<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 5, 1999
SECURITIES ACT FILE NO. 333-
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
------------------------
[ ] PRE-EFFECTIVE AMENDMENT NO. [ ] 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
C....................................... 1,600 $25,000(2) $40,000,000 $11,120
==============================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the filing fee.
(2) Represents the liquidation preference of a share of preferred stock after
the reorganization.
(3) Paid by wire transfer to the designated lockbox of the Securities and
Exchange Commission in Pittsburgh, Pennsylvania.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
MUNIYIELD 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 5, 1999
<PAGE> 4
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT USE THIS PROSPECTUS TO SELL SECURITIES UNTIL THE REGISTRATION STATEMENT
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS
IS NOT AN OFFER TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY
THESE SECURITIES IN ANY STATE WHERE THE OFFER TO SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION
PRELIMINARY PROXY STATEMENT AND PROSPECTUS DATED
OCTOBER 5, 1999
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 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................... 14
Michigan Municipal Bonds............................... 14
Interest Rate and Credit Risk.......................... 14
Non-diversification.................................... 14
Rating Categories...................................... 14
Private Activity Bonds................................. 14
Portfolio Insurance.................................... 14
Leverage............................................... 14
Portfolio Management................................... 15
Inverse Floating Obligations........................... 16
Options and Futures Transactions....................... 16
Antitakeover Provisions................................ 16
Ratings Considerations................................. 16
COMPARISON OF THE FUNDS................................... 17
Financial Highlights................................... 17
Investment Objective and Policies...................... 22
Portfolio Insurance.................................... 24
Description of Michigan Municipal Bonds and Municipal
Bonds................................................. 25
Special Considerations Relating to Michigan Municipal
Bonds................................................. 26
Other Investment Policies.............................. 27
Information Regarding Options and Futures
Transactions.......................................... 28
Investment Restrictions................................ 31
Rating Agency Guidelines............................... 32
Portfolio Composition.................................. 33
Portfolio Transactions................................. 34
Portfolio Turnover..................................... 35
Net Asset Value........................................ 35
Capital Stock.......................................... 36
Management of the Funds................................ 38
Code of Ethics......................................... 40
Voting Rights.......................................... 40
Stockholder Inquiries.................................. 41
Dividends and Distributions............................ 41
Automatic Dividend Reinvestment Plan................... 42
Mutual Fund Investment Option.......................... 44
Liquidation Rights of Holders of AMPS.................. 44
Tax Rules Applicable to the Funds and their
Stockholders.......................................... 44
AGREEMENT AND PLAN OF REORGANIZATION...................... 50
General................................................ 50
Procedure.............................................. 51
Terms of the Agreement and Plan of Reorganization...... 51
Potential Benefits to Common Stockholders of The Funds
as a Result of The Reorganization..................... 53
Surrender and Exchange of Stock Certificates........... 54
</TABLE>
2
<PAGE> 7
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Tax Consequences of the Reorganization................. 55
Capitalization......................................... 57
ITEM 2. ELECTION OF DIRECTORS............................... 57
Committee and Board Meetings.............................. 59
Compliance with Section 16(a) of the Securities Exchange
Act of 1934............................................ 59
Interested Persons........................................ 60
Compensation of Directors................................. 60
Officers of MuniHoldings Michigan......................... 60
ITEM 3. SELECTION OF INDEPENDENT AUDITORS................... 60
INFORMATION CONCERNING THE MEETINGS......................... 61
Date, Time and Place of Meetings.......................... 61
Solicitation, Revocation and Use of Proxies............... 61
Record Date and Outstanding Shares........................ 61
Security Ownership of Certain Beneficial Owners and
Management............................................. 61
Voting Rights and Required Vote........................... 62
ADDITIONAL INFORMATION...................................... 63
Year 2000 Issues.......................................... 64
CUSTODIAN................................................... 64
TRANSFER AGENT, DIVIDEND DISBURSING AGENT AND REGISTRAR..... 64
LEGAL PROCEEDINGS........................................... 65
LEGAL OPINIONS.............................................. 65
EXPERTS..................................................... 65
STOCKHOLDER PROPOSALS....................................... 65
</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 , 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.
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 the number of shares of Common Stock and
AMPS indicated in Exhibit I. To the knowledge of the
4
<PAGE> 9
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 Board of
Directors of each of the Funds approved the Reorganization. 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 with 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
THE COMBINED FUND AS OF JUNE 30, 1999 (UNAUDITED)(A)
<TABLE>
<CAPTION>
ACTUAL
-------------------------------------
MUNIYIELD MUNIVEST MUNIHOLDINGS PRO FORMA
MICHIGAN MICHIGAN MICHIGAN COMBINED
--------- -------- ------------ ---------
<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% 0.58% 0.28%
---- ---- ---- ----
Total Annual Expenses(e)................... 1.10% 1.14% 1.49% 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 pro forma annual operating expenses for the combined fund are
projections for a 12-month period.
(e) Based on average net assets of each Fund and the combined fund, excluding
assets attributable to AMPS. If assets attributable to AMPS are included,
the Investment Advisory fee for MuniYield Michigan, MuniVest Michigan and
the combined fund would be 0.50% and the Investment Advisory Fee for
MuniHoldings Michigan would be 0.55%. The Total Annual Expenses for each
Fund and the combined fund 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
Combined Fund*...................................... $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."
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. 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 August
31, 1999, MuniYield Michigan had net assets of
$157,285,667.
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
8
<PAGE> 13
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. 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 August
31, 1999, MuniVest Michigan had net assets of
$147,830,824.
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. 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 August 31, 1999,
MuniHoldings Michigan had net assets of
$98,627,153.
COMPARISON OF THE FUNDS.... Investment Objectives and Policies. The Funds
have substantially similar investment objectives
and policies. All three Funds seek to provide
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. See "Comparison of
the Funds -- Investment Objectives and Policies."
Capital Stock. Each Fund has outstanding both
Common Stock and AMPS. The Common Stock of each of
the Funds is traded on the NYSE. As of August 31,
1999, (i) the net asset value per share of
MuniYield Michigan Common Stock was $14.44 and the
market price per share was $13.0625; (ii) the net
asset value per share of MuniVest Michigan Common
Stock was $13.24 and the market price per share
was $12.0625; and (iii) the net asset value per
share of MuniHoldings Michigan Common Stock was
$13.16 and the market price per share was
$11.9375. 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
9
<PAGE> 14
elects, subject to certain limitations, to have a
special dividend period. In connection with the
Reorganization, a holder of AMPS of an Acquired
Fund may receive MuniYield Michigan AMPS with a
dividend payment date and an auction date that
fall on a day of the week that is different from
the schedule of the AMPS of the Acquired Fund that
he or she holds. See "Comparison of the
Funds -- Capital Stock." The following table
provides information about the dividend rates for
each series of AMPS of each of the Funds as of a
recent auction.
<TABLE>
<CAPTION>
DIVIDEND
AUCTION DATE FUND SERIES RATE
------------ --------------------- ------ --------
<S> <C> <C> <C>
September 21, 1999 MuniYield Michigan * 3.50%
September 17, 1999 MuniVest Michigan * 3.50%
September 22, 1999 MuniHoldings Michigan A 3.70%
</TABLE>
---------------------------------------------
* No series designation.
Advisory Fees. The investment adviser for each of
the Funds is Fund Asset Management, L.P. ("FAM").
FAM is an affiliate of MLAM, and both FAM and MLAM
are owned and controlled by Merrill Lynch & Co.,
Inc. ("ML & Co."). The principal business address
of FAM is 800 Scudders Mill Road, Plainsboro, New
Jersey 08536. The Asset Management Group of ML &
Co. (which includes FAM) acts as investment
adviser for over 100 other 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
10
<PAGE> 15
(for its transfer 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 average net
assets of approximately $110.2 million excluding
AMPS, and 0.75%, based on average net assets of
approximately $160.2 million including AMPS; the
overall annualized operating expense ratio for
MuniVest Michigan was 1.14%, based on average net
assets of approximately $100.3 million excluding
AMPS, and 0.76%, based on average net assets of
approximately $150.3 million including AMPS; the
overall annualized operating expense ratio for
MuniHoldings Michigan was 1.49%, based on average
net assets of approximately $61.0 million
excluding AMPS, and 0.87%, based on average net
assets of approximately $101.0 million including
AMPS. If the Reorganization had taken place on
June 30, 1999, the estimated pro forma combined
annualized operating expense ratio for the
combined fund on a pro forma basis would have been
1.04%, based on average net assets of
approximately $271.5 million excluding AMPS, and
0.69%, based an average 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."
11
<PAGE> 16
Portfolio Insurance. Each of the Funds has a
similar policy with respect to obtaining insurance
for portfolio securities. Under normal
circumstances, at least 80% of each Fund's assets
will be invested in municipal obligations either
(i) insured under an insurance policy purchased by
the Fund or (ii) insured under an insurance policy
obtained by the issuer thereof or any other party.
See "Comparison of the Funds -- Investment
Objectives and Policies -- Portfolio Insurance."
Ratings of Municipal Obligations. 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.
12
<PAGE> 17
OUTSTANDING SECURITIES OF MUNIYIELD MICHIGAN, MUNIVEST MICHIGAN AND MUNIHOLDINGS
MICHIGAN AS OF AUGUST 31, 1999
<TABLE>
<CAPTION>
AMOUNT
OUTSTANDING
AMOUNT HELD BY EXCLUSIVE OF AMOUNT
AMOUNT FUND FOR ITS OWN SHOWN IN PREVIOUS
TITLE OF CLASS AUTHORIZED ACCOUNT COLUMN
- -------------- ----------- ---------------- -------------------
<S> <C> <C> <C>
MuniYield Michigan
Common Stock................................... 199,999,000 -0- 7,431,634
AMPS........................................... 2,000 -0- 1,000
MuniVest Michigan
Common Stock................................... 199,999,000 -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."
13
<PAGE> 18
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 in certain tax-exempt securities classified as
"private activity bonds." These bonds may subject certain investors in a Fund to
the Federal alternative minimum tax.
PORTFOLIO INSURANCE
Each of the Funds is subject to certain investment restrictions imposed by
guidelines of the insurance companies that issue portfolio insurance. The Funds
do not believe these guidelines prevent FAM from managing the Funds' portfolios
in accordance with the Funds' investment objective and policies.
LEVERAGE
Use of leverage, through the issuance of AMPS, involves certain risks to
holders of Common Stock of each of the Funds. For example, each Fund's issuance
of AMPS may result in higher volatility of the net asset value of its Common
Stock and potentially more volatility in the market value of its Common Stock.
In addition, changes in the short-term and medium-term dividend rates on, and
the amount of taxable income allocable to, the AMPS will affect the yield to
holders of Common Stock. Under certain circumstances, when
14
<PAGE> 19
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
15
<PAGE> 20
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.
16
<PAGE> 21
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.
17
<PAGE> 22
** Total investment returns based on market value, which can be significantly
greater or less than the net asset value, may result in substantially
different returns. Total investment returns exclude the effects of sales
loads.
*** Do not reflect the effect of dividends to Preferred Stock shareholders.
# Aggregate total investment return.
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.
18
<PAGE> 23
** Total investment returns based on market value, which can be significantly
greater or less than the net asset value, may result in substantially
different returns. Total investment returns exclude the effects of sales
loads.
*** Do not reflect the effect of dividends to Preferred Stock shareholders.
+ Amount is less than $.01 per share.
# Aggregate total investment return.
MuniHoldings Michigan
The financial information in the table below, has been audited in
conjunction with the annual audit of the financial statements of the Fund by
Deloitte & Touche LLP, independent auditors. The following per share data and
ratios have been derived from information provided in the financial statements
of the Fund.
<TABLE>
<CAPTION>
FOR THE PERIOD
JANUARY 29, 1999+ TO
SEPTEMBER 30, 1999##
--------------------
<S> <C>
INCREASE (DECREASE) IN NET ASSET VALUE:
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period........................
Investment income -- net....................................
Realized and unrealized gain (loss) on investments -- net...
Total from investment operations............................
Less dividends and distributions to Common Stock
shareholders:
Investment income -- net..................................
Realized gain on investment -- net........................
Total dividends and distributions to Common Stock
shareholders..............................................
Capital charge resulting from issuance of Common Stock......
Effect of Preferred Stock activity:++
Dividends and distributions to Preferred Stock
shareholders:
Investment income -- net..................................
Realized gain on investments -- net.......................
Capital charge resulting from issuance of Preferred
Stock..................................................
Total effect of Preferred Stock activity....................
Net asset value, end of period..............................
Market price per share, end of period.......................
TOTAL INVESTMENT RETURN:**
Based on market price per share.............................
Based on net asset value per share..........................
RATIOS BASED ON AVERAGE NET ASSETS ATTRIBUTABLE TO COMMON
STOCK:***
Amount of Dividends to Preferred Stockholders...............
Investment Income Net, to Common Stockholders...............
RATIOS BASED ON TOTAL AVERAGE NET ASSETS....................
Expenses, net of reimbursement..............................
Expenses....................................................
Investment income -- net....................................
</TABLE>
19
<PAGE> 24
<TABLE>
<CAPTION>
FOR THE PERIOD
JANUARY 29, 1999+ TO
SEPTEMBER 30, 1999##
--------------------
<S> <C>
SUPPLEMENTAL DATA:
Net assets, net of Preferred Stock, end of period (in
thousands)................................................
Preferred Stock outstanding, end of period (in thousands)...
Portfolio turnover..........................................
DIVIDENDS PER SHARE ON PREFERRED STOCK OUTSTANDING:
Investment income -- net....................................
LEVERAGE:
Asset coverage per $1,000...................................
</TABLE>
- ---------------
* Annualized.
** Total investment returns based on market value, which can be significantly
greater or less than the net asset value, may result in substantially
different returns. Total investment returns exclude the effects of sales
loads.
*** Does not reflect the effect of dividends to Preferred Stock shareholders.
+ Commencement of operations.
++ The Fund's Preferred Stock was issued on February 22, 1999.
# Aggregate total investment return.
## To be filed by amendment.
20
<PAGE> 25
PER SHARE DATA FOR COMMON STOCK*
TRADED ON THE NEW YORK STOCK EXCHANGE (UNAUDITED)
MuniYield Michigan
<TABLE>
<CAPTION>
PREMIUM
(DISCOUNT)
TO NET
MARKET PRICE ($)** NET ASSET VALUE ($) ASSET VALUE (%)
-------------------- -------------------- -----------------
QUARTER ENDED* HIGH LOW HIGH LOW HIGH LOW
- -------------- ------- ------- ------- ------- ----- ------
<S> <C> <C> <C> <C> <C> <C>
January 31, 1997........... 14.00 13.625 15.22 14.98 (5.30) (9.29)
April 30, 1997............. 13.625 13.125 14.90 14.70 (8.56) (11.08)
July 31, 1997.............. 14.75 14.25 15.75 15.28 (5.86) (9.00)
October 31, 1997........... 14.75 14.00 15.56 15.32 (6.03) (8.22)
January 31, 1998........... 16.0625 14.8125 16.03 15.73 (0.16) (7.66)
April 30, 1998............. 14.4375 13.9375 15.77 15.30 1.20 (8.95)
July 31, 1998.............. 15.00 14.5625 15.75 15.64 (4.40) (8.94)
October 31, 1998........... 16.625 15.3125 16.29 15.89 (0.35) (6.05)
January 31, 1999........... 16.125 15.50 15.79 15.56 4.82 (1.21)
April 30, 1999............. 15.25 14.625 15.59 15.48 1.15 (5.24)
July 31, 1999.............. 14.00 13.6875 14.97 14.80 (4.97) (8.07)
</TABLE>
MuniVest Michigan
<TABLE>
<CAPTION>
PREMIUM
(DISCOUNT)
TO NET
MARKET PRICE ($)** NET ASSET VALUE ($) ASSET VALUE (%)
-------------------- -------------------- -----------------
QUARTER ENDED* HIGH LOW HIGH LOW HIGH LOW
- -------------- ------- ------- ------- ------- ----- ------
<S> <C> <C> <C> <C> <C> <C>
January 31, 1997........... 12.50 12.00 13.69 13.46 (8.33) (12.73)
April 30, 1997............. 12.625 12.00 13.39 13.21 (5.52) (10.20)
July 31, 1997.............. 13.00 12.5625 14.16 13.72 9.83 (10.27)
October 31, 1997........... 13.75 13.125 13.99 13.76 (1.43) (8.94)
January 31, 1998........... 13.6875 13.3125 14.48 14.20 (3.26) (6.21)
April 30, 1998............. 13.8125 12.75 14.26 13.80 (1.91) (10.27)
July 31, 1998.............. 13.375 13.125 14.24 14.15 (2.64) (8.39)
October 31, 1998........... 14.6875 13.625 14.80 14.43 1.14 (7.55)
January 31, 1999........... 14.25 13.5625 14.57 14.33 0.68 (7.68)
April 30, 1999............. 13.75 13.1875 14.39 14.27 0.75 (7.15)
July 31, 1999.............. 12.75 12.625 13.73 13.56 (2.14) (9.45)
</TABLE>
21
<PAGE> 26
MuniHoldings Michigan
<TABLE>
<CAPTION>
PREMIUM
(DISCOUNT)
TO NET
MARKET PRICE ($)** 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)
</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. Non-
22
<PAGE> 27
Municipal Tax-Exempt Securities will be considered "Michigan Municipal Bonds" or
"Municipal Bonds" for purposes of a Fund's investment objective and policies.
The investment grade Michigan Municipal Bonds and Municipal Bonds in which
each Fund primarily invests are those Michigan Municipal Bonds and Municipal
Bonds that are rated at the date of purchase in the four highest rating
categories of S&P, Moody's or Fitch or, if unrated, are considered to be of
comparable quality by FAM. In the case of long-term debt, the investment grade
rating categories are AAA through BBB for S&P and Fitch and Aaa through Baa for
Moody's. In the case of short-term notes, the investment grade rating categories
are SP-1 through SP-3 for S&P, MIG-1 through MIG-3 for Moody's and F-1+ through
F-3 for Fitch. In the case of tax-exempt commercial paper, the investment grade
rating categories are A-1+ through A-3 for S&P, Prime-1 through Prime-3 for
Moody's and F-1+ through F-3 for Fitch. Obligations ranked in the lowest
investment grade rating category (BBB, SP-3 and A-3 for S&P; Baa, MIG-3 and
Prime-3 for Moody's; and BBB and F-3 for Fitch), while considered "investment
grade," may have certain speculative characteristics. There may be
sub-categories or 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.
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
23
<PAGE> 28
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
24
<PAGE> 29
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 defaulted
securities and securities that have a significant risk of default.
There can be no assurance that insurance with the terms and issued by
insurance carriers meeting the criteria described above will continue to be
available to each Fund. In the event the Board of Directors of a Fund determines
that such insurance is unavailable or that the cost of such insurance outweighs
the benefits to the Fund, the Fund may modify the criteria for insurance
carriers or the terms of the insurance, or may discontinue its policy of
maintaining insurance for all or any of the 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
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class of facilities or, in some cases, from the proceeds of a special excise tax
or other specific revenue source such as from the user of the facility being
financed. PABs are in most cases revenue bonds and do not generally constitute
the pledge of the credit or taxing power of the issuer of such bonds. The
repayment of 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."
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OTHER INVESTMENT POLICIES
The Funds have adopted certain other policies as set forth below:
Borrowings. Each Fund is authorized to borrow amounts of up to 5% of the
value of its total assets at the time of such borrowings; provided, however,
that each Fund is authorized to borrow moneys in amounts of up to 33 1/3% of the
value of its total assets at the time of such borrowings to finance the
repurchase of its own common stock pursuant to tender offers or otherwise to
redeem or repurchase shares of preferred stock or for temporary, extraordinary
or emergency purposes. Borrowings by each Fund (commonly known, as with the
issuance of preferred stock, as "leveraging") create an opportunity for greater
total return since the Fund will not be required to sell portfolio securities to
repurchase or redeem shares but, at the same time, increase exposure to capital
risk. In addition, borrowed funds are subject to interest costs that may offset
or exceed the return earned on the borrowed funds.
When-Issued Securities and Delayed Delivery Transactions. Each Fund may
purchase or sell 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
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primary dealer in U.S. government securities or an affiliate thereof. Under such
agreements, the seller agrees, upon entering into the contract, to repurchase
the security at a mutually agreed-upon time and price, thereby determining the
yield during the term of the agreement. The Funds may not invest in repurchase
agreements maturing in more than seven days if such investments, together with
all other illiquid investments, would exceed 15% of the Fund's net assets. In
the event of default by the seller under a repurchase agreement, the Funds may
suffer time delays and incur costs or possible losses in connection with the
disposition of the underlying securities.
In general, for Federal 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. 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
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transaction; profit or loss from the sale will depend on whether the amount
received is more or less than the premium paid for the put option plus the
related transaction costs. A closing sale transaction cancels out the Fund's
position as the purchaser of an option by means of an offsetting sale of an
identical option prior to the expiration of the option it has purchased. In
certain circumstances, the Fund may purchase call options on securities held in
its portfolio on which it has written call options, or on securities which it
intends to purchase. A Fund will not purchase options on securities if, as a
result of such purchase, the aggregate cost of all outstanding options on
securities held by the Fund would exceed 5% of the market value of the Fund's
total assets.
Financial Futures Contracts and Options. Each Fund is authorized to
purchase and sell certain financial futures contracts and options thereon solely
for the purposes of hedging its investments in 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.
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Risk Factors in Financial Futures Contracts and Options Thereon. Use of
futures transactions involves the risk of imperfect correlation in movements in
the price of financial futures contracts and movements in the price of the
security that is the subject of the hedge. If the price of the financial futures
contract moves more or less than the price of the security that is the subject
of the hedge, a Fund will experience a gain or loss that will not be completely
offset by movements in the price of such security. There is a risk of imperfect
correlation where the securities underlying financial futures contracts have
different maturities, ratings, geographic compositions or other characteristics
different from those of the security being hedged. In addition, the correlation
may be affected by additions to or deletions from the index that serves as a
basis for a financial futures contract. Finally, in the case of financial
futures contracts on U.S. Government securities and options on such financial
futures contracts, the anticipated correlation of price movements between the
U.S. Government securities underlying the futures or options and 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.
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If it is not possible to close a financial futures position entered into by
a Fund, the Fund would continue to be required to make daily cash payments of
variation margin in the event of adverse price movements. In such a situation,
if the Fund has insufficient cash, it may have to sell portfolio securities to
meet daily variation margin requirements at a time when it may be
disadvantageous to do so.
The successful use of these transactions also depends on the ability of FAM
to forecast correctly the direction and extent of interest rate movements within
a given time frame. To the extent these rates remain stable during the period in
which a financial futures contract is held by a Fund or move in a direction
opposite to that anticipated, the Fund may realize a loss on the hedging
transaction that is not fully or partially offset by an increase in the value of
portfolio securities. As a result, the Fund's total return for such period may
be less than if it had not engaged in the hedging transaction. Furthermore, the
Fund will only engage in hedging transactions from time to time and may not
necessarily be engaging in hedging transactions when movements in interest rates
occur.
INVESTMENT RESTRICTIONS
The Funds have 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, "majority" means
for each such class the lesser of (i) 67% of the shares of each class of capital
stock represented at a meeting at which more than 50% of the outstanding shares
of each class of capital stock are represented or (ii) more than 50% of the
outstanding shares of each class of capital stock.) 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
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Bonds, Municipal Bonds, U.S. Government obligations and related indices or
otherwise in connection with bona fide hedging activities.
9. Invest more than 25% of its total assets (taken at market value at
the time of each investment) in securities of issuers in a single industry;
provided, that for purposes of this restriction, states, municipalities and
their political subdivisions are not considered to be part of any industry.
An additional investment restriction adopted by 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, 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
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certain definitions or restrictions that have been adopted by the Fund pursuant
to the rating agency guidelines, provided the Board of Directors has obtained
written confirmation from Moody's and S&P that any such change would not impair
the ratings then assigned by Moody's and S&P to the AMPS. See "The
Reorganization -- Risk Factors and Special Considerations -- Ratings
Considerations."
For so long as any shares of a Fund's AMPS are rated by Moody's or S&P, as
the case may be, a Fund's use of options and financial futures contracts and
options thereon will be subject to certain limitations mandated by the rating
agencies.
PORTFOLIO COMPOSITION
There are small differences in concentration among the categories of
issuers of the 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 .
<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
33
<PAGE> 38
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."
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
34
<PAGE> 39
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.
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 SEPTEMBER 30, 1999
---------------------
<S> <C> <C>
MuniHoldings Michigan....................... %
</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
35
<PAGE> 40
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 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 , 1992. As of
August 31, 1999, the net asset value per share of MuniYield Michigan Common
Stock was $14.44 and the market price per share was $13.0625. The shares of
MuniVest Michigan Common Stock commenced trading on the NYSE on May , 1993. As
of August 31, 1999, the net asset value per share of MuniVest Michigan Common
Stock was $13.24 and the market price per share was $12.0625. The shares of
MuniHoldings Michigan Common Stock commenced trading on the NYSE on February 8,
1999. As of August 31, 1999, the net asset value per share of MuniHoldings
Michigan Common Stock was $13.16 and the market price per share was $11.9375.
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
36
<PAGE> 41
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 following table provides
information about the dividend rates for each series of AMPS of each of the
Funds as of a recent auction.
<TABLE>
<CAPTION>
AUCTION DATE FUND SERIES DIVIDEND RATE
- ------------------ --------------------- ------ -------------
<S> <C> <C> <C>
September 21, 1999 MuniYield Michigan * 3.50%
September 17, 1999 MuniVest Michigan * 3.50%
September 22, 1999 MuniHoldings Michigan A 3.70%
</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.
37
<PAGE> 42
In addition, the Charter of each Fund requires the favorable vote of the
holders of at least 66 2/3% of all of the Fund's shares of capital stock, then
entitled to be voted, voting as a single class, to approve, adopt or authorize
the following:
- a merger or consolidation or statutory share exchange of the Fund with
any other corporation or entity,
- a sale of all or substantially all of the Fund's assets (other than in
the regular course of the Fund's investment activities), or
- a liquidation or dissolution of the Fund,
unless such action has been approved, adopted or authorized by the affirmative
vote of at least two-thirds of the total number of Directors fixed in accordance
with the by-laws, in which case the affirmative vote of a majority of all of the
votes entitled to be cast by stockholders of the Fund, voting as a single class,
is required. Such approval, adoption or authorization of the foregoing also
would require the favorable vote of at least a majority of the Fund's shares of
preferred stock then entitled to be voted thereon, including the AMPS, voting as
a separate class.
In addition, conversion of a Fund to an open-end investment company would
require an amendment to the Fund's Charter. The amendment would have to be
declared advisable by the Board of Directors prior to its submission to
stockholders. Such an amendment would require the affirmative vote of the
holders of at least 66 2/3% of the Fund's outstanding shares of capital stock
(including the AMPS and any other preferred stock) entitled to be voted on the
matter, voting as a single class (or a majority of such shares if the amendment
was previously approved, adopted or authorized by at least two-thirds of the
total number of Directors fixed in accordance with the by-laws), and the
affirmative vote of at least a majority of outstanding shares of preferred stock
of a Fund (including the AMPS), voting as a separate class. Such a vote also
would satisfy a separate requirement in the Investment Company Act that the
change be approved by the stockholders. Stockholders of an open-end investment
company may require the company to redeem their shares of common stock at any
time (except in certain circumstances as authorized by or under the Investment
Company Act) at their net asset value, less such redemption charge, if any, as
might be in effect at the time of a redemption. All redemptions will be made in
cash. If the Fund is converted to an open-end investment company, it could be
required to liquidate portfolio securities to meet requests for redemption and
the Common Stock no longer would be listed on a stock 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
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
38
<PAGE> 43
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 other registered investment
companies and offers services to individuals and institutional accounts. As of
, the Asset Management Group had a total of approximately
$ billion in investment company and other portfolio assets under
management (approximately $ billion of which were invested in municipal
securities). This amount includes assets managed for certain affiliates of FAM.
FAM is a limited partnership, the partners of which are ML & Co. and Princeton
Services, Inc. The principal business address of FAM is 800 Scudders Mill Road,
Plainsboro, New Jersey 08536.
Each Fund's investment advisory agreement with FAM provides that, subject
to the supervision of the Board of Directors of the Fund, FAM is responsible for
the actual management of the Fund's portfolio. The responsibility for making
decisions to buy, sell or hold a particular security for each Fund rests with
FAM, subject to review by the Board of Directors of the Fund.
FAM provides the portfolio management for each of the Funds. Such portfolio
management considers analyses from various sources (including brokerage firms
with which each Fund does business), makes the necessary investment decisions,
and places orders for transactions accordingly. FAM also is responsible for the
performance of certain administrative and management services for each Fund.
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
39
<PAGE> 44
may be terminated without penalty on 60 days' written notice at the option of
either party thereto or by the vote of the stockholders of the Fund.
Securities held by a Fund may also be held by, or be appropriate
investments for, other funds or investment advisory clients for which FAM or its
affiliates act as an adviser. Because of different objectives or other factors,
a particular security may be bought for an advisory client when other clients
are selling the same security. If purchases or sales of securities by FAM for a
Fund or other funds for which it acts as investment adviser or for advisory
clients arise for consideration at or about the same time, transactions in such
securities will be made, insofar as feasible, for the respective funds and
clients in a manner deemed equitable to all. Transactions effected by FAM (or
its affiliates) on behalf of more than one of its clients during the same period
may increase the demand for securities being purchased or the supply of
securities being sold, causing an adverse effect on price.
CODE OF ETHICS
The Board of Directors of each of the Funds has adopted a Code of Ethics
pursuant to Rule 17j-1 under the Investment Company Act that incorporates the
Code of Ethics of FAM (together, the "Codes"). The Codes significantly restrict
the personal investing activities of all employees of FAM and, as described
below, impose additional, more onerous, restrictions on Fund investment
personnel.
The Codes require that all employees of FAM preclear any personal
securities investment (with limited exceptions, such as U.S. Government
securities). The preclearance requirement and associated procedures are designed
to identify any substantive prohibition or limitation applicable to the proposed
investment. The substantive restrictions applicable to all employees of FAM
include a ban on acquiring any securities in a "hot" initial public offering and
a prohibition from profiting on short-term trading securities. In addition, no
employee may purchase or sell any security that at the time is being purchased
or sold (as the case may be), or to the knowledge of the employee is being
considered for purchase or sale, by any fund advised by FAM. Furthermore, the
Codes provide for trading "blackout periods" that prohibit trading by investment
personnel of each of the Funds within periods of trading by the Fund in the same
(or equivalent) security (15 or 30 days depending upon the transaction).
VOTING RIGHTS
Voting rights are identical for the holders of shares of 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.
Stockholders of each Fund are entitled to one vote for each share held. The
shares of each Fund's Common Stock, AMPS and any other preferred stock do not
have cumulative voting rights, which means that the holders of more than 50% of
the shares of a Fund's Common Stock, AMPS and any other preferred stock voting
for the election of Directors can elect all of the Directors standing for
election by such holders, and, in such event, the holders of the remaining
shares of a Fund's Common Stock, AMPS and any other preferred stock will not be
able to elect any of such Directors.
Voting rights of the holders of each Fund's AMPS are identical. Except as
otherwise indicated below, and except as otherwise required by applicable law,
holders of shares of a Fund's AMPS will be entitled to one vote per share on
each matter submitted to a vote of the Fund's stockholders and will vote
together with the holders of shares of the Fund's Common Stock as a single
class.
In connection with the election of a Fund's Directors, holders of shares of
a Fund's AMPS, voting separately as a class, shall be entitled at all times to
elect two of the Fund's Directors, and the remaining Directors will be elected
by holders of shares of the Fund's Common Stock and shares of the Fund's AMPS
and any other preferred stock, voting together as a single class. In addition,
if at any time dividends on outstanding shares of a Fund's AMPS shall be unpaid
in an amount equal to at least two full years' dividends thereon or if at any
time holders of any shares of a Fund's preferred stock are entitled, together
with the
40
<PAGE> 45
holders of shares of the Fund's AMPS, to elect a majority of the Directors of
the Fund under the Investment Company Act, then the number of Directors
constituting the Board of Directors automatically shall be increased by the
smallest number that, when added to the two Directors elected exclusively by the
holders of shares of AMPS and any other preferred stock as described above,
would constitute a majority of the Board of Directors as so increased by such
smallest number, and at a special meeting of stockholders which will be called
and held as soon as practicable, and at all subsequent meetings at which
Directors are to be elected, the holders of shares of the Fund's AMPS and any
other preferred stock, voting separately as a class, will be entitled to elect
the smallest number of additional Directors that, together with the two
Directors which such holders in any event will be entitled to elect, constitutes
a majority of the total number of Directors of the Fund as so increased. The
terms of office of the persons who are Directors at the time of that election
will continue. If the Fund thereafter shall pay, or declare and set apart for
payment in full, all dividends payable on all outstanding shares of AMPS and any
other preferred stock for all past dividend periods, the additional voting
rights of the holders of shares of AMPS and any other preferred stock as
described above shall cease, and the terms of office of all of the additional
Directors elected by the holders of shares of AMPS and any other preferred stock
(but not of the Directors with respect to whose election the holders of shares
of Common Stock were entitled to vote or the two Directors the holders of shares
of AMPS and any other preferred stock have the right to elect in any event) will
terminate automatically.
The affirmative vote of the holders of a majority of the outstanding shares
of a Fund's AMPS, voting as a separate class, will be required to (i) authorize,
create or issue any class or series of stock ranking prior to any series of
preferred stock with respect to payment of dividends or the distribution of
assets on liquidation or (ii) amend, alter or repeal the provisions of the
Charter, whether by merger, consolidation or otherwise, so as to adversely
affect any of the contract rights expressly set forth in the Charter of holders
of preferred stock.
STOCKHOLDER INQUIRIES
Stockholder inquiries with respect to 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 of its net investment income. Dividends from such net investment
income are declared and paid monthly to holders of a Fund's Common Stock.
Monthly distributions to holders of a Fund's Common Stock normally consist of
substantially all of the net investment income remaining after the payment of
dividends on the Fund's AMPS. All net realized long-term or short-term capital
gains, if any, are distributed at least annually, pro rata to holders of shares
of a Fund's Common Stock and AMPS. While any shares of a Fund's AMPS are
outstanding, the Fund may not declare any cash dividend or other distribution on
the Fund's Common Stock, unless at the time of such declaration (1) all
accumulated dividends on the Fund's AMPS have been paid, and (2) the net asset
value of the Fund's portfolio (determined after deducting the amount of such
dividend or other distribution) is at least 200% of the liquidation value of the
Fund's outstanding shares of AMPS. This limitation on a Fund's ability to make
distributions on its Common Stock under certain circumstances could impair the
ability of the Fund to maintain its qualification for taxation as a regulated
investment company under the Federal tax laws which would have an adverse impact
on stockholders. See "Comparison of the Funds -- Tax Rules Applicable to the
Funds and their Stockholders."
Similarly, 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
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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 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
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by the Plan Agent for the participant's account, depending upon the
circumstances described below, either (i) through receipt of additional unissued
but authorized shares of the Fund's Common Stock from the Fund ("newly-issued
shares") or (ii) by purchase of outstanding shares of the Fund's Common Stock on
the open market ("open-market purchases"), on the NYSE or elsewhere. If on the
payment date for the dividend, the net asset value per share of the Fund's
Common Stock is equal to or less than the market price per share of the Fund's
Common Stock plus estimated brokerage commissions (such condition being referred
to herein as "market premium"), the Plan Agent invests the dividend amount in
newly-issued shares on behalf of the participant. The number of newly-issued
shares of the Fund's Common Stock to be credited to the participant's account is
determined by dividing the dollar amount of the dividend by the net asset value
per share on the date the shares are issued, provided that the maximum discount
from the then-current market price per share on the date of issuance may not
exceed 5%. If on the dividend payment date, the net asset value per share is
greater than the market value (such condition being referred to herein as
"market discount"), the Plan Agent invests the dividend amount in shares
acquired on behalf of the participant in open-market purchases.
In the event of a market discount on the dividend payment date, the Plan
Agent has until the last business day before the next date on which the shares
trade on an "ex-dividend" basis or in no event more than 30 days after the
dividend payment date (the "last purchase date") to invest the dividend amount
in shares acquired in open-market purchases. Each Fund intends to pay monthly
income dividends. Therefore, the period during which open-market purchases can
be made exists only from the payment date on the dividend through the date
before the next "ex-dividend" date, which typically is approximately ten days.
If, before the Plan Agent has completed its open-market purchases, the market
price of a share of a Fund's Common Stock exceeds the net asset value per share,
the average per share purchase price paid by the Plan Agent may exceed the net
asset value of the Fund's shares, resulting in the acquisition of fewer shares
than if the dividend had been paid in newly-issued shares on the dividend
payment date. Because of the foregoing difficulty with respect to open-market
purchases, the Plan provides that if the Plan Agent is unable to invest the full
dividend amount in open-market purchases during the purchase period or if the
market discount shifts to a market premium during the purchase period, the Plan
Agent ceases making open-market purchases and invests the uninvested portion of
the dividend amount in newly-issued shares at the close of business on the last
purchase date.
The Plan Agent maintains all stockholders' accounts in the Plan and
furnishes written confirmation of all transactions in the account, including
information needed by stockholders for tax records. Shares in the account of
each Plan participant are held by the Plan Agent in non-certificated form in the
name of the participant, and each stockholder's proxy includes those shares
purchased or received pursuant to the Plan. The Plan Agent will forward all
proxy solicitation materials to participants and vote proxies for shares held
pursuant to the Plan in accordance with the instructions of the participants.
In the case of stockholders such as banks, brokers or nominees which hold
shares for others who are the beneficial owners, the Plan Agent will administer
the Plan on the basis of the number of shares certified from time to time by the
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
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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 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 D shares of
certain Merrill Lynch-sponsored open-end funds without the imposition of an
initial sales charge, if certain conditions are satisfied. A holder of Common
Stock of an Acquired Fund who qualifies for this option will have the same
option with respect to the shares of MuniYield Michigan Common Stock received in
the Reorganization.
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 (or, for
MuniHoldings Michigan, will elect and qualify) 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
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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 exempt from Federal income tax ("tax-exempt
obligations") under Section 103(a) of the Code (relating generally to
obligations of a state or local governmental unit), the Fund is qualified to pay
exempt-interest dividends to its stockholders. Exempt-interest dividends are
dividends or any part thereof paid by a Fund which are attributable to interest
on tax-exempt obligations and designated by the Fund as exempt-interest
dividends in a written notice mailed to stockholders within 60 days after the
close of its taxable year. To the extent that the dividends distributed to a
Fund's stockholders are derived from interest income exempt from Federal income
tax under Code Section 103(a) and are properly designated as exempt-interest
dividends, they are excludable from a stockholder's gross income for Federal
income tax purposes. Exempt-interest dividends are included, however, in
determining the portion, if any, of a person's social security benefits and
railroad retirement benefits subject to Federal income taxes. Interest on
indebtedness incurred or continued to purchase or carry a Fund's shares is not
deductible for Federal income tax purposes to the extent attributable to exempt
interest dividends. A tax adviser should be consulted with respect to whether
exempt-interest dividends retain the exclusion under Code Section 103(a) if a
stockholder would be treated as a "substantial user" or "related person" under
Code Section 147(a) with respect to property financed with the proceeds from an
issue of "industrial development bonds" or "private activity bonds," if any,
held by a Fund.
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
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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.
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
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dividends to holders of shares of its AMPS could be recharacterized as
additional capital gains or other taxable income. In the event of such
recharacterization, a Fund is not required to make payments to such stockholders
to offset the tax effect of such reallocation. In addition, a reallocation could
cause a Fund to be liable for income tax and excise tax on all reallocated
taxable income. Brown & Wood LLP has advised each Fund that, in its opinion, if
the IRS were to challenge in court a Fund's allocations of income and gain, the
IRS would be unlikely to prevail. The opinion of Brown & Wood LLP, however,
represents only its best legal judgment and is not binding on the IRS or the
courts.
The Code requires a RIC to pay a nondeductible 4% excise tax to the extent
it does not distribute during each calendar year 98% of its ordinary income,
determined on a calendar year basis, and 98% of its capital gains, determined in
general, on an October 31 year-end, plus certain undistributed amounts from
previous years. The required distributions, however, are based only on the
taxable income of a RIC. The excise tax, therefore, generally does not apply to
the tax-exempt income of RICs, such as the Funds, that pay exempt-interest
dividends.
The Code subjects interest received on certain otherwise tax-exempt
securities to a Federal alternative minimum tax. The alternative minimum tax
applies to interest received on "private activity bonds" issued after August 7,
1986. "Private activity bonds" are bonds which, although tax-exempt, are used
for purposes other than those generally performed by governmental units and
which benefit non-governmental entities (e.g., bonds used for industrial
development or housing purposes). Income received on such bonds is classified as
an item of "tax preference" which could subject investors in such bonds,
including stockholders of the Funds, to an increased Federal alternative minimum
tax. Each Fund purchases such "private activity bonds" and reports to
stockholders within 60 days after calendar year-end the portion of its dividends
declared during the year which constitutes an item of tax preference for
alternative minimum tax purposes. The Code further provides that corporations
are subject to a Federal alternative minimum tax based, in part, on certain
differences between taxable income as adjusted for other tax preferences and the
corporation's "adjusted current earnings" which more closely reflect a
corporation's economic income. Because an exempt-interest dividend paid by a
Fund is included in adjusted current earnings, a corporate stockholder may be
required to pay a Federal alternative minimum tax on exempt-interest dividends
paid by such Fund.
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 an issue as to whether distributions on
such preferred stock are "preferential" under the Code and, therefore, not
eligible for the dividends paid deduction. Counsel has advised the Funds that
the outstanding preferred stock and the preferred stock to be issued by
MuniYield 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
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stock are not preferential. If the IRS successfully disallowed the dividends
paid deduction for dividends on the preferred stock, the Funds could be
disqualified as RICs. In this case, dividends paid by the Funds on the Common
Stock and the AMPS would not be exempt from Federal income taxes. Additionally,
the Funds would be subject to the 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.
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
48
<PAGE> 53
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.
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<PAGE> 54
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 Funds, 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.
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<PAGE> 55
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.
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 AMPS of the issuing
Fund is divided by the total number of shares of Common Stock of the issuing
Fund
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<PAGE> 56
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.
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<PAGE> 57
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
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<PAGE> 58
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 based on average net
assets both excluding and including assets attributable to AMPS as of June 30,
1999:
<TABLE>
<CAPTION>
TOTAL ANNUALIZED
OPERATING AVERAGE NET TOTAL ANNUALIZED AVERAGE NET
EXPENSE RATIO ASSETS, EXCLUDING OPERATING ASSETS INCLUDING
EXCLUDING AMPS EXPENSE RATIO AMPS
FUND AMPS (IN MILLIONS) INCLUDING AMPS (IN MILLIONS)
- ---- ---------------- ----------------- ---------------- ----------------
<S> <C> <C> <C> <C>
MuniYield Michigan.................... 1.10% $110.2 0.75% $160.2
MuniVest Michigan..................... 1.14% $100.3 0.76% $150.3
MuniHoldings Michigan................. 1.49% $ 61.0 0.87% $101.0
Combined Fund(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 18 months after the Exchange Date due to a decrease in the
operating expense ratio.
It is not anticipated that the Reorganization directly would benefit the
holders of shares of AMPS of 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 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.
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<PAGE> 59
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 or AMPS of an Acquired Fund will be deemed for all purposes to
evidence ownership of the number of full shares of MuniYield Michigan Common
Stock, MuniYield Michigan Series B AMPS or MuniYield Michigan Series C AMPS
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 or AMPS 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 or AMPS 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 or AMPS of an Acquired Fund are presented to
MuniYield Michigan, they will be canceled and exchanged for certificates
representing Common Stock or AMPS of MuniYield Michigan, as applicable, and cash
in lieu of fractional shares of Common Stock, if any, distributable with respect
to such Common Stock or AMPS in the Reorganization.
TAX CONSEQUENCES OF THE REORGANIZATION
General. The Reorganization has been structured with the intention that it
qualify for Federal income tax purposes as a tax-free reorganization under
Section 368(a)(1)(C) of the Code. Each of the three Funds has elected and
qualified for the special tax treatment afforded RICs under the Code, and
MuniYield 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
representing an interest in fractional shares of MuniYield Michigan in the
Reorganization); (v) in accordance with Section 362(b) of
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<PAGE> 60
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 the 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 (or will
elect, for MuniHoldings Michigan) and qualified (or, in the case of MuniHoldings
Michigan, will qualify) for taxation as RICs under Sections 851-855 of the Code,
and after the Reorganization MuniYield Michigan intends to continue to so
qualify.
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<PAGE> 61
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 pro forma capitalization of
MuniYield Michigan as adjusted to give effect to the Reorganization.
PRO FORMA CAPITALIZATION OF MUNIYIELD MICHIGAN, MUNIVEST MICHIGAN, MUNIHOLDINGS
MICHIGAN
AND THE COMBINED FUND AS OF APRIL 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
COMBINED
MUNIYIELD MUNIVEST MUNIHOLDINGS PRO FORMA FUND 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 ($2,174,695) $283,600,365
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 -- 18,543,238(b)
AMPS
Series A........ 2,000 2,000 1,600 -- 2,000
Series B........ -- -- -- -- 2,000(b)
Series C........ -- -- -- -- 1,600(b)
Net Asset Value Per
Share:
Common Stock....... $15.48 $14.27 $14.67 -- $15.29
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. 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 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 number of shares
issued was based on the net asset value of each Fund, net of distributions,
on April 30, 1999.
(c) Net Asset Value Per Share of Common Stock after distribution of
undistributed net investment income.
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 MuniYield Michigan and MuniVest Michigan
elected at their annual meetings held on April 21, 1999 will
57
<PAGE> 62
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
Boston, Massachusetts 02163 since 1991, TIBCO from 1994 to 1996 and 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)(3)........... 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.
</TABLE>
58
<PAGE> 63
<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 non-interested Board members have retained
independent legal counsel to assist them in connection with these duties. The
Fund's Board does not have a nominating committee.
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
59
<PAGE> 64
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 complied with all filing requirements applicable to them with
respect to transactions during the Fund's most recent fiscal year, except that
[ ].
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
independent auditors to examine the financial statements of the Fund for the
Fund's current fiscal year. Deloitte & Touche LLP ("D&T") acts as independent
auditors for MuniHoldings Michigan. The current fiscal year for MuniHoldings
Michigan is the fiscal period 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 fees received by the
independent auditors from these other entities are substantially greater, in the
aggregate, than the total fees received by the independent auditors from
MuniHoldings Michigan. 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.
60
<PAGE> 65
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.
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 held shares of the Funds except
as set forth in the table below:
<TABLE>
<CAPTION>
NOMINEE FUND AND CLASS OF SHARES NO. OF SHARES HELD*
- ------- ------------------------ -------------------
<S> <C> <C>
</TABLE>
- ---------------
* These holdings represent less than [ ]% of the shares of Common Stock
outstanding.
As of the Record Date, the Directors and officers of MuniYield Michigan as
a group (13 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 (13 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.
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<PAGE> 66
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 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.
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, 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 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.
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.
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
62
<PAGE> 67
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.
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.
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<PAGE> 68
(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 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.
64
<PAGE> 69
LEGAL PROCEEDINGS
There are no material legal proceedings to which any Fund is a party.
LEGAL OPINIONS
Certain legal matters in connection with the Reorganization will be passed
upon for the Funds by Brown & Wood LLP, New York, New York.
EXPERTS
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 audited financial statements and financial highlights of MuniVest
Michigan and MuniHoldings Michigan [to be filed by amendment] included in this
Proxy Statement and Prospectus have been so included in reliance on the reports
of D&T, the independent auditors for those Funds, 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 any of the Funds intends to present a proposal at the
2000 Annual Meeting of Stockholders of any of the Funds, of which are
anticipated to be held in April 2000, and MuniHoldings Michigan 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 the appropriate Fund by January 1, 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.
65
<PAGE> 70
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-3
Unaudited Financial Statements for MuniYield Michigan
Insured Fund, Inc. for the Six-Month Period Ended April
30, 1999.................................................. F-
Audited Financial Statements for MuniVest Michigan Insured
Fund, Inc. for the Fiscal Year Ended October 31, 1998..... F-
Unaudited Financial Statements for MuniVest Michigan Insured
Fund, Inc. for the Six-Month Period Ended April 30,
1999...................................................... F-
Unaudited Financial Statements for MuniHoldings Michigan
Insured Fund, Inc. for the Period January 29, 1999 to
March 31, 1999............................................ F-
Audited Financial Statements for MuniHoldings Michigan
Insured Fund, Inc. for the Fiscal Year Ended September 30,
1999 (to be filed by amendment)........................... F-
Unaudited Financial Statements for the Combined Fund on a
Pro Forma Basis, as of
April 30, 1999............................................ F-
</TABLE>
F-1
<PAGE> 71
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-2
<PAGE> 72
Audited Financial Statements for MuniYield Michigan Insured Fund, Inc.
for the Fiscal Year Ended October 31, 1998
<PAGE> 73
MuniYield Michigan Insured Fund, Inc.
October 31, 1998
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>
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>
F-3
<PAGE> 74
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-4
<PAGE> 75
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-5
<PAGE> 76
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-6
<PAGE> 77
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-7
<PAGE> 78
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-8
<PAGE> 79
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-9
<PAGE> 80
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 on the ex-dividend dates. Distributions in excess of
realized capital gains are due primarily to differing tax treatments
for post-October losses.
F-10
<PAGE> 81
MuniYield Michigan Insured Fund, Inc.
October 31, 1998
(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-11
<PAGE> 82
Unaudited Financial Statements for MuniYield Michigan Insured Fund, Inc.
for the Six-Month Period Ended April 30, 1999
<PAGE> 83
MuniYield Michigan Insured Fund, Inc.
April 30, 1999
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>
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>
F-12
<PAGE> 84
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-13
<PAGE> 85
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-14
<PAGE> 86
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-15
<PAGE> 87
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-16
<PAGE> 88
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-17
<PAGE> 89
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-18
<PAGE> 90
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. Discounts and market premiums are amortized into interest
income. Realized gains and losses on security transactions are
determined on the identified cost basis.
F-19
<PAGE> 91
MuniYield Michigan Insured Fund, Inc.
April 30, 1999
(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-20
<PAGE> 92
Audited Financial Statements for MuniVest Michigan Insured Fund, Inc.
for the Fiscal Year Ended October 31, 1998
<PAGE> 93
Audited Financial Statements for MuniVest Michigan Insured Fund, Inc.
for the Fiscal Year Ended October 31, 1998
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-21
<PAGE> 94
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-22
<PAGE> 95
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-23
<PAGE> 96
<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-24
<PAGE> 97
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-25
<PAGE> 98
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-26
<PAGE> 99
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-27
<PAGE> 100
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-28
<PAGE> 101
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 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
F-29
<PAGE> 102
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-30
<PAGE> 103
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--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
----------------------------------------------------------------------------------------------------------
</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-31
<PAGE> 104
Unaudited Financial Statements for MuniVest Michigan Insured Fund, Inc.
for the Six-Month Period Ended April 30, 1999
<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 AAA Aaa $1,570 Grandville, Michigan, Public Schools District, GO, Refunding,
(concluded) 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
----------------------------------------------------------------------------------------------------------
Kalamazoo, Michigan, Hospital Finance Authority, Hospital
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>
F-32
<PAGE> 106
<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-33
<PAGE> 107
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-34
<PAGE> 108
<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.
F-35
<PAGE> 109
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-36
<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-37
<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-38
<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 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
F-39
<PAGE> 113
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-40
<PAGE> 114
Unaudited Financial Statements for MuniHoldings Michigan Insured Fund, Inc.
for the Period January 29, 1999 to March 31, 1999
<PAGE> 115
MuniHoldings Michigan Insured Fund, Inc., March 31, 1999
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
<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
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.
F-41
<PAGE> 116
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
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-42
<PAGE> 117
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.
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-43
<PAGE> 118
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. Shares issued and outstanding
during the period January 29, 1999 to March 31, 1999 increased by 1,600 as a
result of the AMPS offering.
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 period January 29, 1999 to March 31, 1999, MLPF&S, an
affiliate of FAM, earned $6,615 as commissions.
5. Subsequent Event:
On April 8, 1999, the Fund's Board of Directors declared an ordinary income
dividend to Common Stock shareholders in the amount of $.127860 per share,
payable on April 29, 1999 to shareholders of record as of April 22, 1999.
F-44
<PAGE> 119
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>
MuniYield MuniVest
S&P Moody's Face Michigan Michigan
Ratings Ratings Amount Issue Insured Fund++ Insured Fund++
- -----------------------------------------------------------------------------------------------------------------------------
<S> <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
AAA NR* 785 6.05% due 5/01/2006(f) - 883
- -----------------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,210 Big Rapids, Michigan, Public Schools District, GO,
Refunding, 5% due 5/01/2019(e) - -
- -----------------------------------------------------------------------------------------------------------------------------
AAA Aaa 4,680 Brighton, Michigan, Area School District, GO,
Refunding, 5% due 5/01/2006(e) - -
- -----------------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,000 Caledonia, Michigan, Community Schools, GO,
Refunding, 6.625% due 5/01/2014(b) - 1,092
- -----------------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,000 Cedar Springs Michigan Public School District
Refunding, 5% due 5/01/2017 - -
- -----------------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,625 Central Michigan University Revenue Bonds, 5.50%
due 4/01/2007(c)(f) - 1,778
- -----------------------------------------------------------------------------------------------------------------------------
Central Michigan University Revenue Refunding
Bonds(c):
AAA Aaa 3,250 5% due 10/01/2023 - -
AAA Aaa 2,500 5% due 10/01/2027 - -
- -----------------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,250 Chelsea, Michigan, School District, GO, 5.875%
due 5/01/2005(c)(f) $1,382 -
- -----------------------------------------------------------------------------------------------------------------------------
AAA Aaa 6,295 Clarkston, Michigan, Community Schools, GO,
5.25% due 5/01/2023(d) - 1,509
- -----------------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,000 Coldwater, Michigan, Community Schools, GO,
6.30% due 5/01/2004(d)(f) - 1,124
- -----------------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,765 Decantor, Michigan, Public 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 12/01/2023 2,000 -
NR* P-1 500 Series E, 4.20% due 12/01/2023 500 -
NR* P-1 1,100 Series F, 4.20% due 12/01/2013 - 100
- -----------------------------------------------------------------------------------------------------------------------------
Detroit, Michigan, Sewage Disposal Revenue Bonds,
Series A (d):
AAA Aaa 4,000 5% due 7/01/2022 - -
AAA Aaa 4,500 5% due 7/01/2027 - 3,402
- -----------------------------------------------------------------------------------------------------------------------------
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
AAA Aaa 6,700 5% due 7/01/2027 3,451 3,062
- -----------------------------------------------------------------------------------------------------------------------------
AAA Aaa 5,000 Detroit, Michigan, Water Supply System Revenue
Refunding Bonds, 6.25% due 7/01/2002(c) 5,457 -
- -----------------------------------------------------------------------------------------------------------------------------
AAA Aaa 2,500 Dexter, Michigan, Community Schools, GO, 5% due
5/01/2013(c) - -
- -----------------------------------------------------------------------------------------------------------------------------
AA+ Aaa 2,000 East China School District, Michigan, GO,
Refunding, 5% due 5/01/2007(c) - -
- -----------------------------------------------------------------------------------------------------------------------------
AAA Aaa 5,250 Eastern Michigan University Revenue Bonds, 5.50%
due 6/01/2027(c) - 5,467
- -----------------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,000 Eastern Michigan University Revenue Refunding
Bonds, 6.25% due 7/01/2002(c) 1,080 -
- -----------------------------------------------------------------------------------------------------------------------------
AAA Aaa 3,990 Eaton Rapids, Michigan, Public Schools, GO,
Refunding, 5% due 5/01/2022(d) 1,952 1,952
- -----------------------------------------------------------------------------------------------------------------------------
Fenton, Michigan, Area Public Schools, GO(c):
AAA Aaa 6,460 5% due 5/01/2021 2,409 1,958
AAA Aaa 2,500 5% due 5/01/2024 - -
- -----------------------------------------------------------------------------------------------------------------------------
Ferris State University, Michigan, Revenue
Refunding Bonds (b):
AAA Aaa 2,000 5% due 10/01/2023 - -
AAA Aaa 2,000 5% due 10/01/2028 - -
- -----------------------------------------------------------------------------------------------------------------------------
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(d)(f):
AAA Aaa 1,000 6.45% due 5/01/2004 - 1,131
AAA Aaa 12,500 6.60% due 5/01/2004 5,119 9,101
- -----------------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,000 Grand Ledge, Michigan, Public Schools District,
GO, Refunding, 5.375% due 5/01/2024(d) - 1,019
- -----------------------------------------------------------------------------------------------------------------------------
AAA Aaa 3,000 Grand Rapids, Michigan, Water Supply Revenue
Refunding Bonds, 6.25% due 1/01/2011(c) 3,169 -
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MuniHoldings Pro Forma
S&P Moody's Face Michigan for Combined
Ratings Ratings Amount Issue Insured Fund++ Funds++
- ---------------------------------------------------------------------------------------------------------------------
<S> <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
AAA NR* 785 6.05% due 5/01/2006(f) - 883
- ---------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,210 Big Rapids, Michigan, Public Schools District, GO,
Refunding, 5% due 5/01/2019(e) $ 1,193 1,193
- ---------------------------------------------------------------------------------------------------------------------
AAA Aaa 4,680 Brighton, Michigan, Area School District, GO,
Refunding, 5% due 5/01/2006(e) 4,908 4,908
- ---------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,000 Caledonia, Michigan, Community Schools, GO,
Refunding, 6.625% due 5/01/2014(b) - 1,092
- ---------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,000 Cedar Springs Michigan Public School District
Refunding, 5% due 5/01/2017 996 996
- ---------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,625 Central Michigan University Revenue Bonds, 5.50%
due 4/01/2007(c)(f) - 1,778
- ---------------------------------------------------------------------------------------------------------------------
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 District, GO, 5.875%
due 5/01/2005(c)(f) - 1,382
- ---------------------------------------------------------------------------------------------------------------------
AAA Aaa 6,295 Clarkston, Michigan, Community Schools, GO,
5.25% due 5/01/2023(d) 4,823 6,332
- ---------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,000 Coldwater, Michigan, Community Schools, GO,
6.30% due 5/01/2004(d)(f) - 1,124
- ---------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,765 Decantor, Michigan, Public Schools, GO (Van Burn
-Cass Counties), 5% due 5/01/2024 1,723 1,723
- ---------------------------------------------------------------------------------------------------------------------
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 12/01/2023 - 2,000
NR* P-1 500 Series E, 4.20% due 12/01/2023 - 500
NR* P-1 1,100 Series F, 4.20% due 12/01/2013 1,000 1,100
- ---------------------------------------------------------------------------------------------------------------------
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 972 4,374
- ---------------------------------------------------------------------------------------------------------------------
Detroit, Michigan, Water Supply System Revenue
Bonds, Senior Lien, Series A(d):
AAA Aaa 6,420 5% due 7/01/2021 - 6,285
AAA Aaa 6,700 5% due 7/01/2027 - 6,513
- ---------------------------------------------------------------------------------------------------------------------
AAA Aaa 5,000 Detroit, Michigan, Water Supply System Revenue
Refunding Bonds, 6.25% due 7/01/2002(c) - 5,457
- ---------------------------------------------------------------------------------------------------------------------
AAA Aaa 2,500 Dexter, Michigan, Community Schools, GO, 5% due
5/01/2013(c) 2,538 2,538
- ---------------------------------------------------------------------------------------------------------------------
AA+ Aaa 2,000 East China School District, Michigan, GO,
Refunding, 5% due 5/01/2007(c) 2,094 2,094
- ---------------------------------------------------------------------------------------------------------------------
AAA Aaa 5,250 Eastern Michigan University Revenue Bonds, 5.50%
due 6/01/2027(c) - 5,467
- ---------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,000 Eastern Michigan University Revenue Refunding
Bonds, 6.25% due 7/01/2002(c) - 1,080
- ---------------------------------------------------------------------------------------------------------------------
AAA Aaa 3,990 Eaton Rapids, Michigan, Public Schools, GO,
Refunding, 5% due 5/01/2022(d) - 3,904
- ---------------------------------------------------------------------------------------------------------------------
Fenton, Michigan, Area Public Schools, GO(c):
AAA Aaa 6,460 5% due 5/01/2021 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, Community Schools, GO,
5.30% due 5/01/2022(c) - 1,516
- ---------------------------------------------------------------------------------------------------------------------
Grand Ledge, Michigan, Public Schools District,
GO(d)(f):
AAA Aaa 1,000 6.45% due 5/01/2004 - 1,131
AAA Aaa 12,500 6.60% due 5/01/2004 - 14,220
- ---------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,000 Grand Ledge, Michigan, Public Schools District,
GO, Refunding, 5.375% due 5/01/2024(d) - 1,019
- ---------------------------------------------------------------------------------------------------------------------
AAA Aaa 3,000 Grand Rapids, Michigan, Water Supply Revenue
Refunding Bonds, 6.25% due 1/01/2011(c) - 3,169
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
F-45
<PAGE> 120
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
AAA VMIG1+ 400 Grand Rapids, Michigan, Water Supply Revenue Refunding
Bonds, VRDN, 4% due 1/01/2020(a)(c) - 400 - 400
- -------------------------------------------------------------------------------------------------------------------------------
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 Schools District, GO,
Refunding, 6.60% due 5/01/2005(c)(f) 1,144 1,796 - 2,940
- -------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 4,750 Greenville, Michigan, Public Schools, GO, 5.75% due
5/01/2024(d)(f) 2,728 2,455 - 5,183
- -------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 3,540 Holly, Michigan, Area School District, GO, Refunding,
5% due 5/01/2022(c) 1,732 1,732 - 3,464
- -------------------------------------------------------------------------------------------------------------------------------
NR* Aaa 3,000 Holt, Michigan, Public Schools, GO, Refunding, 5.125%
due 5/01/2021(d) - - 2,977 2,977
- -------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 2,100 Huron Valley, Michigan, School District, GO, 5.45%
due 5/01/2007(c)(f) - - 2,277 2,277
- -------------------------------------------------------------------------------------------------------------------------------
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 - - 1,802
- -------------------------------------------------------------------------------------------------------------------------------
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 5/15/2017 - 1,313 - 1,313
- -------------------------------------------------------------------------------------------------------------------------------
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, Airport Facility Revenue Bonds
(Kent County International Airport), AMT, 5% due
1/01/2028(d) - - 956 956
- -------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 4,660 Kent, Michigan, Hospital Finance
Authority, Health Care Revenue Bonds
(Butterworth Health Systems), Series
A, 5.625% due 1/15/2006(d)(f) 2,200 2,926 - 5,126
- -------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 4,000 Kent, Michigan, Hospital Finance
Authority, Hospital Revenue Refunding
Bonds (Butterworth Hospital), Series
A, 7.25% due 1/15/2013(d) 2,452 2,452 - 4,904
- -------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 4,000 Lakeshore, Michigan, Public Schools, GO, 5.70% due
5/01/2022(d) 4,227 - - 4,227
- -------------------------------------------------------------------------------------------------------------------------------
NR* Aaa 2,235 Lamphere Schools, Madison Heights, Michigan, GO, 5%
due 5/01/2013(c) - - 2,266 2,266
- -------------------------------------------------------------------------------------------------------------------------------
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 Schools, Ingham and Jackson
Counties, GO, Refunding, 6% due 5/01/2005(b)(f) 1,113 - - 1,113
- -------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 5,235 Lincoln Park, Michigan, School District, GO, 7% due
5/01/2006(c)(f) 2,364 3,823 - 6,187
- -------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,900 Lowell, Michigan, Area Schools, GO, Refunding, 0% due
5/01/2016(c) - 806 - 806
- -------------------------------------------------------------------------------------------------------------------------------
AAA VMIG1+ 600 Michigan Higher Education, Student Loan Revenue Bonds,
VRDN, AMT, Series XII-D, 3.95% due 10/01/2015(a)(b) 100 500 - 600
- -------------------------------------------------------------------------------------------------------------------------------
Michigan Municipal Bond Authority Revenue Bonds:
AA+ Aa1 2,750 (Drinking Water Revolving Fund), 4.75% due
10/01/2020 1,419 1,182 - 2,601
AA+ Aa1 2,000 (State Revolving Fund), Series A, 6.60% due
10/01/2002(f) 2,220 - - 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 - - 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
- -------------------------------------------------------------------------------------------------------------------------------
Michigan State Building Authority Revenue Refunding
Bonds (Facilities Program):
AAA Aaa 3,100 Series I, 5.50% due 10/01/2006(b) 1,192 2,167 - 3,359
AA Aa2 4,000 Series 1, 5% due 10/15/2006 - - 4,211 4,211
- -------------------------------------------------------------------------------------------------------------------------------
Michigan State, HDA, Rental Housing Revenue Bonds(d):
</TABLE>
F-46
<PAGE> 121
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
AAA Aaa 1,000 AMT, Series A, 5.30% due
10/01/2037 993 - - 993
AAA Aaa 8,000 Series B, 5.10% due 10/01/2019 1,496 1,496 4,987 7,979
- --------------------------------------------------------------------------------------------------------------
AAA Aaa 3,885 Michigan State, HDA, Rental Housing
Revenue Refunding Bonds,
Series A, 6.50% due 4/01/2023(e) - 4,130 - 4,130
- --------------------------------------------------------------------------------------------------------------
AAA Aaa 1,000 Michigan State Hospital Finance
Authority Revenue Bonds
(Charity Obligation), Series A,
5.125% due 11/01/2029(d) - - 980 980
- --------------------------------------------------------------------------------------------------------------
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 - 903
- --------------------------------------------------------------------------------------------------------------
Michigan State Hospital Finance
Authority Revenue Refunding Bonds:
AAA Aaa 7,930 (Detroit Medical Group), Series
A, 5.25% due 8/15/2027(b) - 2,900 4,949 7,849
AAA Aaa 4,805 (Mercy Health Services), Series
T, 6.50% due 8/15/2013(d) 2,832 2,611 - 5,443
AAA Aaa 1,250 (Mid-Michigan Obligation Group),
Series A, 5.375% due 6/01/2027(e) 1,267 - - 1,267
AAA Aaa 2,500 (Oakwood Obligation Group), Series
A, 5% due 8/15/2026(e) - - 2,417 2,417
AAA Aaa 3,000 (Saint John Hospital), Series A,
6% due 5/15/2013(b) - 3,237 - 3,237
AAA Aaa 1,100 (Sisters of Mercy Health Corp.),
Series M, 6.25% due 2/15/2022(e) 1,184 - - 1,184
AAA Aaa 1,460 (Sparrow Obligated Group),
6.50% due 11/15/2011(d) - 1,573 - 1,573
- --------------------------------------------------------------------------------------------------------------
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 - - 5,364
BBB+ Baa3 2,500 (Waste Management Inc. Project),
6.625% due 12/01/2012 2,681 - - 2,681
- --------------------------------------------------------------------------------------------------------------
NR* P-1 5,100 Michigan State Strategic Fund,
PCR, Refunding (Consumers Power
Project), VRDN, 4.20% due
4/15/2018(a) 700 4,400 - 5,100
- --------------------------------------------------------------------------------------------------------------
AAA Aaa 8,000 Michigan State Trunk Line, Revenue
Refunding Bonds, Series A,
4.75% due 11/01/2020(d) 3,798 3,798 - 7,596
- --------------------------------------------------------------------------------------------------------------
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 4,000 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 8,171 - 17,599
- --------------------------------------------------------------------------------------------------------------
Monroe County, Michigan, PCR
(Detroit Edison Company), AMT(d):
AAA Aaa 9,000 Series CC, 6.55% due 6/01/2024 4,946 4,946 - 9,892
AAA Aaa 1,500 Series I-B, 6.55% due 9/01/2024 1,655 - - 1,655
- --------------------------------------------------------------------------------------------------------------
AAA Aaa 2,000 Montrose Township, Michigan,
School District, GO, 5.60%
due 5/01/2026(d) - 2,089 - 2,089
- --------------------------------------------------------------------------------------------------------------
AAA Aaa 2,390 Muskegon Heights, Michigan,
Public Schools, GO, 5% due
5/01/2024(d) 2,330 - - 2,330
- --------------------------------------------------------------------------------------------------------------
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 School
District, GO, 6.125% due
5/01/2003(c)(f) - 2,870 - 2,870
- --------------------------------------------------------------------------------------------------------------
AAA Aaa 2,000 Oakland University, Michigan,
Revenue Bonds, 5.75% due 5/15/2026(d) 1,068 1,068 - 2,136
- --------------------------------------------------------------------------------------------------------------
AAA Aaa 1,870 Redford, Michigan, Unified School
f) District, GO, 5.90% due 5/01/2006(c)(f) 2,086 - - 2,086
- --------------------------------------------------------------------------------------------------------------
AAA Aaa 1,000 Reeths-Puffer Schools, Michigan,
GO, Refunding, 6% due 5/01/2005(c)(f) - 1,113 1,113
- --------------------------------------------------------------------------------------------------------------
AAA Aaa 5,000 Richmond, Michigan, Community
School District, GO, 5.60% due
5/01/2006(b)(f) - - 5,449 5,449
- --------------------------------------------------------------------------------------------------------------
AAA Aaa 5,925 Riverview, Michigan, Community
School District, GO, 6.70% due
5/01/2002(c)(f) 6,513 - - 6,513
- --------------------------------------------------------------------------------------------------------------
AAA Aaa 4,000 Rockford, Michigan, Public
Schools, GO, 5.25% due
5/01/2022(c) - - 4,023 4,023
- --------------------------------------------------------------------------------------------------------------
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 - - 2,813
- --------------------------------------------------------------------------------------------------------------
Royal Oak, Michigan, Hospital
Finance Authority, Hospital
Revenue Bonds (William Beaumont
Hospital), VRDN(a):
A-1+ VMIG1+ 500 Series J, 4.20% due 1/01/2003 500 - - 500
A-1+ VMIG1+ 4,400 Series L, 4.20% due 1/01/2027(d) 4,200 - 200 4,400
- --------------------------------------------------------------------------------------------------------------
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 - - 1,195 1,195
- --------------------------------------------------------------------------------------------------------------
</TABLE>
F-47
<PAGE> 122
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
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 - - 7,874
- -------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 2,975 Tecumseh, Michigan, Public Schools,
GO, 5% due 5/01/2021(c) - - 2,913 2,913
- -------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,000 Three Rivers, Michigan, Community
Schools GO, 6% due 5/01/2006(d)(f) - 1,121 - 1,121
- -------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 3,725 Three Rivers, Michigan, Community
Schools, GO, Refunding, 5% due
5/01/2023(e) 1,198 - 2,445 3,643
- -------------------------------------------------------------------------------------------------------------------------------
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 12/01/2019 2,100 1,500 - 3,600
A-1+ VMIG-1+ 2,300 Series A-2, 4.15% due 12/01/2024 2,300 - - 2,300
- -------------------------------------------------------------------------------------------------------------------------------
A1+ VMIG1+ 1,300 University of Michigan, University
Revenue Refunding Bonds (Medical
Service Plan), VRDN, Series A-1,
4.15% due 12/01/2021(a) - 600 700 1,300
- -------------------------------------------------------------------------------------------------------------------------------
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 District,
GO, 6.25% due 6/01/2004(c)(f) - 1,673 - 1,673
- -------------------------------------------------------------------------------------------------------------------------------
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
Revenue Bonds, Series B, 6.50%
due 7/15/2021(b) - 2,147 - 2,147
- -------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 5,500 Wyandotte, Michigan, Electric
Revenue Refunding Bonds, 6.25%
due 10/01/2017(d) 5,991 - - 5,991
- -------------------------------------------------------------------------------------------------------------------------------
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
- -------------------------------------------------------------------------------------------------------------------------------
PUERTO RICO -
2.1%
AAA Aaa 1,550 Puerto Rico Commonwealth, GO,
Refunding, 5.25% due 7/01/2018(d) - - 1,574 1,574
- -------------------------------------------------------------------------------------------------------------------------------
NR* NR* 6,985 Puerto Rico, Insured Trust Receipts,
RITR, 6.42% due 7/01/2027(d)(g) 3,706 3,690 - 7,396
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C>
TOTAL INVESTMENTS (COST - $404,262) - 99.3% 164,617 152,630 105,564 422,811
OTHER ASSETS LESS LIABILITIES - 0.7% 415 2,757 (208) 2,964
-------- -------- -------- --------
NET ASSETS - 100.0% $165,032 $155,387 $105,356 $425,775
======== ======== ======== ========
</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.
See Notes to Financial Statements.
PORTFOLIO
ABBREVIATIONS
To simplify the listings of MuniYield Michigan Insured Fund's
portfolio holdings in the Schedule of Investments, we have
abbreviated the names of many of the securities according to
the list below.
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
F-48
<PAGE> 123
RITR Residual Interest Trust Receipts
VRDN Variable Rate Demand Notes
F-49
<PAGE> 124
Unaudited Financial Statements for the Combined Fund of a Pro Forma Basis,
as of April 30, 1999
<PAGE> 125
The following unaudited pro forma Combined Statement of Assets, Liabilities
and Capital for the Combined Fund has been derived from the Statements of
Assets, Liabilities and Capital of the respective Funds at April 30, 1999 and
such information has been adjusted to give effect to the Reorganization as if
the Reorganization had occurred at April 30, 1999. The pro forma Combined
Statement of Assets, Liabilities and Capital is presented for informational
purposes only and does not purport to be indicative of the financial condition
that actually would have resulted if the Reorganization had been consummated at
April 30, 1999. The pro forma Combined Statement of Assets, Liabilities and
Capital should be read in conjunction with the Funds' financial statements and
related notes thereto which are included in the Joint Proxy Statement and
Prospectus.
PRO FORMA COMBINED STATEMENT OF ASSETS, LIABILITIES AND CAPITAL
FOR MUNIYIELD MICHIGAN INSURED FUND, INC.,
MUNIVEST MICHIGAN INSURED FUND, INC.,
AND MUNIHOLDINGS MICHIGAN INSURED FUND, INC.
AS OF APRIL 30, 1999 (UNAUDITED)
PRO FORMA
<TABLE>
<CAPTION>
PRO FORMA
FOR
MUNIYIELD MUNIVEST MUNIHOLDINGS COMBINED
MICHIGAN MICHIGAN MICHIGAN ADJUSTMENTS FUND
------------ ------------ ------------ ------------ ------------
<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 advisor (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 72,225
------------ ------------ ------------ ------------ ------------
Total liabilities..... 2,587,686 239,863 2,475,055 2,174,695 7,477,329
------------ ------------ ------------ ------------ ------------
NET ASSETS:
Net Assets..................... $165,032,226 $155,387,010 $105,355,824 $ (2,174,695) $423,600,365
============ ============ ============ ============ ============
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++.................. 745,163 738,770 446,367 (72,976) 1,854,324
Paid-in capital in excess of
par.......................... 103,660,153 102,828,343 65,702,592 72,976 272,264,064
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 $ (2,174,695) $423,600,365
============ ============ ============ ============ ============
Net asset value per share of
Common Stock................. $15.48 $14.27 $14.67 $15.29
============ ============ ============ ============ ============
- ------------------------------------------------------------------------------------------
* 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
- ----------------------------------------------------------------------------------------------------------
(1) Assumes the distribution of undistributed investment income.
** Auction Market Preferred Stock
See Notes to Financial Statements.
</TABLE>
F-50
<PAGE> 126
The following unaudited pro forma Combined Statement of Operations for the
Combined Fund 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 28, 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+ FOR
TO APRIL 30, 1999 TO APRIL 30, 1999 TO APRIL 30, 1999 ADJUSTMENTS COMBINED FUND
----------------- ----------------- ----------------- ----------- -------------
<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) 0 (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 Gains (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)
----------- ----------- ---------- --------- -------------
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 of the Reorganization.
(2) These Pro Forma Combined Statements of Operations exclude non-recurring
estimated Reorganization expenses of $378,000, which will be paid by
MuniYield Michigan subsequent to the Reorganization.
+ Commencement of operations.
See Notes to Financial Statements.
F-51
<PAGE> 127
MUNIYIELD MICHIGAN INSURED FUND, INC.
COMBINED 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. 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.
F-52
<PAGE> 128
- - 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) 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.
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.
For MuniHoldings Michigan Insured Fund, Inc., FAM earned fees of $115,702 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-53
<PAGE> 129
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.......................................... 2,000
MuniVest Michigan........................................... 2,000
MuniHoldings Michigan....................................... 1,600
</TABLE>
INFORMATION PERTAINING TO OFFICERS AND DIRECTORS
<TABLE>
<CAPTION>
YEAR IN WHICH EACH DIRECTOR BECAME A MEMBER OF THE BOARD
---------------------------------------------------------------------
FUND CECIL CRUM GLENN MEYER SUNDERLAND TOUCHTON WEISS ZEIKEL
- ---- ----- ---- ----- ----- ---------- -------- ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
MuniYield Michigan................... 1992 1992 1999 1992 1992 1992 1998 1992
MuniVest Michigan.................... 1993 1993 1999 1993 1993 1993 1998 1993
</TABLE>
<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> 130
<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........ 2,500 250 500
MuniVest Michigan......... 2,500 250 500 125
MuniHoldings Michigan..... 2,500 250 500 125
</TABLE>
- ---------------
* Includes meetings held via teleconferencing equipment.
** The fee is payable for each meeting attended in person. A fee is not paid for
telephonic meetings.
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($)(1)
- -------------------- -----------------------------------------
<S> <C>
James H. Bodurtha......................................... 163,500
Herbert I. London......................................... 163,500
Robert R. Martin.......................................... 163,500
Joseph L. May............................................. 163,500
Andre F. Perold........................................... 163,500
</TABLE>
- ---------------
(1) The Directors serve on the boards of FAM/MLAM Advised Funds as follows: Mr.
Bodurtha (29 registered investment companies consisting of 47 portfolios);
Mr. London (29 registered investment companies consisting of 47 portfolios);
Mr. Martin (29 registered investment companies consisting of 47 portfolios);
Mr. May (29 registered investment companies consisting of 47 portfolios);
and Mr. Perold (29 registered investment companies consisting of 47
portfolios).
Set forth in the table below is information regarding the aggregate
compensation paid by all registered investment companies advised by FAM/MLAM
Advised Funds, including MuniYield Michigan and MuniVest Michigan to the
non-affiliated Board members of MuniYield Michigan and MuniVest Michigan for the
year ended December 31, 1998.
I-2
<PAGE> 131
<TABLE>
<CAPTION>
AGGREGATE COMPENSATION FROM FAM/MLAM
NAME OF BOARD MEMBER ADVISED FUNDS PAID TO BOARD MEMBERS($)(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 (34 registered investment companies consisting of 34 portfolios); Mr.
Crum (16 registered investment companies consisting of 16 portfolios); Mr.
Meyer (34 registered investment companies consisting of 34 portfolios); Mr.
Sunderland (19 registered investment companies consisting of 31 portfolios);
Mr. Touchton (19 registered investment companies consisting of 31
portfolios) and Mr. Weiss (16 registered investment companies consisting of
16 portfolios).
Set forth in the table below is information about the Directors of each of
the Funds. Unless otherwise noted, the address of each Director is 800 Scudders
Mill Road, Plainsboro, New Jersey 08536.
<TABLE>
<CAPTION>
DIRECTOR SINCE
--------------------
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.
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 The May Department Stores Company, Bowne
& Co., Inc. (financial printers), 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.
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).
</TABLE>
I-3
<PAGE> 132
<TABLE>
<CAPTION>
DIRECTOR SINCE
--------------------
MUNIYIELD MUNIVEST
NAME, ADDRESS AND BIOGRAPHY AGE MICHIGAN MICHIGAN
--------------------------- --- --------- --------
<S> <C> <C> <C>
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.
Fred K. Stuebe............................. 49 Vice President 1995 1995 1998
Vice President and Portfolio Manager of
MLAM since 1989.
</TABLE>
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<PAGE> 133
<TABLE>
<CAPTION>
OFFICER SINCE
---------------------------------------------------------
MUNIYIELD MUNIVEST MUNIHOLDINGS
NAME AND BIOGRAPHY AGE OFFICE MICHIGAN MICHIGAN MICHIGAN
- ------------------ --- -------------- --------- -------- ------------
<S> <C> <C> <C> <C> <C>
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.
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<PAGE> 134
EXHIBIT II
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made as of
the day of , 1999, by and between MuniYield 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
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<PAGE> 135
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
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<PAGE> 136
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> 137
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
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<PAGE> 138
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 examined 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 MuniHolding 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.
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<PAGE> 139
(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.
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<PAGE> 140
(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 Annual Report to Stockholders for
the period ended September 30, 1999, and the audited financial statements
appearing therein fairly present the financial position of MuniHoldings
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 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 dates indicated, in conformity with generally
accepted accounting principles applied on a consistent basis.
(g) 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.
(h) 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
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<PAGE> 141
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.
(i) 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.
(j) 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.
(k) 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.
(l) 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.
(m) 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).
(n) 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.
(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 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
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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.
(p) 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 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 MuniHoldings Michigan
Common Stock and MuniHoldings Michigan AMPS were offered for sale and sold
in conformity with all applicable Federal and state securities laws.
(r) 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.
(s) 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.
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(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 ,
2000, or such earlier or later day and time as may be mutually agreed upon in
writing (the "Valuation Time").
(e) Recourse for liabilities assumed from 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(k) of this Agreement.
(f) The Funds will jointly file Articles of Transfer with the Maryland
Department and any other such instrument as may be required by the State of
Maryland to effect the transfer of the 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 prospectus of
MuniYield Michigan, October 23, 1992, relating to the MuniYield Michigan Common
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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
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
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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 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 on the Exchange Date, all expenses incurred
in connection with the Reorganization, including, but not limited to, all costs
related to the preparation and distribution of the N-14 Registration Statement.
Such fees and expenses shall include the cost of preparing and filing a ruling
request with the Internal Revenue Service, legal and accounting fees, printing
costs, filing fees, stock exchange fees, rating agency fees, portfolio transfer
taxes (if any) and any similar expenses incurred in connection with the
Reorganization.
(b) If for any reason the Reorganization is not consummated, no party shall
be liable to any other party for any damages resulting therefrom, including,
without limitation, consequential damages.
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.
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(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.
(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.
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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.
(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
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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 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
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foreign corporation in any jurisdiction except as may be required by state
securities laws, and except where each has so qualified or the failure so
to qualify would not have a material adverse effect on such Fund or its
respective stockholders; (xii) such counsel does not have actual knowledge
of any material suit, action or legal or administrative proceeding pending
or threatened against any of the Funds, the unfavorable outcome of which
would materially and adversely affect such Fund; (xiii) all corporate
actions required to be taken by the Funds to authorize this Agreement and
to effect the Reorganization have been duly authorized by all necessary
corporate actions on the part of such Fund; and (xiv) such opinion is
solely for the benefit of the Funds and their Directors and officers. Such
opinion also shall state that (x) while such counsel cannot make any
representation as to the accuracy or completeness of statements of fact in
the N-14 Registration Statement or any amendment or supplement thereto,
nothing has come to their attention that would lead them to believe that,
on the respective effective dates of the N-14 Registration Statement and
any amendment or supplement thereto, (1) the N-14 Registration Statement or
any amendment or supplement thereto contained any untrue statement of a
material fact or omitted to state any material fact required to be stated
therein or necessary to make the statements therein not misleading; and (2)
the prospectus included in the N-14 Registration Statement contained any
untrue statement of a material fact or omitted to state any material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; and (y) such counsel does not
express any opinion or belief as to the financial statements or other
financial or statistical data relating to any Fund contained or
incorporated by reference in the N-14 Registration Statement. In giving the
opinion set forth above, Brown & Wood LLP may state that it is relying on
certificates of officers of a Fund with regard to matters of fact and
certain certificates and written statements of governmental officials with
respect to the good standing of a Fund.
(f) That 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
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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.
(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 as of the effective date of the N-14 Registration Statement
and a similar letter dated within five days prior to the Exchange Date, in
form and substance satisfactory to them, to the effect that (i) they are
independent public accountants with respect to MuniYield 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.
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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 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
(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
, 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
, 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.
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(h) That MuniYield Michigan shall have received from Deloitte & Touche
LLP for each of MuniVest Michigan and MuniHoldings Michigan a letter dated
as of the effective date of the N-14 Registration Statement and a similar
letter dated within five days prior to the Exchange Date, in form and
substance satisfactory to MuniYield 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 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
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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 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 , 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
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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 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.
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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
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.
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This Agreement may be executed in any number of counterparts, each of
which, when executed and delivered, shall be deemed to be an original but all
such counterparts together shall constitute but one instrument.
MUNIYIELD MICHIGAN INSURED
FUND, INC.
By:
------------------------------------
Attest:
--------------------------------
MUNIVEST MICHIGAN INSURED FUND, INC.
By:
------------------------------------
Attest:
--------------------------------
MUNIHOLDINGS MICHIGAN INSURED
FUND, INC.
By:
------------------------------------
Attest:
--------------------------------
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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.
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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.
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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.
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EXHIBIT IV
RATINGS OF MUNICIPAL BONDS AND COMMERCIAL PAPER
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S ("MOODY'S") MUNICIPAL BOND
RATINGS
Aaa Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally
referred to as "gilt edge." Interest payments are protected by a
large or by an exceptionally stable margin and principal is secure.
While the various protective elements are likely to change, such
changes 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."
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<PAGE> 161
DESCRIPTION OF MOODY'S COMMERCIAL PAPER RATINGS
Moody's Commercial Paper ratings are opinions of the ability of issuers to
repay punctually promissory obligations not having an original maturity in
excess of nine months. Moody's employs the following three designations, all
judged to be investment grade, to indicate the relative repayment capacity of
rated issuers:
Issuers rated Prime-1 (or supporting institutions) have a superior ability
for repayment of short-term promissory obligations. Prime-1 repayment capacity
will often be evidenced by the following characteristics: leading market
positions in well established industries; high rates of return on funds
employed; conservative capitalization structures with moderate reliance on debt
and ample asset protection; broad margins, in earning coverage of fixed
financial charges and high internal cash generation; and with established access
to a range of financial markets and assured sources of alternate liquidity.
Issuers rated Prime-2 (or supporting institutions) have a strong ability
for repayment of short-term promissory obligations. This will normally be
evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
Issuers rated Prime-3 (or supporting institutions) have an acceptable
ability for repayment of short-term promissory obligations. The effects of
industry characteristics and market composition may be more pronounced.
Variability in earnings and profitability may result in changes to the level of
debt protection measurements and the requirement for relatively high financial
leverage. Adequate alternate liquidity is maintained.
Issuers rated Not Prime do not fall within any of the Prime rating
categories.
DESCRIPTION OF STANDARD & POOR'S, A DIVISION OF THE MCGRAW-HILL COMPANIES, INC.
("STANDARD & POOR'S"), MUNICIPAL DEBT RATINGS
A Standard & Poor's municipal debt rating is a current assessment of the
creditworthiness of an obligor with respect to a specific financial obligation,
a specific class of financial obligations or a specific program. It takes into
consideration the creditworthiness of guarantors, insurers, or other forms of
credit enhancement on the obligation.
The debt rating is not a recommendation to purchase, sell or hold a
financial obligation, inasmuch as it does not comment as to market price or
suitability for a particular investor.
The ratings are based on current information furnished by the issuer or
obtained by Standard & Poor's from other sources Standard & Poor's considers
reliable. Standard & Poor's does not perform an audit in connection with any
rating and may, on occasion, rely on unaudited financial information. The
ratings may be changed, suspended or withdrawn as a result of changes in, or
unavailability of, such information, or based on other circumstances.
The ratings are based, in varying degrees, on the following considerations:
I. Likelihood of default-capacity and willingness of the obligor as
to the timely payment of interest and repayment of principal in accordance
with the terms of the obligation;
II. Nature of and provisions of the obligation;
III. Protection afforded to, and relative position of, the obligation
in the event of bankruptcy, reorganization or other arrangement under the
laws of bankruptcy and other laws affecting creditors' rights.
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<PAGE> 162
<TABLE>
<S> <C>
AAA Debt rated "AAA" has the highest rating assigned by Standard
& Poor's. Capacity of the obligor to meet its financial
commitment on the obligation is extremely strong.
AA Debt rated "AA" differs from the highest-rated issues only
in small degree. The obligor's capacity to meet its
financial commitment on the obligation is very strong.
A Debt rated "A" is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions
than debt in higher-rated categories. However, the obligor's
capacity to meet its financial commitment on the obligation
is still strong.
BBB Debt rated "BBB" exhibits adequate protection parameters.
However, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity
of the obligor to meet its financial commitment on the
obligation.
BB Debt rated "BB," "B," "CCC," "CC", and "C" are regarded as
B having significant speculative characteristics. "BB"
CCC indicates the least degree of speculation and "C" the
CC highest degree of speculation. While such debt will likely
C have some quality and protective characteristics, these may
be outweighed by large uncertainties or major risk exposures
to adverse conditions.
D Debt rated "D" is in payment default. The "D" rating
category is used when payments on an obligation are not made
on the date due even if the applicable grace period has not
expired, unless Standard & Poor's believes that such
payments will be made during such grace period. The "D"
rating also will be used upon the filing of a bankruptcy
petition or the taking of similar action if payments on an
obligation are jeopardized.
</TABLE>
Plus (+) or Minus (-): The ratings from "AA" to "CCC" may be modified by
the addition of a plus or minus sign to show relative standing within the major
rating categories.
DESCRIPTION OF STANDARD & POOR'S COMMERCIAL PAPER RATINGS
A Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more than
365 days. Ratings are graded into several categories, ranging from "A-1" for the
highest quality obligations to "D" for the lowest. These categories are as
follows:
<TABLE>
<S> <C>
A-1 This designation indicates that the degree of safety
regarding timely payment is strong. Those issues determined
to possess extremely strong safety characteristics are
denoted with a plus sign (+) designation.
A-2 Capacity for timely payment on issues with this designation
is satisfactory. However, the relative degree of safety is
not as high as for issues designated "A-1."
A-3 Issues carrying this designation have adequate capacity for
timely payment. They are, however, more vulnerable to the
adverse effects of changes in circumstances than obligations
carrying the higher designations.
B Issues rated "B" are regarded as having only speculative
capacity for timely payment.
C This rating is assigned to short-term debt obligations with
a doubtful capacity for payment.
D Debt rated "D" is in payment default. The "D" rating
category is used when interest payments or principal
payments are not made on the date due, even if the
applicable grace period has not expired unless Standard &
Poor's believes that such payments will be made during such
grace period.
</TABLE>
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<PAGE> 163
<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
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<PAGE> 164
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.
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<PAGE> 165
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
DD
D Bonds are in default on interest and/or principal payments. Such
bonds are extremely speculative and should be valued on the basis
of their ultimate recovery value in liquidation or reorganization
of the obligor. "DDD" represents the highest potential for recovery
on these bonds, and "D" represents the lowest potential for
recovery.
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<PAGE> 166
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.
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<PAGE> 167
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> 168
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> 169
[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> 170
[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> 171
[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> 172
[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> 173
[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> 174
[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> 175
[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> 176
[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> 177
[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> 178
[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> 179
[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> 180
[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> 181
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
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> <S>
1 (a) -- Articles of Incorporation of the Registrant, dated July 1,
1992.
(b) -- Form of Articles Supplementary creating the AMPS.
(c) -- Form of Articles of Amendment to Articles Supplementary
creating the AMPS.
(d) -- Articles Supplementary relating to AMPS.
(e) -- Articles of Amendment to Articles Supplementary creating
AMPS.
(f) -- Certificate of Correction relating to AMPS.
(g) -- Form of Articles Supplementary creating the Series B AMPS
and the Series C AMPS.
2 -- By-Laws of the Registrant.
