majority of the Fund's outstanding voting securities.
Each Fund seeks to achieve its investment objective by investing primarily
in a portfolio of Michigan Municipal Bonds. At all times, at least 65% of each
Fund's total assets will be invested in Michigan Municipal Bonds and at least
80% of each Fund's total assets will be invested in Michigan Municipal Bonds and
in other long-term municipal obligations exempt from Federal but not Michigan
income taxes ("Municipal Bonds"), except during interim periods pending
investment of the net proceeds of public offerings of its securities and during
temporary defensive periods. At times, each Fund may seek to hedge its portfolio
through the use of futures and options transactions to reduce volatility in the
net asset value of its shares of Common Stock. Under normal circumstances, at
least 80% of each Fund's total assets will be invested in municipal obligations
with remaining maturities of one year or more that are covered by insurance
guaranteeing the timely payment of principal at maturity and interest.
Ordinarily, none of the Funds intends to realize significant investment
income subject to Federal and Michigan income taxes. To the extent FAM considers
that suitable Michigan Municipal Bonds are not available for investment, the
Funds may purchase Municipal Bonds. Each Fund may invest all or a portion of its
assets in certain tax-exempt securities classified as "private activity bonds"
(in general, bonds that benefit non-governmental entities) that may subject
certain investors in the Fund to a Federal alternative minimum tax.
Each Fund also may invest in securities not issued by or on behalf of a
state or territory or by an agency or instrumentality thereof, if the Fund
nevertheless believes such securities pay interest or distributions that are
exempt from Federal income taxation ("Non-Municipal Tax-Exempt Securities").
Non-Municipal Tax-Exempt Securities may include securities issued by other
investment companies that invest in Michigan Municipal Bonds and Municipal
Bonds, to the extent such investments are permitted by the Investment Company
Act. Other Non-Municipal Tax-Exempt Securities could include trust certificates
or other instruments evidencing interests in one or more long-term Michigan
Municipal Bonds or Municipal Bonds. Certain Non-Municipal Tax-Exempt Securities
may be characterized as derivative instruments. For purposes of a Fund's
investment objective and policies, Non-Municipal Tax-Exempt Securities that pay
interest that is exempt from Federal income taxes and Michigan personal income
taxes will be considered "Michigan
24
<PAGE> 29
Municipal Bonds" and Non-Municipal Tax-Exempt Securities that pay interest that
is exempt from Federal income taxes will be considered "Municipal Bonds."
The Michigan Municipal Bonds and Municipal Bonds in which each Fund invests
will be rated at the date of purchase in the four highest rating categories of
S&P, Moody's or Fitch or, if unrated, are considered to be of comparable quality
by FAM. In the case of long-term debt, the investment grade rating categories
are AAA through BBB for S&P and Fitch and Aaa through Baa for Moody's. In the
case of short-term notes, the investment grade rating categories are SP-1
through SP-2 for S&P, MIG-1 through MIG-3 for Moody's and F-1+ through F-3 for
Fitch. In the case of tax-exempt commercial paper, the investment grade rating
categories are A-1+ through A-3 for S&P, Prime-1 through Prime-3 for Moody's and
F-1+ through F-3 for Fitch. Obligations ranked in the lowest investment grade
rating category (BBB, SP-2 and A-3 for S&P; Baa, MIG-3 and Prime-3 for Moody's;
and BBB and F-3 for Fitch), while considered "investment grade," may have
certain speculative characteristics. There may be sub-categories or graduations
indicating relative standing within the rating categories set forth above. In
assessing the quality of Michigan Municipal Bonds and Municipal Bonds with
respect to the foregoing requirements, FAM takes into account the portfolio
insurance as well as the nature of any letters of credit or similar credit
enhancement to which particular Michigan Municipal Bonds and Municipal Bonds are
entitled and the creditworthiness of the insurance company or financial
institution that provided such insurance or credit enhancements. Consequently,
if Michigan Municipal Bonds or Municipal Bonds are covered by insurance policies
issued by insurers whose claims-paying ability is rated AAA by S&P or Fitch or
Aaa by Moody's, FAM may consider such municipal obligations to be equivalent to
AAA- or Aaa- rated securities, as the case may be, even though such Michigan
Municipal Bonds or Municipal Bonds would generally be assigned a lower rating if
the rating were based primarily upon the credit characteristics of the issuers
without regard to the insurance feature. The insured Michigan Municipal Bonds
and Municipal Bonds must also comply with the standards applied by the insurance
carriers in determining eligibility for portfolio insurance. See Exhibit
IV -- "Ratings of Municipal Bonds and Commercial Paper" and Exhibit
V -- "Portfolio Insurance."
Each of the Funds may invest in variable rate demand obligations ("VRDOs")
and VRDOs in the form of participation interests ("Participating VRDOs") in
variable rate tax-exempt obligations held by a financial institution, typically
a commercial bank. The VRDOs in which each Fund may invest are tax-exempt
obligations, in the opinion of counsel to the issuer, that contain a floating or
variable interest rate adjustment formula and a right of demand on the part of
the holder thereof to receive payment of the unpaid principal balance plus
accrued interest on a short notice period not to exceed seven days.
Participating VRDOs provide each Fund with a specified undivided interest (up to
100%) in the underlying obligation and the right to demand payment of the unpaid
principal balance plus accrued interest on the Participating VRDOs from the
financial institution on a specified number of days' notice, not to exceed seven
days. There is, however, the possibility that because of default or insolvency,
the demand feature of VRDOs or Participating VRDOs may not be honored. Each Fund
has been advised by its counsel that the Fund should be entitled to treat the
income received on Participating VRDOs as interest from tax-exempt obligations
for Federal income tax purposes.
The average maturity of each Fund's portfolio securities varies based upon
FAM's assessment of economic and market conditions. The net asset value of the
shares of common stock of a closed-end investment company, such as each Fund,
which invests primarily in fixed-income securities, changes as the general
levels of interest rates fluctuate. When interest rates decline, the value of a
fixed income portfolio can be expected to rise. Conversely, when interest rates
rise, the value of a fixed income portfolio can be expected to decline. Prices
of longer-term securities generally fluctuate more in response to interest rate
changes than do short-term or medium-term securities. These changes in net asset
value are likely to be greater in the case of a fund having a leveraged capital
structure, such as that used by the Funds. See "Risk Factors and Special
Considerations -- Leverage."
Each Fund intends to invest primarily in long-term Michigan Municipal Bonds
and Municipal Bonds with a maturity of more than ten years. However, each Fund
may also invest in short-term tax-exempt securities, short-term U.S. Government
securities, repurchase agreements or cash. Such short-term securities or cash
will not exceed 20% of each Fund's total assets except during interim periods
pending investment of
25
<PAGE> 30
the net proceeds from public offerings of the Fund's securities or in
anticipation of the repurchase or redemption of the Fund's securities and
temporary periods when, in the opinion of FAM, prevailing market or economic
conditions warrant.
Each Fund is classified as non-diversified within the meaning of the
Investment Company Act, which means that the Fund is not limited by such Act in
the proportion of its total assets that it may invest in securities of a single
issuer. However, each Fund's investments are limited so as to qualify the Fund
for the special tax treatment afforded RICs under the Federal tax laws. To
qualify, among other requirements, each Fund limits its investments so that, at
the close of each quarter of the taxable year, (i) not more than 25% of the
market value of the Fund's total assets will be invested in the securities
(other than U.S. Government securities) of a single issuer, and (ii) with
respect to 50% of the market value of its total assets, not more than 5% of the
market value of its total assets will be invested in the securities (other than
U.S. Government securities) of a single issuer. A fund that elects to be
classified as "diversified" under the Investment Company Act must satisfy the
foregoing 5% requirement with respect to 75% of its total assets. To the extent
that any Fund assumes large positions in the securities of a small number of
issuers, the Fund's yield may fluctuate to a greater extent than that of a
diversified company as a result of changes in the financial condition or in the
market's assessment of the issuers.
PORTFOLIO INSURANCE
Under normal circumstances, at least 80% of the assets of each Fund will be
invested in Michigan Municipal Bonds and Municipal Bonds either (i) insured
under an insurance policy purchased by the Fund, or (ii) insured under an
insurance policy obtained by the issuer thereof or any other party. The Funds
will seek to limit their investments to municipal obligations insured under
insurance policies issued by insurance carriers that have total admitted assets
(unaudited) of at least $75,000,000 and capital and surplus (unaudited) of at
least $50,000,000 and insurance claims-paying ability ratings of AAA from S&P or
Fitch, or Aaa from Moody's. There can be no assurance that insurance from
insurance carriers meeting these criteria will be available. See Exhibit V to
this Proxy Statement and Prospectus for a brief description of insurance claims-
paying ability ratings of S&P, Moody's and Fitch. Currently, it is anticipated
that a majority of the insured Michigan Municipal Bonds and Municipal Bonds in
each Fund's portfolio will be insured by the following insurance companies which
satisfy the foregoing criteria: AMBAC Indemnity Corporation, Financial Guaranty
Insurance Company, Financial Security Assurance and Municipal Bond Investors
Assurance Corporation. Each Fund also may purchase Michigan Municipal Bonds and
Municipal Bonds covered by insurance issued by any other insurance company that
satisfies the foregoing criteria. A majority of insured Michigan Municipal Bonds
and Municipal Bonds held by each Fund will be insured under policies obtained by
parties other than the Fund.
Each Fund may purchase, but has no obligation to purchase, separate
insurance policies (the "Policies") from insurance companies meeting the
criteria set forth above that guarantee payment of principal and interest on
specified eligible Michigan Municipal Bonds and Municipal Bonds purchased by the
Funds. A Michigan Municipal Bond or Municipal Bond will be eligible for coverage
if it meets certain requirements of the insurance company set forth in a Policy.
In the event interest or principal of an insured Michigan Municipal Bond or
Municipal Bond is not paid when due, the insurer will be obligated under its
Policy to make such payment not later than 30 days after it has been notified
by, and provided with documentation from, the Fund that such nonpayment has
occurred.
The Policies will be effective only as to insured Michigan Municipal Bonds
and Municipal Bonds beneficially owned by a Fund. In the event of a sale of any
Michigan Municipal Bonds and Municipal Bonds held by a Fund, the issuer of the
relevant Policy will be liable only for those payments of interest and principal
that are then due and owing. The Policies will not guarantee the market value of
an insured Michigan Municipal Bond or Municipal Bond or the value of the shares
of a Fund.
The insurer will not have the right to withdraw coverage on securities
insured by its Policies and held by a Fund so long as such securities remain in
the Fund's portfolio. In addition, the insurer may not cancel its Policies for
any reason except failure to pay premiums when due. The Board of Directors of
each Fund
26
<PAGE> 31
reserves the right to terminate any of the Policies if it determines that the
benefits to the Fund of having its portfolio insured under such Policy are not
justified by the expense involved.
The premiums for the Policies are paid by the Fund and the yield on its
portfolio is reduced thereby. FAM estimates that the cost of the annual premiums
for the Policies of each Fund currently range from approximately .02 of 1% to
.15 of 1% of the principal amount of the Michigan Municipal Bonds and Municipal
Bonds covered by such Policies. The estimate is based on the expected
composition of each Fund's portfolio of Michigan Municipal Bonds and Municipal
Bonds. Additional information regarding the Policies is set forth in Exhibit V
to this Proxy Statement and Prospectus. In instances in which a Fund purchases
Michigan Municipal Bonds and Municipal Bonds insured under policies obtained by
parties other than the Fund, the Fund does not pay the premiums for such
policies; rather, the cost of such policies may be reflected in the purchase
price of the Michigan Municipal Bonds and Municipal Bonds.
It is the intention of FAM to retain any insured securities that are in
default or in significant risk of default and to place a value on the insurance,
which ordinarily will be the difference between the market value of the
defaulted security and the market value of similar securities which are not in
default. In certain circumstances, however, FAM may determine that an alternate
value for the insurance, such as the difference between the market value of the
defaulted security and its par value, is more appropriate. FAM's ability to
manage the portfolio of a Fund may be limited to the extent it holds defaulted
securities, which may limit its ability in certain circumstances to purchase
other Michigan Municipal Bonds and Municipal Bonds. See "Net Asset Value" below
for a more complete description of each Fund's method of valuing securities for
which market quotations are not generally available.
There can be no assurance that insurance with the terms and issued by
insurance carriers meeting the criteria described above will continue to be
available to each Fund. In the event the Board of Directors of a Fund determines
that such insurance is unavailable or that the cost of such insurance outweighs
the benefits to the Fund, the Fund may modify the criteria for insurance
carriers or the terms of the insurance, or may discontinue its policy of
maintaining insurance for all or any of the Michigan Municipal Bonds and
Municipal Bonds held in the Fund's portfolio. Although FAM periodically reviews
the financial condition of each insurer, there can be no assurance that the
insurers will be able to honor their obligations under all circumstances.
The portfolio insurance reduces financial or credit risk (i.e., the
possibility that the owners of the insured Michigan Municipal Bonds or Municipal
Bonds will not receive timely scheduled payments of principal or interest).
However, the insured Michigan Municipal Bonds or Municipal Bonds are subject to
market risk (i.e., fluctuations in market value as a result of changes in
prevailing interest rates).
DESCRIPTION OF MICHIGAN MUNICIPAL BONDS AND MUNICIPAL BONDS
Michigan Municipal Bonds and Municipal Bonds include debt obligations
issued to obtain funds for various public purposes, including construction of a
wide range of public facilities, refunding of outstanding obligations and
obtaining funds for general operating expenses and loans to other public
institutions and facilities. In addition, certain types of private activity
bonds ("PABs") are issued by or on behalf of public authorities to finance
various privately operated facilities, including, among other things, airports,
public ports, mass commuting facilities and multi-family housing projects, as
well as facilities for water supply, gas, electricity, sewage or solid waste
disposal. For purposes of this Proxy Statement and Prospectus, such obligations
are considered Municipal Bonds if the interest paid thereon is exempt from
Federal income tax and are Michigan Municipal Bonds if the interest thereon is
exempt from Federal and Michigan income tax, even though such bonds may be
industrial development bonds or PABs as discussed below. Also, for purposes of
this Proxy Statement and Prospectus, Non-Municipal Tax-Exempt Securities as
discussed above will be considered Michigan Municipal Bonds or Municipal Bonds.
The two principal classifications of Michigan Municipal Bonds and Municipal
Bonds are "general obligation" bonds and "revenue" bonds, which latter category
includes PABs and, for bonds issued on or before August 15, 1986, industrial
development bonds or IDBs. General obligation bonds are secured by the issuer's
pledge of faith, credit and taxing power for the repayment of principal and the
payment of interest. Revenue or special obligation bonds are payable only from
the revenues derived from a particular facility or class of facilities or, in
some cases, from the proceeds of a special excise tax or other specific revenue
source
27
<PAGE> 32
such as from the user of the facility being financed. PABs are in most cases
revenue bonds and do not generally constitute the pledge of the credit or taxing
power of the issuer of such bonds. The repayment of the principal and the
payment of interest on such IDBs 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. Michigan Municipal Bonds and Municipal Bonds may also include "moral
obligation" bonds, which are normally issued by special purpose public
authorities. If an issuer of moral obligation bonds is unable to meet its
obligations, the repayment of such bonds becomes a moral commitment but not a
legal obligation of the state or municipality in question.
Each Fund may purchase Michigan Municipal Bonds and Municipal Bonds
classified as PABs. Interest received on certain PABs is treated as an item of
"tax preference" for purposes of the Federal alternative minimum tax and may
impact the overall tax liability of investors in the Fund. There is no
limitation on the percentage of each Fund's assets that may be invested in
Michigan Municipal Bonds and Municipal Bonds the interest on which is treated as
an item of "tax preference" for purposes of the Federal alternative minimum tax.
See "Comparison of the Funds -- Tax Rules Applicable to the Funds and their
Stockholders."
Also included within the general category of Michigan Municipal Bonds and
Municipal Bonds are certificates of participation ("COPs") executed and
delivered for the benefit of government authorities or entities to finance the
acquisition or construction of equipment, land and/or facilities. COPs represent
participations in a lease, an installment purchase contract or a conditional
sales contract (hereinafter collectively referred to as "lease obligations")
relating to such equipment, land or facilities. Although lease obligations do
not constitute general obligations of the issuer for which the issuer's
unlimited taxing power is pledged, a lease obligation frequently is backed by
the issuer's covenant to budget for, appropriate and make the payments due under
the lease obligation. However, certain lease obligations contain
"non-appropriation" clauses, which provide that the issuer has no obligation to
make lease or installment purchase payments in future years unless money is
appropriated for such purpose on a yearly basis. Although "non-appropriation"
lease obligations are secured by the lease property, disposition of the property
in the event of foreclosure might prove difficult.
Federal tax legislation has limited and may continue to limit the types and
volume of bonds the interest on which is excludable from income for Federal
income tax purposes. As a result, this legislation and legislation that may be
enacted in the future may affect the availability of Michigan Municipal Bonds
and Municipal Bonds for investment by the Funds.
SPECIAL CONSIDERATIONS RELATING TO MICHIGAN MUNICIPAL BONDS
Each Fund ordinarily will invest at least 65% of its total assets in
Michigan Municipal Bonds, and therefore each is more susceptible to factors
adversely affecting issuers of Michigan Municipal Bonds than is a municipal bond
fund that is not concentrated in issuers of Michigan Municipal Bonds to this
degree. The State of Michigan reports its financial results in accordance with
generally accepted accounting principles. Michigan reported the General Fund in
balance as of September 30, 1998. The Michigan Budget and Economic Stabilization
Fund had an unreserved accrued balance of $1,000.5 million. Michigan has
reported balanced budgets and year-end General Fund surpluses for six of the
last seven fiscal years. Economically, Michigan remains closely tied to the
economic cycles of the automobile industry. Current increased automobile
production and an increasingly diversified economy have led to an unemployment
rate which, for the last three years has been below the national average.
Currently, Michigan's general obligation bonds are rated Aa1 by Moody's, AA+ by
S&P and AA+ by Fitch. FAM does not believe that the current economic conditions
in Michigan will have a significant adverse effect on the ability of the Funds
to invest in high quality Michigan Municipal Bonds. For a discussion of economic
and other conditions in the State of Michigan, see Exhibit III-Economic and
Other Conditions in Michigan.
OTHER INVESTMENT POLICIES
The Funds have adopted certain other policies as set forth below:
Borrowings. Each Fund is authorized to borrow amounts of up to 5% of the
value of its total assets at the time of such borrowings; provided, however,
that each Fund is authorized to borrow moneys in amounts of
28
<PAGE> 33
up to 33 1/3% of the value of its total assets at the time of such borrowings to
finance the repurchase of its own common stock pursuant to tender offers or
otherwise to redeem or repurchase shares of preferred stock or for temporary,
extraordinary or emergency purposes. Borrowings by each Fund (commonly known, as
with the issuance of preferred stock, as "leveraging") create an opportunity for
greater total return since the Fund will not be required to sell portfolio
securities to repurchase or redeem shares but, at the same time, increase
exposure to capital risk. In addition, borrowed funds are subject to interest
costs that may offset or exceed the return earned on the borrowed funds.
When-Issued Securities and Delayed Delivery Transactions. Each Fund may
purchase or sell Michigan Municipal Bonds and Municipal Bonds on a delayed
delivery basis or on a when-issued basis at fixed purchase or sale terms. These
transactions arise when securities are purchased or sold by a Fund with payment
and delivery taking place in the future. The purchase will be recorded on the
date that the Fund enters into the commitment, and the value of the obligation
thereafter will be reflected in the calculation of the Fund's net asset value.
The value of the obligation on the delivery day may be more or less than its
purchase price. A separate account of the Fund will be established with its
custodian consisting of cash, cash equivalents or liquid securities having a
market value at all times at least equal to the amount of the commitment.
Indexed and Inverse Floating Obligations. Each Fund may invest in Michigan
Municipal Bonds and Municipal Bonds yielding a return based on a particular
index of value or interest rates. For example, each Fund may invest in Michigan
Municipal Bonds and Municipal Bonds that pay interest based on an index of
Municipal Bond interest rates. The principal amount payable upon maturity of
certain Michigan Municipal Bonds and Municipal Bonds also may be based on the
value of an index. To the extent a Fund invests in these types of Municipal
Bonds, the Fund's return on such Michigan Municipal Bonds and Municipal Bonds
will be subject to risk with respect to the value of the particular index. Also,
a Fund may invest in so-called "inverse floating obligations" or "residual
interest bonds" on which the interest rates typically vary inversely with a
short-term floating rate (which may be reset periodically by a dutch auction, a
remarketing agent, or by reference to a short-term tax-exempt interest rate
index). Each Fund may purchase synthetically-created inverse floating
obligations evidenced by custodial or trust receipts. Generally, income on
inverse floating obligations will decrease when short-term rates increase, and
will increase when short-term rates decrease. Such securities have the effect of
providing a degree of investment leverage, since they may increase or decrease
in value in response to changes, as an illustration, in market interest rates at
a rate that is a multiple (typically two) of the rate at which fixed-rate,
long-term, tax-exempt securities increase or decrease in response to such
changes. As a result, the market values of such securities generally will be
more volatile than the market values of fixed-rate tax-exempt securities. To
seek to limit the volatility of these securities, a Fund may purchase inverse
floating obligations with shorter-term maturities or limitations on the extent
to which the interest rate may vary. FAM believes that indexed and inverse
floating obligations represent a flexible portfolio management instrument for
the Funds that allows FAM to vary the degree of investment leverage relatively
efficiently under different market conditions.
Call Rights. Each of the Funds may purchase a Michigan Municipal Bond or
Municipal Bond issuer's rights to call all or a portion of such Michigan
Municipal Bond or Municipal Bond for mandatory tender for purchase (a "Call
Right"). A holder of a Call Right may exercise such right to require a mandatory
tender for the purchase of related Michigan Municipal Bonds or Municipal Bonds,
subject to certain conditions. A Call Right that is not exercised prior to the
maturity of the related Michigan Municipal Bond or Municipal Bond will expire
without value. The economic effect of holding both the Call Right and the
related Michigan Municipal Bond or Municipal Bond is identical to holding a
Michigan Municipal Bond or Municipal Bond as a non-callable security.
Repurchase Agreements. The Funds may invest in securities pursuant to
repurchase agreements. Repurchase agreements may be entered into only with a
member bank of the Federal Reserve System or a primary dealer in U.S. government
securities or an affiliate thereof. Under such agreements, the seller agrees,
upon entering into the contract, to repurchase the security at a mutually
agreed-upon time and price, thereby determining the yield during the term of the
agreement. The Funds may not invest in repurchase agreements maturing in more
than seven days if such investments, together with all other illiquid
investments, would exceed 15% of the Fund's net assets. In the event of default
by the seller under a repurchase agreement, the
29
<PAGE> 34
Funds may suffer time delays and incur costs or possible losses in connection
with the disposition of the underlying securities.
In general, for Federal income tax purposes, repurchase agreements are
treated as collateralized loans secured by the securities "sold." Therefore,
amounts earned under such agreements will not be considered tax-exempt interest.
INFORMATION REGARDING OPTIONS AND FUTURES TRANSACTIONS
Each Fund may hedge all or a portion of its portfolio investments against
fluctuations in interest rates through the use of options and certain financial
futures contracts and options thereon. While each Fund's use of hedging
strategies is intended to reduce the volatility of the net asset value of the
common stock, the net asset value of the common stock will fluctuate. There can
be no assurance that a Fund's hedging transactions will be effective. In
addition, because of the leveraged nature of the Common Stock, hedging
transactions will result in a larger impact on the net asset value of the Common
Stock than would be the case if the Common Stock were not leveraged.
Furthermore, a Fund may only engage in hedging activities from time to time and
may not necessarily be engaging in hedging activities when movements in interest
rates occur. No Fund has an obligation to enter into hedging transactions and
each may choose not to do so.
Certain Federal income tax requirements may limit a Fund's ability to
engage in hedging transactions. Gains from transactions in options and futures
contracts distributed to stockholders will be taxable as ordinary income or, in
certain circumstances, as long-term capital gains to stockholders. See
"Comparison of the Funds -- Tax Rules Applicable to the Funds and their
Stockholders -- Tax Treatment of Options and Futures Transactions." In addition,
in order to obtain ratings of the AMPS from one or more NRSROs, a Fund may be
required to limit its use of hedging techniques in accordance with the specified
guidelines of such rating organizations. See "Rating Agency Guidelines" below.
The following is a description of the options and futures transactions in
which each Fund may engage, limitations on the Fund's use of such transactions
and risks associated with these transactions. The investment policies with
respect to the hedging transactions of a Fund are not fundamental policies and
may be modified by the Board of Directors of the Fund without the approval of
the Fund's stockholders.
Writing Covered Call Options. Each Fund is authorized to write (i.e.,
sell) covered call options with respect to Michigan Municipal Bonds and
Municipal Bonds it owns, thereby giving the holder of the option the right to
buy the underlying security covered by the option from the Fund at the stated
exercise price until the option expires. Each Fund writes only covered call
options, which means that so long as the Fund is obligated as the writer of a
call option, it will own the underlying securities subject to the option. The
Fund may not write covered call options on underlying securities in an amount
exceeding 15% of the market value of its total assets.
Each Fund receives a premium from writing a call option, which increases
the Fund's return on the underlying security in the event the option expires
unexercised or is closed out at a profit. By writing a call, a Fund limits its
opportunity to profit from an increase in the market value of the underlying
security above the exercise price of the option for as long as the Fund's
obligation as a writer continues. Covered call options serve as a partial hedge
against a decline in the price of the underlying security. Each Fund may engage
in closing transactions in order to terminate outstanding options that it has
written.
Purchase of Options. Each Fund may purchase put options in connection with
its hedging activities. By buying a put, the Fund has a right to sell the
underlying security at the exercise price, thus limiting its risk of loss
through a decline in the market value of the security until the put expires. The
amount of any appreciation in the value of the underlying security will be
partially offset by the amount of the premium paid for the put option and any
related transaction costs. Prior to its expiration, a put option may be sold in
a closing sale transaction; profit or loss from the sale will depend on whether
the amount received is more or less than the premium paid for the put option
plus the related transaction costs. A closing sale transaction cancels out the
Fund's position as the purchaser of an option by means of an offsetting sale of
an identical option prior to the expiration of the option it has purchased. In
certain circumstances, the Fund may purchase call options on securities held in
its portfolio on which it has written call options, or on securities which it
intends to purchase. A Fund will not purchase options on securities if, as a
result of such purchase, the aggregate cost of all
30
<PAGE> 35
outstanding options on securities held by the Fund would exceed 5% of the market
value of the Fund's total assets.
Financial Futures Contracts and Options. Each Fund is authorized to
purchase and sell certain financial futures contracts and options thereon solely
for the purposes of hedging its investments in Michigan Municipal Bonds and
Municipal Bonds against declines in value and hedging against increases in the
cost of securities it intends to purchase. A financial futures contract
obligates the seller of a contract to deliver and the purchaser of a contract to
take delivery of the type of financial instrument covered by the contract or, in
the case of index-based financial futures contracts, to make and accept a cash
settlement, at a specific future time for a specified price. A sale of financial
futures contracts may provide a hedge against a decline in the value of
portfolio securities because such depreciation may be offset, in whole or in
part, by an increase in the value of the position in the financial futures
contracts or options. A purchase of financial futures contracts may provide a
hedge against an increase in the cost of securities intended to be purchased,
because such appreciation may be offset, in whole or in part, by an increase in
the value of the position in the financial futures contracts.
The purchase or sale of a financial futures contract differs from the
purchase or sale of a security in that no price or premium is paid or received.
Instead, an amount of cash or securities acceptable to the broker equal to
approximately 5% of the contract amount must be deposited with the broker. This
amount is known as initial margin. Subsequent payments to and from the broker,
called variation margin, are made on a daily basis as the price of the financial
futures contract fluctuates making the long and short positions in the financial
futures contract more or less valuable.
Each Fund may purchase and sell financial futures contracts based on The
Bond Buyer Municipal Bond Index, a price-weighted measure of the market value of
40 large tax-exempt issues, and purchase and sell put and call options on such
financial futures contracts for the purpose of hedging Michigan Municipal Bonds
and Municipal Bonds that the Fund holds or anticipates purchasing against
adverse changes in interest rates. Each Fund also may purchase and sell
financial futures contracts on U.S. Government securities and purchase and sell
put and call options on such financial futures contracts for such hedging
purposes. With respect to U.S. Government securities, currently there are
financial futures contracts based on long-term U.S. Treasury bonds, U.S.
Treasury notes, GNMA Certificates and three-month U.S. Treasury bills.
Subject to policies adopted by its Board of Directors, each Fund also may
engage in transactions in other financial futures contracts, such as financial
futures contracts on other municipal bond indices that may become available, if
FAM should determine that there is normally sufficient correlation between the
prices of such financial futures contracts and the Michigan Municipal Bonds and
Municipal Bonds in which the Fund invests to make such hedging appropriate.
Over-The-Counter Options. Each Fund may engage in options and futures
transactions on exchanges and in the over-the-counter markets ("OTC options").
In general, exchange-traded contracts are third-party contracts (i.e.,
performance of the parties' obligations is guaranteed by an exchange or clearing
corporation) with standardized strike prices and expiration dates. OTC option
transactions are two-party contracts with price and terms negotiated by the
buyer and seller.
Restrictions on OTC Options. Each Fund will engage in transactions in OTC
options only with banks or dealers that have capital of at least $50 million or
whose obligations are guaranteed by an entity having capital of at least $50
million. Certain OTC options and assets used to cover OTC options written by the
Funds are considered to be illiquid. The illiquidity of such options or assets
may prevent a successful sale of such options or assets, result in a delay of
sale, or reduce the amount of proceeds that otherwise might be realized.
Risk Factors in Financial Futures Contracts and Options Thereon. Use of
futures transactions involves the risk of imperfect correlation in movements in
the price of financial futures contracts and movements in the price of the
security that is the subject of the hedge. If the price of the financial futures
contract moves more or less than the price of the security that is the subject
of the hedge, a Fund will experience a gain or loss that will not be completely
offset by movements in the price of such security. There is a risk of imperfect
correlation where the securities underlying financial futures contracts have
different maturities, ratings, geographic compositions or other characteristics
different from those of the security being hedged. In addition, the correlation
may be affected by additions to or deletions from the index that serves as a
basis for a financial
31
<PAGE> 36
futures contract. Finally, in the case of financial futures contracts on U.S.
Government securities and options on such financial futures contracts, the
anticipated correlation of price movements between the U.S. Government
securities underlying the futures or options and Michigan Municipal Bonds and
Municipal Bonds may be adversely affected by economic, political, legislative or
other developments which have a disparate impact on the respective markets for
such securities.
Under regulations of the Commodity Futures Trading Commission, the futures
trading activities described herein will not result in a Fund being deemed a
"commodity pool," as defined under such regulations, provided that the Fund
adheres to certain restrictions. In particular, the Fund may purchase and sell
financial futures contracts and options thereon (i) for bona fide hedging
purposes, without regard to the percentage of the Fund's assets committed to
margin and option premiums, and (ii) for non-hedging purposes, if, immediately
thereafter the sum of the amount of initial margin deposits on the Fund's
existing futures positions and option premiums entered into for non-hedging
purposes do not exceed 5% of the market value of the liquidation value of the
Fund's portfolio, after taking into account unrealized profits and unrealized
losses on any such transactions. Margin deposits may consist of cash or
securities acceptable to the broker and the relevant contract market.
When a Fund purchases a financial futures contract, or writes a put option
or purchases a call option thereon, it will maintain an amount of cash, cash
equivalents (e.g., commercial paper and daily tender adjustable notes) or liquid
securities in a segregated account with the Fund's custodian, so that the amount
so segregated plus the amount of initial and variation margin held in the
account of its broker equals the market value of the financial futures contract,
thereby ensuring that the use of such financial futures contract is unleveraged.
Although certain risks are involved in options and futures transactions,
FAM believes that, because each Fund will engage in options and futures
transactions only for hedging purposes, the options and futures portfolio
strategies of a Fund will not subject the Fund to the risks associated with
speculation in options and futures transactions.
The volume of trading in the exchange markets with respect to Michigan
Municipal Bonds or Municipal Bond options may be limited, and it is impossible
to predict the amount of trading interest that may exist in such options. In
addition, there can be no assurance that viable exchange markets will continue
to be available.
Each Fund intends to enter into options and futures transactions, on an
exchange or in the over-the-counter market, only if there appears to be a liquid
secondary market for such options or futures. There can be no assurance,
however, that a liquid secondary market will exist at any specific time. Thus,
it may not be possible to close an option or futures transaction. The inability
to close options and futures positions also could have an adverse impact on a
Fund's ability to hedge effectively its portfolio. There is also the risk of
loss by a Fund of margin deposits or collateral in the event of bankruptcy of a
broker with which the Fund has an open position in an option or financial
futures contract.
The liquidity of a secondary market in a financial futures contract may be
adversely affected by "daily price fluctuation limits" established by commodity
exchanges that limit the amount of fluctuation in a financial futures contract
price during a single trading day. Once the daily limit has been reached in the
contract, no trades may be entered into at a price beyond the limit, thus
preventing the liquidation of open futures positions. Prices have in the past
reached or exceeded the daily limit on a number of consecutive trading days.
If it is not possible to close a financial futures position entered into by
a Fund, the Fund would continue to be required to make daily cash payments of
variation margin in the event of adverse price movements. In such a situation,
if the Fund has insufficient cash, it may have to sell portfolio securities to
meet daily variation margin requirements at a time when it may be
disadvantageous to do so.
The successful use of these transactions also depends on the ability of FAM
to forecast correctly the direction and extent of interest rate movements within
a given time frame. To the extent these rates remain stable during the period in
which a financial futures contract is held by a Fund or move in a direction
opposite to that anticipated, the Fund may realize a loss on the hedging
transaction that is not fully or partially offset by an increase in the value of
portfolio securities. As a result, the Fund's total return for such period may
be less
32
<PAGE> 37
than if it had not engaged in the hedging transaction. Furthermore, the Fund
will only engage in hedging transactions from time to time and may not
necessarily be engaging in hedging transactions when movements in interest rates
occur.
INVESTMENT RESTRICTIONS
The Funds have substantially similar investment restrictions. Following the
Reorganization the investment restrictions of MuniYield Michigan will apply. The
following are fundamental investment restrictions of MuniYield Michigan 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, for the Common
Stock and AMPS voting together as a single class, "majority" means the lesser of
(i) 67% of the shares of each class of capital stock represented at a meeting at
which more than 50% of the outstanding shares of each class of capital stock are
represented or (ii) more than 50% of the outstanding shares of each class of
capital stock, but for the AMPS voting separately as a single class, "majority"
means more than 50% of the outstanding AMPS.) No Fund may:
1. Make investments for the purpose of exercising control or
management.
2. Purchase securities of other investment companies, except in
connection with a merger, consolidation, acquisition or reorganization, or
by purchase in the open market of securities of closed-end investment
companies and only if immediately thereafter not more than 10% of the
Fund's total assets would be invested in such securities.
3. Purchase or sell real estate, real estate limited partnerships,
commodities or commodity contracts; provided, that the Fund may invest in
securities secured by real estate or interests therein or issued by
companies that invest in real estate or interests therein, and the Fund may
purchase and sell financial futures contracts and options thereon.
4. Issue senior securities other than preferred stock or borrow
amounts in excess of 5% of its total assets taken at market value;
provided, however, that the Fund is authorized to borrow moneys in excess
of 5% of the value of its total assets for the purpose of repurchasing
shares of Common Stock or redeeming shares of preferred stock.
5. Underwrite securities of other issuers except insofar as the Fund
may be deemed an underwriter under the Securities Act of 1933 (the
"Securities Act") in selling portfolio securities.
6. Make loans to other persons, except that the Fund may purchase
Michigan Municipal Bonds, Municipal Bonds and other debt securities in
accordance with its investment objective, policies and limitations.
7. Purchase any securities on margin, except that the Fund may obtain
such short-term credit as may be necessary for the clearance of purchases
and sales of portfolio securities (the deposit or payment by the Fund of
initial or variation margin in connection with financial futures contracts
and options thereon is not considered the purchase of a security on
margin).
8. Make short sales of securities or maintain a short position or
invest in put, call, straddle or spread options, except that the Fund may
write, purchase and sell options and futures on Michigan Municipal Bonds,
Municipal Bonds, U.S. Government obligations and related indices or
otherwise in connection with bona fide hedging activities.
9. Invest more than 25% of its total assets (taken at market value at
the time of each investment) in securities of issuers in a single industry;
provided, that for purposes of this restriction, states, municipalities and
their political subdivisions are not considered to be part of any industry.
For the purposes of restriction (9), the exception for states,
municipalities and their political subdivisions applies only to tax-exempt
securities issued by such entities.
An additional investment restriction adopted by MuniYield Michigan which
may be changed by the Board of Directors, provides that the Fund may not
mortgage, pledge, hypothecate or in any manner transfer,
33
<PAGE> 38
as security for indebtedness, any securities owned or held by the Fund except as
may be necessary in connection with borrowings mentioned in (4) above or except
as may be necessary in connection with transactions in financial futures
contracts and options thereon.
If a percentage restriction on the investment or use of assets set forth
above is adhered to at the time a transaction is effected, later changes in
percentages resulting from changing values will not be considered a violation.
For so long as shares of AMPS are rated by Moody's, MuniYield Michigan will
not change these additional investment restrictions unless it receives written
confirmation from Moody's that engaging in such transactions would not impair
the rating then assigned to the shares of AMPS by Moody's.
FAM and Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill
Lynch") are owned and controlled by Merrill Lynch & Co., Inc. ("ML & Co.").
Because of the affiliation of Merrill Lynch with FAM, each Fund is prohibited
from engaging in certain transactions involving Merrill Lynch except pursuant to
an exemptive order or otherwise in compliance with the provisions of the
Investment Company Act and the rules and regulations thereunder. Included among
such restricted transactions will be purchases from or sales to Merrill Lynch of
securities in transactions in which it acts as principal. An exemptive order has
been obtained that permits the Funds to effect principal transactions with
Merrill Lynch in high quality, short-term, tax-exempt securities subject to
conditions set forth in such order. The Funds may consider in the future
requesting an order permitting other principal transactions with Merrill Lynch,
but there can be no assurance that such application will be made and, if made,
that such order would be granted.
RATING AGENCY GUIDELINES
Each Fund intends that, so long as shares of its AMPS are outstanding, the
composition of its portfolio will reflect guidelines established by Moody's and
S&P in connection with the Fund's receipt of a rating for such shares on or
prior to their date of original issue of at least "aa1" from Moody's and AAA
from S&P. It is anticipated that each series of MuniYield Michigan will be rated
"aaa" by Moody's and AAA by S&P following the reorganization. Moody's and S&P,
which are nationally recognized statistical rating organizations, issue ratings
for various securities reflecting the perceived creditworthiness of such
securities. The guidelines for rating AMPS have been developed by Moody's and
S&P in connection with issuances of asset-backed and similar securities,
including debt obligations and variable rate preferred stock, generally on a
case-by-case basis through discussions with the issuers of these securities. The
guidelines are designed to ensure that assets underlying outstanding debt or
preferred stock will be varied sufficiently and will be of sufficient quality
and amount to justify investment grade ratings. The guidelines do not have the
force of law but have been adopted by each Fund in order to satisfy current
requirements necessary for Moody's and S&P to issue the above-described ratings
for shares of AMPS, which ratings generally are relied upon by institutional
investors in purchasing such securities. The guidelines provide a set of tests
for portfolio composition and asset coverage that supplement (and in some cases
are more restrictive than) the applicable requirements under the Investment
Company Act.
Each Fund may, but is not required to, adopt any modifications to these
guidelines that hereafter may be established by Moody's or S&P. Failure to adopt
any such modifications, however, may result in a change in the ratings described
above or a withdrawal of the ratings altogether. In addition, any rating agency
providing a rating for the shares of AMPS, at any time, may change or withdraw
any such rating. As set forth in the Articles Supplementary of each Fund, the
Board of Directors, without stockholder approval, may modify certain definitions
or restrictions that have been adopted by the Fund pursuant to the rating agency
guidelines, provided the Board of Directors has obtained written confirmation
from Moody's and S&P that any such change would not impair the ratings then
assigned by Moody's and S&P to the AMPS. See "The Reorganization -- Risk Factors
and Special Considerations -- Ratings Considerations."
For so long as any shares of a Fund's AMPS are rated by Moody's or S&P, as
the case may be, a Fund's use of options and financial futures contracts and
options thereon will be subject to certain limitations mandated by the rating
agencies.
34
<PAGE> 39
PORTFOLIO COMPOSITION
There are small differences in concentration among the categories of
issuers of the Michigan Municipal Bonds and Municipal Bonds held in the
portfolios of the Funds. For MuniYield Michigan, as of August 31, 1999, the
highest concentration of Michigan Municipal Bonds and Municipal Bonds was in
General Obligation Bonds, Industrial Revenue/Pollution Control Bonds, and
Hospitals/Healthcare, accounting for 30%, 24%, and 15% of the Fund's portfolio,
respectively; for MuniVest Michigan, the highest concentration was in General
Obligation Bonds, Hospitals/Healthcare, and Education, accounting for 32%, 20%
and 18% of the Fund's portfolio, respectively; and for MuniHoldings Michigan,
the highest concentration was in Education, General Obligation Bonds, and
Hospitals/Healthcare, accounting for 32%, 27% and 19% of the Fund's portfolio,
respectively.
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. The tables below set forth rating
information for the Michigan Municipal Bonds and Municipal Bonds held by each
Fund, as of a certain date.
MuniYield Michigan
As of August 31, 1999, approximately 95% of the market value of MuniYield
Michigan's portfolio was invested in long-term municipal obligations and
approximately 5% of the market value of MuniYield Michigan's portfolio was
invested in short-term municipal obligations. The following table sets forth
certain information with respect to the composition of MuniYield Michigan's
long-term municipal obligation investment portfolio as of August 31, 1999.
<TABLE>
<CAPTION>
NUMBER OF VALUE
S&P* MOODY'S* ISSUES (IN THOUSANDS) PERCENT
- ---- -------- --------- -------------- -------
<S> <C> <C> <C> <C>
AAA Aaa 52 $136,274 90.6%
AA Aa 3 6,233 4.2
A A 1 5,266 3.5
BBB Baa 1 2,584 1.7
-- -------- -----
57 $150,357 100.0%
== ======== =====
</TABLE>
- ---------------
* Ratings: Using the higher of S&P's or Moody's rating on the Fund's municipal
obligations, S&P's rating categories may be modified further by a plus (+) or
minus (-) in AA, A, and BBB ratings. Moody's rating categories may be modified
further by a 1, 2 or 3 in Aa, A and Baa ratings. See Exhibit IV -- "Ratings of
Municipal Bonds and Commercial Paper."
MuniVest Michigan
As of August 31, 1999, approximately 94% of the market value of MuniVest
Michigan's portfolio was invested in long-term municipal obligations and
approximately 6% of the market value of MuniVest Michigan's portfolio was
invested in short-term municipal obligations. The following table sets forth
certain information with respect to the composition of MuniVest Michigan's
long-term municipal obligation investment portfolio as of August 31, 1999.
<TABLE>
<CAPTION>
NUMBER OF VALUE
S&P* MOODY'S* ISSUES (IN THOUSANDS) PERCENT
- ---- -------- --------- -------------- -------
<S> <C> <C> <C> <C>
AAA Aaa 64 $139,865 100.0%
-------- -------- -----
64 $139,865 100.0%
======== ======== =====
</TABLE>
- ---------------
* Ratings: Using the higher of S&P's or Moody's rating on the Fund's municipal
obligations, S&P's rating categories may be modified further by a plus (+) or
minus (-) in AA, A and BBB ratings. Moody's rating categories may be modified
further by a 1, 2 or 3 in Aa, A and Baa ratings. See Exhibit IV -- "Ratings of
Municipal Bonds and Commercial Paper."
35
<PAGE> 40
MuniHoldings Michigan
As of August 31, 1999, approximately 94% of the market value of
MuniHoldings Michigan's portfolio was invested in long-term municipal
obligations and approximately 6% of the market value of MuniHoldings Michigan's
portfolio was invested in short-term municipal obligations. The following table
sets forth certain information with respect to the composition of MuniHoldings
Michigan's long-term municipal obligation investment portfolio as of August 31,
1999.
<TABLE>
<CAPTION>
NUMBER OF VALUE
S&P* MOODY'S* ISSUES (IN THOUSANDS) PERCENT
- ---- -------- --------- -------------- -------
<S> <C> <C> <C> <C>
AAA Aaa 39 $94,975 100.0%
-------- ------- -----
39 $94,975 100.0%
======== ======= =====
</TABLE>
- ---------------
* Ratings: Using the higher of S&P's or Moody's rating on the Fund's municipal
obligations, S&P's rating categories may be modified further by a plus (+) or
minus (-) in AA, A and BBB ratings. Moody's rating categories may be modified
further by a 1, 2 or 3 in Aa, A and Baa ratings. See Exhibit IV -- "Ratings of
Municipal Bonds and Commercial Paper."
PORTFOLIO TRANSACTIONS
The procedures for engaging in portfolio transactions are the same for each
of the Funds. 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, the Funds 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 that provide supplemental investment
research to FAM, including Merrill Lynch, may receive orders for transactions by
a Fund. Information so received will be in addition to, and not in lieu of, the
services required to be performed by FAM under its investment advisory
agreements with the Funds, and the expenses of FAM will not necessarily be
reduced as a result of the receipt of such supplemental information.
Each Fund invests in securities that are primarily traded in the
over-the-counter markets, and each Fund normally deals directly with the dealers
who make markets in the securities involved, except in those circumstances where
better prices and execution are available elsewhere. Under the Investment
Company Act, except as permitted by exemptive order, persons affiliated with a
Fund are prohibited from dealing with the Fund as principals in the purchase and
sale of securities. Since transactions in the over-the-counter markets usually
involve transactions with dealers acting as principals for their own account,
the Funds do not deal with affiliated persons, including Merrill Lynch and its
affiliates, in connection with such transactions, except that, pursuant to an
exemptive order obtained by FAM, a Fund may engage in principal transactions
with Merrill Lynch in high quality, short-term, tax-exempt securities. An
affiliated person of a Fund may serve as its broker in over-the-counter
transactions conducted on an agency basis.
The Funds also may purchase tax-exempt debt instruments in individually
negotiated transactions with the issuers. Because an active trading market may
not exist for such securities, the prices that the Funds may pay for these
securities or receive on their resale may be lower than that for similar
securities with a more liquid market.
The Board of Directors of each Fund has considered the possibility of
recapturing for the benefit of the Funds brokerage commissions, dealer spreads
and other expenses of possible portfolio transactions, such as underwriting
commissions, by conducting portfolio transactions through affiliated entities,
including Merrill Lynch. For example, brokerage commissions received by Merrill
Lynch could be offset against the investment advisory fees paid by the Fund to
FAM. After considering all factors deemed relevant, the Directors of each Fund
made a determination not to seek such recapture. The Directors will reconsider
this matter from time to time.
36
<PAGE> 41
Periodic auctions are conducted for the AMPS of each of the Funds by the
Auction Agent for the Funds. The auctions require the participation of one or
more broker-dealers, each of whom enters into an agreement with the Auction
Agent. After each auction, the Auction Agent pays a service charge, from funds
provided by the issuing Fund, to each broker-dealer at the annual rate of .25%,
calculated on the basis of the purchase price of shares of the relevant AMPS
placed by such broker-dealer at such auction.
PORTFOLIO TURNOVER
Generally, no Fund 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. (The portfolio turnover rate is calculated by dividing
the lesser of purchases or sales of portfolio securities for the particular
fiscal year by the monthly average of the value of the portfolio securities
owned by a Fund during the particular fiscal year. For purposes of determining
this rate, all securities whose maturities at the time of acquisition are one
year or less are excluded.) A high portfolio turnover rate results in greater
transaction costs, which are borne directly by the Fund, and also has certain
tax consequences for stockholders. The portfolio turnover rate for each of the
Funds for the periods indicated is set forth below:
<TABLE>
<CAPTION>
YEAR
SIX MONTHS ENDED OCTOBER 31,
ENDED ------------------
APRIL 30, 1999 1998 1997
-------------- ----- -----
<S> <C> <C> <C>
MuniYield Michigan............................ 22.93% 41.65% 16.68%
MuniVest Michigan............................. 24.64% 48.30% 22.43%
</TABLE>
<TABLE>
<CAPTION>
PERIOD
JANUARY 29,1999+
TO MARCH 31, 1999
(UNAUDITED)
-----------------
<S> <C> <C>
MuniHoldings Michigan.......................... 20.53%
</TABLE>
- ---------------
+ Commencement of operations
NET ASSET VALUE
The net asset value per share of Common Stock of each Fund is determined
after the close of business on the NYSE (generally, 4:00 p.m., Eastern time) on
the last business day in each week. For purposes of determining the net asset
value of a share of Common Stock of each Fund, the value of the securities held
by the Fund plus any cash or other assets (including interest accrued but not
yet received) minus all liabilities (including accrued expenses) and the
aggregate liquidation value of the outstanding shares of AMPS is divided by the
total number of shares of Common Stock outstanding at such time. Expenses,
including the fees payable to FAM, are accrued daily.
The Michigan Municipal Bonds and Municipal Bonds in which each Fund invests
are traded primarily in the over-the-counter markets. In determining net asset
value, each Fund uses the valuations of portfolio securities furnished by a
pricing service approved by its Board of Directors. The pricing service
typically values portfolio securities at the bid price or the yield equivalent
when quotations are readily available. Michigan Municipal Bonds and Municipal
Bonds for which quotations are not readily available are valued at fair market
value on a consistent basis as determined by the pricing service using a matrix
system to determine valuations. The procedures of the pricing service and its
valuations are reviewed by the officers of each Fund under the general
supervision of the Board of Directors of the Fund. The Board of Directors of
each Fund has determined in good faith that the use of a pricing service is a
fair method of determining the valuation of portfolio securities. Positions in
futures contracts are valued at closing prices for such contracts established by
the exchange on which they are traded, or if market quotations are not readily
available, are valued at fair value on a consistent basis using methods
determined in good faith by the Board of Directors of each Fund.
Each Fund determines and makes available for publication the net asset
value of its Common Stock weekly. Currently, the net asset values of shares of
publicly traded closed-end investment companies investing
37
<PAGE> 42
in debt securities are published in Barron's, the Monday edition of The Wall
Street Journal, and the Monday and Saturday editions of The New York Times.
CAPITAL STOCK
Each of the Funds has outstanding both Common Stock and AMPS. The Common
Stock of each of the Funds is traded on the NYSE. The shares of MuniYield
Michigan Common Stock commenced trading on the NYSE on November 4, 1992. As of
September 30, 1999, the net asset value per share of MuniYield Michigan Common
Stock was $14.26 and the market price per share was $12.875. The shares of
MuniVest Michigan Common Stock commenced trading on the NYSE on May 10, 1993. As
of September 30, 1999, the net asset value per share of MuniVest Michigan Common
Stock was $13.07 and the market price per share was $11.6875. The shares of
MuniHoldings Michigan Common Stock commenced trading on the NYSE on February 8,
1999. As of September 30, 1999, the net asset value per share of MuniHoldings
Michigan Common Stock was $12.83 and the market price per share was $11.8125.
Each Fund is authorized to issue 200,000,000 shares of capital stock, all
of which shares initially were classified as Common Stock. The Board of
Directors of each Fund is authorized to classify or reclassify any unissued
shares of capital stock by setting or changing the preferences, conversion or
other rights, voting powers, restrictions, limitations as to dividends,
qualifications, or terms or conditions of redemption. In connection with each
respective Fund's offering of shares of AMPS, MuniYield Michigan reclassified
2,000 shares of unissued capital stock as AMPS, MuniVest Michigan reclassified
2,000 shares of unissued capital stock as AMPS and MuniHoldings Michigan
reclassified 1,600 shares of unissued capital stock as AMPS.
Common Stock
Holders of each Fund's Common Stock are entitled to share equally in
dividends declared by the Fund's Board of Directors payable to holders of the
Common Stock and in the net assets of the Fund available for distribution to
holders of the Common Stock after payment of the preferential amounts payable to
holders of any outstanding preferred stock. See "Voting Rights" and "Liquidation
Rights of Holders of AMPS" below. Holders of a Fund's Common Stock do not have
preemptive or conversion rights and shares of a Fund's Common Stock are not
redeemable. The outstanding shares of Common Stock of each Fund are fully paid
and nonassessable.
So long as any shares of a Fund's AMPS or any other preferred stock are
outstanding, holders of the Fund's Common Stock will not be entitled to receive
any dividends of or other distributions from the Fund unless all accumulated
dividends on outstanding shares of the Fund's AMPS and any other preferred stock
have been paid, and unless asset coverage (as defined in the Investment Company
Act) with respect to such AMPS and any other preferred stock would be at least
200% after giving effect to such distributions.
Preferred Stock
The AMPS of each of the Funds have a similar structure. The AMPS of each
Fund are shares of preferred stock of the Fund that entitle their holders to
receive dividends when, as and if declared by the Board of Directors, out of
funds legally available therefor, at a rate per annum that may vary for the
successive dividend periods. The AMPS of all of the Funds 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 for the
AMPS of each of the Funds, unless the applicable Fund elects, subject to certain
limitations, to declare a special dividend period. The
38
<PAGE> 43
following table provides information about the dividend rates for each series of
AMPS of each of the Funds as of a recent auction.
<TABLE>
<CAPTION>
AUCTION DATE FUND SERIES DIVIDEND RATE
- ---------------- --------------------- ------ -------------
<S> <C> <C> <C>
October 19, 1999 MuniYield Michigan * 3.40%
October 15, 1999 MuniVest Michigan * 2.75%
October 20, 1999 MuniHoldings Michigan A 2.40%
</TABLE>
- ---------------
* No series designation.
Under the Investment Company Act, each Fund is permitted to have
outstanding more than one series of preferred stock as long as no single series
has priority over another series as to the distribution of assets of the Fund or
the payment of dividends. Holders of a Fund's preferred stock do not have
preemptive rights to purchase any shares of AMPS or any other preferred stock
that might be issued. The net asset value per share of a Fund's AMPS equals its
liquidation preference plus accumulated dividends per share.
The redemption provisions pertaining to the AMPS of each Fund are
substantially similar. It is anticipated that shares of AMPS of each Fund will
generally be redeemable at the option of the Fund at a price equal to their
liquidation preference of $25,000 per share plus accumulated but unpaid
dividends (whether or not earned or declared) to the date of redemption plus,
under certain circumstances, a redemption premium. Shares of AMPS will also be
subject to mandatory redemption at a price equal to their liquidation preference
plus accumulated but unpaid dividends (whether or not earned or declared) to the
date of redemption upon the occurrence of certain specified events, such as the
failure of the Fund to maintain the asset coverage for the AMPS specified by
Moody's and S&P in connection with their issuance of ratings on the AMPS.
Certain Provisions of the Charter
Each Fund's Charter includes provisions that could have the effect of
limiting the ability of other entities or persons to acquire control of the Fund
or to change the composition of its Board of Directors and could have the effect
of depriving stockholders of an opportunity to sell their shares at a premium
over prevailing market prices by discouraging a third party from seeking to
obtain control of the Fund. A Director may be removed from office with or
without cause by vote of the holders of at least 66 2/3% of the votes entitled
to be voted on the matter. A Director elected by all of the holders of capital
stock may be removed only by action of such holders, and a Director elected by
the holders of AMPS and any other preferred stock may be removed only by action
of the holders of AMPS and any other preferred stock.
In addition, the Charter of each Fund requires the favorable vote of the
holders of at least 66 2/3% of all of the Fund's shares of capital stock, then
entitled to be voted, voting as a single class, to approve, adopt or authorize
the following:
- a merger or consolidation or statutory share exchange of the Fund with
any other corporation or entity,
- a sale of all or substantially all of the Fund's assets (other than in
the regular course of the Fund's investment activities), or
- a liquidation or dissolution of the Fund,
unless such action has been approved, adopted or authorized by the affirmative
vote of at least two-thirds of the total number of Directors fixed in accordance
with the by-laws, in which case the affirmative vote of a majority of all of the
votes entitled to be cast by stockholders of the Fund, voting as a single class,
is required. Such approval, adoption or authorization of the foregoing also
would require the favorable vote of at least a majority of the Fund's shares of
preferred stock then entitled to be voted thereon, including the AMPS, voting as
a separate class.
In addition, conversion of a Fund to an open-end investment company would
require an amendment to the Fund's Charter. The amendment would have to be
declared advisable by the Board of Directors prior to its submission to
stockholders. Such an amendment would require the affirmative vote of the
holders of at least 66 2/3% of the Fund's outstanding shares of capital stock
(including the AMPS and any other preferred stock)
39
<PAGE> 44
entitled to be voted on the matter, voting as a single class (or a majority of
such shares if the amendment was previously approved, adopted or authorized by
at least two-thirds of the total number of Directors fixed in accordance with
the by-laws), and the affirmative vote of at least a majority of outstanding
shares of preferred stock of a Fund (including the AMPS), voting as a separate
class. Such a vote also would satisfy a separate requirement in the Investment
Company Act that the change be approved by the stockholders. Stockholders of an
open-end investment company may require the company to redeem their shares of
common stock at any time (except in certain circumstances as authorized by or
under the Investment Company Act) at their net asset value, less such redemption
charge, if any, as might be in effect at the time of a redemption. All
redemptions will be made in cash. If the Fund is converted to an open-end
investment company, it could be required to liquidate portfolio securities to
meet requests for redemption and the Common Stock no longer would be listed on a
stock exchange. Conversion to an open-end investment company would also require
redemption of all outstanding shares of preferred stock (including the AMPS) and
would require changes in certain of the Fund's investment policies and
restrictions, such as those relating to the issuance of senior securities, the
borrowing of money and the purchase of illiquid securities.
The Board of Directors of each Fund has determined that the 66 2/3% voting
requirements described above, which are greater than the minimum requirements
under Maryland law or the Investment Company Act, are in the best interests of
stockholders generally. Reference should be made to the Charter of each Fund on
file with the SEC for the full text of these provisions.
