<PAGE>
As filed with the Securities and Exchange Commission on November 10, 1999
Securities Act File No. 333-88395
Investment Company Act File No. 811-08573
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
--------------
PRE-EFFECTIVE AMENDMENT NO. 1 [X] POST-EFFECTIVE AMENDMENT NO. [_]
(check appropriate box or boxes)
--------------
MuniYield Pennsylvania Fund
(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 Pennsylvania Fund
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:
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
--------------
Approximate Date of Proposed Public Offering: As soon as practicable after
the Registration Statement becomes effective under the Securities Act of 1933.
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Proposed Proposed
Maximum Maximum
Offerintg Aggregate Amount of
Title of Securities Amount Being Price Per Offering Registration
Being Registered Registered(1) Unit(1) Price(1) Fee(3)
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Shares ($.10 par
value)................. 6,108,788 $13.99 $85,461,944 $23,759
- ------------------------------------------------------------------------------------
Auction Market Preferred
Shares, Series B....... 1,920 $25,000(2) $48,000,000 $13,344
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) Estimated solely for the purpose of calculating the filing fee.
(2) Represents the liquidation preference of a preferred share after the
reorganization.
(3) $37,103 previously paid by wire transfer to the designated lockbox of the
Securities and Exchange Commission in Pittsburgh, Pennsylvania.
--------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
MUNIYIELD PENNSYLVANIA FUND
MUNIVEST PENNSYLVANIA INSURED FUND
MUNIHOLDINGS PENNSYLVANIA INSURED FUND
P.O. Box 9011
Princeton, New Jersey 08543-9011
----------------
NOTICE OF SPECIAL MEETINGS OF SHAREHOLDERS OF
MUNIYIELD PENNSYLVANIA FUND
AND
MUNIVEST PENNSYLVANIA INSURED FUND
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS OF
MUNIHOLDINGS PENNSYLVANIA INSURED FUND
----------------
TO BE HELD ON DECEMBER 15, 1999
TO THE SHAREHOLDERS OF
MUNIYIELD PENNSYLVANIA FUND
MUNIVEST PENNSYLVANIA INSURED FUND
MUNIHOLDINGS PENNSYLVANIA INSURED FUND
NOTICE IS HEREBY GIVEN that special meetings of the shareholders of
MuniYield Pennsylvania Fund ("MuniYield Pennsylvania") and MuniVest
Pennsylvania Insured Fund ("MuniVest Pennsylvania") and the annual meeting of
the shareholders of MuniHoldings Pennsylvania Insured Fund ("MuniHoldings
Pennsylvania") (together 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 4:15 p.m. Eastern time (for
MuniYield Pennsylvania), 2:45 p.m. Eastern time (for MuniVest Pennsylvania)
and 1:45 p.m. Eastern time (for MuniHoldings Pennsylvania) for the following
purposes:
(1) To approve or disapprove an Agreement and Plan of Reorganization (the
"Agreement and Plan of Reorganization") contemplating (i) the acquisition
of substantially all of the assets and the assumption of substantially all
of the liabilities of MuniVest Pennsylvania by MuniYield Pennsylvania, in
exchange solely for an equal aggregate value of newly-issued common shares
of beneficial interest of MuniYield Pennsylvania ("MuniYield Pennsylvania
Common Shares") and shares of a newly-created series of auction market
preferred shares of MuniYield Pennsylvania to be designated Series B
("MuniYield Pennsylvania Series B AMPS") and the distribution by MuniVest
Pennsylvania of such MuniYield Pennsylvania Common Shares to the holders of
common shares of beneficial interest of MuniVest Pennsylvania ("MuniVest
Pennsylvania Common Shares") and such MuniYield Pennsylvania Series B AMPS
to the holders of auction market preferred shares of MuniVest Pennsylvania
("MuniVest Pennsylvania AMPS") (ii) the acquisition of substantially all of
the assets and the assumption of substantially all of the liabilities of
MuniHoldings Pennsylvania by MuniYield Pennsylvania, in exchange solely for
an equal aggregate value of newly-issued MuniYield Pennsylvania Common
Shares and MuniYield Pennsylvania Series B AMPS and the distribution by
MuniHoldings Pennsylvania of such MuniYield Pennsylvania Common Shares to
the holders of common shares of beneficial interest of MuniHoldings
Pennsylvania ("MuniHoldings Pennsylvania Common Shares") and such MuniYield
Pennsylvania Series B AMPS to the holders of auction market preferred
shares of MuniHoldings Pennsylvania designated Series A ("MuniHoldings
Pennsylvania Series A AMPS"), (iii) the amendment of the investment
policies of MuniYield Pennsylvania to provide that under normal
circumstances, at least 80% of its 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, as well as the change of the same fund's name to "MuniYield
Pennsylvania Insured Fund" and (iv) the designation of the currently
outstanding series of AMPS of MuniYield Pennsylvania as Series A. A vote in
favor of this proposal also will constitute a vote in favor of the
liquidation and termination of each of MuniVest Pennsylvania and
MuniHoldings Pennsylvania and the termination of their respective
registration under the Investment Company Act of 1940; and
<PAGE>
For the shareholders of MuniHoldings Pennsylvania only:
(2) To elect a Board of Trustees 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 for the Fund for its
current fiscal year; and
For shareholders of all the Funds:
(4) To transact such other business as properly may come before the
Meetings or any adjournment thereof.
If the proposed Reorganization is approved by the shareholders of each of
the Funds at the Meetings and effected by the Funds, any shareholder (1) who
files with the applicable Fund before the taking of the vote on the approval
of such Agreement and Plan of Reorganization, written objection to the
proposed Reorganization stating that he or she intends to demand payment for
his or her shares if the Reorganization takes place and (2) whose shares are
not voted in favor of such Agreement and Plan of Reorganization has or may
have the right to demand in writing from MuniYield Pennsylvania, within twenty
days after the date of mailing to him or her of notice in writing that the
Reorganization has become effective, payment for his or her shares and an
appraisal of the value thereof. MuniYield Pennsylvania and any such
shareholders shall in such cases have the rights and duties and shall follow
the procedure set forth in sections 88 to 98, inclusive, of chapter 156B of
the General Laws of Massachusetts. See Item 1. "The Reorganization--Agreement
and Plan of Reorganization--Appraisal Rights" in the Proxy Statement and
Prospectus.
The Boards of Trustees of MuniYield Pennsylvania, MuniVest Pennsylvania and
MuniHoldings Pennsylvania have fixed the close of business on October 20, 1999
as the record date for the determination of shareholders entitled to notice
of, and to vote at, the Meetings or any adjournment thereof.
A complete list of the shareholders of MuniYield Pennsylvania, MuniVest
Pennsylvania and MuniHoldings Pennsylvania entitled to vote at the Meetings
will be available and open to the examination of any shareholder of MuniYield
Pennsylvania, MuniVest Pennsylvania and MuniHoldings Pennsylvania,
respectively, for any purpose germane to the Meetings during ordinary business
hours from and after December 1, 1999, at the offices of MuniYield
Pennsylvania, 800 Scudders Mill Road, Plainsboro, New Jersey.
You are cordially invited to attend the Meetings. Shareholders 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 Trustees of MuniYield Pennsylvania,
MuniVest Pennsylvania or MuniHoldings Pennsylvania, as applicable.
By Order of the Boards of Trustees
Alice A. Pellegrino
Secretary of:
MuniYield Pennsylvania Fund,
MuniVest Pennsylvania Insured Fund
and MuniHoldings Pennsylvania
Insured Fund
Plainsboro, New Jersey
Dated: November 10, 1999
2
<PAGE>
PROXY STATEMENT AND PROSPECTUS
MUNIYIELD PENNSYLVANIA FUND
MUNIVEST PENNSYLVANIA INSURED FUND
MUNIHOLDINGS PENNSYLVANIA INSURED FUND
P.O. Box 9011, Princeton, New Jersey 08543-9011
(609) 282-2800
----------------
SPECIAL MEETINGS OF SHAREHOLDERS OF
MUNIYIELD PENNSYLVANIA FUND
AND
MUNIVEST PENNSYLVANIA INSURED FUND
ANNUAL MEETING OF SHAREHOLDERS OF
MUNIHOLDINGS PENNSYLVANIA INSURED FUND
----------------
DECEMBER 15, 1999
This Joint Proxy Statement and Prospectus is furnished to you as a
shareholder of one of the funds listed above. An annual meeting of the
shareholders of MuniHoldings Pennsylvania Insured Fund and special meetings of
the shareholders of each of MuniYield Pennsylvania Fund and MuniVest
Pennsylvania Insured Fund (the "Meetings") 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 Trustees
of each of the funds is requesting that its shareholders submit a proxy to be
used at the annual meeting or special meeting, as the case may be, to vote the
shares held by the shareholder submitting the proxy.
The proposals to be considered at the Meetings are:
1. To approve or disapprove an Agreement and Plan of Reorganization among
the funds; and
For the shareholders of MuniHoldings Pennsylvania Insured Fund only:
2. To elect a Board of Trustees for the fund; and
3. To ratify the selection of the independent auditors of the fund; and
For the shareholders of all of the Funds:
4. To transact such other business as may properly come before the Meetings
or any adjournment thereof.
(continued on next page)
----------------
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.
----------------
This Proxy Statement and Prospectus serves as a prospectus of MuniYield
Pennsylvania in connection with the issuance of MuniYield Pennsylvania Common
Shares and the newly-created series of MuniYield Pennsylvania Series B AMPS in
the Reorganization.
The Proxy Statement and Prospectus sets forth information about MuniYield
Pennsylvania, MuniVest Pennsylvania and MuniHoldings Pennsylvania that
shareholders of the Funds should know before considering the Reorganization
and should be retained for future reference. Each of the Funds has authorized
the solicitation of proxies in connection with the Reorganization solely on
the basis of this Proxy Statement and Prospectus and the accompanying
documents.
The address of the principal executive offices of MuniYield Pennsylvania,
MuniVest Pennsylvania and MuniHoldings Pennsylvania is 800 Scudders Mill Road,
Plainsboro, New Jersey 08536, and the telephone number is (609) 282-2800.
The date of this Proxy Statement and Prospectus is November 10, 1999.
<PAGE>
The common shares of beneficial interest ("Common Shares") of MuniYield
Pennsylvania and MuniVest Pennsylvania are listed on the New York Stock
Exchange (the "NYSE") under the symbols "MPA" (MuniYield Pennsylvania) and
"MVP" (MuniVest Pennsylvania). The Common Shares of MuniHoldings Pennsylvania
are listed on the American Stock Exchange ("AMEX") under the symbol "MPI."
Subsequent to the Reorganization, MuniYield Pennsylvania Common Shares will
continue to be listed on the NYSE under the symbol "MPA." Reports, proxy
materials and other information in the case of MuniYield Pennsylvania and
MuniVest Pennsylvania may be inspected at the offices of the NYSE, 20 Broad
Street, New York, New York 10005 or at the AMEX, 980 Washingtonian Boulevard,
Gaithersburg, Maryland 20878 in the case of MuniHoldings Pennsylvania.
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 fund. The three funds are:
MuniYield Pennsylvania Fund ("MuniYield Pennsylvania"), which will be the
surviving fund,
MuniVest Pennsylvania Insured Fund ("MuniVest Pennsylvania") and
MuniHoldings Pennsylvania Insured Fund ("MuniHoldings Pennsylvania").
MuniVest Pennsylvania and MuniHoldings Pennsylvania are sometimes referred
to herein collectively as the "Acquired Funds" and, together with MuniYield
Pennsylvania, as the "Funds."
In the Reorganization, MuniYield Pennsylvania will (i) acquire substantially
all of the assets and assume substantially all of the liabilities of each of
the Acquired Funds solely in exchange for its common shares of beneficial
interest, par value $.10 per share ("MuniYield Pennsylvania Common Shares"),
and shares of a newly-created series of its auction market preferred shares to
be designated Series B ("MuniYield Pennsylvania Series B AMPS"), with a par
value of $.05 per share and a liquidation preference of $25,000 per share and
(ii) designate the currently outstanding series of AMPS of MuniYield
Pennsylvania as Series A AMPS. The Acquired Funds will distribute the
MuniYield Pennsylvania Common Shares and MuniYield Pennsylvania Series B AMPS
received in the Reorganization to their respective shareholders and will then
liquidate and terminate their registration under the Investment Company Act of
1940 (the "Investment Company Act"). MuniYield Pennsylvania will continue to
operate as a registered closed-end investment company with the investment
objective and policies described in this Proxy Statement and Prospectus. As
part of the Reorganization, the Fund will amend its investment policies to
provide that the Fund, under normal circumstances, will invest at least 80% of
its assets 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, as well as change the Fund's name to
"MuniYield Pennsylvania Insured Fund."
In the Reorganization, MuniYield Pennsylvania will issue Common Shares and
auction market preferred shares ("AMPS") to each of the Acquired Funds based
on the value of the assets transferred to MuniYield Pennsylvania by that
Acquired Fund. These shares will then be distributed by each Acquired Fund to
its shareholders based on the value of the shares held by each shareholder
just prior to the Reorganization. A holder of Common Shares of an Acquired
Fund will receive MuniYield Pennsylvania Common Shares and a holder of AMPS of
an Acquired Fund will receive MuniYield Pennsylvania Series B AMPS.
2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
INTRODUCTION.............................................................. 5
ITEM 1. THE REORGANIZATION................................................ 6
SUMMARY................................................................. 6
RISK FACTORS AND SPECIAL CONSIDERATIONS................................. 16
Pennsylvania Municipal Bonds.......................................... 16
Interest Rate and Credit Risk......................................... 16
Non-diversification................................................... 16
Rating Categories..................................................... 16
Private Activity Bonds................................................ 16
Portfolio Insurance................................................... 16
Leverage.............................................................. 16
Portfolio Management.................................................. 17
Inverse Floating Obligations.......................................... 18
Options and Futures Transactions...................................... 18
Antitakeover Provisions............................................... 18
Ratings Considerations................................................ 18
COMPARISON OF THE FUNDS................................................. 19
Financial Highlights.................................................. 19
Investment Objective and Policies..................................... 25
Portfolio Insurance................................................... 27
Description of Pennsylvania Municipal Bonds and Municipal Bonds....... 28
Special Considerations Relating to Pennsylvania Municipal Bonds....... 29
Other Investment Policies............................................. 30
Information Regarding Options and Futures Transactions................ 31
Investment Restrictions............................................... 34
Rating Agency Guidelines.............................................. 35
Portfolio Composition................................................. 36
Portfolio Transactions................................................ 38
Portfolio Turnover.................................................... 39
Net Asset Value....................................................... 39
Capital Shares........................................................ 40
Management of the Funds............................................... 43
Code of Ethics........................................................ 44
Voting Rights......................................................... 44
Shareholder Inquiries................................................. 45
Dividends and Distributions........................................... 45
Automatic Dividend Reinvestment Plan.................................. 47
Mutual Fund Investment Option......................................... 48
Liquidation Rights of Holders of AMPS................................. 49
Tax Rules Applicable to the Funds and their Shareholders.............. 49
AGREEMENT AND PLAN OF REORGANIZATION.................................... 54
General............................................................... 54
Procedure............................................................. 55
Terms of the Agreement and Plan of Reorganization..................... 56
Potential Benefits to Holders of Common Shares of the Funds as a
Result of the Reorganization......................................... 58
Surrender and Exchange of Share Certificates.......................... 59
Tax Consequences of the Reorganization................................ 60
Appraisal Rights...................................................... 61
Capitalization........................................................ 62
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
Page
-----
<S> <C>
ITEM 2. ELECTION OF TRUSTEES............................................ 63
Committee and Board Meetings........................................ 65
Compliance with Section 16(a) of the Securities Exchange Act of
1934............................................................... 65
Interested Persons.................................................. 65
Compensation of Trustees............................................ 65
Officers of MuniHoldings Pennsylvania............................... 65
ITEM 3. SELECTION OF INDEPENDENT AUDITORS............................... 66
INFORMATION CONCERNING THE ANNUAL MEETING OF MUNIHOLDINGS PENNSYLVANIA
AND THE SPECIAL MEETINGS OF MUNIYIELD PENNSYLVANIA AND MUNIVEST
PENNSYLVANIA........................................................... 66
Date, Time and Place of Meetings.................................... 66
Solicitation, Revocation and Use of Proxies......................... 66
Record Date and Outstanding Shares.................................. 66
Security Ownership of Certain Beneficial Owners and Management...... 67
Voting Rights and Required Vote..................................... 67
ADDITIONAL INFORMATION.................................................. 68
Year 2000 Issues.................................................... 69
CUSTODIAN............................................................... 69
TRANSFER AGENT, DIVIDEND DISBURSING AGENT AND REGISTRAR................. 69
LEGAL PROCEEDINGS....................................................... 70
LEGAL OPINIONS.......................................................... 70
EXPERTS................................................................. 70
SHAREHOLDER PROPOSALS................................................... 70
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 PENNSYLVANIA.............. III-1
EXHIBIT IV--RATINGS OF MUNICIPAL BONDS AND COMMERCIAL PAPER............. IV-1
EXHIBIT V--PORTFOLIO INSURANCE.......................................... V-1
EXHIBIT VI--SECTIONS OF MASSACHUSETTS BUSINESS CORPORATION LAW.......... VI-1
</TABLE>
4
<PAGE>
INTRODUCTION
This Proxy Statement and Prospectus is furnished in connection with the
solicitation of proxies on behalf of the Boards of Trustees of MuniYield
Pennsylvania, MuniVest Pennsylvania and MuniHoldings Pennsylvania for use at
the Meetings to be held at the offices of Merrill Lynch Asset Management, L.P.
("MLAM"), 800 Scudders Mill Road, Plainsboro, New Jersey on December 15, 1999,
at the time specified for each Fund in Exhibit I to this Proxy Statement and
Prospectus. The mailing address for each of the Funds is P.O. Box 9011,
Princeton, New Jersey 08543-9011. The approximate mailing date of this Proxy
Statement and Prospectus is November 12, 1999.
Any person giving a proxy may revoke it at any time prior to its exercise by
executing a superseding proxy, by giving written notice of the revocation to
the Secretary of MuniYield Pennsylvania, MuniVest Pennsylvania or MuniHoldings
Pennsylvania, as applicable, at the address indicated above or by voting in
person at the appropriate Meeting. All properly executed proxies received
prior to the Meetings will be voted at the Meetings in accordance with the
instructions marked thereon or otherwise as provided therein. Unless
instructions to the contrary are marked, (a) all proxies will be voted "FOR"
Item 1 to approve the Agreement and Plan of Reorganization among MuniYield
Pennsylvania, MuniVest Pennsylvania and MuniHoldings Pennsylvania (the
"Agreement and Plan of Reorganization"); and (b) for the shareholders of
MuniHoldings Pennsylvania only, all proxies submitted by MuniHoldings
Pennsylvania shareholders will be voted "FOR" Item 2 to elect a Board of
Trustees of MuniHoldings Pennsylvania to serve for the ensuing year; and "FOR"
Item 3 to ratify the selection of Deloitte & Touche LLP as the independent
auditors of MuniHoldings Pennsylvania 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 shareholders representing (i) a majority of the
outstanding Common Shares of MuniYield Pennsylvania and MuniYield Pennsylvania
AMPS, voting together as a single class, and a majority of the outstanding
shares of MuniYield Pennsylvania AMPS, voting separately as a class, (ii) a
majority of the outstanding Common Shares of MuniVest Pennsylvania and
MuniVest Pennsylvania AMPS, voting together as a single class, and a majority
of the outstanding shares of MuniVest Pennsylvania AMPS, voting separately as
a class, and (iii) a majority of the outstanding Common Shares of MuniHoldings
Pennsylvania and MuniHoldings Pennsylvania AMPS, Series A, voting together as
a single class, and a majority of the outstanding shares of MuniHoldings
Pennsylvania AMPS, Series A, voting separately as a class. Because of the
requirement that the Agreement and Plan of Reorganization be approved by
shareholders of all three Funds, the Reorganization will not take place if
shareholders of any one Fund do not approve the Agreement and Plan of
Reorganization.
With respect to Item 2, holders of MuniHoldings Pennsylvania AMPS, Series A,
are entitled to elect two Trustees of MuniHoldings Pennsylvania, and holders
of MuniHoldings Pennsylvania Common Shares and AMPS, voting together as a
single class, are entitled to elect the remaining Trustees of MuniHoldings
Pennsylvania. Assuming a quorum is present at the annual meeting of
MuniHoldings Pennsylvania, election of the two Trustees of MuniHoldings
Pennsylvania to be elected by the holders of AMPS, voting separately as a
class, will require the affirmative vote of a majority of the votes cast by
the holders of MuniHoldings Pennsylvania AMPS, Series A, represented at the
annual meeting and entitled to vote; and election of the remaining Trustees of
MuniHoldings Pennsylvania will require the affirmative vote of a majority of
the votes cast by the holders of Common Shares and the holders of AMPS,
represented at the annual meeting and entitled to vote, voting together as a
single class.
With respect to Item 3, assuming a quorum is present at the annual meeting
of MuniHoldings Pennsylvania, approval of the ratification of the selection of
independent auditors of MuniHoldings Pennsylvania will require the affirmative
vote of a majority of the MuniHoldings Pennsylvania Common Shares and AMPS
represented at the annual meeting in person or by proxy, and entitled to vote,
voting together as a single class.
The Board of Trustees 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 shareholders entitled to notice of, and to vote at, the
5
<PAGE>
Meetings or any adjournment thereof. Shareholders 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
Common Shares and AMPS indicated in Exhibit I. To the knowledge of the
management of each of the Funds, no person owned beneficially more than 5% of
the respective outstanding shares of either class of capital stock of any Fund
at the Record Date.
The Boards of Trustees 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 shareholders solicited and entitled to vote on each proposal is
outlined in the chart below:
<TABLE>
<CAPTION>
MuniYield MuniVest MuniHoldings
Pennsylvania Pennsylvania Pennsylvania
- ------------------------------------------------------------------------------------
Common Common Common
Item Shares AMPS Shares AMPS Shares 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 Trustees (1)..... No No No No Yes Yes
- ------------------------------------------------------------------------------------
3. Ratification of Selection of
Independent Auditors......... No No No No Yes Yes
</TABLE>
- --------
(1) Seven Trustees of MuniHoldings Pennsylvania are to be elected: two
Trustees are to be elected by the holders of MuniHoldings Pennsylvania
AMPS voting separately as a class; and the remaining five Trustees are to
be elected by holders of MuniHoldings Pennsylvania Common Shares 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 Pennsylvania by
MuniYield Pennsylvania and the subsequent distribution of MuniYield
Pennsylvania Common Shares and MuniYield Pennsylvania Series B AMPS,
respectively, to the holders of MuniVest Pennsylvania Common Shares and
MuniVest Pennsylvania AMPS; (ii) the acquisition of substantially all of the
assets and the assumption of substantially all of the liabilities of
MuniHoldings Pennsylvania by MuniYield Pennsylvania and the subsequent
distribution of MuniYield Pennsylvania Common Shares and MuniYield
Pennsylvania Series B AMPS, respectively, to the holders of MuniHoldings
Pennsylvania Common Shares and MuniHoldings Pennsylvania AMPS, Series A; (iii)
the designation of the currently outstanding series of AMPS of MuniYield
Pennsylvania as Series A, (iv) the amendment to the investment policies of
MuniYield Pennsylvania to provide that the Fund be subject to the requirement
that under normal circumstances the Fund will invest at least 80% of its total
assets 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, as well as the change in the Fund's name to "MuniYield
Pennsylvania Insured Fund" and (v) the subsequent deregistration and
termination of each of MuniVest Pennsylvania and MuniHoldings Pennsylvania.
6
<PAGE>
At meetings of the Boards of Trustees of each of the Funds, the Board of
Trustees of MuniVest Pennsylvania and MuniHoldings Pennsylvania voted
unanimously to approve the Reorganization and the Board of Trustees of
MuniYield Pennsylvania approved the Reorganization by the affirmative vote of
all of the Trustees present at the meeting, representing more than two-thirds
of the total number of Trustees. Subject to obtaining the necessary approvals
from the shareholders of each of the Funds, the Board of Trustees 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 termination under the laws of the Commonwealth of Massachusetts. The
Reorganization requires approval of the shareholders of each of the three
Funds. The Reorganization will not take place if the shareholders of any one
Fund do not approve the Agreement and the Plan of Reorganization.
Each of the Funds seeks to provide shareholders with current income exempt
from Federal income tax and Pennsylvania personal income taxes. Each of the
Funds seeks to achieve its investment objective by investing primarily in a
portfolio of long-term investment grade Pennsylvania municipal obligations,
the interest on which, in the opinion of bond counsel to the issuer, is exempt
from Federal income tax and Pennsylvania personal income taxes. With the
exception of MuniYield Pennsylvania, 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. Unlike the other Funds, MuniYield
Pennsylvania is not currently required to invest in municipal obligations that
are covered by insurance; however, after the Reorganization, MuniYield
Pennsylvania will be subject to the same requirement as the Acquired Funds. In
connection with approving the Reorganization, the Board of Trustees of
MuniYield Pennsylvania approved this change in the investment policies of that
Fund to provide that the Fund will invest at least 80% of its assets 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. The Board of Trustees of MuniYield Pennsylvania
also approved a change in the name of that Fund to "MuniYield Pennsylvania
Insured Fund."
Investing in insured Municipal Bonds and Pennsylvania Municipal Bonds may
result in a Fund's having a lower yield than a fund that does not invest in
insured bonds. FAM believes, however, that any such decrease in yield would
not be material and would be offset by the lower overall operating expense
ratio of the combined fund after the Reorganization. In addition, because the
portfolio of MuniYield Pennsylvania currently consists of a high percentage of
insured Municipal Bonds and Pennsylvania Municipal Bonds (as of October 21,
1999, approximately 58.5%), it is not anticipated that it will be necessary to
engage in a significant restructuring of the portfolio of MuniYield
Pennsylvania or to dispose of a substantial number of holdings as a result of
the Reorganization.
Each of the Funds is a non-diversified, leveraged, closed-end management
investment company registered under the Investment Company Act. If the
shareholders of the Funds approve the Reorganization, (i) MuniYield
Pennsylvania Common Shares and MuniYield Pennsylvania Series B AMPS will be
issued to MuniVest Pennsylvania in exchange for the assets of MuniVest
Pennsylvania; (ii) MuniYield Pennsylvania Common Shares and MuniYield
Pennsylvania Series B AMPS will be issued to MuniHoldings Pennsylvania in
exchange for the assets of MuniHoldings Pennsylvania; and (iii) MuniVest
Pennsylvania and MuniHoldings Pennsylvania will distribute these shares to
their respective shareholders as provided in the Agreement and Plan of
Reorganization. After the Reorganization, each of MuniVest Pennsylvania and
MuniHoldings Pennsylvania will terminate its registration under the Investment
Company Act and its organization under Massachusetts law.
Based upon their evaluation of all relevant information, the Trustees of
each of the Funds have determined that the Reorganization will potentially
benefit the holders of Common Shares of that Fund. Specifically, after the
Reorganization, shareholders of each of the Acquired Funds will remain
invested in a closed-end fund that has an investment objective and policies
substantially similar to the Acquired Fund's investment objective and policies
and that uses substantially the same management personnel. In addition, it is
anticipated that holders of Common Shares 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 and the effect on MuniYield
Pennsylvania shareholders of the change in investment policy. It is not
anticipated
7
<PAGE>
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 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 Trustees 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 shareholders 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' shareholders, at any time prior to the
Exchange Date (as defined below), (i) by mutual consent of the Boards of
Trustees of all of the Funds or (ii) by the Board of Trustees of any Fund if
any condition to that Fund's obligations has not been fulfilled or waived by
such Fund's Board of Trustees.
Pro Forma Fee Table for MuniYield Pennsylvania, MuniVest Pennsylvania,
MuniHoldings Pennsylvania and Pro Forma MuniYield Pennsylvania as of June 30,
1999 (Unaudited) (a)
<TABLE>
<CAPTION>
Actual
-------------------------------------- Pro Forma
MuniYield MuniVest MuniHoldings MuniYield
Pennsylvania Pennsylvania Pennsylvania Pennsylvania
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Common Shareholder
Transaction Expenses
Maximum Sales Load (as a
percentage of the
offering price) imposed
on purchases of Common
Shares................... None(b) None(b) None(b) None(c)
Dividend Reinvestment and
Cash Purchase Plan Fees.. None None None None
Annual Expenses (as a
percentage of net assets
attributable to Common
Shares at June 30,
1999)(d)
Investment Advisory
Fees(e).................. 0.73% 0.76% 0.92% 0.76%
Interest Payments on
Borrowed Funds........... None None None None
Other Expenses............ 0.43% 0.57% 0.79% 0.34%
---- ---- ---- ----
Total Annual Expenses(e)... 1.16% 1.33% 1.71% 1.10%
==== ==== ==== ====
</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) Common Shares 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. Common Shares are not available for purchase from the
Funds but may be purchased through a broker-dealer subject to individually
negotiated commission rates.
(d) The annual operating expenses for pro forma MuniYield Pennsylvania are
projections for a 12-month period.
(e) Based on net assets of each Fund and pro forma MuniYield Pennsylvania,
excluding assets attributable to AMPS. If assets attributable to AMPS are
included, the Investment Advisory Fees would be 0.50% for MuniYield
Pennsylvania, MuniVest Pennsylvania and pro forma MuniYield Pennsylvania,
and 0.55% for MuniHoldings Pennsylvania and the Total Annual Expenses
would be 0.79%, 0.87%, 1.02%, and 0.72%.
8
<PAGE>
Example:
Cumulative Expenses Paid on Common Shares
for the Periods Indicated:
<TABLE>
<CAPTION>
1 3 5 10
Year Years Years 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 Shares) set forth in the table
above and (2) a 5% annual return throughout the
period:
MuniYield Pennsylvania............................... $12 $37 $64 $141
MuniVest Pennsylvania................................ $14 $42 $73 $160
MuniHoldings Pennsylvania............................ $17 $54 $93 $202
Pro Forma MuniYield Pennsylvania*.................... $11 $35 $61 $134
</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 holder of Common Shares 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 Common Shares 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 "The Reorganization--Potential Benefits to Shareholders of
the Funds as a Result of the Reorganization."
Business of MuniYield
Pennsylvania.................. MuniYield Pennsylvania was organized as a
business trust under the laws of the
Commonwealth of Massachusetts on August 24,
1992 and commenced operations on October 30,
1992. MuniYield Pennsylvania is a non-
diversified, leveraged, closed-end management
investment company whose investment objective
is to provide shareholders with current
income exempt from Federal income tax and
Pennsylvania personal income taxes. MuniYield
Pennsylvania seeks to achieve its investment
objective by investing primarily in a
portfolio of long-term investment grade
municipal obligations issued by or on behalf
of the Commonwealth of Pennsylvania, the
interest on which, in the opinion of bond
counsel to the issuer, is exempt from Federal
income taxes and Pennsylvania personal income
taxes ("Pennsylvania Municipal Bonds").
Unlike the other Funds, MuniYield
Pennsylvania currently is not required to
invest in municipal obligations that are
covered by insurance. Upon approval of the
Reorganization, however, the combined fund
will be subject to the requirement that under
normal circumstances, at least 80% of its
total assets will be invested in municipal
obligations with remaining maturities of one
year or more that are covered by insurance
guaranteeing the timely payment of principal
at maturity and interest. The Fund intends to
invest primarily in long-term Pennsylvania
Municipal Bonds and other long-term municipal
obligations exempt from Federal income tax
but not Pennsylvania personal income taxes
("Municipal Bonds") with a maturity of more
than ten years. The weighted average maturity
of the Fund's portfolio was 22.92 years as of
September 30, 1999. The average maturity of
the Fund's
9
<PAGE>
portfolio securities, and therefore the
Fund's portfolio as a whole, will vary based
upon the assessment of Fund Asset Management,
L.P. ("FAM"), the Fund's investment adviser,
of economic and market conditions. See
"Comparison of the Funds--Investment
Objectives and Policies."
MuniYield Pennsylvania has outstanding Common
Shares and one series of AMPS ("MuniYield
Pennsylvania AMPS"). As of September 30,
1999, MuniYield Pennsylvania had net assets
of $122,409,730.
Business of MuniVest
Pennsylvania.................. MuniVest Pennsylvania was organized as a
business trust under the laws of the
Commonwealth of Massachusetts on May 6, 1993
and commenced operations on July 30, 1993.
MuniVest Pennsylvania is a non-diversified,
leveraged, closed-end management investment
company whose investment objective is to
provide shareholders with current income
exempt from Federal income tax and
Pennsylvania personal income taxes. MuniVest
Pennsylvania seeks to achieve its objective
by investing primarily in a portfolio of
Pennsylvania Municipal Bonds. Under normal
circumstances, at least 80% of MuniVest
Pennsylvania's total assets will be invested
in municipal obligations with remaining
maturities of one year or more that are
covered by insurance guaranteeing the timely
payment of principal at maturity and
interest. The Fund intends to invest
primarily in long-term Pennsylvania Municipal
Bonds and Municipal Bonds with a maturity of
more than ten years. The weighted average
maturity of the Fund's portfolio was 21.63
years as of September 30, 1999. The average
maturity of the Fund's portfolio securities,
and therefore the Fund's portfolio as a
whole, will vary based upon FAM's assessment
of economic and market conditions. See
"Comparison of the Funds--Investment
Objectives and Policies."
MuniVest Pennsylvania has outstanding Common
Shares and one series of AMPS ("MuniVest
Pennsylvania AMPS.") As of September 30,
1999, MuniVest Pennsylvania had net assets of
$77,247,018.
Business of MuniHoldings
Pennsylvania..................
MuniHoldings Pennsylvania was organized as a
business trust under the laws of the
Commonwealth of Massachusetts on December 3,
1998 and commenced operations on February 26,
1999. MuniHoldings Pennsylvania is a non-
diversified, leveraged, closed-end management
investment company whose investment objective
is to provide shareholders with current
income exempt from Federal income taxes and
Pennsylvania personal income taxes.
MuniHoldings Pennsylvania seeks to achieve
its investment objective by investing
primarily in a portfolio of Pennsylvania
Municipal Bonds. Under normal circumstances,
at least 80% of MuniHoldings Pennsylvania's
total assets will be invested in municipal
obligations with remaining maturities of one
year or more that are covered by insurance
guaranteeing the timely payment of principal
at maturity and interest. The Fund intends to
invest primarily in
10
<PAGE>
long-term Pennsylvania Municipal Bonds and
Municipal Bonds with a maturity of more than
ten years. The weighted average maturity of
the Fund's portfolio was 22.48 years as of
September 30, 1999. The average maturity of
the Fund's portfolio securities, and
therefore the Fund's portfolio as a whole,
will vary based upon FAM's assessment of
economic and market conditions. See
"Comparison of the Funds--Investment
Objectives and Policies."
MuniHoldings Pennsylvania has outstanding
Common Shares and one series of AMPS,
designated Series A ("MuniHoldings
Pennsylvania AMPS"). As of September 30,
1999, MuniHoldings Pennsylvania had net
assets of $48,681,903.
Comparison of the Funds........
Investment Objectives and Policies. The Funds
have substantially similar investment
objectives and policies. All three Funds seek
to provide shareholders (including holders of
AMPS) with current income exempt from Federal
income tax and Pennsylvania personal income
taxes and seek to maintain as much of their
respective portfolios invested in
Pennsylvania Municipal Bonds as possible. The
policies of MuniYield Pennsylvania, however,
differ from the policies of the other Funds
in that MuniYield Pennsylvania currently is
not subject to the requirement that 80% of
its assets be invested in municipal
obligations covered by insurance. After the
Reorganization, however, the combined fund
will be subject to this requirement. See
"Comparison of the Funds--Investment
Objectives and Policies."
Capital Shares. Each Fund has outstanding
both Common Shares and AMPS. The Common
Shares of MuniYield Pennsylvania and MuniVest
Pennsylvania are traded on the NYSE while the
Common Shares of MuniHoldings Pennsylvania
are traded on the AMEX. As of September 30,
1999, (i) the net asset value per share of
MuniYield Pennsylvania Common Shares was
$13.99 and the market price per share was
$12.5625; (ii) the net asset value per share
of MuniVest Pennsylvania Common Shares was
$12.31 and the market price per share was
$11.6875; and (iii) the net asset value per
share of MuniHoldings Pennsylvania Common
Shares was $12.98 and the market price per
share was $12.00. 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 Shares."
Auctions generally have been held and will be
held every seven days for each series of AMPS
of each of the Funds unless the applicable
Fund elects, subject to certain limitations,
to have a special dividend period. In
connection with the Reorganization, a holder
of AMPS of MuniHoldings Pennsylvania will
receive MuniYield Pennsylvania 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
MuniHoldings Pennsylvania
11
<PAGE>
that he or she holds. See "Comparison of the
Funds--Capital Shares." 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>
October 18, 1999.............. MuniYield * 3.35%
Pennsylvania
October 27, 1999.............. MuniVest * 3.35%
Pennsylvania
October 25, 1999.............. MuniHoldings A 2.99%
Pennsylvania
</TABLE>
--------
* No series designation.
Advisory Fees. The investment adviser for
each of the Funds is Fund Asset Management,
L.P. ("FAM"). The principal business address
of FAM is 800 Scudders Mill Road, Plainsboro,
New Jersey 08536. FAM was organized as an
investment adviser in 1977 and offers
investment advisory services to more than 50
registered investment companies. The Asset
Management Group of Merrill Lynch & Co., Inc.
("ML & Co.") (which includes FAM) acts as
investment adviser for over 100 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. Robert
A. DiMella and William R. Bock serve as the
portfolio managers for MuniHoldings
Pennsylvania; William R. Bock serves as the
portfolio manager for MuniYield Pennsylvania
and for MuniVest Pennsylvania and he will
serve as portfolio manager of the combined
fund after the Reorganization.
Pursuant to separate investment advisory
agreements between each Fund and FAM,
MuniYield Pennsylvania and MuniVest
Pennsylvania 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, and MuniHoldings
Pennsylvania 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 pursuant to the investment
advisory agreement with MuniYield
Pennsylvania 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 Pennsylvania,
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
12
<PAGE>
for the Common Shares of MuniVest
Pennsylvania and MuniHoldings Pennsylvania.
State Street Bank and Trust Company is the
custodian, transfer agent, dividend
disbursing agent and registrar for the Common
Shares of MuniYield Pennsylvania. The Bank of
New York is the transfer agent, dividend
disbursing agent, registrar and auction agent
for each Fund's AMPS. The Bank of New York
and State Street Bank and Trust Company each
receives a fee for these services. The
principal business addresses are as follows:
The Bank of New York, 90 Washington Street,
New York, New York 10286 (for its custodial
services) and 101 Barclay Street, New York,
New York 10286 (for its transfer agency and
auction agency services); State Street Bank
and Trust Company, 225 Franklin Street,
Boston, Massachusetts 02110 (for its transfer
agency services) and One Heritage Drive, PZN,
North Quincy, Massachusetts 02171 (for its
custodial 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 Pennsylvania was 1.16%,
based on net assets of approximately $86.3
million excluding AMPS, and 0.79%, based on
net assets of approximately $126.3 million
including AMPS; the overall annualized
operating expense ratio for MuniVest
Pennsylvania was 1.33%, based on net assets
of approximately $52.2 million excluding
AMPS, and 0.87%, based on net assets of
approximately $79.7 million including AMPS;
and the overall annualized operating expense
ratio for MuniHoldings Pennsylvania was
1.71%, based on net assets of approximately
$30.1 million excluding AMPS, and 1.02%,
based on net assets of approximately $50.6
million including AMPS. If the Reorganization
had taken place on June 30, 1999, the overall
operating expense ratio for pro forma
MuniYield Pennsylvania would have been 1.10%,
based on net assets of approximately $168.6
million excluding AMPS, and 0.72%, based on
net assets of approximately $256.6 million
including AMPS.
Purchases and Sales of Common Shares and
AMPS. Purchase and sale procedures for the
Common Shares of each of the Funds are
identical, and investors typically purchase
and sell Common Shares of the Funds through a
registered broker-dealer on the NYSE or the
AMEX, thereby incurring a brokerage
commission set by the broker-dealer.
Alternatively, investors may purchase or sell
Common Shares of the Funds through privately
negotiated transactions with existing
shareholders.
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
13
<PAGE>
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") and "aaa" from Moody's
Investors Service, Inc. ("Moody's"). See
"Comparison of the Funds--Rating Agency
Guidelines."
Portfolio Insurance. With the exception of
MuniYield Pennsylvania, each of the other
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. MuniYield Pennsylvania currently
has no policy with respect to maintaining
insurance on its portfolio; however, after
the Reorganization, MuniYield Pennsylvania
also will, under normal circumstances, have
at least 80% of its assets 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. See "Exhibit
IV--Ratings of Municipal Bonds and Commercial
Paper."
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 Shares and the AMPS of
each Fund. See "Comparison of the Funds--
Dividends and Distributions."
Net Asset Value. The net asset value per
Common Share 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 Common Share 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
14
<PAGE>
expenses) and the aggregate liquidation value
of the outstanding AMPS of the Fund is
divided by the total number of Common Shares
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 Common Shares of
each of the Funds are substantially similar.
Likewise, the corresponding voting rights of
the holders of each Fund's AMPS are
substantially similar. See "Comparison of the
Funds--Capital Shares."
Shareholder Services. An automatic dividend
reinvestment plan is available to holders of
Common Shares of each Fund. The plans are
similar for the three Funds. See "Comparison
of the Funds--Automatic Dividend Reinvestment
Plan." Other shareholder services, including
the provision of annual and semi-annual
reports, are the same for the three Funds.