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.(a)
(b) -- Form of specimen certificate for the Common Stock of the
Registrant.
(c) -- Form of specimen certificate for the AMPS of the Registrant.
6 -- Form of Investment Advisory Agreement between Registrant and
Fund Asset Management, L.P.
7 (a) -- Form of Purchase Agreement for the Common Stock.
(b) -- Form of Purchase Agreement for the AMPS.
(c) -- Form of Merrill Lynch Standard Dealer Agreement.
8 -- Not applicable.
9 -- Custodian Contract between the Registrant and The Bank of
New York.
</TABLE>
C-1
<PAGE> 183
<TABLE>
<C> <S>
10 -- Not applicable.
11 -- Opinion and Consent of Brown & Wood LLP, counsel for the
Registrant.*
12 -- Private Letter Ruling from the Internal Revenue Service.*
13(a) -- Transfer Agency, Dividend Disbursing Agency and Shareholder
Servicing Agency Agreement between the Registrant and The
Bank of New York.
(b) -- Form of Auction Agent Agreement between the Registrant and
IBJ Whitehall Bank & Trust Company.
(c) -- Form of Broker-Dealer Agreement.
(d) -- Form of Letter of Representations.
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. and MuniHoldings
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) 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> 184
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 5th day of October, 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 (Principal October 5, 1999
- ------------------------------------------------ Executive Officer)
(Terry K. Glenn)
/s/ DONALD C. BURKE Vice President and Treasurer October 5, 1999
- ------------------------------------------------ (Principal Financial and
(Donald C. Burke) Accounting Officer)
/s/ DONALD CECIL Director October 5, 1999
- ------------------------------------------------
(Donald Cecil)
/s/ M. COLYER CRUM Director October 5, 1999
- ------------------------------------------------
(M. Colyer Crum)
/s/ EDWARD H. MEYER Director October 5, 1999
- ------------------------------------------------
(Edward H. Meyer)
/s/ JACK B. SUNDERLAND Director October 5, 1999
- ------------------------------------------------
(Joseph L. May)
/s/ J. THOMAS TOUCHTON Director October 5, 1999
- ------------------------------------------------
(J. Thomas Touchton)
/s/ FRED G. WEISS Director October 5, 1999
- ------------------------------------------------
(Fred G. Weiss)
/s/ ARTHUR ZEIKEL Director October 5, 1999
- ------------------------------------------------
(Arthur Zeikel)
</TABLE>
C-3
<PAGE> 185
EXHIBITS
<TABLE>
<C> <S>
1(a) -- Articles of Incorporation of the Registrant, dated July 1,
1992.
(b) -- Form of Articles Supplementary creating the Series A AMPS.
(c) -- Form of Amendment to Articles Supplementary creating the
Series A AMPS.
(d) -- Articles Supplementary relating to Series A AMPS.
(e) -- Articles of Amendment to Articles Supplementary creating
Series A AMPS.
(f) -- Certificate of Correction relating to Series A AMPS.
(g) -- Form of Articles Supplementary creating the Series B and
Series C AMPS.
2 -- By-Laws of the Registrant.
4 -- Form of Agreement and Plan of Reorganization among the
Registrant and MuniVest Michigan Insured Fund, Inc. and
MuniHoldings Michigan Insured Fund, Inc.
5(b) -- Form of specimen certificate for the Common Stock of the
Registrant.
(c) -- Form of specimen certificate for the AMPS of the Registrant.
6 -- Form of Investment Advisory Agreement between Registrant and
Fund Asset Management, L.P.
7(a) -- Form of Purchase Agreement for the Common Stock.
(b) -- Form of Purchase Agreement for the AMPS.
(c) -- Form of Merrill Lynch Standard Dealer Agreement.
9 -- Custodian Contract between the Registrant and The Bank of
New York.
13(a) -- Transfer Agency, Dividend Disbursing Agency and Shareholder
Servicing Agency Agreement between the Registrant and The
Bank of New York.
(b) -- Form of Auction Agent Agreement between the Registrant and
IBJ Whitehall Bank & Trust Company.
(c) -- Form of Broker-Dealer Agreement.
(d) -- Form of Letter of Representations.
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. and MuniHoldings
Michigan Insured Fund, Inc.
</TABLE>
<PAGE> 1
Exhibit 1(a)
ARTICLES OF INCORPORATION
OF
MUNIYIELD MICHIGAN INSURED FUND, INC.
ARTICLE I
THE UNDERSIGNED, M. ROSALIE BUENAVENTURA, whose post-office address is
One World Trade Center, New York, New York 10048-0557, being at least eighteen
(18) years of age, does hereby act as an incorporator, under and by virtue of
the General Laws of the State of Maryland authorizing the formation of
corporations and with the intention of forming a corporation.
Article II
NAME
The name of the corporation is MUNIYIELD MICHIGAN INSURED FUND, INC.
(the "Corporation").
ARTICLE III
PURPOSES AND POWERS
The purpose or purposes for which the Corporation is formed is to act
as a closed-end, management investment company under the federal Investment
Company Act of 1940, as amended, and to exercise and enjoy all of the powers,
rights and privileges granted to, or conferred upon, corporations by the General
Laws of the State of Maryland now or hereafter in force.
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ARTICLE IV
PRINCIPAL OFFICE AND RESIDENT AGENT
The post-office address of the principal office of the Corporation in
the State of Maryland is c/o The Corporation Trust Incorporated, 32 South
Street, Baltimore, Maryland 21202. The name of the resident agent of the
Corporation in this State is The Corporation Trust Incorporated, a corporation
of this State, and the post-office address of the resident agent is The
Corporation Trust Incorporated, 32 South Street, Baltimore, Maryland 21202.
ARTICLE V
CAPITAL STOCK
(1) The total number of shares of capital stock which the Corporation
shall have authority to issue is Two Hundred Million (200,000,000) shares, all
of one class called Common Stock, of the par value of Ten Cents ($0.10) per
share and of the aggregate par value of Twenty Million Dollars ($20,000,000).
(2) The Board of Directors may classify and reclassify any unissued
shares of capital stock into one or more additional or other classes or series
as may be established from time to time by setting or changing in any one or
more respects the designations, preferences, conversion or other rights, voting
powers, restrictions, limitations as to dividends, qualifications or terms or
conditions of redemption of such shares of stock and pursuant to such
classification or reclassification to increase or decrease the number of
authorized shares of any existing class or series.
(3) Unless otherwise expressly provided in the charter of the
Corporation, including any Articles Supplementary crating any class or series of
capital stock, the holders of each class or series of capital stock shall be
entitled to dividends and distributions in such amounts and at
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such times as may be determined by the Board of Directors, and the dividends and
distributions paid with respect to the various classes or series of capital
stock may vary among such classes and series.
(4) Unless otherwise expressly provided in the charter of the
Corporation, including any Articles Supplementary creating any class or series
of capital stock, on each matter submitted to a vote of stockholders, each
holder of a share of capital stock of the Corporation shall be entitled to one
vote for each share standing in such holder's name on the books of the
Corporation, irrespective of the class or series thereof, and all shares of all
classes and series shall vote together as a single class; provided, however,
that as to any matter with respect to which a separate vote of any class or
series is required by the Investment Company Act of 1940, as amended, and in
effect from time to time, or any rules, regulations or orders issued thereunder,
or by the Maryland General Corporation Law, such requirement as to a separate
vote by that class or series shall apply in lieu of a general vote of all
classes and series as described above.
(5) Notwithstanding any provision of the Maryland General Corporation
Law requiring a greater proportion than a majority of the votes of all classes
or series of capital stock of the Corporation (or of any class or series
entitled to vote thereon as a separate class or series) to take or authorize any
action, the Corporation is hereby authorized (subject to the requirements of the
Investment Company Act of 1940, as amended, and in effect from time to time, and
any rules, regulations and orders issued thereunder) to take such action upon
the concurrence of a majority of the aggregate number of shares of capital stock
of the Corporation entitled to vote thereon (or a majority of the aggregate
number of shares of a class or series entitled to vote thereon as a separate
class or series).
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(6) Unless otherwise expressly provided in the charter of the
Corporation, including any Articles Supplementary creating any class or series
of capital stock, in the event of any liquidation, dissolution or winding up of
the Corporation, whether voluntary or involuntary, the holders of all classes
and series of capital stock of the Corporation shall be entitled, after payment
or provision for payment of the debts and other liabilities of the Corporation,
to share ratably in the remaining net assets of the Corporation.
(7) Any fractional shares shall carry proportionately all the rights of
a whole share, excepting any right to receive a certificate evidencing such
fractional share, but including, without limitation, the right to vote and the
right to receive dividends.
(8) All persons who shall acquire stock in the Corporation shall
acquire the same subject to the provisions of the charter and By-Laws of the
Corporation. As used in the charter of the Corporation, the terms "charter" and
"Articles of Incorporation" shall mean and include the Articles of Incorporation
of the Corporation as amended, supplemented and restated from time to time by
Articles of Amendment, Articles Supplementary, Articles of Restatement or
otherwise.
ARTICLE VI
PROVISIONS FOR DEFINING, LIMITING
AND REGULATING CERTAIN POWERS OF
THE CORPORATION AND OF THE
DIRECTORS AND STOCKHOLDERS
(1) The number of directors of the Corporation shall be three (3),
which number may be changed pursuant to the By-Laws of the Corporation but shall
never be less than three (3). The names of the directors who shall act until the
first annual meeting or until their successors are duly elected and qualify are:
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Philip L. Kirstein
Mark B. Goldfus
Susan B. Baker
(2) The Board of Directors of the Corporation is hereby empowered to
authorize the issuance from time to time of shares of capital stock, whether now
or hereafter authorized, for such consideration as the Board of Directors may
deem advisable, subject to such limitations as may be set forth in these
Articles of Incorporation or in the By-Laws of the Corporation or in the General
Laws of the State of Maryland.
(3) Each director and each officer of the Corporation shall be
indemnified by the Corporation to the full extent permitted by the General Laws
of the State of Maryland, subject to the requirements of the Investment Company
Act of 1940, as amended. No amendment of these Articles of Incorporation or
repeal of any provision hereof shall limit or eliminate the benefits provided to
directors and officers under this provision in connection with any act or
omission that occurred prior to such amendment or repeal.
(4) To the fullest extent permitted by the General Laws of the State of
Maryland, subject to the requirements of the Investment Company Act of 1940, as
amended, no director or officer of the Corporation shall be personally liable to
the Corporation or its security holders for money damages. No amendment of these
Articles of Incorporation or repeal of any provision hereof shall limit or
eliminate the benefits provided to directors and officers under this provision
in connection with any act or omission that occurred prior to such amendment or
repeal.
(5) The Board of Directors of the Corporation may make, alter or repeal
from time to time any of the By-Laws of the Corporation except any particular
By-Law which is specified as not subject to alteration or repeal by the Board of
Directors, subject to the requirements of the Investment Company Act of 1940, as
amended.
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(6) A director elected by the holders of capital stock may be removed
(with or without cause), but only by action taken by the holders of at least
sixty-six and two-thirds percent (66 2/3%) of the shares of capital stock then
entitled to vote in an election to fill that directorship.
ARTICLE VII
DENIAL OF PREEMPTIVE RIGHTS
No shareholder of the Corporation shall by reason of his holding shares
of capital stock have any preemptive or preferential right to purchase or
subscribe to any shares of capital stock of the Corporation, now or hereafter to
be authorized, or any notes, debentures, bonds or other securities convertible
into shares of capital stock, now or hereafter to be authorized, whether or not
the issuance of any such shares, or notes, debentures, bonds or other securities
would adversely affect the dividend or voting rights of such shareholder; and
the Board of Directors may issue shares of any class of the Corporation, or any
notes, debentures, bonds, other securities convertible into shares of any class,
either whole or in part, to the existing shareholders.
ARTICLE VIII
DETERMINATION BINDING
Any determination made in good faith, so far as accounting matters are
involved, in accordance with accepted accounting practice by or pursuant to the
direction of the Board of Directors, as to the amount of assets, obligations or
liabilities of the Corporation, as to the amount of net income of the
Corporation from dividends and interest for any period or amounts at any time
legally available for the payment of dividends, as to the amount of any reserves
or charges set up and the propriety thereof, as to the time of or purpose for
creating reserves or as to
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the use, alteration or cancellation of any reserves or charges (whether or not
any obligation or liability for which such reserves or charges shall have been
created, shall have been paid or discharged or shall be then or thereafter
required to be paid or discharged), as to the price of any security owned by the
Corporation or as to any other matters relating to the issuance, sale,
redemption or other acquisition or disposition of securities or shares of
capital stock of the Corporation, and any reasonable determination made in good
faith by the Board of Directors as to whether any transaction constitutes a
purchase of securities on "margin," a sale of securities "short," or an
underwriting of the sale of, or a participation in any underwriting or selling
group in connection with the public distribution of, any securities, shall be
final and conclusive, and shall be binding upon the Corporation and all holders
of its capital stock, past, present and future, and shares of the capital stock
of the Corporation are issued and sold on the condition and understanding,
evidenced by the purchase of shares of capital stock or acceptance of share
certificates, that any and all such determinations shall be binding as
aforesaid. No provision of these Articles of Incorporation shall be effective to
(a) require a waiver of compliance with any provision of the Securities Act of
1933, as amended, or the Investment Company Act of 1940, as amended, or of any
valid rule, regulation or order of the Securities and Exchange Commission
thereunder or (b) protect or purport to protect any director or officer of the
Corporation against any liability to the Corporation or its security holders to
which he would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
his office.
ARTICLE IX
PERPETUAL EXISTENCE
The duration of the Corporation shall be perpetual.
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ARTICLE X
PRIVATE PROPERTY OF STOCKHOLDERS
The private property of shareholders shall not be subject to the
payment of corporate debts to any extent whatsoever.
ARTICLE XI
CONVERSION TO OPEN-END COMPANY
Notwithstanding any other provisions of these Articles of Incorporation
or the By-Laws of the Corporation, a favorable vote of the holders of at least
sixty-six and two-thirds percent (66 2/3%) of the outstanding shares of capital
stock of the Corporation entitled to be voted on the matter shall be required to
approve, adopt or authorize an amendment to these Articles of Incorporation of
the Corporation that makes the Common Stock a "redeemable security" (as that
term is defined in section 2(a)(32) of the Investment Company Act of 1940, as
amended) unless such action has previously been approved, adopted or authorized
by the affirmative vote of at least two-thirds of the total number of directors
fixed in accordance with the By-Laws of the Corporation, in which case the
affirmative vote of the holders of a majority of the outstanding shares of
capital stock of the Corporation entitled to vote thereon shall be required.
ARTICLE XII
MERGER, SALE OF ASSETS, LIQUIDATION
Notwithstanding any other provisions of these Articles of Incorporation
or the By-Laws of the Corporation, a favorable vote of the holders of at least
sixty-six and two-thirds percent (66 2/3%) of the outstanding shares of capital
stock of the Corporation entitled to be voted on the matter shall be required to
approve, adopt or authorize (i) a merger or consolidation or statutory share
exchange of the Corporation with any other corporation, (ii) a sale of all or
substantially all
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of the assets of the Corporation (other than in the regular course of its
investment activities), or (iii) a liquidation or dissolution of the
Corporation, unless such action has previously been approved, adopted or
authorized by the affirmative vote of at least two-thirds of the total number of
directors fixed in accordance with the By-Laws of the Corporation, in which case
the affirmative vote of the holders of a majority of the outstanding shares of
capital stock of the Corporation entitled to vote thereon shall be required.
ARTICLE XIII
AMENDMENT
The Corporation reserves the right to amend, alter, change or repeal
any provision contained in these Articles of Incorporation, in the manner now or
hereafter prescribed by statute, including any amendment which alters the
contract rights, as expressly set forth in the charter, of any outstanding stock
and substantially adversely affects the stockholders' rights and all rights
conferred upon stockholders herein are granted subject to this reservation.
Notwithstanding any other provisions of these Articles of Incorporation or the
By-Laws of the Corporation (and notwithstanding the fact that a lesser
percentage may be specified by law, these Articles of Incorporation or the
By-Laws of the Corporation) the amendment or repeal of Section (5) of Article V,
Section (1), Section (3), Section (4), Section (5) and Section (6) of Article
VI, Article IX, Article X, Article XI, Article XII, or this Article XIII, of
these Articles of Incorporation shall require the affirmative vote of the
holders of at least sixty-six and two-thirds percent (66 2/3%) of the
outstanding shares of capital stock of the Corporation entitled to be voted on
the matter.
IN WITNESS WHEREOF, the undersigned incorporator of MuniYield Michigan
Insured Fund, Inc. hereby executes the foregoing Articles of Incorporation and
acknowledges the same to
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be her act and further acknowledges that, to the best of her knowledge, the
matters and facts set forth therein are true in all material respects under the
penalties of perjury.
Dated the 30th day
of June 1992.
____________________________
M. Rosalie Buenaventura
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Exhibit 1(b)
MUNIYIELD MICHIGAN INSURED FUND, INC.
Articles Supplementary creating
Auction Market Preferred Stock(R)
MUNIYIELD MICHIGAN INSURED FUND, INC., a Maryland corporation having
its principal Maryland office in the City of Baltimore (the "Corporation"),
certifies to the State Department of Assessments and Taxation of Maryland that:
FIRST: Pursuant to authority expressly vested in the Board of Directors
of the Corporation by article fifth of its Charter, the Board of Directors has
reclassified 1,000 authorized and unissued shares of common stock of the
Corporation as preferred stock of the Corporation and has authorized the
issuance of a series of preferred stock, par value $.10 per share, liquidation
preference $50,000 per share plus an amount equal to accumulated but unpaid
dividends (whether or not earned or declared) thereon, to be designated Auction
Market Preferred Stock.
SECOND: The preferences, voting powers, restrictions, limitations as to
dividends, qualifications, and terms and conditions of redemption, of the shares
of each such series of preferred stock are as follows:
DESIGNATION
A series of 1,000 shares of preferred stock, par value $.10 per share,
liquidation preference $50,000 per share plus an amount equal to accumulated but
unpaid dividends (whether or not earned or declared) thereon, is hereby
designated "Auction Market Preferred Stock". Each share of Auction Market
Preferred Stock (sometimes referred to herein as "AMPS") shall be issued on
November 19, 1992; have an Initial Dividend Rate equal to 3.35%
- --------
(R) Registered trademark of Merrill Lynch & Co., Inc.
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per annum; have Initial Dividend Payment Dates as set forth herein; and have
such other preferences, voting powers, limitations as to dividends,
qualifications and terms and conditions of redemption as are set forth in these
Articles Supplementary. The Auction Market Preferred Stock shall constitute a
separate series of preferred stock of the Corporation, and each share of Auction
Market Preferred Stock shall be identical.
1. Definitions. (a) Unless the context or use indicates another or
different meaning or intent, in these Articles Supplementary the following terms
have the following meanings, whether used in the singular or plural:
"'AA' Composite Commercial Paper Rate," on any date of determination,
means (i) the Interest Equivalent of the rate on commercial paper placed on
behalf of issuers whose corporate bonds are rated "AA" by S&P or "Aa" by Moody's
or the equivalent of such rating by another nationally recognized rating agency,
as such rate is made available on a discount basis or otherwise by the Federal
Reserve Bank of New York for the Business Day immediately preceding such date,
or (ii) in the event that the Federal Reserve Bank of New York does not make
available such a rate, then the arithmetic average of the Interest Equivalent of
the rate on commercial paper placed on behalf of such issuers, as quoted on a
discount basis or otherwise by Merrill Lynch, Pierce, Fenner & Smith
Incorporated or its successors that are Commercial Paper Dealers, to the Auction
Agent for the close of business on the Business Day immediately preceding such
date. If one of the Commercial Paper Dealers does not quote a rate required to
determine the "AA" Composite Commercial Paper Rate, the "AA" Composite
Commercial Paper Rate will be determined on the basis of the quotation or
quotations furnished by any Substitute Commercial Paper Dealer or Substitute
Commercial Paper Dealers selected by the Corporation to provide such rate or
rates not being supplied by the Commercial Paper Dealer. If the number
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of Dividend Period Days shall be (i) 7 or more but fewer than 49 days, such rate
shall be the Interest Equivalent of the 30-day rate on such commercial paper;
(ii) 49 or more but fewer than 70 days, such rate shall be the Interest
Equivalent of the 60-day rate on such commercial paper; (iii) 70 or more days
but fewer than 85 days, such rate shall be the arithmetic average of the
Interest Equivalent on the 60-day and 90-day rates on such commercial paper;
(iv) 85 or more days but fewer than 99 days, such rate shall be the Interest
Equivalent of the 90-day rate on such commercial paper; (v) 99 or more days but
fewer than 120 days, such rate shall be the arithmetic average of the Interest
Equivalent of the 90-day and 120-day rates on such commercial paper; (vi) 120 or
more days but fewer than 141 days, such rate shall be the Interest Equivalent of
the 120-day rate on such commercial paper; (vii) 141 or more days but fewer than
162 days, such rate shall be the arithmetic average of the Interest Equivalent
of the 120-day and 180-day rates on such commercial paper; and (viii) 162 or
more days but fewer than 183 days, such rate shall be the Interest Equivalent of
the 180-day rate on such commercial paper.
"Accountant's Confirmation" has the meaning set forth in paragraph 7(c)
of these Articles Supplementary.
"Additional Dividend" has the meaning set forth in paragraph 2(e) of
these Articles Supplementary.
"Adviser" means the Corporation's investment adviser which initially
shall be Fund Asset Management, Inc.
"Affiliate" shall mean any Person, other than Merrill Lynch, Pierce,
Fenner & Smith Incorporated or its successors, known to the Auction Agent to be
controlled by, in control of, or under common control with, the Corporation.
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"Agent Member" means a member of the Securities Depository that will
act on behalf of an Existing Holder of one or more shares of AMPS or a Potential
Holder that is identified as such in such holder's Purchaser's Letter.
"AMPS" means the Auction Market Preferred Stock.
"AMPS Basic Maintenance Amount," as of any Valuation Date, means the
dollar amount equal to (i) the sum of (A) the product of the number of shares of
AMPS and Other AMPS Outstanding on such Valuation Date multiplied by the sum of
(a) $50,000 and (b) any applicable redemption premium attributable to the
designation of a Premium Call Period; (B) the aggregate amount of cash dividends
(whether or not earned or declared) that will have accumulated for each share of
AMPS and Other AMPS Outstanding, in each case, to (but not including) the end of
the current Dividend Period for each series of AMPS that follows such Valuation
Date; (C) the aggregate amount of cash dividends that would accumulate at the
then current Maximum Applicable Rate on any shares of AMPS and Other AMPS
Outstanding from the end of such Dividend Period through the 49th day after such
Valuation Date, multiplied by the larger of the Moody's Volatility Factor and
the S&P Volatility Factor, determined from time to time by Moody's and S&P,
respectively (except that if such Valuation Date occurs during a Non-Payment
Period, the cash dividend for purposes of calculation would accumulate at the
then current Non-Payment Period Rate); (D) the amount of anticipated expenses of
the Corporation for the 90 days subsequent to such Valuation Date (including any
premiums payable with respect to a Policy); (E) the amount of the Corporation's
Maximum Potential Additional Dividend Liability as of such Valuation Date; and
(F) any current liabilities as of such Valuation Date to the extent not
reflected in any of (i)(A) through (i)(E) (including, without limitation, and
immediately upon determination, any amounts due and payable by the Corporation
pursuant to
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repurchase agreements and any payables for Michigan Municipal Bonds or Municipal
Bonds purchased as of such Valuation Date) less (ii) either (A) the Discounted
Value of any of the Corporation's assets, or (B) the face value of any of the
Corporation's assets if such assets mature prior to or on the date of redemption
of AMPS or payment of a liability and are either securities issued or guaranteed
by the United States Government or have a rating assigned by Moody's of at least
Aaa, P-1, VMIG-l or MIG-1 or, with respect to S&P, at least AAA, SP-1+ or A-l+,
in both cases irrevocably deposited by the Corporation for the payment of the
amount needed to redeem shares of AMPS subject to redemption or any of (i)(B)
through (i)(F). For Moody's, the Corporation shall include as a liability an
amount calculated semi-annually equal to 150% of the estimated cost of obtaining
other insurance guaranteeing the timely payment of interest on a Moody's
Eligible Asset and principal thereof to maturity with respect to Moody's
Eligible Assets that (i) are covered by a Policy which provides the Corporation
with the option to obtain such other insurance and (ii) are discounted by a
Moody's Discount Factor determined by reference to the insurance claims-paying
ability rating of the issuer of such Policy.
"AMPS Basic Maintenance Cure Date," with respect to the failure by the
Corporation to satisfy the AMPS Basic Maintenance Amount (as required by
paragraph 7(a) of these Articles Supplementary) as of a given Valuation Date,
means the sixth Business Day following such Valuation Date.
"AMPS Basic Maintenance Report" means a report signed by any of the
President, Treasurer, any Senior Vice President or any Vice President of the
Corporation which sets forth, as of the related Valuation Date, the assets of
the Corporation, the Market Value and the Discounted Value thereof (seriatim and
in aggregate), and the AMPS Basic Maintenance Amount.
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"Anticipation Notes" shall mean the following Michigan Municipal Bonds:
revenue anticipation notes, tax anticipation notes, tax and revenue anticipation
notes, grant anticipation notes and bond anticipation notes.
"Applicable Percentage" has the meaning set forth in paragraph
11(a)(vii) of these Articles Supplementary.
"Applicable Rate" means the rate per annum at which cash dividends are
payable on the AMPS or Other AMPS, as the case may be, for any Dividend Period.
"Auction" means a periodic operation of the Auction Procedures.
"Auction Agent" means IBJ Schroder Bank & Trust Company unless and
until another commercial bank, trust company or other financial institution
appointed by a resolution of the Board of Directors of the Corporation or a duly
authorized committee thereof enters into an agreement with the Corporation to
follow the Auction Procedures for the purpose of determining the Applicable Rate
and to act as transfer agent, registrar, dividend disbursing agent and
redemption agent for the AMPS and Other AMPS.
"Auction Procedures" means the procedures for conducting Auctions set
forth in paragraph 11 of these Articles Supplementary.
"Broker-Dealer" shall mean any broker-dealer, or other entity permitted
by law to perform the functions required of a Broker-Dealer in paragraph 11 of
these Articles Supplementary, that has been selected by the Corporation and has
entered into a Broker-Dealer Agreement with the Auction Agent that remains
effective.
"Broker-Dealer Agreement" shall mean an agreement between the Auction
Agent and a Broker-Dealer pursuant to which such Broker-Dealer agrees to follow
the procedures specified in paragraph 11 of these Articles Supplementary.
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"Business Day" means a day on which the New York Stock Exchange, Inc.
is open for trading and which is not a Saturday, Sunday or other day on which
banks in The City of New York are authorized or obligated by law to close.
"Charter" means the Articles of Incorporation, as amended and
supplemented (including these Articles Supplementary), of the Corporation on
file in the State Department of Assessments and Taxation of Maryland.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commercial Paper Dealers" means Merrill Lynch, Pierce, Fenner & Smith
Incorporated and such other commercial paper dealer or dealers as the
Corporation may from time to time appoint, or, in lieu of any thereof, their
respective affiliates or successors.
"Common Stock" means the common stock, par value $.10 per share, of the
Corporation.
"Corporation" means MuniYield Michigan Insured Fund, Inc., a Maryland
corporation.
"Date of Original Issue" means, with respect to any share of AMPS or
Other AMPS, the date on which the corporation originally issues such share.
"Deposit Securities" means cash and Michigan Municipal Bonds and
Municipal Bonds rated at least AAA, A-1+ or SP-1+ by S&P.
"Discounted Value" means (i) with respect to an S&P Eligible Asset, the
quotient of the Market Value thereof divided by the applicable S&P Discount
Factor and (ii) with respect to a Moody's Eligible Asset, the lower of par and
the quotient of the Market Value thereof divided by the applicable Moody's
Discount Factor.
"Dividend Coverage Amount," as of any Valuation Date, means (A)(i) the
aggregate amount of cash dividends that will accumulate on all shares of
Outstanding AMPS and Other AMPS, in each case to (but not including) the next
Dividend Payment Date therefor for the
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AMPS that follows such Valuation Date plus -(ii) the aggregate amount of all
liabilities existing on such Valuation Date which are payable on or prior to
such next Dividend Payment Date less (B) the sum of (i) the combined Market
Value of Deposit Securities irrevocably deposited with the Auction Agent for the
payment of cash dividends on all shares of AMPS and Other AMPS, (ii) the book
value of receivables for Michigan Municipal Bonds and Municipal Bonds sold as of
or prior to such Valuation Date, if such receivables are due within five
Business Days of such Valuation Date and in any event on or prior to such next
Dividend Payment Date, and (iii) interest on Michigan Municipal Bonds and
Municipal Bonds which is scheduled to be paid on or prior to the next Dividend
Payment Date.
"Dividend Coverage Assets," as of any Valuation Date, means, in the
case of shares of AMPS and Other AMPS, Deposit Securities with maturity or
tender payment dates not later in each case than the Dividend Payment Date
therefor that follows such Valuation Date.
"Dividend Payment Date," with respect to AMPS, has the meaning set
forth in paragraph 2(b)(i) of these Articles Supplementary and, with respect to
Other AMPS, has the equivalent meaning.
"Dividend Period" means the Initial Dividend Period, any 7-day Dividend
Period and any Special Dividend Period.
"Existing Holder" means a Person who has signed a Purchaser's Letter
and is listed as the holder of record of shares of AMPS in the Stock Books.
"First Initial Dividend Payment Date" means December 1, 1992.
"Forward Commitment" has the meaning set forth in paragraph 9(c) of
these Articles Supplementary.
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"Holder" means a Person identified as a holder of record of shares of
AMPS in the Stock Register.
"Independent Accountant" means a nationally recognized accountant, or
firm of accountants, that is, with respect to the Corporation, an independent
public accountant or firm of independent public accountants under the Securities
Act of 1933, as amended.
"Initial Dividend Payment Date" means each of the First Initial
Dividend Payment Date, the Last Initial Payment Date and the first day of each
calendar month during the Initial Dividend Period.
"Initial Dividend Period," with respect to the AMPS, has the meaning
set forth in paragraph 2(c)(i) of these Articles Supplementary and, with respect
to Other AMPS, has the equivalent meaning.
"Initial Dividend Rate," with respect to the AMPS, means the rate per
annum specified herein applicable to the Initial Dividend Period for the AMPS
and, with respect to Other AMPS, has the equivalent meaning.
"Initial Margin" means the amount of cash or securities deposited with
a broker as a margin payment at the time of purchase or sale of a futures
contract.
"Interest Equivalent" means a yield on a 360-day basis of a discount
basis security which is equal to the yield on an equivalent interest-bearing
security.
"Last Initial Dividend Payment Date" means May 12, 1993.
"Long Term Dividend Period" means a Special Dividend Period consisting
of a specified period of one whole year or more but not greater than five years.
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"Mandatory Redemption Price" means $50,000 per share of AMPS plus an
amount equal to accumulated but unpaid dividends (whether or not earned or
declared) to the date fixed for redemption and excluding Additional Dividends.
"Marginal Tax Rate" means the maximum marginal regular Federal
individual income tax rate applicable to ordinary income or the maximum marginal
regular Federal corporate income tax rate, whichever is greater.
"Market Value" of any asset of the Corporation shall be the market
value thereof determined by the Pricing Service. Market Value of any asset shall
include any interest accrued thereon. The Pricing Service shall value portfolio
securities at the quoted bid prices or the mean between the quoted bid and asked
price or the yield equivalent when quotations are not readily available.
Securities for which quotations are not readily available shall be valued at
fair value as determined by the Pricing Service using methods which include
consideration of: yields or prices of municipal bonds of comparable quality,
type of issue, coupon, maturity and rating; indications as to value from
dealers; and general market conditions. The Pricing Service may employ
electronic data processing techniques and/or a matrix system to determine
valuations. In the event the Pricing Service is unable to value a security, the
security shall be valued at the lower of two dealer bids obtained by the
Corporation from dealers who are members of the National Association of
Securities Dealers, Inc. and make a market in the security, at least one of
which shall be in writing. Futures contracts and options are valued at closing
prices for such instruments established by the exchange or board of trade on
which they are traded, or if market quotations are not readily available, are
valued at fair value on a consistent basis using methods determined in good
faith by the Board of Directors.
10
<PAGE> 11
"Maximum Applicable Rate," with respect to AMPS, has the meaning set
forth in paragraph 11(a)(vii) of these Articles Supplementary and, with respect
to Other AMPS, has the equivalent meaning.
"Maximum Potential Additional Dividend Liability," as of any Valuation
Date, means the aggregate amount of Additional Dividends that would be due if
the Corporation were to make Retroactive Taxable Allocations, with respect, to
any fiscal year, estimated based upon dividends paid and the amount of
undistributed realized net capital gains and other taxable income earned by the
Corporation, as of the end of the calendar month immediately preceding such
Valuation Date and assuming such Additional Dividends are fully taxable.
"Michigan Municipal Bonds" means municipal obligations issued by or on
behalf of the State of Michigan, its political subdivisions, agencies and
instrumentalities and by other qualifying issuers that pay interest which, in
the opinion of bond counsel to the issuer, is exempt from Federal and Michigan
income taxes.
"Minimum Liquidity Level" means, as of any Valuation Date, an aggregate
Market Value of the Corporation's Dividend Coverage Assets not less than the
Dividend Coverage Amount.
"Moody's" means Moody's Investors Service, Inc. or its successors.
"Moody's Discount Factor" means, for purposes of determining the
Discounted Value of any Michigan Municipal Bond or Municipal Bond which
constitutes a Moody's Eligible Asset, the percentage determined by reference to
(a)(i) the rating by Moody's or S&P on such Bond or (ii) in the event the
Moody's Eligible Asset is insured under a Policy and the terms of the Policy
permit the Corporation, at its option, to obtain other insurance guaranteeing
the timely payment of interest on such Moody's Eligible Asset and principal
thereof to maturity, the Moody's insurance claims-paying ability rating of the
issuer of the Policy or (iii) in the event the Moody's
11
<PAGE> 12
Eligible Asset is insured under an insurance policy which guarantees the timely
payment of interest on such Moody's Eligible Asset and principal thereof to
maturity, the Moody's insurance claims-paying ability rating of the issuer of
the insurance policy (provided that for purposes of clauses (ii) and (iii) if
the insurance claims-paying ability of an issuer of a Policy or insurance policy
is not rated by Moody's but is rated by S&P, such issuer shall be deemed to have
a Moody's insurance claims-paying ability rating which is two full categories
lower than the S&P insurance claims-paying ability rating) and (b) the Moody's
Exposure Period, in accordance with the table set forth below:
<TABLE>
<CAPTION>
RATING CATEGORY
----------------------------------------
MOODY'S EXPOSURE PERIOD AAA* AA* A* BAA** VM1G-1** SP-1**
----------------------- ---- --- -- ----- -------- ------
<S> <C> <C> <C> <C> <C> <C>
7 weeks or less........................... 166% 175% 185% 222% 150% 163%
8 weeks or less but
greater than seven weeks.................. 169 180 190 226 151 164
9 weeks or less but
greater than eight weeks.................. 174 186 197 230 152 165
</TABLE>
---------------
* Moody's rating.
** Michigan Municipal Bonds and Municipal Bonds rated MIG-1, VMIG-l or P-1
or, if not rated by Moody's, rated SP-l+ or A-l+ by S&P which do not
mature or have a demand feature at par exercisable within the Moody's
Exposure Period and which do not have a long-term rating. For the
purposes of the definition of Moody's Eligible Assets, these securities
will have an assumed rating of "A" by Moody's.
; provided, however, in the event a Moody's Discount Factor applicable to a
Moody's Eligible Asset is determined by reference to an insurance claims-paying
ability rating in accordance with clause (a)(ii) or (a)(iii), such Moody's
Discount Factor shall be increased by an amount equal to 50% of the difference
between (a) the percentage set forth in the foregoing table under the applicable
rating category and (b) the percentage set forth in the foregoing table under
the rating category which is one category lower than the applicable rating
category.
Notwithstanding the foregoing, (i) no Moody's Discount Factor will be
applied to short-term Michigan Municipal Bonds and short-term Municipal Bonds,
so long as such Michigan Municipal Bonds and Municipal Bonds are rated at least
MIG-1, VMIG-1 or P-1 by
12
<PAGE> 13
Moody's and mature or have a demand feature at par exercisable within the
Moody's Exposure Period, and the Moody's Discount Factor for such Bonds will be
125% if such Bonds are not rated by Moody's but are rated A-1+ or SP-1+ or AA by
S&P and mature or have a demand feature at par exercisable within the Moody's
Exposure Period, and (ii) no Moody's Discount Factor will be applied to cash or
to Receivables for Michigan Municipal Bonds or Municipal Bonds Sold.
"Receivables for Michigan Municipal Bonds or Municipal Bonds Sold," for purposes
of calculating Moody's Eligible Assets as of any Valuation Date, means no more
than the aggregate of the following: (i) the book value of receivables for
Michigan Municipal Bonds or Municipal Bonds sold as of or prior to such
Valuation Date if such receivables are due within five Business Days of such
Valuation Date, and if the trades which generated such receivables are (x)
settled through clearing house firms with respect to which the Corporation has
received prior written authorization from Moody's or (y) with counterparties
having a Moody's long-term debt rating of at least Baa3; and (ii) the Moody's
Discounted Value of Michigan Municipal Bonds or Municipal Bonds sold as of or
prior to such Valuation Date which generated receivables, if such receivables
are due within five Business Days of such Valuation Date but do not comply with
either of conditions (x) or (y) of the preceding clause (i).
"Moody's Eligible Asset" means cash, Receivables for Michigan Municipal
Bonds or Municipal Bonds Sold, a Michigan Municipal Bond or a Municipal Bond
that (i) pays interest in cash, (ii) is publicly rated Baa or higher by Moody's
or, if not rated by Moody's but rated by S&P, is rated at least A by S&P
(provided that, for purposes of determining the Moody's Discount Factor
applicable to any such S&P-rated Michigan Municipal Bond or S&P-rated Municipal
Bond, such Michigan Municipal Bond or Municipal Bond (excluding any short-term
Michigan Municipal Bond or Municipal Bond) will be deemed to have a Moody's
rating which is one full rating
13
<PAGE> 14
category lower than its S&P rating), (iii) does not have its Moody's rating
suspended by Moody's; and (iv) is part of an issue of Michigan Municipal Bonds
or Municipal Bonds of at least $10,000,000. In addition, Michigan Municipal
Bonds and Municipal Bonds in the Corporation's portfolio must be within the
following diversification requirements in order to be included within Moody's
Eligible Assets:
<TABLE>
<CAPTION>
MINIMUM MAXIMUM MAXIMUM MAXIMUM MAXIMUM
ISSUE SIZE UNDERLYING ISSUE TYPE COUNTY STATE OR TERRITORY
RATING ($ MILLIONS) OBLIGOR (%)(1) CONCENTRATION(%)(1)(2) CONCENTRATION(%)(1)(2) CONCENTRATION(%)(1)(4)
- ------ ------------ -------------- ---------------------- ---------------------- ----------------------
<S> <C> <C> <C> <C> <C>
Aaa................... 10 100 100 100 100
Aa.................... 10 10 30 30 60
A..................... 10 5 20 20 40
Baa................... 10 3 10 10 20
</TABLE>
- ----------------------
(1) The referenced percentages represent maximum cumulative totals for the
related rating category and each lower rating category.
(2) Does not apply to general obligation bonds.
(3) Applicable to general obligation bonds only. For purposes of county
diversification, Wayne County and its adjoining counties will be
treated as a single county.
(4) Does not apply to Michigan Municipal Bonds. Territorial bonds (other
than those issued by Puerto Rico and counted collectively) are each
limited to 10% of Moody's Eligible Assets. For diversification
purposes, Puerto Rico will be treated as a state.
For purposes of the maximum underlying obligor requirement described above, any
such Bond backed by the guaranty, letter of credit or insurance issued by a
third party will be deemed to be issued by such third party if the issuance of
such third party credit is the sole determinant of the rating on such Bond. For
purposes of the issue type concentration requirement described above, Michigan
Municipal Bonds and Municipal Bonds will be classified within one of the
following categories: health care issues (teaching and non-teaching hospitals,
public and private), housing issues (single- and multi-family), educational
facilities issues (public and private schools), student loan issues, resource
recovery issues, transportation issues (mass transit, airport and highway
bonds), industrial revenue/pollution control bond issues, utility issues
(including water, sewer and electricity), general obligation issues, lease
obligations/certificates of participation, escrowed bonds and other issues
("Other Issues") not falling within one of the aforementioned categories
(includes special obligations to crossover, excise and sales tax revenue,
recreation
14
<PAGE> 15
revenue, special assessment and telephone revenue bonds). In no event shall (a)
more than 10% of Moody's Eligible Assets consist of student loan issues, (b)
more than 10% of Moody's Eligible Assets consist of resource recovery issues or
(c) more than 10% of Moody's Eligible Assets consist of Other Issues.
When the Corporation sells a Michigan Municipal Bond or Municipal Bond
and agrees to repurchase it at a future date, the Discounted Value of such Bond
will constitute a Moody's Eligible Asset and the amount the Corporation is
required to pay upon repurchase of such Bond will count as a liability for
purposes of calculating the AMPS Basic Maintenance Amount. When the Corporation
purchases a Michigan Municipal Bond or Municipal Bond and agrees to sell it at a
future date to another party, cash receivable by the Corporation thereby will
constitute a Moody's Eligible Asset if the long-term debt of such other party is
rated at least A2 by Moody's and such agreement has a term of 30 days or less;
otherwise the Discounted Value of such Bond will constitute a Moody's Eligible
Asset.
Notwithstanding the foregoing, an asset will not be considered a
Moody's Eligible Asset if it is (i) held in a margin account, (ii) subject to
any material lien, mortgage, pledge, security interest or security agreement of
any kind, (iii) held for the purchase of a security pursuant to a Forward
Commitment or (iv) irrevocably deposited by the Corporation for the payment of
dividends or redemption.
"Moody's Exposure Period" means a period that is the same length or
longer than the number of days used in calculating the cash dividend component
of the AMPS Basic Maintenance Amount and shall initially be the period
commencing on and including a given Valuation Date and ending 48 days
thereafter.
15
<PAGE> 16
"Moody's Hedging Transaction" has the meaning set forth in paragraph
9(b) of these Articles Supplementary.
"Moody's Volatility Factor" means 100% during the Initial Dividend
Period until 49 days prior to the last day of such Dividend Period. Thereafter,
"Moody's Volatility Factor" means 272% as long as there has been no increase
enacted to the Marginal Tax Rate. If such an increase is enacted but not yet
implemented, the Moody's Volatility Factor shall be as follows:
<TABLE>
<CAPTION>
% CHANGE IN MOODY'S VOLATILITY
MARGINAL TAX RATE FACTOR
----------------- ------------------
<S> <C>
Lesser than or equal to 5% 292
Lesser than or equal to 5% but Lesser than or equal to 10% 313
Lesser than or equal to 10% but Lesser than or equal to 15% 338
Lesser than or equal to 15% but Lesser than or equal to 20% 364
Lesser than or equal to 20% but Lesser than or equal to 25% 396
Lesser than or equal to 25% but Lesser than or equal to 30% 432
Lesser than or equal to 30% but Lesser than or equal to 35% 472
Lesser than or equal to 35% but Lesser than or equal to 40% 520
</TABLE>
Notwithstanding the foregoing, the Moody's Volatility Factor may mean
such other potential dividend rate increase factor as Moody's advises the
Corporation in writing is applicable.
"Municipal Bonds" means "Municipal Bonds" as defined in the
Corporation's Registration Statement on Form N-2 (File No. 33-53614) on file
with the Securities and Exchange Commission, as such Registration Statement may
be amended from time to time, as well as short-term municipal obligations.
"Municipal Index" has the meaning set forth in paragraph 9(a) of these
Articles Supplementary.
"1940 Act" means the Investment Company Act of 1940, as amended from
time to time.
16
<PAGE> 17
"1940 Act AMPS Asset Coverage" means asset coverage, as defined in
section 18(h) of the 1940 Act, of at least 200% with respect to all outstanding
senior securities of the Corporation which are stock, including all outstanding
shares of AMPS and Other AMPS (or such other asset coverage as may in the future
be specified in or under the 1940 Act as the minimum asset coverage for senior
securities which are stock of a closed-end investment company as a condition of
paying dividends on its common stock).
"1940 Act Cure Date," with respect to the failure by the Corporation to
maintain the 1940 Act AMPS Asset Coverage (as required by paragraph 6 of these
Articles Supplementary) as of the last Business Day of each month, means the
last Business Day of the following month.
"Non-Call Period" has the meaning set forth under the definition of
"Specific Redemption Provisions".
"Non-Payment Period" means, with respect to the AMPS, any period
commencing on and including the day on which the Corporation shall fail to (i)
declare, prior to the close of business on the second Business Day preceding any
Dividend Payment Date, for payment on or (to the extent permitted by paragraph
2(c)(i) of these Articles Supplementary) within three Business Days after such
Dividend Payment Date to the Holders as of 12:00 noon, New York City time, on
the Business Day preceding such Dividend Payment Date, the full amount of any
dividend on shares of AMPS payable on such Dividend Payment Date or (ii)
deposit, irrevocably in trust, in same-day funds, with the Auction Agent by
12:00 noon, New York City time, (A) on such Dividend Payment Date the full
amount of any cash dividend on such shares payable (if declared) on such
Dividend Payment Date or (B) on any redemption date for any shares of AMPS
called for redemption, the Mandatory Redemption Price per share of such AMPS or,
in the case of an optional redemption, the Optional Redemption Price per share,
and ending on and
17
<PAGE> 18
including the Business Day on which, by 12:00 noon, New York City time, all
unpaid cash dividends and unpaid redemption prices shall have been so deposited
or shall have otherwise been made available to Holders in same-day funds;
provided that, a Non-Payment Period shall not end unless the Corporation shall
have given at least five days' but no more than 30 days' written notice of such
deposit or availability to the Auction Agent, all Existing Holders (at their
addresses appearing in the Stock Books) and the Securities Depository.
Notwithstanding the foregoing, the failure by the Corporation to deposit funds
as provided for by clauses (ii)(A) or (ii)(B) above within three Business Days
after any Dividend Payment Date or redemption date, as the case may be, in each
case to the extent contemplated by paragraph 2(c)(i) of the Articles
Supplementary, shall not constitute a "Non-Payment Period."
"Non-Payment Period Rate" means, initially, 200% of the applicable
Reference Rate (or 275% of such rate if the Corporation has provided
notification to the Auction Agent prior to the Auction establishing the
Applicable Rate for any dividend pursuant to paragraph 2(f) hereof that net
capital gains or other taxable income will be included in such dividend on
shares of AMPS), provided that the Board of Directors of the Corporation shall
have the authority to adjust, modify, alter or change from time to time the
initial Non-Payment Period Rate if the Board of Directors of the Corporation
determines and Moody's and S&P (and any Substitute Rating Agency in lieu of
Moody's or S&P in the event either of such parties shall not rate the AMPS)
advise the Corporation in writing that such adjustment, modification, alteration
or change will not adversely affect their then-current ratings on the AMPS.
"Normal Dividend Payment Date" has the meaning set forth in paragraph
2(b)(i) of these Articles Supplementary.
18
<PAGE> 19
"Notice of Redemption" means any notice with respect to the redemption
of shares of AMPS pursuant to paragraph 4 of these Articles Supplementary.
"Notice of Revocation" has the meaning set forth in paragraph 2(c)(iii)
of these Articles Supplementary.
"Notice of Special Dividend Period" has the meaning set forth in
paragraph 2(c)(iii) of these Articles Supplementary.
"Optional Redemption Price" shall mean $50,000 per share plus an amount
equal to accumulated but unpaid dividends (whether or not earned or declared) to
the date fixed for redemption and excluding Additional Dividends plus any
applicable redemption premium attributable to the designation of a Premium Call
Period.
"Other AMPS" means the auction rate preferred stock of the Corporation,
other than the AMPS.
"Outstanding" means, as of any date (i) with respect to AMPS, shares of
AMPS theretofore issued by the Corporation except, without duplication, (A) any
shares of AMPS theretofore cancelled or delivered to the Auction Agent for
cancellation, or redeemed by the Corporation, or as to which a Notice of
Redemption shall have been given and moneys shall have been deposited in trust
by the Corporation pursuant to paragraph 4(c) and (B) any shares of AMPS as to
which the Corporation or any Affiliate thereof shall be an Existing Holder,
provided that shares of AMPS held by an Affiliate shall be deemed outstanding
for purposes of calculating the AMPS Basic Maintenance Amount and (ii) with
respect to shares of other Preferred Stock, has the equivalent meaning.
"Parity Stock" means the AMPS and each other outstanding series of
Preferred Stock the holders of which, together with the holders of the AMPS,
shall be entitled to the receipt of
19
<PAGE> 20
dividends or of amounts distributable upon liquidation, dissolution or winding
up, as the case may be, in proportion to the full respective preferential
amounts to which they are entitled, without preference or priority one over the
other.
"Person" shall mean and include an individual, a partnership, a
corporation, a trust, an unincorporated association, a joint venture or other
entity or a government or any agency or political subdivision thereof.
"Policy" means an insurance policy purchased by the Corporation which
guarantees the payment of principal and interest on specified Michigan Municipal
Bonds or Municipal Bonds during the period in which such Michigan Municipal
Bonds or Municipal Bonds are owned by the Corporation; provided, however, that,
as long as the AMPS are rated by Moody's and S&P, the Corporation will not
obtain any Policy unless Moody's and S&P advise the Corporation in writing that
the purchase of such Policy will not adversely affect their then-current rating
on the AMPS.
"Potential Holder" shall mean any Person, including any Existing
Holder, (A) who shall have executed a Purchaser's Letter and (B) who may be
interested in acquiring shares of AMPS (or, in the case of an Existing Holder,
additional shares of AMPS).
"Preferred Stock" means the preferred stock, par value $.10 per share,
of the Corporation, and includes AMPS and Other AMPS.
"Premium Call Period" has the meaning set forth under the definition of
"Specific Redemption Provisions".
"Pricing Service" shall mean J.J. Kenny or any pricing service
designated by the Board of Directors of the Corporation provided the Corporation
obtains written assurance from S&P and
20
<PAGE> 21
Moody's that such designation will not impair the rating then assigned by S&P
and Moody's to the AMPS.
"Purchaser's Letter" means a letter addressed to the Corporation, the
Auction Agent and a Broker-Dealer in which a Person agrees, among other things,
to offer to purchase, purchase, offer to sell and/or sell shares of AMPS as set
forth in paragraph 11 of these Articles Supplementary.
"Quarterly Valuation Date" means the twenty-fifth day of the last month
of each fiscal quarter of the Corporation (or, if such day is not a Business
Day, the next succeeding Business Day) in each fiscal year of the Corporation,
commencing January 25, 1993.
"Receivables for Michigan Municipal Bonds Sold" has the meaning set
forth under the definition of S&P Discount Factor.
"Receivables for Michigan Municipal Bonds or Municipal Bonds Sold" has
the meaning set forth under the definition of Moody's Discount Factor.
"Reference Rate" means: (i) with respect to a Dividend Period or a
Short Term Dividend Period having 28 or fewer days, the higher of the applicable
"AA" Composite Commercial Paper Rate and the Taxable Equivalent of the
Short-Term Municipal Bond Rate, (ii) with respect to any Short Term Dividend
Period having more than 28 but fewer than 183 days, the applicable "AA"
Composite Commercial Paper Rate, (iii) with respect to any Short Term Dividend
Period having 183 or more but fewer than 364 days, the applicable U.S. Treasury
Bill Rate and (iv) with respect to any Long Term Dividend Period, the applicable
U.S. Treasury Note Rate.
"Request for Special Dividend Period" has the meaning set forth in
paragraph 2(c)(iii) of these Articles Supplementary.
21
<PAGE> 22
"Response" has the meaning set forth in paragraph 2(c)(iii) of these
Articles Supplementary.
"Retroactive Taxable Allocation" has the meaning set forth in paragraph
2(e) of these Articles Supplementary.
"Right," with respect to the AMPS, has the meaning set forth in
paragraph 2(e) of these Articles Supplementary and, with respect to Other AMPS,
has the equivalent meaning.
"S&P" means Standard & Poor's Corporation or its successors. "S&P
Discount Factor" means, for purposes of determining the Discounted Value of any
Michigan Municipal Bond which constitutes an S&P Eligible Asset, the percentage
determined by reference to (a)(i) the rating by S&P or Moody's on such Bond or
(ii) in the event the Michigan Municipal Bond is insured under a Policy and the
terms of the Policy permit the Corporation, at its option, to obtain other
permanent insurance guaranteeing the timely payment of interest on such Michigan
Municipal Bond and principal thereof to maturity, the S&P insurance
claims-paying ability rating of the issuer of the Policy or (iii) in the event
the Michigan Municipal Bond is insured under an insurance policy which
guarantees the timely payment of interest on such Michigan Municipal Bond and
principal thereof to maturity, the S&P insurance claims-paying ability rating of
the issuer of the insurance policy and (b) the S&P Exposure Period, in
accordance with the tables set forth below:
For Michigan Municipal Bonds:
<TABLE>
<CAPTION>
Rating Category
---------------------------------------------------------------------
S&P Exposure Period AAA* AA* A* BBB*
---------------- ---------------- ---------------- ---------------
<S> <C> <C> <C> <C>
40 Business Days............................ 215% 220% 235% 275%
22 Business Days............................ 195 200 215 255
10 Business Days............................ 180 185 200 240
7 Business Days............................. 175 180 195 235
3 Business Days............................. 155 160 175 215
</TABLE>
* S&P rating.
22
<PAGE> 23
Notwithstanding the foregoing, (i) the S&P Discount Factor for
short-term Michigan Municipal Bonds will be 115%, so long as such Michigan
Municipal Bonds are rated A-1+ or SP-1+ by S&P and mature or have a demand
feature exercisable in 30 days or less, or 125% if such Michigan Municipal Bonds
are not rated by S&P but are rated VMIG-1, P-1 or MIG-1 by Moody's; provided,
however, such short-term Michigan Municipal Bonds rated by Moody's but not rated
by S&P having a demand feature exercisable in 30 days or less must be backed by
a letter of credit, liquidity facility or guarantee from a bank or other
financial institution having a short-term rating of at least A-1+ from S&P; and
further provided that such short-term Michigan Municipal Bonds rated by Moody's
but not rated by S&P may comprise no more than 50% of short-term Michigan
Municipal Bonds that qualify as S&P Eligible Assets and (ii) no S&P Discount
Factor will be applied to cash or to Receivables for Michigan Municipal Bonds
Sold. "Receivables for Michigan Municipal Bonds Sold," for purposes of
calculating S&P Eligible Assets as of any Valuation Date, means the book value
of receivables for Michigan Municipal Bonds sold as of or prior to such
Valuation Date if such receivables are due within five Business Days of such
Valuation Date. The Corporation may adopt S&P Discount Factors for Municipal
Bonds provided that S&P advises the Corporation in writing that such action will
not adversely affect its then current rating on the AMPS. For purposes of the
foregoing, Anticipation Notes rated SP-l+ or, if not rated by S&P, rated VMIG-1
by Moody's, which do not mature or have a demand feature exercisable in 30 days
and which do not have a long-term rating, shall be considered to be short-term
Michigan Municipal Bonds.
"S&P Eligible Asset" means cash, Receivables for Michigan Municipal
Bonds Sold or a Michigan Municipal Bond that (i) is interest bearing and pays
interest at least semi-annually; (ii) is payable with respect to principal and
interest in United States Dollars; (iii) is publicly rated
23
<PAGE> 24
BBB or higher by S&P or, except in the case of Anticipation Notes that are grant
anticipation notes or bond anticipation notes which must be rated by S&P to be
included in S&P Eligible Assets, if not rated by S&P but rated by Moody's, is
rated at least A by Moody's (provided that such Moody's-rated Michigan Municipal
Bonds will be included in S&P Eligible Assets only to the extent the Market
Value of such Michigan Municipal Bonds does not exceed 50% of the aggregate
Market Value of the S&P Eligible Assets; and further provided that, for purposes
of determining the S&P Discount Factor applicable to any such Moody's-rated
Michigan Municipal Bond, such Michigan Municipal Bond will be deemed to have an
S&P rating which is one full rating category lower than its Moody's rating);
(iv) is not subject to a covered call or covered put option written by the
Corporation; (v) is not part of a private placement of Michigan Municipal Bonds;
and (vi) is part of an issue of Michigan Municipal Bonds with an original issue
size of at least $10 million or, if of an issue with an original issue size
below $10 million (but in no event below $5 million), is issued by an issuer
with a total of at least $50 million of securities outstanding. Notwithstanding
the foregoing:
(1) Michigan Municipal Bonds of any one issuer or guarantor
(excluding bond insurers) will be considered S&P Eligible
Assets only to the extent the Market Value of such Michigan
Municipal Bonds does not exceed 10% of the aggregate Market
Value of the S&P Eligible Assets, provided that 2% is added to
the applicable S&P Discount Factor for every 1% by which the
Market Value of such Michigan Municipal Bonds exceeds 5% of
the aggregate Market Value of the S&P Eligible Assets; and
(2) Michigan Municipal Bonds of any one issue type category (as
described below) will be considered S&P Eligible Assets only
to the extent the Market Value of such Bonds does not exceed
20% of the aggregate
24
<PAGE> 25
Market Value of S&P Eligible Assets, except that Michigan
Municipal Bonds falling within the utility issue type category
will be broken down into three sub-categories (as described
below) and such Michigan Municipal Bonds will be considered
S&P Eligible Assets to the extent the Market Value of such
Bonds in each such sub-category does not exceed 20% of the
aggregate Market Value of S&P Eligible Assets. For purposes of
the issue type category requirement described above, Michigan
Municipal Bonds will be classified within one of the following
categories: health care issues, housing issues, educational
facilities issues, student loan issues, transportation issues,
industrial development bond issues, utility issues, general
obligation issues, lease obligations, escrowed bonds and other
issues not falling within one of the aforementioned
categories. For purposes of the issue type category
requirement described above, Michigan Municipal Bonds in the
utility issue type category will be classified within one of
the three following subcategories: (i) electric, gas and
combination issues (if the combination issue includes an
electric issue), (ii) water and sewer utilities and
combination issues (if the combination issue does not include
an electric issue), and (iii) irrigation, resource recovery,
solid waste and other utilities, provided that Michigan
Municipal Bonds included in this sub-category (iii) must be
rated by S&P in order to be included in S&P Eligible Assets.
(3) The Corporation may include Municipal Bonds as S&P Eligible
Assets pursuant to guidelines and restrictions to be
established by S&P provided
25
<PAGE> 26
that S&P advises the Corporation in writing that such action
will not adversely affect its then current rating on the AMPS.
(4) "S&P Exposure Period" means the maximum period of time
following a Valuation Date, including the Valuation Date and
the AMPS Basic Maintenance Cure Date, that the Corporation has
under these Articles Supplementary to cure any failure to
maintain, as of such Valuation Date, the Discounted Value for
its portfolio at least equal to the AMPS Basic Maintenance
Amount (as described in paragraph 7(a) of these Articles
Supplementary).
"S&P Hedging Transactions" has the meaning set forth in paragraph 9(a)
of these Articles Supplementary.
"S&P Volatility Factor" means 217% during the Initial Dividend Period
for the AMPS. Thereafter, "S&P Volatility Factor" means, depending on the
applicable Reference Rate, the following:
<TABLE>
<CAPTION>
Reference Rate
<S> <C>
Taxable Equivalent of the
Short-Term Municipal
Bond Rate........................................................................... 227%
30-day "AA" Composite
Commercial Paper Rate............................................................... 228%
60-day "AA" Composite
Commercial Paper Rate............................................................... 228%
90-day "AA" Composite
Commercial Paper Rate............................................................... 222%
180-day "AA" Composite
Commercial Paper Rate............................................................... 217%
1-year U.S. Treasury
Bill Rate........................................................................... 198%
2-year U.S. Treasury
Note Rate........................................................................... 185%
</TABLE>
26
<PAGE> 27
<TABLE>
<S> <C>
3-year U.S. Treasury
Note Rate........................................................................... 178%
4-year U.S. Treasury
Note Rate........................................................................... 171%
5-year U.S. Treasury
Note Rate........................................................................... 169%
</TABLE>
Notwithstanding the foregoing, the S&P Volatility Factor may mean such
other potential dividend rate increase factor as S&P advises the Corporation in
writing is applicable.
"Securities Depository" means The Depository Trust Company or any
successor company or other entities elected by the Corporation as securities
depository for the shares of AMPS that agrees to follow the procedures required
to be followed by such securities depository in connection with the shares of
AMPS.
"Service" means the United States Internal Revenue Service.
"17-day Dividend Period" means a Dividend Period consisting of seven
days.
"Short Term Dividend Period" means a Special Dividend Period consisting
of a specified number of days (other than seven), evenly divisible by seven and
not fewer than seven or more than 364.
"Special Dividend Period" means a Dividend Period consisting of (i) a
specified number of days (other than seven), evenly divisible by seven and not
fewer than seven nor more than 364 or (ii) a specified period of one whole year
or more but not greater than five years (in each case subject to adjustment as
provided in paragraph 2(b)(i)).
"Specific Redemption Provisions" means, with respect to a Special
Dividend Period either, or any combination of, (i) a period (a "Non-Call
Period") determined by the Board of Directors of the Corporation, after
consultation with the Auction Agent and the Broker-Dealers, during which the
shares of AMPS subject to such Dividend Period shall not be subject to
27
<PAGE> 28
redemption at the option of the Corporation and (ii) a period (a "Premium Call
Period"), consisting of a number of whole years and determined by the Board of
Directors of the Corporation, after consultation with the Auction Agent and the
Broker-Dealers, during each year of which the shares of AMPS subject to such
Dividend Period shall be redeemable at the Corporation's option at a price per
share equal to $50,000 plus accumulated but unpaid dividends plus a premium
expressed as a percentage of $50,000, as determined by the Board of Directors of
the Corporation after consultation with the Auction Agent and the
Broker-Dealers.
"Stock Books" means the books maintained by the Auction Agent setting
forth at all times a current list, as determined by the Auction Agent, of
Existing Holders of the AMPS.
"Stock Register" means the register of Holders maintained on behalf of
the corporation by the Auction Agent in its capacity as transfer agent and
registrar for the AMPS.
"Subsequent Dividend Period," with respect to AMPS, has the meaning set
forth in paragraph 2(c)(i) of these Articles Supplementary and, with respect to
Other AMPS, has the equivalent meaning.
"Substitute Commercial Paper Dealers" means such Substitute Commercial
Paper Dealer or Dealers as the Corporation may from time to time appoint or, in
lieu of any thereof, their respective affiliates or successors.
"Substitute Rating Agency" and "Substitute Rating Agencies" mean a
nationally recognized statistical rating organization or two nationally
recognized statistical rating organizations, respectively, selected by Merrill
Lynch, Pierce, Fenner & Smith Incorporated or its affiliates and successors,
after consultation with the Corporation, to act as the substitute rating agency
or substitute rating agencies, as the case may be, to determine the credit
ratings of the shares of AMPS.
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<PAGE> 29
"Taxable Equivalent of the Short-Term Municipal Bond Rate" on any date
means 90% of the quotient of (A) the per annum rate expressed on an interest
equivalent basis equal to the Kenny S&P 30 day High Grade Index or any successor
index (the "Kenny Index"), made available for the Business Day immediately
preceding such date but in any event not later than 8:30 A.M., New York City
time, on such date by Kenny Information Systems Inc. or any successor thereto,
based upon 30-day yield evaluations at par of bonds the interest on which is
excludable for regular Federal income tax purposes under the Code of "high
grade" component issuers selected by Kenny Information Systems Inc. or any such
successor from time to time in its discretion, which component issuers shall
include, without limitation, issuers of general obligation bonds but shall
exclude any bonds the interest on which constitutes an item of tax preference
under Section 57(a)(5) of the Code, or successor provisions, for purposes of the
"alternative minimum tax," divided by (B) 1.00 minus the Marginal Tax Rate
(expressed as a decimal); provided, however, that if the Kenny Index is not made
so available by 8:30 A.M., New York City time, on such date by Kenny Information
Systems Inc. or any successor, the Taxable Equivalent of the Short-Term
Municipal Bond Rate shall mean the quotient of (A) the per annum rate expressed
on an interest equivalent basis equal to the most recent Kenny Index so made
available for any preceding Business Day, divided by (B) 1.00 minus the Marginal
Tax Rate (expressed as a decimal).
"Treasury Bonds" shall have the meaning set forth in paragraph 9(a) of
these Articles Supplementary.
"U.S. Treasury Bill Rate" on any date means (i) the Interest Equivalent
of the rate on the actively traded Treasury Bill with a maturity most nearly
comparable to the length of the related Dividend Period, as such rate is made
available on a discount basis or otherwise by the Federal
29
<PAGE> 30
Reserve Bank of New York in its Composite 3:30 P.M. Quotations for U.S.
Government Securities report for such Business Day, or (ii) if such yield as so
calculated is not available, the Alternate Treasury Bill Rate on such date.
"Alternate Treasury Bill Rate" on any date means the Interest Equivalent of the
yield as calculated by reference to the arithmetic average of the bid price
quotations of the actively traded Treasury Bill with a maturity most nearly
comparable to the length of the related Dividend Period, as determined by bid
price quotations as of any time on the Business Day immediately preceding such
date, obtained from at least three recognized primary U.S. Government securities
dealers selected by the Auction Agent.
"U.S. Treasury Note Rate" on any date means (i) the yield as calculated
by reference to the bid price quotation of the actively traded, current-coupon
Treasury Note with a maturity most nearly comparable to the length of the
related Dividend Period, as such bid price quotation is published on the
Business Day immediately preceding such date by the Federal Reserve Bank of New
York in its Composite 3:30 P.M. Quotations for U.S. Government Securities report
for such Business Day, or (ii) if such yield as so calculated is not available,
the Alternate Treasury Note Rate on such date. "Alternate Treasury Note Rate" on
any date means the yield as calculated by reference to the arithmetic average of
the bid price quotations of the actively traded, current coupon Treasury Note
with a maturity most nearly comparable to the length of the related Dividend
Period, as determined by the bid price quotations as of any time on the Business
Day immediately preceding such date, obtained from at least three recognized
primary U.S. Government securities dealers selected by the Auction Agent.
"Valuation Date" means, for purposes of determining whether the
Corporation is maintaining the AMPS. Basic Maintenance Amount and the Minimum
Liquidity Level, each Business Day commencing with the Date of Original Issue.
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<PAGE> 31
"Variation Margin" means, in connection with an outstanding futures
contract owned or sold by the Corporation, the amount of cash or securities paid
to or received from a broker (subsequent to the Initial Margin payment) from
time to time as the price of such futures contract fluctuates.
(b) The foregoing definitions of Accountant's Confirmation, AMPS Basic
Maintenance Amount, AMPS Basic Maintenance Cure Date, AMPS Basic Maintenance
Report, Deposit Securities, Discounted Value, Dividend Coverage Amount, Dividend
Coverage Assets, Independent Accountants, Initial Margin, Market Value, Maximum
Potential Additional Dividend Liability, Minimum Liquidity Level, Moody's
Discount Factor, Moody's Eligible Asset, Moody's Exposure Period, Moody's
Hedging Transactions, Moody's Volatility Factor, S&P Discount Factor, S&P
Eligible Asset, S&P Exposure Period, S&P Hedging Transactions, S&P Volatility
Factor, Valuation Date and Variation Margin have been determined by the Board of
Directors of the Corporation in order to obtain a "aa1" rating from Moody's and
a AAA rating from S&P on the AMPS on their Date of Original Issue; and the Board
of Directors of the Corporation shall have the authority to adjust, modify,
alter or change from time to time the foregoing definitions and the restrictions
and guidelines set forth thereunder if Moody's and S&P or any Substitute Rating
Agency advises the Corporation in writing that such adjustment, modification,
alteration or change will not adversely affect their then-current ratings on the
AMPS.
2. Dividends. (a) The Holders shall be entitled to receive, when, as
and if declared by the Board of Directors of the Corporation, out of funds
legally available therefor, cumulative dividends each consisting of (i) cash at
the Applicable Rate, (ii) a Right to receive cash as set forth in paragraph 2(e)
below, and (iii) any additional amounts as set forth in paragraph 2(f)
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<PAGE> 32
below, and no more, payable on the respective dates set forth below. Dividends
on the shares of AMPS so declared and payable shall be paid (i) in preference to
and in priority over any dividends declared and payable on the Common Stock, and
(ii) to the extent permitted under the Code and to the extent available, out of
net tax-exempt income earned on the Corporation's investments. To the extent
permitted under the Code, dividends on shares of AMPS will be designated as
exempt-interest dividends. For the purposes of this section, the term "net
tax-exempt income" shall exclude capital gains of the Corporation.
(b) (i) Cash dividends on shares of AMPS shall accumulate from the Date
of Original Issue and shall be payable, when, as and if declared by the Board of
Directors, out of funds legally available therefor, commencing on the First
Initial Dividend Payment Date with respect to the AMPS. Dividends on the AMPS
during the Initial Dividend Period shall be payable on each Initial Dividend
Payment Date, except that if any Initial Dividend Payment Date is not a Business
Day, then (i) the Dividend Payment Date shall be the first Business Day next
succeeding such Initial Dividend Payment Date if such Initial Dividend Payment
Date is a Saturday, Sunday, Monday, Tuesday, Wednesday or Thursday, or (ii) the
Dividend Payment Date shall be the first Business Day next preceding such
Initial Dividend Payment Date if such Initial Dividend Payment Date is a Friday.
If, however, in the case of clause (ii) in the preceding sentence, the
Securities Depository shall make available to its participants and members in
funds immediately available in New York City on Initial Dividend Payment Dates
the amount due as dividends on such Initial Dividend Payment Dates (and the
Securities Depository shall have so advised the Corporation), and if the day
that otherwise would be the Initial Dividend Payment Date is not a Business Day,
then the Dividend Payment Date shall be the next succeeding Business Day.
Following the Last Initial Dividend Payment Date for the AMPS, dividends on the
32
<PAGE> 33
AMPS will be payable, at the option of the Corporation, either (i) with respect
to any 7-day Dividend Period and any Short Term Dividend Period of 35 or fewer
days, on the day next succeeding the last day thereof and (ii) with respect to
any Short Term Dividend Period of more than 35 days and with respect to any Long
Term Dividend Period, monthly on the first day of each calendar month during
such Short Term Dividend Period or Long Term Dividend Period and on the day next
succeeding the last day thereof (each such date referred to in clause (i) or
(ii) being herein referred to as a "Normal Dividend Payment Date"), except that
if such Normal Dividend Payment Date is not a Business Day, then (i) the
Dividend Payment Date shall be the first Business Day next succeeding such
Normal Dividend Payment Date if such Normal Dividend Payment Date is a Saturday,
Sunday, Monday, Tuesday, Wednesday or Thursday, or (ii) the Dividend Payment
Date shall be the first Business Day next preceding such Normal Dividend Payment
Date if such Normal Dividend Payment Date is a Friday. If, however, in the case
of clause (ii) in the preceding sentence, the Securities Depository shall make
available to its participants and members in funds immediately available in New
York City on Dividend Payment Dates the amount due as dividends on such Dividend
Payment Dates (and the Securities Depository shall have so advised the
Corporation), and if the Normal Dividend Payment Date is not a Business Day,
then the Dividend Payment Date shall be the next succeeding Business Day.
Although any particular Dividend Payment Date may not occur on the originally
scheduled date because of the exceptions discussed above, the next succeeding
Dividend Payment Date, subject to such exceptions, will occur on the next
following originally scheduled date. If for any reason a Dividend Payment Date
cannot be fixed as described above, then the Board of Directors shall fix the
Dividend Payment Date. The Initial Dividend Period, 7-day Dividend Periods and
Special Dividend Periods are hereinafter sometimes referred to as Dividend
Periods. Each dividend
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<PAGE> 34
payment date determined as provided above is hereinafter referred to as a
"Dividend Payment Date."
(ii) Each dividend shall be paid to the Holders as they appear
in the Stock Register as of 12:00 noon, New York City time, on the
Business Day preceding the Dividend Payment Date. Dividends in arrears
for any past Dividend Period may be declared and paid at any time,
without reference to any regular Dividend Payment Date, to the Holders
as they appear on the Stock Register on a date, not exceeding 15 days
prior to the payment date therefor, as may be fixed by the Board of
Directors of the Corporation.
(c) (i) During the period from and including the Date of Original Issue
to but excluding the Last Initial Dividend Payment Date (the "Initial Dividend
Period"), the Applicable Rate shall be the Initial Dividend Rate. Commencing on
the Last Initial Dividend Payment Date, the Applicable Rate for each subsequent
dividend period (hereinafter referred to as a "Subsequent Dividend Period"),
which Subsequent Dividend Period shall commence on and include a Dividend
Payment Date and shall end on and include the calendar day prior to the next
Dividend Payment Date (or last Dividend Payment Date in a Dividend Period if
there is more than one Dividend Payment Date), shall be equal to the rate per
annum that results from implementation of the Auction Procedures.
The Applicable Dividend Rate for each Dividend Period commencing during
a Non-Payment Period shall be equal to the Non-Payment Period Rate; and each
Dividend Period, commencing after the first day of, and during, a Non-Payment
Period shall be a 7-day Dividend Period. Except in the case of the willful
failure of the Corporation to pay a Dividend on a Dividend Payment Date or to
redeem any shares of AMPS on the date set for such redemption,
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<PAGE> 35
any amount of any dividend due on any Dividend Payment Date (if, prior to the
close of business on the second Business Day preceding such Dividend Payment
Date, the Corporation has declared such dividend payable on such Dividend
Payment Date to the Holders of such shares of AMPS as of 12:00 noon, New York
City time, on the Business Day preceding such Dividend Payment Date) or
redemption price with respect to any shares of AMPS not paid to such Holders
when due may be paid to such Holders in the same form of funds by 12:00 noon,
New York City time, on any of the first three Business Days after such Dividend
Payment Date or due date, as the case may be, provided that, such amount is
accompanied by a late charge calculated for such period of non-payment at the
Non-Payment Period Rate applied to the amount of such non-payment based on the
actual number of days comprising such period divided by 365. In the case of a
willful failure of the Corporation to pay a dividend on a Dividend Payment Date
or to redeem any shares of AMPS on the date set for such redemption, the
preceding sentence shall not apply and the Applicable Dividend Rate for the
Dividend Period commencing during the Non-Payment Period resulting from such
failure shall be the Non-Payment Period Rate. For the purposes of the foregoing,
payment to a person in same-day funds on any Business Day at any time shall be
considered equivalent to payment to such person in New York Clearing House
(next-day) funds at the same time on the preceding Business Day, and any payment
made after 12:00 noon, New York City time, on any Business Day shall be
considered to have been made instead in the same form of funds and to the same
person before 12:00 noon, New York City time, on the next Business Day.
(ii) The amount of cash dividends per share of AMPS payable
(if declared) on each Dividend Payment Date of the Initial Dividend
Period, each 7-day Dividend Period and each Short Term Dividend Period
shall be computed by multiplying the Applicable
35
<PAGE> 36
Rate for such Dividend Period by a fraction, the numerator of which
will be the number of days in such Dividend Period such share was
outstanding and the denominator of which will be 365, multiplying the
amount so obtained by $50,000, and rounding the amount so obtained to
the nearest cent. During any Long Term Dividend Period, the amount of
dividends per share payable on any Dividend Payment Date shall be
computed on the basis of a year consisting of twelve 30-day months.
(iii) With respect to each Dividend Period that is a Special
Dividend Period, the Corporation may, at its sole option and to the
extent permitted by law, by telephonic and written notice (a "Request
for Special Dividend Period") to the Auction Agent and to each
Broker-Dealer, request that the next succeeding Dividend Period for the
AMPS be the number of days (other than seven) evenly divisible by
seven, and not fewer than seven or more than 364 in the case of a Short
Term Dividend Period or one whole year or more but not greater than
five years in the case of a Long Term Dividend Period, specified in
such notice, provided that the Corporation may not give a Request for
Special Dividend Period of greater than 28 days (and any such request
shall be null and void) unless the Corporation has given written notice
thereof to S&P and received written confirmation from Moody's that such
action would not impair the ratings then assigned to the AMPS by
Moody's and unless, for any Auction occurring after the initial
Auction, sufficient Clearing Bids were made in the last occurring
Auction and unless full cumulative dividends, any amounts due with
respect to redemptions, and any Additional Dividends payable prior to
such date have been paid in full. Such Request for Special Dividend
Period, in the case of a Short Term Dividend Period, shall be given on
or prior to the fourth Business Day but not more than seven Business
Days prior to an Auction
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<PAGE> 37
Date for AMPS and, in the case of a Long Term Dividend Period, shall be
given on or prior to the 14th day but not more than 28 days prior to an
Auction Date for the AMPS. Upon receiving such Request for Special
Dividend Period, the Broker-Dealer(s) shall jointly determine whether,
given the factors set forth below, it is advisable that the Corporation
issue a Notice of Special Dividend Period for the AMPS as contemplated
by such Request for Special Dividend Period and the Optional Redemption
Price of the AMPS during such Special Dividend Period and the Specific
Redemption Provisions and shall give the Corporation and the Auction
Agent written notice (a "Response") of such determination by no later
than the third Business Day prior to such Auction Date. In making such
determination the Broker-Dealer(s) will consider (1) existing
short-term and long-term market rates and indices of such short-term
and long-term rates, (2) existing market supply and demand for
short-term and long-term securities, (3) existing yield curves for
short-term and long-term securities comparable to the AMPS, (4)
industry and financial conditions which may affect the AMPS, (5) the
investment objective of the Corporation, and (6) the Dividend Periods
and dividend rates at which current and potential beneficial holders of
the AMPS would remain or become beneficial holders. If the
Broker-Dealer(s) shall not give the Corporation and the Auction Agent a
Response by such third Business Day or if the Response states that
given the factors set forth above it is not advisable that the
Corporation give a Notice of Special Dividend Period for the AMPS, the
Corporation may not give a Notice of Special Dividend Period in respect
of such Request for Special Dividend Period. In the event the Response
indicates that it is advisable that the corporation give a Notice of
Special Dividend Period for the AMPS, the Corporation may by no later
than the second Business Day prior to such Auction Date
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<PAGE> 38
give a notice of its revocation (a "Notice of Special Dividend Period")
to the Auction Agent, the Securities Depository and each Broker-Dealer
which notice will specify (i) the duration of the Special Dividend
Period, (ii) the Optional Redemption Price as specified in the related
Response and (iii) the Specific Redemption Provisions, if any, as
specified in the related Response. The Corporation shall not give a
Notice of Special Dividend Period and, if the Corporation has given a
Notice of Special Dividend Period, the Corporation is required to give
telephonic and written notice of its revocation (a "Notice of
Revocation") to the Auction Agent, each Broker-Dealer, and the
Securities Depository on or prior to the Business Day prior to the
relevant Auction Date if (x) either the 1940 Act AMPS Asset Coverage is
not satisfied or the corporation shall fail to maintain S&P Eligible
Assets and Moody's Eligible Assets each with an aggregate Discounted
Value at least equal to the AMPS Basic Maintenance Amount, in each case
on each of the two Valuation Dates immediately preceding the Business
Day prior to the relevant Auction Date on an actual basis and on a pro
forma basis giving effect to the proposed Special Dividend Period
(using as a pro forma dividend rate with respect to such Special
Dividend Period the dividend rate which the Broker-Dealers shall advise
the Corporation is an approximately equal rate for securities similar
to the AMPS with an equal dividend period), provided that, in
calculating the aggregate Discounted Value of Moody's Eligible Assets
for this purpose, the Moody's Exposure Period shall be deemed to be one
week longer, (y) sufficient funds for the payment of dividends payable
on the immediately succeeding Dividend Payment Date have not been
irrevocably deposited with the Auction Agent by the close of business
on the third Business Day preceding the related Auction Date or (z) the
Broker-Dealer(s) jointly advise the Corporation that after
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<PAGE> 39
consideration of the factors listed above they have concluded that it
is advisable to give a Notice of Revocation. If the Corporation is
prohibited from giving a Notice of Special Dividend Period as a result
of any of the factors enumerated in clause (x), (y) or (z) of the prior
sentence or if the Corporation gives a Notice of Revocation with
respect to a Notice of Special Dividend Period for the AMPS, the next
succeeding Dividend Period will be a 7-day Dividend Period. In
addition, in the event Sufficient Clearing Bids are not made in the
applicable Auction or such Auction is not held for any reason, such
next succeeding Dividend Period will be a 7-day Dividend Period and the
Corporation may not again give a Notice of Special Dividend Period for
the AMPS (and any such attempted notice shall be null and void) until
Sufficient Clearing Bids have been made in an Auction with respect to a
7-day Dividend Period.
(d) (i) Holders shall not be entitled to any dividends, whether payable
in cash, property or stock, in excess of full cumulative dividends and
applicable late charge, as herein provided, on the shares of AMPS (except for
Additional Dividends as provided in paragraph 2(e) hereof). Except for the late
charge payable pursuant to paragraph 2(c)(i) hereof, no interest, or sum of
money in lieu of interest, shall be payable in respect of any dividend payment
on the shares of AMPS that may be in arrears.
(ii) For so long as any share of AMPS is outstanding, the
Corporation shall not declare, pay or set apart for payment any
dividend or other distribution (other than a dividend or distribution
paid in shares of, or options, warrants or rights to subscribe for or
purchase, Common Stock or other stock, if any, ranking junior to the
shares of AMPS as to dividends
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<PAGE> 40
or upon liquidation) in respect of the Common Stock or any other stock
of the Corporation ranking junior to or on a parity with the shares of
AMPS as to dividends or upon liquidation, or call for redemption,
redeem, purchase or otherwise acquire for consideration any shares of
the Common Stock or any other such junior stock (except by conversion
into or exchange for stock of the Corporation ranking junior to the
shares of AMPS as to dividends and upon liquidation) or any other such
Parity Stock (except by conversion into or exchange for stock of the
Corporation ranking junior to or on a parity with the shares of AMPS as
to dividends and upon liquidation), unless (A) immediately after such
transaction, the Corporation shall have S&P Eligible Assets and Moody's
Eligible Assets each with an aggregate Discounted Value equal to or
greater than the AMPS Basic Maintenance Amount and the Corporation
shall maintain the 1940 Act AMPS Asset Coverage, (B) full cumulative
dividends on shares of AMPS and shares of Other AMPS due on or prior to
the date of the transaction have been declared and paid or shall have
been declared and sufficient funds for the payment thereof deposited
with the Auction Agent, (C) any Additional Dividend required to be paid
under paragraph 2(e) below on or before the date of such declaration or
payment has been paid and (D) the Corporation has redeemed the full
number of shares of AMPS required to be redeemed by any provision for
mandatory redemption contained herein.
(e) Each dividend shall consist of (i) cash at the Applicable Dividend
Rate, (ii) an uncertificated right (a "Right") to receive an Additional Dividend
(as defined below), and (iii) any additional amounts as set forth in paragraph
2(f) below. Each Right shall thereafter be independent of the share or shares of
AMPS on which the dividend was paid. The Corporation shall cause to be
maintained a record of each Right received by the respective Holders. A Right
may not be transferred other than by operation of law. If the Corporation
retroactively allocates any net capital gains or other income subject to regular
Federal income taxes to shares of AMPS
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<PAGE> 41
without having given advance notice thereof to the Auction Agent as described in
paragraph 2(f) hereof solely by reason of the fact that such allocation is made
as a result of the redemption of all or a portion of the outstanding shares of
AMPS or the liquidation of the Corporation (the amount of such allocation
referred to herein as a "Retroactive Taxable Allocation"), the Corporation will,
within 90 days (and generally within 60 days) after the end of the Corporation's
fiscal year for which a Retroactive Taxable Allocation is made, provide notice
thereof to the Auction Agent and to each holder of a Right applicable to such
shares of AMPS (initially Cede & Co. as nominee of the Depository Trust Company)
during such fiscal year at such holder's address as the same appears or last
appeared on the Stock Books of the Corporation. The corporation will, within 30
days after such notice is given to the Auction Agent, pay to the Auction Agent
(who will then distribute to such holders of Rights), out of funds legally
available therefor, an amount equal to the aggregate Additional Dividend with
respect to all Retroactive Taxable Allocations made to such holders during the
fiscal year in question.
An "Additional Dividend" means payment to a present or former holder of
shares of AMPS of an amount which, when taken together with the aggregate amount
of Retroactive Taxable Allocations made to such holder with respect to the
fiscal year in question, would cause such holder's dividends in dollars (after
Federal and Michigan income tax consequences) from the aggregate of both the
Retroactive Taxable Allocations and the Additional Dividend to be equal to the
dollar amount of the dividends which would have been received by such holder if
the amount of the aggregate Retroactive Taxable Allocations would have been
excludable from the gross income of such holder. Such Additional Dividend shall
be calculated (i) without consideration being given to the time value of money;
(ii) assuming that no holder of shares of AMPS is subject to the Federal
alternative minimum tax with respect to dividends received from
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<PAGE> 42
the Corporation; and (iii) assuming that each Retroactive Taxable Allocation
would be taxable in the hands of each holder of shares of AMPS at the greater
of: (x) the maximum combined marginal regular Federal and Michigan individual
income tax rate applicable to ordinary income; or (y)-the maximum combined
marginal regular Federal and Michigan corporate income tax rate (taking into
account the Federal income tax deductibility of state taxes paid or incurred but
not any phase out of personal exemptions, itemized deductions, or the benefit of
lower tax brackets).
(f) Except as provided below, whenever the Corporation intends to
include any net capital gains or other income subject to regular Federal income
taxes in any dividend on shares of AMPS, the Corporation will notify the Auction
Agent of the amount to be so included at least five Business Days prior to the
Auction Date on which the Applicable Rate for such dividend is to be
established. The Corporation may also include such income in a dividend on
shares of AMPS without giving advance notice thereof if it increases the
dividend by an additional amount calculated as if such income was a Retroactive
Taxable Allocation and the additional amount was an Additional Dividend,
provided that the Corporation will notify the Auction Agent of the additional
amounts to be included in such dividend at least five Business Days prior to the
applicable Dividend Payment Date.
(g) No fractional shares of AMPS shall be issued.
3. Liquidation Rights. Upon any liquidation, dissolution or winding up
of the Corporation, whether voluntary or involuntary, the Holders shall be
entitled to receive, out of the assets of the Corporation available for
distribution to shareholders, before any distribution or payment is made upon
any Common Stock or any other capital stock ranking junior in right of payment
upon liquidation to the AMPS, the sum of $50,000 per share plus accumulated but
unpaid dividends (whether or not earned or declared) thereon to date of
distribution, and after
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<PAGE> 43
such payment the holders of AMPS will be entitled to no other payments other
than Additional Dividends as provided in paragraph 2(e) hereof. If upon any
liquidation, dissolution or winding up of the Corporation, the amounts payable
with respect to the AMPS and any other Outstanding class or series of Preferred
Stock of the Corporation ranking on a parity with the AMPS as to payment upon
liquidation are not paid in full, the Holders and the holders of such other
class or series will share ratably in any such distribution of assets in
proportion to the respective preferential amounts to which they are entitled.
After payment of the full amount of the liquidating distribution to which they
are entitled, the Holders will not be entitled to any further participation in
any distribution of assets by the Corporation except for any Additional
Dividends. A consolidation, merger or statutory share exchange of the
Corporation with or into any other corporation or entity or a sale, whether for
cash, shares of stock, securities or properties, of all or substantially all or
any part of the assets of the Corporation shall not be deemed or construed to be
a liquidation, dissolution or winding up of the Corporation.
4. Redemption. (a) Shares of AMPS shall be redeemable by the
Corporation as provided below:
(i) To the extent permitted under the 1940 Act and Maryland
law, upon giving a Notice of Redemption, the Corporation at its option
may redeem shares of AMPS, in whole or in part, out of funds legally
available therefor, at the Optional Redemption Price per share, on any
Dividend Payment Date; provided that no share of AMPS may be redeemed
at the option of the Corporation during (A) the Initial Dividend Period
with respect to such share or (B) a Non-Call Period to which such share
is subject. In addition, holders of AMPS which are redeemed shall be
entitled to receive Additional Dividends to the extent provided herein.
The Corporation may not give a Notice of
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Redemption relating to an optional redemption as described in this
paragraph 4(a)(i) unless, at the time of giving such Notice of
Redemption, the Corporation has available Deposit Securities with
maturity or tender dates not later than the day preceding the
applicable redemption date and having a value not less than the amount
due to Holders by reason of the redemption of their shares of AMPS on
such redemption date.
(ii) The Corporation shall redeem, out of funds legally
available therefor, at the Mandatory Redemption Price per share, shares
of AMPS to the extent permitted under the 1940 Act and Maryland law, on
a date fixed by the Board of Directors, if the Corporation fails to
maintain S&P Eligible Assets and Moody's Eligible Assets each with an
aggregate Discounted Value equal to or greater than the AMPS Basic
Maintenance Amount as provided in paragraph 7(a) or to satisfy the 1940
Act AMPS Asset Coverage as provided in paragraph 6 and such failure is
not cured on or before the AMPS Basic Maintenance Cure Date or the 1940
Act Cure Date (herein respectively referred to as a "Cure Date"), as
the case may be. In addition, holders of AMPS so redeemed shall be
entitled to receive Additional Dividends to the extent provided herein.
The number of shares of AMPS to be redeemed shall be equal to the
lesser of (i) the minimum number of shares of AMPS the redemption of
which, if deemed to have occurred immediately prior to the opening of
business on the Cure Date, together with all shares of other Preferred
Stock subject to redemption or retirement, would result in the
Corporation having S&P Eligible Assets and Moody's Eligible Assets each
with an aggregate Discounted Value equal to or greater than the AMPS
Basic Maintenance Amount or satisfaction of the 1940 Act AMPS Asset
Coverage, as the case may be, on such Cure Date (provided that, if
there is no such minimum number of shares of AMPS and shares of other
Preferred Stock
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the redemption of which would have such result, all shares of AMPS and
shares of other Preferred Stock then Outstanding shall be redeemed),
and (ii) the maximum number of shares of AMPS, together with all shares
of other Preferred Stock subject to redemption or retirement, that can
be redeemed out of funds expected to be legally available therefor on
such redemption date. In determining the number of shares of AMPS
required to be redeemed in accordance with the foregoing, the
Corporation shall allocate the number required to be redeemed which
would result in the Corporation having S&P Eligible Assets and Moody's
Eligible Assets each with an aggregate Discounted Value equal to or
greater than the AMPS Basic Maintenance Amount or satisfaction of the
1940 Act AMPS Asset Coverage, as the case may be, pro rata among shares
of AMPS, Other AMPS and other Preferred Stock subject to redemption
pursuant to provisions similar to those contained in this paragraph
4(a)(ii); provided that, shares of AMPS which may not be redeemed at
the option of the Corporation due to the designation of a Non-Call
Period applicable to such shares (A) will be subject to mandatory
redemption only to the extent that other shares are not available to
satisfy the number of shares required to be redeemed and (B) will be
selected for redemption in an ascending order of outstanding number of
days in the Non-Call Period (with shares with the lowest number of days
to be redeemed first) and by lot in the event of shares having an equal
number of days in such Non-Call Period. The Corporation shall effect
such redemption on a Business Day which is not later than 35 days after
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<PAGE> 46
such Cure Date, except that if the Corporation does not have funds
legally available for the redemption of all of the required number of
shares of AMPS and shares of other Preferred Stock which are subject to
mandatory redemption or the Corporation otherwise is unable to effect
such redemption on or prior to 35 days after such Cure Date, the
Corporation shall redeem those shares of AMPS which it is unable to
redeem on the earliest practicable date on which it is able to effect
such redemption out of funds legally available therefor.