MANAGEMENT OF THE FUNDS
Directors and Officers. The Boards of Directors of MuniYield Michigan and
MuniVest Michigan currently consist of the same eight persons, six of whom are
not "interested persons," as defined in the Investment Company Act, of any of
those Funds. The Board of Directors of MuniHoldings Michigan currently consists
of seven persons, five of whom are not "interested persons" of MuniHoldings
Michigan. Terry K. Glenn serves as a Director and President of each of the
Funds, and Arthur Zeikel serves as a Director of each of the Funds. The
Directors of each Fund are responsible for the overall supervision of the
operations of the Fund and perform the various duties imposed on the directors
of investment companies by the Investment Company Act and under applicable
Maryland law. The Funds have the same slate of officers with a few exceptions.
For further information regarding the Directors and officers of each Fund. See
"Item 2: Election of Directors" and see Exhibit I -- "Information Pertaining to
Each Fund."
Fred K. Stuebe and Robert A. DiMella serve as the portfolio managers for
MuniHoldings Michigan. Fred K. Stuebe serves as the portfolio manager for
MuniYield Michigan and MuniVest Michigan. Mr. Stuebe will serve as the portfolio
manager of the combined fund after the Reorganization. The portfolio managers
are primarily responsible for the management of the applicable Fund's portfolio.
Biographical information about Messrs. Stuebe and DiMella, is contained in
Exhibit I -- "Information Pertaining to Each Fund."
Management and Advisory Arrangements. FAM, which is owned and controlled
by ML & Co., serves as the investment adviser for each of the Funds pursuant to
separate investment advisory agreements that, except for their termination
dates, are identical. FAM provides each Fund with the same investment advisory
and management services. The Asset Management Group of ML & Co. (which includes
FAM) acts as the investment adviser to more than 100 registered investment
companies and offers services to individuals and institutional accounts. As of
September 1999, the Asset Management Group had a total of approximately $514
billion in investment company and other portfolio assets under management
(approximately $38.5 billion of which were invested in municipal securities).
This amount includes assets managed for certain affiliates of FAM. FAM is a
limited partnership, the partners of which are ML & Co. and Princeton Services,
Inc. FAM was organized as an investment adviser in 1977 and offers investment
advisory services to more than 50 registered investment companies. The principal
business address of FAM is 800 Scudders Mill Road, Plainsboro, New Jersey 08536.
Each Fund's investment advisory agreement with FAM provides that, subject
to the supervision of the Board of Directors of the Fund, FAM is responsible for
the actual management of the Fund's portfolio. The responsibility for making
decisions to buy, sell or hold a particular security for each Fund rests with
FAM, subject to review by the Board of Directors of the Fund.
40
<PAGE> 45
FAM provides the portfolio management for each of the Funds. Such portfolio
management considers analyses from various sources (including brokerage firms
with which each Fund does business), makes the necessary investment decisions,
and places orders for transactions accordingly. FAM also is responsible for the
performance of certain administrative and management services for each Fund.
For the services provided by FAM under each Fund's investment advisory
agreement, MuniYield Michigan and MuniVest Michigan pay, and after the
Reorganization, the combined fund will pay a monthly fee at an annual rate of
.50% of each Fund's average weekly net assets, and MuniHoldings Michigan pays a
monthly fee at an annual rate of .55% of its average weekly net assets. "Average
weekly net assets" refers to the average weekly value of the total assets of the
Fund, including assets acquired from the sale of preferred stock, minus the sum
of accrued liabilities of the Fund and accumulated dividends on its shares of
preferred stock. For purposes of this calculation, average weekly net assets are
determined at the end of each month on the basis of the average net assets of
the Fund for each week during the month. The assets for each weekly period are
determined by averaging the net assets at the last business day of a week with
the net assets at the last business day of the prior week. For MuniHoldings
Michigan, approval of the Reorganization represents a fee reduction.
Each Fund's investment advisory agreement obligates FAM to provide
investment advisory services and to pay all compensation of and furnish office
space for officers and employees of the Fund connected with investment and
economic research, trading and investment management of the Fund, as well as the
compensation of all Directors of the Fund who are affiliated persons of FAM or
any of its affiliates. Each Fund pays all other expenses incurred in the
operation of the Fund, including, among other things, expenses for legal and
auditing services, taxes, costs of printing proxies, listing fees, stock
certificates and stockholder reports, charges of the custodian and the transfer
agent, dividend disbursing agent and registrar, fees and expenses with respect
to the issuance of AMPS, SEC fees, fees and expenses of unaffiliated Directors,
accounting and pricing costs, insurance, interest, brokerage costs, litigation
and other extraordinary or non-recurring expenses, mailing and other expenses
properly payable by the Fund. FAM provides accounting services to each Fund, and
each Fund reimburses FAM for its respective costs in connection with such
services.
Unless earlier terminated as described below, the investment advisory
agreement between each Fund and FAM will continue from year to year if approved
annually (a) by the Board of Directors of the Fund or by a majority of the
outstanding shares of the Fund's Common Stock and AMPS, voting together as a
single class, and (b) by a majority of the Directors of the Fund who are not
parties to such contract or "interested persons," as defined in the Investment
Company Act, of any such party. The contract is not assignable and it may be
terminated without penalty on 60 days' written notice at the option of either
party thereto or by the vote of the stockholders of the Fund.
Securities held by a Fund may also be held by, or be appropriate
investments for, other funds or investment advisory clients for which FAM or its
affiliates act as an adviser. Because of different objectives or other factors,
a particular security may be bought for an advisory client when other clients
are selling the same security. If purchases or sales of securities by FAM for a
Fund or other funds for which it acts as investment adviser or for advisory
clients arise for consideration at or about the same time, transactions in such
securities will be made, insofar as feasible, for the respective funds and
clients in a manner deemed equitable to all. Transactions effected by FAM (or
its affiliates) on behalf of more than one of its clients during the same period
may increase the demand for securities being purchased or the supply of
securities being sold, causing an adverse effect on price.
CODE OF ETHICS
The Board of Directors of each of the Funds has adopted a Code of Ethics
pursuant to Rule 17j-1 under the Investment Company Act that incorporates the
Code of Ethics of FAM (together, the "Codes"). The Codes significantly restrict
the personal investing activities of all employees of FAM and, as described
below, impose additional, more onerous, restrictions on Fund investment
personnel.
The Codes require that all employees of FAM preclear any personal
securities investment (with limited exceptions, such as U.S. Government
securities). The preclearance requirement and associated procedures are designed
to identify any substantive prohibition or limitation applicable to the proposed
investment. The
41
<PAGE> 46
substantive restrictions applicable to all employees of FAM include a ban on
acquiring any securities in a "hot" initial public offering and a prohibition
from profiting on short-term trading securities. In addition, no employee may
purchase or sell any security that at the time is being purchased or sold (as
the case may be), or to the knowledge of the employee is being considered for
purchase or sale, by any fund advised by FAM. Furthermore, the Codes provide for
trading "blackout periods" that prohibit trading by investment personnel of each
of the Funds within periods of trading by the Fund in the same (or equivalent)
security (15 or 30 days depending upon the transaction).
VOTING RIGHTS
Voting rights are identical for the holders of shares of each Fund's 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.
Voting rights of the holders of each Fund's AMPS are identical. Except as
otherwise indicated below, and except as otherwise required by applicable law,
holders of shares of a Fund's AMPS will be entitled to one vote per share on
each matter submitted to a vote of the Fund's stockholders and will vote
together with the holders of shares of the Fund's Common Stock as a single
class. The shares of each Fund's Common Stock, AMPS and any other preferred
stock do not have cumulative voting rights, which means that the holders of more
than 50% of the shares of a Fund's Common Stock, AMPS and any other preferred
stock voting for the election of Directors can elect all of the Directors
standing for election by such holders, and, in such event, the holders of the
remaining shares of a Fund's Common Stock, AMPS and any other preferred stock
will not be able to elect any of such Directors.
In connection with the election of a Fund's Directors, holders of shares of
a Fund's AMPS, voting separately as a class, shall be entitled at all times to
elect two of the Fund's Directors, and the remaining Directors will be elected
by holders of shares of the Fund's Common Stock and shares of the Fund's AMPS
and any other preferred stock, voting together as a single class. In addition,
if at any time dividends on outstanding shares of a Fund's AMPS shall be unpaid
in an amount equal to at least two full years' dividends thereon or if at any
time holders of any shares of a Fund's preferred stock are entitled, together
with the holders of shares of the Fund's AMPS, to elect a majority of the
Directors of the Fund under the Investment Company Act, then the number of
Directors constituting the Board of Directors automatically shall be increased
by the smallest number that, when added to the two Directors elected exclusively
by the holders of shares of AMPS and any other preferred stock as described
above, would constitute a majority of the Board of Directors as so increased by
such smallest number, and at a special meeting of stockholders which will be
called and held as soon as practicable, and at all subsequent meetings at which
Directors are to be elected, the holders of shares of the Fund's AMPS and any
other preferred stock, voting separately as a class, will be entitled to elect
the smallest number of additional Directors that, together with the two
Directors which such holders in any event will be entitled to elect, constitutes
a majority of the total number of Directors of the Fund as so increased. The
terms of office of the persons who are Directors at the time of that election
will continue. If the Fund thereafter shall pay, or declare and set apart for
payment in full, all dividends payable on all outstanding shares of AMPS and any
other preferred stock for all past dividend periods, the additional voting
rights of the holders of shares of AMPS and any other preferred stock as
described above shall cease, and the terms of office of all of the additional
Directors elected by the holders of shares of AMPS and any other preferred stock
(but not of the Directors with respect to whose election the holders of shares
of Common Stock were entitled to vote or the two Directors the holders of shares
of AMPS and any other preferred stock have the right to elect in any event) will
terminate automatically.
The affirmative vote of the holders of a majority of the outstanding shares
of a Fund's AMPS, voting as a separate class, will be required to (i) authorize,
create or issue any class or series of stock ranking prior to any series of
preferred stock with respect to payment of dividends or the distribution of
assets on liquidation, (ii) amend, alter or repeal the provisions of the
Charter, whether by merger, consolidation or otherwise, so as to adversely
affect any of the contract rights expressly set forth in the Charter of holders
of preferred stock, (iii) approve any plan of reorganization adversely affecting
such AMPS, or (iv) take any action to change a
42
<PAGE> 47
fund's investment policies requiring a vote of stockholders under Section 13(a)
of the Investment Company Act.
STOCKHOLDER INQUIRIES
Stockholder inquiries with respect to any of the Funds may be addressed to
such Fund by telephone at (609) 282-2800 or at the address set forth on the
cover page of this Proxy Statement and Prospectus.
DIVIDENDS AND DISTRIBUTIONS
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 or a portion of its net investment income monthly to holders of a
Fund's Common Stock. Monthly distributions to holders of a Fund's Common Stock
normally consist of all or a portion of its net investment income remaining
after the payment of dividends (and any Additional Distribution) on the Fund's
AMPS. A Fund may at times pay out less than the entire amount of net investment
income earned in any particular period and may at times pay out such accumulated
undistributed income in addition to net investment income earned in other
periods in order to permit the Fund to maintain a more stable level of dividends
to holders of Common Stock. As a result, the dividend paid by a Fund to holders
of its Common Stock for any particular period may be more or less than the
amount of net investment income earned by the Fund during such period. For
Federal tax purposes, the Fund is required to distribute substantially all of
its net investment income for each year. All net realized long-term or
short-term capital gains, if any, are distributed pro rata at least annually to
holders of shares of a Fund's Common Stock and AMPS. While any shares of a
Fund's AMPS are outstanding, the Fund may not declare any cash dividend or other
distribution on the Fund's Common Stock, unless at the time of such declaration
(1) all accumulated dividends on the Fund's AMPS, including any Additional
Distribution, have been paid, and (2) the net asset value of the Fund's
portfolio (determined after deducting the amount of such dividend or other
distribution) is at least 200% of the liquidation value of the Fund's
outstanding shares of AMPS. If a Fund's ability to make distributions on its
Common Stock is limited, such limitation could under certain circumstances
impair the ability of the Fund to maintain its qualification for taxation as a
regulated investment company, which would have adverse tax consequences for
shareholders. See "Comparison of the Funds -- Tax Rules Applicable to the Funds
and their Stockholders."
Similarly, the Funds' current policies with respect to dividends and
distributions on 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 each Fund's AMPS are paid
through The Depository Trust Company ("DTC") (or a successor securities
depository) on each dividend payment date. DTC's normal procedures now provide
for it to distribute dividends in same-day funds to agent members, who in turn
are expected to distribute such dividends to the person for whom they are acting
as agent in accordance with the instructions of such person. Prior to each
dividend payment date, the relevant Fund is required to deposit with the Auction
Agent sufficient funds for the payment of such declared dividends. 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 Michigan Municipal Bonds, are exempt from Federal and Michigan income
taxes, subject to the possible application of the Federal alternative minimum
tax. However, each Fund is required to allocate net capital gains and other
income subject to regular Federal income tax and Michigan income taxes, if any,
proportionately between shares of its Common Stock and shares of its AMPS in
accordance with the current position of the IRS described herein. See
"Comparison of the Funds -- Tax Rules Applicable to the Funds and their
Stockholders" below. Each Fund notifies the Auction Agent of the amount of any
net capital gains or other taxable income to be included in any dividend on
shares of AMPS prior to the auction establishing the applicable rate for such
dividend. The
43
<PAGE> 48
Auction Agent in turn notifies each broker-dealer whenever it receives any such
notice from a Fund, and each broker-dealer then notifies its customers who are
holders of the Fund's AMPS. Each Fund also may include such income in a dividend
on shares of its AMPS without giving advance notice thereof if it increases the
dividend by an additional amount to offset the tax effect thereof. The amount of
taxable income allocable to shares of a Fund's AMPS will depend upon the amount
of such income realized by the Fund and other factors, but generally is not
expected to be significant.
For information concerning the manner in which dividends and distributions
to holders of each Fund's Common Stock may be reinvested automatically in shares
of the Fund's Common Stock, see "Automatic Dividend Reinvestment Plan" below.
Dividends and distributions will be subject to tax treatment discussed below,
whether they are reinvested in shares of a Fund or received in cash.
If any Fund retroactively allocates any net capital gains or other income
subject to regular Federal and Michigan income taxes to shares of its AMPS
without having given advance notice thereof as described above, which only may
happen when such allocation is made as a result of the redemption of all or a
portion of the outstanding shares of its AMPS or the liquidation of the Fund,
the Fund will make certain payments to holders of shares of its AMPS to which
such allocation was made to offset substantially the tax effect thereof. In no
other instances will the Fund be required to make payments to holders of shares
of its AMPS to offset the tax effect of any reallocation of net capital gains or
other taxable income.
AUTOMATIC DIVIDEND REINVESTMENT PLAN
Pursuant to each Fund's Automatic Dividend Reinvestment Plan (each, a
"Plan"), unless a holder of a Fund's Common Stock elects otherwise, all dividend
and capital gains distributions are automatically reinvested by The Bank of New
York, as agent for stockholders in administering the Plan (as applicable, the
"Plan Agent"), in additional shares of the Fund's Common Stock. The Bank of New
York is the Plan Agent for MuniYield Michigan and will be the Plan Agent
following the Reorganization. Holders of a Fund's Common Stock who elect not to
participate in the Plan receive all distributions in cash paid by check mailed
directly to the stockholder of record (or, if the shares are held in street or
other nominee name, then to such nominee) by The Bank of New York as dividend
paying agent. Such stockholders may elect not to participate in the Plan and to
receive all distributions of dividends and capital gains in cash by sending
written instructions to The Bank of New York as dividend paying agent, at the
address set forth below. Participation in the Plan is completely voluntary and
may be terminated or resumed at any time without penalty by written notice if
received by the Plan Agent not less than ten days prior to any dividend record
date; otherwise, such termination or resumption will be effective with respect
to any subsequently declared dividend or capital gains distribution.
Whenever a Fund declares an ordinary income dividend or a capital gain
dividend (collectively referred to as "dividends") payable either in shares or
in cash, non-participants in the Plan receive cash, and participants in the Plan
receive the equivalent in shares of the Fund's Common Stock. The shares are
acquired by the Plan Agent for the participant's account, depending upon the
circumstances described below, either (i) through receipt of additional unissued
but authorized shares of the Fund's Common Stock from the Fund ("newly-issued
shares") or (ii) by purchase of outstanding shares of the Fund's Common Stock on
the open market ("open-market purchases"), on the NYSE or elsewhere. If on the
payment date for the dividend, the net asset value per share of the Fund's
Common Stock is equal to or less than the market price per share of the Fund's
Common Stock plus estimated brokerage commissions (such condition being referred
to herein as "market premium"), the Plan Agent invests the dividend amount in
newly-issued shares on behalf of the participant. The number of newly-issued
shares of the Fund's Common Stock to be credited to the participant's account is
determined by dividing the dollar amount of the dividend by the net asset value
per share on the date the shares are issued, provided that the maximum discount
from the then-current market price per share on the date of issuance may not
exceed 5%. If on the dividend payment date, the net asset value per share is
greater than the market value (such condition being referred to herein as
"market discount"), the Plan Agent invests the dividend amount in shares
acquired on behalf of the participant in open-market purchases.
44
<PAGE> 49
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
any Fund as a result of dividends or capital gains distributions payable either
in shares or in cash. However, each participant pays a pro rata share of
brokerage commissions incurred with respect to the Plan Agent's open-market
purchases in connection with the reinvestment of dividends.
The automatic reinvestment of dividends and distributions does not relieve
participants of any Federal, state or local income tax that may be payable (or
required to be withheld) on such dividends. See "Comparison of the Funds -- Tax
Rules Applicable to the Funds and their Stockholders."
Stockholders participating in the Plan may receive benefits not available
to stockholders not participating in the Plan. If the market price (plus
commissions) of a Fund's shares of Common Stock is higher than net asset value,
participants in the Plan receive shares of the Fund's Common Stock at less than
they otherwise could purchase them and have shares with a cash value greater
than the value of any cash distribution they would have received on their
shares. If the market price plus commissions is less than net asset value,
participants receive distributions of shares with a net asset value greater than
the value of any cash distribution they would have received on their shares.
However, there may be insufficient shares available in the market to make
distributions of shares at prices below the net asset value. Also, since the
Funds normally do not redeem their shares, the price on resale may be more or
less than the net asset value. See "Comparison of the Funds -- Tax Rules
Applicable to the Funds and their Stockholders" for a discussion of the tax
consequences of the Plan.
Each Fund reserves the right to amend or terminate its Plan. There is no
direct service charge to participants in the Plan; however, each Fund reserves
the right to amend its Plan to include a service charge payable by the
participants.
After the Reorganization, a holder of shares of an Acquired Fund who has
elected to receive dividends in cash will continue to receive dividends in cash;
all other holders will have their dividends automatically reinvested in shares
of the combined fund. However, if a stockholder owns shares in an Acquired Fund
and in MuniYield Michigan, after the Reorganization, the stockholder's election
with respect to the dividends of
45
<PAGE> 50
MuniYield Michigan will control unless the stockholder specifically elects a
different option at that time. Following the Reorganization, all correspondence
should be directed to the Plan Agent, The Bank of New York, at 101 Barclay
Street, New York, New York 10286.
MUTUAL FUND INVESTMENT OPTION
A holder of Common Stock of any Fund, who purchased his or her shares
through Merrill Lynch in the Fund's initial public offering, has the right to
reinvest the net proceeds from a sale of such shares in Class A shares (in the
case of MuniYield Michigan and MuniVest Michigan stockholders) or Class D shares
(in the case of MuniHoldings Michigan stockholders) of certain Merrill
Lynch-sponsored open-end mutual funds without the imposition of an initial sales
charge, if certain conditions are satisfied. Class D shares are subject to an
ongoing account maintenance fee. A holder of Common Stock of an Acquired Fund
who qualifies for this option will continue to have this option after
consummation of the Reorganization. Thus after the Reorganization, qualifying
stockholders of MuniYield Michigan and MuniVest Michigan will retain their
option with respect to Class A shares, while qualifying stockholders of
MuniHoldings Michigan will retain their option with respect to Class D shares.
LIQUIDATION RIGHTS OF HOLDERS OF AMPS
Upon any liquidation, dissolution or winding up of any Fund, whether
voluntary or involuntary, the holders of shares of the Fund's AMPS will be
entitled to receive, out of the assets of the Fund available for distribution to
stockholders, before any distribution or payment is made upon any shares of the
Fund's Common Stock or any other capital stock of the Fund ranking junior in
right of payment upon liquidation to AMPS, $25,000 per share together with the
amount of any dividends accumulated but unpaid (whether or not earned or
declared) thereon to the date of distribution, and after such payment the
holders of AMPS will be entitled to no other payments except for any additional
dividends. If such assets of the Fund shall be insufficient to make the full
liquidation payment on the AMPS and liquidation payments on any other
outstanding class or series of preferred stock of the Fund ranking on a parity
with the AMPS as to payment upon liquidation, then such assets will be
distributed among the holders of shares of AMPS and the holders of shares of
such other class or series ratably in proportion to the respective preferential
amounts to which they are entitled. After payment of the full amount of
liquidation distribution to which they are entitled, the holders of shares of a
Fund's AMPS will not be entitled to any further participation in any
distribution of assets by the Fund except for any additional dividends. A
consolidation, merger or share exchange of a Fund with or into any other entity
or entities or a sale, whether for cash, shares of stock, securities or
properties, of all or substantially all or any part of the assets of the Fund
shall not be deemed or construed to be a liquidation, dissolution or winding up
of the Fund for this purpose.
TAX RULES APPLICABLE TO THE FUNDS AND THEIR STOCKHOLDERS
The tax consequences of investing in shares of Common Stock or AMPS of each
of the Funds are identical. 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 are not subject
to Federal income tax to the extent that they distribute their net investment
income and net realized capital gains. In all taxable years through the taxable
year of the Reorganization, each Fund has distributed substantially all of its
income. MuniYield Michigan intends to continue to distribute substantially all
of its income following the Reorganization.
Each Fund is qualified to pay "exempt-interest dividends" as defined in
Section 852(b)(5) of the Code. Under such section, if, at the close of each
quarter of its taxable year, at least 50% of the value of a Fund's total assets
consists of obligations the interest on which is excludable from gross income
for Federal income tax purposes ("tax-exempt obligations") under Section 103(a)
of the Code (relating generally to obligations of a state or local governmental
unit), the Fund 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
46
<PAGE> 51
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 PABs or IDBs, if any, held by a
Fund.
The portion of exempt-interest dividends paid from interest received by a
Fund from Michigan Municipal Bonds also is exempt from the Michigan income tax
and the single business tax. Stockholders subject to income taxation by states
other than Michigan realize a lower after-tax rate of return than Michigan
stockholders since the dividends distributed by a Fund generally are not exempt,
to any significant degree, from income taxation by such other states. Each Fund
informs its stockholders annually as to the portion of the Fund's distributions
that constitutes exempt-interest dividends and the portion that is exempt from
Michigan income taxes. Interest on indebtedness incurred or continued to
purchase or carry a Fund's shares is not deductible for Federal or Michigan
income tax purposes to the extent attributable to exempt-interest dividends.
The IRS, in a revenue ruling, held that certain AMPS would be treated as
stock for Federal income tax purposes. The terms of the currently outstanding
AMPS of each of the Funds, as well as the Series B and C AMPS to be issued by
MuniYield Michigan, are substantially similar, but not identical, to the AMPS
discussed in the revenue ruling. In the opinion of Brown & Wood LLP, counsel to
all three Funds, the shares of each Fund's currently outstanding AMPS, as well
as the Series B and C AMPS to be issued by MuniYield Michigan, constitute stock,
and distributions with respect to shares of such AMPS (other than distributions
in redemption of shares of AMPS subject to Section 302(b) of the Code) will
constitute dividends to the extent of current and accumulated earnings and
profits as calculated for Federal income tax purposes. Nevertheless, the IRS
could take a contrary position, asserting, for example, that the shares of AMPS
constitute debt. If this position were upheld, the discussion of the treatment
of distributions below would not apply to holders of shares of AMPS. Instead,
distributions by each Fund to holders of shares of its AMPS would constitute
interest, whether or not they exceed the earnings and profits of the Fund, would
be included in full in the income of the recipient and taxed as ordinary income.
Counsel believes that such a position, if asserted by the IRS, would be unlikely
to prevail.
To the extent that a Fund's distributions are derived from interest on its
taxable investments or from an excess of net short-term capital gains over net
long-term capital losses ("ordinary income dividends"), such distributions are
considered taxable ordinary income for Federal and Michigan 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 Michigan income
tax purposes are treated as capital gains which are taxed at ordinary income
rates. Certain categories of capital gains are taxable at different rates for
Federal income tax purposes. Generally not later than 60 days after the close of
its taxable year, a Fund provides its shareholders with a written notice
designating the amounts of any exempt-interest dividends and capital gain
dividends, as well as any amount of capital gain dividends in the different
categories of capital gain referred to above. Distributions by a Fund, whether
from exempt-interest income, ordinary income or capital gains, are not eligible
for the dividends received deduction for corporations under the Code.
A loss realized on a sale or exchange of shares of a Fund is disallowed if
other Fund shares are acquired (whether under the Automatic Dividend
Reinvestment Plan or otherwise) within a 61-day period beginning 30 days before
and ending 30 days after the date that the shares are disposed of. In such a
case, the basis of the shares acquired will be adjusted to reflect the
disallowed loss.
47
<PAGE> 52
All or a portion of a Fund's gain from the sale or redemption of tax-exempt
obligations purchased at a market discount will be treated as ordinary income
rather than capital gain. This rule may increase the amount of ordinary income
dividends received by stockholders. Any loss upon the sale or exchange of Fund
shares held for six months or less is treated as long-term capital loss to the
extent of exempt-interest dividends received by the stockholder. In addition,
such loss is disallowed to the extent of any capital gain dividends received by
the stockholder. Distributions in excess of a Fund's earnings and profits first
will reduce the adjusted tax basis of a holder's shares and, after such adjusted
tax basis is reduced to zero, will constitute capital gains to such holder
(assuming the shares are held as a capital asset). If a Fund pays a dividend in
January which was declared in the previous October, November or December to
stockholders of record on a specified date in one of such months, then such
dividend is treated for tax purposes as paid by the Fund and received by its
stockholders on December 31 of the year in which such dividend was declared.
The IRS has taken the position in a revenue ruling that if a RIC has two or
more classes of shares it may designate distributions made to each class in any
year as consisting of no more than such class's proportionate share of
particular types of income, including exempt-interest dividends and capital gain
dividends. A class's proportionate share of a particular type of income is
determined according to the percentage of total dividends paid by the RIC during
such year that was paid to such class. Consequently, when Common Stock and one
or more series of AMPS are outstanding, each Fund intends to designate
distributions made to the classes as consisting of particular types of income in
accordance with each class's proportionate share of such income. After the
Reorganization, MuniYield Michigan will, likewise, so designate distributions
with respect to its Common Stock and its AMPS, Series A, B and C. 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, and MuniYield Michigan will
allocate, items of tax-exempt income, net capital gains, and other taxable
income, if any, among shares of Common Stock and outstanding AMPS (including for
MuniYield Michigan, the newly designated Series A AMPS and the newly issued
series of AMPS) will be respected for Federal income tax purposes. However, the
tax treatment of additional dividends may affect a Fund's calculation of each
class' allocable share of capital gains and other taxable income. In addition,
there is currently no direct guidance from the IRS or other sources specifically
addressing whether a Fund's method for allocating tax-exempt income, net capital
gains and other taxable income among shares of Common Stock and the outstanding
series of AMPS will be respected for Federal income tax purposes, and it is
possible that the IRS could disagree with counsel's opinion and attempt to
reallocate a Fund's net capital gains or other taxable income. In the event of a
reallocation, some of the dividends identified by a Fund as exempt-interest
dividends to holders of shares of its AMPS could be recharacterized as
additional capital gains or other taxable income. In the event of such
recharacterization, a Fund is not required to make payments to such stockholders
to offset the tax effect of such reallocation. In addition, a reallocation could
cause a Fund to be liable for income tax and excise tax on all reallocated
taxable income. Brown & Wood LLP has advised each Fund that, in its opinion, if
the IRS were to challenge in court a Fund's allocations of income and gain, the
IRS would be unlikely to prevail. The opinion of Brown & Wood LLP, however,
represents only its best legal judgment and is not binding on the IRS or the
courts.
The Code requires a RIC to pay a nondeductible 4% excise tax to the extent
it does not distribute during each calendar year 98% of its ordinary income,
determined on a calendar year basis, and 98% of its capital gains, determined in
general, on an October 31 year-end, plus certain undistributed amounts from
previous years. The required distributions, however, are based only on the
taxable income of a RIC. The excise tax,
48
<PAGE> 53
therefore, generally does not apply to the tax-exempt income of RICs, such as
the Funds, that pay exempt-interest dividends.
The Code subjects interest received on certain otherwise tax-exempt
securities to a Federal alternative minimum tax. The alternative minimum tax
applies to interest received on "private activity bonds" issued after August 7,
1986. "Private activity bonds" are bonds which, although tax-exempt, are used
for purposes other than those generally performed by governmental units and
which benefit non-governmental entities (e.g., bonds used for industrial
development or housing purposes). Income received on such bonds is classified as
an item of "tax preference" which could subject investors in such bonds,
including stockholders of the Funds, to an increased Federal alternative minimum
tax. Each Fund purchases such "private activity bonds" and reports to
stockholders within 60 days after calendar year-end the portion of its dividends
declared during the year which constitutes an item of tax preference for
alternative minimum tax purposes. The Code further provides that corporations
are subject to a Federal alternative minimum tax based, in part, on certain
differences between taxable income as adjusted for other tax preferences and the
corporation's "adjusted current earnings" which more closely reflect a
corporation's economic income. Because an exempt-interest dividend paid by a
Fund is included in adjusted current earnings, a corporate stockholder may be
required to pay a Federal alternative minimum tax on exempt-interest dividends
paid by such Fund.
The Funds may invest in instruments the return on which includes
nontraditional features such as indexed principal or interest payments
("nontraditional instruments"). These instruments may be subject to special tax
rules under which a Fund may be required to accrue and distribute income before
amounts due under the obligations are paid. In addition, it is possible that all
or a portion of the interest payments on such nontraditional instruments could
be recharacterized as taxable ordinary income.
If at any time when shares of AMPS are outstanding a Fund does not meet the
asset coverage requirements of the Investment Company Act, the Fund will be
required to suspend distributions to holders of Common Stock until the asset
coverage is restored. See "Dividends and Distributions." This may prevent such
Fund from distributing at least 90% of its net investment income and may,
therefore, jeopardize the Fund's qualification for taxation as a RIC. If a Fund
were to fail to qualify as a RIC, some or all of the distributions paid by the
Fund would be fully taxable to stockholders for Federal and Michigan income tax
purposes. Upon any failure to meet the asset coverage requirements of the
Investment Company Act, a Fund, in its sole discretion, may redeem shares of
AMPS in order to maintain or restore the requisite asset coverage and avoid the
adverse consequences to the Fund and its stockholders of failing to qualify as a
RIC. There can be no assurance, however, that any such action would achieve such
objectives.
As noted above, a Fund must distribute annually at least 90% of its net
taxable and tax-exempt interest income. A distribution will only be counted for
this purpose if it qualifies for the dividends paid deduction under the Code.
Some types of preferred stock that the Funds have issued and that MuniYield
Michigan contemplates issuing may raise a question as to whether distributions
on such preferred stock are "preferential" under the Code and, therefore, not
eligible for the dividends paid deduction. Counsel has advised the Funds that
the outstanding preferred stock and the preferred stock to be issued by
MuniYield Michigan will not result in the payment of a preferential dividend. If
a Fund ultimately relies solely on a legal opinion when it issues such preferred
stock, there is no assurance that the IRS would agree that dividends on the
preferred stock are not preferential. If the IRS successfully disallowed the
dividends paid deduction for dividends on the preferred stock, the Funds could
be disqualified as RICs. In this case, dividends paid by the Funds on the Common
Stock and the AMPS would not be exempt from Federal income taxes. Additionally,
the Funds would be subject to a Federal alternative minimum tax.
Under certain circumstances when a Fund is required to allocate taxable
income to the AMPS, it will pay Additional Distributions to holders of shares of
AMPS. The Federal income tax consequences of Additional Distributions under
existing law are uncertain. The Funds treat and MuniYield Michigan intends to
continue to treat a holder as receiving a dividend distribution in the amount of
any Additional Distribution only as and when such Additional Distribution is
paid. An Additional Distribution generally is designated by a Fund as an
exempt-interest dividend except as otherwise required by applicable law.
However, the IRS may assert that all or part of an Additional Distribution is a
taxable dividend either in the taxable year for which the allocation of taxable
income is made or in the taxable year in which the Additional Distribution is
paid.
49
<PAGE> 54
The value of shares acquired pursuant to a Fund's dividend reinvestment
plan is generally excluded from gross income to the extent that the cash amount
reinvested would be excluded from gross income. If, when a Fund's shares are
trading at a premium over net asset value, the Fund issues shares pursuant to
the dividend reinvestment plan that have a greater fair market value than the
amount of cash reinvested, it is possible that all or a portion of such discount
(which may not exceed 5% of the fair market value of the Fund's shares) could be
viewed as a taxable distribution. If the discount is viewed as a taxable
distribution, it is also possible that the taxable character of this discount
would be allocable to all of the stockholders, including stockholders who do not
participate in a Fund's dividend reinvestment plan. Thus, stockholders who do
not participate in the dividend reinvestment plan, as well as dividend
reinvestment plan participants, might be required to report as ordinary income a
portion of their distributions equal to the allocable share of the discount.
Under certain provisions of the Code, some stockholders may be subject to a
31% withholding tax on certain ordinary income dividends and on capital gain
dividends and redemption payments ("backup withholding"). Generally,
stockholders subject to backup withholding will be those for whom no taxpayer
identification number is on file with a Fund or who, to the Fund's knowledge,
have furnished an incorrect number. When establishing an account, an investor
must certify under penalty of perjury that such number is correct and that such
stockholder is not otherwise subject to backup withholding.
Ordinary income dividends paid to stockholders who are nonresident aliens
or foreign entities are subject to a 30% United States withholding tax under
existing provisions of the Code applicable to foreign individuals and entities
unless a reduced rate of withholding or a withholding exemption is provided
under applicable treaty law. Nonresident stockholders are urged to consult their
own tax advisers concerning the applicability of the United States withholding
tax.
The Code provides that every stockholder required to file a tax return must
include for information purposes on such return the amount of exempt-interest
dividends received from all sources (including the Funds) during the taxable
year.
Tax Treatment of Options and Futures Transactions. Each Fund may purchase
or sell municipal bond index financial futures contracts and interest rate
financial futures contracts on U.S. Government securities. Each Fund may also
purchase and write call and put options on such financial futures contracts. In
general, unless an election is available to a Fund or an exception applies, such
options and financial futures contracts that are "Section 1256 contracts" will
be "marked to market" for Federal income tax purposes at the end of each taxable
year, i.e., each such option or financial futures contract will be treated as
sold for its fair market value on the last day of the taxable year, and any gain
or loss attributable to Section 1256 contracts will be 60% long-term and 40%
short-term capital gain or loss. Application of these rules to Section 1256
contracts held by a Fund may alter the timing and character of distributions to
stockholders. The mark-to-market rules outlined above, however, will not apply
to certain transactions entered into by a Fund solely to reduce the risk of
changes in price or interest rates with respect to its investments.
Code Section 1092, which applies to certain "straddles," may affect the
taxation of a Fund's sales of securities and transactions in financial futures
contracts and related options. Under Section 1092, a Fund may be required to
postpone recognition for tax purposes of losses incurred in certain sales of
securities and certain closing transactions in financial futures contracts or
the related options.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury Regulations and Michigan tax laws presently
in effect. For the complete provisions, reference should be made to the
pertinent Code sections, the Treasury Regulations promulgated thereunder and the
applicable Michigan personal income and corporate tax laws. The Code and the
Treasury Regulations, as well as the Michigan tax laws, are subject to change by
legislative, judicial or administrative action either prospectively or
retroactively.
Stockholders are urged to consult their tax advisers regarding specific
questions as to Federal, foreign, state or local tax consequences of an
investment in a Fund.
50
<PAGE> 55
AGREEMENT AND PLAN OF REORGANIZATION
GENERAL
Under the Agreement and Plan of Reorganization (attached hereto as Exhibit
II), (i) MuniYield Michigan will acquire substantially all of the assets, and
will assume substantially all of the liabilities, of MuniVest Michigan, in
exchange solely for shares of an equal aggregate value of MuniYield Michigan
Common Stock and MuniYield Michigan Series B AMPS to be issued by MuniYield
Michigan and (ii) MuniYield Michigan will acquire substantially all of the
assets, and will assume substantially all of the liabilities, of MuniHoldings
Michigan, in exchange solely for shares of an equal aggregate value of MuniYield
Michigan Common Stock and MuniYield Michigan Series C AMPS to be issued by
MuniYield Michigan. The number of shares of MuniYield Michigan Common Stock
issued to each Acquired Fund will have an aggregate net asset value equal to the
aggregate net asset value of the shares of Common Stock of that Acquired Fund
(except that cash will be paid in lieu of any fractional shares), and the number
of shares of MuniYield Michigan Series B AMPS and MuniYield Michigan Series C
AMPS issued to MuniVest Michigan and MuniHoldings Michigan, respectively, will
have an aggregate liquidation preference and lalue equal to the aggregate
liquidation preference and value of each such Fund's AMPS. Upon receipt by the
Acquired Funds of such shares, the Acquired Funds will (i) distribute the shares
of MuniYield Michigan Common Stock to the holders of MuniVest Michigan Common
Stock and MuniHoldings Michigan Common Stock, as applicable, in exchange for
their shares of Common Stock in the Acquired Funds and (ii) distribute the
shares of MuniYield Michigan Series B AMPS to the holders of MuniVest Michigan
AMPS, and the shares of MuniYield Michigan Series C AMPS to the holders of
MuniHoldings Michigan Series A AMPS, in exchange for their shares of AMPS in the
Acquired Funds. Articles Supplementary establishing the powers, rights and
preferences of the MuniYield Michigan Series B AMPS and the MuniYield Michigan
Series C AMPS, and Articles of Amendment to the Articles Supplementary of
MuniYield Michigan designating the currently outstanding MuniYield Michigan AMPS
as Series A AMPS, 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 the Acquired Funds will file Articles
of Dissolution with the Maryland Department to effect the formal dissolution of
such Fund, and will dissolve.
Each of the Acquired Funds will distribute the shares of MuniYield Michigan
Common Stock and the shares of MuniYield Michigan Series B AMPS or MuniYield
Michigan Series C AMPS received by it pro rata to its holders of record of
Common Stock and AMPS, as applicable, in exchange for such stockholders' shares
in the Acquired Funds. Such distribution would be accomplished by opening new
accounts on the books of MuniYield Michigan in the names of the common and
preferred stockholders of each of the Acquired Funds and transferring to those
stockholder accounts the MuniYield Michigan Common Stock or MuniYield Michigan
AMPS previously credited on those books to the accounts of the Acquired Funds.
Each newly-opened account on the books of MuniYield Michigan for the previous
holders of Common Stock of the Acquired Funds would represent the respective pro
rata number of shares of MuniYield Michigan Common Stock (rounded down, in the
case of fractional shares, to the next largest number of whole shares) due such
holder of Common Stock. No fractional shares of MuniYield Michigan Common Stock
will be issued. In lieu thereof, MuniYield Michigan's transfer agent, The Bank
of New York, will aggregate all fractional shares of MuniYield Michigan 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 Common Stock
certificates of the applicable Acquired Fund. Similarly, each newly-opened
account on the books of MuniYield Michigan for the previous holders of AMPS of
an Acquired Fund would represent the respective pro rata number of shares of
MuniYield Michigan Series B AMPS or MuniYield Michigan Series C AMPS due such
holder of AMPS. See "Surrender and Exchange of Stock Certificates" below for a
description of the procedures to be followed by the stockholders of the Acquired
Funds to obtain their MuniYield Michigan Common Stock (and cash in lieu of
fractional shares, if any). Because AMPS are held in "street name" by the
Depository Trust Company, all transfers are accomplished by book entry and no
surrender of share certificates representing AMPS is necessary.
51
<PAGE> 56
Accordingly, as a result of the Reorganization, every holder of Common
Stock of an Acquired Fund would own shares of MuniYield Michigan Common Stock
that (except for cash payments received in lieu of fractional shares) would have
an aggregate net asset value immediately after the Exchange Date equal to the
aggregate net asset value of that stockholder's Common Stock immediately prior
to the Exchange Date. Since the MuniYield Michigan Common Stock would be issued
at net asset value and the shares of Common Stock of the Acquired Fund would be
valued at net asset value for the purposes of the exchange, the holders of
Common Stock of each of the Funds will not be diluted as a result of the
Reorganization. Similarly, since the MuniYield Michigan Series B AMPS and
MuniYield Michigan 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
AMPS of the Acquired Funds, holders of AMPS of each of the Funds will not be
diluted as a result of the Reorganization. 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 any
of the constituent Funds.
PROCEDURE
At meetings of the Boards of Directors of each of the Funds, the Board of
Directors of each of the Funds, including all of the Directors present who are
not "interested persons," as defined in the Investment Company Act, of the
applicable Fund, approved the Agreement and Plan of Reorganization and the
submission of such Agreement and Plan of Reorganization to the stockholders of
each of the Funds for approval. The Board of Directors of MuniHoldings Michigan
voted unanimously to approve the Reorganization. The Board of Directors of
MuniVest Michigan and MuniYield Michigan approved the Reorganization, by a vote
of all of the Directors present at the meeting, representing in each case more
than two-thirds of the total number of Directors.
Also, the Board of Directors of MuniYield Michigan approved the filing of
Articles Supplementary establishing the powers, rights and preferences of the
MuniYield Michigan Series B AMPS and the MuniYield Michigan Series C AMPS in
order that they may be distributed to holders of AMPS of each of the Acquired
Funds as part of the Reorganization and the filing of Articles of Amendment to
its Articles Supplementary to designate the outstanding MuniYield Michigan AMPS
as Series A.
As a result of such Board approvals, the Funds have jointly filed this
proxy statement with the SEC soliciting a vote of the stockholders of each of
the Funds to approve the Reorganization. The costs of such solicitation are to
be paid by MuniYield Michigan after the Reorganization so as to be borne equally
and exclusively on a per share basis by the holders of Common Stock of each of
the Funds. The Meetings of stockholders of the Funds will be held on December
15, 1999. 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 or an opinion of
counsel to the same effect.
THE BOARDS OF DIRECTORS OF MUNIYIELD MICHIGAN, MUNIVEST MICHIGAN AND
MUNIHOLDINGS MICHIGAN RECOMMEND THAT THE STOCKHOLDERS OF THE RESPECTIVE FUNDS
APPROVE THE AGREEMENT AND PLAN OF REORGANIZATION.
TERMS OF THE AGREEMENT AND PLAN OF REORGANIZATION
The following is a summary of the significant terms of the Agreement and
Plan of Reorganization. This summary is qualified in its entirety by reference
to the Agreement and Plan of Reorganization, attached hereto as Exhibit II.
Valuation of Assets and Liabilities. The respective assets of each of the
Funds will be valued on the business day prior to the Exchange Date (the
"Valuation Date"). The valuation procedures are the same for all three Funds:
net asset value per share of the Common Stock of each Fund will be determined
after the close of business on the NYSE (generally, 4:00 p.m., Eastern time) on
the Valuation Date. For the purpose of determining the net asset value of a
share of Common Stock of each Fund, the value of the securities held by the
issuing Fund plus any cash or other assets (including interest accrued but not
yet received) minus all liabilities (including accrued expenses) and the
aggregate liquidation value of the outstanding shares of
52
<PAGE> 57
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 Michigan Municipal Bonds and Municipal Bonds in which each Fund invests
are traded primarily in the over-the-counter markets. In determining net asset
value on the Valuation Date, each Fund will use the valuations of portfolio
securities furnished by a pricing service approved by the Boards of Directors of
the Funds. The pricing service typically values portfolio securities at the bid
price or the yield equivalent when quotations are readily available. Michigan
Municipal Bonds and Municipal Bonds for which quotations are not readily
available will be valued at fair market value on a consistent basis as
determined by the pricing service using a matrix system to determine valuations.
The Boards of Directors of the Funds have determined in good faith that the use
of a pricing service is a fair method of determining the valuation of portfolio
securities. Positions in financial futures contracts will be valued on the
Valuation Date at closing prices for such contracts established by the exchange
on which they are traded, or if market quotations are not readily available,
will be valued at fair value on a consistent basis using methods determined in
good faith by the Board of Directors.
Distribution of MuniYield Michigan Common Stock, MuniYield Michigan Series
B AMPS and MuniYield Michigan Series C AMPS. On the Exchange Date, MuniYield
Michigan will issue to each Acquired Fund a number of shares of MuniYield
Michigan Common Stock the aggregate net asset value of which will equal the
respective aggregate net asset value of shares of Common Stock of the Acquired
Fund on the Valuation Date. Each holder of Common Stock of an Acquired Fund will
receive the number of shares of MuniYield Michigan Common Stock corresponding to
his or her proportionate interest in the respective aggregate net asset value of
the Common Stock of the Acquired Fund, as applicable.
On the Exchange Date, MuniYield Michigan also will issue (i) to MuniVest
Michigan a number of shares of MuniYield Michigan Series B AMPS, the aggregate
liquidation preference and value of which will equal the aggregate liquidation
preference and value of MuniVest Michigan AMPS on the Valuation Date, (ii) to
MuniHoldings Michigan a number of shares of MuniYield Michigan Series C AMPS,
the aggregate liquidation preference and value of which will equal the aggregate
liquidation preference and value of MuniHoldings Michigan Series A AMPS on the
Valuation Date. Each holder of AMPS of an Acquired Fund will receive the number
of shares of MuniYield Michigan Series B AMPS or MuniYield Michigan Series C
AMPS corresponding to his or her proportionate interest in the aggregate
liquidation preference and value of the AMPS of the Acquired Fund. No sales
charge or fee of any kind will be charged to stockholders of the Acquired Funds
in connection with their receipt of MuniYield Michigan Common Stock or AMPS in
the Reorganization. It is anticipated that (i) the auction for MuniYield
Michigan Series B AMPS will be held on Friday; MuniVest Michigan AMPS are
auctioned on Friday; and (ii) the auction for MuniYield Michigan Series C AMPS
will be held on Wednesday; the MuniHoldings Michigan Series A AMPS are also
auctioned on Wednesday. The auction procedures for all of the AMPS are
substantially the same. As a result of the Reorganization, the last dividend
period for the AMPS of each Acquired Fund 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 Michigan shall pay, subsequent to the Exchange Date,
all expenses incurred in connection with the Reorganization, including, but not
limited to, all costs related to the preparation and distribution of materials
distributed to each Fund's Board of Directors, expenses incurred in connection
with the preparation of the Agreement and Plan of Reorganization, a registration
statement on Form N-14 and a private letter ruling request submitted to the IRS,
SEC and state securities commission filing fees and legal and audit fees in
connection with the Reorganization, costs of printing and distributing this
Proxy Statement and Prospectus, legal fees incurred preparing each Fund's board
materials, attending each Fund's board meetings and preparing the minutes,
accounting fees associated with each Fund's financial statements, stock exchange
fees, rating agency fees, portfolio transfer taxes (if any) and any similar
expenses incurred in connection with the Reorganization. In this regard,
expenses of the Reorganization will be deducted from the assets of the combined
fund so as to be borne equally and exclusively on a per share basis by the
holders of Common Stock of each of the Funds. No Fund shall pay any expenses of
its respective stockholders arising out of or in connection with the
Reorganization.
53
<PAGE> 58
Required Approvals. Under Articles of Incorporation of each Fund (as
amended to date and including Articles Supplementary establishing the powers,
rights and preferences of the AMPS of each Fund), relevant Maryland law and the
rules of the NYSE, stockholder approval of the Agreement and Plan of
Reorganization requires the affirmative vote of stockholders representing more
than 50% of the outstanding shares of Common Stock and AMPS, voting together as
a single class, and more than 50% of the AMPS, voting separately as a class.
Because of the requirement that the Agreement and Plan of Reorganization be
approved by the stockholders of 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 the Acquired Funds and the distribution of shares of MuniYield
Michigan Common Stock, MuniYield Michigan Series B AMPS and MuniYield Michigan
Series C AMPS to stockholders of the Acquired Funds, in accordance with the
foregoing, each of the Acquired Funds will terminate its registration under the
Investment Company Act and its incorporation under Maryland law and will
withdraw its authority to do business in any state where it is required to do
so.
Amendments and Conditions. The Agreement and Plan of Reorganization may be
amended at any time prior to the Exchange Date with respect to any of the terms
therein. The obligations of each Fund pursuant to the Agreement and Plan of
Reorganization are subject to various conditions, including a registration
statement on Form N-14 being declared effective by the Commission, approval by
the stockholders of each of the Funds, favorable IRS rulings or an opinion of
counsel being received as to tax matters, an opinion of counsel as to securities
matters being received and the continuing accuracy of various representations
and warranties of the Funds being confirmed by the respective parties.
Postponement; Termination. Under the Agreement and Plan of Reorganization,
the Board of Directors of any of the Funds may cause the Reorganization to be
postponed or abandoned under certain circumstances 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 and (ii) by the Board of Directors of any Fund if any
condition to that Fund's obligations set forth in the Agreement and Plan of
Reorganization has not been fulfilled or waived by such Board.
POTENTIAL BENEFITS TO COMMON STOCKHOLDERS OF THE FUNDS AS A RESULT OF THE
REORGANIZATION
In approving the Reorganization, the Board of Directors of each Fund
identified certain benefits that are likely to result from the Reorganization,
including lower aggregate operating expenses per share of Common Stock, greater
efficiency and flexibility in portfolio management and a more liquid trading
market for the shares of Common Stock of the combined fund. With respect to each
of the Acquired Funds, following the Reorganization their respective
stockholders will remain invested in a closed-end fund that has investment
objectives and policies substantially similar to those of the Acquired Fund. 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 Michigan Municipal Bonds and
Municipal Bonds and the costs involved in a transaction such as the
Reorganization. The Boards noted the many similarities between the Funds,
including their substantially similar investment objectives and investment
policies, their use of substantially the same management personnel and their
similar portfolios of Michigan Municipal Bonds and Municipal Bonds. The Boards
also considered the relative tax positions of the Funds' portfolios. Based on
these factors, the Boards concluded that the Reorganization will potentially
benefit the stockholders of each Fund in that it (i) presents no significant
risks that would outweigh the benefits discussed above and (ii) involves minimal
costs (including relatively minor legal, accounting and administrative costs).
The surviving fund that would result from the Reorganization would have a
larger asset base than 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
54
<PAGE> 59
individual Funds, resulting in a lower expense ratio for common stockholders of
the combined fund and higher earnings per common share. In particular, certain
fixed costs, such as costs of printing stockholder reports and proxy statements,
legal expenses, audit fees, mailing costs and other expenses will be spread
across a larger asset base, thereby lowering the expense ratio for the combined
fund. To illustrate the potential economies of scale, the table below shows the
total annualized operating expense ratio of each Fund and pro forma MuniYield
Michigan based on net assets both excluding and including assets attributable to
AMPS as of June 30, 1999:
<TABLE>
<CAPTION>
TOTAL ANNUALIZED
OPERATING NET ASSETS, TOTAL ANNUALIZED NET ASSETS
EXPENSE RATIO EXCLUDING OPERATING INCLUDING
EXCLUDING AMPS EXPENSE RATIO AMPS
FUND AMPS (IN MILLIONS) INCLUDING AMPS (IN MILLIONS)
- ---- ---------------- ----------------- ---------------- ----------------
<S> <C> <C> <C> <C>
MuniYield Michigan.................... 1.10% $110.2 0.75% $160.2
MuniVest Michigan..................... 1.14% $100.3 0.76% $150.3
MuniHoldings Michigan................. 1.44% $ 61.0 0.87% $101.0
Pro Forma MuniYield Michigan(1)....... 1.04% $271.5 0.69% $411.5
</TABLE>
- ---------------
(1) Assumes Reorganization had taken place on June 30, 1999.
Management projections estimate that MuniYield Michigan will have net
assets in excess of $411.5 million, including assets attributable to AMPS, upon
completion of the Reorganization. A larger asset base should provide benefits in
portfolio management. After the Reorganization, MuniYield Michigan should be
able to purchase larger amounts of Michigan Municipal Bonds and 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 Michigan Municipal
Bonds and Municipal Bonds (e.g., added indenture provisions covering call
protection, sinking funds and audits for the benefit of large holders) prior to
purchase.
Based on the foregoing, the Boards concluded that the Reorganization is in
the best interests of the stockholders of each of the Funds because the
Reorganization presents no significant risks or costs (including legal,
accounting and administrative costs) that would outweigh the benefits discussed
above.
In approving the Reorganization, the Board of Directors of each Fund
determined that the Reorganization is in the best interests of that Fund and,
with respect to net asset value and liquidation preference, that the interests
of existing stockholders of that Fund would not be diluted as a result of the
Reorganization. Although the Reorganization is expected to result in a reduction
in net asset value per share of the combined fund after the Reorganization of
approximately $.02 as a result of the estimated costs of the Reorganization,
management of each Fund advised its Board that it expects that such costs would
be recovered within approximately six months to 2 1/2 years after the Exchange
Date due to a decrease in the operating expense ratio.
It is not anticipated that the Reorganization directly would benefit the
holders of shares of AMPS of any of the Funds; 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 STOCK CERTIFICATES
After the Exchange Date, each holder of an outstanding certificate or
certificates formerly representing shares of Common Stock of any one of the
Acquired Funds 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 Michigan Common Stock distributable with respect
to such holder's shares of Common Stock of the Acquired Fund, together with cash
in lieu of any fractional shares of Common Stock. Promptly after the Exchange
Date, the transfer agent for the MuniYield Michigan Common Stock will mail to
each holder of certificates formerly representing shares of Common Stock of an
Acquired Fund a letter of transmittal for use in
55
<PAGE> 60
surrendering his or her certificates for certificates representing shares of
MuniYield Michigan Common Stock and cash in lieu of any fractional shares of
Common Stock.
Shares of AMPS are held in "street name" by the Depository Trust Company,
and all transfers will be accomplished by book entry. Surrender of physical
certificates for AMPS is not required.
<TABLE>
<CAPTION>
IF PRIOR TO THE REORGANIZATION YOU HELD: AFTER THE REORGANIZATION, YOU WILL HOLD:
- ---------------------------------------- ----------------------------------------
<S> <C>
MuniYield Michigan Common Stock MuniYield Michigan Common Stock
MuniYield Michigan AMPS MuniYield Michigan Series A AMPS
MuniVest Michigan Common Stock MuniYield Michigan Common Stock
MuniVest Michigan AMPS MuniYield Michigan Series B AMPS
MuniHoldings Michigan Common Stock MuniYield Michigan Common Stock
MuniHoldings Michigan Series A AMPS MuniYield Michigan Series C AMPS
</TABLE>
PLEASE DO NOT SEND IN ANY STOCK CERTIFICATES AT THIS TIME. UPON
CONSUMMATION OF THE REORGANIZATION, COMMON STOCKHOLDERS OF THE ACQUIRED FUNDS
WILL BE FURNISHED WITH INSTRUCTIONS FOR EXCHANGING THEIR STOCK CERTIFICATES FOR
MUNIYIELD MICHIGAN STOCK CERTIFICATES AND, IF APPLICABLE, CASH IN LIEU OF
FRACTIONAL SHARES.
From and after the Exchange Date, certificates formerly representing shares
of Common Stock of an Acquired Fund will be deemed for all purposes to evidence
ownership of the number of full shares of MuniYield Michigan Common Stock
distributable with respect to the shares of the Acquired Fund held before the
Reorganization as described above and as shown in the table above, provided
that, until such stock certificates have been so surrendered, no dividends
payable to the holders of record of Common Stock of an Acquired Fund as of any
date subsequent to the Exchange Date will be paid to the holders of such
outstanding stock certificates. Dividends payable to holders of record of shares
of Common Stock of MuniYield Michigan, as of any date after the Exchange Date
and prior to the exchange of certificates by any stockholder of an Acquired
Fund, will be paid to such stockholder, without interest, at the time such
stockholder surrenders his or her stock certificates for exchange.
From and after the Exchange Date, there will be no transfers on the stock
transfer books of any Acquired Fund. If, after the Exchange Date, certificates
representing shares of Common Stock of an Acquired Fund are presented to
MuniYield Michigan, they will be canceled and exchanged for certificates
representing Common Stock of MuniYield Michigan, as applicable, and cash in lieu
of fractional shares of Common Stock, if any, distributable with respect to such
Common Stock in the Reorganization.