Outstanding Securities of MuniYield Pennsylvania, MuniVest Pennsylvania and
MuniHoldings Pennsylvania as of September 30, 1999
<TABLE>
<CAPTION>
Amount Outstanding
Amount Held By Exclusive of Amount
Amount Fund for its Shown in
Title of Class Authorized Own Account Previous Column
-------------- ---------- -------------- -------------------
<S> <C> <C> <C>
MuniYield Pennsylvania
Common Shares.................. Unlimited -0- 5,891,406
AMPS........................... 1,000,000 -0- 1,600
MuniVest Pennsylvania
Common Shares.................. Unlimited -0- 4,041,184
AMPS........................... 1,000,000 -0- 1,100
MuniHoldings Pennsylvania
Common Shares.................. Unlimited -0- 2,170,570
AMPS........................... 1,000,000 -0- 820
</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 shareholders
of the Acquired Funds will not recognize gain
or loss on the exchange of their shares for
MuniYield Pennsylvania Common Shares (except
to the extent that a holder of Common Shares
in an Acquired Fund receives cash
representing an interest in less than a full
share of MuniYield Pennsylvania Common Shares
in the Reorganization) or MuniYield
Pennsylvania 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 Pennsylvania
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."
15
<PAGE>
RISK FACTORS AND SPECIAL CONSIDERATIONS
Since each of the three Funds invests primarily in a portfolio of
Pennsylvania Municipal Bonds, any risks inherent in such investments apply
equally to all three Funds and will also apply to the combined fund after the
Reorganization. It is expected that the Reorganization itself will not
adversely affect the rights of holders of Common Shares or of any series of
AMPS of any of the Funds or create additional risks.
Pennsylvania Municipal Bonds
Each of the Funds ordinarily invests at least 65% of its portfolio in
Pennsylvania Municipal Bonds and at least 80% of its portfolio in Pennsylvania
Municipal Bonds and other Municipal Bonds. As a result, each Fund is more
exposed to risks affecting issuers of Pennsylvania Municipal Bonds than is a
municipal bond fund that invests more widely. See "Comparison of the Funds--
Special Considerations Relating to Pennsylvania Municipal Bonds" and Exhibit
III--"Economic and Other Conditions in Pennsylvania."
Interest Rate and Credit Risk
Each Fund invests in municipal bonds, which are subject to interest rate and
credit risk. Interest rate risk is the risk that prices of municipal bonds
generally increase when interest rates decline and decrease when interest
rates increase. Prices of longer-term securities generally change more in
response to interest rate changes than prices of shorter-term securities.
Credit risk is the risk that the issuer will be unable to pay the interest or
principal when due. The degree of credit risk depends on both the financial
condition of the issuer and the terms of the obligation.
Non-diversification
Each Fund is registered as a "non-diversified" investment company. This
means that the Fund may invest a greater percentage of its assets in a single
issuer than a diversified investment company. Since a Fund may invest a
relatively high percentage of its assets in a limited number of issuers, the
Fund may be more exposed to the effects of any single economic, political or
regulatory occurrence than a more widely-diversified fund. Even as a non-
diversified fund, each Fund must still meet the diversification requirements
of applicable Federal income tax law.
Rating Categories
The Funds intend to invest in municipal bonds that are rated investment
grade by S&P, Moody's or Fitch IBCA, Inc. ("Fitch") or are considered by FAM
to be of comparable quality. Obligations rated in the lowest investment grade
category may have certain speculative characteristics.
Private Activity Bonds
Each Fund may invest all or a portion of its assets in certain tax-exempt
securities classified as "private activity bonds." These bonds may subject
certain investors in a Fund to a Federal alternative minimum tax.
Portfolio Insurance
Each of the Funds, other than MuniYield Pennsylvania, currently is subject
to certain investment restrictions imposed by guidelines of the insurance
companies that issue portfolio insurance. Following the Reorganization,
MuniYield Pennsylvania also will be subject to these guidelines. The Funds do
not believe these guidelines prevent FAM from managing the Funds' portfolios
in accordance with the Funds' investment objectives and policies.
Leverage
Currently, the outstanding MuniYield Pennsylvania AMPS represent
approximately 35% of that Fund's capital, the outstanding MuniVest
Pennsylvania AMPS represent approximately 35% of that Fund's capital and the
outstanding MuniHoldings Pennsylvania AMPS represent approximately 40% of that
Fund's capital. After the Reorganization, the outstanding AMPS of the combined
fund will be permitted to represent approximately 40% of the combined fund's
capital.
16
<PAGE>
Use of leverage, through the issuance of AMPS, involves certain risks to
holders of Common Shares 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 Shares and potentially more volatility in the market value of its
Common Shares. 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 Shares. Under certain circumstances, when a
Fund is required to allocate taxable income to holders of AMPS, the Fund may
be required to make an additional distribution to such holders in an amount
approximately equal to the tax liability resulting from that allocation (an
"Additional Distribution"). Leverage will allow holders of each Fund's Common
Shares 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 Shares, the
use of leverage will increase the amount of such gains distributed to holders
of the Fund's Common Shares. 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 Shares 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 Shares 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 Shares, the effect of leverage in a declining market would
result in a greater decrease in net asset value to holders of Common Shares
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 Shares 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 Shares. Failure to make such dividend
payments could adversely affect the Fund's qualification as a RIC under the
Federal tax laws. See "Comparison of Funds--Tax Rules Applicable to the Funds
and their Shareholders." However, each Fund intends to take all measures
necessary to make dividend payments on its Common Shares. If a Fund's current
investment income is ever insufficient to meet dividend payments on either the
Common Shares 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 Common Shares than the Fund can obtain if the Common Shares 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 Shares 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 Shares 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
17
<PAGE>
affect holders of Common Shares 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 Shares. 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 Certificate of Designation 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 Declaration of Trust of each of the Funds includes 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 Trustees. Such provisions could
limit the ability of shareholders 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 Funds have received ratings of their AMPS of AAA from S&P and "aaa" from
Moody's. In order to maintain these ratings, the Funds are required to
maintain portfolio holdings meeting specified guidelines of such rating
agencies. These guidelines may impose asset coverage requirements that are
more stringent than those imposed by the Investment Company Act.
As described by Moody's and S&P, a preferred stock rating is an assessment
of the capacity and willingness of an issuer to pay preferred stock
obligations. The ratings of the AMPS are not recommendations to purchase, hold
or sell 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 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 Shares of
the Funds has not been rated by a nationally recognized statistical rating
organization.
The Board of Trustees of each of the Funds, without shareholder 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 AMPS.
18
<PAGE>
COMPARISON OF THE FUNDS
Financial Highlights
MuniYield Pennsylvania
The financial information in the table below, except for the six months
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>
Six
Months
Ended For The Year Ended October 31, For the Period
April 30, --------------------------------------------------- October 30, 1992+
1999 1998 1997 1996 1995 1994 1993 to October 31, 1992
--------- ------ -------- ------- ------ ------ ------- -------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (Decrease) in
Net Asset Value:
Per Share Operating
Performance:
Net asset value,
beginning of period.... $ 16.01 $15.86 $ 15.32 $ 15.36 $13.86 $16.37 $ 14.13 $14.18
------- ------ -------- ------- ------ ------ ------- ------
Investment income--net.. .53 1.12 1.13 1.15 1.17 1.15 1.12 --
Realized and unrealized
gain (loss) on
investments--net....... (.24) .46 .66 (.03) 1.53 (2.41) 2.30 --
------- ------ -------- ------- ------ ------ ------- ------
Total from investment
operations............. .29 1.58 1.79 1.12 2.70 (1.26) 3.42 --
------- ------ -------- ------- ------ ------ ------- ------
Less dividends and
distributions to
holders of Common
Shares:
Investment income--
net................... (.46) (.88) (.89) (.91) (.89) (.91) (.85) --
Realized gain on
investments--net...... (.45) (.27) (.09) -- -- (.12) -- --
In excess of realized
gain on investments--
net................... -- -- -- -- (.05) -- -- --
------- ------ -------- ------- ------ ------ ------- ------
Total dividends and
distributions to
holders of Common
Shares................. (.91) (1.15) (.98) (.91) (.94) (1.03) (.85) --
------- ------ -------- ------- ------ ------ ------- ------
Capital charge resulting
from issuance of Common
Shares................. -- -- -- -- -- -- -- (.05)
------- ------ -------- ------- ------ ------ ------- ------
Effect of Preferred
Share activity++:
Dividends and
distributions to
holders of Preferred
Shares:
Investment income--
net................... (.07) (.18) (.24) (.25) (.25) (.20) (.18) --
Realized gain on
investments--net...... (.06) (.10) (.03) -- -- (.02) -- --
In excess of realized
gain on investments--
net................... -- -- -- -- (.01) -- -- --
Capital charge
resulting from
issuance of Preferred
Shares................ -- -- -- -- -- -- (.15) --
------- ------ -------- ------- ------ ------ ------- ------
Total effect of
Preferred Share
activity............... (.13) (.28) (.27) (.25) (.26) (.22) (.33) --
------- ------ -------- ------- ------ ------ ------- ------
Net asset value, end of
period................. $ 15.26 $16.01 $ 15.86 $ 15.32 $15.36 $13.86 $ 16.37 $14.13
======= ====== ======== ======= ====== ====== ======= ======
Market price per share,
end of period.......... $15.125 $16.50 $14.8125 $14.125 $13.75 $11.00 $16.375 $15.00
======= ====== ======== ======= ====== ====== ======= ======
Total Investment
Return:**
Based on market price
per share.............. (2.97%)# 19.82% 12.15% 9.48% 34.17% (27.82%) 15.30% .00%#
======= ====== ======== ======= ====== ====== ======= ======
Based on net asset value
per share.............. .89%# 8.58% 10.71% 6.30% 18.95% (9.02%) 22.36% (.35%)#
======= ====== ======== ======= ====== ====== ======= ======
Ratios to Average Net
Assets:***
Expenses, net of
reimbursement.......... .78%* .77% .79% .78% .82% .82% .64% --
======= ====== ======== ======= ====== ====== ======= ======
Expenses................ .78%* .77% .79% .78% .82% .82% .78% --
======= ====== ======== ======= ====== ====== ======= ======
Investment income--net.. 4.77%* 4.90% 5.07% 5.14% 5.44% 5.12% 5.20% --
======= ====== ======== ======= ====== ====== ======= ======
</TABLE>
(footnotes on following page)
19
<PAGE>
MuniYield Pennsylvania (continued)
<TABLE>
<CAPTION>
For the
Six Period
Months October 30,
Ended For The Year Ended October 31, 1992+ to
April 30, ---------------------------------------------------- October 31,
1999 1998 1997 1996 1995 1994 1993 1992
--------- ------- ------- ------- ------- ------- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Supplemental Data:
Net assets, net of
Preferred Shares, end
of period (in
thousands)............. $89,808 $92,767 $91,071 $88,001 $88,226 $79,609 $92,654 $78,315
======= ======= ======= ======= ======= ======= ======= =======
Preferred Shares
outstanding, end of
period (in thousands).. $40,000 $40,000 $40,000 $40,000 $40,000 $40,000 $40,000 --
======= ======= ======= ======= ======= ======= ======= =======
Portfolio turnover...... 16.87% 60.52% 70.14% 75.83% 43.59% 18.64% 14.03% --
======= ======= ======= ======= ======= ======= ======= =======
Dividends Per Share on
Preferred Shares
Outstanding:+++
Investment income--net.. $ 268 $ 655 $ 853 $ 901 $ 902 $ 688 $ 644 --
======= ======= ======= ======= ======= ======= ======= =======
Leverage:
Asset coverage per
$1,000................. $ 3,245 $ 3,319 $ 3,277 $ 3,200 $ 3,206 $ 2,990 $ 3,316 --
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
- --------
* Annualized.
** Total investment returns based on market value, which can be significantly
greater or lesser than the net asset value, may result in substantially
different returns. Total investment returns exclude the effects of sales
charges.
*** Do not reflect the effect of dividends to holders of Preferred Shares.
# Aggregate total investment return.
+ Commencement of operations.
++ The Fund's Preferred Shares were issued on November 30, 1992.
+++ Dividends per share have been adjusted to reflect a two-for-one stock
split that occurred on December 1, 1994.
20
<PAGE>
MuniVest Pennsylvania
The financial information in the table below, except for the six months
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 Period
Months July 30,
Ended For The Year Ended October 31, 1993+ to
April 30, ------------------------------------------ October 31,
1999 1998 1997 1996 1995 1994 1993
--------- ------- ------ ------- ------- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Increase (Decrease) in
Net Asset Value:
Per Share Operating
Performance:
Net asset value,
beginning of period.... $ 13.70 $ 13.28 $12.68 $ 12.91 $ 11.54 $ 14.70 $14.18
-------- ------- ------ ------- ------- ------- ------
Investment income--net.. .45 .94 .95 .97 1.01 1.05 .25
Realized and unrealized
gain (loss) on
investments--net....... (.17) .42 .59 (.23) 1.37 (3.08) .64
-------- ------- ------ ------- ------- ------- ------
Total from investment
operations............. .28 1.36 1.54 .74 2.38 (2.03) .89
-------- ------- ------ ------- ------- ------- ------
Less dividends and
distributions to
holders of Common
Shares:
Investment income--net. (.36) (.71) (.71) (.73) (.75) (.86) (.13)
Realized gain on
investments--net...... -- -- -- -- -- (.06) --
-------- ------- ------ ------- ------- ------- ------
Total dividends and
distributions to
holders of Common
Shares................. (.36) (.71) (.71) (.73) (.75) (.92) (.13)
-------- ------- ------ ------- ------- ------- ------
Capital charge resulting
from issuance of Common
Shares................. -- -- -- -- -- -- (.05)
-------- ------- ------ ------- ------- ------- ------
Effect of Preferred
Share activity++:
Dividends and
distributions to
holders of Preferred
Shares:
Investment income--
net.................. (.10) (.23) (.23) (.24) (.26) (.20) (.03)
Realized gain on
investments--net..... -- -- -- -- -- (.01) --
Capital charge resulting
from issuance of
Preferred Shares....... -- -- -- -- -- -- (.16)
-------- ------- ------ ------- ------- ------- ------
Total effect of
Preferred Share
activity............... (.10) (.23) (.23) (.24) (.26) (.21) (.19)
-------- ------- ------ ------- ------- ------- ------
Net asset value, end of
period................. $ 13.52 $ 13.70 $13.28 $ 12.68 $ 12.91 $ 11.54 $14.70
======== ======= ====== ======= ======= ======= ======
Market price per share,
end of period.......... $13.0625 $13.875 $12.25 $11.625 $11.875 $10.875 $15.00
======== ======= ====== ======= ======= ======= ======
Total Investment
Return:**
Based on market price
per share.............. (3.29%)# 19.62% 11.80% 3.98% 16.58% (22.20%) 92%#
======== ======= ====== ======= ======= ======= ======
Based on net asset value
per share.............. 1.38%# 8.95% 11.12% 4.32% 19.44% (15.76%) 4.62%#
======== ======= ====== ======= ======= ======= ======
</TABLE>
(footnotes on following page)
21
<PAGE>
MuniVest Pennsylvania (continued)
<TABLE>
<CAPTION>
For the
Six Period
Months July 30,
Ended For The Year Ended October 31, 1993+ to
April 30, ------------------------------------------- October 31,
1999 1998 1997 1996 1995 1994 1993
--------- ------- ------- ------- ------- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Ratios to Average Net
Assets:***
Expenses, net of
reimbursement.......... .87%* .86% .88% .90% .83% .51% .90%*
======= ======= ======= ======= ======= ======= =======
Expenses................ .87%* .86% .88% .90% .95% .86% .90%*
======= ======= ======= ======= ======= ======= =======
Investment income--net.. 4.54%* 4.66% 4.77% 4.91% 5.33% 5.24% 5.27%*
======= ======= ======= ======= ======= ======= =======
Supplemental Data:
Net assets, net of
Preferred Shares, end
of period
(in thousands)......... $54,587 $55,207 $53,456 $51,050 $51,867 $46,390 $57,869
======= ======= ======= ======= ======= ======= =======
Preferred Shares
outstanding, end of
period (in thousands).. $27,500 $27,500 $27,500 $27,500 $27,500 $27,500 $27,500
======= ======= ======= ======= ======= ======= =======
Portfolio turnover...... 19.64% 60.37% 61.03% 113.65% 73.19% 93.00% 22.31%
======= ======= ======= ======= ======= ======= =======
Dividends Per Share on
Preferred Shares
Outstanding+++:
Investment income--net.. $ 369 $ 848 $ 837 $ 879 $ 966 $ 721 $ 119
======= ======= ======= ======= ======= ======= =======
Leverage:
Asset coverage per
$1,000................. $ 2,985 $ 3,008 $ 2,944 $ 2,856 $ 2,886 $ 2,687 $ 3,104
======= ======= ======= ======= ======= ======= =======
</TABLE>
- --------
* Annualized.
** Total investment returns based on market value, which can be significantly
greater or lesser than the net asset value, may result in substantially
different returns. Total investment returns exclude the effects of sales
charges.
*** Do not reflect the effect of dividends to holders of Preferred Shares.
# Aggregate total investment return.
+ Commencement of operations.
++ The Fund's Preferred Shares were issued on September 2, 1993.
+++ Dividends per share have been adjusted to reflect a two-for-one stock
split that occurred on December 1, 1994.
22
<PAGE>
MuniHoldings Pennsylvania
The financial information in the table below is unaudited and has been
provided by FAM. The following per share data and ratios have been derived
from information provided in the financial statements of the Fund.
<TABLE>
<CAPTION>
For the Period
February 26, 1999+ to
March 31, 1999
---------------------
<S> <C>
Increase (Decrease) in Net Asset Value:
Per Share Operating Performance:
Net asset value, beginning of period.................... $ 15.00
-------
Investment income--net.................................. .07
Unrealized loss on investments--net..................... (.05)
-------
Total from investment operations........................ .02
-------
Capital charge resulting from issuance of Common Shares. (.07)
-------
Effect of Preferred Share activity:++
Dividends to Preferred Shareholders:
Investment income--net................................. (.01)
Capital charge resulting from issuance of Preferred
Shares................................................ (.14)
-------
Total effect of Preferred Share activity................ (.15)
-------
Net asset value, end of period.......................... $ 14.80
=======
Market price per share, end of period................... $16.125
=======
Total Investment Return:**
Based on market price per share......................... 7.50%#
=======
Based on net asset value per share...................... (1.33%)#
=======
Ratios to Average Net Assets***
Expenses, net of reimbursement.......................... .03%*
=======
Expenses................................................ 1.02%*
=======
Investment income--net.................................. 5.00%*
=======
Supplemental Data:
Net assets, net of Preferred Shares, end of period (in
thousands)............................................. $30,818
=======
Preferred Shares outstanding, end of period (in
thousands)............................................. $20,500
=======
Portfolio turnover...................................... 0.00%
=======
Dividends Per Share on Preferred Shares Outstanding:
Investment income--net.................................. $ 38
=======
Leverage:
Asset coverage per $1,000............................... $ 2,503
=======
</TABLE>
- --------
* Annualized.
** Total investment returns based on market value, which can be significantly
greater or lesser than the net asset value, may result in substantially
different returns. Total investment returns exclude the effects of sales
charges.
*** Do not reflect the effect of dividends to holders of Preferred Shares.
+ Commencement of operations.
++ The Fund's Preferred Shares were issued on March 17, 1999.
# Aggregate total investment return.
23
<PAGE>
Per Share Data for Common Shares*
Traded on the New York Stock Exchange (unaudited)
MuniYield Pennsylvania
<TABLE>
<CAPTION>
Premium
(Discount)
to Net
Market Price Net Asset Asset Value
($)** Value ($) (%)
--------------- ----------- -------------
Quarter Ended* High Low High Low High Low
-------------- ------- ------- ----- ----- ----- ------
<S> <C> <C> <C> <C> <C> <C>
January 31, 1997..................... 14.50 13.875 15.21 15.04 (5.30) (9.20)
April 30, 1997....................... 14.25 13.75 15.07 14.88 (3.28) (8.27)
July 31, 1997........................ 15.0625 14.625 15.94 15.44 (3.07) (6.68)
October 31, 1997..................... 15.8125 14.8125 15.90 15.60 (0.30) (6.60)
January 31, 1998..................... 16.1875 15.25 16.09 15.80 0.86 (5.76)
April 30, 1998....................... 15.50 14.75 15.90 15.43 0.88 (5.74)
July 31, 1998........................ 16.125 15.8125 15.89 15.77 1.66 (3.66)
October 31, 1998..................... 16.625 15.875 16.40 15.98 3.06 (1.52)
January 31, 1999..................... 16.75 15.6875 15.55 15.35 8.89 2.68
April 30, 1999....................... 16.00 15.00 15.41 15.26 7.34 (2.41)
July 31, 1999........................ 14.3125 13.75 14.76 14.58 (0.08) (6.34)
October 31, 1999 .................... 13.8125 12.00 14.56 13.44 (3.27) (11.60)
</TABLE>
MuniVest Pennsylvania
<TABLE>
<CAPTION>
Premium
(Discount)
to Net
Market Price Net Asset Asset Value
($)** Value ($) (%)
--------------- ----------- -------------
Quarter Ended* High Low High Low High Low
-------------- ------- ------- ----- ----- ----- ------
<S> <C> <C> <C> <C> <C> <C>
January 31, 1997..................... 11.375 11.125 12.71 12.51 (8.13) (13.32)
April 30, 1997....................... 11.625 11.25 12.47 12.30 (4.90) (9.20)
July 31, 1997........................ 12.3125 11.1875 13.32 12.86 (5.62) (9.02)
October 31, 1997..................... 12.6875 11.9375 13.31 13.05 (3.37) (8.94)
January 31, 1998..................... 13.125 12.6875 13.80 13.53 (3.95) (8.69)
April 30, 1998....................... 12.9375 12.25 13.59 13.14 (1.48) (8.59)
July 31, 1998........................ 16.0625 12.8125 13.54 13.44 (1.56) (7.32)
October 31, 1998..................... 14.25 13.1875 14.06 13.66 2.49 (3.21)
January 31, 1999..................... 13.8125 13.4375 13.74 13.52 3.71 (0.84)
April 30, 1999....................... 13.50 12.9375 13.64 13.50 0.00 (4.23)
July 31, 1999........................ 13.0625 12.375 13.15 12.88 1.26 (5.22)
October 31, 1999 .................... 12.50 10.75 12.85 11.75 (2.48) (6.27)
</TABLE>
Per Share Data for Common Shares*
Traded on the American Stock Exchange (unaudited)
MuniHoldings Pennsylvania
<TABLE>
<CAPTION>
Premium
(Discount)
to Net
Market Price Net Asset Asset Value
($)** Value ($) (%)
------------- ----------- -----------
Quarter Ended* High Low High Low High Low
-------------- ------ ------ ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
April 30, 1999+.......................... 16.125 15.25 14.90 14.81 13.41 0.13
July 31, 1999............................ 14.625 13.875 14.02 13.83 8.77 (3.38)
October 31, 1999......................... 13.875 10.875 13.80 12.15 2.43 (8.49)
</TABLE>
- --------
* Calculations are based upon Common Shares outstanding at the end of each
quarter.
** As reported in the consolidated transaction operating system.
+ For the period February 26, 1999 to April 30, 1999.
24
<PAGE>
As indicated in the tables above, for the periods shown Common Shares of the
Funds generally have traded at prices close to net asset value, with small
premiums or discounts to net asset value of generally less than 15% 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 income tax and Pennsylvania personal income taxes. The
investment objective of each Fund is a fundamental policy that may not be
changed without a vote of a majority of the Fund's outstanding voting
securities.
Each Fund seeks to achieve its investment objective by investing primarily
in a portfolio of Pennsylvania Municipal Bonds. At all times, at least 65% of
each Fund's total assets will be invested in Pennsylvania Municipal Bonds and
at least 80% of each Fund's total assets will be invested in Pennsylvania
Municipal Bonds and in 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 Common Shares. Currently, with
respect to MuniVest Pennsylvania and MuniHoldings Pennsylvania, and after the
Reorganization with respect to MuniYield Pennsylvania, 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. MuniYield Pennsylvania is not currently subject to this
requirement regarding insurance coverage for its portfolio securities but will
adopt this requirement upon approval of the Reorganization by all the Funds.
Ordinarily, none of the Funds intends to realize significant investment
income subject to Federal income tax and Pennsylvania personal income taxes.
To the extent FAM considers that suitable Pennsylvania 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 Pennsylvania 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 Pennsylvania Municipal Bonds or Municipal Bonds. Certain Non-Municipal
Tax-Exempt Securities may be characterized as derivative instruments. For
purposes of a Fund's investment objective and policies, Non-Municipal Tax-
Exempt Securities that pay interest that is exempt from Federal income taxes
and Pennsylvania personal income taxes will be considered "Pennsylvania
Municipal Bonds" and Non-Municipal Tax-Exempt Securities that pay interest
that is exempt from Federal income taxes will be considered "Municipal Bonds".
The Pennsylvania Municipal Bonds and Municipal Bonds in which the Funds
invest will be rated at the date of purchase in the four highest rating
categories of S&P, Moody's or Fitch or, if unrated, will be considered to be
of comparable quality by FAM. In the case of long-term debt, the investment
grade rating categories are AAA through BBB for S&P and Fitch and Aaa through
Baa for Moody's. In the case of short-term notes, the
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investment grade rating categories are SP-1 through SP-2 for S&P, MIG-1
through MIG-3 for Moody's and F-1+ through F-3 for Fitch. In the case of tax-
exempt commercial paper, the investment grade rating categories are A-1+
through A-3 for S&P, Prime-1 through Prime-3 for Moody's and F-1+ through F-3
for Fitch. Obligations ranked in the lowest investment grade rating category
(BBB, SP-2 and A-3 for S&P; Baa, MIG-3 and Prime-3 for Moody's; and BBB and F-
3 for Fitch), while considered "investment grade," may have certain
speculative characteristics. There may be sub-categories or gradations
indicating relative standing within the rating categories set forth above. In
assessing the quality of Pennsylvania 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 Pennsylvania 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 Pennsylvania 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 Pennsylvania 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 Pennsylvania 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
Common Shares of a closed-end investment company, such as each Fund, which
invests primarily in fixed-income securities, changes as the general levels of
interest rates fluctuate. When interest rates decline, the value of a fixed
income portfolio can be expected to rise. Conversely, when interest rates
rise, the value of a fixed income portfolio can be expected to decline. Prices
of longer-term securities generally fluctuate more in response to interest
rate changes than do short-term or medium-term securities. These changes in
net asset value are likely to be greater in the case of a fund having a
leveraged capital structure, such as that used by the Funds. See "Risk Factors
and Special Considerations--Leverage."
Each Fund intends to invest primarily in long-term Pennsylvania 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 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
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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 MuniVest
Pennsylvania and MuniHoldings Pennsylvania (referred to in this section as the
"Insured Funds") will be invested in Pennsylvania Municipal Bonds and
Municipal Bonds either (i) insured under an insurance policy purchased by the
Insured Fund, or (ii) insured under an insurance policy obtained by the issuer
thereof or any other party. The Insured 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 Pennsylvania Municipal Bonds and Municipal Bonds in
each Insured 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 Insured Fund also may
purchase Pennsylvania Municipal Bonds and Municipal Bonds covered by insurance
issued by any other insurance company that satisfies the foregoing criteria. A
majority of insured Pennsylvania Municipal Bonds and Municipal Bonds held by
each Insured Fund will be insured under policies obtained by parties other
than the Fund.
MuniYield Pennsylvania is not currently subject to any requirement to invest
in Pennsylvania Municipal Bonds or Municipal Bonds that are insured; however,
after the Reorganization, MuniYield Pennsylvania will be subject to the same
requirement as the Acquired Funds described above. After the Reorganization,
therefore, MuniYield Pennsylvania shareholders will share in the cost of
maintaining such insurance. Currently 58.5% of the portfolio of MuniYield
Pennsylvania is comprised of insured Pennsylvania Municipal Bonds and
Municipal Bonds. It is not anticipated that it will be necessary to engage in
a significant restructuring of the portfolio of MuniYield Pennsylvania or to
dispose of a substantial number of holdings as a result of the Reorganization.
Each Insured 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 Pennsylvania Municipal Bonds and Municipal Bonds purchased
by the Insured Funds. A Pennsylvania 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 Pennsylvania 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 Pennsylvania Municipal
Bonds and Municipal Bonds beneficially owned by an Insured Fund. In the event
of a sale of any Pennsylvania Municipal Bonds and Municipal Bonds held by an
Insured 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 Pennsylvania Municipal Bond
or Municipal Bond or the value of the shares of an Insured Fund.
The insurer will not have the right to withdraw coverage on securities
insured by its Policies and held by an Insured Fund so long as such securities
remain in the Insured Fund's portfolio. In addition, the insurer may not
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cancel its Policies for any reason except failure to pay premiums when due.
The Board of Trustees of each Insured Fund reserves the right to terminate any
of the Policies if it determines that the benefits to the Insured 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 Insured Fund and the yield on
its portfolio is reduced thereby. FAM estimates that the cost of the annual
premiums for the Policies of each Insured Fund currently range from
approximately .02 of 1% to .15 of 1% of the principal amount of the
Pennsylvania Municipal Bonds and Municipal Bonds covered by such Policies. The
estimate is based on the expected composition of each Insured Fund's portfolio
of Pennsylvania 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 an Insured Fund purchases Pennsylvania
Municipal Bonds and Municipal Bonds insured under policies obtained by parties
other than the Insured Fund, the Insured Fund does not pay the premiums for
such policies; rather, the cost of such policies may be reflected in the
purchase price of the Pennsylvania 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 an Insured Fund may be limited to the
extent it holds defaulted securities, which may limit its ability in certain
circumstances to purchase other Pennsylvania 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 Insured Fund. In the event the Board of Trustees of an
Insured Fund determines that such insurance is unavailable or that the cost of
such insurance outweighs the benefits to the Insured Fund, the Insured 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
Pennsylvania Municipal Bonds and Municipal Bonds held in the Insured 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 Pennsylvania Municipal Bonds or
Municipal Bonds will not receive timely scheduled payments of principal or
interest). However, the insured Pennsylvania 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 Pennsylvania Municipal Bonds and Municipal Bonds
Pennsylvania 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 as Pennsylvania Municipal Bonds if the
interest thereon is exempt from Federal income tax and Pennsylvania personal
income taxes, even though such bonds may be PABs as discussed below.
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The two principal classifications of Pennsylvania 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 generally payable only from the revenues derived from a
particular facility or class of facilities or, in some cases, from the
proceeds of a special excise tax or other specific revenue source such as from
the user of the facility being financed. PABs are in most cases revenue bonds
and do not generally constitute the pledge of the credit or taxing power of
the issuer of such bonds. The repayment of 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. Pennsylvania Municipal Bonds and Municipal Bonds may also include
"moral obligation" financing, which are normally issued by special purpose
public authorities. In Pennsylvania, moral obligation financing is a financing
arrangement in which designated officials of the Commonwealth of Pennsylvania,
its departments or agencies agree, when necessary, to request the General
Assembly to appropriate funds as may be required to make up any deficiency in
a debt service reserve fund established to assure payment of obligations
issued under the arrangement. The General Assembly is not required to approve
such appropriation requests.
Each Fund may purchase Pennsylvania 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
Pennsylvania 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 Shareholders."
Also included within the general category of Pennsylvania 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 Pennsylvania Municipal
Bonds and Municipal Bonds for investment by the Funds.
Special Considerations Relating to Pennsylvania Municipal Bonds
Each Fund ordinarily will invest at least 65% of its total assets in
Pennsylvania Municipal Bonds and, therefore, is more susceptible to factors
adversely affecting issuers of Pennsylvania Municipal Bonds than is a
municipal bond fund that is not concentrated in issuers of Pennsylvania
Municipal Bonds to this degree. Pennsylvania's outstanding general obligation
bonds are currently rated Aa3 by Moody's, AA by Fitch and AA by S&P. Because
each Fund's portfolio will comprise investment grade securities, each Fund is
expected to be insulated from the market and credit risks that may exist in
connection with investments in non-investment grade Pennsylvania Municipal
Bonds. There is no assurance that a particular rating will continue for any
given period of time or that any such rating will not be revised downward or
withdrawn entirely if, in the judgment of the agency originally establishing
the rating, circumstances so warrant. The value of Municipal Bonds generally
may
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be affected by uncertainties in the municipal markets as a result of
legislation or litigation changing the taxation of Municipal Bonds or the
rights of Municipal Bond holders in the event of a bankruptcy. Municipal
bankruptcies are rare, and certain provisions of the U.S. Bankruptcy Code
governing such bankruptcies are unclear. Further, the application of state law
to Municipal Bond issuers could produce varying results among the states or
among Municipal Bond issuers within a state. These uncertainties could have a
significant impact on the prices of the Municipal Bonds or the Pennsylvania
Municipal Bonds in which the Funds invest. FAM does not believe that the
current economic conditions in Pennsylvania or other factors described above
will have a significant adverse effect on any Fund's ability to invest in high
quality Pennsylvania Municipal Bonds. See Exhibit III--"Economic and Other
Conditions in Pennsylvania," and Exhibit IV--"Ratings of Municipal Bonds and
Commercial Paper."
Other Investment Policies
The Funds have adopted certain other policies as set forth below:
Borrowings. Each Fund is authorized to borrow amounts of up to 5% of the
value of its total assets at the time of such borrowings; provided, however,
that each Fund is authorized to borrow moneys in amounts of up to 33 1/3% of
the value of its total assets at the time of such borrowings to finance the
repurchase of its own Common Shares pursuant to tender offers or otherwise to
redeem or repurchase preferred shares or for temporary, extraordinary or
emergency purposes. Borrowings by each Fund (commonly known, as with the
issuance of preferred shares, 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 Pennsylvania 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
Pennsylvania 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 Pennsylvania 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 Pennsylvania 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 Pennsylvania 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
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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 Pennsylvania Municipal Bond or
Municipal Bond issuer's rights to call all or a portion of such Pennsylvania
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 Pennsylvania Municipal Bonds or
Municipal Bonds, subject to certain conditions. A Call Right that is not
exercised prior to the maturity of the related Pennsylvania Municipal Bond or
Municipal Bond will expire without value. The economic effect of holding both
the Call Right and the related Pennsylvania Municipal Bond or Municipal Bond
is identical to holding a Pennsylvania Municipal Bond or Municipal Bond as a
non-callable security.
Repurchase Agreements. The Funds may invest in securities pursuant to
repurchase agreements. Repurchase agreements may be entered into only with a
member bank of the Federal Reserve System or a primary dealer in U.S.
government securities or an affiliate thereof. Under such agreements, the
seller agrees, upon entering into the contract, to repurchase the security at
a mutually agreed-upon time and price, thereby determining the yield during
the term of the agreement. The Funds may not invest in repurchase agreements
maturing in more than seven days if such investments, together with all other
illiquid investments, would exceed 15% of the Fund's net assets. In the event
of default by the seller under a repurchase agreement, the Funds may suffer
time delays and incur costs or possible losses in connection with the
disposition of the underlying securities.
In general, for Federal 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. In addition, amounts earned under such agreements will not likely be
considered tax-exempt interest for Pennsylvania tax purposes.
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 Shares, the net asset value of the Common Shares 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 Shares,
hedging transactions will result in a larger impact on the net asset value of
the Common Shares than would be the case if the Common Shares 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 shareholders will be taxable as ordinary income or,
in certain circumstances, as long-term capital gains to shareholders. 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 Trustees of the Fund without the approval of
the Fund's shareholders.
Writing Covered Call Options. Each Fund is authorized to write (i.e., sell)
covered call options with respect to Pennsylvania 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
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option expires. Each Fund writes only covered call options, which means that
so long as the Fund is obligated as the writer of a call option, it will own
the underlying securities subject to the option. The Fund may not write
covered call options on underlying securities in an amount exceeding 15% of
the market value of its total assets.
Each Fund receives a premium from writing a call option, which increases the
Fund's return on the underlying security in the event the option expires
unexercised or is closed out at a profit. By writing a call, a Fund limits its
opportunity to profit from an increase in the market value of the underlying
security above the exercise price of the option for as long as the Fund's
obligation as a writer continues. Covered call options serve as a partial
hedge against a decline in the price of the underlying security. Each Fund may
engage in closing transactions in order to terminate outstanding options that
it has written.
Purchase of Options. Each Fund may purchase put options in connection with
its hedging activities. By buying a put, the Fund has a right to sell the
underlying security at the exercise price, thus limiting its risk of loss
through a decline in the market value of the security until the put expires.
The amount of any appreciation in the value of the underlying security will be
partially offset by the amount of the premium paid for the put option and any
related transaction costs. Prior to its expiration, a put option may be sold
in a closing sale transaction; profit or loss from the sale will depend on
whether the amount received is more or less than the premium paid for the put
option plus the related transaction costs. A closing sale transaction cancels
out the Fund's position as the purchaser of an option by means of an
offsetting sale of an identical option prior to the expiration of the option
it has purchased. In certain circumstances, the Fund may purchase call options
on securities held in its portfolio on which it has written call options, or
on securities which it intends to purchase. A Fund will not purchase options
on securities if, as a result of such purchase, the aggregate cost of all
outstanding options on securities held by the Fund would exceed 5% of the
market value of the Fund's total assets.
Financial Futures Contracts and Options. Each Fund is authorized to purchase
and sell certain financial futures contracts and options thereon solely for
the purposes of hedging its investments in Pennsylvania 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 Pennsylvania
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.
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Subject to policies adopted by its Board of Trustees, 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 Pennsylvania Municipal
Bonds and Municipal Bonds in which the Fund invests to make such hedging
appropriate.
Over-The-Counter Options. Each Fund may engage in options and futures
transactions on exchanges and in the over-the-counter markets ("OTC options").
In general, exchange-traded contracts are third-party contracts (i.e.,
performance of the parties' obligations is guaranteed by an exchange or
clearing corporation) with standardized strike prices and expiration dates.
OTC option transactions are two-party contracts with price and terms
negotiated by the buyer and seller.
Restrictions on OTC Options. Each Fund will engage in transactions in OTC
options only with banks or dealers that have capital of at least $50 million
or whose obligations are guaranteed by an entity having capital of at least
$50 million. Certain OTC options and assets used to cover OTC options written
by the Funds are considered to be illiquid. The illiquidity of such options or
assets may prevent a successful sale of such options or assets, result in a
delay of sale, or reduce the amount of proceeds that otherwise might be
realized.
Risk Factors in Financial Futures Contracts and Options Thereon. Use of
futures transactions involves the risk of imperfect correlation in movements
in the price of financial futures contracts and movements in the price of the
security that is the subject of the hedge. If the price of the financial
futures contract moves more or less than the price of the security that is the
subject of the hedge, a Fund will experience a gain or loss that will not be
completely offset by movements in the price of such security. There is a risk
of imperfect correlation where the securities underlying financial futures
contracts have different maturities, ratings, geographic compositions or other
characteristics different from those of the security being hedged. In
addition, the correlation may be affected by additions to or deletions from
the index that serves as a basis for a financial futures contract. Finally, in
the case of financial futures contracts on U.S. Government securities and
options on such financial futures contracts, the anticipated correlation of
price movements between the U.S. Government securities underlying the futures
or options and Pennsylvania 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.
33
<PAGE>
The volume of trading in the exchange markets with respect to Pennsylvania
Municipal Bonds or Municipal Bond options may be limited, and it is impossible
to predict the amount of trading interest that may exist in such options. In
addition, there can be no assurance that viable exchange markets will continue
to be available.
Each Fund intends to enter into options and futures transactions, on an
exchange or in the over-the-counter market, only if there appears to be a
liquid secondary market for such options or futures. There can be no
assurance, however, that a liquid secondary market will exist at any specific
time. Thus, it may not be possible to close an option or futures transaction.
The inability to close options and futures positions also could have an
adverse impact on a Fund's ability to hedge effectively its portfolio. There
is also the risk of loss by a Fund of margin deposits or collateral in the
event of bankruptcy of a broker with which the Fund has an open position in an
option or financial futures contract.
The liquidity of a secondary market in a financial futures contract may be
adversely affected by "daily price fluctuation limits" established by
commodity exchanges that limit the amount of fluctuation in a financial
futures contract price during a single trading day. Once the daily limit has
been reached in the contract, no trades may be entered into at a price beyond
the limit, thus preventing the liquidation of open futures positions. Prices
have in the past reached or exceeded the daily limit on a number of
consecutive trading days.
If it is not possible to close a financial futures position entered into by
a Fund, the Fund would continue to be required to make daily cash payments of
variation margin in the event of adverse price movements. In such a situation,
if the Fund has insufficient cash, it may have to sell portfolio securities to
meet daily variation margin requirements at a time when it may be
disadvantageous to do so.
The successful use of these transactions also depends on the ability of FAM
to forecast correctly the direction and extent of interest rate movements
within a given time frame. To the extent these rates remain stable during the
period in which a financial futures contract is held by a Fund or move in a
direction opposite to that anticipated, the Fund may realize a loss on the
hedging transaction that is not fully or partially offset by an increase in
the value of portfolio securities. As a result, the Fund's total return for
such period may be less than if it had not engaged in the hedging transaction.
Furthermore, the Fund will only engage in hedging transactions from time to
time and may not necessarily be engaging in hedging transactions when
movements in interest rates occur.