(b) Notwithstanding any other provision of this paragraph 4, no shares
of AMPS may be redeemed pursuant to paragraph 4(a)(i) of these Articles
Supplementary (i) unless all dividends in arrears on all remaining outstanding
shares of Parity Stock shall have been or are being contemporaneously paid or
declared and set apart for payment and (ii) if redemption thereof would result
in the Corporation's failure to maintain Moody's Eligible Assets or S&P Eligible
Assets with an aggregate Discounted Value equal to or greater than the AMPS
Basic Maintenance Amount. In the event that less than all the outstanding shares
of a series of AMPS are to be redeemed and there is more than one Holder, the
shares of that series of AMPS to be redeemed shall be selected by lot or such
other method as the Corporation shall deem fair and equitable.
(c) Whenever shares of AMPS are to be redeemed, the Corporation, not
less than 20 nor more than 30 days prior to the date fixed for redemption, shall
mail a notice ("Notice of Redemption") by first-class mail, postage prepaid, to
each Holder of shares of AMPS to be redeemed and to the Auction Agent. The
Corporation shall cause the Notice of Redemption to also be published in the
eastern and national editions of The Wall Street Journal. The Notice of
Redemption shall set forth (i) the redemption date, (ii) the amount of the
redemption price, (iii) the aggregate number of shares of AMPS to be redeemed,
(iv) the place or places where shares of AMPS are to be surrendered for payment
of the redemption price, (v) a statement that dividends on the shares to the
redeemed shall cease to accumulate on such redemption date (except that holders
may be entitled to Additional Dividends) and (vi) the provision of these
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Articles Supplementary pursuant to which such shares are being redeemed. No
defect in the Notice of Redemption or in the mailing or publication thereof
shall affect the validity of the redemption proceedings, except as required by
applicable law.
If the Notice of Redemption shall have been given as aforesaid and,
concurrently or thereafter, the Corporation shall have deposited in trust with
the Auction Agent a cash amount equal to the redemption payment for the shares
of AMPS as to which such Notice of Redemption has been given with irrevocable
instructions and authority to pay the redemption price to the Holders of such
shares, then upon the date of such deposit or, if no such deposit is made, then
upon such date fixed for redemption (unless the Corporation shall default in
making the redemption payment), all rights of the Holders of such shares as
shareholders of the Corporation by reason of the ownership of such shares will
cease and terminate (except their right to receive the redemption price in
respect thereof and any Additional Dividends, but without interest), and such
shares shall no longer be deemed outstanding. The Corporation shall be entitled
to receive, from time to time, from the Auction Agent the interest, if any, on
such moneys deposited with it and the Holders of any shares so redeemed shall
have no claim to any of such interest. In case the Holder of any shares so
called for redemption shall not claim the redemption payment for his shares
within one year after the date of redemption, the Auction Agent shall, upon
demand, pay over to the Corporation such amount remaining on deposit and the
Auction Agent shall thereupon be relieved of all responsibility to the Holder of
such shares called for redemption and such Holder thereafter shall look only to
the Corporation for the redemption payment.
5. Voting Rights. (a) General. Except as otherwise provided in the
Charter or By-Laws, each Holder of shares of AMPS shall be entitled to one vote
for each share held on each matter submitted to a vote of shareholders of the
Corporation, and the holders of outstanding shares of
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Preferred Stock, including AMPS, and of shares of Common Stock shall vote
together as a single class; provided that, at any meeting of the shareholders of
the Corporation held for the election of directors, the holders of outstanding
shares of Preferred Stock, including AMPS, shall be entitled, as a class, to the
exclusion of the holders of all other securities and classes of capital stock of
the Corporation, to elect two directors of the Corporation. Subject to paragraph
5(b) hereof, the holders of outstanding shares of capital stock of the
Corporation, including the holders of outstanding shares of Preferred Stock,
including AMPS, voting as a single class, shall elect the balance of the
directors.
(b) Right to Elect Majority of Board of Directors. During any period in
which any one or more of the conditions described below shall exist (such period
being referred to herein as a "Voting Period"), the number of directors
constituting the Board of Directors shall be automatically increased by the
smallest number that, when added to the two directors elected exclusively by the
holders of shares of Preferred Stock, would constitute a majority of the Board
of Directors as so increased by such smallest number; and the holders of shares
of Preferred Stock shall be entitled, voting separately as one class (to the
exclusion of the holders of all other securities and classes of capital stock of
the Corporation), to elect such smallest number of additional directors,
together with the two directors that such holders are in any event entitled to
elect. A Voting Period shall commence:
(i) if at any time accumulated dividends (whether or not
earned or declared, and whether or not funds are then legally available
in an amount sufficient therefor) on the outstanding shares of AMPS
equal to at least two full years' dividends shall be due and unpaid and
sufficient cash or specified securities shall not have been deposited
with the Auction Agent for the payment of such accumulated dividends;
or
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(ii) if at any time holders of any other shares of Preferred
Stock are entitled to elect a majority of the directors of the
Corporation under the 1940 Act.
Upon the termination of a Voting Period, the voting rights described in
this paragraph 5(b) shall cease, subject always, however, to the reverting of
such voting rights in the Holders upon the further occurrence of any of the
events described in this paragraph 5(b).
(c) Right to Vote with Respect to Certain Other Matters. So long as any
shares of AMPS are outstanding, the Corporation shall not, without the
affirmative vote of the holders of a majority of the shares of Preferred Stock
Outstanding at the time, voting separately as one class: (i) authorize, create
or issue, or increase the authorized or issued amount of, any class or series of
stock ranking prior to or on a parity with any series of Preferred Stock with
respect to payment of dividends or the distribution of assets on liquidation, or
increase the authorized amount of AMPS or any other Preferred Stock, or (ii)
amend, alter or repeal the provisions of the Charter, whether by merger,
consolidation or otherwise, so as to adversely affect any of the contract rights
expressly set forth in the Charter of holders of shares of AMPS or any other
Preferred Stock. To the extent permitted under the 1940 Act, in the event shares
of more than one series of AMPS are outstanding, the Corporation shall not
approve any of the actions set forth in clause (i) or (ii) which adversely
affects the contract rights expressly set forth in the Charter of a Holder of
shares of a series of AMPS differently than those of a Holder of shares of any
other series of AMPS without the affirmative vote of the holders of at least a
majority of the shares of AMPS of each series adversely affected and outstanding
at such time (each such adversely affected series voting separately as a class).
The Corporation shall notify Moody's and S&P ten Business Days prior to any such
vote described in clause (i) or (ii). Unless a higher percentage is provided for
under the Charter, the affirmative vote of the holders of a majority of the
outstanding shares of Preferred
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Stock, including AMPS, voting together as a single class, will be required to
approve any plan of reorganization (including bankruptcy proceedings) adversely
affecting such shares or any action requiring a vote of security holders under
Section 13(a) of the 1940 Act. The class vote of holders of shares of Preferred
Stock, including AMPS, described above will in each case be in addition to a
separate vote of the requisite percentage of shares of Common Stock and shares
of Preferred Stock, including AMPS, voting together as a single class necessary
to authorize the action in question.
(d) Voting Procedures.
(i) As soon as practicable after the accrual of any right of
the holders of shares of Preferred Stock to elect additional directors
as described in paragraph 5(b) above, the Corporation shall call a
special meeting of such holders and instruct the Auction Agent to mail
a notice of such special meeting to such holders, such meeting to be
held not less than 10 nor more than 20 days after the date of mailing
of such notice. If the Corporation fails to send such notice to the
Auction Agent or if the Corporation does not call such a special
meeting, it may be called by any such holder on like notice. The record
date for determining the holders entitled to notice of and to vote at
such special meeting shall be the close of business on the fifth
Business Day preceding the day on which such notice is mailed. At any
such special meeting and at each meeting held during a Voting Period,
such Holders, voting together as a class (to the exclusion of the
holders of all other securities and classes of capital stock of the
Corporation), shall be entitled to elect the number of directors
prescribed in paragraph 5(b) above. At any such meeting or adjournment
thereof in the absence of a quorum, a majority of such holders present
in person or by proxy shall have the power to adjourn the meeting
without notice, other than
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by an announcement at the meeting, to a date not more than 120-days
after the original record date.
(ii) For purposes of determining any rights of the Holders to
vote on any matter or the number of shares required to constitute a
quorum, whether such right is created by these Articles Supplementary,
by the other provisions of the Charter, by statute or otherwise, a
share of AMPS which is not outstanding shall not be counted.
(iii) The terms of office of all persons who are directors of
the Corporation at the time of a special meeting of Holders and holders
of other Preferred Stock to elect directors shall continue,
notwithstanding the election at such meeting by the Holders and such
other holders of the number of directors that they are entitled to
elect, and the persons so elected by the Holders and such other
holders, together with the two incumbent directors elected by the
Holders and such other holders of Preferred Stock and the remaining
incumbent directors elected by the holders of the Common Stock and
Preferred Stock, shall constitute the duly elected directors of the
Corporation.
(iv) Simultaneously with the expiration of a Voting Period,
the terms of office of the additional directors elected by the Holders
and holders of other Preferred Stock pursuant to paragraph 5(b) above
shall terminate, the remaining directors shall constitute the directors
of the Corporation and the voting rights of the Holders and such other
holders to elect additional directors pursuant to paragraph 5(b) above
shall cease, subject to the provisions of the last sentence of
paragraph 5(b)(ii).
(e) Exclusive Remedy. Unless otherwise required by law, the Holders of
shares of AMPS shall not have any rights or preferences other than those
specifically set forth herein. The Holders of shares of AMPS shall have no
preemptive rights or rights to cumulative voting. In the
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event that the Corporation fails to pay any dividends on the shares of AMPS, the
exclusive remedy of the Holders shall be the right to vote for directors
pursuant to the provisions of this paragraph 5.
(f) Notification to S&P and Moody's. In the event a vote of Holders of
AMPS is required pursuant to the provisions of Section 13(a) of the 1940 Act,
the Corporation shall, not later than ten Business Days prior to the date on
which such vote is to be taken, notify S&P and Moody's that such vote is to be
taken and the nature of the action with respect to which such vote is to be
taken and, not later than ten Business Days after the date on which such vote is
taken, notify S&P and Moody's of the result of such vote.
6. 1940 Act AMPS Asset Coverage. The Corporation shall maintain, as of
the last Business Day of each month in which any share of AMPS is outstanding,
the 1940 Act AMPS Asset Coverage.
7. AMPS Basic Maintenance Amount. (a) The Corporation shall maintain,
on each Valuation Date, and shall verify to its satisfaction that it is
maintaining on such Valuation Date, (i) S&P Eligible Assets having an aggregate
Discounted Value equal to or greater than the AMPS Basic Maintenance Amount and
(ii) Moody's Eligible Assets having an aggregate Discounted Value equal to or
greater than the AMPS Basic Maintenance Amount. Upon any failure to maintain the
required Discounted Value, the Corporation will use its best efforts to alter
the composition of its portfolio to reattain the AMPS Basic Maintenance Amount
on or prior to the AMPS Basic Maintenance Cure Date.
(b) On or before 5:00 p.m., New York City time, on the third Business
Day after a Valuation Date on which the Corporation fails to satisfy the AMPS
Basic Maintenance Amount, the Corporation shall complete and deliver to the
Auction Agent, and Moody's and S&P, as the
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case may be, a complete AMPS Basic Maintenance Report as of the date of such
failure, which will be deemed to have been delivered to the Auction Agent if the
Auction Agent receives a copy or telecopy, telex or other electronic
transcription thereof and on the same day the Corporation mails to the Auction
Agent for delivery on the next Business Day the complete AMPS Basic Maintenance
Report. The Corporation will deliver an AMPS Basic Maintenance Report to the
Auction Agent and Moody's and S&P, as the case may be, on or before 5:00 p.m.,
New York City time, on the third Business Day after a Valuation Date on which
the Corporation cures its failure to maintain Moody's Eligible Assets or S&P
Eligible Assets, as the case may be, with an aggregate Discounted Value equal to
or greater than the AMPS Basic Maintenance Amounts or on which the Corporation
fails to maintain Moody's Eligible Assets or S&P Eligible Assets, as the case
may be, with an aggregate Discounted Value which exceeds the AMPS Basic
Maintenance Amount by 5% or more. The Corporation will also deliver an AMPS
Basic Maintenance Report to the Auction Agent, Moody's and S&P as of each
Quarterly Valuation Date on or before the third Business Day after such date.
Additionally, on or before 5:00 p.m., New York City time, on the third Business
Day after the first day of a Special Dividend Period, the Corporation will
deliver an AMPS Basic Maintenance Report to S&P and the Auction Agent. Whenever
the Corporation delivers an AMPS Basic Maintenance Report to S&P pursuant to
this paragraph 7(b), it shall also deliver a Certificate of Minimum Liquidity to
S&P and the Auction Agent. The Corporation shall also provide Moody's and S&P
with an AMPS Basic Maintenance Report when specifically requested by either
Moody's or S&P. A failure by the Corporation to deliver an AMPS Basic
Maintenance Report under this paragraph 7(b) shall be deemed to be delivery of
an AMPS Basic Maintenance Report indicating the Discounted Value for S&P
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Eligible Assets and Moody's Eligible Assets of the Corporation is less than the
AMPS Basic Maintenance Amount, as of the relevant Valuation Date.
(c) Within ten Business Days after the date of delivery of an AMPS
Basic Maintenance Report and a Certificate of Minimum Liquidity in accordance
with paragraph 7(b) above relating to a Quarterly Valuation Date, the
Independent Accountant will confirm in writing to the Auction Agent, S&P and
Moody's (i) the mathematical accuracy of the calculations reflected in such
Report (and in any other AMPS Basic Maintenance Report, randomly selected by the
Independent Accountant, that was delivered by the Corporation during the quarter
ending on such Quarterly Valuation Date) and (with respect to S&P only while S&P
is rating the AMPS) such Certificate, (ii) that, in such Report (and in such
randomly selected Report), the Corporation correctly determined the assets of
the Corporation which constitute S&P Eligible Assets or Moody's Eligible Assets,
as the case may be, at such Quarterly Valuation Date in accordance with these
Articles Supplementary, (iii) that, in such Report (and in such randomly
selected Report), the Corporation determined whether the Corporation had, at
such Quarterly Valuation Date (and at the Valuation Date addressed in such
randomly-selected Report) in accordance with these Articles Supplementary, S&P
Eligible Assets of an aggregate Discounted Value at least equal to the AMPS
Basic Maintenance Amount and Moody's Eligible Assets of an aggregate Discounted
Value at least equal to the AMPS Basic Maintenance Amount, (iv) that (with
respect to S&P only) in such Certificate, the Corporation determined the Minimum
Liquidity Level and the Corporation's Deposit Securities in accordance with
these Articles Supplementary, including maturity or tender date, (v) with
respect to the S&P rating on Michigan Municipal Bonds or Municipal Bonds, the
issuer name, issue size and coupon rate listed in such Report and (with respect
to S&P only) such Certificate, that the Independent
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Accountant has requested that S&P verify such information and the Independent
Accountant shall provide a listing in its letter of any differences, (vi) with
respect to the Moody's ratings on Michigan Municipal Bonds or Municipal Bonds,
the issuer name, issue size and coupon rate listed in such Report and (with
respect to S&P only) such Certificate, that such information has been verified
by Moody's (in the event such information is not verified by Moody's, the
Independent Accountant will inquire of Moody's what such information is, and
provide a listing in its letter of any differences), (v") with respect to the
bid or mean price (or such alternative permissible factor used in calculating
the Market Value) provided by the custodian of the Corporation's assets to the
Corporation for purposes of valuing securities in the Corporation's portfolio,
the Independent Accountant has traced the price used in such Report and (with
respect to S&P only) such Certificate to the bid or mean price listed in such
Report and (with respect to S&P only) such Certificate as provided to the
Corporation and verified that such information agrees (in the event such
information does not agree, the Independent Accountant will provide a listing in
its letter of such differences) and (vi) with respect to such confirmation to
Moody's, that the Corporation has satisfied the requirements of paragraph 9(b)
of these Articles Supplementary (such confirmation is herein called the
"Accountant's Confirmation").
(d) Within ten Business Days after the date of delivery to the Auction
Agent, S&P and Moody's of an AMPS Basic Maintenance Report in accordance with
paragraph 7(b) above relating to any Valuation Date on which the Corporation
failed to maintain S&P Eligible Assets with an aggregate Discounted Value and
Moody's Eligible Assets with an aggregate Discounted Value equal to or greater
than the AMPS Basic Maintenance Amount, and relating to the AMPS Basic
Maintenance Cure Date with respect to such failure, the Independent Accountant
will
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provide to the Auction Agent, S&P and Moody's an Accountant's Confirmation as to
such AMPS Basic Maintenance Report.
(e) If any Accountant's Confirmation delivered pursuant to subparagraph
(c) or (d) of this paragraph 7 shows that an error was made in the AMPS Basic
Maintenance Report for a particular Valuation Date for which such Accountant's
Confirmation as required to be delivered, or shows that a lower aggregate
Discounted Value for the aggregate of all S&P Eligible Assets or Moody's
Eligible Assets, as the case may be, of the Corporation was determined by the
Independent Accountant, the calculation or determination made by such
Independent Accountant shall be final and conclusive and shall be binding on the
Corporation, and the corporation shall accordingly amend and deliver the AMPS
Basic Maintenance Report to the Auction Agent, S&P and Moody's promptly
following receipt by the Corporation of such Accountant's Confirmation.
(f) On or before 5:00 p.m., New York City time, on the first Business
Day after the Date of Original Issue of the shares of AMPS, the Corporation will
complete and deliver to S&P and Moody's an AMPS Basic Maintenance Report as of
the close of business on such Date of Original Issue. Within five Business Days
of such Date of Original Issue, the Independent Accountant will confirm in
writing to S&P and Moody's (i) the mathematical accuracy of the calculations
reflected in such Report and (ii) that the aggregate Discounted Value of S&P
Eligible Assets and the aggregate Discounted Value of Moody's Eligible Assets
reflected thereon equals or exceeds the AMPS Basic Maintenance Amount reflected
thereon. Also, on or before 5:00 p.m., New York City time, on the first Business
Day after shares of Common Stock are repurchased by the Corporation, the
Corporation will complete and deliver to S&P and Moody's an AMPS Basic
Maintenance Report as of the close of business on such date that Common Stock is
repurchased.
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(g) For so long as shares of AMPS are rated by Moody's, in managing the
Corporation's portfolio, the Adviser will not alter the composition of the
Corporation's portfolio if, in the reasonable belief of the Adviser, the effect
of any such alteration would be to cause the corporation to have Moody's
Eligible Assets with an aggregate Discounted Value, as of the immediately
preceding Valuation Date, less than the AMPS Basic Maintenance Amount as of such
Valuation Date; provided, however, that in the event that, as of the immediately
preceding Valuation Date, the aggregate Discounted Value of Moody's Eligible
Assets exceeded the AMPS Basic Maintenance Amount by five percent or less, the
Adviser will not alter the composition of the Corporation's portfolio in a
manner reasonably expected to reduce the aggregate Discounted Value of Moody's
Eligible Assets unless the Corporation shall have confirmed that, after giving
effect to such alteration, the aggregate Discounted Value of Moody's Eligible
Assets would exceed the AMPS Basic Maintenance Amount.
8. Minimum Liquidity Level. (a) For so long as any shares of AMPS are
rated by S&P, the Corporation shall be required to have, as of each Valuation
Date, Dividend Coverage Assets having in the aggregate a Market Value not less
than the Dividend Coverage Amount.
(b) As of each Valuation Date, as long as any shares of AMPS are rated
by S&P, the Corporation shall determine (i) the Market Value of the Dividend
Coverage Assets owned by the Corporation as of that Valuation Date, (ii) the
Dividend Coverage Amount on that Valuation Date, and (iii) whether the Minimum
Liquidity Level is met as of that Valuation Date. The calculations of the
Dividend Coverage Assets, the Dividend Coverage Amount and whether the Minimum
Liquidity Level is met shall be set forth in a certificate (a "Certificate of
Minimum Liquidity") dated as of the Valuation Date. The AMPS Basic Maintenance
Report and the Certificate of Minimum Liquidity may be combined in one
certificate. The Corporation shall
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cause the Certificate of Minimum Liquidity to be delivered to S&P not later than
the close of business on the third Business Day after the Valuation Date
applicable to such Certificate pursuant to paragraph 7(b). The Minimum Liquidity
Level shall be deemed to be met as of any date of determination if the
Corporation has timely delivered a Certificate of Minimum Liquidity relating to
such date which states that the same has been met and which is not manifestly
inaccurate. In the event that a Certificate of Minimum Liquidity is not
delivered to S&P when required, the Minimum Liquidity Level shall be deemed not
to have been met as of the applicable date.
(c) If the Minimum Liquidity Level is not met as of any Valuation Date,
then the Corporation shall purchase or otherwise acquire Dividend Coverage
Assets to the extent necessary so that the Minimum Liquidity Level is met as of
the fifth Business Day following such Valuation Date. The Corporation shall, by
such fifth Business Day, provide to S&P a Certificate of Minimum Liquidity
setting forth the calculations of the Dividend Coverage Assets and the Dividend
Coverage Amount and showing that the Minimum Liquidity Level is met as of such
fifth Business Day together with a report of the custodian of the Corporation's
assets confirming the amount of the Corporation's Dividend Coverage Assets as of
such fifth Business Day.
9. Certain Other Restrictions.
(a) For so long as any shares of AMPS are rated by S&P, the Corporation
will not purchase or sell futures contracts, write, purchase or sell options on
futures contracts or write put options (except covered put options) or call
options (except covered call options) on portfolio securities unless it receives
written confirmation from S&P that engaging in such transactions will not impair
the ratings then assigned to the shares of AMPS by S&P, except that the
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Corporation may purchase or sell futures contracts based on the Bond Buyer
Municipal Bond Index (the "Municipal Index") or United States Treasury Bonds
with remaining maturities of ten years of more ("Treasury Bonds") and write,
purchase or sell put and call options on such contracts (collectively, "S&P
Hedging Transactions"), subject to the following limitations:
(i) the Corporation will not engage in any S&P Hedging
Transaction based on the Municipal Index (other than transactions which
terminate a futures contract or option held by the Corporation by the
Corporation's taking an opposite position thereto ("Closing
Transactions")), which would cause the Corporation at the time of such
transaction to own or have sold the least of (A) more than 1,000
outstanding futures contracts based on the Municipal Index, (B)
outstanding futures contracts based on the Municipal Index exceeding in
number 25% of the quotient of the Market Value of the Corporation's
total assets divided by $100,000 or (C) outstanding futures contracts
based on the Municipal Index exceeding in number 10% of the average
number of daily traded futures contracts based on the Municipal Index
in the 30 days preceding the time of effecting such transaction as
reported by The Wall Street Journal;
(ii) the Corporation will not engage in any S&P Hedging
Transaction based on Treasury Bonds (other than Closing Transactions)
which would cause the Corporation at the time of such transaction to
own or have sold the lesser of (A) outstanding futures contracts based
on Treasury Bonds and on the Municipal Index exceeding in number 25% of
the quotient of the Market Value of the Corporation's total assets
divided by $100,000 or (B) outstanding futures contracts based on
Treasury Bonds exceeding in number 10% of the average number of daily
traded futures contracts based on Treasury
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Bonds in the 30 days preceding the time of effecting such transaction
as reported by The Wall Street Journal;
(iii) the Corporation will engage in Closing Transactions to
close out any outstanding futures contract which the Corporation owns
or has sold or any outstanding option thereon owned by the Corporation
in the event (A) the Corporation does not have S&P Eligible Assets with
an aggregate Discounted Value equal to or greater than the AMPS Basic
Maintenance Amount on two consecutive Valuation Dates and (B) the
Corporation is required to pay Variation Margin on the second such
Valuation Date;
(iv) the Corporation will engage in a Closing Transaction to
close out any outstanding futures contract or option thereon in the
month prior to the delivery month under the terms of such futures
contract or option thereon unless the Corporation holds the securities
deliverable under such terms; and
(v) when the Corporation writes a futures contract or option
thereon, it will either maintain an amount of cash, cash equivalents or
short-term, fixed-income securities in a segregated account with the
Corporation's custodian, so that the amount so segregated plus the
amount of Initial Margin and Variation Margin held in the account of or
on behalf of the Corporation's broker with respect to such futures
contract or option equals the Market Value of the futures contract or
option, or, in the event the Corporation writes a futures contract or
option thereon which requires delivery of an underlying security, it
shall hold such underlying security in its portfolio.
For purposes of determining whether the Corporation has S&P Eligible
Assets with a Discounted Value that equals or exceeds the AMPS Basic Maintenance
Amount, the Discounted Value of cash or securities held for the payment of
Initial Margin or Variation Margin shall be
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zero and the aggregate Discounted Value of S&P Eligible Assets shall be reduced
by an amount equal to (i) 30% of the aggregate settlement value, as marked to
market, of any outstanding futures contracts based on the Municipal Index which
are owned by the Corporation plus (ii) 25% of the aggregate settlement value, as
marked to market, of any outstanding futures contracts based on Treasury Bonds
which contracts are owned by the Corporation.
(b) For so long as any shares of AMPS are rated by Moody's, the
Corporation will not buy or sell futures contracts, write, purchase or sell call
options on futures contracts or purchase put options on futures contracts or
write call options (except covered call options) on portfolio securities unless
it receives written confirmation from Moody's that engaging in such transactions
would not impair the ratings then assigned to the shares of AMPS by Moody's,
except that the Corporation may purchase or sell exchange-traded futures
contracts based on the Municipal Index or Treasury Bonds and purchase, write or
sell exchange-traded put options on such futures contracts and purchase, write
or sell exchange-traded call options on such futures contracts (collectively,
"Moody's Hedging Transactions"), subject to the following limitations:
(i) the Corporation will not engage in any Moody's Hedging
Transaction based on the Municipal Index (other than Closing
Transactions) which would cause the Corporation at the time of such
transaction to own or have sold (A) outstanding futures contracts based
on the Municipal Index exceeding in number 10% of the average number of
daily traded futures contracts based on the Municipal Index in the 30
days preceding the time of effecting such transaction as reported by
The Wall Street Journal or (B) outstanding futures contracts based on
the Municipal Index having a Market Value exceeding 50% of the Market
Value of all Moody's Eligible Assets owned by the
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<PAGE> 62
Corporation (other than Moody's Eligible Assets already subject to a
Moody's Hedging Transaction);
(ii) the Corporation will not engage in any Moody's Hedging
Transaction based on Treasury Bonds (other than Closing Transactions)
which would cause the Corporation at the time of such transaction to
own or have sold (A) outstanding futures contracts based on Treasury
Bonds having an aggregate Market Value exceeding 20% of the aggregate
Market Value of Moody's Eligible Assets owned by the Corporation and
rated Aa by Moody's (or, if not rated by Moody's but rated by S&P,
rated AAA by S&P) or (B) outstanding futures contracts based on
Treasury Bonds having an aggregate Market Value exceeding 40% of the
aggregate Market Value of all Moody's Eligible Assets owned by the
Corporation (other than Moody's Eligible Assets already subject to a
Moody's Hedging Transaction) and rated Baa or A by Moody's (or, if not
rated by Moody's but rated by S&P, rated A or AA by S&P) (for purposes
of the foregoing clauses (i) and (ii), the Corporation shall be deemed
to own the number of futures contracts that underlie any outstanding
options written by the Corporation);
(iii) the Corporation will engage in closing Transactions to
close out any outstanding futures contract based on the Municipal Index
if the amount of open interest in the Municipal Index as reported by
The Wall Street Journal is less than 5,000;
(iv) the Corporation will engage in a closing Transaction to
close out any outstanding futures contract by no later than the fifth
Business Day of the month in which such contract expires and will
engage in a closing Transaction to close out any outstanding option on
a futures contract by no later than the first Business Day of the month
in which such option expires;
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<PAGE> 63
(v) the Corporation will engage in Moody's Hedging
Transactions only with respect to futures contracts or options thereon
having the next settlement date or the settlement date immediately
thereafter;
(vi) in the event the Corporation writes a futures contract or
option thereon which requires delivery of an underlying security, it
shall hold such underlying security in its portfolio;
(vii) the Corporation will not engage in options and futures
transactions for leveraging or speculative purposes and will not write
any call options or sell any futures contracts for the purpose of
hedging the anticipated purchase of an asset prior to completion of
such purchase; and
(viii) the Corporation will not enter into an option or
futures transaction unless, after giving effect thereto, the
Corporation would continue to have Moody's Eligible Assets with an
aggregate Discounted Value equal to or greater than the AMPS Basic
Maintenance Amount.
For purposes of determining whether the Corporation has Moody's
Eligible Assets with an aggregate Discounted Value that equals or exceeds the
AMPS Basic Maintenance Amount, the Discounted Value of Moody's Eligible Assets
which the Corporation is obligated to deliver or receive pursuant to an
outstanding futures contract or option shall be as follows: (i) assets subject
to call options written by the Corporation which are either exchange-traded and
"readily reversible" or which expire within 49 days after the date as of which
such valuation is made shall be valued at the lesser of (a) Discounted Value and
(b) the exercise price of the call option written by the Corporation; (ii)
assets subject to call options written by the Corporation not meeting the
requirements of clause (i) of this sentence shall have no value; (iii) assets
subject to
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put options written by the Corporation shall be valued at the lesser of (A) the
exercise price and (B) the Discounted Value of the subject security; (iv)futures
contracts shall be valued at the lesser of (A) settlement price and (B) the
Discounted Value of the subject security, provided that, if a contract matures
within 49 days after the date as of which such valuation is made, where the
Corporation is the seller the contract may be valued at the settlement price and
where the Corporation is the buyer the contract may be valued at the Discounted
Value of the subject securities and (v) where delivery may be made to the
Corporation with any security of a class of securities, the Corporation shall
assume that it will take delivery of the security with the lowest Discounted
Value.
For purposes of determining whether the Corporation has Moody's
Eligible Assets with an aggregate Discounted Value that equals or exceeds the
AMPS Basic Maintenance Amount, the following amounts shall be subtracted from
the aggregate Discounted Value of the Moody's Eligible Assets held by the
Corporation: (i) 10% of the exercise price of a written call option; (ii) the
exercise price of any written put option; (iii) where the Corporation is the
seller under a futures contract, 10% of the settlement price of the futures
contract; (iv) where the Corporation is the purchaser under a futures contract,
the settlement price of assets purchased under such futures contract; (v) the
settlement price of the underlying futures contract if the Corporation writes
put options on a futures contract; and (vi) 105% of the Market Value of the
underlying futures contracts if the Corporation writes call options on a futures
contract and does not own the underlying contract.
(c) For so long as any shares of AMPS are rated by Moody's, the
Corporation will not enter into any contract to purchase securities for a fixed
price at a future date beyond customary settlement time (other than such
contracts that constitute Moody's Hedging
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<PAGE> 65
Transactions that are permitted under paragraph 9(b) of these Articles
Supplementary), except that the corporation may enter into such contracts to
purchase newly-issued securities on the date such securities are issued
("Forward Commitments"), subject to the following limitations:
(i) the Corporation will maintain in a segregated account with
its custodian cash, cash equivalents or short-term, fixed-income
securities rated P-1, MIG-1 or VMIG-1 by Moody's and maturing prior to
the date of the Forward Commitment with a Market Value that equals or
exceeds the amount of the Corporation's obligations under any Forward
Commitments to which it is from time to time a party or long-term fixed
income securities with a Discounted Value that equals or exceeds the
amount of the Corporation's obligations under any Forward Commitment to
which it is from time to time a party; and
(ii) the Corporation will not enter into a Forward Commitment
unless, after giving effect thereto the Corporation would continue to
have Moody's Eligible Assets with an aggregate Discounted Value equal
to or greater than the AMPS Basic Maintenance Amount.
For purposes of determining whether the Corporation has Moody's
Eligible Assets with an aggregate Discounted Value that equals or exceeds the
AMPS Basic Maintenance Amount, the Discounted Value of all Forward Commitments
to which the Corporation is a party and of all securities deliverable to the
Corporation pursuant to such Forward Commitments shall be zero.
(d) For so long as shares of AMPS are rated by S&P or Moody's, the
Corporation will not, unless it has received written confirmation from S&P
and/or Moody's, as the case may be, that such action would not impair the
ratings then assigned to shares of AMPS by S&P and/or Moody's, as the case may
be, (i) borrow money except for the purpose of clearing transactions in
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<PAGE> 66
portfolio securities (which borrowings shall under any circumstances be limited
to the lesser of $10 million and an amount equal to 5% of the Market Value of
the Corporation's assets at the time of such borrowings and which borrowings
shall be repaid within 60 days and not be extended or renewed), (ii) engage in
short sales of securities, (iii) lend any securities, (iv) issue any class or
series of stock ranking prior to or on a parity with the AMPS with respect to
the payment of dividends or the distribution of assets upon dissolution,
liquidation or winding up of the Corporation, (v) reissue any AMPS previously
purchased or redeemed by the Corporation, (vi) merge or consolidate into or with
any other corporation or entity, (v") change the Pricing Service or (vi) engage
in reverse repurchase agreements.
10. Notice. All notices or communications, unless otherwise specified
in the By-Laws of the Corporation or these Articles Supplementary, shall be
sufficiently given if in writing and delivered in person or mailed by
first-class mail, postage prepaid. Notice shall be deemed given on the earlier
of the date received or the date seven days after which such notice is mailed.
11. Auction Procedures. (a) Certain definitions. As used in this
paragraph 11, the following terms shall have the following meanings, unless the
context otherwise requires:
(i) "AMPS" shall mean the shares of AMPS being auctioned
pursuant to this paragraph 11.
(ii) "Auction Date" shall mean the first Business Day
preceding the first day of a Dividend Period.
(iii) "Available AMPS" shall have the meaning specified in
paragraph 11(d)(i) below.
(iv) "Bid" shall have the meaning specified in paragraph
11(b)(i) below.
(v) "Bidder" shall have the meaning specified in paragraph
11(b)(i) below.
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(vi) "Hold Order" shall have the meaning specified in
paragraph 11(b)(i) below.
(vii) "Maximum Applicable Rate" for any Dividend Period will
be the Applicable Percentage of the Reference Rate. The Applicable
Percentage will be determined based on (i) the lower of the credit
rating or ratings assigned on such date to such shares by Moody's and
S&P (or if Moody's or S&P or both shall not make such rating available,
the equivalent of either or both of such ratings by a Substitute Rating
Agency or two Substitute Rating Agencies or, in the event that only one
such rating shall be available, such rating) and (ii) whether the
Corporation has provided notification to the Auction Agent prior to the
Auction establishing the Applicable Rate for any dividend pursuant to
paragraph 2(f) hereof that net capital gains or other taxable income
will be included in such dividend on shares of AMPS as follows:
<TABLE>
<CAPTION>
Applicable Applicable
Percentage of Percentage of
Credit Rating Reference Reference
- ------------------------------------------------------------ Rate - Rate -
Moody's S&P No Notification Notification
- ------------------------------- --------------------------- ------------------------ ---------------------
<S> <C> <C> <C>
"aa3" or higher AA- or higher 110% 150%
"a3" to "a1" A- to A+ 125% 160%
"baa3" to "baa1" BBB- to BBB+ 150% 250%
Below "baa3" Below BBB- 200% 275%
</TABLE>
The Corporation shall take all reasonable action necessary to enable
S&P and Moody's to provide a rating for the AMPS. If either S&P or Moody's shall
not make such a rating available, or neither S&P nor Moody's shall make such a
rating available, Merrill Lynch, Pierce, Fenner & Smith Incorporated or its
affiliates and successors, after consultation with the Corporation, shall select
a nationally recognized
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<PAGE> 68
statistical rating organization or two nationally recognized statistical rating
organizations to act as a Substitute Rating Agency or Substitute Rating
Agencies, as the case may be.
(viii) "Order" shall have the meaning specified in paragraph
11(b)(i) below.
(ix) "Sell Order" shall have the meaning specified in
paragraph 11(b)(i) below.
(x) "Submission Deadline" shall mean 1:00 P.M., New York City
time, on any Auction Date or such other time on any Auction Date as may
be specified by the Auction Agent from time to time as the time by
which each Broker-Dealer must submit to the Auction Agent in writing
all orders obtained by it for the Auction to be conducted on such
Auction Date.
(xi) "Submitted Bid" shall have the meaning specified in
paragraph 11(d)(i) below.
(xii) "Submitted Hold Order" shall have the meaning specified
in paragraph 11(d)(i) below.
(xiii) "Submitted Order" shall have the meaning specified in
paragraph 11(d)(i) below.
(xiv) "Submitted Sell Order" shall have the meaning specified
in paragraph 11(d)(i) below.
(xv) "Sufficient Clearing Bids" shall have the meaning
specified in paragraph 11(d)(i) below.
(xvi) "Winning Bid Rate" shall have the meaning specified in
paragraph 11(d)(i) below.
(b) Orders by Existing Holders and Potential Holders.
(i) On or prior to the Submission Deadline on each Auction
Date:
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<PAGE> 69
(A) each Existing Holder may submit to a Broker-Dealer
information as to:
(1) the number of Outstanding shares, if any, of AMPS
held by such Existing Holder which such Existing Holder
desires to continue to hold without regard to the Applicable
Rate for the next succeeding Dividend Period;
(2) the number of Outstanding shares, if any, of AMPS
held by such Existing Holder which such Existing Holder
desires to continue to hold, provided that the Applicable Rate
for the next succeeding Dividend Period shall not be less than
the rate per annum specified by such Existing Holder; and/or
(3) the number of Outstanding shares, if any, of AMPS
held by such Existing Holder which such Existing Holder offers
to sell without regard to the Applicable Rate for the next
succeeding Dividend Period; and
(B) each Broker-Dealer, using a list of Potential Holders that
shall be maintained in good faith for the purpose of conducting a
competitive Auction, shall contact Potential Holders, including Persons
that are not Existing Holders, on such list to determine the number of
Outstanding shares, if any, of AMPS which each such Potential Holder
offers to purchase, provided that the Applicable Rate for the next
succeeding Dividend Period shall not be less than the rate per annum
specified by such Potential Holder.
For the purposes hereof, the communication to a Broker-Dealer of
information referred to in clause (A) or (B) of this paragraph 11(b)(i) is
hereinafter referred to as an "Order" and each
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<PAGE> 70
Existing Holder and each Potential Holder placing an Order is hereinafter
referred to as a "Bidder"; an Order containing the information referred to in
clause (A)(1) of this paragraph 11(b)(i) is hereinafter referred to as a "Hold
order"; an Order containing the information referred to in clause (A) (2) or (B)
of this paragraph 11(b)(i) is hereinafter referred to as a "Bid"; and an Order
containing the information referred to in clause (A)(3) of this paragraph
11(b)(i) is hereinafter referred to as a "Sell Order".
(ii) (A) A Bid by an Existing Holder shall constitute
an irrevocable offer to sell:
(1) the number of Outstanding shares of AMPS
specified in such Bid if the Applicable Rate
determined on such Auction Date shall be less than
the rate per annum specified in such Bid; or
(2) such number or a lesser number of
Outstanding shares of AMPS to be determined as set
forth in paragraph 11(e)(i)(D) if the Applicable Rate
determined on such Auction Date shall be equal to the
rate per annum specified therein; or
(3) a lesser number of Outstanding shares of
AMPS to be determined as set forth in paragraph
11(e)(ii)(C) if such specified rate per annum shall
be higher than the Maximum Applicable Rate and
Sufficient Clearing Bids do not exist.
(B) A Sell Order by an Existing Holder shall
constitute an irrevocable offer to sell:
(1) the number of Outstanding shares of AMPS
specified in such Sell Order; or
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<PAGE> 71
(2) such number or a lesser number of
Outstanding shares of AMPS to be determined as set
forth in paragraph 11(e)(ii)(C) if Sufficient
Clearing Bids do not exist.
(C) A Bid by a Potential Holder shall constitute an
irrevocable offer to purchase:
(1) the number of Outstanding shares of AMPS
specified in such Bid if the Applicable Rate
determined on such Auction Date shall be higher than
the rate per annum specified in such Bid; or
(2) such number or a lesser number of
Outstanding shares of AMPS to be determined as set
forth in paragraph 11(e)(i)(E) if the Applicable Rate
determine on such Auction Date shall be equal to the
rate per annum specified therein.
(c) Submission of Orders by Broker-Dealers to Auction Agent.
(i) Each Broker-Dealer shall submit in writing or through the
Auction Agent's Auction Processing System to the Auction Agent prior to
the Submission Deadline on each Auction Date all Orders obtained by
such Broker-Dealer and specifying with respect to each Order:
(A) the name of the Bidder placing such Order;
(B) the aggregate number of Outstanding shares of AMPS that
are the subject of such Order;
(C) to the extent that such Bidder is an Existing Holder:
(1) the number of Outstanding shares, if any, of AMPS
subject to any Hold Order placed by such Existing Holder;
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<PAGE> 72
(2) the number of Outstanding shares, if any, of AMPS
subject to any Bid placed by such Existing Holder and the rate
per annum specified in such Bid; and
(3) the number of outstanding shares, if any, of AMPS
subject to any Sell Order placed by such Existing Holder; and
(D) to the extent such Bidder is a Potential Holder, the rate
per annum specified in such Potential Holder's Bid.
(ii) If any rate per annum specified in any Bid contains more
than three figures to the right of the decimal point, the Auction Agent
shall round such rate up to the next highest one-thousandth (.001) of
1%.
(iii) If an Order or Orders covering all of the Outstanding
shares of AMPS held by an Existing Holder are not submitted to the
Auction Agent prior to the Submission Deadline, the Auction Agent shall
deem a Hold Order (in the case of an Auction relating to a Dividend
Period which is not a Special Dividend Period) and a Sell Order (in the
case of an Auction relating to a Special Dividend Period) to have been
submitted on behalf of such Existing Holder covering the number of
Outstanding shares of AMPS held by such Existing Holder and not subject
to Orders submitted to the Auction Agent.
(iv) If one or more Orders on behalf of an Existing Holder
covering in the aggregate more than the number of Outstanding shares of
AMPS held by such Existing Holder are submitted to the Auction Agent,
such Order shall be considered valid as follows and in the following
order of priority:
(A) any Hold Order submitted on behalf of such Existing Holder
shall be considered valid up to and including the number of Outstanding
shares of AMPS held by
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<PAGE> 73
such Existing Holder; provided that if more than one Hold order is
submitted on behalf of such Existing Holder and the number of shares of
AMPS subject to such Hold Orders exceeds the number of Outstanding
shares of AMPS held by such Existing Holder, the number of shares of
AMPS subject to each of such Hold Orders shall be reduced pro rata so
that such Hold Orders, in the aggregate, will cover exactly the number
of Outstanding shares of AMPS held by such Existing Holder;
(B) any Bids submitted on behalf of such Existing Holder shall
be considered valid, in the ascending order of their respective rates
per annum if more than one Bid is submitted on behalf of such Existing
Holder, up to and including the excess of the number of outstanding
shares of AMPS held by such Existing Holder over the number of shares
of AMPS subject to any Hold Order referred to in paragraph 11(c)(iv)(A)
above (and if more than one Bid submitted on behalf of such Existing
Holder specifies the same rate per annum and together they cover more
than the remaining number of shares that can be the subject of valid
Bids after application of paragraph 11(c)(iv)(A) above and of the
foregoing portion of this paragraph 11(c)(iv)(B) to any Bid or Bids
specifying a lower rate or rates per annum, the number of shares
subject to each of such Bids shall be reduced pro rata so that such
Bids, in the aggregate, cover exactly such remaining number of shares);
and the number of shares, if any, subject to Bids not valid under this
paragraph 11(c)(iv)(B) shall be treated as the subject of a Bid by a
Potential Holder; and
(C) any Sell Order shall be considered valid up to and
including the excess of the number of Outstanding shares of AMPS held
by such Existing Holder over the number of shares of AMPS subject to
Hold Orders referred to in paragraph 11(c)(iv)(A) and Bids referred to
in paragraph 11(c)(iv)(B); provided that if more than one Sell Order
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<PAGE> 74
is submitted on behalf of any Existing Holder and the number of shares
of AMPS subject to such Sell Orders is greater than such excess, the
number of shares of AMPS subject to each of such Sell Orders shall be
reduced pro rata so that such Sell Orders, in the aggregate, cover
exactly the number of shares of AMPS equal to such excess.
(v) If more than one Bid is submitted on behalf of any
Potential Holder, each Bid submitted shall be a separate Bid with the
rate per annum and number of shares of AMPS therein specified.
(d) Determination of Sufficient Clearing Bids, Winning Bid Rate and
Applicable Rate.
(i) Not earlier than the Submission Deadline on each Auction
Date, the Auction Agent shall assemble all Orders submitted or deemed
submitted to it by the Broker-Dealers (each such Order as submitted or
deemed submitted by a Broker-Dealer being hereinafter referred to
individually as a "Submitted Hold Order", a "Submitted Bid" or a
"Submitted Sell Order", as the case may be, or as a "Submitted Order")
and shall determine:
(A) the excess of the total number of Outstanding shares of
AMPS over the number of Outstanding shares of AMPS that are the subject
of Submitted Hold Orders (such excess being hereinafter referred to as
the "Available AMPS");
(B) from the Submitted Orders whether the number of
Outstanding shares of AMPS that are the subject of Submitted Bids by
Potential Holders specifying one or more rates per annum equal to or
lower than the Maximum Applicable Rate exceeds or is equal to the sum
of:
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<PAGE> 75
(1) the number of Outstanding shares of AMPS that are
the subject of Submitted Bids by Existing Holders specifying
one or more rates per annum, higher than the Maximum
Applicable Rate, and
(2) the number of Outstanding shares of AMPS that are
subject to Submitted Sell Orders (if such excess or such
equality exists (other than because the number of Outstanding
shares of AMPS in clauses (1) and (2) above are each zero
because all of the Outstanding shares of AMPS are the subject
of Submitted Hold Orders), such Submitted Bids by Potential
Holders being hereinafter referred to collectively as
"Sufficient Clearing Bids"); and
(C) if Sufficient Clearing Bids exist, the lowest rate per
annum specified in the Submitted Bids (the "Winning Bid Rate") that if:
(1) each Submitted Bid from Existing Holders
specifying the Winning Bid Rate and all other Submitted Bids
from Existing Holders specifying lower rates per annum were
rejected, thus entitling such Existing Holders to continue to
hold the shares of AMPS that are the subject of such Submitted
Bids, and
(2) each Submitted Bid from Potential Holders
specifying the Winning Bid Rate and all other Submitted Bids
from Potential Holders specifying lower rates per annum were
accepted, thus entitling the Potential Holders to purchase the
shares of AMPS that are the subject of such Submitted Bids,
would result in the number of shares subject to all Submitted Bids specifying
the Winning Bid Rate or a lower rate per annum being at least equal to the
Available AMPS.
(ii) Promptly after the Auction Agent has made the
determinations pursuant to paragraph 11(d)(i), the Auction Agent shall
advise the Corporation of the Maximum
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<PAGE> 76
Applicable Rate and, based on such determinations, the Applicable Rate
for the next succeeding Dividend Period as follows:
(A) if Sufficient Clearing Bids exist, that the Applicable
Rate for the next succeeding Dividend Period shall be equal to the
Winning Bid Rate;
(B) if Sufficient Clearing Bids do not exist (other than
because all of the Outstanding shares of AMPS are the subject of
Submitted Hold Orders), that the Applicable Rate for the next
succeeding Dividend Period shall be equal to the Maximum Applicable
Rate; or
(C) if all of the Outstanding shares of AMPS are the subject
of Submitted Hold Orders, that the Dividend Period next succeeding the
Auction shall automatically be the same length as the immediately
preceding Dividend Period and the Applicable Rate for the next
succeeding Dividend Period shall be equal to 59% of the Reference Rate
(or 90% of such rate if the Corporation has provided notification to
the Auction Agent prior to the Auction establishing the Applicable Rate
for any dividend pursuant to paragraph 2(f) hereof that net capital
gains or other taxable income will be included in such dividend on
shares of AMPS) on the date of the Auction.
(e) Acceptance and Rejection of Submitted Bids and Submitted Sell
Orders and Allocation of Shares. Based on the determinations made pursuant to
paragraph 11(d)(i), the Submitted Bids and Submitted Sell Orders shall be
accepted or rejected and the Auction Agent shall take such other action as set
forth below:
(i) If Sufficient Clearing Bids have been made, subject to the
provisions of paragraph 11(e)(iii) and paragraph 11(e)(iv), Submitted
Bids and Submitted Sell Orders
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<PAGE> 77
shall be accepted or rejected in the following order of priority and
all other Submitted Bids shall be rejected:
(A) the Submitted Sell Orders of Existing Holders shall be
accepted and the Submitted Bid of each of the Existing Holders
specifying any rate per annum that is higher than the Winning Bid Rate
shall be accepted, thus requiring each such Existing Holder to sell the
Outstanding shares of AMPS that are the subject of such Submitted Sell
order or Submitted Bid;
(B) the Submitted Bid of each of the Existing Holders
specifying any rate per annum that is lower than the Winning Bid Rate
shall be rejected, thus entitling each such Existing Holder to continue
to hold the outstanding shares of AMPS that are the subject of such
Submitted Bid;
(C) the Submitted Bid of each of the Potential Holders
specifying any rate per annum that is lower than the Winning Bid Rate
shall be accepted;
(D) the Submitted Bid of each of the Existing Holders
specifying a rate per annum that is equal to the Winning Bid Rate shall
be rejected, thus entitling each such Existing Holder to continue to
hold the Outstanding shares of AMPS that are the subject of such
Submitted Bid, unless the number of Outstanding shares of AMPS subject
to all such Submitted Bids shall be greater than the number of
Outstanding shares of AMPS ("Remaining Shares") equal to the excess of
the Available AMPS over the number of Outstanding shares of AMPS
subject to Submitted Bids described in paragraph 11(e)(i)(B) and
paragraph 11(e)(i)(C), in which event the Submitted Bids of each such
Existing Holder shall be accepted, and each such Existing Holder shall
be required to sell Outstanding shares of AMPS, but only in an amount
equal to the difference between (1)
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<PAGE> 78
the number of Outstanding shares of AMPS then held by such Existing
Holder subject to such Submitted Bid and (2) the number of shares of
AMPS obtained by multiplying (x) the number of Remaining Shares by (y)
a fraction the numerator of which shall be the number of Outstanding
shares of AMPS held by such Existing Holder subject to such Submitted
Bid and the denominator of which shall be the sum of the numbers of
Outstanding shares of AMPS subject to such Submitted Bids made by all
such Existing Holders that specified a rate per annum equal to the
Winning Bid Rate; and
(E) the Submitted Bid of each of the Potential Holders
specifying a rate per annum that is equal to the Winning Bid Rate shall
be accepted but only in an amount equal to the number of Outstanding
shares of AMPS obtained by multiplying (x) the difference between the
Available AMPS and the number of Outstanding shares of AMPS subject to
Submitted Bids described in paragraph 11(e)(i)(B), paragraph
11(e)(i)(C) and paragraph 11(e)(i)(D) by (y) a fraction the numerator
of which shall be the number of Outstanding shares of AMPS subject to
such Submitted Bid and the denominator of which shall be the sum of the
number of Outstanding shares of AMPS subject to such Submitted Bids
made by all such Potential Holders that specified rates per annum equal
to the Winning Bid Rate.
(ii) If Sufficient Clearing Bids have not been made (other
than because all of the Outstanding shares of AMPS are subject to
Submitted Hold Orders), subject to the provisions of paragraph
11(e)(iii), Submitted Orders shall be accepted or rejected as follows
in the following order of priority and all other Submitted Bids shall
be rejected:
(A) the Submitted Bid of each Existing Holder specifying any
rate per annum that is equal to or lower than the Maximum Applicable
Rate shall be rejected, thus
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entitling such Existing Holder to continue to hold the Outstanding
shares of AMPS that are the subject of such Submitted Bid;
(B) the Submitted Bid of each Potential Holder specifying any
rate per annum that is equal to or lower than the Maximum Applicable
Rate shall be accepted, thus requiring such Potential Holder to
purchase the Outstanding shares of AMPS that are the subject of such
Submitted Bid; and
(C) the Submitted Bids of each Existing Holder specifying any
rate per annum that is higher than the Maximum Applicable Rate shall be
accepted and the Submitted Sell Orders of each Existing Holder shall be
accepted, in both cases only in an amount equal to the difference
between (1) the number of Outstanding shares of AMPS then held by such
Existing Holder subject to such Submitted Bid or Submitted Sell Order
and (2) the number of shares of AMPS obtained by multiplying (x) the
difference between the Available AMPS and the aggregate number of
Outstanding shares of AMPS subject to Submitted Bids described in
paragraph 11(e)(ii)(A) and paragraph 11(e)(ii)(B) by (y) a fraction the
numerator of which shall be the number of Outstanding shares of AMPS
held by such Existing Holder subject to such Submitted Bid or Submitted
Sell Order and the denominator of which shall be the number of
Outstanding shares of AMPS subject to all such Submitted Bids and
Submitted Sell Orders.
(iii) If, as a result of the procedures described in paragraph
11(e)(i) or paragraph 11(e)(ii), any Existing Holder would be entitled
or required to sell, or any Potential Holder would be entitled or
required to purchase, a fraction of a share of AMPS on any Auction
Date, the Auction Agent shall, in such manner as in its sole discretion
it shall determine, round up or down the number of shares of AMPS to be
purchased or sold
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<PAGE> 80
by any Exiting Holder or Potential Holder on such Auction Date so that
each Outstanding share of AMPS purchased or sold by each Existing
Holder or Potential Holder on such Auction Date shall be a whole share
of AMPS.
(iv) If, as a result of the procedures described in paragraph
11(e)(i), any Potential Holder would be entitled or required to
purchase less than a whole share of AMPS on any Auction Date, the
Auction Agent shall, in such manner as in its sole discretion it shall
determine, allocate shares of AMPS for purchase among Potential Holders
so that only whole shares of AMPS are purchased on such Auction Date by
any Potential Holder, even if such allocation results in one or more of
such Potential Holders not purchasing any shares of AMPS on such
Auction Date.
(v) Based on the results of each Auction, the Auction Agent
shall determine, with respect to each Broker-Dealer that submitted Bids
or Sell Orders on behalf of Existing Holders or Potential Holders, the
aggregate number of Outstanding shares of AMPS to be purchased and the
aggregate number of the Outstanding shares of AMPS to be sold by such
Potential Holders and Existing Holders and, to the extent that such
aggregate number of Outstanding shares to be purchased and such
aggregate number of Outstanding shares to be sold differ, the Auction
Agent shall determine to which other Broker-Dealer or Broker-Dealers
acting for one or more purchasers such Broker-Dealer shall deliver, or
from which other Broker-Dealer or Broker-Dealers acting for one or more
sellers such Broker-Dealer shall receive, as the case may be,
Outstanding shares of AMPS.
(f) Miscellaneous. The Corporation may interpret the provisions of this
paragraph 11 to resolve any inconsistency or ambiguity, remedy any formal defect
or make any other change
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<PAGE> 81
or modification that does not substantially adversely affect the rights of
Existing Holders of AMPS. An Existing Holder (A) may sell, transfer or otherwise
dispose of shares of AMPS only pursuant to a Bid or Sell Order in accordance
with the procedures described in this paragraph 11 or to or through a
Broker-Dealer or to a Person that has delivered a signed copy of a Purchaser's
Letter to the Auction Agent, provided that in the case of all transfers other
than pursuant to Auctions such Existing Holder, its Broker-Dealer or its Agent
Member advises the Auction Agent of such transfer and (B) except as otherwise
required by law, shall have the ownership of the shares of AMPS held by it
maintained in book entry form by the Securities Depository in the account of its
Agent Member, which in turn will maintain records of such Existing Holder's
beneficial ownership. Neither the Corporation nor any affiliate shall submit an
Order in any Auction. Any Existing Holder that is an Affiliate shall not sell,
transfer or otherwise dispose of shares of AMPS to any Person other than the
Corporation. All of the Outstanding shares of AMPS shall be represented by a
single certificate registered in the name of the nominee of the Securities
Depository unless otherwise required by law or unless there is no Securities
Depository. If there is no Securities Depository, at the Corporation's option
and upon its receipt of such documents as it deems appropriate, any shares of
AMPS may be registered in the Stock Register in the name of the Existing Holder
thereof and such Existing Holder thereupon will be entitled to receive
certificates therefor and required to deliver certificates therefor upon
transfer or exchange thereof.
12. Securities Depository; Stock Certificates. (a) If there is a
Securities Depository, one certificate for all of the shares of AMPS shall be
issued to the Securities Depository and registered in the name of the Securities
Depository or its nominee. Additional certificates may be issued as necessary to
represent shares of AMPS. All such certificates shall bear a legend to the
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<PAGE> 82
effect that such certificates are issued subject to the provisions restricting
the transfer of shares of AMPS of a series contained in these Articles
Supplementary and each Purchaser's Letter. Unless the Corporation shall have
elected, during a Non-Payment Period, to waive this requirement, the Corporation
will also issue stop-transfer instructions to the Auction Agent for the shares
of AMPS. Except as provided in paragraph (b) below, the Securities Depository or
its nominee will be the Holder, and no Existing Holder shall receive
certificates representing its ownership interest in such shares.
(b) If the Applicable Rate applicable to all shares of AMPS shall be
the Non-Payment Period Rate or there is no Securities Depository, the
Corporation may at its option issue one or more new certificates with respect to
such shares (without the legend referred to in paragraph 12(a)) registered in
the names of the Existing Holders or their nominees and rescind the
stop-transfer instructions referred to in paragraph 12(a) with respect to such
shares.
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<PAGE> 83
IN WITNESS WHEREOF, MUNIYIELD MICHIGAN INSURED FUND, INC. has caused
these presents to be signed in its name and on its behalf by a duly authorized
officer, and its corporate seal to be hereunto affixed and attested by its
Secretary, and the said officers of the Corporation further acknowledge said
instrument to be the corporate act of the Corporation, and state under the
penalties of perjury that to the best of their knowledge, information and belief
the matters and facts herein set forth with respect to approval are true in all
material respects, all on November 16, 1992.
MUNIYIELD MICHIGAN INSURED
FUND, Inc.
By _______________________________________
Name:
Title
Attest:
________________________________
Mark Goldfus
Secretary
83
<PAGE> 1
Exhibit 1(c)
MUNIYIELD MICHIGAN INSURED FUND, INC.
Articles of Amendment to Articles Supplementary creating
Auction Market Preferred Stock
MUNIYIELD MICHIGAN INSURED FUND, INC., a Maryland corporation having its
principal Maryland office in the City of Baltimore (the "Corporation"),
certifies to the Maryland State Department of Assessments and Taxation that:
FIRST: The Articles Supplementary, filed on November 17, 1992, and the
Articles Supplementary, filed on December 1, 1994, each creating 1,000 shares of
Auction Market Preferred Stock ("AMPS(R)") of the Corporation (collectively, the
"Articles Supplementary"), are hereby amended by these Articles of Amendment as
follows:
In each of the Articles Supplementary, paragraph (c) of section 5 entitled
"Right to Vote with Respect to Certain Other Matters" is deleted in its entirety
and replaced with the following:
(c) Right to Vote with Respect to Certain Other Matters. So long as
any shares of AMPS are outstanding, the Corporation shall not, without the
affirmative vote of the holders of a majority of the shares of the
Preferred Stock Outstanding at the time, voting separately as one class:
(i) authorize, create or issue any class or series of stock ranking prior
to the AMPS or any other series of Preferred Stock with respect to payment
of dividends or the distribution of assets on liquidation, or (ii) amend,
alter or repeal the provisions of the Charter, whether by merger,
consolidation or otherwise, so as to adversely affect any of the contract
rights expressly set forth in the Charter of holders of shares of AMPS or
any other Preferred Stock. To the extent permitted under the 1940 Act, in
the event shares of more than one series of AMPS are outstanding, the
Corporation shall not approve any of the actions set forth in clause (i)
or (ii) which adversely affects the contract rights expressly set forth in
the Charter of a Holder of shares of a series of AMPS differently than
those of a Holder of shares of any other series of AMPS without the
affirmative vote of the holders of at least a majority of the shares of
AMPS of each series adversely affected and outstanding at such time (each
such adversely affected series voting separately as a class). The
<PAGE> 2
Corporation shall notify Moody's and S&P ten Business Days prior to any
such vote described in clause (i) or (ii). Unless a higher percentage is
provided for under the Charter, the affirmative vote of the holders of a
majority of the outstanding shares of Preferred Stock, including AMPS,
voting together as a single class, will be required to approve any plan of
reorganization (including bankruptcy proceedings) adversely affecting such
shares or any action requiring a vote of security holders under Section
13(a) of the 1940 Act. The class vote of holders of shares of Preferred
Stock, including AMPS, described above will in each case be in addition to
a separate vote of the requisite percentage of shares of Common Stock and
shares of Preferred Stock, including AMPS, voting together as a single
class necessary to authorize the action in question.
SECOND: The foregoing amendment to the Articles Supplementary has been
effected in the manner and by the vote required by the charter of the
Corporation (the "Charter") and the laws of Maryland. The amendment of the
Articles Supplementary, as hereinabove set forth has been duly advised,
approved, and adopted by a majority of the entire Board of Directors of the
Corporation, and by a majority of the outstanding Common Stock and AMPS voting
together as a single class and by a majority of the outstanding AMPS voting
together as a separate class.
THIRD: Except as amended, hereby, the Charter shall remain in full force
and effect.
FOURTH: The authorized capital stock of the Corporation has not been
increased by these Articles of Amendment.
FIFTH: These Articles of Amendment shall be effective immediately upon the
acceptance for recording or filing by the Maryland State Department of
Assessments and Taxation.
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<PAGE> 3
The undersigned Vice President and Treasurer acknowledges these Articles
of Amendment to be the corporate act of the Corporation and as to all matters or
facts required to be verified under oath, the undersigned Vice President and
Treasurer states that to the best of his knowledge, information and belief the
matters and facts set forth in these Articles of Amendment with respect to the
authorization and approval of the amendment of the Corporation's Articles
Supplementary are true in all material respects, and that this statement is made
under the penalties of perjury.
IN WITNESS WHEREOF, MUNIYIELD MICHIGAN INSURED FUND, INC. has caused these
Articles of Amendment to be signed in its name and on its behalf by its Vice
President and Treasurer, a duly authorized officer of the Corporation, and
attested by its Secretary as of __________, 1999.
MUNIYIELD MICHIGAN
INSURED FUND, INC.
By________________________________
Name: Donald C. Burke
Title: Vice President and Treasurer
Attest:
_______________________________
Name: Alice A. Pellegrino
Title: Secretary
3
<PAGE> 1
Exhibit 1(d)
MUNIYIELD MICHIGAN INSURED FUND, INC.
Articles Supplementary creating
Auction Market Preferred Stock(R)
MUNIYIELD MICHIGAN INSURED FUND, INC., a Maryland corporation having its
principal Maryland office in the City of Baltimore (the "Corporation"),
certifies to the Maryland State Department of Assessments and Taxation that:
FIRST: Pursuant to authority expressly vested in the Board of Directors of
the Corporation by Article FIFTH of its Charter, the Board of Directors has
reclassified 1,000 authorized and unissued shares of common stock of the
Corporation as additional preferred stock of the Corporation and has authorized
the issuance of preferred stock, par value $.10 per share, liquidation
preference $50,000 per share plus an amount equal to accumulated but unpaid
dividends (whether or not earned or declared) thereon, to be designated Auction
Market Preferred Stock.
SECOND: The preferences, voting powers, restrictions, limitations as to
dividends, qualifications, and terms and conditions of redemption, of the shares
of such preferred stock shall be identical to the 1,000 shares of Auction Market
Preferred Stock previously reclassified and authorized by the Board of Directors
pursuant to Articles Supplementary dated November 16, 1992 and filed on November
17, 1992 with the Maryland State Department of Assessments and Taxation.
Accordingly, these Articles Supplementary hereby incorporate by reference such
previously filed Articles Supplementary beginning with the section entitled
"DESIGNATION"
- ----------
(R) Registered trademark of Merrill Lynch & Co., Inc.
<PAGE> 2
and continuing until the end of the final section entitled "Securities
Depository; Stock Certificates," with the following exception:
At page 2, in the section entitled "DESIGNATION," strike out the date
"November 19, 1992" and insert in lieu thereof the date "November 30, 1994";
IN WITNESS WHEREOF, MUNIYIELD MICHIGAN INSURED FUND, INC. has caused these
presents to be signed in its name and on its behalf by a duly authorized
officer, and attested by its Secretary, and the said officers of the Corporation
further acknowledge said instrument to be the corporate act of the Corporation,
and state under the penalties of perjury that to the best of their knowledge,
information and belief the matters and facts herein set forth with respect to
approval are true in all material respects, all on November 30, 1994.
MUNIYIELD MICHIGAN INSURED FUND, INC.
By: /s/ Vincent R. Giordano
------------------------------------
Name: Vincent R. Giordano
Title: Senior Vice President
Attest:
/s/ Mark B. Goldfus
- ----------------------------------
Name: Mark B. Goldfus
Its: Secretary
2
<PAGE> 1
Exhibit 1(e)
MUNIYIELD MICHIGAN INSURED FUND, INC.
Articles of Amendment to Articles Supplementary creating
Auction Market Preferred Stock(R)
MUNIYIELD MICHIGAN INSURED FUND, INC., a Maryland corporation having its
principal Maryland office in the City of Baltimore (the "Corporation"),
certifies to the Maryland State Department of Assessments and Taxation that:
FIRST: The Articles Supplementary, filed on November 17, 1992, and the
Articles Supplementary, filed on December 1, 1994, each creating 1,000 shares of
Auction Market Preferred Stock of the Corporation (collectively, the "Articles
Supplementary"), are hereby amended by these Articles of Amendment as follows:
In each instance in which "$.10" appears, delete "$.10" and substitute
"$.05" therefor;
In each instance in which "$50,000" appears, delete "$50,000" and
substitute "$25,000" therefor.
SECOND: The foregoing amendment to the Articles Supplementary has been
effected in the manner and by the vote required by the Corporation's Charter and
the laws of Maryland. Pursuant to Section 2-603 of the Code, the amendment of
the Articles Supplementary
- ----------
(R) Registered trademark of Merrill Lynch & Co., Inc.
3
<PAGE> 2
as hereinabove set forth has been duly advised, approved and adopted by a
majority of the entire Board of Directors of the Corporation, there being no
stock entitled to be voted on the Charter amendment outstanding or subscribed
for at the time of approval.
THIRD: Except as amended hereby, the Charter shall remain in full force
and effect.
FOURTH: The authorized capital stock of the Corporation has not been
increased by these Articles of Amendment.
FIFTH: These Articles of Amendment shall be effective contemporaneously
with the acceptance for recording or filing by the Maryland State Department of
Assessments and Taxation of the Corporation's Articles Supplementary dated
November 30, 1994.
The Senior Vice President acknowledges these Articles of Amendment to be
the corporate act of the Corporation and states that to the best of his
knowledge, information and belief the matters and facts set forth in these
Articles with respect to the authorization and approval of the amendment of the
Corporation's Articles Supplementary are true in all material respects, and that
this statement is made under the penalties of perjury.
IN WITNESS WHEREOF, MUNIYIELD MICHIGAN INSURED FUND, INC. has caused these
Articles to be signed in its name and on its behalf by its Senior Vice
President, a duly authorized officer of the Corporation, and attested by its
Secretary as of November 30, 1994.
MUNIYIELD MICHIGAN INSURED FUND, INC.
4
<PAGE> 3
By: /s/ Vincent R. Giordano
------------------------------------
Name: Vincent R. Giordano
Title: Senior Vice President
Attest:
/s/ Mark B. Goldfus
- ----------------------------------
Name: Mark B. Goldfus
Its: Secretary
5
<PAGE> 1
EXHIBIT 1(f)
MUNIYIELD MICHIGAN INSURED FUND, INC.
CERTIFICATE OF CORRECTION
Pursuant to Section 1-207 of the Maryland Corporations and
Associations Code, MuniYield Michigan Insured Fund, Inc., a Maryland corporation
having its principal office in Baltimore, Maryland (hereinafter called the
"Corporation"), hereby files this Certificate of Correction and certifies to the
State Department of Assessments and Taxation of Maryland that:
FIRST: The title of the document being corrected hereby is Articles
of Amendment (hereinafter referred to as the "Articles").
SECOND: The name of the party to which the Articles apply is
MuniYield Michigan Insured Fund, Inc. (although the Articles were mistakenly
placed among the charter documents of MuniYield Michigan Fund, Inc.).
THIRD: The Articles were filed with the State Department of
Assessments and Taxation of Maryland on August 26, 1992.
FOURTH: Article First of the Articles, as originally filed, amended
Article II of the Corporation's charter to change the name of the Corporation to
"MuniYield Michigan Fund II, Inc."
FIFTH: Article First of the Articles, as hereby corrected, is as
follows:
"Article II
NAME
The name of the Corporation is MuniYield Michigan Insured
Fund, Inc."
SIXTH: This Certificate of Correction does not change the effect
date of the Articles.
SEVENTH: This Certificate of Correction does not affect any right or
liability accrued or incurred before its filing, except that any right or
liability accrued or incurred by reason of the error or defect being corrected
shall be extinguished by the filing if the person having the right has not
detrimentally relied on the original Articles.
<PAGE> 2
IN WITNESS WHEREOF, the undersigned hereby acknowledges, in the name
and on behalf of the Corporation, this Certificate of Correction to be the
corporate act of the Corporation and further certifies, under penalties of
perjury, that, to the best of his knowledge, information and belief, the matters
and facts set forth herein are true in all materials respects, all on this 6th
day of December, 1994.
MUNIYIELD MICHIGAN INSURED FUND, INC.
/s/ Arthur Zeikel
Arthur Zeikel
Vice President
Attest:
/s/ Mark B. Goldfus
Mark B. Goldfus
Secretary
<PAGE> 1
Exhibit 1(g)
MUNIYIELD MICHIGAN INSURED FUND, INC.
Articles Supplementary creating two series of
Auction Market Preferred Stock(R) ("AMPS(R)")
MUNIYIELD MICHIGAN INSURED FUND, INC., a Maryland corporation having its
principal Maryland office in the City of Baltimore (the "Corporation"),
certifies to the State Department of Assessments and Taxation of Maryland that:
FIRST: Pursuant to authority expressly vested in the Board of Directors of
the Corporation by article fifth of its Charter, the Board of Directors has
reclassified 3,600 authorized and unissued shares of common stock of the
Corporation as preferred stock of the Corporation and has authorized the
issuance of two series of preferred stock, par value $.10 per share, liquidation
preference $25,000 per share plus an amount equal to accumulated but unpaid
dividends (whether or not earned or declared) thereon, to be designated
respectively: Auction Market Preferred Stock, Series B; and Auction Market
Preferred Stock, Series C.
SECOND: The preferences, voting powers, restrictions, limitations as to
dividends, qualifications, and terms and conditions of redemption, of the shares
of each such series of preferred stock are as follows:
- ----------
(R) Registered trademark of Merrill Lynch & Co., Inc.
<PAGE> 2
DESIGNATION
Series B: A series of 2,000 shares of preferred stock, par value $.10 per
share, liquidation preference $25,000 per share plus an amount equal to
accumulated but unpaid dividends (whether or not earned or declared) thereon, is
hereby designated "Auction Market Preferred Stock, Series B." Each share of
Auction Market Preferred Stock, Series B (sometimes referred to herein as
"AMPS") shall be issued on a date to be determined by the Board of Directors of
the Corporation or pursuant to their delegated authority; have an Initial
Dividend Rate and an Initial Dividend Payment Date as shall be determined in
advance of the issuance thereof by the Board of Directors of the Corporation or
pursuant to their delegated authority; and have such other preferences, voting
powers, limitations as to dividends, qualifications and terms and conditions of
redemption as are set forth in these Articles Supplementary. The Auction Market
Preferred Stock, Series B shall constitute a separate series of preferred stock
of the Corporation, and each share of Auction Market Preferred Stock, Series B
shall be identical.
Series C: A series of 1,600 shares of preferred stock, par value $.10 per
share, liquidation preference $25,000 per share plus an amount equal to
accumulated but unpaid dividends (whether or not earned or declared) thereon, is
hereby designated "Auction Market Preferred Stock, Series C." Each share of
Auction Market Preferred Stock, Series C (sometimes referred to herein as
"Series C AMPS") shall be issued on a date to be determined by the Board of
Directors of the Corporation or pursuant to their delegated authority; have an
Initial Dividend Rate and an Initial Dividend Payment Date as shall be
determined in advance of the issuance thereof by the Board of Directors of the
Corporation or pursuant to their delegated authority; and have such other
preferences, voting powers, limitations as to dividends, qualifications and
terms
2
<PAGE> 3
and conditions of redemption as are set forth in these Articles Supplementary.
The Auction Market Preferred Stock, Series C shall constitute a separate series
of preferred stock of the Corporation, and each share of Auction Market
Preferred Stock, Series C shall be identical.
1. Definitions. (a) Unless the context or use indicates another or
different meaning or intent, in these Articles Supplementary the following terms
have the following meanings, whether used in the singular or plural:
"'AA' Composite Commercial Paper Rate," on any date of determination,
means (i) the Interest Equivalent of the rate on commercial paper placed on
behalf of issuers whose corporate bonds are rated "AA" by S&P or "Aa" by Moody's
or the equivalent of such rating by another nationally recognized rating agency,
as such rate is made available on a discount basis or otherwise by the Federal
Reserve Bank of New York for the Business Day immediately preceding such date,
or (ii) in the event that the Federal Reserve Bank of New York does not make
available such a rate, then the arithmetic average of the Interest Equivalent of
the rate on commercial paper placed on behalf of such issuers, as quoted on a
discount basis or otherwise by Merrill Lynch, Pierce, Fenner & Smith
Incorporated or its successors that are Commercial Paper Dealers, to the Auction
Agent for the close of business on the Business Day immediately preceding such
date. If one of the Commercial Paper Dealers does not quote a rate required to
determine the "AA" Composite Commercial Paper Rate, the "AA" Composite
Commercial Paper Rate will be determined on the basis of the quotation or
quotations furnished by any Substitute Commercial Paper Dealer or Substitute
Commercial Paper Dealers selected by the Corporation to provide such rate or
rates not being supplied by the Commercial Paper Dealer. If the number of
Dividend Period days shall be (i) 7 or more but fewer than 49 days, such rate
shall
3
<PAGE> 4
be the Interest Equivalent of the 30-day rate on such commercial paper; (ii) 49
or more but fewer than 70 days, such rate shall be the Interest Equivalent of
the 60-day rate on such commercial paper; (iii) 70 or more days but fewer than
85 days, such rate shall be the arithmetic average of the Interest Equivalent on
the 60-day and 90-day rates on such commercial paper; (iv) 85 or more days but
fewer than 99 days, such rate shall be the Interest Equivalent of the 90-day
rate on such commercial paper; (v) 99 or more days but fewer than 120 days, such
rate shall be the arithmetic average of the Interest Equivalent of the 90-day
and 120-day rates on such commercial paper; (vi) 120 or more days but fewer than
141 days, such rate shall be the Interest Equivalent of the 120-day rate on such
commercial paper; (vii) 141 or more days but fewer than 162 days, such rate
shall be the arithmetic average of the Interest Equivalent of the 120-day and
180-day rates on such commercial paper; and (viii) 162 or more days but fewer
than 183 days, such rate shall be the Interest Equivalent of the 180-day rate on
such commercial paper.
"Accountant's Confirmation" has the meaning set forth in paragraph 7(c)
of these Articles Supplementary.
"Additional Dividend" has the meaning set forth in paragraph 2(e) of
these Articles Supplementary.
"Adviser" means the Corporation's investment adviser which initially
shall be Fund Asset Management, L.P.
"Affiliate" means any Person, other than Merrill Lynch, Pierce, Fenner
& Smith Incorporated or its successors, known to the Auction Agent to be
controlled by, in control of, or under common control with, the Corporation.
4
<PAGE> 5
"Agent Member" means a member of the Securities Depository that will
act on behalf of a Beneficial Owner of one or more shares of AMPS or a Potential
Beneficial Owner.
"AMPS" means, as the case may be, the Auction Market Preferred Stock,
Series B; or the Auction Market Preferred Stock, Series C.
"AMPS Basic Maintenance Amount," as of any Valuation Date, means the
dollar amount equal to (i) the sum of (A) the product of the number of shares of
AMPS of each Series and Other AMPS Outstanding on such Valuation Date multiplied
by the sum of (a) $25,000 and (b) any applicable redemption premium attributable
to the designation of a Premium Call Period; (B) the aggregate amount of cash
dividends (whether or not earned or declared) that will have accumulated for
each share of AMPS and Other AMPS Outstanding, in each case, to (but not
including) the end of the current Dividend Period for each series of AMPS that
follows such Valuation Date in the event the then current Dividend Period will
end within 49 calendar days of such Valuation Date or through the 49th day after
such Valuation Date in the event the then current Dividend Period for each
series of AMPS will not end within 49 calendar days of such Valuation Date; (C)
in the event the then current Dividend Period will end within 49 calendar days
of such Valuation Date, the aggregate amount of cash dividends that would
accumulate at the Maximum Applicable Rate applicable to a Dividend Period of 28
or fewer days on any shares of AMPS and Other AMPS Outstanding from the end of
such Dividend Period through the 49th day after such Valuation Date, multiplied
by the larger of the Moody's Volatility Factor and the S&P Volatility Factor,
determined from time to time by Moody's and S&P, respectively (except that if
such Valuation Date occurs during a Non-Payment Period, the cash dividend for
purposes of calculation would accumulate at the then current Non-Payment Period
Rate); (D) the amount
5
<PAGE> 6
of anticipated expenses of the Corporation for the 90 days subsequent to such
Valuation Date (including any premiums payable with respect to a Policy); (E)
the amount of the Corporation's Maximum Potential Additional Dividend Liability
as of such Valuation Date; and (F) any current liabilities as of such Valuation
Date to the extent not reflected in any of (i)(A) through (i)(E) (including,
without limitation, and immediately upon determination, any amounts due and
payable by the Corporation pursuant to repurchase agreements and any amounts
payable for Michigan Municipal Bonds or Municipal Bonds purchased as of such
Valuation Date) less (ii) either (A) the Discounted Value of any of the
Corporation's assets, or (B) the face value of any of the Corporation's assets
if such assets mature prior to or on the date of redemption of AMPS or payment
of a liability and are either securities issued or guaranteed by the United
States Government or Deposit Securities, in both cases irrevocably deposited by
the Corporation for the payment of the amount needed to redeem shares of AMPS
subject to redemption or to satisfy any of (i)(B) through (i)(F). For Moody's
and S&P, the Corporation shall include as a liability an amount calculated
semi-annually equal to 150% of the estimated cost of obtaining other insurance
guaranteeing the timely payment of interest on a Moody's Eligible Asset or S&P
Eligible Asset and principal thereof to maturity with respect to Moody's
Eligible Assets and S&P Eligible Assets that (i) are covered by a Policy which
provides the Corporation with the option to obtain such other insurance and (ii)
are discounted by a Moody's Discount Factor or a S&P Discount Factor, as the
case may be, determined by reference to the insurance claims-paying ability
rating of the issuer of such Policy.
"AMPS Basic Maintenance Cure Date," with respect to the failure by the
Corporation to satisfy the AMPS Basic Maintenance Amount (as required by
paragraph 7(a) of these Articles
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<PAGE> 7
Supplementary) as of a given Valuation Date, means the sixth Business Day
following such Valuation Date.
"AMPS Basic Maintenance Report" means a report signed by any of the
President, Treasurer, any Senior Vice President or any Vice President of the
Corporation which sets forth, as of the related Valuation Date, the assets of
the Corporation, the Market Value and the Discounted Value thereof (seriatim and
in aggregate), and the AMPS Basic Maintenance Amount.
"Anticipation Notes" shall mean the following Michigan Municipal Bonds:
revenue anticipation notes, tax anticipation notes, tax and revenue anticipation
notes, grant anticipation notes and bond anticipation notes.
"Applicable Percentage" has the meaning set forth in paragraph
10(a)(vii) of these Articles Supplementary.
"Applicable Rate" means the rate per annum at which cash dividends are
payable on the AMPS or Other AMPS, as the case may be, for any Dividend Period.
"Auction" means a periodic operation of the Auction Procedures.
"Auction Agent" means IBJ Whitehall Bank & Trust Company unless and
until another commercial bank, trust company or other financial institution
appointed by a resolution of the Board of Directors of the Corporation or a duly
authorized committee thereof enters into an agreement with the Corporation to
follow the Auction Procedures for the purpose of determining
7
<PAGE> 8
the Applicable Rate and to act as transfer agent, registrar, dividend disbursing
agent and redemption agent for the AMPS and Other AMPS.
"Auction Procedures" means the procedures for conducting Auctions set
forth in paragraph 10 of these Articles Supplementary.
"Beneficial Owner" means a customer of a Broker-Dealer who is listed on
the records of that Broker-Dealer (or, if applicable, the Auction Agent) as a
holder of shares of AMPS or a Broker-Dealer that holds AMPS for its own account.
"Broker-Dealer" means any broker-dealer, or other entity permitted by
law to perform the functions required of a Broker-Dealer in paragraph 10 of
these Articles Supplementary, that has been selected by the Corporation and has
entered into a Broker-Dealer Agreement with the Auction Agent that remains
effective.
"Broker-Dealer Agreement" means an agreement between the Auction Agent
and a Broker-Dealer pursuant to which such Broker-Dealer agrees to follow the
procedures specified in paragraph 10 of these Articles Supplementary.
"Business Day" means a day on which the New York Stock Exchange, Inc.
is open for trading and which is not a Saturday, Sunday or other day on which
banks in The City of New York are authorized or obligated by law to close.
"Charter" means the Articles of Incorporation, as amended and
supplemented (including these Articles Supplementary), of the Corporation on
file in the State Department of Assessments and Taxation of Maryland.
8
<PAGE> 9
"Code" means the Internal Revenue Code of 1986, as amended.
"Commercial Paper Dealers" means Merrill Lynch, Pierce, Fenner & Smith
Incorporated and such other commercial paper dealer or dealers as the
Corporation may from time to time appoint, or, in lieu of any thereof, their
respective affiliates or successors.
"Common Stock" means the common stock, par value $.10 per share, of the
Corporation.
"Corporation" means MuniYield Michigan Insured Fund, Inc., a Maryland
corporation.
"Date of Original Issue" means, with respect to any share of AMPS or
Other AMPS, the date on which the Corporation originally issues such share.
"Deposit Securities" means cash and Michigan Municipal Bonds and
Municipal Bonds rated at least A2 (having a remaining maturity of 12 months or
less), P-1, VMIG-1 or MIG-1 by Moody's or A (having a remaining maturity of 12
months or less), A-1+ or SP-1+ by S&P.
"Discounted Value" means (i) with respect to an S&P Eligible Asset, the
quotient of the Market Value thereof divided by the applicable S&P Discount
Factor and (ii) with respect to a Moody's Eligible Asset, the lower of par and
the quotient of the Market Value thereof divided by the applicable Moody's
Discount Factor.
"Dividend Payment Date," with respect to AMPS, has the meaning set
forth in paragraph 2(b)(i) of these Articles Supplementary and, with respect to
Other AMPS, has the equivalent meaning.
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<PAGE> 10
"Dividend Period" means the Initial Dividend Period, any 7-Day Dividend
Period and any Special Dividend Period.
"Existing Holder" means a Broker-Dealer or any such other Person as may
be permitted by the Corporation that is listed as the holder of record of shares
of AMPS in the Stock Books.
"Fitch" means Fitch IBCA, Inc. or its successors.
"Forward Commitment" has the meaning set forth in paragraph 8(c) of
these Articles Supplementary.
"Holder" means a Person identified as a holder of record of shares of
AMPS in the Stock Register.
"Independent Accountant" means a nationally recognized accountant, or
firm of accountants, that is, with respect to the Corporation, an independent
public accountant or firm of independent public accountants under the Securities
Act of 1933, as amended.
"Initial Dividend Payment Date" means the Initial Dividend Payment Date
as determined by the Board of Directors of the Corporation with respect to each
series of AMPS or Other AMPS, as the case may be.
"Initial Dividend Period," with respect to each series of AMPS, has the
meaning set forth in paragraph 2(c)(i) of these Articles Supplementary and, with
respect to Other AMPS, has the equivalent meaning.
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<PAGE> 11
"Initial Dividend Rate," with respect to each series of AMPS, means the
rate per annum applicable to the Initial Dividend Period for each series of AMPS
and, with respect to Other AMPS, has the equivalent meaning.
"Initial Margin" means the amount of cash or securities deposited with
a broker as a margin payment at the time of purchase or sale of a futures
contract.
"Interest Equivalent" means a yield on a 360-day basis of a discount
basis security which is equal to the yield on an equivalent interest-bearing
security.
"Inverse Floaters" means trust certificates or other instruments
evidencing interests in one or more Michigan Municipal Bonds that qualify as S&P
Eligible Assets (and are not part of a private placement of Michigan Municipal
Bonds and satisfy the issuer and original issue size or requirements of clause
(vi) of the definition of S&P Eligible Assets) the interest rates on which are
adjusted at short term intervals on a basis that is inverse to the simultaneous
readjustment of the interest rates on corresponding floating rate trust
certificates or other instruments issued by the same issuer, provided that the
ratio of the aggregate dollar amount of floating rate instruments to inverse
floating rate instruments issued by the same issuer does not exceed one to one
at their time of original issuance unless the floating rate instruments have
only one reset remaining until maturity.
"Long Term Dividend Period" means a Special Dividend Period consisting
of a specified period of one whole year or more but not greater than five years.
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<PAGE> 12
"Mandatory Redemption Price" means $25,000 per share of AMPS plus an
amount equal to accumulated but unpaid dividends (whether or not earned or
declared) to the date fixed for redemption and excluding Additional Dividends.
"Marginal Tax Rate" means the maximum marginal regular Federal
individual income tax rate applicable to ordinary income or the maximum marginal
regular Federal corporate income tax rate, whichever is greater.
"Market Value" of any asset of the Corporation shall be the market
value thereof determined by the Pricing Service. Market Value of any asset shall
include any interest accrued thereon. The Pricing Service shall value portfolio
securities at the quoted bid prices or the mean between the quoted bid and asked
price or the yield equivalent when quotations are not readily available.
Securities for which quotations are not readily available shall be valued at
fair value as determined by the Pricing Service using methods which include
consideration of: yields or prices of municipal bonds of comparable quality,
type of issue, coupon, maturity and rating; indications as to value from
dealers; and general market conditions. The Pricing Service may employ
electronic data processing techniques and/or a matrix system to determine
valuations. In the event the Pricing Service is unable to value a security, the
security shall be valued at the lower of two dealer bids obtained by the
Corporation from dealers who are members of the National Association of
Securities Dealers, Inc. and who make a market in the security, at least one of
which shall be in writing. Futures contracts and options are valued at closing
prices for such instruments established by the exchange or board of trade on
which they are traded, or if market quotations are not readily available, are
valued at fair value on a consistent basis using methods determined in good
faith by the Board of Directors.
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<PAGE> 13
"Maximum Applicable Rate," with respect to AMPS, has the meaning set
forth in paragraph 10(a)(vii) of these Articles Supplementary and, with respect
to Other AMPS, has the equivalent meaning.
"Maximum Potential Additional Dividend Liability," as of any Valuation
Date, means the aggregate amount of Additional Dividends that would be due if
the Corporation were to make Retroactive Taxable Allocations, with respect to
any fiscal year, estimated based upon dividends paid and the amount of
undistributed realized net capital gains and other taxable income earned by the
Corporation, as of the end of the calendar month immediately preceding such
Valuation Date and assuming such Additional Dividends are fully taxable.
"Michigan Municipal Bonds" means Municipal Bonds issued by or on behalf
of the State of Michigan, its political subdivisions, agencies and
instrumentalities and by other qualifying issuers that pay interest which, in
the opinion of bond counsel to the issuer, is exempt from Federal and Michigan
income taxes, and includes Inverse Floaters.
"Moody's" means Moody's Investors Service, Inc. or its successors.
"Moody's Discount Factor" means, for purposes of determining the
Discounted Value of any Michigan Municipal Bond or Municipal Bond which
constitutes a Moody's Eligible Asset, the percentage determined by reference to
(a)(i) the rating by Moody's or S&P on such Bond or (ii) in the event the
Moody's Eligible Asset is insured under a Policy and the terms of the Policy
permit the Corporation, at its option, to obtain other insurance guaranteeing
the timely payment of interest on such Moody's Eligible Asset and principal
thereof to maturity, the Moody's insurance claims-paying ability rating of the
issuer of the Policy or (iii) in the event the Moody's
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<PAGE> 14
Eligible Asset is insured under an insurance policy which guarantees the timely
payment of interest on such Moody's Eligible Asset and principal thereof to
maturity, the Moody's insurance claims-paying ability rating of the issuer of
the insurance policy (provided that for purposes of clauses (ii) and (iii) if
the insurance claims-paying ability of an issuer of a Policy or insurance policy
is not rated by Moody's but is rated by S&P, such issuer shall be deemed to have
a Moody's insurance claims-paying ability rating which is two full categories
lower than the S&P insurance claims-paying ability rating) and (b) the Moody's
Exposure Period, in accordance with the table set forth below:
<TABLE>
<CAPTION>
Rating Category
---------------
Moody's Exposure Period Aaa* Aa* A* Baa* Other** VMIG-1*** SP-1+***
- ----------------------- ---- ---- ---- ---- ------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
7 weeks or less ....... 151% 159% 168% 202% 229% 136% 148%
8 weeks or less
but greater than
seven weeks ......... 154 164 173 205 235 137 149
9 weeks or less
but greater than
eight weeks ......... 158 169 179 209 242 138 150
</TABLE>
- ----------
* Moody's rating.
** Michigan Municipal Bonds and Municipal Bonds not rated by Moody's but rated
BBB or BBB+ by S&P.
*** Michigan Municipal Bonds and Municipal Bonds rated MIG-1, VMIG-1 or P-1 or,
if not rated by Moody's, rated SP-1+ or A-1+ by S&P which do not mature or have
a demand feature at par exercisable within the Moody's Exposure Period and which
do not have a long-term rating. For the purposes of the definition of Moody's
Eligible Assets, these securities will have an assumed rating of "A" by Moody's.
; provided, however, in the event a Moody's Discount Factor applicable to a
Moody's Eligible Asset is determined by reference to an insurance claims-paying
ability rating in accordance with clause (a)(ii) or (a)(iii), such Moody's
Discount Factor shall be increased by an amount equal to 50% of the difference
between (a) the percentage set forth in the foregoing table under the applicable
rating category and (b) the percentage set forth in the foregoing table under
the rating category which is one category lower than the applicable rating
category.
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<PAGE> 15
Notwithstanding the foregoing, (i) a 102% Moody's Discount Factor will
be applied to short-term Michigan Municipal Bonds and short-term Municipal
Bonds, so long as such Michigan Municipal Bonds and Municipal Bonds are rated at
least MIG-1, VMIG-1 or P-1 by Moody's and mature or have a demand feature at par
exercisable within the Moody's Exposure Period, and the Moody's Discount Factor
for such Bonds will be 125% if such Bonds are not rated by Moody's but are rated
A-1+ or SP-1+ or AA by S&P and mature or have a demand feature at par
exercisable within the Moody's Exposure Period, and (ii) no Moody's Discount
Factor will be applied to cash or to Receivables for Michigan Municipal Bonds or
Municipal Bonds Sold. "Receivables for Michigan Municipal Bonds or Municipal
Bonds Sold," for purposes of calculating Moody's Eligible Assets as of any
Valuation Date, means no more than the aggregate of the following: (i) the book
value of receivables for Michigan Municipal Bonds or Municipal Bonds sold as of
or prior to such Valuation Date if such receivables are due within five Business
Days of such Valuation Date, and if the trades which generated such receivables
are (x) settled through clearing house firms with respect to which the
Corporation has received prior written authorization from Moody's or (y) with
counterparties having a Moody's long-term debt rating of at least Baa3; and (ii)
the Moody's Discounted Value of Michigan Municipal Bonds or Municipal Bonds sold
as of or prior to such Valuation Date which generated receivables, if such
receivables are due within five Business Days of such Valuation Date but do not
comply with either of conditions (x) or (y) of the preceding clause (i).