TAX CONSEQUENCES OF THE REORGANIZATION
General. The Reorganization has been structured with the intention that it
qualify for Federal income tax purposes as a tax-free reorganization under
Section 368(a)(1)(C) of the Code. Each of the Funds has elected and qualified
for the special tax treatment afforded RICs under the Code, and MuniYield
Michigan intends to continue to so qualify after the Reorganization. The Funds
have jointly requested a private letter ruling from the IRS that for Federal
income tax purposes: (i) the exchange of assets by each Acquired Fund for
MuniYield Michigan stock, as described, will constitute a reorganization within
the meaning of Section 368(a)(1)(C) of the Code, and each of the Acquired Funds
and MuniYield Michigan will be deemed a "party" to a reorganization within the
meaning of Section 368(b) of the Code; (ii) in accordance with Section 361(a) of
the Code, no gain or loss will be recognized to the Acquired Funds as a result
of the Reorganization or on the distribution of MuniYield Michigan Common Stock
and MuniYield Michigan Series B AMPS or MuniYield Michigan Series C AMPS to the
respective stockholders of the Acquired Funds under Section 361(c)(1) of the
Code; (iii) under Section 1032 of the Code, no gain or loss will be recognized
to MuniYield Michigan 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 the Acquired Funds on the receipt of MuniYield Michigan Common
Stock and MuniYield Michigan Series B AMPS or MuniYield Michigan Series C AMPS
in exchange for their corresponding shares of Common Stock or AMPS of an
Acquired Fund (except to the extent that common stockholders receive cash in the
Reorganization representing an interest in fractional shares of MuniYield
Michigan Common Stock); (v) in accordance with
56
<PAGE> 61
Section 362(b) of the Code, the tax basis of the assets of the Acquired Funds in
the hands of MuniYield Michigan will be the same as the tax basis of such assets
in the hands of the Acquired Fund that transferred them 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
Michigan Common Stock, MuniYield Michigan Series B AMPS or MuniYield Michigan
Series C AMPS received by the stockholders of the Acquired Funds in the
Reorganization will be equal to the tax basis of the Common Stock or AMPS of the
Acquired Fund surrendered in exchange; (vii) in accordance with Section 1223 of
the Code, a stockholder's holding period for the MuniYield Michigan Common
Stock, MuniYield Michigan Series B AMPS or MuniYield Michigan Series C AMPS will
be determined by including the period for which such stockholder held the Common
Stock or AMPS of the Acquired Fund exchanged therefor, provided that such shares
were held as a capital asset; (viii) in accordance with Section 1223 of the
Code, MuniYield Michigan's holding period with respect to the assets of the
Acquired Funds transferred will include the period for which such assets were
held by the Acquired Fund; (ix) the payment of cash to common stockholders of an
Acquired Fund in lieu of fractional shares of MuniYield Michigan Common Stock
will be treated as though the fractional shares were distributed as part of the
Reorganization and then redeemed, with the result that such stockholders will
have short- or long-term capital gain or loss to the extent that the cash
distribution differs from the stockholder's basis allocable to the MuniYield
Michigan fractional shares; and (x) the taxable year of each of the Acquired
Funds will end on the effective date of the Reorganization and pursuant to
Section 381(a) of the Code and regulations thereunder, MuniYield Michigan will
succeed to and take into account certain tax attributes of the Acquired Funds,
such as earnings and profits, capital loss carryovers and method of accounting.
As noted in the discussion under "Comparison of the Funds -- Tax Rules
Applicable to the Funds and Their Stockholders," a Fund must distribute annually
at least 90% of its net taxable and tax-exempt income. A distribution only will
be counted for this purpose if it qualifies for the dividends paid deduction
under the Code. In the opinion of Brown & Wood LLP, the issuance of MuniYield
Michigan Series B AMPS and MuniYield Michigan Series C AMPS pursuant to the
Reorganization in addition to the already existing MuniYield Michigan Series A
AMPS will not cause distributions on any series of MuniYield Michigan AMPS to be
treated as preferential dividends ineligible for the dividends paid deduction.
It is possible, however, that the IRS may assert that, because there are several
series of AMPS, distributions on such shares are preferential under the Code and
therefore not eligible for the dividends paid deduction. If the IRS successfully
disallowed the dividends paid deduction for dividends on the AMPS, MuniYield
Michigan could lose the special tax treatment afforded RICs. In this case,
dividends on the shares of MuniYield Michigan Common Stock and AMPS would not be
exempt from Federal income tax. Additionally, MuniYield Michigan would be
subject to a Federal alternative minimum tax.
Under Section 381(a) of the Code, MuniYield Michigan will succeed to and
take into account certain tax attributes of the Acquired Funds, including, but
not limited to, earnings and profits, any net operating loss carryovers, any
capital loss carryovers and method of accounting. The Code, however, contains
special limitations with regard to the use of net operating losses, capital
losses and other similar items in the context of certain reorganizations,
including tax-free reorganizations pursuant to Section 368(a)(1)(C) of the Code,
which could reduce the benefit of these attributes to MuniYield Michigan.
Stockholders should consult their tax advisers regarding the effect of the
Reorganization in light of their individual circumstances. As the foregoing
relates only to Federal income tax consequences, stockholders also should
consult their tax advisers as to the foreign, state and local tax consequences
of the Reorganization.
Regulated Investment Company Status. The Funds have elected and qualified
for taxation as RICs under Sections 851-855 of the Code, and after the
Reorganization MuniYield Michigan intends to continue to so qualify.
57
<PAGE> 62
CAPITALIZATION
The following table sets forth as of April 30, 1999 (i) the capitalization
of MuniYield Michigan, (ii) the capitalization of MuniVest Michigan, (iii) the
capitalization of MuniHoldings Michigan, (iv) the capitalization of pro forma
MuniYield Michigan as adjusted to give effect to the Reorganization.
PRO FORMA CAPITALIZATION OF MUNIYIELD MICHIGAN, MUNIVEST MICHIGAN, MUNIHOLDINGS
MICHIGAN
AND PRO FORMA MUNIYIELD MICHIGAN AS OF APRIL 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
MUNIYIELD
MUNIYIELD MUNIVEST MUNIHOLDINGS PRO FORMA MICHIGAN AS
MICHIGAN MICHIGAN MICHIGAN ADJUSTMENT ADJUSTED(A)
------------ ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Net Assets:
Net Assets
Attributable to
Common Stock.... $115,032,226 $105,387,010 $65,355,824 ($2,552,695) $283,222,365
Net Assets
Attributable to
AMPS............ $50,000,000 $50,000,000 $40,000,000 -- $140,000,000
Shares Outstanding:
Common Stock....... 7,431,634 7,387,697 4,453,667 (729,760) 18,543,238(b)
AMPS
Series A........ 2,000(d) 2,000(d) 1,600 (3,600) 2,000
Series B........ -- -- -- 2,000 2,000(b)
Series C........ -- -- -- 1,600 1,600(b)
Net Asset Value Per
Share:
Common Stock....... $15.48 $14.27 $14.67 -- $15.27(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, 1999 and are for informational purposes only.
Assumes distribution of undistributed net investment income and accrual of
estimated Reorganization expenses of $378,000. No assurance can be given as
to how many shares of MuniYield Michigan Common Stock that stockholders of
MuniVest Michigan or MuniHoldings Michigan will receive on the Exchange
Date, and the foregoing should not be relied upon to reflect the number of
shares of MuniYield Michigan Common Stock that actually will be received on
or after such date.
(b) Assumes the issuance of 11,111,604 shares of MuniYield Michigan Common Stock
and two newly-created series of AMPS of MuniYield Michigan consisting of
2,000 Series B shares and 1,600 Series C shares in exchange for the net
assets of each of MuniVest Michigan and MuniHoldings Michigan, respectively.
The estimated number of shares issued was based on the net asset value of
each Fund, net of distributions, on April 30, 1999.
(c) Net Asset Value Per Share of Common Stock net of Reorganization-related
expenses and distribution of undistributed net investment income of
$1,372,752 for MuniYield Michigan, $490,613 for MuniVest Michigan and
$311,330 for MuniHoldings Michigan.
(d) MuniYield Michigan and MuniVest Michigan each have outstanding one series of
AMPS with no series designation.
ITEM 2. ELECTION OF DIRECTORS
At the MuniHoldings Michigan Annual Meeting, the Board of Directors for
MuniHoldings Michigan will be elected to serve until the next annual meeting of
stockholders of MuniHoldings Michigan and until their successors are elected and
qualified. If the stockholders of all of the Funds approve the Reorganization,
then the Board of Directors of MuniYield Michigan will serve as the Board of the
combined fund, until the next annual meeting of stockholders of MuniYield
Michigan. If the stockholders of any Fund vote against the Reorganization, then
the Board of Directors of MuniHoldings Michigan elected at the Annual Meeting
will continue to serve until the next annual meeting of stockholders of
MuniHoldings Michigan and the Boards of
58
<PAGE> 63
MuniYield Michigan and MuniVest Michigan elected at their annual meetings held
on April 21, 1999 will continue to serve until their respective next annual
meetings of stockholders. It is intended that all properly executed proxies will
be voted (unless such authority has been withheld in the proxy) as follows:
(1) All proxies of the holders of AMPS of MuniHoldings Michigan,
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 AMPS of
that Fund; and
(2) All proxies of the holders of shares of Common Stock and AMPS of
MuniHoldings Michigan, voting together as a single class, will be voted in
favor of the five persons designated as Directors to be elected by the
holders of shares of Common Stock and AMPS of that Fund.
The Board of Directors of MuniHolding Michigan knows 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 Board of Directors may recommend.
Certain information concerning the nominees is set forth below. Additional
information concerning the nominees and other information relevant to the
election of Directors is set forth in Exhibit I.
TO BE ELECTED BY THE HOLDERS OF MUNIHOLDINGS MICHIGAN AMPS VOTING SEPARATELY AS
A CLASS
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION DURING PAST
NAME AND ADDRESS AGE FIVE YEARS AND PUBLIC DIRECTORSHIPS(1)
- ---------------- --- --------------------------------------
<S> <C> <C>
Joseph L. May(1)(2).................. 70 Attorney in private practice since 1984; President,
424 Church Street May and Athens Hosiery Mills Division. Wayne-Gossard
Suite 2000 Corporation from 1954 to 1983: Vice President,
Nashville, Tennessee 37219 Wayne-Gossard Corporation from 1972 to 1983; Chairman,
The May Corporation (personal holding company) from
1972 to 1983; Director, Signal Apparel Co. from 1972
to 1989.
Andre F. Perold(1)(2)................ 47 Professor, Harvard Business School since 1989 and
Morgan Hall Associate Professor from 1983 to 1989; Trustee, The
Solders Field Common Fund since 1989; Director, Quantec Limited from
Boston, Massachusetts 02163 1991 to 1999; TIBCO from 1994 to 1996; Director,
Genbel Securities Limited and Genbel Bank since 1999.
</TABLE>
TO BE ELECTED BY HOLDERS OF MUNIHOLDINGS MICHIGAN COMMON STOCK AND MUNIHOLDINGS
MICHIGAN AMPS, VOTING TOGETHER AS A SINGLE CLASS:
<TABLE>
<S> <C> <C>
Terry K. Glenn(1)*................... 59 Executive Vice President of FAM and MLAM since 1983;
P.O. Box 9011 Executive Vice President and Director of Princeton
Princeton, New Jersey 08543-9011 Services, Inc. ("Princeton Services") since 1993;
President of Princeton Funds Distributor, Inc. since
1986 and Director thereof since 1991; President of
Princeton Administrators L.P. since 1988.
James H. Bodurtha(1)(2).............. 55 Director and Executive Vice President, The China
36 Popponesset Road Business Group, Inc. since 1996; Chairman and Chief
Cotuit, Massachusetts 02635 Executive Officer, China Enterprise Management
Corporation from 1993 to 1996; Chairman, Berkshire
Corporation since 1980; Partner, Squire, Sanders &
Dempsey from 1980 to 1993; Director, Gilder Group LLC
and related companies since 1999.
</TABLE>
59
<PAGE> 64
<TABLE>
<S> <C> <C>
Herbert I. London(1)(2).............. 60 John M. Olin Professor of Humanities, New York
2 Washington Square Village University since 1993 and Professor since 1980;
New York, New York 10012 President, Hudson Institute since 1997 and Trustee
thereof since 1980; Dean, Gallatin Division of New
York University from 1976 to 1993; Distinguished
Fellow, Herman Kahn Chair, Hudson Institute from 1984
to 1985; Director, Damon Corp. from 1991 to 1995;
Overseer, Center for Naval Analyses from 1983 to 1993;
Limited Partner, Hypertech LP in 1996.
Robert R. Martin(1)(2)............... 72 Chairman and Chief Executive Officer, Kinnard
513 Grand Hill Investments, Inc. from 1990 to 1993; Executive Vice
St. Paul, Minnesota 55103 President, Dain Bosworth from 1974 to 1989; Director,
Carnegie Capital Management from 1977 to 1985 and
Chairman thereof in 1979; Director, Securities
Industry Association from 1981 to 1982 and Public
Securities Association from 1979 to 1980; Chairman of
the Board, WTC Industries, Inc. in 1994; Trustee,
Northland College since 1992.
Arthur Zeikel(1)*.................... 67 Chairman of FAM and MLAM from 1997 to 1999; President
300 Woodland Avenue of FAM and MLAM from 1977 to 1997; Chairman of
Westfield, New Jersey 07090 Princeton Services from 1997 to 1999, Director thereof
from 1993 to 1999 and President thereof from 1993 to
1997; Executive Vice President of ML & Co. from 1990
to 1999.
</TABLE>
- ---------------
(1) Each of the nominees is a director, trustee or member of an advisory board
of one or more additional investment companies for which FAM, MLAM or their
affiliates act as investment adviser. See "Compensation of Board Members" in
Exhibit I.
(2) Member of Audit Committee of the Board of Directors.
* Interested person, as defined in the Investment Company Act, of each of the
Funds.
COMMITTEE AND BOARD MEETINGS
The Board of MuniHoldings Michigan has a standing Audit Committee, which
consists of Board members who are not "interested persons" of the Fund within
the meaning of the Investment Company Act. The principal purpose of the Audit
Committee is to review the scope of the annual audit conducted by the Fund's
independent auditors and the evaluation by such auditors of the accounting
procedures followed by the Fund. The Audit Committee also reviews and nominates
candidates to serve as non-affiliated Board members. The non-affiliated Board
members have retained independent legal counsel to assist them in connection
with these duties.
During the Fund's last fiscal year, each of the Board members then in
office attended at least 75% of the aggregate of the total number of meetings of
the Board held during the fiscal year and, if a member, of the total number of
meetings of the Audit Committee held during the period for which he or she
served. See Exhibit I for further information about Audit Committee and Board
meetings.
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
"Exchange Act"), requires the officers and directors of the Fund 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 SEC and the NYSE. Officers, directors and greater than ten percent
stockholders are required by SEC regulations to furnish the Fund with copies of
all Forms 3, 4 and 5 they file.
Based solely on the 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 Form 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 of the
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
60
<PAGE> 65
complied with all filing requirements applicable to them with respect to
transactions during the Fund's most recent fiscal year.
INTERESTED PERSONS
MuniHoldings Michigan considers Mr. Zeikel and Mr. Glenn to be "interested
persons" of the Fund within the meaning of Section 2(a)(19) of the Investment
Company Act because of the positions each holds or has held with FAM and its
affiliates. Mr. Glenn is the President of the Fund.
COMPENSATION OF DIRECTORS
FAM, the investment adviser of each Fund, pays all compensation to all
officers of and all Directors of MuniHoldings Michigan who are affiliated with
ML & Co. or its subsidiaries. The Fund pays each Director not affiliated with
FAM (each a "non-affiliated Director") an annual fee plus a fee for each meeting
attended, and the Fund also pays each member of its Audit Committee, which
consists of all of the non-affiliated Directors, an annual fee plus a fee for
each meeting attended, together with such Director's out-of-pocket expenses
relating to attendance at such meetings. Information with respect to fees and
expenses paid to the non-affiliated Directors for the Fund's most recently
completed fiscal year is set forth in Exhibit I.
OFFICERS OF MUNIHOLDINGS MICHIGAN
Information regarding the officers of MuniHoldings Michigan is set forth in
Exhibit I. Officers of the Fund are elected and appointed by the Board and hold
office until they resign, are removed or are otherwise disqualified to serve.
ITEM 3. SELECTION OF INDEPENDENT AUDITORS
The Board of Directors of MuniHoldings Michigan, including a majority of
the Directors who are not interested persons of the Fund, has selected the firm
of Deloitte & Touche LLP ("D&T") as independent auditors to examine the
financial statements of the Fund for the Fund's current fiscal year ending
September 30, 2000.
MuniHoldings Michigan knows of no direct or indirect financial interest of
such auditors in MuniHoldings Michigan. Such appointment is subject to
ratification or rejection by the stockholders of MuniHoldings Michigan. If the
stockholders of each of the Funds approve the Reorganization, then Ernst & Young
LLP, the independent auditors for MuniYield Michigan, will serve as the
independent auditors of the combined fund until its next annual meeting of
stockholders. If the stockholders of any of the Funds vote against the
Reorganization, then the independent auditors of MuniHoldings Michigan will
continue to serve as independent auditors of that Fund until the next annual
meeting of stockholders of that Fund. Unless a contrary specification is made,
the accompanying proxy will be voted in favor of ratifying the selection of such
auditors.
D&T also acts as independent auditors for ML & Co. and most of its
subsidiaries, including FAM and MLAM, and for most other investment companies
for which FAM or MLAM acts as investment adviser. The Board of Directors of
MuniHoldings Michigan considered the fact that D&T have been retained as the
independent auditors for ML & Co. and the other entities described above in its
evaluation of the independence of D&T with respect to the Fund.
Representatives of D&T are expected to be present at the Annual Meeting of
MuniHoldings Michigan and will have the opportunity to make a statement if they
so desire and to respond to questions from stockholders.
INFORMATION CONCERNING THE MEETINGS
DATE, TIME AND PLACE OF MEETINGS
The Meetings will be held on December 15, 1999 at the offices of MLAM, 800
Scudders Mill Road, Plainsboro, New Jersey at the times listed on Exhibit I.
61
<PAGE> 66
SOLICITATION, REVOCATION AND USE OF PROXIES
A stockholder executing and returning a proxy has the power to revoke it at
any time prior to its exercise by executing a superseding proxy, by giving
written notice of the revocation to the Secretary of the appropriate Fund or by
voting in person at the Meeting. Although mere attendance at the Meetings will
not revoke a proxy, a stockholder present at the Meetings may withdraw his or
her proxy and vote in person.
All shares represented by properly executed proxies, unless such proxies
previously have been revoked, will be voted at the Meetings in accordance with
the directions on the proxies; if no direction is indicated, (i) all proxies
will be voted "FOR" the approval of the Agreement and Plan of Reorganization,
(ii) for the stockholders of MuniHoldings Michigan only, all proxies submitted
by MuniHoldings Michigan stockholders will be voted "FOR" the election of the
nominees to the Board of Directors of MuniHoldings Michigan and "FOR" the
ratification of the selection of D&T, as independent accountants of MuniHoldings
Michigan. It is not anticipated that any other matters will be brought before
the Meetings. If, however, any other business properly is brought before the
Meetings, proxies will be voted in accordance with the judgment of the persons
designated on such proxies.
RECORD DATE AND OUTSTANDING SHARES
Only holders of record of shares of Common Stock or AMPS of any of the
Funds at the close of business on the Record Date are entitled to vote at the
Meetings or any adjournment thereof. At the close of business on the Record
Date, the Funds had the number of shares outstanding indicated in Exhibit I.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
To the knowledge of the Funds, at the date hereof, no person or entity owns
beneficially 5% or more of the shares of the Common Stock or AMPS of any Fund.
As of the Record Date, none of the nominees for Director of MuniHoldings
Michigan or the Directors of MuniYield Michigan or MuniVest Michigan held shares
of the Funds.
As of the Record Date, the Directors and officers of MuniYield Michigan as
a group (14 persons) owned an aggregate of less than 1% of the outstanding
shares of MuniYield Michigan Common Stock and owned no MuniYield Michigan AMPS.
As of the Record Date, the Directors and officers of MuniVest Michigan as a
group (14 persons) owned an aggregate of less than 1% of the outstanding shares
of MuniVest Michigan Common Stock and owned no MuniVest Michigan AMPS.
As of the Record Date, the Directors and officers of MuniHoldings Michigan
as a group (13 persons) owned an aggregate of less than 1% of the outstanding
shares of MuniHoldings Michigan Common Stock and owned no MuniHoldings Michigan
AMPS.
On the Record Date, Mr. Glenn, a Director and an officer of each of the
Funds, Mr. Zeikel, a Director of each of the Funds, and the other Directors and
officers of each Fund owned an aggregate of less than 1% of the outstanding
shares of Common Stock of ML & Co.
VOTING RIGHTS AND REQUIRED VOTE
For purposes of this Proxy Statement and Prospectus, each share of Common
Stock and AMPS of each of the Funds is entitled to one vote. Approval of the
Agreement and Plan of Reorganization requires the approval of each Fund. With
respect to each Fund, approval of the Agreement and Plan of Reorganization
requires the affirmative vote of stockholders representing (i) a majority of the
outstanding shares of the Fund's Common Stock and AMPS, voting together as a
single class, and (ii) a majority of the outstanding shares of the Fund's AMPS,
voting separately as a class.
Under Maryland law, stockholders of a registered investment company whose
shares are traded publicly on a national securities exchange, such as each of
the Acquired Funds, are not entitled to demand the fair
62
<PAGE> 67
value of their shares upon a transfer of assets; therefore, the common
stockholders of each of the Acquired Funds will be bound by the terms of the
Reorganization, if approved at the Meetings. However, any common stockholder of
an Acquired Fund may sell his or her shares of Common Stock at any time on the
NYSE. Conversely, since the AMPS are not traded publicly on a national
securities exchange, holders of AMPS issued by an Acquired Fund will be entitled
to appraisal rights upon the consummation of the Reorganization. As stockholders
of the corporation acquiring the assets of the Acquired Funds, neither holders
of MuniYield Michigan Common Stock nor holders of MuniYield Michigan AMPS are
entitled to appraisal rights under Maryland law.
With respect to the election of Directors of MuniHoldings Michigan,
assuming a quorum is present, holders of shares of MuniHoldings Michigan's AMPS,
voting separately as a class, are entitled to elect two Directors of the Fund
and holders of shares of the Fund's Common Stock and AMPS, voting together as a
single class, are entitled to elect the remaining Directors of the Fund.
Assuming a quorum is present, (x) election of the two Directors of MuniHoldings
Michigan to be elected by the holders of shares of that Fund's AMPS, voting
separately as a class, will require the affirmative vote of a plurality of the
votes cast by the holders of that Fund's AMPS, represented at the Meeting and
entitled to vote, voting together as a single class; and (y) election of the
remaining Directors of the Fund will require the affirmative vote of a plurality
of the votes cast by the holders of that Fund's Common Stock and AMPS,
represented at the Meeting and entitled to vote, voting together as a single
class.
Assuming a quorum is present, approval of the ratification of the selection
of the independent auditors of MuniHoldings Michigan will require the
affirmative vote of a majority of the votes cast by the holders of MuniHoldings
Michigan Common Stock and AMPS represented at the Meeting and entitled to vote,
voting together as a single class.
For purposes of each Meeting, a quorum consists of one-third of the shares
entitled to vote at the Meeting, present in person or by proxy. If, by the time
scheduled for each Meeting, a quorum of the applicable Fund's stockholders is
not present, or if a quorum is present but sufficient votes in favor of the
Agreement and Plan of Reorganization are not received from the stockholders of
the applicable Fund, the persons named as proxies may propose one or more
adjournments of the Meeting to permit further solicitation of proxies from
stockholders. Any such adjournment will require the affirmative vote of a
majority of the shares of the applicable Fund present in person or by proxy and
entitled to vote at the session of the Meeting to be adjourned. The persons
named as proxies will vote in favor of any such adjournment if they determine
that adjournment and additional solicitation are reasonable and in the interests
of the applicable Fund's stockholders.
APPRAISAL RIGHTS
Under Maryland law, a holder of AMPS of any of the Acquired Funds desiring
to receive payment of the fair value of his or her stock (an "objecting
stockholder") (i) must file with the applicable Acquired Fund a written
objection to the Reorganization at or before the Meeting, (ii) must not vote in
favor of the Reorganization (although a vote against the Reorganization is not
required), and (iii) must make written demand on MuniYield Michigan 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. A vote against the Reorganization will not be sufficient to
satisfy the requirement of a written demand under (ccc). (MuniYield Michigan is
required promptly to give written notice to all objecting stockholders of the
date that the Articles of Transfer are accepted for record). An objecting
stockholder who fails to adhere to this procedure will be bound by the terms of
the Reorganization. An objecting stockholder ceases to have any rights of a
stockholder except the right to receive fair value for his or her shares and has
no right to receive any dividends or distribution payable to such holders on a
record date after the close of business on the date on which fair value is to be
determined, which, for these purposes, will be the date of the Meeting. A demand
for payment of fair market value may not be withdrawn, except upon the consent
of MuniYield Michigan. 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.
63
<PAGE> 68
Under Maryland law, stockholders of a company whose shares are traded
publicly on a national securities exchange, such as each of the Acquired Funds,
are not entitled to demand the fair value of their shares upon a transfer of
assets; therefore, the common stockholders of each of the Acquired Funds will be
bound by the terms of the Reorganization, if approved at the Meetings. However,
any common stockholder of an Acquired Fund may sell his or her shares of Common
Stock at any time on the NYSE. Conversely, since the AMPS are not traded
publicly on a national securities exchange, holders of AMPS issued by an
Acquired Fund will be entitled to appraisal rights upon the consummation of the
Reorganization. As stockholders of the corporation acquiring the assets of the
Acquired Funds, neither holders of MuniYield Michigan Common Stock nor holders
of MuniYield Michigan AMPS are entitled to appraisal rights under Maryland law.
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 Michigan, the surviving fund after the Reorganization, so as
to be borne equally and exclusively on a per share basis by the holders of
Common Stock of each of the Funds. If the Reorganization is not approved, these
expenses will be allocated among the Funds according to the net asset value of
the Common Stock of each Fund on the Meeting date.
The Funds likewise will reimburse banks, brokers and others for their
reasonable expenses in forwarding proxy solicitation materials to the beneficial
owners of shares of each of the Funds and certain persons that the Funds may
employ for their reasonable expenses in assisting in the solicitation of proxies
from such beneficial owners of shares of capital stock of the Funds.
In order to obtain the necessary quorum at the Meetings, supplementary
solicitation may be made by mail, telephone, telegraph or personal interview by
officers of the Funds. Each of the Funds has retained Shareholder Communications
Corporation, 17 State Street, New York, New York 10004 to aid in the
solicitation of proxies, at a cost to be borne by each of the Funds of
approximately $7,500, plus out-of-pocket expenses.
Broker-dealer firms, including Merrill Lynch, holding Fund shares in
"street name" for the benefit of their customers and clients will request the
instructions of such customers and clients on how to vote their shares on 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 designated to vote on the election
of the Directors of MuniHoldings Michigan (Item 2.) and the ratification of the
selection of independent auditors for MuniHoldings Michigan (Item 3.) if no
instructions have been received prior to the date specified in the broker-dealer
firm's request for voting instructions. With respect to shares of Common Stock
of each Fund, broker-dealer firms, including Merrill Lynch, will not be
permitted to grant voting authority without instructions with respect to the
approval of the Agreement and Plan of Reorganization (Item 1). Shares of AMPS of
a Fund held in "street name," however, may be voted without instructions under
certain conditions by broker-dealer firms with respect to Item 1. and counted
for purposes of establishing a quorum of that Fund if no instructions are
received one business day before the Meeting or, if adjourned, one business day
before the day to which the Meeting is adjourned. With respect to each Fund,
these conditions include, among others, that (i) at least 30% of that Fund's
AMPS outstanding have voted on Item 1., (ii) less than 10% of that Fund's AMPS
outstanding have voted against Item 1. and (iii) holders of that Fund's Common
Stock have voted to approve Item 1. In such instances, the broker-dealer firm
will vote that Fund's shares of AMPS on Item 1. in the same proportion as the
votes cast by all holders of that Fund's AMPS who voted on Item 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 stockholders of each
Fund exists. Proxies that are returned to a Fund but that are marked "abstain"
or on which a broker-dealer has declined to vote on any proposal ("broker non-
votes") will be counted as present for the purposes of determining a quorum.
Merrill Lynch has advised the Funds that it intends to vote shares held in its
name for which no instructions are received, except as limited by agreement or
applicable law, on Items 2. and 3. (with respect to Common Stock and AMPS) and
Item 1. (with respect to AMPS only) in the same proportion as the votes received
from beneficial owners of those shares for which instructions have been
received, whether or not held in nominee name. Abstentions and
64
<PAGE> 69
broker non-votes will not be counted as votes cast. Abstentions and broker
non-votes, therefore, will not have an effect on the vote on Items 2. and 3.
Abstentions and broker non-votes will have the same effect as a vote against
Item 1.
This Proxy Statement and Prospectus does not contain all of the information
set forth in the registration statement and the exhibits relating thereto that
MuniYield Michigan has filed with the Commission under the Securities Act and
the Investment Company Act, to which reference is hereby made.
The Funds are subject to the informational requirements of the Exchange Act
and the Investment Company Act and in accordance therewith are required to file
reports, proxy statements and other information with the SEC. Any such reports,
proxy statements and other information can be inspected and copied at the public
reference facilities of the SEC at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the following regional offices of the SEC:
Regional Office, at Seven World Trade Center, Suite 1300, New York, New York
10048; Pacific Regional Office, at 5670 Wilshire Boulevard, 11th Floor, Los
Angeles, California 90036; and Midwest Regional Office, at Northwestern Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511.
Copies of such materials can be obtained from the public reference section of
the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
The SEC maintains a Web site at http://www.sec.gov containing reports, proxy and
information statements and other information regarding registrants, including
the Funds, that file electronically with the SEC. Reports, proxy statements and
other information concerning the Funds can also be inspected at the offices of
the New York Stock Exchange, 20 Broad Street, New York, New York 10005.
YEAR 2000 ISSUES
Many computer systems were designed using only two digits to designate
years. These systems may not be able to distinguish the Year 2000 from the Year
1900 (commonly known as the "Year 2000 Problem"). The Funds could be adversely
affected if the computer systems used by FAM or other Fund service providers do
not properly address this problem before January 1, 2000. FAM expects to have
addressed this problem before then, and does not anticipate that the services it
provides will be adversely affected. The Fund's other service providers have
told FAM that they also expect to resolve the Year 2000 Problem, and FAM will
continue to monitor the situation as the Year 2000 approaches. However, if the
problem has not been fully addressed, the Funds could be negatively affected.
The Year 2000 Problem could also have a negative impact on the issuers of
securities in which the Funds invest, and this could hurt the Funds' investment
returns.
CUSTODIAN
The Bank of New York acts as the custodian for cash and securities of
MuniYield Michigan, MuniVest Michigan and MuniHoldings Michigan. The principal
business address of The Bank of New York in such capacity is 90 Washington
Street, New York, New York 10286.
TRANSFER AGENT, DIVIDEND DISBURSING AGENT AND REGISTRAR
The Bank of New York serves as the transfer agent, dividend disbursing
agent and registrar with respect to the Common Stock of MuniYield Michigan,
MuniVest Michigan and MuniHoldings Michigan, pursuant to separate registrar,
transfer agency and service agreements with each of the Funds. The principal
business address of The Bank of New York in such capacity is 101 Barclay Street,
New York, New York 10286.
The Bank of New York serves as the transfer agent, registrar and auction
agent to MuniYield Michigan, MuniVest Michigan and MuniHoldings Michigan, in
connection with their respective AMPS. The principal business address of The
Bank of New York in such capacity is 101 Barclay Street, New York, New York
10286.
LEGAL PROCEEDINGS
There are no material legal proceedings to which any Fund is a party.
65
<PAGE> 70
LEGAL OPINIONS
Certain legal matters in connection with the Reorganization will be passed
upon for the Funds by Brown & Wood LLP, New York, New York.
EXPERTS
Ernst & Young LLP ("E&Y"), independent auditors, have audited the financial
statements and financial highlights of MuniYield Michigan as of October 31, 1998
as set forth in their report which appears in this Proxy Statement and
Prospectus. The financial statements and financial highlights are included in
reliance upon their report, given on their authority as experts in accounting
and auditing.
E&Y will serve as the independent auditors for the combined fund after the
reorganization. The principal business address of E&Y is 99 Wood Avenue South,
Iselin, New Jersey 08830.
The financial statements for the fiscal year ended October 31, 1998 and the
financial highlights for each of the five years then ended and the period April
30, 1993 to October 31, 1993 for MuniVest Michigan included in this Proxy
Statement and Prospectus have been so included in reliance on the reports of
Deloitte & Touche LLP ("D&T"), the independent auditors for MuniVest Michigan,
given on their authority as experts in auditing and accounting. The principal
business address of D&T is 117 Campus Drive, Princeton, New Jersey 08540.
STOCKHOLDER PROPOSALS
If a stockholder of MuniHoldings Michigan intends to present a proposal at
the 2000 Annual Meeting of Stockholders, which is anticipated to be held in
December 2000, and desires to have the proposal included in the Fund's proxy
statement and form of proxy for that meeting, the stockholder must deliver the
proposal to the offices of MuniHoldings Michigan by July 12, 2000.
By Order of the Boards of Directors
ALICE A. PELLEGRINO
Secretary of MuniYield Michigan
Insured Fund, Inc.,
MuniVest Michigan Insured Fund, Inc.
and
MuniHoldings Michigan Insured Fund,
Inc.
66
<PAGE> 71
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Audited Financial Statements for MuniYield Michigan Insured
Fund, Inc. for the Fiscal Year Ended October 31, 1998..... F-2
Unaudited Financial Statements for MuniYield Michigan
Insured Fund, Inc. for the Six-Month Period Ended April
30, 1999.................................................. F-13
Audited Financial Statements for MuniVest Michigan Insured
Fund, Inc. for the Fiscal Year Ended October 31, 1998..... F-23
Unaudited Financial Statements for MuniVest Michigan Insured
Fund, Inc. for the Six-Month Period Ended April 30,
1999...................................................... F-34
Unaudited Financial Statements for MuniHoldings Michigan
Insured Fund, Inc. for the Period January 29, 1999 to
March 31, 1999............................................ F-44
Unaudited Financial Statements for Pro Forma MuniYield
Michigan as of April 30, 1999............................. F-53
</TABLE>
F-1
<PAGE> 72
Audited Financial Statements for MuniYield Michigan Insured Fund, Inc.
for the Fiscal Year Ended October 31, 1998
F-2
<PAGE> 73
MuniYield Michigan Insured Fund, Inc.
October 31, 1998
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Board of Directors,
MuniYield Michigan Insured Fund, Inc.
We have audited the accompanying statement of assets, liabilities
and capital of MuniYield Michigan Insured Fund, Inc., including the
schedule of investments, as of October 31, 1998, 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 years indicated
therein. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and financial
highlights based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements
and financial highlights. Our procedures included confirmation of
securities owned as of October 31, 1998 by 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 Michigan Insured Fund, Inc. at
October 31, 1998, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in
the period then ended and financial highlights for each of the
indicated years, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Princeton, New Jersey
December 1, 1998
F-3
<PAGE> 74
MuniYield Michigan Insured Fund, Inc.
October 31, 1998
SCHEDULE OF INVESTMENTS (in Thousands)
<TABLE>
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
<S> <S> <C> <S> <C>
Michigan--95.3%
AAA Aaa $1,000 Bay City, Michigan, Electric Utility Revenue Bonds, 6.60% due 1/01/2001 (b)(f) $ 1,081
AAA Aaa 5,000 Bay City, Michigan, School District, UT, 6.50% due 5/01/2002 (b)(f) 5,524
AAA Aaa 2,500 Brighton, Michigan, Area School District, Refunding Bonds, UT, Series II,
4.90%** due 5/01/2015 (b) 1,119
AAA Aaa 1,250 Chelsea, Michigan, School District, UT, 5.875% due 5/01/2005 (c)(f) 1,394
Detroit, Michigan, Sewage Disposal Revenue Bonds:
AAA Aaa 2,500 6.625% due 7/01/2001 (c)(f) 2,737
AAA Aaa 1,000 Series A, 5% due 7/01/2027 (d) 985
Detroit, Michigan, Water Supply System Revenue Bonds:
AAA Aaa 5,000 Refunding, 6.25% due 7/01/2012 (c)(g) 5,505
AAA Aaa 3,220 Series A, 5% due 7/01/2021 (d) 3,177
AAA Aaa 2,500 Series A, 5% due 7/01/2027 (d) 2,459
AAA Aaa 1,000 Eastern Michigan University, Revenue Refunding Bonds, 6.375% due 6/01/2014 (b) 1,087
AAA Aaa 2,000 Ferris State University, Michigan Revenue Refunding Bonds, 5% due 10/01/2023 (b) 1,972
AAA Aaa 4,500 Grand Ledge, Michigan, Public Schools District, UT, 6.60% due 5/01/2004 (d)(f) 5,167
AAA Aaa 7,200 Grand Rapids, Michigan, Sanitary Sewer System, Revenue Refunding and Improvement
Bonds, Series A, 4.75% due 1/01/2028 (c) 6,851
AAA Aaa 3,000 Grand Rapids, Michigan, Water Supply System, Revenue Refunding Bonds, 6.25% due
1/01/2011 (c) 3,201
AAA Aaa 5,000 Grand Traverse County, Michigan, Hospital Finance Authority, Hospital Revenue
Refunding Bonds (Munson Healthcare), Series A, 6.25% due 7/01/2022 (b) 5,458
AAA Aaa 1,000 Grandville, Michigan, Public Schools District, Refunding Bonds, UT, 6.60% due
5/01/2005 (c)(f) 1,157
AAA Aaa 2,500 Greenville, Michigan, Public Schools Building, GO, UT, 5.75% due 5/01/2004 (d)(f) 2,746
AAA Aaa 1,700 Kalamazoo, Michigan, Hospital Finance Authority, Hospital Facility Revenue
Bonds (Borgess Medical Center), Series A, 5.625% due 6/01/2014 (b) 1,824
AAA Aaa 1,500 Kalamazoo, Michigan, Hospital Finance Authority, Hospital Facility, Revenue
Refunding and Improvement Bonds (Bronson Methodist), 5.75% due 5/15/2016 (d) 1,599
AAA Aaa 2,000 Kent, Michigan, Hospital Finance Authority, Health Care Revenue Bonds
(Butterworth Health Systems), Series A, 5.625% due 1/15/2006 (d)(f) 2,222
AAA Aaa 2,000 Kent, Michigan, Hospital Finance Authority, Hospital Facility Revenue Refunding
Bonds (Butterworth Hospital), Series A, 7.25% due 1/15/2013 (d) 2,492
</TABLE>
PORTFOLIO ABBREVIATIONS
To simplify the listings of MuniYield Michigan 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.
<TABLE>
<S> <C>
AMT Alternative Minimum Tax (subject to)
GO General Obligation Bonds
PCR Pollution Control Revenue Bonds
RITR Residual Interest Trust Receipts
UT Unlimited Tax
VRDN Variable Rate Demand Notes
</TABLE>
F-4
<PAGE> 75
MuniYield Michigan Insured Fund, Inc.
October 31, 1998
SCHEDULE OF INVESTMENTS (continued) (In Thousands)
<TABLE>
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
<S> <C> <C> <C> <C>
Michigan (continued)
AAA Aaa $4,000 Lakeshore, Michigan, Public Schools (Berrien County), UT, 5.70% due
5/01/2022 (d) $ 4,270
AAA Aaa 1,000 Leslie, Michigan, Public Schools (Ingham and Jackson Counties), Refunding
Bonds, Building and Site, UT, 6% due 5/01/2005 (b)(f) 1,122
AAA Aaa 2,000 Lincoln Park, Michigan, School District, UT, 7% due 5/01/2006 (c)(f) 2,393
Michigan Higher Education Student Loan Authority Revenue Bonds, VRDN, AMT (a)(b):
A1+ VMIG1++ 100 Series XII-D, 3.15% due 10/01/2015 100
AAA VMIG1++ 400 Series XII-F, 3.15% due 10/01/2020 400
AA+ Aa1 1,500 Michigan Municipal Bond Authority Revenue Bonds (Drinking Water Revolving
Fund), 4.75% due 10/01/2020 1,437
Michigan Municipal Bond Authority Revenue Bonds, Series A:
AAA Aaa 5,000 (Local Government Loan Program), 6.125% due 12/01/2018 (c) 5,590
AAA Aaa 1,035 Refunding (Local Government Loan Program), 6.50% due 5/01/2012 (b) 1,147
AAA Aaa 1,870 Refunding (Local Government Loan Program), 6.50% due 11/01/2012 (d) 2,073
AA+ Aa1 2,950 (State Revolving Fund), 6.55% due 10/01/2002 (f) 3,303
AA+ Aa1 2,000 (State Revolving Fund), 6.60% due 10/01/2002 (f) 2,243
Michigan State Hospital Finance Authority, Revenue Refunding Bonds:
AAA Aaa 2,500 (Mercy Health Services), Series T, 6.50% due 8/15/2013 (d) 2,871
AAA Aaa 1,250 (Mid-Michigan Obligation Group), Series A, 5.375% due 6/01/2027 (e) 1,280
AAA Aaa 1,100 (Sisters of Mercy Health Corp.), Series M, 6.25% due 2/15/2022 (e) 1,193
Michigan State Strategic Fund, Limited Obligation Revenue Bonds:
A A1 5,000 (Ford Motor Co. Project), AMT, Series A, 6.55% due 10/01/2022 5,383
AAA Aaa 2,500 Refunding (Detroit Edison Company), Series CC, 6.95% due 9/01/2021 (c) 2,735
BBB+ Baa1 2,500 (Waste Management Inc. Project), AMT, 6.625% due 12/01/2012 2,701
NR* P1 2,300 Michigan State Strategic Fund, PCR, Refunding (Consumers Power Project),
VRDN, Series A, 3.70% due 4/15/2018 (a) 2,300
AAA Aaa 5,000 Michigan State Trunk Line, Refunding Bonds, Series A, 4.75% due 11/01/2020 (d) 4,815
AAA Aaa 7,500 Monroe County, Michigan, Economic Development Corp., Limited Obligation,
Revenue Refunding Bonds (Detroit Edison Co. Project), Series AA, 6.95% due
9/01/2022 (c) 9,585
Monroe County, Michigan, PCR (Detroit Edison Co. Project), AMT (d):
AAA Aaa 4,500 Series CC, 6.55% due 6/01/2024 4,983
AAA Aaa 1,500 Series I-B, 6.55% due 9/01/2024 1,667
AAA Aaa 4,000 Northern Michigan University, Revenue Refunding Bonds, 5% due 12/01/2025 (d) 3,941
AAA Aaa 1,000 Oakland University, Michigan, General Revenue Bonds, 5.75% due 5/15/2026 (d) 1,079
AAA Aaa 1,870 Redford, Michigan, Unified School District No. 001, UT, 5.90% due 5/01/2006 (c)(f) 2,107
AAA Aaa 5,925 Riverview, Michigan, Community School District Building, UT, 6.70% due
5/01/2002 (c)(f) 6,584
Royal Oak, Michigan, Hospital Finance Authority Revenue Bonds:
AA- Aa3 2,620 Refunding (Beaumont Properties, Inc.), Series E, 6.625% due 1/01/2019 2,846
A1+ VMIG1++ 600 (William Beaumont Hospital), VRDN, Series J, 3.70% due 1/01/2003 (a) 600
</TABLE>
F-5
<PAGE> 76
MuniYield Michigan Insured Fund, Inc.
October 31, 1998
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
<TABLE>
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
<S> <C> <C> <C> <C>
Michigan (concluded)
AAA Aaa $7,000 Saint Clair County, Michigan, Economic Development Corp., PCR, Refunding
(Detroit Edison Co. Project), Series AA, 6.40% due 8/01/2024 (b) $ 7,946
AAA Aaa 5,000 Wayne Charter County, Michigan, Airport Revenue Bonds (Detroit Metropolitan--
Wayne County), AMT, Series A, 5.375% due 12/01/2017 (d) 5,159
AAA Aaa 5,500 Wyandotte, Michigan, Electric Revenue Refunding Bonds, 6.25% due 10/01/2017 (d) 6,039
Puerto Rico--2.3%
AAA Aaa 3,500 Puerto Rico, RITR, Series 14, 7.02% due 7/01/2027 (d)(h) 3,776
Total Investments (Cost--$149,548)--97.6% 163,425
Other Assets Less Liabilities--2.4% 4,086
--------
Net Assets--100.0% $167,511
========
</TABLE>
(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, 1998.
(b)AMBAC Insured.
(c)FGIC Insured.
(d)MBIA Insured.
(e)FSA Insured.
(f)Prerefunded.
(g)Escrowed to maturity.
(h)The interest is subject to change periodically and inversely
based upon prevailing market rates. The interest rate shown is the
rate in effect at October 31, 1998.
*Not Rated.
**Represents a zero coupon bond; the interest rate shown is the
effective yield at the time of purchase by the Fund.
++Highest short-term rating issued by Moody's Investors Service,
Inc.
Ratings of issues shown have not been audited by Ernst & Young LLP.
See Notes to Financial Statements.
QUALITY PROFILE
The quality ratings of securities in the Fund as of October 31, 1998
were as follows:
<TABLE>
<CAPTION>
Percent of
S&P Rating/Moody's Rating Net Assets
<S> <C>
AAA/Aaa 84.9%
AA/Aa 5.9
A/A 3.2
BBB/Baa 1.6
Other++ 2.0
</TABLE>
++ Temporary investments in short-term municipal securities.
F-6
<PAGE> 77
MuniYield Michigan Insured Fund, Inc.
October 31, 1998
FINANCIAL INFORMATION
Statement of Assets, Liabilities and Capital as of October 31, 1998
<TABLE>
<CAPTION>
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$149,547,613) (Note 1a) $163,424,908
Cash 51,226
Receivables:
Securities sold $ 3,813,768
Interest 3,002,981 6,816,749
------------
Prepaid expenses and other assets 7,831
------------
Total assets 170,300,714
------------
Liabilities: Payables:
Securities purchased 2,489,639
Dividends to shareholders (Note 1e) 143,190
Investment adviser (Note 2) 73,830 2,706,659
------------
Accrued expenses and other liabilities 83,055
------------
Total liabilities 2,789,714
------------
Net Assets: Net assets $167,511,000
============
Capital: Capital Stock (200,000,000 shares authorized) (Note 4):
Preferred Stock, par value $.05 per share (2,000 shares of
AMPS* issued and outstanding at $25,000 per share
liquidation preference) $ 50,000,000
Common Stock, par value $.10 per share (7,374,470 shares
issued and outstanding) $ 737,447
Paid-in capital in excess of par 102,771,398
Undistributed investment income--net 1,335,516
Accumulated realized capital losses on investments--net (742,116)
Distributions in excess of realized capital gains on
investments--net (468,540)
Unrealized appreciation on investments--net 13,877,295
------------
Total--Equivalent to $15.93 net asset value per share of
Common Stock (market price--$15.875) 117,511,000
------------
Total capital $167,511,000
============
</TABLE>
*Auction Market Preferred Stock.
See Notes to Financial Statements.
F-7
<PAGE> 78
MuniYield Michigan Insured Fund, Inc.
October 31, 1998
FINANCIAL INFORMATION (continued)
Statement of Operations
<TABLE>
<CAPTION>
For the Year Ended
October 31, 1998
<S> <S> <C> <C>
Investment Income Interest and amortization of premium and discount earned $ 9,151,454
(Note 1d):
Expenses: Investment advisory fees (Note 2) $ 828,004
Commission fees (Note 4) 126,880
Professional fees 83,887
Accounting services (Note 2) 66,906
Transfer agent fees 32,905
Directors' fees and expenses 26,147
Listing fees 13,468
Custodian fees 10,863
Printing and shareholder reports 10,286
Pricing fees 7,661
Other 13,255
------------
Total expenses 1,220,262
------------
Investment income--net 7,931,192
------------
Realized & Realized gain on investments--net 2,178,434
Unrealized Change in unrealized appreciation on investments--net 1,189,382
Gain on ------------
Investments--Net Net Increase in Net Assets Resulting from Operations $ 11,299,008
(Notes 1b, ============
1d & 3):
</TABLE>
See Notes to Financial Statements.
F-8
<PAGE> 79
MuniYield Michigan Insured Fund, Inc.
October 31, 1998
FINANCIAL INFORMATION (continued)
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
For the Year Ended
October 31,
Increase (Decrease) in Net Assets: 1998 1997
<S> <S> <C> <C>
Operations: Investment income--net $ 7,931,192 $ 8,105,030
Realized gain on investments--net 2,178,434 5,299
Change in unrealized appreciation on investments--net 1,189,382 2,374,425
------------ ------------
Net increase in net assets resulting from operations 11,299,008 10,484,754
------------ ------------
Dividends & Investment income--net:
Distributions to Common Stock (6,148,457) (6,228,883)
Shareholders Preferred Stock (1,563,380) (1,697,060)
(Note 1e): In excess of realized gain on investments--net:
Common Stock (266,100) --
Preferred Stock (202,440) --
------------ ------------
Net decrease in net assets resulting from dividends and
distributions to shareholders (8,180,377) (7,925,943)
------------ ------------
Net Assets: Total increase in net assets 3,118,631 2,558,811
Beginning of year 164,392,369 161,833,558
------------ ------------
End of year* $167,511,000 $164,392,369
============ ============
$ 1,335,516 $ 1,114,543
============ ============
</TABLE>
*Undistributed investment income--net (Note 1f)
See Notes to Financial Statements.
F-9
<PAGE> 80
MuniYield Michigan Insured Fund, Inc.
October 31, 1998
FINANCIAL INFORMATION (concluded)
Financial Highlights
The following per share data and ratios have been derived
from information provided in the financial statements.
<TABLE>
<CAPTION>
For the Year Ended October 31,
Increase (Decrease) in Net Asset Value: 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 15.51 $ 15.16 $ 15.13 $ 13.70 $ 16.55
Operating -------- -------- -------- -------- --------
Performance: Investment income--net 1.07 1.09 1.11 1.13 1.13
Realized and unrealized gain (loss) on
investments--net .46 .33 .03 1.71 (2.76)
-------- -------- -------- -------- --------
Total from investment operations 1.53 1.42 1.14 2.84 (1.63)
-------- -------- -------- -------- --------
Less dividends and distributions to Common
Stock shareholders:
Investment income--net (.83) (.84) (.87) (.86) (.91)
Realized gain on investments--net -- -- -- (.26) (.08)
In excess of realized gain on
investments--net (.04) -- -- -- --
-------- -------- -------- -------- --------
Total dividends and distributions to Common
Stock shareholders (.87) (.84) (.87) (1.12) (.99)
-------- -------- -------- -------- --------
Effect of Preferred Stock activity:
Dividends and distributions to Preferred
Stock shareholders:
Investment income--net (.21) (.23) (.24) (.23) (.21)
Realized gain on investments--net -- -- -- (.06) (.02)
In excess of realized gain on
investments--net (.03) -- -- -- --
-------- -------- -------- -------- --------
Total effect of Preferred Stock activity (.24) (.23) (.24) (.29) (.23)
-------- -------- -------- -------- --------
Net asset value, end of year $ 15.93 $ 15.51 $ 15.16 $ 15.13 $ 13.70
======== ======== ======== ======== ========
Market price per share, end of year $ 15.875 $ 14.50 $ 14.25 $ 13.50 $ 11.875
======== ======== ======== ======== ========
Total Investment Based on market price per share 16.03% 8.00% 12.14% 23.73% (23.52%)
Return:* ======== ======== ======== ======== ========
Based on net asset value per share 8.85% 8.58% 6.45% 20.20% (11.36%)
======== ======== ======== ======== ========
Ratios to Average Expenses .74% .74% .75% .78% .78%
Net Assets:** ======== ======== ======== ======== ========
Investment income--net 4.79% 4.96% 5.03% 5.44% 5.07%
======== ======== ======== ======== ========
Supplemental Net assets, net of Preferred Stock, end of
Data: year (in thousands) $117,511 $114,392 $111,834 $111,600 $101,047
======== ======== ======== ======== ========
Preferred Stock outstanding, end of year
(in thousands) $ 50,000 $ 50,000 $ 50,000 $ 50,000 $ 50,000
======== ======== ======== ======== ========
Portfolio turnover 41.65% 16.68% 21.82% 41.11% 21.76%
======== ======== ======== ======== ========
Leverage: Asset coverage per $1,000 $ 3,350 $ 3,288 $ 3,237 $ 3,232 $ 3,201
======== ======== ======== ======== ========
Dividends Investment income--net $ 782 $ 849 $ 882 $ 836 $ 771
Per Share on ======== ======== ======== ======== ========
Preferred Stock
Outstanding:++
</TABLE>
* Total investment returns based on market value, which can be significantly
greater or lesser than the net asset value, may result in substantially
different returns. Total investment returns exclude the effects of sales
loads.
** Do not reflect the effect of dividends to Preferred Stock shareholders.
++ Dividends per share have been adjusted to reflect a two-for-one stock split
that occurred on December 1, 1994.
See Notes to Financial Statements.
F-10
<PAGE> 81
MuniYield Michigan Insured Fund, Inc.
October 31, 1998
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
MuniYield Michigan 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 MIY. The following is a
summary of significant accounting policies followed by the Fund.
(a) Valuation of investments--Municipal bonds are traded primarily
in the over-the-counter markets and are valued at the most recent
bid price or yield equivalent as obtained by the Fund's pricing
service from dealers that make markets in such securities. Financial
futures contracts and options thereon, which are traded on
exchanges, are valued at their closing prices as of the close of
such exchanges. Options written or purchased are valued at the last
sale price in the case of exchange-traded options. In the case of
options traded in the over-the-counter market, valuation is the last
asked price (options written) or the last bid price (options
purchased). Securities with remaining maturities of sixty days or
less are valued at amortized cost, which approximates market value.
Securities and assets for which market quotations are not readily
available are valued at fair value as determined in good faith by or
under the direction of the Board of Directors of the Fund, including
valuations furnished by a pricing service retained by the Fund,
which may utilize a matrix system for valuations. The procedures of
the pricing service and its valuations are reviewed by the officers
of the Fund under the general supervision of the Board of Directors.
(b) Derivative financial instruments--The Fund may engage in various
portfolio strategies to seek to increase its return by hedging its
portfolio against adverse movements in the debt markets. Losses may
arise due to changes in the value of the contract or if the
counterparty does not perform under the contract.
* Financial futures contracts--The Fund may purchase or sell
financial futures contracts and options on such futures contracts
for the purpose of hedging the market risk on existing securities or
the intended purchase of securities. Futures contracts are contracts
for delayed delivery of securities at a specific future date and at
a specific price or yield. Upon entering into a contract, the Fund
deposits and maintains as collateral such initial margin as required
by the exchange on which the transaction is effected. Pursuant to
the contract, the Fund agrees to receive from or pay to the broker
an amount of cash equal to the daily fluctuation in value of the
contract. Such receipts or payments are known as variation margin
and are recorded by the Fund as unrealized gains or losses. When the
contract is closed, the Fund records a realized gain or loss equal
to the difference between the value of the contract at the time it
was opened and the value at the time it was closed.
* Options--The Fund is authorized to write covered call options and
purchase put options. When the Fund writes an option, an amount
equal to the premium received by the Fund is reflected as an asset
and an equivalent liability. The amount of the liability is
subsequently marked to market to reflect the current market value of
the option written.
When a security is purchased or sold through an exercise of an
option, the related premium paid (or received) is added to (or
deducted from) the basis of the security acquired, or deducted from
(or added to) the proceeds of the security sold. When an option
expires (or the Fund enters into a closing transaction), the Fund
realizes a gain or loss on the option to the extent of the premiums
received or paid (or gain or loss to the extent the cost of the
closing transaction exceeds the premium paid or received).
Written and purchased options are non-income producing investments.
(c) Income taxes--It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of its
taxable income to its shareholders. Therefore, no Federal income tax
provision is required.
(d) Security transactions and investment income--Security
transactions are recorded on the dates the transactions are entered
into (the trade dates). Interest income is recognized on the accrual
basis. Discounts and market premiums are amortized into interest
income. Realized gains and losses on security transactions are
determined on the identified cost basis.
(e) Dividends and distributions--Dividends from net investment
income are declared and paid monthly. Distributions of capital gains
are recorded
F-11
<PAGE> 82
MuniYield Michigan Insured Fund, Inc.
October 31, 1998
on the ex-dividend dates. Distributions in excess of realized capital gains are
due primarily to differing tax treatments for post-October losses.
(f) Reclassification--Generally accepted accounting principles
require that certain components of net assets be adjusted to reflect
permanent differences between financial and tax reporting.
Accordingly, current year's permanent book/tax differences of $1,618
have been reclassified between accumulated net realized capital
losses and undistributed net investment income and $9 has been
reclassified between paid-in capital in excess of par and
accumulated net realized capital losses. These reclassifications
have no effect on net assets or net asset value per share.
2. Investment Advisory Agreement and
Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with Fund
Asset Management, L.P. ("FAM"). The general partner of FAM is
Princeton Services, Inc. ("PSI"), an indirect wholly-owned
subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is the
limited partner.
FAM is responsible for the management of the Fund's portfolio and
provides the necessary personnel, facilities, equipment and certain
other services necessary to the operations of the Fund. For such
services, the Fund pays a monthly fee at an annual rate of 0.50% of
the Fund's average weekly net assets, including proceeds from the
issuance of Preferred Stock.
Accounting services are provided to the Fund by FAM at cost.
Certain officers and/or directors of the Fund are officers and/or
directors of FAM, PSI, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the year ended October 31, 1998 were $66,102,353 and
$68,409,524, respectively.
Net realized gains for the year ended October 31, 1998 and net
unrealized gains as of October 31, 1998 were as follows:
<TABLE>
<CAPTION>
Realized Unrealized
Gains Gains
<S> <C> <C>
Long-term investments $2,178,434 $13,877,295
---------- -----------
Total $2,178,434 $13,877,295
========== ===========
</TABLE>
As of October 31, 1998, net unrealized appreciation for Federal
income tax purposes aggregated $13,877,295, of which $13,947,402
related to appreciated securities and $70,107 related to depreciated
securities. The aggregate cost of investments at October 31, 1998
for Federal income tax purposes was $149,547,613.
4. Capital Stock Transactions:
The Fund is authorized to issue 200,000,000 shares of capital stock,
including Preferred Stock, par value $.10 per share, all of which
were initially classified as Common Stock. The Board of Directors is
authorized, however, to reclassify any unissued shares of capital
stock without approval of holders of Common Stock.
Common Stock
Shares issued and outstanding during the years ended October 31,
1998 and October 31, 1997 remained constant.
Preferred Stock
Auction Market Preferred Stock ("AMPS") are shares of Preferred
Stock of the Fund, with a par value of $.05 per share and a
liquidation preference of $25,000 per share, that entitle their
holders to receive cash dividends at an annual rate that may vary
for the successive dividend periods. The yield in effect at October
31, 1998 was 2.50%.