Investment Restrictions
The Funds have substantially similar investment restrictions. The following
are the current fundamental investment restrictions of MuniYield Pennsylvania.
Following the Reorganization, these restrictions will be the fundamental
investment restrictions for the combined fund. Fundamental investment
restrictions may not be changed without the approval of the holders of a
majority of the outstanding Common Shares and the outstanding AMPS and any
other preferred shares, voting together as a single class, and a majority of
the outstanding AMPS and any other preferred shares, voting separately as a
class. (For this purpose and under the Investment Company Act, for the Common
Shares and AMPS voting together as a single class, "majority" means the lesser
of (i) 67% of the shares of each class of capital shares represented at a
meeting at which more than 50% of the outstanding shares of each class of
capital shares are represented or (ii) more than 50% of the outstanding shares
of each class of capital shares, but for the AMPS voting separately as a
single class, "majority" means more than 50% of the outstanding AMPS.) No Fund
may:
1. Make investments for the purpose of exercising control or management.
2. Purchase securities of other investment companies, except in connection
with a merger, consolidation, acquisition or reorganization, or by
purchase in the open market of securities of closed-end investment
companies and only if immediately thereafter not more than 10% of the
Fund's total assets would be invested in such securities.
3. Purchase or sell real estate, real estate limited partnerships,
commodities or commodity contracts; provided that the Fund may invest in
securities secured by real estate or interests therein or issued by
companies that invest in real estate or interests therein and the Fund
may purchase and sell financial futures contracts and options thereon.
34
<PAGE>
4. Issue senior securities other than preferred shares 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 Common
Shares or redeeming preferred shares.
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
Pennsylvania 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 Pennsylvania Municipal Bonds,
Municipal Bonds, U.S. Government obligations and related indices or
otherwise in connection with bona fide hedging activities.
9. Invest more than 25% of its total assets (taken at market value at the
time of each investment) in securities of issuers in a single industry;
provided that, for purposes of this restriction, states, municipalities
and their political subdivisions are not considered to be part of any
industry.
For purposes of restriction (9), the exception for states, municipalities
and their political subdivisions applies only to tax exempt securities issued
by such entities.
An additional investment restriction adopted by each Fund, which may be
changed by the Trustees, 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.
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 its AMPS are outstanding, the composition
of its portfolio will reflect guidelines established by Moody's and S&P in
connection with the Fund's receipt of a rating for such shares on or prior to
their date of original issue of at least "aaa" from Moody's and AAA from S&P.
Moody's and S&P, which are nationally recognized statistical rating
organizations, issue ratings for various securities reflecting the
35
<PAGE>
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 shares, 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 shares 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 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 Certificate of
Designation of each Fund, the Board of Trustees, without shareholder approval,
may modify certain definitions or restrictions that have been adopted by the
Fund pursuant to the rating agency guidelines, provided the Board of Trustees
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 Pennsylvania Municipal Bonds and Municipal Bonds held in the portfolios
of the Funds. For MuniYield Pennsylvania, as of August 31, 1999, the highest
concentration of Pennsylvania Municipal Bonds and Municipal Bonds was in
Industrial Revenue/Pollution Control, Education and Hospitals/Healthcare,
accounting for 22%, 15%, and 13% of the Fund's portfolio, respectively; for
MuniVest Pennsylvania, the highest concentration was in Industrial
Revenue/Pollution Control, Hospitals/Healthcare and General Obligation Bonds,
accounting for 24%, 15% and 13%, respectively, of the Fund's portfolio; for
MuniHoldings Pennsylvania, the highest concentration was in General Obligation
Bonds, Education and Industrial Revenue/Pollution Control, accounting for 25%,
18% and 15%, respectively, of the Fund's portfolio.
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 four investment portfolios. The tables below set forth
rating information for the Pennsylvania Municipal Bonds and Municipal Bonds
held by each Fund, as of a certain date.
36
<PAGE>
MuniYield Pennsylvania
As of August 31, 1999, approximately 93% of the market value of MuniYield
Pennsylvania's portfolio was invested in long-term municipal obligations and
approximately 7% of the market value of MuniYield Pennsylvania's portfolio was
invested in short-term municipal obligations. The following table sets forth
certain information with respect to the composition of MuniYield
Pennsylvania'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 26 $ 80,392 69.9%
AA Aa 6 $ 13,689 11.9%
A A 6 $ 14,152 12.3%
BBB Baa 2 $ 6,788 5.9%
--- -------- -----
40 $115,021 100.0%
=== ======== =====
</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 Pennsylvania
As of August 31, 1999, approximately 95% of the market value of MuniVest
Pennsylvania's portfolio was invested in long-term municipal obligations and
approximately 5% of the market value of MuniVest Pennsylvania's portfolio was
invested in short-term municipal obligations. The following table sets forth
certain information with respect to the composition of MuniVest Pennsylvania'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 26 $64,885 88.0%
AA Aa 3 $ 4,577 6.2%
BBB Baa 2 $ 4,238 5.8%
--- ------- -----
31 $73,700 100.0%
=== ======= =====
</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."
37
<PAGE>
MuniHoldings Pennsylvania
As of August 31, 1999, approximately 91% of the market value of MuniHoldings
Pennsylvania's portfolio was invested in long-term municipal obligations and
approximately 9% of the market value of MuniHoldings Pennsylvania's portfolio
was invested in short-term municipal obligations. The following table sets
forth certain information with respect to the composition of MuniHoldings
Pennsylvania'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 20 $39,985 88.6%
AA Aa 2 $ 5,129 11.4%
--- ------- -----
22 $45,114 100.0%
=== ======= =====
</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 Trustees of each
Fund, FAM is primarily responsible for the execution of each Fund's portfolio
transactions. In executing such transactions, FAM seeks to obtain the best
results for each Fund, taking into account such factors as price (including
the applicable brokerage commission or dealer spread), size of order,
difficulty of execution and operational facilities of the firm involved and
the firm's risk in positioning a block of securities. While FAM generally
seeks reasonably competitive commission rates, the Funds do not necessarily
pay the lowest commission or spread available.
None of the Funds has any obligation to deal with any broker or dealer in
the execution of transactions in portfolio securities. Subject to obtaining
the best price and execution, securities firms that provide supplemental
investment research to FAM, including Merrill Lynch, may receive orders for
transactions by a Fund. Information so received will be in addition to, and
not in lieu of, the services required to be performed by FAM under its
investment advisory agreements with the Funds, and the expenses of FAM will
not necessarily be reduced as a result of the receipt of such supplemental
information.
Each Fund invests in securities that are primarily traded in the over-the-
counter markets, and each Fund normally deals directly with the dealers who
make markets in the securities involved, except in those circumstances where
better prices and execution are available elsewhere. Under the Investment
Company Act, except as permitted by exemptive order, persons affiliated with a
Fund are prohibited from dealing with the Fund as principals in the purchase
and sale of securities. Since transactions in the over-the-counter markets
usually involve transactions with dealers acting as principals for their own
account, the Funds do not deal with affiliated persons, including Merrill
Lynch and its affiliates, in connection with such transactions, except that,
pursuant to an exemptive order obtained by FAM, a Fund may engage in principal
transactions with Merrill Lynch in high quality, short-term, tax-exempt
securities. An affiliated person of a Fund may serve as its broker in over-
the-counter transactions conducted on an agency basis.
The Funds also may purchase tax-exempt debt instruments in individually
negotiated transactions with the issuers. Because an active trading market may
not exist for such securities, the prices that the Funds may pay for these
securities or receive on their resale may be lower than that for similar
securities with a more liquid market.
38
<PAGE>
The Board of Trustees 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 Trustees of
each Fund made a determination not to seek such recapture. The Trustees 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 shareholders. The portfolio turnover
rate for each of the Funds for the periods indicated is set forth below:
<TABLE>
<CAPTION>
Six Months YearEnded
Ended October 31,
April 30, 1999 --------------
(unaudited) 1998 1997
-------------- ------ ------
<S> <C> <C> <C>
MuniYield Pennsylvania..................... 16.87% 60.52% 70.14%
MuniVest Pennsylvania...................... 19.64% 60.37% 61.03%
</TABLE>
<TABLE>
<CAPTION>
Period February
26, 1999+ to
March 31, 1999
(unaudited)
---------------
<S> <C>
MuniHoldings Pennsylvania.................................. 0.00%
</TABLE>
- --------
+ Commencement of operations
Net Asset Value
The net asset value per share of Common Shares 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 Shares 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 AMPS is
divided by the total number of Common Shares outstanding at such time.
Expenses, including the fees payable to FAM, are accrued daily.
The Pennsylvania 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 Trustees. The pricing
service typically values portfolio securities at the bid price or the yield
equivalent when quotations are readily available. Pennsylvania
39
<PAGE>
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 Trustees
of the Fund. The Board of Trustees 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 Trustees of each Fund.
Each Fund determines and makes available for publication the net asset value
of its Common Shares 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 Shares
Each of the Funds has outstanding both Common Shares and AMPS. The Common
Shares of MuniYield Pennsylvania and MuniVest Pennsylvania are traded on the
NYSE, while the Common Shares of MuniHoldings Pennsylvania are traded on the
AMEX. The MuniYield Pennsylvania Common Shares commenced trading on the NYSE
on November 4, 1992. As of September 30, 1999, the net asset value per
MuniYield Pennsylvania Common Share was $13.99 and the market price per share
was $12.5625. The MuniVest Pennsylvania Common Shares commenced trading on the
NYSE on August 16, 1993. As of September 30, 1999, the net asset value per
MuniVest Pennsylvania Common Share was $12.31 and the market price per share
was $11.6875. The MuniHoldings Pennsylvania Common Shares commenced trading on
the AMEX on March 8, 1999. As of September 30, 1999, the net asset value per
MuniHoldings Pennsylvania Common Share was $12.98 and the market price per
share was $12.00.
The Board of Trustees of each Fund is authorized to issue an unlimited
number of shares of beneficial interest. The Board of Trustees of each of the
Funds may authorize separate classes of shares together with such designations
and powers, preferences and rights, qualifications, limitations and
restrictions as may be determined from time to time by the Trustees. Pursuant
to such authority, the Trustees authorized the issuance of an unlimited number
of Common Shares together with 1,000,000 preferred shares of beneficial
interest. In connection with each respective Fund's offering of AMPS,
MuniYield Pennsylvania issued 1,600 preferred shares as AMPS, MuniVest
Pennsylvania issued 1,100 preferred shares as AMPS and MuniHoldings
Pennsylvania issued 820 shares as AMPS.
Each Fund is an entity of the type commonly known as a "Massachusetts
business trust." Under Massachusetts law, shareholders of such a trust may,
under certain circumstances, be held personally liable as partners for its
obligations. However, the Declaration of Trust of each Fund contains an
express disclaimer of shareholder liability for acts or obligations of that
Fund and provides for indemnification and reimbursement of expenses out of
that Fund's property for any shareholder held personally liable for the
obligations of that Fund. Thus, the risk of a shareholder incurring financial
loss on account of shareholder liability is limited to circumstances in which
the Funds themselves would be unable to meet their obligations. Given the
nature of the Funds' assets and operations, the possibility of any of the
Funds being unable to meet their obligations is remote and, in the opinion of
Massachusetts counsel to the Funds, the risk to the Funds' shareholders is
remote.
The Declaration of Trust of each Fund further provides that no Trustee,
officer, employee or agent of that Fund is liable to that Fund or to any
shareholder, nor is any Trustee, officer, employee or agent liable to any
third persons in connection with the affairs of that Fund, except as such
liability may arise from his or her own bad faith, willful misfeasance, gross
negligence, or reckless disregard of their duties. It also provides that all
third persons shall look solely to the Funds' property for satisfaction of
claims arising in connection with the affairs of each Fund. With the
exceptions stated, the Declaration of Trust of each Fund provides that a
Trustee, officer, employee or agent is entitled to be indemnified against all
liability in connection with the affairs of that Fund.
40
<PAGE>
Common Shares
Holders of each Fund's Common Shares are entitled to share equally in
dividends declared by the Fund's Board of Trustees payable to holders of the
Common Shares and in the net assets of the Fund available for distribution to
holders of the Common Shares after payment of the preferential amounts payable
to holders of any outstanding preferred shares. See "Voting Rights" and
"Liquidation Rights of Holders of AMPS" below. Holders of a Fund's Common
Shares do not have preemptive or conversion rights and a Fund's Common Shares
are not redeemable. The outstanding Common Shares of each Fund are fully paid
and nonassessable.
So long as any AMPS of a Fund or any other preferred shares are outstanding,
holders of the Fund's Common Shares will not be entitled to receive any
dividends of or other distributions from the Fund unless all accumulated
dividends on the Fund's outstanding AMPS and any other preferred shares have
been paid, and unless asset coverage (as defined in the Investment Company
Act) with respect to such AMPS and any other preferred shares would be at
least 200% after giving effect to such distributions.
Preferred Shares
The AMPS of each of the Funds have a similar structure. The AMPS of each
Fund are preferred shares of the Fund that entitle their holders to receive
dividends when, as and if declared by the Board of Trustees, 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>
Dividend
Auction Date Fund Series Rate
------------ ---- ------ --------
<S> <C> <C> <C>
October 18, 1999................. MuniYield Pennsylvania * 3.35%
October 27, 1999................. MuniVest Pennsylvania * 3.35%
October 25, 1999................. MuniHoldings Pennsylvania A 2.99%
</TABLE>
- --------
*No series designation.
Under the Investment Company Act, each Fund is permitted to have outstanding
more than one series of preferred shares 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 shares do not have
preemptive rights to purchase any shares of AMPS or any other preferred shares
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. 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.
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Certain Provisions of the Declaration of Trust
Each Fund's Declaration of Trust 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 Trustees and could
have the effect of depriving shareholders 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 Trustee 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 Trustee elected by all of
the holders of capital stock may be removed only by action of such holders,
and a Trustee elected by the holders of AMPS and any other preferred shares
may be removed only by action of the holders of AMPS and any other preferred
shares.
In addition, the Declaration of Trust 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 Trustees 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 shareholders 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 preferred shares 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 Declaration of Trust. The amendment would
have to be declared advisable by the Board of Trustees prior to its submission
to shareholders. Such an amendment would require the affirmative vote of the
holders of at least 66 2/3% of the Fund's outstanding capital shares
(including the AMPS and any other preferred shares) 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 Trustees fixed in accordance with the by-laws),
and the affirmative vote of at least a majority of outstanding preferred
shares 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 shareholders. Shareholders of an open-end
investment company may require the company to redeem their Common Shares 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 Shares no longer would be listed on a
stock exchange. Conversion to an open-end investment company would also
require redemption of all outstanding preferred shares (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 Trustees of each Fund has determined that the 66 2/3% voting
requirements described above, which are greater than the minimum requirements
under Massachusetts law or the Investment Company Act, are in the best
interests of shareholders generally. Reference should be made to the
Declaration of Trust of each Fund on file with the SEC for the full text of
these provisions.
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Management of the Funds
Trustees and Officers. The Boards of Trustees of MuniVest Pennsylvania and
MuniHoldings Pennsylvania currently consist of the same seven persons, five of
whom are not "interested persons," as defined in the Investment Company Act,
of any of those Funds. The Board of Trustees of MuniYield Pennsylvania
currently consists of nine persons, seven of whom are not "interested persons"
of MuniYield Pennsylvania. Terry K. Glenn serves as a Trustee and President of
each of the Funds and Arthur Zeikel serves as a Trustee of each of the Funds.
The Trustees of each Fund are responsible for the overall supervision of the
operations of the Fund and perform the various duties imposed on the trustees
of investment companies by the Investment Company Act and under applicable
Massachusetts law. The Funds have the same slate of officers with a few
exceptions. For further information regarding the Trustees and officers of
each Fund, see "Item 2.: Election of Trustees" and Exhibit I--"Information
Pertaining to Each Fund."
William R. Bock serves as the portfolio manager for MuniYield Pennsylvania
and MuniVest Pennsylvania. Robert A. DiMella and William R. Bock serve as the
portfolio managers for MuniHoldings Pennsylvania. Mr. Bock will continue to
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. DiMella,
and Bock 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 and advisory fee rates, are identical. FAM provides each Fund with the
same investment advisory and management services. The Asset Management Group
of ML & Co. (which includes FAM) acts as the investment adviser to more than
100 registered investment companies and offers services to individuals and
institutional accounts. As of September 1999, the Asset Management Group had a
total of approximately $514 billion in investment company and other portfolio
assets under management (approximately $38.5 billion of which were invested in
municipal securities). This amount includes assets managed for certain
affiliates of FAM. FAM is a limited partnership, the partners of which are ML
& Co. and Princeton Services, Inc. FAM was organized as an investment adviser
in 1977 and offers investment advisory services to more than 50 registered
investment companies. The principal business address of FAM is 800 Scudders
Mill Road, Plainsboro, New Jersey 08536.
Each Fund's investment advisory agreement with FAM provides that, subject to
the supervision of the Board of Trustees 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 Trustees 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 the investment advisory agreements,
MuniYield Pennsylvania and MuniVest Pennsylvania currently pay FAM, a monthly
fee at the annual rate of 0.50% of each Fund's average weekly net assets, and
MuniHoldings Pennsylvania currently pays a monthly fee at an annual rate of
0.55% of the Fund's average weekly net assets. After the Reorganization, the
combined fund will pay FAM a monthly fee at the annual rate of .50% of the
combined fund's 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 shares, minus the sum of accrued
liabilities of the Fund and accumulated dividends on its preferred shares. 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
Pennsylvania, approval of the Reorganization represents a fee reduction.
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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 Trustees 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, share
certificates and shareholder 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 Trustees, 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 Trustees of the Fund or by a majority of
the outstanding Common Shares and AMPS of the Fund, voting together as a
single class, and (b) by a majority of the Trustees of the Fund who are not
parties to such contract or "interested persons," as defined in the Investment
Company Act, of any such party. The contract is not assignable and it may be
terminated without penalty on 60 days' written notice at the option of either
party thereto or by the vote of the shareholders 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 Trustees 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 each Fund's Common Shares.
Holders of each Fund's Common Shares are entitled to one vote for each share
held and will vote with the holders of any of the Fund's outstanding AMPS or
other preferred shares on each matter submitted to a vote of holders of Common
Shares, except as set forth below.
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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 a Fund's AMPS will be entitled to one vote per share on each matter
submitted to a vote of the Fund's shareholders and will vote together with the
holders of Common Shares of the Fund as a single class.
Each Fund's Common Shares, AMPS and any other preferred shares do not have
cumulative voting rights, which means that the holders of more than 50% of a
Fund's Common Shares, AMPS and any other preferred shares voting for the
election of Trustees can elect all of the Trustees standing for election by
such holders, and, in such event, the holders of a Fund's remaining Common
Shares, AMPS and any other preferred shares will not be able to elect any of
such Trustees.
In connection with the election of a Fund's Trustees, holders of a Fund's
AMPS, voting separately as a class, shall be entitled at all times to elect
two of the Fund's Trustees, and the remaining Trustees will be elected by
holders of Common Shares of the Fund and the Fund's AMPS and any other
preferred shares, voting together as a single class. In addition, if at any
time dividends on a Fund's outstanding AMPS shall be unpaid in an amount equal
to at least two full years' dividends thereon or if at any time holders of any
of a Fund's preferred shares are entitled, together with the holders of the
Fund's AMPS, to elect a majority of the Trustees of the Fund under the
Investment Company Act, then the number of Trustees constituting the Board of
Trustees automatically shall be increased by the smallest number that, when
added to the two Trustees elected exclusively by the holders of AMPS and any
other preferred shares as described above, would constitute a majority of the
Board of Trustees as so increased by such smallest number, and at a special
meeting of shareholders which will be called and held as soon as practicable,
and at all subsequent meetings at which Trustees are to be elected, the
holders of shares of the Fund's AMPS and any other preferred shares, voting
separately as a class, will be entitled to elect the smallest number of
additional Trustees that, together with the two Trustees which such holders in
any event will be entitled to elect, constitutes a majority of the total
number of Trustees of the Fund as so increased. The terms of office of the
persons who are Trustees 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 AMPS and any other preferred shares for
all past dividend periods, the additional voting rights of the holders of AMPS
and any other preferred shares as described above shall cease, and the terms
of office of all of the additional Trustees elected by the holders of AMPS and
any other preferred shares (but not of the Trustees with respect to whose
election the holders of Common Shares were entitled to vote or the two
Trustees the holders of AMPS and any other preferred shares have the right to
elect in any event) will terminate automatically.
The affirmative vote of the holders of a majority of a Fund's outstanding
AMPS, voting as a separate class, will be required to (i) authorize, create or
issue any class or series of shares ranking prior to any series of preferred
shares with respect to payment of dividends or the distribution of assets on
liquidation, (ii) amend, alter or repeal the provisions of the Declaration of
Trust, whether by merger, consolidation or otherwise, so as to adversely
affect any of the contract rights expressly set forth in the Declaration of
Trust of holders of preferred shares, (iii) approve any plan of reorganization
adversely affecting such AMPS or (iv) take any action to change a Fund's
investment policies requiring a vote of shareholders under Section 13(a) of
the Investment Company Act.
Shareholder Inquiries
Shareholder 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 relating to their
Common Shares are identical. Each Fund intends to distribute all or a portion
of its net investment income monthly to holders of a Fund's Common Shares.
Monthly distributions to holders of a Fund's Common Shares normally consist of
all or a portion of its net investment income remaining after the payment of
dividends (and any Additional Distribution) on the Fund's
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AMPS. A Fund may at times pay out less than the entire amount of net
investment income earned in any particular period and may at times pay out
such accumulated undistributed income in addition to net investment income
earned in other periods in order to permit the Fund to maintain a more stable
level of dividends to holders of Common Shares. As a result, the dividend paid
by a Fund to holders of its Common Shares for any particular period may be
more or less than the amount of net investment income earned by the Fund
during such period. For Federal tax purposes, the Fund is required to
distribute substantially all of its net investment income for each year. All
net realized capital gains, if any, are distributed pro rata at least annually
to holders of a Fund's Common Shares and AMPS. While any of a Fund's AMPS are
outstanding, the Fund may not declare any cash dividend or other distribution
on the Fund's Common Shares, unless at the time of such declaration (1) all
accumulated dividends on the Fund's AMPS, including any Additional
Distribution, have been paid, and (2) the net asset value of the Fund's
portfolio (determined after deducting the amount of such dividend or other
distribution) is at least 200% of the liquidation value of the Fund's
outstanding AMPS. If a Fund's ability to make distributions on its Common
Shares is limited, such limitation could under certain circumstances, impair
the ability of the Fund to maintain its qualification for taxation as a
regulated investment company which would have adverse tax consequences for
shareholders. See "Comparison of the Funds--Tax Rules Applicable to the Funds
and their Shareholders."
Similarly, the Funds' current policies with respect to dividends and
distributions on their AMPS are identical. The holders of a Fund's AMPS are
entitled to receive, when, as and if declared by the Board of Trustees of the
Fund, out of funds legally available therefor, cumulative cash dividends on
their shares. Dividends on a Fund's 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 Shares, and (ii) to the extent permitted under
the Code and to the extent available, out of net tax-exempt income earned on
the Fund's investments. Dividends for each Fund's AMPS are paid through The
Depository Trust Company ("DTC") (or a successor securities depository) on
each dividend payment date. DTC's normal procedures now provide for it to
distribute dividends in same-day funds to agent members, who in turn are
expected to distribute such dividends to the person for whom they are acting
as agent in accordance with the instructions of such person. Prior to each
dividend payment date, the relevant Fund is required to deposit with the
Auction Agent sufficient funds for the payment of such declared dividends.
None of the Funds intends to establish any reserves for the payment of
dividends, and no interest will be payable in respect of any dividend payment
or payment on a Fund's AMPS which may be in arrears.
Dividends paid by each Fund, to the extent paid from tax-exempt income
earned on Pennsylvania Municipal Bonds, are exempt from Federal income tax and
Pennsylvania personal 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, if
any, proportionately between its Common Shares and its AMPS in accordance with
the current position of the IRS described herein. Such allocation will also
apply for Pennsylvania personal income tax purposes. See "Tax Rules Applicable
to the Funds and their Shareholders" 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 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 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 each Fund's holders of Common Shares may be reinvested automatically in the
Fund's Common Shares, see "Automatic Dividend Reinvestment Plan" below.
Dividends and distributions will be subject to the tax treatment discussed
below, whether they are reinvested in shares of a Fund or received in cash.
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If any Fund retroactively allocates any net capital gains or other income
subject to regular Federal income tax and Pennsylvania personal income taxes
to shares of its AMPS without having given advance notice thereof as described
above, which only may happen when such allocation is made as a result of the
redemption of all or a portion of its outstanding AMPS or the liquidation of
the Fund, the Fund will make certain payments to holders 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 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 Shares elects otherwise, all
dividend and capital gains distributions are automatically reinvested by
either The Bank of New York or State Street Bank and Trust Company, as
applicable, as agent for shareholders in administering the Plan (as
applicable, the "Plan Agent"), in additional Common Shares of the Fund. The
Bank of New York is the Plan Agent for MuniVest Pennsylvania and MuniHoldings
Pennsylvania, while State Street Bank and Trust Company is the Plan Agent for
MuniYield Pennsylvania and will be the Plan Agent following the
Reorganization. Holders of a Fund's Common Shares who elect not to participate
in the Plan receive all distributions in cash paid by check mailed directly to
the shareholder of record (or, if the shares are held in street or other
nominee name, then to such nominee) by The Bank of New York or State Street
Bank and Trust Company, as applicable, as dividend paying agent. Such
shareholders may elect not to participate in the Plan and to receive all
distributions of dividends and capital gains in cash by sending written
instructions to The Bank of New York or State Street Bank and Trust Company,
as applicable, as dividend paying agent, at the address set forth below.
Participation in the Plan is completely voluntary and may be terminated or
resumed at any time without penalty by written notice if received by the Plan
Agent not less than ten days prior to any dividend record date; otherwise,
such termination 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 the Fund's Common Shares. The shares are
acquired by the Plan Agent for the participant's account, depending upon the
circumstances described below, either (i) through receipt of additional
unissued but authorized Common Shares from the Fund ("newly-issued shares") or
(ii) by purchase of outstanding Common Shares of the Fund 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 Shares is
equal to or less than the market price per share of the Fund's Common Shares
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 Shares 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 Shares 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 Common Shares, resulting in the acquisition
of fewer shares than if the dividend had been paid in newly-
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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 shareholders' accounts in the Plan and
furnishes written confirmation of all transactions in the account, including
information needed by shareholders 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 shareholder'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 shareholders 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 shareholders as representing the total amount registered
in the record shareholder'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 Shareholders".
Shareholders participating in the Plan may receive benefits not available to
shareholders not participating in the Plan. If the market price (plus
commissions) of a Fund's Common Shares is higher than net asset value,
participants in the Plan receive shares of the Fund's Common Shares at less
than they otherwise could purchase them and have shares with a cash value
greater than the value of any cash distribution they would have received on
their shares. If the market price plus commissions is less than net asset
value, participants receive distributions of shares with a net asset value
greater than the value of any cash distribution they would have received on
their shares. However, there may be insufficient shares available in the
market to make distributions of shares at prices below the net asset value.
Also, since the Funds normally do not redeem their shares, the price on resale
may be more or less than the net asset value. See "Comparison of the Funds--
Tax Rules Applicable to the Funds and their Shareholders" 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 shareholder owns shares in an
Acquired Fund and in MuniYield Pennsylvania, after the Reorganization, the
shareholder's election with respect to the dividends of MuniYield Pennsylvania
will control unless the shareholder specifically elects a different option at
that time. Following the Reorganization, all correspondence should be directed
to the Plan Agent, State Street Bank and Trust Company, at 225 Franklin
Street, Boston, Massachusetts 02110.
Mutual Fund Investment Option
A holder of Common Shares of any Fund, who purchased his or her shares
through Merrill Lynch in the Fund's initial public offering, has the right to
reinvest the net proceeds from a sale of such shares in Class A
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shares (in the case of MuniYield Pennsylvania and MuniVest Pennsylvania
shareholders) and Class D shares (in the case of MuniHoldings Pennsylvania
shareholders) of certain Merrill Lynch-sponsored open-end funds without the
imposition of an initial sales charge, if certain conditions are satisfied.
Class D shares pay an ongoing account maintenance fee. A holder of Common
Shares of an Acquired Fund who qualifies for this option will continue to have
this option after consummation of the Reorganization. Thus after the
Reorganization, qualifying shareholders of MuniYield Pennsylvania and MuniVest
Pennsylvania will retain their option with respect to Class A shares, while
qualifying shareholders of MuniHoldings Pennsylvania will retain their option
with respect to Class D shares.
Liquidation Rights of Holders of AMPS
Upon any liquidation, dissolution or winding up of any Fund, whether
voluntary or involuntary, the holders of the Fund's AMPS will be entitled to
receive, out of the assets of the Fund available for distribution to
shareholders, before any distribution or payment is made upon any of the
Fund's Common Shares 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 shares 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 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 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 Shareholders
The tax consequences of investing in Common Shares or AMPS of each of the
Funds are identical. MuniYield Pennsylvania and MuniVest Pennsylvania have
elected and qualified for the special tax treatment afforded RICs under the
Code. As a result, in any taxable year in which they distribute an amount
equal to at least 90% of taxable net income and 90% of tax-exempt net income
(see below), the Funds 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
Pennsylvania intends to continue to distribute substantially all of its income
following the Reorganization.
Each Fund is qualified to pay "exempt-interest dividends" as defined in
Section 852(b)(5) of the Code. Under such section, if, at the close of each
quarter of its taxable year, at least 50% of the value of a Fund's total
assets consists of obligations the interest on which is excludable from gross
income for Federal income tax purposes ("tax-exempt obligations") under
Section 103(a) of the Code (relating generally to obligations of a state or
local governmental unit), the Fund is qualified to pay exempt-interest
dividends to its shareholders. 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 shareholders within 60 days after the close of its
taxable year. To the extent that the dividends distributed to a Fund's
shareholders 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 shareholder'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 shareholder would be treated as a "substantial user" or "related
person" under Code Section 147(a) with respect to property financed with the
proceeds from an issue of PABs or IDBs if any, held by a Fund.
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The portion of exempt-interest dividends paid from interest received by a
Fund from Pennsylvania Municipal Bonds also will be exempt from Pennsylvania
personal income tax. In the case of residents of the City of Philadelphia,
distributions which are derived from interest on Pennsylvania Municipal Bonds
or which are designated as capital gain dividends for Federal income tax
purposes will be exempt from the Philadelphia School District investment
income tax.
Shares of the Funds will be exempt from the personal property taxes imposed
by various Pennsylvania municipalities to the extent the Funds' portfolio
securities consist of Pennsylvania Municipal Bonds on the annual assessment
date. It should be noted, however, that at present, Pennsylvania counties
generally have stopped assessing personal property taxes. This is due, in
part, to ongoing litigation challenging the validity of the tax.
Other Pennsylvania counties, cities and townships generally do not tax
individuals on unearned income.
As a result of a pronouncement by the Pennsylvania Department of Revenue, an
investment in the Funds by a corporate shareholder will apparently qualify as
an exempt asset for purposes of the single asset apportionment fraction
available in computing the Pennsylvania capital stock/foreign franchise tax to
the extent that the portfolio securities of the Funds comprise investments in
Pennsylvania and/or United States Government Securities that would be exempt
assets if owned directly by the corporation. To the extent exempt-interest
dividends are excluded from taxable income for federal corporate income tax
purposes (determined before net operating loss carryovers and special
deductions), they will not be subject to the Pennsylvania corporate net income
tax.
Shareholders subject to income taxation by states other than Pennsylvania
realize a lower after-tax rate of return than Pennsylvania shareholders since
the dividends distributed by a Fund generally are not exempt, to any
significant degree, from income taxation by such other states or cities. Each
Fund informs its shareholders annually as to the portion of the Fund's
distributions that constitutes exempt-interest dividends and the portion that
is exempt from Pennsylvania personal income taxes. Interest on indebtedness
incurred or continued to purchase or carry a Fund's shares is not deductible
for Federal income tax or Pennsylvania personal 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 AMPS to be issued by
MuniYield Pennsylvania, 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, each Fund's currently outstanding AMPS, as well as
the Series B AMPS to be issued by MuniYield Pennsylvania, constitute stock,
and distributions with respect such AMPS (other than distributions in
redemption 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 (and/or the
Pennsylvania Department of Revenue) could take a contrary position, asserting,
for example, that the AMPS constitute debt. If this position were upheld, the
discussion of the treatment of distributions below would not apply to holders
of AMPS. Instead, distributions by each Fund to holders of shares of its AMPS
would constitute interest, whether or not they exceed the earnings and profits
of the Fund, would be included in full in the income of the recipient and
taxed as ordinary income. Counsel believes that such a position, if asserted
by the IRS, would be unlikely to prevail.
To the extent that a Fund's distributions are derived from interest on its
taxable investments or from an excess of net short-term capital gains over net
long-term capital losses ("ordinary income dividends"), such distributions are
considered taxable ordinary income for Federal income tax and Pennsylvania
personal 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")
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are taxable as long-term capital gains for Federal income tax purposes,
regardless of the length of time the shareholder has owned Fund shares, and
for Pennsylvania personal income tax purposes will be treated as taxable
dividends. 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/or 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 for
Federal income tax purposes 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 for Federal income tax purposes. This rule may
increase the amount of ordinary income dividends received by shareholders. Any
loss upon the sale or exchange of Fund shares held for six months or less is
treated as long-term capital loss for Federal income tax purposes to the
extent of exempt-interest dividends received by the shareholder. In addition,
such loss is disallowed to the extent of any capital gain dividends received
by the shareholder. 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 shareholders of record on a specified date in one of such months,
then such dividend is treated for Federal income tax purposes as paid by the
Fund and received by its shareholders 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 Shares
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 Pennsylvania will, likewise, so designate
distributions with respect to its Common Shares and its AMPS, Series A and B.
Each Fund may notify the Auction Agent of the amount of any net capital gains
and other taxable income to be included in any dividend on shares of its AMPS
prior to the auction establishing the applicable rate for such dividend.
Except for the portion of any dividend that a Fund informs the Auction Agent
will be treated as capital gains or other taxable income, the dividends paid
on the AMPS constitute exempt-interest dividends. Alternatively, each Fund may
include such income in a dividend on 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 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 its Common Shares 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
Pennsylvania will allocate, items of tax-exempt income, net capital gains, and
other taxable income, if any, among Common Shares and outstanding AMPS
(including, for MuniYield Pennsylvania, AMPS to be designated Series A and the
newly issued Series B AMPS) will be respected for Federal income tax purposes.
However, the tax treatment of additional dividends may affect a Fund's
calculation of each class' allocable share of capital gains and other taxable
income. In addition, there is currently no direct guidance from the IRS or
other sources specifically addressing whether a Fund's method for allocating
tax-
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exempt income, net capital gains and other taxable income among Common Shares
and the outstanding series of AMPS will be respected for Federal income tax
purposes, and it is possible that the IRS could disagree with counsel's
opinion and attempt to reallocate a Fund's net capital gains or other taxable
income. In the event of a reallocation, some of the dividends identified by a
Fund as exempt-interest dividends to holders of shares of its AMPS could be
recharacterized as additional capital gains or other taxable income. In the
event of such recharacterization, a Fund is not required to make payments to
such shareholders 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. Similarly, there is no guidance
from the Pennsylvania Department of Revenue addressing the method of
allocating tax-exempt income, net capital gains and other taxable income among
the Common Shares and the outstanding series of AMPS, and it is possible that
the Pennsylvania Department of Revenue could also attempt to reallocate such
items.
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 shareholders of the Funds, to an increased Federal alternative
minimum tax. Each Fund purchases such "private activity bonds" and reports to
shareholders 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
shareholder 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 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 Shares 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 shareholders for Federal income and
Pennsylvania personal income tax purposes. Upon any failure to meet the asset
coverage requirements of the Investment Company Act, a Fund, in its sole
discretion, may redeem AMPS in order to maintain or restore the requisite
asset coverage and avoid the adverse consequences to the Fund and its
shareholders of failing to qualify as a RIC. There can be no assurance,
however, that any such action would achieve such objectives.
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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 shares that the Funds have issued and that
MuniYield Pennsylvania contemplates issuing may raise a question as to whether
distributions on such preferred shares are "preferential" under the Code and,
therefore, not eligible for the dividends paid deduction. Counsel has advised
the Funds that the outstanding preferred shares and the preferred shares to be
issued by MuniYield Pennsylvania 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 shares, there is no assurance that the IRS would
agree that dividends on the preferred shares are not preferential. If the IRS
successfully disallowed the dividends paid deduction for dividends on the
preferred shares, the Funds could be disqualified as RICs. In this case,
dividends paid by the Funds on the Common Shares and the AMPS would not be
exempt from Federal income taxes (or, possibly, Pennsylvania 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 AMPS.
The Federal income tax consequences of Additional Distributions under existing
law are uncertain. The Funds treat and MuniYield Pennsylvania 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 for Federal income tax purposes 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
shareholders, including shareholders who do not participate in the Fund's
dividend reinvestment plan. Thus, shareholders 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 shareholders may be subject to a
31% withholding tax on certain ordinary income dividends and on capital gain
dividends and redemption payments ("backup withholding"). Generally,
shareholders 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 shareholder is not otherwise subject to backup withholding.
Ordinary income dividends paid to shareholders 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 shareholders are urged to consult
their own tax advisers concerning the applicability of the United States
withholding tax.
The Code provides that every shareholder 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
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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 shareholders. The mark-to-market
rules outlined above, however, will not apply to certain transactions entered
into by a Fund solely to reduce the risk of changes in price or interest rates
with respect to its investments.
Code Section 1092, which applies to certain "straddles," may affect the
taxation of a Fund's sales of securities and transactions in financial futures
contracts and related options. Under Section 1092, a Fund may be required to
postpone recognition for tax purposes of losses incurred in certain sales of
securities and certain closing transactions in financial futures contracts or
the related options.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury Regulations and Pennsylvania 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 tax laws. The Code and the Treasury Regulations, as well as
the Pennsylvania tax laws, are subject to change by legislative, judicial or
administrative action either prospectively or retroactively.
Shareholders are urged to consult their tax advisers regarding specific
questions as to Federal, foreign, state or local tax consequences of an
investment in a Fund.
AGREEMENT AND PLAN OF REORGANIZATION
General
Under the Agreement and Plan of Reorganization (attached hereto as Exhibit
II), (i) MuniYield Pennsylvania will acquire substantially all of the assets,
and will assume substantially all of the liabilities, of MuniVest
Pennsylvania, in exchange solely for an equal aggregate value of MuniYield
Pennsylvania Common Shares and MuniYield Pennsylvania Series B AMPS to be
issued by MuniYield Pennsylvania, (ii) MuniYield Pennsylvania will acquire
substantially all of the assets, and will assume substantially all of the
liabilities, of MuniHoldings Pennsylvania, in exchange solely for an equal
aggregate value of MuniYield Pennsylvania Common Shares and MuniYield
Pennsylvania Series B AMPS to be issued by MuniYield Pennsylvania and (iii)
MuniYield Pennsylvania will become subject to the requirement that under
normal circumstances, at least 80% of its 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, and will change its name to "MuniYield Pennsylvania Insured Fund."
The number of MuniYield Pennsylvania Common Shares issued to each Acquired
Fund will have an aggregate net asset value equal to the aggregate net asset
value of the Common Shares of that Acquired Fund (except that cash will be
paid in lieu of any fractional shares), and the number of shares of MuniYield
Pennsylvania Series B AMPS issued to each Acquired Fund, will have an
aggregate liquidation preference and value 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 MuniYield
Pennsylvania Common Shares to the holders of Common Shares of MuniVest
Pennsylvania, and MuniHoldings Pennsylvania, as applicable, in exchange for
their Common Shares in the Acquired Funds and (ii) distribute the MuniYield
Pennsylvania Series B AMPS to the holders of MuniVest Pennsylvania AMPS and to
the holders of MuniHoldings Pennsylvania Series A AMPS, in exchange for their
AMPS in the Acquired Funds. MuniYield Pennsylvania will file with the Office
of the Secretary of State of The Commonwealth of Massachusetts a Certificate
of Designation of MuniYield Pennsylvania, establishing the powers, rights and
preferences of the MuniYield Pennsylvania Series B AMPS 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
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Funds will execute and lodge among the records of the respective Acquired Fund
an instrument in writing setting forth the fact of the Fund's termination and
cause a copy to be filed in the Office of the Secretary of State of The
Commonwealth of Massachusetts.
Each of the Acquired Funds will distribute MuniYield Pennsylvania Common
Shares and the MuniYield Pennsylvania Series B AMPS pro rata to its holders of
record of Common Shares and AMPS, as applicable, in exchange for such
shareholders' shares in the Acquired Funds. Such distribution would be
accomplished by opening new accounts on the books of MuniYield Pennsylvania in
the names of the holders of Common Shares and AMPS of each of the Acquired
Funds and transferring to those shareholder accounts the MuniYield
Pennsylvania Common Shares or MuniYield Pennsylvania Series B AMPS previously
credited on those books to the accounts of the Acquired Funds. Each newly-
opened account on the books of MuniYield Pennsylvania for the previous holders
of Common Shares of the Acquired Funds would represent the respective pro rata
number of MuniYield Pennsylvania Common Shares (rounded down, in the case of
fractional shares, to the next largest number of whole shares) due such holder
of Common Shares. No fractional MuniYield Pennsylvania Common Shares will be
issued. In lieu thereof, MuniYield Pennsylvania's transfer agent, State Street
Bank and Trust Company, will aggregate all fractional MuniYield Pennsylvania
Common Shares 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
share certificates of the applicable Acquired Fund. Similarly, each newly-
opened account on the books of MuniYield Pennsylvania for the previous holders
of AMPS of an Acquired Fund would represent the respective pro rata number of
MuniYield Pennsylvania Series B AMPS due such holder of AMPS. See "Surrender
and Exchange of Share Certificates" below for a description of the procedures
to be followed by the shareholders of the Acquired Funds to obtain their
MuniYield Pennsylvania Common Shares and cash in lieu of fractional shares, if
any. Because AMPS are held in "street name" by The Depository Trust Company,
all transfers are accomplished by book entry and no surrender of share
certificates representing AMPS is necessary.