"Moody's Eligible Asset" means cash, Receivables for Michigan Municipal
Bonds or Municipal Bonds Sold, a Michigan Municipal Bond or a Municipal Bond
that (i) pays interest in cash, (ii) is publicly rated Baa or higher by Moody's
or, if not rated by Moody's but rated by
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<PAGE> 16
S&P, is rated at least BBB by S&P (provided that, for purposes of determining
the Moody's Discount Factor applicable to any such S&P-rated Michigan Municipal
Bond or S&P-rated Municipal Bond, such Michigan Municipal Bond or Municipal Bond
(excluding any short-term Michigan Municipal Bond or Municipal Bond) will be
deemed to have a Moody's rating which is one full rating category lower than its
S&P rating), (iii) does not have its Moody's rating suspended by Moody's; and
(iv) is part of an issue of Michigan Municipal Bonds or Municipal Bonds of at
least $10,000,000. In addition, Michigan Municipal Bonds and Municipal Bonds in
the Corporation's portfolio must be within the following diversification
requirements in order to be included within Moody's Eligible Assets:
<TABLE>
<CAPTION>
Minimum Maximum Maximum Maximum Maximum
Issue Size Underlying Issue Type County State or Territory
Rating ($ Millions) Obligor(%)(1) Concentration(%)(1)(3) Concentration(%)(1)(4) Concentration(1)(5)
- ------ ------------ ------------- ---------------------- ---------------------- -------------------
<S> <C> <C> <C> <C> <C>
Aaa ....... 10 100 100 100 100
Aa ........ 10 20 60 60 60
A ......... 10 10 40 40 40
Baa ....... 10 6 20 20 20
Other(2)... 10 4 12 12 12
</TABLE>
- ----------
(1) The referenced percentages represent maximum cumulative totals for the
related rating category and each lower rating category.
(2) Michigan Municipal Bonds and Municipal Bonds not rated by Moody's but rated
BBB or BBB+ by S&P.
(3) Does not apply to general obligation bonds.
(4) Applicable to general obligation bonds only.
(5) Does not apply to Michigan Municipal Bonds. Territorial bonds (other than
those issued by Puerto Rico and counted collectively) are each limited to
10% of Moody's Eligible Assets. For diversification purposes, Puerto Rico
will be treated as a state.
For purposes of the maximum underlying obligor requirement described above, any
Michigan Municipal Bond or Municipal Bond backed by the guaranty, letter of
credit or insurance issued by a third party will be deemed to be issued by such
third party if the issuance of such third party credit is the sole determinant
of the rating on such Bond. For purposes of the issue type concentration
requirement described above, Michigan Municipal Bonds and Municipal Bonds will
be classified within one of the following categories: health care issues
(teaching and non-
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<PAGE> 17
teaching hospitals, public and private), housing issues (single- and
multi-family), educational facilities issues (public and private schools),
student loan issues, resource recovery issues, transportation issues (mass
transit, airport and highway bonds), industrial revenue/pollution control bond
issues, utility issues (including water, sewer and electricity), general
obligation issues, lease obligations/certificates of participation, escrowed
bonds and other issues ("Other Issues") not falling within one of the
aforementioned categories (includes special obligations to crossover, excise and
sales tax revenue, recreation revenue, special assessment and telephone revenue
bonds). In no event shall (a) more than 10% of Moody's Eligible Assets consist
of student loan issues, (b) more than 10% of Moody's Eligible Assets consist of
resource recovery issues or (c) more than 10% of Moody's Eligible Assets consist
of Other Issues.
When the Corporation sells a Michigan Municipal Bond or Municipal Bond
and agrees to repurchase it at a future date, the Discounted Value of such Bond
will constitute a Moody's Eligible Asset and the amount the Corporation is
required to pay upon repurchase of such Bond will count as a liability for
purposes of calculating the AMPS Basic Maintenance Amount. For so long as the
AMPS are rated by Moody's, the Corporation will not enter into any such reverse
repurchase agreements unless it has received written confirmation from Moody's
that such transactions would not impair the rating then assigned the AMPS by
Moody's. When the Corporation purchases a Michigan Municipal Bond or Municipal
Bond and agrees to sell it at a future date to another party, cash receivable by
the Corporation thereby will constitute a Moody's Eligible Asset if the
long-term debt of such other party is rated at least A2 by Moody's and such
agreement has a term of 30 days or less; otherwise the Discounted Value of such
Bond will constitute a Moody's Eligible Asset.
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<PAGE> 18
Notwithstanding the foregoing, an asset will not be considered a
Moody's Eligible Asset if it is (i) held in a margin account, (ii) subject to
any material lien, mortgage, pledge, security interest or security agreement of
any kind, (iii) held for the purchase of a security pursuant to a Forward
Commitment or (iv) irrevocably deposited by the Corporation for the payment of
dividends or redemption.
"Moody's Exposure Period" means a period that is the same length or
longer than the number of days used in calculating the cash dividend component
of the AMPS Basic Maintenance Amount and shall initially be the period
commencing on and including a given Valuation Date and ending 48 days
thereafter.
"Moody's Hedging Transactions" has the meaning set forth in paragraph
8(b) of these Articles Supplementary.
"Moody's Volatility Factor" means 272% as long as there has been no
increase enacted to the Marginal Tax Rate. If such an increase is enacted but
not yet implemented, the Moody's Volatility Factor shall be as follows:
18
<PAGE> 19
<TABLE>
<CAPTION>
% Change in Marginal Moody's
Tax Rate Volatility
Factor
---------------------- -----------
<S> <C>
LESS THAN OR EQUAL TO 5% 292%
>5% but LESS THAN OR EQUAL TO 10% 313%
>10% but LESS THAN OR EQUAL TO 15% 338%
>15% but LESS THAN OR EQUAL TO 20% 364%
>20% but LESS THAN OR EQUAL TO 25% 396%
>25% but LESS THAN OR EQUAL TO 30% 432%
>30% but LESS THAN OR EQUAL TO 35% 472%
>35% but LESS THAN OR EQUAL TO 40% 520%
</TABLE>
Notwithstanding the foregoing, the Moody's Volatility Factor may mean such other
potential dividend rate increase factor as Moody's advises the Corporation in
writing is applicable.
"Municipal Bonds" means "Municipal Bonds" as defined in the
Corporation's Registration Statement on Form N-14 (File No. 333-_____) relating
to the AMPS on file with the Securities and Exchange Commission, as such
Registration Statement may be amended from time to time, as well as short-term
municipal obligations and Inverse Floaters.
"Municipal Index" has the meaning set forth in paragraph 8(a) of these
Articles Supplementary.
"1940 Act" means the Investment Company Act of 1940, as amended from
time to time.
"1940 Act AMPS Asset Coverage" means asset coverage, as defined in
section 18(h) of the 1940 Act, of at least 200% with respect to all outstanding
senior securities of the Corporation which are stock, including all outstanding
shares of AMPS and Other AMPS (or such other asset coverage as may in the future
be specified in or under the 1940 Act as the minimum asset
19
<PAGE> 20
coverage for senior securities which are stock of a closed-end investment
company as a condition of paying dividends on its common stock).
"1940 Act Cure Date," with respect to the failure by the Corporation to
maintain the 1940 Act AMPS Asset Coverage (as required by paragraph 6 of these
Articles Supplementary) as of the last Business Day of each month, means the
last Business Day of the following month.
"Non-Call Period" has the meaning set forth under the definition of
"Specific Redemption Provisions".
"Non-Payment Period" means, with respect to each series of AMPS, any
period commencing on and including the day on which the Corporation shall fail
to (i) declare, prior to the close of business on the second Business Day
preceding any Dividend Payment Date, for payment on or (to the extent permitted
by paragraph 2(c)(i) of these Articles Supplementary) within three Business Days
after such Dividend Payment Date to the Holders as of 12:00 noon, New York City
time, on the Business Day preceding such Dividend Payment Date, the full amount
of any dividend on shares of AMPS payable on such Dividend Payment Date or (ii)
deposit, irrevocably in trust, in same-day funds, with the Auction Agent by
12:00 noon, New York City time, (A) on such Dividend Payment Date the full
amount of any cash dividend on such shares payable (if declared) on such
Dividend Payment Date or (B) on any redemption date for any shares of AMPS
called for redemption, the Mandatory Redemption Price per share of such AMPS or,
in the case of an optional redemption, the Optional Redemption Price per share,
and ending on and including the Business Day on which, by 12:00 noon, New York
City time, all unpaid cash dividends and unpaid redemption prices shall have
been so deposited or shall have
20
<PAGE> 21
otherwise been made available to Holders in same-day funds; provided that, a
Non-Payment Period shall not end unless the Corporation shall have given at
least five days' but no more than 30 days' written notice of such deposit or
availability to the Auction Agent, all Existing Holders (at their addresses
appearing in the Stock Books) and the Securities Depository. Notwithstanding the
foregoing, the failure by the Corporation to deposit funds as provided for by
clauses (ii)(A) or (ii)(B) above within three Business Days after any Dividend
Payment Date or redemption date, as the case may be, in each case to the extent
contemplated by paragraph 2(c)(i) of these Articles Supplementary, shall not
constitute a "Non-Payment Period."
"Non-Payment Period Rate" means, initially, 200% of the applicable
Reference Rate (or 275% of such rate if the Corporation has provided
notification to the Auction Agent prior to the Auction establishing the
Applicable Rate for any dividend pursuant to paragraph 2(f) hereof that net
capital gains or other taxable income will be included in such dividend on
shares of AMPS), provided that the Board of Directors of the Corporation shall
have the authority to adjust, modify, alter or change from time to time the
initial Non-Payment Period Rate if the Board of Directors of the Corporation
determines and Moody's and S&P (and any Substitute Rating Agency in lieu of
Moody's or S&P in the event either of such parties shall not rate the AMPS)
advise the Corporation in writing that such adjustment, modification, alteration
or change will not adversely affect their then-current ratings on the AMPS.
"Normal Dividend Payment Date" has the meaning set forth in paragraph
2(b)(i) of these Articles Supplementary.
21
<PAGE> 22
"Notice of Redemption" means any notice with respect to the redemption
of shares of AMPS pursuant to paragraph 4 of these Articles Supplementary.
"Notice of Revocation" has the meaning set forth in paragraph 2(c)(iii)
of these Articles Supplementary.
"Notice of Special Dividend Period" has the meaning set forth in
paragraph 2(c)(iii) of these Articles Supplementary.
"Optional Redemption Price" means $25,000 per share plus an amount
equal to accumulated but unpaid dividends (whether or not earned or declared) to
the date fixed for redemption and excluding Additional Dividends plus any
applicable redemption premium attributable to the designation of a Premium Call
Period.
"Other AMPS" means the auction rate preferred stock of the Corporation,
other than the AMPS.
"Outstanding" means, as of any date (i) with respect to AMPS, shares of
AMPS theretofore issued by the Corporation except, without duplication, (A) any
shares of AMPS theretofore cancelled or delivered to the Auction Agent for
cancellation, or redeemed by the Corporation, or as to which a Notice of
Redemption shall have been given and Deposit Securities shall have been
deposited in trust or segregated by the Corporation pursuant to paragraph 4(c)
and (B) any shares of AMPS as to which the Corporation or any Affiliate thereof
shall be a Beneficial Owner, provided that shares of AMPS held by an Affiliate
shall be deemed
22
<PAGE> 23
outstanding for purposes of calculating the AMPS Basic Maintenance Amount and
(ii) with respect to shares of other Preferred Stock, has the equivalent
meaning.
"Parity Stock" means the AMPS and each other outstanding series of
Preferred Stock the holders of which, together with the holders of the AMPS,
shall be entitled to the receipt of dividends or of amounts distributable upon
liquidation, dissolution or winding up, as the case may be, in proportion to the
full respective preferential amounts to which they are entitled, without
preference or priority one over the other.
"Person" means and includes an individual, a partnership, a
corporation, a trust, an unincorporated association, a joint venture or other
entity or a government or any agency or political subdivision thereof.
"Policy" means an insurance policy purchased by the Corporation which
guarantees the payment of principal and interest on specified Michigan Municipal
Bonds or Municipal Bonds during the period in which such Michigan Municipal
Bonds or Municipal Bonds are owned by the Corporation; provided, however, that,
as long as the AMPS are rated by Moody's and S&P, the Corporation will not
obtain any Policy unless Moody's and S&P advise the Corporation in writing that
the purchase of such Policy will not adversely affect their then-current rating
on the AMPS.
"Potential Beneficial Owner" means a customer of a Broker-Dealer or a
Broker-Dealer that is not a Beneficial Owner of shares of AMPS but that wishes
to purchase such shares, or that is a Beneficial Owner that wishes to purchase
additional shares of AMPS.
23
<PAGE> 24
"Potential Holder" means any Broker-Dealer or any such other Person as
may be permitted by the Corporation, including any Existing Holder, who may be
interested in acquiring shares of AMPS (or, in the case of an Existing Holder,
additional shares of AMPS).
"Preferred Stock" means the preferred stock of the Corporation, and
includes AMPS and Other AMPS.
"Premium Call Period" has the meaning set forth under the definition of
"Specific Redemption Provisions."
"Pricing Service" means J.J. Kenny or any pricing service designated by
the Board of Directors of the Corporation provided the Corporation obtains
written assurance from S&P and Moody's that such designation will not impair the
rating then assigned by S&P and Moody's to the AMPS.
"Quarterly Valuation Date" means the twenty-first day of the last month
of each fiscal quarter of the Corporation (or, if such day is not a Business
Day, the next succeeding Business Day) in each fiscal year of the Corporation,
commencing __________, 2000.
"Receivables for Michigan Municipal Bonds Sold" has the meaning set
forth under the definition of S&P Discount Factor.
"Receivables for Michigan Municipal Bonds or Municipal Bonds Sold" has
the meaning set forth under the definition of Moody's Discount Factor.
"Reference Rate" means: (i) with respect to a Dividend Period or a
Short Term Dividend Period having 28 or fewer days, the higher of the applicable
"AA" Composite Commercial Paper
24
<PAGE> 25
Rate and the Taxable Equivalent of the Short-Term Municipal Bond Rate, (ii) with
respect to any Short Term Dividend Period having more than 28 but fewer than 183
days, the applicable "AA" Composite Commercial Paper Rate, (iii) with respect to
any Short Term Dividend Period having 183 or more but fewer than 364 days, the
applicable U.S. Treasury Bill Rate and (iv) with respect to any Long Term
Dividend Period, the applicable U.S. Treasury Note Rate.
"Request for Special Dividend Period" has the meaning set forth in
paragraph 2(c)(iii) of these Articles Supplementary.
"Response" has the meaning set forth in paragraph 2(c)(iii) of these
Articles Supplementary.
"Retroactive Taxable Allocation" has the meaning set forth in paragraph
2(e) of these Articles Supplementary.
"Right," with respect to each series of AMPS, has the meaning set forth
in paragraph 2(e) of these Articles Supplementary and, with respect to Other
AMPS, has the equivalent meaning.
"S&P" means Standard & Poor's, a division of The McGraw Hill Companies,
Inc. or its successors.
"S&P Discount Factor" means, for purposes of determining the Discounted
Value of any Michigan Municipal Bond which constitutes an S&P Eligible Asset,
the percentage determined by reference to (a)(i) the rating by S&P, Moody's or
Fitch on such Bond or (ii) in the event the Michigan Municipal Bond is insured
under a Policy and the terms of the Policy permit the Corporation, at its
option, to obtain other permanent insurance guaranteeing the timely payment
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<PAGE> 26
of interest on such Michigan Municipal Bond and principal thereof to maturity,
the S&P insurance claims-paying ability rating of the issuer of the Policy or
(iii) in the event the Michigan Municipal Bond is insured under an insurance
policy which guarantees the timely payment of interest on such Michigan
Municipal Bond and principal thereof to maturity, the S&P insurance
claims-paying ability rating of the issuer of the insurance policy and (b) the
S&P Exposure Period, in accordance with the tables set forth below:
For Michigan Municipal Bonds:
<TABLE>
<CAPTION>
Rating Category
---------------------------------
S&P Exposure Period AAA* AA* A* BBB*
- ----------------------- ---------------------------------------
<S> <C> <C> <C> <C>
45 Business Days 215% 220% 235 275%
25 Business Days 195 200 215 255
10 Business Days 180 185 200 240
7 Business Days 175 180 195 235
3 Business Days 155 160 175 215
</TABLE>
* S&P rating.
Notwithstanding the foregoing, (i) the S&P Discount Factor for
short-term Michigan Municipal Bonds will be 115%, so long as such Michigan
Municipal Bonds are rated A-1+ or SP-1+ by S&P and mature or have a demand
feature exercisable in 30 days or less, or 120% so long as such Michigan
Municipal Bonds are rated A-1 or SP-1 by S&P and mature or have a demand feature
exercisable in 30 days or less, or 125% if such Michigan Municipal Bonds are not
rated by S&P but are rated VMIG-1, P-1 or MIG-1 by Moody's or F-1+ by Fitch;
provided, however, such short-term Michigan Municipal Bonds rated by Moody's or
Fitch but not rated by S&P having a demand feature exercisable in 30 days or
less must be backed by a letter of credit, liquidity facility or guarantee from
a bank or other financial institution having a short-term rating of at least
A-1+ from S&P; and further provided that such short-term Michigan Municipal
Bonds
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<PAGE> 27
rated by Moody's or Fitch but not rated by S&P may comprise no more than 50% of
short-term Michigan Municipal Bonds that qualify as S&P Eligible Assets, (ii)
the S&P Discount Factor for Receivables for Michigan Municipal Bonds Sold that
are due in more than five Business Days from such Valuation Date will be the S&P
Discount Factor applicable to the Michigan Municipal Bonds sold, and (iii) no
S&P Discount Factor will be applied to cash or to Receivables for Michigan
Municipal Bonds Sold if such receivables are due within five Business Days of
such Valuation Date. "Receivables for Michigan Municipal Bonds Sold," for
purposes of calculating S&P Eligible Assets as of any Valuation Date, means the
book value of receivables for Michigan Municipal Bonds sold as of or prior to
such Valuation Date. The Corporation may adopt S&P Discount Factors for
Municipal Bonds other than Michigan Municipal Bonds provided that S&P advises
the Corporation in writing that such action will not adversely affect its then
current rating on the AMPS. For purposes of the foregoing, Anticipation Notes
rated SP-1 or, if not rated by S&P, rated VMIG-1 by Moody's or F-1+ by Fitch,
which do not mature or have a demand feature exercisable in 30 days and which do
not have a long-term rating, shall be considered to be short-term Michigan
Municipal Bonds.
"S&P Eligible Asset" means cash, Receivables for Michigan Municipal
Bonds Sold or a Michigan Municipal Bond that (i) is interest bearing and pays
interest at least semi-annually; (ii) is payable with respect to principal and
interest in United States Dollars; (iii) is publicly rated BBB or higher by S&P
or, except in the case of Anticipation Notes that are grant anticipation notes
or bond anticipation notes which must be rated by S&P to be included in S&P
Eligible Assets, if not rated by S&P but rated by Moody's or Fitch, is rated at
least A by Moody's or Fitch (provided that such Moody's-rated or Fitch-rated
Michigan Municipal Bonds will be
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<PAGE> 28
included in S&P Eligible Assets only to the extent the Market Value of such
Michigan Municipal Bonds does not exceed 50% of the aggregate Market Value of
the S&P Eligible Assets; and further provided that, for purposes of determining
the S&P Discount Factor applicable to any such Moody's-rated or Fitch-rated
Michigan Municipal Bond, such Michigan Municipal Bond will be deemed to have an
S&P rating which is one full rating category lower than its Moody's rating or
Fitch rating); (iv) is not subject to a covered call or covered put option
written by the Corporation; (v) except for Inverse Floaters, is not part of a
private placement of Michigan Municipal Bonds; and (vi) except for Inverse
Floaters, is part of an issue of Michigan Municipal Bonds with an original issue
size of at least $10 million or, if of an issue with an original issue size
below $10 million (but in no event below $5 million), is either (a) issued by an
issuer with a total of at least $25 million of securities outstanding, or (b)
rated at least A by S&P with all such Michigan Municipal Bonds not constituting
more than 20% of the aggregate Market Value of S&P Eligible Assets.
Notwithstanding the foregoing:
(1) Michigan Municipal Bonds of any one issuer or guarantor
(excluding bond insurers) will be considered S&P Eligible Assets only to the
extent the Market Value of such Michigan Municipal Bonds does not exceed 10% of
the aggregate Market Value of the S&P Eligible Assets, provided that 2% is added
to the applicable S&P Discount Factor for every 1% by which the Market Value of
such Michigan Municipal Bonds exceeds 5% of the aggregate Market Value of the
S&P Eligible Assets;
(2) Michigan Municipal Bonds of any one issue type category
(as described below) will be considered S&P Eligible Assets only to the extent
the Market Value of such Bonds does not exceed 25% of the aggregate Market Value
of S&P Eligible Assets, except that
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<PAGE> 29
Michigan Municipal Bonds falling within the utility issue type category will be
broken down into three sub-categories (as described below) and such Michigan
Municipal Bonds will be considered S&P Eligible Assets to the extent the Market
Value of such Bonds in each such sub-category does not exceed 25% of the
aggregate Market Value of S&P Eligible Assets, except that Michigan Municipal
Bonds falling within the transportation issue type category will be broken down
into two sub-categories (as described below) and such Michigan Municipal Bonds
will be considered S&P Eligible Assets to the extent the Market Value of such
Bonds in both sub-categories combined (as described below) does not exceed 40%
of the aggregate Market Value of S&P Eligible Assets and except that Michigan
Municipal Bonds falling within the general obligation issue type category will
be considered S&P Eligible Assets to the extent the Market Value of such Bonds
does not exceed 50% of the aggregate Market Value of S&P Eligible Assets. For
purposes of the issue type category requirement described above, Michigan
Municipal Bonds will be classified within one of the following categories:
health care issues, housing issues, educational facilities issues, student loan
issues, transportation issues, industrial development bond issues, utility
issues, general obligation issues, lease obligations, escrowed bonds and other
issues not falling within one of the aforementioned categories. The general
obligation issue type category includes any issuer that is directly or
indirectly guaranteed by the State of Michigan or its political subdivisions.
Utility issuers are included in the general obligation issue type category if
the issuer is directly or indirectly guaranteed by the State of Michigan or its
political subdivisions. For purposes of the issue type category requirement
described above, Michigan Municipal Bonds in the utility issue type category
will be classified within one of the three following sub-categories: (i)
electric, gas and combination issues (if the combination issue includes an
electric issue), (ii) water and sewer utilities and combination
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<PAGE> 30
issues (if the combination issue does not include an electric issue), and (iii)
irrigation, resource recovery, solid waste and other utilities, provided that
Michigan Municipal Bonds included in this sub-category (iii) must be rated by
S&P in order to be included in S&P Eligible Assets. For purposes of the issue
type category requirement described above, Michigan Municipal Bonds in the
transportation issue type category will be classified within one of the two
following sub-categories: (i) streets and highways, toll roads, bridges and
tunnels, airports and multi-purpose port authorities (multiple revenue streams
generated by toll roads, airports, real estate, bridges), (ii) mass transit,
parking, seaports and others. Exposure to transportation sub-category (i) in the
preceding sentence is limited to 25% of the aggregate Market Value of S&P
Eligible Assets, provided, however, exposure to transportation sub-category (ii)
in the preceding sentence can exceed the 25% limit to the extent that exposure
to transportation sub-category (ii) is reduced, for a total exposure up to and
not exceeding 40% of the aggregate Market Value of S&P Eligible Assets for the
transportation issue type category; and
(3) Michigan Municipal Bonds which are escrow bonds or
defeased bonds may compose up to 100% of the aggregate Market Value of S&P
Eligible Assets if such Bonds initially are assigned a rating by S&P in
accordance with S&P's legal defeasance criteria or rerated by S&P as economic
defeased escrow bonds and assigned an AAA rating. Michigan Municipal Bonds may
be rated as escrow bonds by another nationally recognized rating agency or
rerated as an escrow bond and assigned the equivalent of an S&P AAA rating,
provided that such equivalent rated Bonds are limited to 50% of the aggregate
Market Value of S&P Eligible Assets and are deemed to have an AA S&P rating for
purposes of determining the S&P Discount Factor applicable to such Michigan
Municipal Bonds. The limitations on Michigan Municipal
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<PAGE> 31
Bonds of any one issuer in clause (1) above is not applicable to escrow bonds,
however, economically defeased bonds that are either initially rate or rerated
by S&P or another nationally recognized rating agency and assigned the same
rating level as the issuer of the Bonds will remain in its original issue type
category set forth in clause (2) above. Michigan Municipal Bonds that are
legally defeased and secured by securities issued or guaranteed by the United
States Government are not required to meet the minimum issuance size requirement
set forth above.
The Corporation may include Municipal Bonds other than Michigan
Municipal Bonds as S&P Eligible Assets pursuant to guidelines and restrictions
to be established by S&P provided that S&P advises the Corporation in writing
that such action will not adversely affect its then current rating on the AMPS.
"S&P Exposure Period" means the maximum period of time following a
Valuation Date, including the Valuation Date and the AMPS Basic Maintenance Cure
Date, that the Corporation has under these Articles Supplementary to cure any
failure to maintain, as of such Valuation Date, the Discounted Value for its
portfolio at least equal to the AMPS Basic Maintenance Amount (as described in
paragraph 7(a) of these Articles Supplementary).
"S&P Hedging Transactions" has the meaning set forth in paragraph 8(a)
of these Articles Supplementary.
"S&P Volatility Factor" means 277% or such other potential dividend
rate increase factor as S&P advises the Corporation in writing is applicable.
31
<PAGE> 32
"Securities Depository" means The Depository Trust Company or any
successor company or other entities elected by the Corporation as securities
depository for the shares of AMPS that agrees to follow the procedures required
to be followed by such securities depository in connection with the shares of
AMPS.
"Service" means the United States Internal Revenue Service.
"7-Day Dividend Period" means a Dividend Period consisting of seven
days.
"Short Term Dividend Period" means a Special Dividend Period consisting
of a specified number of days (other than seven) evenly divisible by seven and
not fewer than seven nor more than 364.
"Special Dividend Period" means a Dividend Period consisting of (i) a
specified number of days (other than seven), evenly divisible by seven and not
fewer than seven nor more than 364 or (ii) a specified period of one whole year
or more but not greater than five years (in each case subject to adjustment as
provided in paragraph 2(b)(i)).
"Specific Redemption Provisions" means, with respect to a Special
Dividend Period either, or any combination of, (i) a period (a "Non-Call
Period") determined by the Board of Directors of the Corporation, after
consultation with the Auction Agent and the Broker-Dealers, during which the
shares of AMPS subject to such Dividend Period shall not be subject to
redemption at the option of the Corporation and (ii) a period (a "Premium Call
Period"), consisting of a number of whole years and determined by the Board of
Directors of the Corporation, after consultation with the Auction Agent and the
Broker-Dealers, during each year
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<PAGE> 33
of which the shares of AMPS subject to such Dividend Period shall be redeemable
at the Corporation's option at a price per share equal to $25,000 plus
accumulated but unpaid dividends plus a premium expressed as a percentage of
$25,000, as determined by the Board of Directors of the Corporation after
consultation with the Auction Agent and the Broker-Dealers.
"Stock Books" means the books maintained by the Auction Agent setting
forth at all times a current list, as determined by the Auction Agent, of
Existing Holders of the AMPS.
"Stock Register" means the register of Holders maintained on behalf of
the Corporation by the Auction Agent in its capacity as transfer agent and
registrar for the AMPS.
"Subsequent Dividend Period," with respect to AMPS, has the meaning set
forth in paragraph 2(c)(i) of these Articles Supplementary and, with respect to
Other AMPS, has the equivalent meaning.
"Substitute Commercial Paper Dealers" means such Substitute Commercial
Paper Dealer or Dealers as the Corporation may from time to time appoint or, in
lieu of any thereof, their respective affiliates or successors.
"Substitute Rating Agency" and "Substitute Rating Agencies" mean a
nationally recognized statistical rating organization or two nationally
recognized statistical rating organizations, respectively, selected by Merrill
Lynch, Pierce, Fenner & Smith Incorporated or its affiliates and successors,
after consultation with the Corporation, to act as the substitute rating agency
or substitute rating agencies, as the case may be, to determine the credit
ratings of the shares of AMPS.
33
<PAGE> 34
"Taxable Equivalent of the Short-Term Municipal Bond Rate" on any date
means 90% of the quotient of (A) the per annum rate expressed on an interest
equivalent basis equal to the Kenny S&P 30-day High Grade Index (the "Kenny
Index") or any successor index, made available for the Business Day immediately
preceding such date but in any event not later than 8:30 A.M., New York City
time, on such date by Kenny Information Systems Inc. or any successor thereto,
based upon 30-day yield evaluations at par of bonds the interest on which is
excludable for regular Federal income tax purposes under the Code of "high
grade" component issuers selected by Kenny Information Systems Inc. or any such
successor from time to time in its discretion, which component issuers shall
include, without limitation, issuers of general obligation bonds but shall
exclude any bonds the interest on which constitutes an item of tax preference
under Section 57(a)(5) of the Code, or successor provisions, for purposes of the
"alternative minimum tax," divided by (B) 1.00 minus the Marginal Tax Rate
(expressed as a decimal); provided, however, that if the Kenny Index is not made
so available by 8:30 A.M., New York City time, on such date by Kenny Information
Systems Inc. or any successor, the Taxable Equivalent of the Short-Term
Municipal Bond Rate shall mean the quotient of (A) the per annum rate expressed
on an interest equivalent basis equal to the most recent Kenny Index so made
available for any preceding Business Day, divided by (B) 1.00 minus the Marginal
Tax Rate (expressed as a decimal). The Corporation may not utilize a successor
index to the Kenny Index unless Moody's and S&P provide the Corporation with
written confirmation that the use of such successor index will not adversely
affect the then-current respective Moody's and S&P ratings of the AMPS.
34
<PAGE> 35
"Treasury Bonds" has the meaning set forth in paragraph 8(a) of these
Articles Supplementary.
"U.S. Treasury Bill Rate" on any date means (i) the Interest Equivalent
of the rate on the actively traded Treasury Bill with a maturity most nearly
comparable to the length of the related Dividend Period, as such rate is made
available on a discount basis or otherwise by the Federal Reserve Bank of New
York in its Composite 3:30 P.M. Quotations for U.S. Government Securities report
for such Business Day, or (ii) if such yield as so calculated is not available,
the Alternate Treasury Bill Rate on such date. "Alternate Treasury Bill Rate" on
any date means the Interest Equivalent of the yield as calculated by reference
to the arithmetic average of the bid price quotations of the actively traded
Treasury Bill with a maturity most nearly comparable to the length of the
related Dividend Period, as determined by bid price quotations as of any time on
the Business Day immediately preceding such date, obtained from at least three
recognized primary U.S. Government securities dealers selected by the Auction
Agent.
"U.S. Treasury Note Rate" on any date means (i) the yield as calculated
by reference to the bid price quotation of the actively traded, current coupon
Treasury Note with a maturity most nearly comparable to the length of the
related Dividend Period, as such bid price quotation is published on the
Business Day immediately preceding such date by the Federal Reserve Bank of New
York in its Composite 3:30 P.M. Quotations for U.S. Government Securities report
for such Business Day, or (ii) if such yield as so calculated is not available,
the Alternate Treasury Note Rate on such date. "Alternate Treasury Note Rate" on
any date means the yield as calculated by reference to the arithmetic average of
the bid price quotations of the actively traded, current coupon Treasury Note
with a maturity most nearly comparable to the length of the related
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<PAGE> 36
Dividend Period, as determined by the bid price quotations as of any time on the
Business Day immediately preceding such date, obtained from at least three
recognized primary U.S. Government securities dealers selected by the Auction
Agent.
"Valuation Date" means, for purposes of determining whether the
Corporation is maintaining the AMPS Basic Maintenance Amount, each Business Day
commencing with the Date of Original Issue.
"Variation Margin" means, in connection with an outstanding futures
contract owned or sold by the Corporation, the amount of cash or securities paid
to or received from a broker (subsequent to the Initial Margin payment) from
time to time as the price of such futures contract fluctuates.
(b) The foregoing definitions of Accountant's Confirmation, AMPS Basic
Maintenance Amount, AMPS Basic Maintenance Cure Date, AMPS Basic Maintenance
Report, Deposit Securities, Discounted Value, Independent Accountant, Initial
Margin, Inverse Floaters, Market Value, Maximum Potential Additional Dividend
Liability, Moody's Discount Factor, Moody's Eligible Asset, Moody's Exposure
Period, Moody's Hedging Transactions, Moody's Volatility Factor, S&P Discount
Factor, S&P Eligible Asset, S&P Exposure Period, S&P Hedging Transactions, S&P
Volatility Factor, Valuation Date and Variation Margin have been determined by
the Board of Directors of the Corporation in order to obtain a "aaa" rating from
Moody's and a AAA rating from S&P on the AMPS on their Date of Original Issue;
and the Board of Directors of the Corporation shall have the authority, without
shareholder approval, to amend, alter or repeal from time to time the foregoing
definitions and the restrictions and
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<PAGE> 37
guidelines set forth thereunder if Moody's and S&P or any Substitute Rating
Agency advises the Corporation in writing that such amendment, alteration or
repeal will not adversely affect their then current ratings on the AMPS.
2. Dividends. (a) The Holders shall be entitled to receive, when, as
and if declared by the Board of Directors of the Corporation, out of funds
legally available therefor, cumulative dividends each consisting of (i) cash at
the Applicable Rate, (ii) a Right to receive cash as set forth in paragraph 2(e)
below, and (iii) any additional amounts as set forth in paragraph 2(f) below,
and no more, payable on the respective dates set forth below. Dividends on the
shares of AMPS so declared and payable shall be paid (i) in preference to and in
priority over any dividends declared and payable on the Common Stock, and (ii)
to the extent permitted under the Code and to the extent available, out of net
tax-exempt income earned on the Corporation's investments. To the extent
permitted under the Code, dividends on shares of AMPS will be designated as
exempt-interest dividends. For the purposes of this section, the term "net
tax-exempt income" shall exclude capital gains of the Corporation.
(b) (i) Cash dividends on shares of AMPS shall accumulate from the Date
of Original Issue and shall be payable, when, as and if declared by the Board of
Directors, out of funds legally available therefor, commencing on the Initial
Dividend Payment Date with respect to each series of AMPS. Following the Initial
Dividend Payment Date for each series of AMPS, dividends on each series of AMPS
will be payable, at the option of the Corporation, either (i) with respect to
any 7-Day Dividend Period and any Short Term Dividend Period of 35 or fewer
days, on the day next succeeding the last day thereof or (ii) with respect to
any Short Term Dividend Period of more than 35 days and with respect to any Long
Term Dividend Period,
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<PAGE> 38
monthly on the first Business Day of each calendar month during such Short Term
Dividend Period or Long Term Dividend Period and on the day next succeeding the
last day thereof (each such date referred to in clause (i) or (ii) being herein
referred to as a "Normal Dividend Payment Date"), except that if such Normal
Dividend Payment Date is not a Business Day, then the Dividend Payment Date
shall be the first Business Day next succeeding such Normal Dividend Payment
Date. Although any particular Dividend Payment Date may not occur on the
originally scheduled date because of the exceptions discussed above, the next
succeeding Dividend Payment Date, subject to such exceptions, will occur on the
next following originally scheduled date. If for any reason a Dividend Payment
Date cannot be fixed as described above, then the Board of Directors shall fix
the Dividend Payment Date. The Board of Directors by resolution prior to
authorization of a dividend by the Board of Directors may change a Dividend
Payment Date if such change does not adversely affect the contract rights of the
Holders of shares of AMPS set forth in the Charter. The Initial Dividend Period,
7-Day Dividend Periods and Special Dividend Periods are hereinafter sometimes
referred to as Dividend Periods. Each dividend payment date determined as
provided above is hereinafter referred to as a "Dividend Payment Date."
(ii) Each dividend shall be paid to the Holders as they appear
in the Stock Register as of 12:00 noon, New York City time, on the Business Day
preceding the Dividend Payment Date. Dividends in arrears for any past Dividend
Period may be declared and paid at any time, without reference to any regular
Dividend Payment Date, to the Holders as they appear on the Stock Register on a
date, not exceeding 15 days prior to the payment date therefor, as may be fixed
by the Board of Directors of the Corporation.
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<PAGE> 39
(c) (i) During the period from and including the Date of Original Issue
to but excluding the Initial Dividend Payment Date for each series of AMPS (the
"Initial Dividend Period"), the Applicable Rate shall be the Initial Dividend
Rate. Commencing on the Initial Dividend Payment Date for each series of AMPS,
the Applicable Rate for each subsequent dividend period (hereinafter referred to
as a "Subsequent Dividend Period"), which Subsequent Dividend Period shall
commence on and include a Dividend Payment Date and shall end on and include the
calendar day prior to the next Dividend Payment Date (or last Dividend Payment
Date in a Dividend Period if there is more than one Dividend Payment Date),
shall be equal to the rate per annum that results from implementation of the
Auction Procedures.
The Applicable Rate for each Dividend Period commencing during a
Non-Payment Period shall be equal to the Non-Payment Period Rate; and each
Dividend Period, commencing after the first day of, and during, a Non-Payment
Period shall be a 7-Day Dividend Period in the case of each series of AMPS.
Except in the case of the willful failure of the Corporation to pay a dividend
on a Dividend Payment Date or to redeem any shares of AMPS on the date set for
such redemption, any amount of any dividend due on any Dividend Payment Date
(if, prior to the close of business on the second Business Day preceding such
Dividend Payment Date, the Corporation has declared such dividend payable on
such Dividend Payment Date to the Holders of such shares of AMPS as of 12:00
noon, New York City time, on the Business Day preceding such Dividend Payment
Date) or redemption price with respect to any shares of AMPS not paid to such
Holders when due may be paid to such Holders in the same form of funds by 12:00
noon, New York City time, on any of the first three Business Days after such
Dividend Payment Date or due date, as the case may be, provided that, such
amount is accompanied by a late charge
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<PAGE> 40
calculated for such period of non-payment at the Non-Payment Period Rate applied
to the amount of such non-payment based on the actual number of days comprising
such period divided by 365. In the case of a willful failure of the Corporation
to pay a dividend on a Dividend Payment Date or to redeem any shares of AMPS on
the date set for such redemption, the preceding sentence shall not apply and the
Applicable Rate for the Dividend Period commencing during the Non-Payment Period
resulting from such failure shall be the Non-Payment Period Rate. For the
purposes of the foregoing, payment to a person in same-day funds on any Business
Day at any time shall be considered equivalent to payment to such person in New
York Clearing House (next-day) funds at the same time on the preceding Business
Day, and any payment made after 12:00 noon, New York City time, on any Business
Day shall be considered to have been made instead in the same form of funds and
to the same person before 12:00 noon, New York City time, on the next Business
Day.
(ii) The amount of cash dividends per share of any series of
AMPS payable (if declared) on the Initial Dividend Payment Date, each 7-Day
Dividend Period and each Dividend Payment Date of each Short Term Dividend
Period shall be computed by multiplying the Applicable Rate for such Dividend
Period by a fraction, the numerator of which will be the number of days in such
Dividend Period or part thereof that such share was outstanding and the
denominator of which will be 365, multiplying the amount so obtained by $25,000,
and rounding the amount so obtained to the nearest cent. During any Long Term
Dividend Period, the amount of cash dividends per share of AMPS payable (if
declared) on any Dividend Payment Date shall be computed by multiplying the
Applicable Rate for such Dividend Period by a fraction, the numerator of which
will be such number of days in such part of such Dividend Period that such
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<PAGE> 41
share was outstanding and for which dividends are payable on such Dividend
Payment Date and the denominator of which will be 360, multiplying the amount so
obtained by $25,000, and rounding the amount so obtained to the nearest cent.
(iii) With respect to each Dividend Period that is a Special
Dividend Period, the Corporation may, at its sole option and to the extent
permitted by law, by telephonic and written notice (a "Request for Special
Dividend Period") to the Auction Agent and to each Broker-Dealer, request that
the next succeeding Dividend Period for a series of AMPS be a number of days
(other than seven), evenly divisible by seven, and not fewer than seven nor more
than 364 in the case of a Short Term Dividend Period or one whole year or more
but not greater than five years in the case of a Long Term Dividend Period,
specified in such notice, provided that the Corporation may not give a Request
for Special Dividend Period of greater than 28 days (and any such request shall
be null and void) unless, for any Auction occurring after the initial Auction,
Sufficient Clearing Bids were made in the last occurring Auction and unless full
cumulative dividends, any amounts due with respect to redemptions, and any
Additional Dividends payable prior to such date have been paid in full. Such
Request for Special Dividend Period, in the case of a Short Term Dividend
Period, shall be given on or prior to the second Business Day but not more than
seven Business Days prior to an Auction Date for a series of AMPS and, in the
case of a Long Term Dividend Period, shall be given on or prior to the second
Business Day but not more than 28 days prior to an Auction Date for the AMPS.
Upon receiving such Request for Special Dividend Period, the Broker-Dealer(s)
shall jointly determine whether, given the factors set forth below, it is
advisable that the Corporation issue a Notice of Special Dividend Period for the
AMPS as contemplated by such Request for Special Dividend Period
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<PAGE> 42
and the Optional Redemption Price of the AMPS during such Special Dividend
Period and the Specific Redemption Provisions and shall give the Corporation and
the Auction Agent written notice (a "Response") of such determination by no
later than the second Business Day prior to such Auction Date. In making such
determination the Broker-Dealer(s) will consider (1) existing short-term and
long-term market rates and indices of such short-term and long-term rates, (2)
existing market supply and demand for short-term and long-term securities, (3)
existing yield curves for short-term and long-term securities comparable to the
AMPS, (4) industry and financial conditions which may affect the AMPS, (5) the
investment objective of the Corporation, and (6) the Dividend Periods and
dividend rates at which current and potential beneficial holders of the AMPS
would remain or become beneficial holders. If the Broker-Dealer(s) shall not
give the Corporation and the Auction Agent a Response by such second Business
Day or if the Response states that given the factors set forth above it is not
advisable that the Corporation give a Notice of Special Dividend Period for the
series of AMPS, the Corporation may not give a Notice of Special Dividend Period
in respect of such Request for Special Dividend Period. In the event the
Response indicates that it is advisable that the Corporation give a Notice of
Special Dividend Period for the series of AMPS, the Corporation may by no later
than the second Business Day prior to such Auction Date give a notice (a "Notice
of Special Dividend Period") to the Auction Agent, the Securities Depository and
each Broker-Dealer which notice will specify (i) the duration of the Special
Dividend Period, (ii) the Optional Redemption Price as specified in the related
Response and (iii) the Specific Redemption Provisions, if any, as specified in
the related Response. The Corporation also shall provide a copy of such Notice
of Special Dividend Period to Moody's and S&P. The Corporation shall not give a
Notice of Special Dividend Period and, if the Corporation has given
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a Notice of Special Dividend Period, the Corporation is required to give
telephonic and written notice of its revocation (a "Notice of Revocation") to
the Auction Agent, each Broker-Dealer, and the Securities Depository on or prior
to the Business Day prior to the relevant Auction Date if (x) either the 1940
Act AMPS Asset Coverage is not satisfied or the Corporation shall fail to
maintain S&P Eligible Assets and Moody's Eligible Assets each with an aggregate
Discounted Value at least equal to the AMPS Basic Maintenance Amount, in each
case on each of the two Valuation Dates immediately preceding the Business Day
prior to the relevant Auction Date on an actual basis and on a pro forma basis
giving effect to the proposed Special Dividend Period (using as a pro forma
dividend rate with respect to such Special Dividend Period the dividend rate
which the Broker-Dealers shall advise the Corporation is an approximately equal
rate for securities similar to the AMPS with an equal dividend period), provided
that, in calculating the aggregate Discounted Value of Moody's Eligible Assets
for this purpose, the Moody's Exposure Period shall be deemed to be one week
longer, (y) sufficient funds for the payment of dividends payable on the
immediately succeeding Dividend Payment Date have not been irrevocably deposited
with the Auction Agent by the close of business on the third Business Day
preceding the related Auction Date or (z) the Broker-Dealer(s) jointly advise
the Corporation that after consideration of the factors listed above they have
concluded that it is advisable to give a Notice of Revocation. The Corporation
also shall provide a copy of such Notice of Revocation to Moody's and S&P. If
the Corporation is prohibited from giving a Notice of Special Dividend Period as
a result of any of the factors enumerated in clause (x), (y) or (z) above or if
the Corporation gives a Notice of Revocation with respect to a Notice of Special
Dividend Period for any series of AMPS, the next succeeding Dividend Period will
be a 7-Day Dividend Period. In addition, in the event Sufficient Clearing Bids
are not made in the applicable Auction or such
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Auction is not held for any reason, such next succeeding Dividend Period will be
a 7-Day Dividend Period and the Corporation may not again give a Notice of
Special Dividend Period for the AMPS (and any such attempted notice shall be
null and void) until Sufficient Clearing Bids have been made in an Auction with
respect to a 7-Day Dividend Period.
(d) (i) Holders shall not be entitled to any dividends, whether payable
in cash, property or stock, in excess of full cumulative dividends and
applicable late charges, as herein provided, on the shares of AMPS (except for
Additional Dividends as provided in paragraph 2(e) hereof and additional
payments as provided in paragraph 2(f) hereof). Except for the late charge
payable pursuant to paragraph 2(c)(i) hereof, no interest, or sum of money in
lieu of interest, shall be payable in respect of any dividend payment on the
shares of AMPS that may be in arrears.
(ii) For so long as any share of AMPS is Outstanding, the
Corporation shall not declare, pay or set apart for payment any dividend or
other distribution (other than a dividend or distribution paid in shares of, or
options, warrants or rights to subscribe for or purchase, Common Stock or other
stock, if any, ranking junior to the shares of AMPS as to dividends or upon
liquidation) in respect of the Common Stock or any other stock of the
Corporation ranking junior to or on a parity with the shares of AMPS as to
dividends or upon liquidation, or call for redemption, redeem, purchase or
otherwise acquire for consideration any shares of the Common Stock or any other
such junior stock (except by conversion into or exchange for stock of the
Corporation ranking junior to the shares of AMPS as to dividends and upon
liquidation) or any other such Parity Stock (except by conversion into or
exchange for stock of the Corporation ranking junior to or on a parity with the
shares of AMPS as to dividends and upon liquidation),
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unless (A) immediately after such transaction, the Corporation shall have S&P
Eligible Assets and Moody's Eligible Assets each with an aggregate Discounted
Value equal to or greater than the AMPS Basic Maintenance Amount and the
Corporation shall maintain the 1940 Act AMPS Asset Coverage, (B) full cumulative
dividends on shares of AMPS and shares of Other AMPS due on or prior to the date
of the transaction have been declared and paid or shall have been declared and
sufficient funds for the payment thereof deposited with the Auction Agent, (C)
any Additional Dividend required to be paid under paragraph 2(e) below on or
before the date of such declaration or payment has been paid and (D) the
Corporation has redeemed the full number of shares of AMPS required to be
redeemed by any provision for mandatory redemption contained herein.
(e) Each dividend shall consist of (i) cash at the Applicable Rate,
(ii) an uncertificated right (a "Right") to receive an Additional Dividend (as
defined below), and (iii) any additional amounts as set forth in paragraph 2(f)
below. Each Right shall thereafter be independent of the share or shares of AMPS
on which the dividend was paid. The Corporation shall cause to be maintained a
record of each Right received by the respective Holders. A Right may not be
transferred other than by operation of law. If the Corporation retroactively
allocates any net capital gains or other income subject to regular Federal
income taxes to shares of AMPS without having given advance notice thereof to
the Auction Agent as described in paragraph 2(f) hereof solely by reason of the
fact that such allocation is made as a result of the redemption of all or a
portion of the outstanding shares of AMPS or the liquidation of the Corporation
(the amount of such allocation referred to herein as a "Retroactive Taxable
Allocation"), the Corporation will, within 90 days (and generally within 60
days) after the end of the Corporation's fiscal year for
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<PAGE> 46
which a Retroactive Taxable Allocation is made, provide notice thereof to the
Auction Agent and to each holder of a Right applicable to such shares of AMPS
(initially Cede & Co. as nominee of The Depository Trust Company) during such
fiscal year at such holder's address as the same appears or last appeared on the
Stock Books of the Corporation. The Corporation will, within 30 days after such
notice is given to the Auction Agent, pay to the Auction Agent (who will then
distribute to such holders of Rights), out of funds legally available therefor,
an amount equal to the aggregate Additional Dividend with respect to all
Retroactive Taxable Allocations made to such holders during the fiscal year in
question.
An "Additional Dividend" means payment to a present or former holder of
shares of AMPS of an amount which, when taken together with the aggregate amount
of Retroactive Taxable Allocations made to such holder with respect to the
fiscal year in question, would cause such holder's dividends in dollars (after
Federal and Michigan income tax consequences) from the aggregate of both the
Retroactive Taxable Allocations and the Additional Dividend to be equal to the
dollar amount of the dividends which would have been received by such holder if
the amount of the aggregate Retroactive Taxable Allocations would have been
excludable from the gross income of such holder. Such Additional Dividend shall
be calculated (i) without consideration being given to the time value of money;
(ii) assuming that no holder of shares of AMPS is subject to the Federal
alternative minimum tax with respect to dividends received from the Corporation;
and (iii) assuming that each Retroactive Taxable Allocation would be taxable in
the hands of each holder of shares of AMPS at the greater of: (x) the maximum
combined marginal regular Federal and Michigan individual income tax rate
applicable to ordinary income or capital gains depending on the taxable
character of the distribution (including any surtax); or
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<PAGE> 47
(y) the maximum combined marginal regular Federal and Michigan corporate income
tax rate applicable to ordinary income or capital gains depending on the taxable
character of the distribution (taking into account in both (x) and (y) the
Federal income tax deductibility of state taxes paid or incurred but not any
phase out of, or provision limiting, personal exemptions, itemized deductions,
or the benefit of lower tax brackets and assuming the taxability of Federally
tax-exempt dividends for corporations for Michigan state income tax purposes).
(f) Except as provided below, whenever the Corporation intends to
include any net capital gains or other income subject to regular Federal income
taxes in any dividend on shares of AMPS, the Corporation will notify the Auction
Agent of the amount to be so included at least five Business Days prior to the
Auction Date on which the Applicable Rate for such dividend is to be
established. The Corporation may also include such income in a dividend on
shares of a series of AMPS without giving advance notice thereof if it increases
the dividend by an additional amount calculated as if such income was a
Retroactive Taxable Allocation and the additional amount was an Additional
Dividend, provided that the Corporation will notify the Auction Agent of the
additional amounts to be included in such dividend at least five Business Days
prior to the applicable Dividend Payment Date.
(g) No fractional shares of AMPS shall be issued.
3. Liquidation Rights. Upon any liquidation, dissolution or winding up
of the Corporation, whether voluntary or involuntary, the Holders shall be
entitled to receive, out of the assets of the Corporation available for
distribution to shareholders, before any distribution or payment is made upon
any Common Stock or any other capital stock ranking junior in right of
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payment upon liquidation to the AMPS, the sum of $25,000 per share plus
accumulated but unpaid dividends (whether or not earned or declared) thereon to
the date of distribution, and after such payment the Holders will be entitled to
no other payments other than Additional Dividends as provided in paragraph 2(e)
hereof. If upon any liquidation, dissolution or winding up of the Corporation,
the amounts payable with respect to the AMPS and any other Outstanding class or
series of Preferred Stock of the Corporation ranking on a parity with the AMPS
as to payment upon liquidation are not paid in full, the Holders and the holders
of such other class or series will share ratably in any such distribution of
assets in proportion to the respective preferential amounts to which they are
entitled. After payment of the full amount of the liquidating distribution to
which they are entitled, the Holders will not be entitled to any further
participation in any distribution of assets by the Corporation except for any
Additional Dividends. A consolidation, merger or statutory share exchange of the
Corporation with or into any other corporation or entity or a sale, whether for
cash, shares of stock, securities or properties, of all or substantially all or
any part of the assets of the Corporation shall not be deemed or construed to be
a liquidation, dissolution or winding up of the Corporation.
4. Redemption. (a) Shares of AMPS shall be redeemable by the
Corporation as provided below:
(i) To the extent permitted under the 1940 Act and Maryland
law, upon giving a Notice of Redemption, the Corporation at its option may
redeem shares of AMPS, in whole or in part, out of funds legally available
therefor, at the Optional Redemption Price per share, on any Dividend Payment
Date; provided that no share of AMPS may be redeemed at the option of the
Corporation during (A) the Initial Dividend Period with respect to a series of
shares
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or (B) a Non-Call Period to which such share is subject. In addition, holders of
AMPS which are redeemed shall be entitled to receive Additional Dividends to the
extent provided herein. The Corporation may not give a Notice of Redemption
relating to an optional redemption as described in this paragraph 4(a)(i)
unless, at the time of giving such Notice of Redemption, the Corporation has
available Deposit Securities with maturity or tender dates not later than the
day preceding the applicable redemption date and having a value not less than
the amount due to Holders by reason of the redemption of their shares of AMPS on
such redemption date.
(ii) The Corporation shall redeem, out of funds legally
available therefor, at the Mandatory Redemption Price per share, shares of AMPS
to the extent permitted under the 1940 Act and Maryland law, on a date fixed by
the Board of Directors, if the Corporation fails to maintain S&P Eligible Assets
and Moody's Eligible Assets each with an aggregate Discounted Value equal to or
greater than the AMPS Basic Maintenance Amount as provided in paragraph 7(a) or
to satisfy the 1940 Act AMPS Asset Coverage as provided in paragraph 6 and such
failure is not cured on or before the AMPS Basic Maintenance Cure Date or the
1940 Act Cure Date (herein collectively referred to as a "Cure Date"), as the
case may be. In addition, holders of AMPS so redeemed shall be entitled to
receive Additional Dividends to the extent provided herein. The number of shares
of AMPS to be redeemed shall be equal to the lesser of (i) the minimum number of
shares of AMPS the redemption of which, if deemed to have occurred immediately
prior to the opening of business on the Cure Date, together with all shares of
other Preferred Stock subject to redemption or retirement, would result in the
Corporation having S&P Eligible Assets and Moody's Eligible Assets each with an
aggregate Discounted Value equal to or greater than the AMPS Basic Maintenance
Amount or satisfaction of the 1940 Act AMPS
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Asset Coverage, as the case may be, on such Cure Date (provided that, if there
is no such minimum number of shares of AMPS and shares of other Preferred Stock
the redemption of which would have such result, all shares of AMPS and shares of
other Preferred Stock then Outstanding shall be redeemed), and (ii) the maximum
number of shares of AMPS, together with all shares of other Preferred Stock
subject to redemption or retirement, that can be redeemed out of funds expected
to be legally available therefor on such redemption date. In determining the
number of shares of AMPS required to be redeemed in accordance with the
foregoing, the Corporation shall allocate the number required to be redeemed
which would result in the Corporation having S&P Eligible Assets and Moody's
Eligible Assets each with an aggregate Discounted Value equal to or greater than
the AMPS Basic Maintenance Amount or satisfaction of the 1940 Act AMPS Asset
Coverage, as the case may be, pro rata among shares of AMPS, Other AMPS and
other Preferred Stock subject to redemption pursuant to provisions similar to
those contained in this paragraph 4(a)(ii); provided that, shares of AMPS which
may not be redeemed at the option of the Corporation due to the designation of a
Non-Call Period applicable to such shares (A) will be subject to mandatory
redemption only to the extent that other shares are not available to satisfy the
number of shares required to be redeemed and (B) will be selected for redemption
in an ascending order of outstanding number of days in the Non-Call Period (with
shares with the lowest number of days to be redeemed first) and by lot in the
event of shares having an equal number of days in such Non-Call Period. The
Corporation shall effect such redemption on a Business Day which is not later
than 35 days after such Cure Date, except that if the Corporation does not have
funds legally available for the redemption of all of the required number of
shares of AMPS and shares of other Preferred Stock which are subject to
mandatory redemption or the Corporation otherwise is unable to effect such
redemption on or prior to 35
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days after such Cure Date, the Corporation shall redeem those shares of AMPS
which it is unable to redeem on the earliest practicable date on which it is
able to effect such redemption out of funds legally available therefor.
(b) Notwithstanding any other provision of this paragraph 4, no shares
of AMPS may be redeemed pursuant to paragraph 4(a)(i) of these Articles
Supplementary (i) unless all dividends in arrears on all remaining outstanding
shares of Parity Stock shall have been or are being contemporaneously paid or
declared and set apart for payment and (ii) if redemption thereof would result
in the Corporation's failure to maintain Moody's Eligible Assets or S&P Eligible
Assets with an aggregate Discounted Value equal to or greater than the AMPS
Basic Maintenance Amount. In the event that less than all the outstanding shares
of a series of AMPS are to be redeemed and there is more than one Holder, the
shares of that series of AMPS to be redeemed shall be selected by lot or such
other method as the Corporation shall deem fair and equitable.
(c) Whenever shares of AMPS are to be redeemed, the Corporation, not
less than 17 nor more than 30 days prior to the date fixed for redemption, shall
mail a notice ("Notice of Redemption") by first-class mail, postage prepaid, to
each Holder of shares of AMPS to be redeemed and to the Auction Agent. The
Corporation shall cause the Notice of Redemption to also be published in the
eastern and national editions of The Wall Street Journal. The Notice of
Redemption shall set forth (i) the redemption date, (ii) the amount of the
redemption price, (iii) the aggregate number of shares of AMPS of such series to
be redeemed, (iv) the place or places where shares of AMPS of such series are to
be surrendered for payment of the redemption price, (v) a statement that
dividends on the shares to be redeemed shall cease to accumulate on
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such redemption date (except that holders may be entitled to Additional
Dividends) and (vi) the provision of these Articles Supplementary pursuant to
which such shares are being redeemed. No defect in the Notice of Redemption or
in the mailing or publication thereof shall affect the validity of the
redemption proceedings, except as required by applicable law.
If the Notice of Redemption shall have been given as aforesaid and,
concurrently or thereafter, the Corporation shall have deposited in trust with
the Auction Agent, or segregated in an account at the Corporation's custodian
bank for the benefit of the Auction Agent, Deposit Securities (with a right of
substitution) having an aggregate Discounted Value (utilizing in the case of S&P
an S&P Exposure Period of 22 Business Days) equal to the redemption payment for
the shares of AMPS as to which such Notice of Redemption has been given with
irrevocable instructions and authority to pay the redemption price to the
Holders of such shares, then upon the date of such deposit or, if no such
deposit is made, then upon such date fixed for redemption (unless the
Corporation shall default in making the redemption payment), all rights of the
Holders of such shares as shareholders of the Corporation by reason of the
ownership of such shares will cease and terminate (except their right to receive
the redemption price in respect thereof and any Additional Dividends, but
without interest), and such shares shall no longer be deemed outstanding. The
Corporation shall be entitled to receive, from time to time, from the Auction
Agent the interest, if any, on such Deposit Securities deposited with it and the
Holders of any shares so redeemed shall have no claim to any of such interest.
In case the Holder of any shares so called for redemption shall not claim the
redemption payment for his shares within one year after the date of redemption,
the Auction Agent shall, upon demand, pay over to the Corporation such amount
remaining on deposit and the Auction Agent shall thereupon be
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relieved of all responsibility to the Holder of such shares called for
redemption and such Holder thereafter shall look only to the Corporation for the
redemption payment.
5. Voting Rights. (a) General. Except as otherwise provided in the
Charter or By-Laws, each Holder of shares of AMPS shall be entitled to one vote
for each share held on each matter submitted to a vote of shareholders of the
Corporation, and the holders of outstanding shares of Preferred Stock, including
AMPS, and of shares of Common Stock shall vote together as a single class;
provided that, at any meeting of the shareholders of the Corporation held for
the election of directors, the holders of outstanding shares of Preferred Stock,
including AMPS, shall be entitled, as a class, to the exclusion of the holders
of all other securities and classes of capital stock of the Corporation, to
elect two directors of the Corporation. Subject to paragraph 5(b) hereof, the
holders of outstanding shares of capital stock of the Corporation, including the
holders of outstanding shares of Preferred Stock, including AMPS, voting as a
single class, shall elect the balance of the directors.
(b) Right to Elect Majority of Board of Directors. During any period in
which any one or more of the conditions described below shall exist (such period
being referred to herein as a "Voting Period"), the number of directors
constituting the Board of Directors shall be automatically increased by the
smallest number that, when added to the two directors elected exclusively by the
holders of shares of Preferred Stock, would constitute a majority of the Board
of Directors as so increased by such smallest number; and the holders of shares
of Preferred Stock shall be entitled, voting separately as one class (to the
exclusion of the holders of all other securities and classes of capital stock of
the Corporation), to elect such smallest number of
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additional directors, together with the two directors that such holders are in
any event entitled to elect. A Voting Period shall commence:
(i) if at any time accumulated dividends (whether or not
earned or declared, and whether or not funds are then legally available in an
amount sufficient therefor) on the outstanding shares of AMPS equal to at least
two full years' dividends shall be due and unpaid and sufficient cash or
specified securities shall not have been deposited with the Auction Agent for
the payment of such accumulated dividends; or
(ii) if at any time holders of any other shares of Preferred
Stock are entitled to elect a majority of the directors of the Corporation under
the 1940 Act.
Upon the termination of a Voting Period, the voting rights described in
this paragraph 5(b) shall cease, subject always, however, to the reverting of
such voting rights in the Holders upon the further occurrence of any of the
events described in this paragraph 5(b).
(c) Right to Vote with Respect to Certain Other Matters. So long as any
shares of AMPS are outstanding, the Corporation shall not, without the
affirmative vote of the holders of a majority of the shares of Preferred Stock
Outstanding at the time, voting separately as one class: (i) authorize, create
or issue any class or series of stock ranking prior to the AMPS or any other
series of Preferred Stock with respect to payment of dividends or the
distribution of assets on liquidation, or (ii) amend, alter or repeal the
provisions of the Charter, whether by merger, consolidation or otherwise, so as
to adversely affect any of the contract rights expressly set forth in the
Charter of holders of shares of AMPS or any other Preferred Stock. To the extent
permitted under the 1940 Act, in the event shares of more than one series of
AMPS are
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outstanding, the Corporation shall not approve any of the actions set forth in
clause (i) or (ii) which adversely affects the contract rights expressly set
forth in the Charter of a Holder of shares of a series of AMPS differently than
those of a Holder of shares of any other series of AMPS without the affirmative
vote of the holders of at least a majority of the shares of AMPS of each series
adversely affected and outstanding at such time (each such adversely affected
series voting separately as a class). The Corporation shall notify Moody's and
S&P ten Business Days prior to any such vote described in clause (i) or (ii).
Unless a higher percentage is provided for under the Charter, the affirmative
vote of the holders of a majority of the outstanding shares of Preferred Stock,
including AMPS, voting together as a single class, will be required to approve
any plan of reorganization (including bankruptcy proceedings) adversely
affecting such shares or any action requiring a vote of security holders under
Section 13(a) of the 1940 Act. The class vote of holders of shares of Preferred
Stock, including AMPS, described above will in each case be in addition to a
separate vote of the requisite percentage of shares of Common Stock and shares
of Preferred Stock, including AMPS, voting together as a single class necessary
to authorize the action in question.
(d) Voting Procedures.
(i) As soon as practicable after the accrual of any right of
the holders of shares of Preferred Stock to elect additional directors as
described in paragraph 5(b) above, the Corporation shall call a special meeting
of such holders and instruct the Auction Agent to mail a notice of such special
meeting to such holders, such meeting to be held not less than 10 nor more than
20 days after the date of mailing of such notice. If the Corporation fails to
send such notice to the Auction Agent or if the Corporation does not call such a
special meeting, it may be called
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by any such holder on like notice. The record date for determining the holders
entitled to notice of and to vote at such special meeting shall be the close of
business on the fifth Business Day preceding the day on which such notice is
mailed. At any such special meeting and at each meeting held during a Voting
Period, such Holders, voting together as a class (to the exclusion of the
holders of all other securities and classes of capital stock of the
Corporation), shall be entitled to elect the number of directors prescribed in
paragraph 5(b) above. At any such meeting or adjournment thereof in the absence
of a quorum, a majority of such holders present in person or by proxy shall have
the power to adjourn the meeting without notice, other than by an announcement
at the meeting, to a date not more than 120 days after the original record date.
(ii) For purposes of determining any rights of the Holders to
vote on any matter or the number of shares required to constitute a quorum,
whether such right is created by these Articles Supplementary, by the other
provisions of the Charter, by statute or otherwise, a share of AMPS which is not
Outstanding shall not be counted.
(iii) The terms of office of all persons who are directors of
the Corporation at the time of a special meeting of Holders and holders of other
Preferred Stock to elect directors shall continue, notwithstanding the election
at such meeting by the Holders and such other holders of the number of directors
that they are entitled to elect, and the persons so elected by the Holders and
such other holders, together with the two incumbent directors elected by the
Holders and such other holders of Preferred Stock and the remaining incumbent
directors elected by the holders of the Common Stock and Preferred Stock, shall
constitute the duly elected directors of the Corporation.
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(iv) Simultaneously with the expiration of a Voting Period,
the terms of office of the additional directors elected by the Holders and
holders of other Preferred Stock pursuant to paragraph 5(b) above shall
terminate, the remaining directors shall constitute the directors of the
Corporation and the voting rights of the Holders and such other holders to elect
additional directors pursuant to paragraph 5(b) above shall cease, subject to
the provisions of the last sentence of paragraph 5(b).
(e) Exclusive Remedy. Unless otherwise required by law, the Holders of
shares of AMPS shall not have any rights or preferences other than those
specifically set forth herein. The Holders of shares of AMPS shall have no
preemptive rights or rights to cumulative voting. In the event that the
Corporation fails to pay any dividends on the shares of AMPS, the exclusive
remedy of the Holders shall be the right to vote for directors pursuant to the
provisions of this paragraph 5.
(f) Notification to S&P and Moody's. In the event a vote of Holders of
AMPS is required pursuant to the provisions of Section 13(a) of the 1940 Act,
the Corporation shall, not later than ten Business Days prior to the date on
which such vote is to be taken, notify S&P and Moody's that such vote is to be
taken and the nature of the action with respect to which such vote is to be
taken and, not later than ten Business Days after the date on which such vote is
taken, notify S&P and Moody's of the result of such vote.
6. 1940 Act AMPS Asset Coverage. The Corporation shall maintain, as of
the last Business Day of each month in which any share of AMPS is outstanding,
the 1940 Act AMPS Asset Coverage.
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7. AMPS Basic Maintenance Amount. (a) The Corporation shall maintain,
on each Valuation Date, and shall verify to its satisfaction that it is
maintaining on such Valuation Date, (i) S&P Eligible Assets having an aggregate
Discounted Value equal to or greater than the AMPS Basic Maintenance Amount and
(ii) Moody's Eligible Assets having an aggregate Discounted Value equal to or
greater than the AMPS Basic Maintenance Amount. Upon any failure to maintain the
required Discounted Value, the Corporation will use its best efforts to alter
the composition of its portfolio to reattain a Discounted Value at least equal
to the AMPS Basic Maintenance Amount on or prior to the AMPS Basic Maintenance
Cure Date.
(b) On or before 5:00 p.m., New York City time, on the third Business
Day after a Valuation Date on which the Corporation fails to satisfy the AMPS
Basic Maintenance Amount, the Corporation shall complete and deliver to the
Auction Agent, and Moody's and S&P, as the case may be, a complete AMPS Basic
Maintenance Report as of the date of such failure, which will be deemed to have
been delivered to the Auction Agent if the Auction Agent receives a copy or
telecopy, telex or other electronic transcription thereof and on the same day
the Corporation mails to the Auction Agent for delivery on the next Business Day
the complete AMPS Basic Maintenance Report. The Corporation will deliver an AMPS
Basic Maintenance Report to the Auction Agent and Moody's and S&P, as the case
may be, on or before 5:00 p.m., New York City time, on the third Business Day
after a Valuation Date on which the Corporation cures its failure to maintain
Moody's Eligible Assets or S&P Eligible Assets, as the case may be, with an
aggregate Discounted Value equal to or greater than the AMPS Basic Maintenance
Amount or on which the Corporation fails to maintain Moody's Eligible Assets or
S&P Eligible Assets, as the case may be, with an aggregate Discounted Value
which exceeds the AMPS Basic
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Maintenance Amount by 5% or more. The Corporation will also deliver an AMPS
Basic Maintenance Report to the Auction Agent, Moody's and S&P as of each
Quarterly Valuation Date on or before the third Business Day after such date.
Additionally, on or before 5:00 p.m., New York City time, on the third Business
Day after the first day of a Special Dividend Period, the Corporation will
deliver an AMPS Basic Maintenance Report to S&P and the Auction Agent. The
Corporation shall also provide Moody's and S&P with an AMPS Basic Maintenance
Report when specifically requested by either Moody's or S&P. A failure by the
Corporation to deliver an AMPS Basic Maintenance Report under this paragraph
7(b) shall be deemed to be delivery of an AMPS Basic Maintenance Report
indicating the Discounted Value for S&P Eligible Assets and Moody's Eligible
Assets of the Corporation is less than the AMPS Basic Maintenance Amount, as of
the relevant Valuation Date.
(c) Within ten Business Days after the date of delivery of an AMPS
Basic Maintenance Report in accordance with paragraph 7(b) above relating to a
Quarterly Valuation Date, the Independent Accountant will confirm in writing to
the Auction Agent, S&P and Moody's (i) the mathematical accuracy of the
calculations reflected in such Report (and in any other AMPS Basic Maintenance
Report, randomly selected by the Independent Accountant, that was delivered by
the Corporation during the quarter ending on such Quarterly Valuation Date),
(ii) that, in such Report (and in such randomly selected Report), the
Corporation correctly determined the assets of the Corporation which constitute
S&P Eligible Assets or Moody's Eligible Assets, as the case may be, at such
Quarterly Valuation Date in accordance with these Articles Supplementary, (iii)
that, in such Report (and in such randomly selected Report), the Corporation
determined whether the Corporation had, at such Quarterly Valuation Date (and at
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<PAGE> 60
the Valuation Date addressed in such randomly selected Report) in accordance
with these Articles Supplementary, S&P Eligible Assets of an aggregate
Discounted Value at least equal to the AMPS Basic Maintenance Amount and Moody's
Eligible Assets of an aggregate Discounted Value at least equal to the AMPS
Basic Maintenance Amount, (iv) with respect to the S&P ratings on Michigan
Municipal Bonds or Municipal Bonds, the issuer name, issue size and coupon rate
listed in such Report, that the Independent Accountant has requested that S&P
verify such information and the Independent Accountant shall provide a listing
in its letter of any differences, (v) with respect to the Moody's ratings on
Michigan Municipal Bonds or Municipal Bonds, the issuer name, issue size and
coupon rate listed in such Report, that such information has been verified by
Moody's (in the event such information is not verified by Moody's, the
Independent Accountant will inquire of Moody's what such information is, and
provide a listing in its letter of any differences), (vi) with respect to the
bid or mean price (or such alternative permissible factor used in calculating
the Market Value) provided by the custodian of the Corporation's assets to the
Corporation for purposes of valuing securities in the Corporation's portfolio,
the Independent Accountant has traced the price used in such Report to the bid
or mean price listed in such Report as provided to the Corporation and verified
that such information agrees (in the event such information does not agree, the
Independent Accountant will provide a listing in its letter of such differences)
and (vii) with respect to such confirmation to Moody's, that the Corporation has
satisfied the requirements of paragraph 8(b) of these Articles Supplementary
(such confirmation is herein called the "Accountant's Confirmation").
(d) Within ten Business Days after the date of delivery to the Auction
Agent, S&P and Moody's of an AMPS Basic Maintenance Report in accordance with
paragraph 7(b) above
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relating to any Valuation Date on which the Corporation failed to maintain S&P
Eligible Assets with an aggregate Discounted Value and Moody's Eligible Assets
with an aggregate Discounted Value equal to or greater than the AMPS Basic
Maintenance Amount, and relating to the AMPS Basic Maintenance Cure Date with
respect to such failure, the Independent Accountant will provide to the Auction
Agent, S&P and Moody's an Accountant's Confirmation as to such AMPS Basic
Maintenance Report.
(e) If any Accountant's Confirmation delivered pursuant to subparagraph
(c) or (d) of this paragraph 7 shows that an error was made in the AMPS Basic
Maintenance Report for a particular Valuation Date for which such Accountant's
Confirmation as required to be delivered, or shows that a lower aggregate
Discounted Value for the aggregate of all S&P Eligible Assets or Moody's
Eligible Assets, as the case may be, of the Corporation was determined by the
Independent Accountant, the calculation or determination made by such
Independent Accountant shall be final and conclusive and shall be binding on the
Corporation, and the Corporation shall accordingly amend and deliver the AMPS
Basic Maintenance Report to the Auction Agent, S&P and Moody's promptly
following receipt by the Corporation of such Accountant's Confirmation.
(f) On or before 5:00 p.m., New York City time, on the first Business
Day after the Date of Original Issue of the shares of AMPS, the Corporation will
complete and deliver to S&P and Moody's an AMPS Basic Maintenance Report as of
the close of business on such Date of Original Issue. Within five Business Days
of such Date of Original Issue, the Independent Accountant will confirm in
writing to S&P and Moody's (i) the mathematical accuracy of the calculations
reflected in such Report and (ii) that the aggregate Discounted Value of S&P
Eligible Assets and the aggregate Discounted Value of Moody's Eligible Assets
reflected thereon
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equals or exceeds the AMPS Basic Maintenance Amount reflected thereon. Also, on
or before 5:00 p.m., New York City time, on the first Business Day after shares
of Common Stock are repurchased by the Corporation, the Corporation will
complete and deliver to S&P and Moody's an AMPS Basic Maintenance Report as of
the close of business on such date that Common Stock is repurchased.
(g) For so long as shares of AMPS are rated by Moody's, in managing the
Corporation's portfolio, the Adviser will not alter the composition of the
Corporation's portfolio if, in the reasonable belief of the Adviser, the effect
of any such alteration would be to cause the Corporation to have Moody's
Eligible Assets with an aggregate Discounted Value, as of the immediately
preceding Valuation Date, less than the AMPS Basic Maintenance Amount as of such
Valuation Date; provided, however, that in the event that, as of the immediately
preceding Valuation Date, the aggregate Discounted Value of Moody's Eligible
Assets exceeded the AMPS Basic Maintenance Amount by five percent or less, the
Adviser will not alter the composition of the Corporation's portfolio in a
manner reasonably expected to reduce the aggregate Discounted Value of Moody's
Eligible Assets unless the Corporation shall have confirmed that, after giving
effect to such alteration, the aggregate Discounted Value of Moody's Eligible
Assets would exceed the AMPS Basic Maintenance Amount.
8. Certain Other Restrictions and Requirements.
(a) For so long as any shares of AMPS are rated by S&P, the Corporation
will not purchase or sell futures contracts, write, purchase or sell options on
futures contracts or write put options (except covered put options) or call
options (except covered call options) on portfolio securities unless it receives
written confirmation from S&P that engaging in such transactions
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<PAGE> 63
will not impair the ratings then assigned to the shares of AMPS by S&P, except
that the Corporation may purchase or sell futures contracts based on the Bond
Buyer Municipal Bond Index (the "Municipal Index") or United States Treasury
Bonds or Notes ("Treasury Bonds") and write, purchase or sell put and call
options on such contracts (collectively, "S&P Hedging Transactions"), subject to
the following limitations:
(i) the Corporation will not engage in any S&P Hedging
Transaction based on the Municipal Index (other than transactions which
terminate a futures contract or option held by the Corporation by the
Corporation's taking an opposite position thereto ("Closing Transactions")),
which would cause the Corporation at the time of such transaction to own or have
sold the least of (A) more than 1,000 outstanding futures contracts based on the
Municipal Index, (B) outstanding futures contracts based on the Municipal Index
exceeding in number 25% of the quotient of the Market Value of the Corporation's
total assets divided by $1,000 or (C) outstanding futures contracts based on the
Municipal Index exceeding in number 10% of the average number of daily traded
futures contracts based on the Municipal Index in the 30 days preceding the time
of effecting such transaction as reported by The Wall Street Journal;
(ii) the Corporation will not engage in any S&P Hedging
Transaction based on Treasury Bonds (other than Closing Transactions) which
would cause the Corporation at the time of such transaction to own or have sold
the lesser of (A) outstanding futures contracts based on Treasury Bonds
exceeding in number 50% of the quotient of the Market Value of the Corporation's
total assets divided by $100,000 ($200,000 in the case of the two-year United
States Treasury Note) or (B) outstanding futures contracts based on Treasury
Bonds exceeding in number 10% of the average number of daily traded futures
contracts based on Treasury Bonds in
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the 30 days preceding the time of effecting such transaction as reported by The
Wall Street Journal;
(iii) the Corporation will engage in Closing Transactions to
close out any outstanding futures contract which the Corporation owns or has
sold or any outstanding option thereon owned by the Corporation in the event (A)
the Corporation does not have S&P Eligible Assets with an aggregate Discounted
Value equal to or greater than the AMPS Basic Maintenance Amount on two
consecutive Valuation Dates and (B) the Corporation is required to pay Variation
Margin on the second such Valuation Date;
(iv) the Corporation will engage in a Closing Transaction to
close out any outstanding futures contract or option thereon in the month prior
to the delivery month under the terms of such futures contract or option thereon
unless the Corporation holds the securities deliverable under such terms; and
(v) when the Corporation writes a futures contract or option
thereon, it will either maintain an amount of cash, cash equivalents or high
grade (rated A or better by S&P), fixed-income securities in a segregated
account with the Corporation's custodian, so that the amount so segregated plus
the amount of Initial Margin and Variation Margin held in the account of or on
behalf of the Corporation's broker with respect to such futures contract or
option equals the Market Value of the futures contract or option, or, in the
event the Corporation writes a futures contract or option thereon which requires
delivery of an underlying security, it shall hold such underlying security in
its portfolio.
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<PAGE> 65
For purposes of determining whether the Corporation has S&P Eligible
Assets with a Discounted Value that equals or exceeds the AMPS Basic Maintenance
Amount, the Discounted Value of cash or securities held for the payment of
Initial Margin or Variation Margin shall be zero and the aggregate Discounted
Value of S&P Eligible Assets shall be reduced by an amount equal to (i) 30% of
the aggregate settlement value, as marked to market, of any outstanding futures
contracts based on the Municipal Index which are owned by the Corporation plus
(ii) 25% of the aggregate settlement value, as marked to market, of any
outstanding futures contracts based on Treasury Bonds which contracts are owned
by the Corporation.
(b) For so long as any shares of AMPS are rated by Moody's, the
Corporation will not buy or sell futures contracts, write, purchase or sell call
options on futures contracts or purchase put options on futures contracts or
write call options (except covered call options) on portfolio securities unless
it receives written confirmation from Moody's that engaging in such transactions
would not impair the ratings then assigned to the shares of AMPS by Moody's,
except that the Corporation may purchase or sell exchange-traded futures
contracts based on the Municipal Index or Treasury Bonds and purchase, write or
sell exchange-traded put options on such futures contracts and purchase, write
or sell exchange-traded call options on such futures contracts (collectively,
"Moody's Hedging Transactions"), subject to the following limitations:
(i) the Corporation will not engage in any Moody's Hedging
Transaction based on the Municipal Index (other than Closing Transactions) which
would cause the Corporation at the time of such transaction to own or have sold
(A) outstanding futures contracts based on the Municipal Index exceeding in
number 10% of the average number of daily traded futures contracts based on the
Municipal Index in the 30 days preceding the time of effecting
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<PAGE> 66
such transaction as reported by The Wall Street Journal or (B) outstanding
futures contracts based on the Municipal Index having a Market Value exceeding
50% of the Market Value of all Municipal Bonds constituting Moody's Eligible
Assets owned by the Corporation (other than Moody's Eligible Assets already
subject to a Moody's Hedging Transaction);
(ii) the Corporation will not engage in any Moody's Hedging
Transaction based on Treasury Bonds (other than Closing Transactions) which
would cause the Corporation at the time of such transaction to own or have sold
(A) outstanding futures contracts based on Treasury Bonds having an aggregate
Market Value exceeding 20% of the aggregate Market Value of Moody's Eligible
Assets owned by the Corporation and rated Aa by Moody's (or, if not rated by
Moody's but rated by S&P, rated AAA by S&P) or (B) outstanding futures contracts
based on Treasury Bonds having an aggregate Market Value exceeding 40% of the
aggregate Market Value of all Municipal Bonds constituting Moody's Eligible
Assets owned by the Corporation (other than Moody's Eligible Assets already
subject to a Moody's Hedging Transaction) and rated Baa or A by Moody's (or, if
not rated by Moody's but rated by S&P, rated A or AA by S&P) (for purposes of
the foregoing clauses (i) and (ii), the Corporation shall be deemed to own the
number of futures contracts that underlie any outstanding options written by the
Corporation);
(iii) the Corporation will engage in Closing Transactions to
close out any outstanding futures contract based on the Municipal Index if the
amount of open interest in the Municipal Index as reported by The Wall Street
Journal is less than 5,000;
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(iv) the Corporation will engage in a Closing Transaction to
close out any outstanding futures contract by no later than the fifth Business
Day of the month in which such contract expires and will engage in a Closing
Transaction to close out any outstanding option on a futures contract by no
later than the first Business Day of the month in which such option expires;
(v) the Corporation will engage in Moody's Hedging
Transactions only with respect to futures contracts or options thereon having
the next settlement date or the settlement date immediately thereafter;
(vi) the Corporation will not engage in options and futures
transactions for leveraging or speculative purposes and will not write any call
options or sell any futures contracts for the purpose of hedging the anticipated
purchase of an asset prior to completion of such purchase; and
(vii) the Corporation will not enter into an option or futures
transaction unless, after giving effect thereto, the Corporation would continue
to have Moody's Eligible Assets with an aggregate Discounted Value equal to or
greater than the AMPS Basic Maintenance Amount.
For purposes of determining whether the Corporation has Moody's
Eligible Assets with an aggregate Discounted Value that equals or exceeds the
AMPS Basic Maintenance Amount, the Discounted Value of Moody's Eligible Assets
which the Corporation is obligated to deliver or receive pursuant to an
outstanding futures contract or option shall be as follows: (i) assets subject
to call options written by the Corporation which are either exchange-traded and
"readily reversible" or which expire within 49 days after the date as of which
such valuation is made shall
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be valued at the lesser of (a) Discounted Value and (b) the exercise price of
the call option written by the Corporation; (ii) assets subject to call options
written by the Corporation not meeting the requirements of clause (i) of this
sentence shall have no value; (iii) assets subject to put options written by the
Corporation shall be valued at the lesser of (A) the exercise price and (B) the
Discounted Value of the subject security; (iv) futures contracts shall be valued
at the lesser of (A) settlement price and (B) the Discounted Value of the
subject security, provided that, if a contract matures within 49 days after the
date as of which such valuation is made, where the Corporation is the seller the
contract may be valued at the settlement price and where the Corporation is the
buyer the contract may be valued at the Discounted Value of the subject
securities; and (v) where delivery may be made to the Corporation with any
security of a class of securities, the Corporation shall assume that it will
take delivery of the security with the lowest Discounted Value.
For purposes of determining whether the Corporation has Moody's
Eligible Assets with an aggregate Discounted Value that equals or exceeds the
AMPS Basic Maintenance Amount, the following amounts shall be subtracted from
the aggregate Discounted Value of the Moody's Eligible Assets held by the
Corporation: (i) 10% of the exercise price of a written call option; (ii) the
exercise price of any written put option; (iii) where the Corporation is the
seller under a futures contract, 10% of the settlement price of the futures
contract; (iv) where the Corporation is the purchaser under a futures contract,
the settlement price of assets purchased under such futures contract; (v) the
settlement price of the underlying futures contract if the Corporation writes
put options on a futures contract; and (vi) 105% of the Market Value of the
underlying
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futures contracts if the Corporation writes call options on a futures contract
and does not own the underlying contract.
(c) For so long as any shares of AMPS are rated by Moody's, the
Corporation will not enter into any contract to purchase securities for a fixed
price at a future date beyond customary settlement time (other than such
contracts that constitute Moody's Hedging Transactions that are permitted under
paragraph 8(b) of these Articles Supplementary), except that the Corporation may
enter into such contracts to purchase newly-issued securities on the date such
securities are issued ("Forward Commitments"), subject to the following
limitations:
(i) the Corporation will maintain in a segregated account with
its custodian cash, cash equivalents or short-term, fixed-income securities
rated P-1, MIG-1 or VMIG-1 by Moody's and maturing prior to the date of the
Forward Commitment with a Market Value that equals or exceeds the amount of the
Corporation's obligations under any Forward Commitments to which it is from time
to time a party or long-term fixed income securities with a Discounted Value
that equals or exceeds the amount of the Corporation's obligations under any
Forward Commitment to which it is from time to time a party; and
(ii) the Corporation will not enter into a Forward Commitment
unless, after giving effect thereto, the Corporation would continue to have
Moody's Eligible Assets with an aggregate Discounted Value equal to or greater
than the AMPS Basic Maintenance Amount.
For purposes of determining whether the Corporation has Moody's
Eligible Assets with an aggregate Discounted Value that equals or exceeds the
AMPS Basic Maintenance Amount,
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the Discounted Value of all Forward Commitments to which the Corporation is a
party and of all securities deliverable to the Corporation pursuant to such
Forward Commitments shall be zero.
(d) For so long as shares of AMPS are rated by S&P or Moody's,
the Corporation will not, unless it has received written confirmation from S&P
and/or Moody's, as the case may be, that such action would not impair the
ratings then assigned to shares of AMPS by S&P and/or Moody's, as the case may
be, (i) borrow money except for the purpose of clearing transactions in
portfolio securities (which borrowings shall under any circumstances be limited
to the lesser of $10 million and an amount equal to 5% of the Market Value of
the Corporation's assets at the time of such borrowings and which borrowings
shall be repaid within 60 days and not be extended or renewed and shall not
cause the aggregate Discounted Value of Moody's Eligible Assets and S&P Eligible
Assets to be less than the AMPS Basic Maintenance Amount), (ii) engage in short
sales of securities, (iii) lend any securities, (iv) issue any class or series
of stock ranking prior to or on a parity with the AMPS with respect to the
payment of dividends or the distribution of assets upon dissolution, liquidation
or winding up of the Corporation, (v) reissue any AMPS previously purchased or
redeemed by the Corporation, (vi) merge or consolidate into or with any other
corporation or entity, (vii) change the Pricing Service or (viii) engage in
reverse repurchase agreements.
(e) For so long as AMPS are rated by Moody's, the Corporation agrees to
provide Moody's with the following, unless the Corporation has received written
confirmation from Moody's that the provision of such information is no longer
required and that the current rating then assigned to the AMPS by Moody's would
not be impaired: a notification letter at least 30 days prior to any material
change in the Charter; a copy of the AMPS Basic Maintenance Report
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prepared by the Corporation in accordance with these Articles Supplementary; and
a notice upon the occurrence of any of the following events: (i) any failure by
the Corporation to declare or pay any dividends on the AMPS or successfully
remarket the AMPS; (ii) any mandatory or optional redemption of the AMPS
effected by the Corporation; (iii) any assumption of control of the Board of
Directors of the Corporation by the holders of the AMPS; (iv) a general
unavailability of dealer quotes on the assets of the Corporation; (v) any
material auditor discrepancies on valuations; (vi) the dividend rate on the AMPS
equals or exceeds 95% of the Aaa Composite Commercial Paper Rate; (vii) the
occurrence of any Special Dividend Period; (viii) any change in the Maximum
Applicable Rate or the Reference Rate; (ix) the acquisition by any person of
beneficial ownership of more than 5% of the Corporation's voting stock
(inclusive of Common Stock and Preferred Stock); (x) the occurrence of any
change in Internal Revenue Service rules with respect to the payment of
Additional Dividends; (xi) any change in the Pricing Service employed by the
Corporation; (xii) any change in the Investment Adviser; (xiii) any increase of
greater than 40% to the maximum marginal Federal income tax rate applicable to
individuals or corporations; and (xiv) the maximum marginal Federal income tax
rate applicable to individuals or corporations is increased to a rate in excess
of 50%.
9. Notice. All notices or communications, unless otherwise specified in
the By-Laws of the Corporation or these Articles Supplementary, shall be
sufficiently given if in writing and delivered in person or mailed by
first-class mail, postage prepaid. Notice shall be deemed given on the earlier
of the date received or the date seven days after which such notice is mailed.
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10. Auction Procedures. (a) Certain definitions. As used in this
paragraph 10, the following terms shall have the following meanings, unless the
context otherwise requires:
(i) "AMPS" means the shares of AMPS being auctioned pursuant
to this paragraph 10.
(ii) "Auction Date" means the first Business Day preceding the
first day of a Dividend Period.
(iii) "Available AMPS" has the meaning specified in paragraph
10(d)(i) below.
(iv) "Bid" has the meaning specified in paragraph 10(b)(i)
below.
(v) "Bidder" has the meaning specified in paragraph 10(b)(i)
below.
(vi) "Hold Order" has the meaning specified in paragraph
10(b)(i) below.
(vii) "Maximum Applicable Rate" for any Dividend Period will
be the Applicable Percentage of the Reference Rate. The Applicable Percentage
will be determined based on (i) the lower of the credit rating or ratings
assigned on such date to such shares by Moody's and S&P (or if Moody's or S&P or
both shall not make such rating available, the equivalent of either or both of
such ratings by a Substitute Rating Agency or two Substitute Rating Agencies or,
in the event that only one such rating shall be available, such rating) and (ii)
whether the Corporation has provided notification to the Auction Agent prior to
the Auction establishing the Applicable Rate for any dividend pursuant to
paragraph 2(f) hereof that net capital gains or other taxable income will be
included in such dividend on shares of AMPS as follows:
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<TABLE>
<CAPTION>
Applicable Percentage of Applicable Percentage of
Reference Rate - Reference Rate -
Credit Ratings No Notification Notification
Moody's S&P
- --------------------- ----------------- ------------------------ -------------------------
<S> <C> <C> <C>
"aa3" or higher AA- or higher 110% 150%
"a3" to "a1" A- to A+ 125% 160%
"baa3" to "baa1" BBB- to BBB+ 150% 250%
Below "baa3" Below BBB- 200% 275%
</TABLE>
The Corporation shall take all reasonable action necessary to enable
S&P and Moody's to provide a rating for each series of the AMPS. If either S&P
or Moody's shall not make such a rating available, or neither S&P nor Moody's
shall make such a rating available, Merrill Lynch, Pierce, Fenner & Smith
Incorporated or its affiliates and successors, after consultation with the
Corporation, shall select a nationally recognized statistical rating
organization or two nationally recognized statistical rating organizations to
act as a Substitute Rating Agency or Substitute Rating Agencies, as the case may
be.
(viii) "Order" has the meaning specified in paragraph 10(b)(i)
below.
(ix) "Sell Order" has the meaning specified in paragraph
10(b)(i) below.
(x) "Submission Deadline" means 1:00 P.M., New York City time,
on any Auction Date or such other time on any Auction Date as may be specified
by the Auction Agent from time to time as the time by which each Broker-Dealer
must submit to the Auction Agent in writing all Orders obtained by it for the
Auction to be conducted on such Auction Date.
(xi) "Submitted Bid" has the meaning specified in paragraph
10(d)(i) below.
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(xii) "Submitted Hold Order" has the meaning specified in
paragraph 10(d)(i) below.