Shares issued and outstanding during the years ended October 31,
1998 and October 31, 1997 remained constant.
The Fund pays commissions to certain broker-dealers at the end of
each auction at an annual rate ranging from 0.25% to 0.375%,
calculated on the proceeds of each auction. For the year ended
October 31, 1998, Merrill Lynch, Pierce, Fenner & Smith Inc., an
affiliate of FAM, earned $93,113 as commissions.
5. Subsequent Event:
On November 5, 1998, the Fund's Board of Directors declared an
ordinary income dividend to Common Stock shareholders in the amount
of $.076165 per share, payable on November 27, 1998 to shareholders
of record as of November 20, 1998.
F-12
<PAGE> 83
Unaudited Financial Statements for MuniYield Michigan Insured Fund, Inc.
for the Six-Month Period Ended April 30, 1999
F-13
<PAGE> 84
MuniYield Michigan Insured Fund, Inc.
April 30, 1999
SCHEDULE OF INVESTMENTS (in Thousands)
<TABLE>
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
<S> <S> <C> <S> <C>
Michigan--97.5%
AAA Aaa $1,250 Chelsea, Michigan, School District, GO, 5.875% due 5/01/2005 (c)(f) $ 1,382
Delta County, Michigan, Economic Development Corporation, Environmental
Improvement Revenue Refunding Bonds (Mead-Escanaba Paper), DATES (a):
NR* P1 2,000 Series D, 4.20% due 12/01/2023 2,000
NR* P1 500 Series E, 4.20% due 12/01/2023 500
Detroit, Michigan, Water Supply System Revenue Bonds, Senior Lien,
Series A (d):
AAA Aaa 3,220 5% due 7/01/2021 3,152
AAA Aaa 3,550 5% due 7/01/2027 3,451
AAA Aaa 5,000 Detroit, Michigan, Water Supply System, Revenue Refunding Bonds, 6.25%
due 7/01/2002 (c)(f) 5,457
AAA Aaa 1,000 Eastern Michigan University, General Revenue Refunding Bonds, 6.375%
due 6/01/2014 (b) 1,080
AAA Aaa 1,995 Eaton Rapids, Michigan, Public Schools, GO, Refunding, 5% due 5/01/2022 (d) 1,952
AAA Aaa 2,460 Fenton, Michigan, Area Public Schools, GO, 5% due 5/01/2021 (c) 2,409
AAA Aaa 4,500 Grand Ledge, Michigan, Public Schools District, GO, 6.60% due 5/01/2004 (d)(f) 5,119
AAA Aaa 3,000 Grand Rapids, Michigan, Water Supply System, Revenue Refunding Bonds, 6.25%
due 1/01/2011 (c) 3,169
Grand Traverse County, Michigan, Hospital Revenue Refunding Bonds (Munson
Healthcare), Series A (b):
AAA NR* 3,335 6.25% due 7/01/2002 (f) 3,646
AAA Aaa 2,500 5.50% due 7/01/2018 2,582
AAA Aaa 1,665 6.25% due 7/01/2022 1,801
AAA Aaa 1,000 Grandville, Michigan, Public Schools District, GO, Refunding, 6.60% due
5/01/2005 (c)(f) 1,144
AAA Aaa 2,500 Greenville, Michigan, Public Schools, GO, 5.75% due 5/01/2004 (d)(f) 2,728
AAA Aaa 1,770 Holly, Michigan, Area School District, GO, Refunding, 5% due 5/01/2022 (c) 1,732
AAA Aaa 1,700 Kalamazoo, Michigan, Hospital Finance Authority, Hospital Facility Revenue
Bonds (Borgess Medical Center), Series A, 5.625% due 6/01/2014 (b) 1,802
AAA Aaa 1,500 Kalamazoo, Michigan, Hospital Finance Authority, Hospital Facility Revenue
Refunding and Improvement Bonds (Bronson Methodist Hospital), 5.75%
due 5/15/2016 (d) 1,580
NR* Aaa 2,500 Kalamazoo, Michigan, Hospital Finance Authority, Hospital Facility
Revenue Refunding Bonds (Bronson Methodist Hospital), 5.50% due 5/15/2028 (d) 2,596
AAA Aaa 2,000 Kent, Michigan, Hospital Finance Authority, Health Care Revenue Bonds
(Butterworth Health Systems), Series A, 5.625% due 1/15/2006 (d)(f) 2,200
AAA Aaa 2,000 Kent, Michigan, Hospital Finance Authority, Hospital Revenue Refunding
Bonds (Butterworth Hospital), Series A, 7.25% due 1/15/2013 (d) 2,452
</TABLE>
PORTFOLIO ABBREVIATIONS
To simplify the listings of MuniYield Michigan 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.
<TABLE>
<S> <C>
AMT Alternative Minimum Tax (subject to)
DATES Daily Adjustable Tax-Exempt Securities
GO General Obligation Bonds
HDA Housing Development Authority
PCR Pollution Control Revenue Bonds
RIB Residual Interest Bonds
RITR Residual Interest Trust Receipts
VRDN Variable Rate Demand Notes
</TABLE>
F-14
<PAGE> 85
MuniYield Michigan Insured Fund, Inc.
April 30, 1999
SCHEDULE OF INVESTMENTS (continued) (in Thousands)
<TABLE>
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
<S> <S> <C> <C> <C>
Michigan (continued)
AAA Aaa $4,000 Lakeshore, Michigan, Public Schools, GO, 5.70% due 5/01/2022 (d) $ 4,227
AAA Aaa 1,000 Leslie, Michigan, Ingham and Jackson Counties Public Schools, GO, Refunding,
6% due 5/01/2005 (b)(f) 1,113
AAA Aaa 2,000 Lincoln Park, Michigan, School District, GO, 7% due 5/01/2006 (c)(f) 2,364
AAA VMIG1++ 100 Michigan Higher Education, Student Loan Revenue Bonds, VRDN, AMT, Series
XII-D, 3.95% due 10/01/2015 (a)(b) 100
Michigan Municipal Bond Authority Revenue Bonds:
AA+ Aa1 1,500 (Drinking Water Revolving Fund), 4.75% due 10/01/2020 1,419
AA+ Aa1 2,000 (State Revolving Fund), Series A, 6.60% due 10/01/2002 (f) 2,220
Michigan Municipal Bond Authority, Revenue Refunding Bonds (Local Government
Loan Program), Series A:
AAA Aaa 1,035 6.50% due 5/01/2012 (b) 1,138
AAA Aaa 1,870 6.50% due 11/01/2012 (d) 2,055
AAA Aaa 5,000 6.125% due 12/01/2018 (c) 5,533
AAA Aaa 1,100 Michigan State Building Authority, Revenue Refunding Bonds (Facilities
Program), Series I, 5.50% due 10/01/2006 (b) 1,192
Michigan State, HDA, Rental Housing Revenue Bonds (d):
AAA Aaa 1,000 AMT, Series A, 5.30% due 10/01/2037 993
AAA Aaa 1,500 Series B, 5.10% due 10/01/2019 1,496
Michigan State Hospital Finance Authority, Revenue Refunding Bonds:
AAA Aaa 2,500 (Mercy Health Services), Series T, 6.50% due 8/15/2013 (d) 2,832
AAA Aaa 1,250 (Mid-Michigan Obligation Group), Series A, 5.375% due 6/01/2027 (e) 1,267
AAA Aaa 1,100 (Sisters of Mercy Health Corp.), Series M, 6.25% due 2/15/2022 (e) 1,184
Michigan State Strategic Fund, Limited Obligation Revenue Bonds, AMT:
A A1 5,000 (Ford Motor Company Project), Series A, 6.55% due 10/01/2022 5,364
BBB+ Baa3 2,500 (Waste Management Inc. Project), 6.625% due 12/01/2012 2,681
NR* P1 700 Michigan State Strategic Fund, PCR, Refunding (Consumers Power Project),
VRDN, 4.20% due 4/15/2018 (a) 700
AAA Aaa 4,000 Michigan State Trunk Line, Revenue Refunding Bonds, Series A, 4.75% due
11/01/2020 (d) 3,798
AAA Aaa 7,500 Monroe County, Michigan, Economic Development Corp., Limited Obligation Revenue
Refunding Bonds (Detroit Edison Co. Project), Series AA, 6.95% due 9/01/2022 (c) 9,428
Monroe County, Michigan, PCR (Detroit Edison Company), AMT (d):
AAA Aaa 4,500 Series CC, 6.55% due 6/01/2024 4,946
AAA Aaa 1,500 Series I-B, 6.55% due 9/01/2024 1,655
AAA Aaa 2,390 Muskegon Heights, Michigan, Public Schools, GO, 5% due 5/01/2024 (d) 2,330
AAA Aaa 4,000 Northern Michigan University, Revenue Refunding Bonds, 5% due 12/01/2025 (d) 3,891
AAA Aaa 1,000 Oakland University, Michigan, Revenue Bonds, 5.75% due 5/15/2026 (d) 1,068
AAA Aaa 1,870 Redford, Michigan, Unified School District, GO, 5.90% due 5/01/2006 (c)(f) 2,086
AAA Aaa 5,925 Riverview, Michigan, Community School District, GO, 6.70% due 5/01/2002 (c)(f) 6,513
Royal Oak, Michigan, Hospital Finance Authority, Hospital Revenue Bonds
(William Beaumont Hospital), VRDN (a):
A1+ VMIG1++ 500 Series J, 4.20% due 1/01/2003 500
AA VMIG1++ 4,200 Series L, 4.20% due 1/01/2027 (d) 4,200
AA Aa3 2,620 Royal Oak, Michigan, Hospital Finance Authority Revenue Bonds (Beaumont
Properties, Inc.), Series E, 6.625% due 1/01/2019 2,813
</TABLE>
F-15
<PAGE> 86
MuniYield Michigan Insured Fund, Inc.
April 30, 1999
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
<TABLE>
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
<S> <C> <C> <C> <C>
Michigan (concluded)
AAA Aaa $7,000 Saint Clair County, Michigan, Economic Revenue Refunding Bonds (Detroit
Edison Co. Project), Series AA, 6.40% due 8/01/2024 (b) $ 7,874
AAA Aaa 1,225 Three Rivers, Michigan, Community Schools, GO, Refunding, 5% due 5/01/2023 (e) 1,198
A1+ VMIG1++ 500 University of Michigan, University Hospital Revenue Bonds, VRDN, Series A,
4.25% due 12/01/2027 (a) 500
University of Michigan, University Hospital, Revenue Refunding Bonds, VRDN (a):
A1+ VMIG1++ 2,100 Series A, 4.15% due 12/01/2019 2,100
A1+ NR* 2,300 Series A-2, 4.15% due 12/01/2024 2,300
AAA Aaa 1,500 Warren, Michigan, Water and Sewer Revenue Bonds, 5.25% due 11/01/2026 (e) 1,511
NR* NR* 2,500 Wayne Charter County, Michigan, Airport Revenue Bonds, RIB, AMT, Series 68,
6.795% due 12/01/2017 (d)(g) 2,615
AAA Aaa 5,500 Wyandotte, Michigan, Electric Revenue Refunding Bonds, 6.25% due 10/01/2017 (d) 5,991
AAA Aaa 1,750 Ypsilanti, Michigan, School District, GO, Refunding, 5.375% due 5/01/2026 (c) 1,782
Puerto Rico--2.2%
NR* NR* 3,500 Puerto Rico, Insured Trust Receipts, RITR, 6.42% due 7/01/2027 (d)(g) 3,706
Total Investments (Cost--$153,703)--99.7% 164,617
Other Assets Less Liabilities--0.3% 415
--------
Net Assets--100.0% $165,032
========
</TABLE>
(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, 1999.
(b)AMBAC Insured.
(c)FGIC Insured.
(d)MBIA Insured.
(e)FSA Insured.
(f)Prerefunded.
(g)The interest rate is subject to change periodically and inversely
based upon prevailing market rates. The interest rate shown is the
rate in effect at April 30, 1999.
*Not Rated.
++Highest short-term rating by Moody's Investors Service, Inc.
See Notes to Financial Statements.
QUALITY PROFILE
The quality ratings of securities in the Fund as of April 30, 1999
were as follows:
<TABLE>
<CAPTION>
Percent of
S&P Rating/Moody's Rating Net Assets
<S> <C>
AAA/Aaa 79.3%
AA/Aa 3.9
A/A 3.3
BBB/Baa 1.6
NR (Not Rated) 3.8
Other++ 7.8
</TABLE>
++Temporary investments in short-term municipal securities.
F-16
<PAGE> 87
MuniYield Michigan Insured Fund, Inc.
April 30, 1999
FINANCIAL INFORMATION
Statement of Assets, Liabilities and Capital as of April 30, 1999
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Assets: Investments, at value (identified cost--$153,702,799) (Note 1a) $164,617,268
Cash 74,937
Interest receivable 2,919,876
Prepaid expenses and other assets 7,831
------------
Total assets 167,619,912
------------
Liabilities: Payables:
Securities purchased $ 2,349,800
Dividends to shareholders (Note 1e) 142,781
Investment adviser (Note 2) 72,542 2,565,123
------------
Accrued expenses and other liabilities 22,563
------------
Total liabilities 2,587,686
------------
Net Assets: Net assets $165,032,226
============
Capital: Capital Stock (200,000,000 shares authorized) (Note 4):
Preferred Stock, par value $.05 per share (2,000 shares
of AMPS* issued and outstanding at $25,000 per share
liquidation preference) $ 50,000,000
Common Stock, par value $.10 per share (7,431,634 shares
issued and outstanding) $ 743,163
Paid-in capital in excess of par 103,660,153
Undistributed investment income--net 1,372,752
Accumulated realized capital losses on investments--net (1,189,771)
Distributions in excess of realized capital gains on
investments--net (Note 1e) (468,540)
Unrealized appreciation on investments--net 10,914,469
------------
Total--Equivalent to $15.48 net asset value per share of
Common Stock (market price--$14.8125) 115,032,226
------------
Total capital $165,032,226
============
</TABLE>
* Auction Market Preferred Stock.
See Notes to Financial Statements.
F-17
<PAGE> 88
MuniYield Michigan Insured Fund, Inc.
April 30, 1999
FINANCIAL INFORMATION (continued)
Statement of Operations
<TABLE>
<CAPTION>
For the Six Months Ended
April 30, 1999
<S> <C> <C> <C>
Investment Income Interest and amortization of premium and discount earned $ 4,499,480
(Note 1d):
Expenses: Investment advisory fees (Note 2) $ 414,626
Commission fees (Note 4) 65,299
Professional fees 44,759
Accounting services (Note 2) 32,292
Transfer agent fees 22,948
Directors' fees and expenses 14,074
Listing fees 8,340
Printing and shareholder reports 7,739
Custodian fees 5,619
Pricing fees 4,275
Other 8,750
------------
Total expenses 628,721
------------
Investment income--net 3,870,759
------------
Realized & Realized gain on investments--net 1,353,720
Unrealized Change in unrealized appreciation on investments--net (2,962,826)
Gain (Loss)on ------------
Investments--Net Net Increase in Net Assets Resulting from Operations $ 2,261,653
(Notes 1b, ============
1d & 3):
</TABLE>
See Notes to Financial Statements.
F-18
<PAGE> 89
MuniYield Michigan Insured Fund, Inc.
April 30, 1999
FINANCIAL INFORMATION (continued)
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
For the Six For the
Months Ended Year Ended
April 30, October 31,
Increase (Decrease) in Net Assets: 1999 1998
<S> <C> <C> <C>
Operations: Investment income--net $ 3,870,759 $ 7,931,192
Realized gain on investments--net 1,353,720 2,178,434
Change in unrealized appreciation on investments--net (2,962,826) 1,189,382
------------ ------------
Net increase in net assets resulting from operations 2,261,653 11,299,008
------------ ------------
Dividends & Investment income--net:
Distributions to Common Stock (3,277,923) (6,148,457)
Shareholders Preferred Stock (555,600) (1,563,380)
(Note 1e): Realized gain on investments--net:
Common Stock (1,552,255) --
Preferred Stock (249,120) --
In excess of realized gain on investments--net:
Common Stock -- (266,100)
Preferred Stock -- (202,440)
------------ ------------
Net decrease in net assets resulting from dividends and
distributions to shareholders (5,634,898) (8,180,377)
------------ ------------
Capital Stock Value of shares issued to Common Stock shareholders in
Transactions reinvestment of dividends and distributions 894,471 --
(Note 4): ------------ ------------
Net Assets: Total increase (decrease) in net assets (2,478,774) 3,118,631
Beginning of period 167,511,000 164,392,369
------------ ------------
End of period* $165,032,226 $167,511,000
------------ ------------
*Undistributed investment income--net $ 1,372,752 $ 1,335,516
============ ============
</TABLE>
See Notes to Financial Statements.
F-19
<PAGE> 90
MuniYield Michigan Insured Fund, Inc.
April 30, 1999
FINANCIAL INFORMATION (concluded)
Financial Highlights
<TABLE>
<CAPTION>
The following per share data and ratios have been derived For the Six
from information provided in the financial statements. Months Ended
April 30, For the Year Ended October 31,
Increase (Decrease) in Net Asset Value: 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 15.93 $ 15.51 $ 15.16 $ 15.13 $ 13.70
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .51 1.07 1.09 1.11 1.13
Realized and unrealized gain (loss) on
investments--net (.21) .46 .33 .03 1.71
-------- -------- -------- -------- --------
Total from investment operations .30 1.53 1.42 1.14 2.84
-------- -------- -------- -------- --------
Less dividends and distributions to Common
Stock shareholders:
Investment income--net (.44) (.83) (.84) (.87) (.86)
Realized gain on investments--net (.21) -- -- -- (.26)
In excess of realized gain on
investments--net -- (.04) -- -- --
-------- -------- -------- -------- --------
Total dividends and distributions to Common
Stock shareholders (.65) (.87) (.84) (.87) (1.12)
-------- -------- -------- -------- --------
Effect of Preferred Stock activity:
Dividends and distributions to Preferred
Stock shareholders:
Investment income--net (.07) (.21) (.23) (.24) (.23)
Realized gain on investments--net (.03) -- -- -- (.06)
In excess of realized gain on
investments--net -- (.03) -- -- --
-------- -------- -------- -------- --------
Total effect of Preferred Stock activity (.10) (.24) (.23) (.24) (.29)
-------- -------- -------- -------- --------
Net asset value, end of period $ 15.48 $ 15.93 $ 15.51 $ 15.16 $ 15.13
-------- -------- -------- -------- --------
Market price per share, end of period $14.8125 $ 15.875 $ 14.50 $ 14.25 $ 13.50
======== ======== ======== ======== ========
Total Investment Based on market price per share (2.71%)++ 16.03% 8.00% 12.14% 23.73%
Return:** ======== ======== ======== ======== ========
Based on net asset value per share 1.32%++ 8.85% 8.58% 6.45% 20.20%
======== ======== ======== ======== ========
Ratios to Average Expenses .76%* .74% .74% .75% .78%
Net Assets:*** ======== ======== ======== ======== ========
Investment income--net 4.67%* 4.79% 4.96% 5.03% 5.44%
======== ======== ======== ======== ========
Supplemental Net assets, net of Preferred Stock,
Data: end of period (in thousands) $115,032 $117,511 $114,392 $111,834 $111,600
======== ======== ======== ======== ========
Preferred Stock outstanding, end of
period (in thousands) $ 50,000 $ 50,000 $ 50,000 $ 50,000 $ 50,000
======== ======== ======== ======== ========
Portfolio turnover 22.93% 41.65% 16.68% 21.82% 41.11%
======== ======== ======== ======== ========
Leverage: Asset coverage per $1,000 $ 3,301 $ 3,350 $ 3,288 $ 3,237 $ 3,232
======== ======== ======== ======== ========
Dividends Investment income--net $ 278 $ 782 $ 849 $ 882 $ 836
Per Share on ======== ======== ======== ======== ========
Preferred Stock
Outstanding:
</TABLE>
* Annualized.
** Total investment returns based on market value, which can be significantly
greater or lesser than the net asset value, may result in substantially
different returns. Total investment returns exclude the effects of sales
loads.
*** Do not reflect the effect of dividends to Preferred Stock shareholders.
++ Aggregate total investment return.
See Notes to Financial Statements.
F-20
<PAGE> 91
MuniYield Michigan Insured Fund, Inc.
April 30, 1999
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
MuniYield Michigan Insured Fund, Inc. (the "Fund") is registered
under the Investment Company Act of 1940 as a non-diversified,
closed-end management investment company. The Fund's financial
statements are prepared in accordance with generally accepted
accounting principles which may require the use of management
accruals and estimates. These unaudited financial statements reflect
all adjustments which are, in the opinion of management, necessary
to a fair statement of the results for the interim period presented.
All such adjustments are of a normal recurring nature. The Fund
determines and makes available for publication the net asset value
of its Common Stock on a weekly basis. The Fund's Common Stock is
listed on the New York Stock Exchange under the symbol MIY. The
following is a summary of significant accounting policies followed
by the Fund.
(a) Valuation of investments--Municipal bonds are traded primarily
in the over-the-counter markets and are valued at the most recent
bid price or yield equivalent as obtained by the Fund's pricing
service from dealers that make markets in such securities. Financial
futures contracts and options thereon, which are traded on
exchanges, are valued at their closing prices as of the close of
such exchanges. Options written or purchased are valued at the last
sale price in the case of exchange-traded options. In the case of
options traded in the over-counter-market, valuation is the last
asked price (options written) or the last bid price (options
purchased). Securities with remaining maturities of sixty days or
less are valued at amortized cost, which approximates market value.
Securities and assets for which market quotations are not readily
available are valued at fair value as determined in good faith by or
under the direction of the Board of Directors of the Fund, including
valuations furnished by a pricing service retained by the Fund,
which may utilize a matrix system for valuations. The procedures of
the pricing service and its valuations are reviewed by the officers
of the Fund under the general supervision of the Board of Directors.
(b) Derivative financial instruments--The Fund may engage in various
portfolio strategies to seek to increase its return by hedging its
portfolio against adverse movements in the debt markets. Losses may
arise due to changes in the value of the contract or if the
counterparty does not perform under the contract.
* Financial futures contracts--The Fund may purchase or sell
financial futures contracts and options on such futures contracts
for the purpose of hedging the market risk on existing securities or
the intended purchase of securities. Futures contracts are contracts
for delayed delivery of securities at a specific future date and at
a specific price or yield. Upon entering into a contract, the Fund
deposits and maintains as collateral such initial margin as required
by the exchange on which the transaction is effected. Pursuant to
the contract, the Fund agrees to receive from or pay to the broker
an amount of cash equal to the daily fluctuation in value of the
contract. Such receipts or payments are known as variation margin
and are recorded by the Fund as unrealized gains or losses. When the
contract is closed, the Fund records a realized gain or loss equal
to the difference between the value of the contract at the time it
was opened and the value at the time it was closed.
* Options--The Fund is authorized to write covered call options and
purchase put options. When the Fund writes an option, an amount
equal to the premium received by the Fund is reflected as an asset
and an equivalent liability. The amount of the liability is
subsequently marked to market to reflect the current market value of
the option written.
When a security is purchased or sold through an exercise of an
option, the related premium paid (or received) is added to (or
deducted from) the basis of the security acquired, or deducted from
(or added to) the proceeds of the security sold. When an option
expires (or the Fund enters into a closing transaction), the Fund
realizes a gain or loss on the option to the extent of the premiums
received or paid (or gain or loss to the extent the cost of the
closing transaction exceeds the premium paid or received).
Written and purchased options are non-income producing investments.
(c) Income taxes--It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of its
taxable income to its shareholders. Therefore, no Federal income tax
provision is required.
(d) Security transactions and investment income--Security
transactions are recorded on the dates the transactions are entered
into (the trade dates). Interest income is recognized on the accrual
basis.
F-21
<PAGE> 92
MuniYield Michigan Insured Fund, Inc.
April 30, 1999
Discounts and market premiums are amortized into interest income.
Realized gains and losses on security transactions are determined on
the identified cost basis.
(e) Dividends and distributions--Dividends from net investment
income are declared and paid monthly. Distributions of capital gains
are recorded on the ex-dividend dates. Distributions in excess of
realized capital gains are due primarily to differing tax treatments
for post-October losses.
2. Investment Advisory Agreement and
Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with Fund
Asset Management, L.P. ("FAM"). The general partner of FAM is
Princeton Services, Inc. ("PSI"), an indirect wholly-owned
subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is the
limited partner.
FAM is responsible for the management of the Fund's portfolio and
provides the necessary personnel, facilities, equipment and certain
other services necessary to the operations of the Fund. For such
services, the Fund pays a monthly fee at an annual rate of 0.50% of
the Fund's average weekly net assets, including proceeds from the
issuance of Preferred Stock.
Accounting services are provided to the Fund by FAM at cost.
Certain officers and/or directors of the Fund are officers and/or
directors of FAM, PSI, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the six months ended April 30, 1999 were $30,526,235 and
$37,237,384, respectively.
Net realized gains for the six months ended April 30, 1999 and net
unrealized gains as of April 30, 1999 were as follows:
<TABLE>
<CAPTION>
Realized Unrealized
Gains Gains
<S> <C> <C>
Long-term investments $1,353,720 $10,914,469
---------- -----------
Total $1,353,720 $10,914,469
========== ===========
</TABLE>
As of April 30, 1999, net unrealized appreciation for Federal income
tax purposes aggregated $10,914,469, of which $11,123,383 related to
appreciated securities and $208,914 related to depreciated
securities. The aggregate cost of investments at April 30, 1999 for
Federal income tax purposes was $153,702,799.
4. Capital Stock Transactions:
The Fund is authorized to issue 200,000,000 shares of capital stock,
including Preferred Stock, par value $.10 per share, all of which
were initially classified as Common Stock. The Board of Directors is
authorized, however, to reclassify any unissued shares of capital
stock without approval of holders of Common Stock.
Common Stock
Shares issued and outstanding during the six months ended April 30,
1999 increased by 57,164 as a result of dividend reinvestment and
during the year ended October 31, 1998 remained constant.
Preferred Stock
Auction Market Preferred Stock ("AMPS") are shares of Preferred
Stock of the Fund, with a par value of $.05 per share and a
liquidation preference of $25,000 per share, that entitle their
holders to receive cash dividends at an annual rate that may vary
for the successive dividend periods. The yield in effect at April
30, 1999 was 3.55%.
Shares issued and outstanding during the six months ended April 30,
1999 and the year ended October 31, 1998 remained constant.
The Fund pays commissions to certain broker-dealers at the end of
each auction at an annual rate ranging from 0.25% to 0.375%,
calculated on the proceeds of each auction. For the six months ended
April 30, 1999, Merrill Lynch, Pierce, Fenner & Smith Incorporated,
an affiliate of FAM, earned $41,754 as commissions.
5. Subsequent Event:
On May 6, 1999, the Fund's Board of Directors declared an ordinary
income dividend to Common Stock shareholders in the amount of
$.065546 per share, payable on May 27, 1999 to shareholders of
record as of May 21, 1999.
F-22
<PAGE> 93
Audited Financial Statements for MuniVest Michigan Insured Fund, Inc.
for the Fiscal Year Ended October 31, 1998
F-23
<PAGE> 94
MuniVest Michigan Insured Fund, Inc., October 31, 1998
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders,
MuniVest Michigan Insured Fund, Inc.:
We have audited the accompanying statement of assets, liabilities and capital,
including the schedule of investments, of MuniVest Michigan Insured Fund, Inc.
as of October 31, 1998, the related statements of operations for the year then
ended and changes in net assets for each of the years in the two-year period
then ended, and the financial highlights for each of the years in the five-year
period then ended. These financial statements and 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, 1998 by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of MuniVest Michigan
Insured Fund, Inc. as of October 31, 1998, the results of its operations, the
changes in its net assets, and the financial highlights for the respective
stated periods in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
December 7, 1998
F-24
<PAGE> 95
SCHEDULE OF INVESTMENTS (in Thousands)
<TABLE>
<CAPTION>
S&P Moody's Face Value
STATE Ratings Ratings Amount Issue (Note 1a)
=================================================================================================================================
<S> <C> <C> <C> <C> <C>
Michigan--93.6% Belding, Michigan, Area Schools, UT (c):
AAA Aaa $ 785 6.05% due 5/01/2006 (f) $ 892
AAA Aaa 215 6.05% due 5/01/2021 240
--------------------------------------------------------------------------------------------------------------
AAA Aaa 1,000 Caledonia, Michigan, Community Schools, Refunding, UT, 6.625% due
5/01/2014 (b) 1,102
--------------------------------------------------------------------------------------------------------------
AAA Aaa 1,625 Central Michigan University Revenue Bonds, 5.50% due 4/01/2007 (c)(f) 1,798
--------------------------------------------------------------------------------------------------------------
AAA Aaa 1,000 Coldwater, Michigan, Community Schools, UT, 6.30% due 5/01/2004 (e)(f) 1,134
--------------------------------------------------------------------------------------------------------------
Delta County, Michigan, Economic Development Corporation, Environmental
Improvement Revenue Bonds (a):
NR* P1 200 (Mead Escanaba Paper), DATES, Series F, 3.70% due 12/01/2013 200
NR* P1 900 Refunding (Mead Escambia Paper), VRDN, Series C, 3.70% due 12/01/2023 900
--------------------------------------------------------------------------------------------------------------
Detroit, Michigan, Sewage Disposal Revenue Bonds:
AAA Aaa 4,100 6.625% due 7/01/2001 (c)(f) 4,488
AAA Aaa 5,500 Series A, 5% due 7/01/2027 (e) 5,417
--------------------------------------------------------------------------------------------------------------
Detroit, Michigan, Water Supply System Revenue Bonds, Series A (e):
AAA Aaa 3,200 5% due 7/01/2021 3,157
AAA Aaa 3,150 5% due 7/01/2027 3,098
--------------------------------------------------------------------------------------------------------------
AAA Aaa 5,250 Eastern Michigan University, General Revenue Bonds, 5.50% due
6/01/2027 (c) 5,540
--------------------------------------------------------------------------------------------------------------
AAA Aaa 2,000 Ferris State University, Michigan, General Revenue Refunding Bonds, 5%
due 10/01/2023 (b) 1,972
--------------------------------------------------------------------------------------------------------------
Grand Ledge, Michigan, Public Schools District, UT (e):
AAA Aaa 8,000 6.60% due 5/01/2004 (f) 9,186
AAA Aaa 1,000 6.45% due 5/01/2014 1,125
AAA Aaa 1,000 Refunding, 5.375% due 5/01/2024 1,030
--------------------------------------------------------------------------------------------------------------
AAA Aaa 4,000 Grand Rapids, Michigan, Sanitary Sewer System, Revenue Refunding and
Improvement Bonds, Series A, 4.75% due 1/01/2028 (c) 3,806
--------------------------------------------------------------------------------------------------------------
A1+ VMIG1+ 1,100 Grand Rapids, Michigan, Water Supply System, Revenue Refunding Bonds,
VRDN, 2.90% due 1/01/2020 (a)(c) 1,100
--------------------------------------------------------------------------------------------------------------
AAA Aaa 5,250 Grand Traverse County, Michigan, Hospital Finance Authority, Hospital
Revenue Refunding Bonds (Munson Healthcare), Series A, 6.25% due
7/01/2022 (b) 5,730
--------------------------------------------------------------------------------------------------------------
AAA Aaa 1,570 Grandville, Michigan, Public Schools District, Refunding, UT, 6.60% due
5/01/2005 (c)(f) 1,816
--------------------------------------------------------------------------------------------------------------
</TABLE>
Portfolio Abbreviations
To simplify the listings of MuniVest Michigan Insured Fund, Inc.'s portfolio
holdings in the Schedule of Investments, we have abbreviated the names of some
of the securities according to the list at right.
<TABLE>
<S> <C>
AMT Alternative Minimum Tax (subject to)
DATES Daily Adjustable Tax-Exempt Securities
HDA Housing Development Authority
PCR Pollution Control Revenue Bonds
RITR Residual Interest Trust Receipts
UT Unlimited Tax
VRDN Variable Rate Demand Notes
</TABLE>
F-25
<PAGE> 96
MuniVest Michigan Insured Fund, Inc., October 31, 1998
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
<TABLE>
<CAPTION>
S&P Moody's Face Value
STATE Ratings Ratings Amount Issue (Note 1a)
=================================================================================================================================
<S> <C> <C> <C> <C> <C>
Michigan AAA Aaa $2,250 Greenville, Michigan, Public Schools Building, UT, 5.75% due 5/01/2004
(concluded) (e)(f) $ 2,471
--------------------------------------------------------------------------------------------------------------
Kalamazoo, Michigan, Hospital Finance Authority, Hospital Facility,
Revenue Refunding and Improvement Bonds (Bronson Methodist) (e):
AAA Aaa 1,435 5.75% due 5/15/2016 1,529
AAA Aaa 1,000 5.875% due 5/15/2026 1,076
AAA Aaa 1,180 Series A, 6.375% due 5/15/2003 (f) 1,325
--------------------------------------------------------------------------------------------------------------
AAA Aaa 1,000 Kent County, Michigan, Airport Facility Revenue Bonds (Kent County
International Airport), AMT, 5% due 1/01/2028 (e) 967
--------------------------------------------------------------------------------------------------------------
AAA Aaa 2,660 Kent, Michigan, Hospital Finance Authority, Health Care Revenue Bonds
(Butterworth Health Systems), Series A, 5.625% due 1/15/2006 (e)(f) 2,956
--------------------------------------------------------------------------------------------------------------
AAA Aaa 2,000 Kent, Michigan, Hospital Finance Authority, Hospital Facility, Revenue
Refunding Bonds (Butterworth Hospital), Series A, 7.25% due
1/15/2013 (e) 2,492
--------------------------------------------------------------------------------------------------------------
AAA Aaa 3,235 Lincoln Park, Michigan, School District, UT, 7% due 5/01/2006 (c)(f) 3,871
--------------------------------------------------------------------------------------------------------------
AAA Aaa 1,900 Lowell, Michigan, Area Schools, Refunding, UT, 4.91%** due 5/01/2016 (c) 803
--------------------------------------------------------------------------------------------------------------
A1 VMIG1+ 500 Michigan Higher Education Student Loan Authority Revenue Bonds, VRDN,
AMT, Series XII-D, 3.15% due 10/01/2015 (a)(b) 500
--------------------------------------------------------------------------------------------------------------
AA+ Aa1 1,250 Michigan Municipal Bond Authority Revenue Bonds (Drinking Water Revolving
Fund), 4.75% due 10/01/2020 1,197
--------------------------------------------------------------------------------------------------------------
Michigan Municipal Bond Authority Revenue Bonds (Local Government Loan
Program), Series A (c):
AAA Aaa 1,000 6% due 12/01/2013 1,108
AAA Aaa 2,000 6.125% due 12/01/2018 2,236
--------------------------------------------------------------------------------------------------------------
AAA Aaa 1,425 Michigan Municipal Bond Authority Revenue Bonds (Local Government Loan
Program--Marquette Building), Series D, 6.75% due 5/01/2021 (b) 1,547
--------------------------------------------------------------------------------------------------------------
AAA Aaa 3,990 Michigan State, HDA, Rental Housing Revenue Refunding Bonds, Series A,
6.50% due 4/01/2023 (d) 4,246
--------------------------------------------------------------------------------------------------------------
A- A3 1,000 Michigan State Hospital Finance Authority Revenue Bonds (Detroit Medical
Center), Series A, 5.25% due 8/15/2028 974
--------------------------------------------------------------------------------------------------------------
Michigan State Hospital Finance Authority, Revenue Refunding Bonds:
AAA Aaa 2,930 (Detroit Medical Group), Series A, 5.25% due 8/15/2027 (b) 2,956
AAA Aaa 2,305 (Mercy Health Services), Series T, 6.50% due 8/15/2013 (e) 2,647
AAA Aaa 3,000 (Saint John Hospital), Series A, 6% due 5/15/2013 (b) 3,258
AAA Aaa 1,460 (Sparrow Obligation Group), 6.50% due 11/15/2011 (e) 1,588
--------------------------------------------------------------------------------------------------------------
AAA Aaa 5,000 Michigan State Strategic Fund, Limited Obligation, Revenue Refunding
Bonds (Detroit Edison Co. Project), Series CC, 6.95% due 9/01/2021 (c) 5,470
--------------------------------------------------------------------------------------------------------------
NR* P1 3,600 Michigan State Strategic Fund, PCR, Refunding (Consumers Power Project),
VRDN, Series A, 3.70% due 4/15/2018 (a) 3,600
--------------------------------------------------------------------------------------------------------------
AAA Aaa 5,000 Michigan State Trunk Line General Refunding, Series A, 4.75% due
11/01/2020 (e) 4,815
--------------------------------------------------------------------------------------------------------------
AAA Aaa 1,000 Michigan State University, Revenue Bonds, Series A, 5.125% due
2/15/2016 (b) 1,017
--------------------------------------------------------------------------------------------------------------
AAA Aaa 6,500 Monroe County, Michigan, Economic Development Corporation, Limited
Obligation Revenue Refunding Bonds (Detroit Edison Co. Project),
Series AA, 6.95% due 9/01/2022 (c) 8,307
</TABLE>
F-26
<PAGE> 97
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
--------------------------------------------------------------------------------------------------------------
AAA Aaa 4,500 Monroe County, Michigan, PCR (Detroit Edison Co. Project), AMT, Series
CC, 6.55% due 6/01/2024 (e) 4,983
--------------------------------------------------------------------------------------------------------------
AAA Aaa 2,000 Montrose, Michigan, School District, UT, 5.60% due 5/01/2026 (e) 2,112
--------------------------------------------------------------------------------------------------------------
AAA Aaa 2,000 Northern Michigan University, Revenue Bonds, 5% due 12/01/2025 (e) 1,971
--------------------------------------------------------------------------------------------------------------
AAA Aaa 2,500 Northview, Michigan, Public School District, Refunding, UT, 5.80% due
5/01/2006 (e)(f) 2,801
--------------------------------------------------------------------------------------------------------------
AAA Aaa 2,600 Novi, Michigan, Community School District, UT, 6.125% due 5/01/2003
(c)(f) 2,892
--------------------------------------------------------------------------------------------------------------
AAA Aaa 1,000 Oakland University, Michigan, General Revenue Bonds, 5.75% due
5/15/2026 (e) 1,079
--------------------------------------------------------------------------------------------------------------
AAA Aaa 1,000 Reeths-Puffer, Michigan, School District, Refunding, UT, 6% due 5/01/2005
(c)(f) 1,123
--------------------------------------------------------------------------------------------------------------
AAA Aaa 2,400 Three Rivers, Michigan, Community Schools (Building and Site), UT, 6% due
5/01/2006 (e)(f) 2,720
--------------------------------------------------------------------------------------------------------------
AAA Aaa 1,500 Waterford, Michigan, School District, UT, 6.25% due 6/01/2004 (c)(f) 1,687
--------------------------------------------------------------------------------------------------------------
AAA Aaa 5,000 Wayne Charter County, Michigan, Airport Revenue Bonds (Detroit
Metropolitan--Wayne County), AMT, Series A, 5.375% due 12/01/2017 (e) 5,159
--------------------------------------------------------------------------------------------------------------
AAA Aaa 2,000 Western Michigan University, Revenue Refunding Bonds, Series B, 6.50% due
7/15/2021 (b) 2,169
--------------------------------------------------------------------------------------------------------------
AAA Aaa 1,300 Ypsilanti, Michigan, School District, Refunding, UT, 5.75% due
5/01/2020 (c) 1,395
=================================================================================================================================
Puerto Rico--2.4% AAA Aaa 3,485 Puerto Rico, RITR, Series 14, 7.02% due 7/01/2027 (e)(g) 3,759
=================================================================================================================================
Total Investments (Cost--$139,237)--96.0% 150,537
Other Assets Less Liabilities--4.0% 6,297
--------
Net Assets--100.0% $156,834
========
=================================================================================================================================
</TABLE>
(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, 1998.
(b) AMBAC Insured.
(c) FGIC Insured.
(d) FSA Insured.
(e) MBIA Insured.
(f) Prerefunded.
(g) The interest rate is subject to change periodically and inversely
based upon prevailing market rates. The interest rate shown is the
rate in effect at October 31, 1998.
* Not Rated.
** Represents a zero coupon bond; the interest rate shown is the
effective yield at the time of purchase by the Fund.
+ Highest short-term rating by Moody's Investors Service, Inc.
Ratings of issues shown have not been audited by Deloitte & Touche LLP.
See Notes to Financial Statements.
Quality Profile
The quality ratings of securities in the Fund as of October 31, 1998 were as
follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Percent of
S&P Rating/Moody's Rating Net Assets
- --------------------------------------------------------------------------------
<S> <C>
AAA/Aaa.......................................................... 90.6%
AA/Aa............................................................ 0.8%
A/A.............................................................. 0.6%
Other+........................................................... 4.0%
- --------------------------------------------------------------------------------
</TABLE>
+ Temporary investments in short-term municipal securities.
F-27
<PAGE> 98
MuniVest Michigan Insured Fund, Inc., October 31, 1998
STATEMENT OF ASSETS, LIABILITIES AND CAPITAL
<TABLE>
<CAPTION>
As of October 31, 1998
==============================================================================================================================
<S> <C> <C> <C>
Assets: Investments, at value (identified cost--$139,237,164) (Note 1a) ......... $ 150,536,826
Cash .................................................................... 86,221
Receivables:
Securities sold ....................................................... $ 7,651,456
Interest .............................................................. 2,880,044 10,531,500
-------------
Prepaid expenses and other assets ....................................... 10,760
-------------
Total assets ............................................................ 161,165,307
-------------
==============================================================================================================================
Liabilities: Payables:
Securities purchased .................................................. 4,157,017
Investment adviser (Note 2) ........................................... 69,079
Dividends to shareholders (Note 1f) ................................... 30,680 4,256,776
-------------
Accrued expenses and other liabilities .................................. 74,236
-------------
Total liabilities ....................................................... 4,331,012
-------------
==============================================================================================================================
Net Assets: Net assets .............................................................. $ 156,834,295
=============
==============================================================================================================================
Capital: Capital Stock (200,000,000 shares authorized) (Note 4):
Preferred Stock, par value $.05 per share (2,000 shares of AMPS* issued
and outstanding at $25,000 per share liquidation preference) .......... $ 50,000,000
Common Stock, par value $.10 per share (7,387,697 shares issued and
outstanding) .......................................................... $ 738,770
Paid-in capital in excess of par ........................................ 102,828,343
Undistributed investment income--net .................................... 500,273
Accumulated realized capital losses on investments--net (Note 5) ........ (8,532,753)
Unrealized appreciation on investments--net ............................. 11,299,662
-------------
Total--Equivalent to $14.46 net asset value per share of Common Stock
(market price--$14.625) ................................................ 106,834,295
-------------
Total capital ........................................................... $ 156,834,295
=============
==============================================================================================================================
</TABLE>
* Auction Market Preferred Stock.
See Notes to Financial Statements.
F-28
<PAGE> 99
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the Year Ended October 31, 1998
==============================================================================================================================
<S> <C> <C> <C>
Investment Interest and amortization of premium and discount earned ................ $ 8,346,255
Income (Note 1d):
==============================================================================================================================
Expenses: Investment advisory fees (Note 2) ....................................... $ 772,663
Commission fees (Note 4) ................................................ 126,780
Professional fees ....................................................... 88,810
Accounting services (Note 2) ............................................ 60,483
Directors' fees and expenses ............................................ 26,085
Transfer agent fees ..................................................... 23,931
Printing and shareholder reports ........................................ 16,077
Listing fees ............................................................ 13,468
Custodian fees .......................................................... 11,887
Pricing fees ............................................................ 7,576
Amortization of organization expenses (Note 1e) ......................... 1,784
Other ................................................................... 16,624
-------------
Total expenses .......................................................... 1,166,168
-------------
Investment income--net .................................................. 7,180,087
-------------
==============================================================================================================================
Realized & Realized gain on investments--net ....................................... 2,267,650
Unrealized Gain on Change in unrealized appreciation on investments--net ................... 1,560,039
Investments--Net -------------
(Notes 1b, 1d & 3): Net Increase in Net Assets Resulting from Operations .................... $ 11,007,776
=============
==============================================================================================================================
</TABLE>
See Notes to Financial Statements.
F-29
<PAGE> 100
MuniVest Michigan Insured Fund, Inc., October 31, 1998
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the Year Ended October 31,
------------------------------
Increase (Decrease) in Net Assets: 1998 1997
==============================================================================================================================
<S> <C> <C> <C>
Operations: Investment income--net ................................................. $ 7,180,087 $ 7,429,850
Realized gain (loss) on investments--net ............................... 2,267,650 (380,050)
Change in unrealized appreciation on investments--net .................. 1,560,039 2,564,434
------------- -------------
Net increase in net assets resulting from operations ................... 11,007,776 9,614,234
------------- -------------
==============================================================================================================================
Dividends to Investment income--net:
Shareholders Common Stock ......................................................... (5,538,150) (5,721,912)
(Note 1f): Preferred Stock ...................................................... (1,671,160) (1,669,740)
------------- -------------
Net decrease in net assets resulting from dividends to shareholders .... (7,209,310) (7,391,652)
------------- -------------
==============================================================================================================================
Capital Stock Value of shares issued to Common Stock shareholders in reinvestment
Transactions of dividends ........................................................... 111,746 --
(Note 4): ------------- -------------
==============================================================================================================================
Net Assets:
Total increase in net assets ........................................... 3,910,212 2,222,582
Beginning of year ...................................................... 152,924,083 150,701,501
------------- -------------
End of year* ........................................................... $ 156,834,295 $ 152,924,083
============= =============
==============================================================================================================================
*Undistributed investment income--net ................................... $ 500,273 $ 529,496
============= =============
==============================================================================================================================
</TABLE>
See Notes to Financial Statements.
F-30
<PAGE> 101
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
The following per share data and ratios have been derived
from information provided in the financial statements. For the Year Ended October 31,
--------------------------------------------------
Increase (Decrease) in Net Asset Value: 1998 1997 1996 1995 1994
==================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year ...................... $ 13.95 $ 13.65 $ 13.65 $ 11.83 $ 14.89
Operating -------- -------- -------- -------- -------
Performance: Investment income--net .................................. .98 1.01 1.01 1.01 1.01
Realized and unrealized gain (loss) on investments--net.. .51 .30 --++ 1.82 (3.06)
-------- -------- -------- -------- -------
Total from investment operations ........................ 1.49 1.31 1.01 2.83 (2.05)
-------- -------- -------- -------- -------
Less dividends to Common Stock shareholders:
Investment income--net ................................. (.75) (.78) (.77) (.76) (.84)
-------- -------- -------- -------- -------
Effect of Preferred Stock activity:
Dividends to Preferred Stock shareholders:
Investment income--net ............................... (.23) (.23) (.24) (.25) (.17)
-------- -------- -------- -------- -------
Total effect of Preferred Stock activity ................ (.23) (.23) (.24) (.25) (.17)
-------- -------- -------- -------- -------
Net asset value, end of year ............................ $ 14.46 $ 13.95 $ 13.65 $ 13.65 $ 11.83
======== ======== ======== ======== =======
Market price per share, end of year ..................... $ 14.625 $ 13.313 $ 12.375 $ 12.25 $ 10.25
======== ======== ======== ======== =======
==================================================================================================================================
Total Investment Based on market price per share ......................... 16.12% 14.32% 7.40% 27.59% (27.71%)
Return:* ======== ======== ======== ======== =======
Based on net asset value per share ...................... 9.56% 8.60% 6.32% 23.18% (15.25%)
======== ======== ======== ======== =======
===================================================================================================================================
Ratios to Average Expenses ................................................ .76% .75% .77% .77% .76%
Net Assets:** ======== ======== ======== ======== =======
Investment income--net .................................. 4.65% 4.89% 4.91% 5.21% 4.98%
======== ======== ======== ======== =======
===================================================================================================================================
Supplemental Net assets, net of Preferred Stock, end of year
Data: (in thousands) .......................................... $106,834 $102,924 $100,702 $100,729 $87,313
======== ======== ======== ======== =======
Preferred Stock outstanding, end of year (in thousands).. $ 50,000 $ 50,000 $ 50,000 $ 50,000 $50,000
======== ======== ======== ======== =======
Portfolio turnover ...................................... 48.30% 22.43% 47.10% 53.85% 49.03%
======== ======== ======== ======== =======
==================================================================================================================================
Leverage: Asset coverage per $1,000 ............................... $ 3,137 $ 3,058 $ 3,014 $ 3,015 $ 2,746
======== ======== ======== ======== =======
===================================================================================================================================
Dividends Per Share Investment income--net .................................. $ 836 $ 835 $ 886 $ 939 $ 615
On Preferred Stock ======== ======== ======== ======== =======
Outstanding:+
==================================================================================================================================
</TABLE>
* Total investment returns based on market value, which can be
significantly greater or lesser than the net asset value, may result
in substantially different returns. Total investment returns exclude
the effects of sales loads.
** Do not reflect the effect of dividends to Preferred Stock
shareholders.
+ Dividends per share have been adjusted to reflect a two-for-one
stock split that occurred on December 1, 1994.
++ Amount is less than $.01 per share.
See Notes to Financial Statements.
F-31
<PAGE> 102
MuniVest Michigan Insured Fund, Inc., October 31, 1998
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
MuniVest Michigan 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 MVM. The following is
a summary of significant accounting policies followed by the Fund.
(a) Valuation of investments--Municipal bonds are traded primarily in the
over-the-counter markets and are valued at the most recent bid price or yield
equivalent as obtained by the Fund's pricing service from dealers that make
markets in such securities. Financial futures contracts and options thereon,
which are traded on exchanges, are valued at their closing prices as of the
close of such exchanges. Options written or purchased are valued at the last
sale price in the case of exchange-traded options. In the case of options traded
in the over-the-counter market, valuation is the last asked price (options
written) or the last bid price (options purchased). Securities with remaining
maturities of sixty days or less are valued at amortized cost, which
approximates market value. Securities and assets for which market quotations are
not readily available are valued at fair value as determined in good faith by or
under the direction of the Board of Directors of the Fund, including valuations
furnished by a pricing service retained by the Fund, which may utilize a matrix
system for valuations. The procedures of the pricing service and its valuations
are reviewed by the officers of the Fund under the general supervision of the
Board of Directors.
(b) Derivative financial instrument--The Fund may engage in various portfolio
strategies to seek to increase its return by hedging its portfolio against
adverse movements in the debt markets. Losses may arise due to changes in the
value of the contract or if the counterparty does not perform under the
contract.
- - Financial futures contracts--The Fund may purchase or sell financial futures
contracts and options on such futures contracts for the purpose of hedging the
market risk on existing securities or the intended purchase of securities.
Futures contracts are contracts for delayed delivery of securities at a specific
future date and at a specific price or yield. Upon entering into a contract, the
Fund deposits and maintains as collateral such initial margin as required by the
exchange on which the transaction is effected. Pursuant to the contract, the
Fund agrees to receive from or pay to the broker an amount of cash equal to the
daily fluctuation in value of the contract. Such receipts or payments are known
as variation margin and are recorded by the Fund as unrealized gains or losses.
When the contract is closed, the Fund records a realized gain or loss equal to
the difference between the value of the contract at the time it was opened and
the value at the time it was closed.
- - Options--The Fund is authorized to write covered call options and purchase put
options. When the Fund writes an option, an amount equal to the premium received
by the Fund is reflected as an asset and an equivalent liability. The amount of
the liability is subsequently marked to market to reflect the current market
value of the option written.
When a security is purchased or sold through an exercise of an option, the
related premium paid (or received) is added to (or deducted from) the basis of
the security acquired or deducted from (or added to) the proceeds of the
security sold. When an option expires (or the Fund enters into a closing
transaction), the Fund realizes a gain or loss on the option to the extent of
the premiums received or paid (or gain or loss to the extent the cost of the
closing transaction exceeds the premium paid or received).
Written and purchased options are non-income producing investments.
(c) Income taxes--It is the Fund's policy to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no Federal income tax provision is required.
(d) Security transactions and investment income--Security transactions are
recorded on the dates the transactions are entered into (the trade dates).
Interest income is recognized on the accrual basis. Discounts and market
premiums are amortized
F-32
<PAGE> 103
into interest income. Realized gains and losses on security transactions are
determined on the identified cost basis.
(e) Deferred organization expenses--Deferred organization expenses are amortized
on a straight-line basis over a period not exceeding five years.
(f) Dividends and distributions--Dividends from net investment income are
declared and paid monthly. Distributions of capital gains are recorded on the
ex-dividend dates.
2. Investment Advisory Agreement and Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with Fund Asset
Management, L.P. ("FAM"). The general partner of FAM is Princeton Services, Inc.
("PSI"), an indirect wholly-owned subsidiary of Merrill Lynch & Co., Inc. ("ML &
Co."), which is the limited partner.
FAM is responsible for the management of the Fund's portfolio and provides the
necessary personnel, facilities, equipment and certain other services necessary
to the operations of the Fund. For such services, the Fund pays a monthly fee at
an annual rate of 0.50% of the Fund's average weekly net assets, including
proceeds from the issuance of Preferred Stock.
Accounting services are provided to the Fund by FAM at cost.
Certain officers and/or directors of the Fund are officers and/or directors of
FAM, PSI, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the
year ended October 31, 1998 were $70,555,990 and $76,480,221, respectively.
Net realized gains for the year ended October 31, 1998 and net unrealized gains
as of October 31, 1998 were as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Realized Unrealized
Gains Gains
- --------------------------------------------------------------------------------
<S> <C> <C>
Long-term investments ............................. $2,267,650 $11,299,662
---------- -----------
Total ............................................. $2,267,650 $11,299,662
========== ===========
- --------------------------------------------------------------------------------
</TABLE>
As of October 31, 1998, net unrealized appreciation for Federal income tax
purposes aggregated $11,296,251, of which $11,386,466 related to appreciated
securities and $90,215 related to depreciated securities. The aggregate cost of
investments at October 31, 1998 for Federal income tax purposes was
$139,240,575.
4. Capital Stock Transactions:
The Fund is authorized to issue 200,000,000 shares of capital stock, including
Preferred Stock, par value $.10 per share, all of which were initially
classified as Common Stock. The Board of Directors is authorized, however, to
reclassify any unissued shares of capital stock without approval of holders of
Common Stock.
Common Stock
Shares issued and outstanding during the year ended October 31, 1998 increased
by 7,728 as a result of dividend reinvestment and during the year ended October
31, 1997 remained constant.
Preferred Stock
Auction Market Preferred Stock ("AMPS") are shares of Preferred Stock of the
Fund, with a par value of $.05 per share and a liquidation preference of $25,000
per share, that entitle their holders to receive cash dividends at an annual
rate that may vary for the successive dividend periods. The yield in effect at
October 31, 1998 was 3.20%.
Shares issued and outstanding during the years ended October 31, 1998 and
October 31, 1997 remained constant.
The Fund pays commissions to certain broker-dealers at the end of each auction
at an annual rate ranging from 0.25% to 0.375%, calculated on the proceeds of
each auction. For the year ended October 31, 1998, Merrill Lynch, Pierce, Fenner
& Smith Inc., an affiliate of FAM, earned $93,074 as commissions.
5. Capital Loss Carryforward:
At October 31, 1998, the Fund had a net capital loss carry forward of
approximately $5,871,000, of which $2,062,000 expires in 2002; $3,063,000
expires in 2003 and $746,000 expires in 2004. This amount will be available to
offset like amounts of any future taxable gains.
6. Subsequent Event:
On November 5, 1998, the Fund's Board of Directors declared an ordinary income
dividend to Common Stock shareholders in the amount of $.063456 per share,
payable on November 27, 1998 to shareholders of record as of November 20, 1998.