Accordingly, as a result of the Reorganization, every holder of Common
Shares of an Acquired Fund would own MuniYield Pennsylvania Common Shares 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 shareholder's Common Shares immediately
prior to the Exchange Date. Since the MuniYield Pennsylvania Common Shares
would be issued at net asset value and the Common Shares of the Acquired Fund
would be valued at net asset value for the purposes of the exchange, the
holders of Common Shares of each of the Funds will not be diluted as a result
of the Reorganization. Similarly, since the MuniYield Pennsylvania Series B
AMPS would be issued at a liquidation preference and value per share equal to
the liquidation preference and value per share of the 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 shareholder
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 Trustees of each of the Acquired Funds, and at
a meeting of the Board of Trustees of MuniYield Pennsylvania, the Board of
Trustees of each of the Funds, including all of the Trustees 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 shareholders of
each of the Funds for approval. The Board of Trustees of MuniVest Pennsylvania
and MuniHoldings Pennsylvania voted unanimously to approve the Reorganization
and the Board of Trustees of MuniYield Pennsylvania approved the
Reorganization by the affirmative vote of all the Trustees present at the
meeting, representing more than two-thirds of the total number of Trustees.
The Board of Trustees of MuniYield Pennsylvania approved the filing of a
Certificate of Designation establishing the powers, rights and preferences of
the MuniYield Pennsylvania Series B AMPS in order that they may be distributed
to holders of AMPS of each of the Acquired Funds as part of the
Reorganization. The Board of MuniYield Pennsylvania, in approving the
Reorganization, also approved the change in the investment policies of that
Fund to provide that the Fund will invest at least 80% of its assets in
municipal obligations either
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(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,
as well as the change in the name of the Fund to "MuniYield Pennsylvania
Insured Fund."
As a result of such Board approvals, the Funds have jointly filed this proxy
statement with the SEC soliciting a vote of the shareholders of each of the
Funds to approve the Reorganization. The costs of such solicitation are to be
paid by MuniYield Pennsylvania after the Reorganization so as to be borne
equally and exclusively on a per share basis by the holders of Common Shares
of each of the Funds. The special and annual meetings of shareholders of the
Funds will be held on December 15, 1999. If the shareholders 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 Trustees of MuniYield Pennsylvania, MuniVest Pennsylvania and
MuniHoldings Pennsylvania recommend that the shareholders 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 Shares 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
common share of beneficial interest 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 AMPS of the
issuing Fund is divided by the total number of Common Shares of the issuing
Fund outstanding at such time. Daily expenses, including the fees payable to
FAM, will accrue on the Valuation Date.
The Pennsylvania 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
Trustees of the Funds. The pricing service typically values portfolio
securities at the bid price or the yield equivalent when quotations are
readily available. Pennsylvania 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 Trustees 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
Trustees.
Distribution of MuniYield Pennsylvania Common Shares and MuniYield
Pennsylvania Series B AMPS. On the Exchange Date, MuniYield Pennsylvania will
issue to each Acquired Fund a number of MuniYield Pennsylvania Common Shares
the aggregate net asset value of which will equal the respective aggregate net
asset value of Common Shares of the Acquired Fund on the Valuation Date. Each
holder of Common Shares of an Acquired Fund will receive the number of
MuniYield Pennsylvania Common Shares corresponding to his or her proportionate
interest in the respective aggregate net asset value of the Common Shares of
the Acquired Fund, as applicable.
56
<PAGE>
On the Exchange Date, MuniYield Pennsylvania also will issue (i) to MuniVest
Pennsylvania a number of MuniYield Pennsylvania Series B AMPS, the aggregate
liquidation preference and value of which will equal the aggregate liquidation
preference and value of MuniVest Pennsylvania AMPS on the Valuation Date and
(ii) to MuniHoldings Pennsylvania a number of MuniYield Pennsylvania Series B
AMPS, the aggregate liquidation preference and value of which will equal the
aggregate liquidation preference and value of MuniHoldings Pennsylvania Series
A AMPS on the Valuation Date. Each holder of AMPS of an Acquired Fund will
receive the number of MuniYield Pennsylvania Series B 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 shareholders of the Acquired Funds in connection with their
receipt of MuniYield Pennsylvania Common Shares or AMPS in the Reorganization.
Holders of MuniHoldings Pennsylvania AMPS will find that the auction date and
dividend payment date for the MuniYield Pennsylvania Series B AMPS received in
the Reorganization fall on different days of the week than the auction date
and dividend payment date of the AMPS currently held. Any such change in the
auction date and dividend payment date will not adversely affect the value of
a holder's AMPS. It is anticipated that the auction for MuniYield Pennsylvania
Series B AMPS will be held on Tuesday; MuniVest Pennsylvania Series A AMPS are
auctioned on Tuesday, but MuniHoldings Pennsylvania Series A AMPS are
auctioned on Friday. 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 Certificate of Designation.
Expenses. MuniYield Pennsylvania 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 Trustees, 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 Shares of each of
the Funds. No Fund shall pay any expenses of its respective shareholders
arising out of or in connection with the Reorganization.
Required Approvals. Under the Declaration of Trust of each Fund (as amended
to date and including Certificates of Designation establishing the powers,
rights and preferences of the AMPS of each Fund), relevant Massachusetts law
and the rules of the NYSE and AMEX, shareholder approval of the Agreement and
Plan of Reorganization requires the affirmative vote of shareholders
representing more than 50% of the outstanding Common Shares 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 shareholders of all three Funds, the
Reorganization will not take place if the shareholders of any one Fund do not
approve the Agreement and Plan of Reorganization.
Deregistration and Termination. Following the transfer of the assets and
liabilities of the Acquired Funds and the distribution of MuniYield
Pennsylvania Common Shares and MuniYield Pennsylvania Series B AMPS to
shareholders 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 organization under Massachusetts 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 shareholders of each of the Funds,
57
<PAGE>
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 Trustees 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 shareholders 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 shareholders 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
Trustees of the three Funds and (ii) by the Board of Trustees 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 Holders of Common Shares of the Funds as a Result of the
Reorganization
In approving the Reorganization, the Board of Trustees of each Fund
identified certain benefits that are likely to result from the Reorganization,
including lower aggregate operating expenses per share of Common Shares,
greater efficiency and flexibility in portfolio management and a more liquid
trading market for the Common Shares of the combined fund. With respect to
each of the Acquired Funds, following the Reorganization their respective
shareholders 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 Pennsylvania
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 Pennsylvania Municipal Bonds and Municipal
Bonds. The Boards also considered the relative tax positions of each of the
Fund's portfolios. Based on these factors, the Boards concluded that the
Reorganization will potentially benefit the shareholders of each Fund in that
it (i) presents no significant risks that would outweigh the benefits
discussed herein above and (ii) involves minimal costs (including relatively
minor legal, accounting and administrative costs). MuniYield Pennsylvania's
Board also considered the possible risks and costs to MuniYield Pennsylvania
of becoming an insured fund and concluded that based on current portfolio
holdings and market conditions the risks were minimal.
The surviving fund that would result from the Reorganization would have a
larger asset base than any of the Funds has currently. Based on data presented
by FAM, the Board of each Fund believes that administrative expenses for a
larger combined fund would be less than the aggregate expenses for the
individual Funds, resulting in a lower expense ratio for common shareholders
of the combined fund and higher earnings per common share. In particular,
certain fixed costs, such as costs of printing shareholder reports and proxy
statements, legal expenses, audit fees, mailing costs and other expenses will
be spread across a larger asset base, thereby lowering the expense ratio for
the combined fund. To illustrate the potential economies of scale, the table
below shows the total annualized operating expense ratio of each Fund and pro
forma MuniYield Pennsylvania based on net assets both excluding and including
assets attributable to AMPS as of June 30, 1999:
<TABLE>
<CAPTION>
Total annualized Net assets, Total annualized Net assets,
operating excluding operating including
expense ratio AMPS expense ratio AMPS
Fund excluding AMPS (in millions) including AMPS (in millions)
---- ---------------- ------------- ---------------- -------------
<S> <C> <C> <C> <C>
MuniYield Pennsylvania.. 1.16% $ 86.3 0.79% $126.3
MuniVest Pennsylvania... 1.33% $ 52.2 0.87% $ 79.7
MuniHoldings
Pennsylvania........... 1.71% $ 30.1 1.02% $ 50.6
Pro Forma MuniYield
Pennsylvania(1)........ 1.10% $168.6 0.72% $256.6
</TABLE>
- --------
(1) Assumes Reorganization had taken place on June 30, 1999.
58
<PAGE>
Management projections estimate that MuniYield Pennsylvania will have net
assets in excess of $256.6 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 Pennsylvania
should be able to purchase larger amounts of Pennsylvania 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
Pennsylvania 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 shareholders 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 Trustees 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 shareholders 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 six months to 3 1/2 years after the
Exchange Date due to a decrease in the operating expense ratio.
It is not anticipated that the Reorganization directly would benefit the
holders of AMPS of any of the Funds; however, the Reorganization will not
adversely affect the holders of AMPS of any of the Funds and the expenses of
the Reorganization will not be borne by the holders of AMPS of any of the
Funds.
Surrender and Exchange of Share Certificates
After the Exchange Date, each holder of an outstanding certificate or
certificates formerly representing Common Shares 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
MuniYield Pennsylvania Common Shares distributable with respect to such
holder's Common Shares of the Acquired Fund, together with cash in lieu of any
fractional shares of beneficial interest. Promptly after the Exchange Date,
the transfer agent for the MuniYield Pennsylvania Common Shares will mail to
each holder of certificates formerly representing Common Shares of an Acquired
Fund a letter of transmittal for use in surrendering his or her certificates
for certificates representing MuniYield Pennsylvania Common Shares and cash in
lieu of any fractional Common Shares.
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 Pennsylvania Common Shares MuniYield Pennsylvania Common Shares
MuniYield Pennsylvania AMPS MuniYield Pennsylvania Series A AMPS
MuniVest Pennsylvania Common Shares MuniYield Pennsylvania Common Shares
MuniVest Pennsylvania AMPS MuniYield Pennsylvania Series B AMPS
MuniHoldings Pennsylvania Common
Shares MuniYield Pennsylvania Common Shares
MuniHoldings Pennsylvania Series A
AMPS MuniYield Pennsylvania Series B AMPS
</TABLE>
Please do not send in any share certificates at this time. Upon consummation
of the Reorganization, holders of Common Shares of the Acquired Funds will be
furnished with instructions for exchanging their share certificates for
MuniYield Pennsylvania share certificates and, if applicable, cash in lieu of
fractional shares.
From and after the Exchange Date, certificates formerly representing Common
Shares of an Acquired Fund will be deemed for all purposes to evidence
ownership of the number of full shares of MuniYield Pennsylvania Common Shares
distributable with respect to the Common Shares of the Acquired Fund held
before the
59
<PAGE>
Reorganization as described above and as shown in the table above, provided
that, until such share certificates have been so surrendered, no dividends
payable to the holders of record of Common Shares of an Acquired Fund as of
any date subsequent to the Exchange Date will be paid to the holders of such
outstanding share certificates. Dividends payable to holders of record of
Common Shares of MuniYield Pennsylvania, as of any date after the Exchange
Date and prior to the exchange of certificates by any shareholder of an
Acquired Fund, will be paid to such shareholder, without interest, at the time
such shareholder surrenders his or her share 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 Common Shares of an Acquired Fund are presented to MuniYield
Pennsylvania, they will be canceled and exchanged for certificates
representing Common Shares of MuniYield Pennsylvania, as applicable, and cash
in lieu of fractional Common Shares of MuniYield Pennsylvania, if any,
distributable with respect to such Common Shares 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 Pennsylvania 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 Pennsylvania shares, as described, will
constitute a reorganization within the meaning of Section 361(a)(1)(C) of the
Code, and each of the Acquired Funds and MuniYield Pennsylvania will be deemed
a "party" to a reorganization within the meaning of Section 368(b) of the
Code; (ii) in accordance with Section 368(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 Pennsylvania Common Shares and MuniYield
Pennsylvania Series B AMPS, to the respective shareholders 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 Pennsylvania 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 shareholders of the Acquired Funds
on the receipt of MuniYield Pennsylvania Common Shares and MuniYield
Pennsylvania Series B AMPS in exchange for their corresponding Common Shares
or AMPS of an Acquired Fund (except to the extent that holders of Common
Shares receive cash representing an interest in fractional Common Shares of
MuniYield Pennsylvania in the Reorganization); (v) in accordance with Section
362(b) of the Code, the tax basis of the assets of the Acquired Funds in the
hands of MuniYield Pennsylvania 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 Pennsylvania Common Shares and MuniYield Pennsylvania Series
B AMPS received by the shareholders of the Acquired Funds in the
Reorganization will be equal to the tax basis of the Common Shares or AMPS of
the Acquired Funds surrendered in exchange; (vii) in accordance with Section
1223 of the Code, a shareholder's holding period for the MuniYield
Pennsylvania Common Shares and MuniYield Pennsylvania Series B AMPS, will be
determined by including the period for which such shareholder held the Common
Shares 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 Pennsylvania'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 holders of
Common Shares of an Acquired Fund in lieu of fractional MuniYield Pennsylvania
Common Shares will be treated as though the fractional shares were distributed
as part of the Reorganization and then redeemed, with the result that such
shareholders will have short- or long-term capital gain or loss to the extent
that the cash distribution differs from the shareholder's basis allocable to
the MuniYield Pennsylvania 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
Pennsylvania 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.
60
<PAGE>
As noted in the discussion under "Comparison of the Funds--Tax Rules
Applicable to the Funds and Their Shareholders," a Fund must distribute
annually at least 90% of its net taxable and tax-exempt income. A distribution
will only 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 Pennsylvania Series B AMPS pursuant to the Reorganization in
addition to the already existing preferred shares of MuniYield Pennsylvania
(to be redesignated MuniYield Pennsylvania Series A AMPS) will not cause
distributions on any series of MuniYield Pennsylvania 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 is more than
one 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 Pennsylvania could lose the special tax treatment afforded
RICs. In this case, dividends on the MuniYield Pennsylvania Common Shares and
AMPS would not be exempt from Federal income tax. Additionally, MuniYield
Pennsylvania would be subject to the Federal alternative minimum tax.
Under Section 381(a) of the Code, MuniYield Pennsylvania 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
Pennsylvania.
Shareholders 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, shareholders also should
consult their tax advisers as to the foreign, state and local tax consequences
of the Reorganization.
Regulated Investment Company Status. The Funds have elected and qualified
for taxation as RICs under Sections 851-855 of the Code, and after the
Reorganization MuniYield Pennsylvania intends to continue to so qualify.
Appraisal Rights
A shareholder of any of the Funds who does not vote in favor of the
Reorganization may have the right under Massachusetts law to object to the
Reorganization and demand payment for his or her shares from the applicable
Fund and an appraisal thereof upon compliance with the procedures specified in
Sections 86 through 98 of the Massachusetts Business Corporation Law (the
"Massachusetts Business Corporation Law"), which are set forth in Exhibit VI
hereto. A vote against the Reorganization or the execution of a proxy
directing such a vote will not satisfy the requirements of those provisions. A
failure to vote against the Reorganization will not constitute a waiver of
such rights. The Funds take the position that, if available, this statutory
right of appraisal may be exercised only by shareholders of record.
Section 92 of the Massachusetts Business Corporation Law provides that for
purposes of payment to any shareholder who elects to exercise his or her
statutory right of appraisal, the value of shares of such shareholder is to be
determined as of the day preceding the date of the shareholders' vote
approving the Agreement and Plan of Reorganization. Under the terms of the
Agreement and Plan of Reorganization, MuniYield Pennsylvania will assume the
obligations of each of the Funds, if any, with respect to statutory rights of
appraisal.
For federal income tax purposes, dissenting shareholders obtaining payment
for their shares will recognize gain or loss measured by the difference
between any such payment and the tax basis for their shares. Shareholders are
advised to consult their personal tax advisers as to the tax consequences of
dissenting.
61
<PAGE>
Capitalization
The following table sets forth as of April 30, 1999 (i) the capitalization
of MuniYield Pennsylvania, (ii) the capitalization of MuniVest Pennsylvania,
(iii) the capitalization of MuniHoldings Pennsylvania and (iv) the
capitalization of pro forma MuniYield Pennsylvania as adjusted to give effect
to the Reorganization.
Pro Forma Capitalization of MuniYield Pennsylvania,
MuniVest Pennsylvania, MuniHoldings Pennsylvania and Pro Forma MuniYield
Pennsylvania as of April 30, 1999 (unaudited)
<TABLE>
<CAPTION>
Pro Forma
MuniYield
Pennsylvania
MuniYield MuniVest MuniHoldings Pro Forma As
Pennsylvania Pennsylvania Pennsylvania Adjustment adjusted(a)
------------ ------------ ------------ ---------- ------------
<S> <C> <C> <C> <C> <C>
Net Assets:
Net Assets
Attributable to
Common Shares........ $89,807,780 $54,587,268 $31,959,162 (2,095,441) $174,258,769
Net Assets
Attributable to AMPS. $40,000,000 $27,500,000 $20,500,000 -- $ 88,000,000
Shares Outstanding:
Common Shares......... 5,883,760 4,037,179 2,156,567 (487,341) 11,590,165(b)
AMPS
Series A............ 1,600 1,100 820 (1,920) 1,600
Series B............ -- -- -- 1,920 1,920(b)
Net Asset Value Per
Share:
Common Shares......... $ 15.26 $ 13.52 $ 14.82 -- $ 15.04(c)
AMPS.................. $ 25,000 $ 25,000 $ 25,000 -- $ 25,000
</TABLE>
- --------
(a) The adjusted balances are presented as if the Reorganization had been
consummated on April 30, 1999 and are for informational purposes only.
Assumes distribution of undistributed net investment income and accrual of
Reorganization expenses of $340,000. No assurance can be given as to how
many MuniYield Pennsylvania Common Shares shareholders of MuniVest
Pennsylvania and MuniHoldings Pennsylvania will receive on the Exchange
Date, and the foregoing should not be relied upon to reflect the number of
MuniYield Pennsylvania Common Shares that actually will be received on or
after such date.
(b) Assumes the issuance of 5,706,405 MuniYield Pennsylvania Common Shares and
one newly-created series of AMPS, designated Series B, consisting of 1,920
shares in exchange for the net assets of each of MuniVest Pennsylvania and
MuniHoldings Pennsylvania. The estimated number of shares issued was based
on the net asset value of each Fund, net of distributions, on April 30,
1999.
(c) Net Asset Value Per Common Share net of Reorganization-related expenses
and distribution of undistributed net investment income of $1,172,691 for
MuniYield Pennsylvania, $295,148 for MuniVest Pennsylvania and $287,602
for MuniHoldings Pennsylvania.
62
<PAGE>
ITEM 2. ELECTION OF TRUSTEES
At the annual meeting of MuniHoldings Pennsylvania, the Board of Trustees
for MuniHoldings Pennsylvania will be elected to serve until the next annual
meeting of shareholders and until their successors are elected and qualified.
If the shareholders of all of the Funds approve the Reorganization, then the
current Board of Trustees of MuniYield Pennsylvania will serve as the Board of
the combined fund, until its next annual meeting of shareholders. If the
shareholders of any Fund vote against the Reorganization, then the Board of
Trustees elected at the annual meeting of MuniHoldings Pennsylvania will
continue to serve until the next annual meeting of shareholders of
MuniHoldings Pennsylvania and the current Board of MuniYield Pennsylvania and
MuniVest Pennsylvania will continue to serve until the next annual meeting of
that Fund. 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 Pennsylvania,
voting separately as a class, will be voted in favor of the two persons
designated as Trustees to be elected by the holders of AMPS of MuniHoldings
Pennsylvania; and
(2) All proxies of the holders of Common Shares and AMPS of MuniHoldings
Pennsylvania, voting together as a single class, will be voted in favor of
the five persons designated as Trustees to be elected by the holders of
Common Shares and AMPS of MuniHoldings Pennsylvania.
The Board of Trustees of MuniHoldings Pennsylvania 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 appropriate Board of Trustees may recommend.
Certain information concerning the nominees is set forth below. Additional
information concerning the nominees and other information relevant to the
election of Trustees is set forth in Exhibit I.
To Be Elected by the Holders of MuniHoldings Pennsylvania 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
424 Church Street 1984; President, May and Athens
Suite 2000 Hosiery Mills Division. Wayne-Gossard
Nashville, Tennessee 37219 Corporation from 1954 to 1983: Vice
President, Wayne-Gossard Corporation
from 1972 to 1983; Chairman, The May
Corporation (personal holding company)
from 1972 to 1983; Director, Signal
Apparel Co. from 1972 to 1989.
</TABLE>
<TABLE>
<S> <C> <C>
Andre F. Perold(1)(2)................ 47 Professor, Harvard Business School
Harvard Business School since 1989 and Associate Professor
Morgan Hall from 1983 to 1989; Trustee, The Common
Soldiers Field Fund since 1989; Director, Quantec
Boston, Massachusetts 02163 Limited from 1991 to 1999; Director,
TIBCO from 1994 to 1996; Director,
Genbel Securities Limited and Genbel
Bank since 1999.
</TABLE>
(footnotes on following page)
63
<PAGE>
To be Elected by Holders of MuniHoldings Pennsylvania Common Shares and
MuniHoldings Pennsylvania AMPS, Voting Together as a Single Class:
<TABLE>
<CAPTION>
Principal Occupation During Past
Name and Address Age Five Years and Public Directorships(1)
---------------- --- --------------------------------------
<S> <C> <C>
Terry K. Glenn(1)*.................. 59 Executive Vice President of FAM and
P.O. Box 9011 MLAM (which terms as used herein
Princeton, New Jersey 08543-9011 include their corporate predecessors)
since 1983; Executive Vice President
and Director of Princeton Services,
Inc. ("Princeton Services") since
1993; President of Princeton Funds
Distributor, Inc. ("PFD") since 1986
and Director thereof since 1991;
President of Princeton Administrators
L.P. since 1988.
James H. Bodurtha(1)(2)............. 55 Director and Executive Vice President,
36 Popponesset Road The China Business Group, Inc. since
Cotuit, Massachusetts 02635 1996; Chairman and Chief Executive
Officer, China Enterprise Management
Corporation from 1993 to 1996;
Chairman, Berkshire Corporation since
1980; Partner, Squire, Sanders &
Dempsey from 1980 to 1993; Director,
Gilder Group LLC and related companies
since 1999.
Herbert I. London(1)(2)............. 60 John M. Olin Professor of Humanities,
2 Washington Square Village New York University since 1993 and
New York, New York 10012 Professor since 1980; 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,
513 Grand Hill Kinnard Investments, Inc. from 1990 to
St. Paul, Minnesota 55103 1993; Executive Vice President, Dain
Bosworth from 1974 to 1989; Director,
Carnegie Capital Management from 1977
to 1985 and Chairman thereof in 1979;
Director, Securities Industry
Association from 1981 to 1982 and
Public Securities Association from
1979 to 1980; Chairman of the Board,
WTC Industries, Inc. in 1994; Trustee,
Northland College since 1992.
Arthur Zeikel(1)*................... 67 Chairman of FAM and MLAM from 1997 to
300 Woodland Avenue 1999; President of FAM and MLAM from
Westfield, New Jersey 07090 1977 to 1997; Chairman of Princeton
Services from 1997 to 1999, Director
thereof from 1993 to 1999 and
President thereof from 1993 to 1997;
Executive Vice President of 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 Exhibit I.
(2) Member of Audit Committee of the Board of Trustees.
* Interested person, as defined in the Investment Company Act, of each of the
Funds.
64
<PAGE>
Committee and Board Meetings
The Board of each Fund has a standing Audit Committee, which consists of
Board members who are not "interested persons" of the Fund within the meaning
of the Investment Company Act. The principal purpose of the Audit Committee is
to review the scope of the annual audit conducted by the Fund's independent
auditors and the evaluation by such auditors of the accounting procedures
followed by the Fund. The Audit Committee also reviews and nominates
candidates to serve as non-interested Board members. The non-interested Board
members have retained independent legal counsel to assist them in connection
with these duties.
During each 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 Trustees of each 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 or the AMEX, as applicable. Officers,
trustees and greater than ten percent shareholders are required by SEC
regulations to furnish the Fund with copies of all Forms 3, 4 and 5 they file.
Based solely on each Fund's review of the copies of such forms, and
amendments thereto, furnished to it during or with respect to its most recent
fiscal year, and written representations from certain reporting persons that
they were not required to file Form 5 with respect to the most recent fiscal
year, each Fund believes that all of its officers, trustees, 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.
Interested Persons
Each Fund 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 each Fund.
Compensation of Trustees
FAM, the investment adviser of each Fund, pays all compensation to all
officers of each Fund and all Trustees of each Fund who are affiliated with ML
& Co. or its subsidiaries. Each Fund pays each Trustee not affiliated with FAM
(each a "non-affiliated Trustee") an annual fee plus a fee for each meeting
attended, and each Fund also pays each member of its Audit Committee, which
consists of all of the non-affiliated Trustees, an annual fee plus a fee for
each meeting attended, together with such Trustee's out-of-pocket expenses
relating to attendance at such meetings. Information with respect to fees and
expenses paid to the non-affiliated Trustees for each Fund's most recently
completed fiscal year is set forth in Exhibit I.
Officers of MuniHoldings Pennsylvania
Information regarding the officers of MuniHoldings Pennsylvania is set forth
in Exhibit I. Officers of the Funds are elected and appointed by the Board and
hold office until they resign, are removed or are otherwise disqualified to
serve.
65
<PAGE>
ITEM 3. SELECTION OF INDEPENDENT AUDITORS
The Board of Trustees of MuniHoldings Pennsylvania, including a majority of
the Trustees who are not interested persons of the Fund, has selected Deloitte
& Touche LLP ("D&T") as the independent auditors to audit the financial
statements of the Fund for the Fund's current fiscal year. The current fiscal
year for MuniHoldings Pennsylvania is the fiscal year ending September 30,
2000. The Fund knows of no direct or indirect financial interest of such
auditors in the Fund. Such appointment is subject to ratification or rejection
by the shareholders of MuniHoldings Pennsylvania.
D&T also acts as independent auditors for ML & Co. and most of its
subsidiaries, including FAM and MLAM, and for most other investment companies
for which FAM or MLAM acts as investment adviser. The Board of Trustees of
MuniHoldings Pennsylvania 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 Meeting and will
have the opportunity to make a statement if they so desire and to respond to
questions from shareholders.
INFORMATION CONCERNING THE ANNUAL MEETING OF MUNIHOLDINGS PENNSYLVANIA AND THE
SPECIAL MEETINGS OF MUNIYIELD PENNSYLVANIA AND MUNIVEST PENNSYLVANIA
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 shareholder 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 shareholder present at the Meetings may withdraw
his or her proxy and vote in person.
All shares represented by properly executed proxies, unless such proxies
previously have been revoked, will be voted at the Meetings in accordance with
the directions on the proxies; if no direction is indicated, the shares will
be voted "FOR" (i) the approval of the Agreement and Plan of Reorganization
and, for the shareholders of MuniHoldings Pennsylvania only, "FOR" (ii) the
election of the nominees to the Board of Trustees and (iii) the ratification
of the selection of D&T or as independent auditors of MuniHoldings
Pennsylvania. 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 Common Shares 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.
66
<PAGE>
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 Common Shares or AMPS of any Fund.
As of the Record Date, none of the nominees for Trustee of MuniHoldings
Pennsylvania or the Trustees of MuniYield Pennsylvania or MuniVest
Pennsylvania 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>
Terry K. Glenn..... MuniVest Pennsylvania Common Shares 25,518
MuniHoldings Pennsylvania Common Shares 13,724
</TABLE>
- --------
* These holdings represent less than 1% of the Common Shares outstanding of
the relevant Fund.
As of the Record Date, the Trustees and officers of MuniYield Pennsylvania
as a group (12 persons) owned an aggregate of less than 1% of the outstanding
Common Shares of MuniYield Pennsylvania and owned no MuniYield Pennsylvania
AMPS.
As of the Record Date, the Trustees and officers of MuniVest Pennsylvania as
a group (13 persons) owned an aggregate of less than 1% of the outstanding
Common Shares of MuniVest Pennsylvania and owned no MuniVest Pennsylvania
AMPS.
As of the Record Date, the Trustees and officers of MuniHoldings
Pennsylvania as a group (12 persons) owned an aggregate of less than 1% of the
outstanding Common Shares of MuniHoldings Pennsylvania and owned no
MuniHoldings Pennsylvania AMPS.
On the Record Date, Mr. Glenn, a Trustee and an officer of each of the
Funds, Mr. Zeikel, a Trustee of each of the Funds, and the other Trustees 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, holders of Common
Shares and AMPS of each of the Funds are entitled to one vote for each share
held. 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 shareholders
representing (i) a majority of the Fund's outstanding Common Shares and AMPS,
voting together as a single class, and (ii) a majority of the Fund's
outstanding AMPS, voting separately as a class. See "Agreement and Plan of
Reorganization--Appraisal Rights" and Exhibit VI--"Sections 86 through 98 of
Chapter 156B of the Massachusetts General Laws (the Massachusetts Business
Corporation Law)" for a discussion of dissenters' rights under Massachusetts
law.
For purposes of each Meeting, a quorum consists of a majority of the
outstanding shares of each Fund, present in person or by proxy. If, by the
time scheduled for each Meeting, a quorum of the applicable Fund's
shareholders is not present, or if a quorum is present but sufficient votes to
approve or disapprove the Agreement and Plan of Reorganization are not
received from the shareholders 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 shareholders. 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
shareholders.
With respect to the election of Trustees of MuniHoldings Pennsylvania,
assuming a quorum is present, holders of MuniHoldings Pennsylvania AMPS,
voting separately as a class, are entitled to elect two Trustees of the Fund
and holders of the Fund's Common Shares and AMPS, voting together as a single
class, are entitled to
67
<PAGE>
elect the remaining Trustees of that Fund. Assuming a quorum is present, (x)
election of the two Trustees of MuniHoldings Pennsylvania to be elected by the
holders of that Fund's AMPS, voting separately as a class, will require the
affirmative vote of a majority of the votes cast by the holders of that Fund's
AMPS, represented at the Meeting and entitled to vote, voting together as a
single class; and (y) election of the remaining Trustees of the Fund will
require the affirmative vote of a majority of the votes cast by the holders of
that Fund's Common Shares and AMPS, represented at the annual 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 Pennsylvania, will require the
affirmative vote of a majority of the votes cast by the holders of Common
Shares and AMPS of MuniHoldings Pennsylvania represented at the annual 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 Pennsylvania, the surviving fund after the Reorganization,
so as to be borne equally and exclusively on a per share basis by the holders
of Common Shares 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 Common Shares 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 capital shares 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 and the AMEX, 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 Trustees of each Fund (Item 2) and the ratification of
the selection of independent auditors for each Fund (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 Common Shares
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). 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 Shares have voted to approve Item 1. In such instances, the
broker-dealer firm will vote that Fund's 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
shareholders 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
Item ("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 Shares and AMPS) and on Item 1 (with respect to AMPS only) in the same
proportion as the votes received from beneficial owners of those shares for
68
<PAGE>
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 Pennsylvania 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 in the case of MuniYield Pennsylvania and
MuniVest Pennsylvania and at the offices of the American Stock Exchange, 980
Washingtonian Boulevard, Gaithersburg, Maryland 20878 in the case of
MuniHoldings Pennsylvania.
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 service
providers of the Funds 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
Funds' 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
MuniVest Pennsylvania and MuniHoldings Pennsylvania. The principal business
address of The Bank of New York in such capacity is 90 Washington Street, New
York, New York 10286. State Street Bank and Trust Company acts as the
custodian for cash and securities of MuniYield Pennsylvania. The principal
business address of State Street Bank and Trust Company in such capacity is
One Heritage Drive, P2N, North Quincy, Massachusetts 02171. It is anticipated
that State Street Bank and Trust Company will act as the custodian for the
combined fund after the Reorganization.
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 Shares of MuniVest Pennsylvania and
MuniHoldings Pennsylvania, 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.
69
<PAGE>
State Street Bank and Trust Company serves as the transfer agent, dividend
disbursing agent and registrar with respect to the Common Shares of MuniYield
Pennsylvania, pursuant to a registrar, transfer agency and service agreement
with the Fund. The principal business address of State Street Bank and Trust
Company in such capacity is 225 Franklin Street, Boston, Massachusetts 02110.
It is anticipated that State Street Bank and Trust Company will act as
transfer agent, dividend disbursing agent and registrar with respect to the
Common Shares of the combined fund after the Reorganization.
The Bank of New York serves as the transfer agent, dividend disbursing
agent, registrar and auction agent to the Funds in connection with their
respective AMPS. The principal business address of The Bank of New York in
such capacity is 101 Barclay Street, New York, New York 10286.
LEGAL PROCEEDINGS
There are no material legal proceedings to which any Fund is a party.
LEGAL OPINIONS
Certain legal matters in connection with the Reorganization will be passed
upon for the Funds by Brown & Wood LLP, New York, New York. Brown & Wood LLP
will rely as to matters of Massachusetts law on the opinion of Bingham Dana
LLP, Boston, Massachusetts.
EXPERTS
The financial statements for the fiscal year ended October 31, 1998 and the
financial highlights for each of the years in the six-year period then ended
and for the period October 30, 1992 to October 31, 1992 for MuniYield
Pennsylvania and the financial statements for the fiscal year ended October
31, 1998 and the financial highlights for each of the years in the five-year
period then ended and for the period July 30, 1993 to October 31, 1993 for
MuniVest Pennsylvania included in this Proxy Statement and Prospectus have
been so included in reliance on the reports of Deloitte & Touche LLP ("D&T"),
independent auditors, given on their authority as experts in auditing and
accounting. The principal business address of D&T is 117 Campus Drive,
Princeton, New Jersey 08540. D&T will serve as independent auditors for the
combined fund after the Reorganization.
SHAREHOLDER PROPOSALS
If a shareholder of MuniHoldings Pennsylvania intends to present a proposal
at the 2000 Annual Meeting of Shareholders of the Fund, 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 shareholder must
deliver the proposal to the offices of the appropriate Fund by July 14, 2000.
By Order of the Boards of Trustees
ALICE A. PELLEGRINO
Secretary of MuniYield Pennsylvania
Fund, MuniVest Pennsylvania Insured
Fund and MuniHoldings Pennsylvania
Insured Fund
70
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page
----
Audited Financial Statements for MuniYield Pennsylvania Fund for the
Fiscal Year Ended October 31, 1998 ................................ F-2
Unaudited Financial Statements for MuniYield Pennsylvania Fund for the
Six-Month Period Ended April 30, 1999 ............................. F-13
Audited Financial Statements for MuniVest Pennsylvania Insured Fund
for the Fiscal Year Ended October 31, 1998 ........................ F-24
Unaudited Financial Statements for MuniVest Pennsylvania Insured Fund
for the Six-Month Period Ended April 30, 1999 ..................... F-35
Unaudited Financial Statements for MuniHoldings Pennsylvania Insured
Fund for the Period February 26, 1999 to March 31, 1999 ........... F-45
Unaudited Financial Statements for Pro Forma MuniYield Pennsylvania
Fund as of April 30, 1999 ......................................... F-53
F-1
<PAGE>
Audited Financial Statements for
MuniYield Pennsylvania Fund
for the Fiscal Year Ended October 31, 1998
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Shareholders,
MuniYield Pennsylvania Fund:
We have audited the accompanying statement of assets, liabilities and capital,
including the schedule of investments, of MuniYield Pennsylvania Fund 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 and financial highlights. 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 MuniYield
Pennsylvania Fund 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-3
<PAGE>
MuniYield Pennsylvania Fund October 31, 1998
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (in Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Pennsylvania -- 101.2%
- ----------------------------------------------------------------------------------------------------------------------------------
Allegheny County, Pennsylvania, Hospital Developement Authority Revenue Bonds, Series A:
AAA Aaa $ 2,000 (Allegheny General Hospital Project), 6.25% due 9/01/2020 (d) $ 2,068
NR* A2 3,000 (South Hills Health System), 6.50% due 5/01/2014 3,315
- ----------------------------------------------------------------------------------------------------------------------------------
BBB- Baa2 2,680 Allegheny County, Pennsylvania, IDA, Environmental Improvement Revenue Refunding
Bonds (USX Corp.), 5.60% due 9/01/2030 2,700
- ----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 5,750 Allegheny County, Pennsylvania, Sanitation Authority, Sewer Revenue Bonds, RITR, 6,172
Series 20, 7.02% due 12/01/2024 (d)(h)
- ----------------------------------------------------------------------------------------------------------------------------------
NR* P1 200 Beaver County, Pennsylvania, IDA, Environmental Improvement Recreation Revenue Bonds
(BASF Corporation Project), VRDN, AMT, 3.80% due 9/01/2032 (g) 200
- ----------------------------------------------------------------------------------------------------------------------------------
NR* Aaa 2,500 Berks County, Pennsylvania, GO, UT, 5% due 11/15/2025 (a) 2,463
- ----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,100 Delaware County, Pennsylvania, Interboro School District, UT, 5.375% due 8/15/2025 (d) 1,132
- ----------------------------------------------------------------------------------------------------------------------------------
NR* Aaa 4,000 Delaware County, Pennsylvania, University Authority Revenue Bonds (Villanova University),
Series A, 5% due 12/01/2028 (d) 3,939
- ----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,750 Greater Johnstown, Pennsylvania, School District, Refunding, GO, UT, 5% due 2/01/2019 (d) 1,748
- ----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,000 Lancaster, Pennsylvania, Area Sewer Authority Revenue Bonds, 4.50% due 4/01/2018 (d) 941
- ----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 4,000 Lehigh County, Pennsylvania, General Purpose Authority Revenue Bonds (Saint Lukes
Hospital-- Bethlehem), 6.25% due 7/01/2022 (a) 4,366
- ----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 3,000 Lehigh County, Pennsylvania, IDA, PCR, Refunding (Pennsylvania Power and Light Company
Project), Series A, 6.40% due 11/01/2021 (d) 3,315
- ----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 4,570 Lower Providence Township, Pennsylvania, Sewer Authority, Sewer Revenue Refunding
Bonds, 5.25% due 5/01/2022 (d) 4,635
- ----------------------------------------------------------------------------------------------------------------------------------
Luzerne County, Pennsylvania, IDA, Exempt Facilities
Revenue Bonds (Pennsylvania Gas and Water Company
Project), AMT:
A A3 2,500 Refunding, Series A, 7.20% due 10/01/2017 2,754
AAA Aaa 2,000 Series A, 7% due 12/01/2017 (a) 2,300
A- A3 1,500 Series B, 7.125% due 12/01/2022 1,650
- ----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 3,700 McGuffey School District, Pennsylvania, GO, 4.75% due 8/01/2028 (a) 3,557
- ----------------------------------------------------------------------------------------------------------------------------------
Montgomery County, Pennsylvania, IDA, PCR, Refunding (Philadelphia Electric Company):
BBB+ Baa2 1,800 AMT, Series A, 7.60% due 4/01/2021 1,939
AAA Aaa 4,400 Series B, 6.70% due 12/01/2021 (d) 4,801
- ----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 2,000 Northeastern Pennsylvania, Hospital and Education Authority, Health Care Revenue Bonds
(Wyoming Valley Health Care), Series A, 5.25% due 1/01/2026 (a) 2,017
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
PORTFOLIO ABBREVIATIONS
- --------------------------------------------------------------------------------
To simplify the listings of MuniYield Pennsylvania Fund's portfolio holdings in
the Schedule of Investments, we have abbreviated the names of many of the
securities according to the list at right.