(xiii) "Submitted Order" has the meaning specified in
paragraph 10(d)(i) below.
(xiv) "Submitted Sell Order" has the meaning specified in
paragraph 10(d)(i) below.
(xv) "Sufficient Clearing Bids" has the meaning specified in
paragraph 10(d)(i) below.
(xvi) "Winning Bid Rate" has the meaning specified in
paragraph 10(d)(i) below.
(b) Orders by Beneficial Owners, Potential Beneficial Owners, Existing
Holders and Potential Holders.
(i) Unless otherwise permitted by the Corporation, Beneficial
Owners and Potential Beneficial Owners may only participate in Auctions through
their Broker-Dealers. Broker-Dealers will submit the Orders of their respective
customers who are Beneficial Owners and Potential Beneficial Owners to the
Auction Agent, designating themselves as Existing Holders in respect of shares
subject to Orders submitted or deemed submitted to them by Beneficial Owners and
as Potential Holders in respect of shares subject to Orders submitted to them by
Potential Beneficial Owners. A Broker-Dealer may also hold shares of AMPS in its
own account as a Beneficial Owner. A Broker-Dealer may thus submit Orders to the
Auction Agent as a Beneficial Owner or a Potential Beneficial Owner and
therefore participate in an
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Auction as an Existing Holder or Potential Holder on behalf of both itself and
its customers. On or prior to the Submission Deadline on each Auction Date:
(A) each Beneficial Owner may submit to its Broker-Dealer
information as to:
(1) the number of Outstanding shares, if any, of AMPS
held by such Beneficial Owner which such Beneficial Owner
desires to continue to hold without regard to the Applicable
Rate for the next succeeding Dividend Period;
(2) the number of Outstanding shares, if any, of AMPS
held by such Beneficial Owner which such Beneficial Owner
desires to continue to hold, provided that the Applicable Rate
for the next succeeding Dividend Period shall not be less than
the rate per annum specified by such Beneficial Owner; and/or
(3) the number of Outstanding shares, if any, of AMPS
held by such Beneficial Owner which such Beneficial Owner
offers to sell without regard to the Applicable Rate for the
next succeeding Dividend Period; and
(B) each Broker-Dealer, using a list of Potential Beneficial
Owners that shall be maintained in good faith for the purpose of conducting a
competitive Auction, shall contact Potential Beneficial Owners, including
Persons that are not Beneficial Owners, on such list to determine the number of
Outstanding shares, if any, of AMPS which each such Potential Beneficial Owner
offers to purchase, provided that the Applicable Rate for the next succeeding
Dividend Period shall not be less than the rate per annum specified by such
Potential Beneficial Owner.
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For the purposes hereof, the communication by a Beneficial Owner or
Potential Beneficial Owner to a Broker-Dealer, or the communication by a
Broker-Dealer acting for its own account to the Auction Agent, of information
referred to in clause (A) or (B) of this paragraph 10(b)(i) is hereinafter
referred to as an "Order" and each Beneficial Owner and each Potential
Beneficial Owner placing an Order, including a Broker-Dealer acting in such
capacity for its own account, is hereinafter referred to as a "Bidder"; an Order
containing the information referred to in clause (A)(1) of this paragraph
10(b)(i) is hereinafter referred to as a "Hold Order"; an Order containing the
information referred to in clause (A)(2) or (B) of this paragraph 10(b)(i) is
hereinafter referred to as a "Bid"; and an Order containing the information
referred to in clause (A)(3) of this paragraph 10(b)(i) is hereinafter referred
to as a "Sell Order". Inasmuch as a Broker-Dealer participates in an Auction as
an Existing Holder or a Potential Holder only to represent the interests of a
Beneficial Owner or Potential Beneficial Owner, whether it be its customers or
itself, all discussion herein relating to the consequences of an Auction for
Existing Holders and Potential Holders also applies to the underlying beneficial
ownership interests represented.
(ii) (A) A Bid by an Existing Holder shall constitute an
irrevocable offer to sell:
(1) the number of Outstanding shares of AMPS specified in such
Bid if the Applicable Rate determined on such Auction Date
shall be less than the rate per annum specified in such Bid;
or
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(2) such number or a lesser number of Outstanding shares of
AMPS to be determined as set forth in paragraph 10(e)(i)(D) if
the Applicable Rate determined on such Auction Date shall be
equal to the rate per annum specified therein; or
(3) a lesser number of Outstanding shares of AMPS to be
determined as set forth in paragraph 10(e)(ii)(C) if such
specified rate per annum shall be higher than the Maximum
Applicable Rate and Sufficient Clearing Bids do not exist.
(B) A Sell Order by an Existing Holder shall constitute an
irrevocable offer to sell:
(1) the number of Outstanding shares of AMPS
specified in such Sell Order; or
(2) such number or a lesser number of Outstanding
shares of AMPS to be determined as set forth in paragraph
10(e)(ii)(C) if Sufficient Clearing Bids do not exist.
(C) A Bid by a Potential Holder shall constitute an
irrevocable offer to purchase:
(1) the number of Outstanding shares of AMPS
specified in such Bid if the Applicable Rate determined on
such Auction Date shall be higher than the rate per annum
specified in such Bid; or
(2) such number or a lesser number of Outstanding
shares of AMPS to be determined as set forth in paragraph
10(e)(i)(E) if the Applicable Rate determined on such Auction
Date shall be equal to the rate per annum specified therein.
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(c) Submission of Orders by Broker-Dealers to Auction Agent.
(i) Each Broker-Dealer shall submit in writing or through the
Auction Agent's Auction Processing System to the Auction Agent prior to the
Submission Deadline on each Auction Date all Orders obtained by such
Broker-Dealer, designating itself (unless otherwise permitted by the
Corporation) as an Existing Holder in respect of shares subject to Orders
submitted or deemed submitted to it by Beneficial Owners and as a Potential
Holder in respect of shares subject to Orders submitted to it by Potential
Beneficial Owners, and specifying with respect to each Order:
(A) the name of the Bidder placing such Order (which shall be
the Broker-Dealer unless otherwise permitted by the Corporation);
(B) the aggregate number of Outstanding shares of AMPS that
are the subject of such Order;
(C) to the extent that such Bidder is an Existing Holder:
(1) the number of Outstanding shares, if any, of AMPS
subject to any Hold Order placed by such Existing Holder;
(2) the number of Outstanding shares, if any, of AMPS
subject to any Bid placed by such Existing Holder and the rate
per annum specified in such Bid; and
(3) the number of Outstanding shares, if any, of AMPS
subject to any Sell Order placed by such Existing Holder; and
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(D) to the extent such Bidder is a Potential Holder, the rate
per annum specified in such Potential Holder's Bid.
(ii) If any rate per annum specified in any Bid contains more
than three figures to the right of the decimal point, the Auction Agent shall
round such rate up to the next highest one-thousandth (.001) of 1%.
(iii) If an Order or Orders covering all of the Outstanding
shares of AMPS held by an Existing Holder are not submitted to the Auction Agent
prior to the Submission Deadline, the Auction Agent shall deem a Hold Order (in
the case of an Auction relating to a Dividend Period which is not a Special
Dividend Period of 28 days or more) and a Sell Order (in the case of an Auction
relating to a Special Dividend Period of 28 days or more) to have been submitted
on behalf of such Existing Holder covering the number of Outstanding shares of
AMPS held by such Existing Holder and not subject to Orders submitted to the
Auction Agent.
(iv) If one or more Orders on behalf of an Existing Holder
covering in the aggregate more than the number of Outstanding shares of AMPS
held by such Existing Holder are submitted to the Auction Agent, such Order
shall be considered valid as follows and in the following order of priority:
(A) any Hold Order submitted on behalf of such Existing Holder
shall be considered valid up to and including the number of
Outstanding shares of AMPS held by such Existing Holder;
provided that if more than one Hold Order is submitted on
behalf of such Existing Holder and the number of shares of
AMPS subject to such Hold Orders exceeds the number of
Outstanding shares of AMPS
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held by such Existing Holder, the number of shares of AMPS
subject to each of such Hold Orders shall be reduced pro rata
so that such Hold Orders, in the aggregate, will cover exactly
the number of Outstanding shares of AMPS held by such Existing
Holder;
(B) any Bids submitted on behalf of such Existing Holder shall
be considered valid, in the ascending order of their
respective rates per annum if more than one Bid is submitted
on behalf of such Existing Holder, up to and including the
excess of the number of Outstanding shares of AMPS held by
such Existing Holder over the number of shares of AMPS subject
to any Hold Order referred to in paragraph 10(c)(iv)(A) above
(and if more than one Bid submitted on behalf of such Existing
Holder specifies the same rate per annum and together they
cover more than the remaining number of shares that can be the
subject of valid Bids after application of paragraph
10(c)(iv)(A) above and of the foregoing portion of this
paragraph 10(c)(iv)(B) to any Bid or Bids specifying a lower
rate or rates per annum, the number of shares subject to each
of such Bids shall be reduced pro rata so that such Bids, in
the aggregate, cover exactly such remaining number of shares);
and the number of shares, if any, subject to Bids not valid
under this paragraph 10(c)(iv)(B) shall be treated as the
subject of a Bid by a Potential Holder; and
(C) any Sell Order shall be considered valid up to and
including the excess of the number of Outstanding shares of
AMPS held by such Existing Holder over the number of shares of
AMPS subject to Hold Orders referred to in paragraph
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10(c)(iv)(A) and Bids referred to in paragraph 10(c)(iv)(B);
provided that if more than one Sell Order is submitted on
behalf of any Existing Holder and the number of shares of AMPS
subject to such Sell Orders is greater than such excess, the
number of shares of AMPS subject to each of such Sell Orders
shall be reduced pro rata so that such Sell Orders, in the
aggregate, cover exactly the number of shares of AMPS equal to
such excess.
(v) If more than one Bid is submitted on behalf of any
Potential Holder, each Bid submitted shall be a separate Bid with the rate per
annum and number of shares of AMPS therein specified.
(vi) Any Order submitted by a Beneficial Owner as a Potential
Beneficial Owner to its Broker-Dealer, or by a Broker-Dealer to the Auction
Agent, prior to the Submission Deadline on any Auction Date shall be
irrevocable.
(d) Determination of Sufficient Clearing Bids, Winning Bid Rate and
Applicable Rate.
(i) Not earlier than the Submission Deadline on each Auction
Date, the Auction Agent shall assemble all Orders submitted or deemed submitted
to it by the Broker-Dealers (each such Order as submitted or deemed submitted by
a Broker-Dealer being hereinafter referred to individually as a "Submitted Hold
Order", a "Submitted Bid" or a "Submitted Sell Order", as the case may be, or as
a "Submitted Order") and shall determine:
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(A) the excess of the total number of Outstanding shares of
AMPS over the number of Outstanding shares of AMPS that are
the subject of Submitted Hold Orders (such excess being
hereinafter referred to as the "Available AMPS");
(B) from the Submitted Orders whether the number of
Outstanding shares of AMPS that are the subject of Submitted
Bids by Potential Holders specifying one or more rates per
annum equal to or lower than the Maximum Applicable Rate
exceeds or is equal to the sum of:
(1) the number of Outstanding shares of AMPS that are
the subject of Submitted Bids by Existing Holders specifying
one or more rates per annum higher than the Maximum Applicable
Rate, and
(2) the number of Outstanding shares of AMPS that are
subject to Submitted Sell Orders (if such excess or such
equality exists (other than because the number of Outstanding
shares of AMPS in clause (1) above and this clause (2) are
each zero because all of the Outstanding shares of AMPS are
the subject of Submitted Hold Orders), such Submitted Bids by
Potential Holders being hereinafter referred to collectively
as "Sufficient Clearing Bids"); and
(C) if Sufficient Clearing Bids exist, the lowest rate per
annum specified in the Submitted Bids (the "Winning Bid Rate")
that if:
(1) each Submitted Bid from Existing Holders
specifying the Winning Bid Rate and all other Submitted Bids
from Existing Holders specifying lower
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rates per annum were rejected, thus entitling such Existing
Holders to continue to hold the shares of AMPS that are the
subject of such Submitted Bids, and
(2) each Submitted Bid from Potential Holders
specifying the Winning Bid Rate and all other Submitted Bids
from Potential Holders specifying lower rates per annum were
accepted, thus entitling the Potential Holders to purchase the
shares of AMPS that are the subject of such Submitted Bids,
would result in the number of shares subject to all Submitted
Bids specifying the Winning Bid Rate or a lower rate per annum
being at least equal to the Available AMPS.
(ii) Promptly after the Auction Agent has made the
determinations pursuant to paragraph 10(d)(i), the Auction Agent shall advise
the Corporation of the Maximum Applicable Rate and, based on such
determinations, the Applicable Rate for the next succeeding Dividend Period as
follows:
(A) if Sufficient Clearing Bids exist, that the Applicable
Rate for the next succeeding Dividend Period shall be equal to
the Winning Bid Rate;
(B) if Sufficient Clearing Bids do not exist (other than
because all of the Outstanding shares of AMPS are the subject
of Submitted Hold Orders), that the Applicable Rate for the
next succeeding Dividend Period shall be equal to the Maximum
Applicable Rate; or
(C) if all of the Outstanding shares of AMPS are the subject
of Submitted Hold Orders, that the Dividend Period next
succeeding the Auction shall automatically
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be the same length as the immediately preceding Dividend
Period and the Applicable Rate for the next succeeding
Dividend Period shall be equal to 40% of the Reference Rate
(or 60% of such rate if the Corporation has provided
notification to the Auction Agent prior to the Auction
establishing the Applicable Rate for any dividend pursuant to
paragraph 2(f) hereof that net capital gains or other taxable
income will be included in such dividend on shares of AMPS) on
the date of the Auction.
(e) Acceptance and Rejection of Submitted Bids and Submitted Sell
Orders and Allocation of Shares. Based on the determinations made pursuant to
paragraph 10(d)(i), the Submitted Bids and Submitted Sell Orders shall be
accepted or rejected and the Auction Agent shall take such other action as set
forth below:
(i) If Sufficient Clearing Bids have been made, subject to the
provisions of paragraph 10(e)(iii) and paragraph 10(e)(iv), Submitted Bids and
Submitted Sell Orders shall be accepted or rejected in the following order of
priority and all other Submitted Bids shall be rejected:
(A) the Submitted Sell Orders of Existing Holders shall be
accepted and the Submitted Bid of each of the Existing Holders
specifying any rate per annum that is higher than the Winning
Bid Rate shall be accepted, thus requiring each such Existing
Holder to sell the Outstanding shares of AMPS that are the
subject of such Submitted Sell Order or Submitted Bid;
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(B) the Submitted Bid of each of the Existing Holders
specifying any rate per annum that is lower than the Winning
Bid Rate shall be rejected, thus entitling each such Existing
Holder to continue to hold the Outstanding shares of AMPS that
are the subject of such Submitted Bid;
(C) the Submitted Bid of each of the Potential Holders
specifying any rate per annum that is lower than the Winning
Bid Rate shall be accepted;
(D) the Submitted Bid of each of the Existing Holders
specifying a rate per annum that is equal to the Winning Bid
Rate shall be rejected, thus entitling each such Existing
Holder to continue to hold the Outstanding shares of AMPS that
are the subject of such Submitted Bid, unless the number of
Outstanding shares of AMPS subject to all such Submitted Bids
shall be greater than the number of Outstanding shares of AMPS
("Remaining Shares") equal to the excess of the Available AMPS
over the number of Outstanding shares of AMPS subject to
Submitted Bids described in paragraph 10(e)(i)(B) and
paragraph 10(e)(i)(C), in which event the Submitted Bids of
each such Existing Holder shall be accepted, and each such
Existing Holder shall be required to sell Outstanding shares
of AMPS, but only in an amount equal to the difference between
(1) the number of Outstanding shares of AMPS then held by such
Existing Holder subject to such Submitted Bid and (2) the
number of shares of AMPS obtained by multiplying (x) the
number of Remaining Shares by (y) a fraction the numerator of
which shall be the number of Outstanding shares of AMPS held
by such Existing Holder subject to such Submitted Bid and the
denominator of which shall be the sum of the
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number of Outstanding shares of AMPS subject to such Submitted
Bids made by all such Existing Holders that specified a rate
per annum equal to the Winning Bid Rate; and
(E) the Submitted Bid of each of the Potential Holders
specifying a rate per annum that is equal to the Winning Bid
Rate shall be accepted but only in an amount equal to the
number of Outstanding shares of AMPS obtained by multiplying
(x) the difference between the Available AMPS and the number
of Outstanding shares of AMPS subject to Submitted Bids
described in paragraph 10(e)(i)(B), paragraph 10(e)(i)(C) and
paragraph 10(e)(i)(D) by (y) a fraction the numerator of which
shall be the number of Outstanding shares of AMPS subject to
such Submitted Bid and the denominator of which shall be the
sum of the number of Outstanding shares of AMPS subject to
such Submitted Bids made by all such Potential Holders that
specified rates per annum equal to the Winning Bid Rate.
(ii) If Sufficient Clearing Bids have not been made (other
than because all of the Outstanding shares of AMPS are subject to Submitted Hold
Orders), subject to the provisions of paragraph 10(e)(iii), Submitted Orders
shall be accepted or rejected as follows in the following order of priority and
all other Submitted Bids shall be rejected:
(A) the Submitted Bid of each Existing Holder specifying any
rate per annum that is equal to or lower than the Maximum
Applicable Rate shall be rejected, thus
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entitling such Existing Holder to continue to hold the
Outstanding shares of AMPS that are the subject of such
Submitted Bid;
(B) the Submitted Bid of each Potential Holder specifying any
rate per annum that is equal to or lower than the Maximum
Applicable Rate shall be accepted, thus requiring such
Potential Holder to purchase the Outstanding shares of AMPS
that are the subject of such Submitted Bid; and
(C) the Submitted Bids of each Existing Holder specifying any
rate per annum that is higher than the Maximum Applicable Rate
shall be accepted and the Submitted Sell Orders of each
Existing Holder shall be accepted, in both cases only in an
amount equal to the difference between (1) the number of
Outstanding shares of AMPS then held by such Existing Holder
subject to such Submitted Bid or Submitted Sell Order and (2)
the number of shares of AMPS obtained by multiplying (x) the
difference between the Available AMPS and the aggregate number
of Outstanding shares of AMPS subject to Submitted Bids
described in paragraph 10(e)(ii)(A) and paragraph 10(e)(ii)(B)
by (y) a fraction the numerator of which shall be the number
of Outstanding shares of AMPS held by such Existing Holder
subject to such Submitted Bid or Submitted Sell Order and the
denominator of which shall be the number of Outstanding shares
of AMPS subject to all such Submitted Bids and Submitted Sell
Orders.
(iii) If, as a result of the procedures described in paragraph
10(e)(i) or paragraph 10(e)(ii), any Existing Holder would be entitled or
required to sell, or any Potential Holder
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would be entitled or required to purchase, a fraction of a share of AMPS on any
Auction Date, the Auction Agent shall, in such manner as in its sole discretion
it shall determine, round up or down the number of shares of AMPS to be
purchased or sold by any Existing Holder or Potential Holder on such Auction
Date so that each Outstanding share of AMPS purchased or sold by each Existing
Holder or Potential Holder on such Auction Date shall be a whole share of AMPS.
(iv) If, as a result of the procedures described in paragraph
10(e)(i), any Potential Holder would be entitled or required to purchase less
than a whole share of AMPS on any Auction Date, the Auction Agent shall, in such
manner as in its sole discretion it shall determine, allocate shares of AMPS for
purchase among Potential Holders so that only whole shares of AMPS are purchased
on such Auction Date by any Potential Holder, even if such allocation results in
one or more of such Potential Holders not purchasing any shares of AMPS on such
Auction Date.
(v) Based on the results of each Auction, the Auction Agent
shall determine, with respect to each Broker-Dealer that submitted Bids or Sell
Orders on behalf of Existing Holders or Potential Holders, the aggregate number
of Outstanding shares of AMPS to be purchased and the aggregate number of the
Outstanding shares of AMPS to be sold by such Potential Holders and Existing
Holders and, to the extent that such aggregate number of Outstanding shares to
be purchased and such aggregate number of Outstanding shares to be sold differ,
the Auction Agent shall determine to which other Broker-Dealer or Broker-Dealers
acting for one or more purchasers such Broker-Dealer shall deliver, or from
which other Broker-Dealer or Broker-Dealers acting for one or more sellers such
Broker-Dealer shall receive, as the case may be, Outstanding shares of AMPS.
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(f) Miscellaneous. The Corporation may interpret the provisions of this
paragraph 10 to resolve any inconsistency or ambiguity, remedy any formal defect
or make any other change or modification that does not substantially adversely
affect the rights of Beneficial Owners of AMPS. A Beneficial Owner or an
Existing Holder (A) may sell, transfer or otherwise dispose of shares of AMPS
only pursuant to a Bid or Sell Order in accordance with the procedures described
in this paragraph 10 or to or through a Broker-Dealer, provided that in the case
of all transfers other than pursuant to Auctions such Beneficial Owner or
Existing Holder, its Broker-Dealer, if applicable, or its Agent Member advises
the Auction Agent of such transfer and (B) except as otherwise required by law,
shall have the ownership of the shares of AMPS held by it maintained in book
entry form by the Securities Depository in the account of its Agent Member,
which in turn will maintain records of such Beneficial Owner's beneficial
ownership. Neither the Corporation nor any Affiliate shall submit an Order in
any Auction. Any Beneficial Owner that is an Affiliate shall not sell, transfer
or otherwise dispose of shares of AMPS to any Person other than the Corporation.
All of the Outstanding shares of AMPS of a series shall be represented by a
single certificate registered in the name of the nominee of the Securities
Depository unless otherwise required by law or unless there is no Securities
Depository. If there is no Securities Depository, at the Corporation's option
and upon its receipt of such documents as it deems appropriate, any shares of
AMPS may be registered in the Stock Register in the name of the Beneficial Owner
thereof and such Beneficial Owner thereupon will be entitled to receive
certificates therefor and required to deliver certificates therefor upon
transfer or exchange thereof.
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11. Securities Depository; Stock Certificates. (a) If there is a
Securities Depository, one certificate for all of the shares of AMPS shall be
issued to the Securities Depository and registered in the name of the Securities
Depository or its nominee. Additional certificates may be issued as necessary to
represent shares of AMPS. All such certificates shall bear a legend to the
effect that such certificates are issued subject to the provisions restricting
the transfer of shares of AMPS contained in these Articles Supplementary. Unless
the Corporation shall have elected, during a Non-Payment Period, to waive this
requirement, the Corporation will also issue stop-transfer instructions to the
Auction Agent for the shares of AMPS. Except as provided in paragraph (b) below,
the Securities Depository or its nominee will be the Holder, and no Beneficial
Owner shall receive certificates representing its ownership interest in such
shares.
(b) If the Applicable Rate applicable to all shares of AMPS shall be
the Non-Payment Period Rate or there is no Securities Depository, the
Corporation may at its option issue one or more new certificates with respect to
such shares (without the legend referred to in paragraph 11(a)) registered in
the names of the Beneficial Owners or their nominees and rescind the
stop-transfer instructions referred to in paragraph 11(a) with respect to such
shares.
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IN WITNESS WHEREOF, MUNIYIELD MICHIGAN INSURED FUND, INC. has caused
these presents to be signed in its name and on its behalf by a duly authorized
officer, and attested by its Secretary, and the said officers of the Corporation
further acknowledge said instrument to be the corporate act of the Corporation,
and state under penalties of perjury that to the best of their knowledge,
information and belief the matters and facts herein set forth with respect to
approval are true in all material respects, all on ________________, 2000.
MUNIYIELD MICHIGAN INSURED FUND, INC.
By _________________________________
Vice President
Attest:
____________________________
Alice A. Pellegrino
Secretary
<PAGE> 1
EXHIBIT 2
BY-LAWS
OF
MUNIYIELD MICHIGAN INSURED FUND, INC.
ARTICLE I
Offices
Section 1. Principal Office. The principal office of the Corporation
shall be in the City of Baltimore, State of Maryland.
Section 2. Principal Executive Office. The principal executive office
of the Corporation shall be at 800 Scudders Mill Road, Plainsboro, New Jersey
08536.
Section 3. Other Offices. The Corporation may have such other offices
in such places as the Board of Directors may from time to time determine.
ARTICLE II
Meetings of Stockholders
Section 1. Annual Meeting. The annual meeting of the stockholders of
the Corporation for the election of directors and for the transaction of such
other business as may properly be brought before the meeting shall be held on
such day in May of each year as shall be designated annually by the Board of
Directors.
Section 2. Special Meetings. Special meetings of the stockholders,
unless otherwise provided by law or by the Charter, may be called for any
purpose or purposes by a majority of the Board of Directors, the President, or
on the written request of the holders of the outstanding
<PAGE> 2
shares of capital stock of the corporation entitled to vote at such meeting to
the extent permitted by Maryland law.
Section 3. Place of Meetings. The annual meeting and any special
meeting of the stockholders shall be held at such place within the United States
as the Board of Directors may from time to time determine.
Section 4. Notice of Meetings; Waiver of Notice. Notice of the place,
date and time of the holding of each annual and special meeting of the
stockholders and the purpose or purposes of each special meeting shall be given
personally or by mail, not less than ten nor more than ninety days before the
date of such meeting, to each stockholder entitled to vote at such meeting and
to each other stockholder entitled to notice of the meeting. Notice by mail
shall be deemed to be duly given when deposited in the United States mail
addressed to the stockholder at his address as it appears on the records of the
Corporation, with postage thereon prepaid.
Notice of any meeting of stockholders shall be deemed waived by any
stockholder who shall attend such meeting in person or by proxy, or who shall,
either before or after the meeting, submit assigned waiver of notice which is
filed with the records of the meeting. When a meeting is adjourned to another
time and place, unless the Board of Directors, after the adjournment, shall fix
a new record date for an adjourned meeting, or the adjournment is for more than
one hundred and twenty days after the original record date, notice of such
adjourned meeting need not be given if the time and place to which the meeting
shall be adjourned were announced at the meeting at which the adjournment is
taken.
Section 5. Quorum. At all meetings of the stockholders, the holders of
a majority of the shares of stock of the Corporation entitled to vote at the
meeting, present in person or by proxy, shall constitute a quorum for the
transaction of any business, except as otherwise provided
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<PAGE> 3
by statute or by the Charter. In the absence of a quorum no business may be
transacted, except that the holders of a majority of the shares of stock present
in person or by proxy and entitled to vote may adjourn the meeting from time to
time, without notice other than announcement thereat except as otherwise
required by these By-Laws, until the holders of the requisite amount of shares
of stock shall be so present. At any such adjourned meeting at which a quorum
may be present any business may be transacted which might have been transacted
at the meeting as originally called. The absence from any meeting, in person or
by proxy, of holders of the number of shares of stock of the Corporation in
excess of a majority thereof which may be required by the laws of the State of
Maryland, the Investment Company Act of 1940, as amended, or other applicable
statute, the Charter, or these By-Laws, for action upon any given matter shall
not prevent action at such meeting upon any other matter or matters which may
properly come before the meeting, if there shall be present thereat, in person
or by proxy, holders of the number of shares of stock of the Corporation
required for action in respect of such other matter or matters.
Section 6. Organization. At each meeting of the stockholders, the
Chairman of the Board (if one has been designated by the Board), or in his
absence or inability to act, the President, or in the absence or inability to
act of the Chairman of the Board and the President, a Vice President, shall act
as chairman of the meeting. The Secretary, or in his absence or inability to
act, any person appointed by the chairman of the meeting, shall act as secretary
of the meeting and keep the minutes thereof.
Section 7. Order of Business. The order of business at all meetings of
the stockholders shall be as determined by the chairman of the meeting.
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<PAGE> 4
Section 8. Voting. Except as otherwise provided by statute or the
Charter, each holder of record of shares of stock of the Corporation having
voting power shall be entitled at each meeting of the stockholders to one vote
for every share of such stock standing in his name on the record of stockholders
of the Corporation as of the record date determined pursuant to Section 9 of
this Article or if such record date shall not have been so fixed, then at the
later of (i) the close of business on the day on which notice of the meeting is
mailed or (ii) the thirtieth day before the meeting.
Each stockholder entitled to vote at any meeting of stockholders may
authorize another person or persons to act for him by a proxy signed by such
stockholder or his attorney-in-fact. No proxy shall be valid after the
expiration of eleven months from the date thereof, unless otherwise provided in
the proxy. Every proxy shall be revocable at the pleasure of the stockholder
executing it, except in those cases where such proxy states that it is
irrevocable and where an irrevocable proxy is permitted by law. Except as
otherwise provided by statute, the Charter or these By-Laws, any corporate
action to be taken by vote of the stockholders shall be authorized by a majority
of the total votes cast at a meeting of stockholders by the holders of shares
present in person or represented by proxy and entitled to vote on such action.
If a vote shall be taken on any question other than the election of
directors, which shall be by written ballot, then unless required by statute or
these By-Laws, or determined by the chairman of the meeting to be advisable, any
such vote need not be by ballot. On a vote by ballot, each ballot shall be
signed by the stockholder voting, or by his proxy, if there be such proxy, and
shall state the number of shares voted.
Section 9. Fixing of Record Date. The Board of Directors may set a
record date for the purpose of determining stockholders entitled to vote at any
meeting of the stockholders. The
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<PAGE> 5
record date, which may not be prior to the close of business on the day the
record date is fixed, shall be not more than ninety nor less than ten days
before the date of the meeting of the stockholders. All persons who were holders
of record of shares at such time, and not others, shall be entitled to vote at
such meeting and any adjournment thereof.
Section 10. Inspectors. The Board may, in advance of any meeting of
stockholders, appoint one or more inspectors to act at such meeting or any
adjournment thereof. If the inspectors shall not be so appointed or if any of
them shall fail to appear or act, the chairman of the meeting may, and on the
request of any stockholder entitled to vote thereat shall, appoint inspectors.
Each inspector, before entering upon the discharge of his duties, shall take and
sign an oath to execute faithfully the duties of inspector at such meeting with
strict impartiality and according to the best of his ability. The inspectors
shall determine the number of shares outstanding and the voting powers of each,
the number of shares represented at the meeting, the existence of a quorum, the
validity and effect of proxies, and shall receive votes, ballots or consents,
hear and determine all challenges and questions arising in connection with the
right to vote, count and tabulate all votes, ballots or consents, determine the
result, and do such acts as are proper to conduct the election or vote with
fairness to all stockholders. On request of the chairman of the meeting or any
stockholder entitled to vote thereat, the inspectors shall make a report in
writing of any challenge, request or matter determined by them and shall execute
a certificate of any fact found by them. No director or candidate for the office
of director shall act as inspector of an election of directors. Inspectors need
not be stockholders.
Section 11. Consent of Stockholders in Lieu of Meeting. Except as
otherwise provided by statute or the Charter, any action required to be taken at
any annual or special meeting of stockholders, or any action which may be taken
at any annual or special meeting of
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<PAGE> 6
such stockholders, may be taken without a meeting, without prior notice and
without a vote, if the following are filed with the records of stockholders
meetings: (i) a unanimous written consent which sets forth the action and is
signed by each stockholder entitled to vote on the matter and (ii) a written
waiver of any right to dissent signed by each stockholder entitled to notice of
the meeting but not entitled to vote thereat.
ARTICLE III
Board of Directors
Section 1. General Powers. Except as otherwise provided in the Charter,
the business and affairs of the Corporation shall be managed under the direction
of the Board of Directors. All powers of the Corporation may be exercised by or
under authority of the Board of Directors except as conferred on or reserved to
the stockholders by law or by the Charter or these By-Laws.
Section 2. Number of Directors. The number of directors shall be fixed
from time to time by resolution of the Board of Directors adopted by a majority
of the Directors then in office; provided, however, that the number of directors
shall in no event be less than three nor more than fifteen. Any vacancy created
by an increase in Directors may be filled in accordance with Section 6 of this
Article III. No reduction in the number of directors shall have the effect of
removing any director from office prior to the expiration of his term unless
such director is specifically removed pursuant to Section 5 of this Article III
at the time of such decrease. Directors need not be stockholders. As long as any
preferred stock of the Corporation is outstanding, the number of Directors shall
be not less than five.
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Section 3. Election and Term of Directors. Directors shall be elected
annually, by written ballot at the annual meeting of stockholders, or a special
meeting held for that purpose. The term of office of each director shall be from
the time of his election and qualification until the annual election of
directors next succeeding his election and until his successor shall have been
elected and shall have qualified, or until his death, or until he shall have
resigned, or until December 31 of the year in which he shall have reached
seventy-two years of age, or until he shall have been removed as hereinafter
provided in these By-Laws, or as otherwise provided by statute or the Charter.
Section 4. Resignation. A director of the Corporation may resign at any
time by giving written notice of his resignation to the Board or the Chairman of
the Board or the President or the Secretary. Any such resignation shall take
effect at the time specified therein or, if the time when it shall become
effective shall not be specified therein, immediately upon its receipt; and,
unless otherwise specified therein, the acceptance of such resignation shall not
be necessary to make it effective.
Section 5. Removal of Directors. Any director of the Corporation may be
removed (with or without cause) by the stockholders by a vote of sixty-six and
two-thirds percent (66 2/3%) of the outstanding shares of capital stock then
entitled to vote in the election of such director.
Section 6. Vacancies. Subject to the provisions of the Investment
Company Act of 1940, as amended, any vacancies in the Board, whether arising
from death, resignation, removal, an increase in the number of directors or any
other cause, shall be filled by a vote of the Board of Directors in accordance
with the Charter.
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Section 7. Place of Meetings. Meetings of the Board may be held at such
place as the Board may from time to time determine or as shall be specified in
the notice of such meeting.
Section 8. Regular Meeting. Regular meetings of the Board may be held
without notice at such time and place as may be determined by the Board of
Directors.
Section 9. Special Meetings. Special meetings of the Board may be
called by two or more directors of the Corporation or by the Chairman of the
Board or the President.
Section 10. Telephone Meetings. Members of the Board of Directors or of
any committee thereof may participate in a meeting by means of a conference
telephone or similar communications equipment if all persons participating in
the meeting can hear each other at the same time. Subject to the provisions of
the Investment Company Act of 1940, as amended, participation in a meeting by
these means constitutes presence in person at the meeting.
Section 11. Notice Of Special Meetings. Notice of each special meeting
of the Board shall be given by the Secretary as hereinafter provided, in which
notice shall be stated the time and place of the meeting. Notice of each such
meeting shall be delivered to each director, either personally or by telephone
or any standard form of telecommunication, at least twenty-four hours before the
time at which such meeting is to be held, or by first-class mail, postage
prepaid, addressed to him at his residence or usual place of business, at least
three days before the day on which such meeting is to be held.
Section 12. Waiver of Notice of Meetings. Notice of any special meeting
need not be given to any director who shall, either before or after the meeting,
sign a written waiver of notice which is filed with the records of the meeting
or who shall attend such meeting. Except as otherwise specifically required by
these By-Laws, a notice or waiver or notice of any meeting need not state the
purposes of such meeting.
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Section 13. Quorum and Voting. One-third, but not less than two, of the
members of the entire Board shall be present in person at any meeting of the
Board in order to constitute a quorum for the transaction of business at such
meeting, and except as otherwise expressly required by statute, the Charter,
these By-Laws, the Investment Company Act of 1940, as amended, or other
applicable statute, the act of a majority of the directors present at any
meeting at which a quorum is present shall be the act of the Board. In the
absence of a quorum at any meeting of the Board, a majority of the directors
present thereat may adjourn such meeting to another time and place until a
quorum shall be present thereat. Notice of the time and place of any such
adjourned meeting shall be given to the directors who were not present at the
time of the adjournment and, unless such time and place were announced at the
meeting at which the adjournment was taken, to the other directors. At any
adjourned meeting at which a quorum is present, any business may be transacted
which might have been transacted at the meeting as originally called.
Section 14. Organization. The Board may, by resolution adopted by a
majority of the entire Board, designate a Chairman of the Board, who shall
preside at each meeting of the Board. In the absence or inability of the
Chairman of the Board to preside at a meeting, the President or, in his absence
or inability to act, another director chosen by a majority of the directors
present, shall act as chairman of the meeting and preside thereat. The Secretary
(or, in his absence or inability to act, any person appointed by the Chairman)
shall act as secretary of the meeting and keep the minutes thereof.
Section 15. Written Consent of Directors in Lieu of a Meeting. Subject
to the provisions of the Investment Company Act of 1940, as amended, any action
required or permitted to be taken at any meeting of the Board of Directors or of
any committee thereof may
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be taken without a meeting if all members of the Board or committee, as the case
may be, consent thereto in writing, and the writings or writing are filed with
the minutes of the proceedings of the Board or committee.
Section 16. Compensation. Directors may receive compensation for
services to the Corporation in their capacities as directors or otherwise in
such manner and in such amounts as may be fixed from time to time by the Board.
Section 17. Investment Policies. It shall be the duty of the Board of
Directors to direct that the purchase, sale, retention and disposal of portfolio
securities and the other investment practices of the Corporation are at all
times consistent with the investment policies and restrictions with respect to
securities investments and otherwise of the Corporation, as recited in the
Prospectus of the Corporation included in the registration statement of the
Corporation relating to the initial public offering of its capital stock, as
filed with the Securities and Exchange Commission (or as such investment
policies and restrictions may be modified by the Board of Directors, or, if
required, by majority vote of the stockholders of the Corporation in accordance
with the Investment Company Act of 1940, as amended) and as required by the
Investment Company Act of 1940, as amended. The Board however, may delegate the
duty of management of the assets and the administration of its day to day
operations to an individual or corporate management company and/or investment
adviser pursuant to a written contract or contracts which have obtained the
requisite approvals, including the requisite approvals of renewals thereof, of
the Board of Directors and/or the stockholders of the corporation in accordance
with the provisions Of the Investment Company Act of 1940, as amended.
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ARTICLE IV
Committees
Section 1. Executive Committee. The Board may, by resolution adopted by
a majority of the entire board, designate an Executive Committee consisting of
two or more of the directors of the corporation, which committee shall have and
may exercise all the powers and authority of the Board with respect to all
matters other than:
(a) the submission to stockholders of any action requiring
authorization of stockholders pursuant to statute-or the Charter;
(b) the filling of vacancies on the Board of Directors;
(c) the fixing of compensation of the directors for serving on the
Board or on any committee of the Board, including the Executive Committee;
(d) the approval or termination of any contract with an investment
adviser or principal underwriter, as such terms are defined in the Investment
Company Act of 1940, as amended, or the taking of any other action required to
be taken by the Board of Directors by the Investment Company Act of 1940, as
amended;
(e) the amendment or repeal of these By-Laws or the adoption of new
By-Laws;
(f) the amendment or repeal of any resolution of the Board which by its
terms may be amended or repealed only by the Board;
(g) the declaration of dividends and the issuance of capital stock of
the Corporation; and
(h) the approval of any merger or share exchange which does not require
stockholder approval.
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The Executive Committee shall keep written minutes of its proceedings
and shall report such minutes to the Board. All such proceedings shall be
subject to revision or alteration by the Board; provided, however, that third
parties shall not be prejudiced by such revision or alteration.
Section 2. Other Committees of the Board. The Board of Directors may
from time to time, by resolution adopted by a majority of the whole Board,
designate one or more other committees of the Board, each such committee to
consist of two or more directors and to have such powers and duties as the Board
of Directors may, by resolution, prescribe.
Section 3. General. One-third, but not less than two, of the members of
any committee shall be present in person at any meeting of such committee in
order to constitute a quorum for the transaction of business at such meeting,
and the act of a majority present shall be the act of such committee. The Board
may designate a chairman of any committee and such chairman or any two members
of any committee may fix the time and place of its meetings unless the Board
shall otherwise provide. In the absence or disqualification of any member of any
committee, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. The Board shall
have the power at any time to change the membership of any committee, to fill
all vacancies, to designate alternate members to replace any absent or
disqualified member, or to dissolve any such committee. Nothing herein shall be
deemed to prevent the Board from appointing one or more committees consisting in
whole or in part of persons who are not directors of the Corporation; provided,
however, that no such committee
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shall have or may exercise any authority or power of the Board in the management
of the business or affairs of the Corporation.
ARTICLE V
Officers, Agents and Employees
Section 1. Number of Qualifications. The officers of the corporation
shall be a President, who shall be a director of the Corporation, a Secretary
and a Treasurer, each of whom shall be elected by the Board of Directors. The
Board of Directors may elect or appoint one or more Vice Presidents and may also
appoint such other officers, agents and employees as it may deem necessary or
proper. Any two or more offices may be held by the same person, except the
offices of President and Vice President, but no officer shall execute,
acknowledge or verify any instrument in more than one capacity. Such officers
shall be elected by the Board of Directors each year at its first meeting held
after the annual meeting of stockholders, each to hold office until the next
meeting of the stockholders and until his successor shall have been duly elected
and shall have qualified, or until his death, or until he shall have resigned,
or have been removed, as hereinafter provided in these By-Laws. The Board may
from time to time elect, or delegate to the President the power to appoint, such
officers (including one or more Assistant Vice Presidents, one or more Assistant
Treasurers and one or more Assistant Secretaries) and such agents, as may be
necessary or desirable for the business of the Corporation. Such officers and
agents shall have such duties and shall hold their offices for such terms as may
be prescribed by the Board or by the appointing authority.
Section 2. Resignations. Any officer of the Corporation may resign at
any time by giving written notice of resignation to the Board, the Chairman of
the Board, President or the
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Secretary. Any such resignation shall take effect at the time specified therein
or, if the time when it shall become effective shall not be specified therein,
immediately upon its receipt; and, unless otherwise specified therein, the
acceptance of such resignation shall be necessary to make it effective.
Section 3. Removal of Officer, Agent or Employee. Any officer, agent or
employee of the Corporation may be removed by the Board of Directors with or
without cause at any time, and the Board may delegate such power of removal as
to agents and employees not elected or appointed by the Board of Directors. Such
removal shall be without prejudice to such person's contract rights, if any, but
the appointment of any person as an officer, agent or employee of the
Corporation shall not of itself create contract rights.
Section 4. Vacancies. A vacancy in any office, whether arising from
death, resignation, removal or any other cause, may be filled for the unexpired
portion of the term of the office which shall be vacant, in the manner
prescribed in these By-Laws for the regular election or appointment to such
office.
Section 5. Compensation. The compensation of the officers of the
Corporation shall be fixed by the Board of Directors, but this power may be
delegated to any officer in respect of other officers under his control.
Section 6. Bonds or Other Security. If required by the Board, any
officer, agent or employee of the Corporation shall give a bond or other
security for the faithful performance of his duties, in such amount and with
such surety or sureties as the Board may require.
Section 7. President. The President shall be the chief executive
officer of the Corporation. In the absence of the Chairman of the Board (or if
there be none), he shall preside at all meetings of the stockholders and of the
Board of Directors. He shall have, subject to the
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control of the Board of Directors, general charge of the business and affairs of
the Corporation. He may employ and discharge employees and agents of the
Corporation, except such as shall be appointed by the Board, and he may delegate
these powers.
Section 8. Vice President. Each Vice President shall have such powers
and perform such duties as the Board of Directors or the President may from time
to time prescribe.
Section 9. Treasurer. The Treasurer shall:
(a) have charge and custody of, and be responsible for, all the funds
and securities of the Corporation, except those which the Corporation has placed
in the custody of a bank or trust company or member of a national securities
exchange (as that term is defined in the Securities Exchange Act of 1934, as
amended) pursuant to a written agreement designating such bank or trust company
or member of a national securities exchange as custodian of the property of the
Corporation;
(b) keep full and accurate accounts of receipts and disbursements in
books belonging to the Corporation;
(c) cause all moneys and other valuables to be deposited to the credit
of the Corporation;
(d) receive, and give receipts for, moneys due and payable, to the
Corporation from any source whatsoever;
(e) disburse the funds of the Corporation and supervise the investment
of its funds as ordered or authorized by the Board, taking proper vouchers
therefor; and
(f) in general, perform all the duties incident to the office of
Treasurer and such other duties as from time to time may be assigned to him by
the Board or the President.
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Section 10. Secretary. The Secretary shall:
(a) keep or cause to be kept in one or more books provided for the
purpose, the minutes of all meetings of the Board, the committees of the Board
and the stockholders;
(b) that all notices are duly given in accordance with the provisions
of these By-Laws and as required by law;
(c) be custodian of the records and the seal of the corporation and
affix and attest the seal to all stock certificates of the Corporation (unless
the seal of the Corporation on such certificates shall be a facsimile, as
hereinafter provided) and affix and attest the seal to all other documents to be
executed on behalf of the Corporation under its seal;
(d) see that the books, reports, statements, certificates and other
documents and records required by law to be kept and filed are properly kept and
filed; and
(e) in general, perform all the duties incident to the office of
Secretary and such other duties as from time to time may be assigned to him by
the Board or the President.
Section 11. Delegation of Duties. In case of the absence of any officer
of the Corporation, or for any other reason that the Board may deem sufficient,
the Board may confer for the time being the powers or duties, or any of them, of
such officer upon any other officer or upon any director.
ARTICLE VI
Indemnification
Each officer and director of the Corporation shall be indemnified by
the Corporation to the full extent permitted under the General Laws of the State
of Maryland, except that such indemnity shall not protect any such person
against any liability to the Corporation or any
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stockholder thereof to which such person would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office. Absent a court determination that
an officer or director seeking indemnification was not liable on the merits or
guilty of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his office, the decision by the
Corporation to indemnify such person must be based upon the reasonable
determination of independent legal counsel or the vote of a majority of a quorum
of the directors who are neither "interested persons," as defined in Section
2(a)(19) of the Investment Company Act of 1940, as amended, nor parties to the
proceeding ("non-party independent directors"), after review of the facts, that
such officer or director is not guilty of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office.
Each officer and director of the Corporation claiming indemnification
within the scope of this Article VI shall be entitled to advances from the
Corporation for payment of the reasonable expenses incurred by him in connection
with proceedings to which he is a party in the manner and to the full extent
permitted under the General Laws of the State of Maryland; provided, however,
that the person seeking indemnification shall provide to the Corporation a
written affirmation of his good faith belief that the standard of conduct
necessary for indemnification by the Corporation has been met and a written
undertaking to repay any such advance, if it should ultimately be determined
that the standard of conduct has not been met, and provided further that at
least one of the following additional conditions is met: (a) the person seeking
indemnification shall provide a security in form and amount acceptable to the
Corporation for his undertaking; (b) the Corporation is insured against losses
arising by reason of the advance; (c) a majority of a quorum of non-party
independent directors, or independent legal counsel in a written opinion,
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shall determine, based on a review of facts readily available to the Corporation
at the time the advance is proposed to be made, that there is reason to believe
that the person seeking indemnification will ultimately be found to be entitled
to indemnification.
The Corporation may purchase insurance on behalf of an officer or
director protecting such person to the full extent permitted under the General
Laws of the State of Maryland, from liability arising from his activities as
officer or director of the Corporation. The Corporation, however, may not
purchase insurance on behalf of any officer or director of the Corporation that
protects or purports to protect such person from liability to the Corporation or
to its stockholders to which such officer or director would otherwise be subject
by reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of his office.
The Corporation may indemnify or purchase insurance to the extent
provided in this Article VI on behalf of an employee or agent who is not an
officer or director of the Corporation.
ARTICLE VII
Capital Stock
Section 1. Stock Certificates. Each holder of stock of the Corporation
shall be entitled upon request to have a certificate or certificates, in such
form as shall be approved by the Board, representing the number of shares of
stock of the Corporation owned by him, provided, however, that certificates for
fractional shares will not be delivered in any case. The certificates
representing shares of stock shall be signed by or in the name of the
corporation by the President or a Vice President and by the Secretary or an
Assistant Secretary or the Treasurer or an Assistant Treasurer and sealed with
the seal of the Corporation. Any or all of the signatures or
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the seal on the certificate may be a facsimile. In case any officer, transfer
agent or registrar who has signed or whose facsimile signature has been placed
upon a certificate shall have ceased to be such officer, transfer agent or
registrar before such certificate shall be issued, it may be issued by the
Corporation with the same effect as if such officer, transfer agent or registrar
were still in office at the date of issue.
Section 2. Books of Account and Record of Stockholders. There shall be
kept at the principal executive office of the Corporation correct and complete
books and records of account of all the business and transactions of the
Corporation. There shall be made available upon request of any stockholder, in
accordance with Maryland law, a record containing the number of shares of stock
issued during a specified period not to exceed twelve months and the
consideration received by the Corporation for each such share.
Section 3. Transfers of Shares. Transfers of shares of stock of the
Corporation shall be made on the stock records of the Corporation only by the
registered holder thereof, or by his attorney thereunto authorized by power of
attorney duly executed and filed with the Secretary or with a transfer agent or
transfer clerk, and on surrender of the certificate or certificates, if issued,
for such shares properly endorsed or accompanied by a duly executed stock
transfer power and the payment of all taxes thereon. Except as otherwise
provided by law, the Corporation shall be entitled to recognize the exclusive
right of a person in whose name any share or shares stand on the record of
stockholders as the owner of such share or shares for all purposes, including,
without limitation, the rights to receive dividends or other distributions, and
to vote as such owner, and the Corporation shall not be bound to recognize any
equitable or legal claim to or interest in any such share or shares on the part
of any other person.
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Section 4. Regulations. The Board may make such additional rules and
regulations, not inconsistent with these By-Laws, as it may deem expedient
concerning the issue, transfer and registration of certificates for shares of
stock of the Corporation. It may appoint, or authorize any officer or officers
to appoint, one or more transfer agents or one or more transfer clerks and one
or more registrars and may require all certificates for shares of stock to bear
the signature or signatures of any of them.
Section 5. Lost, Destroyed or Mutilated Certificates. The holder of any
certificates representing shares of stock of the Corporation shall immediately
notify the Corporation of any loss, destruction or mutilation of such
certificate, and the Corporation may issue a new certificate of stock in the
place of any certificate theretofore issued by it which the owner thereof shall
allege to have been lost or destroyed or which shall have been mutilated, and
the Board may, in its discretion, require such owner or his legal
representatives to give to the corporation a bond in such sum, limited or
unlimited, and in such form and with such surety or sureties, as the Board in
its absolute discretion shall determine, to indemnify the Corporation against
any claim that may be made against it on account of the alleged loss or
destruction of any such certificate, or issuance of a new certificate. Anything
herein to the contrary notwithstanding, the Board, in its absolute discretion,
may refuse to issue any such new certificate, except pursuant to legal
proceedings under the laws of the State of Maryland.
Section 6. Fixing of a Record Date for Dividends and Distributions. The
Board may fix, in advance, a date not more than ninety days preceding the date
fixed for the payment of any dividend or the making of any distribution or the
allotment of rights to subscribe for securities of the Corporation, or for the
delivery of evidences of rights or evidences of interests arising out of any
change, conversion or exchange of common stock or other securities, as the
record date for
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the determination of the stockholders entitled to receive any such dividend,
distribution, allotment, rights or interests, and in such case only the
stockholders of record at the time so fixed shall be entitled to receive such
dividend, distribution, allotment, rights or interests.
Section 7. Information to Stockholders and Others. Any stockholder of
the Corporation or his agent may inspect and copy during usual business hours
the Corporation's By-Laws, minutes of the proceedings of its stockholders,
annual statements of its affairs, and voting trust agreements on file at its
principal office.
ARTICLE VIII
Seal
The seal of the Corporation shall be circular in form and shall bear,
in addition to any other emblem or device approved by the Board of Directors,
the name of the Corporation, the year of its incorporation and the words
"Corporate Seal" and "Maryland". Said seal may be used by causing it or a
facsimile thereof to be impressed or affixed or in any other manner reproduced.
ARTICLE IX
Fiscal Year
Unless otherwise determined by the Board, the fiscal year of the
Corporation shall end on the 31st day of October.
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ARTICLE X
Depositories and Custodians
Section 1. Depositories. The funds of the Corporation shall be
deposited with such banks or other depositories as the Board of Directors of the
Corporation may from time to time determine.
Section 2. Custodians. All securities and other investments shall be
deposited in the safekeeping of such banks or other companies as the Board of
Directors of the Corporation may from time to time determine. Every arrangement
entered into with any bank or other company for the safekeeping of the
securities and investments of the Corporation shall contain provisions complying
with the Investment Company Act of 1940, as amended, and the general rules and
regulations thereunder.
ARTICLE XI
Execution of Instruments
Section 1. Checks, Notes, Drafts, etc. Checks, notes, drafts,
acceptances, bills of exchange and other orders or obligations for the payment
of money shall be signed by such officer or officers or person or persons as the
Board of Directors by resolution shall from time to time designate.
Section 2. Sale or Transfer of Securities. Stock certificates, bonds or
other securities at any time owned by the Corporation may be held on behalf of
the Corporation or sold, transferred or otherwise disposed of subject to any
limits imposed by these By-Laws and pursuant to authorization by the Board and,
when so authorized to be held on behalf of the Corporation or sold, transferred
or otherwise disposed of, may be transferred from the name of
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the Corporation by the signature of the President or a Vice President or the
Treasurer or pursuant to any procedure approved by the Board of Directors,
subject to applicable law.
ARTICLE XII
Independent Public Accountants
The firm of independent public accountants which shall sign or certify
the financial statements of the Corporation which are filed with the Securities
and Exchange Commission shall be selected annually by the Board of Directors and
ratified by the stockholders in accordance with the provisions of the Investment
Company Act of 1940, as amended.
ARTICLE XIII
Annual Statement
The books of account of the Corporation shall be examined by an
independent firm of public accountants at the close of each annual period of the
Corporation and at such other times as may be directed by the Board. A report to
the stockholders based upon each such examination shall be mailed to each
stockholder of record of the Corporation on such date with respect to each
report as may be determined by the Board, at his address as the same appears on
the books of the Corporation. Such annual statement shall also be available at
the annual meeting of stockholders and be placed on file at the Corporation's
principal office in the State of Maryland. Each such report shall show the
assets and liabilities of the Corporation as of the close of the annual or
quarterly period covered by the report and the securities in which the funds of
the Corporation were then invested. Such report shall also show the
Corporation's income and expenses for the period from the end of the
Corporation's preceding fiscal year to the close of the annual or quarterly
period covered by the report and any other information required by the
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Investment Company Act of 1940, as amended, and shall set forth such other
matters as the Board or such firm of independent public accountants shall
determine.
ARTICLE XIV
Amendments
These By-Laws or any of them may be amended, altered or repealed at any
regular meeting of the stockholders or at any special meeting of the
stockholders by a favorable vote of the holders of at least sixty-six and
two-thirds percent (66 2/3%) of the outstanding shares of capital stock of the
Corporation entitled to be voted on the matter, provided that notice of the
proposed amendment, alteration or repeal be contained in the notice of such
special meeting. These By-Laws may also be amended, altered or repealed by the
affirmative vote of a majority of the Board of Directors at any regular or
special meeting of the Board of Directors, except any particular By-Law which is
specified as not subject to alteration or repeal by the Board of Directors,
subject to the requirements of the Investment Company Act of 1940, as amended.
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EXHIBIT 4
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made as
of the _____ day of ________________, 1999, by and between MuniYield 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
<PAGE> 2
$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 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.
2
<PAGE> 3
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 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
3
<PAGE> 4
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
4
<PAGE> 5
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 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
5
<PAGE> 6
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 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
6
<PAGE> 7
October 31, 1998, and the audited financial statements appearing therein having
been examined by Deloitte & Touche LLP, independent public accountants, fairly
present the financial position of 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 MuniHolding 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.
(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
7
<PAGE> 8
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
8
<PAGE> 9
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.
(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
9
<PAGE> 10
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 Annual Report to Stockholders for the
period ended September 30, 1998, and the audited financial statements appearing
therein fairly present the financial position of MuniHoldings 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 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 dates indicated, in conformity with generally accepted
accounting principles applied on a consistent basis.
(g) 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.
(h) 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.
(i) 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.
(j) 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.
10
<PAGE> 11
(k) 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.
(l) 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.
(m) 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).
(n) 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.
(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 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
11
<PAGE> 12
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.
(p) 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 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 MuniHoldings
Michigan Common Stock and MuniHoldings Michigan AMPS were offered for sale and
sold in conformity with all applicable Federal and state securities laws.
(r) 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.
(s) 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
12
<PAGE> 13
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 __, 2000, or such earlier or later day and time as may be mutually
agreed upon in writing (the "Valuation Time").
(e) Recourse for liabilities assumed from 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(k) of this Agreement.
(f) The Funds will jointly file Articles of Transfer with the
Maryland Department and any other such instrument as may be required by the
State of Maryland to effect the transfer of the 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.
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<PAGE> 14
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 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
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
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<PAGE> 15
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
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<PAGE> 16
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 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.
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<PAGE> 17
(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 on the Exchange Date, all expenses incurred
in connection with the Reorganization, including, but not limited to, all costs
related to the preparation and distribution of the N-14 Registration Statement.
Such fees and expenses shall include the cost of preparing and filing a ruling
request with the Internal Revenue Service, legal and accounting fees, printing
costs, filing fees, stock exchange fees, rating agency fees, portfolio transfer
taxes (if any) and any similar expenses incurred in connection with the
Reorganization.
(b) If for any reason the Reorganization is not consummated,
no party shall be liable to any other party for any damages resulting therefrom,
including, without limitation, consequential damages.
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.
(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.
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<PAGE> 18
(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
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<PAGE> 19
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.
(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
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<PAGE> 20
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 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,
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<PAGE> 21
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 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
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<PAGE> 22
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 company stockholders receive
cash representing an interest in fractional shares of MuniYield Michigan 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.
22
<PAGE> 23
(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.
(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 as of the effective date of the N-14 Registration Statement
and a similar letter dated within five days prior to the Exchange Date, in form
and substance satisfactory to them, to the effect that (i) they are independent
public accountants with respect to MuniYield 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.
23
<PAGE> 24
(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 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 (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 , to and including the
Exchange Date and for any taxable year of the
24
<PAGE> 25
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 , 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 as of the effective date of the N-14 Registration Statement and a similar
letter dated within five days prior to the Exchange Date, in form and substance
satisfactory to MuniYield 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 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
25
<PAGE> 26
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.
26
<PAGE> 27
11. Termination, Postponement and Waivers.
(a) Notwithstanding anything contained in this Agreement to
the contrary, this Agreement may be terminated and the Reorganization abandoned
at any time (whether before or after adoption thereof by the stockholders of the
Funds) prior to the Exchange Date, or the Exchange Date may be postponed, (i) by
mutual consent of the Boards of Directors of the Funds, (ii) by the Board of
Directors of 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 __, 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
27
<PAGE> 28
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 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.
28
<PAGE> 29
(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 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.
29
<PAGE> 30
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.
30
<PAGE> 31
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:
-------------------------------------
Attest:
----------------------------
MUNIVEST MICHIGAN INSURED FUND, INC.
By:
-------------------------------------
Attest:
----------------------------
MUNIHOLDINGS MICHIGAN INSURED FUND, INC.
By:
-------------------------------------
Attest:
----------------------------
31
<PAGE> 1
Exhibit 5(b)
COMMON STOCK CUSIP
PAR VALUE $.10 See Reverse For Certain Definitions
MUNIYIELD MICHIGAN INSURED FUND, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF MARYLAND
This certifies that
is the registered holder of
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK OF MuniYield
Michigan Insured Fund, Inc. transferable on the books of the Corporation by the
holder in person or by duly authorized attorney upon surrender of this
Certificate properly endorsed. This Certificate and the shares represented
hereby are issued and shall be subject to all of the provisions of the Articles
of Incorporation and of the By-Laws of the Corporation, and of all the
amendments from time to time made thereto. This Certificate is not valid unless
countersigned and registered by the Transfer Agent and Registrar.
Witness the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.
Dated:
President Secretary
Countersigned and Registered:
THE BANK OF NEW YORK
Transfer Agent and Registrar
Authorized Signature
<PAGE> 2
MUNIYIELD MICHIGAN INSURED FUND, INC.
The Corporation has the authority to issue stock of more than one class.
A full statement of the designations and any preferences, conversion and other
rights, voting powers, restrictions, limitations as to dividends, qualifications
and terms and conditions of redemption of the shares of each class of stock
which the Corporation is authorized to issue and the differences in the relative
rights and preferences between the shares of each class to the extent that they
have been set, and the authority of the Board of Directors to set the relative
rights and preferences of subsequent classes and series, will be furnished by
the Corporation to any stockholder, without charge, upon request to the
Secretary of the Corporation.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM--as tenants in common UNIF GIFT MIN ACT -- _______Custodian_______
(Cust) (Minor)
TEN ENT--as tenants by the entireties under Uniform Gifts to Minors Act_______
(State)
JT TEN --as joint tenants with right
of survivorship and not as
tenants in common
Additional abbreviations may also be used though not in the above list.
For value received,............... hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
______________________________________________________________ (Please print or
typewrite name and address including zip code of assignee) ______________ Shares
represented by the within Certificate, and do hereby irrevocably constitute and
appoint _____________ Attorney to transfer the said shares on the books of the
within-named Corporation with full power of substitution in the premises.
Dated:__________________
Signature:___________________________________
NOTICE: The signature to this assignment must correspond with the
name as written upon the face of the certificate, in every
particular, without alteration or enlargement, or any change
whatever.
Signature Guaranteed:____________________________________
Signatures must be guaranteed by an "eligible guarantor institution" as
such term is defined in Rule 17Ad-15 under the Securities Exchange Act of 1934.
2
<PAGE> 1
Exhibit 5(c)
Auction Market Preferred Stock, Series A
NUMBER 1 ______ SHARES
MUNIYIELD MICHIGAN INSURED FUND, INC.
INCORPORATED UNDER THE LAWS SEE REVERSE FOR
OF THE STATE OF MARYLAND CERTAIN DEFINITIONS
THIS CERTIFICATE IS TRANSFERABLE IN NEW YORK, NY CUSIP # __________
THIS CERTIFIES THAT
CEDE & CO.
IS THE OWNER OF
FULLY PAID AND NON-ASSESSABLE SHARES OF AUCTION MARKET PREFERRED STOCK,
PAR VALUE $.10 PER SHARE, LIQUIDATION PREFERENCE $25,000 PER SHARE PLUS
AN AMOUNT EQUAL TO ACCUMULATED BUT UNPAID DIVIDENDS THEREON (WHETHER OR
NOT EARNED OR DECLARED) OF
MUNIYIELD MICHIGAN INSURED FUND, INC.
TRANSFERABLE ON THE BOOKS OF SAID CORPORATION IN PERSON OR BY DULY
AUTHORIZED ATTORNEY UPON SURRENDER OF THIS CERTIFICATE PROPERLY
ENDORSED.
THIS CERTIFICATE IS NOT VALID UNTIL COUNTERSIGNED BY THE TRANSFER AGENT
AND REGISTERED BY THE REGISTRAR.
IN WITNESS WHEREOF, MUNIYIELD MICHIGAN INSURED FUND, INC. HAS CAUSED
ITS CORPORATE SEAL TO BE HERETO AFFIXED AND THIS CERTIFICATE TO BE
EXECUTED IN ITS NAME AND BEHALF BY ITS DULY AUTHORIZED OFFICERS.
Dated:
Countersigned and Registered:
________________________
IBJ SCHRODER BANK & TRUST COMPANY
(New York) Transfer Agent
By: _____________________________ _________________________
Authorized Signature
<PAGE> 2
THE TRANSFER OF THE SHARES OF AUCTION MARKET PREFERRED STOCK REPRESENTED HEREBY
IS SUBJECT TO THE RESTRICTIONS CONTAINED IN THE CORPORATION'S CHARTER. THE
CORPORATION WILL FURNISH INFORMATION ABOUT SUCH RESTRICTIONS TO ANY STOCKHOLDER,
WITHOUT CHARGE, UPON REQUEST TO THE SECRETARY OF THE CORPORATION.
MUNIYIELD MICHIGAN INSURED FUND, INC.
A full statement of the designations and any preferences, conversion
and other rights, voting powers, restrictions, limitations as to dividends,
qualifications, and terms and conditions of redemption of the shares of each
class and series of stock which the Corporation is authorized to issue and the
differences in the relative rights and preferences between the shares of each
class and series to the extent that they have been set, and the authority of the
Board of Directors to set the relative rights and preferences of subsequent
classes and series, will be furnished by the Corporation to any stockholder,
without charge, upon request to the Secretary of the Corporation at its
principal office.
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM -- as tenants in common
TEN ENT -- as tenants by the entireties
JT TEN -- as joint tenants with right of survivorship and not as tenants in
common
under Uniform Gifts to Minors Act _________
(State)
UNIF GIFT MIN ACT--______ Custodian ______
(Cust) (Minor)
Additional abbreviations also may be used though not in the above list.
For value received, ____________________ hereby sell, assign and transfer unto
Please insert social securities or other identifying number of assignee
____________________________________________
____________________________________________________________________________
(Please Print or Typewrite Name and Address, Including Zip Code, of Assignee)
____________________________________________________________________________
____________________________________________________________________________
______________________________________________________________________shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
_______________________________________________________________________________
Attorney to transfer the said stock on the books of the within named Corporation
with full power of substitution in the premises.
Dated:________________________
___________________________________________
NOTICE: The Signature to this assignment must
correspond with the name as written upon the
face of the Certificate in every particular,
without alteration or enlargement or any
change whatsoever.
<PAGE> 1
Exhibit 6
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made this 12th day of October 1992, by and between MUNIYIELD
MICHIGAN INSURED FUND, INC., a Maryland corporation (hereinafter referred to as
the "Fund"), and FUND ASSET MANAGEMENT, INC., a Delaware corporation
(hereinafter referred to as the "Investment Adviser").
W I T N E S S E T H:
WHEREAS, the Fund is engaged in business as a closed-end management
investment company registered under the Investment Company Act of 1940, as
amended (hereinafter referred to as the "Investment Company Act"); and
WHEREAS, the Investment Adviser is engaged principally in rendering
management and investment advisory services and is registered as an investment
adviser under the Investment Adviser's Act of 1940, as amended; and
WHEREAS, the Fund desires to retain the Investment Adviser to provide
management and investment advisory services to the Fund in the manner and on the
terms hereinafter set forth; and
WHEREAS, the Investment Adviser is willing to provide management and
investment advisory services to the Fund on the terms and conditions hereinafter
set forth;
NOW, THEREFORE, in consideration of the premises and the covenants
hereinafter contained, the Fund and the Investment Adviser hereby agree as
follows:
ARTICLE I
Duties of the Investment Adviser
The Fund hereby employs the Investment Adviser to act as a manger and
investment adviser of the Fund and to furnish, or arrange for affiliates to
furnish, the management and
<PAGE> 2
investment advisory services described below, subject to the policies of, review
by and overall control of the Board of Directors of the Fund, for the period and
on the terms and conditions set forth in this Agreement. The Investment Adviser
hereby accepts such employment and agrees during such period, at its own
expense, to render, or arrange for the rendering of, such services and to assume
the obligations herein set forth for the compensation provided for herein. The
Investment Adviser and its affiliates shall for all purposes herein be deemed to
be independent contractors and shall, unless otherwise expressly provided or
authorized, have no authority to act for or represent the Fund in any way or
otherwise be deemed agents of the Fund.
(a) Investment Advisory Services. The Investment Adviser shall perform (or
arrange for the performance by affiliates of) the management and administrative
services necessary for the operation of the Fund including administering
shareholder accounts and handling shareholder relations. The Investment Adviser
shall provide the Fund with office space, facilities, equipment and necessary
personnel and such other services as the Investment Adviser, subject to review
by the Board of Directors, shall from time to time determine to be necessary or
useful to perform its obligations under this Agreement. The Investment Adviser
shall also, on behalf of the Fund, conduct relations with custodians,
depositories, transfer agents, pricing agents, dividend disbursing agents, other
shareholder servicing agents, accountants, attorneys, underwriters, brokers and
dealers, corporate fiduciaries, insurers, banks and such other persons in any
such other capacity deemed to be necessary or desirable. The Investment Adviser
shall generally monitor the Fund's compliance with investment policies and
restrictions as set forth in filings made by the Fund under the Federal
securities laws. The Investment Adviser shall make reports to the Board of
Directors of its performance of obligations hereunder and furnish advice and
2
<PAGE> 3
recommendations with respect to such other aspects of the business and affairs
of the Fund as it shall determine to be desirable.
(b) Investment Advisory Services. The Investment Adviser shall provide
(or arrange for affiliates to provide) the Fund with such investment research,
advice and supervision as the latter may from time to time consider necessary
for the proper supervision of the assets of the Fund, shall furnish continuously
an investment program for the Fund and shall determine from time to time which
securities shall be purchased, sold or exchanged and what portion of the assets
of the Fund shall be held in the various securities in which the Fund invests,
options, futures, options on futures or cash, subject always to the restrictions
of the Articles of Incorporation and By-Laws of the Fund, as amended from time
to time, the provisions of the Investment Company Act and the statements
relating to the Fund's investment objective, investment policies and investment
restrictions as the same are set forth in filings made by the Fund under the
Federal securities laws. The Investment Adviser shall make decisions for the
Fund as to foreign currency matters and make determinations as to foreign
exchange contracts, foreign currency options, foreign currency futures and
related options on foreign currency futures. The Investment Adviser shall make
decisions for the Fund as to the manner in which voting rights, rights to
consent to corporate action and any other rights pertaining to the Fund's
portfolio securities shall be exercised. Should the Directors at any time,
however, make any definite determination as to investment policy and notify the
Investment Adviser thereof in writing, the Investment Adviser shall be bound by
such determination for the period, if any, specified in such notice or until
similarly notified that such determination has been revoked. The Investment
Adviser shall take, on behalf of the Fund, all actions which it deems necessary
to implement the investment policies determined as provided above, and in
particular to place all
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<PAGE> 4
orders for the purchase or sale of portfolio securities for the Fund's account
with brokers or dealers selected by it, and to that end, the Investment Adviser
is authorized as the agent of the Fund to give instructions to the custodian of
the Fund as to deliveries of securities and payments of cash for the account of
the Fund. In connection with the selection of such brokers or dealers and the
placing of such orders with respect to assets of the Fund, the Investment
Adviser is directed at all times to seek to obtain execution and prices within
the policy guidelines determined by the Board of Directors and set forth in
filings made by the Fund under the Federal securities laws. Subject to this
requirement and the provisions of the Investment Company Act, the Securities
Exchange Act of 1934, as amended, and other applicable provisions of law, the
Investment Adviser may select brokers or dealers with which it or the Fund is
affiliated.
ARTICLE II
Allocation of Charges and Expenses
(a) The Investment Adviser. The Investment Adviser assumes and shall
pay for maintaining the staff and personnel necessary to perform its obligations
under this Agreement, and shall at its own expense, provide the office space,
facilities, equipment and necessary personnel which it is obligated to provide
under Article I hereof, and shall pay all compensation of officers of the Fund
and all Directors of the Fund who are affiliated persons of the Investment
Adviser.
(b) The Fund. The Fund assumes and shall pay or cause to be paid all
other expenses of the Fund including, without limitation: taxes, expenses for
legal and auditing services, costs of printing proxies, stock certificates,
shareholder reports, prospectuses, charges of the custodian, any sub-custodian
and transfer agent, expenses of portfolio transactions, Securities and Exchange
Commission fees, expenses of registering the shares under Federal, state and
foreign laws, fees
4
<PAGE> 5
and actual out-of-pocket expenses of Directors who are not affiliated persons of
the Investment Adviser, accounting and pricing costs (including the daily
calculation of the net asset value), insurance, interest, brokerage costs,
litigation and other extraordinary or non-recurring expenses, and other expenses
properly payable by the Fund. It is also understood that the Fund will reimburse
the Investment Adviser for its costs in providing accounting services to the
Fund.
ARTICLE III
Compensation of the Investment Adviser
(a) Investment Advisory Fee. For the services rendered, the facilities
furnished and expenses assumed by the Investment Adviser, the Fund shall pay to
the Investment Adviser at the end of each calendar month a fee based upon the
average weekly value of the net assets of the Fund at the annual rate of 0.50 of
1.0% (0.50%) of the average weekly net assets of the Fund (i.e., the average
weekly value of the total assets of the Fund, minus the sum of accrued
liabilities of the Fund and accumulated dividends on shares of outstanding
preferred stock), commencing on the day following effectiveness hereof. For
purposes of this calculation, average weekly net assets is determined at the end
of each month on the basis of the average net assets of the Fund for each week
during the month. The assets for each weekly period are determined by averaging
the net assets at the last business day of a week with the net assets at the
last business day of the prior week. It is understood that the liquidation
preference of any outstanding preferred stock (other than accumulated dividends)
is not considered a liability in determining the Fund's average weekly net
assets. If this Agreement becomes effective subsequent to the first day of a
month or shall terminate before the last day of a month, compensation for that
part of the month this Agreement is in effect shall be prorated in a manner
consistent with the calculation of the fee as set forth above. Subject to the
provisions of subsection (b) hereof, payment of the Investment
5
<PAGE> 6
Adviser's compensation for the preceding month shall be made as promptly as
possible after completion of the computations contemplated by subsection (b)
hereof. During any period when the determination of net asset value is suspended
by the Board of Directors, the average net asset value of a share for the last
week prior to such suspension shall for this purpose be deemed to be the net
asset value at the close of each succeeding week until it is again determined.
(b) Expense Limitations. In the event the operating expenses of the
Fund, including amounts payable to the Investment Adviser pursuant to subsection
(a) hereof, for any fiscal year ending on a date on which this Agreement is in
effect exceed the expense limitations applicable to the Fund imposed by
applicable state securities laws or regulations thereunder, as such limitations
may be raised or lowered from time to time, the Investment Adviser shall reduce
its management and investment advisory fee by the extent of such excess and, if
required pursuant to any such laws or regulations, will reimburse the Fund in
the amount of such excess; provided, however, to the extent permitted by law,
there shall be excluded from such expenses the amount of any interest, taxes,
brokerage fees and commissions and extraordinary expenses (including but not
limited to legal claims and liabilities and litigation costs and any
indemnification related thereto) paid or payable by the Fund. Whenever the
expenses of the Fund exceed a pro rata portion of the applicable annual expense
limitations, the estimated amount of reimbursement under such limitations shall
be applicable as an offset against the monthly payment of the fee due to the
Investment Adviser. Should two or more such expense limitations be applicable as
at the end of the last business day of the month, that expense limitation which
results in the largest reduction in the Investment Adviser's fee shall be
applicable.
6
<PAGE> 7
ARTICLE IV
Limitation of Liability of the Investment Adviser
The Investment Adviser shall not be liable for any error of judgment or
mistake of law or for any loss arising out of any investment or for any act or
omission in the management of the Fund, except for willful misfeasance, bad
faith or gross negligence in the performance of its duties, or by reason of
reckless disregard of its obligations and duties hereunder. As used in this
Article IV, the term "Investment Adviser" shall include any affiliates of the
Investment Adviser performing services for the Fund contemplated hereby and
directors, officers and employees of the Investment Adviser and such affiliates.
ARTICLE V
Activities of the Investment Adviser
The services of the Investment Adviser to the Fund are not to be deemed
to be exclusive: the Investment Adviser and any person controlled by or under
common control with the Investment Adviser (for purposes of this Article V
referred to as "affiliates") are free to render services to others. It is
understood that Directors, officers, employees and shareholders of the Fund are
or may become interested in the Investment Adviser and its affiliates, as
directors, officers, employees, partners and shareholders or otherwise, and that
directors, officers, employees, partners and shareholders of the Investment
Adviser and its affiliates are or may become similarly interested in the Fund,
and that the Investment Adviser and directors, officers, employees, partners and
shareholders of its affiliates may become interested in the Fund as shareholder
or otherwise.
7
<PAGE> 8
ARTICLE VI
Duration and Termination of this Agreement
This Agreement shall become effective as of the date first above
written and shall remain in force until September 30, 1994 and thereafter, but
only so long as such continuance is specifically approved at least annually by
(i) the Board of Directors of the Fund, or by the vote of a majority of the
outstanding voting securities of the Fund, and (ii) a majority of those
Directors who are not parties to this Agreement or interested persons of any
such party cast in person at a meeting called for the purpose of voting on such
approval.
This Agreement may be terminated at any time, without the payment of
any penalty, by the Board of Directors or by vote of a majority of the
outstanding voting securities of the Fund, or by the Investment Adviser, on
sixty days' written notice to the other party. This Agreement shall
automatically terminate in the event of its assignment.
ARTICLE VII
Amendments of this Agreement
This Agreement may be amended by the parties only if such amendment is
specifically approved by (i) the vote of a majority of outstanding voting
securities of the Fund, and (ii) a majority of those Directors who are not
parties to this Agreement or interested persons of any such party cast in person
at a meeting called for the purpose of voting on such approval.
ARTICLE VIII
Definitions of Certain Terms
The terms "vote of a majority of the outstanding voting securities",
"assignment", "affiliated person" and "interested person", when used in this
Agreement, shall have the respective meanings specified in the Investment
Company Act and the Rules and Regulations
8
<PAGE> 9
thereunder, subject, however, to such exemptions as may be granted by the
Securities and Exchange Commission under said Act.
ARTICLE IX
Governing Law
This Agreement shall be construed in accordance with laws of the State
of New York and the applicable provisions of the Investment Company Act. To the
extent that the applicable laws of the State of New York, or any of the
provisions herein, conflict with the applicable provisions of the Investment
Company Act, the latter shall control.
9
<PAGE> 10
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written.
MUNIYIELD MICHIGAN INSURED
FUND, INC.
By
--------------------------------------
(Authorized Signatory)
FUND ASSET MANAGEMENT, INC.
By
--------------------------------------
(Authorized Signatory)
10
<PAGE> 1
Exhibit 7(a)
6,911,560 Shares
MuniYield Michigan Insured Fund, Inc.
(a Maryland corporation)
Common Stock
(Par Value $0.10 Per Share)
PURCHASE AGREEMENT
October 23, 1992
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
Merrill Lynch World Headquarters
World Financial Center
North Tower
New York, NY 10281-1305
Dear Sirs:
MuniYield Michigan Insured Fund, Inc., a Maryland corporation (the
"Fund"), and Fund Asset Management, Inc., a Delaware corporation (the
"Adviser"), each confirms its agreement with Merrill Lynch & Co., Merrill Lynch,
Pierce, Fenner & Smith Incorporated (the "Underwriter"), with respect to the
sale by the Fund and the purchase by the Underwriter of 6,911,560 shares of
common stock, par value $. 10 per share, of the Fund (the "Common Stock") and,
with respect to the grant by the Fund to the Underwriter of the option described
in Section 2 hereof to purchase all or any part of 276,462 additional shares of
Common Stock to cover over-allotments. The aforesaid 6,911,560 shares (the
"Initial Shares"), together with all or any part of the 276,462 additional
shares of Common Stock subject to the option described in Section 2 hereof (the
"Option Shares"), are collectively hereinafter called the "Shares".
Prior to the purchase and public offering of the Shares by the
Underwriter, the Fund and the Underwriter shall enter into an agreement
substantially in the form of Exhibit A hereto (the "Pricing Agreement"). The
Pricing Agreement may take the form of an exchange of any standard form of
written telecommunication between the Fund and the Underwriter and shall specify
such applicable information as is indicated in Exhibit A hereto. The offering of
the Shares will be governed by this Agreement, as supplemented by the Pricing
Agreement. From and after the date of the execution and delivery of the Pricing
Agreement, this Agreement shall be deemed to incorporate the Pricing Agreement.
The Fund has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form N-2 (No. 33-50486) and a related
preliminary prospectus for the registration of the Shares under the Securities
Act of 1933, as amended (the "1933 Act"), and a
<PAGE> 2
notification on Form N-8A of registration of the Fund as an investment company
under the Investment Company Act of 1940, as amended (the "1940 Act"), and the
rules and regulations of the Commission under the 1940 Act (together with the
rules and regulations under the 1933 Act, the "Rules and Regulations") and has
filed such amendments to such registration statement on Form N-2, if any, and
such amended preliminary prospectuses as may have been required to the date
hereof. The Fund will prepare and file such additional amendments thereto and
such amended prospectuses as may hereafter be required. Such registration
statement (as amended, if applicable) and the prospectus constituting a part
thereof (including in each case the information, if any, deemed to be part
thereof pursuant to Rule 430A(b) of the Rules and Regulations), as from time to
time amended or supplemented pursuant to the 1933 Act, are hereinafter referred
to as the "Registration Statement" and the "Prospectus", respectively, except
that if any revised prospectus shall be provided to the Underwriter by the Fund
for use in connection with the offering of the Shares which differs from the
Prospectus on file at the Commission at the time the Registration Statement
becomes effective (whether such revised prospectus is required to be filed by
the Fund pursuant to Rule 497(b) or Rule 497(h) of the Rules and Regulations),
the term "Prospectus" shall refer to each such revised prospectus from and after
the time it is first provided to the Underwriter for such use.
The Fund understands that the Underwriter proposes to make a Public
offering of the Shares as soon as the Underwriter deems advisable after the
Registration Statement becomes effective and the Pricing Agreement has been
executed and delivered.
SECTION 1. Representations and Warranties. (a) The Fund and the Adviser
each severally represents and warrants to the Underwriter as of the date hereof
and as of the date of the Pricing Agreement (such later date being hereinafter
referred to as the "Representation Date") as follows:
(i) At the time the Registration Statement becomes effective
and at the Representation Date, the Registration Statement will comply
in all material respects with the requirements of the 1933 Act, the
1940 Act and the Rules and Regulations and will not contain an untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading. At the time the Registration Statement becomes effective,
at the Representation Date and at Closing Time referred to in Section
2, the Prospectus (unless the term "Prospectus" refers to a prospectus
which has been provided to the Underwriter by the Fund for use in
connection with the offering of the Shares which differs from the
Prospectus on file with the Commission at the time the Registration
Statement becomes effective, in which case at the time such prospectus
is first provided to the Underwriter for such use) will not contain an
untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided,
however, that the representations and warranties in this subsection
shall not apply to statements in or omissions from the Registration
Statement or Prospectus made in reliance upon and in conformity with
information furnished to the Fund in writing by the Underwriter
expressly for use in the Registration Statement or Prospectus.
2
<PAGE> 3
(ii) The accountants who certified the statement of assets and
liabilities included in the Registration Statement are independent
public accountants as required by the 1933 Act and the Rules and
Regulations.
(iii) The statement of assets and liabilities included in the
Registration Statement presents fairly the financial position of the
Fund as at the date indicated and said statement has been prepared in
conformity with generally accepted accounted principles.
(iv) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus, except as
otherwise stated therein, (A) there has been no material adverse change
in the condition, financial or otherwise, of the Fund, or in the
earnings, business affairs or business prospects of the Fund, whether
or not arising in the ordinary course of business, (B) there have been
no transactions entered into by the Fund which are material to the Fund
other than those in the ordinary course of business, and (C) there has
been no dividend or distribution of any kind declared, paid or made by
the Fund on any class of its capital stock.
(v) The Fund has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of Maryland with corporate power and authority to own, lease and
operate its properties and conduct its business as described in the
Registration Statement; the Fund is duly qualified as a foreign
corporation to transact business and is in good standing in each
jurisdiction in which such qualification is required; and the Fund has
no subsidiaries.
(vi) The Fund is registered with the Commission under the 1940
Act as a closed-end non-diversified management investment company, and
no order of suspension or revocation of such registration has been
issued or proceedings therefor initiated or threatened by the
Commission.
(vii) The authorized, issued and outstanding capital stock of
the Fund is as set forth in the Prospectus under the caption
"Description of Capital Stock"; the Shares have been duly authorized
for issuance and sale to the Underwriter pursuant to this Agreement
and, when issued and delivered by the Fund pursuant to this Agreement
against payment of the consideration set forth in the Pricing
Agreement, will be validly issued and fully paid and nonassessable; the
Shares conform in all material respects to all statements relating
thereto contained in the Registration Statement; and the issuance of
the Shares is not subject to preemptive rights.
(viii) The Fund is not in violation of its articles of
incorporation, as amended (the "Charter") or in default in the
performance or observance of any material obligation, agreement,
covenant or condition contained in any material contract, indenture,
mortgage, loan agreement, note, lease or other instrument to which it
is a party or by which it or its properties may be bound; and the
execution and delivery of this Agreement, the Pricing Agreement and the
Investment Advisory Agreement and the Custodial Agreement referred to
in the Registration Statement (as used herein, the "Advisory Agreement"
and the "Custody Agreement", respectively) and the
3
<PAGE> 4
consummation of the transactions contemplated herein and therein have
been duly authorized by all necessary corporate action and will not
conflict with or constitute a breach of, or default under, or result in
the creation or imposition of any lien, charge or encumbrance upon any
property or assets of the Fund pursuant to any material contract,
indenture, mortgage, loan agreement, note, lease or other instrument to
which the Fund is a party or by which it may be bound or to which any
of the property or assets of the Fund is subject, nor will such action
result in any violation of the provisions of the Charter or by-laws, as
amended, of the Fund (the "By-Laws") or, to the best knowledge of the
Fund and the Adviser, any law, administrative regulation or
administrative or court decree; and no consent, approval, authorization
or order of any court or governmental authority or agency is required
for the consummation by the Fund of the transactions contemplated by
this Agreement, the Pricing Agreement, the Advisory Agreement and the
Custody Agreement, except such as has been obtained under the 1940 Act
or as may be required under the 1933 Act, state securities or Blue Sky
laws or foreign securities laws in connection with the purchase and
distribution of the Shares by the Underwriter.
(ix) The Fund owns or possesses or has obtained all material
governmental licenses, permits, consents, orders, approvals and other
authorizations necessary to lease or own, as the case may be, and to
operate its properties and to carry on its businesses as contemplated
in the Prospectus.
(x) There is no action, suit or proceeding before or by any
court or governmental agency or body, domestic or foreign, now pending,
or, to the knowledge of the Fund, threatened against or affecting, the
Fund, which might result in any material adverse change in the
condition, financial or otherwise, business affairs or business
prospects of the Fund, or might materially and adversely affect the
properties or assets of the Fund; and there are no material contracts
or documents of the Fund which are required to be filed as exhibits to
the Registration Statement by the 1933 Act, the 1940 Act or by the
Rules and Regulations which have not been so filed.
(xi) The Fund owns or possesses, or can acquire on reasonable
terms, adequate trademarks, service marks and trade names necessary to
conduct its business as described in the Registration Statement, and
the Fund has not received any notice of infringement of or conflict
with asserted rights of others with respect to any trademarks, service
marks or trade names which, singly or in the aggregate, if the subject
of an unfavorable decision, ruling or finding, would materially
adversely affect the conduct of the business, operations, financial
condition or income of the Fund.
(b) The Adviser represents and warrants to the Underwriter as of the
date hereof and as of the Representation Date as follows:
(i) The Adviser has been duly incorporated as a corporation
under the laws of the State of Delaware with corporate power and
authority to conduct its business as described in the Prospectus.
(ii) The Adviser is duly registered as an investment adviser
under the Investment Advisers Act of 1940, as amended (the "Advisers
Act"), and is not prohibited
4
<PAGE> 5
by the Advisers Act or the 1940 Act, or the rules and regulations under
such acts, from acting under the Advisory Agreement for the Fund as
contemplated by the Prospectus.
(iii) This Agreement has been duly authorized, executed and
delivered by the Adviser; the Advisory Agreement has been duly
authorized, executed and delivered by the Adviser and constitutes a
valid and binding obligation of the Adviser, enforceable in accordance
with its terms, subject, as to enforcement, to bankruptcy, insolvency,
reorganization or other laws relating to or affecting creditors' rights
and to general equity principles; and neither the execution and
delivery of this Agreement, or the Advisory Agreement nor the
performance by the Adviser of its obligations hereunder or thereunder
will conflict with, or result in a breach of any of the terms and
provisions of, or constitute, with or without the giving of notice or
lapse of time or both, a default under, any agreement or instrument to
which the Adviser is a party or by which it is bound, or any law,
order, rule or regulation applicable to it of any jurisdiction, court,
federal or state regulatory body, administrative agency or other
governmental body, stock exchange or securities association having
jurisdiction over the Adviser or its respective properties or
operations.
(iv) The Adviser has the financial resources available to it
necessary for the performance of its services and obligations as
contemplated in the Prospectus.
(v) Any advertisement approved by the Adviser for use in the
public offering of the Shares pursuant to Rule 482 under the Rules and
Regulations (an "Omitting Prospectus") complies with the requirements
of such Rule 482.
(c) Any certificate signed by any officer of the Fund or the Adviser
and delivered to the Underwriter shall be deemed a representation and warranty
by the Fund or the Adviser, as the case may be, to the Underwriter, as to the
matters covered thereby.
SECTION 2. Sale and Delivery to the Underwriter; Closing. On the basis
of the representations and warranties herein contained and subject to the terms
and conditions herein set forth, the Fund agrees to sell the Initial Shares to
the Underwriter, and the Underwriter agrees to purchase the Initial Shares from
the Fund, at the price per share set forth in the Pricing Agreement.
(a) If the Fund has elected not to rely upon Rule 430A under the Rules
and Regulations, the initial public offering prices and the purchase price per
share to be paid by the Underwriter for the Shares has been determined and set
forth in the Pricing Agreement, dated the date hereof, and an amendment to the
Registration statement and the Prospectus will be filed before the Registration
Statement becomes effective.
(b) If the Fund has elected to rely upon Rule 430A under the Rules and
Regulations, the purchase price per share to be paid by the Underwriter for the
Shares shall be an amount equal to the applicable initial public offering price,
less an amount per share to be determined by agreement between the Underwriter
and the Fund. The applicable initial public offering price per share shall be a
fixed price based upon the number of Shares purchased in a single transaction to
be determined by agreement between the Underwriter and the Fund. The initial
public offering
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<PAGE> 6
prices and the purchase price, when so determined, shall be set forth in the
Pricing Agreement. In the event that such prices have not been agreed upon and
the Pricing Agreement has not been executed and delivered by all parties thereto
by the close of business on the fourth business day following the date of this
Agreement, this Agreement shall terminate forthwith, without liability of any
party to any other party, except as provided in Section 4, unless otherwise
agreed to by the Fund, the Adviser and the Underwriter.
In addition, on the basis of the representations and warranties herein
contained and subject to the terms and conditions herein set forth, the Fund
hereby grants an option to the Underwriter to purchase all or any part of the
Option Shares at the price per share set forth above, less an amount equal to
any dividend paid by the Fund and payable on any Initial Shares and not payable
on such Option Shares. The option hereby granted will expire 45 days after the
date hereof (or, if the Fund has elected to rely upon Rule 430A under the Rules
and Regulations, 45 days after the execution of the Pricing Agreement) and may
be exercised only for the purpose of covering over-allotments which may be made
in connection with the offering and distribution of the Initial Shares upon
notice by the Underwriter to the Fund setting forth the number of Option Shares
as to which the Underwriter is then exercising the option and the time, date and
place of payment and delivery for such Option Shares. Any such time and date of
delivery (a "Date of Delivery") shall be determined by the Underwriter but shall
not be later than seven full business days after the exercise of said option,
nor in any event prior to Closing Time, as hereinafter defined, unless otherwise
agreed upon by the Underwriter and the Fund.
Payment of the purchase price for, and delivery of certificates for,
the Initial Shares shall be made at the office of Brown & Wood, One World Trade
Center, New York, New York 10048-0557, or at such other place as shall be agreed
upon by the Underwriter and the Fund, at 10:00 A.M. on the fifth business day
(unless postponed in accordance with the provisions of Section 10) following the
date the Registration Statement becomes effective (or, if the Fund has elected
to rely upon Rule 430A under the Rules and Regulations, the fifth business day
after execution of the Pricing Agreement), or such other time not later than ten
business days after such date as shall be agreed upon by the Underwriter and the
Fund (such time and date of payment and delivery being herein called "Closing
Time"). In addition, in the event that any or all of the Option Shares are
purchased by the Underwriter, payment of the purchase price for, and delivery of
certificates for, such Option Shares shall be made at the above-mentioned office
of Brown & Wood, or at such other place as shall be mutually agreed upon by the
Fund and the Underwriter, on each Date of Delivery as specified in the notice
from the Underwriter to the Fund. Payment shall be made to the Fund by check or
checks drawn in New York Clearing House or similar next day funds and payable to
the order of the Fund, against delivery to the Underwriter of certificates for
the Shares to be purchased by it. Certificates for the Initial Shares and Option
Shares shall be in such denominations and registered in such names as the
Underwriter may request in writing at least two business days before Closing
Time or the Date of Delivery, as the case may be. The certificates for the
Initial Shares and the Option shares will be made available by the Fund for
examination and packaging by the Underwriter not later than 10:00 A.M. on the
last business day prior to Closing Time or the Date of Delivery, as the case may
be.