F-33
<PAGE> 104
Unaudited Financial Statements for MuniVest Michigan Insured Fund, Inc.
for the Six-Month Period Ended April 30, 1999
F-34
<PAGE> 105
MuniVest Michigan Insured Fund, Inc., April 30, 1999
SCHEDULE OF INVESTMENTS (concluded) (in Thousands)
<TABLE>
<CAPTION>
S&P Moody's Face Value
STATE Ratings Ratings Amount Issue (Note 1a)
===================================================================================================================================
<S> <C> <C> <C> <C> <C>
Michigan--95.8% Belding, Michigan, Area Schools, GO, Refunding (c):
AAA NR* $ 785 6.05% due 5/01/2006 (f) $ 883
AAA Aaa 215 6.05% due 5/01/2021 232
----------------------------------------------------------------------------------------------------------
AAA Aaa 1,000 Caledonia, Michigan, Community Schools, GO, Refunding, 6.625%
due 5/01/2014 (b) 1,092
----------------------------------------------------------------------------------------------------------
AAA Aaa 1,625 Central Michigan University Revenue Bonds, 5.50% due
4/01/2007 (c)(f) 1,778
----------------------------------------------------------------------------------------------------------
AAA Aaa 1,500 Clarkston, Michigan, Community Schools, GO, 5.25% due
5/01/2023 (e) 1,509
----------------------------------------------------------------------------------------------------------
AAA Aaa 1,000 Coldwater, Michigan, Community Schools, GO, 6.30% due
5/01/2004 (e)(f) 1,124
----------------------------------------------------------------------------------------------------------
NR* P1 100 Delta County, Michigan, Economic Development Corporation,
Environmental Improvement Revenue Refunding Bonds
(Mead-Escanaba Paper), DATES, Series F, 4.20% due 12/01/2013 (a) 100
----------------------------------------------------------------------------------------------------------
AAA Aaa 3,500 Detroit, Michigan, Sewage Disposal Revenue Bonds, Series A, 5%
due 7/01/2027 (e) 3,402
----------------------------------------------------------------------------------------------------------
Detroit, Michigan, Water Supply System Revenue Bonds, Senior
Lien, Series A (e):
AAA Aaa 3,200 5% due 7/01/2021 3,133
AAA Aaa 3,150 5% due 7/01/2027 3,062
----------------------------------------------------------------------------------------------------------
AAA Aaa 5,250 Eastern Michigan University Revenue Bonds, 5.50% due 6/01/2027 (c) 5,467
----------------------------------------------------------------------------------------------------------
AAA Aaa 1,995 Eaton Rapids, Michigan, Public Schools, GO, Refunding, 5% due
5/01/2022 (e) 1,952
----------------------------------------------------------------------------------------------------------
AAA Aaa 2,000 Fenton, Michigan, Area Public Schools, GO, 5% due 5/01/2021 (c) 1,958
----------------------------------------------------------------------------------------------------------
NR* Aaa 1,500 Fruitport, Michigan, Community Schools, GO, 5.30% due 5/01/2022 (c) 1,516
----------------------------------------------------------------------------------------------------------
Grand Ledge, Michigan, Public Schools District, GO (e)(f):
AAA Aaa 1,000 6.45% due 5/01/2004 1,131
AAA Aaa 8,000 6.60% due 5/01/2004 9,101
----------------------------------------------------------------------------------------------------------
AAA Aaa 1,000 Grand Ledge, Michigan, Public Schools District, GO, Refunding,
5.375% due 5/01/2024 (e) 1,019
----------------------------------------------------------------------------------------------------------
AAA VMIG1+ 400 Grand Rapids, Michigan, Water Supply Revenue Refunding Bonds,
VRDN, 4% due 1/01/2020 (a)(c) 400
----------------------------------------------------------------------------------------------------------
Grand Traverse County, Michigan, Hospital Revenue Refunding
Bonds (Munson Healthcare), Series A (b):
AAA NR* 3,805 6.25% due 7/01/2002 (f) 4,160
AAA Aaa 2,500 5.50% due 7/01/2018 2,582
AAA Aaa 1,445 6.25% due 7/01/2022 1,563
----------------------------------------------------------------------------------------------------------
AAA Aaa $1,570 Grandville, Michigan, Public Schools District, GO, Refunding,
6.60% due 5/01/2005 (c)(f) $ 1,796
----------------------------------------------------------------------------------------------------------
AAA Aaa 2,250 Greenville, Michigan, Public Schools, GO, 5.75% due
5/01/2004 (e)(f) 2,455
----------------------------------------------------------------------------------------------------------
AAA Aaa 1,770 Holly, Michigan, Area School District, GO, Refunding, 5% due
5/01/2022 (c) 1,732
----------------------------------------------------------------------------------------------------------
Kalamazoo, Michigan, Hospital Finance Authority, Hospital
Facility Revenue Refunding and Improvement Bonds (Bronson
Methodist Hospital) (e):
AAA Aaa 1,435 5.75% due 5/15/2016 1,511
AAA Aaa 1,000 5.875% due 5/15/2026 1,065
AAA Aaa 1,180 Series A, 6.375% due 5/15/2017 1,313
----------------------------------------------------------------------------------------------------------
</TABLE>
F-35
<PAGE> 106
SCHEDULE OF INVESTMENTS (in Thousands)
<TABLE>
<CAPTION>
S&P Moody's Face Value
STATE Ratings Ratings Amount Issue (Note 1a)
===================================================================================================================================
<S> <C> <C> <C> <C> <C>
Michigan Kalamazoo, Michigan, Hospital Finance Authority, Hospital
(concluded) Facility Revenue Refunding Bonds (Bronson Methodist
Hospital) (e):
NR* Aaa 2,500 5.25% due 5/15/2018 2,508
NR* Aaa 3,500 5.50% due 5/15/2028 3,635
----------------------------------------------------------------------------------------------------------
AAA Aaa 2,660 Kent, Michigan, Hospital Finance Authority, Health Care Revenue
Bonds (Butterworth Health Systems), Series A, 5.625% due
1/15/2006 (e)(f) 2,926
----------------------------------------------------------------------------------------------------------
AAA Aaa 2,000 Kent, Michigan, Hospital Finance Authority, Hospital Revenue
Refunding Bonds (Butterworth Hospital), Series A, 7.25% due
1/15/2013 (e) 2,452
----------------------------------------------------------------------------------------------------------
AAA Aaa 3,235 Lincoln Park, Michigan, School District, GO, 7% due
5/01/2006 (c)(f) 3,823
----------------------------------------------------------------------------------------------------------
AAA Aaa 1,900 Lowell, Michigan, Area Schools, GO, Refunding, 4.91%** due
5/01/2016 (c) 806
----------------------------------------------------------------------------------------------------------
AAA VMIG1+ 500 Michigan Higher Education Student Loan Revenue Bonds, AMT, VRDN,
Series XII-D, 3.95% due 10/01/2015 (a)(b) 500
----------------------------------------------------------------------------------------------------------
AA+ Aa1 1,250 Michigan Municipal Bond Authority Revenue Bonds (Drinking Water
Revolving Fund), 4.75% due 10/01/2020 1,182
----------------------------------------------------------------------------------------------------------
Michigan Municipal Bond Authority, Revenue Refunding Bonds
(Local Government Loan Program), Series A (c):
AAA Aaa 1,000 6% due 12/01/2013 1,100
AAA Aaa 2,000 6.125% due 12/01/2018 2,213
----------------------------------------------------------------------------------------------------------
AAA Aaa 2,000 Michigan State Building Authority, Revenue Refunding Bonds
(Facilities Program), Series I, 5.50% due 10/01/2006 (b) 2,167
----------------------------------------------------------------------------------------------------------
AAA Aaa 1,500 Michigan State, HDA, Rental Housing Revenue Bonds, Series B,
5.10% due 10/01/2019 (e) 1,496
----------------------------------------------------------------------------------------------------------
AAA Aaa 3,885 Michigan State, HDA, Rental Housing Revenue Refunding Bonds,
Series A, 6.50% due 4/01/2023 (d) 4,130
----------------------------------------------------------------------------------------------------------
BBB Baa2 1,000 Michigan State Hospital Finance Authority, Revenue Bonds
(Detroit Medical Center Obligation Group), Series A, 5.25% due
8/15/2028 903
----------------------------------------------------------------------------------------------------------
Michigan State Hospital Finance Authority, Revenue Refunding Bonds:
AAA Aaa 2,930 (Detroit Medical Group), Series A, 5.25% due 8/15/2027 (b) 2,900
AAA Aaa 2,305 (Mercy Health Services), Series T, 6.50% due 8/15/2013 (e) 2,611
AAA Aaa 3,000 (Saint John Hospital), Series A, 6% due 5/15/2013 (b) 3,237
AAA Aaa 1,460 (Sparrow Obligated Group), 6.50% due 11/15/2011 (e) 1,573
----------------------------------------------------------------------------------------------------------
NR* P1 4,400 Michigan State Strategic Fund, PCR, Refunding (Consumers Power
Project), VRDN, 4.20% due 4/15/2018 (a) 4,400
----------------------------------------------------------------------------------------------------------
AAA Aaa 4,000 Michigan State Trunk Line, Revenue Refunding Bonds, Series A,
4.75% due 11/01/2020 (e) 3,798
</TABLE>
Portfolio
Abbreviations
To simplify the listings of MuniVest Michigan 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)
DATES Daily Adjustable Tax-Exempt Securities
GO General Obligation Bonds
HDA Housing Development Authority
PCR Pollution Control Revenue Bonds
RIB Residual Interest Bonds
RITR Residual Interest Trust Receipts
VRDN Variable Rate Demand Notes
F-36
<PAGE> 107
<TABLE>
<S> <C> <C> <C> <C> <C>
----------------------------------------------------------------------------------------------------------
AAA Aaa 1,000 Michigan State University Revenue Bonds, Series A, 5.125% due
2/15/2016 (b) 1,012
----------------------------------------------------------------------------------------------------------
AAA Aaa 6,500 Monroe County, Michigan, Economic Development Corp., Limited
Obligation Revenue Refunding Bonds (Detroit Edison Co. Project),
Series AA, 6.95% due 9/01/2022 (c) 8,171
----------------------------------------------------------------------------------------------------------
AAA Aaa 4,500 Monroe County, Michigan, PCR (Detroit Edison Company), AMT,
Series CC, 6.55% due 6/01/2024 (e) 4,946
----------------------------------------------------------------------------------------------------------
AAA Aaa 2,000 Montrose Township, Michigan, School District, GO, 5.60% due
5/01/2026 (e) 2,089
----------------------------------------------------------------------------------------------------------
AAA Aaa 2,000 Northern Michigan University, Revenue Refunding Bonds, 5% due
12/01/2025 (e) 1,945
----------------------------------------------------------------------------------------------------------
Northview, Michigan, Public Schools District, GO, Refunding (e):
AAA NR* 2,265 5.80% due 5/01/2006 (f) 2,513
AAA Aaa 235 5.80% due 5/01/2021 250
----------------------------------------------------------------------------------------------------------
AAA Aaa 2,600 Novi, Michigan, Community School District, GO, 6.125% due
5/01/2003 (c)(f) 2,870
----------------------------------------------------------------------------------------------------------
AAA Aaa 1,000 Oakland University, Michigan, Revenue Bonds, 5.75% due
5/15/2026 (e) 1,068
----------------------------------------------------------------------------------------------------------
AAA Aaa 1,000 Reeths-Puffer Schools, Michigan, GO, Refunding, 6% due
5/01/2005 (c)(f) 1,113
----------------------------------------------------------------------------------------------------------
AAA Aaa 1,000 Three Rivers, Michigan, Community Schools, GO, 6% due
5/01/2006 (e)(f) 1,121
----------------------------------------------------------------------------------------------------------
A1+ VMIG1+ 3,500 University of Michigan, University Hospital Revenue Bonds, VRDN,
Series A, 4.15% due 12/01/2027 (a) 3,500
----------------------------------------------------------------------------------------------------------
A1+ VMIG1+ 1,500 University of Michigan, University Hospital Revenue Refunding
Bonds, VRDN, Series A, 4.15% due 12/01/2019 (a) 1,500
----------------------------------------------------------------------------------------------------------
A1+ VMIG1+ 600 University of Michigan, University Revenue Refunding Bonds
(Medical Service Plan), VRDN, Series A-1, 4.15% due 12/01/2021 (a) 600
----------------------------------------------------------------------------------------------------------
AAA Aaa 3,000 Warren, Michigan, Water and Sewer Revenue Bonds, 5.125% due
11/01/2023 (d) 2,975
----------------------------------------------------------------------------------------------------------
AAA Aaa 1,500 Waterford, Michigan, School District, GO, 6.25% due
6/01/2004 (c)(f) 1,673
----------------------------------------------------------------------------------------------------------
NR* NR* 2,500 Wayne Charter County, Michigan, Airport Revenue Bonds, AMT, RIB,
Series 68, 6.305% due 12/01/2017 (e)(g) 2,615
----------------------------------------------------------------------------------------------------------
AAA Aaa 2,000 Western Michigan, University Revenue Bonds, Series B, 6.50% due
7/15/2021 (b) 2,147
----------------------------------------------------------------------------------------------------------
AAA Aaa 1,300 Ypsilanti, Michigan, School District, GO, Refunding, 5.75% due
5/01/2007 (c)(f) 1,436
===================================================================================================================================
Puerto Rico--2.4% NR* NR* 3,485 Puerto Rico, RITR, 6.42% due 7/01/2027 (g) 3,690
===================================================================================================================================
Total Investments (Cost--$143,941)--98.2% 152,630
Other Assets Less Liabilities--1.8% 2,757
--------
Net Assets--100.0% $155,387
========
===================================================================================================================================
</TABLE>
(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, 1999.
(b) AMBAC Insured.
(c) FGIC Insured.
(d) FSA Insured.
(e) MBIA Insured.
(f) Prerefunded.
(g) The interest rate is subject to change periodically and inversely
based upon prevailing market rates. The interest rate shown is the
rate in effect at April 30, 1999.
* Not Rated.
** Represents a zero coupon bond; the interest rate shown is the
effective yield at time of purchase by the Fund.
+ Highest short-term rating by Moody's Investors Service, Inc.
See Notes to Financial Statements.
F-37
<PAGE> 108
MuniVest Michigan Insured Fund, Inc., April 30, 1999
STATEMENT OF ASSETS, LIABILITIES AND CAPITAL
<TABLE>
<CAPTION>
As of April 30, 1999
================================================================================================================================
<S> <C> <C> <C>
Assets: Investments, at value (identified cost--$143,940,772) (Note 1a) .......... $152,630,065
Cash ..................................................................... 60,464
Interest receivable ...................................................... 2,925,584
Prepaid expenses and other assets ........................................ 10,760
------------
Total assets ............................................................. 155,626,873
------------
================================================================================================================================
Liabilities: Payables:
Dividends to shareholders (Note 1e) .................................... $ 138,861
Investment adviser (Note 2) ............................................ 68,340 207,201
------------
Accrued expenses and other liabilities ................................... 32,662
------------
Total liabilities ........................................................ 239,863
------------
================================================================================================================================
Net Assets: Net assets ............................................................... $155,387,010
============
================================================================================================================================
Capital: Capital Stock (200,000,000 shares authorized) (Note 4):
Preferred Stock, par value $.05 per share (2,000 shares of AMPS*
issued and outstanding at $25,000 per share liquidation preference) .... $ 50,000,000
Common Stock, par value $.10 per share (7,387,697 shares issued
and outstanding) ....................................................... $ 738,770
Paid-in capital in excess of par ......................................... 102,828,343
Undistributed investment income--net ..................................... 490,613
Accumulated realized capital losses on investments--net (Note 5) ......... (7,360,009)
Unrealized appreciation on investments--net .............................. 8,689,293
------------
Total--Equivalent to $14.27 net asset value per share of Common Stock
(market price--$13.25) ................................................... 105,387,010
------------
Total capital ............................................................ $155,387,010
============
================================================================================================================================
</TABLE>
* Auction Market Preferred Stock.
See Notes to Financial Statements.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the Six Months Ended April 30, 1999
===================================================================================================================
<S> <C> <C> <C>
Investment Interest and amortization of premium and discount earned .... $ 4,123,911
Income (Note 1d):
===================================================================================================================
Expenses: Investment advisory fees (Note 2) ........................... $ 390,011
Commission fees (Note 4) .................................... 68,104
Professional fees ........................................... 38,454
Accounting services (Note 2) ................................ 36,633
Transfer agent fees ......................................... 22,097
</TABLE>
F-38
<PAGE> 109
<TABLE>
<S> <C> <C> <C>
Directors' fees and expenses ................................ 14,705
Printing and shareholder reports ............................ 12,677
Listing fees ................................................ 8,698
Custodian fees .............................................. 6,534
Pricing fees ................................................ 5,138
Other ....................................................... 10,245
-----------
Total expenses .............................................. 613,296
-----------
Investment income--net ...................................... 3,510,615
-----------
===================================================================================================================
Realized & Unreal- Realized gain on investments--net ........................... 1,172,744
ized Gain (Loss) on Change in unrealized appreciation on investments--net ....... (2,610,369)
Investments--Net -----------
(Notes 1b, 1d & 3): Net Increase in Net Assets Resulting from Operations ........ $ 2,072,990
===========
===================================================================================================================
</TABLE>
See Notes to Financial Statements.
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the Six For the
Months Ended Year Ended
April 30, October 31,
Increase (Decrease) in Net Assets: 1999 1998
===================================================================================================================================
<S> <C> <C> <C>
Operations: Investment income--net ......................................................... $ 3,510,615 $ 7,180,087
Realized gain on investments--net .............................................. 1,172,744 2,267,650
Change in unrealized appreciation on investments--net .......................... (2,610,369) 1,560,039
------------ ------------
Net increase in net assets resulting from operations ........................... 2,072,990 11,007,776
------------ ------------
===================================================================================================================================
Dividends to Investment income--net:
Shareholders Common Stock ................................................................. (2,766,375) (5,538,150)
(Note 1e): Preferred Stock .............................................................. (753,900) (1,671,160)
------------ ------------
Net decrease in net assets resulting from dividends to shareholders ............ (3,520,275) (7,209,310)
------------ ------------
===================================================================================================================================
Capital Stock Value of shares issued to Common Stock shareholders in reinvestment of
Transactions dividends ...................................................................... -- 111,746
(Note 4): ------------ ------------
===================================================================================================================================
Net Assets: Total increase (decrease) in net assets ........................................ (1,447,285) 3,910,212
Beginning of period ............................................................ 156,834,295 152,924,083
------------ ------------
End of period* ................................................................. $155,387,010 $156,834,295
============ ============
===================================================================================================================================
*Undistributed investment income--net ........................................... $ 490,613 $ 500,273
============ ============
===================================================================================================================================
</TABLE>
See Notes to Financial Statements.
F-39
<PAGE> 110
MuniVest Michigan Insured Fund, Inc., April 30, 1999
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
The following per share data and ratios have
been derived from information provided in the For the Six
financial statements. Months Ended For the Year Ended October 31,
April 30, -------------------------------------------
Increase (Decrease) in Net Asset Value: 1999 1998 1997 1996 1995
===================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period ........... $ 14.46 $ 13.95 $ 13.65 $ 13.65 $ 11.83
Operating -------- -------- -------- -------- --------
Performance: Investment income--net ......................... .47 .98 1.01 1.01 1.01
Realized and unrealized gain (loss) on
investments--net ............................... (.19) .51 .30 --++ 1.82
-------- -------- -------- -------- --------
Total from investment operations ............... .28 1.49 1.31 1.01 2.83
-------- -------- -------- -------- --------
Less dividends to Common Stock shareholders:
Investment income--net ....................... (.37) (.75) (.78) (.77) (.76)
-------- -------- -------- -------- --------
Effect of Preferred Stock activity:
Dividends to Preferred Stock shareholders:
Investment income--net ..................... (.10) (.23) (.23) (.24) (.25)
-------- -------- -------- -------- --------
Total effect of Preferred Stock activity ....... (.10) (.23) (.23) (.24) (.25)
-------- -------- -------- -------- --------
Net asset value, end of period ................. $ 14.27 $ 14.46 $ 13.95 $ 13.65 $ 13.65
======== ======== ======== ======== ========
Market price per share, end of period .......... $ 13.25 $ 14.625 $ 13.313 $ 12.375 $ 12.25
======== ======== ======== ======== ========
===================================================================================================================================
Total Investment Based on market price per share ................ (6.93%)+ 16.12% 14.32% 7.40% 27.59%
Return:** ======== ======== ======== ======== ========
Based on net asset value per share ............. 1.37%+ 9.56% 8.60% 6.32% 23.18%
======== ======== ======== ======== ========
===================================================================================================================================
Ratios to Average Expenses ....................................... .79%* .76% .75% .77% .77%
Net Assets:*** ======== ======== ======== ======== ========
Investment income--net ......................... 4.50%* 4.65% 4.89% 4.91% 5.21%
======== ======== ======== ======== ========
===================================================================================================================================
Supplemental Net assets, net of Preferred Stock, end of period
Data: (in thousands) ................................. $105,387 $106,834 $102,924 $100,702 $100,729
======== ======== ======== ======== ========
Preferred Stock outstanding, end of period
(in thousands) ................................. $ 50,000 $ 50,000 $ 50,000 $ 50,000 $ 50,000
======== ======== ======== ======== ========
Portfolio turnover ............................. 24.64% 48.30% 22.43% 47.10% 53.85%
======== ======== ======== ======== ========
===================================================================================================================================
Leverage: Asset coverage per $1,000 ...................... $ 3,108 $ 3,137 $ 3,058 $ 3,014 $ 3,015
======== ======== ======== ======== ========
===================================================================================================================================
Dividends Per Share Investment income--net ......................... $ 377 $ 836 $ 835 $ 886 $ 939
On Preferred Stock ======== ======== ======== ======== ========
Outstanding:
===================================================================================================================================
</TABLE>
* Annualized.
** Total investment returns based on market value, which can be
significantly greater or lesser than the net asset value, may result
in substantially different returns. Total investment returns exclude
the effects of sales loads.
*** Do not reflect the effect of dividends to Preferred Stock
shareholders.
+ Aggregate total investment return.
++ Amount is less than $.01 per share.
See Notes to Financial Statements.
F-40
<PAGE> 111
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
MuniVest Michigan Insured Fund, Inc. (the "Fund") is registered under the
Investment Company Act of 1940 as a non-diversified, closed-end management
investment company. The Fund's financial statements are prepared in accordance
with generally accepted accounting principles which may require the use of
management accruals and estimates. These unaudited financial statements reflect
all adjustments which are, in the opinion of management, necessary to a fair
statement of the results for the interim period presented. All such adjustments
are of a normal recurring nature. The Fund determines and makes available for
publication the net asset value of its Common Stock on a weekly basis. The
Fund's Common Stock is listed on the New York Stock Exchange under the symbol
MVM. The following is a summary of significant accounting policies followed by
the Fund.
(a) Valuation of investments--Municipal bonds are traded primarily in the
over-the-counter markets and are valued at the most recent bid price or yield
equivalent as obtained by the Fund's pricing service from dealers that make
markets in such securities. Financial futures contracts and options thereon,
which are traded on exchanges, are valued at their closing prices as of the
close of such exchanges. Options written or purchased are valued at the last
sale price in the case of exchange-traded options. In the case of options traded
in the over-counter-market, valuation is the last asked price (options written)
or the last bid price (options purchased). Securities with remaining maturities
of sixty days or less are valued at amortized cost, which approximates market
value. Securities and assets for which market quotations are not readily
available are valued at fair value as determined in good faith by or under the
direction of the Board of Directors of the Fund, including valuations furnished
by a pricing service retained by the Fund, which may utilize a matrix system for
valuations. The procedures of the pricing service and its valuations are
reviewed by the officers of the Fund under the general supervision of the Board
of Directors.
(b) Derivative financial instrument--The Fund may engage in various portfolio
strategies to seek to increase its return by hedging its portfolio against
adverse movements in the debt markets. Losses may arise due to changes in the
value of the contract or if the counterparty does not perform under the
contract.
- - Financial futures contracts--The Fund may purchase or sell financial futures
contracts and options on such futures contracts for the purpose of hedging the
market risk on existing securities or the intended purchase of securities.
Futures contracts are contracts for delayed delivery of securities at a specific
future date and at a specific price or yield. Upon entering into a contract, the
Fund deposits and maintains as collateral such initial margin as required by the
exchange on which the transaction is effected. Pursuant to the contract, the
Fund agrees to receive from or pay to the broker an amount of cash equal to the
daily fluctuation in value of the contract. Such receipts or payments are known
as variation margin and are recorded by the Fund as unrealized gains or losses.
When the contract is closed, the Fund records a realized gain or loss equal to
the difference between the value of the contract at the time it was opened and
the value at the time it was closed.
F-41
<PAGE> 112
MuniVest Michigan Insured Fund, Inc., April 30, 1999
NOTES TO FINANCIAL STATEMENTS (concluded)
- - 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) Dividends and distributions--Dividends from net investment income are
declared and paid monthly. Distributions of capital gains are recorded on the
ex-dividend dates.
2. Investment Advisory Agreement and Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with Fund Asset
Management, L.P. ("FAM"). The general partner of FAM is Princeton Services, Inc.
("PSI"), an indirect wholly-owned subsidiary of Merrill Lynch & Co., Inc. ("ML &
Co."), which is the limited partner.
FAM is responsible for the management of the Fund's portfolio and provides the
necessary personnel, facilities, equipment and certain other services necessary
to the operations of the Fund. For such services, the Fund pays a monthly fee at
an annual rate of 0.50% of the Fund's average weekly net assets, including
proceeds from the issuance of Preferred Stock.
Accounting services are provided to the Fund by FAM at cost.
Certain officers and/or directors of the Fund are officers and/or directors of
FAM, PSI, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the six
months ended April 30, 1999 were $35,941,837 and $37,090,593, respectively.
Net realized gains for the six months ended April 30, 1999 and net unrealized
gains as of April 30, 1999 were as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Realized Unrealized
Gains Gains
- --------------------------------------------------------------------------------
<S> <C> <C>
Long-term investments ...................... $1,172,744 $8,689,293
---------- ----------
Total ...................................... $1,172,744 $8,689,293
========== ==========
- --------------------------------------------------------------------------------
</TABLE>
As of April 30, 1999, net unrealized appreciation for Federal income tax
purposes aggregated $8,689,293, of which $9,131,965 related to appreciated
securities and $442,672 related to depreciated securities. The aggregate cost of
investments at April 30, 1999 for Federal income tax purposes was $143,940,772.
4. Capital Stock Transactions:
The Fund is authorized to issue 200,000,000 shares of capital stock, including
Preferred Stock, par value $.10 per share, all of which were initially
classified as Common Stock. The Board of Directors is authorized, however, to
reclassify any unissued shares of capital stock without approval of holders of
Common Stock.
Common Stock
Shares issued and outstanding during the six months ended
F-42
<PAGE> 113
April 30, 1999 remained constant and the year ended October 31, 1998 increased
by 7,728 as a result of dividend reinvestment.
Preferred Stock
Auction Market Preferred Stock ("AMPS") are shares of Preferred Stock of the
Fund, with a par value of $.05 per share and a liquidation preference of $25,000
per share, that entitle their holders to receive cash dividends at an annual
rate that may vary for the successive dividend periods. The yield in effect at
April 30, 1999 was 3.35%.
Shares issued and outstanding during the six months ended April 30, 1999 and the
year ended October 31, 1998 remained constant.
The Fund pays commissions to certain broker-dealers at the end of each auction
at an annual rate ranging from 0.25% to 0.375%, calculated on the proceeds of
each auction. For the six months ended April 30, 1999, Merrill Lynch, Pierce,
Fenner & Smith Incorporated, an affiliate of FAM, earned $42,736 as commissions.
5. Capital Loss Carryforward:
At October 31, 1998, the Fund had a net capital loss carry forward of
approximately $5,871,000, of which $2,062,000 expires in 2002; $3,063,000
expires in 2003; and $746,000 expires in 2004. This amount will be available to
offset like amounts of any future taxable gains.
6. Subsequent Event:
On May 6, 1999, the Fund's Board of Directors declared an ordinary income
dividend to Common Stock shareholders in the amount of $.059603 per share,
payable on May 27, 1999 to shareholders of record as of May 21, 1999.
QUALITY PROFILE
The quality ratings of securities in the Fund as of April 30, 1999 were as
follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Percent of
S&P Rating/Moody's Rating Net Assets
- --------------------------------------------------------------------------------
<S> <C>
AAA/Aaa ......................................................... 85.7%
AA/Aa ........................................................... 0.8
BBB/Baa ......................................................... 0.6
NR (Not Rated) .................................................. 4.0
Other+ .......................................................... 7.1
- --------------------------------------------------------------------------------
</TABLE>
+ Temporary investments in short-term municipal securities.
F-43
<PAGE> 114
Unaudited Financial Statements for MuniHoldings Michigan Insured Fund, Inc.
for the Period January 29, 1999 to March 31, 1999
F-44
<PAGE> 115
MuniHoldings Michigan Insured Fund, Inc., March 31, 1999
<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>
Michigan--97.0% AAA Aaa $ 1,210 Big Rapids, Michigan, Public Schools District, GO,
Refunding, 5% due 5/01/2019 (d) $ 1,196
AAA Aaa 4,680 Brighton, Michigan, Area School District, GO,
Refunding, 5% due 5/01/2006 (d) 4,910
AAA Aaa 2,500 Central Michigan University, Revenue Refunding Bonds,
5% due 10/01/2027 (c) 2,441
AAA Aaa 4,795 Clarkston, Michigan, Community Schools, GO, 5.25% due
5/01/2023 (b) 4,832
Delta County, Michigan, Economic Development Corporation,
Environmental Improvement Revenue Refunding Bonds
(Mead-Escanaba Paper), DATES (e):
NR* P1 2,000 Series D, 2.90% due 12/01/2023 2,000
NR* P1 1,000 Series F, 2.90% due 12/01/2013 1,000
Detroit, Michigan, Sewage Disposal Revenue Bonds, Series A (b):
AAA Aaa 4,000 5% due 7/01/2022 3,930
AAA Aaa 1,000 5% due 7/01/2027 976
AAA Aaa 2,500 Dexter, Michigan, Community Schools, GO, 5% due 5/01/2013 (c) 2,536
AAA Aaa 2,000 East China School District, Michigan, GO, Refunding,
5% due 5/01/2007 (c) 2,096
Fenton, Michigan, Area Public Schools, GO (c):
AAA Aaa 2,000 5% due 5/01/2021 1,966
AAA Aaa 2,500 5% due 5/01/2024 2,454
Ferris State University, Michigan, Revenue Refunding Bonds (a):
AAA Aaa 2,000 5% due 10/01/2023 1,964
AAA Aaa 2,000 5% due 10/01/2028 1,952
Grand Traverse County, Michigan, Hospital Revenue Refunding Bonds
(Munson Healthcare), Series A (a):
AAA Aaa 2,105 5.25% due 7/01/2013 2,168
AAA Aaa 2,500 5.50% due 7/01/2018 2,591
NR* Aaa 3,000 Holt, Michigan, Public Schools, GO, Refunding, 5.125%
due 5/01/2021 (b) 2,988
NR* Aaa 2,000 Kalamazoo, Michigan, Hospital Finance Authority, Hospital
Facility Revenue Refunding Bonds (Bronson Methodist Hospital),
5.50% due 5/15/2028 (b) 2,077
AAA Aaa 1,000 Kent County, Michigan, Airport Facility Revenue Bonds
(Kent County International Airport), AMT, 5% due
1/01/2028 (b) 960
Lanse Creuse, Michigan, Public Schools, GO (a):
AAA Aaa 1,000 5.50% due 5/01/2005 1,079
AAA Aaa 2,500 5.50% due 5/01/2006 2,708
NR* Aaa 2,235 Madison Heights, Michigan, Lamphere Schools, GO, 5%
due 5/01/2013 (c) 2,265
AA Aa2 4,000 Michigan State Building Authority, Revenue Refunding
Bonds (Facilities Program), Series 1, 5% due 10/15/2006 4,208
AAA Aaa 5,000 Michigan State, HDA, Rental Housing Revenue Bonds, Series B,
5.10% due 10/01/2019 (b) 4,969
Michigan State Hospital Finance Authority
Revenue Bonds, Series A:
AAA Aaa 1,000 (Charity Obligation), 5.125% due 11/01/2029 (b) 983
AAA Aaa 2,500 (Oakwood Obligation Group), 5% due 8/15/2026 (d) 2,413
AAA Aaa 5,000 Michigan State Hospital Finance Authority, Revenue
Refunding Bonds (Detroit Medical Hospital), Series A,
5.25% due 8/15/2027 (a) 4,970
</TABLE>
Portfolio
Abbreviations
To simplify the listings of MuniHoldings Michigan Insured Fund, Inc.'s portfolio
holdings in the Schedule of Investments, we have abbreviated the names of many
of the securities according to the list below and at right.
AMT Alternative Minimum Tax (subject to)
DATES Daily Adjustable Tax-Exempt Securities
GO General Obligation Bonds
HDA Housing Development Authority
PCR Pollution Control Revenue Bonds
RIB Residual Interest Bonds
VRDN Variable Rate Demand Notes
F-45
<PAGE> 116
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
NR* P1 3,300 Michigan State Strategic Fund, PCR, Refunding
(Consumers Power Project), VRDN, 2.90% due 4/15/2018 (e) 3,300
AAA Aaa 2,435 Michigan State University Revenue Bonds, Series A, 5%
due 2/15/2026 (a) 2,379
Northern Michigan University, Revenue Refunding Bonds (b):
AAA NR* 1,275 5.125% due 12/01/2020 1,270
AAA Aaa 1,000 5% due 12/01/2025 977
AAA Aaa 4,000 Richmond, Michigan, Community School District, GO, 5.60%
due 5/01/2006 (a)(g)(h) 4,363
AAA Aaa 4,000 Rockford, Michigan, Public Schools, GO, 5.25% due 5/01/2022 (c) 4,031
AA VMIG1++ 200 Royal Oak, Michigan, Hospital Finance Authority,
Hospital Revenue Bonds (William Beaumont Hospital), VRDN,
Series L, 2.85% due 1/01/2027 (b)(e) 200
AAA Aaa 1,160 Royal Oak, Michigan, Hospital Finance Authority, Hospital
Revenue Refunding Bonds (William Beaumont Hospital),
Series I, 5.50% due 1/01/2018 (b) 1,199
AAA Aaa 2,975 Tecumseh, Michigan, Public Schools, GO, 5% due 5/01/2021 (c) 2,924
AAA Aaa 2,700 Three Rivers, Michigan, Community Schools, GO,
6% due 5/01/2006 (b)(g) 3,031
A1+ VMIG1++ 3,600 University of Michigan, University Hospital Revenue
Bonds, VRDN, Series A, 3% due 12/01/2027 (e) 3,600
NR* Aaa 6,565 Wayne Charter County, Michigan, Airport Revenue Bonds,
AMT, RIB, Series 68, 7.265% due 12/01/2017 (b)(f) 6,851
Puerto Rico--1.5% AAA Aaa 1,550 Puerto Rico Commonwealth, GO, Refunding, 5.25% due 7/01/2018 (b) 1,578
Total Investments (Cost--$105,220)--98.5% 104,335
Variation Margin on Financial Futures Contracts**--0.1% 69
Other Assets Less Liabilities--1.4% 1,494
---------
Net Assets--100.0% $ 105,898
=========
</TABLE>
(a) AMBAC Insured.
(b) MBIA Insured.
(c) FGIC Insured.
(d) FSA Insured.
(e) The interest rate is subject to change periodically based upon
prevailing market rates. The interest rate shown is the rate in
effect at March 31, 1999.
(f) The interest rate is subject to change periodically and inversely
based upon prevailing market rates. The interest rate shown is the
rate in effect at March 31, 1999.
(g) Prerefunded.
(h) All or a portion of security held as collateral in connection with
open financial futures contracts.
* Not Rated.
** Financial futures contracts sold as of March 31, 1999 were as
follows:
<TABLE>
<CAPTION>
(in Thousands)
Number of Expiration Value
Contracts Issue Date (Notes 1a & 1b)
<S> <C> <C> <C> <C>
130 US Treasury Bonds June 1999 $ 15,673
-----------
Total Financial Futures Contracts Sold
(Total Contract Price--$15,736) $ 15,673
===========
</TABLE>
++ Highest short-term rating by Moody's Investors Service, Inc.
See Notes to Financial Statements.
Portfolio
Abbreviations
To simplify the listings of MuniHoldings Michigan Insured Fund, Inc.'s portfolio
holdings in the Schedule of Investments, we have abbreviated the names of many
of the securities according to the list below and at right.
AMT Alternative Minimum Tax (subject to)
DATES Daily Adjustable Tax-Exempt Securities
GO General Obligation Bonds
HDA Housing Development Authority
PCR Pollution Control Revenue Bonds
RIH Residual Interest Bonds
VRDN Variable Rate Demand Notes
F-46
<PAGE> 117
MuniHoldings Michigan Insured Fund, Inc., March 31, 1999
<TABLE>
STATEMENT OF ASSETS, LIABILITIES AND CAPITAL
<CAPTION>
As of March 31, 1999
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$105,219,835)(Note 1a) $104,334,685
Cash 78,680
Receivables:
Interest $ 1,708,239
Variation margin (Note 1b) 69,062
Investment adviser (Note 2) 15,096 1,792,397
------------ ------------
Total assets 106,205,762
------------
Liabilities: Payables:
Offering costs (Note 1e) 131,000
Dividends to shareholders (Note 1f) 25,088 156,088
------------
Accrued expenses and other liabilities 151,607
------------
Total liabilities 307,695
------------
Net Assets: Net assets $105,898,067
============
Capital: Capital Stock (200,000,000 shares authorized)(Note 4):
Preferred Stock, par value $.10 per share (1,600 shares
of AMPS* issued and outstanding at $25,000
per share liquidation preference) $ 40,000,000
Common Stock, par value $.10 per share (4,453,667
shares issued and outstanding) $ 445,367
Paid-in capital in excess of par 65,702,592
Undistributed investment income--net 569,448
Undistributed realized capital gains on investments--net 3,310
Unrealized depreciation on investments--net (822,650)
------------
Total--Equivalent to $14.80 net asset value per share of
Common Stock (market price--$15.4375) 65,898,067
------------
Total capital $105,898,067
============
</TABLE>
* Auction Market Preferred Stock.
See Notes to Financial Statements.
<TABLE>
STATEMENT OF OPERATIONS
<CAPTION>
For the Period January 29, 1999++ to March 31, 1999
<S> <S> <C> <C>
Investment Interest and amortization of premium and discount earned $ 722,008
Income (Note 1d):
Expenses: Investment advisory fees (Note 2) $ 74,952
Commission fees (Note 4) 12,403
Accounting services (Note 2) 6,877
Professional fees 5,382
</TABLE>
F-47
<PAGE> 118
<TABLE>
STATEMENT OF OPERATIONS
<CAPTION>
For the Period January 29, 1999++ to March 31, 1999
<S> <S> <C> <C>
Directors' fees and expenses 4,365
Transfer agent fees 3,730
Listing fees 2,254
Printing and shareholder reports 1,335
Custodian fees 1,263
Pricing fees 818
Other 1,208
------------
Total expenses before reimbursement 114,587
Reimbursement of expenses (Note 2) (90,048)
------------
Total expenses after reimbursement 24,539
------------
Investment income--net 697,469
------------
Realized & Realized gain on investments--net 3,310
Unrealized Unrealized depreciation on investments--net (822,650)
Gain (Loss) on ------------
Investments--Net Net Decrease in Net Assets Resulting from Operations $ (121,871)
(Notes 1b, 1d & 3): ============
</TABLE>
++ Commencement of operations.
See Notes to Financial Statements.
<TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<CAPTION>
For the Period
Jan. 29, 1999++ to
Increase (Decrease) in Net Assets: March 31, 1999
<S> <S> <C>
Operations: Investment income--net $ 697,469
Realized gain on investments--net 3,310
Unrealized depreciation on investments--net (822,650)
------------
Net decrease in net assets resulting from operations (121,871)
------------
Dividends to Investment income--net to Preferred Stock shareholders (128,021)
Shareholders ------------
(Note 1f):
Capital Stock Proceeds from issuance of Common Stock 66,705,000
Transactions Proceeds from issuance of Preferred Stock 40,000,000
(Notes 1e & 4): Offering costs resulting from the issuance of Common Stock (216,046)
Offering and underwriting costs resulting from the issuance of Preferred Stock (441,000)
------------
Net increase in net assets derived from capital stock transactions 106,047,954
------------
Net Assets: Total increase in net assets 105,798,062
Beginning of period 100,005
------------
End of period* $105,898,067
============
*Undistributed investment income--net $ 569,448
============
</TABLE>
++ Commencement of operations.
See Notes to Financial Statements.
F-48
<PAGE> 119
MuniHoldings Michigan Insured Fund, Inc., March 31, 1999
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
The following per share data and ratios have been derived
from information provided in the financial statements. For the Period
Jan. 29, 1999++ to
Increase (Decrease) in Net Asset Value: March 31, 1999
<S> <S> <C>
Per Share Net asset value, beginning of period $ 15.00
Operating ------------
Performance: Investment income--net .16
Realized and unrealized loss on investments--net (.18)
------------
Total from investment operations (.02)
------------
Capital charge resulting from issuance of Common Stock (.05)
------------
Effect of Preferred Stock activity++++:
Dividends to Preferred Stock shareholders:
Investment income--net (.03)
Capital charge resulting from issuance of Preferred Stock (.10)
------------
Total effect of Preferred Stock activity (.13)
------------
Net asset value, end of period $ 14.80
============
Market price per share, end of period $ 15.4375
============
Total Investment Based on market price per share 2.92%+++
Return:** ============
Based on net asset value per share (1.33%)+++
============
Ratios to Average Expenses, net of reimbursement .18%*
Net Assets:*** ============
Expenses .84%*
============
Investment income--net 5.12%*
============
Supplemental Net assets, net of Preferred Stock, end of period (in thousands) $ 65,898
Data: ============
Preferred Stock outstanding, end of period (in thousands) $ 40,000
============
Portfolio turnover 20.53%
============
Leverage: Asset coverage per $1,000 $ 2,647
============
Dividends Investment income--net $ 80
Per Share on ============
Preferred Stock
Outstanding:
</TABLE>
* Annualized.
** Total investment returns based on market value, which can be
significantly greater or lesser than the net asset value, may result
in substantially different returns. Total investment returns exclude
the effects of sales loads.
*** Do not reflect the effect of dividends to Preferred Stock
shareholders.
++ Commencement of operations.
++++ The Fund's Preferred Stock was issued on February 22, 1999.
+++ Aggregate total investment return.
See Notes to Financial Statements.
F-49
<PAGE> 120
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
MuniHoldings Michigan Insured Fund, Inc. (the "Fund") is registered under the
Investment Company Act of 1940 as a non-diversified, closed-end management
investment company. The Fund's financial statements are prepared in accordance
with generally accepted accounting principles which may require the use of
management accruals and estimates. These unaudited financial statements reflect
all adjustments which are, in the opinion of management, necessary to a fair
statement of the results for the interim period presented. All such adjustments
are of a normal recurring nature. Prior to commencement of operations on January
29, 1999, the Fund had no operations other than those relating to organizational
matters and the sale of 6,667 shares of Common Stock on January 13, 1999 to Fund
Asset Management, L.P. ("FAM") for $100,005. 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 MCG. The following is a summary of significant accounting policies
followed by the Fund.
(a) Valuation of investments--Municipal bonds are traded primarily in the
over-the-counter markets and are valued at the most recent bid price or yield
equivalent as obtained by the Fund's pricing service from dealers that make
markets in such securities. Financial futures contracts and options thereon,
which are traded on exchanges, are valued at their closing prices as of the
close of such exchanges. Options written or purchased are valued at the last
sale price in the case of exchange-traded options. In the case of options traded
in the over-the-counter market, valuation is the last asked price (options
written) or the last bid price (options purchased). Securities with remaining
maturities of sixty days or less are valued at amortized cost, which
approximates market value. Securities and assets for which market quotations are
not readily available are valued at fair value as determined in good faith by or
under the direction of the Board of Directors of the Fund, including valuations
furnished by a pricing service retained by the Fund, which may utilize a matrix
system for valuations. The procedures of the pricing service and its valuations
are reviewed by the officers of the Fund under the general supervision of the
Board of Directors.
(b) Derivative financial instruments--The Fund may engage in various portfolio
strategies to seek to increase its return by hedging its portfolio against
adverse movements in the debt markets. Losses may arise due to changes in the
value of the contract or if the counterparty does not perform under the
contract.
* Financial futures contracts--The Fund may purchase or sell financial futures
contracts and options on such futures contracts for the purpose of hedging the
market risk on existing securities or the intended purchase of securities.
Futures contracts are contracts for delayed delivery of securities at a specific
future date and at a specific price or yield. Upon entering into a contract, the
Fund deposits and maintains as collateral such initial margin as required by the
exchange on which the transaction is effected. Pursuant to the contract, the
Fund agrees to receive from or pay to the broker an amount of cash equal to the
daily fluctuation in value of the contract. Such receipts or payments are known
as variation margin and are recorded by the Fund as unrealized gains or losses.
When the contract is closed, the Fund records a realized gain or loss equal to
the difference between the value of the contract at the time it was opened and
the value at the time it was closed.
* Options--The Fund is authorized to write covered call options and purchase
call and put options. When the Fund writes an option, an amount equal to the
premium received by the Fund is reflected as an asset and an equivalent
liability. The amount of the liability is subsequently marked to market to
reflect the current market value of the option written. When a security is
purchased or sold through an exercise of an option, the related premium paid (or
received) is added to (or deducted from) the basis of the security acquired or
deducted from (or added to) the proceeds of the security sold. When an option
expires (or the Fund enters into a closing transaction), the Fund realizes a
gain or loss on the option to the extent of the premiums received or paid (or
gain or loss to the extent the cost of the closing transaction exceeds the
premium paid or received).
Written and purchased options are non-income producing investments.
F-50
<PAGE> 121
MuniHoldings Michigan Insured Fund, Inc., March 31, 1999
NOTES TO FINANCIAL STATEMENTS (concluded)
(c) Income taxes--It is the Fund's policy to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no Federal income tax provision is required.
(d) Security transactions and investment income--Security transactions are
recorded on the dates the transactions are entered into (the trade dates).
Interest income is recognized on the accrual basis. Discounts and market
premiums are amortized into interest income. Realized gains and losses on
security transactions are determined on the identified cost basis.
(e) Offering expenses--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) 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 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 0.55% of the Fund's average weekly net assets, including
proceeds from the sale of Preferred Stock. For the period January 29, 1999 to
March 31, 1999, FAM earned fees of $74,952, all of which was voluntarily waived.
In addition, FAM also reimbursed the Fund $15,096 in additional expenses.
During the period January 29, 1999 to March 31, 1999, Merrill, Lynch, Pierce,
Fenner & Smith Incorporated ("MLPF&S"), an affiliate of FAM, received
underwriting fees of $300,000 in connection with the issuance of the Fund's
Preferred Stock.
Accounting services are provided to the Fund by FAM at cost.
Certain officers and/or directors of the Fund are officers and/or directors of
FAM, PSI, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the
period January 29, 1999 to March 31, 1999 were $110,537,975 and $15,219,083,
respectively.
Net realized gains (losses) for the period January 29, 1999 to March 31, 1999
and net unrealized gains (losses) as of March 31, 1999 were as follows:
<TABLE>
<CAPTION>
Realized Unrealized
Gains Gains
(Losses) (Losses)
<S> <C> <C>
Long-term investments $ (167,265) $ (885,150)
Financial futures contracts 170,575 62,500
------------ ------------
Total $ 3,310 $ (822,650)
============ ============
</TABLE>
As of March 31, 1999, net unrealized depreciation for Federal income tax
purposes aggregated $885,150, of which $4,263 related to appreciated securities
and $889,413 related to depreciated securities. The aggregate cost of
investments at March 31, 1999 for Federal income tax purposes was $105,219,835.
4. Capital Stock Transactions:
The Fund is authorized to issue 200,000,000 shares of capital stock, including
Preferred Stock, par value $.10 per share, all of which were initially
classified as Common Stock. The Board of Directors is authorized, however, to
reclassify any unissued shares of capital stock without approval of holders of
Common Stock.
Common Stock
Shares issued and outstanding during the period January 29, 1999 to March 31,
1999 increased by 4,447,000 from shares sold.
Preferred Stock
Auction Market Preferred Stock ("AMPS") are shares of Preferred Stock of the
Fund, with a par value of $.10 per share and a liquidation preference of $25,000
per share, that entitle their holders to receive cash dividends at an annual
rate that may vary for the successive dividend periods. The yield in effect at
March 31, 1999 was 3.27%.
In connection with the offering of AMPS, the Board of Directors reclassified
1,600 shares of unissued capital stock as AMPS.
F-51
<PAGE> 122
Unaudited Financial Statements for Pro Forma MuniYield Michigan
as of April 30, 1999
F-53
<PAGE> 123
COMBINED SCHEDULE OF INVESTMENTS FOR
MUNIYIELD MICHIGAN INSURED FUND, INC., MUNIVEST MICHIGAN INSURED FUND, INC.
AND MUNIHOLDINGS MICHIGAN INSURED FUND, INC.
AS OF APRIL 30, 1999 (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
S&P MOODY'S FACE MUNIYIELD MUNIVEST MUNIHOLDINGS MUNIYIELD
RATINGS RATINGS AMOUNT ISSUE MICHIGAN++ MICHIGAN++ MICHIGAN++ MICHIGAN++
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
MICHIGAN -- 97.2%
Belding, Michigan, Area
Schools, GO, Refunding(c):
AAA Aaa $ 215 6.05% due 5/01/2021 -- $ 232 -- $ 232
AAA NR* 785 6.05% due 5/01/2006(f) -- 883 -- 883
- --------------------------------------------------------------------------------------------------------------
AAA Aaa 1,210 Big Rapids, Michigan, Public -- -- $ 1,193 1,193
Schools District, GO,
Refunding, 5% due
5/01/2019(e)
- --------------------------------------------------------------------------------------------------------------
AAA Aaa 4,680 Brighton, Michigan, Area -- -- 4,908 4,908
School District, GO,
Refunding, 5% due
5/01/2006(e)
- --------------------------------------------------------------------------------------------------------------
AAA Aaa 1,000 Caledonia, Michigan, -- 1,092 -- 1,092
Community Schools, GO,
Refunding, 6.625% due
5/01/2014(b)
- --------------------------------------------------------------------------------------------------------------
AAA Aaa 1,000 Cedar Springs Michigan -- -- 996 996
Public School District
Refunding, 5% due 5/01/2017
- --------------------------------------------------------------------------------------------------------------
AAA Aaa 1,625 Central Michigan University -- 1,778 -- 1,778
Revenue Bonds, 5.50% due
4/01/2007(c)(f)
- --------------------------------------------------------------------------------------------------------------
Central Michigan University
Revenue Refunding Bonds(c):
AAA Aaa 3,250 5% due 10/01/2023 -- -- 3,178 3,178
AAA Aaa 2,500 5% due 10/01/2027 -- -- 2,430 2,430
- --------------------------------------------------------------------------------------------------------------
AAA Aaa 1,250 Chelsea, Michigan, School $ 1,382 -- -- 1,382
District, GO, 5.875% due
5/01/2005(c)(f)
- --------------------------------------------------------------------------------------------------------------
AAA Aaa 6,295 Clarkston, Michigan, -- 1,509 4,823 6,332
Community Schools, GO, 5.25%
due 5/01/2023(d)
- --------------------------------------------------------------------------------------------------------------
AAA Aaa 1,000 Coldwater, Michigan, -- 1,124 -- 1,124
Community Schools, GO, 6.30%
due 5/01/2004(d)(f)
- --------------------------------------------------------------------------------------------------------------
AAA Aaa 1,765 Decantor, Michigan, Public -- -- 1,723 1,723
Schools, GO (Van Burn-Cass
Counties), 5% due 5/01/2024
- --------------------------------------------------------------------------------------------------------------
Delta County, Michigan,
Economic Development
Corporation, Environmental
Improvement Revenue
Refunding Bonds (Mead-
Escanaba Paper), DATES(a):
NR* P-1 2,000 Series D, 4.20% due 2,000 -- -- 2,000
12/01/2023
NR* P-1 500 Series E, 4.20% due 500 -- -- 500
12/01/2023
NR* P-1 1,100 Series F, 4.20% due -- 100 1,000 1,100
12/01/2013
- --------------------------------------------------------------------------------------------------------------
</TABLE>
F-54
<PAGE> 124
COMBINED SCHEDULE OF INVESTMENTS FOR
MUNIYIELD MICHIGAN INSURED FUND, INC., MUNIVEST MICHIGAN INSURED FUND, INC.
AND MUNIHOLDINGS MICHIGAN INSURED FUND, INC.
AS OF APRIL 30, 1999 (UNAUDITED) -- (CONTINUED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
S&P MOODY'S FACE MUNIYIELD MUNIVEST MUNIHOLDINGS MUNIYIELD
RATINGS RATINGS AMOUNT ISSUE MICHIGAN++ MICHIGAN++ MICHIGAN++ MICHIGAN++
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Detroit, Michigan, Sewage
Disposal Revenue Bonds,
Series A (d):
AAA Aaa $ 4,000 5% due 7/01/2022 -- -- $ 3,914 $ 3,914
AAA Aaa 4,500 5% due 7/01/2027 -- $ 3,402 972 4,374
- --------------------------------------------------------------------------------------------------------------
Detroit, Michigan, Water
Supply System Revenue Bonds,
Senior Lien, Series A(d):
AAA Aaa 6,420 5% due 7/01/2021 $ 3,152 3,133 -- 6,285
AAA Aaa 6,700 5% due 7/01/2027 3,451 3,062 -- 6,513
- --------------------------------------------------------------------------------------------------------------
AAA Aaa 5,000 Detroit, Michigan, Water 5,457 -- -- 5,457
Supply System Revenue
Refunding Bonds, 6.25% due
7/01/2002(c)
- --------------------------------------------------------------------------------------------------------------
AAA Aaa 2,500 Dexter, Michigan, Community -- -- 2,538 2,538
Schools, GO, 5% due
5/01/2013(c)
- --------------------------------------------------------------------------------------------------------------
AA+ Aaa 2,000 East China School District, -- -- 2,094 2,094
Michigan, GO, Refunding, 5%
due 5/01/2007(c)
- --------------------------------------------------------------------------------------------------------------
AAA Aaa 5,250 Eastern Michigan University -- 5,467 -- 5,467
Revenue Bonds, 5.50% due
6/01/2027(c)
- --------------------------------------------------------------------------------------------------------------
AAA Aaa 1,000 Eastern Michigan University 1,080 -- -- 1,080
Revenue Refunding Bonds,
6.25% due 7/01/2002(c)
- --------------------------------------------------------------------------------------------------------------
AAA Aaa 3,990 Eaton Rapids, Michigan, 1,952 1,952 -- 3,904
Public Schools, GO,
Refunding, 5% due
5/01/2022(d)
- --------------------------------------------------------------------------------------------------------------
Fenton, Michigan, Area
Public Schools, GO(c):
AAA Aaa 6,460 5% due 5/01/2021 2,409 1,958 1,958 6,325
AAA Aaa 2,500 5% due 5/01/2024 -- -- 2,441 2,441
- --------------------------------------------------------------------------------------------------------------
Ferris State University,
Michigan, Revenue Refunding
Bonds (b):
AAA Aaa 2,000 5% due 10/01/2023 -- -- 1,956 1,956
AAA Aaa 2,000 5% due 10/01/2028 -- -- 1,943 1,943
- --------------------------------------------------------------------------------------------------------------
NR* Aaa 1,500 Fruitport, Michigan, -- 1,516 -- 1,516
Community Schools, GO, 5.30%
due 5/01/2022(c)
- --------------------------------------------------------------------------------------------------------------
Grand Ledge, Michigan,
Public Schools District,
GO(d)(f):
AAA Aaa 1,000 6.45% due 5/01/2004 -- 1,131 -- 1,131
AAA Aaa 12,500 6.60% due 5/01/2004 5,119 9,101 -- 14,220
- --------------------------------------------------------------------------------------------------------------
AAA Aaa 1,000 Grand Ledge, Michigan, -- 1,019 -- 1,019
Public Schools District, GO,
Refunding, 5.375% due
5/01/2024(d)
- --------------------------------------------------------------------------------------------------------------
AAA Aaa 3,000 Grand Rapids, Michigan, 3,169 -- -- 3,169
Water Supply Revenue
Refunding Bonds, 6.25% due
1/01/2011(c)
- --------------------------------------------------------------------------------------------------------------
</TABLE>
F-55
<PAGE> 125
COMBINED SCHEDULE OF INVESTMENTS FOR
MUNIYIELD MICHIGAN INSURED FUND, INC., MUNIVEST MICHIGAN INSURED FUND, INC.
AND MUNIHOLDINGS MICHIGAN INSURED FUND, INC.
AS OF APRIL 30, 1999 (UNAUDITED) -- (CONTINUED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
S&P MOODY'S FACE MUNIYIELD MUNIVEST MUNIHOLDINGS MUNIYIELD
RATINGS RATINGS AMOUNT ISSUE MICHIGAN++ MICHIGAN++ MICHIGAN++ MICHIGAN++
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
AAA VMIG1+ $ 400 Grand Rapids, Michigan, -- $ 400 -- $ 400
Water Supply Revenue
Refunding Bonds, VRDN, 4%
due 1/01/2020(a)(c)
- --------------------------------------------------------------------------------------------------------------
Grand Traverse County,
Michigan, Hospital Revenue
Refunding Bonds (Munson
Healthcare), Series A(b):
AAA Aaa 7,140 6.25% due 7/01/2002(f) $ 3,646 4,160 -- 7,806
NR* Aaa 2,105 5.25% due 7/01/2013 -- -- $ 2,170 2,170
AAA Aaa 7,500 5.50% due 7/01/2018 2,582 2,582 2,582 7,746
AAA Aaa 3,110 6.25% due 7/01/2022 1,801 1,563 -- 3,364
- --------------------------------------------------------------------------------------------------------------
AAA Aaa 2,570 Grandville, Michigan, Public 1,144 1,796 -- 2,940
Schools District, GO,
Refunding, 6.60% due
5/01/2005(c)(f)
- --------------------------------------------------------------------------------------------------------------
AAA Aaa 4,750 Greenville, Michigan, Public 2,728 2,455 -- 5,183
Schools, GO, 5.75% due
5/01/2024(d)(f)
- --------------------------------------------------------------------------------------------------------------
AAA Aaa 3,540 Holly, Michigan, Area School 1,732 1,732 -- 3,464
District, GO, Refunding, 5%
due 5/01/2022(c)
- --------------------------------------------------------------------------------------------------------------
NR* Aaa 3,000 Holt, Michigan, Public -- -- 2,977 2,977
Schools, GO, Refunding,
5.125% due 5/01/2021(d)
- --------------------------------------------------------------------------------------------------------------
AAA Aaa 2,100 Huron Valley, Michigan, -- -- 2,277 2,277
School District, GO, 5.45%
due 5/01/2007(c)(f)
- --------------------------------------------------------------------------------------------------------------
AAA Aaa 1,700 Kalamazoo, Michigan, 1,802 -- -- 1,802
Hospital Finance Authority,
Hospital Facility Revenue
Bonds (Borgess Medical
Center), Series A, 5.625%
due 6/01/2014(b)
- --------------------------------------------------------------------------------------------------------------
Kalamazoo, Michigan,
Hospital Finance Authority,
Hospital Facility Revenue
Refunding and Improvement
Bonds (Bronson Methodist
Hospital)(d):
AAA Aaa 2,935 5.75% due 5/15/2016 1,580 1,511 -- 3,091
AAA Aaa 1,000 5.875% due 5/15/2026 -- 1,065 -- 1,065
AAA Aaa 1,180 Series A, 6.375% due -- 1,313 -- 1,313
5/15/2017
- --------------------------------------------------------------------------------------------------------------
Kalamazoo, Michigan,
Hospital Finance Authority,
Hospital Facility Revenue
Refunding Bonds (Bronson
Methodist Hospital)(d):
NR* Aaa 2,500 5.25% due 5/15/2018 -- 2,508 -- 2,508
NR* Aaa 8,000 5.50% due 5/15/2028 2,596 3,635 2,077 8,308
- --------------------------------------------------------------------------------------------------------------
AAA Aaa 1,000 Kent County, Michigan, -- -- 956 956
Airport Facility Revenue
Bonds (Kent County
International Airport), AMT,
5% due 1/01/2028(d)
- --------------------------------------------------------------------------------------------------------------
</TABLE>
F-56
<PAGE> 126
COMBINED SCHEDULE OF INVESTMENTS FOR
MUNIYIELD MICHIGAN INSURED FUND, INC., MUNIVEST MICHIGAN INSURED FUND, INC.