AMT Alternative Minimum Tax (subject to)
GO General Obligation Bonds
HFA Housing Finance Agency
IDA Industrial Development Authority
PCR Pollution Control Revenue Bonds
RITR Residual Interest Trust Receipts
S/F Single-Family
UT Unlimited Tax
VRDN Variable Rate Demand Notes
F-4
<PAGE>
MuniYield Pennsylvania Fund 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>
Pennsylvania (continued)
- ----------------------------------------------------------------------------------------------------------------------------------
BBB Baa3 $ 4,000 Pennsylvania Economic Development Financing Authority, Wastewater Treatment Revenue
Bonds (Sun Company Inc.--R & M Project), AMT, Series A, 7.60% due 12/01/2024 $ 4,653
- ----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 4,000 Pennsylvania HFA, Refunding (Rental Housing), 6.50% due 7/01/2023 (e) 4,279
- ----------------------------------------------------------------------------------------------------------------------------------
Pennsylvania HFA, S/F Mortgage, Revenue Bonds, AMT:
AA+ Aa 3,000 Refunding, Series 41B, 6.65% due 4/01/2025 3,228
AA+ Aa2 1,720 Refunding, Series 60A, 5.85% due 10/01/2027 1,786
AA+ Aa 2,630 Series 34B, 7% due 4/01/2024 2,752
AA+ Aa2 1,000 Series 62A, 5.50% due 10/01/2022 1,019
AA+ Aa2 1,500 Series 64, 5% due 10/01/2017 1,485
- ----------------------------------------------------------------------------------------------------------------------------------
A NR* 2,000 Pennsylvania State Finance Authority, Revenue Refunding Bonds (Municipal Capital
Improvements Program), 6.60% due 11/01/2009 2,237
- ----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 2,500 Pennsylvania State, GO, Second Series, 5% due 8/01/2018 (b) 2,506
- ----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 2,000 Pennsylvania State Higher Educational Assistance Agency, Student Loan Revenue Bonds,
AMT, Series C, 7.15% due 9/01/2021 (a) 2,159
- ----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,255 Pennsylvania State Higher Educational Facilities Authority, College and University Revenue
Refunding Bonds (Duquesne University), Series A, 6.75% due 4/01/2020 (d) 1,335
- ----------------------------------------------------------------------------------------------------------------------------------
Pennsylvania State Higher Educational Facilities Authority, Revenue Refunding Bonds:
A1+ NR* 800 (Carnegie Mellon University), VRDN, Series B, 3.70% due 11/01/2027 (g) 800
AAA Aaa 1,600 (University of Pennsylvania-- Health Services), Series A, 5.375% due 1/01/2015 (d) 1,670
- ------------------------------------------------------------------------------------------------------------------------------------
Pennsylvania State Turnpike Commission, Tax Revenue Bonds (Oil Franchise)(a):
AAA Aaa 2,075 Senior Series A, 4.75% due 12/01/2027 1,984
AAA Aaa 3,670 Sub-Series B, 4.75% due 12/01/2027 3,508
- ------------------------------------------------------------------------------------------------------------------------------------
AA- Aa3 2,500 Pennsylvania State University, Refunding, 6.25% due 3/01/2011 2,710
- ----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,500 Philadelphia, Pennsylvania, Airport Revenue Bonds (Philadelphia Airport System), AMT,
Series B, 5.40% due 6/15/2027 (b) 1,534
- ----------------------------------------------------------------------------------------------------------------------------------
AA Aa3 2,000 Philadelphia, Pennsylvania, Authority for Industrial Development, Industrial and Commercial
Revenue Bonds (Girard Estates Facilities Leasing Project), 5% due 5/15/2027 1,950
- ----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 4,000 Philadelphia, Pennsylvania, Authority for Industrial Development, Lease Revenue Bonds
(City of Philadelphia Project), Series A, 5.375% due 2/15/2027 (d) 4,135
- ----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 2,000 Philadelphia, Pennsylvania, Gas Works Revenue Bonds (First), Series B, 5% due
7/01/2028 (c) 1,966
- ----------------------------------------------------------------------------------------------------------------------------------
Philadelphia, Pennsylvania, Hospitals and Higher Educational Facilities Authority, Hospital
Revenue Bonds:
A- NR* 1,000 (Children's Seashore House), Series B, 7% due 8/15/2022 1,101
AAA NR* 3,000 Refunding (Presbyterian Medical Center), 6.65% due 12/01/2019 (i) 3,646
- ------------------------------------------------------------------------------------------------------------------------------------
AAA NR* 1,630 Philadelphia, Pennsylvania, Hospitals and Higher Educational Facilities Authority Revenue
Bonds (Northwestern Corporation), 7% due 6/01/2003 (f) 1,859
- ----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 4,820 Pittsburgh, Pennsylvania, Water and Sewer Authority, Water and Sewer System Revenue
Bonds, Sub-Series C, 5.05% due 9/01/2025 (c) 4,771
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
F-5
<PAGE>
MuniYield Pennsylvania Fund 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>
Pennsylvania (concluded)
- ----------------------------------------------------------------------------------------------------------------------------------
A1+ NR* $ 3,800 Schuylkill County, Pennsylvania, IDA, Resource Recovery Revenue Refunding Bonds
(Northeastern Power Company), VRDN, AMT, Series B, 3.85% due 12/01/2022 (g) $ 3,800
- ----------------------------------------------------------------------------------------------------------------------------------
A- NR* 2,520 Scranton--Lackawanna, Pennsylvania, Health and Welfare Authority, Revenue Refunding
Bonds (University of Scranton Project), Series B, 6.50% due 3/01/2015 2,706
- ----------------------------------------------------------------------------------------------------------------------------------
NR* Aaa 5,000 Somerset County, Pennsylvania, GO, UT, Series A, 5% due 10/01/2027 (b) 4,925
- ----------------------------------------------------------------------------------------------------------------------------------
AA+ Aaa 3,985 Swarthmore Borough Authority, Pennsylvania, College Revenue Refunding Bonds, 6% due
9/15/2020 4,337
- ----------------------------------------------------------------------------------------------------------------------------------
AA Aa3 3,500 Upper Saint Clair Township, Pennsylvania, School District, Refunding, UT, 5.20% due
7/15/2027 3,526
- ----------------------------------------------------------------------------------------------------------------------------------
Total Investments (Cost -- $126,036) -- 101.2% 134,379
Liabilities in Excess of Other Assets -- (1.2%) (1,612)
--------
Net Assets-- 100.0% $132,767
========
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) AMBAC Insured.
(b) FGIC Insured.
(c) FSA Insured.
(d) MBIA Insured.
(e) FNMA Collateralized.
(f) Prerefunded.
(g) The interest rate is subject to change periodically based upon prevailing
market rates. The interest rate shown is the rate in effect at October 31,
1998.
(h) 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.
(i) Escrowed to maturity.
* Not Rated.
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:
- -------------------------------------------------------------------------------
Percent of
S&P Rating/Moody's Rating Net Assets
- -------------------------------------------------------------------------------
AAA/Aaa 66.3%
- -------------------------------------------------------------------------------
AA/Aa 13.9
- -------------------------------------------------------------------------------
A/A 10.4
- -------------------------------------------------------------------------------
BBB/Baa 7.0
- -------------------------------------------------------------------------------
Other+ 3.6
- -------------------------------------------------------------------------------
+ Temporary investments in short-term municipal securities.
F-6
<PAGE>
MuniYield Pennsylvania Fund October 31, 1998
- --------------------------------------------------------------------------------
Financial Information
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Statement of Assets, Liabilities and Capital as of October 31, 1998
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets: Investments, at value (identified cost--$126,036,032) (Note 1a) ..... $134,378,983
Cash ................................................................ 3,826,673
Interest receivable ................................................. 2,117,911
Prepaid expenses and other assets ................................... 6,504
------------
Total assets ........................................................ 140,330,071
------------
- ------------------------------------------------------------------------------------------------------------------
Liabilities: Payables:
Securities purchased .............................................. $ 7,371,713
Investment adviser (Note 2) ....................................... 58,504
Dividends to shareholders (Note 1e) ............................... 42,368 7,472,585
-----------
Accrued expenses and other liabilities .............................. 90,653
------------
Total liabilities ................................................... 7,563,238
------------
- ------------------------------------------------------------------------------------------------------------------
Net Assets: Net assets .......................................................... $132,766,833
============
- ------------------------------------------------------------------------------------------------------------------
Capital: Capital Shares (unlimited number of shares of beneficial interest
authorized) (Note 4):
Preferred Shares, par value $.05 per share (1,600 shares of AMPS*
issued and outstanding at $25,000 per share liquidation preference) $ 40,000,000
Common Shares, par value $.10 per share (5,792,744 shares issued
and outstanding) .................................................. $ 579,274
Paid-in capital in excess of par .................................... 80,808,153
Undistributed investment income--net ................................ 1,160,698
Undistributed realized capital gains on investments--net ............ 1,875,757
Unrealized appreciation on investments--net ......................... 8,342,951
------------
Total--Equivalent to $16.01 net asset value per Common Share
(market price--$16.50) .............................................. 92,766,833
------------
Total capital ....................................................... $132,766,833
============
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
* Auction Market Preferred Shares.
See Notes to Financial Statements.
F-7
<PAGE>
MuniYield Pennsylvania Fund October 31, 1998
- --------------------------------------------------------------------------------
FINANCIAL INFORMATION (continued)
- --------------------------------------------------------------------------------
Statement of Operations
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Year Ended
October 31, 1998
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment Income Interest and amortization of premium and discount earned $7,431,283
(Note 1d):
- -----------------------------------------------------------------------------------------------------
Expenses: Investment advisory fees (Note 2) ...................... $ 655,306
Commission fees (Note 4) ............................... 101,488
Professional fees ...................................... 69,429
Accounting services (Note 2) ........................... 48,818
Transfer agent fees .................................... 41,216
Trustees' fees and expenses ............................ 26,197
Printing and shareholder reports ....................... 21,511
Listing fees ........................................... 16,170
Custodian fees ......................................... 9,442
Pricing fees ........................................... 8,296
Other .................................................. 14,990
----------
Total expenses ......................................... 1,012,863
----------
Investment income--net ................................. 6,418,420
----------
- -----------------------------------------------------------------------------------------------------
Realized & Realized gain on investments-- net ..................... 3,150,329
Unrealized Gain Change in unrealized appreciation on investments--net .. (402,818)
(Loss) on ----------
Investments -- Net Increase in Net Assets Resulting from Operations ... $9,165,931
Net (Notes 1b, ==========
1d & 3):
- -----------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
F-8
<PAGE>
MuniYield Pennsylvania Fund 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> <C> <C>
Operations: Investment income--net ................................................... $ 6,418,420 $ 6,545,559
Realized gain on investments--net ........................................ 3,150,329 2,016,285
Change in unrealized appreciation on investments--net .................... (402,818) 1,698,298
------------- -------------
Net increase in net assets resulting from operations ..................... 9,165,931 10,260,142
------------- -------------
- --------------------------------------------------------------------------------------------------------------------------------
Dividends & Investment income--net:
Distributions to Common Shares .......................................................... (5,040,266) (5,129,565)
Shareholders Preferred Shares ....................................................... (1,048,448) (1,364,112)
(Note 1e): Realized gain on investments--net:
Common Shares .......................................................... (1,574,973) (544,213)
Preferred Shares ....................................................... (592,048) (152,208)
------------- -------------
Net decrease in net assets resulting from dividends and distributions
to shareholders .......................................................... (8,255,735) (7,190,098)
------------- -------------
- --------------------------------------------------------------------------------------------------------------------------------
Beneficial Interest Value of shares issued to Common Shareholders in reinvestment of dividends
Transactions and distributions ........................................................ 785,969 --
(Note 4): ------------- -------------
- --------------------------------------------------------------------------------------------------------------------------------
Net Assets: Total increase in net assets ............................................. 1,696,165 3,070,044
Beginning of year ........................................................ 131,070,668 128,000,624
------------- -------------
End of year* ............................................................. $ 132,766,833 $ 131,070,668
============= =============
- --------------------------------------------------------------------------------------------------------------------------------
*Undistributed investment income--net (Note 1f) ........................... $ 1,160,698 $ 830,471
============= =============
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
F-9
<PAGE>
MuniYield Pennsylvania Fund October 31, 1998
- --------------------------------------------------------------------------------
FINANCIAL INFORMATION (concluded)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
The following per share data and ratios have been derived For the Year Ended
from information provided in the financial statements. 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 ..................... $ 15.86 $ 15.32 $ 15.36 $ 13.86 $ 16.37
Operating ------- ------- ------- ------- -------
Performance: Investment income--net ................................. 1.12 1.13 1.15 1.17 1.15
Realized and unrealized gain (loss) on
investments--net ....................................... .46 .66 (.03) 1.53 (2.41)
------- ------- ------- ------- -------
Total from investment operations ....................... 1.58 1.79 1.12 2.70 (1.26)
------- ------- ------- ------- -------
Less dividends and distributions to Common Shareholders:
Investment income--net ............................... (.88) (.89) (.91) (.89) (.91)
Realized gain on investments--net .................... (.27) (.09) -- -- (.12)
In excess of realized gain on investments--net ....... -- -- -- (.05) --
------- ------- ------- ------- -------
Total dividends and distributions to Common
Shareholders ........................................... (1.15) (.98) (.91) (.94) (1.03)
------- ------- ------- ------- -------
Effect of Preferred Share activity:
Dividends and distributions to Preferred
Shareholders:
Investment income--net ............................ (.18) (.24) (.25) (.25) (.20)
Realized gain on investments--net ................. (.10) (.03) -- -- (.02)
In excess of realized gain on investments--
net ............................................... -- -- -- (.01) --
------- ------- ------- ------- -------
Total effect of Preferred Share activity ............... (.28) (.27) (.25) (.26) (.22)
------- ------- ------- ------- -------
Net asset value, end of year ........................... $ 16.01 $ 15.86 $ 15.32 $ 15.36 $ 13.86
======= ======== ======= ======= =======
Market price per share, end of year .................... $ 16.50 $14.8125 $14.125 $ 13.75 $ 11.00
======= ======== ======= ======= =======
- ----------------------------------------------------------------------------------------------------------------------------------
Total Investment Based on market price per share ........................ 19.82% 12.15% 9.48% 34.17% (27.82%)
Return:* ======= ======== ======= ======= =======
Based on net asset value per share ..................... 8.58% 10.71% 6.30% 18.95% (9.02%)
======= ======== ======= ======= =======
- ----------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Expenses ............................................... .77% .79% .78% .82% .82%
Net Assets:** ======= ======== ======= ======= =======
Investment income--net ................................. 4.90% 5.07% 5.14% 5.44% 5.12%
======= ======== ======= ======= =======
- ----------------------------------------------------------------------------------------------------------------------------------
Supplemental Net assets, net of Preferred Shares, end of
Data: year (in thousands) .................................... $92,767 $91,071 $88,001 $88,226 $79,609
======= ======== ======= ======= =======
Preferred Shares outstanding, end of
year (in thousands) .................................... $40,000 $40,000 $40,000 $40,000 $40,000
======= ======== ======= ======= =======
Portfolio turnover ..................................... 60.52% 70.14% 75.83% 43.59% 18.64%
======= ======== ======= ======= =======
- ----------------------------------------------------------------------------------------------------------------------------------
Leverage: Asset coverage per $1,000 .............................. $ 3,319 $ 3,277 $ 3,200 $ 3,206 $ 2,990
======= ======== ======= ======= =======
- ----------------------------------------------------------------------------------------------------------------------------------
Dividends Investment income--net ................................. $ 655 $ 853 $ 901 $ 902 $ 688
Per Share on ======= ======== ======= ======= =======
Preferred Shares
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
Shareholders.
+ Dividends per share have been adjusted to reflect a
two-for-one stock split that occurred on December 1, 1994.
See Notes to Financial Statements.
F-10
<PAGE>
MuniYield Pennsylvania Fund October 31, 1998
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. Significant Accounting Policies:
MuniYield Pennsylvania Fund (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 Shares on a weekly basis. The Fund's Common Shares are
listed on the New York Stock Exchange under the symbol MPA. 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 their fair value as determined in good faith
by or under the direction of the Board of Trustees 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 Trustees.
(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-11
<PAGE>
MuniYield Pennsylvania Fund October 31, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(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.
(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 $521 have been reclassified between undistributed net
realized capital gains and undistributed net investment income. 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 Shares.
Accounting services are provided to the Fund by FAM at cost.
Certain officers and/or trustees 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 $78,090,125 and $77,069,722, respectively.
Net realized gains for the year ended October 31, 1998 and net unrealized gains
as of October 31, 1998 were as follows:
- --------------------------------------------------------------------------------
Realized Unrealized
Gains Gains
- --------------------------------------------------------------------------------
Long-term investments .................. $3,150,329 $8,342,951
---------- ----------
Total .................................. $3,150,329 $8,342,951
========== ==========
- --------------------------------------------------------------------------------
As of October 31, 1998, net unrealized appreciation for Federal income tax
purposes aggregated $8,342,951, of which $8,362,443 related to appreciated
securities and $19,492 related to depreciated securities. The aggregate cost of
investments at October 31, 1998 for Federal income tax purposes was
$126,036,032.
4. Beneficial Interest Transactions:
The Fund is authorized to issue an unlimited number of shares of beneficial
interest, including Preferred Shares, par value $.10 per share, all of which
were initially classified as Common Shares. The Board of Trustees is authorized,
however, to reclassify any unissued shares of beneficial interest without
approval of the holders of Common Shares.
Common Shares
Shares issued and outstanding during the year ended October 31, 1998 increased
by 49,322 as a result of dividend reinvestment and during the year ended October
31, 1997 remained constant.
Preferred Shares
Auction Market Preferred Stock ("AMPS") are Preferred Shares of the Fund, with a
par value of $.05 per share and a liquidation preference of $25,000 per share,
that entitle their holders to receive cash dividends at an annual rate that may
vary for the successive dividend periods. The yield in effect at October 31,
1998 was 3.23%.
Shares issued and outstanding during the years ended October 31, 1998 and
October 31, 1997 remained constant.
The Fund pays commissions to certain broker-dealers at the end of each auction
at an annual rate ranging from 0.25% to 0.375%, calculated on the proceeds of
each auction. For the year ended October 31, 1998, Merrill Lynch, Pierce, Fenner
& Smith Inc., an affiliate of FAM, earned $67,303 as commissions.
5. Subsequent Event:
On November 5, 1998, the Fund's Board of Trustees declared an ordinary income
dividend to holders of Common Shares in the amount of $.083059 per share,
payable on November 27, 1998 to shareholders of record as of November 20, 1998.
F-12
<PAGE>
Unaudited Financial Statements for
MuniYield Pennsylvania Fund
for the Six-Month Period
Ended April 30, 1999
F-13
<PAGE>
MuniYield Pennsylvania Fund April 30, 1999
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (in Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
S&P Moody's Face Value
Ratings Ratings Amount Issue (Note 1a)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Pennsylvania -- 100.1%
- ----------------------------------------------------------------------------------------------------------------------------------
Allegheny County, Pennsylvania, Hospital Development Authority Revenue Bonds, Series A:
AAA Aaa $2,000 (Allegheny General Hospital Project), 6.25% due 9/01/2020 (d) $ 2,020
NR* A2 3,000 (South Hills Health System), 6.50% due 5/01/2014 3,261
- ----------------------------------------------------------------------------------------------------------------------------------
BBB- Baa2 2,680 Allegheny County, Pennsylvania, IDA, Environmental Improvement Revenue
Refunding Bonds (USX Corp.), 5.60% due 9/01/2030 2,682
- ----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 5,750 Allegheny County, Pennsylvania, Sanitation Authority, Sewer Revenue Bonds,
RITR, Series 20, 6.37% due 12/01/2024 (g) 6,015
- ----------------------------------------------------------------------------------------------------------------------------------
NR* Aaa 2,000 Delaware County, Pennsylvania, University Authority Revenue Bonds (Villanova University),
Series A, 5% due 12/01/2028 (d) 1,943
- ----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 4,500 Delaware Valley, Pennsylvania, Regional Finance Authority, Local Government
Revenue Bonds, Series A, 5.50% due 8/01/2028 (a) 4,829
- ----------------------------------------------------------------------------------------------------------------------------------
NR* Aaa 1,000 Lancaster, Pennsylvania, Area Sewer Authority Revenue Bonds, 4.50% due 4/01/2018 (d) 927
- ----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 4,000 Lehigh County, Pennsylvania, General Purpose Authority Revenue Bonds (Saint Lukes
Hospital--Bethlehem), 6.25% due 7/01/2022 (a) 4,332
- ----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 3,000 Lehigh County, Pennsylvania, IDA, PCR, Refunding (Pennsylvania Power and Light Company
Project), Series A, 6.40% due 11/01/2021 (d) 3,287
- ----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 2,570 Lower Providence Township, Pennsylvania, Sewer Authority, Sewer Revenue Refunding Bonds,
5.25% due 5/01/2022 (d) 2,583
- ----------------------------------------------------------------------------------------------------------------------------------
A- A3 1,500 Luzerne County, Pennsylvania, IDA, Exempt Facilities Revenue Bonds (Pennsylvania Gas and
Water Company Project), AMT, Series B, 7.125% due 12/01/2022 1,656
- ----------------------------------------------------------------------------------------------------------------------------------
Luzerne County, Pennsylvania, IDA, Exempt Facilities Revenue Refunding Bonds
(Pennsylvania Gas and Water Company Project), AMT, Series A:
A A3 2,500 7.20% due 10/01/2017 2,756
AAA Aaa 2,000 7% due 12/01/2017 (a) 2,280
- ----------------------------------------------------------------------------------------------------------------------------------
Montgomery County, Pennsylvania, IDA, PCR, Refunding:
A Baa1 1,800 (Philadelphia Electric Company), AMT, Series A, 7.60% due 4/01/2021 1,927
AAA Aaa 4,400 Series B, 6.70% due 12/01/2021 (d) 4,753
- ----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 2,000 Northeastern, Pennsylvania, Hospital and Education Authority, Health Care Revenue Bonds
(Wyoming Valley Health Care), Series A, 5.25% due 1/01/2026 (a) 1,980
- ----------------------------------------------------------------------------------------------------------------------------------
BBB Baa2 4,000 Pennsylvania Economic Development Financing Authority, Wastewater Treatment Revenue
Bonds (Sun Company Inc.--R & M Project), AMT, Series A, 7.60% due 12/01/2024 4,519
- ----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 4,000 Pennsylvania HFA, Revenue Refunding Bonds (Rental Housing), 6.50% due 7/01/2023 (e) 4,261
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
PORTFOLIO ABBREVIATIONS
- --------------------------------------------------------------------------------
To simplify the listings of MuniYield Pennsylvania Fund'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)
GO General Obligation Bonds
HFA Housing Finance Agency
IDA Industrial Development Authority
PCR Pollution Control Revenue Bonds
RITR Residual Interest Trust Receipts
S/F Single-Family
VRDN Variable Rate Demand Notes
F-14
<PAGE>
MuniYield Pennsylvania Fund April 30, 1999
- --------------------------------------------------------------------------------
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>
Pennsylvania (continued)
- ----------------------------------------------------------------------------------------------------------------------------------
Pennsylvania HFA, S/F Mortgage Revenue Bonds, AMT:
AA+ Aa $2,630 Series 34B, 7% due 4/01/2024 $ 2,737
AA+ Aa2 1,720 Series 60A, 5.85% due 10/01/2027 1,794
AA+ Aa2 1,000 Series 62A, 5.50% due 10/01/2022 1,013
- ----------------------------------------------------------------------------------------------------------------------------------
AA+ Aa 3,000 Pennsylvania HFA, S/F Mortgage Revenue Refunding Bonds, AMT, Series 41B, 6.65% due
4/01/2025 3,206
- ----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 2,000 Pennsylvania Intergovernmental Cooperative Authority, Special Tax Revenue Refunding Bonds
(Philadelphia Funding Program), 5.25% due 6/15/2016 (b) 2,047
- ----------------------------------------------------------------------------------------------------------------------------------
A NR* 2,000 Pennsylvania State Finance Authority, Revenue Refunding Bonds (Municipal Capital
Improvements Program), 6.60% due 11/01/2009 2,212
- ----------------------------------------------------------------------------------------------------------------------------------
Pennsylvania State, GO:
AAA Aaa 2,850 First Series, 5.125% due 3/15/2011 (a) 2,970
AAA Aaa 2,500 Second Series, 5% due 8/01/2018 (b) 2,488
- ----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 2,000 Pennsylvania State Higher Educational Assistance Agency, Student Loan Revenue Bonds, AMT,
Series C, 7.15% due 9/01/2021 (a) 2,246
- ----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,255 Pennsylvania State Higher Educational Facilities Authority, College and University Revenue
Refunding Bonds (Duquesne University), Series A, 6.75% due 4/01/2020 (d) 1,320
- ----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 3,500 Pennsylvania State Higher Educational Facilities Authority Revenue Bonds (UPMC Health
System), Series A, 5% due 8/01/2029 (c) 3,358
- ----------------------------------------------------------------------------------------------------------------------------------
A1+ NR* 2,000 Pennsylvania State Higher Educational Facilities Authority Revenue Refunding Bonds
(Carnegie Mellon University), VRDN, Series C, 4.20% due 11/01/2029 (f) 2,000
- ----------------------------------------------------------------------------------------------------------------------------------
Pennsylvania State Turnpike Commission, Oil Franchise Tax Revenue Bonds (a):
AAA Aaa 2,075 Senior Series A, 4.75% due 12/01/2027 1,943
AAA Aaa 3,670 Sub-Series B, 4.75% due 12/01/2027 3,436
- ----------------------------------------------------------------------------------------------------------------------------------
AA- Aa3 2,500 Pennsylvania State University, Revenue Refunding Bonds, 6.25% due 3/01/2011 2,688
- ----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,500 Philadelphia, Pennsylvania, Airport Revenue Bonds (Philadelphia Airport System), AMT,
Series B, 5.40% due 6/15/2027 (b) 1,509
- ----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,500 Philadelphia, Pennsylvania, Authority for Industrial Development, Airport Revenue Bonds
(Philadelphia Airport System Project), AMT, Series A, 5.125% due 7/01/2028 (b) 1,459
- ----------------------------------------------------------------------------------------------------------------------------------
AA Aa3 2,000 Philadelphia, Pennsylvania, Authority for Industrial Development, Industrial and Commercial
Revenue Bonds (Girard Estates Facilities Leasing Project), 5% due 5/15/2027 1,924
- ----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 4,000 Philadelphia, Pennsylvania, Authority for Industrial Development, Lease Revenue Bonds
(City of Philadelphia Project), Series A, 5.375% due 2/15/2027 (d) 4,087
- ----------------------------------------------------------------------------------------------------------------------------------
AAA Aaa 3,700 Philadelphia, Pennsylvania, GO, 5% due 3/15/2028 (c) 3,595
- ----------------------------------------------------------------------------------------------------------------------------------
Philadelphia, Pennsylvania, Hospitals and Higher Education Facilities Authority, Hospital
Revenue Bonds (Children's Hospital of Philadelphia Project),VRDN (f):
A1+ VMIG1+ 1,100 4.20% due 3/01/2027 1,100
A1+ VMIG1+ 3,500 Series A, 4.20% due 3/01/2027 3,500
- ----------------------------------------------------------------------------------------------------------------------------------
Philadelphia, Pennsylvania, Hospitals and Higher Education Facilities Authority, Hospital
Revenue Refunding Bonds:
A- NR* 1,000 (Children's Seashore House), Series B, 7% due 8/15/2022 1,085
AAA NR* 3,000 (Presbyterian Medical Center), 6.65% due 12/01/2019 (h) 3,599
- ----------------------------------------------------------------------------------------------------------------------------------
Schuylkill County, Pennsylvania, IDA, Resource Recovery Revenue Refunding Bonds
(Northeastern Power Company), VRDN (f):
A1+ NR* 1,000 AMT, Series B, 4.20% due 12/01/2022 1,000
A1+ NR* 300 Series A, 4.10% due 12/01/2022 300
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
F-15
<PAGE>
MuniYield Pennsylvania Fund 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>
Pennsylvania (concluded)
- ----------------------------------------------------------------------------------------------------------------------------------
A- NR* $2,520 Scranton-Lackawanna, Pennsylvania, Health and Welfare Authority, Revenue Refunding
Bonds (University of Scranton Project), Series B, 6.50% due 3/01/2015 $ 2,682
- ----------------------------------------------------------------------------------------------------------------------------------
NR* Aaa 5,000 Somerset County, Pennsylvania, GO, Series A, 5% due 10/01/2027 (b) 4,859
- ----------------------------------------------------------------------------------------------------------------------------------
AA+ Aaa 3,985 Swarthmore Borough Authority, Pennsylvania, College Revenue Refunding Bonds, 6% due
9/15/2020 4,306
- ----------------------------------------------------------------------------------------------------------------------------------
AA Aa3 3,500 Upper Saint Clair Township School District, Pennsylvania, GO, Refunding, 5.20% due
7/15/2027 3,495
- ----------------------------------------------------------------------------------------------------------------------------------
Total Investments (Cost -- $123,609) -- 100.1% 129,969
Liabilities in Excess of Other Assets -- (0.1%) (161)
--------
Net Assets -- 100.0% $129,808
========
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) AMBAC Insured.
(b) FGIC Insured.
(c) FSA Insured.
(d) MBIA Insured.
(e) FNMA Collateralized.
(f) 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.
(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.
(h) Escrowed to maturity.
* 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:
- ----------------------------------------------------------------------------
Percent of
S&P Rating/Moody's Rating Net Assets
- ----------------------------------------------------------------------------
AAA/Aaa 63.5%
- ----------------------------------------------------------------------------
AA/Aa 13.0
- ----------------------------------------------------------------------------
A/A 12.0
- ----------------------------------------------------------------------------
BBB/Baa 5.5
- ----------------------------------------------------------------------------
Other+ 6.1
- ----------------------------------------------------------------------------
+ Temporary investments in short-term municipal securities.
F-16
<PAGE>
MuniYield Pennsylvania Fund April 30, 1999
- --------------------------------------------------------------------------------
FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Statement of Assets, Liabilities and Capital as of April 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
Assets: Investments, at value (identified cost--$123,609,119) (Note 1a) ..... $129,968,790
Cash ................................................................ 65,150
Interest receivable ................................................. 2,067,575
Prepaid expenses and other assets ................................... 6,504
------------
Total assets ........................................................ 132,108,019
------------
- ------------------------------------------------------------------------------------------------------------------
Liabilities: Payables:
Securities purchased .............................................. $ 2,058,113
Dividends to shareholders (Note 1e) ............................... 150,050
Investment adviser (Note 2) ....................................... 57,077 2,265,240
------------
Accrued expenses and other liabilities .............................. 34,999
------------
Total liabilities ................................................... 2,300,239
------------
- ------------------------------------------------------------------------------------------------------------------
Net Assets: Net assets .......................................................... $129,807,780
============
- ------------------------------------------------------------------------------------------------------------------
Capital: Capital Shares (unlimited number of shares of beneficial interest
authorized) (Note 4):
Preferred Shares, par value $.05 per share (1,600 shares of AMPS*
issued and outstanding at $25,000 per share liquidation preference) $ 40,000,000
Common Shares, par value $.10 per share (5,883,760 shares issued
and outstanding) .................................................. $ 588,376
Paid-in capital in excess of par .................................... 82,247,950
Undistributed investment income--net ................................ 1,172,691
Accumulated realized capital losses on investments--net ............. (560,908)
Unrealized appreciation on investments--net ......................... 6,359,671
------------
Total--Equivalent to $15.26 net asset value per Common Share
(market price--$15.125) ............................................. 89,807,780
------------
Total capital ....................................................... $129,807,780
============
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
* Auction Market Preferred Shares.
See Notes to Financial Statements.
F-17
<PAGE>
MuniYield Pennsylvania Fund April 30, 1999
- --------------------------------------------------------------------------------
FINANCIAL INFORMATION (continued)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Statement of Operations
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Six Months Ended
April 30, 1999
- -------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
Investment Income Interest and amortization of premium and discount earned $3,629,400
(Note 1d):
- -------------------------------------------------------------------------------------------------------
Expenses: Investment advisory fees (Note 2) ...................... $ 326,589
Commission fees (Note 4) ............................... 50,546
Professional fees ...................................... 30,750
Accounting services (Note 2) ........................... 28,411
Transfer agent fees .................................... 26,709
Printing and shareholder reports ....................... 13,678
Trustees' fees and expenses ............................ 13,524
Listing fees ........................................... 8,052
Custodian fees ......................................... 3,849
Pricing fees ........................................... 3,496
Other .................................................. 6,674
----------
Total expenses ......................................... 512,278
----------
Investment income--net ................................. 3,117,122
----------
- -------------------------------------------------------------------------------------------------------
Realized & Realized gain on investments-- net ..................... 531,883
Unrealized Gain Change in unrealized appreciation on investments--net .. (1,983,280)
(Loss) on ----------
Investments -- Net Increase in Net Assets Resulting from Operations ... $1,665,725
Net (Notes 1b, ==========
1d & 3):
- -------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
F-18
<PAGE>
MuniYield Pennsylvania Fund April 30, 1999
- --------------------------------------------------------------------------------
FINANCIAL INFORMATION (continued)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Six For the
Months Ended Year Ended
Increase (Decrease) in Net Assets: April 30, 1999 Oct. 31, 1998
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations: Investment income--net ................................................... $ 3,117,122 $ 6,418,420
Realized gain on investments--net ........................................ 531,883 3,150,329
Change in unrealized appreciation on investments--net .................... (1,983,280) (402,818)
------------- -------------
Net increase in net assets resulting from operations ..................... 1,665,725 9,165,931
------------- -------------
- --------------------------------------------------------------------------------------------------------------------------------
Dividends & Investment income--net:
Distributions to Common Shares .......................................................... (2,676,473) (5,040,266)
Shareholders Preferred Shares ....................................................... (428,656) (1,048,448)
(Note 1e): Realized gain on investments--net:
Common Shares .......................................................... (2,632,068) (1,574,973)
Preferred Shares ....................................................... (336,480) (592,048)
------------- -------------
Net decrease in net assets resulting from dividends and distributions
to shareholders .......................................................... (6,073,677) (8,255,735)
------------- -------------
- --------------------------------------------------------------------------------------------------------------------------------
Beneficial Interest Value of shares issued to Common Shareholders in reinvestment of dividends
Transactions and distributions ........................................................ 1,448,899 785,969
(Note 4): ------------- -------------
- --------------------------------------------------------------------------------------------------------------------------------
Net Assets: Total increase (decrease) in net assets .................................. (2,959,053) 1,696,165
Beginning of period ...................................................... 132,766,833 131,070,668
------------- -------------
End of period* ........................................................... $ 129,807,780 $ 132,766,833
============= =============
- --------------------------------------------------------------------------------------------------------------------------------
*Undistributed investment income--net ..................................... $ 1,172,691 $ 1,160,698
============= =============
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
F-19
<PAGE>
MuniYield Pennsylvania Fund April 30, 1999
- --------------------------------------------------------------------------------
FINANCIAL INFORMATION (concluded)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Six For the
The following per share data and ratios have been derived Months Ended Year Ended October 31,
from information provided in the financial statements. 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 ............. $ 16.01 $ 15.86 $ 15.32 $ 15.36 $ 13.86
Operating ------- ------- -------- -------- --------
Performance: Investment income--net ........................... .53 1.12 1.13 1.15 1.17
Realized and unrealized gain (loss) on
investments--net ................................. (.24) .46 .66 (.03) 1.53
------- ------- -------- -------- --------
Total from investment operations ................. .29 1.58 1.79 1.12 2.70
------- ------- -------- -------- --------
Less dividends and distributions to Common
Shareholders:
Investment income--net ......................... (.46) (.88) (.89) (.91) (.89)
Realized gain on investments--net .............. (.45) (.27) (.09) -- --
In excess of realized gain on investments--net . -- -- -- -- --
------- ------- -------- -------- --------
Total dividends and distributions to Common
Shareholders ..................................... (.91) (1.15) (.98) (.91) (.94)
------- ------- -------- -------- --------
Effect of Preferred Share activity:
Dividends and distributions to Preferred
Shareholders:
Investment income--net ...................... (.07) (.18) (.24) (.25) (.25)
Realized gain on investments--net ........... (.06) (.10) (.03) -- --
In excess of realized gain on investments --
net ......................................... -- -- -- -- (.01)
------- ------- -------- -------- --------
Total effect of Preferred Share activity ......... (.13) (.28) (.27) (.25) (.26)
------- ------- -------- -------- --------
Net asset value, end of period ................... $ 15.26 $ 16.01 $ 15.86 $ 15.32 $ 15.36
======= ======= ======== ======== ========
Market price per share, end of period ............ $15.125 $ 16.50 $14.8125 $ 14.125 $ 13.75
======= ======= ======== ======== ========
- ----------------------------------------------------------------------------------------------------------------------------------
Total Investment Based on market price per share .................. (2.97%)+ 19.82% 12.15% 9.48% 34.17%
Return:** ======= ======= ======== ======== ========
Based on net asset value per share ............... .89%+ 8.58% 10.71% 6.30% 18.95%
======= ======= ======== ======== ========
- ----------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Expenses ......................................... .78%* .77% .79% .78% .82%
Net Assets:*** ======= ======= ======== ======== ========
Investment income-- net .......................... 4.77%* 4.90% 5.07% 5.14% 5.44%
======= ======= ======== ======== ========
- ----------------------------------------------------------------------------------------------------------------------------------
Supplemental Net assets, net of Preferred Shares, end of
Data: period (in thousands) ............................ $89,808 $92,767 $ 91,071 $ 88,001 $ 88,226
======= ======= ======== ======== ========
Preferred Shares outstanding, end of
period (in thousands) ............................ $40,000 $40,000 $ 40,000 $ 40,000 $ 40,000
======= ======= ======== ======== ========
Portfolio turnover ............................... 16.87% 60.52% 70.14% 75.83% 43.59%
======= ======= ======== ======== ========
- ----------------------------------------------------------------------------------------------------------------------------------
Leverage: Asset coverage per $1,000 ........................ $ 3,245 $ 3,319 $ 3,277 $ 3,200 $ 3,206
======= ======= ======== ======== ========
- ----------------------------------------------------------------------------------------------------------------------------------
Dividends Investment income--net ........................... $ 268 $ 655 $ 853 $ 901 $ 902
Per Share on ======= ======= ======== ======== ========
Preferred Shares
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
Shareholders.
+ Aggregate total investment return.
See Notes to Financial Statements.
F-20
<PAGE>
MuniYield Pennsylvania Fund April 30, 1999
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. Significant Accounting Policies:
MuniYield Pennsylvania Fund (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 Shares on a weekly basis. The
Fund's Common Shares are listed on the New York Stock Exchange under the symbol
MPA. 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 their fair value as determined in good faith
by or under the direction of the Board of Trustees 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 Trustees.
(b) Derivative financial instruments -- The Fund may engage in various portfolio
strategies to seek to increase its return by hedging its portfolio against
adverse movements in the debt markets. Losses may arise due to changes in the
value of the contract or if the counterparty does not perform under the
contract.
. Financial futures contracts -- The Fund may purchase or sell financial futures
contracts and options on such futures contracts for the purpose of hedging the
market risk on existing securities or the intended purchase of securities.
Futures contracts are contracts for delayed delivery of securities at a specific
future date and at a specific price or yield. Upon entering into a contract, the
Fund deposits and maintains as collateral such initial margin as required by the
exchange on which the transaction is effected. Pursuant to the contract, the
Fund agrees to receive from or pay to the broker an amount of cash equal to the
daily fluctuation in value of the contract. Such receipts or payments are known
as variation margin and are recorded by the Fund as unrealized gains or losses.
When the contract is closed, the Fund records a realized gain or loss equal to
the difference between the value of the contract at the time it was opened and
the value at the time it was closed.
. Options -- The Fund is authorized to write covered call options and purchase
put options. When the Fund writes an option, an amount equal to the premium
received by the Fund is reflected as an asset and an equivalent liability. The
amount of the liability is subsequently marked to market to reflect the current
market value of the option written.
When a security is purchased or sold through an exercise of an option, the
related premium paid (or received) is added to (or deducted from) the basis of
the security acquired or deducted from (or added to) the proceeds of the
security sold. When an option expires (or the Fund enters into a closing
transaction), the Fund realizes a gain or loss on the option to the extent of
the premiums received or paid (or gain or loss to the extent the cost of the
closing transaction exceeds the premium paid or received).
Written and purchased options are non-income producing investments.
(c) Income taxes -- It is the Fund's policy to comply with the requirements of
the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no Federal income tax provision is required.
(d) Security transactions and investment income -- Security transactions are
recorded on the dates the transactions are entered into (the trade dates).
Interest income is recognized on the accrual basis.
F-21
<PAGE>
MuniYield Pennsylvania Fund April 30, 1999
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (concluded)
- --------------------------------------------------------------------------------
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 Shares.
Accounting services are provided to the Fund by FAM at cost.
Certain officers and/or Trustees 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 $21,163,543 and $27,228,205, respectively.
Net realized gains for the six months ended April 30, 1999 and net unrealized
gains as of April 30, 1999 were as follows:
- --------------------------------------------------------------------------------
Realized Unrealized
Gains Gains
- --------------------------------------------------------------------------------
Long-term investments .................. $ 531,883 $6,359,671
---------- ----------
Total .................................. $ 531,883 $6,359,671
========== ==========
- --------------------------------------------------------------------------------
As of April 30, 1999, net unrealized appreciation for Federal income tax
purposes aggregated $6,359,671, of which $6,505,665 related to appreciated
securities and $145,994 related to depreciated securities. The aggregate cost of
investments at April 30, 1999 for Federal income tax purposes was $123,609,119.
4. Beneficial Interest Transactions:
The Fund is authorized to issue an unlimited number of shares of beneficial
interest, including Preferred Shares, par value $.10 per share, all of which
were initially classified as Common Shares. The Board of Trustees is authorized,
however, to reclassify any unissued shares of beneficial interest without
approval of the holders of Common Shares.
Common Shares
Shares issued and outstanding during the six months ended April 30, 1999 and the
year ended October 31, 1998 increased by 91,016 and 49,322, respectively, as a
result of dividend reinvestment.
Preferred Shares
Auction Market Preferred Shares ("AMPS") are Preferred Shares 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 3.25%.
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 $30,216 as commissions.
5. Subsequent Event:
On May 6, 1999, the Fund's Board of Trustees declared an ordinary income
dividend to holders of Common Shares in the amount of $.066757 per share,
payable on May 27, 1999 to shareholders of record as of May 21, 1999.
F-22
<PAGE>
[This page is intentionally left blank.]