SECTION 3. Covenants of the Fund. The Fund covenants with the
Underwriter as follows:
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<PAGE> 7
(a) The Fund will use its best efforts to cause the
Registration Statement to become effective under the 1933 Act, and will
advise the Underwriter promptly as to the time at which the
Registration Statement and any amendments thereto (including any
post-effective amendment) becomes so effective and, if required, to
cause the issuance of any orders exempting the Fund from any provisions
of the 1940 Act and will advise the Underwriter promptly as to the time
at which any such orders are granted.
(b) The Fund will notify the Underwriter immediately, and
confirm the notice in writing, (i) of the effectiveness of the
Registration Statement and any amendment thereto (including any
post-effective amendment), (ii) of the receipt of any comments from the
Commission, (iii) of any request by the Commission for any amendment to
the Registration Statement or any amendment or supplement to the
Prospectus or for additional information, (iv) of the issuance by the
Commission of any stop order suspending the effectiveness of the
Registration Statement or the initiation of any proceedings for that
purpose, and (v) of the issuance by the Commission of an order of
suspension or revocation of the notification on Form N-8A of
registration of the Fund as an Investment Company under the 1940 Act or
the initiation of any proceeding for that purpose. The Fund will make
every reasonable effort to prevent the issuance of any stop order
described in subsection (iv) hereunder or any order of suspension or
revocation described in subsection (v) hereunder and, if any such stop
order or order of suspension or revocation is issued, to obtain the
lifting thereof at the earliest possible moment.
(c) The Fund will give the Underwriter notice of its intention
to file any amendment to the Registration Statement (including any
post-effective amendment) or any amendment or supplement to the
Prospectus (including any revised prospectus which the Fund proposes
for use by the Underwriter in connection with the offering of the
Shares, which differs from the prospectus on file at the Commission at
the time the Registration Statement becomes effective, whether such
revised prospectus is required to be filed pursuant to Rule 497(b) or
Rule 497(h) of the Rules and Regulations), whether pursuant to the 1940
Act, the 1933 Act, or otherwise, and will furnish the Underwriter with
copies of any such amendment or supplement a reasonable amount of time
prior to such proposed filing or use, as the case may be, and will not
file any such amendment or supplement to which the Underwriter shall
reasonably object.
(d) The Fund will deliver to the Underwriter, as soon as
practicable, two signed copies of the notification of registration and
registration statement as originally filed and of each amendment
thereto, in each case with two sets of the exhibits filed therewith,
and will also deliver to the Underwriter a conformed copy of the
registration statement as originally filed and of each amendment
thereto (but without exhibits to the registration statement or any such
amendment) for the Underwriter.
(e) The Fund will furnish to the Underwriter, from time to
time during the period when the Prospectus is required to be delivered
under the 1933 Act, such number of copies of the Prospectus (as amended
or supplemented) as the Underwriter may reasonably request for the
purposes contemplated by the 1933 Act or the Rules and Regulations.
7
<PAGE> 8
(f) If any event shall occur as a result of which it is
necessary, in the opinion of counsel for the Underwriter, to amend or
supplement the Prospectus in order to make the Prospectus not
misleading in the light of the circumstances existing at the time it is
delivered to a purchaser, the Fund will forthwith amend or supplement
the Prospectus by preparing and furnishing to the Underwriter a
reasonable number of copies of an amendment or amendments of or a
supplement or supplements to, the Prospectus (in form and substance
satisfactory to counsel for the Underwriter, so that, as so amended or
supplemented, the Prospectus will not contain an untrue statement of a
material fact or omit to state a material fact necessary in order to
make the statements therein, in the light of the circumstances existing
at the time the Prospectus is delivered to a purchaser, not misleading.
(g) The Fund will endeavor, in cooperation with the
Underwriter, to qualify the Shares for offering and sale under the
applicable securities laws of such states and other jurisdictions of
the United States as the Underwriter may designate, and will maintain
such qualifications in effect for a period of not less than one year
after the date hereof. The Fund will file such statements and reports
as may be required by the laws of each jurisdiction in which the Shares
have been qualified as above provided.
(h) The Fund will make generally available to its security
holders as soon as practicable, but no later than 60 days after the
close of the period covered thereby, an earnings statement (in form
complying with the provisions of Rule 158 of the Rules and Regulations)
covering a twelve-month period beginning not later than the first day
of the Funds's fiscal quarter next following the "effective" date (as
defined in said Rule 158) of the Registration Statement.
(i) Between the date of this Agreement and the termination of
any trading restrictions or Closing Time, whichever is later, the Fund
will not, without your prior consent, offer or sell, or enter into any
agreement to sell, any equity or equity related securities of the Fund
other than the Shares and shares of Common Stock issued in reinvestment
of dividends or distributions.
(j) If, at the time that the Registration Statement becomes
effective, any information shall have been omitted therefrom in
reliance upon Rule 430A of the Rules and Regulations, then immediately
following the execution of the Pricing Agreement, the Fund will
prepare, and file or transmit for filing with the Commission in
accordance with such Rule 430A and Rule 497(h) of the Rules and
Regulations, copies of amended Prospectus, or, if required by such Rule
430A, a post-effective amendment to the Registration Statement
(including an amended Prospectus), containing all information so
omitted.
(k) The Fund will use its best efforts to effect the listing
of the Shares on the New York Stock Exchange so that trading on such
Exchange will begin no later than three weeks from the date of the
Prospectus.
SECTION 4. Payment of Expenses. The Fund will pay all expenses incident
to the performance of its obligations under this Agreement, including, but not
limited to, expenses
8
<PAGE> 9
relating to (i) the printing and filing of the registration statement as
originally filed and of each amendment thereto, (ii) the printing of this
Agreement and the Pricing Agreement, (iii) the preparation, issuance and
delivery of the certificates for the Shares to the Underwriter, (iv) the fees
and disbursements of the Fund's counsel and accountants, (v) the qualification
of the Shares under securities laws in accordance with the provisions of Section
3(g) of this Agreement, including filing fees and any reasonable fees or
disbursements of counsel for the Underwriter in connection therewith and in
connection with the preparation of the Blue Sky Survey, (vi) the printing and
delivery to the Underwriter of copies of the registration statement as
originally filed and of each amendment thereto, of the preliminary prospectus,
and of the Prospectus and any amendments or supplements thereto, (vii) the
printing and delivery to the Underwriter of copies of the Blue Sky survey,
(viii) the fees and expenses incurred with respect to the filing with the
National Association of Securities Dealers, Inc. and (ix) the fees and expenses
incurred with respect to the listing of the Shares on the New York Stock
Exchange.
If this Agreement is terminated by the Underwriter in accordance with
the provisions of Section 5 or Section 9(a)(i), the Fund or the Adviser shall
reimburse the Underwriter for all of their reasonable out-of-pocket expenses,
including the reasonable fees and disbursements of counsel for the Underwriter.
In the event the transactions contemplated hereunder are not consummated, the
Adviser agrees to pay all of the costs and expenses set forth in the first
paragraph of this Section 4 which the Fund would have paid if such transactions
were consummated.
SECTION 5. Conditions of Underwriter's Obligations. The obligations of the
Underwriter hereunder are subject to the accuracy of the representations and
warranties of the Fund and the Adviser herein contained, to the performance by
the Fund and the Adviser of their respective obligations hereunder, and to the
following further conditions:
(a) The Registration Statement shall have become effective not
later than 5:30 P.M., New York City time, on the date of this
Agreement, or at a later time and date not later, however, than 5:30
P.M. on the first business day following the date hereof, or at such
later time and date as may be approved by the Underwriter, and at
Closing Time no stop order suspending the effectiveness of the
Registration Statement shall have been issued under the 1933 Act or
proceedings therefor initiated or threatened by the Commission. If the
Fund has elected to rely upon Rule 430A of the Rules and Regulations,
the prices of the Shares and any price-related information previously
omitted from the effective Registration Statement pursuant to such Rule
430A shall have been transmitted to the commission for filing pursuant
to Rule 497(h) of the Rules and Regulations within the prescribed time
period, and prior to Closing Time the Fund shall have provided evidence
satisfactory to the Underwriter of such timely filing, or a
post-effective amendment providing such information shall have been
promptly filed and declared effective in accordance with the
requirements of Rule 430A of the Rules and Regulations.
(b) At Closing Time, the Underwriter shall have received:
(1) The favorable opinion, dated as of Closing Time,
of Brown & Wood, counsel for the Fund and the Underwriter, to
the effect that:
9
<PAGE> 10
(i) The Fund has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the State of
Maryland.
(ii) The Fund has corporate power and authority to own, lease and
operate its properties and conduct its business as described
in the Registration Statement and the Prospectus.
(iii) The Fund is duly qualified as a foreign corporation to
transact business and is in good standing in each jurisdiction
in which such qualification is required.
(iv) The Shares have been duly authorized for issuance and sale to
the Underwriter pursuant to this Agreement and, when issued
and delivered by the Fund pursuant to this Agreement against
payment of the consideration set forth in the Pricing
Agreement, will be validly issued and fully paid and
nonassessable; the issuance of the Shares is not subject to
preemptive rights; and the authorized capital stock conforms
as to legal matters in all material respects to the
description thereof in the Registration Statement under the
caption "Description of Capital Stock".
(v) This Agreement and the Pricing Agreement have each been duly
authorized, executed and delivered by the Fund and each
complies with all applicable provisions of the 1940 Act.
(vi) The Registration Statement is effective under the 1933 Act
and, to the best of their knowledge and information, no stop
order suspending the effectiveness of the Registration
Statement has been issued under the 1933 Act or proceedings
therefor initiated or threatened by the Commission.
(vii) At the time the Registration Statement became effective and at
the Representation Date, the Registration Statement (other
than the financial statements included therein, as to which no
opinion need be rendered) complied as to form in all material
respects with the requirements of the 1933 Act and the 1940
Act and the Rules and Regulations.
(viii) To the best of their knowledge and information, there are no
legal or governmental proceedings pending or threatened
against the Fund which are required to be disclosed in the
Registration Statement, other than those disclosed therein.
(ix) To the best of their knowledge and information, there are no
contracts, indentures, mortgages, loan agreements, notes,
leases or other instruments of the Fund required to be
described or referred to in the Registration Statement or to
be filed as exhibits thereto other than those described or
referred to therein or filed as exhibits thereto, the
descriptions thereof are correct in all material respects,
references thereto are correct, and no default exists in the
due performance or observance of any material
10
<PAGE> 11
obligation, agreement, covenant or condition contained in any
contract, indenture, loan agreement note or lease so
described, referred to or filed.
(x) No consent, approval, authorization or order of any court or
governmental authority or agency is required in connection
with the sale of the Shares to the Underwriter, except such as
has been obtained under the 1933 Act, the 1940 Act or the
Rules and Regulations or such as may be required under state
or foreign securities laws; and to the best of their knowledge
and information, the execution and delivery of this Agreement,
the Pricing Agreement, the Advisory Agreement and the Custody
Agreement and the consummation of the transactions
contemplated herein and therein will not conflict with or
constitute a breach of, or default under, or result in the
creation or imposition of any lien, charge or encumbrance upon
any property or assets of the Fund pursuant to, any contract,
indenture, mortgage, loan agreement, note, lease or other
instrument to which the Fund is a party or by which it may be
bound or to which any of the property or assets of the Fund is
subject, nor will such action result in any violation of the
provisions of the Charter or By-Laws of the Fund, or any law
or administrative regulation, or, to the best of their
knowledge and information, administrative or court decree.
(xi) The Advisory Agreement and the Custody Agreement have each
been duly authorized and approved by the Fund and comply as to
form in all material respects with all applicable provisions
of the 1940 Act, and both have been duly executed by the Fund.
(xii) The Fund is registered with the Commission under the 1940 Act
as a closed-end nondiversified management investment company,
and all required action has been taken by the Fund under the
1933 Act, the 1940 Act and the Rules and Regulations to make
the public offering and consummate the sale of the Shares
pursuant to this Agreement; the provisions of the Charter and
By-Laws of the Fund comply as to form in all material respects
with the requirements of the 1940 Act; and, to the best of
their knowledge and information, no order of suspension or
revocation of such registration under the 1940 Act, pursuant
to Section 8(e) of the 1940 Act, has been issued or
proceedings therefor initiated or threatened by the
Commission.
(xiii) The information in the Prospectus under the caption "Taxes"
(other than information related to Michigan law as to which no
opinion need be rendered), to the extent that it constitutes
matters of law or legal conclusions, has been reviewed by them
and is correct in all material respects.
(2) The favorable opinion, dated as of Closing Time, of
Dickinson, Wright, Moon, Van Dusen & Freeman, special counsel for the
Fund, to the effect that:
11
<PAGE> 12
(i) The information in the Prospectus under the caption "Taxes" to
the extent that it constitutes matters of Michigan law or
legal conclusions involving matters of Michigan law, has been
reviewed by them and is correct in all material respects.
(ii) Nothing has come to their attention that would lead them to
believe that the information in the Registration Statement
under the caption "Investment Objective and Policies --
Special Considerations Relating to Michigan Municipal Bonds"
and in Appendix I entitled "Economic Conditions in Michigan",
at the time it became effective or at the Representation Date,
contained an untrue statement of a material fact or omitted to
state a material fact required to be stated therein or
necessary to make the statements therein not misleading or
that the information under such caption and in such appendix
in the Prospectus, at the Representation Date (unless the term
"Prospectus" refers to a prospectus which has been provided to
the Underwriter by the Fund for use in connection with the
offering of the Shares which differs from the Prospectus on
file at the Commission at the time the Registration Statement
becomes effective, in which case at the time they are first
provided to the Underwriter for such use) or at Closing Time,
included an untrue statement of a material fact or omitted to
state a material fact necessary in order to make the
statements therein, in the light of the circumstances under
which they were made, not misleading.
(3) The favorable opinion, dated as of Closing Time, of Philip
L. Kirstein, Esq., General Counsel to the Adviser, in form and
substance satisfactory to counsel for the Underwriter, to the effect
that:
(i) The Adviser has been duly organized as a corporation under the
laws of the State of Delaware with corporate power and
authority to conduct its business as described in the
Registration Statement and the Prospectus.
(ii) The Adviser is duly registered as an investment adviser under
the Advisers Act and is not prohibited by the Advisers Act or
the 1940 Act, or the rules and regulations under such Acts,
from acting under the Advisory Agreement for the Fund as
contemplated by the Prospectus.
(iii) This Agreement and the Advisory Agreement have been duly
authorized, executed and delivered by the Adviser, and the
Advisory Agreement constitutes a valid and binding obligation
of the Adviser, enforceable in accordance with its terms,
subject, as to enforcement, to bankruptcy, insolvency,
reorganization or other laws relating to or affecting
creditors' rights and to general equity principles; and, to
the best of his knowledge and information, neither the
execution and delivery of this Agreement or the Advisory
Agreement nor the performance by the Adviser of its
obligations hereunder or thereunder will conflict with, or
result in a breach of, any of the terms and provisions of, or
constitute, with or without giving
12
<PAGE> 13
notice or lapse of time or both, a default under, any
agreement or instrument to which the Adviser is a party or by
which the Adviser is bound, or any law, order, rule or
regulation applicable to the Adviser of any jurisdiction,
court, federal or state regulatory body, administrative agency
or other governmental body, stock exchange or securities
association having jurisdiction over the Adviser or its
properties or operations.
(iv) To the best of his knowledge and information, the description
of the Adviser in the Registration Statement and the
Prospectus does not contain any untrue statement of a material
fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not
misleading.
(4) In giving their opinion required by sub-section (b)(1) of
this Section, Brown & Wood shall additionally state that nothing has
come to their attention that would lead them to believe that the
Registration Statement (other than the financial statements included
therein, as to which no opinion need be rendered), at the time it
became effective or at the Representation Date, contained an untrue
statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading or that the Prospectus (other than the financial
statement included therein, as to which no opinion need be rendered),
at the Representation Date (unless the term "Prospectus" refers to a
prospectus which has been provided to the Underwriter by the Fund for
use in connection with the offering of the Shares which differs from
the Prospectus on file at the Commission at the time the Registration
Statement becomes effective, in which case at the time they are first
provided to the Underwriter for such use) or at Closing Time, included
an untrue statement of a material fact or omitted to state a material
fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading. In giving
their opinion, Brown & Wood may rely as to matters involving the laws
of the State of Maryland upon the opinion of Ginsburg, Feldman and
Bress, Chartered. Ginsburg, Feldman and Bress, Chartered, and Brown &
Wood may rely, as to matters of fact, upon certificates and written
statements of officers and employees of and accountants for the Fund
and the Adviser and of public officials.
(c) At Closing Time, (i) the Registration Statement and the Prospectus
shall contain all statements which are required to be stated therein in
accordance with the 1933 Act, the 1940 Act and the Rules and Regulations and in
all material respects shall conform to the requirements of the 1933 Act, the
1940 Act and the Rules and Regulations and neither the Registration Statement
nor the Prospectus shall contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary to make
the statements therein not misleading, and no action, suit or proceeding at law
or in equity shall be pending or, to the knowledge of the Fund or the Adviser,
threatened against the Fund or the Adviser which would be required to be set
forth in the Prospectus other than as set forth therein, (ii) there shall not
have been, since
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<PAGE> 14
the respective dates as of which information is given in the Registration
Statement and the Prospectus, any material adverse change in the condition,
financial or otherwise, of the Fund or in its earnings, business affairs or
business prospects, whether or not arising in the ordinary course of business,
from that set forth in the Registration Statement and Prospectus, (iii) the
Adviser shall have the financial resources available to it necessary for the
performance of its services and obligations as contemplated in the Registration
Statement and the Prospectus and (iv) no proceedings shall be pending or, to the
knowledge of the Fund or the Adviser, threatened against the Fund or the Adviser
before or by any Federal, state or other commission, board or administrative
agency wherein an unfavorable decision, ruling or finding would materially and
adversely affect the business, property, financial condition or income of either
the Fund or the Adviser other than as set forth in the Registration Statement
and the Prospectus; and the Underwriter shall have received, at Closing Time, a
certificate of the President or Treasurer of the Fund and of the President or a
Vice President of the Adviser dated as of Closing Time, evidencing compliance
with the appropriate provisions of this subsection (c).
(d) At Closing Time, the Underwriter shall have received certificates,
dated as of Closing Time, (i) of the President or Treasurer of the Fund to the
effect that the representations and warranties of the Fund contained in Section
1(a) are true and correct with the same force and effect as though expressly
made at and as of Closing Time and, (ii) of the President or a Vice President of
the Adviser to the effect that the representations and warranties of the Adviser
contained in Sections 1(a) and (b) are true and correct with the same force and
effect as though expressly made at and as of Closing Time.
(e) At the time of execution of this Agreement, the Underwriter shall
have received from Ernst & Young a letter, dated such date in form and substance
satisfactory to the Underwriter, to the effect that:
(i) they are independent accountants with respect to the Fund
within the meaning of the 1933 Act and the Rules and
Regulations;
(ii) in their opinion, the statement of assets and liabilities
examined by them and included in the Registration Statement
complies as to form in all material respects with the
applicable accounting requirements of the 1933 Act and the
1940 Act and the Rules and Regulations; and
(iii) they have performed specified procedures, not constituting an
audit, including a reading of the latest available interim
financial statements of the Fund, a reading of the minute
books of the Fund, inquiries of officials of the Fund
responsible for financial accounting matters and such other
inquiries and procedures as may be specified in such letter,
and on the basis of such inquiries and procedures nothing came
to their attention that caused them to believe that at the
date of the latest available statement of assets and
liabilities read by such accountants, or at a subsequent
specified date not more than five days prior to the date of
this Agreement, there was any change in the capital stock or
net assets of
14
<PAGE> 15
the Fund as compared with amounts shown on the statement of net assets
included in the Prospectus.
(f) At Closing Time, the Underwriter shall have received from Ernst &
Young a letter, dated as of Closing Time, to the effect that they reaffirm the
statements made in the letter furnished pursuant to subsection (e) of this
Section, except that the "specified date" referred to shall be a date not more
than five days prior to Closing Time.
(g) At Closing Time, all proceedings taken by the Fund and the Adviser
in connection with the organization and registration of the Fund under the 1940
Act and the issuance and sale of the Shares as herein and therein contemplated
shall be satisfactory in form and substance to the Underwriter.
(h) In the event the Underwriter exercises its option provided in
Section 2 hereof to purchase all or any portion of the Option Shares, the
representations and warranties of the Fund and the Adviser contained herein and
the statements in any certificate furnished by the Fund and the Adviser
hereunder shall be true and correct as of each Date of Delivery, and the
Underwriter shall have received:
(1) Certificates, dated the Date of Delivery, of the President
or Treasurer of the Fund and of the President or a Vice President of
the Adviser confirming that the information contained in the
certificate delivered by each of them at Closing Time pursuant to
Sections 5(c) and (d), as the case may be, remains true as of such Date
of Delivery.
(2) The favorable opinion of Brown & Wood, counsel for the
Fund, Dickson, Wright, Moon, Van Dusen & Freeman, Special Michigan
Counsel for the Fund and Philip L. Kirstein, Esq., General Counsel to
the Adviser, each in form and substance satisfactory to the
Underwriter, dated such Date of Delivery, relating to the Option Shares
and otherwise to the same effect as the opinions required by Sections
5(b)(1), (2) and (3), respectively.
(3) A letter from Ernst & Young, in form and substance
satisfactory to the Underwriter and dated such Date of Delivery,
substantially the same in scope and substance as the letter furnished
to the Underwriter pursuant to Section 5(e), except that the "specified
date" in the letter furnished pursuant to this Section 5(h)(3) shall be
a date not more than five days prior to such Date of Delivery.
If any condition specified in this Section shall not have been
fulfilled when and as required to be fulfilled, this Agreement may be terminated
by the Underwriter by notice to the Fund at any time at or prior to Closing
Time, and such termination shall be without liability of any party to any other
party except as provided in Section 4.
SECTION 6. Indemnification. (a) The Fund and the Adviser, jointly and
severally, agree to indemnify and hold harmless the Underwriter and each person,
if any, who controls the Underwriter within the meaning of Section 15 of the
1933 Act as follows:
15
<PAGE> 16
(i) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, arising out of any untrue statement or
alleged untrue statement of a material fact contained in the
Registration Statement (or any amendment thereto), including the
information deemed to be part of the Registration Statement pursuant to
Rule 430A of the Rules and Regulations, if applicable, or the omission
or alleged omission therefrom of a material fact required to be stated
therein or necessary to make the statements therein not misleading or
arising out of any untrue statement or alleged untrue statement of a
material fact contained in any preliminary prospectus or the Prospectus
(or any amendment or supplement thereto) or the omission or alleged
omission therefrom of a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they
were made, not misleading;
(ii) against any and all loss, liability, claim, damage and
expense whatsoever as incurred to the extent of the aggregate amount
paid in settlement of any litigation, or investigation or proceeding by
any governmental agency or body, commenced or threatened, or of any
claim whatsoever based upon any such untrue statement or omission, or
any such alleged untrue statement or omission, if such settlement is
effected with the written consent of the indemnifying party; and
(iii) against any and all expense whatsoever (including the
fees and disbursements of counsel chosen by the Underwriter) reasonably
incurred in investigating, preparing or defending against any
litigation, or investigation or proceeding by any governmental agency
or body, commenced or threatened, or any claim whatsoever based upon
any such untrue statement or omission, or any such alleged untrue
statement or omission, to the extent that any such expense is not paid
under (i) or (ii) above;
provided, however, that this indemnity agreement does not apply to any loss,
liability, claim, damage or expense to the extent arising out of any untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished to the Fund by the
Underwriter expressly for use in the Registration Statement (or any amendment
thereto) or any preliminary prospectus or the Prospectus (or any amendment or
supplement thereto).
(b) The Underwriter agrees, severally and not jointly, to indemnify and
hold harmless the Fund and the Adviser, their respective directors, each of the
Fund's officers who signed the Registration Statement, and each person, if any,
who controls the Fund or the Adviser within the meaning of Section 15 of the
1933 Act, against any and all loss, liability, claim, damage and expense
described in the indemnity contained in subsection (a) of this Section, as
incurred, but only with respect to untrue statements or omissions, or alleged
untrue statements or omissions, made in the Registration Statement (or any
amendment thereto) or any preliminary prospectus or the Prospectus (or any
amendment or supplement thereto) in reliance upon and in conformity with written
information furnished to the Fund by the Underwriter expressly for use in the
Registration Statement (or any amendment thereto) or any preliminary prospectus
or the Prospectus (or any amendment or supplement thereto).
(c) In addition to the foregoing indemnification, the Adviser also
agrees to indemnify and hold harmless the Underwriter and each person, if any,
who controls the Underwriter within
16
<PAGE> 17
the meaning of Section 15 of the 1933 Act, against any and all loss, liability,
claim, damage and expense described in the indemnity contained in subsection (a)
of this Section, with respect to any Omitting Prospectus or any advertising
materials approved by the Adviser for use in connection with the public offering
of the Shares.
(d) Each indemnified party shall give notice as promptly as reasonably
practicable to each indemnifying party of any action commenced against it in
respect of which indemnity may be sought hereunder, but failure to so notify an
indemnifying party shall not relieve it from any liability which it may have
otherwise than on account of this indemnity agreement. An indemnifying party may
participate at its own expense in the defense of any such action. In no event
shall the indemnifying parties be liable for the fees and expenses of more than
one counsel (in addition to any local counsel) separate from their own counsel
for all indemnified parties in connection with any one action or separate but
similar or related actions in the same jurisdiction arising out of the same
general allegations or circumstances.
SECTION 7. Contribution. In order to provide for just and equitable
contribution in circumstances in which the indemnity agreement provided for in
Section 6 is for any reason held to be unenforceable by the indemnified parties
although applicable in accordance with its terms, the Fund, the Adviser and the
Underwriter shall contribute to the aggregate losses, liabilities, claims,
damages and expenses of the nature contemplated by said indemnity agreement as
incurred by the Fund, the Adviser and the Underwriter, as incurred, in such
proportion that the Underwriter is responsible for that portion represented by
the percentage that the aggregate underwriting compensation payable pursuant to
Section 2 hereof bears to the aggregate initial public offering price of the
Shares sold under this Agreement and the Fund and the Adviser are responsible
for the balance; provided, however, that no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. For purposes of this Section, each person, if any, who
controls the Underwriter within the meaning of Section 15 of the 1933 Act shall
have the same rights to contribution as the Underwriter, and each director of
the Fund and the Adviser, respectively, each officer of the Fund who signed the
Registration Statement, and each person, if any, who controls the Fund or the
Adviser within the meaning of Section 15 of the 1933 Act shall have the same
rights to contribution as the Fund and the Adviser, respectively.
SECTION 8. Representations, Warranties and Agreements to Survive
Delivery. All representations, warranties and agreements contained in this
Agreement or the Pricing Agreement, or contained in certificates of officers of
the Fund or the Adviser submitted pursuant hereto, shall remain operative and in
full force and effect, regardless of any investigation made by or on behalf of
the Underwriter or controlling person, or by or on behalf of the Fund or the
Adviser and shall survive delivery of the Shares to the Underwriter.
SECTION 9. Termination of Agreement. (a) The Underwriter, by notice to
the Fund, may terminate this Agreement at any time at or prior to Closing Time
(i) if there has been, since the date of this Agreement or since the respective
dates as of which information is given in the Registration Statement, any
material adverse change in the condition, financial or otherwise, or in the
earnings, business affairs or business prospects of the Fund or the Adviser,
whether or not arising in the ordinary course of business, or (ii) if there has
occurred any material adverse
17
<PAGE> 18
change in the financial markets in the United States or elsewhere or any
outbreak of hostilities or other calamity or crisis or any escalation of
existing hostilities the effect of which is such as to make it, in the
Underwriter's judgment, impracticable to market the Shares or enforce contracts
for the sale of the Shares, or (iii) if trading in the Common Stock has been
suspended by the Commission or if trading generally on either the American Stock
Exchange or the New York Stock Exchange has been suspended, or minimum or
maximum prices for trading have been fixed, or maximum ranges for prices for
securities have been required by either of said exchanges or by order of the
Commission or any other governmental authority, or if a banking moratorium has
been declared by Federal or New York authorities.
(b) If this Agreement is terminated pursuant to this Section, such
termination shall be without liability of any party to any other party except as
provided in Section 4.
SECTION 10. Notices. All notices and other communications hereunder
shall be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of written telecommunication. Notices to the
Underwriter shall be directed to Merrill Lynch World Headquarters, North Tower,
World Financial Center, New York, New York 10281, Attention: Theresa Lang,
Director; notices to the Fund or the Adviser shall be directed to each of them
at 800 Scudders Mill Road, Plainsboro, New Jersey 08536, Attention: Arthur
Zeikel, President.
SECTION 11. Parties. This Agreement and the Pricing Agreement shall
inure to the benefit of and be binding upon the Underwriter, the Fund, the
Adviser and their respective successors. Nothing expressed or mentioned in this
Agreement or the Pricing Agreement is intended or shall be construed to give any
person, firm or corporation, other than the parties hereto and their respective
successors and the controlling persons and officers and directors referred to in
Sections 6 and 7 and their heirs and legal representatives, any legal or
equitable right, remedy or claim under or in respect of this Agreement or any
provision herein contained. This Agreement and the Pricing Agreement and all
conditions and provisions hereof are intended to be for the sole and exclusive
benefit of the parties hereto and thereto and their respective successors, and
said controlling persons and officers and directors and their heirs and legal
representatives, and for the benefit of no other person, firm or corporation. No
purchaser of Shares from the Underwriter shall be deemed to be a successor by
reason merely of such purchase.
SECTION 12. Governing Law and Time. This Agreement and the Pricing
Agreement shall be governed by the laws of the State of New York applicable to
agreements made and to be performed in said State. Specified times of day refer
to New York City time.
18
<PAGE> 19
Exhibit A
6,911,560 Shares
MuniYield Michigan Insured Fund, Inc.
(a Maryland corporation)
Common Stock
(Par Value $.10 Per Share)
PRICING AGREEMENT
October 23, 1992
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
Merrill Lynch World Headquarters
North Tower
World Financial Center
New York, New York 10281
Dear Sirs:
Reference is made to the Purchase Agreement, dated October 23, 1992
(the "Purchase Agreement") , relating to the purchase by Merrill Lynch & Co.,
Merrill Lynch, Pierce, Fenner & Smith Incorporated, (the "Underwriter"), of the
above shares of Common Stock, par value $.10 per share (the "Initial Shares"),
of MuniYield Michigan Insured Fund, Inc. (the "Fund") and relating to the option
granted to the Underwriter to purchase up to an additional 276,462 shares of
Common Stock, par value $.10 per share, of the Fund to cover over-allotments in
connection with the sale of the Initial Shares (the "Option Shares"). The
Initial Shares and all or any part of the Option Shares are collectively herein
referred to as the "Shares".
Pursuant to Section 2 of the Purchase Agreement, the Fund agrees with
the Underwriter as follows:
1. The applicable initial public offering price per share for
the Shares, determined as provided in said Section 2, shall be as
follows:
(a) $15.00 for purchases in single transactions of
less than 3,500 Shares;
(b) $14.85 for purchases in single transactions of
3,500 or more Shares but less than 7,000 Shares; and
(c) $14.70 for purchases in single transactions of
7,000 or more Shares.
A-1
<PAGE> 20
2. The purchase price per share for the Shares to be paid by the
Underwriter shall be $14.175 being an amount equal to the applicable initial
public offering price set forth above less (i) $.825 per share for purchases in
single transactions of less than 3,500 Shares; (ii) $.675 per share for
purchases in single transactions of 3,500 or more Shares but less than 7,000
Shares and (iii) $.525 per share for purchases in single transactions of 7,000
or more Shares.
A-2
<PAGE> 21
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Fund a counterpart hereof, whereupon
this instrument, along with all counterparts, will become a binding agreement
between the Underwriter and the Fund in accordance with its terms.
Very truly yours,
MUNIYIELD MICHIGAN INSURED
FUND, INC.
By: ______________________________
(Authorized Officer)
Confirmed and Accepted, as of the date first above written:
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By: ____________________________________
Vice President
Investment Banking Group
<PAGE> 1
EXHIBIT 7(b)
$50,000,000
MUNIYIELD MICHIGAN INSURED FUND, INC.
(a Maryland corporation)
AUCTION MARKET PREFERRED STOCK(R) ["AMPS"(R)]
Liquidation Preference $50,000 Per Share
PURCHASE AGREEMENT
November 13, 1992
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Merrill Lynch World Headquarters
World Financial Center
North Tower
New York, New York 10281-1201
Dear Sirs:
MuniYield Michigan Insured Fund, Inc., a Maryland corporation (the
"Fund"), and Fund Asset Management, Inc., a Delaware corporation (the
"Adviser"), each confirms its agreement with Merrill Lynch & Co., Merrill Lynch,
Pierce, Fenner & Smith Incorporated (the "Underwriter") with respect to the sale
by the Fund and the purchase by the Underwriter of 1,000 shares of auction
market preferred stock of the Fund (collectively, the "Shares"), par value $.10
per share, liquidation preference $50,000 per share plus an amount equal to
accumulated but unpaid dividends (whether or not earned or declared).
Prior to the purchase and public offering of the Shares by the
Underwriter, the Fund and the Underwriter shall enter into an agreement
substantially in the form of Exhibit A hereto (the "Pricing Agreement"). The
Pricing Agreement may take the form of an exchange of any standard form of
written telecommunication between the Fund and the Underwriter and shall specify
such applicable information as is indicated in Exhibit A hereto. The offering of
the Shares will be governed by this Agreement, as supplemented by the Pricing
Agreement. From and after the date of the execution and delivery of the Pricing
Agreement, this Agreement shall be deemed to incorporate the Pricing Agreement.
The Fund has filed with the Securities and Exchange Commission (the
"Commission") a notification on Form N-8A of registration of the Fund as an
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act"), and a registration statement on Form N-2 (No. 33-53614) and a
related preliminary prospectus for the registration of the Shares under the
Securities Act of 1933, as amended (the "1933 Act"), and the 1940 Act, and the
rules
- ------------------
(R) Registered trademark of Merrill Lynch & Co., Inc.
<PAGE> 2
and regulations of the Commission under the 1933 Act and the 1940 Act (the
"Rules and Regulations") and has filed such amendments to such registration
statement on Form N-2, if any, and such amended preliminary prospectuses as may
have been required to the date hereof. The Fund will prepare and file such
additional amendments thereto and such amended prospectuses as may hereafter be
required. Such registration statement (as amended at the time it becomes
effective, if applicable) and the prospectus constituting a part thereof
(including in each case the information, if any, deemed to be part thereof
pursuant to Rule 430A(b) of the Rules and Regulations), as from time to time
amended or supplemented pursuant to the 1933 Act, are hereinafter referred to as
the "Registration Statement" and the "Prospectus," respectively, except that if
any revised prospectus shall be provided to the Underwriter by the Fund for use
in connection with the offering of the shares which differs from the Prospectus
on file at the Commission at the time the Registration Statement becomes
effective (whether such revised prospectus is required to be filed by the Fund
pursuant to Rule 497(b) or Rule 497(h) of the Rules and Regulations) the term
"Prospectus" shall refer to such revised prospectus from and after the time it
is first provided to the Underwriter for such use.
The Fund understands that the Underwriter proposes to make a public
offering of the Shares as soon as the Underwriter deems advisable after the
Registration Statement becomes effective and the Pricing Agreement has been
executed and delivered.
SECTION 1. Representations and Warranties. (a) The Fund and the
Adviser each severally represents and warrants to the Underwriter as of the date
hereof and as of the date of the Pricing Agreement (such later date being
hereinafter referred to as the "Representation Date") as follows:
(i) At the time the Registration Statement becomes effective and at
the Representation Date, the Registration Statement will comply in all
material respects with the requirements of the 1933 Act, the 1940 Act and
the Rules and Regulations and will not contain an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading. At the
time the Registration Statement becomes effective, at the Representation
Date and at Closing Time as defined in Section 2, the Prospectus (unless
the term "Prospectus" refers to a prospectus which has been provided to
the Underwriter by the Fund for use in connection with the offering of the
Shares which differs from the Prospectus on file with the Commission at
the time the Registration Statement becomes effective, in which case at
the time it is first provided to the Underwriter for such use) will not
contain an untrue statement of a material fact or omit to state a material
fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading; provided,
however, that the representations and warranties in this subsection shall
not apply to statements in or omissions from the Registration Statement
or Prospectus made in reliance upon and in conformity with information
furnished to the Fund in writing by the Underwriter expressly for use
in the Registration Statement or Prospectus.
(ii) The accountants who certified the statement of assets,
liabilities and capital included in the Registration Statement are
independent public accountants as required by the 1933 Act and the Rules
and Regulations.
2
<PAGE> 3
(iii) The financial statements included in the Registration
Statement present fairly the financial position of the Fund as at the date
indicated and the results of its operations for the period specified; such
financial statements have been prepared in conformity with generally
accepted accounting principles; and the information in the Prospectus
under the headings "Description of Capital Stock" and "Portfolio
Composition" has been fairly presented.
(iv) Since the respective dates as of which information is given in
the Registration Statement and the Prospectus, except as otherwise stated
therein, (A) there has been no material adverse change in the condition,
financial or otherwise, of the Fund, or in the earnings, business affairs
or business prospects of the Fund, whether or not arising in the ordinary
course of business, (B) there have been no transactions entered into by
the Fund which are material to the Fund other than those in the ordinary
course of business and (C) except for regular monthly dividends on the
outstanding shares of common stock, par value $.10 per share ("Common
Shares") of the Fund, there has been no dividend or distribution of any
kind declared, paid or made by the Fund or any class of its capital stock.
(v) The Fund has been duly organized and is validly existing as a
corporation in good standing under the laws of the State of Maryland with
corporate power and authority to own, lease and operate its properties and
conduct its business as described in the Registration Statement; the Fund
is duly qualified as a foreign corporation to transact business and is in
good standing in each jurisdiction in which such qualification is
required; and the Fund has no subsidiaries.
(vi) The Fund is registered with the Commission under the 1940 Act
as a closed-end, non-diversified management investment company, and no
order of suspension or revocation of such registration has been issued or
proceedings therefor initiated or threatened by the Commission.
(vii) The authorized, issued and outstanding capital stock of the
Fund is as set forth in the Prospectus under the caption "Description of
Capital Stock"; the outstanding Common Shares have been duly authorized
and validly issued and are fully paid and nonassessable; the Shares have
been duly authorized for issuance and sale to the Underwriter pursuant to
this Agreement and, when issued and delivered by the Fund pursuant to this
Agreement against payment of the consideration set forth in the Pricing
Agreement, will be validly issued and fully paid and nonassessable; the
Common Shares and the Shares conform in all material respects to all
statements relating thereto contained in the Registration Statement; and
the issuance of the Shares to be purchased by the Underwriter is not
subject to preemptive rights.
(viii) The Fund is not in violation of its charter, as amended (the
"Charter") or by-laws, as amended (the "By-Laws") or in default in the
performance or observance of any material obligation, agreement, covenant
or condition contained in any contract, indenture, mortgage, loan
agreement, note, lease or other instrument to which it is a party or by
which it or its properties may be bound; and the execution and delivery of
this Agreement, the Pricing Agreement and the Investment Advisory
Agreement, the
3
<PAGE> 4
Custodian Agreement, the Auction Agent Agreement and the Depository
Agreement referred to in the Registration Statement (the "Advisory
Agreement," "Auction Agreement," "Custodian Agreement" and "Depository
Agreement," respectively), and the consummation of the transactions
contemplated herein and therein, will not conflict with or constitute a
breach of, or default under, or result in the creation or imposition of
any lien, charge or encumbrance upon any property or assets of the Fund
pursuant to any contract, indenture, mortgage, loan agreement, note, lease
or other instrument to which the Fund is a party or by which it may be
bound or to which any of the property or assets of the Fund is subject,
nor will such action result in any violation of the provisions of the
Charter or By-laws of the Fund or, to the best knowledge of the Fund and
the Adviser, any law, administrative regulation or administrative or court
decree; and no consent, approval, authorization or order of any court or
governmental authority or agency is required for the consummation by the
Fund of the transactions contemplated by this Agreement, the Pricing
Agreement, the Advisory Agreement, the Custodian Agreement, the Auction
Agreement and the Depository Agreement, except such as has been obtained
under the 1940 Act or as may be required under the 1933 Act or state
securities or Blue Sky laws in connection with the purchase and
distribution of the Shares by the Underwriter.
(ix) The Fund owns or possesses or has obtained all material
governmental licenses, permits, consents, orders, approvals and other
authorizations necessary to lease or own, as the case may be, and to
operate its properties and to carry on its businesses as contemplated in
the Prospectus, and the Fund has not received any notice of proceedings
relating to the revocation or modification of any such licenses, permits,
covenants, orders, approvals or authorizations.
(x) There is no action, suit or proceeding before or by any court or
governmental agency or body, domestic or foreign, now pending or, to the
knowledge of the Fund or the Adviser, threatened against or affecting the
Fund which might result in any material adverse change in the condition,
financial or otherwise, business affairs or business prospects of the Fund
or might materially and adversely affect the properties or assets of the
Fund; and there are no material contracts or documents of the Fund which
are required to be filed as exhibits to the Registration Statement by the
1933 Act, the 1940 Act or by the Rules and Regulations which have not been
so filed.
(xi) The Fund owns or possesses, or can acquire on reasonable terms,
adequate trademarks, service marks and trade names necessary to conduct
the business now operated by it, and the Fund has not received any notice
of infringement of or conflict with asserted rights of others with respect
to any trademarks, service marks and trade names which, singly or in the
aggregate, if the subject of an unfavorable decision, ruling or finding,
would materially and adversely affect the conduct of the business,
operations, financial condition or income of the Fund.
(xii) The Fund intends to, and will, direct the investment of the
proceeds of the offering described in the Registration Statement in such a
manner as to comply with the requirements of Subchapter M of the Internal
Revenue Code of 1986, as amended
4
<PAGE> 5
("Subchapter M of the Code"), and intends to qualify as a regulated
investment company under Subchapter M of the Code.
(xiii) This Agreement, the Pricing Agreement, the Advisory Agreement
and the Custodian Agreement have each been duly authorized, executed and
delivered by the Fund, and each complies with all applicable provisions of
the 1940 Act.
(xiv) The Auction Agreement and the Depository Agreement have each
been duly authorized for execution and delivery by the Fund and, when
executed and delivered by the Fund, will constitute a valid and binding
obligation of the Fund, enforceable in accordance with its terms, subject,
as to enforcement, to bankruptcy, insolvency, reorganization or other laws
relating to or affecting creditors' rights and to general equity
principles.
(b) The Adviser represents and warrants to the Underwriter as of the date
hereof and as of the Representation Date as follows:
(i) The Adviser has been duly incorporated under the laws of the
State of Delaware with corporate power and authority to conduct its
business as described in the Prospectus.
(ii) The Adviser is duly registered as an investment adviser under
the Investment Advisers Act of 1940, as amended (the "Advisers Act"), and
is not prohibited by the Advisers Act or the 1940 Act or the rules and
regulations under such acts from acting under the Advisory Agreement for
the Fund as contemplated by the Prospectus.
(iii) This Agreement has been duly authorized, executed and
delivered by the Adviser; the Advisory Agreement is in full force and
effect and constitutes a valid and binding obligation of the Adviser,
enforceable in accordance with its terms, subject, as to enforcement, to
bankruptcy, insolvency, reorganization or other laws relating to or
affecting creditors' rights and to general equity principles; and neither
the execution and delivery of this Agreement nor the performance by the
Adviser of its obligations hereunder or under the Advisory Agreement will
conflict with, or result in a breach of, any of the terms and provisions
of, or constitute, with or without the giving of notice or lapse of time
or both, a default under, any agreement or instrument to which the Adviser
is a party or by which it is bound, or any law, order, rule or regulation
applicable to it of any jurisdiction, court, federal or state regulatory
body, administrative agency or other governmental body, stock exchange or
securities association having jurisdiction over the Adviser or its
respective properties or operations.
(iv) The Adviser has the financial resources available to it
necessary for the performance of its services and obligations as
contemplated in the Prospectus.
(c) Any certificate signed by any officer of the Fund or the Adviser and
delivered to the Underwriter shall be deemed a representation and warranty by
the Fund or the Adviser, as the case may be, to the Underwriter as to the
matters covered thereby.
5
<PAGE> 6
SECTION 2. Sale and Delivery to the Underwriter; Closing.
(a) On the basis of the representations and warranties herein contained
and subject to the terms and conditions herein set forth, the Fund agrees to
sell the Shares to the Underwriter, and the Underwriter agrees to purchase the
Shares from the Fund, at the price per share set forth in the Pricing Agreement.
(i) If the Fund has elected not to rely upon rule 430A under the
Rules and Regulations, the initial public offering price and the purchase
price per share to be paid by the Underwriter for the Shares each has been
determined and set forth in the Pricing Agreement, dated the date hereof,
and an amendment to the Registration Statement and the Prospectus will be
filed before the Registration Statement becomes effective.
(ii) If the Fund has elected to rely upon rule 430A under the Rules
and Regulations, the purchase price per share to be paid by the
Underwriter for the Shares shall be an amount equal to the initial public
offering price, less an amount per share to be determined by agreement
between the Underwriter and the Fund. The initial public offering price
per share shall be a fixed price to be determined by agreement between the
Underwriter and the Fund. The initial public offering price and the
purchase price, when so determined, shall be set forth in the Pricing
Agreement. In the event that such prices have not been agreed upon and the
Pricing Agreement has not been executed and delivered by all parties
thereto by the close of business on the fourth business day following the
date of this Agreement, this Agreement shall terminate forthwith, without
liability of any party to any other party, except as provided in Section
5, unless otherwise agreed to by the Fund, the Adviser and the
Underwriter.
(b) Payment of the purchase price for, and delivery of certificates for,
the Shares shall be made at the office of Brown & Wood, One World Trade Center,
New York, New York 10048-0557, or at such other place as shall be agreed upon by
the Underwriter and the Fund, at 10:00 A.M. on the fifth business day following
the date the Registration Statement becomes effective (or, if the Fund has
elected to rely upon rule 430A under the Rules and Regulations, the fifth
business day after execution of the Pricing Agreement), or such other time not
later than ten business days after such date as shall be agreed upon by the
Underwriter and the Fund (such time and date of payment and delivery being
herein called "Closing Time"). Payment shall be made to the Fund by Federal
funds check or checks or similar same-day funds and payable to the order of the
Fund, against delivery to the Underwriter of the certificates for the Shares to
be purchased by it. The Shares shall each be represented by a certificate
registered in the name of Cede & Co., as nominee for The Depository Trust
Company. The certificates for the Shares will be made available for examination
by the Underwriter not later than 10:00 A.M. on the last business day prior to
Closing Time.
SECTION 3. Covenants of the Fund. The Fund covenants with the Underwriter
as follows:
(a) The Fund will use its best efforts (i) to cause the Registration
Statement to become effective under the 1933 Act and will advise the
Underwriter promptly as to the time at which the Registration Statement and any
amendments thereto (including any post-effective
6
<PAGE> 7
amendment) becomes so effective and (ii) if required, to cause the issuance of
any orders exempting the Fund from any provisions of the 1940 Act and will
advise the Underwriter promptly as to the time at which any such orders are
granted.
(b) The Fund will notify the Underwriter immediately, and confirm the
notice in writing, (i) of the effectiveness of the Registration Statement and
any amendments thereto (including any post-effective amendment), (ii) of the
receipt of any comments from the Commission, (iii) of any request by the
Commission for any amendment to the Registration Statement or any amendment or
supplement to the Prospectus or for additional information, (iv) of-the issuance
by the Commission of any stop order suspending the effectiveness of the
Registration Statement or the initiation of any proceedings for that purpose and
(v) of the issuance by the Commission of an order of suspension or revocation of
the notification on Form N-8A of registration of the Fund as an investment
company under the 1940 Act or initiation of any proceeding for that purpose. The
Fund will make every reasonable effort to prevent the issuance of any stop order
described in subsection (iv) hereunder or any order of suspension or revocation
described in subsection (v) hereunder and, if any stop order or order of
suspension or revocation is issued, to obtain the lifting thereof at the
earliest possible moment.
(c) The Fund will give the Underwriter notice of its intention to file any
amendment to the Registration Statement (including any post-effective amendment)
or any amendment or supplement to the Prospectus (including any revised
prospectus which the Fund proposes for use by the Underwriter in connection with
the offering of the Shares which differs from the prospectus on file at the
Commission at the time the Registration Statement becomes effective, whether
such revised prospectus is required to be filed pursuant to Rule 497(b) or Rule
497(h) of the Rules and Regulations) whether pursuant to the 1940 Act, the 1933
Act, or otherwise, and will furnish the Underwriter with copies of any such
amendment or supplement a reasonable amount of time prior to such proposed
filing or use, as the case may be, and will not file any such amendment or
supplement to which the Underwriter or counsel for the Underwriter shall
reasonably object.
(d) The Fund will deliver to the Underwriter, as soon as practicable, two
signed copies of the registration statement as originally filed and of each
amendment thereto, in each case with two sets of the exhibits filed therewith,
and will also deliver to the Underwriter a conformed copy of the registration
statement as originally filed and of each amendment thereto (but without
exhibits to the registration statement or to any such amendment) for the
Underwriter.
(e) The Fund will furnish to the Underwriter, from time to time during the
period when the Prospectus is required to be delivered under the 1933 Act, such
number of copies of the Prospectus (as amended or supplemented) as the
Underwriter may reasonably request for the purposes contemplated by the 1933 Act
or the Rules and Regulations.
(f) If any event shall occur as a result of which it is necessary, in the
opinion of counsel for the Underwriter, to amend or supplement the Prospectus in
order to make the Prospectus not misleading in the light of the circumstances
existing at the time it is delivered to a purchaser, the Fund will forthwith
amend or supplement the Prospectus by preparing and furnishing to the
Underwriter a reasonable number of copies of an amendment or amendments
7
<PAGE> 8
of, or a supplement or supplements to, the Prospectus (in form and substance
satisfactory to counsel for the Underwriter), so that, as so amended or
supplemented, the Prospectus will not contain an untrue statement of a material
fact or omit to state a material fact necessary in order to make the statements
therein, in the light of the circumstances existing at the time the Prospectus
is delivered to a purchaser, not misleading.
(g) The Fund will endeavor, in cooperation with the Underwriter, to
qualify the Shares for offering and sale under the applicable securities laws of
such states and other jurisdictions of the United States as the Underwriter may
designate and will maintain such qualifications in effect for a period of not
less than one year after the date hereof. The Fund will file such statements and
reports as may be required by the laws of each jurisdiction in which the Shares
have been qualified as above provided.
(h) The Fund will make generally available to its security holders as soon
as practicable, but not later than 60 days after the close of the period covered
thereby, an earnings statement (in form complying with the provisions of Rule
158 of the Rules and Regulations) covering a twelve-month period beginning not
later than the first day of the Fund's fiscal quarter next following the
"effective" date (as defined in said Rule 158) of the Registration Statement.
(i) Between the date of this Agreement and the termination of any trading
restrictions or Closing Time, whichever is later, the Fund will not, without
your prior consent, offer or sell or enter into any agreement to sell any equity
or equity related securities of the Fund other than the Shares and Common Shares
issued in reinvestment of dividends or distributions.
(j) If, at the time that the Registration Statement becomes effective, any
information shall have been omitted therefrom in reliance upon Rule 430A of the
Rules and Regulations, then immediately following the execution of the Pricing
Agreement, the Fund will prepare and file or transmit for filing with the
commission in accordance with such Rule 430A and Rule 497(h) of the Rules and
Regulations, copies of an amended Prospectus or, if required by such Rule 430A,
a post-effective amendment to the Registration Statement (including an amended
Prospectus) containing all information so omitted.
(k) The Fund will use its best efforts to maintain its qualification as a
regulated investment company under Subchapter M of the Code.
SECTION 4. Covenants of the Underwriter. The Underwriter covenants and
agrees with the Fund as follows:
(a) It will sell Shares only to a person who has agreed to execute and
deliver, whose Broker-Dealer (as defined in the Prospectus) has agreed to
execute and deliver or who has already executed and delivered a Master
Purchaser's Letter (as defined in the Prospectus) in accordance with the terms
of the Prospectus.
(b) No later than Closing Time, it will execute and deliver a Master
Purchaser's Letter in accordance with the terms of the Prospectus.
(c) No later than the second business day succeeding closing Time, it will
provide the Fund and the Auction Agent (as defined in the Prospectus) with a
list of the persons to whom it
8
<PAGE> 9
has sold Shares, the number of Shares sold to each such person and the number
of Shares it is holding as of the date of such notice.
SECTION 5. Payment of Expenses. The Fund will pay all expenses incident to
the performance of its obligations under this Agreement, including, but not
limited to, expenses relating to (i) the printing and filing of the registration
statement as originally filed and of each amendment thereto, (ii) the
preparation, issuance and delivery of the certificates for the Shares to the
Underwriter, (iii) the fees and disbursements of the Fund's counsel and
accountants, (iv) the qualification of the Shares under securities laws in
accordance with the provisions of Section 3(g) of this Agreement, including
filing fees and any fees or disbursements of counsel for the Underwriter in
connection therewith and in connection with the preparation of the Blue Sky
Survey, (v) the printing and delivery to the Underwriter of copies of the
registration statement as originally filed and of each amendment thereto, of the
preliminary prospectuses, and of the Prospectus and any amendments or
supplements thereto, (vi) the printing and delivery to the Underwriter of copies
of the Blue Sky Survey and (vii) the fees charged by rating agencies for the
rating of the Shares.
If this Agreement is terminated by the Underwriter in accordance with the
provisions of Section 6 or Section 10(a)(i), the Fund or the Adviser shall
reimburse the Underwriter for all of their out-of-pocket expenses, including the
reasonable fees and disbursements of counsel for the Underwriter. In the event
the transactions contemplated hereunder are not consummated, the Adviser agrees
to pay all of the costs and expenses set forth in the first paragraph of this
Section 5 which the Fund would have paid if such transactions had been
consummated.
SECTION 6. Conditions of Underwriter's Obligations. The obligations of the
Underwriter hereunder are subject to the accuracy of the representations and
warranties of the Fund and the Adviser herein contained, to the performance by
the Fund and the Adviser of their respective obligations hereunder, and to the
following further conditions:
(a) The Registration Statement shall have become effective not later than
5:30 P.M., New York City time, on the date hereof or at such later time and date
as may be approved by the Underwriter, and at Closing Time no stop order
suspending the effectiveness of the Registration Statement shall have been
issued under the 1933 Act or proceedings therefor initiated or threatened by the
Commission. If the Fund has elected to rely upon Rule 430A of the Rules and
Regulations, the price of the shares and any price-related information
previously omitted from the effective Registration Statement pursuant to such
Rule 430A shall have been transmitted to the Commission for filing pursuant to
Rule 497(h) of the Rules and Regulations within the prescribed time period, and
prior to Closing Time the Fund shall have provided evidence satisfactory to the
Underwriter of such timely filing, or a post-effective amendment providing such
information shall have been promptly filed and declared effective in accordance
with the requirements of Rule 430A of the Rules and Regulations.
(b) At Closing Time, the Underwriter shall have received:
(i) The favorable opinion, dated as of Closing Time, of Brown &
Wood, counsel for the Fund and the Underwriter, to the effect that:
9
<PAGE> 10
(1) The Fund has been duly organized and is validly existing as a
corporation in good standing under the laws of the State of Maryland.
(2) The Fund has corporate power and authority to own, lease and
operate its properties and conduct its business as described in the
Prospectus.
(3) The Fund is duly qualified as a foreign corporation to transact
business and is in good standing in each jurisdiction in which such
qualification is required, except where the failure to so qualify would
not have a material adverse effect on the condition, financial or
otherwise, business affairs or business prospects of the Fund.
(4) The outstanding Common Shares have been duly authorized and
validly issued and are fully paid and non-assessable.
(5) The Shares have been duly authorized for issuance and sale to
the Underwriter pursuant to this Agreement and, when issued and delivered
by the Fund pursuant to this Agreement against payment of the
consideration set forth in the Pricing Agreement, will be validly issued
and fully paid and non-assessable; the issuance of the Shares is not
subject to preemptive or other similar rights; and the authorized capital
stock conforms in all material respects to the description thereof in the
Registration Statement.
(6) This Agreement and the Pricing Agreement each has been duly
authorized, executed and delivered by the Fund, and each complies with all
applicable provisions of the 1940 Act.
(7) The Registration Statement is effective under the 1933 Act and,
to the best of their knowledge and information, no stop order suspending
the effectiveness of the Registration Statement has been issued under the
1933 Act, and no proceedings for that purpose have been instituted, are
pending or are contemplated.
(8) At the time the Registration Statement became effective and at
the Representation Date, the Registration Statement (other than the
financial statements included therein, as to which no opinion need be
rendered) complied as to form in all material respects with the
requirements of the 1933 Act, the 1940 Act and the Rules and Regulations.
(9) To the best of their knowledge and information, there are no
legal or governmental proceedings pending or threatened against the Fund
which are required to be disclosed in the Registration Statement, other
than those disclosed therein.
(10) To the best of their knowledge and information, there are no
contracts, indentures, mortgages, loan agreements, notes, leases or other
instruments of the Fund required to be described or referred to in the
Registration Statement or to be filed as exhibits thereto other than those
described or referred
10
<PAGE> 11
to therein or filed as exhibits thereto, the descriptions thereof or
references thereto are correct, and no default exists in the due
performance or observance of any material obligation, agreement, covenant
or condition contained in any contract, indenture, loan agreement, note or
lease so described, referred to or filed.
(11) No consent, approval, authorization or order of any court or
governmental authority or agency is required in connection with the sale
of the Shares to the Underwriter, except such as has been obtained under
the 1933 Act, the 1940 Act or the Rules and Regulations or such as may be
required under state securities laws; and to the best of their knowledge
and information, the execution and delivery of this Agreement, the Pricing
Agreement, the Advisory Agreement, the Custodian Agreement, the Auction
Agreement and the Depository Agreement and the consummation of the
transactions contemplated herein and therein will not conflict with or
constitute a breach of, or default under, or result in the creation or
imposition of any lien, charge or encumbrance upon any property or assets
of the Fund pursuant to any contract, indenture, mortgage, loan agreement,
note, lease or other instrument to which the Fund is a party or by which
it may be bound or to which any of the property or assets of the Fund is
subject, nor will such action result in any violation of the provisions of
the Charter or By-Laws of the Fund, or any law, administrative regulation
or administrative or court decree.
(12) The Advisory Agreement and the Custodian Agreement have each
been duly authorized, executed and delivered by the Fund, and each
complies with all applicable provisions of the 1940 Act.
(13) The Fund is registered with the Commission under the 1940 Act
as a closed-end, non-diversified management investment company, and all
required action has been taken by the Fund under the 1933 Act, the 1940
Act and the Rules and Regulations to make the public offering and
consummate the sale of the Shares pursuant to this Agreement; the
provisions of the Charter and By-Laws of the Fund comply as to form in all
material respects with the requirements of the 1940 Act; and, to the best
of their knowledge and information, no order of suspension or revocation
of such registration under the 1940 Act, pursuant to Section 8(e) thereof,
has been issued or proceedings therefor initiated or threatened by the
Commission.
(14) The information in the Prospectus under the caption "Taxes,"
(other than information related to Michigan law, as to which they express
no opinion) to the extent that it constitutes matters of law or legal
conclusions, has been reviewed by them and is correct in all material
respects.
(15) The Auction Agreement and the Depository Agreement each have
been duly authorized, executed and delivered by the Fund, and each
constitutes a valid and binding obligation of the Fund, enforceable in
accordance with its terms, subject, as to enforcement, to bankruptcy,
insolvency, reorganization or other laws relating to or affecting
creditors' rights and to general equity principles.
11
<PAGE> 12
(ii) The favorable opinion, dated as of Closing Time, of Dickinson,
Wright, Moon, Van Dusen & Freeman, Special Counsel for the Fund, to the effect
that:
(1) The information in the Prospectus under the caption "Taxes," to
the extent that it constitutes matters of Michigan law or legal
conclusions or legal opinions involving matters of law, has been reviewed
by them and is correct in all material respects.
(2) Nothing has come to their attention that would lead them to
believe that the information in the Registration Statement under the
caption "Investment Objective and Policies - Special Considerations
Relating to Michigan Municipal Bonds" and in Appendix A entitled "Economic
Conditions in Michigan," at the time it became effective or at the
Representation Date, contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading or that the
information under such caption and in such appendix in the Prospectus, at
the Representation Date (unless the term "Prospectus" refers to a
prospectus which has been provided to the Underwriter by the Fund for use
in connection with the offering of the Shares which differs from the
Prospectus on file at the Commission at the time the Registration
Statement becomes effective, in which case at the time they are first
provided to the Underwriter for such use) or at Closing Time, included an
untrue statement of a material fact or omitted to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(iii) The favorable opinion, dated as of Closing Time, of Philip L.
Kirstein, Esq., General Counsel to the Adviser, in form and substance
satisfactory to counsel for the Underwriter, to the effect that:
(1) The Adviser has been duly organized as a corporation under the
laws of the State of Delaware with corporate power and authority to
conduct its business as described in the Registration Statement and the
Prospectus.
(2) The Adviser is duly registered as an investment adviser under
the Advisers Act and is not prohibited by the Advisers Act or the 1940 Act
or the rules and regulations under such Acts from acting under the
Advisory Agreement for the Fund as contemplated by the Prospectus.
(3) This Agreement has been duly authorized, executed and delivered
by the Adviser; the Advisory Agreement is in full force and effect and
constitutes a valid and binding obligation of the Adviser, enforceable in
accordance with its terms, subject, as to enforcement, to bankruptcy,
insolvency, reorganization or other laws relating to or affecting
creditors' rights and to general equity principles; and, to the best of
his knowledge and information, neither the execution and delivery of this
Agreement or the Advisory Agreement nor the performance by the Adviser of
its obligations hereunder or thereunder will conflict with, or result in a
breach of, any of the terms and provisions of, or constitute, with or
without
12
<PAGE> 13
giving notice or lapse of time or both, a default under, any
agreement or instrument to which it is a party or by which the
Adviser is bound, or any law, order, rule or regulation applicable
to the Adviser of any jurisdiction, court, Federal or state
regulatory body, administrative agency or other governmental body,
stock exchange or securities association having jurisdiction over
the Adviser or its respective properties or operations.
(4) To the best of his knowledge and information, the
description of the Adviser in the Registration Statement and the
Prospectus does not contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading.
(iv) In giving their opinion required by subsection (b)(i) of this
Section, Brown & Wood shall additionally state that nothing has come to
their attention that would lead them to believe that the Registration
Statement (excluding the financial statements and financial schedules
included therein, as to which such counsel need express no belief), at the
time it became effective or at the Representation Date, contained an
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading or that the Prospectus (except for the financial statements
and financial schedules included therein as to which such counsel need
express no belief), at the Representation Date (unless the term
"Prospectus" refers to a prospectus which has been provided to the
Underwriter by the Fund for use in connection with the offering of the
Shares which differs from the Prospectus on file at the Commission at the
time the Registration Statement becomes effective, in which case at the
time it is first provided to the Underwriter for such use) or at Closing
Time, included an untrue statement of a material fact or omitted to state
a material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading. In
giving their opinion, Brown & Wood may rely, as to all matters governed by
the law of the State of Maryland, upon the opinion of Ginsburg, Feldman &
Bress, Chartered, and Brown & Wood may rely, as to matters of fact, upon
certificates and written statements of officers and employees of and
accountants of the Fund and the Adviser and of public officials.
(c) At Closing Time (i) the Registration Statement and the Prospectus
shall contain all statements which are required to be stated therein in
accordance with the 1933 Act, the 1940 Act and the Rules and Regulations and in
all material respects shall conform to the requirements of the 1933 Act, the
1940 Act and the Rules and Regulations, and the Prospectus shall not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements therein in the light of the circumstances under which
they were made, not misleading and no action, suit or proceeding at law or in
equity shall be pending or, to the knowledge of the Fund or the Adviser,
threatened against the Fund or the Adviser which would be required to be set
forth in the Prospectus other than as set forth therein, (ii) there shall not
have been, since the respective dates as of which information is given in the
Registration Statement and the Prospectus, any material adverse change in the
condition, financial or otherwise, of the Fund or in its earnings, business
affairs or business prospects, whether or not arising in the ordinary course of
business, from that set forth in the Registration Statement and Prospectus,
(iii) the Adviser shall have the financial resources available to it necessary
for the
13
<PAGE> 14
performance of its services and obligations as contemplated in the Registration
Statement and the Prospectus, (iv) no proceedings shall be pending or, to the
knowledge of the Fund or the Adviser, threatened against the Fund or the Adviser
before or by any Federal, state or other commission, board or administrative
agency wherein an unfavorable decision, ruling or finding would materially and
adversely affect the business, property, financial condition or income of either
the Fund or the Adviser other than as set forth in the Registration Statement
and the Prospectus and (v) Moody's Investors Service, Inc. ("Moody's") and
Standard & Poor's Corporation ("S&P") shall have confirmed that the Shares have
been rated "aaa" and AAA, respectively, by such agencies; and the Underwriter
shall have received, at Closing Time, a certificate of the President or
Treasurer of the Fund and of the President or a Vice President of the Adviser
dated as of Closing Time, evidencing compliance with the appropriate provisions
of this subsection (c), together with true and correct copies of letters from
Moody's and S&P confirming their rating.
(d) At Closing Time, the Underwriter shall have received certificates,
dated as of Closing Time, (i) of the President or Treasurer of the Fund to the
effect that the representations and warranties of the Fund contained in Section
1(a) are true and correct with the same force and effect as though expressly
made at and as of Closing Time and (ii) of the President or a Vice President of
the Adviser to the effect that the representations and warranties of the Adviser
contained in Sections 1(a) and (b) are true and correct with the same force and
effect as though expressly made at and as of Closing Time.
(e) At the time of execution of this Agreement, the Underwriter shall have
received from Ernst & Young a letter, dated the date hereof, in form and
substance satisfactory to the Underwriter, to the effect that:
(i) they are independent accountants with respect to the Fund within
the meaning of the 1933 Act and the Rules and Regulations;
(ii) in their opinion, the statement of assets, liabilities and
capital examined by them and included in the Registration Statement
complies as to form in all material respects with the applicable
accounting requirements of the 1933 Act and 1940 Act and the Rules and
Regulations;
(iii) they have performed specified procedures, not constituting an
audit, including a reading of the latest available interim financial
statements of the Fund, a reading of the minutes books of the Fund,
inquiries of officials of the Fund responsible for financial accounting
matters and such other inquiries and procedures as may be specified in
such letter, and on the basis of such inquiries and procedures nothing
came to their attention that caused them to believe that (A) the unaudited
financial statements as of November 2, 1992 included in the Registration
Statement do not comply as to form in all material respects with the
applicable accounting requirements of the 1933 Act and the 1933 Act
Regulations applicable to unaudited interim financial statements inciuded
in registration statements or are not in conformity with generally
accepted accounting principles applied on a basis substantially consistent
with that of the audited financial statements included in the Registration
Statement, and (B) during the period from November 2, 1992 to a specified
date not more than five days prior to the date of this Agreement, there
was any change in the capital stock or net assets of the Fund (other than
14
<PAGE> 15
by reason of the issuance of Common Shares in connection with the exercise
by the underwriter of the Common Shares of the over-allotment option
relating to the initial public offering of the Common Shares, as specified
in such letter) or any increase in the long-term debt of the Fund, as
compared with amounts shown on the unaudited financial statements included
in the Registration Statement, except for changes which the Registration
Statement discloses have occurred or may occur; and
(iv) in addition to the procedures referred to in clause (iii)
above, they have performed other specified procedures, not constituting an
audit, with respect to certain amounts, percentages, numerical data,
financial information and financial statements appearing in the
Registration Statement, which have previously been specified by you and
which shall be specified in such letter, and have compared certain of such
items with, and have found such items to be in agreement with, the
accounting and financial records of the Fund.
(f) At Closing Time, the Underwriter shall have received from Ernst &
Young a letter, dated as of Closing Time, to the effect that they reaffirm the
statements made in the letter furnished pursuant to subsection (e) of this
Section, except that the "specified date" referred to shall be a date not more
than five days prior to Closing Time.
(g) At Closing Time, counsel for the Underwriter shall have been furnished
with such documents and opinions as they may reasonably require for the purpose
of enabling them to pass upon the issuance and sale of the Shares as herein
contemplated and to pass upon related proceedings, or in order to evidence the
accuracy of any of the representations or warranties, or the fulfillment of any
of the conditions, herein contained; and all proceedings taken by the Fund and
the Adviser in connection with the organization and registration of the Fund
under the 1940 Act and the issuance and sale of the shares as herein
contemplated shall be satisfactory in form and substance to the Underwriter and
counsel for the Underwriter.
If any condition specified in this Section shall not have been fulfilled
when and as required to be fulfilled, this Agreement may be terminated by the
Underwriter by notice to the Fund at any time at or prior to Closing Time, and
such termination shall be without liability of any party to any other party
except as provided in section 5.
SECTION 7. Indemnification. (a) The Fund and the Adviser, jointly and
severally, agree to indemnify and hold harmless the Underwriter and each person,
if any, who controls the Underwriter within the meaning of Section 15 of the
1933 Act as follows:
(i) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, arising out of any untrue statement or alleged
untrue statement of a material fact contained in the Registration
Statement (or any amendment thereto), including the information deemed to
be part of the Registration Statement pursuant to Rule 430A of the Rules
and Regulations, if applicable, or the omission or alleged omission
therefrom of a material fact required to be stated therein or necessary to
make the statements therein not misleading or arising out of any untrue
statement or alleged untrue statement of a material fact contained in any
preliminary prospectus or the Prospectus (or any amendment or supplement
thereto) or the omission or alleged omission therefrom of a
15
<PAGE> 16
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading;
(ii) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, to the extent of the aggregate amount paid in
settlement of any litigation, or investigation or proceeding by any
governmental agency or body, commenced or threatened, or of any claim
whatsoever based upon any such untrue statement or omission, or any such
alleged untrue statement or omission, if such settlement is effected with
the written consent of the Fund; and
(iii) against any and all expenses whatsoever (including the fees
and disbursements of counsel chosen by the Underwriter) reasonably
incurred in investigating, preparing or defending against any litigation
or investigation or proceeding by any governmental agency or body,
commenced or threatened, or any claim whatsoever based upon any such
untrue statement or omission, or any such alleged untrue statement or
omission, to the extent that any such expense is not paid under (i) or
(ii) above;
provided, however, that this Indemnity agreement does not apply to any loss,
liability, claim, damage or expense to the extent arising out of any untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished to the Fund by the
Underwriter expressly for use in the Registration Statement (or any amendment
thereto) or any preliminary prospectus or the Prospectus (or any amendment or
supplement thereto).
(b) The Underwriter agrees to indemnify and hold harmless the Fund and the
Adviser, their respective directors, each of the Fund's officers who signed the
Registration Statement, and each person, if any, who controls the Fund or the
Adviser within the meaning of section 15 of the 1933 Act, against any and all
loss, liability, claim, damage and expense described in the indemnity contained
in subsection (a) of this Section, as incurred, but only with respect to untrue
statements or omissions, or alleged untrue statements or omissions, made in the
Registration Statement (or any amendment or supplement thereto) or any
preliminary prospectus or the Prospectus (or any amendment or supplement
thereto) in reliance upon and in conformity with written information furnished
to the Fund by the Underwriter expressly for use in the Registration Statement
(or any amendment thereto) or any preliminary prospectus or the Prospectus (or
any amendment or supplement thereto).
(c) Each indemnified party shall give notice as promptly as reasonably
practicable to each indemnifying party of any action commenced against it in
respect of which indemnity may be sought hereunder, but failure to so notify an
indemnifying party shall not relieve it from any liability which it may have
otherwise than on account of this indemnity agreement. An indemnifying party may
participate at its own expense in the defense of such action. In no event shall
the indemnifying parties be liable for the fees and expenses of more than one
counsel (in addition to any local counsel) separate from their own counsel for
all indemnified parties in connection with any one action or separate but
similar or related actions in the same jurisdiction arising out of the same
general allegations or circumstances.
16
<PAGE> 17
SECTION 8. Contribution. In order to provide for just and equitable
contribution in circumstances in which the indemnity agreement provided for in
Section 7 is for any reason held to be unenforceable by the indemnified parties
although applicable in accordance with its terms, the Fund and the Underwriter
shall contribute to the aggregate losses, liabilities, claims, damages and
expenses of the nature contemplated by said indemnity agreement as incurred by
the Fund and the Underwriter, as incurred, in such proportions that the
Underwriter is responsible for that portion represented by the percentage that
the underwriting compensation payble pursuant to Section 2 hereof bears to the
initial public offering price appearing on the cover page of the Prospectus, and
the Fund is responsible for the balance; provided, however, that no person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the 1933 Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. Notwithstanding the provisions of
this Section 8, the Underwriter shall not be required to contribute any amount
in excess of the amount by which the total price at which the Shares
underwritten by it and distributed to the public were offered to the public
exceeds the amount of any damages which such Underwriter has otherwise been
required to pay in respect of such losses, liabilities, claims, damages and
expenses. For purposes of this Section, each person, if any, who controls the
Underwriter within the meaning of Section 15 of the 1933 Act shall have the same
rights to contribution as the Underwriter, and each director of the Fund, each
officer of the Fund who signed the Registration Statement, and each person, if
any, who controls the Fund within the meaning of Section 15 of the 1933 Act
shall have the same rights to contribution as the Fund.
SECTION 9. Representations, Warranties and Agreements to Survive Delivery.
All representations, warranties and agreements contained in this Agreement and
the Pricing Agreement, or contained in certificates of officers of the Fund or
the Adviser submitted pursuant hereto, shall remain operative and in full force
and effect, regardless of any investigation made by or on behalf of the
Underwriter or a controlling person, or by or on behalf of the Fund or the
Adviser and shall survive delivery of the Shares to the Underwriter.
SECTION 10. Termination of Agreement. (a) The Underwriter, by notice to
the Fund, may terminate this Agreement at any time or prior to Closing Time (i)
if there has been, since the date of this Agreement or since the respective
dates as of which information is given in the Registration Statement, any
material adverse change in the condition, financial or otherwise, or in the
earnings, business affairs or business prospects of the Fund or the Adviser,
whether or not arising in the ordinary course of business, or (ii) if there has
occurred any material adverse change in the financial markets in the United
States or any outbreak of hostilities or escalation thereof or other calamity or
crisis the effect of which is such as to make it, in the Underwriter's judgment,
impracticable to market the Shares or enforce contracts for the sale of the
Shares, or (iii) if trading in the Common Shares has been suspended by the
Commission or if trading generally on either the American Stock Exchange or the
New York Stock Exchange has been suspended, or minimum or maximum prices for
trading have been fixed, or maximum ranges for prices for securities have been
required, by either of said exchanges or by order of the Commission or any other
governmental authority, or if a banking moratorium has been declared by Federal
or New York authorities.
(a) If this Agreement is terminated pursuant to this Section, such
termination shall be without liability of any party to any other party except as
provided in Section 5.
17
<PAGE> 18
SECTION 11. Notices. All notices and other communications hereunder shall
be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of written telecommunication. Notices to the
Underwriter shall be directed to Merrill Lynch & Co., Merrill Lynch, Pierce,
Fenner & Smith Incorporated at Merrill Lynch World Headquarters, North Tower,
World Financial Center, New York, New York 10281-1201, Attention: Richard N.
Doyle, Vice President; notices to the Fund or the Adviser shall be directed to
each of them at 800 Scudders Mill Road, Plainsboro, New Jersey, 08536,
Attention: Arthur Zeikel.
SECTION 12. Parties. This Agreement and the Pricing Agreement shall inure
to the benefit of and be binding upon the Underwriter, the Fund, the Adviser and
their respective successors. Nothing expressed or mentioned in this Agreement or
the Pricing Agreement is intended or shall be construed to give any person, firm
or corporation, other than the parties hereto and their respective successors
and the controlling persons and officers and directors referred to in Sections 7
and 8 and their heirs and legal representatives, any legal or equitable right,
remedy or claim under or in respect of this Agreement or any provision herein
contained. This Agreement and the Pricing Agreement and all conditions and
provisions hereof are intended to be for the sole and exclusive benefit of the
parties hereto and thereto and their respective successors and said controlling
persons and officers and directors and their heirs and legal representatives,
and for the benefit of no other person, firm or corporation. No purchaser of
Shares from the Underwriter shall be deemed to be a successor by reason merely
of such purchase.
SECTION 13. Governing Law and Time. This Agreement and the Pricing
Agreement shall be governed by the laws of the State of New York applicable to
agreements made and to be performed in said State. Specified times of day refer
to New York City time.
18
<PAGE> 19
If the foregoing is in accordance with your understanding of our
Agreement, please sign and return to us a counterpart hereof, whereupon this
instrument, along with all counterparts, will become a binding agreement among
the Underwriter, the Fund and the Adviser in accordance with its terms.
Very truly yours,
MUNIYIELD MICHIGAN INSURED FUND, INC.
By:
---------------------------
Authorized Officer
FUND ASSET MANAGEMENT, INC.
By
---------------------------
Authorized Officer
CONFIRMED AND ACCEPTED,
as of the date first above written:
By: Merrill Lynch, Pierce, Fenner & Smith
Incorporated
By:
---------------------------
Vice President
Investment Banking
<PAGE> 20
EXHIBIT A
$50,000,000
MUNIYIELD MICHIGAN INSURED FUND, INC.
(a Maryland corporation)
AUCTION MARKET PREFERRED STOCK(R) [AMPS(R)]
1,000 Shares
Liquidation Preference, $50,000 Per Share
PRICING AGREEMENT
November 16, 1992
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Merrill Lynch World Headquarters
World Financial Center
North Tower
New York, New York 10281-1201
Dear Sirs:
Reference is made to the Purchase Agreement, dated November 13, 1992
(the "Purchase Agreement"), relating to the purchase by Merrill Lynch & Co.,
Merrill Lynch, Pierce, Fenner & Smith Incorporated (the "Underwriter") of 1,000
shares of auction market preferred stock of the Fund, par value $.10 per share,
liquidation preference $50,000 per share plus an amount equal to accumulated but
unpaid dividends (whether or not earned or declared) (collectively, the
"Shares") of MuniYield Michigan Insured Fund, Inc. (the "Fund").
Pursuant to Section 2 of the Purchase Agreement, the Fund agrees
with the Underwriter as follows:
1. The initial public offering price per share for the Shares,
determined as provided in said Section 2, shall be $50,000.
- ------------------
(R) Registered trademark of Merrill Lynch & Co., Inc.
<PAGE> 21
2. The purchase price per share for the Shares to be paid by the
Underwriter shall be $49,125, being an amount equal to the initial public
offering price set forth above less $875 per share.
3. The dividend rate for the AMPS for the Initial Dividend Period
ending May 11, 1993 will be 3.35%.
2
<PAGE> 22
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Fund a counterpart hereof, whereupon
this instrument, along with all counterparts, will become a binding agreement
between the Underwriter and the Fund in accordance with its terms.
Very truly yours,
MUNIYIELD MICHIGAN INSURED FUND, INC.
By:
---------------------------
Authorized Officer
CONFIRMED AND ACCEPTED,
as of the date first above written:
By: Merrill Lynch, Pierce, Fenner & Smith
Incorporated
By:
---------------------------
Vice President
Investment Banking
3
<PAGE> 1
EXHIBIT 7(c)
Revised October 29, 1990
[LOGO]
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
MERRILL LYNCH WORLD HEADQUARTERS
NORTH TOWER WORLD FINANCIAL CENTER
NEW YORK, N.Y. 10281-1305
STANDARD DEALER AGREEMENT
Dear Sirs:
In connection with public offerings of securities underwritten by us,
or by a group of underwriters (the "Underwriters") represented by us, you may be
offered the opportunity to purchase a portion of such securities, as principal,
at a discount from the offering price representing a selling concession or
reallowance granted as consideration for services rendered by you in the sale of
such securities. We request that you agree to the following terms and
provisions, and make the following representations, which, together with any
additional terms and provisions set forth in any wire or letter sent to you in
connection with a particular offering, will govern all such purchases of
securities and the reoffering thereof by you.
Your subscription to, or purchase of, such securities will constitute
your reaffirmation of this Agreement.
1. When we are acting as representative (the "Representative") of the
Underwriters in offering securities to you, it should be understood that all
offers are made subject to prior sale of the subject securities, when, as and if
such securities are delivered to and accepted by the Underwriters and subject to
the approval of legal matters by their counsel. In such cases, any order from
you for securities will be strictly subject to confirmation and we reserve the
right in our uncontrolled discretion to reject any order in whole or in part.
Upon release by us, you may reoffer such securities at the offering price fixed
by us. With our consent, you may allow a discount, not in excess of the
reallowance fixed by us, in selling such securities to other dealers, provided
that in doing so you comply with the Rules of Fair Practice of the National
Association of Securities Dealers, Inc. (the "NASD"). Upon our request, you will
advise us of the identity of any dealer to whom you allow such a discount and
any Underwriter or dealer from whom you receive such a discount. After the
securities are released for sale to the public, we may vary the offering price
and other selling terms.
2. You represent that you are a dealer actually engaged in the
investment banking or securities business and that you are either (i) a member
in good standing of the NASD or (ii) a dealer with its principal place of
business located outside the United States, its territories or possessions and
not registered under the Securities Exchange Act of 1934 (a "non-member foreign
dealer") or (iii) a bank not eligible for membership in the NASD. If you are a
non-member foreign dealer, you agree to make no sales of securities within the
United States, its
<PAGE> 2
territories or its possessions or to persons who are nationals thereof or
residents therein. Non-member foreign dealers and banks agree, in making any
sales, to comply with the NASD's interpretation with respect to free-riding and
withholding. In accepting a selling concession where we are acting as
Representative of the Underwriters, in accepting a reallowance from us whether
or not we are acting as such Representative, and in allowing a discount to any
other person, you agree to comply with the provisions of Section 24 of Article
III of the Rules of Fair Practice of the NASD, and, in addition, if you are a
non-member foreign dealer or bank, you agree to comply, as though you were a
member of the NASD, with the provisions of Sections 8 and 36 of Article III of
such Rules of Fair Practice and to comply with Section 25 of Article III thereof
as that Section applies to a non-member foreign dealer or bank. You represent
that you are fully familiar with the above provisions of the Rules of Fair
Practice of the NASD.
3. If the securities have been registered under the Securities Act of
1933 (the "1933 Act"), in offering and selling such securities, you are not
authorized to give any information or make any representation not contained in
the prospectus relating thereto. You confirm that you are familiar with the
rules and policies of the Securities and Exchange Commission relating to the
distribution of preliminary and final prospectuses, and you agree that you will
comply therewith in any offering covered by this Agreement. If we are acting as
Representative of the Underwriters, we will make available to you, to the extent
made available to us by the issuer of the securities, such number of copies of
the prospectus or offering documents, for securities not registered under the
1933 Act, as you may reasonably request.
4. If we are acting as Representative of the Underwriters of securities
of an issuer that is not required to file reports under the Securities Exchange
Act of 1934 (the "1934 Act"), you agree that you will not sell any of the
securities to any account over which you have discretionary authority.
5. Payment for securities purchased by you is to be made at our office,
Merrill Lynch World Headquarters North Tower World Financial Center New York,
N.Y. 10281-1305 (or at such other place as we may advise), at the offering price
less the concession allowed to you, on such date as we may advise, by certified
or official bank check in New York Clearing House funds (or such other funds as
we may advise), payable to our order, against delivery of the securities to be
purchased by you. We shall have authority to make appropriate arrangements for
payment for and/or delivery through the facility of The Depository Trust Company
or any such other depository or similar facility for the securities.
6. In the event that, prior to the completion of the distribution of
securities covered by this Agreement, we purchase in the open market or
otherwise any securities delivered to you, if we are acting as Representative of
the Underwriters, you agree to repay to us for the accounts of the Underwriters
the amount of the concession allowed to you plus brokerage commissions and any
transfer taxes paid in connection with such purchase.
7. At any time prior to the completion of the distribution of
securities covered by this Agreement you will, upon our request as
Representative of the Underwriters, report to us the amount of securities
purchased by you which then remains unsold and will, upon our request, sell to
us for the account of one or more of the Underwriters such amount of such unsold
2
<PAGE> 3
securities as we may designate, at the offering price less an amount to be
determined by us not in excess of the concession allowed to you.
8. If we are acting as Representative of the Underwriters, upon
application to us, we will inform you of the states and other jurisdictions of
the United States in which it is believed that the securities being offered are
qualified for sale under, or are exempt from the requirements of, their
respective securities laws, but we assume no responsibility with respect to your
right to sell securities in any jurisdiction. We shall have authority to file
with the Department of State of the State of New York a Further State Notice
with respect to the securities, if necessary.
9. You agree that in connection with any offering of securities covered
by this Agreement you will comply with the applicable provisions of the 1933 Act
and the 1934 Act and the applicable rules and regulations of the Securities and
Exchange Commission thereunder, the applicable rules and regulations of the
NASD, and the applicable rules of any securities exchange having jurisdiction
over the offering.
10. We shall have full authority to take such action as we may deem
advisable in respect of all matters pertaining to any offering covered by this
Agreement. We shall be under no liability to you except for our lack of good
faith and for obligations assumed by us in this Agreement, except that you do
not waive any rights that you may have under the 1933 Act or the rules and
regulations thereunder.
11. Any notice from us shall be deemed to have been duly given if
mailed or transmitted by any standard form of written telecommunications to you
at the above address or at such other address as you shall specify to us in
writing.
12. With respect to any offering of securities covered by this
Agreement, the price restrictions contained in Paragraph 1 hereof and the
provisions of Paragraphs 6 and 7 hereof shall terminate as to such offering at
the close of business on the 45th day after the securities are released for sale
or, as to any or all such provisions, at such earlier time as we may advise. All
other provisions of this Agreement shall remain operative and in full force and
effect with respect to such offering.
13. This Agreement shall be governed by the laws of the State of New
York.
3
<PAGE> 4
Please confirm your agreement hereto by signing the enclosed duplicate
copy hereof in the place provided below and returning such signed duplicate copy
to us at World Headquarters, North Tower, World Financial Center, New York, N.Y.
10281-1305, Attention: Corporate Syndicate. Upon receipt thereof, this
instrument and such signed duplicate copy will evidence the agreement between
us.
Very truly yours,
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By: /s/ Fred . Hessinger
---------------------------------
Name: Fred F. Hessinger
Confirmed and accepted as of the
day of , 19
- --------------------------------------------------
Name of Dealer
- --------------------------------------------------
Authorized Officer or Partner
(if not Officer or Partner, attach
copy of Instrument of Authorization)
4
<PAGE> 1
Exhibit 9
CUSTODY AGREEMENT
Agreement made as of this day of , 1992, between MuniYield
Michigan Insured Fund, Inc., a corporation organized and existing under the laws
of the State of Maryland having its principal office and place of business at
hereinafter called the "Fund"), and THE BANK OF NEW YORK, a New York corporation
authorized to do a banking business, having its principal office and place of
business at 48 Wall Street, New York, New York 10286 (hereinafter called the
"Custodian").
W I T N E S S E T H :
that for and in consideration of the mutual promises hereinafter set forth, the
Fund and the Custodian agree as follows:
ARTICLE I
DEFINITIONS
Whenever used in this Agreement, the following words and phrases,
unless the context otherwise requires, shall have the following meanings:
1. "Book-Entry System" shall mean the Federal Reserve/Treasury
book-entry system for United States and federal agency securities, its successor
or successors and its nominee or nominees.
2. "Call Option" shall mean an exchange traded option with respect to
Securities other than Stock Index Options, Futures Contracts, and Futures
Contract Options entitling the holder, upon timely exercise and payment of the
exercise price, as specified therein, to purchase from the writer thereof the
specified underlying Securities.
3. "Certificate" shall mean any notice, instruction, or other
instrument in writing, authorized or required by this Agreement to be given to
the Custodian which is actually received by the Custodian and signed on behalf
of the Fund by any two Officers, and the term Certificate shall also include
instructions by the Fund to the Custodian communicated by a Terminal Link.
4. "Clearing Member" shall mean a registered broker-dealer which is a
clearing member under the rules of O.C.C. and a member of a national securities
exchange qualified to act as a custodian for an investment company, or any
broker-dealer reasonably believed by the Custodian to be such a clearing member.
5. "Collateral Account" shall mean a segregated account so denominated
which is specifically allocated to a Series and pledged to the Custodian as
security for, and in consideration of, the Custodian's issuance of (a) any Put
Option guarantee letter or similar document described in paragraph 8 of Article
V herein, or (b) any receipt described in Article V or VIII herein.
<PAGE> 2
6. "Covered Call Option" shall mean an exchange traded option entitling
the holder, upon timely exercise and payment of the exercise price, as specified
therein, to purchase from the writer thereof the specified underlying Securities
(excluding Futures Contracts) which are owned by the writer thereof and subject
to appropriate restrictions.
7. "Depository" shall mean The Depository Trust Company ("DTC"), a
clearing agency registered with the Securities and Exchange commission, its
successor or successors and its nominee or nominees. The term "Depository" shall
further mean and include any other person authorized to act as a depository
under the Investment Company Act of 1940, its successor or successors and its
nominee or nominees, specifically identified in a certified copy of a resolution
of the Fund's Board of Directors specifically approving deposits therein by the
Custodian.
8. "Financial Futures Contract" shall mean the firm commitment to buy
or sell fixed income securities including, without limitation, U.S. Treasury
Bills, U.S. Treasury Notes, U.S. Treasury Bonds, domestic bank certificates of
deposit, and Eurodollar certificates of deposit, during a specified month at an
agreed upon price.
9. "Futures Contract" shall mean a Financial Futures Contract and/or
Stock Index Futures Contracts.
10. "Futures Contract Option" shall mean an option with respect to a
Futures Contract.
11. "Margin Account" shall mean a segregated account in the name of a
broker, dealer, futures commission merchant, or a Clearing Member, or in the
name of the Fund for the benefit of a broker, dealer, futures commission
merchant, or Clearing Member, or otherwise, in accordance with an agreement
between the Fund, the Custodian and a broker, dealer, futures commission
merchant or a Clearing Member (a "Margin Account Agreement"), separate and
distinct from the custody account, in which certain Securities and/or money of
the Fund shall be deposited and withdrawn from time to time in connection with
such transactions as the Fund may from time to time determine. Securities held
in the Book-Entry System or the Depository shall be deemed to have been
deposited in, or withdrawn from, a Margin Account upon the Custodian's effecting
an appropriate entry in its books and records.
12. "Money Market Security" shall be deemed to include, without
limitation, certain Reverse Repurchase Agreements, debt obligations issued or
guaranteed as to interest and principal by the government of the United States
or agencies or instrumentalities thereof, any tax, bond or revenue anticipation
note issued by any state or municipal government or public authority, commercial
paper, certificates of deposit and banker's acceptances, repurchase agreements
with respect to the same and bank time deposits, where the purchase and sale of
such securities normally requires settlement in federal funds on the same day as
such purchase or sale.
13. "O.C.C." shall mean the Options Clearing Corporation, a clearing
agency registered under Section 17A of the Securities Exchange Act of 1934, its
successor or successors, and its nominee or nominees.