AND MUNIHOLDINGS MICHIGAN INSURED FUND, INC.
AS OF APRIL 30, 1999 (UNAUDITED) -- (CONTINUED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
S&P MOODY'S FACE MUNIYIELD MUNIVEST MUNIHOLDINGS MUNIYIELD
RATINGS RATINGS AMOUNT ISSUE MICHIGAN++ MICHIGAN++ MICHIGAN++ MICHIGAN++
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
AAA Aaa $ 4,660 Kent, Michigan, Hospital $ 2,200 $ 2,926 -- $ 5,126
Finance Authority, Health
Care Revenue Bonds
(Butterworth Health
Systems), Series A, 5.625%
due 1/15/2006(d)(f)
- --------------------------------------------------------------------------------------------------------------
AAA Aaa 4,000 Kent, Michigan, Hospital 2,452 2,452 -- 4,904
Finance Authority, Hospital
Revenue Refunding Bonds
(Butterworth Hospital),
Series A, 7.25% due
1/15/2013(d)
- --------------------------------------------------------------------------------------------------------------
AAA Aaa 4,000 Lakeshore, Michigan, Public 4,227 -- -- 4,227
Schools, GO, 5.70% due
5/01/2022(d)
- --------------------------------------------------------------------------------------------------------------
NR* Aaa 2,235 Lamphere Schools, Madison -- -- $ 2,266 2,266
Heights, Michigan, GO, 5%
due 5/01/2013(c)
- --------------------------------------------------------------------------------------------------------------
Lanse Creuse, Michigan,
Public Schools, GO(b):
AAA Aaa 2,500 5.50% due 5/01/2006 -- -- 2,702 2,702
AAA Aaa 1,625 5.25% due 5/01/2015 -- -- 1,674 1,674
- --------------------------------------------------------------------------------------------------------------
AAA Aaa 1,000 Leslie, Michigan, Public 1,113 -- -- 1,113
Schools, Ingham and Jackson
Counties, GO, Refunding, 6%
due 5/01/2005(b)(f)
- --------------------------------------------------------------------------------------------------------------
AAA Aaa 5,235 Lincoln Park, Michigan, 2,364 3,823 -- 6,187
School District, GO, 7% due
5/01/2006(c)(f)
- --------------------------------------------------------------------------------------------------------------
AAA Aaa 1,900 Lowell, Michigan, Area -- 806 -- 806
Schools, GO, Refunding, 0%
due 5/01/2016(c)
- --------------------------------------------------------------------------------------------------------------
AAA VMIG1+ 600 Michigan Higher Education, 100 500 -- 600
Student Loan Revenue Bonds,
VRDN, AMT, Series XII-D,
3.95% due 10/01/2015(a)(b)
- --------------------------------------------------------------------------------------------------------------
Michigan Municipal Bond
Authority Revenue Bonds:
AA+ Aa1 2,750 (Drinking Water Revolving 1,419 1,182 -- 2,601
Fund), 4.75% due
10/01/2020
AA+ Aa1 2,000 (State Revolving Fund), 2,220 -- -- 2,220
Series A, 6.60% due
10/01/2002(f)
- --------------------------------------------------------------------------------------------------------------
Michigan Municipal Bond
Authority Revenue Refunding
Bonds (Local Government Loan
Program), Series A:
AAA Aaa 1,035 6.50% due 5/01/2012(b) 1,138 -- -- 1,138
AAA Aaa 1,870 6.50% due 11/01/2012(d) 2,055 -- -- 2,055
AAA Aaa 1,000 6% due 12/01/2013(c) -- 1,100 -- 1,100
AAA Aaa 7,000 6.125% due 12/01/2018(c) 5,533 2,213 -- 7,746
- --------------------------------------------------------------------------------------------------------------
</TABLE>
F-57
<PAGE> 127
COMBINED SCHEDULE OF INVESTMENTS FOR
MUNIYIELD MICHIGAN INSURED FUND, INC., MUNIVEST MICHIGAN INSURED FUND, INC.
AND MUNIHOLDINGS MICHIGAN INSURED FUND, INC.
AS OF APRIL 30, 1999 (UNAUDITED) -- (CONTINUED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
S&P MOODY'S FACE MUNIYIELD MUNIVEST MUNIHOLDINGS MUNIYIELD
RATINGS RATINGS AMOUNT ISSUE MICHIGAN++ MICHIGAN++ MICHIGAN++ MICHIGAN++
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Michigan State Building
Authority Revenue Refunding
Bonds (Facilities Program):
AAA Aaa $ 3,100 Series I, 5.50% due $ 1,192 $ 2,167 -- $ 3,359
10/01/2006(b)
AA Aa2 4,000 Series 1, 5% due -- -- $ 4,211 4,211
10/15/2006
- --------------------------------------------------------------------------------------------------------------
Michigan State, HDA, Rental
Housing Revenue Bonds(d):
AAA Aaa 1,000 AMT, Series A, 5.30% due 993 -- -- 993
10/01/2037
AAA Aaa 8,000 Series B, 5.10% due 1,496 1,496 4,987 7,979
10/01/2019
- --------------------------------------------------------------------------------------------------------------
AAA Aaa 3,885 Michigan State, HDA, Rental -- 4,130 -- 4,130
Housing Revenue Refunding
Bonds, Series A, 6.50% due
4/01/2023(e)
- --------------------------------------------------------------------------------------------------------------
AAA Aaa 1,000 Michigan State Hospital -- -- 980 980
Finance Authority Revenue
Bonds (Charity Obligation),
Series A, 5.125% due
11/01/2029(d)
- --------------------------------------------------------------------------------------------------------------
BBB Baa2 1,000 Michigan State Hospital -- 903 -- 903
Finance Authority Revenue
Bonds (Detroit Medical
Center Obligation Group),
Series A, 5.25% due
8/15/2028
- --------------------------------------------------------------------------------------------------------------
Michigan State Hospital
Finance Authority Revenue
Refunding Bonds:
AAA Aaa 7,930 (Detroit Medical Group), -- 2,900 4,949 7,849
Series A, 5.25% due
8/15/2027(b)
AAA Aaa 4,805 (Mercy Health Services), 2,832 2,611 -- 5,443
Series T, 6.50% due
8/15/2013(d)
AAA Aaa 1,250 (Mid-Michigan Obligation 1,267 -- -- 1,267
Group), Series A, 5.375%
due 6/01/2027(e)
AAA Aaa 2,500 (Oakwood Obligation -- -- 2,417 2,417
Group), Series A, 5% due
8/15/2026(e)
AAA Aaa 3,000 (Saint John Hospital), -- 3,237 -- 3,237
Series A, 6% due
5/15/2013(b)
AAA Aaa 1,100 (Sisters of Mercy Health 1,184 -- -- 1,184
Corp.), Series M, 6.25%
due 2/15/2022(e)
AAA Aaa 1,460 (Sparrow Obligated Group), -- 1,573 -- 1,573
6.50% due 11/15/2011(d)
- --------------------------------------------------------------------------------------------------------------
</TABLE>
F-58
<PAGE> 128
COMBINED SCHEDULE OF INVESTMENTS FOR
MUNIYIELD MICHIGAN INSURED FUND, INC., MUNIVEST MICHIGAN INSURED FUND, INC.
AND MUNIHOLDINGS MICHIGAN INSURED FUND, INC.
AS OF APRIL 30, 1999 (UNAUDITED) -- (CONTINUED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
S&P MOODY'S FACE MUNIYIELD MUNIVEST MUNIHOLDINGS MUNIYIELD
RATINGS RATINGS AMOUNT ISSUE MICHIGAN++ MICHIGAN++ MICHIGAN++ MICHIGAN++
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Michigan State Strategic
Fund, Limited Obligation
Revenue Bonds, AMT:
A A1 $ 5,000 (Ford Motor Company $ 5,364 -- -- $ 5,364
Project), Series A, 6.55%
due 10/01/2022
BBB+ Baa3 2,500 (Waste Management Inc. 2,681 -- -- 2,681
Project), 6.625% due
12/01/2012
- --------------------------------------------------------------------------------------------------------------
NR* P-1 5,100 Michigan State Strategic 700 $ 4,400 -- 5,100
Fund, PCR, Refunding
(Consumers Power Project),
VRDN, 4.20% due 4/15/2018(a)
- --------------------------------------------------------------------------------------------------------------
AAA Aaa 8,000 Michigan State Trunk Line, 3,798 3,798 -- 7,596
Revenue Refunding Bonds,
Series A, 4.75% due
11/01/2020(d)
- --------------------------------------------------------------------------------------------------------------
Michigan State University
Revenue Bonds, Series A(b):
AAA Aaa 1,000 5.125% due 2/15/2016 -- 1,012 -- 1,012
AAA Aaa 2,435 5% due 2/15/2026 -- -- $ 2,368 2,368
- --------------------------------------------------------------------------------------------------------------
AAA Aaa 14,000 Monroe County, Michigan, 9,428 8,171 -- 17,599
Economic Development Corp.,
Limited Obligation Revenue
Refunding Bonds (Detroit
Edison Co. Project), Series
AA 6.95% due 9/01/2022(c)
- --------------------------------------------------------------------------------------------------------------
Monroe County, Michigan, PCR
(Detroit Edison Company),
AMT(d):
AAA Aaa 9,000 Series CC, 6.55% due 4,946 4,946 -- 9,892
6/01/2024
AAA Aaa 1,500 Series I-B, 6.55% due 1,655 -- -- 1,655
9/01/2024
- --------------------------------------------------------------------------------------------------------------
AAA Aaa 2,000 Montrose Township, Michigan, -- 2,089 -- 2,089
School District, GO, 5.60%
due 5/01/2026(d)
- --------------------------------------------------------------------------------------------------------------
AAA Aaa 2,390 Muskegon Heights, Michigan, 2,330 -- -- 2,330
Public Schools, GO, 5% due
5/01/2024(d)
- --------------------------------------------------------------------------------------------------------------
Northern Michigan
University, Revenue
Refunding Bonds(d):
AAA NR* 1,275 5.125% due 12/01/2020 -- -- 1,265 1,265
AAA Aaa 7,000 5% due 12/01/2025 3,891 1,945 973 6,809
- --------------------------------------------------------------------------------------------------------------
Northview, Michigan, Public
Schools District, GO,
Refunding(d):
AAA Aaa 2,265 5.80% due 5/01/2006(f) -- 2,513 -- 2,513
AAA Aaa 235 5.80% due 5/01/2021 -- 250 -- 250
- --------------------------------------------------------------------------------------------------------------
AAA Aaa 2,600 Novi, Michigan, Community -- 2,870 -- 2,870
School District, GO, 6.125%
due 5/01/2003(c)(f)
- --------------------------------------------------------------------------------------------------------------
AAA Aaa 2,000 Oakland University, 1,068 1,068 -- 2,136
Michigan, Revenue Bonds,
5.75% due 5/15/2026(d)
- --------------------------------------------------------------------------------------------------------------
</TABLE>
F-59
<PAGE> 129
COMBINED SCHEDULE OF INVESTMENTS FOR
MUNIYIELD MICHIGAN INSURED FUND, INC., MUNIVEST MICHIGAN INSURED FUND, INC.
AND MUNIHOLDINGS MICHIGAN INSURED FUND, INC.
AS OF APRIL 30, 1999 (UNAUDITED) -- (CONTINUED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
S&P MOODY'S FACE MUNIYIELD MUNIVEST MUNIHOLDINGS MUNIYIELD
RATINGS RATINGS AMOUNT ISSUE MICHIGAN++ MICHIGAN++ MICHIGAN++ MICHIGAN++
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
AAA Aaa $ 1,870 Redford, Michigan, Unified $ 2,086 -- -- $ 2,086
School District, GO, 5.90%
due 5/01/2006(c)(f)
- --------------------------------------------------------------------------------------------------------------
AAA Aaa 1,000 Reeths-Puffer Schools, -- $ 1,113 -- 1,113
Michigan, GO, Refunding, 6%
due 5/01/2005(c)(f)
- --------------------------------------------------------------------------------------------------------------
AAA Aaa 5,000 Richmond, Michigan, -- -- $ 5,449 5,449
Community School District,
GO, 5.60% due
5/01/2006(b)(f)
- --------------------------------------------------------------------------------------------------------------
AAA Aaa 5,925 Riverview, Michigan, 6,513 -- -- 6,513
Community School District,
GO, 6.70% due
5/01/2002(c)(f)
- --------------------------------------------------------------------------------------------------------------
AAA Aaa 4,000 Rockford, Michigan, Public -- -- 4,023 4,023
Schools, GO, 5.25% due
5/01/2022(c)
- --------------------------------------------------------------------------------------------------------------
AA Aa3 2,620 Royal Oak, Michigan, 2,813 -- -- 2,813
Hospital Finance Authority
Revenue Bonds (Beaumont
Properties, Inc.), Series E,
6.625% due 1/01/2019
- --------------------------------------------------------------------------------------------------------------
Royal Oak, Michigan,
Hospital Finance Authority,
Hospital Revenue Bonds
(William Beaumont Hospital),
VRDN(a):
A-1+ VMIG1+ 500 Series J, 4.20% due 500 -- -- 500
1/01/2003
A-1+ VMIG1+ 4,400 Series L, 4.20% due 4,200 -- 200 4,400
1/01/2027(d)
- --------------------------------------------------------------------------------------------------------------
AAA Aaa 1,160 Royal Oak, Michigan, -- -- 1,195 1,195
Hospital Finance Authority,
Hospital Revenue Refunding
Bonds (William Beaumont
Hospital), Series I, 5.50%
due 1/01/2018
- --------------------------------------------------------------------------------------------------------------
AAA Aaa 7,000 Saint Clair County, 7,874 -- -- 7,874
Michigan, Economic Revenue
Refunding Bonds (Detroit
Edison Co. Project), Series
AA, 6.40% due 8/01/2024(b)
- --------------------------------------------------------------------------------------------------------------
AAA Aaa 2,975 Tecumseh, Michigan, Public -- -- 2,913 2,913
Schools, GO, 5% due
5/01/2021(c)
- --------------------------------------------------------------------------------------------------------------
AAA Aaa 1,000 Three Rivers, Michigan, -- 1,121 -- 1,121
Community Schools GO, 6% due
5/01/2006(d)(f)
- --------------------------------------------------------------------------------------------------------------
AAA Aaa 3,725 Three Rivers, Michigan, 1,198 -- 2,445 3,643
Community Schools, GO,
Refunding, 5% due
5/01/2023(e)
- --------------------------------------------------------------------------------------------------------------
</TABLE>
F-60
<PAGE> 130
COMBINED SCHEDULE OF INVESTMENTS FOR
MUNIYIELD MICHIGAN INSURED FUND, INC., MUNIVEST MICHIGAN INSURED FUND, INC.
AND MUNIHOLDINGS MICHIGAN INSURED FUND, INC.
AS OF APRIL 30, 1999 (UNAUDITED) -- (CONTINUED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
S&P MOODY'S FACE MUNIYIELD MUNIVEST MUNIHOLDINGS MUNIYIELD
RATINGS RATINGS AMOUNT ISSUE MICHIGAN++ MICHIGAN++ MICHIGAN++ MICHIGAN++
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
University of Michigan,
University Hospital Revenue
Bonds, VRDN, Series A(a):
A-1+ VMIG1+ $ 3,500 4.15% due 12/01/2027 -- $ 3,500 -- $ 3,500
A-1+ VMIG1+ 800 4.25% due 12/01/2027 $ 500 -- $ 300 800
- --------------------------------------------------------------------------------------------------------------
University of Michigan,
University Hospital Revenue
Refunding Bonds, VRDN(a):
A-1+ VMIG1+ 3,600 Series A, 4.15% due 2,100 1,500 -- 3,600
12/01/2019
A-1+ VMIG1+ 2,300 Series A-2, 4.15% due 2,300 -- -- 2,300
12/01/2024
- --------------------------------------------------------------------------------------------------------------
A1+ VMIG1+ 1,300 University of Michigan, -- 600 700 1,300
University Revenue Refunding
Bonds (Medical Service
Plan), VRDN, Series A-1,
4.15% due 12/01/2021(a)
- --------------------------------------------------------------------------------------------------------------
Warren, Michigan, Water and
Sewer Revenue Bonds(e):
AAA Aaa 3,000 5.125% due 11/01/2023 -- 2,975 -- 2,975
AAA Aaa 1,500 5.25% due 11/01/2026 1,511 -- -- 1,511
- --------------------------------------------------------------------------------------------------------------
AAA Aaa 1,500 Waterford, Michigan, School -- 1,673 -- 1,673
District, GO, 6.25% due
6/01/2004(c)(f)
- --------------------------------------------------------------------------------------------------------------
Wayne Charter County,
Michigan, Airport Revenue
Bonds, RIB, AMT, Series
68(d)(g):
NR* NR* 9,065 6.305% due 12/01/2017 -- 2,615 6,867 9,482
NR* NR* 2,500 6.795% due 12/01/2017 2,615 -- -- 2,615
- --------------------------------------------------------------------------------------------------------------
AAA Aaa 2,000 Western Michigan, University -- 2,147 -- 2,147
Revenue Bonds, Series B,
6.50% due 7/15/2021(b)
- --------------------------------------------------------------------------------------------------------------
AAA Aaa 5,500 Wyandotte, Michigan, 5,991 -- -- 5,991
Electric Revenue Refunding
Bonds, 6.25% due
10/01/2017(d)
- --------------------------------------------------------------------------------------------------------------
Ypsilanti, Michigan, School
District, GO, Refunding(c):
AAA Aaa 1,300 5.75% due 5/01/2007(f) -- 1,436 -- 1,436
AAA Aaa 1,750 5.375% due 5/01/2026 1,782 -- -- 1,782
- --------------------------------------------------------------------------------------------------------------
</TABLE>
F-61
<PAGE> 131
COMBINED SCHEDULE OF INVESTMENTS FOR
MUNIYIELD MICHIGAN INSURED FUND, INC., MUNIVEST MICHIGAN INSURED FUND, INC.
AND MUNIHOLDINGS MICHIGAN INSURED FUND, INC.
AS OF APRIL 30, 1999 (UNAUDITED) -- (CONCLUDED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
S&P MOODY'S FACE MUNIYIELD MUNIVEST MUNIHOLDINGS MUNIYIELD
RATINGS RATINGS AMOUNT ISSUE MICHIGAN++ MICHIGAN++ MICHIGAN++ MICHIGAN++
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
PUERTO RICO -- 2.1%
AAA Aaa $ 1,550 Puerto Rico Commonwealth, -- -- $ 1,574 $ 1,574
GO, Refunding, 5.25% due
7/01/2018(d)
- --------------------------------------------------------------------------------------------------------------
NR* NR* 6,985 Puerto Rico, Insured Trust $ 3,706 $ 3,690 -- 7,396
Receipts, RITR, 6.42% due
7/01/2027(d)(g)
- --------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (COST -- 164,617 152,630 105,564 422,811
$404,262) -- 99.3%
OTHER ASSETS LESS 415 2,757 (208) 411
LIABILITIES (LIABILITIES IN
EXCESS OF OTHER
ASSETS) -- 0.7%
-------- -------- -------- --------
NET ASSETS -- 100.0% $165,032 $155,387 $105,356 $423,222
======== ======== ======== ========
</TABLE>
- ---------------
(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,
1999.
(b) AMBAC Insured.
(c) FGIC Insured.
(d) MBIA Insured.
(e) FSA Insured.
(f) Prerefunded.
(g) The interest rate is subject to change periodically and inversely based upon
prevailing market rates. The interest rate shown is the rate in effect at
April 30, 1999.
* Not Rated.
+ Highest short-term rating by Moody's Investors Service, Inc.
++ Value as discussed in the Combined Notes to Financial Statements.
<TABLE>
<S> <C>
PORTFOLIO To simplify the listings of MuniYield Michigan Insured
ABBREVIATIONS Fund's portfolio holdings in the Schedule of Investments, we
have abbreviated the names of many of the securities
according to the list below.
AMT Alternative Minimum Tax (subject to)
DATES Daily Adjustable Tax-Exempt Securities
GO General Obligation Bonds
HDA Housing Development Authority
PCR Pollution Control Revenue Bonds
RIB Residual Interest Bonds
RITR Residual Interest Trust Receipts
VRDN Variable Rate Demand Notes
</TABLE>
See Notes to Financial Statements.
F-62
<PAGE> 132
The following unaudited pro forma Combined Statement of Assets, Liabilities
and Capital has been derived from the Statements of Assets, Liabilities and
Capital of the respective Funds at April 30, 1999 and such information has been
adjusted to give effect to the Reorganization as if the Reorganization had
occurred at April 30, 1999. The pro forma Combined Statement of Assets,
Liabilities and Capital is presented for informational purposes only and does
not purport to be indicative of the financial condition that actually would have
resulted if the Reorganization had been consummated at April 30, 1999. The pro
forma Combined Statement of Assets, Liabilities and Capital should be read in
conjunction with the Funds' financial statements and related notes thereto which
are included in the Joint Proxy Statement and Prospectus.
PRO FORMA COMBINED STATEMENT OF ASSETS, LIABILITIES AND CAPITAL
FOR MUNIYIELD MICHIGAN INSURED FUND, INC.,
MUNIVEST MICHIGAN INSURED FUND, INC.,
AND MUNIHOLDINGS MICHIGAN INSURED FUND, INC.
AS OF APRIL 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
MUNIYIELD MUNIVEST MUNIHOLDINGS MUNIYIELD
MICHIGAN MICHIGAN MICHIGAN ADJUSTMENTS MICHIGAN
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Investments, at value* (Note
1a)............................ $164,617,268 $152,630,065 $105,563,990 $422,811,323
Cash............................. 74,937 60,464 220,606 356,007
Receivables:
Interest....................... 2,919,876 2,925,584 2,002,155 7,847,615
Investment adviser (Note 2).... -- -- 7,837 7,837
Prepaid expenses and other
assets......................... 7,831 10,760 36,321 54,912
------------ ------------ ------------ ------------ ------------
Total assets..................... 167,619,912 155,626,873 107,830,909 431,077,694
------------ ------------ ------------ ------------ ------------
LIABILITIES:
Payables:
Securities purchased........... 2,349,800 -- 1,940,674 4,290,474
Dividends to shareholders (Note
1f).......................... 142,781 138,861 258,881 2,174,695(1) 2,715,218
Offering costs (Note 1e)....... -- -- 258,530 258,530
Investment advisor (Note 2).... 72,542 68,340 -- 140,882
Accrued expenses and other
liabilities.................... 22,563 32,662 17,000 378,000(2) 450,225
------------ ------------ ------------ ------------ ------------
Total liabilities................ 2,587,686 239,863 2,475,085 2,552,695 7,855,329
------------ ------------ ------------ ------------ ------------
NET ASSETS:
Net Assets....................... $165,032,226 $155,387,010 $105,355,824 $ (2,552,695) $423,222,365
============ ============ ============ ============ ============
</TABLE>
F-63
<PAGE> 133
<TABLE>
<CAPTION>
PRO FORMA
MUNIYIELD MUNIVEST MUNIHOLDINGS MUNIYIELD
MICHIGAN MICHIGAN MICHIGAN ADJUSTMENTS MICHIGAN
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
CAPITAL
Capital Stock (200,000,000 shares
authorized) Preferred Stock,
par value $.10 per share of
AMPS** issued and outstanding+
at $25,000 per share
liquidation preference......... $ 50,000,000 $ 50,000,000 $40,000,000 $140,000,000
Common Stock, par value $.10 per
share, issued and
outstanding++.................. 743,163 738,770 445,367 (72,976) 1,854,324
Paid-in capital in excess of
par............................ 103,660,153 102,828,343 65,702,592 (305,024) 271,886,064
Undistributed investment
income -- net.................. 1,372,752 490,613 311,330 (2,174,695) 0
Accumulated realized capital
losses on investments -- net... (1,189,771) (7,360,009) (48,731) (8,598,511)
Accumulated distributions in
excess of realized capital
gains on investments -- net
(Note 1f)...................... (468,540) -- -- (468,540)
Unrealized appreciation
(depreciation) on
investments -- net............. 10,914,469 8,689,293 (1,054,734) 18,549,028
------------ ------------ ------------ ------------ ------------
Total capital.................... $165,032,226 $155,387,010 $105,355,824 $ (2,552,695) $423,222,365
============ ============ ============ ============ ============
Net asset value per share of
Common Stock................... $ 15.48 $ 14.27 $ 14.67 $ 15.27
============ ============ ============ ============ ============
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
* Identified Cost............... $153,702,799 $143,940,772 $106,618,724 -- $404,262,295
============ ============ ============ ============ ============
+ Shares issued and
outstanding................... 2,000 2,000 1,600 -- 5,600
============ ============ ============ ============ ============
++ Shares issued and
outstanding................... 7,431,634 7,387,697 4,453,667 (729,760) 18,543,238
============ ============ ============ ============ ============
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
</TABLE>
- ---------------
(1) Assumes the distribution of undistributed net investment income.
(2) Reflects the charge for estimated Reorganization expenses of $378,000.
** Auction Market Preferred Stock.
See Notes to Financial Statements.
F-64
<PAGE> 134
The following unaudited pro forma Combined Statement of Operations has been
derived from the statement of operations of MuniYield Michigan and MuniVest
Michigan for the period November 1, 1998 to April 30, 1999, and of MuniHoldings
Michigan for the period January 29, 1999 (commencement of operations) to April
30, 1999 and such information has been adjusted to give effect to the
Reorganization as if the Reorganization had occurred on November 1, 1998. The
pro forma Combined Statement of Operations is presented for informational
purposes only and does not purport to be indicative of the results of operations
that actually would have resulted if the Reorganization had been consummated on
November 1, 1998 nor which may result from future operations. The pro forma
Combined Statement of Operations should be read in conjunction with the Funds'
financial statements and related notes thereto which are included in the Joint
Proxy Statement and Prospectus.
PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR MUNIYIELD MICHIGAN INSURED FUND, INC.,
MUNIVEST MICHIGAN INSURED FUND, INC.,
AND MUNIHOLDINGS MICHIGAN INSURED FUND, INC.
(UNAUDITED)
<TABLE>
<CAPTION>
MUNIYIELD MUNIVEST MUNIHOLDINGS
MICHIGAN MICHIGAN MICHIGAN
FOR THE PERIOD FOR THE PERIOD FOR THE PERIOD PRO FORMA
NOVEMBER 1, 1998 NOVEMBER 1, 1998 JANUARY 29, 1999+ MUNIYIELD
TO APRIL 30, 1999 TO APRIL 30, 1999 TO APRIL 30, 1999 ADJUSTMENTS MICHIGAN
----------------- ----------------- ----------------- ----------- ----------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME (NOTE 1d):
Interest and amortization
of premium and discount
earned................... $4,499,480 $4,123,911 $1,168,527 $9,791,918
---------- ---------- ---------- ----------
EXPENSES:
Investment advisory fees
(Note 2)................. 414,626 390,011 118,702 923,339
Commission fees............ 65,299 68,104 20,342 153,745
Professional fees.......... 44,759 38,454 8,963 (43,376)(1) 48,800
Accounting services (Note
2)....................... 32,292 36,633 11,436 (33,361)(1) 47,000
Transfer agent fees........ 22,948 22,097 6,212 51,257
Directors' fees and
expenses................. 14,074 14,705 7,270 (21,975)(1) 14,074
Printing and shareholder
reports.................. 7,739 12,677 2,223 (5,839)(1) 16,800
Listing fees............... 8,340 8,698 3,640 20,678
Custodian fees............. 5,619 6,534 2,104 14,257
Pricing fees............... 4,275 5,138 1,383 10,796
Other...................... 8,750 10,245 2,202 21,197
---------- ---------- ---------- --------- ----------
Total expenses before
reimbursement............ 628,721 613,296 184,477 (104,551) 1,321,943
Reimbursement of expenses
(Note 2)................. -- -- (126,539) (126,539)
---------- ---------- ---------- --------- ----------
Total expenses after
reimbursement............ 628,721 613,296 57,938 (104,551) 1,195,404
---------- ---------- ---------- --------- ----------
Investment income -- net... 3,870,759 3,510,615 1,110,589 104,551 8,596,514
---------- ---------- ---------- --------- ----------
REALIZED & UNREALIZED GAIN
(LOSS) ON INVESTMENTS --NET
(NOTES 1b & 1d):
Realized gain (loss) on
investments -- net....... 1,353,720 1,172,744 (48,731) 2,477,733
Change in unrealized
appreciation/
depreciation on
investments -- net....... (2,962,826) (2,610,369) (1,054,734) (6,627,929)
---------- ---------- ---------- --------- ----------
</TABLE>
F-65
<PAGE> 135
<TABLE>
<CAPTION>
MUNIYIELD MUNIVEST MUNIHOLDINGS
MICHIGAN MICHIGAN MICHIGAN
FOR THE PERIOD FOR THE PERIOD FOR THE PERIOD PRO FORMA
NOVEMBER 1, 1998 NOVEMBER 1, 1998 JANUARY 29, 1999+ MUNIYIELD
TO APRIL 30, 1999 TO APRIL 30, 1999 TO APRIL 30, 1999 ADJUSTMENTS MICHIGAN
----------------- ----------------- ----------------- ----------- ----------
<S> <C> <C> <C> <C> <C>
NET INCREASE IN NET ASSETS
RESULTING FROM
OPERATIONS................. $2,261,653 $2,072,990 $ 7,124 $ 104,551 $4,446,318
========== ========== ========== ========= ==========
</TABLE>
- ---------------
(1) Reflects the anticipated savings as a result of the Reorganization through
fewer audits and consolidation of printing, accounting and other services.
(2) This Pro Forma Combined Statement of Operations excludes non-recurring
estimated Reorganization expenses of $378,000.
+ Commencement of operations.
See Notes to Financial Statements.
F-66
<PAGE> 136
MUNIYIELD MICHIGAN INSURED FUND, INC.
COMBINED NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES:
MuniYield Michigan Insured Fund, Inc. (the "Fund", which term as used
herein shall refer to MuniYield Michigan Insured Fund, Inc. after giving effect
to the Reorganization) is registered under the Investment Company Act of 1940 as
a non-diversified, closed-end management investment company. These unaudited
financial statements reflect all adjustments which are, in the opinion of
management necessary to a fair statement of the results for the interim period
presented. The Fund's financial statements are prepared in accordance with
generally accepted accounting principles which may require the use of management
accruals and estimates. The Fund determines and makes available for publication
the net asset value of its Common Stock on a weekly basis. The Fund's Common
Stock is listed on the New York Stock Exchange under the symbol MIY. The
following is a summary of significant accounting policies followed by the Fund.
(a) Valuation of investments -- Municipal bonds are traded primarily in the
over-the-counter markets and are valued at the most recent bid price or yield
equivalent as obtained by the Fund's pricing service from dealers that make
markets in such securities. Financial futures contracts and options thereon,
which are traded on exchanges, are valued at their closing prices as of the
close of such exchanges. Options written or purchased are valued at the last
sale price in the case of exchange-traded options. In the case of options traded
in the over-counter-market, valuation is the last asked price (options written)
or the last bid price (options purchased). Securities with remaining maturities
of sixty days or less are valued at amortized cost, which approximates market
value. Securities and assets for which market quotations are not readily
available are valued at fair value as determined in good faith by or under the
direction of the Board of Directors of the Fund, including valuations furnished
by a pricing service retained by the Fund, which may utilize a matrix system for
valuations. The procedures of the pricing service and its valuations are
reviewed by the officers of the Fund under the general supervision of the Board
of Directors.
(b) Derivative financial instruments -- The Fund may engage in various
portfolio strategies to seek to increase its return by hedging its portfolio
against adverse movements in the debt markets. Losses may arise due to changes
in the value of the contract or if the counterparty does not perform under the
contract.
- Financial futures contracts -- The Fund may purchase or sell financial
futures contracts and options on such futures contracts for the purpose
of hedging the market risk on existing securities or the intended
purchase of securities. Futures contracts are contracts for delayed
delivery of securities at a specific future date and at a specific price
or yield. Upon entering into a contract, the Fund deposits and maintains
as collateral such initial margin as required by the exchange on which
the transaction is effected. Pursuant to the contract, the Fund agrees to
receive from or pay to the broker an amount of cash equal to the daily
fluctuation in value of the contract. Such receipts or payments are known
as variation margin and are recorded by the Fund as unrealized gains or
losses. When the contract is closed, the Fund records a realized gain or
loss equal to the difference between the value of the contract at the
time it was opened and the value at the time it was closed.
- Options -- The Fund is authorized to write covered call options and
purchase put options. When the Fund writes an option, an amount equal to
the premium received by the Fund is reflected as an asset and an
equivalent liability. The amount of the liability is subsequently marked
to market to reflect the current market value of the option written.
When a security is purchased or sold through an exercise of an option,
the related premium paid (or received) is added to (or deducted from) the
basis of the security acquired, or deducted from (or added to) the
proceeds of the security sold. When an option expires (or the Fund enters
into a closing transaction), the Fund realizes a gain or loss on the
option to the extent of the premiums received or paid (or gain or loss to
the extent the cost of the closing transaction exceeds the premium paid
or received).
Written and purchased options are non-income producing investments.
F-67
<PAGE> 137
(c) Income taxes -- It is the Fund's policy to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no Federal income tax provision is required.
(d) Security transactions and investment income -- Security transactions
are recorded on the dates the transactions are entered into (the trade dates).
Interest income is recognized on the accrual basis. Discounts and market
premiums are amortized into interest income. Realized gains and losses on
security transactions are determined on the identified cost basis.
(e) Offering expenses -- Direct expenses relating to the public offering of
the Fund's Common and Preferred shares were charged to capital at the time of
issuance of the shares.
(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. Distributions in excess of realized capital gains on
investments are due primarily to differing tax treatments for post-October
losses.
2. INVESTMENT ADVISORY AGREEMENT AND TRANSACTIONS WITH AFFILIATES:
The Fund has entered into an Investment Advisory Agreement with Fund Asset
Management, L.P. ("FAM"). The general partner of FAM is Princeton Services, Inc.
("PSI"), an indirect wholly-owned subsidiary of Merrill Lynch & Co., Inc. ("ML &
Co."), which is the limited partner.
FAM is responsible for the management of the Fund's portfolio and provides
the necessary personnel, facilities, equipment and certain other services
necessary to the operations of the Fund. For such services, the Fund pays a
monthly fee at an annual rate of 0.55% of the Fund's average weekly net assets,
including proceeds from the issuance of Preferred Stock.
For MuniHoldings Michigan Insured Fund, Inc., FAM earned fees of $118,702
for the period January 29, 1999 to April 30, 1999, of which $111,443 was
voluntarily waived. In addition, FAM reimbursed the fund $15,096 in additional
expenses.
Accounting services are provided to the Fund by FAM at cost.
Certain officers and/or directors of the Fund are officers and/or directors
of FAM, PSI, and/or ML & Co.
F-68
<PAGE> 138
EXHIBIT I
INFORMATION PERTAINING TO EACH FUND
GENERAL INFORMATION PERTAINING TO THE FUNDS
<TABLE>
<CAPTION>
FISCAL
DEFINED TERM YEAR STATE OF MEETING
FUND USED IN EXHIBIT I END ORGANIZATION TIME
- ---- ------------------ -------- ------------ ----------
<S> <C> <C> <C> <C>
MuniYield Michigan Insured Fund, Inc...... MuniYield Michigan 10/31 MD 3:15 p.m.
MuniVest Michigan Insured Fund, Inc....... MuniVest Michigan 10/31 MD 2:15 p.m.
MuniHoldings Michigan Insured Fund,
Inc..................................... MuniHoldings 9/30 MD 11:45 a.m.
Michigan
</TABLE>
<TABLE>
<CAPTION>
SHARES OF CAPITAL STOCK
OUTSTANDING AS OF
THE RECORD DATE
-----------------------
FUND COMMON STOCK AMPS
- ---- ------------- ------
<S> <C> <C>
MuniYield Michigan.......................................... 7,431,634 2,000
MuniVest Michigan........................................... 7,387,697 2,000
MuniHoldings Michigan....................................... 4,453,667 1,600
</TABLE>
INFORMATION PERTAINING TO OFFICERS AND DIRECTORS
<TABLE>
<CAPTION>
YEAR IN WHICH EACH NOMINEE OF MUNIHOLDINGS MICHIGAN
BECAME A MEMBER OF THE BOARD
-----------------------------------------------------------------
FUND BODURTHA GLENN LONDON MARTIN MAY PEROLD ZEIKEL
- ---- -------- ----- ------ ------ ---- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
MuniHoldings Michigan........... 1998 1999 1998 1998 1998 1998 1998
</TABLE>
Set forth in the table below, with respect to each Fund are the names of
the board member elected or to be elected by holders of AMPS, voting separately
as a class, and the names of the board member elected or to be elected by
holders of shares of Common Stock and AMPS, voting together as a single class.
<TABLE>
<CAPTION>
DIRECTORS DIRECTORS ELECTED BY HOLDERS
FUND ELECTED BY HOLDERS OF AMPS OF SHARES OF COMMON STOCK AND AMPS
- ---- ----------------------------- --------------------------------------
<S> <C> <C> <C> <C>
MuniYield Michigan..... Donald Cecil M. Colyer Crum Terry K. Glenn J. Thomas Touchton
Edward H. Meyer Fred G. Weiss
Jack B. Sunderland Arthur Zeikel
MuniVest Michigan...... Donald Cecil M. Colyer Crum Terry H. Glenn J. Thomas Touchton
Edward H. Meyer Fred G. Weiss
Jack B. Sunderland Arthur Zeikel
</TABLE>
<TABLE>
<CAPTION>
NOMINEES TO BE NOMINEES TO BE ELECTED BY HOLDERS
FUND ELECTED BY HOLDERS OF AMPS OF SHARES OF COMMON STOCK AND AMPS
- ---- ----------------------------- --------------------------------------
<S> <C> <C> <C> <C>
MuniHoldings Michigan.. Joseph L. May Andre F. James H. Bodurtha Robert R. Martin
Perold
Terry K. Glenn Arthur Zeikel
Herbert I. London
</TABLE>
Set forth in the table below is information regarding board and committee
meetings held and the aggregate fees and expenses paid by each Fund to
non-affiliated Board members during each Fund's most recently completed fiscal
year.
I-1
<PAGE> 139
<TABLE>
<CAPTION>
BOARD AUDIT COMMITTEE
------------------------------- ----------------------------
# # PER AGGREGATE
MEETINGS ANNUAL PER MEETING MEETINGS ANNUAL MEETING FEES AND
FUND HELD* FEE($) FEE($)** HELD FEE($) FEE($)** EXPENSES($)
- ---- -------- ------ ----------- -------- ------ -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
MuniYield Michigan........ 6 2,500 250 4 500 125 26,147
MuniVest Michigan......... 5 2,500 250 4 500 125 26,085
MuniHoldings Michigan..... 5 2,500 250 4 500 125 20,931
</TABLE>
- ---------------
* Includes meetings held via teleconferencing equipment.
** The fee is payable for each meeting attended in person. A fee is not paid for
telephonic meetings.
Set forth in the table below is information regarding compensation paid by
each Fund to the non-affiliated Board members for the most recently completed
fiscal year.
<TABLE>
<CAPTION>
COMPENSATION FROM MUNIYIELD MICHIGAN AND MUNIVEST MICHIGAN($)*
----------------------------------------------------------------
FUND CECIL CRUM MEYER SUNDERLAND TOUCHTON WEISS
- ---- ------ ------ ------ ----------- --------- ------
<S> <C> <C> <C> <C> <C> <C>
MuniYield Michigan................... 4,500 4,500 4,500 4,500 4,500 3,250
MuniVest Michigan.................... 4,500 4,500 4,500 4,500 4,500 3,250
</TABLE>
<TABLE>
<CAPTION>
COMPENSATION FROM MUNIHOLDINGS MICHIGAN($)*
-----------------------------------------------
FUND BODURTHA LONDON MARTIN MAY PEROLD
- ---- -------- ------ ------ ----- ------
<S> <C> <C> <C> <C> <C>
MuniHoldings Michigan........................... 4,000 4,000 4,000 4,000 4,000
</TABLE>
- ---------------
* No pension or retirement benefits are accrued as part of Fund expenses.
Set forth in the table below is information regarding the aggregate
compensation paid by all registered investment companies advised by FAM and its
affiliate, MLAM ("FAM/MLAM Advised Funds"), including MuniHoldings Michigan to
the non-affiliated Board members of MuniHoldings Michigan for the year ended
December 31, 1998.
<TABLE>
<CAPTION>
AGGREGATE COMPENSATION FROM FAM/MLAM
NAME OF BOARD MEMBER ADVISED FUNDS PAID TO BOARD MEMBERS($)(1)
- -------------------- -----------------------------------------
<S> <C>
James H. Bodurtha......................................... 163,500
Herbert I. London......................................... 163,500
Robert R. Martin.......................................... 163,500
Joseph L. May............................................. 163,500
Andre F. Perold........................................... 163,500
</TABLE>
- ---------------
(1) The Directors serve on the boards of FAM/MLAM Advised Funds as follows: Mr.
Bodurtha (29 registered investment companies consisting of 47 portfolios);
Mr. London (29 registered investment companies consisting of 47 portfolios);
Mr. Martin (29 registered investment companies consisting of 47 portfolios);
Mr. May (29 registered investment companies consisting of 47 portfolios);
and Mr. Perold (29 registered investment companies consisting of 47
portfolios).
Set forth in the table below is information regarding the aggregate
compensation paid by all registered investment companies advised by FAM/MLAM
Advised Funds, including MuniYield Michigan and MuniVest Michigan to the
non-affiliated Board members of MuniYield Michigan and MuniVest Michigan for the
year ended December 31, 1998.
I-2
<PAGE> 140
<TABLE>
<CAPTION>
AGGREGATE COMPENSATION FROM FAM/MLAM
NAME OF BOARD MEMBER ADVISED FUNDS PAID TO BOARD MEMBERS($)(1)
- -------------------- -----------------------------------------
<S> <C>
Donald Cecil.............................................. 277,808
M. Colyer Crum............................................ 116,600
Edward H. Meyer........................................... 214,558
Jack B. Sunderland........................................ 133,600
J. Thomas Touchton........................................ 133,600
Fred G. Weiss............................................. 140,842
</TABLE>
- ---------------
(1) The Directors serve on the boards of MLAM/FAM advised funds as follows: Mr.
Cecil (36 registered investment companies consisting of 36 portfolios); Mr.
Crum (17 registered investment companies consisting of 17 portfolios); Mr.
Meyer (35 registered investment companies consisting of 35 portfolios); Mr.
Sunderland (20 registered investment companies consisting of 36 portfolios);
Mr. Touchton (20 registered investment companies consisting of 36
portfolios) and Mr. Weiss (17 registered investment companies consisting of
17 portfolios).
Set forth in the table below is information about the Directors of each of
the Funds. Unless otherwise noted, the address of each Director is 800 Scudders
Mill Road, Plainsboro, New Jersey 08536.
<TABLE>
<CAPTION>
DIRECTOR SINCE
--------------------
MUNIYIELD MUNIVEST
NAME, ADDRESS AND BIOGRAPHY AGE MICHIGAN MICHIGAN
--------------------------- --- --------- --------
<S> <C> <C> <C>
Donald Cecil................................................ 72 1992 1993
1114 Avenue of the Americas, New York, New York 10036.
Special Limited Partner of Cumberland Associates (an
investment partnership) since 1982; Member of Institute of
Chartered Financial Analysts Member and Chairman of
Westchester County (N.Y.) Board of Transportation.
M. Colyer Crum.............................................. 67 1992 1993
104 Westcliff Road, Weston, Massachusetts 02193. Currently
James R. Williston Professor of Investment Management
Emeritus at Harvard Business School; James R. Williston
Professor of Investment Management at Harvard Business
School from 1971 to 1996; Director of Cambridge Bancorp,
Copley Properties, Inc. and Sun Life Assurance Company of
Canada.
Laurie Simon Hodrick*....................................... 37 1999 1999
809 Uris Hall, 3022 Broadway, New York, New York 10027.
Professor of Finance and Economics, Graduate School of
Business, Columbia University since 1998; Associate
Professor of Finance and Economics, Graduate School of
Business, Columbia University from 1996 to 1998; Associate
Professor of Finance, J.L. Kellogg Graduate School of
Management, Northwestern University from 1992 to 1996.
Edward H. Meyer............................................. 72 1992 1993
777 Third Avenue, New York, New York 10017. President of
Grey Advertising Inc. since 1968, Chief Executive Officer
since 1970 and Chairman of the Board of Directors since
1972; Director of Harman International Industries, Inc.
and Ethan Allen Interiors, Inc.
Jack B. Sunderland.......................................... 70 1992 1993
P.O. Box 7, West Cornwall, Connecticut 06796. President
and Director of American Independent Oil Company, Inc. (an
energy company) since 1987; Member of Council on Foreign
Relations since 1971.
</TABLE>
- ---------------
* Ms. Hodrick was elected a Director of MuniYield Michigan and MuniVest Michigan
on November 4, 1999, and therefore no other information is required to be
provided about her in this Exhibit I.
I-3
<PAGE> 141
<TABLE>
<CAPTION>
DIRECTOR SINCE
--------------------
MUNIYIELD MUNIVEST
NAME, ADDRESS AND BIOGRAPHY AGE MICHIGAN MICHIGAN
--------------------------- --- --------- --------
<S> <C> <C> <C>
J. Thomas Touchton.......................................... 60 1992 1993
Suite 3405, One Tampa City Center, 201 North Franklin
Street, Tampa, Florida 33062. Managing Partner of The Witt
Touchton Company and its predecessor, The Witt Co. (a
private investment partnership), since 1972; Trustee
Emeritus of Washington and Lee University; Director of
TECO Energy, Inc. (an electric utility holding company).
Fred G. Weiss............................................... 58 1998 1998
16410 Maddalena Place, Delray Beach, Florida 33446.
Managing Director of FGW Associates since 1997; Vice
President, Planning Investment, and Development of Warner
Lambert Co. from 1979 to 1997.
</TABLE>
Set forth in the table below is information about the officers of each of
the Funds.
<TABLE>
<CAPTION>
OFFICER SINCE
-----------------------------------
MUNIYIELD MUNIVEST MUNIHOLDINGS
NAME AND BIOGRAPHY AGE OFFICE MICHIGAN MICHIGAN MICHIGAN
- ------------------ --- -------------- --------- -------- ------------
<S> <C> <C> <C> <C> <C>
Terry K. Glenn............................. 59 President 1992* 1993* 1998*
Executive Vice President of MLAM and FAM
since 1983; Executive Vice President and
Director of Princeton Services since 1993;
President of Princeton Funds Distributor,
Inc. ("PFD") since 1986 and Director
thereof since 1991; President of Princeton
Administrators, L.P. since 1998.
Vincent R. Giordano........................ 55 Senior Vice 1992 1993 1998
Senior Vice President of FAM and MLAM President
since 1984; Portfolio Manager of FAM and
MLAM since 1977; Senior Vice President of
Princeton Services since 1993.
Kenneth A. Jacob........................... 48 Vice President 1992 1993 1998
First Vice President of MLAM since 1997;
Vice President of MLAM from 1984 to 1997;
Vice President of FAM since 1984.
Donald C. Burke............................ 39 Vice President 1993 1993 1998
Senior Vice President and Treasurer of Treasurer 1999 1999 1999
MLAM and FAM since 1999; Senior Vice
President and Treasurer of Princeton
Services since 1999; Vice President of
PFD since 1999; First Vice President of
MLAM from 1997 to 1999; Vice President of
MLAM from 1990 to 1997; Director of
Taxation of MLAM since 1990.
Robert A. DiMella, CFA..................... 33 Vice President -- -- 1998
Vice President of MLAM since 1997;
Assistant Vice President of MLAM from
1995 to 1997; Assistant Portfolio Manager
of MLAM from 1993 to 1995.
</TABLE>
I-4
<PAGE> 142
<TABLE>
<CAPTION>
OFFICER SINCE
-----------------------------------
MUNIYIELD MUNIVEST MUNIHOLDINGS
NAME AND BIOGRAPHY AGE OFFICE MICHIGAN MICHIGAN MICHIGAN
- ------------------ --- -------------- --------- -------- ------------
<S> <C> <C> <C> <C> <C>
Fred K. Stuebe............................. 49 Vice President 1995 1995 1998
Vice President and Portfolio Manager of
MLAM since 1989.
Alice A. Pellegrino........................ 39 Secretary 1999 1999 1998
Vice President of MLAM since 1999;
Attorney associated with MLAM since 1997;
Associate with Kirkpatrick & Lockhart LLP
from 1992 to 1997.
</TABLE>
- ---------------
* Mr. Glenn was elected President of each Fund in 1999. Prior to that he served
as Executive Vice President of each Fund.
I-5
<PAGE> 143
EXHIBIT II
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this 'Agreement") is made as of
the 5th day of November, 1999, by and between MuniYield Michigan Insured Fund,
Inc., a Maryland corporation ("MuniYield Michigan"), MuniVest Michigan Insured
Fund, Inc., a Maryland corporation ("MuniVest Michigan") and MuniHoldings
Michigan Insured Fund, Inc., a Maryland corporation ("MuniHoldings Michigan")
(MuniYield Michigan, MuniVest Michigan and MuniHoldings Michigan are sometimes
referred to herein collectively as the "Funds"; MuniVest Michigan and
MuniHoldings Michigan are sometimes referred to herein collectively as the
"Acquired Funds").
PLAN OF REORGANIZATION
The reorganization will comprise the following:
(a)(1) the acquisition by MuniYield Michigan of substantially all of the
assets, and the assumption by MuniYield Michigan of substantially all of the
liabilities of MuniVest Michigan in exchange solely for an equal aggregate value
of newly issued shares of (A) common stock, with a par value of $0.10 per share
of MuniYield Michigan ("MuniYield Michigan Common Stock") and (B) auction market
preferred stock of MuniYield Michigan, 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 ("MuniYield
Michigan Series B AMPS"), and (2) the subsequent distribution by MuniVest
Michigan to MuniVest Michigan stockholders of (x) all of the MuniYield Michigan
Common Stock received by MuniVest Michigan in exchange for such stockholders'
shares of common stock, with a par value of $0.10 per share, of MuniVest
Michigan ("MuniVest Michigan Common Stock") and (y) all of the MuniYield
Michigan Series B AMPS received by MuniVest Michigan in exchange for such
stockholders' shares of auction market preferred stock of MuniVest Michigan,
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 Michigan AMPS").
(b)(1) the acquisition by MuniYield Michigan of substantially all of the
assets, and the assumption by MuniYield Michigan of substantially all of the
liabilities of MuniHoldings Michigan in exchange solely for an equal aggregate
value of newly issued shares of (A) MuniYield Michigan Common Stock and (B)
auction market preferred stock of MuniYield Michigan, 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
("MuniYield Michigan Series C AMPS"), and (2) the subsequent distribution by
MuniHoldings Michigan to MuniHoldings Michigan stockholders of (x) all of the
MuniYield Michigan Common Stock received by MuniHoldings Michigan in exchange
for such stockholders' shares of common stock, with a par value of $0.10 per
share, of MuniHoldings Michigan ("MuniHoldings Michigan Common Stock") and (y)
all of the MuniYield Michigan Series C AMPS received by MuniHoldings Michigan in
exchange for such stockholders' shares of auction market preferred stock of
MuniHoldings Michigan, with a liquidation preference of $25,000 per share plus
an amount equal to accumulated but unpaid dividends thereon (whether or not
earned or declared) designated Series A ("MuniHoldings Michigan AMPS");
all upon and subject to the terms hereinafter set forth (collectively, the
"Reorganization").
In the course of the Reorganization, MuniYield Michigan Common Stock,
MuniYield Michigan Series B AMPS and MuniYield Michigan Series C AMPS will be
distributed to the stockholders of the Acquired Funds as follows:
(a) (1) each holder of MuniVest Michigan Common Stock will be entitled
to receive a number of shares of MuniYield Michigan Common Stock equal to
the aggregate net asset value of the MuniVest Michigan Common Stock owned
by such stockholder on the Exchange Date; and (2) each holder of MuniVest
Michigan AMPS will be entitled to receive a number of shares of MuniYield
Michigan
II-1
<PAGE> 144
Series B AMPS equal to the aggregate liquidation preference (and aggregate
value) of the MuniVest Michigan AMPS owned by such stockholder on the
Exchange Date; and
(b) (1) each holder of MuniHoldings Michigan Common Stock will be
entitled to receive a number of shares of MuniYield Michigan Common Stock
equal to the aggregate net asset value of the MuniHoldings Michigan Common
Stock owned by such stockholder on the Exchange Date; and (2) each holder
of MuniHoldings Michigan AMPS will be entitled to receive a number of
shares of MuniYield Michigan Series C AMPS equal to the aggregate
liquidation preference (and aggregate value) of the MuniHoldings Michigan
AMPS owned by such stockholder on the Exchange Date.
It is intended that the Reorganization described in this Plan shall be a
reorganization within the meaning of Section 368(a)(1)(C) of the Internal
Revenue Code of 1986, as amended (the "Code"), and any successor provision.
Prior to the Exchange Date, each Acquired Fund shall declare a dividend or
dividends which, together with all such previous dividends, shall have the
effect of distributing to their respective stockholders all of their respective
net investment company taxable income to and including the Exchange Date, if any
(computed without regard to any deduction for dividends paid), and all of its
net capital gain, if any, realized to and including the Exchange Date. In this
regard and in connection with the Reorganization, the last dividend period for
the MuniVest Michigan AMPS and MuniHoldings Michigan AMPS prior to the Exchange
Date may be shorter than the dividend period for such AMPS determined as set
forth in the applicable Articles Supplementary.
Articles Supplementary to MuniYield Michigan's Articles of Incorporation
establishing the powers, rights and preferences of the MuniYield Michigan Series
B AMPS and the MuniYield Michigan Series C AMPS will have been filed with the
State Department of Assessments and Taxation of Maryland (the "Maryland
Department") prior to the Exchange Date.
As promptly as practicable after the consummation of the Reorganization,
each Acquired Fund shall be dissolved in accordance with the laws of the State
of Maryland and will terminate its registration under the Investment Company Act
of 1940, as amended (the "1940 Act").
AGREEMENT
In order to consummate the Reorganization and in consideration of the
promises and the covenants and agreements hereinafter set forth, and intending
to be legally bound, each of the Funds hereby agrees as follows:
1. REPRESENTATIONS AND WARRANTIES OF MUNIYIELD MICHIGAN.
MuniYield Michigan represents and warrants to, and agrees with, the
Acquired Funds that:
(a) MuniYield Michigan 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 Michigan 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 Michigan is duly registered under the 1940 Act as a
non-diversified, closed-end management investment company (File No.
811-7080), and such registration has not been revoked or rescinded and is
in full force and effect. MuniYield Michigan has elected and qualified for
the special tax treatment afforded regulated investment companies ("RICs")
under Sections 851-855 of the Code at all times since its inception and
intends to continue to so qualify until consummation of the Reorganization
and thereafter.
(c) Each of the Acquired Funds has been furnished with MuniYield
Michigan's Annual Report to Stockholders for the fiscal year ended October
31, 1998, and the audited financial statements appearing therein, having
been examined by Ernst & Young LLP, independent public accountants, fairly
present
II-2
<PAGE> 145
the financial position of MuniYield Michigan as of the respective dates
indicated, in conformity with generally accepted accounting principles
applied on a consistent basis.
(d) Each of the Acquired Funds has been furnished with MuniYield
Semi-Annual Report to Stockholders for the six months ended April 30, 1999,
and the unaudited financial statements appearing therein fairly present the
financial position of MuniYield Michigan as of the respective dates
indicated, in conformity with generally accepted accounting principles
applied on a consistent basis.
(e) An unaudited statement of assets, liabilities and capital of
MuniYield Michigan and an unaudited schedule of investments of MuniYield
Michigan, each as of the Valuation Time (as defined in Section 4(d) of this
Agreement), will be furnished to each of the Acquired Funds, at or prior to
the Exchange Date for the purpose of determining the number of shares of
MuniYield Michigan Common Stock, MuniYield Michigan Series B AMPS and
MuniYield Michigan Series C AMPS to be issued pursuant to Section 5 of this
Agreement; each will fairly present the financial position of MuniYield
Michigan as of the Valuation Time in conformity with generally accepted
accounting principles applied on a consistent basis.
(f) MuniYield Michigan has full power and authority to enter into and
perform its obligations under this Agreement. The execution, delivery and
performance of this Agreement has been duly authorized by all necessary
action of its Board of Directors, and this Agreement constitutes a valid
and binding contract enforceable in accordance with its terms, subject to
the effects of bankruptcy, insolvency, moratorium, fraudulent conveyance
and similar laws relating to or affecting creditors' rights generally and
court decisions with respect thereto.
(g) There are no material legal, administrative or other proceedings
pending or, to the knowledge of MuniYield Michigan, threatened against it
which assert liability on the part of MuniYield Michigan or which
materially affect its financial condition or its ability to consummate the
Reorganization. MuniYield Michigan is not charged with or, to the best of
its knowledge, threatened with any violation or investigation of any
possible violation of any provisions of any Federal, state or local law or
regulation or administrative ruling relating to any aspect of its business.
(h) MuniYield Michigan is not obligated under any provision of its
Articles of Incorporation, as amended, or its by-laws, as amended, or a
party to any contract or other commitment or obligation, and is not subject
to any order or decree which would be violated by its execution of or
performance under this Agreement, except insofar as the Funds have mutually
agreed to amend such contract or other commitment or obligation to cure any
potential violation as a condition precedent to the Reorganization.