F-23
<PAGE>
Audited Financial Statements for
MuniVest Pennsylvania Insured Fund
for the Fiscal Year Ended October 31, 1998
F-24
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Shareholders,
MuniVest Pennsylvania Insured Fund:
We have audited the accompanying statement of assets, liabilities and capital,
including the schedule of investments, of MuniVest Pennsylvania Insured Fund 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 broker. 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
Pennsylvania Insured Fund 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 4, 1998
F-25
<PAGE>
MuniVest Pennsylvania Insured Fund, October 31, 1998
- --------------------------------------------------------------------------------
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>
Pennsylvania -- BBB- Baa2 $ 1,670 Allegheny County, Pennsylvania, IDA, Environmental Improvement,
101.6% Revenue Refunding Bonds (USX Corp.), 5.60% due 9/01/2030 $ 1,683
------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,500 Allegheny County, Pennsylvania, Sanitation Authority, Sewer
Revenue Bonds, RITR, Series 20, 7.02% due 12/01/2024 (g) 1,610
------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,600 Altoona, Pennsylvania, City Authority, Water Revenue Bonds,
Series A, 6.50% due 11/01/2004 (c)(f) 1,845
------------------------------------------------------------------------------------------------------------------
AAA Aaa 2,000 Beaver County, Pennsylvania, IDA, Exempt Facilities Revenue
Bonds (Shippingport Project), AMT, Series A, 5.375% due
6/01/2028 (b) 2,029
------------------------------------------------------------------------------------------------------------------
Berks County, Pennsylvania, GO:
AAA Aaa 2,550 Refunding, Series 1995, 5.85% due 11/15/2018 (c) 2,744
NR* Aaa 1,000 UT, 5% due 11/15/2025 (b) 985
------------------------------------------------------------------------------------------------------------------
AAA Aaa 2,550 Blair County, Pennsylvania, Hospital Authority Revenue Bonds
(Altoona Hospital Project), RITES, 6.375% due 7/01/2013 (b)(g) 2,787
------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,000 Bucks County, Pennsylvania, IDA, Revenue Refunding Bonds (Grand
View Hospital), Series A, 5.25% due 7/01/2021 (b) 1,005
------------------------------------------------------------------------------------------------------------------
AAA Aaa 2,500 Butler, Pennsylvania, Refunding (Area School District), UT,
Series B, 4.75% due 10/01/2022 (c) 2,400
------------------------------------------------------------------------------------------------------------------
BBB+ NR* 1,500 Cumberland County, Pennsylvania, Municipal Authority Revenue
Bonds (Presbyterian Homes Inc. Project), 6% due 12/01/2026 1,572
------------------------------------------------------------------------------------------------------------------
AAA Aaa 2,000 Delaware County, Pennsylvania, IDA, PCR, Refunding (Philadelphia
Electric Company Project), Series A, 7.375% due 4/01/2021 (b) 2,188
------------------------------------------------------------------------------------------------------------------
NR* Aaa 2,000 Delaware County, Pennsylvania, University Authority Revenue Bonds
(Villanova University), Series A, 5% due 12/01/2028 (e) 1,969
------------------------------------------------------------------------------------------------------------------
NR* Aaa 2,000 Erie, Pennsylvania, Sewer Authority Revenue Bonds, Series A, 5%
due 6/01/2018 (b) 1,993
------------------------------------------------------------------------------------------------------------------
AAA Aaa 3,280 Johnstown, Pennsylvania, Refunding, GO, UT, 6.45% due
10/01/2019 (c) 3,663
------------------------------------------------------------------------------------------------------------------
Lehigh County, Pennsylvania, General Purpose Authority Revenue Bonds:
NR* Aaa 2,000 (Lehigh Valley Health Network), Series C, 5% due 7/01/2028 (e) 1,946
AAA Aaa 3,000 (Saint Luke's Hospital -- Bethlehem), 6.25% due 7/01/2022 (b) 3,275
------------------------------------------------------------------------------------------------------------------
AAA Aaa 3,000 Lehigh County, Pennsylvania, IDA, PCR, Refunding (Pennsylvania Power
and Light Company Project), Series A, 6.40% due 11/01/2021 (e) 3,315
------------------------------------------------------------------------------------------------------------------
AAA Aaa 3,000 Luzerne County, Pennsylvania, IDA, Exempt Facilities Revenue
Refunding Bonds (Pennsylvania Gas and Water Company Project),
AMT, Series A, 7% due 12/01/2017 (b) 3,450
------------------------------------------------------------------------------------------------------------------
AAA Aaa 2,650 McGuffey School District, Pennsylvania, GO, 4.75% due 8/01/2028 (b) 2,548
------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,000 Northeastern, Pennsylvania, Hospital and Educational Authority,
College Revenue Bonds (Luzerne County Community College),
6.625% due 2/15/2005 (b)(f) 1,144
------------------------------------------------------------------------------------------------------------------
BBB Baa2 2,500 Pennsylvania Economic Development Financing Authority, Wastewater
Treatment Revenue Bonds (Sun Company Inc. -- R & M Project), AMT,
Series A, 7.60% due 12/01/2024 2,908
------------------------------------------------------------------------------------------------------------------
Pennsylvania HFA, S/F Mortgage, AMT:
AA+ Aa2 1,000 Refunding, Series 60A, 5.85% due 10/01/2027 1,039
AA+ Aa2 2,500 Series 39B, 6.875% due 10/01/2024 2,628
------------------------------------------------------------------------------------------------------------------
AAA Aaa 3,000 Pennsylvania State, GO, Second Series, 5% due 8/01/2018 (c) 3,008
------------------------------------------------------------------------------------------------------------------
</TABLE>
F-26
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
AAA Aaa 4,000 Pennsylvania State Higher Educational Assistance Agency, Student
Loan Revenue Bonds, AMT, Series C, 7.15% due 9/01/2021 (b) 4,317
------------------------------------------------------------------------------------------------------------------
Pennsylvania State Higher Educational Facilities Authority, Revenue
Refunding Bonds:
A1+ NR* 700 (Carnegie Mellon University), VRDN, Series B, 3.70% due
11/01/2027 (a) 700
A1+ NR* 200 (Carnegie Mellon University), VRDN, Series C, 3.70% due
11/01/2029 (a) 200
AAA Aaa 1,100 (University of Pennsylvania -- Health Services), Series A,
5.375% due 1/01/2015 (e) 1,148
------------------------------------------------------------------------------------------------------------------
Pennsylvania State Turnpike Commission, Tax Revenue Bonds
(Oil Franchise)(b):
AAA Aaa 1,300 Senior Series A, 4.75% due 12/01/2027 1,243
AAA Aaa 1,480 Sub-Series B, 4.75% due 12/01/2027 1,415
------------------------------------------------------------------------------------------------------------------
AAA Aaa 5,125 Philadelphia, Pennsylvania, Authority for Industrial Development,
Lease Revenue Bonds (City of Philadelphia Project), Series A,
5.375% due 2/15/2027 (e) 5,299
------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,000 Philadelphia, Pennsylvania, Gas Works Revenue Bonds (First),
Series B, 5% due 7/01/2028 (d) 983
------------------------------------------------------------------------------------------------------------------
Philadelphia, Pennsylvania, Hospitals and Higher Educational
Facilities Authority Revenue Bonds, Series A:
A1+ VMG1+ 1,100 (Children's Hospital Project), VRDN, 3.70% due 3/01/2027 (a) 1,100
AAA Aaa 3,000 (Jefferson Health System), 5.125% due 5/15/2018 (b) 3,004
------------------------------------------------------------------------------------------------------------------
Philadelphia, Pennsylvania, Water and Wastewater Revenue Bonds:
AAA Aaa 1,000 Refunding, 5% due 6/15/2019 (e) 992
AAA Aaa 2,000 Series A, 5% due 8/01/2017 (b) 1,997
------------------------------------------------------------------------------------------------------------------
AAA Aaa 4,000 Pittsburgh, Pennsylvania, Water and Sewer Authority, Water and Sewer
System Revenue Bonds, Sub-Series C, 5.05% due 9/01/2025 (d) 3,959
------------------------------------------------------------------------------------------------------------------
A1+ NR* 1,300 Schuylkill County, Pennsylvania, IDA, Resource Recovery Revenue
Refunding Bonds (Northeastern Power Company), VRDN, Series A,
3.75% due 12/01/2022 (a) 1,300
------------------------------------------------------------------------------------------------------------------
AAA Aaa 2,525 Southeastern, Pennsylvania, Transportation Authority, Special
Revenue Bonds, 5.375% due 3/01/2022 (c) 2,615
------------------------------------------------------------------------------------------------------------------
Total Investments (Cost -- $79,052) -- 101.6% 84,006
Liabilities in Excess of Other Assets -- (1.6%) (1,299)
-------
Net Assets -- 100.0% $82,707
=======
====================================================================================================================================
</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.
+ Highest short-term rating by Moody's Investors Service, Inc.
Ratings of ues shown have not been audited by Deloitte & Touche LLP.
See Notes to Financial Statements.
================================================================================
Portfolio
Abbreviations To simplify the listings of MuniVest Pennsylvania 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 and at right.
AMT Alternative Minimum Tax (subject to)
GO General Obligation Bonds
HFA Housing Finance Agency
IDA Industrial Development Authority
PCR Pollution Control Revenue Bonds
RITES Residual Interest Tax-Exempt Securities
RITR Residual Interest Trust Receipts
S/F Single-Family
UT Unlimited Tax
VRDN Variable Rate Demand Notes
F-27
<PAGE>
MuniVest Pennsylvania Insured Fund, 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 -- $79,051,894) (Note 1a) ............. $ 84,005,941
Cash ......................................................................... 59,931
Interest receivable .......................................................... 1,287,174
Prepaid expenses and other assets ............................................ 7,995
------------
Total assets ................................................................. 85,361,041
------------
============================================================================================================================
Liabilities: Payables:
Securities purchased ....................................................... $ 2,551,043
Investment adviser (Note 2) ................................................ 36,444 2,587,487
------------
Accrued expenses and other liabilities ....................................... 66,087
------------
Total liabilities ............................................................ 2,653,574
------------
============================================================================================================================
Net Assets: Net assets ................................................................... $ 82,707,467
============
============================================================================================================================
Capital: Capital Shares (unlimited number of shares authorized) (Note 4):
Preferred Shares, par value $.05 per share (1,100 shares of AMPS*
issued and outstanding at $25,000 per share liquidation preference) ........ $ 27,500,000
Common Shares, par value $.10 per share (4,028,976
shares issued and outstanding) ............................................. $ 402,898
Paid-in capital in excess of par ............................................. 55,851,679
Undistributed investment income -- net ....................................... 303,140
Accumulated realized capital losses on investments -- net (Note 5) ........... (6,304,297)
Unrealized appreciation on investments -- net ................................ 4,954,047
------------
Total -- Equivalent to $13.70 net asset value per Common Share
(market price -- $13.875) .................................................... 55,207,467
------------
Total capital ................................................................ $ 82,707,467
============
============================================================================================================================
</TABLE>
* Auction Market Preferred Shares.
See Notes to Financial Statements.
F-28
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
For the Year Ended October 31, 1998
<TABLE>
===========================================================================================================
<S> <C> <C> <C>
Investment Interest and amortization of premium and
Income (Note 1d): discount earned ...................................... $ 4,515,650
===========================================================================================================
Expenses: Investment advisory fees (Note 2) ...................... $ 408,660
Commission fees (Note 4) ............................... 69,784
Professional fees ...................................... 69,484
Accounting services (Note 2) ........................... 43,697
Trustees' fees and expenses ............................ 23,045
Transfer agent fees .................................... 21,206
Printing and shareholder reports ....................... 20,243
Listing fees ........................................... 16,170
Amortization of organization expenses (Note 1e) ........ 9,502
Custodian fees ......................................... 6,641
Pricing fees ........................................... 5,987
Other .................................................. 11,630
-----------
Total expenses ......................................... 706,049
-----------
Investment income -- net ............................... 3,809,601
-----------
===========================================================================================================
Realized & Realized gain on investments -- net .................... 2,250,971
Unrealized Gain Change in unrealized appreciation on investments -- net (555,716)
(Loss) on -----------
Investments -- Net Net Increase in Net Assets Resulting from Operations ... $ 5,504,856
(Notes 1b, 1d & 3): ===========
===========================================================================================================
</TABLE>
See Notes to Financial Statements.
F-29
<PAGE>
MuniVest Pennsylvania Insured Fund, October 31, 1998
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Year Ended
October 31,
----------------------------
Increase (Decrease) in Net Assets: 1998 1997
=========================================================================================================================
<C> <S> <C> <C>
Operations: Investment income -- net ................................................. $ 3,809,601 $ 3,795,012
Realized gain on investments -- net ...................................... 2,250,971 480,878
Change in unrealized appreciation on investments -- net .................. (555,716) 1,891,454
------------ ------------
Net increase in net assets resulting from operations ..................... 5,504,856 6,167,344
------------ ------------
=========================================================================================================================
Dividends to Investment income --net:
Shareholders Common Shares .......................................................... (2,877,458) (2,840,678)
(Note 1f): Preferred Shares ....................................................... (932,382) (920,337)
------------ ------------
Net decrease in net assets resulting from dividends to shareholders ...... (3,809,840) (3,761,015)
------------ ------------
=========================================================================================================================
Capital Share Value of shares issued to Common Shareholders in reinvestment of dividends 56,450 --
Transactions ------------ ------------
(Note 4): Net increase in net assets derived from capital share transactions ....... 56,450 --
------------ ------------
=========================================================================================================================
Net Assets: Total increase in net assets ............................................. 1,751,466 2,406,329
Beginning of year ........................................................ 80,956,001 78,549,672
------------ ------------
End of year* ............................................................. $ 82,707,467 $ 80,956,001
============ ============
=========================================================================================================================
*Undistributed investment income -- net .................................. $ 303,140 $ 303,379
============ ============
=========================================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
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 ........ $ 13.28 $ 12.68 $ 12.91 $ 11.54 $ 14.70
Operating ------- ------- ------- ------- -------
Performance: Investment income -- net .................. .94 .95 .97 1.01 1.05
Realized and unrealized gain (loss) on
investments -- net ........................ .42 .59 (.23) 1.37 (3.08)
------- ------- ------- ------- -------
Total from investment operations .......... 1.36 1.54 .74 2.38 (2.03)
------- ------- ------- ------- -------
Less dividends and distributions to
Common Shareholders:
</TABLE>
See Notes to Financial Statements.
F-30
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Investment income -- net ................ (.71) (.71) (.73) (.75) (.86)
Realized gain on investments -- net ..... -- -- -- -- (.06)
------- ------- ------- ------- -------
Total dividends and distributions to
Common Shareholders ....................... (.71) (.71) (.73) (.75) (.92)
------- ------- ------- ------- -------
Effect of Preferred Share activity:
Dividends and distributions to
Preferred Shareholders:
Investment income -- net .............. (.23) (.23) (.24) (.26) (.20)
Realized gain on investments -- net ... -- -- -- -- (.01)
------- ------- ------- ------- -------
Total effect of Preferred Share activity .. (.23) (.23) (.24) (.26) (.21)
------- ------- ------- ------- -------
Net asset value, end of year .............. $ 13.70 $ 13.28 $ 12.68 $ 12.91 $ 11.54
======= ======= ======= ======= =======
Market price per share, end of year ....... $13.875 $ 12.25 $11.625 $11.875 $10.875
======= ======= ======= ======= =======
========================================================================================================================
Total Investment Based on market price per share ........... 19.62% 11.80% 3.98% 16.58% (22.20%)
Return:* ======= ======= ======= ======= =======
Based on net asset value per share ........ 8.95% 11.12% 4.32% 19.44% (15.76%)
======= ======= ======= ======= =======
========================================================================================================================
Ratios to Average Expenses, net of reimbursement ............ .86% .88% .90% .83% .51%
Net Assets:** ======= ======= ======= ======= =======
Expenses .................................. .86% .88% .90% .95% .86%
======= ======= ======= ======= =======
Investment income -- net .................. 4.66% 4.77% 4.91% 5.33% 5.24%
======= ======= ======= ======= =======
========================================================================================================================
Supplemental Net assets, net of Preferred Shares,
Data: end of year (in thousands) ................ $55,207 $53,456 $51,050 $51,867 $46,390
======= ======= ======= ======= =======
Preferred Shares outstanding,
end of year (in thousands) ................ $27,500 $27,500 $27,500 $27,500 $27,500
======= ======= ======= ======= =======
Portfolio turnover ........................ 60.37% 61.03% 113.65% 73.19% 93.00%
======= ======= ======= ======= =======
========================================================================================================================
Leverage: Asset coverage per $1,000 ................. $ 3,008 $ 2,944 $ 2,856 $ 2,886 $ 2,687
======= ======= ======= ======= =======
========================================================================================================================
Dividends Investment income -- net .................. $ 848 $ 837 $ 879 $ 966 $ 721
Per Share on ======= ======= ======= ======= =======
Preferred Shares
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 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-31
<PAGE>
MuniVest Pennsylvania Insured Fund, October 31, 1998
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. Significant Accounting Policies:
MuniVest Pennsylvania Insured Fund (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 Shares on a weekly basis. The Fund's Common Shares
are listed on the New York Stock Exchange under the symbol MVP. 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 Trustees 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 Trustees.
(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.
o 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.
o 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 sub stantially 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-32
<PAGE>
(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 Shares.
Accounting services are provided to the Fund by FAM at cost.
Certain officers and/or trustees 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 $47,537,197 and $47,789,758, respectively.
Net realized gains for the year ended October 31, 1998 and net unrealized gains
as of October 31, 1998 were as follows:
- --------------------------------------------------------------------------------
Realized Unrealized
Gains Gains
- --------------------------------------------------------------------------------
Long-term investments .................. $2,250,971 $4,954,047
---------- ----------
Total .................................. $2,250,971 $4,954,047
========== ==========
- --------------------------------------------------------------------------------
As of October 31, 1998, net unrealized appreciation for Federal income tax
purposes aggregated $4,954,047, of which $4,954,153 related to appreciated
securities and $106 related to depreciated securities. The aggregate cost of
investments at October 31, 1998 for Federal income tax purposes was $79,051,894.
4. Capital Share Transactions:
The Fund is authorized to issue an unlimited number of shares of beneficial
interest, including Preferred Shares, par value $.10 per share, all of which
were initially classified as Common Shares. The Board of Trustees is authorized,
however, to reclassify any unissued shares of capital without approval of the
holders of Common Shares.
Common Shares
Shares issued and outstanding during the year ended October 31, 1998 increased
by 4,120 as a result of dividend reinvestment and during the year ended October
31, 1997 remained constant.
Preferred Shares
Auction Market Preferred Shares ("AMPS") are Preferred Shares 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 2.40%.
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 $40,877 as commissions.
5. Capital Loss Carryforward:
At October 31, 1998, the Fund had a net capital loss carryforward of
approximately $5,878,000, of which $1,807,000 expires in 2002, $3,117,000
expires in 2003 and $954,000 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 Trustees declared an ordinary income
dividend to Common Shareholders in the amount of $.063266 per share, payable on
November 27, 1998 to shareholders of record as of November 20, 1998.
F-33
<PAGE>
[This page is intentionally left blank.]
F-34
<PAGE>
Unaudited Financial Statements for
MuniVest Pennsylvania Insured Fund
for the Six-Month Period
Ended April 30, 1999
F-35
<PAGE>
MuniVest Pennsylvania Insured Fund, April 30, 1999
- --------------------------------------------------------------------------------
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>
Pennsylvania -- BBB- Baa2 $ 1,670 Allegheny County, Pennsylvania, IDA, Environmental Improvement,
Revenue Refunding Bonds (USX Corp.), 5.60% due 9/01/2030 $ 1,671
------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,500 Allegheny County, Pennsylvania, Sanitation Authority, Sewer
Revenue Bonds, RITR, Series 20, 6.37% due 12/01/2024 (g) 1,569
------------------------------------------------------------------------------------------------------------------
AAA NR* 1,600 Altoona, Pennsylvania, City Water Authority, Revenue Refunding
Bonds, Series A, 6.50% due 11/01/2004 (c)(f) 1,829
------------------------------------------------------------------------------------------------------------------
AAA Aaa 2,550 Berks County, Pennsylvania, GO, Refunding, 5.85% due 11/15/2018 (c) 2,715
------------------------------------------------------------------------------------------------------------------
AAA Aaa 2,550 Blair County, Pennsylvania, Hospital Authority Revenue Bonds
(Altoona Hospital Project), RITES, 6.375% due 7/01/2013 (b)(g) 2,765
------------------------------------------------------------------------------------------------------------------
AAA Aaa 2,000 Delaware County, Pennsylvania, IDA, PCR, Refunding (Philadelphia
Electric Company Project), Series A, 7.375% due 4/01/2021 (b) 2,160
------------------------------------------------------------------------------------------------------------------
AAA Aaa 4,500 Delaware Valley, Pennsylvania, Regional Finance Authority, Local
Government Revenue Bonds, Series A, 5.50% due 8/01/2028 (b) 4,829
------------------------------------------------------------------------------------------------------------------
NR* Aaa 2,000 Erie, Pennsylvania, Sewer Authority, Revenue Refunding Bonds,
Series A, 5% due 6/01/2018 (b) 1,978
------------------------------------------------------------------------------------------------------------------
AAA Aaa 3,280 Johnstown, Pennsylvania, GO, Refunding, 6.45% due 10/01/2019 (c) 3,633
------------------------------------------------------------------------------------------------------------------
Lehigh County, Pennsylvania, General Purpose Authority Revenue Bonds:
NR* Aaa 2,000 (Lehigh Valley Health Network), Series C, 5% due 7/01/2028 (e) 1,920
AAA Aaa 3,000 (Saint Lukes Hospital -- Bethlehem), 6.25% due 7/01/2022 (b) 3,249
------------------------------------------------------------------------------------------------------------------
AAA Aaa 3,000 Lehigh County, Pennsylvania, IDA, PCR, Refunding (Pennsylvania
Power and Light Company Project), Series A, 6.40% due 11/01/2021 (e) 3,287
------------------------------------------------------------------------------------------------------------------
AAA Aaa 3,000 Luzerne County, Pennsylvania, IDA, Exempt Facilities Revenue
Refunding Bonds (Pennsylvania Gas and Water Company Project),
AMT, Series A, 7% due 12/01/2017 (b) 3,420
------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,000 Northeastern, Pennsylvania, Hospital and Educational Authority,
College Revenue Bonds (Luzerne County Community College), 6.625%
due 2/15/2005 (b)(f) 1,130
------------------------------------------------------------------------------------------------------------------
BBB Baa2 2,500 Pennsylvania Economic Development Financing Authority, Wastewater
Treatment Revenue Bonds (Sun Company Inc.-- R & M Project), AMT,
Series A, 7.60% due 12/01/2024 2,824
------------------------------------------------------------------------------------------------------------------
AA+ Aa2 1,000 Pennsylvania HFA, S/F Mortgage Revenue Bonds, AMT, Series 60A,
5.85% due 10/01/2027 1,043
------------------------------------------------------------------------------------------------------------------
AA+ Aa2 2,500 Pennsylvania HFA, S/F Mortgage Revenue Refunding Bonds, AMT,
Series 39B, 6.875% due 10/01/2024 2,613
------------------------------------------------------------------------------------------------------------------
AAA Aaa 3,000 Pennsylvania State, GO, Second Series, 5% due 8/01/2018 (c) 2,985
------------------------------------------------------------------------------------------------------------------
AAA Aaa 4,000 Pennsylvania State Higher Educational Assistance Agency, Student
Loan Revenue Bonds, AMT, Series C, 7.15% due 9/01/2021 (b) 4,493
------------------------------------------------------------------------------------------------------------------
AAA Aaa 2,000 Pennsylvania State Higher Educational Facilities Authority
Revenue Bonds (UPMC Health System), Series A, 5% due 8/01/2029 (d) 1,919
------------------------------------------------------------------------------------------------------------------
A1+ NR* 1,600 Pennsylvania State Higher Educational Facilities Authority,
Revenue Refunding Bonds (Carnegie Mellon University), VRDN,
Series A, 4.20% due 11/01/2025 (a) 1,600
------------------------------------------------------------------------------------------------------------------
Pennsylvania State Turnpike Commission, Oil Franchise Tax
Revenue Bonds (b):
AAA Aaa 1,300 Senior Series A, 4.75% due 12/01/2027 1,217
AAA Aaa 1,480 Sub-Series B, 4.75% due 12/01/2027 1,386
------------------------------------------------------------------------------------------------------------------
</TABLE>
F-36
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
A1+ NR* 300 Philadelphia, Pennsylvania, Authority for IDR (Fox Chase Cancer
Center Project), VRDN, 4.25% due 7/01/2025 (a) 300
------------------------------------------------------------------------------------------------------------------
AAA Aaa 5,125 Philadelphia, Pennsylvania, Authority for Industrial Development,
Lease Revenue Bonds (City of Philadelphia Project), Series A,
5.375% due 2/15/2027 (e) 5,236
------------------------------------------------------------------------------------------------------------------
AAA Aaa 2,675 Philadelphia, Pennsylvania, GO, 5% due 3/15/2028 (d) 2,599
------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,000 Philadelphia, Pennsylvania, Gas Works Revenue Bonds, First
Series B, 5% due 7/01/2028 (d) 972
------------------------------------------------------------------------------------------------------------------
Philadelphia, Pennsylvania, Hospitals and Higher Education
Facilities Authority, Hospital Revenue Bonds (Children's
Hospital of Philadelphia Project),VRDN (a):
A1+ VMIG1+ 1,100 4.20% due 3/01/2027 1,100
A1+ VMIG1+ 1,000 Series A, 4.20% due 3/01/2027 1,000
------------------------------------------------------------------------------------------------------------------
AAA Aaa 3,000 Philadelphia, Pennsylvania, Hospitals and Higher Educational
Facilities Authority, Revenue Refunding Bonds (Jefferson
Health System), Series A, 5.125% due 5/15/2018 (b) 2,969
------------------------------------------------------------------------------------------------------------------
AAA Aaa 2,000 Philadelphia, Pennsylvania, Water and Wastewater Revenue Bonds,
Series A, 5% due 8/01/2017 (b) 1,983
------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,000 Philadelphia, Pennsylvania, Water and Wastewater Revenue
Refunding onds, 5% due 6/15/2019 (e) 983
------------------------------------------------------------------------------------------------------------------
AAA Aaa 2,655 Pittsburgh, Pennsylvania, GO, 5.125% due 9/01/2015 (b) 2,699
------------------------------------------------------------------------------------------------------------------
A1+ NR* 2,200 Schuylkill County, Pennsylvania, IDA, Resource Recovery Revenue
Refunding Bonds (Northeastern Power Company), VRDN, Series A,
4.10% due 12/01/2022 (a) 2,200
------------------------------------------------------------------------------------------------------------------
AAA Aaa 2,525 Southeastern Pennsylvania Transportation Authority, Special
Revenue Bonds, 5.375% due 3/01/2022 (c) 2,580
------------------------------------------------------------------------------------------------------------------
Total Investments (Cost -- $76,924) -- 98.5% 80,856
Other Assets Less Liabilities -- 1.5% 1,231
-------
Net Assets -- 100.0% $82,087
=======
====================================================================================================================================
</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.
+ Highest short-term rating by Moody's Investors Service, Inc.
See Notes to Financial Statements.
================================================================================
Portfolio To simplify the listings of MuniVest Pennsylvania Insured
Abbreviations Fund's portfolio holdings in the Schedule of Investments, we
have abbreviated the names of many of the securities according
to the list below and at right.
AMT Alternative Minimum Tax (subject to)
GO General Obligation Bonds
HFA Housing Finance Agency
IDA Industrial Development Authority
IDR Industrial Development Revenue Bonds
PCR Pollution Control Revenue Bonds
RITES Residual Interest Tax-Exempt Securities
RITR Residual Interest Trust Receipts
S/F Single-Family
VRDN Variable Rate Demand Notes
F-37
<PAGE>
MuniVest Pennsylvania Insured Fund, April 30, 1999
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS, LIABILITIES AND CAPITAL
- --------------------------------------------------------------------------------
As of April 30, 1999
<TABLE>
<CAPTION>
================================================================================================================
<C> <S> <C> <C>
Assets: Investments, at value (identified cost -- $76,924,058) (Note 1a) . $ 80,856,110
Cash ............................................................. 75,295
Interest receivable .............................................. 1,255,043
Prepaid expenses and other assets ................................ 7,996
------------
Total assets ..................................................... 82,194,444
------------
================================================================================================================
Liabilities: Payables:
Dividends to shareholders (Note 1e) ............................ $ 52,697
Investment adviser (Note 2) .................................... 36,079 88,776
------------
Accrued expenses and other liabilities ........................... 18,400
------------
Total liabilities ................................................ 107,176
------------
================================================================================================================
Net Assets: Net assets ....................................................... $ 82,087,268
============
================================================================================================================
Capital: Capital Shares (unlimited number of shares authorized) (Note 4):
Preferred Shares, par value $.05 per share (1,100 shares of
AMPS* issued and outstanding at $25,000 per share liquidation
preference) .................................................... $ 27,500,000
Common Shares, par value $.10 per share (4,037,179 shares issued
and outstanding) ............................................... $ 403,718
Paid-in capital in excess of par ................................. 55,962,716
Undistributed investment income -- net ........................... 295,148
Accumulated realized capital losses on investments -- net (Note 5) (6,006,366)
Unrealized appreciation on investments -- net .................... 3,932,052
------------
Total -- Equivalent to $13.52 net asset value per Common Share
(market price -- $13.0625) ....................................... 54,587,268
------------
Total capital .................................................... $ 82,087,268
============
================================================================================================================
</TABLE>
* Auction Market Preferred Shares.
See Notes to Financial Statements.
F-38
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
For the Six Months Ended April 30, 1999
<TABLE>
==========================================================================================================
<C> <S> <C>
Investment Interest and amortization of premium and discount earned $ 2,226,969
Income (Note 1d):
==========================================================================================================
Expenses: Investment advisory fees (Note 2) ...................... $ 205,636
Commission fees (Note 4) ............................... 33,669
Professional fees ...................................... 30,941
Accounting services (Note 2) ........................... 27,447
Transfer agent fees .................................... 16,162
Printing and shareholder reports ....................... 12,094
Trustees' fees and expenses ............................ 11,224
Listing fees ........................................... 7,804
Custodian fees ......................................... 3,542
Pricing fees ........................................... 3,008
Other .................................................. 7,598
-----------
Total expenses ......................................... 359,125
-----------
Investment income -- net ............................... 1,867,844
-----------
==========================================================================================================
Realized & Realized gain on investments -- net .................... 297,931
Unrealized Gain Change in unrealized appreciation on investments -- net. (1,021,995)
(Loss) on -----------
Investments -- Net Net Increase in Net Assets Resulting from Operations ... $ 1,143,780
(Notes 1b, 1d & 3): ===========
==========================================================================================================
</TABLE>
See Notes to Financial Statements.
F-39
<PAGE>
MuniVest Pennsylvania Insured Fund, April 30, 1999
<TABLE>
<CAPTION>
For the Six For the
Months Ended Year Ended
April 30, October 31,
Increase (Decrease) in Net Assets: 1999 1998
=========================================================================================================================
<C> <S> <C> <C>
Operations: Investment income -- net ................................................. $ 1,867,844 $ 3,809,601
Realized gain on investments -- net ...................................... 297,931 2,250,971
Change in unrealized appreciation on investments -- net .................. (1,021,995) (555,716)
------------ ------------
Net increase in net assets resulting from operations ..................... 1,143,780 5,504,856
------------ ------------
=========================================================================================================================
Dividends to Investment income -- net:
Shareholders Common Shares .......................................................... (1,470,475) (2,877,458)
(Note 1e): Preferred Shares ....................................................... (405,361) (932,382)
------------ ------------
Net decrease in net assets resulting from dividends to shareholders ...... (1,875,836) (3,809,840)
------------ ------------
=========================================================================================================================
Capital Share Value of shares issued to Common Shareholders in reinvestment of dividends 111,857 56,450
Transactions ------------ ------------
(Note 4):
=========================================================================================================================
Net Assets: Total increase (decrease) in net assets .................................. (620,199) 1,751,466
Beginning of period ...................................................... 82,707,467 80,956,001
------------ ------------
End of period* ........................................................... $ 82,087,268 $ 82,707,467
============ ============
=========================================================================================================================
*Undistributed investment income -- net .................................. $ 295,148 $ 303,140
============ ============
=========================================================================================================================
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
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
========================================================================================================================
<C> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period ... $ 13.70 $ 13.28 $ 12.68 $ 12.91 $ 11.54
Operating -------- ------- ------- ------- -------
Performance: Investment income -- net ............... .45 .94 .95 .97 1.01
Realized and unrealized gain (loss)
on investments -- net .................. (.17) .42 .59 (.23) 1.37
-------- ------- ------- ------- -------
Total from investment operations ....... .28 1.36 1.54 .74 2.38
-------- ------- ------- ------- -------
Less dividends from investment income --
net to Common Shareholders ............. (.36) (.71) (.71) (.73) (.75)
========================================================================================================================
</TABLE>
F-40
<PAGE>
<TABLE>
<C> <S> <C> <C> <C> <C> <C>
Effect of Preferred Share activity:
Dividends to Preferred Shareholders:
Investment income -- net ........... (.10) (.23) (.23) (.24) (.26)
-------- ------- ------- ------- -------
Net asset value, end of period ......... $ 13.52 $ 13.70 $ 13.28 $ 12.68 $ 12.91
======== ======= ======= ======= =======
Market price per share, end of period .. $13.0625 $13.875 $ 12.25 $11.625 $11.875
======== ======= ======= ======= =======
========================================================================================================================
Total Investment Based on market price per share ........ (3.29%)+ 19.62% 11.80% 3.98% 16.58%
Return:** ======== ======= ======= ======= =======
Based on net asset value per share ..... 1.38%+ 8.95% 11.12% 4.32% 19.44%
======== ======= ======= ======= =======
========================================================================================================================
Ratios to Average Expenses, net of reimbursement ......... .87%* .86% .88% .90% .83%
Net Assets:*** ======== ======= ======= ======= =======
Expenses ............................... .87%* .86% .88% .90% .95%
======== ======= ======= ======= =======
Investment income -- net ............... 4.54%* 4.66% 4.77% 4.91% 5.33%
======== ======= ======= ======= =======
========================================================================================================================
Supplemental Net assets, net of Preferred Shares, end
Data: of period (in thousands) ............... $ 54,587 $55,207 $53,456 $51,050 $51,867
======== ======= ======= ======= =======
Preferred Shares outstanding, end of
period (in thousands) .................. $ 27,500 $27,500 $27,500 $27,500 $27,500
======== ======= ======= ======= =======
Portfolio turnover ..................... 19.64% 60.37% 61.03% 113.65% 73.19%
======== ======= ======= ======= =======
========================================================================================================================
Leverage: Asset coverage per $1,000 .............. $ 2,985 $ 3,008 $ 2,944 $ 2,856 $ 2,886
======== ======= ======= ======= =======
========================================================================================================================
Dividends Investment income -- net ............... $ 369 $ 848 $ 837 $ 879 $ 966
Per Share on ======== ======= ======= ======= =======
Preferred Shares
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 Shareholders.
+ Aggregate total investment return.
See Notes to Financial Statements.
F-41
<PAGE>
MuniVest Pennsylvania Insured Fund, April 30, 1999
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. Significant Accounting Policies:
MuniVest Pennsylvania Insured Fund (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 Shares on a weekly basis. The
Fund's Common Shares are listed on the New York Stock Exchange under the symbol
MVP. 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 Trustees 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 Trustees.
(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.
o 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.
o 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-42
<PAGE>
(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 Shares.
Accounting services are provided to the Fund by FAM at cost.
Certain officers and/or trustees 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 $15,375,027 and $20,704,109, respectively.
Net realized gains for the six months ended April 30, 1999 and net unrealized
gains as of April 30, 1999 were as follows:
- --------------------------------------------------------------------------------
Realized Unrealized
Gains Gains
- --------------------------------------------------------------------------------
Long-term investments .................. $ 297,931 $3,932,052
---------- ----------
Total .................................. $ 297,931 $3,932,052
========== ==========
- --------------------------------------------------------------------------------
As of April 30, 1999, net unrealized appreciation for Federal income tax
purposes aggregated $3,932,052, of which $4,004,277 related to appreciated
securities and $72,225 related to depreciated securities. The aggregate cost of
investments at April 30, 1999 for Federal income tax purposes was $76,924,058.
4. Capital Shares Transactions:
The Fund is authorized to issue an unlimited number of shares of beneficial
interest, including Preferred Shares, par value $.10 per share, all of which
were initially classified as Common Shares. The Board of Trustees is authorized,
however, to reclassify any unissued shares of capital without approval of the
holders of Common Shares.
Common Shares
Shares issued and outstanding during the six months ended April 30, 1999 and the
year ended October 31, 1998 increased by 8,203 and 4,120, respectively, as a
result of dividend reinvestment.
Preferred Shares
Auction Market Preferred Shares ("AMPS") are Preferred Shares 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 3.50%.
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 $16,699 as commissions.
5. Capital Loss Carryforward:
At October 31, 1998, the Fund had a net capital loss carryforward of
approximately $5,878,000, of which $1,807,000 expires in 2002, $3,117,000
expires in 2003 and $954,000 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 Trustees declared an ordinary income
dividend to Common Shareholders in the amount of $.058103 per share, payable on
May 27, 1999 to shareholders of record as of May 21, 1999.
F-43
<PAGE>
[This page is intentionally left blank.]
F-44
<PAGE>
Unaudited Financial Statements for
MuniHoldings Pennsylvania Insured Fund
for the Period February 26, 1999
to March 31, 1999
F-45
<PAGE>
MuniHoldings Pennsylvania Insured Fund, March 31, 1999
<TABLE>
<CAPTION>
S&P Moody's Face Value
STATE Ratings Ratings Amount Issue (Note 1a)
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Pennsylvania -- NR* VMIG1+ $ 1,400 Allegheny County, Pennsylvania, Hospital Development Authority
103.8% Revenue Bonds (Presbyterian University Hospital), ACES, Series
B-3, 3.15% due 3/01/2018 (f) $ 1,400
------------------------------------------------------------------------------------------------------------------
AAA Aaa 2,000 Beaver County, Pennsylvania, IDA, Exempt Facilities Revenue Bonds
(Shippingport Project), AMT, Series A, 5.375% due 6/01/2028 (a) 2,012
------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,000 Bucks County, Pennsylvania, IDA, Revenue Refunding Bonds (Grand
View Hospital), Series A, 5.25% due 7/01/2021 (a) 995
------------------------------------------------------------------------------------------------------------------
AAA NR* 1,295 Deer Lakes School District, Pennsylvania, GO, Series A, 5.25%
due 1/15/2017 (c) 1,320
------------------------------------------------------------------------------------------------------------------
AAA NR* 1,100 Delaware County, Pennsylvania, Interboro School District, 5.375%
due 8/15/2025 (d) 1,123
------------------------------------------------------------------------------------------------------------------
NR* Aaa 4,000 Delaware County, Pennsylvania, University Authority Revenue Bonds
(Villanova University), Series A, 5% due 12/01/2028 (d) 3,903
------------------------------------------------------------------------------------------------------------------
AAA Aaa 2,000 Delaware River Port Authority, Pennsylvania and New Jersey, Revenue
Refunding Bonds, Series B, 5.25% due 1/01/2005 (a)(g) 2,126
------------------------------------------------------------------------------------------------------------------
AAA NR* 1,200 Erie, Pennsylvania, Parking Authority, Parking Facilities Revenue
Refunding Bonds, Series B, 5.125% due 9/01/2020 (d) 1,195
------------------------------------------------------------------------------------------------------------------
A1+ VMIG1+ 2,400 Geisinger Authority, Pennsylvania, Health System Revenue Refunding
Bonds (Penn State -- Geisinger Health), VRDN, Series B, 2.85%
due 8/15/2028 (f) 2,400
------------------------------------------------------------------------------------------------------------------
AAA Aaa 3,000 Lancaster County, Pennsylvania, Solid Waste Management Authority,
Resource Recovery Revenue Refunding Bonds, Series B, 5.375%
due 12/15/2015 (a) 3,101
------------------------------------------------------------------------------------------------------------------
AAA Aaa 1,000 Lehigh County, Pennsylvania, General Purpose Authority, Revenue
Refunding Bonds (Saint Francis de Sales College), Series A, 5%
due 12/15/2020 (a) 984
------------------------------------------------------------------------------------------------------------------
AAA Aaa 2,000 Lower Providence Township, Pennsylvania, Sewer Authority, Sewer
Revenue Refunding Bonds, 5.25% due 5/01/2022 (d) 2,014
------------------------------------------------------------------------------------------------------------------
AA+ Aa2 4,000 Pennsylvania HFA, Revenue Bonds, RIB, AMT, 8.577% due 4/01/2025 (e) 4,375
------------------------------------------------------------------------------------------------------------------
AAA Aaa 2,000 Pennsylvania Intergovernmental Co-Op Authority, Special Tax
Revenue Refunding Bonds (Philadelphia Funding Program),
5.25% due 6/15/2015 (b) 2,054
------------------------------------------------------------------------------------------------------------------
AAA Aaa 2,500 Pennsylvania State Higher Educational Facilities Authority
Revenue Bonds (UPMC Health System), Series A, 5% due 8/01/2029 (c) 2,405
------------------------------------------------------------------------------------------------------------------
A1+ NR* 1,400 Pennsylvania State Higher Educational Facilities Authority,
Revenue Refunding Bonds (Carnegie Mellon University), VRDN,
Series B, 2.85% due 11/01/2027 (f) 1,400
------------------------------------------------------------------------------------------------------------------
AAA NR* 1,300 Pennsylvania State Public School Building Authority, School
Revenue Refunding Bonds (Pittston Area School District),
Series P, 5% due 7/15/2021 (c) 1,278
------------------------------------------------------------------------------------------------------------------
AAA Aaa 2,500 Pennsylvania State Turnpike Commission, Oil Franchise Tax
Revenue Bonds, Senior Series A, 4.75% due 12/01/2027 (a) 2,358
------------------------------------------------------------------------------------------------------------------
AAA Aaa 3,000 Philadelphia, Pennsylvania, Authority for Industrial Development,
Airport Revenue Bonds (Philadelphia Airport System Project), AMT,
Series A, 5.125% due 7/01/2028 (b) 2,931
------------------------------------------------------------------------------------------------------------------
AAA Aaa 2,500 Philadelphia, Pennsylvania, GO, 5% due 3/15/2028 (c) 2,440
------------------------------------------------------------------------------------------------------------------
AAA Aaa 2,000 Philadelphia, Pennsylvania, Gas Works Revenue Bonds, First
Series B, 5% due 7/01/2028 (c) 1,952
------------------------------------------------------------------------------------------------------------------
AAA Aaa 2,000 Philadelphia, Pennsylvania, School District, GO, Series B, 5.375%
due 4/01/2027 (a) 2,040
------------------------------------------------------------------------------------------------------------------
AAA Aaa 2,000 Pittsburgh, Pennsylvania, GO, 5.125% due 9/01/2015 (a) 2,031
------------------------------------------------------------------------------------------------------------------
AAA Aaa 2,000 Pittsburgh, Pennsylvania, Water and Sewer Authority, Water and
Sewer System Revenue Refunding Bonds, First Lien, Series A, 5%
due 9/01/2018 (b) 1,988
------------------------------------------------------------------------------------------------------------------
</TABLE>
F-46
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
A1+ NR* 1,400 Schuylkill County, Pennsylvania, IDA, Resource Recovery Revenue
Refunding Bonds (Northeastern Power Company), VRDN, AMT, Series B,
3.10% due 12/01/2022 (f) 1,400
------------------------------------------------------------------------------------------------------------------
AAA Aaa 2,000 Southeastern Pennsylvania Transportation Authority, Pennsylvania,
Special Revenue Bonds, Series A, 5.25% due 3/01/2017 (b) 2,050
====================================================================================================================================
Total Investments (Cost -- $53,375) -- 103.8% 53,275
Variation Margin on Financial Futures Contracts -- 0.1%** 32
Liabilities in Excess of Other Assets -- (3.9%) (1,989)
--------
Net Assets -- 100.0% $ 51,318
========
====================================================================================================================================
</TABLE>
(a) AMBAC Insured.