2
<PAGE> 3
14. "Officers" shall be deemed to include the President, any Vice
President, the Secretary, the Treasurer, the Controller, any Assistant
Secretary, any Assistant Treasurer, and any other person or persons, whether or
not any such other person is an officer of the Fund, duly authorized by the
Board of Directors of the Fund to execute any Certificate, instruction, notice
or other instrument on behalf of the Fund and listed in the Certificate annexed
hereto as Appendix A or such other Certificate as may be received by the
Custodian from time to time.
15. "Option" shall mean a Call Option, Covered Call Option, Stock Index
Option and/or a Put Option.
16. "Oral Instructions" shall mean verbal instructions actually
received by the Custodian from an Officer or from a person reasonably believed
by the Custodian to be an officer.
17. "Put Option" shall mean an exchange traded option with respect to
Securities other than Stock Index Options, Futures Contracts, and Futures
Contract Options entitling the holder, upon timely exercise and tender of the
specified underlying Securities, to sell such Securities to the writer thereof
for the exercise price.
18. "Reverse Repurchase Agreement" shall mean an agreement pursuant to
which the Fund sells Securities and agrees to repurchase such Securities at a
described or specified date and price.
19. "Security" shall be deemed to include, without limitation, Money
Market Securities, Call Options, Put Options, Stock Index Options, Stock Index
Futures Contracts, Stock Index Futures Contract Options, Financial Futures
Contracts, Financial Futures Contract Options, Reverse Repurchase Agreements,
common stocks and other securities having characteristics similar to common
stocks, preferred stocks, debt obligations issued by state or municipal
governments and by public authorities, (including, without limitation, general
obligation bonds, revenue bonds, industrial bonds and industrial development
bonds), bonds, debentures, notes, mortgages or other obligations, and any
certificates, receipts, warrants or other instruments representing rights to
receive, purchase, sell or subscribe for the same, or evidencing or representing
any other rights or interest therein, or any property or assets.
20. "Senior Security Account" shall mean an account maintained and
specifically allocated to a Series under the terms of this Agreement as a
segregated account, by recordation or otherwise, within the custody account in
which certain Securities and/or other assets of the Fund specifically allocated
to such Series shall be deposited and withdrawn from time to time in accordance
with Certificates received by the Custodian in connection with such transactions
as the Fund may from time to time determine.
21. "Series" shall mean the various portfolios, if any, of the Fund as
described from time to time in the current and effective prospectus for the
Fund.
22. "Shares" shall mean the shares of capital stock of the Fund, each
of which is, in the case of a Fund having Series, allocated to a particular
Series.
3
<PAGE> 4
23. "Stock Index Futures Contract" shall mean a bilateral agreement
pursuant to which the parties agree to take or make delivery of an amount of
cash equal to a specified dollar amount times the difference between the value
of a particular stock index at the close of the last business day of the
contract and the price at which the futures contract is originally struck.
24. "Stock Index Option" shall mean an exchange traded option entitling
the holder, upon timely exercise, to receive an amount of cash determined by
reference to the difference between the exercise price and the value of the
index on the date of exercise.
25. "Terminal Link" shall mean an electronic data transmission link
between the Fund and the Custodian requiring in connection with each use of the
Terminal Link by or on behalf of the Fund use of an authorization code provided
by the Custodian and at least two access codes established by the Fund.
ARTICLE II
APPOINTMENT OF CUSTODIAN
1. The Fund hereby constitutes and appoints the Custodian as custodian
of the Securities and moneys at any time Owned by the Fund during the period of
this Agreement.
2. The Custodian hereby accepts appointment as such custodian and
agrees to perform the duties thereof as hereinafter set forth.
ARTICLE III
CUSTODY OF CASH AND SECURITIES
1. Except as otherwise provided in paragraph 7 of this Article and in
Article VIII, the Fund will deliver or cause to be delivered to the Custodian
all Securities and all moneys owned by it, at any time during the period of this
Agreement, and shall specify with respect to such Securities and money the
Series to which the same are specifically allocated. The Custodian shall
segregate, keep and maintain the assets of the Series separate and apart. The
Custodian will not be responsible for any Securities and moneys not actually
received by it. The Custodian will be entitled to reverse any credits made on
the Fund's behalf where such credits have been previously made and moneys are
not finally collected. The Fund shall deliver to the Custodian a certified
resolution of the Board of Directors of the Fund, substantially in the form of
Exhibit A hereto, approving, authorizing and instructing the Custodian on a
continuous and ongoing basis to deposit in the Book-Entry System all Securities
eligible for deposit therein, regardless of the Series to which the same are
specifically allocated and to utilize the Book-Entry System to the extent
possible in connection with its performance hereunder, including, without
limitation, in connection with settlements of purchases and sales of Securities,
loans of Securities and deliveries and returns of Securities collateral. Prior
to a deposit of Securities specifically allocated to a Series in the Depository,
the Fund shall deliver to the Custodian a certified resolution of the Board of
Directors of the Fund, substantially in the form of Exhibit B hereto, approving,
authorizing and instructing the Custodian on a continuous and ongoing basis
until
4
<PAGE> 5
instructed to the contrary by a Certificate actually received by the Custodian
to deposit in the Depository all Securities specifically allocated to such
Series eligible for deposit therein, and to utilize the Depository to the extent
possible with respect to such Securities in connection with its performance
hereunder, including, without limitation, in connection with settlements of
purchases and sales of Securities, loans of Securities, and deliveries and
returns of Securities collateral. Securities and moneys deposited in either the
Book-Entry System or the Depository will be represented in accounts which
include only assets held by the Custodian for customers, including, but not
limited to, accounts in which the Custodian acts in a fiduciary or
representative capacity and will be specifically allocated on the Custodian's
books to the separate account for the applicable Series. Prior to the
Custodian's accepting, utilizing and acting with respect to Clearing Member
confirmations for Options and transactions in Options for a Series as provided
in this Agreement, the Custodian shall have received a certified resolution of
the Fund's Board of Directors, substantially in the form of Exhibit C hereto,
approving, authorizing and instructing the Custodian on a continuous and ongoing
basis, until instructed to the contrary by a Certificate actually received by
the Custodian, to accept, utilize and act in accordance with such confirmations
as provided in this Agreement with respect to such Series.
2. The Custodian shall establish and maintain separate accounts, in the
name of each Series, and shall credit to the separate account for each Series
all moneys received by it for the account of the Fund with respect to such
Series. Money credited to a separate account for a Series shall be disbursed by
the Custodian only:
(a) As hereinafter provided;
(b) Pursuant to Certificates setting forth the name and address of the
person to whom the payment is to be made, the Series account from which payment
is to be made and the purpose for which payment is to be made; or
(c) In payment of the fees and in reimbursement of the expenses and
liabilities of the Custodian attributable to such Series.
3. Promptly after the close of business on each day, the Custodian
shall furnish the Fund with confirmations and a summary, on a per Series basis,
of all transfers to or from the account of the Fund for a Series, either
hereunder or with any co-custodian or sub-custodian appointed in accordance with
this Agreement during said day. Where Securities are transferred to the account
of the Fund for a Series, the Custodian shall also by book-entry or otherwise
identify as belonging to such Series a quantity of Securities in a fungible bulk
of Securities registered in the name of the Custodian (or its nominee) or shown
on the Custodian's account on the books of the Book-Entry System or the
Depository. At least monthly and from time to time, the Custodian shall furnish
the Fund with a detailed statement, on a per Series basis, of the Securities and
moneys held by the Custodian for the Fund.
4. Except as otherwise provided in paragraph 7 of this Article and in
Article VIII, all Securities held by the Custodian hereunder, which are issued
or issuable only in bearer form, except such Securities as are held in the
Book-Entry System, shall be held by the Custodian in that form; all other
Securities held hereunder may be registered in the name of the Fund, in the name
of any duly appointed registered nominee of the Custodian as the Custodian may
from time
5
<PAGE> 6
to time determine, or in the name of the Book-Entry System or the Depository or
their successor or successors, or their nominee or nominees. The Fund agrees to
furnish to the Custodian appropriate instruments to enable the Custodian to hold
or deliver in proper form for transfer, or to register in the name of its
registered nominee or in the name of the Book-Entry System or the Depository any
Securities which it may hold hereunder and which may from time to time be
registered in the name of the Fund. The Custodian shall hold all such Securities
specifically allocated to a Series which are not held in the Book-Entry System
or in the Depository in a separate account in the name of such Series physically
segregated at all times from those of any other person or persons.
5. Except as otherwise provided in this Agreement and unless otherwise
instructed to the contrary by a Certificate, the Custodian by itself, or through
the use of the Book-Entry system or the Depository with respect to Securities
held hereunder and therein deposited, shall with respect to all securities held
for the Fund hereunder in accordance with preceding paragraph 4:
(a) Collect all income due or payable;
(b) Present for payment and collect the amount payable upon such
Securities which are called, but only if either (i) the Custodian receives a
written notice of such call, or (ii) notice of such call appears in one or more
of the publications listed in Appendix B annexed hereto, which may be amended at
any time by the Custodian without the prior notification or consent of the Fund;
(c) Present for payment and collect the amount payable upon all
Securities which mature;
(d) Surrender Securities in temporary form for definitive Securities;
(e) Execute, as custodian, any necessary declarations or certificates
of ownership under the Federal Income Tax Laws or the laws or regulations of any
other taxing authority now or hereafter in effect; and
(f) Hold directly, or through the Book-Entry System or the Depository
with respect to Securities therein deposited, for the account of a Series, all
rights and similar securities issued with respect to any Securities held by the
Custodian for such Series hereunder.
6. Upon receipt of a Certificate and not otherwise, the Custodian,
directly or through the use of the Book-Entry System or the Depository, shall:
(a) Execute and deliver to such persons as may be designated in such
Certificate proxies, consents, authorizations, and any other instruments whereby
the authority of the Fund as owner of any Securities held by the Custodian
hereunder for the Series specified in such Certificate may be exercised;
(b) Deliver any Securities held by the Custodian hereunder for the
Series specified in such Certificate in exchange for other Securities or cash
issued or paid in connection with the liquidation, reorganization, refinancing,
merger, consolidation or recapitalization of any
6
<PAGE> 7
corporation, or the exercise of any conversion privilege and receive and hold
hereunder specifically allocated to such Series any cash or other Securities
received in exchange;
(c) Deliver any Securities held by the Custodian hereunder for the
Series specified in such Certificate to any protective committee, reorganization
committee or other person in connection with the reorganization, refinancing,
merger, consolidation, recapitalization or sale of assets of any corporation,
and receive and hold hereunder specifically allocated to such Series such
certificates of deposit, interim receipts or other instruments or documents as
may be issued to it to evidence such delivery;
(d) Make such transfers or exchanges of the assets of the Series
specified in such Certificate, and take such other steps as shall be stated in
such Certificate to be for the purpose of effectuating any duly authorized plan
of liquidation, reorganization, merger, consolidation or recapitalization of the
Fund; and
(e) Present for payment and collect the amount payable upon Securities
not described in preceding paragraph 5(b) of this Article which may be called as
specified in the Certificate.
7. Notwithstanding any provision elsewhere contained herein, the
Custodian shall not be required to obtain possession of any instrument or
certificate representing any Futures Contract, any Option, or any Futures
Contract Option until after it shall have determined, or shall have received a
Certificate from the Fund stating, that any such instruments or certificates are
available. The Fund shall deliver to the Custodian such a Certificate no later
than the business day preceding the availability of any such instrument or
certificate. Prior to such availability, the Custodian shall comply with Section
17(f) of the Investment Company Act of 1940, as amended, in connection with the
purchase, sale, settlement, closing out or writing of Futures Contracts,
Options, or Futures Contract Options by making payments or deliveries specified
in Certificates received by the Custodian in connection with any such purchase,
sale, writing, settlement or closing out upon its receipt from a broker, dealer,
or futures commission merchant of a statement or confirmation reasonably
believed by the Custodian to be in the form customarily used by brokers,
dealers, or future commission merchants with respect to such Futures Contracts,
Options, or Futures Contract Options, as the case may be, confirming that such
Security is held by such broker, dealer or futures commission merchant, in
book-entry form or otherwise, in the name of the Custodian (or any nominee of
the Custodian) as custodian for the Fund; provided, however, that
notwithstanding the foregoing, payments to or deliveries from the Margin
Account, and payments with respect to Securities to which a Margin Account
relates, shall be made in accordance with the terms and conditions of the Margin
Account Agreement. Whenever any such instruments or certificates are available,
the Custodian shall, notwithstanding any provision in this Agreement to the
contrary, make payment for any Futures Contract, Option, or Futures contract
Option for which such instruments or such certificates are available only
against the delivery to the Custodian of such instrument or such certificate,
and deliver any Futures Contract Option or Futures Contract option for which
such instruments or such certificates are available only against receipt by the
Custodian of payment therefor. Any such instrument or certificate delivered to
the Custodian shall be held by the Custodian hereunder in accordance with, and
subject to, the provisions of this Agreement.
7
<PAGE> 8
ARTICLE IV
PURCHASE AND SALE OF INVESTMENTS OF THE FUND
OTHER THAN OPTIONS, FUTURES CONTRACTS AND
FUTURES CONTRACT OPTIONS
1. Promptly after each purchase of Securities by the Fund, other than a
purchase of an Option, a Futures Contract, or a Futures Contract Option, the
Fund shall deliver to the Custodian (i) with respect to each purchase of
Securities which are not Money Market Securities, a Certificate, and (ii) with
respect to each purchase of Money Market Securities, a Certificate or Oral
Instructions, specifying with respect to each such purchase: (a) the Series to
which such Securities are to be specifically allocated; (b) the name of the
issuer and the title of the Securities; (c) the number of shares or the
principal amount purchased and accrued interest, if any; (d) the date of
purchase and settlement; (e) the purchase price per unit; (f) the total amount
payable upon such purchase; (g) the name of the person from whom or the broker
through whom the purchase was made, and the name of the clearing broker, if any;
and (h) the name of the broker to whom payment is to be made. The Custodian
shall, upon receipt of Securities purchased by or for the Fund, pay to the
broker specified in the Certificate out of the moneys held for the account of
such Series the total amount payable upon such purchase, provided that the same
conforms to the total amount payable as set forth in such Certificate or Oral
Instructions.
2. Promptly after each sale of Securities by the Fund, other than a
sale of any Option, Futures Contract, Futures Contract option, or any Reverse
Repurchase Agreement, the Fund shall deliver to the Custodian (i) with respect
to each sale of Securities which are not Money Market Securities, a Certificate,
and (ii) with respect to each sale of Money Market Securities, a certificate or
Oral Instructions, specifying with respect to each such sale: (a) the Series to
which such Securities were specifically allocated; (b) the name of the issuer
and the title of the Security; (c) the number of shares or principal amount
sold, and accrued interest, if any; (d) the date of sale; (e) the sale price per
unit; (f) the total amount payable to the Fund upon such sale; (g) the name of
the broker through whom or the person to whom the sale was made, and the name of
the clearing broker, if any; and (h) the name of the broker to whom the
Securities are to be delivered. The Custodian shall deliver the securities
specifically allocated to such Series to the broker specified in the Certificate
against payment of the total amount payable to the Fund upon such sale, provided
that the same conforms to the total amount payable as set forth in such
Certificate or Oral Instructions.
ARTICLE V
OPTIONS
1. Promptly after the purchase of any Option by the Fund, the Fund
shall deliver to the Custodian a Certificate specifying with respect to each
Option purchased: (a) the Series to which such Option is specifically allocated;
(b) the type of option (put or call); (c) the name of the issuer and the title
and number of shares subject to such Option or, in the case of a Stock Index
Option, the stock index to which such option relates and the number of Stock
Index
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<PAGE> 9
Options purchased; (d) the expiration date; (e) the exercise price; (f) the
dates of purchase and settlement; (g) the total amount payable by the Fund in
connection with such purchase; (h) the name of the Clearing Member through whom
such Option was purchased; and (i) the name of the broker to whom payment is to
be made. The Custodian shall pay, upon receipt of a Clearing Member's statement
confirming the purchase of such Option held by such Clearing Member for the
account of the Custodian (or any duly appointed and registered nominee of the
Custodian) as custodian for the Fund, out of moneys held for the account of the
Series to which such option is to be specifically allocated, the total amount
payable upon such purchase to the Clearing Member through whom the purchase was
made, provided that the same conforms to the total amount payable as set forth
in such Certificate.
2. Promptly after the sale of any Option purchased by the Fund pursuant
to paragraph 1 hereof, the Fund shall deliver to the Custodian a Certificate
specifying with respect to each such sale: (a) the Series to which such Option
was specifically allocated; (b) the type of option (put or call); (c) the name
of the issuer and the title and number of shares subject to such Option or, in
the case of a Stock Index Option, the stock index to which such option relates
and the number of Stock Index Options sold; (d) the date of sale; (e) the sale
price; (f) the date of settlement; (g) the total amount payable to the Fund upon
such sale; and (h) the name of the Clearing Member through whom the sale was
made. The Custodian shall consent to the delivery of the option sold by the
Clearing Member which previously supplied the confirmation described in
preceding paragraph 1 of this Article with respect to such option against
payment to the Custodian of the total amount payable to the Fund, provided that
the same conforms to the total amount payable as set forth in such Certificate.
3. Promptly after the exercise by the Fund of any call option purchased
by the Fund pursuant to paragraph 1 hereof, the Fund shall deliver to the
Custodian a Certificate specifying with respect to such Call Option: (a) the
Series to which such Call Option was specifically allocated; (b) the name of the
issuer and the title and number of shares subject to the Call option; (c) the
expiration date; (d) the date of exercise and settlement; (e) the exercise price
per share; (f) the total amount to be paid by the Fund upon such exercise; and
(g) the name of the Clearing Member through whom such Call Option was exercised.
The Custodian shall, upon receipt of the Securities underlying the Call Option
which was exercised, pay out of the moneys held for the account of the Series to
which such Call Option was specifically allocated the total amount payable to
the Clearing Member through whom the Call Option was exercised, provided that
the same conforms to the total amount payable as set forth in such Certificate.
4. Promptly after the exercise by the Fund of any Put option purchased
by the Fund pursuant to paragraph 1 hereof, the Fund shall deliver to the
Custodian a Certificate specifying with respect to such Put Option: (a) the
Series to which such Put Option was specifically allocated; (b) the name of the
issuer and the title and number of shares subject to the Put Option; (c) the
expiration date; (d) the date of exercise and settlement; (e) the exercise price
per share; (f) the total amount to be paid to the Fund upon such exercise; and
(g) the name of the Clearing Member through whom such Put Option was exercised.
The Custodian shall, upon receipt of the amount payable upon the exercise of the
Put Option, deliver or direct the Depository to deliver the Securities
specifically allocated to such Series, provided the same conforms to the amount
payable to the Fund as set forth in such Certificate.
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<PAGE> 10
5. Promptly after the exercise by the Fund of any Stock Index Option
purchased by the Fund pursuant to paragraph 1 hereof, the Fund shall deliver to
the Custodian a Certificate specifying with respect to such Stock Index Option:
(a) the Series to which such Stock Index Option was specifically allocated; (b)
the type of Stock Index Option (put or call); (c) the number of Options being
exercised; (d) the stock index to which such Option relates; (e) the expiration
date; (f) the exercise price; (g) the total amount to be received by the Fund in
connection with such exercise; and (h) the Clearing Member from whom such
payment is to be received.
6. Whenever the Fund writes a Covered Call Option, the Fund shall
promptly deliver to the Custodian a Certificate specifying with respect to such
Covered Call Option: (a) the Series for which such Covered Call Option was
written; (b) the name of the issuer and the title and number of shares for which
the Covered Call option was written and which underlie the same; (c) the
expiration date; (d) the exercise price; (e) the premium to be received by the
Fund; (f) the date such Covered Call Option was written; and (g) the name of the
Clearing Member through whom the premium is to be received. The Custodian shall
deliver or cause to be delivered, in exchange for receipt of the premium
specified in the Certificate with respect to such Covered Call Option, such
receipts as are required in accordance with the customs prevailing among
Clearing Members dealing in Covered Call Options and shall impose, or direct the
Depository to impose, upon the underlying Securities specified in the
certificate specifically allocated to such Series such restrictions as may be
required by such receipts. Notwithstanding the foregoing, the Custodian has the
right, upon prior written notification to the Fund, at any time to refuse to
issue any receipts for Securities in the possession of the Custodian and not
deposited with the Depository underlying a Covered Call Option.
7. Whenever a Covered Call Option written by the Fund and described in
the preceding paragraph of this Article is exercised, the Fund shall promptly
deliver to the Custodian a Certificate instructing the Custodian to deliver, or
to direct the Depository to deliver, the Securities subject to such Covered Call
Option and specifying: (a) the Series for which such Covered Call Option was
written; (b) the name of the issuer and the title and number of shares subject
to the Covered Call Option; (c) the Clearing Member to whom the underlying
Securities are to be delivered; and (d) the total amount payable to the Fund
upon such delivery. Upon the return and/or cancellation of any receipts
delivered pursuant to paragraph 6 of this Article, the Custodian shall deliver,
or direct the Depository to deliver, the underlying Securities as specified in
the Certificate against payment of the amount to be received as set forth in
such Certificate.
8. Whenever the Fund writes a Put Option, the Fund shall promptly
deliver to the Custodian a Certificate specifying with respect to such Put
Option: (a) the Series for which such Put Option was written; (b) the name of
the issuer and the title and number of shares for which the Put Option is
written and which underlie the same; (c) the expiration date; (d) the exercise
price; (e) the premium to be received by the Fund; (f) the date such Put Option
is written; (g) the name of the Clearing Member through whom the premium is to
be received and to whom a Put Option guarantee letter is to be delivered; (h)
the amount of cash, and/or the amount and kind of Securities, if any,
specifically allocated to such Series to be deposited in the Senior Security
Account for such Series; and (i) the amount of cash and/or the amount and kind
of Securities specifically allocated to such Series to be deposited into the
Collateral Account for such Series. The Custodian shall, after making the
deposits into the Collateral Account specified in the Certificate, issue a Put
Option guarantee letter substantially in the form utilized by the Custodian
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<PAGE> 11
on the date hereof, and deliver the same to the Clearing Member specified in the
Certificate against receipt of the premium specified in said certificate.
Notwithstanding the foregoing, the Custodian shall be under no obligation to
issue any Put Option guarantee letter or similar document if it is unable to
make any of the representations contained therein.
9. Whenever a Put Option written by the Fund and described in the
preceding paragraph is exercised, the Fund shall promptly deliver to the
Custodian a Certificate specifying: (a) the Series to which such Put Option was
written; (b) the name of the issuer and title and number of shares subject to
the Put Option; (c) the Clearing Member from whom the underlying securities are
to be received; (d) the total amount payable by the Fund upon such delivery; (e)
the amount of cash and/or the amount and kind of Securities specifically
allocated to such Series to be withdrawn from the Collateral Account for such
Series and (f) the amount of cash and/or the amount and kind of securities,
specifically allocated to such Series, if any, to be withdrawn from the Senior
Security Account. Upon the return and/or cancellation of any Put Option
guarantee letter or similar document issued by the Custodian in connection with
such Put Option, the Custodian shall pay out of the moneys held for the account
of the Series to which such Put Option was specifically allocated the total
amount payable to the Clearing Member specified in the Certificate as set forth
in such Certificate against delivery of such Securities, and shall make the
withdrawals specified in such Certificate.
10. Whenever the Fund writes a Stock Index Option, the Fund shall
promptly deliver to the Custodian a Certificate specifying with respect to such
Stock Index Option: (a) the Series for which such Stock Index Option was
written; (b) whether such Stock Index Option is a put or a call; (c) the number
of options written; (d) the stock index to which such Option relates; (e) the
expiration date; (f) the exercise price; (g) the Clearing Member through whom
such Option was written; (h) the premium to be received by the Fund; (i) the
amount of cash and/or the amount and kind of Securities, if, any, specifically
allocated to such Series to be deposited in the Senior Security Account for such
Series; (j) the amount of cash and/or the amount and kind of Securities, if any,
specifically allocated to such Series to be deposited in the Collateral Account
for such Series; and (k) the amount of cash and/or the amount and kind of
Securities, if any, specifically allocated to such Series to be deposited in a
Margin Account, and the name in which such account is to be or has been
established. The Custodian shall, upon receipt of the premium specified in the
Certificate, make the deposits, if any, into the Senior Security Account
specified in the Certificate, and either (1) deliver such receipts, if any,
which the Custodian has specifically agreed to issue, which are in accordance
with the customs prevailing among Clearing Members in Stock Index Options and
make the deposits into the Collateral Account specified in the Certificate, or
(2) make the deposits into the Margin Account specified in the Certificate.
11. Whenever a Stock Index option written by the Fund and described in
the preceding paragraph of this Article is exercised, the Fund shall promptly
deliver to the Custodian a Certificate specifying with respect to such Stock
Index Option: (a) the Series for which such Stock Index Option was written; (b)
such information as may be necessary to identify the Stock Index option being
exercised; (c) the Clearing Member through whom such Stock Index Option is being
exercised; (d) the total amount payable upon such exercise, and whether such
amount is to be paid by or to the Fund; (e) the amount of cash and/or amount and
kind of Securities, if any, to be withdrawn from the Margin Account; and (f) the
amount of cash and/or amount and kind of Securities, if any, to be withdrawn
from the Senior Security Account for such Series; and the
11
<PAGE> 12
amount of cash and/or the amount and kind of Securities, if any, to be withdrawn
from the Collateral Account for such Series. Upon the return and/or cancellation
of the receipt, if any, delivered pursuant to the preceding paragraph of this
Article, the Custodian shall pay out of the moneys held for the account of the
Series to which such Stock Index Option was specifically allocated to the
Clearing Member specified in the Certificate the total amount payable, if any,
as specified therein.
12. Whenever the Fund purchases any option identical to a previously
written Option described in paragraphs 6, 8 or 10 of this Article in a
transaction expressly designated as a "Closing Purchase Transaction" in order to
liquidate its position as a writer of an Option, the Fund shall promptly deliver
to the Custodian a Certificate specifying with respect to the Option being
purchased: (a) that the transaction is a Closing Purchase Transaction; (b) the
Series for which the Option was written; (c) the name of the issuer and the
title and number of shares subject to the option, or, in the case of a Stock
Index Option, the stock index to which such Option relates and the number of
options held; (d) the exercise price; (e) the premium to be paid by the Fund;
(f) the expiration date; (g) the type of Option (put or call); (h) the date of
such purchase; (i) the name of the Clearing Member to whom the premium is to be
paid; and (j) the amount of cash and/or the amount and kind of Securities, if
any, to be withdrawn from the Collateral Account, a specified Margin Account, or
the Senior Security Account for such Series. Upon the Custodian's payment of the
premium and the return and/or cancellation of any receipt issued pursuant to
paragraphs 6, 8 or 10 of this Article with respect to the option being
liquidated through the Closing Purchase Transaction, the Custodian shall remove,
or direct the Depository to remove, the previously imposed restrictions on the
Securities underlying the Call Option.
13. Upon the expiration, exercise or consummation of a Closing Purchase
Transaction with respect to any Option purchased or written by the Fund and
described in this Article, the Custodian shall delete such Option from the
statements delivered to the Fund pursuant to paragraph 3, Article III herein,
and upon the return and/or cancellation of any receipts issued by the Custodian,
shall make such withdrawals from the Collateral Account, and the Margin Account
and/or the Senior Security Account as may be specified in a Certificate received
in connection with such expiration, exercise, or consummation.
ARTICLE VI
FUTURES CONTRACTS
1. Whenever the Fund shall enter into a Futures Contract, the Fund
shall deliver to the Custodian a Certificate specifying with respect to such
Futures Contract (or with respect to any number of identical Futures
Contract(s)): (a) the series for which the Futures Contract is being entered;
(b) the category of Futures Contract (the name of the underlying stock index or
financial instrument); (c) the number of identical Futures Contracts entered
into; (d) the delivery or settlement date of the Futures Contract(s); (e) the
date the Futures Contract(s) was (were) entered into and the maturity date; (f)
whether the Fund is buying (going long) or selling (going short) on such Futures
Contract(s); (g) the amount of cash and/or the amount and kind of Securities, if
any, to be deposited in the Senior Security Account for such Series; (h) the
name of the broker, dealer, or futures commission merchant through whom the
Futures Contract was
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<PAGE> 13
entered into; and (i) the amount of fee or commission, if any, to be paid and
the name of the broker, dealer, or futures commission merchant to whom such
amount is to be paid. The Custodian shall make the deposits, if any, to the
Margin Account in accordance with the terms and conditions of the Margin Account
Agreement. The Custodian shall make payment out of the moneys specifically
allocated to such Series of the fee or commission, if any, specified in the
Certificate and deposit in the Senior Security Account for such Series the
amount of cash and/or the amount and kind of Securities specified in said
Certificate.
2. (a) Any variation margin payment or similar payment required to be
made by the Fund to a broker, dealer, or futures commission merchant with
respect to an outstanding Futures Contract, shall be made by the Custodian in
accordance with the terms and conditions of the Margin Account Agreement.
(b) Any variation margin payment or similar payment from a broker,
dealer, or futures commission merchant to the Fund with respect to an
outstanding Futures Contract, shall be received and dealt with by the Custodian
in accordance with the terms and conditions of the Margin Account Agreement.
3. Whenever a Futures Contract held by the Custodian hereunder is
retained by the Fund until delivery or settlement is made on such Futures
Contract, the Fund shall deliver to the Custodian a Certificate specifying: (a)
the Futures Contract and the Series to which the same relates; (b) with respect
to a stock Index Futures Contract, the total cash settlement amount to be paid
or received, and with respect to a Financial Futures Contract, the Securities
and/or amount of cash to be delivered or received; (c) the broker, dealer, or
futures commission merchant to or from whom payment or delivery is to be made or
received; and (d) the amount of cash and/or Securities to be withdrawn from the
Senior Security Account for such Series. The Custodian shall make the payment or
delivery specified in the Certificate, and delete such Futures Contract from the
statements delivered to the Fund pursuant to paragraph 3 of Article III herein.
4. Whenever the Fund shall enter into a Futures contract to offset a
Futures Contract held by the Custodian hereunder, the Fund shall deliver to the
Custodian a Certificate specifying: (a) the items of information required in a
Certificate described in paragraph 1 of this Article, and (b) the Futures
Contract being offset. The Custodian shall make payment out of the money
specifically allocated to such Series of the fee or commission, if any,
specified in the Certificate and delete the Futures Contract being offset from
the statements delivered to the Fund pursuant to paragraph 3 of Article III
herein, and make such withdrawals from the Senior Security Account for such
Series as may be specified in such Certificate. The withdrawals, if any, to be
made from the Margin Account shall be made by the Custodian in accordance with
the terms and conditions of the Margin Account Agreement.
ARTICLE VII
FUTURES CONTRACT OPTIONS
1. Promptly after the purchase of any Futures Contract Option by the
Fund, the Fund shall promptly deliver to the Custodian a Certificate specifying
with respect to such Futures
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<PAGE> 14
Contract Option: (a) the Series to which such option is specifically allocated;
(b) the type of Futures Contract Option (put or call); (c) the type of Futures
Contract and such other information as may be necessary to identify the Futures
Contract underlying the Futures Contract Option purchased; (d) the expiration
date; (e) the exercise price; (f) the dates of purchase and settlement; (g) the
amount of premium to be paid by the Fund upon such purchase; (h) the name of the
broker or futures commission merchant through whom such option was purchased;
and (i) the name of the broker, or futures commission merchant, to whom payment
is to be made. The Custodian shall pay out of the moneys specifically allocated
to such Series, the total amount to be paid upon such purchase to the broker or
futures commissions merchant through whom the purchase was made, provided that
the same conforms to the amount set forth in such certificate.
2. Promptly after the sale of any Futures Contract Option purchased by
the Fund pursuant to paragraph 1 hereof, the Fund shall promptly deliver to the
Custodian a Certificate specifying with respect to each such sale: (a) Series to
which such Futures Contract Option was specifically allocated; (b) the type of
Future Contract Option (put or call); (c) the type of Futures Contract and such
other information as may be necessary to identify the Futures Contract
underlying the Futures Contract Option; (d) the date of sale; (e) the sale
price; (f) the date of settlement; (g) the total amount payable to the Fund upon
such sale; and (h) the name of the broker or futures commission merchant through
whom the sale was made. The Custodian shall consent to the cancellation of the
Futures Contract Option being closed against payment to the Custodian of the
total amount payable to the Fund, provided the same conforms to the total amount
payable as set forth in such Certificate.
3. Whenever a Futures Contract Option purchased by the Fund pursuant to
paragraph 1 is exercised by the Fund, the Fund shall promptly deliver to the
Custodian a Certificate specifying: (a) the Series to which such Futures
Contract Option was specifically allocated; (b) the particular Futures Contract
Option (put or call) being exercised; (c) the type of Futures Contract
underlying the Futures Contract Option; (d) the date of exercise; (e) the name
of the broker or futures commission merchant through whom the Futures Contract
Option is exercised; (f) the net total amount, if any, payable by the Fund; (g)
the amount, if any, to be received by the Fund; and (h) the amount of cash
and/or the amount and kind of Securities to be deposited in the senior Security
Account for such Series. The Custodian shall make, out of the moneys and
Securities specifically allocated to such Series, the payments, if any, and the
deposits, if any, into the Senior Security Account as specified in the
Certificate. The deposits, if any, to be made to the Margin Account shall be
made by the Custodian in accordance with the terms and conditions of the Margin
Account Agreement.
4. Whenever the Fund writes a Futures Contract Option, the Fund shall
promptly deliver to the Custodian a Certificate specifying with respect to such
Futures Contract Option: (a) the Series for which such Futures Contract Option
was written; (b) the type of Futures Contract Option (put or call); (c) the type
of Futures Contract and such other information as may be necessary to identify
the Futures Contract underlying the Futures Contract Option; (d) the expiration
date; (e) the exercise price; (f) the premium to be received by the Fund; (g)
the name of the broker or futures commission merchant through whom the premium
is to be received; and (h) the amount of cash and/or the amount and kind of
Securities, if any, to be deposited in the Senior Security Account for such
Series. The Custodian shall, upon receipt of the premium specified in the
Certificate, make out of the moneys and Securities specifically allocated to
such
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<PAGE> 15
series the deposits into the Senior Security Account, if any, as Specified in
the Certificate. The deposits, if any, to be made to the Margin Account shall be
made by the Custodian in accordance with the terms and conditions of the Margin
Account Agreement.
5. Whenever a Futures Contract Option written by the Fund which is a
call is exercised, the Fund shall promptly deliver to the Custodian a
Certificate specifying: (a) the series to which such Futures Contract Option was
specifically allocated; (b) the particular Futures Contract Option exercised;
(c) the type of Futures Contract underlying the Futures Contract Option; (d) the
name of the broker or futures commission merchant through whom such Futures
Contract Option was exercised; (e) the net total amount, if any, payable to the
Fund upon such exercise; (f) the net total amount, if any, payable by the Fund
upon such exercise; and (g) the amount of cash and/or the amount and kind of
Securities to be deposited in the Senior Security Account for such Series. The
Custodian shall, upon its receipt of the net total amount payable to the Fund,
if any, specified in such Certificate make the payments, if any, and the
deposits, if any, into the Senior Security Account as specified in the
Certificate. The deposits, if any, to be made to the Margin Account shall be
made by the Custodian in accordance with the terms and conditions of the Margin
Account Agreement.
6. Whenever a Futures Contract option which is written by the Fund and
which is a put is exercised, the Fund shall promptly deliver to the Custodian a
Certificate specifying: (a) the Series to which such option was specifically
allocated; (b) the particular Futures Contract Option exercised; (c) the type of
Futures Contract underlying such Futures Contract option; (d) the name of the
broker or futures commission merchant through whom such Futures Contract Option
is exercised; (e) the net total amount, if any, payable to the Fund upon such
exercise; (f) the net total amount, if any, payable by the Fund upon such
exercise; and (g) the amount and kind of Securities and/or cash to be withdrawn
from or deposited in, the Senior Security Account for such Series, if any. The
Custodian shall, upon the receipt of the net total amount payable to the Fund,
if any, specified in the Certificate, make out of the moneys and Securities
specifically allocated to such Series, the payments, if any, and the deposits,
if any, into the Senior Security Account as specified in the Certificate. The
deposits to and/or withdrawals from the Margin Account, if any, shall be made by
the Custodian in accordance with the terms and conditions of the Margin Account
Agreement.
7. Whenever the Fund purchases any Futures Contract Option identical to
a previously written Futures Contract option described in this Article in order
to liquidate its position as a writer of such Futures Contract Option, the Fund
shall promptly deliver to the Custodian a Certificate specifying with respect to
the Futures Contract Option being purchased: (a) the Series to which such option
is specifically allocated; (b) that the transaction is a closing transaction;
(c) the type of Future Contract and such other information as may be necessary
to identify the Futures Contract underlying the Futures Option Contract; (d) the
exercise price; (e) the premium to be paid by the Fund; (f) the expiration date;
(g) the name of the broker or futures commission merchant to whom the premium is
to be paid; and (h) the amount of cash and/or the amount and kind of Securities,
if any, to be withdrawn from the Senior Security Account for such Series. The
Custodian shall effect the withdrawals from the Senior Security Account
specified in the Certificate. The withdrawals, if any, to be made from the
Margin Account shall be made by the Custodian in accordance with the terms and
conditions of the Margin Account Agreement.
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<PAGE> 16
8. Upon the expiration, exercise, or consummation of a closing
transaction with respect to, any Futures Contract Option written or purchased by
the Fund and described in this Article, the Custodian shall (a) delete such
Futures Contract Option from the statements delivered to the Fund pursuant to
paragraph 3 of Article III herein and, (b) make such withdrawals from and/or in
the case of an exercise such deposits into the senior Security Account as may be
specified in a Certificate. The deposits to and/or withdrawals from the Margin
Account, if any, shall be made by the Custodian in accordance with the terms and
conditions of the Margin Account Agreement.
9. Futures Contracts acquired by the Fund through the exercise of a
Futures Contract Option described in this Article shall be subject to Article VI
hereof.
ARTICLE VIII
SHORT SALES
1. Promptly after any short sales by any Series of the Fund, the Fund
shall promptly deliver to the Custodian a Certificate specifying: (a) the Series
for which such short sale was made; (b) the name of the issuer and the title of
the Security; (c) the number of shares or principal amount sold, and accrued
interest or dividends, if any; (d) the dates of the sale and settlement; (e) the
sale price per unit; (f) the total amount credited to the Fund upon such sale,
if any; (g) the amount of cash and/or the amount and kind of Securities, if any,
which are to be deposited in a Margin Account and the name in which such Margin
Account has been or is to be established; (h) the amount of cash and/or the
amount and kind of Securities, if any, to be deposited in a Senior Security
Account, and (i) the name of the broker through whom such short sale was made.
The Custodian shall upon its receipt of a statement from such broker confirming
such sale and that the total amount credited to the Fund upon such sale, if any,
as specified in the Certificate is held by such broker for the account of the
Custodian (or any nominee of the Custodian) as custodian of the Fund, issue a
receipt or make the deposits into the Margin Account and the Senior Security
Account specified in the Certificate.
2. In connection with the closing-out of any short sale, the Fund shall
promptly deliver to the Custodian a Certificate specifying with respect to each
such closing out: (a) the Series for which such transaction is being made; (b)
the name of the issuer and the title of the Security; (c) the number of shares
or the principal amount, and accrued interest or dividends, if any, required to
effect such closing-out to be delivered to the broker; (d) the dates of
closing-out and settlement; (e) the purchase price per unit; (f) the net total
payable to the Fund upon such closing-out; (g) the net total amount payable to
the broker upon such closing-out; (h) the amount of cash and the amount and kind
of Securities to be withdrawn, if any, from the Margin Account; (i) the amount
of cash and/or the amount and kind of Securities, if any, to be withdrawn from
the Senior Security Account; and (j) the name of the broker through whom the
Fund is effecting such closing-out. The Custodian shall, upon receipt of the net
total amount payable to the Fund upon such closing-out, and the return and/or
cancellation of the receipts, if any, issued by the Custodian with respect to
the short sale being closed-out, pay out of the moneys held for the account of
the Fund to the broker the net total amount payable to the broker, and make the
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<PAGE> 17
withdrawals from the Margin Account and the Senior Security Account, as the same
are specified in the Certificate.
ARTICLE IX
REVERSE REPURCHASE AGREEMENTS
1. Promptly after the Fund enters a Reverse Repurchase Agreement with
respect to Securities and money held by the Custodian hereunder, the Fund shall
deliver to the Custodian a Certificate, or in the event such Reverse Repurchase
Agreement is a Money Market Security, a Certificate or Oral Instructions
specifying: (a) the Series for which the Reverse Repurchase Agreement is
entered; (b) the total amount payable to the Fund in connection with such
Reverse Repurchase Agreement and specifically allocated to such Series; (c) the
broker or dealer through or with whom the Reverse Repurchase Agreement is
entered; (d) the amount and kind of Securities to be delivered by the Fund to
such broker or dealer; (e) the date of such Reverse Repurchase Agreement; and
(f) the amount of cash and/or the amount and kind of Securities, if any,
specifically allocated to such Series to be deposited in a Senior Security
Account for such Series in connection with such Reverse Repurchase Agreement.
The Custodian shall, upon receipt of the total amount payable to the Fund
specified in the Certificate, Oral Instructions, or Written Instructions make
the delivery to the broker or dealer, and the deposits, if any, to the Senior
Security Account, specified in such Certificate or Oral Instructions.
2. Upon the termination of a Reverse Repurchase Agreement described in
preceding paragraph 1 of this Article, the Fund shall promptly deliver a
Certificate or, in the event such Reverse Repurchase Agreement is a Money Market
Security, a Certificate or Oral Instructions to the Custodian specifying: (a)
the Reverse Repurchase Agreement being terminated and the Series for which same
was entered; (b) the total amount payable by the Fund in connection with such
termination; (c) the amount and kind of Securities to be received by the Fund
and specifically allocated to such Series in connection with such termination;
(d) the date of termination; (e) the name of the broker or dealer with or
through whom the Reverse Repurchase Agreement is to be terminated; and (f) the
amount of cash and/or amount and kind of Securities to be withdrawn from the
Senior Securities Account for such Series. The Custodian shall, upon receipt of
the amount and kind of Securities to be received by the Fund specified in the
Certificate or Oral Instructions, make the payment to the broker or dealer, and
the withdrawals, if any, from the Senior Security Account, specified in such
certificate or Oral Instructions.
ARTICLE X
LOAN OF PORTFOLIO SECURITIES OF THE FUND
1. Promptly after each loan of portfolio Securities specifically
allocated to a Series held by the Custodian hereunder, the Fund shall deliver or
cause to be delivered to the Custodian a Certificate specifying with respect to
each such loan: (a) the Series to which the loaned Securities are specifically
allocated; (b) the name of the issuer and the title of the Securities; (c) the
number of shares or the principal amount loaned; (d) the date of loan and
delivery; (e) the
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total amount to be delivered to the Custodian against the loan of the
Securities, including the amount of cash collateral and the premium, if any,
separately identified; and (f) the name of the broker, dealer, or financial
institution to which the loan was made. The Custodian shall deliver the
Securities thus designated to the broker, dealer or financial institution to
which the loan was made upon receipt of the total amount designated as to be
delivered against the loan of Securities. The Custodian may accept payment in
connection with a delivery otherwise than through the Book-Entry System or
Depository only in the form of a certified or bank cashier's check payable to
the order of the Fund or the Custodian drawn on New York Clearing House funds
and may deliver Securities in accordance with the customs prevailing among
dealers in securities.
2. Promptly after each termination of the loan of Securities by the
Fund, the Fund shall deliver or cause to be delivered to the Custodian a
Certificate specifying with respect to each such loan termination and return of
Securities: (a) the Series to which the loaned Securities are specifically
allocated; (b) the name of the issuer and the title of the Securities to be
returned; (c) the of shares or the principal amount to be returned; (d) the date
of termination; (e) the total amount to be delivered by the Custodian (including
the cash collateral for such Securities minus any offsetting credits as
described in said Certificate); and (f) the name of the broker, dealer or
financial institution from which the Securities will be returned. The Custodian
shall receive all Securities returned from the broker, dealer or financial
institution to which such Securities were loaned and upon receipt thereof shall
pay, out of the moneys held for the account of the Fund, the total amount
payable upon such return of Securities as set forth in the Certificate.
ARTICLE XI
CONCERNING MARGIN ACCOUNTS, SENIOR SECURITY
ACCOUNTS AND COLLATERAL ACCOUNTS
1. The Custodian shall, from time to time, make such deposits to, or
withdrawals from, a Senior Security Account as specified in a Certificate
received by the Custodian. Such Certificate shall specify the Series for which
such deposit or withdrawal is to be made and the amount of cash and/or the
amount and kind of Securities specifically allocated to such Series to be
deposited in, or withdrawn from, such Senior Security Account for such Series.
In the event that the Fund fails to specify in a Certificate the Series, the
name of the issuer, the title and the number of shares or the principal amount
of any particular Securities to be deposited by the Custodian into, or withdrawn
from, a Senior Securities Account, the Custodian shall be under no obligation to
make any such deposit or withdrawal and shall so notify the Fund.
2. The Custodian shall make deliveries or payments from a Margin
Account to the broker, dealer, futures commission merchant or Clearing Member in
whose name, or for whose benefit, the account was established as specified in
the Margin Account Agreement.
3. Amounts received by Custodian as payments or distributions with
respect to Securities deposited in any Margin Account shall be dealt with in
accordance with the terms and conditions of the Margin Account Agreement.
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4. The Custodian shall have a continuing lien and security interest in
and to any property at any time held by the Custodian in any Collateral Account
described herein. In accordance with applicable law the Custodian may enforce
its lien and realize on any such property whenever the Custodian has made
payment or delivery pursuant to any Put Option guarantee letter or similar
document or any receipt issued hereunder by the Custodian. In the event the
Custodian should realize on any such property net proceeds which are less than
the obligations under any Put Option guarantee letter or similar document or any
receipt, such Custodian's deficiency shall be a debt owed the Custodian by the
Fund within the scope of Article XIV herein.
5. On each business day the Custodian shall furnish the Fund with a
statement with respect to each Margin Account, in which money or Securities are
held specifying as of the close of business on the previous business day: (a)
the name of the Margin Account; (b) the amount and kind of Securities held
therein; and (c) the amount of money held therein. The Custodian shall make
available upon request to any broker, dealer, or futures commission merchant
specified in the name of a Margin Account a copy of the statement furnished the
Fund with respect to such Margin Account.
6. Promptly after the close of business on each business day in which
cash and/or Securities are maintained in a collateral Account for any Series,
the Custodian shall furnish the Fund with a statement with respect to such
Collateral Account specifying the amount of cash and/or the amount and kind of
Securities held therein. No later than the close of business next succeeding the
delivery to the Fund of such statement, the Fund shall furnish to the Custodian
a Certificate or Written Instructions specifying the then market value of the
Securities described in such statement. In the event such then market value is
indicated to be less than the Custodian's obligation with respect to any
outstanding Put Option guarantee letter or similar document, the Fund shall
promptly specify in a Certificate the additional cash and/or Securities to be
deposited in such Collateral Account to eliminate such deficiency.
ARTICLE XII
PAYMENT OF DIVIDENDS OR DISTRIBUTIONS
1. The Fund shall furnish to the Custodian a copy of the resolution of
the Board of Directors of the Fund, certified by the Secretary or any Assistant
Secretary, either (i) setting forth with respect to the Series specified therein
the date of the declaration of a dividend or distribution, the date of payment
thereof, the record date as of which shareholders entitled to payment shall be
determined, the amount payable per Share of such Series to the shareholders of
record as of that date and the total amount payable to the Dividend Agent and
any sub-dividend agent or co-dividend agent of the Fund on the payment date, or
(ii) authorizing with respect to the Series specified therein the declaration of
dividends and distributions on a daily basis and authorizing the Custodian to
rely on oral Instructions or a Certificate setting forth the date of the
declaration of such dividend or distribution, the date of payment thereof, the
record date as of which shareholders entitled to payment shall be determined,
the amount payable per Share of such Series to the shareholders of record as of
that date and the total amount payable to the Dividend Agent on the payment
date.
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<PAGE> 20
2. Upon the payment date specified in such resolution, Oral
Instructions or Certificate, as the case may be, the Custodian shall pay out of
the moneys held for the account, of each Series the total amount payable to the
Dividend Agent and any sub-dividend agent or co-dividend agent of the Fund with
respect to such series.
ARTICLE XIII
SALE AND REDEMPTION OF SHARES
1. Whenever the Fund shall sell any Shares, it shall deliver to the
Custodian a Certificate duly specifying:
(a) The Series, the number of Shares sold, trade date, and price; and
(b) The amount of money to be received by the Custodian for the sale of
such Shares and specifically allocated to the separate account in the name of
such Series.
2. Upon receipt of such money from the Transfer Agent, the Custodian
shall credit such money to the separate account in the name of the Series for
which such money was received.
3. Upon issuance of any Shares of any Series described in the foregoing
provisions of this Article, the Custodian shall pay, out of the money held for
the account of such Series, all original issue or other taxes required to be
paid by the Fund in connection with such issuance upon the receipt of a
Certificate specifying the amount to be paid.
4. Whenever the Fund desires the Custodian to make payment out of the
money held by the Custodian hereunder in connection with a redemption of any
Shares, it shall furnish to the Custodian:
(a) A resolution by the Board of Directors of the Fund
directing the Transfer Agent to redeem the Shares; and
(b) A Certificate specifying the number and series of Shares
redeemed; and
(c) The amount to be paid for such Shares.
5. Upon receipt from the Transfer Agent of an advice setting forth the
Series and number of Shares received by the Transfer Agent for redemption and
that such Shares are in good form for redemption, the Custodian shall make
payment to the Transfer Agent out of the moneys held in the separate account in
the name of the Series the total amount specified in the Certificate issued
pursuant to the foregoing paragraph 4 of this Article.
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ARTICLE XIV
OVERDRAFTS OR INDEBTEDNESS
1. If the Custodian, should in its sole discretion advance funds on
behalf of any Series which results in an overdraft because the moneys held by
the Custodian in the separate account for such Series shall be insufficient to
pay the total amount payable upon a purchase of Securities specifically
allocated to such Series, as set forth in a certificate or Oral Instructions, or
which results in an overdraft in the separate account of such Series for some
other reason, or if the Fund is for any other reason indebted to the Custodian
with respect to a Series, including any indebtedness to The Bank of New York
under the Fund's Cash Management and Related Services Agreement (except a
borrowing for investment or for temporary or emergency purposes using securities
as collateral pursuant to a separate agreement and subject to the provisions of
paragraph 2 of this Article), such overdraft or indebtedness shall be deemed to
be a loan made by the Custodian to the Fund for such Series payable on demand
and shall bear interest from the date incurred at a rate per annum (based on a
360-day year for the actual number of days involved) equal to 1/2% over
Custodian's prime commercial lending rate in effect from time to time, such rate
to be adjusted on the effective date of any change in such prime commercial
lending rate but in no event to be less than 6% per annum. In addition, the Fund
hereby agrees that the Custodian shall have a continuing lien and security
interest in and to any property specifically allocated to such Series at any
time held by it for the benefit of such Series or in which the Fund may have an
interest which is then in the Custodian's possession or control or in possession
or control of any third party acting in the Custodian's behalf. The Fund
authorizes the Custodian, in its sole discretion, at any time to charge any such
overdraft or indebtedness together with interest due thereon against any balance
of account standing to such Series' credit on the Custodian's books. In
addition, the Fund hereby covenants that on each Business Day on which either it
intends to enter a Reverse Repurchase Agreement and/or otherwise borrow from a
third party, or which next succeeds a Business Day on which at the close of
business the Fund had outstanding a Reverse Repurchase Agreement or such a
borrowing, it shall prior to 9 a.m., New York City time, advise the Custodian,
in writing, of each such borrowing, shall specify the Series to which the same
relates, and shall not incur any indebtedness not so specified other than from
the Custodian.
2. The Fund will cause to be delivered to the Custodian by any bank
(including, if the borrowing is pursuant to a separate agreement, the Custodian)
from which it borrows money for investment or for temporary or emergency
purposes using securities held by the Custodian hereunder as collateral for such
borrowings, a notice or undertaking in the form currently employed by any such
bank setting forth the amount which such bank will loan to the Fund against
delivery of a stated amount of collateral. The Fund shall promptly deliver to
the Custodian a certificate specifying with respect to each such borrowing: (a)
the Series to which such borrowing relates; (b) the name of the bank; (c) the
amount and terms of the borrowing, which may be set forth by incorporating by
reference an attached promissory note, duly endorsed by the Fund, or other loan
agreement; (d) the time and date, if known, on which the loan is to be entered
into; (e) the date on which the loan becomes due and payable; (f) the total
amount payable to the Fund on the borrowing date; (g) the market value of
Securities to be delivered as collateral for such loan, including the name of
the issuer, the title and the number of shares or the principal amount of any
particular Securities; and (h) a statement specifying whether such loan is
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<PAGE> 22
for investment purposes or for temporary or emergency purposes and that such
loan is in conformance with the Investment Company Act of 1940 and the Fund's
prospectus. The Custodian shall deliver on the borrowing date specified in a
certificate the specified collateral and the executed promissory note, if any,
against delivery by the lending bank of the total amount of the loan payable,
provided that the same conforms to the total amount payable as set forth in the
Certificate. The Custodian may, at the option of the lending bank, keep such
collateral in its possession, but such collateral shall be subject to all rights
therein given the lending bank by virtue of any promissory note or loan
agreement. The Custodian shall deliver such Securities as additional collateral
as may be specified in a Certificate to collateralize further any transaction
described in this paragraph. The Fund shall cause all Securities released from
collateral status to be returned directly to the Custodian, and the Custodian
shall receive from time to time such return of collateral as may be tendered to
it. In the event that the Fund fails to specify in a Certificate the Series, the
name of the issuer, the title and number of shares or the principal amount of
any particular Securities to be delivered as collateral by the Custodian, the
Custodian shall not be under any obligation to deliver any Securities.
ARTICLE XV
TERMINAL LINK
1. At no time and under no circumstances shall the Fund be obligated to
have or utilize the Terminal Link, and the provisions of this Article, shall
apply if, but only if, the Fund in its sole and absolute discretion elects to
utilize the Terminal Link to transmit Certificates to the Custodian.
2. The Terminal Link shall be utilized by the Fund only for the purpose
of the Fund providing Certificates to the Custodian with respect to transactions
involving Securities or for the transfer of money to be applied to the payment
of dividends, distributions or redemptions of Fund Shares, and shall be utilized
by the Custodian only for the purpose of providing notices to the Fund. Such use
shall commence only after the Fund shall have delivered to the Custodian a
Certificate substantially in the form of Exhibit D and shall have established
access codes. Each use of the Terminal Link by the Fund shall constitute a
representation and warranty that the Terminal Link is being used only for the
purposes permitted hereby, that at least two Officers have each utilized an
access code, that such safekeeping procedures have been established by the Fund,
and that such use does not contravene the Investment Company Act of 1940, as
amended, or the rules or regulations thereunder.
3. The Fund shall obtain and maintain at its own cost and expense all
equipment and services, including, but not limited to communications services,
necessary for it to utilize the Terminal Link, and the Custodian shall not be
responsible for the reliability or availability of any such equipment or
services.
4. The Fund acknowledges that any data bases made available as part of,
or through the Terminal Link and any proprietary data, software, processes,
information and documentation (other than any such which are or become part of
the public domain or are legally required to be made available to the public)
(collectively, the "Information"), are the exclusive and confidential
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<PAGE> 23
property of the Custodian. The Fund shall, and shall cause others to which it
discloses the Information, to keep the Information confidential by using the
same care and discretion it uses with respect to its own confidential property
and trade secrets, and shall neither make nor permit any disclosure without the
express prior written consent of the Custodian.
5. Upon termination of this Agreement for any reason, the Fund shall
return to the Custodian any and all copies of the Information which are in the
Fund's possession or under its control, or which the Fund distributed to third
parties. The provisions of this Article shall not affect the copyright status of
any of the Information which may be copyrighted and shall apply to all
Information whether or not copyrighted.
6. The Custodian reserves the right to modify the Terminal Link from
time to time without notice to the Fund except that the Custodian shall give the
Fund notice not less than 75 days in advance of any modification which would
materially adversely affect the Fund's operation, and the Fund agrees that the
Fund shall not modify or attempt to modify the Terminal Link without the
Custodian's prior written consent. The Fund acknowledges that any software or
procedures provided the Fund as part of the Terminal Link are the property of
the Custodian and, accordingly, the Fund agrees that any modifications to the
Terminal Link, whether by the Fund, or by the Custodian and whether with or
without the Custodian's consent, shall become the property of the Custodian.
7. Neither the Custodian nor any manufacturers and suppliers it
utilizes or the Fund utilizes in connection with the Terminal Link makes any
warranties or representations, express or implied, in fact or in law, including
but not limited to warranties of merchantability and fitness for a particular
purpose.
8. The Fund will cause its Officers and employees to treat the
authorization codes and the access codes applicable to Terminal Link with
extreme care, and irrevocably authorizes the Custodian to act in accordance with
and rely on Certificates received by it through the Terminal Link. The Fund
acknowledges that it is its responsibility to assure that only its Officers use
the Terminal Link on its behalf, and that a Custodian shall not be responsible
nor liable for use of the Terminal Link on the Fund's behalf by persons other
than such persons or Officers or by only a single officer, nor for any
alteration, omission, or failure to promptly forward.
9(a). Except as otherwise specifically provided in Section 9(b) of this
Article, the Custodian shall have no liability for any losses, damages,
injuries, claims, costs or expenses arising out of or in connection with any
failure, malfunction or other problem relating to the Terminal Link except for
money damages suffered as the direct result of the negligence of the Custodian
in an amount not exceeding for any incident $25,000; provided, however, that the
Custodian shall have no liability under this Section 9 if the Fund fails to
comply with the provisions of Section 11.
9(b). The Custodian's liability for its negligence in executing or
failing to execute in accordance with a Certificate received through Terminal
Link shall be only with respect to a transfer of funds which is not made in
accordance with such Certificate after such Certificate shall have been, duly
acknowledged by the Custodian, and shall be contingent upon the Fund complying
with the provisions of Section 12 of this Article, and shall be limited to (i)
restoration
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of the principal amount mistransferred, if and to the extent that the Custodian
would be required to make such restoration under applicable law, and (ii) the
lesser of (A) a Fund's actual Pecuniary loss incurred by reason of its loss of
use of the mistransferred funds or the funds which were not transferred, as the
case may be, or (B) compensation for the loss of the use of the mistransferred
funds or the funds which were not transferred, as the case may be, at a rate per
annum equal to the average federal funds rate as computed from the Federal
Reserve Bank of New York's daily determination of the effective rate for federal
funds, for the period during which a Fund has lost use of such funds. In no
event shall the Custodian have any liability for failing to execute in
accordance with a certificate a transfer of funds where the Certificate is
received by the Custodian through Terminal Link other than through the
applicable transfer module for the particular instructions contained in such
Certificate.
10. Without limiting the generality of the foregoing, in no event shall
the Custodian or any manufacturer or supplier of its computer equipment,
software or services relating to the Terminal Link bell responsible for any
special, indirect, incidental or consequential damages which the Fund may incur
or experience by reason of its use of the Terminal Link even if the Custodian or
any manufacturer or supplier has been advised of the possibility of such
damages, nor with respect to the use of the Terminal Link shall the Custodian or
any such manufacturer or supplier be liable for acts of God, or with respect to
the following to the extent beyond such person's reasonable control: machine or
computer breakdown or malfunction, interruption or malfunction of communication
facilities, labor difficulties or any other similar or dissimilar cause.
11. The Fund shall notify the Custodian of any errors, omissions or
interruptions in, or delay or unavailability of, the Terminal Link as promptly
as practicable, and in any event within 24 hours after the earliest of (i)
discovery thereof, (ii) the Business Day on which discovery should have occurred
through the exercise of reasonable care and (iii) in the case of any error, the
date of actual receipt of the earliest notice which reflects such error, it
being agreed that discovery and receipt of notice may only occur on a business
day. The Custodian shall promptly advise the Fund whenever the Custodian learns
of any errors, omissions or interruption in, or delay or unavailability of, the
Terminal Link.
12. The Custodian shall verify to the Fund, by use of the Terminal
Link, receipt of each Certificate the Custodian receives through the Terminal
Link, and in the absence of such verification the Custodian shall not be liable
for any failure to act in accordance with such Certificate and the Fund may not
claim that such certificate was received by the Custodian. Such verification,
which may occur after the Custodian has acted upon such Certificate, shall be
accomplished on the same day on which such Certificate is received.
ARTICLE XVI
CONCERNING THE CUSTODIAN
1. Except as hereinafter provided, neither the custodian nor its
nominee shall be liable for any loss or damage, including counsel fees,
resulting from its action or omission to act or otherwise, either hereunder or
under any Margin Account Agreement, except for any such loss
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<PAGE> 25
or damage arising of its own negligence or willful misconduct. In no event shall
the Custodian be liable to the Fund or any third party for special, indirect or
consequential damages or lost profits or loss of business, arising under or in
connection with this Agreement, even if previously informed of the possibility
of such damages and regardless of the form of action. The custodian may, with
respect to questions of law arising hereunder or under any Margin Account
Agreement, apply for and obtain the advice and opinion of counsel to the Fund or
of its own counsel, at the expense of the Fund, and shall be fully protected
with respect to anything done or omitted by it in good faith in conformity with
such advice or opinion. The Custodian shall be liable to the Fund for any loss
or damage resulting from the use of the Book-Entry System or any Depository
arising by reason of any negligence or willful misconduct on the part of the
Custodian or any of its employees or agents.
2. Without limiting the generality of the foregoing, the Custodian
shall be under no obligation to inquire into, and shall not be liable for:
(a) The validity of the issue of any Securities purchased, sold, or
written by or for the Fund, the legality of the purchase, sale or writing
thereof, or the propriety of the amount paid or received therefor;
(b) The legality of the sale or redemption of any Shares, or the
propriety of the amount to be received or paid therefor;
(c) The legality of the declaration or payment of any dividend by the
Fund;
(d) The legality of any borrowing by the Fund using Securities as
collateral;
(e) The legality of any loan of portfolio Securities, nor shall the
Custodian be under any duty or obligation to see to it that any cash collateral
delivered to it by a broker, dealer, or financial institution or held by it at
any time as a result of such loan of portfolio Securities of the Fund is
adequate collateral for the Fund against any loss it might sustain as a result
of such loan. The Custodian specifically, but not by way of limitation, shall
not be under any duty or obligation periodically to check or notify the Fund
that the amount of such cash collateral held by it for the Fund is sufficient
collateral for the Fund, but such duty or obligation shall be the sole
responsibility of the Fund. In addition, the Custodian shall be under no duty or
obligation to see that any broker, dealer or financial institution to which
portfolio Securities of the Fund are lent pursuant to Article XIV of this
Agreement makes payment to it of any dividends or interest which are payable to
or for the account of the Fund during the period of such loan or at the
termination of such loan; provided, however, that the Custodian shall promptly
notify the Fund in the event that such dividends or interest are not paid and
received when due; or
(f) The sufficiency or value of any amounts of money and/or Securities
held in any Margin Account, Senior Security Account or Collateral Account in
connection with transactions by the Fund. In addition, the Custodian shall be
under no duty or obligation to see that any broker, dealer, futures commission
merchant or Clearing Member makes payment to the Fund of any variation margin
payment or similar payment which the Fund may be entitled to receive from such
broker, dealer, futures commission merchant or Clearing Member, to see that any
payment received by the Custodian from any broker, dealer, futures commission
merchant or
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Clearing Member is the amount the Fund is entitled to receive, or to notify the
Fund of the Custodian's receipt or non-receipt of any such payment.
3. The Custodian shall not be liable for, or considered to be the
Custodian of, any money, whether or not represented by any check, draft, or
other instrument for the payment of money, received by it on behalf of the Fund
until the Custodian actually receives and collects such money directly or by the
final crediting of the account representing the Fund's interest at the
Book-Entry System or the Depository.
4. The Custodian shall have no responsibility and shall not be liable
for ascertaining or acting upon any calls, conversions, exchange offers,
tenders, interest rate changes or similar matters relating to Securities held in
the Depository, unless the Custodian shall have actually received timely notice
from the Depository. In no event shall the Custodian have any responsibility or
liability for the failure of the Depository to collect, or for the late
collection or late crediting by the Depository of any amount payable upon
Securities deposited in the Depository which may mature or be redeemed, retired,
called or otherwise become payable. However, upon receipt of a Certificate from
the Fund of an overdue amount on Securities held in the Depository the Custodian
shall make a claim against the Depository on behalf of the Fund, except that the
Custodian shall not be under any obligation to appear in, prosecute or defend
any action suit or proceeding in respect to any Securities held by the
Depository which in its opinion may involve it in expense or liability, unless
indemnity satisfactory to it against all expense and liability be furnished as
often as may be required.
5. The Custodian shall not be under any duty or obligation to take
action to effect collection of any amount due to the Fund from the Transfer
Agent of the Fund nor to take any or distribution by the Transfer Agent action
to effect payment of the Fund of any amount paid by the Custodian to the
Transfer Agent of the Fund in accordance with this Agreement.
6. The Custodian shall not be under any duty or obligation to take
action to effect collection of any amount, if the securities upon which such
amount is payable are in default, or if payment is refused after due demand or
presentation, unless and until (i) it shall be directed to take such action by a
certificate and (ii) it shall be assured to its satisfaction of reimbursement of
its costs and expenses in connection with any such action.
7. The Custodian may appoint one or more banking institutions as
Depository or Depositories, as Sub-Custodian or Sub-Custodians, or as
Co-Custodian or Co-Custodians including, but not limited to, banking
institutions located in foreign countries, of Securities and moneys at any time
owned by the Fund, upon such terms and conditions as may be approved in a
certificate or contained in an agreement executed by the Custodian, the Fund and
the appointed institution.
8. The Custodian shall not be under any duty or obligation (a) to
ascertain whether any Securities at any time delivered to, or held by it, for
the account of the Fund and specifically allocated to a Series are such as
properly may be held by the Fund or such Series under the provisions of its then
current prospectus, or (b) to ascertain whether any transactions by the Fund,
whether or not involving the Custodian, are such transactions as may properly be
engaged in by the Fund.
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9. The Custodian shall be entitled to receive and the Fund agrees to
pay to the Custodian all out-of-pocket expenses and such compensation as may be
agreed upon from time to time between the Custodian and the Fund. The Custodian
nay charge such compensation and any expenses with respect to a Series incurred
by the Custodian in the performance of its duties pursuant to such agreement
against any money specifically allocated to such Series. Unless and until the
Fund instructs the Custodian by a Certificate to apportion any loss, damage,
liability or expense among the Series in a specified manner, the Custodian shall
also be entitled to charge against any money held by it for the account of a
Series such Series, pro rata share (based on such Series net asset value at the
time of the charge to the aggregate net asset value of all Series at that time)
of the amount of any loss, damage, liability or expense, including counsel fees,
for which it shall be entitled to reimbursement under the provisions of this
Agreement. The expenses for which the Custodian shall be entitled to
reimbursement hereunder shall include, but are not limited to, the expenses of
sub-custodians and foreign branches of the Custodian incurred in settling
outside of New York City transactions involving the purchase and sale of
Securities of the Fund.
10. The Custodian shall be entitled to rely upon any Certificate,
notice or other instrument in writing received by the Custodian and reasonably
believed by the Custodian to be a Certificate. The Custodian shall be entitled
to rely upon Any Oral Instructions actually received by the Custodian
hereinabove provided for. The Fund agrees to forward to the Custodian a
Certificate or facsimile thereof confirming such Oral Instructions in such
manner so that such Certificate or facsimile thereof is received by the
Custodian, whether by hand delivery, telecopier or other similar device, or
otherwise, by the close of business of the same day that such Oral Instructions
are given to the Custodian. The Fund agrees that the fact that such confirming
instructions are not received by the custodian shall in no way affect the
validity of the transactions or enforceability of the transactions hereby
authorized by the Fund. The Fund agrees that the Custodian shall incur no
liability to the Fund in acting upon Oral Instructions given to the Custodian
hereunder concerning such transactions provided such instructions reasonably
appear to have been received from an officer.
11. The Custodian shall be entitled to rely upon any instrument,
instruction or notice received by the Custodian and reasonably believed by the
Custodian to be given in accordance with the terms and conditions of any Margin
Account Agreement. Without limiting the generality of the foregoing, the
Custodian shall be under no duty to inquire into, and shall not be liable for,
the accuracy of any statements or representations contained in any such
instrument or other notice including, without limitation, any specification of
any amount to be paid to a broker, dealer, futures commission merchant or
Clearing Member.
12. The books and records pertaining to the Fund which are in the
possession of the Custodian shall be the property of the Fund. Such books and
records shall be prepared and maintained as required by the Investment Company
Act of 1940, as amended, and other applicable securities laws and rules and
regulations. The Fund, or the Fund's authorized representatives, shall have
access to such books and records during the Custodian's normal business hours.
Upon the reasonable request of the Fund, copies of any such books and records
shall be provided by the Custodian to the Fund or the Fund's authorized
representative, and the Fund shall reimburse the Custodian its expenses of
providing such copies. Upon reasonable request of the Fund, the Custodian shall
provide in hard copy or on microfilm, whichever the
27
<PAGE> 28
Custodian elects, any records included in any such delivery which are maintained
by the Custodian on a computer disc, or are similarly maintained, and the Fund
shall reimburse the Custodian for its expenses of providing such hard Copy or
microfilm.
13. The Custodian shall provide the Fund with any report obtained by
the Custodian on the system of internal accounting control of the Book-Entry
System, the Depository or O.C.C., and with such reports on its own systems of
internal accounting control as the Fund may reasonably request from time to
time.
14. The Fund agrees to indemnify the Custodian against and save the
Custodian harmless from all liability, claims, losses and demands whatsoever,
including attorney's fees, howsoever arising or incurred because of or in
connection with this Agreement, including the custodian's payment or non-payment
of checks pursuant to paragraph 6 of Article XIII as part of any check
redemption privilege program of the Fund, except for any such liability, claim,
loss and demand arising out of the custodian's own negligence or willful
misconduct.
15. Subject to the foregoing provisions of this Agreement, the
Custodian may deliver and receive Securities, and receipts with respect to such
Securities, and arrange for payments to be made and received by the Custodian in
accordance with the customs prevailing from time to time among brokers or
dealers in such Securities. When the Custodian is instructed to deliver
securities against payment, delivery of such Securities and receipt of payment
therefor may not be completed simultaneously. The Fund assumes all
responsibility and liability for all credit risks involved in connection with
the Custodian's delivery of Securities pursuant to instructions of the Fund,
which responsibility and liability shall continue until final payment in full
has been received by the Custodian.
16. The Custodian shall have no duties or responsibilities whatsoever
except such duties and responsibilities as are specifically set forth in this
Agreement, and no covenant or obligation shall be implied in this Agreement
against the Custodian.
ARTICLE XVII
TERMINATION
1. Either of the parties hereto may terminate this Agreement by giving
to the other party a notice in writing specifying the date of such termination,
which shall be not less than ninety (90) days after the date of giving of such
notice. In the event such notice is given by the Fund, it shall be accompanied
by a copy of a resolution of the Board of Directors of the Fund, certified by
the Secretary or any Assistant Secretary, electing to terminate this Agreement
and designating a successor Custodian or custodians, each of which shall be a
bank or trust company having not less than $2,000,000 aggregate capital, surplus
and undivided profits. In the event such notice is given by the Custodian, the
Fund shall, on or before the termination date, deliver to the Custodian a copy
of a resolution of the Board of Directors of the Fund, certified by the
secretary or any Assistant Secretary, designating a successor custodian or
custodians. In the absence of such designation by the Fund, the Custodian may
designate a successor custodian which shall be a bank or trust company having
not less than $2,000,000 aggregate capital,
28
<PAGE> 29
surplus and undivided profits, upon the date set forth in such notice this
Agreement shall terminate, and the Custodian shall upon receipt of a notice of
acceptance by the successor custodian on that date deliver directly to the
successor custodian all Securities and moneys then owned by the Fund and held by
it as Custodian, after deducting all fees, expenses and other amounts for the
payment or reimbursement of which it shall then be entitled.
2. If a successor custodian is not designated by the Fund or the
Custodian in accordance with the preceding paragraph, the Fund shall upon the
date specified in the notice of termination of this Agreement and upon the
delivery by the custodian of all Securities (other than Securities held in the
Book-Entry System which cannot be delivered to the Fund) and moneys then owned
by the Fund be deemed to be its own custodian and the Custodian shall thereby be
relieved of all duties and responsibilities pursuant to this Agreement, other
than the duty with respect to Securities held in the Book-Entry System which
cannot be delivered to the Fund to hold such Securities hereunder in accordance
with this Agreement.
ARTICLE XVIII
MISCELLANEOUS
1. Annexed hereto as Appendix A is a Certificate signed by two of the
present Officers of the Fund under its corporate seal, setting forth the names
and the signatures of the present Officers of the Fund. The Fund agrees to
furnish to the Custodian a new Certificate in similar form in the event any such
present officer ceases to be an Officer of the Fund, or in the event that other
or additional Officers are elected or appointed. Until such new Certificate
shall be received, the Custodian shall be fully protected in acting under the
provisions of this Agreement upon the signatures of the officers as set forth in
the last delivered Certificate.
2. Any notice or other instrument in writing, authorized or required by
this Agreement to be given to the Custodian, shall be sufficiently given if
addressed to the Custodian and mailed or delivered to it at its offices at 90
Washington Street, New York, New York 10286, or at such other place as the
Custodian may from time to time designate in writing.
3. Any notice or other instrument in writing, authorized or required by
this Agreement to be given to the Fund shall be sufficiently given if addressed
to the Fund and mailed or delivered to it at its office at the address for the
Fund first above written, or at such other place as the time to time designate
in writing.
4. This Agreement may not be amended or modified in any manner except
by a written agreement executed by both parties with the same formality as this
Agreement and Approved by a resolution of the Board of Directors of the Fund.
5. This Agreement shall extend to and shall be binding upon the parties
hereto, and their respective successors and assigns; provided, however, that
this Agreement shall not be assignable by the Fund without the written consent
of the custodian, or by the custodian without the written consent of the Fund,
authorized or approved by a resolution of the Fund's Board of Directors.
29
<PAGE> 30
6. This Agreement shall be construed in accordance with the laws of the
State of New York without giving effect to conflict of laws principles thereof.
Each party hereby consents to the jurisdiction of a state or federal court
situated in New York City, New York in connection with any dispute arising
hereunder and hereby waives its right to trial by jury.
7. This Agreement may be executed in any number of counterparts, each
of which shall be deemed to be an original, but such counterparts shall,
together, constitute only one instrument.
30
<PAGE> 31
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective corporate Officers, thereunto duly authorized and
their respective corporate seals to be hereunto affixed, as of the day and year
first above written.
MUNIYIELD MICHIGAN
INSURED INC.
By:________________________________________
GERALD M. RICHARD, TREASURER
[SEAL]
Attest:
___________________________________
THE BANK OF NEW YORK
By: ______________________________________
[SEAL]
Attest:
____________________________________
31
<PAGE> 32
APPENDIX A
I, , and I, , of MuniYield Michigan Insured
Fund, Inc., a Maryland corporation (the "Fund"), do hereby certify that:
The following individuals serve in the following positions with the
Fund and each has been duly elected or appointed by the Board of Directors of
the Fund to each such position and qualified therefor in conformity with the
Fund's Articles of Incorporation and By-Laws, and the signatures set forth
opposite their respective names are their true and correct signatures:
Name Position Signature
______________________________ ___________________ ________________________
<PAGE> 33
APPENDIX B
I, Jorge Ramos, a Vice President with THE BANK OF NEW YORK do hereby
designate the following publications:
The Bond Buyer
Depository Trust Company Notices
Financial Daily Card Service
JJ Kenney Municipal Bond Service
London Financial Times
New York Times
Standard Poor's Called Bond Record
The Wall Street Journal
<PAGE> 34
EXHIBIT A
CERTIFICATION
The undersigned, , hereby certifies that he is the
duly elected and acting of MuniYield Michigan Insured Fund,
Inc., a Maryland corporation (the "Fund"), and further certifies that the
following resolution was adopted by the Board of Directors of the Fund at a
meeting duly held on , 1992, at which a quorum was at all
times present and that such resolution has not been modified or rescinded and is
in full force and effect as of the date hereof.
RESOLVED, that, The Bank of New York, as Custodian pursuant to a
Custody Agreement between The Bank of New York and the Fund dated as of ,
1992, (the "Custody Agreement") is authorized and instructed on a continuous and
ongoing basis to deposit in the Book-Entry System, as defined in the Custody
Agreement, all securities eligible for deposit therein, regardless of the Series
to which the same are specifically allocated, and to utilize the Book-Entry
System to the extent possible in connection with its performance thereunder,
including, without limitation, in connection with settlements of purchases and
sales of securities, loans of securities, and deliveries and returns of
securities collateral.
IN WITNESS WHEREOF, I have hereunto set my hand and the seal of
MuniYield Michigan Insured Fund, Inc. as of the day of , 1992.
[SEAL]
<PAGE> 35
EXHIBIT B
CERTIFICATION
The undersigned, , hereby certifies that he is the duly
elected and acting of MuniYield Michigan Insured Fund, Inc.,
a Maryland corporation the "Fund"), and further certifies that the following
resolution was adopted by the Board of Directors of the Fund at a meeting duly
held on , 1992, at which a quorum was at all times present and
that such resolution has not been modified or rescinded and is in full force and
effect as of the date hereof.
RESOLVED, that The Bank of New York, as Custodian pursuant to a Custody
Agreement between The Bank of New York and the Fund dated as of ,
1992, (the "Custody Agreement") is authorized and instructed on a continuous and
ongoing basis until such time as it receives a certificate, as defined in the
custody Agreement, to the contrary to deposit in the Depository, as defined in
the Custody Agreement, all securities eligible for deposit therein, regardless
of the Series to which the same are specifically allocated, and to utilize the
Depository to the extent possible in connection with its performance thereunder,
including, without limitation, in connection with settlements of purchases and
sales of securities, loans of securities, and deliveries and returns of
securities collateral.
IN WITNESS WHEREOF, I have hereunto set my hand and the seal of
MuniYield Michigan Insured Fund, Inc. as of the day of , 1992.
[SEAL]
<PAGE> 36
EXHIBIT B-1
CERTIFICATION
The undersigned, , hereby certifies that he or she is
the duly elected and acting of MuniYield Michigan Insured
Fund, Inc., a Maryland corporation (the "Fund"), and further certifies that the
following resolution was adopted by the Board of Trustees of the Fund at a
meeting duly held on , 1992, at which a quorum was at all times present
and that such resolution has not been modified or rescinded and is in full force
and effect as of the date hereof.
RESOLVED, that The Bank of New York, as Custodian pursuant to a Custody
Agreement between The Bank of New York and the Fund dated as of ,
1992, (the "Custody Agreement") is authorized and instructed on a continuous and
ongoing basis until such time as it receives a Certificate, as defined in the
Custody Agreement, to the contrary to deposit in the, Participants Trust Company
as Depository, as defined in the Custody Agreement, all securities eligible for
deposit therein, regardless of the Series to which the same are specifically
allocated, and to utilize the Participants Trust Company to the extent possible
in connection with its performance thereunder, including, without limitation, in
connection with settlements of purchases and sales of securities, loans of
securities, and deliveries and returns of securities collateral.
IN WITNESS WHEREOF, I have hereunto set my hand and the seal of
MuniYield Michigan Insured Fund, Inc., as of the day of , 1992.
[SEAL]
<PAGE> 37
EXHIBIT C
CERTIFICATION
The undersigned, , hereby certifies that he is the duly
elected and acting of a Maryland corporation MuniYield Michigan
Insured Fund, Inc., (the "Fund"), and further certifies that the following
resolution was adopted by the Board of Directors of the Fund at a meeting duly
held on , 1992, at which a quorum was at all times present and that such
resolution has not been modified rescinded and is in full force and effect as of
the date or hereof.
RESOLVED, that The Bank of New York, as Custodian pursuant to a Custody
Agreement between The Bank of New York and the Fund dated as of ,
1992, (the "Custody Agreement") is authorized and instructed on a continuous and
ongoing basis until such time as it receives a Certificate, as defined in the
Custody Agreement, to the contrary, to accept, utilize and act with respect to
Clearing Member confirmations for Options and transaction in Options, regardless
of the Series to which the same are specifically allocated, as such terms are
defined in the Custody Agreement, as provided in the Custody Agreement.
IN WITNESS WHEREOF, I have hereunto set my hand and the seal of
MuniYield Michigan Insured Fund, Inc. as of the day of , 1992.
[SEAL]
<PAGE> 38
EXHIBIT D
The undersigned, , hereby certifies that he or she is the
duly elected and acting of MuniYield Michigan Insured Fund, Inc., a
Maryland corporation (the "Fund"), further certifies that the following
resolutions were adopted by the Board of Directors of the Fund at a meeting duly
held on , 1992, at which a quorum was at all times present and that such
resolutions have not been modified or rescinded and are in full force and effect
as of the date hereof.
RESOLVED, that The Bank of New York, as Custodian pursuant to the
Custody Agreement between The Bank of New York and the Fund dated as of
, 1992 (the "Custody Agreement") is authorized and instructed on a
continuous and ongoing basis to act in accordance with, and to rely on
Certificates (as defined in the Custody Agreement) given by the Fund to the
custodian by a Terminal Link (as defined in the Custody Agreement).
RESOLVED, that the Fund shall establish access codes and grant use of
such access codes only to Officers of the Fund as defined in the Custody
Agreement, shall establish internal safekeeping procedures to safeguard and
protect the confidentiality and availability of such access codes, shall limit
its use of the Terminal Link to those purposes permitted by the Amendment, shall
require at least two such Officers to utilize their respective access codes in
connection with each such Certificate, and shall use the Terminal Link only in a
manner that does not contravene the Investment Company Act of 1940, as amended,
or the rules and regulations thereunder.
RESOLVED, that Officers of the Fund shall, following the establishment
of such access codes and such internal safekeeping procedures, advise the
Custodian that the same have been established by delivering a Certificate, as
defined in the Custody Agreement, and the Custodian shall be entitled to rely
upon such advice.
IN WITNESS WHEREOF, I hereunto set my hand and the seal of MuniYield
Michigan Insured Fund, Inc., as of the day of , 1992.
[SEAL]
<PAGE> 1
Exhibit 13(a)
AGREEMENT, made as of between MuniYield Michigan Insured Fund, Inc., a
corporation organized and existing under the laws of the state of Maryland
(hereinafter referred to as the "Customer"), and The Bank of New York, a New
York trust company (hereinafter referred to as the "Bank").
W I T N E S S E T H :
That for and in consideration of the mutual promises hereinafter set forth, the
parties hereto covenant and agree as follows:
ARTICLE I
DEFINITIONS
Whenever used in this Agreement, the following words and phrases shall have the
following meanings:
1. "Business Day" shall be deemed to be each day on which the Bank is open for
business.
2. "Certificate" shall mean any notice, instruction, or other instrument in
writing, authorized or required by this Agreement to be given to the Bank by the
Customer which is signed by any Officer, as hereinafter defined, and actually
received by the Bank.
3. "Officer" shall be deemed to be the Customer's Chief Executive Officer,
President, any Vice President, the Secretary, the Treasurer, the Controller, any
Assistant Treasurer and any Assistant Secretary duly authorized by the Board of
Directors of the Customer to execute any Certificate, instruction, notice or
other instrument on behalf of the Customer and named in a Certificate, as such
Certificate may be amended from time to time.
4. "Prospectus" shall mean the last Customer prospectus actually received by the
Bank from the Customer with respect to which the Customer has indicated a
registration statement under the Securities Act of 1933, as amended, has become
effective, including the statement of Additional Information incorporated by
reference therein.
5. "Shares" shall mean all or any part of each class of the shares of capital
stock of the Customer which from time to time are authorized and/or issued by
the Customer and identified in a Certificate of the Secretary of the Customer
under corporate seal, as such Certificate may be amended from time to time.
ARTICLE II
APPOINTMENT OF BANK
1. The Customer hereby constitutes and appoints the Bank as its agent to perform
the services described herein and as more particularly described in Schedule I
attached hereto (the "Services"), and the Bank hereby accepts appointment as
such agent and agrees to perform the Services in accordance with the terms
hereinafter set forth.
2. In connection with such appointment, the Customer shall deliver the following
documents to the Bank on or about the closing date of the initial public
offering:
<PAGE> 2
(a) A certified copy of the Certificate of Incorporation or other document
evidencing the Customer's form of organization (the "Charter") and all
amendments thereto;
<PAGE> 3
ARTICLE III
2. Prior to the issuance of any additional Shares pursuant to stock dividends,
stock splits or otherwise, and prior to any reduction in the number of Shares
outstanding, the Customer shall deliver the following documents to the Bank:
(a) A certified copy of the resolutions adopted by the Board of Directors
and/or the shareholders of the Customer authorizing such issuance of additional
Shares of the Customer or such reduction, as the case may be;
(b) A certified copy of the order or consent, if applicable, of each
governmental or regulatory authority required by law as a prerequisite to the
issuance or reduction of such Shares; and
(c) An opinion of counsel for the Customer with respect to the validity of
the Shares and the status of such the Shares under the Securities Act of 1933,
as amended, and any other applicable law or regulation (i.e., if subject to
registration, that they have been registered and that the Registration Statement
has become effective, or, if exempt, the specific grounds therefor).
ARTICLE IV
RECAPITALIZATION OR CAPITAL ADJUSTMENT
1. In the case of any negative stock split, recapitalization or other capital
adjustment requiring a change in the form of Share certificates, the Bank will
issue Share certificates in the new form in exchange for, or upon transfer of,
outstanding Share certificates in the old form, upon receiving:
(a) A Certificate authorizing the issuance of Share certificates in the
new form;
(b) A certified copy of any amendment to the Charter with respect to the
change;
(c) Specimen Share certificates for each class of Shares in the new form
approved by the Board of Directors of the Customer, with a Certificate signed by
the Secretary of the Customer as to such approval;
(d) A certified copy of the order or consent of each governmental or
regulatory authority required by law as a prerequisite to the issuance of the
Shares in the new form, and an opinion of counsel for the Customer that the
order or consent of no other governmental or regulatory authority is required;
and
(e) An opinion of counsel for the Customer with respect to the validity of
the Shares in the new form and the status of such Shares under the Securities
Act of 1933, as amended, and any other applicable law or regulation (i.e., if
subject to registration that the Shares have been registered and that the
Registration Statement has become effective or, if exempt, the specific grounds
therefor).
2. The Customer shall furnish the Bank with a sufficient supply of blank Share
certificates in the new form, and from time to time will replenish such supply
upon the request of the Bank.
<PAGE> 4
Such blank Share certificates shall be properly signed, by facsimile or
otherwise, by Officers of the Customer authorized by law or by the By-Laws to
sign Share Certificates and, if required, shall bear the corporate seal or a
facsimile thereof.
ARTICLE V
ISSUANCE AND TRANSFER OF SHARES
1. (a) The Bank will issue Share certificates upon receipt of a Certificate from
an Officer, but shall not be required to issue Share certificates after it has
received from an appropriate federal or state authority written notification
that the sale of Shares has been suspended or discontinued, and the Bank shall
be entitled to rely upon such written notification. The Bank shall not be
responsible for the payment of any original issue or other taxes required to be
paid by the Customer in connection with the issuance of any shares.
(b) Shares will be transferred upon presentation to the Bank of Share
certificates in form deemed by the Bank properly endorsed for transfer,
accompanied by such documents as the Bank deems necessary to evidence the
authority of the person making such transfer, and bearing satisfactory evidence
of the payment of applicable stock transfer taxes. In the case of small estates
where no administration is contemplated, the Bank may, when furnished with an
appropriate surety bond, and without further approval of the Customer, transfer
Shares registered in the name of the decedent where the current market value of
the Shares being transferred does not exceed such amount as may from time to
time be prescribed by the various states. The Bank reserves the right to refuse
to transfer Shares until it is satisfied that the endorsements on Share
certificates are valid and genuine, and for that purpose it may require, unless
otherwise instructed by an Officer of the Customer, a guaranty of signature by a
member firm of the New York Stock Exchange or by a bank or trust company
acceptable to the Bank. The Bank also reserves the right to refuse to transfer
Shares until it is satisfied that the requested transfer is legally authorized,
and it shall incur no liability for the refusal in good faith to make transfers
which the Bank, in its judgment, deems improper or unauthorized, or until it is
satisfied that there is no basis to any claims adverse to such transfer. The
Bank may, in effecting transfers of Shares, rely upon those provisions of the
Uniform Act for the Simplification of Fiduciary Security Transfers or the
Uniform Commercial Code, as the same may be amended from time to time,
applicable to the transfer of securities, and the Customer shall indemnify the
Bank for any act done or omitted by it in good faith in reliance upon such laws.
(c) All certificates representing Shares that are subject to restrictions on
transfer (e.g., securities acquired pursuant to an investment representation,
securities held by controlling persons, securities subject to stockholders'
agreements, etc.), other than the general restrictions on the transferability of
the Shares described in the Prospectus, shall be stamped with a legend
describing the extent and conditions of the restrictions or referring to the
source of such restrictions. The Bank assumes no responsibility with respect to
the transfer of restricted securities where counsel for the Customer advises
that such transfer may be properly effected.
(d) Notwithstanding the foregoing or any other provision contained in this
Agreement to the contrary, the Bank shall be fully protected by the Customer in
not requiring any instruments, documents, assurances, endorsements or
guarantees, including, without limitation, any signature guarantees, in
connection with a transfer of Shares whenever the Bank reasonably
<PAGE> 5
believes that requiring the same would be inconsistent with the transfer
procedures as described in the Prospectus.
<PAGE> 6
ARTICLE VI
ARTICLE VII
2. Each copy of the Charter of the Customer and copies of all amendments thereto
shall be certified by the Secretary of State (or other appropriate official) of
the state of incorporation, and if such Charter and/or amendments are required
by law also to be filed with a county or other officer or official body, a
certificate of such filing shall be filed with a certified copy submitted to the
Bank. Each copy of the By-Laws and copies of all amendments thereto, and copies
of resolutions of the Board of Directors of the Customer, shall be certified by
the Secretary or an Assistant Secretary of the Customer under the corporate
seal.
3. it shall be the sole responsibility of the Customer to deliver to the Bank
the Customer's currently effective Prospectus and, for purposes of this
Agreement, the Bank shall not be deemed to have notice of any information
contained in such Prospectus until it is actually received by the Bank.
ARTICLE VIII
CONCERNING THE BANK
1. The Bank shall not be liable and shall be fully protected in acting upon any
oral instruction, writing or document reasonably believed by it to be genuine
and to have been given, signed or made by the proper person or persons and shall
not be held to have any notice of any change of authority of any person until
receipt of written notice thereof from an Officer of the Customer. It shall also
be protected in processing Share certificates which it reasonably believes to
bear the proper manual or facsimile signatures of the duly authorized officers
of the Customer and the proper countersignature of the Bank.
2. The Bank may establish such additional procedures, rules and regulations
governing the transfer or registration of Share certificates as it may deem
advisable and consistent with such rules and regulations generally adopted by
bank transfer agents.
3. The Bank may keep such records as it deems advisable but not inconsistent
with resolutions adopted by the Board of Directors of the Customer. The Bank may
deliver to the Customer from time to time at its discretion, for safekeeping or
disposition by the Customer in accordance with law, such records, papers, Share
certificates which have been cancelled in transfer or exchange and other
documents accumulated in the execution of its duties hereunder as the Bank may
deem expedient, other than those which the Bank is itself required to maintain
pursuant to applicable laws and regulations, and the Customer shall assume all
responsibility for any failure thereafter to produce any record, paper,
cancelled Share certificate or other document so returned, if and when required.