(i) There are no material contracts outstanding to which MuniYield
Michigan is a party that have not been disclosed in the N-14 Registration
Statement (as defined in subsection (l) below) or will not otherwise be
disclosed to the Acquired Funds prior to the Valuation Time.
(j) MuniYield Michigan 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 October 31,
1998; and those incurred in connection with the Reorganization. As of the
Valuation Time, MuniYield Michigan will advise each Acquired Fund in
writing of all known liabilities, contingent or otherwise, whether or not
incurred in the ordinary course of business, existing or accrued as of such
time.
(k) No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by MuniYield
Michigan of the Reorganization, except such as may be required under the
Securities Act of 1933, as amended (the "1933 Act"), the Securities
Exchange Act of 1934, as amended (the "1934 Act") and the 1940 Act or state
securities laws (which term as used herein shall include the laws of the
District of Columbia and Puerto Rico).
(l) The registration statement filed by MuniYield Michigan on Form
N-14 which includes the joint proxy statement of the Funds with respect to
the transactions contemplated herein and the prospectus of MuniYield
Michigan relating to the MuniYield Michigan Common Stock, MuniYield
Michigan
II-3
<PAGE> 146
Series B AMPS and MuniYield Michigan Series C AMPS to be issued pursuant to
this Agreement, (the "Joint Proxy Statement and Prospectus"), and any
supplement or amendment thereto or to the documents therein (as amended or
supplemented, the "N-14 Registration Statement"), on its effective date, at
the time of the stockholders' meetings referred to in Section 7(a) of this
Agreement and at the Exchange Date, insofar as it relates to MuniYield
Michigan (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 Michigan for use in the N-14
Registration Statement as provided in Section 7(e) of this Agreement.
(m) MuniYield Michigan is authorized to issue 200,000,000 shares of
capital stock, of which 2,000 shares have been designated AMPS and
199,998,000 shares have been designated as common stock, par value $.10 per
share; each outstanding share of which is fully paid and nonassessable and
has full voting rights.
(n) The shares of MuniYield Michigan Common Stock, MuniYield Michigan
Series B AMPS and MuniYield Michigan Series C AMPS to be issued to the
Acquired Funds 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 Michigan will have any
preemptive right of subscription or purchase in respect thereof.
(o) At or prior to the Exchange Date, the MuniYield Michigan Common
Stock to be transferred to the Acquired Funds for distribution to the
stockholders of the Acquired Funds on the Exchange Date will be duly
qualified for offering to the public in all states of the United States in
which the sale of shares of the Funds presently are qualified, and there
will be a sufficient number of such shares registered under the 1933 Act
and, as may be necessary, with each pertinent state securities commission
to permit the transfers contemplated by this Agreement to be consummated.
(p) At or prior to the Exchange Date, the shares of MuniYield Michigan
Series B AMPS to be transferred to MuniVest Michigan on the Exchange Date
and the shares of MuniYield Michigan Series C AMPS to be transferred to
MuniHoldings Michigan on the Exchange Date will be duly qualified for
offering to the public in all states of the United States in which the sale
of AMPS of the Acquired Funds presently are qualified, and there are a
sufficient number of each series of MuniYield Michigan AMPS registered
under the 1933 Act and with each pertinent state securities commission to
permit the transfers contemplated by this Agreement to be consummated.
(q) At or prior to the Exchange Date, MuniYield Michigan will have
obtained any and all regulatory, Director and stockholder approvals
necessary to issue the MuniYield Michigan Common Stock, MuniYield Michigan
Series B AMPS and MuniYield Michigan Series C AMPS to MuniVest Michigan and
MuniHoldings Michigan, as applicable.
2. REPRESENTATIONS AND WARRANTIES OF MUNIVEST MICHIGAN.
MuniVest Michigan represents and warrants to, and agrees with, MuniYield
Michigan and MuniHoldings Michigan that:
(a) MuniVest Michigan 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
II-4
<PAGE> 147
out this Agreement. MuniVest Michigan 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 Michigan is duly registered under the 1940 Act as a
non-diversified, closed-end management investment company (File No.
811-7578), and such registration has not been revoked or rescinded and is
in full force and effect. MuniVest Michigan has elected and qualified for
the special tax treatment afforded RICs under Sections 851-855 of the Code
at all times since its inception, and intends to continue to so qualify
through its taxable year ending upon liquidation.
(c) As used in this Agreement, the term "MuniVest Michigan
Investments" shall mean (i) the investments of MuniVest Michigan shown on
the schedule of its investments as of the Valuation Time furnished to each
of MuniYield Michigan and MuniHoldings Michigan; and (ii) all other assets
owned by MuniVest Michigan or liabilities incurred as of the Valuation
Time.
(d) MuniVest Michigan has full power and authority to enter into and
perform its obligations under this Agreement. The execution, delivery and
performance of this Agreement has been duly authorized by all necessary
action of its Board of Directors and this Agreement constitutes a valid and
binding contract enforceable in accordance with its terms, subject to the
effects of bankruptcy, insolvency, moratorium, fraudulent conveyance and
similar laws relating to or affecting creditors' rights generally and court
decisions with respect thereto.
(e) Each of MuniYield Michigan and MuniHoldings Michigan has been
furnished with MuniVest Michigan's Annual Report to Stockholders for the
fiscal year ended October 31, 1998, and the audited financial statements
appearing therein having been audited by Deloitte & Touche LLP, independent
public accountants, fairly present the financial position of MuniVest
Michigan as of the respective dates indicated, in conformity with generally
accepted accounting principles applied on a consistent basis.
(f) Each of MuniYield Michigan and MuniHoldings Michigan has been
furnished with MuniVest Michigan's Semi-Annual Report to Stockholders for
the period ended April 30, 1999, and the unaudited financial statements
appearing therein fairly present the financial position of MuniVest
Michigan 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 Michigan and an unaudited schedule of investments of MuniVest
Michigan, each as of the Valuation Time, will be furnished to each of
MuniYield Michigan and MuniHoldings Michigan at or prior to the Exchange
Date for the purpose of determining the number of shares of MuniYield
Michigan Common Stock and MuniYield Michigan Series B AMPS to be issued to
MuniVest Michigan pursuant to Section 5 of this Agreement; each will fairly
present the financial position of MuniVest Michigan 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 Michigan, threatened against it
which assert liability on the part of MuniVest Michigan or which materially
affect its financial condition or its ability to consummate the
Reorganization. MuniVest Michigan 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
Michigan is a party that have not been disclosed in the N-14 Registration
Statement or will not otherwise be disclosed to MuniYield Michigan and
MuniHoldings Michigan prior to the Valuation Time.
(j) MuniVest Michigan is not obligated under any provision of its
Articles of Incorporation, as amended, or its by-laws, as amended, or a
party to any contract or other commitment or obligation, and is not subject
to any order or decree which would be violated by its execution of or
performance under this Agreement, except insofar as the Funds have mutually
agreed to amend such contract or other commitment or obligation to cure any
potential violation as a condition precedent to the Reorganization.
II-5
<PAGE> 148
(k) MuniVest Michigan 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 October 31,
1998 and those incurred in connection with the Reorganization. As of the
Valuation Time, MuniVest Michigan will advise MuniYield Michigan and
MuniHoldings Michigan in writing of all known liabilities, contingent or
otherwise, whether or not incurred in the ordinary course of business,
existing or accrued as of such time.
(l) MuniVest Michigan 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 Michigan have been adequately
provided for on its books, and no tax deficiency or liability of MuniVest
Michigan has been asserted and no question with respect thereto has been
raised by the Internal Revenue Service or by any state or local tax
authority for taxes in excess of those already paid, up to and including
the taxable year in which the Exchange Date occurs.
(m) At both the Valuation Time and the Exchange Date, MuniVest
Michigan will have full right, power and authority to sell, assign,
transfer and deliver the MuniVest Michigan Investments. At the Exchange
Date, subject only to the obligation to deliver the MuniVest Michigan
Investments as contemplated by this Agreement, MuniVest Michigan will have
good and marketable title to all of the MuniVest Michigan Investments, and
MuniYield Michigan will acquire all of the MuniVest Michigan 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 Michigan 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
Michigan of the Reorganization, except such as may be required under the
1933 Act, the 1934 Act, the 1940 Act or state securities laws.
(o) The N-14 Registration Statement, on its effective date, at the
time of the stockholders' meetings referred to in Section 7(a) of this
Agreement and on the Exchange Date, insofar as it relates to MuniVest
Michigan (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 Michigan for use in the N-14 Registration
Statement as provided in Section 7(e) of this Agreement.
(p) MuniVest Michigan is authorized to issue 200,000,000 shares of
capital stock, of which 2,000 shares have been designated as AMPS and
199,998,000 shares have been designated as common stock, par value $.10 per
share; each outstanding share of which is fully paid and nonassessable and
has full voting rights.
(q) All of the issued and outstanding shares of MuniVest Michigan
Common Stock and MuniVest Michigan AMPS were offered for sale and sold in
conformity with all applicable Federal and state securities laws.
(r) The books and records of MuniVest Michigan made available to
MuniYield Michigan and MuniHoldings Michigan and/or their counsel are
substantially true and correct and contain no material misstatements or
omissions with respect to the operations of MuniVest Michigan.
II-6
<PAGE> 149
(s) MuniVest Michigan will not sell or otherwise dispose of any of the
shares of MuniYield Michigan Common Stock or MuniYield Michigan Series B
AMPS to be received in the Reorganization, except in distribution to the
stockholders of MuniVest Michigan, as provided in Section 4 of this
Agreement.
3. REPRESENTATIONS AND WARRANTIES OF MUNIHOLDINGS MICHIGAN.
MuniHoldings Michigan represents and warrants to, and agrees with,
MuniYield Michigan and MuniVest Michigan that:
(a) MuniHoldings Michigan 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. MuniHoldings Michigan 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) MuniHoldings Michigan is duly registered under the 1940 Act as a
non-diversified, closed-end management investment company (File No.
811-9125), and such registration has not been revoked or rescinded and is
in full force and effect. MuniHoldings Michigan has elected and qualified
for the special tax treatment afforded RICs under Sections 851-855 of the
Code at all times since its inception, and intends to continue to so
qualify through its taxable year ending upon liquidation.
(c) As used in this Agreement, the term "MuniHoldings Michigan
Investments" shall mean (i) the investments of MuniHoldings Michigan shown
on the schedule of its investments as of the Valuation Time furnished to
each of MuniYield Michigan and MuniVest Michigan; and (ii) all other assets
owned by MuniHoldings Michigan or liabilities incurred as of the Valuation
Time. The MuniHoldings Michigan Investments together with the MuniVest
Michigan Investments may sometimes be referred to herein collectively as
the "Acquired Fund Investments."
(d) MuniHoldings Michigan has full power and authority to enter into
and perform its obligations under this Agreement. The execution, delivery
and performance of this Agreement has been duly authorized by all necessary
action of its Board of Directors and this Agreement constitutes a valid and
binding contract enforceable in accordance with its terms, subject to the
effects of bankruptcy, insolvency, moratorium, fraudulent conveyance and
similar laws relating to or affecting creditors' rights generally and court
decisions with respect thereto.
(e) Each of MuniYield Michigan and MuniVest Michigan has been
furnished with MuniHoldings Michigan's Semi-Annual report to Stockholders
for the period ended March 31, 1999, and the unaudited financial statements
appearing therein fairly present the financial position of MuniHoldings
Michigan as of the respective date indicated, in conformity with generally
accepted accounting principles applied on a consistent basis.
(f) An unaudited statement of assets, liabilities and capital of
MuniHoldings Michigan and an unaudited schedule of investments of
MuniHoldings Michigan, each as of the Valuation Time, will be furnished to
each of MuniYield Michigan and MuniVest Michigan at or prior to the
Exchange Date for the purpose of determining the number of shares of
MuniYield Michigan Common Stock and MuniYield Michigan Series C AMPS to be
issued to MuniHoldings Michigan pursuant to Section 5 of this Agreement;
each will fairly present the financial position of MuniHoldings Michigan 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 MuniHoldings Michigan, threatened against
it which assert liability on the part of MuniHoldings Michigan or which
materially affect its financial condition or its ability to consummate the
Reorganization. MuniHoldings Michigan is not charged with or, to the best
of its knowledge, threatened with any violation or investigation of any
possible violation of any provisions of any Federal, state or local law or
regulation or administrative ruling relating to any aspect of its business.
II-7
<PAGE> 150
(h) There are no material contracts outstanding to which MuniHoldings
Michigan is a party that have not been disclosed in the N-14 Registration
Statement or will not otherwise be disclosed to MuniYield Michigan and
MuniVest Michigan prior to the Valuation Time.
(i) MuniHoldings Michigan is not obligated under any provision of its
Articles of Incorporation, as amended, or its by-laws, as amended, or a
party to any contract or other commitment or obligation, and is not subject
to any order or decree which would be violated by its execution of or
performance under this Agreement, except insofar as the Funds have mutually
agreed to amend such contract or other commitment or obligation to cure any
potential violation as a condition precedent to the Reorganization.
(j) MuniHoldings Michigan 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 September
30, 1998 and those incurred in connection with the Reorganization. As of
the Valuation Time, MuniHoldings Michigan will advise MuniYield Michigan
and MuniVest Michigan 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) MuniHoldings Michigan 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 MuniHoldings Michigan have
been adequately provided for on its books, and no tax deficiency or
liability of MuniHoldings Michigan has been asserted and no question with
respect thereto has been raised by the Internal Revenue Service or by any
state or local tax authority for taxes in excess of those already paid, up
to and including the taxable year in which the Exchange Date occurs.
(l) At both the Valuation Time and the Exchange Date, MuniHoldings
Michigan will have full right, power and authority to sell, assign,
transfer and deliver the MuniHoldings Michigan Investments. At the Exchange
Date, subject only to the obligation to deliver the MuniHoldings Michigan
Investments as contemplated by this Agreement, MuniHoldings Michigan will
have good and marketable title to all of the MuniHoldings Michigan
Investments, and MuniYield Michigan will acquire all of the MuniHoldings
Michigan 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 MuniHoldings Michigan 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 MuniHoldings
Michigan of the Reorganization, except such as may be required under the
1933 Act, the 1934 Act, the 1940 Act or state securities laws.
(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 MuniHoldings
Michigan (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 MuniHoldings Michigan for use in the N-14
Registration Statement as provided in Section 7(e) of this Agreement.
(o) MuniHoldings Michigan is authorized to issue 200,000,000 shares of
capital stock, of which 1,600 shares have been designated as Series A AMPS,
and 199,998,400 shares have been designated as
II-8
<PAGE> 151
common stock, par value $.10 per share; each outstanding share of which is
fully paid and nonassessable and has full voting rights.
(p) All of the issued and outstanding shares of MuniHoldings Michigan
Common Stock and MuniHoldings Michigan AMPS were offered for sale and sold
in conformity with all applicable Federal and state securities laws.
(q) The books and records of MuniHoldings Michigan made available to
MuniYield Michigan and MuniVest Michigan and/or their counsel are
substantially true and correct and contain no material misstatements or
omissions with respect to the operations of MuniHoldings Michigan.
(r) MuniHoldings Michigan will not sell or otherwise dispose of any of
the shares of MuniYield Michigan Common Stock or MuniYield Michigan Series
C AMPS to be received in the Reorganization, except in distribution to the
stockholders of MuniHoldings Michigan, as provided in Section 4 of this
Agreement.
4. THE REORGANIZATION.
(a) Subject to receiving the requisite approvals of the stockholders of
each of the Funds, and to the other terms and conditions contained herein, (i)
MuniVest Michigan agrees to convey, transfer and deliver to MuniYield Michigan
and MuniYield Michigan agrees to acquire from MuniVest Michigan on the Exchange
Date, all of the MuniVest Michigan Investments (including interest accrued as of
the Valuation Time on debt instruments) and assume substantially all of the
liabilities of MuniVest Michigan in exchange solely for that number of shares of
MuniYield Michigan Common Stock and MuniYield Michigan Series B AMPS provided in
Section 5 of this Agreement; and (ii) MuniHoldings Michigan agrees to convey,
transfer and deliver to MuniYield Michigan and MuniYield Michigan agrees to
acquire from MuniHoldings Michigan on the Exchange Date, all of the MuniHoldings
Michigan Investments (including interest accrued as of the Valuation Time on
debt instruments) and assume substantially all of the liabilities of
MuniHoldings Michigan in exchange solely for that number of shares of MuniYield
Michigan Common Stock and MuniYield Michigan Series C AMPS provided in Section 5
of this Agreement.
Pursuant to this Agreement, as soon as practicable after the Exchange Date
(i) MuniVest Michigan will distribute all shares of MuniYield Michigan Common
Stock and MuniYield Michigan Series B AMPS received by it to its stockholders in
exchange for their shares of MuniVest Michigan Common Stock and MuniVest
Michigan AMPS; and (ii) MuniHoldings Michigan will distribute all shares of
MuniYield Michigan Common Stock and MuniYield Michigan Series C AMPS received by
it to its stockholders in exchange for their shares of MuniHoldings Michigan
Common Stock and MuniHoldings Michigan AMPS. Such distributions shall be
accomplished by the opening of stockholder accounts on the stock ledger records
of MuniYield Michigan in the amounts due the stockholders of each Acquired Fund
based on their respective holdings in such Acquired Fund as of the Valuation
Time.
(b) Prior to the Exchange Date, each Acquired Fund shall declare a dividend
or dividends which, together with all such previous dividends, shall have the
effect of distributing to their respective stockholders all of their respective
net investment company taxable income to and including the Exchange Date, if any
(computed without regard to any deduction for dividends paid), and all of its
net capital gain, if any, realized to and including the Exchange Date. In this
regard and in connection with the Reorganization, the last dividend period for
the MuniVest Michigan AMPS and the MuniHoldings Michigan 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 the Acquired Funds will pay or cause to be paid to MuniYield
Michigan any interest such Acquired Fund receives on or after the Exchange Date
with respect to any of the Acquired Fund Investments transferred to MuniYield
Michigan hereunder.
(d) The Valuation Time shall be 4:00 p.m., Eastern time, on February 18,
2000, or such earlier or later day and time as may be mutually agreed upon in
writing (the "Valuation Time").
II-9
<PAGE> 152
(e) Recourse for liabilities assumed from each Acquired Fund by MuniYield
Michigan in the Reorganization will be limited to the net assets of each such
fund acquired by MuniYield Michigan. The known liabilities of the Acquired
Funds, as of the Valuation Time, shall be confirmed in writing to MuniYield
Michigan pursuant to Sections 2(k) and 3(j) of this Agreement.
(f) The Funds will jointly file Articles of Transfer with the Maryland
Department and any other such instrument as may be required by the State of
Maryland to effect the transfer of the Acquired Fund Investments.
(g) The Acquired Funds will each be dissolved following the Exchange Date
by filing separate Articles of Dissolution with the Maryland Department.
(h) MuniYield Michigan will file with the Maryland Department Articles
Supplementary to its Articles of Incorporation establishing the powers, rights
and preferences of the MuniYield Michigan Series B AMPS and the MuniYield
Michigan Series C AMPS prior to the closing of the Reorganization.
(i) As promptly as practicable after the liquidation of each of the
Acquired Fund pursuant to the Reorganization, each Acquired Fund shall terminate
its respective registration under the 1940 Act.
5. ISSUANCE AND VALUATION OF MUNIYIELD MICHIGAN COMMON STOCK, MUNIYIELD MICHIGAN
SERIES B AMPS AND MUNIYIELD MICHIGAN SERIES C AMPS IN THE REORGANIZATION.
Full shares of MuniYield Michigan Common Stock and MuniYield Michigan
Series B AMPS of an aggregate net asset value or liquidation preference, as the
case may be, equal (to the nearest one then thousandth of one cent) to the value
of the assets of MuniVest Michigan acquired in the Reorganization determined as
hereinafter provided, reduced by the amount of liabilities of MuniVest Michigan
assumed by MuniYield Michigan in the Reorganization, shall be issued by
MuniYield Michigan to MuniVest Michigan in exchange for such assets of MuniVest
Michigan, plus cash in lieu of fractional shares. MuniYield Michigan will issue
to MuniVest Michigan (a) a number of shares of MuniYield Michigan Common Stock,
the aggregate net asset value of which will equal the aggregate net asset value
of the shares of MuniVest Michigan Common Stock, determined as set forth below,
and (b) a number of shares of MuniYield Michigan Series B AMPS, the aggregate
liquidation preference and value of which will equal the aggregate liquidation
preference and value of the MuniVest Michigan AMPS, determined as set forth
below.
Full shares of MuniYield Michigan Common Stock and MuniYield Michigan
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 MuniHoldings Michigan acquired in the Reorganization determined
as hereinafter provided, reduced by the amount of liabilities of MuniHoldings
Michigan assumed by MuniYield Michigan in the Reorganization, shall be issued by
MuniYield Michigan to MuniHoldings Michigan in exchange for such assets of
MuniHoldings Michigan, plus cash in lieu of fractional shares. MuniYield
Michigan will issue to MuniHoldings Michigan (a) a number of shares of MuniYield
Michigan Common Stock, the aggregate net asset value of which will equal the
aggregate net asset value of the shares of MuniHoldings Michigan Common Stock,
determined as set forth below, and (b) a number of shares of MuniYield Michigan
Series C AMPS, the aggregate liquidation preference and value of which will
equal the aggregate liquidation preference and value of the MuniHoldings
Michigan AMPS, determined as set forth below.
The net asset value of each of the Funds and the liquidation preference and
value of the AMPS of each of the Funds shall be determined as of the Valuation
Time in accordance with the procedures described in (i) the final prospectus of
MuniYield Michigan, October 23, 1992, relating to the MuniYield Michigan Common
Stock and (ii) the final prospectus of MuniYield Michigan, dated November 16,
1992 relating to the MuniYield Michigan AMPS, and no formula will be used to
adjust the net asset value so determined of any Fund to take into account
differences in realized and unrealized gains and losses. Values in all cases
shall be determined as of the Valuation Time. The value of the Acquired Fund
Investments to be transferred to MuniYield Michigan shall be determined by
MuniYield Michigan pursuant to the procedures utilized by MuniYield Michigan in
valuing its own assets and determining its own liabilities for purposes of the
II-10
<PAGE> 153
Reorganization. Such valuation and determination shall be made by MuniYield
Michigan in cooperation with the Acquired Funds and shall be confirmed in
writing by MuniYield Michigan to the Acquired Funds. The net asset value per
share of the MuniYield Michigan Common Stock and the liquidation preference and
value per share of the MuniYield Michigan Series B AMPS and the MuniYield
Michigan Series C AMPS shall be determined in accordance with such procedures
and MuniYield Michigan shall certify the computations involved. For purposes of
determining the net asset value of a share of Common Stock of each Fund, the
value of the securities held by the Fund plus any cash or other assets
(including interest accrued but not yet received) minus all liabilities
(including accrued expenses) and the aggregate liquidation value of the
outstanding shares of AMPS of that Fund is divided by the total number of shares
of Common Stock of that Fund outstanding at such time.
MuniYield Michigan shall issue to MuniVest Michigan separate certificates
or share deposit receipts for the MuniYield Michigan Common Stock and the
MuniYield Michigan Series B AMPS, each registered in the name of MuniVest
Michigan. MuniVest Michigan then shall distribute the MuniYield Michigan Common
Stock and the MuniYield Michigan Series B AMPS to the holders of MuniVest
Michigan Common Stock and MuniVest Michigan AMPS by redelivering the
certificates or share deposit receipts evidencing ownership of (i) the MuniYield
Michigan Common Stock to The Bank of New York, as the transfer agent and
registrar for the MuniYield Michigan Common Stock, for distribution to the
holders of MuniVest Michigan Common Stock on the basis of such holder's
proportionate interest in the aggregate net asset value of the Common Stock of
MuniVest Michigan and (ii) the MuniYield Michigan Series B AMPS to The Bank of
New York, as the transfer agent and registrar for the MuniYield Michigan Series
B AMPS, for distribution to the holders of MuniVest Michigan AMPS on the basis
of such holder's proportionate interest in the aggregate liquidation preference
and value of the AMPS of MuniVest Michigan. With respect to any MuniVest
Michigan stockholder holding certificates evidencing ownership of either
MuniVest Michigan Common Stock or MuniVest Michigan AMPS as of the Exchange
Date, and subject to MuniYield Michigan being informed thereof in writing by
MuniVest Michigan, MuniYield Michigan will not permit such stockholder to
receive new certificates evidencing ownership of the MuniYield Michigan Common
Stock or MuniYield Michigan Series B AMPS, exchange MuniYield Michigan Common
Stock or MuniYield Michigan Series B AMPS credited to such stockholder's account
for shares of other investment companies managed by MLAM or any of its
affiliates, or pledge or redeem such MuniYield Michigan Common Stock or
MuniYield Michigan Series B AMPS, in any case, until notified by MuniVest
Michigan or its agent that such stockholder has surrendered his or her
outstanding certificates evidencing ownership of MuniVest Michigan Common Stock
or MuniVest Michigan AMPS or, in the event of lost certificates, posted adequate
bond. MuniVest Michigan, at its own expense, will request its stockholders to
surrender their outstanding certificates evidencing ownership of MuniVest
Michigan Common Stock or MuniVest Michigan AMPS, as the case may be, or post
adequate bond therefor.
MuniYield Michigan shall issue to MuniHoldings Michigan separate
certificates or share deposit receipts for the MuniYield Michigan Common Stock
and the MuniYield Michigan Series C AMPS, each registered in the name of
MuniHoldings Michigan. MuniHoldings Michigan then shall distribute the MuniYield
Michigan Common Stock and the MuniYield Michigan Series C AMPS to the holders of
MuniHoldings Michigan Common Stock and MuniHoldings Michigan AMPS by
redelivering the certificates or share deposit receipts evidencing ownership of
(i) the MuniYield Michigan Common Stock to The Bank of New York, as the transfer
agent and registrar for the MuniYield Michigan Common Stock, for distribution to
the holders of MuniHoldings Michigan Common Stock on the basis of such holder's
proportionate interest in the aggregate net asset value of the Common Stock of
MuniHoldings Michigan and (ii) the MuniYield Michigan Series C AMPS to The Bank
of New York, as the transfer agent and registrar for the MuniYield Michigan
Series C AMPS, for distribution to the holders of MuniHoldings Michigan AMPS on
the basis of such holder's proportionate interest in the aggregate liquidation
preference and value of the AMPS of MuniHoldings Michigan. With respect to any
MuniHoldings Michigan stockholder holding certificates evidencing ownership of
either MuniHoldings Michigan Common Stock or MuniHoldings Michigan AMPS as of
the Exchange Date, and subject to MuniYield Michigan being informed thereof in
writing by MuniHoldings Michigan, MuniYield Michigan will not permit such
stockholder to receive new certificates evidencing ownership of MuniYield
Michigan Common Stock or MuniYield Michigan Series C AMPS, exchange
II-11
<PAGE> 154
MuniYield Michigan Common Stock or MuniYield Michigan Series C AMPS credited to
such stockholder's account for shares of other investment companies managed by
MLAM or any of its affiliates, or pledge or redeem such MuniYield Michigan
Common Stock or MuniYield Michigan Series C AMPS, in any case, until notified by
MuniHoldings Michigan or its agent that such stockholder has surrendered his or
her outstanding certificates evidencing ownership of MuniHoldings Michigan
Common Stock or MuniHoldings Michigan AMPS or, in the event of lost
certificates, posted adequate bond. MuniHoldings Michigan, at its own expense,
will request its stockholders to surrender their outstanding certificates
evidencing ownership of MuniHoldings Michigan Common Stock or MuniHoldings
Michigan AMPS, as the case may be, or post adequate bond therefor.
Dividends payable to holders of record of shares of MuniYield Michigan
Common Stock, MuniYield Michigan Series B AMPS or MuniYield Michigan 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 an Acquired Fund shall be
payable to such stockholder without interest; however, such dividends shall not
be paid unless and until such stockholder surrenders the stock certificates
representing shares of common stock or AMPS of the Acquired Funds, as the case
may be, for exchange.
No fractional shares of MuniYield Michigan Common Stock will be issued to
holders of MuniVest Michigan Common Stock or MuniHoldings Michigan Common Stock.
In lieu thereof, MuniYield Michigan's transfer agent, The Bank of New York, will
aggregate all fractional shares of MuniYield Michigan Common Stock and sell the
resulting full shares on the New York Stock Exchange at the current market price
for shares of MuniYield Michigan Common Stock for the account of all holders of
fractional interests, and each such holder will receive such holder's pro rata
share of the proceeds of such sale upon surrender of such holder's certificates
representing MuniVest Michigan Common Stock or MuniHoldings Michigan Common
Stock.
6. PAYMENT OF EXPENSES.
(a) With respect to expenses incurred in connection with the
Reorganization, (i) each Fund shall pay all expenses incurred that are
attributable solely to such Fund and the conduct of its business, and (ii)
MuniYield Michigan shall pay, subsequent to the Exchange Date and pro rata
according to each Fund's net assets at the Valuation Time, all expenses incurred
in connection with the Reorganization, including, but not limited to, all costs
related to the preparation and distribution of the N-14 Registration Statement.
Such fees and expenses shall include the cost of preparing and filing a ruling
request with the Internal Revenue Service, legal and accounting fees, printing
costs, filing fees, stock exchange fees, rating agency fees, portfolio transfer
taxes (if any) and any similar expenses incurred in connection with the
Reorganization.
(b) If for any reason the Reorganization is not consummated, no party shall
be liable to any other party for any damages resulting therefrom, including,
without limitation, consequential damages.
7. COVENANTS OF THE FUNDS.
(a) Each Fund agrees to call an annual meeting of its stockholders as soon
as is practicable after the effective date of the N-14 Registration Statement
for the purpose of considering the Reorganization as described in this
Agreement.
(b) Each Fund covenants to operate its business as presently conducted
between the date hereof and the Exchange Date.
(c) Each Acquired Fund agrees that following the consummation of the
Reorganization, it will dissolve in accordance with the laws of the State of
Maryland and any other applicable law, it will not make any distributions of any
shares of MuniYield Michigan Common Stock, MuniYield Michigan Series B AMPS or
MuniYield Michigan Series C AMPS, as applicable other than to its respective
stockholders and without first paying or adequately providing for the payment of
all of its respective liabilities not assumed by MuniYield Michigan, if any, and
on and after the Exchange Date it shall not conduct any business except in
connection with its dissolution.
II-12
<PAGE> 155
(d) Each Acquired Fund undertakes that if the Reorganization is
consummated, it will file an application pursuant to Section 8(f) of the 1940
Act for an order declaring that such Acquired Fund has ceased to be a registered
investment company.
(e) MuniYield Michigan will file the N-14 Registration Statement with the
Securities and Exchange Commission (the "Commission") and will use its best
efforts to provide that the N-14 Registration Statement becomes effective as
promptly as practicable. Each Fund agrees to cooperate fully with the others,
and each will furnish to the others the information relating to itself to be set
forth in the N-14 Registration Statement as required by the 1933 Act, the 1934
Act, the 1940 Act, and the rules and regulations thereunder and the state
securities laws.
(f) MuniYield Michigan has no plan or intention to sell or otherwise
dispose of the Acquired Fund Investments, except for dispositions made in the
ordinary course of business.
(g) Each of the Funds agrees that by the Exchange Date all of its Federal
and other tax returns and reports required to be filed on or before such date
shall have been filed and all taxes shown as due on said returns either have
been paid or adequate liability reserves have been provided for the payment of
such taxes. In connection with this covenant, the Funds agree to cooperate with
each other in filing any tax return, amended return or claim for refund,
determining a liability for taxes or a right to a refund of taxes or
participating in or conducting any audit or other proceeding in respect of
taxes. MuniYield Michigan 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 the Acquired
Funds for each of such Fund's 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 the Acquired Funds
shall prepare, or cause its agents to prepare, any Federal, state or local tax
returns, including any Forms 1099, required to be filed by such fund with
respect to its final taxable year ending with its complete liquidation and for
any prior periods or taxable years and further shall cause such tax returns and
Forms 1099 to be duly filed with the appropriate taxing authorities.
Notwithstanding the aforementioned provisions of this subsection, any expenses
incurred by the Acquired Funds (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 each such Fund to the extent such expenses have
been accrued by such Fund in the ordinary course without regard to the
Reorganization; any excess expenses shall be borne by Fund Asset Management,
L.P. ("FAM") at the time such tax returns and Forms 1099 are prepared.
(h) The Funds each agree to mail to its respective stockholders of record
entitled to vote at the annual meeting of stockholders at which action is to be
considered regarding this Agreement, in sufficient time to comply with
requirements as to notice thereof, a combined proxy statement and prospectus
which complies in all material respects with the applicable provisions of
Section 14(a) of the 1934 Act and Section 20(a) of the 1940 Act, and the rules
and regulations, respectively, thereunder.
(i) Following the consummation of the Reorganization, MuniYield Michigan
will stay in existence and continue its business as a non-diversified,
closed-end management investment company registered under the 1940 Act.
8. EXCHANGE DATE.
(a) Delivery of the assets of the Acquired Funds to be transferred,
together with any other Acquired Fund Investments, and the shares of MuniYield
Michigan Common Stock, MuniYield Michigan Series B AMPS and MuniYield Michigan
Series C AMPS to be issued as provided in this Agreement, shall be made at the
offices of Brown & Wood LLP, One World Trade Center, New York, New York 10048,
at 10:00 a.m. on the next full business day following the Valuation Time, or at
such other place, time and date agreed to by the Funds, the date and time upon
which such delivery is to take place being referred to herein as the "Exchange
Date." To the extent that any Acquired Fund Investments, for any reason, are not
transferable on the Exchange Date, the applicable Acquired Fund shall cause such
Acquired Fund Investments to be transferred to MuniYield Michigan's account with
The Bank of New York at the earliest practicable date thereafter.
II-13
<PAGE> 156
(b) Each of the Acquired Funds will deliver to MuniYield Michigan on the
Exchange Date confirmations or other adequate evidence as to the tax basis of
each of their respective Acquired Fund Investments delivered to MuniYield
Michigan hereunder, certified by and Deloitte & Touche LLP (for MuniVest
Michigan and MuniHoldings Michigan).
(c) As soon as practicable after the close of business on the Exchange
Date, each of the Acquired Funds shall deliver to MuniYield Michigan a list of
the names and addresses of all of the stockholders of record of such Acquired
Fund on the Exchange Date and the number of shares of common stock and AMPS of
such Acquired Fund owned by each such stockholder, certified to the best of
their knowledge and belief by the applicable transfer agent for such Acquired
Fund or by its President.
9. CONDITIONS OF THE ACQUIRED FUNDS.
The obligations of each Acquired Fund hereunder shall be subject to the
following conditions:
(a) That this Agreement shall have been adopted, and the
Reorganization shall have been approved, by the affirmative vote of
two-thirds of the members of the Board of Directors of each of the Funds
and by the affirmative vote of (i) the holders of (a) a majority of the
MuniYield Michigan Common Stock and MuniYield Michigan AMPS, voting
together as a single class, and (b) a majority of the MuniYield Michigan
AMPS, voting separately as a class, in each case issued and outstanding and
entitled to vote thereon; (ii) the holders of (a) a majority of the
MuniVest Michigan Common Stock and MuniVest Michigan AMPS, voting together
as a single class, and (b) a majority of the MuniVest Michigan AMPS, voting
separately as a class, in each case issued and outstanding and entitled to
vote thereon; (iii) the holders of (a) a majority of the MuniHoldings
Michigan Common Stock and MuniHoldings Michigan AMPS, voting together as a
single class, and (b) a majority of the MuniHoldings Michigan AMPS, voting
separately as a class, in each case issued and outstanding and entitled to
vote thereon; and further that each Fund shall have delivered to each other
Fund a copy of the resolution approving this Agreement adopted by such
Fund's Board of Directors, and a certificate setting forth the vote of such
Fund's stockholders obtained at its Annual Meeting, each certified by the
Secretary of the appropriate Fund.
(b) That each Acquired Fund shall have received from MuniYield
Michigan and from each other Acquired Fund a statement of assets,
liabilities and capital, with values determined as provided in Section 5 of
this Agreement, together with a schedule of such fund's investments, all as
of the Valuation Time, certified on the Fund's behalf by its President (or
any Vice President) and its Treasurer, and a certificate signed by 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 the date of such Fund's most recent Annual or
Semi-Annual Report as applicable, other than changes in its portfolio
securities since that date or changes in the market value of its portfolio
securities.
(c) That MuniYield Michigan shall have furnished to the Acquired Funds
a certificate signed by MuniYield Michigan's President (or any Vice
President) and its Treasurer, dated as of the Exchange Date, certifying
that, as of the Valuation Time and as of the Exchange Date all
representations and warranties of MuniYield Michigan 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 Michigan has complied with
all of the agreements and satisfied all of the conditions on its part to be
performed or satisfied at or prior to each of such dates.
(d) That there shall not be any material litigation pending with
respect to the matters contemplated by this Agreement.
(e) That the Acquired Funds shall have received an opinion or opinions
of Brown & Wood LLP, as counsel to the Funds, in form and substance
satisfactory to the Acquired Funds and dated the Exchange
II-14
<PAGE> 157
Date, to the effect that (i) each of the Funds is a corporation duly
organized, validly existing and in good standing in conformity with the
laws of the State of Maryland; (ii) the shares of MuniYield Michigan Common
Stock, MuniYield Michigan Series B AMPS and MuniYield Michigan 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 Michigan, and no stockholder of MuniYield
Michigan has any preemptive right to subscription or purchase in respect
thereof (pursuant to the Articles of Incorporation or the by-laws of
MuniYield Michigan or the state law of Maryland, or to the best of such
counsel's knowledge, otherwise); (iii) this Agreement has been duly
authorized, executed and delivered by each of the Funds, and represents a
valid and binding contract, enforceable in accordance with its terms,
except as enforceability may be limited by bankruptcy, insolvency,
reorganization or other similar laws pertaining to the enforcement of
creditors' rights generally and court decisions with respect thereto;
provided, such counsel shall express no opinion with respect to the
application of equitable principles in any proceeding, whether at law or in
equity; (iv) the execution and delivery of this Agreement does not, and the
consummation of the Reorganization will not, violate any material
provisions of Maryland law or the Articles of Incorporation, as amended,
the by-laws, as amended, or any agreement (known to such counsel) to which
any Fund is a party or by which any Fund is bound, except insofar as the
parties have agreed to amend such provision as a condition precedent to the
Reorganization; (v) each of the Acquired Funds has the power to sell,
assign, transfer and deliver the assets transferred by it hereunder and,
upon consummation of the Reorganization in accordance with the terms of
this Agreement, each of the Acquired Funds will have duly transferred such
assets and liabilities in accordance with this Agreement; (vi) to the best
of such counsel's knowledge, no consent, approval, authorization or order
of any United States federal court, Maryland state court or governmental
authority is required for the consummation by the Funds of the
Reorganization, except such as have been obtained under the 1933 Act, the
1934 Act and the 1940 Act and the published rules and regulations of the
Commission thereunder and under Maryland law and such as may be required
under state securities laws; (vii) the N-14 Registration Statement has
become effective under the 1933 Act, no stop order suspending the
effectiveness of the N-14 Registration Statement has been issued and no
proceedings for that purpose have been instituted or are pending or
contemplated under the 1933 Act, and the N-14 Registration Statement, and
each amendment or supplement thereto, as of their respective effective
dates, appear on their face to be appropriately responsive in all material
respects to the requirements of the 1933 Act, the 1934 Act and the 1940 Act
and the published rules and regulations of the Commission thereunder;
(viii) the descriptions in the N-14 Registration Statement of statutes,
legal and governmental proceedings and contracts and other documents are
accurate and fairly present the information required to be shown; (ix) the
information in the Joint Proxy Statement and Prospectus under "Comparison
of the Funds -- Tax Rules Applicable to the Funds and their Stockholders"
and "Agreement and Plan of Reorganization -- Tax Consequences of the
Reorganization," (other than information related to Michigan law or legal
conclusions involving matters of Michigan law as to which we express no
opinion) to the extent that it constitutes matters of law, summaries of
legal matters or legal conclusions, has been reviewed by such counsel and
is correct in all material respects as of the date of the Joint Proxy
Statement and Prospectus; (x) such counsel does not know of any statutes,
legal or governmental proceedings or contracts or other documents related
to the Reorganization of a character required to be described in the N-14
Registration Statement which are not described therein or, if required to
be filed, filed as required; (xi) no Fund, to the knowledge of such
counsel, is required to qualify to do business as a foreign corporation in
any jurisdiction except as may be required by state securities laws, and
except where each has so qualified or the failure so to qualify would not
have a material adverse effect on such Fund or its respective stockholders;
(xii) such counsel does not have actual knowledge of any material suit,
action or legal or administrative proceeding pending or threatened against
any of the Funds, the unfavorable outcome of which would materially and
adversely affect such Fund; (xiii) all corporate actions required to be
taken by the Funds to authorize this Agreement and to effect the
Reorganization have been duly authorized by all necessary corporate actions
on the part of such Fund; and (xiv) such opinion is solely for the benefit
of the Funds and their Directors and officers. Such opinion also shall
state that (x) while such counsel cannot make any representation as to the
accuracy or completeness of statements of fact in the N-14 Registration
Statement or any amendment or supplement thereto, nothing
II-15
<PAGE> 158
has come to their attention that would lead them to believe that, on the
respective effective dates of the N-14 Registration Statement and any
amendment or supplement thereto, (1) the N-14 Registration Statement or any
amendment or supplement thereto contained any untrue statement of a
material fact or omitted to state any material fact required to be stated
therein or necessary to make the statements therein not misleading; and (2)
the prospectus included in the N-14 Registration Statement contained any
untrue statement of a material fact or omitted to state any material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; and (y) such counsel does not
express any opinion or belief as to the financial statements or other
financial or statistical data relating to any Fund contained or
incorporated by reference in the N-14 Registration Statement. In giving the
opinion set forth above, Brown & Wood LLP may state that it is relying on
certificates of officers of a Fund with regard to matters of fact and
certain certificates and written statements of governmental officials with
respect to the good standing of a Fund.
(f) That each Acquired Fund shall have received either (a) a private
letter ruling from the Internal Revenue Service or (b) an opinion of Brown
& Wood LLP, to the effect that for Federal income tax purposes (i) the
transfer by such Acquired Fund of substantially all of its assets to
MuniYield Michigan in exchange solely for shares of MuniYield Michigan
Common Stock and MuniYield Michigan Series B AMPS or MuniYield Michigan
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
the respective Funds will each be deemed to be a "party" to a
reorganization within the meaning of Section 368(b); (ii) in accordance
with Section 361(a) of the Code, no gain or loss will be recognized to an
Acquired Fund as a result of the asset transfer solely in exchange for
shares of MuniYield Michigan Common Stock and MuniYield Michigan Series B
AMPS or MuniYield Michigan Series B AMPS as the case may be, or on the
distribution of the MuniYield Michigan stock to stockholders of the
respective Acquired Fund under Section 361(c)(1); (iii) under Section 1032
of the Code, no gain or loss will be recognized to MuniYield Michigan on
the receipt of assets of an Acquired Fund in exchange for its shares; (iv)
in accordance with Section 354(a)(1) of the Code, no gain or loss will be
recognized to the stockholders of an Acquired Fund on the receipt of shares
of MuniYield Michigan in exchange for their shares of the Acquired Fund
(except to the extent that common stockholders receive cash representing an
interest in fractional shares of MuniYield Michigan Common Stock in the
Reorganization); (v) in accordance with Section 362(b) of the Code, the tax
basis of an Acquired Fund's assets in the hands of MuniYield Michigan will
be the same as the tax basis of such assets in the hands of the Acquired
Fund immediately prior to the consummation of the Reorganization; (vi) in
accordance with Section 358 of the Code, immediately after the
Reorganization, the tax basis of the shares of MuniYield Michigan received
by the stockholders of an Acquired Fund in the Reorganization will be
equal, in the aggregate, to the tax basis of the shares of the Acquired
Fund surrendered in exchange; (vii) in accordance with Section 1223 of the
Code, a stockholder's holding period for the shares of MuniYield Michigan
will be determined by including the period for which such stockholder held
the Acquired Fund shares exchanged therefor, provided that such shares were
held as a capital asset; (viii) in accordance with Section 1223 of the
Code, MuniYield Michigan's holding period with respect to an Acquired
Fund's assets transferred will include the period for which such assets
were held by the Acquired Fund; (ix) the payment of cash to common
stockholders of an Acquired Fund in lieu of fractional shares of MuniYield
Michigan Common Stock will be treated as though the fractional shares were
distributed as part of the Reorganization and then redeemed, with the
result that such stockholders will have short- or long-term capital gain or
loss to the extent that the cash distribution differs from the
stockholder's basis allocable to the MuniYield Michigan fractional shares;
and (x) the taxable year of each Acquired Fund will end on the effective
date of the Reorganization and pursuant to Section 381(a) of the Code and
regulations thereunder, MuniYield Michigan will succeed to and take into
account certain tax attributes of each Acquired Fund, such as earnings and
profits, capital loss carryovers and method of accounting.
(g) That all proceedings taken by each of the Funds and its counsel in
connection with the Reorganization and all documents incidental thereto
shall be satisfactory in form and substance to the others.
II-16
<PAGE> 159
(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 Michigan, be
contemplated by the Commission.
(i) That Acquired Funds shall have received from Ernst & Young LLP a
letter dated within three days prior to the effective date of the N-14
Registration Statement and a similar letter dated within five days prior to
the Exchange Date, in form and substance satisfactory to them, to the
effect that (i) they are independent public accountants with respect to
MuniYield Michigan 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 Michigan
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; and (iii) on the basis of limited procedures
agreed upon by the Funds and described in such letter (but not an
examination in accordance with generally accepted auditing standards)
consisting of a reading of any unaudited interim financial statements and
unaudited supplementary information of MuniYield Michigan included in the
N-14 Registration Statement, and inquiries of certain officials of
MuniYield Michigan responsible for financial and accounting matters,
nothing came to their attention that caused them to believe that (a) such
unaudited financial statements and related unaudited supplementary
information do not comply as to form in all material respects with the
applicable accounting requirements of the 1933 Act and the published rules
and regulations thereunder, (b) such unaudited financial statements are not
fairly presented in conformity with generally accepted accounting
principles, applied on a basis substantially consistent with that of the
audited financial statements, or (c) such unaudited supplementary
information is not fairly stated in all material respects in relation to
the unaudited financial statements taken as a whole; and (iv) on the basis
of limited procedures agreed upon by the Funds and described in such letter
(but not an examination in accordance with generally accepted auditing
standards), the information relating to MuniYield Michigan appearing in the
N-14 Registration Statement, which information is expressed in dollars (or
percentages derived from such dollars) (with the exception of performance
comparisons, if any), if any, has been obtained from the accounting records
of MuniYield Michigan or from schedules prepared by officials of MuniYield
Michigan having responsibility for financial and reporting matters and such
information is in agreement with such records, schedules or computations
made therefrom.
(j) That the Commission shall not have issued an unfavorable advisory
report under Section 25(b) of the 1940 Act, nor instituted or threatened to
institute any proceeding seeking to enjoin consummation of the
Reorganization under Section 25(c) of the 1940 Act, and no other legal,
administrative or other proceeding shall be instituted or threatened which
would materially affect the financial condition of MuniYield Michigan or
would prohibit the Reorganization.
(k) That the Acquired Funds shall have received from the Commission
such orders or interpretations as Brown & Wood LLP, as their counsel, deems
reasonably necessary or desirable under the 1933 Act and the 1940 Act in
connection with the Reorganization, provided, that such counsel shall have
requested such orders as promptly as practicable, and all such orders shall
be in full force and effect.
10. MUNIYIELD MICHIGAN CONDITIONS.
The obligations of MuniYield Michigan hereunder shall be subject to the
following conditions:
(a) That this Agreement shall have been adopted, and the
Reorganization shall have been approved, by the Board of Directors and the
stockholders of each of the Funds as set forth in Section 9(a); and that
each of the Acquired Funds shall have delivered to MuniYield Michigan a
copy of the resolution approving this Agreement adopted by such Acquired
Fund's Board of Directors, and a certificate setting forth the vote of the
stockholders of such Acquired Fund obtained, each certified by its
Secretary.
(b) That each Acquired Fund shall have furnished to MuniYield Michigan
a statement of its assets, liabilities and capital, with values determined
as provided in Section 5 of this Agreement, together with a
II-17
<PAGE> 160
schedule of investments with their respective dates of acquisition and tax
costs, all as of the Valuation Time, certified on such Fund's behalf by its
President (or any Vice President) and its Treasurer, and a certificate
signed by such Fund's President (or any Vice President) and its Treasurer,
dated as of the Exchange Date, certifying that as of the Valuation Time and
as of the Exchange Date there has been no material adverse change in the
financial position of the Acquired Fund since the date of such Fund's most
recent Annual Report or Semi-Annual Report, as applicable, other than
changes in the Acquired Fund Investments since that date or changes in the
market value of the Acquired Fund Investments.
(c) That each Acquired Fund shall have furnished to MuniYield Michigan
a certificate signed by such Fund's President (or any Vice President) and
its Treasurer, dated the Exchange Date, certifying that as of the Valuation
Time and as of the Exchange Date all representations and warranties of the
Acquired Fund 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 the
Acquired Fund 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 each Acquired Fund shall have delivered to MuniYield Michigan
a letter from Deloitte & Touche LLP dated the Exchange Date, stating that
such firm has performed a limited review of the Federal, state and local
income tax returns of the Acquired Fund for the period ended October 31,
1999 (for MuniVest Michigan) and September 30, 1999 (for MuniHoldings
Michigan) (which returns originally were prepared and filed by the Acquired
Fund), 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 the Acquired Fund for the period covered thereby; and that for the
period from November 1, 1999 (for MuniVest Michigan) and October 1, 1999
(for MuniHoldings Michigan), to and including the Exchange Date and for any
taxable year of the Acquired Fund ending upon the liquidation of that
Acquired Fund, such firm has performed a limited review to ascertain the
amount of applicable Federal, state and local taxes, and has determined
that either such amount has been paid or reserves have been established for
payment of such taxes, this review to be based on unaudited financial data;
and that based on such limited review, nothing has come to their attention
which caused them to believe that the taxes paid or reserves set aside for
payment of such taxes were not adequate in all material respects for the
satisfaction of Federal, state and local taxes for the period from November
1, 1999 (for MuniVest Michigan) and October 1, 1999 (for MuniHoldings
Michigan), to and including the Exchange Date and for any taxable year of
that Acquired Fund, ending upon the liquidation of such fund or that such
fund would not qualify as a regulated investment company for Federal income
tax purposes for the tax years in question.
(e) That there shall not be any material litigation pending with
respect to the matters contemplated by this Agreement.
(f) That MuniYield Michigan shall have received an opinion of Brown &
Wood LLP, as counsel to the Funds, in form and substance satisfactory to
MuniYield Michigan and dated the Exchange Date, with respect to the matters
specified in Section 9(e) of this Agreement and such other matters as
MuniYield Michigan reasonably may deem necessary or desirable.
(g) That MuniYield Michigan shall have received a private letter
ruling from the Internal Revenue Service or an opinion of Brown & Wood LLP
with respect to the matters specified in Section 9(f) of this Agreement.
(h) That MuniYield Michigan shall have received from Deloitte & Touche
LLP for each of MuniVest Michigan and MuniHoldings Michigan a letter dated
within three days prior to the effective date of the N-14 Registration
Statement and a similar letter dated within five days prior to the Exchange
Date, in form and substance satisfactory to MuniYield Michigan, to the
effect that (i) they are independent public accountants with respect to
each fund 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 each fund 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
II-18
<PAGE> 161
basis of limited procedures agreed upon by the Funds and described in such
letters (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 each
Acquired Fund included in that fund's N-14 Registration Statement, and
inquiries of certain officials of each Acquired Fund responsible for
financial and accounting matters, nothing came to their attention that
caused them to believe that (a) such unaudited financial statements and
related unaudited supplementary information do not comply as to form in all
material respects with the applicable accounting requirements of the 1933
Act and the published rules and regulations thereunder, (b) such unaudited
financial statements are not fairly presented in conformity with generally
accepted accounting principles, applied on a basis substantially consistent
with that of the audited financial statements, or (c) such unaudited
supplementary information is not fairly stated in all material respects in
relation to the unaudited financial statements taken as a whole; and (iv)
on the basis of limited procedures agreed upon by the Funds and described
in such letter (but not an examination in accordance with generally
accepted auditing standards), the information relating to the Acquired Fund
appearing in that Fund's N-14 Registration Statement, which information is
expressed in dollars (or percentages derived from such dollars) (with the
exception of performance comparisons, if any), if any, has been obtained
from the accounting records of that Acquired Fund or from schedules
prepared by officials of that Acquired Fund having responsibility for
financial and reporting matters and such information is in agreement with
such records, schedules or computations made therefrom.
(i) That the Acquired Fund Investments to be transferred to MuniYield
Michigan shall not include any assets or liabilities which MuniYield
Michigan, by reason of charter limitations or otherwise, may not properly
acquire or assume.
(j) That the N-14 Registration Statement shall have become effective
under the 1933 Act and no stop order suspending such effectiveness shall
have been instituted or, to the knowledge of any Acquired Fund, be
contemplated by the Commission.
(k) That the Commission shall not have issued an unfavorable advisory
report under Section 25(b) of the 1940 Act, nor instituted or threatened to
institute any proceeding seeking to enjoin consummation of the
Reorganization under Section 25(c) of the 1940 Act, and no other legal,
administrative or other proceeding shall be instituted or threatened which
would materially affect the financial condition of any Acquired Fund or
would prohibit the Reorganization.
(l) That MuniYield Michigan shall have received from the Commission
such orders or interpretations as Brown & Wood LLP, as counsel to MuniYield
Michigan, deems reasonably necessary or desirable under the 1933 Act and
the 1940 Act in connection with the Reorganization, provided, that such
counsel shall have requested such orders as promptly as practicable, and
all such orders shall be in full force and effect.
(m) That all proceedings taken by each Acquired Fund and its
respective counsel in connection with the Reorganization and all documents
incidental thereto shall be satisfactory in form and substance to MuniYield
Michigan.
(n) That prior to the Exchange Date, each of the Acquired Funds shall
have declared a dividend or dividends which, together with all such
previous dividends, shall have the effect of distributing to its
stockholders all of its net investment company taxable income for the
period to and including the Exchange Date, if any (computed without regard
to any deduction for dividends paid), and all of its net capital gain, if
any, realized to and including the Exchange Date. In this regard, the last
dividend period for the MuniVest Michigan AMPS and the MuniHoldings
Michigan AMPS may be shorter than the dividend period for such AMPS
determined as set forth in the applicable Articles Supplementary.
11. TERMINATION, POSTPONEMENT AND WAIVERS.
(a) Notwithstanding anything contained in this Agreement to the contrary,
this Agreement may be terminated and the Reorganization abandoned at any time
(whether before or after adoption thereof by the
II-19
<PAGE> 162
stockholders of the Funds) prior to the Exchange Date, or the Exchange Date may
be postponed, (i) by mutual consent of the Boards of Directors of the Funds,
(ii) by the Board of Directors of any Acquired Fund if any condition of such
Acquired Fund's obligations set forth in Section 9 of this Agreement has not
been fulfilled or waived by such Board; or (iii) by the Board of Directors of
MuniYield Michigan if any condition of MuniYield Michigan's obligations set
forth in Section 10 of this Agreement have not been fulfilled or waived by such
Board.
(b) If the transactions contemplated by this Agreement have not been
consummated by August 31, 2000, this Agreement automatically shall terminate on
that date, unless a later date is mutually agreed to by the Boards of Directors
of the Funds.
(c) In the event of termination of this Agreement pursuant to the
provisions hereof, the same shall become void and have no further effect, and
there shall not be any liability on the part of any Fund or persons who are
their directors, trustees, officers, agents or stockholders in respect of this
Agreement.
(d) At any time prior to the Exchange Date, any of the terms or conditions
of this Agreement may be waived by the Board of Directors of any Fund (whichever
is entitled to the benefit thereof), if, in the judgment of such Board after
consultation with its counsel, such action or waiver will not have a material
adverse effect on the benefits intended under this Agreement to the stockholders
of their respective fund, on behalf of which such action is taken. In addition,
the Boards of Directors of the Funds have delegated to FAM the ability to make
non-material changes to the transaction if it deems it to be in the best
interests of the Funds to do so.
(e) The respective representations and warranties contained in Sections 1,
2 and 3 of this Agreement shall expire with, and be terminated by, the
consummation of the Reorganization, and no Fund nor any of its officers,
directors, trustees, agents or stockholders shall have any liability with
respect to such representations or warranties after the Exchange Date. This
provision shall not protect any officer, director, trustee, agent or stockholder
of any Fund against any liability to the entity for which that officer,
director, trustee, agent or stockholder so acts or to its stockholders, to which
that officer, director, trustee, agent or stockholder otherwise would be subject
by reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties in the conduct of such office.
(f) If any order or orders of the Commission with respect to this Agreement
shall be issued prior to the Exchange Date and shall impose any terms or
conditions which are determined by action of the Boards of Directors of the
Funds to be acceptable, such terms and conditions shall be binding as if a part
of this Agreement without further vote or approval of the stockholders of the
Funds unless such terms and conditions shall result in a change in the method of
computing the number of shares of MuniYield Michigan Common Stock, MuniYield
Michigan Series B AMPS and MuniYield Michigan Series C AMPS to be issued to the
Acquired Funds, as applicable, in which event, unless such terms and conditions
shall have been included in the proxy solicitation materials furnished to the
stockholders of the Funds prior to the meetings at which the Reorganization
shall have been approved, this Agreement shall not be consummated and shall
terminate unless the Funds promptly shall call a special meeting of stockholders
at which such conditions so imposed shall be submitted for approval.