(b) FGIC Insured.
(c) FSA Insured.
(d) MBIA Insured.
(e) The interest rate is subject to change periodically and inversely based
upon prevailing market rates. The interest rate shown is the rate in
effect at March 31, 1999.
(f) The interest rate is subject to change periodically based upon prevailing
market rates. The interest rate shown is the rate in effect at March 31,
1999.
(g) 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:
- --------------------------------------------------------------------------------
(in Thousands)
- --------------------------------------------------------------------------------
Number of Expiration Value
Contracts Issue Date (Notes 1a & 1b)
- --------------------------------------------------------------------------------
60 US Treasury Bonds June 1999 $ 7,234
- --------------------------------------------------------------------------------
Total Financial Futures Contracts Sold
(Total Contract Price -- $7,218) $ 7,234
===========
- --------------------------------------------------------------------------------
+ Highest short-term rating by Moody's Investors Service, Inc.
See Notes to Financial Statements.
================================================================================
Portfolio To simplify the listings of MuniHoldings Pennsylvania Insured
Abbreviations Fund's portfolio holdings in the Schedule of Investments, we
have abbreviated the names of many of the securities according
to the list at right.
ACES(SM) Adjustable Convertible Extendable Securities
AMT Alternative Minimum Tax (subject to)
GO General Obligation Bonds
HFA Housing Finance Agency
IDA Industrial Development Authority
RIB Residual Interest Bonds
VRDN Variable Rate Demand Notes
- --------------------------------------------------------------------------------
QUALITY PROFILE
- --------------------------------------------------------------------------------
The quality ratings of securities in the Fund as of March 31, 1999 were as
follows:
- --------------------------------------------------------------------------------
Percent of
S&P Rating/Moody's Rating Net Assets
- --------------------------------------------------------------------------------
AAA/Aaa 82.4%
- --------------------------------------------------------------------------------
AA/Aa 8.5
- --------------------------------------------------------------------------------
Other+ 12.9
- --------------------------------------------------------------------------------
+ Temporary investments in short-term municipal securities.
F-47
<PAGE>
MuniHoldings Pennsylvania Insured Fund, March 31, 1999
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS, LIABILITIES AND CAPITAL
- --------------------------------------------------------------------------------
As of March 31, 1999
<TABLE>
===============================================================================================================
<C> <S> <C> <C>
Assets: Investments, at value (identified cost -- $53,374,890)(Note 1a) . $ 53,274,926
Cash ............................................................ 585,828
Receivables:
Interest ...................................................... $ 723,996
Investment adviser (Note 2) ................................... 32,221
Variation margin (Note 1b) .................................... 31,875 788,092
------------
Other assets .................................................... 1,090
------------
Total assets .................................................... 54,649,936
------------
===============================================================================================================
Liabilities: Payables:
Securities purchased .......................................... 3,041,485
Offering costs (Note 1e) ...................................... 260,035
Dividends to shareholders (Note 1f) ........................... 12,972 3,314,492
------------
Accrued expenses ................................................ 17,000
------------
Total liabilities ............................................... 3,331,492
------------
===============================================================================================================
Net Assets: Net assets ...................................................... $ 51,318,444
============
===============================================================================================================
Capital: Capital Shares (unlimited number of shares of beneficial interest
authorized)(Note 4):
Preferred Shares, par value $.10 per share (820 shares of AMPS*
issued and outstanding at $25,000
per share liquidation preference) ............................. $ 20,500,000
Common Shares, par value $.10 per share (2,081,667
shares issued and outstanding) ................................ $ 208,167
Paid-in capital in excess of par ................................ 30,597,662
Undistributed investment income -- net .......................... 128,517
Unrealized depreciation on investments -- net .................. (115,902)
------------
Total -- Equivalent to $14.80 net asset value per
Common Share (market price -- $16.125) .......................... 30,818,444
------------
Total capital ................................................... $ 51,318,444
============
===============================================================================================================
</TABLE>
* Auction Market Preferred Shares.
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
For the Period February 26, 1999+ to March 31, 1999
<TABLE>
=======================================================================================================
<C> <S> <C> <C>
Investment Interest and amortization of premium and discount earned $ 160,653
Income (Note 1d):
=======================================================================================================
Expenses: Investment advisory fees (Note 2) ...................... $ 17,557
Commission fees (Note 4) ............................... 3,434
</TABLE>
F-48
<PAGE>
<TABLE>
<C> <S> <C> <C>
Professional fees ...................................... 3,003
Trustees' fees and expenses ............................ 2,547
Accounting services (Note 2) ........................... 1,706
Transfer agent fees .................................... 1,672
Printing and shareholder reports ....................... 919
Listing fees ........................................... 536
Pricing fees ........................................... 297
Custodian fees ......................................... 294
Other .................................................. 501
---------
Total expenses before reimbursement .................... 32,466
Reimbursement of expenses (Note 2) ..................... (31,528)
---------
Total expenses after reimbursement ..................... 938
---------
Investment income -- net ............................... 159,715
---------
=======================================================================================================
Unrealized Loss on Unrealized depreciation on investments -- net .......... (115,902)
Investments -- Net ---------
(Notes 1b, 1d & 3): Net Increase in Net Assets Resulting from Operations ... $ 43,813
=========
=======================================================================================================
</TABLE>
+ Commencement of operations.
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Period
Feb. 26, 1999+ to
Increase (Decrease) in Net Assets: March 31, 1999
=======================================================================================================================
<C> <S> <C>
Operations: Investment income -- net ...................................................... $ 159,715
Unrealized depreciation on investments -- net ................................. (115,902)
------------
Net increase in net assets resulting from operations .......................... 43,813
------------
=======================================================================================================================
Dividends to Investment income -- net to Preferred Shareholders ............................ (31,198)
Shareholders ------------
(Note 1f): Net decrease in net assets resulting from dividends to shareholders ........... (31,198)
------------
=======================================================================================================================
Beneficial Interest Proceeds from issuance of Common Shares ....................................... 31,125,000
Transactions Proceeds from issuance of Preferred Shares .................................... 20,500,000
(Notes 1e & 4): Offering costs resulting from the issuance of Common Shares ................... (128,227)
Offering and underwriting costs resulting from the issuance of Preferred Shares (290,949)
------------
Net increase in net assets derived from beneficial interest transactions ...... 51,205,824
------------
=======================================================================================================================
Net Assets: Total increase in net assets .................................................. 51,218,439
Beginning of period ........................................................... 100,005
------------
End of period* ................................................................ $ 51,318,444
============
=======================================================================================================================
* Undistributed investment income -- net ....................................... $ 128,517
============
=======================================================================================================================
</TABLE>
+ Commencement of operations.
See Notes to Financial Statements.
F-49
<PAGE>
MuniHoldings Pennsylvania Insured Fund, March 31, 1999
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
The following per share data and ratios have been derived
from information provided in the financial statements. For the Period
Feb. 26, 1999+ to
Increase (Decrease) in Net Asset Value: March 31, 1999
===================================================================================================
<C> <S> <C>
Per Share Net asset value, beginning of period ............................ $ 15.00
Operating -----------
Performance: Investment income -- net ........................................ .07
Unrealized loss on investments -- net ........................... (.05)
-----------
Total from investment operations ................................ .02
Capital charge resulting from issuance of Common Shares ......... (.07)
Effect of Preferred Share activity++:
Dividends to Preferred Shareholders:
Investment income -- net .................................. (.01)
Capital charge resulting from issuance of Preferred Shares ... (.14)
-----------
Total effect of Preferred Share activity ........................ (.15)
Net asset value, end of period .................................. $ 14.80
===========
Market price per share, end of period ........................... $ 16.125
===========
===================================================================================================
Total Investment Based on market price per share ................................. 7.50%#
Return:** ===========
Based on net asset value per share .............................. (1.33%)#
===========
===================================================================================================
Ratios to Average Expenses, net of reimbursement .................................. .03%*
Net Assets:*** ===========
Expenses ........................................................ 1.02%*
===========
Investment income -- net ........................................ 5.00%*
===========
===================================================================================================
Supplemental Net assets, net of Preferred Shares, end of period (in thousands) $ 30,818
Data: ===========
Preferred Shares outstanding, end of period (in thousands) ...... $ 20,500
===========
Portfolio turnover .............................................. 0.00%
===========
===================================================================================================
Leverage: Asset coverage per $1,000 ....................................... $ 2,503
===========
===================================================================================================
Dividends Investment income -- net ........................................ $ 38
Per Share on ===========
Preferred Shares
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 Shareholders.
+ Commencement of operations.
++ The Fund's Preferred Shares were issued on March 17, 1999.
# Aggregate total investment return.
See Notes to Financial Statements.
F-50
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. Significant Accounting Policies:
MuniHoldings Pennsylvania Insured Fund (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
February 26, 1999, the Fund had no operations other than those relating to
organizational matters and the sale of 6,667 shares of Common Shares 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
Shares on a weekly basis. The Fund's Common Shares are listed on the American
Stock Exchange under the symbol MPI. 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 Trustees 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 Trustees.
(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.
(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-51
<PAGE>
MuniHoldings Pennsylvania Insured Fund, March 31, 1999
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (concluded)
- --------------------------------------------------------------------------------
(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 FAM. The general
partner of FAM is Princeton Services, Inc. ("PSI"), an indirect wholly-owned
subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is the limited
partner.
FAM is responsible for the management of the Fund's portfolio and provides the
necessary personnel, facilities, equipment and certain other services necessary
to the operations of the Fund. For such services, the Fund pays a monthly fee at
an annual rate of 0.55% of the Fund's average weekly net assets, including
proceeds from the issuance of Preferred Shares. For the period February 26, 1999
to March 31, 1999, FAM earned fees of $17,557, all of which was voluntarily
waived. In addition, FAM also reimbursed the Fund $13,971 in additional
expenses.
During the period February 26, 1999 to March 31, 1999, Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("MLPF&S"), an affiliate of FAM, received
underwriting fees of $153,750 in connection with the issuance of the Fund's
Preferred Shares.
Accounting services are provided to the Fund by FAM at cost.
Certain officers and/or trustees of the Fund are officers and/or directors of
FAM, PSI, and/or ML & Co.
3. Investments:
Purchases of investments, excluding short-term securities, for the period
February 26, 1999 to March 31, 1999 was $46,776,551.
Net unrealized losses as of March 31, 1999 were as follows:
- --------------------------------------------------------------------------------
Unrealized
Losses
- --------------------------------------------------------------------------------
Long-term investments ................................... $ (99,964)
Financial futures contracts ............................. (15,938)
---------
Total ................................................... $(115,902)
=========
- --------------------------------------------------------------------------------
As of March 31, 1999, net unrealized depreciation for Federal income tax
purposes aggregated $99,964, of which $16,911 related to appreciated securities
and $116,875 related to depreciated securities. The aggregate cost of
investments at March 31, 1999 for Federal income tax purposes was $53,374,890.
4. Beneficial Interest Transactions:
The Fund is authorized to issue an unlimited number of shares of beneficial
interest, including Preferred Shares, par value $.10 per share, all of which
were initially classified as Common Shares. The Board of Trustees is authorized,
however, to reclassify any unissued shares of capital without approval of the
holders of Common Shares.
Common Shares
Shares issued and outstanding during the period February 26, 1999 to March 31,
1999 increased by 2,075,000 as a result of the initial offering.
Preferred Shares
Auction Market Preferred Shares ("AMPS") are Preferred Shares 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 3.30%.
In connection with the offering of AMPS, the Board of Trustees reclassified 820
shares of unissued beneficial interest as AMPS. Shares issued and outstanding
during the period February 26, 1999 to March 31, 1999 increased by 820 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 February 26, 1999 to March 31, 1999, MLPF&S, an
affiliate of FAM, earned $1,000 as commissions.
F-52
<PAGE>
Unaudited Financial Statements for Pro Forma
MuniYield Pennsylvania Fund
as of April 30, 1999
F-53
<PAGE>
COMBINED SCHEDULE OF INVESTMENTS FOR
MUNIYIELD PENNSYLVANIA FUND, MUNIVEST PENNSYLVANIA INSURED FUND
AND MUNIHOLDINGS PENNSYLVANIA INSURED FUND
APRIL 30, 1999 (Unaudited)
(in Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Pro Forma
MuniYield MuniVest MuniHoldings MuniYield
Pennsylvania--99.4% Pennsylvania++ Pennsylvania++ Pennsylvania++ Pennsylvania++
- --------------------------------------------------------------------------------
S&P Moody's Face
Ratings Ratings Amount Issue
- --------------------------------------------------------------------------------
<C> <C> <C> <S> <C> <C> <C> <C>
Allegheny County,
Pennsylvania, Hospital
Development Authority
Revenue Bonds, Series
A:
AAA Aaa $2,000 (Allegheny General
Hospital Project),
6.25% due 9/01/2020(d). $ 2,020 $ -- $ -- $ 2,020
NR* Aa2 1,400 (Presbyterian University
Hospital), ACES, Series
B-3, 4.05% due
3/01/2018(f)........... -- -- 1,400 1,400
NR* A2 3,000 (South Hills Health
System), 6.50% due
5/01/2014.............. 3,261 -- -- 3,261
BBB-- Baa2 4,350 Allegheny County,
Pennsylvania, IDA,
Revenue Refunding Bonds
(Environmental
Improvement--USX
Corporation Project),
5.60% due 9/01/2030.... 2,682 1,671 -- 4,353
NR* Aaa 7,250 Allegheny County,
Pennsylvania,
Sanitation Authority,
Sewer Revenue Bonds,
RITR, Series 20, 6.37%
due 12/01/2024(d)(g)... 6,015 1,569 -- 7,584
AAA NR* 1,600 Altoona, Pennsylvania,
City Water Authority
Revenue Bonds, Series
A, 6.50% due
11/01/2004(b)(i)....... -- 1,829 -- 1,829
AAA Aaa 2,000 Beaver County,
Pennsylvania, IDA,
Exempt Facilities
Revenue Bonds
(Shippingport Project),
AMT, Series A, 5.375%
due 6/01/2028(a)....... -- -- 2,007 2,007
AAA Aaa 2,550 Berks County,
Pennsylvania, GO,
Refunding, 5.85% due
11/15/2018(b).......... -- 2,715 -- 2,715
AAA Aaa 2,550 Blair County,
Pennsylvania, Hospital
Authority Revenue Bonds
(Altoona Hospital
Project), RITES, 6.375%
due 7/01/2013(a)(g).... -- 2,765 -- 2,765
AAA Aaa 1,000 Bucks County,
Pennsylvania, IDA,
Revenue Refunding Bonds
(Grand View Hospital),
Series A, 5.25% due
7/01/2021(a)........... -- -- 991 991
AAA Aaa 1,295 Deer Lakes School
District, Pennsylvania,
GO, Series A, 5.25% due
1/15/2017(c)........... -- -- 1,318 1,318
AAA Aaa 2,000 Delaware County,
Pennsylvania, IDA, PCR,
Refunding (Philadelphia
Electric Company
Project), Series A,
7.375% due
4/01/2021(a)........... -- 2,160 -- 2,160
AAA Aaa 1,100 Delaware County,
Pennsylvania, Interboro
School District, GO,
5.375% due
8/15/2025(d)........... -- -- 1,121 1,121
NR* Aaa 6,000 Delaware County,
Pennsylvania,
University Authority
Revenue Bonds
(Villanova University),
Series A, 5% due
12/01/2028(d).......... 1,943 -- 3,886 5,829
AAA Aaa 4,000 Delaware River Port
Authority, Pennsylvania
and New Jersey Revenue
Refunding Bonds, Series
B, 5.25% due
1/01/2005(a)........... -- -- 4,247 4,247
AAA Aaa 9,000 Delaware Valley,
Pennsylvania, Regional
Finance Authority,
Local Government
Revenue Bonds, Series
A, 5.50% due
8/01/2028(a)........... 4,829 4,829 -- 9,658
AAA Aaa 1,200 Erie, Pennsylvania,
Parking Authority,
Parking Facilities
Revenue Refunding
Bonds, Series B, 5.125%
due 9/01/2020(d)....... -- -- 1,191 1,191
NR* Aaa 2,000 Erie, Pennsylvania,
Sewer Authority Revenue
Refunding Bonds, Series
A, 5% due 6/01/2018(a). -- 1,978 -- 1,978
AA Aa2 400 Geisinger Authority,
Pennsylvania, Health
System Revenue
Refunding Bonds (Penn
State-Geisinger
Health), VRDN, Series
B, 4.20% due
8/15/2028(f)........... -- -- 400 400
AAA Aaa 3,280 Johnstown, Pennsylvania,
GO, Refunding, 6.45%
due 10/01/2019(b)...... -- 3,633 -- 3,633
NR* Aaa 1,000 Lancaster, Pennsylvania,
Area Sewer Authority
Revenue Bonds, 4.50%
due 4/01/2018(d)....... 927 -- -- 927
AAA Aaa 3,000 Lancaster County,
Pennsylvania, Solid
Waste Management
Authority, Resource
Recovery Revenue
Refunding Bonds, Series
B, 5.375% due
12/15/2015(a).......... -- -- 3,106 3,106
</TABLE>
F-54
<PAGE>
COMBINED SCHEDULE OF INVESTMENTS FOR
MUNIYIELD PENNSYLVANIA FUND, MUNIVEST PENNSYLVANIA INSURED FUND
AND MUNIHOLDINGS PENNSYLVANIA INSURED FUND
APRIL 30, 1999 (Unaudited) (continued)
(in Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Pro Forma
Pennsylvania MuniYield MuniVest MuniHoldings MuniYield
(continued) Pennsylvania++ Pennsylvania++ Pennsylvania++ Pennsylvania++
- --------------------------------------------------------------------------------
S&P Moody's Face
Ratings Ratings Amount Issue
- --------------------------------------------------------------------------------
<C> <C> <C> <S> <C> <C> <C> <C>
Lehigh County,
Pennsylvania, General
Purpose Authority
Revenue Bonds:
NR* Aaa $2,000 (Lehigh Valley Health
Network), Series C, 5%
due 7/01/2028(d)....... $ -- $1,920 $ -- $1,920
AAA Aaa 7,000 (Saint Lukes Hospital-
Bethlehem), 6.25% due
7/01/2022(a)........... 4,332 3,249 -- 7,581
AAA Aaa 1,000 Lehigh County,
Pennsylvania, General
Purpose Authority
Revenue Refunding Bonds
(St. Francis de Sales
College), Series A, 5%
due 12/15/2020(a)...... -- -- 979 979
AAA Aaa 6,000 Lehigh County,
Pennsylvania, IDA, PCR,
Refunding (Pennsylvania
Power and Light Company
Project), Series A,
6.40% due
11/01/2021(d).......... 3,287 3,287 -- 6,574
AAA Aaa 4,570 Lower Providence
Township, Pennsylvania,
Sewer Authority, Sewer
Revenue Bonds, 5.25%
due 5/01/2022(d)....... 2,583 -- 2,010 4,593
Luzerne County,
Pennsylvania, IDA,
Exempt Facilities
Revenue Bonds
(Pennsylvania Gas and
Water Company Project),
AMT:
AAA Aaa 3,000 Series A, 7% due
12/01/2017(a)........... -- 3,420 -- 3,420
A- A3 1,500 Series B, 7.125% due
12/01/2022.............. 1,656 -- -- 1,656
Luzerne County,
Pennsylvania, IDA,
Exempt Facilities
Revenue Bonds
(Pennsylvania Gas and
Water Company Project),
AMT, Series A:
AAA Aaa 2,000 7% due 12/01/2017(a).... 2,280 -- -- 2,280
A A3 2,500 7.20% due 10/01/2017.... 2,756 -- -- 2,756
Montgomery County,
Pennsylvania, IDA, PCR,
Refunding (Philadelphia
Electric Company):
A Baa1 1,800 AMT, Series A, 7.60% due 1,927 -- -- 1,927
4/01/2021...............
AAA Aaa 4,400 Series B, 6.70% due 4,753 -- -- 4,753
12/01/2021(d)...........
AAA Aaa 1,195 North Allegheny
Pennsylvania School
District Series D,
5.45% due 5/01/2018.... -- -- 1,235 1,235
Northeastern,
Pennsylvania, Hospital
and Education
Authority, Health Care
Revenue Bonds(a):
AAA Aaa 1,000 (Luzerne County
Community College),
6.625% due
2/15/2005(i)........... -- 1,130 -- 1,130
AAA Aaa 2,000 (Wyoming Valley Health
Care), Series A, 5.25%
due 1/01/2026.......... 1,980 -- -- 1,980
BBB Baa2 6,500 Pennsylvania Economic
Development Financing
Authority, Wastewater
Treatment Revenue Bonds
(Sun Company Inc.--R &
M Project), AMT, Series
A, 7.60% due
12/01/2024............. 4,519 2,824 -- 7,343
AA+ Aa 4,000 Pennsylvania, HFA
Revenue Bonds, RIB,
AMT, 8.668% due
4/01/2025(g)........... -- -- 4,370 4,370
AAA Aaa 4,000 Pennsylvania, HFA
Revenue Refunding Bonds
(Rental Housing), 6.50%
due 7/01/2023(e)....... 4,261 -- -- 4,261
Pennsylvania HFA, S/F
Mortgage Revenue Bonds,
AMT:
AA+ Aa2 2,630 Series 34B, 7% due 2,737 -- -- 2,737
4/01/2024(h)............
AA+ Aa2 2,720 Series 60A, 5.85% due 1,794 1,043 -- 2,837
10/01/2027..............
AA+ Aa2 1,000 Series 62A, 5.50% due 1,013 -- -- 1,013
10/01/2022..............
Pennsylvania HFA, S/F
Mortgage Revenue
Refunding Bonds, AMT:
AA+ Aa 2,500 Series 39B, 6.875% due -- 2,613 -- 2,613
10/01/2024..............
AA+ Aa2 3,000 Series 41B, 6.65% due 3,206 -- -- 3,206
4/01/2025...............
</TABLE>
F-55
<PAGE>
COMBINED SCHEDULE OF INVESTMENTS FOR
MUNIYIELD PENNSYLVANIA FUND, MUNIVEST PENNSYLVANIA INSURED FUND
AND MUNIHOLDINGS PENNSYLVANIA INSURED FUND
APRIL 30, 1999 (Unaudited) (continued)
(in Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Pro Forma
Pennsylvania MuniYield MuniVest MuniHoldings MuniYield
(continued) Pennsylvania++ Pennsylvania++ Pennsylvania++ Pennsylvania++
- --------------------------------------------------------------------------------
S&P Moody's Face
Ratings Ratings Amount Issue
- --------------------------------------------------------------------------------
<C> <C> <C> <S> <C> <C> <C> <C>
Pennsylvania
Intergovernmental Co-op
Authority, Special Tax
Revenue Refunding Bonds
(Philadelphia Funding
Program)(b):
AAA Aaa $2,000 5.25% due 6/15/2015..... $ -- $ -- $ 2,058 $ 2,058
AAA Aaa 2,000 5.25% due 6/15/2016..... 2,047 -- -- 2,047
A NR* 2,000 Pennsylvania State
Finance Authority
Revenue Refunding Bonds
(Municipal Capital
Improvements Program),
6.60% due 11/01/2009... 2,212 -- -- 2,212
Pennsylvania State, GO:
AAA Aaa 2,850 First Series, 5.125% due
3/15/2011(a)........... 2,970 -- -- 2,970
AAA Aaa 5,500 Second Series, 5% due
8/01/2018(b)............ 2,488 2,985 -- 5,473
AAA Aaa 6,000 Pennsylvania State
Higher Educational
Assistance Agency,
Student Loan Revenue
Bonds, AMT, Series C,
7.15% due 9/01/2021(a). 2,246 4,493 -- 6,739
AAA Aaa 1,255 Pennsylvania State
Higher Educational
Facilities Authority,
College and University
Revenue Refunding Bonds
(Duquesne University),
Series A, 6.75% due
4/01/2020(d)........... 1,320 -- -- 1,320
AAA Aaa 8,000 Pennsylvania State
Higher Educational
Facilities Authority
Revenue Bonds (UPMC
Health System), Series
A, 5% due 8/01/2029(c). 3,358 1,919 2,398 7,675
Pennsylvania State
Higher Educational
Facilities Authority
Revenue Refunding
Bonds:
AA- NR* 3,600 (Carnegie Mellon
University), VRDN,
Series C, 4.20% due
11/01/2029(f).......... 2,000 1,600 -- 3,600
AAA Aaa 1,000 (Temple University),
First Series, 5.25% due
4/01/2017.............. -- -- 1,022 1,022
AAA Aaa 1,300 Pennsylvania State
Public School Building
Authority, School
Revenue Refunding Bonds
(Pittson Area School
District), Series P, 5%
due 7/15/2021(c)....... -- -- 1,273 1,273
Pennsylvania State
Turnpike Commission,
Oil Franchise Tax
Revenue Bonds(a):
AAA Aaa 3,375 Senior Series A, 4.75%
due 12/01/2027.......... 1,943 1,217 -- 3,160
AAA Aaa 5,150 Sub-Series B, 4.75% due
12/01/2027.............. 3,436 1,386 -- 4,822
AA- Aa3 2,500 Pennsylvania State
University, Revenue
Refunding Bonds, 6.25%
due 3/01/2011.......... 2,688 -- -- 2,688
AAA Aaa 1,500 Philadelphia,
Pennsylvania, Airport
Revenue Bonds
(Philadelphia Airport
System), AMT, Series B,
5.40% due
6/15/2027(b)(d)........ 1,509 -- -- 1,509
AAA Aaa 4,500 Philadelphia,
Pennsylvania, Authority
for Industrial
Development, Airport
Revenue Bonds
(Philadelphia Airport
System Project), AMT,
Series A, 5.125% due
7/01/2028(b)........... 1,459 -- 2,918 4,377
AA Aa3 2,000 Philadelphia,
Pennsylvania, Authority
for Industrial
Development, Industrial
and Commercial Revenue
Bonds (Girard Estates
Facilities Leasing
Project), 5% due
5/15/2027.............. 1,924 -- -- 1,924
AAA Aaa 9,125 Philadelphia,
Pennsylvania, Authority
for Industrial
Development, Lease
Revenue Bonds (City of
Philadelphia Project),
Series A, 5.375% due
2/15/2027(d)........... 4,087 5,236 -- 9,323
A-1+ NR* 300 Philadelphia,
Pennsylvania, Authority
for IDR (Fox Chase
Cancer Center Project),
VRDN, 4.25% due
7/01/2025(f)........... -- 300 -- 300
AAA Aaa 3,000 Philadelphia,
Pennsylvania, Gas Works
Revenue Bonds, First
Series B, 5% due
7/01/2028(c)........... -- 972 1,943 2,915
</TABLE>
F-56
<PAGE>
COMBINED SCHEDULE OF INVESTMENTS FOR
MUNIYIELD PENNSYLVANIA FUND, MUNIVEST PENNSYLVANIA INSURED FUND
AND MUNIHOLDINGS PENNSYLVANIA INSURED FUND
APRIL 30, 1999 (Unaudited) (continued)
(in Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Pro Forma
Pennsylvania MuniYield MuniVest MuniHoldings MuniYield
(concluded) Pennsylvania++ Pennsylvania++ Pennsylvania++ Pennsylvania++
- --------------------------------------------------------------------------------
S&P Moody's Face
Ratings Ratings Amount Issue
- --------------------------------------------------------------------------------
<C> <C> <C> <S> <C> <C> <C> <C>
AAA Aaa $ 8,875 Philadelphia,
Pennsylvania, GO, 5% due
3/15/2028(c)............ $ 3,595 $ 2,599 $ 2,429 $ 8,623
Philadelphia,
Pennsylvania, Hospitals
and Higher Education
Facilities Authority,
Hospital Revenue Bonds
(Children's Hospital of
Philadelphia Project),
VRDN(f):
AA VMIG1+ 2,200 4.20% due 3/01/2027..... 1,100 1,100 -- 2,200
AA VMIG1+ 4,500 Series A, 4.20% due
3/01/2027............... 3,500 1,000 -- 4,500
Philadelphia,
Pennsylvania, Hospitals
and Higher Education
Facilities Authority,
Hospital Revenue
Refunding Bonds:
A- NR* 1,000 (Children's Seashore
House), Series B, 7%
due 8/15/2022.......... 1,085 -- -- 1,085
AAA Aaa 3,000 (Jefferson Health
System), Series A,
5.125% due
5/15/2018(a)........... -- 2,969 -- 2,969
AAA NR* 3,000 (Presbyterian Medical
Center), 6.65% due
12/01/2019.............. 3,599 -- -- 3,599
AAA Aaa 2,000 Philadelphia,
Pennsylvania, School
District, GO, Series B,
5.375% due
4/01/2027(a)........... -- -- 2,037 2,037
AAA Aaa 2,000 Philadelphia,
Pennsylvania, Water And
Wastewater Revenue
Bonds, Series A, 5% due
8/01/2017(a)........... -- 1,983 -- 1,983
AAA Aaa 1,000 Philadelphia,
Pennsylvania, Water and
Wastewater Revenue
Refunding Bonds, 5% due
6/15/2019(d)........... -- 983 -- 983
AAA Aaa 4,655 Pittsburgh,
Pennsylvania, GO,
5.125% due
9/01/2015(a)........... -- 2,699 2,033 4,732
AAA Aaa 2,000 Pittsburgh,
Pennsylvania, Water &
Sewer Authority, Water
and Sewer System
Revenue Refunding
Bonds, First Lien,
Series A, 5% due
9/01/2018(b)........... -- -- 1,988 1,988
Schuylkill County,
Pennsylvania, IDA,
Resource Recovery
Revenue Refunding Bonds
(Northeastern Power
Company), VRDN(f):
AA+ NR* 2,500 AMT Series B, 4.20% due
12/01/2022.............. 1,000 -- 1,500 2,500
AA+ NR 2,500 Series A, 4.10% due
12/01/2022.............. 300 2,200 -- 2,500
A- NR* 2,520 Scranton-Lackawanna,
Pennsylvania, Health
and Welfare Authority,
Revenue Refunding Bonds
(University of Scranton
Project), Series B,
6.50% due 3/01/2015.... 2,682 -- -- 2,682
NR* Aaa 5,000 Somerset County,
Pennsylvania, GO, Series
A, 5% due 10/01/2027(b). 4,859 -- -- 4,859
AAA Aaa 2,000 Southeastern
Pennsylvania
Transportation
Authority,
Pennsylvania, Special
Tax Revenue Bonds,
Series A, 5.25% due
3/01/2017(b)........... -- -- 2,046 2,046
AAA Aaa 2,525 Southeastern
Pennsylvania
Transportation
Authority, Special
Revenue Bonds, 5.375%
due 3/01/2022(b)....... -- 2,580 -- 2580
AA+ Aaa 3,985 Swarthmore Borough
Authority,
Pennsylvania, College
Revenue Refunding
Bonds, 6% due
9/15/2020.............. 4,306 -- -- 4,306
AA Aa3 3,500 Upper Saint Clair
Township School
District, Pennsylvania,
GO, Refunding, 5.20%
due 7/15/2027.......... 3,495 -- -- 3,495
Total Investments (Cost -- $252,624) -- 99.4%.... 129,969 80,856 51,906 262,731
Other Assets Less Liabilities (Liabilities in Ex- (161) 1,231 553 (472)
cess of Other Assets) -- 0.6%...................
-------- ------- ------- --------
Net Assets -- 100.0% $129,808 $82,087 $52,459 $262,259
======== ======= ======= ========
</TABLE>
- --------------------------------------------------------------------------------
F-57
<PAGE>
COMBINED SCHEDULE OF INVESTMENTS FOR
MUNIYIELD PENNSYLVANIA FUND, MUNIVEST PENNSYLVANIA INSURED FUND
AND MUNIHOLDINGS PENNSYLVANIA INSURED FUND
APRIL 30, 1999 (Unaudited) (concluded)
<TABLE>
<C> <S>
(a) AMBAC Insured.
(b) FGIC Insured.
(c) FSA Insured.
(d) MBIA Insured.
(e) FNMA Collateralized.
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,
(f) 1999.
(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.
(h) FHA Insured.
(i) Prerefunded.
* Not Rated.
+ Highest short-term rating by Moody's Investors Service. Inc.
++ Value as discussed in the Combined Notes to Financial Statements.
</TABLE>
PORTFOLIO ABBREVIATIONS
To simplify the listings of MuniYield Pennsylvania Fund's portfolio holdings
in the Schedule of Investments, we have abbreviated the names of many of the
securities according to the list below.
<TABLE>
<C> <S>
ACES Adjustable Convertible Extendable Securities
AMT Alternative Minimum Tax (subject to)
GO General Obligation Bonds
HFA Housing Finance Agency
IDA Industrial Development Authority
PCR Pollution Control Revenue Bonds
RIB Residual Interest Bonds
RITES Residual Interest Tax-Exempt Securities
RITR Residual Interest Trust Receipts
S/F Single-Family
VRDN Variable Rate Demand Notes
</TABLE>
See Notes to Financial Statements.
F-58
<PAGE>
The following unaudited pro forma Combined Statement of Assets, Liabilities
and Capital has been derived from the Statements of Assets, Liabilities and
Capital of the respective Funds at April 30, 1999 and such information has been
adjusted to give effect to the Reorganization as if the Reorganization had
occurred at April 30, 1999. The pro forma Combined Statement of Assets,
Liabilities and Capital is presented for informational purposes only and does
not purport to be indicative of the financial condition that actually would
have resulted if the Reorganization had been consummated at April 30, 1999. The
pro forma Combined Statement of Assets, Liabilities and Capital should be read
in conjunction with the Funds' financial statements and related notes thereto
which are included in the Joint Proxy Statement and Prospectus.
PRO FORMA COMBINED STATEMENT OF ASSETS, LIABILITIES AND CAPITAL
FOR MUNIYIELD PENNSYLVANIA FUND, MUNIVEST PENNSYLVANIA INSURED FUND AND
MUNIHOLDINGS PENNSYLVANIA INSURED FUND
As of April 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
Pro Forma
MuniYield MuniVest MuniHoldings MuniYield
Pennsylvania Pennsylvania Pennsylvania Adjustments Pennsylvania
------------ ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Assets:
Investments, at value*
(Note 1a).............. $129,968,790 $80,856,110 $51,906,499 $262,731,399
Cash.................... 65,150 75,295 -- 140,445
Receivables:
Interest............... 2,067,575 1,255,043 731,090 4,053,708
Securities sold........ -- -- 100,234 100,234
Investment adviser
(Note 2).............. -- -- 15,090 15,090
Prepaid expenses and
other assets........... 6,504 7,996 18,250 32,750
------------ ----------- ----------- ----------- ------------
Total assets............ 132,108,019 82,194,444 52,771,163 267,073,626
------------ ----------- ----------- ----------- ------------
Liabilities:
Payables:
Securities purchased... 2,058,113 -- -- 2,058,113
Offering costs (Note
1e)................... -- -- 258,770 258,770
Dividends to
shareholders (Note
1f)................... 150,050 52,697 13,169 1,755,441(1) 1,971,357
Investment adviser
(Note 2).............. 57,077 36,079 -- 93,156
Custodian bank (Note
1g)................... -- -- 17,360 17,360
Accrued expenses and
other liabilities...... 34,999 18,400 22,702 340,000(2) 416,101
------------ ----------- ----------- ----------- ------------
Total liabilities....... 2,300,239 107,176 312,001 2,095,441 4,814,857
------------ ----------- ----------- ----------- ------------
Net Assets:
Net Assets.............. $129,807,780 $82,087,268 $52,459,162 $(2,095,441) $262,258,769
============ =========== =========== =========== ============
Capital
Capital Shares
(unlimited number of
shares of beneficial
interest authorized)
Preferred Shares, par
value $.10 per share
of AMPS** issued and
outstanding+ at
$25,000 per share
liquidation
preference............ $ 40,000,000 $27,500,000 $20,500,000 $ 88,000,000
Common Shares, par
value $.10 per share,
issued and
outstanding++......... 588,376 403,718 215,657 (48,734) 1,159,017
Paid-in capital in
excess of par.......... 82,247,950 55,962,716 31,713,672 (291,266) 169,633,072
Undistributed investment
income--net............ 1,172,691 295,148 287,602 (1,755,441) --
Accumulated realized
capital losses on
investments
--net.................. (560,908) (6,006,366) (73,711) (6,640,985)
Unrealized appreciation
(depreciation) on
investments--net....... 6,359,671 3,932,052 (184,058) 10,107,665
------------ ----------- ----------- ----------- ------------
Total capital........... $129,807,780 $82,087,268 $52,459,162 $(2,095,441) $262,258,769
============ =========== =========== =========== ============
Net asset value per
share of Common Stock.. $ 15.26 $ 13.52 $ 14.82 $ 15.04
============ =========== =========== =========== ============
*Identified Cost $123,609,119 $76,924,058 $52,090,557 -- $252,623,734
============ =========== =========== =========== ============
+ AMPS issued and
outstanding 1,600 1,100 820 -- 3,520
============ =========== =========== =========== ============
++ Shares issued and
outstanding 5,883,760 4,037,179 2,156,567 (487,341) 11,590,165
============ =========== =========== =========== ============
</TABLE>
- --------
** Auction Market Preferred Shares
(1) Assumes the distribution of undistributed net investment income.
(2) Reflects the charge for estimated Reorganization expenses of $340,000.
See Notes to Financial Statements.