The records maintained by the Bank pursuant to this paragraph which have not
been previously delivered to the Customer pursuant to the foregoing provisions
of this paragraph shall be considered to be the property of the Customer, shall
be made available upon request for inspection by the Officers, employees and
auditors of the Customer, and shall be delivered to the Customer upon request
and in any event upon the date of termination of this Agreement, as specified in
Article IX of this Agreement, in the form and
<PAGE> 7
manner kept by the Bank on such date of termination or such earlier date as may
be requested by the Customer.
4. The Bank may employ agents or attorneys-in-fact at the reasonable expense of
the Customer, and shall not be liable for any loss or expense arising out of, or
in connection with, the actions or omissions to act of its agents or
attorneys-in-fact, so long as the Bank acts in good faith and without negligence
or willful misconduct in connection with the selection of such agents or
attorneys-in-fact.
5. The Bank shall not be liable for any loss or damage, including reasonable
attorney's fees, resulting from its actions or omissions to act or otherwise,
except for any loss or damage arising out of its own negligence or willful
misconduct.
6. The Customer shall indemnify and hold harmless the Bank from and against any
and all claims (whether with or without basis in fact or law), costs, demands,
expenses and liabilities, including reasonable attorney's fees, which the Bank
may sustain or incur or which may be asserted against the Bank by reason of or
as a result of any action taken or omitted to be taken by the Bank without its
negligence or willful misconduct in reliance upon (i) any provision of this
agreement, (ii) the Prospectus, (iii) any instrument, order or Share certificate
reasonably believed by it to be genuine and to be signed, countersigned or
executed by any duly authorized Officer of the Customer, (iv) any Certificate or
other instructions of an Officer, (v) any opinion of legal counsel for the
Customer or the Bank, or (vi) any law, act, regulation or any interpretation of
the same even though such law, act or regulation may thereafter have been
altered, changed, amended or repealed.
7. Specifically, but not by way of limitation, the Customer shall indemnify and
hold harmless the Bank from and against any and all claims (whether with or
without basis in fact or law), costs, demands, expenses and liabilities,
including reasonable attorney's fees, of any and every nature which the Bank may
sustain or incur or which may be asserted against the Bank in connection with
the genuineness of a Share certificate, the Bank's capacity and authorization to
issue Shares and the form and amount of authorized Shares.
8. At any time the Bank may apply to an Officer of the Customer for written
instructions with respect to any matter arising in connection with the Bank's
duties and obligations under this Agreement, and the Bank shall not be liable
for any action taken or omitted to be taken by the Bank in good faith in
accordance with such instructions. Such application by the Bank for instructions
from an Officer of the Customer may, at the option of the Bank, set forth in
writing any action proposed to be taken or omitted to be taken by the Bank with
respect to its duties or obligations under this Agreement and the date on and/or
after which such action shall be taken, and the Bank shall not be liable for any
action taken or omitted to be taken in accordance with a proposal included in
any such application on or after the date specified therein unless, prior to
taking or omitting to take any such action, the Bank has received written
instructions in response to such application specifying the action to be taken
or omitted. The Bank may consult counsel to the Customer or its own counsel, at
the expense of the Customer, and shall be fully protected with respect to
anything done or omitted by it in good faith in accordance with the advice or
opinion of such counsel.
<PAGE> 8
9. When mail is used for delivery of non-negotiable Share certificates, the
value of which does not exceed the limits of the Banks Blanket Bond, the Bank
shall send such non-negotiable Share certificates by first class mail, and such
deliveries will be covered while in transit by the Bank's Blanket Bond.
Non-negotiable Share certificates, the value of which exceed the limits of the
Bank's Blanket Bond, will be sent by insured registered mail. Negotiable Share
certificates will be sent by insured registered mail. The Bank shall advise the
Customer of any Share certificates returned as undeliverable after being mailed
as herein provided for.
10. The Bank may issue new Share certificates in place of Share certificates
represented to have been lost, stolen or destroyed upon receiving instructions
in writing from an Officer and indemnity satisfactory to the Bank. Such
instructions from the Customer shall be in such form as approved by the Board of
Directors of the Customer in accordance with applicable law or the By-Laws of
the Customer governing such matters. If the Bank receives written notification
from the owner of the lost, stolen or destroyed Share certificate within a
reasonable time after he has notice of it, the Bank shall promptly notify the
Customer and shall act pursuant to written instructions signed by an Officer. If
the Customer receives such written notification from the owner of the lost,
stolen or destroyed Share certificate within a reasonable time after he has
notice of it, the Customer shall promptly notify the Bank and the Bank shall act
pursuant to written instructions signed by an Officer. The Bank shall not be
liable for any act done or omitted by it pursuant to the written instructions
described herein. The Bank may issue new Share certificates in exchange for, and
upon surrender of, mutilated Share certificates.
11. The Bank will issue and mail subscription warrants for Shares, Shares
representing stock dividends, exchanges or splits, or act as conversion agent
upon receiving written instructions from an Officer and such other documents as
the Bank may deem necessary.
12. The Bank will supply shareholder lists to the Customer from time to time
upon receiving a request therefor from an Officer of the Customer.
13. In case of any requests or demands for the inspection of the shareholder
records of the Customer, the Bank will notify the Customer and endeavor to
secure instructions from an officer as to such inspection. The Bank reserves the
right, however, to exhibit the shareholder records to any person whenever it is
advised by its counsel that there is a reasonable likelihood that the Bank will
be held liable for the failure to exhibit the shareholder records to such
person.
14. At the request of an Officer, the Bank will address and mail such
appropriate notices to shareholders as the Customer may direct.
15. Notwithstanding any provisions of this Agreement to the contrary, the Bank
shall be under no duty or obligation to inquire into, and shall not be liable
for:
(a) The legality of the issue, sale or transfer of any Shares, the
sufficiency of the amount to be received in connection therewith, or the
authority of the Customer to request such issuance, sale or transfer;
(b) The legality of the purchase of any Shares, the sufficiency of the
amount to be paid in connection therewith, or the authority of the Customer to
request such purchase;
<PAGE> 9
(c) The legality of the declaration of any dividend by the Customer, or the
legality of the issue of any Shares in payment of any stock dividend; or
(d) The legality of any recapitalization or readjustment of the Shares.
16. The Bank shall be entitled to receive and the Customer hereby agrees to pay
to the Bank for its performance hereunder (i) out-of-pocket expenses (including
reasonable attorney's fees and expenses) incurred in connection with this
Agreement and its performance hereunder, and (ii) the compensation for services
as set forth in Schedule I.
17. The Bank shall not be responsible for any money, whether or not represented
by any check, draft or other instrument for the payment of money, received by it
on behalf of the Customer, until the Bank actually receives and collects such
funds.
18. The Bank shall have no duties or responsibilities whatsoever except such
duties and responsibilities as are specifically set forth in this Agreement, and
no covenant or obligation shall be implied against the Bank in connection with
this Agreement.
ARTICLE IX
TERMINATION
Either of the parties hereto may terminate this Agreement by giving to the other
party a notice in writing specifying the date of such termination, which shall
be not less than 60 days after the date of receipt of such notice. In the event
such notice is given by the Customer, it shall be accompanied by a copy of a
resolution of the Board of Directors of the Customer, certified by the Secretary
electing to terminate this Agreement and designating a successor transfer agent
or transfer agents. In the event such notice is given by the Bank, the Customer
shall, on or before the termination date, deliver to the Bank a copy of a
resolution of its Board of Directors certified by the Secretary designating a
successor transfer agent or transfer agents. In the absence of such designation
by the Customer, the Bank may designate a successor transfer agent. If the
Customer fails to designate a successor transfer agent and if the Bank is unable
to find a successor transfer agent, the Customer shall, upon the date specified
in the notice of termination of this Agreement and delivery of the records
maintained hereunder, be deemed to be its own transfer agent and the Bank shall
thereafter be relieved of all duties and responsibilities hereunder. Upon
termination hereof, the Customer shall pay to the Bank such compensation as may
be due to the Bank as of the date of such termination, and shall reimburse the
Bank for any disbursements and expenses made or incurred b the Bank and payable
or reimbursable hereunder.
ARTICLE X
MISCELLANEOUS
1. The Customer agrees that prior to effecting any change in the Prospectus
which would increase or alter the duties and obligations of the Bank hereunder,
it shall advise the Bank of such proposed change at least ten business days
prior to the intended date of the same, and shall proceed with such change only
if it shall have received the written consent of the Bank thereto.
<PAGE> 10
2. The indemnities contained herein shall be continuing obligations of the
Customer, its successors and assigns, notwithstanding the termination of this
Agreement.
3. Any notice or other instrument in writing, authorized or required by this
Agreement to be given to the Customer shall be sufficiently given if addressed
to the Customer and mailed or delivered to it at 800 Scudders Mill Road,
Plainsboro, NJ 08536 or at such place as the Customer may from time to time
designate in writing.
4. Any notice or other instrument in writing, authorized or required by this
Agreement to be given to the Bank shall be sufficiently given if addressed to
the Bank and mailed or delivered to it at its office at 101 Barclay Street
(22W), New York, New York 10286 or at such other place as the Bank may from time
to time designate in writing.
5. This Agreement may not be amended or modified in any manner except by a
written agreement duly authorized and executed by both parties. Any duly
authorized Officer may amend any Certificate naming Officers authorized to
execute and deliver Certificates, instructions, notices or other instruments,
and the Secretary or any Assistant Secretary may amend any Certificate listing
the shares of capital stock of the Customer for which the Bank performs Services
hereunder.
6. This Agreement shall extend to and shall be binding upon the parties hereto
and their respective successors and assigns; provided however, that this
Agreement shall not be assignable by either party without the prior written
consent of the other party.
7. This Agreement shall be governed by and construed in accordance with the laws
of the State of New York.
8. This Agreement may be executed in any number of counterparts each of which
shall be deemed to be an original; but such counterparts, together, shall
constitute only one instrument.
9. The provisions of this Agreement are intended to benefit only the Bank and
the Customer, and no rights shall be granted to any other person, by virtue of
this Agreement.
<PAGE> 11
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their respective corporate officer, thereunto duly authorized and their
respective corporate seals to be hereunto affixed, as of the day and year first
above written.
Attest: MUNIYIELD INSURED FUND, INC.
BY:
- ----------------------------- --------------------------------
Title: TREASURER
-----------------------------
Attest: THE BANK OF NEW YORK
BY:
- ----------------------------- --------------------------------
Title: Vice President
-----------------------------
<PAGE> 1
EXHIBIT 13(b)
AUCTION AGENT AGREEMENT
between
and
IBJ WHITEHALL BANK & TRUST COMPANY
Dated as of , 1999
Relating to
AUCTION MARKET PREFERRED STOCK(R)
("AMPS"(R)),
Series A and B
of
(R) Registered trademark of Merrill Lynch & Co., Inc.
<PAGE> 2
This Auction Agent Agreement, dated as of , 1999, is between
, a Maryland corporation (the "Company"), and
IBJ WHITEHALL BANK & TRUST COMPANY, a New York banking corporation.
The Company proposes to duly authorize and issue of Auction
Market Preferred Stock(R), Series A ("Series A AMPS"), and of Auction
Market Preferred Stock(R), Series B ("Series B AMPS"), each with a par value of
$.10 per share and a liquidation preference of $25,000 per share plus an amount
equal to accumulated but unpaid dividends (whether or not earned or declared),
pursuant to the Company's Articles Supplementary (as defined below). The Series
A AMPS and Series B AMPS are sometimes herein referred to together as the
"AMPS." A separate Auction (as defined below) will be conducted for each series
of AMPS. The Company desires that IBJ Whitehall Bank & Trust Company perform
certain duties as agent in connection with each Auction of shares of AMPS (in
such capacity, the "Auction Agent"), and as the transfer agent, registrar,
dividend disbursing agent and redemption agent with respect to the shares of
AMPS (in such capacity, the "Paying Agent"), upon the terms and conditions of
this Agreement, and the Company hereby appoints IBJ Whitehall Bank & Trust
Company as said Auction Agent and Paying Agent in accordance with those terms
and conditions (hereinafter generally referred to as the "Auction Agent," except
in Sections 3 and 4 below).
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein, the Company and the Auction Agent agree as follows:
I. DEFINITIONS AND RULES OF CONSTRUCTION.
1.1. Terms Defined by Reference to Articles Supplementary.
Capitalized terms not defined herein shall have the respective meanings
specified in the Articles Supplementary.
(R) Registered trademark of Merrill Lynch & Co., Inc.
2
<PAGE> 3
1.2 Terms Defined Herein.
As used herein and in the Settlement Procedures (as defined below), the
following terms shall have the following meanings, unless the context otherwise
requires:
(a) "Affiliate" shall mean any Person, other than Merrill
Lynch, Pierce, Fenner & Smith Incorporated, made known to the Auction
Agent to be controlled by, in control of, or under common control with,
the Company or its successors.
(b) "Agent Member" of any Person shall mean such Person's
agent member of the Securities Depository that will act on behalf of a
Bidder.
(c) "Articles Supplementary" shall mean the Articles
Supplementary of the Company, establishing the powers, preferences and
rights of the AMPS, filed on , 1999 with the State Department of
Assessments and Taxation of the State of Maryland.
(d) "Auction" shall have the meaning specified in Section 2.1
hereof.
(e) "Auction Procedures" shall mean the Auction Procedures
that are set forth in Paragraph 10 of the Articles Supplementary.
(f) "Authorized Officer" shall mean each Senior Vice
President, Vice President, Assistant Vice President, Trust Officer, and
Assistant Secretary and Assistant Treasurer of the Auction Agent
assigned to its Corporate Trust and Agency Group and every other
officer or employee of the Auction Agent designated as an "Authorized
Officer" for purposes hereof in a communication to the Company.
(g) "Broker-Dealer Agreement" shall mean each agreement
between the Auction Agent and a Broker-Dealer substantially in the form
attached hereto as Exhibit A.
(h) "Company Officer" shall mean the Chairman and Chief
Executive Officer, the President, each Vice President (whether or not
designated by a number or word or words added before or after the title
"Vice President"), the Secretary, the Treasurer, each Assistant
Secretary and each Assistant Treasurer of the Company and every other
officer or employee of the Company designated as a "Company Officer"
for purposes hereof in a notice from the Company to the Auction Agent.
(i) "Holder" shall be a holder of record of one or more shares
of AMPS, listed as such in the stock register maintained by the Paying
Agent pursuant to Section 4.6 hereof.
(j) "Settlement Procedures" shall mean the Settlement
Procedures attached as Exhibit A to the Broker-Dealer Agreement.
3
<PAGE> 4
1.3. Rules of Construction.
Unless the context or use indicates another or different meaning or
intent, the following rules shall apply to the construction of this Agreement:
(a) Words importing the singular number shall include the
plural number and vice versa.
(b) The captions and headings herein are solely for
convenience of reference and shall not constitute a part of this
Agreement nor shall they affect its meaning, construction or effect.
(c) The words "hereof," "herein," "hereto," and other words of
similar import refer to this Agreement as a whole.
(d) All references herein to a particular time of day shall be
to New York City time.
II. THE AUCTION.
2.1. Purpose; Incorporation by Reference of Auction Procedures and
Settlement Procedures.
(a) The Articles Supplementary provide that the Applicable
Rate on shares of each series of AMPS, as the case may be, for each
Dividend Period therefor after the Initial Dividend Period shall be the
rate per annum that a commercial bank, trust company or other financial
institution appointed by the Company advises results from
implementation of the Auction Procedures. The Board of Directors of the
Company has adopted a resolution appointing IBJ Whitehall Bank & Trust
Company as Auction Agent for purposes of the Auction Procedures. The
Auction Agent hereby accepts such appointment and agrees that, on each
Auction Date, it shall follow the procedures set forth in this Section
2 and the Auction Procedures for the purpose of determining the
Applicable Rate for the AMPS for the next Dividend Period therefor.
Each periodic operation of such procedures is hereinafter referred to
as an "Auction."
(b) All of the provisions contained in the Auction Procedures
and in the Settlement Procedures are incorporated herein by reference
in their entirety and shall be deemed to be a part hereof to the same
extent as if such provisions were set forth fully herein.
2.2. Preparation for Each Auction; Maintenance of Registry of
Existing Holders.
(a) Pursuant to Section 2.5 hereof, the Company shall not
designate any Person to act as a Broker-Dealer without the prior
written approval of the Auction Agent (which approval shall not be
withheld unreasonably). As of the date hereof, the Company shall
provide the Auction Agent with a list of the Broker-Dealers previously
approved by the Auction Agent and shall cause to be delivered to the
Auction Agent for
4
<PAGE> 5
execution by the Auction Agent a Broker-Dealer Agreement signed by each
such Broker-Dealer. The Auction Agent shall keep such list current and
accurate and shall indicate thereon, or on a separate list, the
identity of each Existing Holder, if any, whose most recent Order was
submitted by a Broker-Dealer on such list and resulted in such Existing
Holder continuing to hold or purchasing shares of AMPS. Not later than
five Business Days prior to any Auction Date for which any change in
such list of Broker-Dealers is to be effective, the Company shall
notify the Auction Agent in writing of such change and, if any such
change is the addition of a Broker-Dealer to such list, the Company
shall cause to be delivered to the Auction Agent for execution by the
Auction Agent a Broker-Dealer Agreement signed by such Broker-Dealer.
The Auction Agent shall have entered into a Broker-Dealer Agreement
with each Broker-Dealer prior to the participation of any such
Broker-Dealer in any Auction.
(b) In the event that the Auction Date for any Auction shall
be changed after the Auction Agent shall have given the notice referred
to in clause (vii) of Paragraph (a) of the Settlement Procedures, the
Auction Agent, by such means as the Auction Agent deems practicable,
shall give notice of such change to the Broker-Dealers not later than
the earlier of 9:15 A.M. on the new Auction Date or 9:15 A.M. on the
old Auction Date.
(c) The provisions contained in paragraph 2 of the Articles
Supplementary concerning Special Dividend Periods and the notification
of a Special Dividend Period will be followed by the Company and, to
the extent applicable, the Auction Agent, and the provisions contained
therein are incorporated herein by reference in their entirety and
shall be deemed to be a part of this Agreement to the same extent as if
such provisions were set forth fully herein.
(d) (i) Except as otherwise provided in paragraph 2(f) of the
Articles Supplementary, whenever the Company intends to include any net
capital gains or other income subject to regular Federal income tax in
any dividend on shares of AMPS, the Company will notify the Auction
Agent of the amount to be so included at least five Business Days prior
to the Auction Date on which the Applicable Rate for such dividend is
to be established. Whenever the Auction Agent receives such notice from
the Company, in turn it will notify each Broker-Dealer, who, on or
prior to such Auction Date, in accordance with its Broker-Dealer
Agreement, will notify its Beneficial Owners and Potential Beneficial
Owners believed to be interested in submitting an Order in the Auction
to be held on such Auction Date. Whenever the Company includes any
additional amounts in a dividend as provided in paragraph 2(f) of the
Articles Supplementary, the Company will notify the Auction Agent of
such additional amounts to be so included in such dividend at least
five Business Days prior to the applicable Dividend Payment Date.
Whenever the Auction Agent receives such notice from the Company, in
turn it will notify the Securities Depository and each Broker-Dealer,
who, on or prior to the applicable Dividend Payment Date, in accordance
with its Broker-Dealer Agreement, will notify its Beneficial Owners.
(ii) If the Company makes a Retroactive Taxable
Allocation, the Company, within 90 days (and generally within 60 days)
after the end of its fiscal year for which a Retroactive Taxable
Allocation is made, will provide notice thereof to the
5
<PAGE> 6
Auction Agent and to each Holder (initially the Securities Depository)
during such fiscal year at such Holder's address as the same appears or
last appeared on the stock books of the Company. The Company, within 30
days after such notice is given to the Auction Agent, will pay to the
Auction Agent (who then will distribute to such Holders), out of funds
legally available therefor, a cash amount equal to the aggregate
Additional Dividend with respect to all Retroactive Taxable Allocations
made to such Holders during the fiscal year in question.
(e) (i) On each Auction Date, the Auction Agent shall
determine the Reference Rate and the Maximum Applicable Rate. If the
Reference Rate is not quoted on an interest basis but is quoted on a
discount basis, the Auction Agent shall convert the quoted rate to an
Interest Equivalent, as set forth in paragraph 1 of the Articles
Supplementary; or, if the rate obtained by the Auction Agent is not
quoted on an interest or discount basis, the Auction Agent shall
convert the quoted rate to an interest rate after consultation with the
Company as to the method of such conversion. Not later than 9:30 A.M.
on each Auction Date, the Auction Agent shall notify the Company and
the Broker-Dealers of the Reference Rate so determined and of the
Maximum Applicable Rate.
(ii) If the Reference Rate is the applicable "AA"
Composite Commercial Paper Rate and such rate is to be based on rates
supplied by Commercial Paper Dealers and one or more of the Commercial
Paper Dealers shall not provide a quotation for the determination of
the applicable "AA" Composite Commercial Paper Rate, the Auction Agent
immediately shall notify the Company so that the Company can determine
whether to select a Substitute Commercial Paper Dealer or Substitute
Commercial Paper Dealers to provide the quotation or quotations not
being supplied by any Commercial Paper Dealer or Commercial Paper
Dealers. The Company promptly shall advise the Auction Agent of any
such selection. If the Company does not select any such Substitute
Commercial Paper Dealer or Substitute Commercial Paper Dealers, then
the rates shall be supplied by the remaining Commercial Paper Dealer or
Commercial Paper Dealers.
(iii) If, after the date of this Agreement, there is
any change in the prevailing rating of AMPS by either of the rating
agencies (or substitute or successor rating agencies) referred to in
the definition of the Maximum Applicable Rate, thereby resulting in any
change in the corresponding applicable percentage for the AMPS, as set
forth in said definition (the "Percentage"), the Company shall notify
the Auction Agent in writing of such change in the Percentage prior to
9:00 A.M. on the Auction Date for AMPS next succeeding such change. The
Percentage for the AMPS on the date of this Agreement is as specified
in paragraph 10(a)(vii) of the Articles Supplementary. The Auction
Agent shall be entitled to rely on the last Percentage of which it has
received notice from the Company (or, in the absence of such notice,
the Percentage set forth in the preceding sentence) in determining the
Maximum Applicable Rate as set forth in Section 2.2(e)(i) hereof.
(f) (i) The Auction Agent shall maintain a current registry of
the Existing Holders of the shares of each series of AMPS for purposes
of each Auction. The Company shall use its best efforts to provide or
cause to be provided to the Auction
6
<PAGE> 7
Agent within ten Business Days following the date of the Closing a list
of the initial Existing Holders of each series of AMPS, and the
Broker-Dealer of each such Existing Holder through which such Existing
Holder purchased such shares. The Auction Agent may rely upon, as
evidence of the identities of the Existing Holders, such list, the
results of each Auction and notices from any Existing Holder, the Agent
Member of any Existing Holder or the Broker-Dealer of any Existing
Holder with respect to such Existing Holder's transfer of any shares of
AMPS to another Person.
(ii) In the event of any partial redemption of any
series of AMPS, upon notice by the Company to the Auction Agent of such
partial redemption, the Auction Agent promptly shall request the
Securities Depository to notify the Auction Agent of the identities of
the Agent Members (and the respective numbers of shares) from the
accounts of which shares have been called for redemption and the person
or department at such Agent Member to contact regarding such
redemption, and at least two Business Days prior to the Auction
preceding the date of redemption with respect to shares of the series
being partially redeemed, the Auction Agent shall request each Agent
Member so identified to disclose to the Auction Agent (upon selection
by such Agent Member of the Existing Holders whose shares are to be
redeemed) the number of shares of such series of AMPS of each such
Existing Holder, if any, to be redeemed by the Company, provided that
the Auction Agent has been furnished with the name and telephone number
of a person or department at such Agent Member from which it is to
request such information. In the absence of receiving any such
information with respect to an Existing Holder, from such Existing
Holder's Agent Member or otherwise, the Auction Agent may continue to
treat such Existing Holder as having ownership of the number of shares
of the series of AMPS shown in the Auction Agent's registry of Existing
Holders.
(iii) The Auction Agent shall register a transfer of
the ownership of shares of a series of AMPS from an Existing Holder to
another Existing Holder, or to another Person if permitted by the
Company, only if (A) such transfer is made pursuant to an Auction or
(B) if such transfer is made other than pursuant to an Auction, the
Auction Agent has been notified of such transfer in writing in a notice
substantially in the form of Exhibit C to the Broker-Dealer Agreements,
by such Existing Holder or by the Agent Member of such Existing Holder.
The Auction Agent is not required to accept any notice of transfer
delivered for an Auction unless it is received by the Auction Agent by
3:00 P.M. on the Business Day next preceding the applicable Auction
Date. The Auction Agent shall rescind a transfer made on the registry
of the Existing Holders of any shares of AMPS if the Auction Agent has
been notified in writing, in a notice substantially in the form of
Exhibit D to the Broker-Dealer Agreement, by the Agent Member or the
Broker-Dealer of any Person that (i) purchased any shares of AMPS and
the seller failed to deliver such shares or (ii) sold any shares of
AMPS and the purchaser failed to make payment to such Person upon
delivery to the purchaser of such shares.
(g) The Auction Agent may request that the Broker-Dealers, as
set forth in Section 3.2(c) of the Broker-Dealer Agreements, provide
the Auction Agent with a list of their respective customers that such
Broker-Dealers believe are Beneficial Owners of shares of AMPS. The
Auction Agent shall keep confidential any such information and shall
not disclose any such information so provided to any Person other than
the relevant
7
<PAGE> 8
Broker-Dealer and the Company, provided that the Auction Agent reserves
the right to disclose any such information if it is advised by its
counsel that its failure to do so would be unlawful.
2.3. Auction Schedule.
The Auction Agent shall conduct Auctions in accordance with the
schedule set forth below. Such schedule may be changed by the Auction Agent with
the consent of the Company, which consent shall not be withheld unreasonably.
The Auction Agent shall give notice of any such change to each Broker-Dealer.
Such notice shall be received prior to the first Auction Date on which any such
change shall be effective.
Time Event
By 9:30 A.M. Auction Agent advises the
Company and the Broker-Dealers of
the Reference Rate and the Maximum
Applicable Rate as set forth in
Section 2.2(e)(i) hereof.
9:30 A.M. - 1:00 P.M. Auction Agent assembles information
communicated to it by Broker-Dealers
as provided in Paragraph 10(c)(i) of
the Articles Supplementary.
Submission deadline is 1:00 P.M.
Not earlier than Auction Agent makes determinations
1:00 P.M. pursuant to Paragraph 10(d)(i) of
the Articles Supplementary.
By approximately Auction Agent advises the Company
3:00 P.M. of the results of the Auction as
provided in Paragraph 10(d)(ii) of
the Articles Supplementary.
Submitted Bids and Submitted Sell
Orders are accepted and rejected in
whole or in part and shares of AMPS
allocated as provided in Paragraph
10(e) of the Articles Supplementary.
Auction Agent gives notice of the
Auction results as set forth in
Section 2.4 hereof.
2.4. Notice of Auction Results.
On each Auction Date, the Auction Agent shall notify Broker-Dealers of
the results of the Auction held on such date by telephone or through the Auction
Agent's Auction Processing System as set forth in Paragraph (a) of the
Settlement Procedures.
8
<PAGE> 9
2.5. Broker-Dealers.
(a) Not later than 12:00 noon on each Auction Date, the
Company shall pay to the Auction Agent in Federal Funds or similar
same-day funds an amount in cash equal to (i) in the case of any
Auction Date immediately preceding a 7-Day Dividend Period or 28-Day
Dividend Period, the product of (A) a fraction the numerator of which
is the number of days in such Dividend Period (calculated by counting
the first day of such Dividend Period but excluding the last day
thereof) and the denominator of which is 360, times (B) 1/4 of 1%,
times (C) $25,000 times (D) the sum of the aggregate number of
Outstanding shares of AMPS for which the Auction is conducted and (ii)
in the case of any Special Dividend Period, the amount determined by
mutual consent of the Company and the Broker-Dealers pursuant to
Section 3.5 of the Broker-Dealer Agreements. The Auction Agent shall
apply such moneys as set forth in Section 3.5 of the Broker-Dealer
Agreements and shall thereafter remit to the Company any remaining
funds paid to the Auction Agent pursuant to this Section 2.5(a).
(b) The Company shall not designate any Person to act as a
Broker-Dealer, or permit a Existing Holder or a Potential Beneficial
Owner to participate in Auctions through any Person other than a
Broker-Dealer, without the prior written approval of the Auction Agent,
which approval shall not be withheld unreasonably. The Company may
designate an Affiliate or Merrill Lynch, Pierce, Fenner & Smith
Incorporated to act as a Broker-Dealer.
(c) The Auction Agent shall terminate any Broker-Dealer
Agreement as set forth therein if so directed by the Company.
(d) Subject to Section 2.5(b) hereof, the Auction Agent from
time to time shall enter into such Broker-Dealer Agreements as the
Company shall request.
(e) The Auction Agent shall maintain a list of Broker-Dealers.
2.6. Ownership of Shares of AMPS and Submission of Bids by the
Company and its Affiliates.
Neither the Company nor any Affiliate of the Company may submit any
Sell Order or Bid, directly or indirectly, in any Auction, except that an
Affiliate of the Company that is a Broker-Dealer may submit a Sell Order or Bid
on behalf of a Beneficial Owner or a Potential Beneficial Owner. The Company
shall notify the Auction Agent if the Company or, to the best of the Company's
knowledge, any Affiliate of the Company becomes a Beneficial Owner of any shares
of AMPS. Any shares of AMPS redeemed, purchased or otherwise acquired (i) by the
Company shall not be reissued, except in accordance with the requirements of the
Securities Act of 1933, as amended, or (ii) by its Affiliates shall not be
transferred (other than to the Company). The Auction Agent shall have no duty or
liability with respect to enforcement of this Section 2.6.
2.7. Access to and Maintenance of Auction Records.
The Auction Agent shall afford to the Company, its agents, independent
public accountants and counsel, access at reasonable times during normal
business hours to review and
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<PAGE> 10
make extracts or copies (at the Company's sole cost and expense) of all books,
records, documents and other information concerning the conduct and results of
Auctions, provided that any such agent, accountant or counsel shall furnish the
Auction Agent with a letter from the Company requesting that the Auction Agent
afford such person access. The Auction Agent shall maintain records relating to
any Auction for a period of two years after such Auction (unless requested by
the Company to maintain such records for such longer period not in excess of
four years, then for such longer period), and such records, in reasonable
detail, shall accurately and fairly reflect the actions taken by the Auction
Agent hereunder. The Company agrees to keep confidential any information
regarding the customers of any Broker-Dealer received from the Auction Agent in
connection with this Agreement or any Auction, and shall not disclose such
information or permit the disclosure of such information without the prior
written consent of the applicable Broker-Dealer to anyone except such agent,
accountant or counsel engaged to audit or review the results of Auctions as
permitted by this Section 2.7, provided that the Company reserves the right to
disclose any such information if it is advised by its counsel that its failure
to do so would (i) be unlawful or (ii) expose it to liability, unless the
Broker-Dealer shall have offered indemnification satisfactory to the Company.
Any such agent, accountant or counsel, before having access to such information,
shall agree to keep such information confidential and not to disclose such
information or permit disclosure of such information without the prior written
consent of the applicable Broker-Dealer, provided that such agent, accountant or
counsel may reserve the right to disclose any such information if it is advised
by its counsel that its failure to do so would (i) be unlawful or (ii) expose it
to liability, unless the Broker-Dealer shall have offered indemnification
satisfactory to such agent, accountant or counsel.
III. THE AUCTION AGENT AS PAYING AGENT.
3.1. The Paying Agent.
The Board of Directors of the Company has adopted a resolution
appointing IBJ Whitehall Bank & Trust Company as transfer agent, registrar,
dividend disbursing agent and redemption agent for the Company in connection
with any shares of AMPS (in such capacity, the "Paying Agent"). The Paying Agent
hereby accepts such appointment and agrees to act in accordance with its
standard procedures and the provisions of the Articles Supplementary which are
specified herein with respect to the shares of AMPS and as set forth in this
Section 3.
3.2. The Company's Notices to the Paying Agent.
Whenever any shares of AMPS are to be redeemed, the Company promptly
shall deliver to the Paying Agent a Notice of Redemption, which will be mailed
by the Company to each Holder at least five Business Days prior to the date such
Notice of Redemption is required to be mailed pursuant to the Articles
Supplementary. The Paying Agent shall have no responsibility to confirm or
verify the accuracy of any such Notice.
3.3. The Company to Provide Funds for Dividends, Redemptions and
Additional Dividends.
(a) Not later than noon on each Dividend Payment Date, the
Company shall deposit with the Paying Agent an aggregate amount of
Federal Funds or similar same-day
10
<PAGE> 11
funds equal to the declared dividends to be paid to Holders on such
Dividend Payment Date, and shall give the Paying Agent irrevocable
instructions to apply such funds to the payment of such dividends on
such Dividend Payment Date.
(b) If the Company shall give a Notice of Redemption, then by
noon of the date fixed for redemption, the Company shall deposit in
trust with the Paying Agent an aggregate amount of Federal Funds or
similar same-day funds sufficient to redeem such shares of AMPS called
for redemption and shall give the Paying Agent irrevocable instructions
and authority to pay the redemption price to the Holders of shares of
AMPS called for redemption upon surrender of the certificate or
certificates therefor.
(c) If the Company provides notice to the Auction Agent of a
Retroactive Taxable Allocation, the Company, within 30 days after such
notice is given and by noon of the date fixed for payment of an
Additional Dividend, shall deposit in trust with the Paying Agent an
aggregate amount of Federal Funds or similar same-day funds equal to
such Additional Dividend and shall give the Paying Agent irrevocable
instructions and authority to pay the Additional Dividend to Holders
(or former Holders) entitled thereto.
3.4. Disbursing Dividends, Redemption Price and Additional
Dividends.
After receipt of the Federal Funds or similar same-day funds and
instructions from the Company described in Sections 3.3(a), (b) and (c) above,
the Paying Agent shall pay to the Holders (or former Holders) entitled thereto
(i) on each corresponding Dividend Payment Date, dividends on the shares of
AMPS, (ii) on any date fixed for redemption, the redemption price of any shares
of AMPS called for redemption and (iii) on the date fixed for payment of an
Additional Dividend, such Additional Dividend. The amount of dividends for any
Dividend Period to be paid by the Paying Agent to Holders will be determined by
the Company as set forth in Paragraph 2 of the Articles Supplementary. The
redemption price to be paid by the Paying Agent to the Holders of any shares of
AMPS called for redemption will be determined as set forth in Paragraph 4 of the
Articles Supplementary. The amount of Additional Dividends to be paid by the
Paying Agent in the event of a Retroactive Taxable Allocation to Holders will be
determined by the Company pursuant to paragraph 2(e) of the Articles
Supplementary. The Company shall notify the Paying Agent in writing of a
decision to redeem any shares of AMPS on or prior to the date specified in
Section 3.2 above, and such notice by the Company to the Paying Agent shall
contain the information required to be stated in a Notice of Redemption required
to be mailed by the Company to such Holders. The Paying Agent shall have no duty
to determine the redemption price and may rely on the amount thereof set forth
in a Notice of Redemption.
IV. THE PAYING AGENT AS TRANSFER AGENT AND REGISTRAR.
4.1. Original Issue of Stock Certificates.
On the Date of Original Issue for any share of AMPS, one certificate
for each series of AMPS shall be issued by the Company and registered in the
name of Cede & Co., as nominee of
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<PAGE> 12
the Securities Depository, and countersigned by the Paying Agent. The Company
will give the Auction Agent prior written notice and instruction as to the
issuance and redemption of AMPS.
4.2. Registration of Transfer or Exchange of Shares.
Except as provided in this Section 4.2, the shares of each series of
AMPS shall be registered solely in the name of the Securities Depository or its
nominee. If the Securities Depository shall give notice of its intention to
resign as such, and if the Company shall not have selected a substitute
Securities Depository acceptable to the Paying Agent prior to such resignation,
then upon such resignation, the shares of each series of AMPS, at the Company's
request, may be registered for transfer or exchange, and new certificates
thereupon shall be issued in the name of the designated transferee or
transferees, upon surrender of the old certificate in form deemed by the Paying
Agent properly endorsed for transfer with (a) all necessary endorsers'
signatures guaranteed in such manner and form as the Paying Agent may require by
a guarantor reasonably believed by the Paying Agent to be responsible, (b) such
assurances as the Paying Agent shall deem necessary or appropriate to evidence
the genuineness and effectiveness of each necessary endorsement and (c)
satisfactory evidence of compliance with all applicable laws relating to the
collection of taxes in connection with any registration of transfer or exchange
or funds necessary for the payment of such taxes. If the certificate or
certificates for shares of AMPS are not held by the Securities Depository or its
nominee, payments upon transfer of shares in an Auction shall be made in Federal
Funds or similar same-day funds to the Auction Agent against delivery of
certificates therefor.
4.3. Removal of Legend.
Any request for removal of a legend indicating a restriction on
transfer from a certificate evidencing shares of AMPS shall be accompanied by an
opinion of counsel stating that such legend may be removed and such shares may
be transferred free of the restriction described in such legend, said opinion to
be delivered under cover of a letter from a Company Officer authorizing the
Paying Agent to remove the legend on the basis of said opinion.
4.4. Lost, Stolen or Destroyed Stock Certificates.
The Paying Agent shall issue and register replacement certificates for
certificates represented to have been lost, stolen or destroyed, upon the
fulfillment of such requirements as shall be deemed appropriate by the Company
and by the Paying Agent, subject at all times to provisions of law, the By-Laws
of the Company governing such matters and resolutions adopted by the Company
with respect to lost, stolen or destroyed securities. The Paying Agent may issue
new certificates in exchange for and upon the cancellation of mutilated
certificates. Any request by the Company to the Paying Agent to issue a
replacement or new certificate pursuant to this Section 4.4 shall be deemed to
be a representation and warranty by the Company to the Paying Agent that such
issuance will comply with provisions of applicable law and the By-Laws and
resolutions of the Company.
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<PAGE> 13
4.5. Disposition of Canceled Certificates; Record Retention.
The Paying Agent shall retain stock certificates which have been
canceled in transfer or in exchange and accompanying documentation in accordance
with applicable rules and regulations of the Securities and Exchange Commission
for two calendar years from the date of such cancellation. The Paying Agent,
upon written request by the Company, shall afford to the Company, its agents and
counsel access at reasonable times during normal business hours to review and
make extracts or copies (at the Company's sole cost and expense) of such
certificates and accompanying documentation. Upon request by the Company at any
time after the expiration of this two-year period, the Paying Agent shall
deliver to the Company the canceled certificates and accompanying documentation.
The Company, at its expense, shall retain such records for a minimum additional
period of four calendar years from the date of delivery of the records to the
Company and shall make such records available during this period at any time, or
from time to time, for reasonable periodic, special, or other examinations by
representatives of the Securities and Exchange Commission. The Company also
shall undertake to furnish to the Securities and Exchange Commission, upon
demand, either at their principal office or at any regional office, complete,
correct and current hard copies of any and all such records. Thereafter, such
records shall not be destroyed by the Company without the approval of the Paying
Agent, which approval shall not be withheld unreasonably, but will be safely
stored for possible future reference.
4.6. Stock Register.
The Paying Agent shall maintain the stock register, which shall contain
a list of the Holders, the number of shares held by each Holder and the address
of each Holder. The Paying Agent shall record in the stock register any change
of address of a Holder upon notice by such Holder. In case of any written
request or demand for the inspection of the stock register or any other books of
the Company in the possession of the Paying Agent, the Paying Agent will notify
the Company and secure instructions as to permitting or refusing such
inspection. The Paying Agent reserves the right, however, to exhibit the stock
register or other records to any person in case it is advised by its counsel
that its failure to do so would (i) be unlawful or (ii) expose it to liability,
unless the Company shall have offered indemnification satisfactory to the Paying
Agent.
4.7. Return of Funds.
Any funds deposited with the Paying Agent by the Company for any reason
under this Agreement, including for the payment of dividends or the redemption
of shares of any series of AMPS, that remain with the Paying Agent after 12
months shall be repaid to the Company upon written request by the Company.
V. REPRESENTATIONS AND WARRANTIES.
5.1. Representations and Warranties of the Company.
The Company represents and warrants to the Auction Agent that:
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<PAGE> 14
(i) the Company is duly organized and is validly existing as a
corporation in good standing under the laws of the State of Maryland,
and has full power to execute and deliver this Agreement and to
authorize, create and issue the shares of AMPS;
(ii) the Company is registered with the Securities and
Exchange Commission under the Investment Company Act of 1940, as
amended, as a closed-end, non-diversified, management investment
company;
(iii) this Agreement has been duly and validly authorized,
executed and delivered by the Company and constitutes the legal, valid
and binding obligation of the Company, enforceable against the Company
in accordance with its terms, subject as to such enforceability to
bankruptcy, insolvency, reorganization and other laws of general
applicability relating to or affecting creditors' rights and to general
equitable principles;
(iv) the forms of the certificates evidencing the shares of
each series of AMPS comply with all applicable laws of the State of
Maryland;
(v) the shares of each series of AMPS have been duly and
validly authorized by the Company and, upon completion of the initial
sale of the shares of such series of AMPS and receipt of payment
therefor, will be validly issued, fully paid and nonassessable;
(vi) at the time of the offering of the shares of each series
of AMPS, the shares offered will be registered under the Securities Act
of 1933, as amended, and no further action by or before any
governmental body or authority of the United States or of any state
thereof is required in connection with the execution and delivery of
this Agreement or will be required in connection with the issuance of
the shares of AMPS, except such action as required by applicable state
securities or insurance laws, all of which action will have been taken;
(vii) the execution and delivery of this Agreement and the
issuance and delivery of the shares of each series of AMPS do not and
will not conflict with, violate, or result in a breach of, the terms,
conditions or provisions of, or constitute a default under, the Charter
or the By-Laws of the Company, any law or regulation applicable to the
Company, any order or decree of any court or public authority having
jurisdiction over the Company, or any mortgage, indenture, contract,
agreement or undertaking to which the Company is a party or by which it
is bound; and
(viii) no taxes are payable upon or in respect of the
execution of this Agreement or will be payable upon or in respect of
the issuance of the shares of each series of AMPS.
5.2. Representations and Warranties of the Auction Agent.
The Auction Agent represents and warrants to the Company that the
Auction Agent is duly organized and is validly existing as a banking corporation
in good standing under the laws of the State of New York, and has the corporate
power to enter into and perform its obligations under this Agreement.
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<PAGE> 15
VI. THE AUCTION AGENT.
6.1. Duties and Responsibilities.
(a) The Auction Agent is acting solely as agent for the
Company hereunder and owes no fiduciary duties to any Person except as
provided by this Agreement.
(b) The Auction Agent undertakes to perform such duties and
only such duties as are set forth specifically in this Agreement, and
no implied covenants or obligations shall be read into this Agreement
against the Auction Agent.
(c) In the absence of bad faith or negligence on its part, the
Auction Agent shall not be liable for any action taken, suffered or
omitted by it or for any error of judgment made by it in the
performance of its duties under this Agreement. The Auction Agent shall
not be liable for any error of judgment made in good faith unless the
Auction Agent shall have been negligent in ascertaining (or failing to
ascertain) the pertinent facts.
6.2. Rights of the Auction Agent.
(a) The Auction Agent may rely upon, and shall be protected in
acting or refraining from acting upon, any communication authorized
hereby and any written instruction, notice, request, direction,
consent, report, certificate, share certificate or other instrument,
paper or document reasonably believed by it to be genuine. The Auction
Agent shall not be liable for acting upon any telephone communication
authorized hereby which the Auction Agent believes in good faith to
have been given by the Company or by a Broker-Dealer. The Auction Agent
may record telephone communications with the Company or with the
Broker-Dealers or with both.
(b) The Auction Agent may consult with counsel of its choice,
and the written advice of such counsel shall be full and complete
authorization and protection in respect of any action taken, suffered
or omitted by it hereunder in good faith and in reliance thereon.
(c) The Auction Agent shall not be required to advance, expend
or risk its own funds or otherwise incur or become exposed to financial
liability in the performance of its duties hereunder. The Auction Agent
shall be under no liability for interest on any money received by it
hereunder except as otherwise agreed in writing with the Company.
(d) The Auction Agent may perform its duties and exercise its
rights hereunder either directly or by or through agents or attorneys.
6.3. Auction Agent's Disclaimer.
The Auction Agent makes no representation as to the validity or the
adequacy of this Agreement, the Broker-Dealer Agreements or the AMPS.
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<PAGE> 16
6.4. Compensation, Expenses and Indemnification.
(a) The Company shall pay to the Auction Agent from time to
time reasonable compensation for all services rendered by it under this
Agreement and under the Broker-Dealer Agreements as shall be set forth
in a separate writing signed by the Company and the Auction Agent,
subject to adjustments if the AMPS no longer are held of record by the
Securities Depository or its nominee or if there shall be such other
change as shall increase materially the Auction Agent's obligations
hereunder or under the Broker-Dealer Agreements.
(b) The Company shall reimburse the Auction Agent upon its
request for all reasonable expenses, disbursements and advances
incurred or made by the Auction Agent in accordance with any provision
of this Agreement and of the Broker-Dealer Agreements (including the
reasonable compensation, expenses and disbursements of its agents and
counsel), except any expense, disbursement or advance attributable to
its negligence or bad faith.
(c) The Company shall indemnify the Auction Agent for, and
hold it harmless against, any loss, liability or expense incurred
without negligence or bad faith on its part arising out of or in
connection with its agency under this Agreement and under the
Broker-Dealer Agreements, including the costs and expenses of defending
itself against any claim of liability in connection with its exercise
or performance of any of its duties hereunder and thereunder, except
such as may result from its negligence or bad faith.
VII. MISCELLANEOUS.
7.1. Term of Agreement.
(a) The term of this Agreement is unlimited unless it shall be
terminated as provided in this Section 7.1. The Company may terminate
this Agreement at any time by so notifying the Auction Agent, provided
that if any AMPS remain outstanding the Company shall have entered into
an agreement in substantially the form of this Agreement with a
successor auction agent. The Auction Agent may terminate this Agreement
upon prior notice to the Company on the date specified in such notice,
which date shall be no earlier than 60 days after delivery of such
notice. If the Auction Agent resigns while any shares of AMPS remain
outstanding, the Company shall use its best efforts to enter into an
agreement with a successor auction agent containing substantially the
same terms and conditions as this Agreement.
(b) Except as otherwise provided in this Section 7.1(b), the
respective rights and duties of the Company and the Auction Agent under
this Agreement shall cease upon termination of this Agreement. The
Company's representations, warranties, covenants and obligations to the
Auction Agent under Sections 5 and 6.4 hereof shall survive the
termination hereof. Upon termination of this Agreement, the Auction
Agent shall (i) resign as Auction Agent under the Broker-Dealer
Agreements, (ii) at the Company's request, deliver promptly to the
Company copies of all books and records maintained by it in connection
with its duties hereunder, and (iii) at the request of the Company,
transfer
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<PAGE> 17
promptly to the Company or to any successor auction agent any funds
deposited by the Company with the Auction Agent (whether in its
capacity as Auction Agent or as Paying Agent) pursuant to this
Agreement which have not been distributed previously by the Auction
Agent in accordance with this Agreement.
7.2. Communications.
Except for (i) communications authorized to be made by telephone
pursuant to this Agreement or the Auction Procedures and (ii) communications in
connection with Auctions (other than those expressly required to be in writing),
all notices, requests and other communications to any party hereunder shall be
in writing (including telecopy or similar writing) and shall be given to such
party at its address or telecopier number set forth below:
If to the Company, ___________________________
addressed to: 800 Scudders Mill Road
Plainsboro, New Jersey 08536
Attention: Treasurer
Telephone No.: (609) 282-2800
Telecopier No.: (609) 282-3472
If to the Auction IBJ Whitehall Bank & Trust Company
Agent, addressed to: One State Street
New York, New York 10004
Attention: Auction Window Subcellar 1
Telephone No.: (212) 858-2315
Telecopier No.: (212) 797-1148
or such other address or telecopier number as such party hereafter may specify
for such purpose by notice to the other party. Each such notice, request or
communication shall be effective when delivered at the address specified herein.
Communications shall be given on behalf of the Company by a Company Officer and
on behalf of the Auction Agent by an Authorized Officer.
7.3. Entire Agreement.
This Agreement contains the entire agreement between the parties
relating to the subject matter hereof, and there are no other representations,
endorsements, promises, agreements or understandings, oral, written or inferred,
between the parties relating to the subject matter hereof, except for agreements
relating to the compensation of the Auction Agent.
7.4. Benefits.
Nothing herein, express or implied, shall give to any Person, other
than the Company, the Auction Agent and their respective successors and assigns,
any benefit of any legal or equitable right, remedy or claim hereunder.
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<PAGE> 18
7.5. Amendment; Waiver.
(a) This Agreement shall not be deemed or construed to be
modified, amended, rescinded, canceled or waived, in whole or in part,
except by a written instrument signed by a duly authorized
representative of the party to be charged. The Company shall notify the
Auction Agent of any change in the Articles Supplementary prior to the
effective date of any such change. If any such change in the Articles
Supplementary materially increases the Auction Agent's obligations
hereunder, the Company shall obtain the written consent to the Auction
Agent prior to the effective date of such change.
(b) Failure of either party hereto to exercise any right or
remedy hereunder in the event of a breach hereof by the other party
shall not constitute a waiver of any such right or remedy with respect
to any subsequent breach.
7.6. Successors and Assigns.
This Agreement shall be binding upon, inure to the benefit of, and be
enforceable by, the respective successors and permitted assigns of each of the
Company and the Auction Agent. This Agreement may not be assigned by either
party hereto absent the prior written consent of the other party, which consent
shall not be withheld unreasonably.
7.7. Severability.
If any clause, provision or section hereof shall be ruled invalid or
unenforceable by any court of competent jurisdiction, the invalidity or
unenforceability of such clause, provision or section shall not affect any of
the remaining clauses, provisions or sections hereof.
7.8. Execution in Counterparts.
This Agreement may be executed in several counterparts, each of which
shall be an original and all of which shall constitute but one and the same
instrument.
7.9. Governing Law.
This Agreement shall be governed by and construed in accordance with
the laws of the State of New York applicable to agreements made and to be
performed in said State.
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<PAGE> 19
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their proper and duly authorized officers as of
the date first above written.
----------------------------------------
By:
-------------------------------------
Name:
Title:
IBJ WHITEHALL BANK & TRUST COMPANY
By:
-------------------------------------
Name:
Title:
19
<PAGE> 1
Exhibit 13(c)
================================================================================
BROKER-DEALER AGREEMENT
between
IBJ WHITEHALL BANK & TRUST COMPANY
and
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
Dated as of , 1999
Relating to
AUCTION MARKET PREFERRED STOCK(R)
("AMPS"(R)),
Series A and B
of
================================================================================
(R) Registered trademark of Merrill Lynch & Co., Inc.
<PAGE> 2
BROKER-DEALER AGREEMENT dated as of , 1999, between IBJ WHITEHALL
BANK & TRUST COMPANY, a New York banking corporation (the "Auction Agent") (not
in its individual capacity, but solely as agent of ___________________________,
a Maryland corporation (the "Company"), pursuant to authority granted to it in
the Auction Agent Agreement dated as of , 1999, between the Company and
the Auction Agent (the "Auction Agent Agreement")), and MERRILL LYNCH, PIERCE,
FENNER & SMITH INCORPORATED (together with its successors and assigns, "BD").
The Company proposes to duly authorize and issue ________ shares of
Auction Market Preferred Stock(R), Series A ("Series A AMPS"), and ________
shares of Auction Market Preferred Stock(R), Series B ("Series B AMPS"), each
with a par value of $.10 per share and a liquidation preference of $25,000 per
share plus accumulated but unpaid dividends (whether or not earned or declared),
each pursuant to the Company's Articles Supplementary (as defined below). The
Series A AMPS and Series B AMPS are sometimes herein referred to together as the
"AMPS."
The Company's Articles Supplementary provide that the dividend rate on
each series of AMPS for each Dividend Period therefor after the Initial Dividend
Period shall be the Applicable Rate therefor, which in each case, in general
shall be the rate per annum that a commercial bank, trust company or other
financial institution appointed by the Company advises results from
implementation of the Auction Procedures (as defined below). The Board of
Directors of the Company has adopted a resolution appointing IBJ Whitehall Bank
& Trust Company as Auction Agent for purposes of the Auction Procedures, and
pursuant to Section 2.5(d) of the Auction Agent Agreement, the Company has
requested and directed the Auction Agent to execute and deliver this Agreement.
The Auction Procedures require the participation of one or more
Broker-Dealers.
- ----------
(R) Registered trademark of Merrill Lynch & Co., Inc.
<PAGE> 3
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, the Auction Agent and BD agree as follows:
I. DEFINITIONS AND RULES OF CONSTRUCTION.
1.1. Terms Defined by Reference to the Articles Supplementary.
Capitalized terms not defined herein shall have the respective meanings
specified in the Articles Supplementary of the Company.
1.2. Terms Defined Herein. As used herein and in the Settlement
Procedures (as defined below), the following terms shall have the following
meanings, unless the context otherwise requires:
(a) "Articles Supplementary" shall mean the Articles Supplementary,
as amended, of the Company, establishing the powers, preferences and rights of
the AMPS filed on , 1999 with the State Department of Assessments and
Taxation of Maryland.
(b) "Auction" shall have the meaning specified in Section 3.1
hereof.
(c) "Auction Procedures" shall mean the Auction Procedures that are
set forth in Paragraph 10 of the Articles Supplementary.
(d) "Authorized Officer" shall mean each Senior Vice President,
Vice President, Assistant Vice President, Trust Officer, Assistant Secretary and
Assistant Treasurer of the Auction Agent assigned to its Corporate Trust and
Agency Group and every other officer or employee of the Auction Agent designated
as an "Authorized Officer" for purposes of this Agreement in a communication to
BD.
(e) "BD Officer" shall mean each officer or employee of BD
designated as a "BD Officer" for purposes of this Agreement in a communication
to the Auction Agent.
(f) "Broker-Dealer Agreement" shall mean this Agreement and any
substantially similar agreement between the Auction Agent and a Broker-Dealer.
(g) "Settlement Procedures" shall mean the Settlement Procedures
attached hereto as Exhibit A.
1.3. Rules of Construction. Unless the context or use indicates another
or different meaning or intent, the following rules shall apply to the
construction of this Agreement:
(a) Words importing the singular number shall include the plural
number and vice versa.
(b) The captions and headings herein are solely for convenience of
reference and shall not constitute a part of this Agreement, nor shall they
affect its meaning, construction or effect.
2
<PAGE> 4
(c) The words "hereof," "herein," "hereto," and other words of
similar import refer to this Agreement as a whole.
(d) All references herein to a particular time of day shall be to
New York City time.
II. NOTIFICATION OF DIVIDEND PERIOD AND ADVANCE NOTICE OF ALLOCATION OF
TAXABLE INCOME.
2.1. The provisions contained in paragraph 2 of the Articles
Supplementary concerning the notification of a Special Dividend Period will be
followed by the Auction Agent and BD, and the provisions contained therein are
incorporated herein by reference in their entirety and shall be deemed to be a
part of this Agreement to the same extent as if such provisions were set forth
fully herein.
2.2. Except as otherwise provided in paragraph 2(f) of the Articles
Supplementary, whenever the Company intends to include any net capital gains or
other income subject to regular Federal income tax in any dividend on shares of
any series of AMPS, the Company will notify the Auction Agent of the amount to
be so included at least five Business Days prior to the Auction Date on which
the Applicable Rate for such dividend is to be established. Whenever the Auction
Agent receives such notice from the Company, in turn it will notify BD, who, on
or prior to such Auction Date, will notify its Beneficial Owners and Potential
Beneficial Owners believed to be interested in submitting an Order in the
Auction to be held on such Auction Date. Whenever the Company intends to include
any additional amounts in a dividend as provided in paragraph 2(f) of the
Articles Supplementary, the Company will notify the Auction Agent of such
additional amounts to be so included in such dividend at least five Business
Days prior to the applicable Dividend Payment Date. Whenever the Auction Agent
receives such notice from the Company, in turn it will notify the Securities
Depository and BD, who, on or prior to the applicable Dividend Payment Date,
will notify its Beneficial Owners.
III. THE AUCTION.
3.1. Purpose; Incorporation by Reference of Auction Procedures and
Settlement Procedures.
(a) On each Auction Date, the provisions of the Auction Procedures
will be followed by the Auction Agent for the purpose of determining the
Applicable Rate for each series of AMPS, for the next Dividend Period therefor.
Each periodic operation of such procedures is hereinafter referred to as an
"Auction."
(b) All of the provisions contained in the Auction Procedures and
the Settlement Procedures are incorporated herein by reference in their entirety
and shall be deemed to be a part of this Agreement to the same extent as if such
provisions were set forth fully herein.
(c) BD agrees to act as, and assumes the obligations of and
limitations and restrictions placed upon, a Broker-Dealer under this Agreement.
BD understands that other Persons meeting the requirements specified in the
definition of "Broker-Dealer" contained in
3
<PAGE> 5
Paragraph 1 of the Articles Supplementary may execute a Broker-Dealer Agreement
and participate as Broker-Dealers in Auctions.
(d) BD and other Broker-Dealers may participate in Auctions for
their own accounts. However, the Company, by notice to BD and all other Broker
Dealers, may prohibit all Broker-Dealers from submitting Bids in Auctions for
their own accounts, provided that Broker-Dealers may continue to submit Hold
Orders and Sell Orders.
3.2. Preparation for Each Auction.
(a) Not later than 9:30 A.M. on each Auction Date for the AMPS, the
Auction Agent shall advise BD by telephone of the Reference Rate and the Maximum
Applicable Rate in effect on such Auction Date.
(b) In the event that the Auction Date for any Auction shall be
changed after the Auction Agent has given the notice referred to in clause (vii)
of paragraph (a) of the Settlement Procedures, the Auction Agent, by such means
as the Auction Agent deems practicable, shall give notice of such change to BD
not later than the earlier of 9:15 A.M. on the new Auction Date or 9:15 A.M. on
the old Auction Date. Thereafter, BD promptly shall notify customers of BD that
BD believes are Beneficial Owners of shares of AMPS of such change in the
Auction Date.
(c) The Auction Agent from time to time may request BD to provide
it with a list of the respective customers BD believes are Beneficial Owners of
shares of each series of AMPS. BD shall comply with any such request, and the
Auction Agent shall keep confidential any such information, including
information received as to the identity of Bidders in any Auction, and shall not
disclose any such information so provided to any Person other than the Company;
and such information shall not be used by the Auction Agent or its officers,
employees, agents or representatives for any purpose other than such purposes as
are described herein. The Auction Agent shall transmit any list of customers BD
believes are Beneficial Owners of shares of each series of AMPS and information
related thereto only to its officers, employees, agents or representatives in
the Corporate Trust and Agency Group who need to know such information for the
purposes of acting in accordance with this Agreement, and the Auction Agent
shall prevent the transmission of such information to others and shall cause its
officers, employees, agents and representatives to abide by the foregoing
confidentiality restrictions; provided, however, that the Auction Agent shall
have no responsibility or liability for the actions of any of its officers,
employees, agents or representatives after they have left the employ of the
Auction Agent.
3.3. Auction Schedule; Method of Submission of Orders.
(a) The Company and the Auction Agent shall conduct Auctions for
each series of AMPS in accordance with the schedule set forth below. Such
schedule may be changed at any time by the Auction Agent with the consent of the
Company, which consent shall not be withheld unreasonably. The Auction Agent
shall give notice of any such change to BD. Such notice shall be received prior
to the first Auction Date on which any such change shall be effective.
4
<PAGE> 6
<TABLE>
<CAPTION>
Time Event
---- -----
<S> <C>
By 9:30 A.M. Auction Agent advises the Company and
Broker-Dealers of the Reference Rate and the
Maximum Applicable Rate as set forth in
Section 3.2(a) hereof.
9:30 A.M. - 1:00 P.M. Auction Agent assembles information
communicated to it by Broker-Dealers as
provided in Paragraph 10(c)(i) of the
Articles Supplementary. Submission Deadline
is 1:00 P.M.
Not earlier than 1:00 P.M. Auction Agent makes determinations pursuant
to Paragraph 10(d)(i) of the Articles
Supplementary.
By approximately 3:00 P.M. Auction Agent advises the Company of the
results of the Auction as provided in
Paragraph 10(d)(ii) of the Articles
Supplementary.
Submitted Bids and Submitted Sell Orders are
accepted and rejected in whole or in part
and shares of AMPS are allocated as provided
in Paragraph 10(e) of the Articles
Supplementary.
Auction Agent gives notice of the Auction
results as set forth in Section 3.4(a)
hereof.
</TABLE>
(b) BD agrees to maintain a list of Potential Beneficial Owners and
to contact the Potential Beneficial Owners on such list on or prior to each
Auction Date for the purposes set forth in Paragraph 10 of the Articles
Supplementary.
(c) BD shall submit Orders to the Auction Agent in writing in
substantially the form attached hereto as Exhibit B. BD shall submit separate
Orders to the Auction Agent for each Potential Beneficial Owner or Beneficial
Owner on whose behalf BD is submitting an Order and shall not net or aggregate
the Orders of Potential Beneficial Owners or Beneficial Owners on whose behalf
BD is submitting Orders.
(d) BD shall deliver to the Auction Agent (i) a written notice,
substantially in the form attached hereto as Exhibit C, of transfers of shares
of any series of AMPS, made through BD by an Existing Holder to another Person
other than pursuant to an Auction, and (ii) a written notice, substantially in
the form attached hereto as Exhibit D, of the failure of shares of any series of
any series of AMPS to be transferred to or by any Person that purchased or sold
shares of any series of AMPS through BD pursuant to an Auction. The Auction
Agent is not required to accept any notice delivered pursuant to the terms of
the foregoing sentence with respect to an Auction unless it is received by the
Auction Agent by 3:00 P.M. on the Business Day next preceding the applicable
Auction Date.
5
<PAGE> 7
3.4. Notice of Auction Results.
(a) On each Auction Date, the Auction Agent shall notify BD by
telephone as set forth in paragraph (a) of the Settlement Procedures. On the
Business Day next succeeding such Auction Date, the Auction Agent shall notify
BD in writing of the disposition of all Orders submitted by BD in the Auction
held on such Auction Date.
(b) BD shall notify each Beneficial Owner, Potential Beneficial
Owner, Existing Holder or Potential Holder on whose behalf BD has submitted an
Order as set forth in paragraph (b) of the Settlement Procedures, and take such
other action as is required of BD pursuant to the Settlement Procedures.
If any Beneficial Owner or Existing Holder selling shares of AMPS in an
Auction fails to deliver such shares, the BD of any Person that was to have
purchased shares of such series of AMPS in such Auction may deliver to such
Person a number of whole shares of such series of AMPS that is less than the
number of shares that otherwise was to be purchased by such Person. In such
event, the number of shares of such series of AMPS to be so delivered shall be
determined by such BD. Delivery of such lesser number of shares shall constitute
good delivery. Upon the occurrence of any such failure to deliver shares, such
BD shall deliver to the Auction Agent the notice required by Section 3.3(d)(ii)
hereof. Notwithstanding the foregoing terms of this Section 3.4(b), any delivery
or non-delivery of shares of any series of AMPS which represents any departure
from the results of an Auction, as determined by the Auction Agent, shall be of
no effect unless and until the Auction Agent shall have been notified of such
delivery or non-delivery in accordance with the terms of Section 3.3(d) hereof.
The Auction Agent shall have no duty or liability with respect to enforcement of
this Section 3.4(b).
3.5. Service Charge to Be Paid to BD. On the Business Day next
succeeding each Auction Date, the Auction Agent shall pay to BD from moneys
received from the Company an amount equal to: (a) in the case of any Auction
Date immediately preceding a 7-Day Dividend Period or 28-Day Dividend Period,
the product of (i) a fraction the numerator of which is the number of days in
such Dividend Period (calculated by counting the first day of such Dividend
Period but excluding the last day thereof) and the denominator of which is 360,
times (ii) 1/4 of 1%, times (iii) $25,000, times (iv) the sum of (A) the
aggregate number of AMPS placed by BD in the applicable Auction that were (x)
the subject of a Submitted Bid of a Beneficial Owner submitted by BD and
continued to be held as a result of such submission and (y) the subject of a
Submitted Bid of a Potential Beneficial Owner submitted by BD and were purchased
as a result of such submission plus (B) the aggregate number of AMPS subject to
valid Hold Orders (determined in accordance with Paragraph 10 of the Articles
Supplementary) submitted to the Auction Agent by BD plus (C) the number of AMPS
deemed to be subject to Hold Orders by Beneficial Owners pursuant to Paragraph
10 of the Articles Supplementary that were acquired by such Beneficial Owners
through BD; and (b) in the case of any Auction Date immediately preceding a
Special Dividend Period, that amount as mutually agreed upon by the Company and
BD, based on the selling concession that would be applicable to an underwriting
of fixed or variable rate preferred shares with a similar final maturity or
variable rate dividend period, at the commencement of such Special Dividend
Period.
6
<PAGE> 8
For purposes of subclause (a)(iv)(C) of the foregoing sentence, if any
Beneficial Owner who acquired shares of any series of AMPS through BD transfers
those shares to another Person other than pursuant to an Auction, then the
Broker-Dealer for the shares so transferred shall continue to be BD, provided,
however, that if the transfer was effected by, or if the transferee is, a
Broker-Dealer other than BD, then such Broker-Dealer shall be the Broker-Dealer
for such shares.
IV. THE AUCTION AGENT.
4.1. Duties and Responsibilities.
(a) The Auction Agent is acting solely as agent for the Company
hereunder and owes no fiduciary duties to any other Person by reason of this
Agreement.
(b) The Auction Agent undertakes to perform such duties and only
such duties as are set forth specifically in this Agreement, and no implied
covenants or obligations shall be read into this Agreement against the Auction
Agent.
(c) In the absence of bad faith or negligence on its part, the
Auction Agent shall not be liable for any action taken, suffered or omitted by
it, or for any error of judgment made by it in the performance of its duties
under this Agreement. The Auction Agent shall not be liable for any error of
judgment made in good faith unless the Auction Agent shall have been negligent
in ascertaining (or failing to ascertain) the pertinent facts.
4.2. Rights of the Auction Agent.
(a) The Auction Agent may rely upon, and shall be protected in
acting or refraining from acting upon, any communication authorized by this
Agreement and any written instruction, notice, request, direction, consent,
report, certificate, share certificate or other instrument, paper or document
believed by it to be genuine. The Auction Agent shall not be liable for acting
upon any telephone communication authorized by this Agreement which the Auction
Agent believes in good faith to have been given by the Company or by BD. The
Auction Agent may record telephone communications with BD.
(b) The Auction Agent may consult with counsel of its own choice,
and the advice of such counsel shall be full and complete authorization and
protection in respect of any action taken, suffered or omitted by it hereunder
in good faith and in reliance thereon.
(c) The Auction Agent shall not be required to advance, expend or
risk its own funds or otherwise incur or become exposed to financial liability
in the performance of its duties hereunder.
(d) The Auction Agent may perform its duties and exercise its
rights hereunder either directly or by or through agents or attorneys.
4.3. Auction Agent's Disclaimer. The Auction Agent makes no
representation as to the validity or adequacy of this Agreement or the AMPS.
7
<PAGE> 9
V. MISCELLANEOUS.
5.1. Termination. Any party may terminate this Agreement at any time
upon five days' prior written notice to the other party; provided, however, that
if BD is Merrill Lynch, Pierce, Fenner & Smith Incorporated, neither BD nor the
Auction Agent may terminate this Agreement without first obtaining the prior
written consent of the Company to such termination, which consent shall not be
withheld unreasonably.
5.2. Participant in Securities Depository; Payment of Dividends in
Same-Day Funds.
(a) BD is, and shall remain for the term of this Agreement, a
member of, or a participant in, the Securities Depository (or an affiliate of
such a member or participant).
(b) BD represents that it (or if BD does not act as Agent Member,
one of its affiliates) shall make all dividend payments on the AMPS available in
same-day funds on each Dividend Payment Date to customers that use BD (or its
affiliate) as Agent Member.
5.3. Agent Member. At the date hereof, BD is a participant of the
Securities Depository.
5.4. Communications. Except for (i) communications authorized to be made
by telephone pursuant to this Agreement or the Auction Procedures and (ii)
communications in connection with the Auctions (other than those expressly
required to be in writing), all notices, requests and other communications to
any party hereunder shall be in writing (including telecopy or similar writing)
and shall be given to such party at its address or telecopier number set forth
below:
If to BD, addressed to: Merrill Lynch, Pierce, Fenner & Smith
Incorporated
World Financial Center, North Tower
New York, New York 10281-1307
Attention: Palma Mazzolla
Telecopier No.: (212) 449-4321
Telephone No.: (212) 449-6500
If to the Auction Agent, addressed to: IBJ Whitehall Bank & Trust Company
One State Street
New York, New York 10004
Attention: Auction Window
Subcellar 1
Telecopier No.: (212) 797-1148
Telephone No.: (212) 858-2135
or such other address or telecopier number as such party hereafter may specify
for such purpose by notice to the other party. Each such notice, request or
communication shall be effective when
8
<PAGE> 10
delivered at the address specified herein. Communications shall be given on
behalf of BD by a BD Officer and on behalf of the Auction Agent by an Authorized
Officer. BD may record telephone communications with the Auction Agent.
5.5. Entire Agreement. This Agreement contains the entire agreement
between the parties relating to the subject matter hereof, and there are no
other representations, endorsements, promises, agreements or understandings,
oral, written or inferred, between the parties relating to the subject matter
hereof.
5.6. Benefits. Nothing in this Agreement, express or implied, shall give
to any person, other than the Company, the Auction Agent and BD and their
respective successors and assigns, any benefit of any legal or equitable right,
remedy or claim under this Agreement.
5.7. Amendment; Waiver.
(a) This Agreement shall not be deemed or construed to be modified,
amended, rescinded, canceled or waived, in whole or in part, except by a written
instrument signed by a duly authorized representative of the party to be
charged.
(b) Failure of either party to this Agreement to exercise any right
or remedy hereunder in the event of a breach of this Agreement by the other
party shall not constitute a waiver of any such right or remedy with respect to
any subsequent breach.
5.8. Successors and Assigns. This Agreement shall be binding upon, inure
to the benefit of, and be enforceable by, the respective successors and
permitted assigns of each of BD and the Auction Agent. This Agreement may not be
assigned by either party hereto absent the prior written consent of the other
party;
provided, however, that this Agreement may be assigned by the Auction Agent to a
successor Auction Agent selected by the Company without the consent of BD.
5.9. Severability. If any clause, provision or section of this Agreement
shall be ruled invalid or unenforceable by any court of competent jurisdiction,
the invalidity or unenforceability of such clause, provision or section shall
not affect any remaining clause, provision or section hereof.
5.10. Execution in Counterparts. This Agreement may be executed in
several counterparts, each of which shall be an original and all of which shall
constitute but one and the same instrument.
5.11. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York applicable to agreements
made and to be performed in said State.
9
<PAGE> 11
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their proper and duly authorized officers as of
the date first above written.
IBJ WHITEHALL BANK & TRUST COMPANY
_________________________________________
By:
Title:
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
_________________________________________
By:
Title:
10
<PAGE> 12
EXHIBIT A
SETTLEMENT PROCEDURES
[From Prospectus]
<PAGE> 13
EXHIBIT B
IBJ WHITEHALL BANK & TRUST COMPANY
AUCTION BID FORM
Submit To: IBJ Whitehall Bank & Trust Co. Issue: ___________________________
Securities Transfer Department
One State Street Series: __________________________
New York, New York 10004 Auction Date: ____________________
Attention: Auction Window
Telephone: (212) 858-2272
Facsimile: (212) 797-1148
The undersigned Broker-Dealer submits the following Order on behalf of the
Bidder listed below:
Name of Bidder: _______________________
BENEFICIAL OWNER
Shares now held: ______________________ HOLD _____________________________
BID at rate of ___________________
SELL _____________________________
POTENTIAL BENEFICIAL OWNER
# of shares bid __________________
BID at rate of ___________________
Notes:
(1) If submitting more than one Bid for one Bidder, use additional Auction Bid
Forms.
(2) If one or more Bids covering in the aggregate more than the number of
outstanding shares held by any Beneficial Owner are submitted, such bid
shall be considered valid in the order of priority set forth in the Auction
Procedures on the above issue.
(3) A Hold or Sell Order may be placed only by a Beneficial Owner covering a
number of shares not greater than the number of shares currently held.
(4) Potential Beneficial Owners may make only Bids, each of which must specify
a rate. If more than one Bid is submitted on behalf of any Potential
Beneficial Owner, each Bid submitted shall be a separate Bid with the rate
specified.
(5) Bids may contain no more than three figures to the right of the decimal
point (.001 of 1%). Fractions will not be accepted.
NAME OF BROKER-DEALER ____________________________________
Authorized Signature _____________________________________
<PAGE> 14
EXHIBIT C
(Note: To be used only for transfers made
other than pursuant to an Auction)
TRANSFER FORM
Re: __________________________________
Auction Market Preferred Stock(R),
Series [A][B] ("AMPS"(R))
We are (check one):
/ / the Existing Holder named below;
/ / the Broker-Dealer for such Existing Holder; or
/ / the Agent Member for such Existing Holder.
We hereby notify you that such Beneficial Owner has transferred ____________
shares of AMPS to __________________.
_____________________________
(Name of Existing Holder)
_____________________________
(Name of Broker-Dealer)
_____________________________
(Name of Agent Member)
By __________________________
Printed Name:
Title:
<PAGE> 15
EXHIBIT D
(Note: To be used only for failures to deliver
AMPS sold pursuant to an Auction)
NOTICE OF A FAILURE TO DELIVER
Complete either I or II
I. We are a Broker-Dealer for ____________________ (the "Purchaser"), which
purchased ___________ shares of AMPS, Series [A][B], of MuniHoldings
Insured Fund IV, Inc. in the Auction held on ____________________ from the
seller of such shares.
II. We are a Broker-Dealer for (the "Seller"), which sold _______ shares of
AMPS, Series [A][B], of _________________________ in the Auction held on
_________________________ to the Purchaser of such shares.
We hereby notify you that (check one):
____________ the Seller failed to deliver such shares to the Purchaser
____________ the Purchaser failed to make payment to the Seller upon delivery of
such shares
Name: _______________________
(Name of Broker-Dealer)
By: _________________________
Printed Name:
Title:
<PAGE> 1
Exhibit 13(d)
BOOK-ENTRY-ONLY AUCTION-RATE/MONEY MARKET
PREFERRED/AND REMARKETED PREFERRED SECURITIES
LETTER OF REPRESENTATIONS
[To be Completed by Issuer and Trust Company]
___________________________________________________________________________
[Name of Issuer]
IBJ Whitehall Bank & Trust Company
[Name of Trust Company]
Attention: General Counsel's Office ____ , 1999
THE DEPOSITORY TRUST COMPANY ________________
55 Water Street; 49th Floor [Date]
California, NY 10041-0099
Re: ________________________________________________________
________________________________________________________
________________________________________________________
[Issue Description, including CUSIP number]
Ladies and Gentlemen:
This letter sets forth our understanding with respect to certain
matters relating to the above-referenced issue (the "Securities"). Trust Company
will act as transfer agent, registrar, dividend disbursing agent, and redemption
agent with respect to the Securities. The Securities will be issued pursuant to
a prospectus, private placement memorandum, or other such document authorizing
the issuance of a Securities dated _________, 1999 (the "Document"). Merrill
Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated ["Underwriter"]
is distributing the Securities through the Depositary Trust Company ("DTC").
To induce DTC to accept the Securities as eligible for deposit at DTC,
and to act in accordance with respect to the Securities, Issue and Trust Company
make the following representations to DTC:
<PAGE> 2
1. Prior to closing on the Securities on _________, _____, there shall
be deposited with DTC one Security certificate registered in the name of DTC's
nominee, Cede & Co., which represents the total number of Securities issued.
Said certificate shall remain in DTC's custody as provided in the Document. If
however, the aggregate principal amount of the Securities exceed $200 million,
one certificate will be issued with respect to each $200 million of principal
amount and an additional certificate will be issued with respect to any
remaining principal amount. Each Security certificate shall bear the following
legend:
Unless this certificate is presented by an authorized
representative of The Depository Trust Company, a California
corporation ("DTC"), to issuer or its agent for registration of
transfer, exchange, or payment, and any certificate issued is
registered in the name of Cede & Co., or in such other name as is
requested by an authorized representative of DTC (and any payment is
made to Cede & Co. or to such other entity as is requested by an
authorized representative of DTC), ANY TRANSFER, PLEDGE, OR OTHER USE
HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch
as the registered owner hereof, Cede & Co., has an interest therein.
2. Issuer: (a) understands that DTC has no obligation to, and will not,
communicate to its Participants or to any person having an interest in the
Securities any information contained in the Security certificate(s); and (b)
acknowledges that neither DTC's Participants nor any person having an interest
in the Securities shall be deemed to have notice of the provisions of the
Security certificate(s) by virtue of submission of such certificate(s) to DTC.
3. In the event of any solicitation of consents from or voting by
holders of the Securities, Issuer shall establish a record date for such
purposes (with no provision for revocation of consents or votes by subsequent
holders) and shall send notice of such record date to DTC not less than 15
calendar days in advance of such record date. Notices to DTC pursuant to this
Paragraph by telecopy shall be sent to DTC's Reorganization Department at (212)
709-6896 or (212) 709-6897, and receipt of such notices shall be confirmed by
telephoning (212) 709-6870. Notices to DTC pursuant to this Paragraph by mail or
by any other means shall be sent to DTC's Reorganization Department as indicated
in Paragraph 5.
4. In the event of a full or partial redemption of the outstanding
Securities, Issuer or Trust Company shall send a notice to DTC specifying: (a)
the number of Securities to be redeemed; and (b) the date such notice is to be
distributed to Security holders or published (the "Publication Date"). Such
notice shall be sent to DTC by a secure means (e.g., legible telecopy,
registered or certified mail, overnight delivery) in a timely manner designed to
assure that such notice is in DTC's possession no later than the close of
business on the business day before or, if possible, two business days before
the Publication Date. Issuer or Trust Company shall forward such notice either
in a separate secure transmission for each CUSIP number or in a secure
transmission for multiple CUSIP numbers (if applicable) which includes a
manifest or list of each CUSIP number submitted in that transmission. (The party
sending such notice shall have a method to verify subsequently the use of such
means and the timeliness of such notice.) The Publication date shall be not less
than 30 days nor more than 60 days prior to the redemption date. Notices to DTC
pursuant to this Paragraph by telecopy shall be sent to DTC's Call Notification
Department at (516) 227-4039 or (516) 227-4190. If the party sending the notice
does not receive a telecopy receipt from DTC confirming that the notice has been
received, such party shall telephone (516) 227-4070. Notices to DTC pursuant to
this Paragraph by mail or by any other means shall be sent to:
Manager; Call Notification Department
The Depository Trust Company
711 Stewart Avenue
Garden City, NY 11530-4719
2
<PAGE> 3
5. In the event of an invitation to tender the Securities (including
mandatory tenders, exchanges, and capital changes), notice by Issuer or Trust
Company to Security holder specifying the terms of the tender and the
Publication Date of such notice shall be sent to DTC by a secure means in the
manner set forth in the preceding Paragraph. Notices to DTC pursuant to this
Paragraph and notices of other corporate action by telecopy shall be sent to
DTC's Reorganization Department at (212) 709-1093 or (212) 709-1094, and receipt
of such notices shall be confirmed by telephoning (212) 709-6884. Notices to DTC
pursuant to the above by mail or by any other means shall be sent to:
Manager; Reorganization Department
Reorganization Window
The Depository Trust Company
7 Hanover Square, 23rd Street
New York, NY 10004-2695
6. All notices and payment advices sent to DTC shall contain the CUSIP
number of the Securities (listed on Schedule A hereto) and the accompanying
description of such Security, which as of the date of this letter is
"________________________________________ ".
7. The Document indicates that the dividend rate for the Securities may
vary from time to time. Absent other existing arrangements with DTC, Issuer or
Trust Company shall give DTC notice of each such change in the dividend rate, on
the same day that the new rate is determined, by telephoning the Supervisor of
DTC's Dividend Announcement Section at (212) 709-1270, or by telecopy sent to
(212) 709-1723. Such verbal or telecopy notice shall be followed by prompt
written confirmation sent by a secure means in the manner set forth in Paragraph
4 to:
Manager; Announcements
Dividend Department
The Depository Trust Company
7 Hanover Square, 22nd Floor
New York, NY 10004-2695
8. The Document indicates that each purchaser must sign a purchaser's
letter which contains provisions restricting transfer of the Securities
purchased. Issuer and Trust Company acknowledge that as long as Cede & Co. is
the sole record owner of the Securities, Cede & Co. shall be entitled to all
voting rights applicable to the Securities and to receive the full amount of all
dividends, liquidation proceeds, and redemption proceeds payable with respect to
the Securities, even if the credits of Securities to the DTC accounts of any DTC
Participant ("Participant") result from transfers or failures to transfer in
violation of the provisions of the purchaser's letter. Issuer and Trust Company
acknowledge that DTC shall treat any Participant having Securities credited to
its DTC accounts as entitled to the full benefits of ownership of such
Securities. Without limiting the generality of the preceding sentence, Issuer
and Trust Company acknowledge that DTC shall treat any Participant having
securities credited to its DTC accounts as entitled to receive dividends,
distributions, and voting rights, if any, in respect of Securities and, subject
to Paragraphs 12 and 13, to receive certificates evidencing Securities if such
certificates are to be issued in accordance with Issuer's certificate of
incorporation. (The Treatment by DTC of the effects of the crediting by it of
Securities to the accounts of Participants described in the preceding two
sentences shall not affect the rights of Issuer, participants in auctions
relating to the Securities, purchasers, sellers, or holders of Securities
against any Participant.) DTC shall not have any responsibility to ascertain
whether any transfer of Securities is made in accordance with the provisions of
the purchaser's letter.
9. Issuer or Trust Company shall provide a written notice of dividend
payment and distribution information to a standard announcement service
subscribed to by DTC as soon as the information is
3
<PAGE> 4
available. In the unlikely event that no such service exists, Issuer or Trust
Company shall provide this information directly to DTC electronically, as
previously arranged by Issuer or Trust Company and DTC, as soon as the
information is available. If electronic transmission has not been arranged,
absent any other arrangements between Issuer or Trust Company and DTC, such
information should be sent by telecopy to DTC's Dividend Department at (212)
709-1723 or (212) 709-1686, and receipt of such notices shall be confirmed by
telephoning (212) 709-1270. Notices to DTC pursuant to the above by mail or by
any other means shall be addressed as follows:
Manager; Announcements
Dividend Department
The Depository Trust Company
7 Hanover Square, 22nd Floor
New York, NY 10004-2695
10. Issuer or Trust Company shall provide CUSIP-level detail for
dividend payments and distributions to DTC no later than noon (Eastern Time) on
the payment date.
11. Dividend payments and distributions shall be received by Cede &
Co., as nominee of DTC, or its registered assignees in same-day funds no later
than 2:30 p.m. (Eastern Time) on each payment date. Absent any other
arrangements between Issuer or Trust Company and DTC, such funds shall be wired
as follow:
The Chase Manhattan Bank
ABA #021 000 21
For credit to a/c Cede & Co.
c/o The Depository Trust Company
Dividend Deposit Account #066-026776
12. Redemption payments shall be received by Cede & Co., as nominee of
DTC, or its registered assigns in same-day funds no later than 2:30 p.m.
(Eastern Time) on the payment date. Absent any other arrangements between Issuer
or Trust Company and DTC, such funds shall be wired as follows:
The Chase Manhattan Bank
ABA #021 000 21
For credit to a/c Cede & Co.
c/o The Depository Trust Company
Redemption Deposit Account #066-027306
13. Reorganization payments and CUSIP-level detail resulting from
corporate actions (such as tender offers, remarketings, or mergers) hall be
received by Cede & co., as nominee of DTC, or its registered assigns in same-day
funds no later than 2:30 p.m. (Eastern Time) on the first payment date. Absent
any other arrangement between Issuer or Trust Company and DTC, such funds shall
be wired as follows:
The Chase Manhattan Bank
ABA #021 000 21
For credit to a/c Cede & Co.
c/o The Depository Trust Company
Redemption Deposit Account #066-027608
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14. DTC may direct Issuer or Trust Company to use any other number or
address as the number or address to which notices, payments of dividends,
distributions, or redemption proceeds may be sent.
15. In the event of a redemption acceleration, or any similar
transaction (e.g., tender made and accepted in response to Issuer's or Trust
Company's invitation) necessitating a reduction in the number of Securities
outstanding, or an advance refunding of part of the Securities outstanding DTC,
in its discretion: (a) may request Issuer or Trust Company to issue and
authenticate a new Security certificate; or (b) may make an appropriate notation
on the Security certificate indicating the date and amount of such reduction in
the number of Securities outstanding, except in the case of final redemption, in
which case the certificate the certificate will be presented to Issuer or Trust
Company prior to payment, if required.
16. In the event that Issuer determines that beneficial owners of
Securities shall be able to obtain certificated Securities, Issuer or Trust
company shall notify DTC of the availability of certificates. In such event,
Issuer or Trust Company shall issue, transfer, and exchange certificates in
appropriate amounts, as required by DTC and others.
17. DTC may discontinue providing its services as securities depository
with respect to the Securities at any time by giving reasonable notice to Issuer
or Trust Company (at which time DTC will confirm with Issuer or Trust Company
the aggregate principal amount of Securities outstanding). Under such
circumstances, at DTC's request Issuer and Trust Company shall cooperate fully
with DTC by taking appropriate action to make available one or more separate
certificates evidencing Securities to any DTC Participant having Securities
credited to its DTC accounts.
18. Issuer hereby authorized DTC to provide to Trust Company security
position listings of Participants with respect to the Securities from time to
time at the request of Trust Company. Issuer also authorizes DTC, in the event
of a partial redemption of Securities, to provide Trust Company, upon request,
with the names of those Participants whose positions in Securities have been
selected for redemption by DTC. DTC will use its best efforts to notify Trust
Company of those Participants whose positions in Securities have been selected
for redemption by DTC. Issuer authorizes and instructs Trust Company to provide
DTC with such signatures, examples of signatures, and authorizations to act as
may be deemed necessary or appropriate by DTC to permit DTC to discharge its
obligations to its Participants and appropriate regulatory authorities. Such
requests for security position listings shall be sent to DTC's Reorganization
Department in the manner set forth in Paragraph 5.
This authorization, unless revoked by Issuer, shall continue with
respect to the Securities while any Securities are on deposit at DTC, until and
unless Trust Company shall no longer be acting. In such event, Issuer shall
provide DTC with similar evidence, satisfactory to DTC, of the authorization of
any successor thereto so to act.
19. Nothing herein shall be deemed to require Trust Company to advance
funds on behalf of Issuer.
20. This Letter of Representations may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an original,
but all such counterparts together constitute but one and the same instrument.
21. This Letter of Representations is governed by, and shall be
construed in accordance with, the laws of the State of California.
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22. The following riders, attached hereto, are hereby incorporated into
this Letter of Representations:
____________________________________________________
_____________________________________________________
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NOTES:
A. If there is a Trust Company (as defined in
this Letter of Representations), Trust Company as well as Issuer must sign this
Letter. If there is no Trust Company, in signing this Letter Issuer itself
undertakes to perform all of the obligations set forth herein.
B. Schedule B contains statements that DTC believes accurately describe
DTC, the method of effecting book-entry transfers of securities distributed
through DTC, and certain related matters.
Very truly yours,
(Issuer)
By: ____________________________________
(Authorized Officer's Signature)
IBJ WHITEHALL BANK & TRUST COMPANY
(Trust Company)
By: ____________________________________
(Authorized Officer's Signature)
Received and Accepted:
THE DEPOSITORY TRUST COMPANY
By: ______________________________
cc: Underwriter
Underwriter's Counsel
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SCHEDULE A
_________________________________________________________
_________________________________________________________
(Describe Issue)
CUSIP Number Share Total Value ($ Amount)
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RIDER TO THE LETTER OF REPRESENTATIONS
OF
____________________________________
AND
IBJ WHITEHALL BANK & TRUST COMPANY
DATED ________________, 1999
1. This Rider supersedes any contradictory language set forth in the Letter of
Representations to which it is appended. Capitalized terms used and not
defined herein have the meaning set forth in the Letter of Representations
to which this Rider is appended.
2. The Prospectus indicates that in the event the Issuer retroactively
allocates any net capital gains or other income subject to regular Federal
income tax to shares of AMPS without having given advance notice thereof to
the Auction Agent as described in the Prospectus solely by reason of the
fact that such allocation is made as a result of the redemption of all or a
portion of the shares of AMPS outstanding or the liquidation of the Issuer
(the amount of such allocation being referred to herein as a "Retroactive
Taxable Allocation"), the Issuer, within 90 days (and generally within 60
days) after the end of the Issuer's fiscal year for which a Retroactive
Taxable Allocation is made, will provide notice thereof to the Auction
Agent and to each holder of shares of AMPS (initially Cede & Co. as nominee
of DTC) during such fiscal year at such holder's address as the same
appears or last appeared on the stock books of the Issuer. The Issuer,
within 30 days after such notice is given to the Auction Agent, will pay to
the Auction Agent (who then will distribute to such holders of AMPS), out
of funds legally available therefor, an amount equal to the aggregate
Additional Dividend with respect to all Retroactive Taxable Allocations
made to such holders during the fiscal year in question.
3. The Issuer will notify DTC, at least 10 Business Days prior to the payment
date for any Additional Dividends, of (i) the record date for holders of
shares of AMPS entitled to receive Additional Dividends, (ii) the amount of
Additional Dividends payable on a per share basis to such holders and (iii)
the CUSIP numbers set forth on the stock certificates representing such
shares of AMPS.
4. The Prospectus indicates that if the Issuer does not give advance notice of
the amount of net capital gains or other income subject to regular Federal
income tax to be included in a dividend on shares of AMPS in the related
Auction, the Issuer may include such taxable income in a dividend on shares
of AMPS if it increases the dividend by an additional amount calculated as
if such income were a Retroactive Taxable Allocation and the additional
amount were an Additional Dividend. The Issuer or the Auction Agent will
notify DTC, at least five Business Days prior to the applicable Dividend
Payment Date, of the amount of such additional amount to be included in the
dividend on a per share basis.
5. The Prospectus indicates that in the event a Response (as defined in the
Prospectus) indicates that it is advisable that the Issuer give a Notice of
Special Dividend Period (as defined in the Prospectus) for the AMPS, the
Issuer, by no later than the second Business Day prior to the relevant
Auction Date (as defined in the Prospectus), may give a Notice of Special
Dividend Period to the Auction Agent, DTC and each Broker-Dealer (as
defined in the Prospectus),
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which notice will specify (i) the duration of the Special Dividend Period
(as defined in the Prospectus), (ii) the Optional Redemption Price as
specified in the related Response and (iii) the Specific Redemption
Provisions, if any, as specified in the related Response. The Issuer is
required to give telephonic and written notice (a "Notice of Revocation")
to the Auction Agent, each Broker-Dealer, and DTC (as described in
paragraph 6 hereof) on or prior to the Business Day prior to the relevant
Auction Date under the circumstances specified in the Prospectus.
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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. 333-0000) and related combined
Preliminary 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
October 1, 1999
<PAGE> 1
EXHIBIT 14(b)
INDEPENDENT AUDITORS' CONSENT
MuniVest Michigan Insured Fund, Inc.:
We consent to the use in this Registration Statement 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
September 30, 1999