12. INDEMNIFICATION.
(a) Each Acquired Fund hereby severally agrees to indemnify and hold
MuniYield Michigan harmless from all loss, liability and expenses (including
reasonable counsel fees and expenses in connection with the contest of any
claim) which MuniYield Michigan may incur or sustain by reason of the fact that
(i) MuniYield Michigan shall be required to pay any corporate obligation of such
Acquired Fund, whether consisting of tax deficiencies or otherwise, based upon a
claim or claims against such Acquired Fund which were omitted or not fairly
reflected in the financial statements to be delivered to MuniYield Michigan in
connection with the Reorganization; (ii) any representations or warranties made
by such Acquired Fund in this Agreement should prove to be false or erroneous in
any material respect; (iii) any covenant of such Acquired Fund has been breached
in any material respect; or (iv) any claim is made alleging that (a) the N-14
Registration Statement included any untrue statement of a material fact or
omitted to state any material fact required to be stated therein or necessary to
make the statements therein attributable to such Fund not
II-20
<PAGE> 163
misleading or (b) the Joint Proxy Statement and Prospectus delivered to the
stockholders of the Funds and forming a part of the N-14 Registration Statement
included any untrue statement of a material fact or omitted to state any
material fact necessary to make the statements therein attributable to such
Fund, in the light of the circumstances under which they were made, not
misleading, except with respect to (iv)(a) and (b) herein insofar as such claim
is based on written information furnished to the Acquired Funds by MuniYield
Michigan.
(b) MuniYield Michigan hereby agrees to indemnify and hold each Acquired
Fund harmless from all loss, liability and expenses (including reasonable
counsel fees and expenses in connection with the contest of any claim) which
such Acquired Fund may incur or sustain by reason of the fact that (i) any
representations or warranties made by MuniYield Michigan in this Agreement
should prove false or erroneous in any material respect, (ii) any covenant of
MuniYield Michigan has been breached in any material respect, or (iii) any claim
is made alleging that (a) the N-14 Registration Statement included any untrue
statement of a material fact or omitted to state any material fact required to
be stated therein or necessary to make the statements therein, not misleading or
(b) the Joint Proxy Statement and Prospectus delivered to stockholders of the
Funds and forming a part of the N-14 Registration Statement included any untrue
statement of a material fact or omitted to state any material fact necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading, except with respect to (iii)(a) and (b) herein
insofar as such claim is based on written information furnished to MuniYield
Michigan by the Acquired Fund seeking indemnification.
(c) In the event that any claim is made against MuniYield Michigan in
respect of which indemnity may be sought by MuniYield Michigan from an Acquired
Fund under Section 12(a) of this Agreement, or in the event that any claim is
made against an Acquired Fund in respect of which indemnity may be sought by an
Acquired Fund from MuniYield Michigan under Section 12(b) of this Agreement,
then the party seeking indemnification (the "Indemnified Party"), with
reasonable promptness and before payment of such claim, shall give written
notice of such claim to the other party (the "Indemnifying Party"). If no
objection as to the validity of the claim is made in writing to the Indemnified
Party by the Indemnifying Party within thirty (30) days after the giving of
notice hereunder, then the Indemnified Party may pay such claim and shall be
entitled to reimbursement therefor, pursuant to this Agreement. If, prior to the
termination of such thirty-day period, objection in writing as to the validity
of such claim is made to the Indemnified Party, the Indemnified Party shall
withhold payment thereof until the validity of such claim is established (i) to
the satisfaction of the Indemnifying Party, or (ii) by a final determination of
a court of competent jurisdiction, whereupon the Indemnified Party may pay such
claim and shall be entitled to reimbursement thereof, pursuant to this
Agreement, or (iii) with respect to any tax claims, within seven (7) calendar
days following the earlier of (A) an agreement between MuniYield Michigan and
the Acquired Fund seeking indemnification that an indemnity amount is payable,
(B) an assessment of a tax by a taxing authority, or (C) a "determination" as
defined in Section 1313(a) of the Code. For purposes of this Section 12, the
term "assessment" shall have the same meaning as used in Chapter 63 of the Code
and Treasury Regulations thereunder, or any comparable provision under the laws
of the appropriate taxing authority. In the event of any objection by the
Indemnifying Party, the Indemnifying Party promptly shall investigate the claim,
and if it is not satisfied with the validity thereof, the Indemnifying Party
shall conduct the defense against such claim. All costs and expenses incurred by
the Indemnifying Party in connection with such investigation and defense of such
claim shall be borne by it. These indemnification provisions are in addition to,
and not in limitation of, any other rights the parties may have under applicable
law.
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 Michigan 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
II-21
<PAGE> 164
EXCEPT TO MUNIYIELD MICHIGAN INSURED FUND, INC. (OR ITS STATUTORY
SUCCESSOR), OR ITS PRINCIPAL UNDERWRITER UNLESS (I) A REGISTRATION
STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE SECURITIES ACT OF
1933 OR (II) IN THE OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
FUND, SUCH REGISTRATION IS NOT REQUIRED.
and, further, that stop transfer instructions will be issued to MuniYield
Michigan's transfer agent with respect to such shares. Each Acquired Fund will
provide MuniYield Michigan on the Exchange Date with the name of any stockholder
of an Acquired Fund who is to the knowledge of such Acquired Fund an affiliate
of that Acquired Fund on such date.
(b) All covenants, agreements, representations and warranties made under
this Agreement and any certificates delivered pursuant to this Agreement shall
be deemed to have been material and relied upon by each of the parties,
notwithstanding any investigation made by them or on their behalf.
(c) Any notice, report or demand required or permitted by any provision of
this Agreement shall be in writing and shall be made by hand delivery, prepaid
certified mail or overnight service, addressed to any Fund, at 800 Scudders Mill
Road, Plainsboro, New Jersey 08536, Attn: Terry K. Glenn, President.
(d) This Agreement supersedes all previous correspondence and oral
communications between the parties regarding the Reorganization, constitutes the
only understanding with respect to the Reorganization, may not be changed except
by a letter of agreement signed by each party and shall be governed by and
construed in accordance with the laws of the State of New York applicable to
agreements made and to be performed in said state.
(e) Copies of the Articles of Incorporation, as amended, and Articles
Supplementary of each Fund are on file with the Maryland Department and notice
is hereby given that this instrument is executed on behalf of the Directors of
each Fund.
II-22
<PAGE> 165
This Agreement may be executed in any number of counterparts, each of
which, when executed and delivered, shall be deemed to be an original but all
such counterparts together shall constitute but one instrument.
MUNIYIELD MICHIGAN INSURED
FUND, INC.
By: /s/ DONALD C. BURKE
------------------------------------
Donald C. Burke
Vice President and Treasurer
Attest: /s/ ALICE A. PELLEGRINO
-------------------------------------------------
Alice A. Pellegrino, Secretary
MUNIVEST MICHIGAN INSURED FUND, INC.
By: /s/ DONALD C. BURKE
------------------------------------
Donald C. Burke
Vice President and Treasurer
Attest: /s/ ALICE A. PELLEGRINO
-------------------------------------------------
Alice A. Pellegrino, Secretary
MUNIHOLDINGS MICHIGAN INSURED
FUND, INC.
By: /s/ DONALD C. BURKE
------------------------------------
Donald C. Burke
Vice President and Treasurer
Attest: /s/ ALICE A. PELLEGRINO
-------------------------------------------------
Alice A. Pellegrino, Secretary
II-23
<PAGE> 166
EXHIBIT III
ECONOMIC AND OTHER CONDITIONS IN MICHIGAN
The following information is a brief summary of factors affecting the
economy of the State of Michigan (the "State") 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. The Fund has not
independently verified the information.
Economic activity in the State of Michigan has tended to be more cyclical
than in the nation as a whole. The State's efforts to diversify its economy have
proven successful, as reflected by the fact that the share of employment in the
State in the durable goods sector has fallen from 33.1% in 1960 to 16.0% in
1998. While durable goods manufacturing still represents a sizable portion of
the State's economy, the service sector now represents 27.51% of the State's
economy. Any substantial national economic downturn may have an adverse effect
on the economy of the State and on the revenues of the State and some of its
local governmental units. Although historically the average monthly unemployment
rate in the State has been higher than the average figures for the United
States, for the last four years the unemployment rate in the State has been at
or below the national average. During 1998, the average monthly unemployment
rate in the State was 3.9% compared to a national average of 4.5%.
The State's economy could continue to be affected by changes in the auto
industry resulting from competitive pressures, overcapacity and labor disputes.
Such actions could adversely affect State revenues and the financial impact on
the local units of government in the areas in which plants are located could be
more severe.
The Michigan Constitution limits the amount of total revenues of the State
raised from taxes and certain other sources to a level for each fiscal year
equal to a percentage of the State's personal income for the prior calendar
year. In the event the State's total revenues exceed the limit by 1% or more,
the Constitution requires that the excess be refunded to taxpayers. To avoid
exceeding the revenue limit in the State's 1994-95 fiscal year, the State
refunded approximately $113 million through income tax credits for the 1995
calendar year. The State Constitution does not prohibit the increasing of taxes
so long as expected revenues do not exceed the revenue limit and authorizes
exceeding the limit for emergencies. The State Constitution further provides
that the proportion of State spending paid to all local units to total spending
may not be reduced below the proportion in effect for the 1978-79 fiscal year.
The Constitution requires that if spending does not meet the required level in a
given year an additional appropriation for local units is required for the
following fiscal year. The State Constitution also requires the State to finance
any new or expanded activity of local units mandated by State law. Any
expenditures required by this provision would be counted as State spending for
local units for purposes of determining compliance with the provisions stated
above.
The State Constitution limits the purposes for which State general
obligation debt may be issued. Such debt is limited to short-term debt for State
operating purposes, short- and long-term debt for the purposes of making loans
to school districts and long-term debt for voter approved purposes. In addition
to the foregoing, the State authorizes special purpose agencies and authorities
to issue revenue bonds payable from designated revenues and fees. Revenue bonds
are not obligations of the State and in the event of shortfalls in self-
supporting revenues, the State has no legal obligation to appropriate money to
these debt service payments. The State's Constitution also directs or restricts
the use of certain revenues.
The State finances its operations through the State's General Fund and
Special Revenue Funds. The General Fund receives revenues of the State that are
not specifically required to be included in the Special Revenue Fund. General
Fund revenues are obtained approximately 55% from the payment of State taxes and
45% from federal and non-tax revenue sources. The majority of the revenues from
State taxes are from the State's personal income tax, single business tax, use
tax, sales tax and various other taxes. Approximately two-thirds of total
General Fund expenditures are for State support of public education and for
social services programs.
III-1
<PAGE> 167
Other significant expenditures from the General Fund provide funds for law
enforcement, general State government, debt service and capital outlay. The
State Constitution requires that any prior year's surplus or deficit in any fund
must be included in the net succeeding year's budget for that fund.
The State of Michigan reports its financial results in accordance with
generally accepted accounting principles. The State ended the five fiscal years
1992-96 with its General Fund in balance after substantial transfers from the
General Fund to the Budget Stabilization Fund. For the 1997 fiscal year, the
State closed its books with its general fund in balance. During the 1997-98
fiscal year, an error was identified pertaining to the Medicaid program
administered by the Department of Community Health ("DCH"). Over a ten-year
period, DCH did not properly record all Medicaid expenditures and revenues on a
modified accrual basis as required by GAAP. For the fiscal year ended September
30, 1997, the General Fund did not reflect Medicaid expenditures of $178.7
million, and federal revenue of $24.6 million. As a result, the total ending
General Fund balance for the fiscal year ended September 30, 1997, was reduced
by $154.1 million to account for the correction of the prior period error. The
General Fund was in balance as of September 30, 1998. The balance in the Budget
Stabilization Fund as of September 30, 1998 was $1,000.5 million. In all but one
of the last six fiscal years the State has borrowed between $500 million and
$900 million for cash flow purposes. It borrowed $900 million in each of the
1996, 1997 and 1998 fiscal years. No cash flow borrowing was required in the
1999 fiscal year.
In November, 1997, the State Legislature adopted legislation to provide for
the funding of claims of local school districts, some of whom had alleged in a
lawsuit, Durant v. State of Michigan, that the State had, over a period of
years, paid less in school aid than required by the State's Constitution. Under
this legislation, the State paid to school districts which were plaintiffs in
the suit approximately $212 million from the Budget Stabilization Fund on April
15, 1998, and paid or will be required to pay to or on behalf of other school
districts an estimated amount of $632 million over time. These payments,
commencing in fiscal year 1998-99, will be paid out of the Budget Stabilization
Fund and the General Fund, half in annual payments over ten years and half in
annual payments over fifteen years.
Amendments to the Michigan Constitution which placed limitations on
increases in State taxes and local ad valorem taxes (including taxes used to
meet debt service commitments on obligations of taxing units) were approved by
the voters of the State of Michigan in November 1978 and became effective on
December 23, 1978. To the extent that obligations in the Fund are tax supported
and are for local units and have not been voted by the taxing unit's electors,
the ability of the local units to levy debt service taxes might be affected.
State law provides for distributions of certain State collected taxes or
portions thereof to local units based in part on population as shown by census
figures and authorizes levy of certain local taxes by local units having a
certain level of population as determined by census figures. Reductions in
population in local units resulting from periodic census could result in a
reduction in the amount of State collected taxes returned to those local units
and in reductions in levels of local tax collections for such local units unless
the impact of the census is changed by State law. No assurance can be given that
any such State law will be enacted. In the 1991 fiscal year, the State deferred
certain scheduled payments to municipalities, school districts, universities and
community colleges. While such deferrals were made up at later dates, similar
future deferrals could have an adverse impact on the cash position of some local
units. Additionally, while total State revenue sharing payments have increased
in each of the last five years, the State has reduced revenue sharing payments
to municipalities below the level otherwise provided under formulas in each of
those years.
On March 15, 1994, the electors of the State voted to amend the State's
Constitution to increase the State sales tax rate from 4% to 6% and to place an
annual cap on property assessment increases for all property taxes. Companion
legislation also cut the State's income tax rate from 4.6% to 4.4%, reduced some
property taxes and shifted the balance of school funding sources among property
taxes and State revenues, some of which are being provided from new or increased
State taxes. The legislation also contains other provisions that may reduce or
alter the revenues of local units of government and tax increment bonds could be
particularly affected. While the ultimate impact of the constitutional amendment
and related legislation cannot yet be accurately predicted, investors should be
alert to the potential effect of such measures upon the operations and revenues
of Michigan local units of government.
III-2
<PAGE> 168
The State is a party to various legal proceedings seeking damages or
injunctive or other relief. In addition to routine litigation, certain of these
proceedings could, if unfavorably resolved from the point of view of the State,
substantially affect State or local programs or finances. These lawsuits involve
programs generally in the areas of corrections, highway maintenance, social
services, tax collection, commerce and budgetary reductions to school districts
and governmental units and court funding.
Currently, the State's general obligation bonds are rated Aal by Moody's,
AA+ by Standard & Poor's and AA+ by Fitch. The State received upgrades in
January 1998 from Standard & Poor's, in March 1998 from Moody's and in April
1998 from Fitch.
III-3
<PAGE> 169
EXHIBIT IV
RATINGS OF MUNICIPAL BONDS AND COMMERCIAL PAPER
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S ("MOODY'S") MUNICIPAL BOND
RATINGS
Aaa Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally
referred to as "gilt edge." Interest payments are protected by a
large or by an exceptionally stable margin and principal is secure.
While the various protective elements are likely to change, such
changes 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 a
desirable investment. Assurance of interest and principal payments
or of maintenance of other terms of the contract over any long
period of time may be small.
Caa Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect
to principal or interest.
Ca Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or
have other marked shortcomings.
C Bonds which are rated C are the lowest rated class of bonds and
issues so rated can be regarded as having extremely poor prospects
of ever attaining any real investment standing.
Note: These bonds in the Aa, A, Baa, Ba and B groups which Moody's
believes possess the strongest investment attributes are designated by the
symbols Aal, Al, Baal, Bal and Bl.
Short-term Notes: The three ratings of Moody's for short-term notes are
MIG 1/VMIG 1, MIG 2/ VMIG 2, and MIG 3/VMIG 3; MIG 1/VMIG 1 denotes "best
quality, enjoying strong protection from established cash flows"; MIG 2/VMIG 2
denotes "high quality" with "ample margins of protection"; MIG 3/ VMIG 3
instruments are of "favorable quality ... but ... lacking the undeniable
strength of the preceding grades."
IV-1
<PAGE> 170
DESCRIPTION OF MOODY'S COMMERCIAL PAPER RATINGS
Moody's Commercial Paper ratings are opinions of the ability of issuers to
repay punctually promissory obligations not having an original maturity in
excess of nine months. Moody's employs the following three designations, all
judged to be investment grade, to indicate the relative repayment capacity of
rated issuers:
Issuers rated Prime-1 (or supporting institutions) have a superior ability
for repayment of short-term promissory obligations. Prime-1 repayment capacity
will often be evidenced by the following characteristics: leading market
positions in well established industries; high rates of return on funds
employed; conservative capitalization structures with moderate reliance on debt
and ample asset protection; broad margins, in earning coverage of fixed
financial charges and high internal cash generation; and with established access
to a range of financial markets and assured sources of alternate liquidity.
Issuers rated Prime-2 (or supporting institutions) have a strong ability
for repayment of short-term promissory obligations. This will normally be
evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
Issuers rated Prime-3 (or supporting institutions) have an acceptable
ability for repayment of short-term promissory obligations. The effects of
industry characteristics and market composition may be more pronounced.
Variability in earnings and profitability may result in changes to the level of
debt protection measurements and the requirement for relatively high financial
leverage. Adequate alternate liquidity is maintained.
Issuers rated Not Prime do not fall within any of the Prime rating
categories.
DESCRIPTION OF STANDARD & POOR'S, A DIVISION OF THE MCGRAW-HILL COMPANIES, INC.
("STANDARD & POOR'S"), MUNICIPAL DEBT RATINGS
A Standard & Poor's municipal debt rating is a current assessment of the
creditworthiness of an obligor with respect to a specific financial obligation,
a specific class of financial obligations or a specific program. It takes into
consideration the creditworthiness of guarantors, insurers, or other forms of
credit enhancement on the obligation.
The debt rating is not a recommendation to purchase, sell or hold a
financial obligation, inasmuch as it does not comment as to market price or
suitability for a particular investor.
The ratings are based on current information furnished by the issuer or
obtained by Standard & Poor's from other sources Standard & Poor's considers
reliable. Standard & Poor's does not perform an audit in connection with any
rating and may, on occasion, rely on unaudited financial information. The
ratings may be changed, suspended or withdrawn as a result of changes in, or
unavailability of, such information, or based on other circumstances.
The ratings are based, in varying degrees, on the following considerations:
I. Likelihood of default-capacity and willingness of the obligor as
to the timely payment of interest and repayment of principal in accordance
with the terms of the obligation;
II. Nature of and provisions of the obligation;
III. Protection afforded to, and relative position of, the obligation
in the event of bankruptcy, reorganization or other arrangement under the
laws of bankruptcy and other laws affecting creditors' rights.
IV-2
<PAGE> 171
<TABLE>
<S> <C>
AAA Debt rated "AAA" has the highest rating assigned by Standard
& Poor's. Capacity of the obligor to meet its financial
commitment on the obligation is extremely strong.
AA Debt rated "AA" differs from the highest-rated issues only
in small degree. The obligor's capacity to meet its
financial commitment on the obligation is very strong.
A Debt rated "A" is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions
than debt in higher-rated categories. However, the obligor's
capacity to meet its financial commitment on the obligation
is still strong.
BBB Debt rated "BBB" exhibits adequate protection parameters.
However, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity
of the obligor to meet its financial commitment on the
obligation.
BB Debt rated "BB," "B," "CCC," "CC", and "C" are regarded as
B having significant speculative characteristics. "BB"
CCC indicates the least degree of speculation and "C" the
CC highest degree of speculation. While such debt will likely
C have some quality and protective characteristics, these may
be outweighed by large uncertainties or major risk exposures
to adverse conditions.
D Debt rated "D" is in payment default. The "D" rating
category is used when payments on an obligation are not made
on the date due even if the applicable grace period has not
expired, unless Standard & Poor's believes that such
payments will be made during such grace period. The "D"
rating also will be used upon the filing of a bankruptcy
petition or the taking of similar action if payments on an
obligation are jeopardized.
</TABLE>
Plus (+) or Minus (-): The ratings from "AA" to "CCC" may be modified by
the addition of a plus or minus sign to show relative standing within the major
rating categories.
DESCRIPTION OF STANDARD & POOR'S COMMERCIAL PAPER RATINGS
A Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more than
365 days. Ratings are graded into several categories, ranging from "A-1" for the
highest quality obligations to "D" for the lowest. These categories are as
follows:
<TABLE>
<S> <C>
A-1 This designation indicates that the degree of safety
regarding timely payment is strong. Those issues determined
to possess extremely strong safety characteristics are
denoted with a plus sign (+) designation.
A-2 Capacity for timely payment on issues with this designation
is satisfactory. However, the relative degree of safety is
not as high as for issues designated "A-1."
A-3 Issues carrying this designation have adequate capacity for
timely payment. They are, however, more vulnerable to the
adverse effects of changes in circumstances than obligations
carrying the higher designations.
B Issues rated "B" are regarded as having only speculative
capacity for timely payment.
C This rating is assigned to short-term debt obligations with
a doubtful capacity for payment.
D Debt rated "D" is in payment default. The "D" rating
category is used when interest payments or principal
payments are not made on the date due, even if the
applicable grace period has not expired unless Standard &
Poor's believes that such payments will be made during such
grace period.
</TABLE>
IV-3
<PAGE> 172
<TABLE>
<S> <C>
c The "c" subscript is used to provide additional information
to investors that the bank may terminate its obligation to
purchase tendered bonds if the long-term credit rating of
the issuer is below an investment-grade level and/or the
issuer's bonds are deemed taxable.
p The letter "p" indicates that the rating is provisional. A
provisional rating assumes the successful completion of the
project financed by the debt being rated and indicates that
payment of the debt service requirements is largely or
entirely dependent upon the successful, timely completion of
the project. This rating, however, while addressing credit
quality subsequent to completion of the project, makes no
comment on the likelihood of or the risk of default upon
failure of such completion. The investor should exercise his
own judgment with respect to such likelihood and risk.
Continuance of the ratings is contingent upon Standard &
Poor's receipt of an executed copy of the escrow agreement
or closing documentation confirming investments and cash
flows.
r The "r" highlights derivative, hybrid, and certain other
obligations that Standard & Poor's believes may experience
high volatility or high variability in expected returns as a
result of noncredit risks. Examples of such obligations are
securities with principal or interest return indexed to
equities, commodities, or currencies; certain swaps and
options; and interest-only and principal-only mortgage
securities. The absence of an "r" symbol should not be taken
as an indication that an obligation will exhibit no
volatility or variability in total return.
</TABLE>
A commercial paper rating is not a recommendation to purchase or sell a
security. The ratings are based on current information furnished to Standard &
Poor's by the issuer or obtained by Standard & Poor's from other sources it
considers reliable. The ratings may be changed, suspended, or withdrawn as a
result of changes in, or unavailability of, such information.
A Standard & Poor's note rating reflects the liquidity factors and market
access risks unique to such notes. Notes due in three years or less will likely
receive a note rating. Notes maturing beyond three years will most likely
receive a long-term debt rating. The following criteria will be used in making
that assessment.
-- Amortization schedule -- the larger the final maturity relative to other
maturities, the more likely it will be treated as a note.
-- Source of payment -- the more dependent the issue is on the market for
its refinancing, the more likely it will be treated as a note.
Note rating symbols are as follows:
<TABLE>
<S> <C>
SP-1 Strong capacity to pay principal and interest. An issue
determined to possess a very strong capacity to pay debt
service is given a plus (+) designation.
SP-2 Satisfactory capacity to pay principal and interest with
some vulnerability to adverse financial and economic changes
over the term of the notes.
SP-3 Speculative capacity to pay principal and interest.
</TABLE>
DESCRIPTION OF FITCH IBCA, INC.'S ("FITCH") INVESTMENT GRADE BOND RATINGS
Fitch investment grade bond ratings provide a guide to investors in
determining the credit risk associated with a particular security. The rating
represents Fitch's assessment of the issuer's ability to meet the obligations of
a specific debt issue or class of debt in a timely manner.
The rating takes into consideration special features of the issue, its
relationship to other obligations of the issuer, the current and prospective
financial condition and operating performance of the issuer and any
IV-4
<PAGE> 173
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.
Fitch ratings are based on information obtained from issuers, other
obligors, underwriters, their experts, and other sources Fitch believes to be
reliable. Fitch does not audit or verify the truth or accuracy of such
information. Ratings may be changed, suspended, or withdrawn as a result of
changes in, or the unavailability of, information or for other reasons.
<TABLE>
<S> <C>
AAA Bonds considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong
ability to pay interest and repay principal, which is
unlikely to be affected by reasonably foreseeable events.
AA Bonds considered to be investment grade and of very high
credit quality. The obligor's ability to pay interest and
repay principal is very strong, although not quite as strong
as bonds rated "AAA." Because bonds rated in the "AAA" and
"AA" categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these
issuers is generally rated "F-1+."
A Bonds considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay
principal is considered to be strong, but may be more
vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB Bonds considered to be investment grade and of satisfactory
credit quality. The obligor's ability to pay interest and
repay principal is considered to be adequate. Adverse
changes in economic conditions and circumstances, however,
are more likely to have an adverse impact on these bonds,
and therefore impair timely payment. The likelihood that the
ratings of these bonds will fall below investment grade is
higher than for bonds with higher ratings.
</TABLE>
Plus (+) or Minus (-): Plus and minus signs are used with a rating symbol
to indicate the relative position of a credit within the rating category. Plus
and minus signs, however, are not used in the "AAA" category.
NR Indicates that Fitch does not rate the specific issue.
CONDITIONAL
A conditional rating is premised on the successful completion of a project
or the occurrence of a specific event.
SUSPENDED
A rating is suspended when Fitch deems the amount of information available
from the issuer to be inadequate for rating purposes.
IV-5
<PAGE> 174
WITHDRAWN
A rating will be withdrawn when an issue matures or is called or refinanced
and, at Fitch's discretion, when an issuer fails to furnish proper and timely
information.
FITCHALERT
Ratings are placed on FitchAlert to notify investors of an occurrence that
is likely to result in a rating change and the likely direction of such change.
These are designated as "Positive," indicating a potential upgrade, "Negative,"
for potential downgrade, or "Evolving," where ratings may be raised or lowered.
FitchAlert is relatively short-term, and should be resolved within three to 12
months.
RATINGS OUTLOOK
An outlook is used to describe the most likely direction of any rating
change over the intermediate term. It is described as "Positive" or "Negative."
The absence of a designation indicates a stable outlook.
DESCRIPTION OF FITCH'S SPECULATIVE GRADE BOND RATINGS
Fitch speculative grade bond ratings provide a guide to investors in
determining the credit risk associated with a particular security. The ratings
("BB" to "C") represent Fitch's assessment of the likelihood of timely payment
of principal and interest in accordance with the terms of obligation for bond
issues not in default. For defaulted bonds, the rating ("DDD" to "D") is an
assessment of the ultimate recovery value through reorganization or liquidation.
The rating takes into consideration special features of the issue, its
relationship to other obligations of the issuer, the current and prospective
financial condition and operating performance of the issuer and any guarantor,
as well as the economic and political environment that might affect the issuer's
future financial strength.
Bonds that have the rating are of similar but not necessarily identical
credit quality since rating categories cannot fully reflect the differences in
degrees of credit risk.
BB Bonds are considered speculative. The obligor's ability to pay
interest and repay principal may be affected over time by adverse
economic changes. However, business and financial alternatives can
be identified which could assist the obligor in satisfying its debt
service requirements.
B Bonds are considered highly speculative. While bonds in this class
are currently meeting debt service requirements, the probability of
continued timely payment of principal and interest reflects the
obligor's limited margin of safety and the need for reasonable
business and economic activity throughout the life of the issue.
CCC Bonds have certain identifiable characteristics which, if not
remedied, may lead to default. The ability to meet obligations
requires an advantageous business and economic environment.
CC Bonds are minimally protected. Default in payment of interest
and/or principal seems probable over time.
C Bonds are in imminent default in payment of interest or principal.
DDD Bonds are in default on interest and/or principal payments. Such
DD bonds are extremely speculative and should be valued on the basis
D 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.
IV-6
<PAGE> 175
Plus (+) or Minus (-): Plus and minus signs are used with a rating symbol
to indicate the relative position of a credit within the rating category. Plus
and minus signs, however, are not used in the "DDD," "DD," or "D" categories.
DESCRIPTION OF FITCH'S SHORT-TERM RATINGS
Fitch's short-term ratings apply to debt obligations that are payable on
demand or have original maturities of up to three years, including commercial
paper, certificates of deposit, medium-term notes, and municipal and investment
notes.
The short-term rating places greater emphasis than a long-term rating on
the existence of liquidity necessary to meet the issuer's obligations in a
timely manner.
Fitch short-term ratings are as follows:
F-1+ Exceptionally Strong Credit Quality. Issues assigned this rating
are regarded as having the strongest degree of assurance for timely
payment.
F-1 Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than
issues rated "F-l+".
F-2 Good Credit Quality. Issues assigned this rating have a
satisfactory degree of assurance for timely payment, but the margin
of safety is not as great as for issues assigned "F-1+" and "F-l"
ratings.
F-3 Fair Credit Quality. Issues assigned this rating have
characteristics suggesting that the degree of assurance for timely
payment is adequate; however, near-term adverse changes could cause
these securities to be rated below investment grade.
F-S Weak Credit Quality. Issues assigned this rating have
characteristics suggesting a minimal degree of assurance for timely
payment and are vulnerable to near-term adverse changes in
financial and economic conditions.
D Default. Issues assigned this rating are in actual or imminent
payment default.
LOC The symbol "LOC" indicates that the rating is based on a letter of
credit issued by a commercial bank.
IV-7
<PAGE> 176
EXHIBIT V
PORTFOLIO INSURANCE
Set forth below is further information with respect to the insurance
policies (the "Policies") that the Fund may obtain from several insurance
companies with respect to insured Michigan Municipal Bonds and Municipal Bonds
held by the Fund. The Fund has no obligation to obtain any such Policies, and
the terms of any Policies actually obtained may vary significantly from the
terms discussed below.
In determining eligibility for insurance, insurance companies will apply
their own standards. These standards correspond generally to the standards such
companies normally use in establishing the insurability of new issues of
Michigan Municipal Bonds and Municipal Bonds and are not necessarily the
criteria that would be used in regard to the purchase of such bonds by the Fund.
The Policies do not insure (i) municipal securities ineligible for insurance and
(ii) municipal securities no longer owned by the Fund.
The Policies do not guarantee the market value of the insured Michigan
Municipal Bonds and Municipal Bonds or the value of the shares of the Fund. In
addition, if the provider of an original issuance insurance policy is unable to
meet its obligations under such policy or if the rating assigned to the
insurance claims-paying ability of any such insurer deteriorates, the insurance
company will not have any obligation to insure any issue held by the Fund that
is adversely affected by either of the above described events. In addition to
the payment of premium, the policies may require that the Fund notify the
insurance company as to all Michigan Municipal Bonds and Municipal Bonds in the
Fund's portfolio and permit the insurance company to audit their records. The
insurance premiums will be payable monthly by the Fund in accordance with a
premium schedule to be furnished by the insurance company at the time the
Policies are issued. Premiums are based upon the amounts covered and the
composition of the portfolio.
The Fund will seek to utilize insurance companies that have insurance
claims-paying ability ratings of AAA from Standard & Poor's ("S&P") or Fitch
IBCA, Inc. ("Fitch") or Aaa from Moody's Investors Service, Inc. ("Moody's").
There can be no assurance, however, that insurance from insurance carriers
meeting these criteria will be at all times available.
An S&P insurance claims-paying ability rating is an assessment of an
operating insurance company's financial capacity to meet obligations under an
insurance policy in accordance with the terms. An insurer with an insurance
claims-paying ability rating of AAA has the highest rating assigned by S&P.
Capacity to honor insurance contracts is considered by S&P to be extremely
strong and highly likely to remain so over a long period of time. A Fitch
insurance claims-paying ability rating provides an assessment of an insurance
company's financial strength and, therefore, its ability to pay policy and
contract claims under the terms indicated. An insurer with an insurance
claims-paying ability rating of AAA has the highest rating assigned by Fitch.
The ability to pay claims is adjudged by Fitch to be extremely strong for
insurance companies with this highest rating. In the opinion of Fitch,
foreseeable business and economic risk factors should not have any material
adverse impact on the ability of these insurers to pay claims. In Fitch's
opinion, profitability, overall balance sheet strength, capitalization and
liquidity are all at very secure levels and are unlikely to be affected by
potential adverse underwriting, investment or cyclical events. A Moody's
insurance claims-paying ability rating is an opinion of the ability of an
insurance company to repay punctually senior policyholder obligations and
claims. An insurer with an insurance claims-paying ability rating of Aaa is
considered by Moody's to be of the best quality. In the opinion of Moody's, the
policy obligations of an insurance company with an insurance claims-paying
ability rating of Aaa carry the smallest degree of credit risk and, while the
financial strength of these companies is likely to change, such changes as can
be visualized are most unlikely to impair the company's fundamentally strong
position.
An insurance claims-paying ability rating of S&P, Fitch or Moody's does not
constitute an opinion on any specific contract in that such an opinion can only
be rendered upon the review of the specific insurance contract. Furthermore, an
insurance claims-paying ability rating does not take into account deductibles,
surrender or cancellation penalties or the timeliness of payment; nor does it
address the ability of a company to meet nonpolicy obligations (i.e., debt
contracts).
V-1
<PAGE> 177
The assignment of ratings by S&P, Fitch or Moody's to debt issues that are
fully or partially supported by insurance policies, contracts or guarantees is a
separate process from the determination of claims-paying ability ratings. The
likelihood of a timely flow of funds from the insurer to the trustee for the
bondholders is a key element in the rating determination for such debt issues.
V-2
<PAGE> 178
[Proxy Card Front]
COMMON STOCK
MUNIYIELD MICHIGAN INSURED FUND, INC.
P.O. BOX 9011
PRINCETON, NEW JERSEY 08543-9011
P R O X Y
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Terry K. Glenn, Donald C. Burke and Alice
A. Pellegrino as proxies, each with the power to appoint his or her substitute,
and hereby authorizes each of them to represent and to vote, as designated on
the reverse hereof, all of the Common Stock of MuniYield Michigan Insured Fund,
Inc. (the "Fund") held of record by the undersigned on October 20, 1999 at the
Special Meeting of Stockholders of the Fund to be held on December 15, 1999, or
any adjournment thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER HEREIN
DIRECTED BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY
WILL BE VOTED "FOR" PROPOSAL 1.
By signing and dating the reverse side of this card, you authorize the
proxies to vote the proposal as marked, or if not marked, to vote "FOR" the
proposal, and to use their discretion to vote for any other matter as may
properly come before the meeting or any adjournment thereof. If you do not
intend to personally attend the meeting, please complete and return this card at
once in the enclosed envelope.
(Continued and to be signed on the reverse side)
<PAGE> 179
[Proxy Card Reverse]
PLEASE MARK BOXES /X/ OR [X] IN BLUE OR BLACK INK.
1. To consider and act upon a proposal to approve the Agreement and Plan of
Reorganization among the Fund, MuniVest Michigan Insured Fund, Inc. and
MuniHoldings Michigan Insured Fund, Inc.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
2. In the discretion of such proxies, upon such other business as properly
may come before the meeting or any adjournment thereof.
Please sign exactly as name appears hereon. When
shares are held by joint tenants, both should sign.
When signing as attorney or as executor,
administrator, trustee or guardian, please give full
title as such. If a corporation, please sign in full
corporate name by president or other authorized
officer. If a partnership, please sign in
partnership name by authorized persons.
Dated:
----------------------------------------
X
---------------------------------------------
Signature
X
---------------------------------------------
Signature, if held jointly
SIGN, DATE, AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
<PAGE> 180
[Proxy Card Front]
AUCTION MARKET
PREFERRED STOCK
MUNIYIELD MICHIGAN INSURED FUND, INC.
P.O. BOX 9011
PRINCETON, NEW JERSEY 08543-9011
P R O X Y
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Terry K. Glenn, Donald C. Burke and Alice
A. Pellegrino as proxies, each with the power to appoint his or her substitute,
and hereby authorizes each of them to represent and to vote, as designated on
the reverse hereof, all the Auction Market Preferred Stock of MuniYield Michigan
Insured Fund, Inc. (the "Fund") held of record by the undersigned on October 20,
1999 at the Special Meeting of Stockholders of the Fund to be held on December
15, 1999, or any adjournment thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER HEREIN
DIRECTED BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY
WILL BE VOTED "FOR" PROPOSAL 1.
By signing and dating the reverse side of this card, you authorize the
proxies to vote the proposal as marked, or if not marked, to vote "FOR" the
proposal, and to use their discretion to vote for any other matter as may
properly come before the meeting or any adjournment thereof. If you do not
intend to personally attend the meeting, please complete and return this card at
once in the enclosed envelope.
(Continued and to be signed on the reverse side)
<PAGE> 181
[Proxy Card Reverse]
PLEASE MARK BOXES /X/ OR [X] IN BLUE OR BLACK INK.
1. To consider and act upon a proposal to approve the Agreement and Plan of
Reorganization among the Fund, MuniVest Michigan Insured Fund, Inc. and
MuniHoldings Michigan Insured Fund, Inc.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
2. In the discretion of such proxies, upon such other business as properly
may come before the meeting or any adjournment thereof.
If the undersigned is a broker-dealer, it hereby instructs the proxies,
pursuant to Rule 452 of the New York Stock Exchange, to vote any
uninstructed Auction Market Preferred Stock, in the same proportion as
votes cast by holders of Auction Market Preferred Stock, who have
responded to this proxy solicitation.
Please sign exactly as name appears hereon. When
shares are held by joint tenants, both should sign.
When signing as attorney or as executor,
administrator, trustee or guardian, please give full
title as such. If a corporation, please sign in full
corporate name by president or other authorized
officer. If a partnership, please sign in
partnership name by authorized persons.
Dated:
----------------------------------------
X
---------------------------------------------
Signature
X
---------------------------------------------
Signature, if held jointly
SIGN, DATE, AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
<PAGE> 182
[Proxy Card Front]
COMMON STOCK
MUNIVEST MICHIGAN INSURED FUND, INC.
P.O. BOX 9011
PRINCETON, NEW JERSEY 08543-9011
P R O X Y
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Terry K. Glenn, Donald C. Burke and Alice
A. Pellegrino as proxies, each with the power to appoint his or her substitute,
and hereby authorizes each of them to represent and to vote, as designated on
the reverse hereof, all of the Common Stock of MuniVest Michigan Insured Fund,
Inc. (the "Fund") held of record by the undersigned on October 20, 1999 at the
Special Meeting of Stockholders of the Fund to be held on December 15, 1999, or
any adjournment thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER HEREIN
DIRECTED BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY
WILL BE VOTED "FOR" PROPOSAL 1.
By signing and dating the reverse side of this card, you authorize the
proxies to vote the proposal as marked, or if not marked, to vote "FOR" the
proposal, and to use their discretion to vote for any other matter as may
properly come before the meeting or any adjournment thereof. If you do not
intend to personally attend the meeting, please complete and return this card at
once in the enclosed envelope.
(Continued and to be signed on the reverse side)
<PAGE> 183
[Proxy Card Reverse]
PLEASE MARK BOXES /X/ OR [X] IN BLUE OR BLACK INK.
1. To consider and act upon a proposal to approve the Agreement and Plan of
Reorganization among the Fund, MuniYield Michigan Insured Fund, Inc. and
MuniHoldings Michigan Insured Fund, Inc.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
2. In the discretion of such proxies, upon such other business as properly
may come before the meeting or any adjournment thereof.
Please sign exactly as name appears hereon. When
shares are held by joint tenants, both should sign.
When signing as attorney or as executor,
administrator, trustee or guardian, please give full
title as such. If a corporation, please sign in full
corporate name by president or other authorized
officer. If a partnership, please sign in
partnership name by authorized persons.
Dated:
----------------------------------------
X
---------------------------------------------
Signature
X
---------------------------------------------
Signature, if held jointly
SIGN, DATE, AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
<PAGE> 184
[Proxy Card Front]
AUCTION MARKET
PREFERRED STOCK
MUNIVEST MICHIGAN INSURED FUND, INC.
P.O. BOX 9011
PRINCETON, NEW JERSEY 08543-9011
P R O X Y
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Terry K. Glenn, Donald C. Burke and Alice
A. Pellegrino as proxies, each with the power to appoint his or her substitute,
and hereby authorizes each of them to represent and to vote, as designated on
the reverse hereof, all the Auction Market Preferred Stock of MuniVest Michigan
Insured Fund, Inc. (the "Fund") held of record by the undersigned on October 20,
1999 at the Special Meeting of Stockholders of the Fund to be held on December
15, 1999, or any adjournment thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER HEREIN
DIRECTED BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY
WILL BE VOTED "FOR" PROPOSAL 1.
By signing and dating the reverse side of this card, you authorize the
proxies to vote the proposal as marked, or if not marked, to vote "FOR" the
proposal, and to use their discretion to vote for any other matter as may
properly come before the meeting or any adjournment thereof. If you do not
intend to personally attend the meeting, please complete and return this card at
once in the enclosed envelope.
(Continued and to be signed on the reverse side)
<PAGE> 185
[Proxy Card Reverse]
PLEASE MARK BOXES /X/ OR [X] IN BLUE OR BLACK INK.
1. To consider and act upon a proposal to approve the Agreement and Plan of
Reorganization among the Fund, MuniYield Michigan Insured Fund, Inc. and
MuniHoldings Michigan Insured Fund, Inc.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
2. In the discretion of such proxies, upon such other business as properly
may come before the meeting or any adjournment thereof.
If the undersigned is a broker-dealer, it hereby instructs the proxies,
pursuant to Rule 452 of the New York Stock Exchange, to vote any
uninstructed Auction Market Preferred Stock, in the same proportion as
votes cast by holders of Auction Market Preferred Stock, who have
responded to this proxy solicitation.
Please sign exactly as name appears hereon. When
shares are held by joint tenants, both should sign.
When signing as attorney or as executor,
administrator, trustee or guardian, please give full
title as such. If a corporation, please sign in full
corporate name by president or other authorized
officer. If a partnership, please sign in
partnership name by authorized persons.
Dated:
----------------------------------------
X
---------------------------------------------
Signature
X
---------------------------------------------
Signature, if held jointly
SIGN, DATE, AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
<PAGE> 186
[Proxy Card Front]
COMMON STOCK
MUNIHOLDINGS MICHIGAN INSURED FUND, INC.
P.O. BOX 9011
PRINCETON, NEW JERSEY 08543-9011
P R O X Y
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Terry K. Glenn, Donald C. Burke and Alice
A. Pellegrino as proxies, each with the power to appoint his or her substitute,
and hereby authorizes each of them to represent and to vote, as designated on
the reverse hereof, all of the Common Stock of MuniHoldings Michigan Insured
Fund, Inc. (the "Fund") held of record by the undersigned on October 20, 1999 at
the Annual Meeting of Stockholders of the Fund to be held on December 15, 1999,
or any adjournment thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER HEREIN
DIRECTED BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY
WILL BE VOTED "FOR" PROPOSALS 1, 2 AND 3.
By signing and dating the reverse side of this card, you authorize the
proxies to vote each proposal as marked, or if not marked, to vote "FOR" each
proposal, and to use their discretion to vote for any other matter as may
properly come before the meeting or any adjournment thereof. If you do not
intend to personally attend the meeting, please complete and return this card at
once in the enclosed envelope.
(Continued and to be signed on the reverse side)
<PAGE> 187
[Proxy Card Reverse]
PLEASE MARK BOXES /X/ OR [X] IN BLUE OR BLACK INK.
1. To consider and act upon a proposal to approve the Agreement and Plan of
Reorganization among the Fund, MuniYield Michigan Insured Fund, Inc. and
MuniVest Michigan Insured Fund, Inc.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
2. ELECTION OF DIRECTORS
<TABLE>
<S> <C>
[ ] FOR all nominees listed below (except [ ] WITHHOLD AUTHORITY
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, Terry K. Glenn, Herbert I. London,
Robert R. Martin and Arthur Zeikel
3. Proposal to ratify the selection of Deloitte & Touche LLP as the
independent auditors of the Fund to serve for the current fiscal year.
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:
----------------------------------------
X
---------------------------------------------
Signature
X
---------------------------------------------
Signature, if held jointly
SIGN, DATE, AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
<PAGE> 188
[Proxy Card Front]
AUCTION MARKET
PREFERRED STOCK
MUNIHOLDINGS MICHIGAN INSURED FUND, INC.
P.O. BOX 9011
PRINCETON, NEW JERSEY 08543-9011
P R O X Y
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Terry K. Glenn, Donald C. Burke and Alice
A. Pellegrino as proxies, each with the power to appoint his or her substitute,
and hereby authorizes each of them to represent and to vote, as designated on
the reverse hereof, all the Auction Market Preferred Stock of MuniHoldings
Michigan Insured Fund, Inc. (the "Fund") held of record by the undersigned on
October 20, 1999 at the Annual Meeting of Stockholders of the Fund to be held on
December 15, 1999, or any adjournment thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER HEREIN
DIRECTED BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY
WILL BE VOTED "FOR" PROPOSALS 1, 2 AND 3.
By signing and dating the reverse side of this card, you authorize the
proxies to vote each proposal as marked, or if not marked, to vote "FOR" each
proposal, and to use their discretion to vote for any other matter as may
properly come before the meeting or any adjournment thereof. If you do not
intend to personally attend the meeting, please complete and return this card at
once in the enclosed envelope.
(Continued and to be signed on the reverse side)
<PAGE> 189
[Proxy Card Reverse]
PLEASE MARK BOXES /X/ OR [X] IN BLUE OR BLACK INK.
1. To consider and act upon a proposal to approve the Agreement and Plan of
Reorganization among the Fund, MuniYield Michigan Insured Fund, Inc. and
MuniVest Michigan Insured Fund, Inc.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
2. ELECTION OF DIRECTORS
<TABLE>
<S> <C>
[ ] FOR all nominees listed below (except [ ] WITHHOLD AUTHORITY
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, Terry K. Glenn, Herbert I. London, Robert R. Martin,
Joseph L. May, Andre F. Perold and Arthur Zeikel
3. Proposal to ratify the selection of Deloitte & Touche LLP as the
independent auditors of the Fund to serve for the current fiscal year.
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.
If the undersigned is a broker-dealer, it hereby instructs the proxies,
pursuant to Rule 452 of the New York Stock Exchange, to vote any
uninstructed Auction Market Preferred Stock, in the same proportion as
votes cast by holders of Auction Market Preferred Stock, who have
responded to this proxy solicitation.
<PAGE> 190
Please sign exactly as name appears hereon. When
shares are held by joint tenants, both should sign.
When signing as attorney or as executor,
administrator, trustee or guardian, please give full
title as such. If a corporation, please sign in full
corporate name by president or other authorized
officer. If a partnership, please sign in
partnership name by authorized persons.
Dated:
----------------------------------------
X
---------------------------------------------
Signature
X
---------------------------------------------
Signature, if held jointly
SIGN, DATE, AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
<PAGE> 191
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, filed as Exhibit 1(a);
Article VI of the Registrant's By-Laws, filed as Exhibit 2, and the Investment
Advisory Agreement, filed as Exhibit 6, provide for indemnification.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "1933 Act"), may be provided to directors, officers and
controlling persons of the Registrant, pursuant to the foregoing provisions or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission, such indemnification is against public policy as
expressed in the 1933 Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in connection with any successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the 1933 Act and will be governed by the final adjudication of such
issue.
Reference is made to (i) Section 6 of the Purchase Agreement relating to
the Registrant's Common Stock, filed as Exhibit 7(a), and (ii) Section 7 of the
Purchase Agreement relating to the Registrant's AMPS, filed as Exhibit 7(b), for
provisions relating to the indemnification of the underwriter.
ITEM 16. EXHIBITS.
<TABLE>
<C> <C> <S>
1 (a) -- Articles of Incorporation of the Registrant, dated July 1,
1992.(a)
(b) -- Form of Articles Supplementary creating the AMPS.(a)
(c) -- Form of Articles of Amendment to Articles Supplementary
creating the AMPS.(a)
(d) -- Articles Supplementary relating to AMPS.(a)
(e) -- Articles of Amendment to Articles Supplementary creating
AMPS.(a)
(f) -- Certificate of Correction relating to AMPS.(a)
(g) -- Form of Articles Supplementary creating the Series B AMPS
and the Series C AMPS.(a)
2 -- By-Laws of the Registrant.(a)
3 -- Not Applicable.
4 -- Form of Agreement and Plan of Reorganization among the
Registrant and MuniVest Michigan Insured Fund, Inc. and
MuniHoldings Michigan Insured Fund, Inc. (included in
Exhibit II to the Proxy Statement and Prospectus contained
in this Registration Statement)
5 (a) -- Copies of instruments defining the rights of stockholders,
including the relevant portions of the Articles of
Incorporation and the By-Laws of the Registrant.(b)
(b) -- Form of specimen certificate for the Common Stock of the
Registrant.(a)
(c) -- Form of specimen certificate for the AMPS of the
Registrant.(a)
6 -- Form of Investment Advisory Agreement between Registrant and
Fund Asset Management, L.P.(a)
7 (a) -- Form of Purchase Agreement for the Common Stock.(a)
(b) -- Form of Purchase Agreement for the AMPS.(a)
(c) -- Form of Merrill Lynch Standard Dealer Agreement.(a)
8 -- Not applicable.
</TABLE>
C-1
<PAGE> 192
<TABLE>
<C> <C> <S>
9 -- Custodian Contract between the Registrant and The Bank of New York.(a)
10 -- Not applicable.
11 -- Opinion and Consent of Brown & Wood LLP, counsel for the Registrant.
12 -- Private Letter Ruling from the Internal Revenue Service.*
13(a) -- Transfer Agency, Dividend Disbursing Agency and Shareholder Servicing Agency Agreement between the
Registrant and The Bank of New York.(a)
(b) -- Form of Auction Agent Agreement between the Registrant and The Bank of New York.(a)
(c) -- Form of Broker-Dealer Agreement.(a)
(d) -- Form of Letter of Representations.(a)
14(a) -- Consent of Ernst & Young LLP, independent auditors for the Registrant.
(b) -- Consent of Deloitte & Touche LLP, independent auditors for MuniVest Michigan Insured Fund, Inc.
15 -- Not applicable.
16 -- Power of Attorney (Included on the signature page of this Registration Statement).
</TABLE>
- ---------------
* To be filed by amendment.
(a) Filed on October 5, 1999 as an Exhibit to the Registrant's Registration
Statement on Form N-14 (File Nos. 333-88449, 811-07080)
(b) Reference is made to Article V, Article VI (sections 2, 3, 4, 5 and 6),
Article VII, Article VIII, Article X, Article XI, Article XII and Article
XIII of the Registrant's Articles of Incorporation, filed as Exhibit 1(a),
and to Article II, Article III (sections 1, 2, 3, 5 and 17), Article VI,
Article VII, Article XII, Article XIII and Article XIV of the Registrant's
By-Laws filed as Exhibit 2. Reference also is made to the Form of Articles
Supplementary filed as Exhibits 1(b), 1(c) and 1(d).
ITEM 17. UNDERTAKINGS.
(1) The undersigned Registrant agrees that prior to any public reoffering
of the securities registered through use of a proxy statement and prospectus
which is part of this Registration Statement by any person or party who is
deemed to be an underwriter within the meaning of Rule 145(c) of the 1933 Act,
the reoffering proxy statement and prospectus will contain information called
for by the applicable registration Form for reofferings by persons who may be
deemed underwriters, in addition to the information called for by other items of
the applicable Form.
(2) The undersigned Registrant agrees that every proxy statement and
prospectus that is filed under paragraph (1) above will be filed as part of an
amendment to the registration statement and will not be used until the amendment
is effective, and that, in determining any liability under the 1933 Act each
post-effective amendment shall be deemed to be a new registration statement for
the securities offered therein, and the offering of securities at that time
shall be deemed to be the initial bona fide offering of them.
(3) The Registrant undertakes to file, by post-effective amendment, either
a copy of the Internal Revenue Service private letter ruling applied for or an
opinion of counsel as to certain tax matters, within a reasonable time after
receipt of such ruling or opinion.
C-2
<PAGE> 193
SIGNATURES
As required by the Securities Act of 1933, this Registration Statement has
been signed on behalf of the Registrant, in the Township of Plainsboro and State
of New Jersey, on the 8th day of November, 1999.
MUNIYIELD MICHIGAN INSURED
FUND, INC.
(Registrant)
By /s/ TERRY K. GLENN
------------------------------------
(Terry K. Glenn, President)
Each person whose signature appears below hereby authorizes Terry K. Glenn,
Donald C. Burke and Alice A. Pellegrino, or any of them, as attorney-in-fact, to
sign on his behalf, individually and in each capacity stated below, any
amendments to this Registration Statement (including post-effective amendments)
and to file the same, with all exhibits thereto, with the Securities and
Exchange Commission.
As required by the Securities Act of 1933, this Registration Statement has
been signed by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
/s/ TERRY K. GLENN President and Director November 8, 1999
- ------------------------------------------------ (Principal Executive Officer)
(Terry K. Glenn)
/s/ DONALD C. BURKE Vice President and Treasurer November 8, 1999
- ------------------------------------------------ (Principal Financial and
(Donald C. Burke) Accounting Officer)
/s/ DONALD CECIL Director November 8, 1999
- ------------------------------------------------
(Donald Cecil)
/s/ M. COLYER CRUM Director November 8, 1999
- ------------------------------------------------
(M. Colyer Crum)
Director
- ------------------------------------------------
(Laurie Simon Hodrick)
/s/ EDWARD H. MEYER Director November 8, 1999
- ------------------------------------------------
(Edward H. Meyer)
/s/ JACK B. SUNDERLAND Director November 8, 1999
- ------------------------------------------------
(Jack B. Sunderland)
/s/ J. THOMAS TOUCHTON Director November 8, 1999
- ------------------------------------------------
(J. Thomas Touchton)
/s/ FRED G. WEISS Director November 8, 1999
- ------------------------------------------------
(Fred G. Weiss)
/s/ ARTHUR ZEIKEL Director November 8, 1999
- ------------------------------------------------
(Arthur Zeikel)
</TABLE>
C-3
<PAGE> 194
EXHIBITS
<TABLE>
<C> <C> <S>
11 -- Opinion and Consent of Brown & Wood LLP, counsel for the
Registrant.
14(a) -- Consent of Ernst & Young LLP, independent auditors for the
Registrant.
(b) -- Consent of Deloitte & Touche LLP, independent auditors for
MuniVest Michigan Insured Fund, Inc.
</TABLE>
<PAGE> 1
BROWN & WOOD LLP
One World Trade Center
New York, New York 10048-0557
Telephone (212) 839-5300
Facsimile (212) 839-5599
November 8, 1999
MuniYield Michigan Insured Fund, Inc.
800 Scudders Mill Road
Plainsboro, New Jersey 08536
Ladies and Gentlemen:
We have acted as counsel for MuniYield Michigan Insured Fund, Inc. (the
"Fund") in connection with the proposed acquisition by the Fund of substantially
all of the assets and the assumption by the Fund of substantially all of the
liabilities of MuniVest Michigan Insured Fund, Inc. and MuniHoldings Michigan
Insured Fund, Inc. (the "Target Funds"), in exchange for newly-issued shares of
common stock and auction market preferred stock of the Fund (collectively the
"Reorganization"). This opinion is furnished in connection with the Fund's
Registration Statement on Form N-14 under the Securities Act of 1933, as amended
(File No. 333-88449) (the "Registration Statement"), relating to shares of
common stock and auction market preferred stock of the Fund, each par value
$0.10 per share (the "Shares"), to be issued in the Reorganization.
As counsel for the Fund, we are familiar with the proceedings taken by
it and to be taken by it in connection with the authorization, issuance and sale
of the Shares. In addition, we have examined and are familiar with the Articles
of Incorporation of the Fund, as amended and supplemented, the By-Laws of the
Fund, as amended, and such other documents as we have deemed relevant to the
matters referred to in this opinion.
Based upon the foregoing, we are of the opinion that subsequent to the
approval of the Agreement and Plan of Reorganization between the Fund and Target
Funds set forth in the joint proxy statement and prospectus constituting a part
of the Registration Statement (the "Proxy Statement and Prospectus"), the
Shares, upon issuance in the manner referred to in the Registration Statement,
for consideration not less than the par value thereof, will be legally issued,
fully paid and non-assessable shares of common stock or auction market preferred
stock, as the case may be, of the Fund.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name in the Proxy Statement and
Prospectus constituting a part thereof.
Very truly yours,
/s/ Brown & Wood LLP
<PAGE> 1
Exhibit 14(a)
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "The
Reorganization-Comparison of the Funds-Financial Highlights", "Selection of
Independent Auditors" and "Experts" and to the use of our report dated December
1, 1998 for MuniYield Michigan Insured Fund, Inc. included in the Registration
Statement (Form N-14 No. 333-88449) and related combined Proxy Statement and
Prospectus of MuniYield Michigan Insured Fund, Inc., MuniVest Michigan Insured
Fund, Inc. and MuniHoldings Michigan Insured Fund, Inc. filed with the
Securities and Exchange Commission.
/s/ Ernst & Young LLP
MetroPark, New Jersey
November 5, 1999
<PAGE> 1
EXHIBIT 14(b)
INDEPENDENT AUDITORS' CONSENT
MuniVest Michigan Insured Fund, Inc.:
We consent to the use in this Pre-Effective Amendment No. 1 to Registration
Statement No. 333-88449 on Form N-14 of our report dated December 7, 1998
appearing in the Proxy Statement and Prospectus, which is a part of such
Registration Statement, and to the reference to us under the captions
"Comparison of the Funds - Financial Highlights" and "Experts" also appearing
in such Proxy Statement and Prospectus.
Deloitte & Touche LLP
Princeton, New Jersey
November 4, 1999