F-59
<PAGE>
The following unaudited pro forma Combined Statement of Operations has been
derived from the statement of operations of the respective Funds for the
periods indicated through 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 PENNSYLVANIA FUND, MUNIVEST PENNSYLVANIA INSURED FUND AND
MUNIHOLDINGS PENNSYLVANIA INSURED FUND
(Unaudited)
<TABLE>
<CAPTION>
MuniYield MuniVest MuniHoldings
Pennsylvania Pennsylvania Pennsylvania
For the period For the period For the period Pro Forma
November 1, 1998 November 1, 1998 February 26, 1999+ MuniYield
to April 30, 1999 to April 30, 1999 to April 30, 1999 Adjustments Pennsylvania
----------------- ----------------- ------------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Investment Income (Note
1d):
Interest and amortization
of premium and discount
earned................... $3,629,400 $2,226,969 $388,834 $6,245,203
---------- ---------- -------- ----------
Expenses:
Investment advisory fees
(Note 2)................. 326,589 205,636 39,499 571,724
Commission fees........... 50,546 33,669 7,477 91,692
Professional fees......... 30,750 30,941 6,782 (32,993)(1) 35,480
Accounting services (Note
2)....................... 28,411 27,447 3,853 (23,300)(1) 36,411
Transfer agent fees....... 26,709 16,162 3,774 (7,045)(1) 39,600
Trustees' fees and
expenses................. 13,524 11,224 5,751 (16,975)(1) 13,524
Printing and shareholder
reports.................. 13,678 12,094 2,076 27,848
Listing fees.............. 8,052 7,804 1,211 17,067
Custodian fees............ 3,849 3,542 664 8,055
Pricing fees.............. 3,496 3,008 669 7,173
Other..................... 6,674 7,598 1,133 15,405
---------- ---------- -------- ------- ----------
Total expenses before
reimbursement............ 512,278 359,125 72,889 (80,313) 863,979
Reimbursement of expenses
(Note 2)................. -- -- (54,588) -- (54,588)
---------- ---------- -------- ------- ----------
Total expenses after
reimbursement............ 512,278 359,125 18,301 (80,313) 809,391
---------- ---------- -------- ------- ----------
Investment income--net.... 3,117,122 1,867,844 370,533 80,313 5,435,812
---------- ---------- -------- ------- ----------
Realized & Unrealized
Gains (Losses) on
Investments--Net (Notes
1b & 1d)
Realized gain (loss) on
investments--net......... 531,883 297,931 (73,711) 756,103
Change in unrealized
appreciation/depreciation
on investments--net...... (1,983,280) (1,021,995) (184,058) (3,189,333)
---------- ---------- -------- ------- ----------
Net Increase in Net Assets
Resulting from
Operations............... $1,665,725 $1,143,780 $112,764 $80,313 $3,002,582
========== ========== ======== ======= ==========
</TABLE>
- --------
(1) Reflects the anticipated savings as a result of the Reorganization through
fewer audits and consolidation of accounting, printing and other services.
(2) This Pro Forma Combined Statement of Operations excludes non-recurring
estimated Reorganization expenses of $340,000.
+ Commencement of operations.
See Notes to Financial Statements.
F-60
<PAGE>
MUNIYIELD PENNSYLVANIA FUND,
MUNIVEST PENNSYLVANIA INSURED FUND
AND MUNIHOLDINGS PENNSYLVANIA INSURED FUND
COMBINED NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
MuniYield Pennsylvania Fund (the "Fund," which term as used herein shall
refer to MuniYield Pennsylvania Fund, after giving effect to the
Reorganization) is registered under the Investment Company Act of 1940 as a
non-diversified, closed-end management investment company. The Fund's
financial statements are prepared in accordance with generally accepted
accounting principles which may require the use of management accruals and
estimates. These unaudited financial statements reflect all adjustments which
are, in the opinion of management, necessary to a fair statement of the
results for the interim period presented. The Fund determines and makes
available for publication the net asset value of its Common Shares on a weekly
basis. The Fund's Common Shares are listed on the New York Stock Exchange
under the symbol MPA. 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 their fair value as determined in good
faith by or under the direction of the Board of Trustees 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 Trustees.
(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).
F-61
<PAGE>
MUNIYIELD PENNSYLVANIA FUND,
MUNIVEST PENNSYLVANIA INSURED FUND
AND MUNIHOLDINGS PENNSYLVANIA INSURED FUND
COMBINED NOTES TO FINANCIAL STATEMENTS (Concluded)
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.
(g) Custodian bank -- The MuniHoldings Pennsylvania Insured Fund recorded an
amount payable to the Custodian bank reflecting an overnight overdraft, which
resulted from timing differences of security transaction settlements.
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 Shares.
For MuniHoldings Pennsylvania Insured Fund, FAM earned fees of $39,499 for
the period February 26, 1999 to April 30, 1999, all of which was waived. In
addition, FAM reimbursed the fund $15,089 in additional expenses.
Accounting services are provided to the Fund by FAM at cost.
Certain officers and/or trustees of the Fund are officers and/or directors
of FAM, PSI, and/or ML & Co.
F-62
<PAGE>
EXHIBIT I
INFORMATION PERTAINING TO EACH FUND
.General Information Pertaining to the Funds
<TABLE>
<CAPTION>
Defined Term Fiscal State of Meeting
Fund Used in Exhibit I Year End Organization Time
- ---- ----------------- -------- ------------ -------
<S> <C> <C> <C> <C>
MuniYield Pennsylvania
Fund................... MuniYield Pennsylvania 10/31 MA 4:15 p.m.
MuniVest Pennsylvania
Insured Fund........... MuniVest Pennsylvania 10/31 MA 2:45 p.m.
MuniHoldings
Pennsylvania Insured
Fund................... MuniHoldings Pennsylvania 9/30 MA 1:45 p.m.
</TABLE>
<TABLE>
<CAPTION>
Capital Shares
Outstanding as of
the Record Date
------------------
Common
Fund Shares AMPS
- ---- ---------- -------
<S> <C> <C>
MuniYield Pennsylvania........................................ 5,891,406 1,600
MuniVest Pennsylvania......................................... 4,041,184 1,100
MuniHoldings Pennsylvania..................................... 2,170,570 820
</TABLE>
.Information Pertaining to Officers and Trustees
<TABLE>
<CAPTION>
Year in Which Each Nominee of MuniHoldings
Pennsylvania
Became a Member of the Board
-----------------------------------------------
Fund Bodurtha Glenn London Martin May Perold Zeikel
- ---- -------- ----- ------ ------ ---- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
MuniHoldings Pennsylvania....... 1998 1999 1998 1998 1998 1998 1998
</TABLE>
Set forth in the table below, with respect to each Fund, are the names of
the nominees elected or to be elected by holders of AMPS, voting separately as
a class, and the names of the nominees elected or to be elected by holders of
Common Shares and AMPS, voting together as a single class.
<TABLE>
<CAPTION>
Trustees/Nominees Trustees/Nominees Elected by Holders
Fund Elected by Holders of AMPS of Shares of Common Shares and AMPS
- ---- ---------------------------------- -------------------------------------
<S> <C> <C> <C> <C> <C>
MuniYield Pennsylvania.. Donald Cecil M. Colyer Crum Terry K. Glenn J. Thomas Touchton
Edward H. Meyer Fred G. Weiss
Jack B. Sunderland Arthur Zeikel
MuniVest Pennsylvania .. James H. Bodurtha Joseph L. May Andre F. Perold Robert R.Martin
Terry K. Glenn Arthur Zeikel
Herbert I. London
MuniHoldings
Pennsylvania........... Joseph L. May Andre F. Perold James H. Bodurtha Robert R. Martin
Terry K. Glenn Arthur Zeikel
Herbert I. London
</TABLE>
I-1
<PAGE>
Set forth in the table below is information regarding board and committee
meetings held and the aggregate fees and expenses paid by the Fund to non-
affiliated Board members during each Fund's most recently completed fiscal
year.
<TABLE>
<CAPTION>
Board Audit Committee
---------------------------- --------------------------
# # 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 Pennsylvania.. 5 2,500 250 4 500 125 26,197
MuniVest Pennsylvania... 7 2,500 250 4 500 125 23,045
MuniHoldings
Pennsylvania........... 4 2,500 250 3 500 125 20,855
</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
the Fund to the non-affiliated Board members for the most recently completed
fiscal year.
<TABLE>
<CAPTION>
Compensation From MuniVest Pennsylvania
and MuniHoldings Pennsylvania ($)*
--------------------------------------------
Fund Bodurtha London Martin May Perold
- ---- ------------------ -------- ------- --------
<S> <C> <C> <C> <C> <C>
MuniVest Pennsylvania.............. 4,500 4,500 4,500 4,500 4,500
MuniHoldings Pennsylvania.......... 4,375 4,375 4,375 4,375 4,375
</TABLE>
<TABLE>
<CAPTION>
Compensation From MuniYield Pennsylvania ($)*
-----------------------------------------------------
Fund Cecil Crum Meyer Sunderland Touchton Weiss
- ---- ------- ------- ------- ----------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
MuniYield Pennsylvania.... 4,500 4,500 4,500 4,500 4,500 3,250
</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 MuniYield
Pennsylvania to the non-affiliated Board members for the year ended December
31, 1998.
<TABLE>
<CAPTION>
Aggregate Compensation
From FAM/MLAM
Advised Funds Paid
Name of Board Member to Board members ($)*
- -------------------- ----------------------
<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............................................ $140,842
</TABLE>
- --------
* The Trustees serve on the boards of MLAM/FAM advised funds as follows: Mr.
Cecil (35 registered investment companies consisting of 35 portfolios); Mr.
Crum (17 registered investment companies consisting of 17 portfolios); Mr.
Meyer (35 registered investment companies consisting of 35 portfolios); Mr.
Sunderland (20 registered investment companies consisting of 36
portfolios); Mr. Touchton (20 registered investment companies consisting of
36 portfolios) and Mr. Weiss (17 registered investment companies consisting
of 17 portfolios);
I-2
<PAGE>
Set forth in the table below is information regarding the aggregate
compensation paid by all FAM/MLAM Advised Funds, including MuniVest
Pennsylvania and MuniHoldings Pennsylvania, to the non-affiliated Board
members for the year ended December 31, 1998.
<TABLE>
<CAPTION>
Aggregate Compensation
From FAM/MLAM Advised Funds
Name of Board Member Paid to Board members ($)(*)
- -------------------- ----------------------------
<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>
- --------
(*) The Trustees 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 about the Trustees of MuniYield
Pennsylvania and MuniVest Pennsylvania. Information about the Trustees of
MuniHoldings Pennsylvania is set forth in the Proxy Statement and Prospectus
under Item 2. Election of Trustees. Unless otherwise noted, the address of
each Trustee is 800 Scudders Mill Road, Plainsboro, New Jersey 08536.
<TABLE>
<CAPTION>
Trustee Since
-------------------------
MuniYield MuniVest
Name, Address and Biography Age Pennsylvania Pennsylvania
- ------------------------------------------------- --- ------------ ------------
<S> <C> <C> <C>
James H. Bodurtha................................ 55 -- 1995
36 Popponesset Road, Cotuit, Massachusetts
02635. Director and Executive Vice President,
The China Business Group, Inc. since 1996;
Chairman and Chief Executive Officer, China
Enterprise Management Corporation from 1993 to
1996; Chairman, Berkshire Corporation since
1980; Partner, Squire, Sanders & Dempsey from
1980 to 1993; Director, Gilder Group LLC and
related companies since 1999.
Herbert I. London ............................... 60 -- 1992
2 Washington Square Village, New York, New York
10012. John M. Olin Professor of Humanities at
New York University since 1993 and Professor
thereof since 1980; Dean, Gallatin Division of
New York University from 1976 to 1993;
Distinguished Fellow, Herman Kahn Chair at
Hudson Institute from 1984 to 1985; Director,
Damon Corporation from 1991 to 1995; Overseer,
Center for Naval Analyses from 1983 to 1993;
Limited Partner, Hypertech LP in 1996.
Robert R. Martin ................................ 72 -- 1993
513 Grand Hill, St. Paul, Minnesota 55102.
Chairman and Chief Executive Officer, Kinnard
Investments, Inc. from 1990 to 1993; Executive
Vice President, Dain Bosworth from 1974 to 1989;
Director, Carnegie Capital Management from 1977
to 1985 and Chairman thereof in 1979; Director,
Securities Industry Association from 1981 to
1982 and Public Securities Association from 1979
to 1980; Chairman of the Board, WTC Industries,
Inc. in 1994; Trustee, Northland College since
1992.
</TABLE>
I-3
<PAGE>
<TABLE>
<CAPTION>
Trustee Since
-------------------------
MuniYield MuniVest
Name, Address and Biography Age Pennsylvania Pennsylvania
- --------------------------------------------- --- ------------ ------------
<S> <C> <C> <C> <C>
Joseph L. May................................ 70 -- 1992
424 Church Street, Suite 2000, Nashville,
Tennessee 37219. Attorney in private
practice since 1984; President, May and
Athens Hosiery Mills Division, Wayne-Gossard
Corporation from 1954 to 1983; Vice
President, Wayne-Gossard Corporation from
1972 to 1983; Chairman, The May Corporation
(personal holding company) from 1972 to
1983; Director, Signal Apparel Co. from 1972
to 1989.
Andre F. Perold.............................. 47 -- 1992
Morgan Hall, Soldiers Field, Boston,
Massachusetts 02163. Professor, Harvard
Business School since 1989 and Associate
Professor from 1983 to 1989; Trustee, The
Common Fund since 1989; Director of Quantec
Limited from 1991 to 1999; Director, TIBCO
from 1994 to 1996; Director, Genbel
Securities Limited and Genbel Bank since
1999.
Terry K. Glenn............................... 59 1999 1999
Executive Vice President of MLAM and FAM
since 1983; Executive Vice President and
Director of Princeton Services, Inc.
("Princeton Services") since 1993; President
of Princeton Funds Distributor, Inc. ("PFD")
since 1986 and Director thereof since 1991;
President of Princeton Administrators, L.P.
since 1988.
Arthur Zeikel................................ 67 1992 1992
300 Woodland Avenue, Westfield, New Jersey
07090. Chairman of FAM and MLAM from 1997 to
1999; President of FAM and MLAM from 1977 to
1997; Chairman of Princeton Services from
1997 to 1999, Director thereof from 1993 to
1999 and President thereof from 1993 to
1997; Executive Vice President of Merrill
Lynch & Co., Inc. from 1990 to 1999.
Donald Cecil................................. 72 1992 --
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 --
104 Westcliff Road, Weston, Massachusetts
02193. Currently James R. Williston
Professor of Investment Management Emeritus
at Harvard Business School; James R.
Williston Professor of Investment Management
at Harvard Business School from 1971 to
1996; Director of Cambridge Bancorp, Copley
Properties, Inc. and Sun Life Assurance
Company of Canada.
</TABLE>
I-4
<PAGE>
<TABLE>
<CAPTION>
Trustee Since
-------------------------
MuniYield MuniVest
Name, Address and Biography Age Pennsylvania Pennsylvania
- ------------------------------------------------- --- ------------ ------------
<S> <C> <C> <C>
Laurie Simon Hodrick............................. 37 1999* --
809 Uris Hall, 3022 Broadway, New York, New York
10027. Professor of Finance and Economics,
Graduate School of Business, Columbia University
since 1998; Associate Professor of Finance and
Economics, Graduate School of Business, Columbia
University from 1996 to 1998; Associate
Professor of Finance, J.L. Kellogg Graduate
School of Management, Northwestern University
from 1992 to 1996.
Edward H. Meyer.................................. 72 1992 --
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; Harman
International Industries, Inc. and Ethan Allen
Interiors, Inc.
Jack B. Sunderland............................... 70 1992 --
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 --
Suite 3405, One Tampa City Center, 201 North
Franklin Street, Tampa, Florida 33062. Managing
Partner of The Witt Touchton Company and its
predecessor, The Witt Co. (a private investment
partnership), since 1972; Trustee Emeritus of
Washington and Lee University; Director of TECO
Energy, Inc. (an electric utility holding
company).
Fred G. Weiss.................................... 58 1998 --
16410 Maddalena Place, Delray Beach, Florida
33446. Managing Director of FGW Associates since
1997; Vice President, Planning Investment, and
Development of Warner Lambert Co. from 1979 to
1997.
*Ms. Hodrick was elected to the Board of MuniYield Pennsylvania on November 4,
1999 and therefore no other information is required to be provided in this
Exhibit I.
</TABLE>
I-5
<PAGE>
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 Pennsylvania Pennsylvania Pennsylvania
- ------------------ --- -------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Terry K. Glenn.......... 59 President 1992* 1992* 1998*
Executive Vice
President of MLAM and
FAM since 1983;
Executive Vice
President and Director
of Princeton Services
since 1993; President
of PFD since 1986 and
Director thereof since
1991; President of
Princeton
Administrators, L.P.
since 1988.
Vincent R. Giordano..... 55 Senior Vice 1992 1992 1998
Senior Vice President President
of FAM and MLAM 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 1992 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 1992 1993 1998
Senior Vice President Treasurer 1999 1999 1999
and Treasurer of 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.. 32 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.
William R. Bock......... 63 Vice President 1997 1997 1998
Vice President of MLAM
since 1989.
Alice A. Pellegrino..... 39 Secretary 1999 1999 1998
Vice President of MLAM
since 1999; Attorney
associated with MLAM
since 1997; Associate
with Kirkpatrick &
Lockhart LLP from 1992
to 1997.
</TABLE>
- --------
* Mr. Glenn was elected President of each Fund in 1999. Prior to that he
served as Executive Vice President of each Fund.
I-6
<PAGE>
EXHIBIT II
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made as of
the 9th day of November, 1999, by and between MuniYield Pennsylvania Fund, a
Massachusetts business trust ("MuniYield Pennsylvania"), MuniVest Pennsylvania
Insured Fund, a Massachusetts business trust ("MuniVest Pennsylvania") and
MuniHoldings Pennsylvania Insured Fund, a Massachusetts business trust
("MuniHoldings Pennsylvania") (MuniYield Pennsylvania, MuniVest Pennsylvania
and MuniHoldings Pennsylvania are sometimes referred to herein collectively as
the "Funds"; MuniVest Pennsylvania and MuniHoldings Pennsylvania 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 Pennsylvania of substantially all of
the assets, and the assumption by MuniYield Pennsylvania of substantially
all of the liabilities of MuniVest Pennsylvania in exchange solely for an
equal aggregate value of newly issued (A) common shares, with a par value
of $0.10 per share ("Common Shares"), of MuniYield Pennsylvania ("MuniYield
Pennsylvania Common Shares") and (B) auction market preferred shares
("AMPS") of MuniYield Pennsylvania, 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 Pennsylvania Series B AMPS"), and (2) the subsequent
distribution by MuniVest Pennsylvania to MuniVest Pennsylvania shareholders
of (x) all of the MuniYield Pennsylvania Common Shares received by MuniVest
Pennsylvania in exchange for such shareholders' Common Shares, with a par
value of $0.10 per share, of MuniVest Pennsylvania ("MuniVest Pennsylvania
Common Shares") and (y) all of the MuniYield Pennsylvania Series B AMPS
received by MuniVest Pennsylvania in exchange for such shareholders'
outstanding shares of AMPS shares of MuniVest Pennsylvania, 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 Pennsylvania AMPS");
(b) (1) the acquisition by MuniYield Pennsylvania of substantially all of
the assets, and the assumption by MuniYield Pennsylvania of substantially
all of the liabilities of MuniHoldings Pennsylvania in exchange solely for
an equal aggregate value of newly issued shares of (A) MuniYield
Pennsylvania Common Shares and (B) MuniYield Pennsylvania Series B AMPS and
(2) the subsequent distribution by MuniHoldings Pennsylvania to
MuniHoldings Pennsylvania shareholders of (x) all of the MuniYield
Pennsylvania Common Shares received by MuniHoldings Pennsylvania in
exchange for such shareholders' Common Shares, with a par value of $0.10
per share, of MuniHoldings Pennsylvania ("MuniHoldings Pennsylvania Common
Shares") and (y) all of the MuniYield Pennsylvania Series B AMPS received
by MuniHoldings Pennsylvania in exchange for such shareholders' shares of
AMPS, of MuniHoldings Pennsylvania, 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 Pennsylvania AMPS");
all upon and subject to the terms hereinafter set forth (collectively, the
"Reorganization").
In the course of the Reorganization, MuniYield Pennsylvania Common Shares,
and MuniYield Pennsylvania Series B AMPS will be distributed to the
shareholders of the Acquired Funds as follows:
(a) (1) each holder of MuniVest Pennsylvania Common Shares will be
entitled to receive a number of MuniYield Pennsylvania Common Shares equal
to the aggregate net asset value of the MuniVest Pennsylvania Common Shares
owned by such shareholder on the Exchange Date; and (2) each holder of
MuniVest Pennsylvania AMPS will be entitled to receive a number of shares
of MuniYield Pennsylvania
II-1
<PAGE>
Series B AMPS equal to the aggregate liquidation preference (and aggregate
value) of the MuniVest Pennsylvania AMPS owned by such shareholder on the
Exchange Date; and
(b) (1) each holder of MuniHoldings Pennsylvania Common Shares will be
entitled to receive a number of shares of MuniYield Pennsylvania Common
Shares equal to the aggregate net asset value of the MuniHoldings
Pennsylvania Common Shares owned by such shareholder on the Exchange Date;
and (2) each holder of MuniHoldings Pennsylvania AMPS will be entitled to
receive a number of shares of MuniYield Pennsylvania Series B AMPS equal to
the aggregate liquidation preference (and aggregate value) of the
MuniHoldings Pennsylvania AMPS owned by such shareholder 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 shareholders 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 Pennsylvania AMPS and MuniHoldings
Pennsylvania AMPS prior to the Exchange Date may be shorter than the dividend
period for such AMPS determined as set forth in the applicable Certificate of
Designation.
A Certificate of Designation of MuniYield Pennsylvania, designating the
currently outstanding series of AMPS of MuniYield Pennsylvania as Series A and
establishing the powers, rights and preferences of the MuniYield Pennsylvania
Series B AMPS will have been filed with the Office of the Secretary of State
of the Commonwealth of Massachusetts 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
Commonwealth of Massachusetts 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 Pennsylvania.
MuniYield Pennsylvania represents and warrants to, and agrees with, the
Acquired Funds that:
(a) MuniYield Pennsylvania is a trust with transferable shares, duly
organized, validly existing and in good standing in conformity with the
laws of the Commonwealth of Massachusetts, and has the power to own all of
its assets and to carry out this Agreement. MuniYield Pennsylvania 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 Pennsylvania is duly registered under the 1940 Act as a
non-diversified, closed-end management investment company (File No. 811-
73136), and such registration has not been revoked or rescinded and is in
full force and effect. MuniYield Pennsylvania 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.
II-2
<PAGE>
(c) Each of the Acquired Funds has been furnished with MuniYield
Pennsylvania's Annual Report to Shareholders for the fiscal year ended
October 31, 1998, and the audited financial statements appearing therein,
having been audited by Deloitte & Touche LLP, independent public
accountants, fairly present the financial position of MuniYield
Pennsylvania 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
Pennsylvania's Semi-Annual Report to Shareholders for the six months ended
April 30, 1999, and the unaudited financial statements appearing therein
fairly present the financial position of MuniYield Pennsylvania 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 Pennsylvania and an unaudited schedule of investments of
MuniYield Pennsylvania, each as of the Valuation Time (as defined in
Section 5(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 Pennsylvania Common Shares and MuniYield
Pennsylvania Series B AMPS, to be issued pursuant to Section 6 of this
Agreement; each will fairly present the financial position of MuniYield
Pennsylvania as of the Valuation Time in conformity with generally accepted
accounting principles applied on a consistent basis.
(f) MuniYield Pennsylvania 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 Trustees, 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 Pennsylvania, threatened against
it which assert liability on the part of MuniYield Pennsylvania or which
materially affect its financial condition or its ability to consummate the
Reorganization. MuniYield Pennsylvania 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 Pennsylvania is not obligated under any provision of its
Declaration of Trust or its by-laws 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
Pennsylvania 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 Pennsylvania 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,
1999; and those incurred in connection with the Reorganization. As of the
Valuation Time, MuniYield Pennsylvania 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
Pennsylvania 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 Pennsylvania 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
Pennsylvania relating to the MuniYield Pennsylvania Common Shares and
MuniYield Pennsylvania Series B AMPS to be issued pursuant to this
Agreement, (the "Joint Proxy Statement and
II-3
<PAGE>
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 shareholders' meetings referred to
in Section 8(a) of this Agreement and at the Exchange Date, insofar as it
relates to MuniYield Pennsylvania (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
Pennsylvania for use in the N-14 Registration Statement as provided in
Section 8(e) of this Agreement.
(m) MuniYield Pennsylvania is authorized to issue an unlimited number of
common shares of beneficial interest, par value $0.10 per share and
1,000,000 preferred shares of beneficial interest, par value $0.05 per
share. The Board of Trustees of MuniYield Pennsylvania has designated 1,600
preferred shares as Auction Market Preferred Shares. Each outstanding
common share of beneficial interest and each outstanding Auction Market
Preferred Share of MuniYield Pennsylvania is fully paid and nonassessable
and has full voting rights.
(n) The MuniYield Pennsylvania Common Shares and MuniYield Pennsylvania
Series B 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 shareholder of
MuniYield Pennsylvania will have any preemptive right of subscription or
purchase in respect thereof.
(o) At or prior to the Exchange Date, the MuniYield Pennsylvania Common
Shares to be transferred to the Acquired Funds for distribution to the
shareholders 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
Pennsylvania Series B AMPS to be transferred to MuniVest Pennsylvania and
MuniHoldings Pennsylvania 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 MuniYield Pennsylvania Series B 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 Pennsylvania will have
obtained any and all regulatory, Trustee and shareholder approvals
necessary to issue the MuniYield Pennsylvania Common Shares and MuniYield
Pennsylvania Series B AMPS.
2.Representations and Warranties of MuniVest Pennsylvania.
MuniVest Pennsylvania represents and warrants to, and agrees with, MuniYield
Pennsylvania and MuniHoldings Pennsylvania that:
(a) MuniVest Pennsylvania is a trust with transferable shares, duly
organized, validly existing and in good standing in conformity with the
laws of the Commonwealth of Massachusetts, and has the power to own all of
its assets and to carry out this Agreement. MuniVest Pennsylvania 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 Pennsylvania is duly registered under the 1940 Act as a non-
diversified, closed-end management investment company (File No. 811-7750),
and such registration has not been revoked or rescinded and is in full
force and effect. MuniVest Pennsylvania 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.
II-4
<PAGE>
(c) As used in this Agreement, the term "MuniVest Pennsylvania
Investments" shall mean (i) the investments of MuniVest Pennsylvania shown
on the schedule of its investments as of the Valuation Time furnished to
each of MuniYield Pennsylvania and MuniHoldings Pennsylvania; and (ii) all
other assets owned by MuniVest Pennsylvania or liabilities incurred as of
the Valuation Time.
(d) MuniVest Pennsylvania 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 Trustees 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 Pennsylvania and MuniHoldings Pennsylvania has been
furnished with MuniVest Pennsylvania's Annual Report to Shareholders for
the fiscal year ended October 31, 1998, and the audited financial
statements appearing therein, having been audited by Deloitte & Touche LLP,
independent public accountants, fairly present the financial position of
MuniVest Pennsylvania as of the respective dates indicated, in conformity
with generally accepted accounting principles applied on a consistent
basis.
(f) Each of MuniYield Pennsylvania and MuniHoldings Pennsylvania has been
furnished with MuniVest Pennsylvania's Semi-Annual Report to Shareholders
for the six months ended April 30, 1999, and the unaudited financial
statements appearing therein fairly present the financial position of
MuniVest Pennsylvania 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
Pennsylvania and an unaudited schedule of investments of MuniVest
Pennsylvania, each as of the Valuation Time, will be furnished to each of
MuniYield Pennsylvania and MuniHoldings Pennsylvania at or prior to the
Exchange Date for the purpose of determining the number of shares of
MuniYield Pennsylvania Common Shares and MuniYield Pennsylvania Series B
AMPS to be issued pursuant to Section 6 of this Agreement; each will fairly
present the financial position of MuniVest Pennsylvania 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 Pennsylvania, threatened against
it which assert liability on the part of MuniVest Pennsylvania or which
materially affect its financial condition or its ability to consummate the
Reorganization. MuniVest Pennsylvania, 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
Pennsylvania is a party that have not been disclosed in the N-14
Registration Statement or will not otherwise be disclosed to MuniYield
Pennsylvania and MuniHoldings Pennsylvania prior to the Valuation Time.
(j) MuniVest Pennsylvania is not obligated under any provision of its
Declaration of Trust or its by-laws, nor is it 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 Pennsylvania 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 Pennsylvania will advise MuniYield Pennsylvania
and MuniHoldings Pennsylvania 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.
II-5
<PAGE>
(l) MuniVest Pennsylvania 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 Pennsylvania have been
adequately provided for on its books, and no tax deficiency or liability of
MuniVest Pennsylvania 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
Pennsylvania will have full right, power and authority to sell, assign,
transfer and deliver the MuniVest Pennsylvania Investments. At the Exchange
Date, subject only to the obligation to deliver the MuniVest Pennsylvania
Investments as contemplated by this Agreement, MuniVest Pennsylvania will
have good and marketable title to all of the MuniVest Pennsylvania
Investments, and MuniYield Pennsylvania will acquire all of the MuniVest
Pennsylvania 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 Pennsylvania 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
Pennsylvania 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 shareholders' meetings referred to in Section 8(a) of this Agreement
and on the Exchange Date, insofar as it relates to MuniVest Pennsylvania
(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 Pennsylvania for use in the N-14 Registration
Statement as provided in Section 8(e) of this Agreement.
(p) MuniVest Pennsylvania is authorized to issue an unlimited number of
common shares of beneficial interest, par value $0.10 per share, and
1,000,000 preferred shares of beneficial interest, par value of $0.05 per
share. The Board of Trustees of MuniVest Pennsylvania has designated 1,100
of the preferred shares as Auction Market Preferred Shares. Each
outstanding common share of beneficial interest and each outstanding
Auction Market Preferred Share of MuniVest Pennsylvania is fully paid and
nonassessable and has full voting rights.
(q) All of the issued and outstanding MuniVest Pennsylvania Common Shares
and MuniVest Pennsylvania AMPS were offered for sale and sold in conformity
with all applicable Federal and state securities laws.
(r) The books and records of MuniVest Pennsylvania made available to
MuniYield Pennsylvania, and MuniHoldings Pennsylvania and/or their counsel
are substantially true and correct and contain no material misstatements or
omissions with respect to the operations of MuniVest Pennsylvania.
(s) MuniVest Pennsylvania will not sell or otherwise dispose of any of
the shares of MuniYield Pennsylvania Common Shares or MuniYield
Pennsylvania Series B AMPS to be received in the Reorganization, except in
distribution to the shareholders of MuniVest Pennsylvania, as provided in
Section 5 of this Agreement.
II-6
<PAGE>
3.Representations and Warranties of MuniHoldings Pennsylvania.
MuniHoldings Pennsylvania represents and warrants to, and agrees with,
MuniYield Pennsylvania and MuniVest Pennsylvania that:
(a) MuniHoldings Pennsylvania is a trust with transferable shares, duly
organized, validly existing and in good standing in conformity with the
laws of the Commonwealth of Massachusetts, and has the power to own all of
its assets and to carry out this Agreement. MuniHoldings Pennsylvania 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 Pennsylvania is duly registered under the 1940 Act as a
non-diversified, closed-end management investment company (File No. 811-
09133), and such registration has not been revoked or rescinded and is in
full force and effect. MuniHoldings Pennsylvania 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 Pennsylvania
Investments" shall mean (i) the investments of MuniHoldings Pennsylvania
shown on the schedule of its investments as of the Valuation Time furnished
to each of MuniYield Pennsylvania and MuniVest Pennsylvania; and (ii) all
other assets owned by MuniHoldings Pennsylvania or liabilities incurred as
of the Valuation Time. The MuniHoldings Pennsylvania Investments together
with the MuniVest Pennsylvania Investments may sometimes be referred to
herein collectively as the "Acquired Fund Investments".
(d) MuniHoldings Pennsylvania 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 Trustees 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 Pennsylvania and MuniVest Pennsylvania has been
furnished with MuniHoldings Pennsylvania's Semi-Annual Report to
Shareholders for the period ended March 31, 1999, and the unaudited
financial statements appearing therein fairly present the financial
position of MuniHoldings Pennsylvania as of the respective dates indicated,
in conformity with generally accepted accounting principles applied on a
consistent basis.
(f) An unaudited statement of assets, liabilities and capital of
MuniHoldings Pennsylvania and an unaudited schedule of investments of
MuniHoldings Pennsylvania, each as of the Valuation Time, will be furnished
to each of MuniYield Pennsylvania and MuniVest Pennsylvania at or prior to
the Exchange Date for the purpose of determining the number of shares of
MuniYield Pennsylvania Common Shares and MuniYield Pennsylvania Series B
AMPS to be issued to MuniHoldings Pennsylvania pursuant to Section 6 of
this Agreement; each will fairly present the financial position of
MuniHoldings Pennsylvania as of the Valuation Time in conformity with
generally accepted accounting principles applied on a consistent basis.
(g) There are no material legal, administrative or other proceedings
pending or, to the knowledge of MuniHoldings Pennsylvania, threatened
against it which assert liability on the part of MuniHoldings Pennsylvania
or which materially affect its financial condition or its ability to
consummate the Reorganization. MuniHoldings Pennsylvania, is not charged
with or, to the best of its knowledge, threatened with any violation or
investigation of any possible violation of any provisions of any Federal,
state or local law or regulation or administrative ruling relating to any
aspect of its business.
(h) There are no material contracts outstanding to which MuniHoldings
Pennsylvania is a party that have not been disclosed in the N-14
Registration Statement or will not otherwise be disclosed to MuniYield
Pennsylvania and MuniVest Pennsylvania prior to the Valuation Time.
(i) MuniHoldings Pennsylvania is not obligated under any provision of its
Declaration of Trust or by-laws, nor is it a party to any contract or other
commitment or obligation, and is not subject to any order or
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decree which would be violated by its execution of or performance under
this Agreement, except insofar as the Funds have mutually agreed to amend
such contract or other commitment or obligation to cure any potential
violation as a condition precedent to the Reorganization.
(j) MuniHoldings Pennsylvania 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, 1999 and those incurred in connection with the Reorganization. As of
the Valuation Time, MuniHoldings Pennsylvania will advise MuniYield
Pennsylvania and MuniVest Pennsylvania in writing of all known liabilities,
contingent or otherwise, whether or not incurred in the ordinary course of
business, existing or accrued as of such time.
(k) MuniHoldings Pennsylvania 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 Pennsylvania
have been adequately provided for on its books, and no tax deficiency or
liability of MuniHoldings Pennsylvania has been asserted and no question
with respect thereto has been raised by the Internal Revenue Service or by
any state or local tax authority for taxes in excess of those already paid,
up to and including the taxable year in which the Exchange Date occurs.
(l) At both the Valuation Time and the Exchange Date, MuniHoldings
Pennsylvania will have full right, power and authority to sell, assign,
transfer and deliver the MuniHoldings Pennsylvania Investments. At the
Exchange Date, subject only to the obligation to deliver the MuniHoldings
Pennsylvania Investments as contemplated by this Agreement, MuniHoldings
Pennsylvania will have good and marketable title to all of the MuniHoldings
Pennsylvania Investments, and MuniYield Pennsylvania will acquire all of
the MuniHoldings Pennsylvania 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 Pennsylvania
Investments or materially affect title thereto).
(m) No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by MuniHoldings
Pennsylvania of the Reorganization, except such as may be required under
the 1933 Act, the 1934 Act, the 1940 Act or state securities laws.
(n) The N-14 Registration Statement, on its effective date, at the time
of the shareholders' meetings referred to in Section 8(a) of this Agreement
and on the Exchange Date, insofar as it relates to MuniHoldings
Pennsylvania (i) complied or will comply in all material respects with the
provisions of the 1933 Act, the 1934 Act and the 1940 Act and the rules and
regulations thereunder, and (ii) did not or will not contain any untrue
statement of a material fact or omit to state any material fact required to
be stated therein or necessary to make the statements therein not
misleading; and the Joint Proxy Statement and Prospectus included therein
did not or will not contain any untrue statement of a material fact or omit
to state any material fact necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading;
provided, however, that the representations and warranties in this
subsection shall apply only to statements in or omissions from the N-14
Registration Statement made in reliance upon and in conformity with
information furnished by MuniHoldings Pennsylvania for use in the N-14
Registration Statement as provided in Section 8(e) of this Agreement.
(o) MuniHoldings Pennsylvania is authorized to issue an unlimited number
of common shares of beneficial interest, par value $0.10 per share, and
1,000,000 preferred shares of beneficial interest, par value $0.10 per
share. The Board of Trustees of MuniHoldings Pennsylvania has designated
820 of the preferred shares as Auction Market Preferred Shares, Series A.
Each outstanding common share of beneficial interest and each outstanding
Auction Market Preferred Share of MuniHoldings Pennsylvania is fully paid
and nonassessable and has full voting rights.
(p) All of the issued and outstanding shares of MuniHoldings Pennsylvania
Common Shares and MuniHoldings Pennsylvania AMPS were offered for sale and
sold in conformity with all applicable Federal and state securities laws.
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<PAGE>
(q) The books and records of MuniHoldings Pennsylvania made available to
MuniYield Pennsylvania and MuniVest Pennsylvania and/or their counsel are
substantially true and correct and contain no material misstatements or
omissions with respect to the operations of MuniHoldings Pennsylvania.
(r) MuniHoldings Pennsylvania will not sell or otherwise dispose of any
of the shares of MuniYield Pennsylvania Common Shares or MuniYield
Pennsylvania Series B AMPS to be received in the Reorganization, except in
distribution to the shareholders of MuniHoldings Pennsylvania, as provided
in Section 5 of this Agreement.
4.The Reorganization.
(a) Subject to receiving the requisite approvals of the shareholders of each
of the Funds, and to the other terms and conditions contained herein, (i)
MuniVest Pennsylvania agrees to convey, transfer and deliver to MuniYield
Pennsylvania and MuniYield Pennsylvania agrees to acquire from MuniVest
Pennsylvania on the Exchange Date, all of the MuniVest Pennsylvania
Investments (including interest accrued as of the Valuation Time on debt
instruments) and assume substantially all of the liabilities of MuniVest
Pennsylvania in exchange solely for that number of shares of MuniYield
Pennsylvania Common Shares and MuniYield Pennsylvania Series B AMPS provided
in Section 5 of this Agreement; (ii) MuniHoldings Pennsylvania agrees to
convey, transfer and deliver to MuniYield Pennsylvania and MuniYield
Pennsylvania agrees to acquire from MuniHoldings Pennsylvania on the Exchange
Date, all of the MuniHoldings Pennsylvania Investments (including interest
accrued as of the Valuation Time on debt instruments) and assume substantially
all of the liabilities of MuniHoldings Pennsylvania in exchange solely for
that number of shares of MuniYield Pennsylvania Common Shares and MuniYield
Pennsylvania Series B AMPS provided in Section 5 of this Agreement and (iii)
MuniYield Pennsylvania agrees to change its investment policies to provide
that the Fund, under normal circumstances, will invest at least 80% of its
assets 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, as well as to change the Fund's name to "MuniYield
Pennsylvania Insured Fund."
Pursuant to this Agreement, as soon as practicable after the Exchange Date
(i) MuniVest Pennsylvania will distribute all shares of MuniYield Pennsylvania
Common Shares and MuniYield Pennsylvania Series B AMPS received by it to its
shareholders in exchange for their shares of MuniVest Pennsylvania Common
Shares and MuniVest Pennsylvania AMPS and (ii) MuniHoldings Pennsylvania will
distribute all shares of MuniYield Pennsylvania Common Shares and MuniYield
Pennsylvania Series B AMPS received by it to its shareholders in exchange for
their shares of MuniHoldings Pennsylvania Common Shares and MuniHoldings
Pennsylvania AMPS. Such distributions shall be accomplished by the opening of
shareholder accounts on the shares ledger records of MuniYield Pennsylvania in
the amounts due the shareholders 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 shareholders 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 Pennsylvania AMPS and the MuniHoldings
Pennsylvania AMPS prior to the Exchange Date may be shorter than the dividend
period for such AMPS determined as set forth in the applicable Certificate of
Designation.
(c) Each of the Acquired Funds will pay or cause to be paid to MuniYield
Pennsylvania any interest such Acquired Fund receives on or after the Exchange
Date with respect to any of the Acquired Fund Investments transferred to
MuniYield Pennsylvania hereunder.
(d) The Valuation Time shall be 4:00 p.m., Eastern time, on February 18,
2000, or such earlier or later day and time as may be mutually agreed upon in
writing (the "Valuation Time").
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<PAGE>
(e) Recourse for liabilities assumed from each Acquired Fund by MuniYield
Pennsylvania in the Reorganization will be limited to the net assets of each
such fund acquired by MuniYield Pennsylvania. The known liabilities of the
Acquired Funds, as of the Valuation Time, shall be confirmed in writing to
MuniYield Pennsylvania pursuant to Sections 2(k) and 3(j) of this Agreement.
(f) The Acquired Funds will each be dissolved following the Exchange Date by
filing separate Certificate of Termination with the Commonwealth of
Massachusetts.
(g) MuniYield Pennsylvania will file with the Commonwealth of Massachusetts
a Certificate of Designation designating the currently outstanding series of
AMPS of MuniYield Pennsylvania as Series A and establishing the powers, rights
and preferences of the MuniYield Pennsylvania Series B AMPS prior to the
closing of the Reorganization.
(h) As promptly as practicable after the liquidation of each of the Acquired
Funds pursuant to the Reorganization, each Acquired Fund shall terminate its
respective registration under the 1940 Act.
5. Issuance and Valuation of MuniYield Pennsylvania Common Shares and
MuniYield Pennsylvania Series B AMPS in the Reorganization.
Full shares of MuniYield Pennsylvania Common Shares and MuniYield
Pennsylvania 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 Pennsylvania acquired in the
Reorganization determined as hereinafter provided, reduced by the amount of
liabilities of MuniVest Pennsylvania assumed by MuniYield Pennsylvania in the
Reorganization, shall be issued by MuniYield Pennsylvania to MuniVest
Pennsylvania in exchange for such assets of MuniVest Pennsylvania, plus cash
in lieu of fractional shares. MuniYield Pennsylvania will issue to MuniVest
Pennsylvania (a) a number of MuniYield Pennsylvania Common Shares, the
aggregate net asset value of which will equal the aggregate net asset value of
the shares of MuniVest Pennsylvania Common Shares, determined as set forth
below, and (b) a number of shares of MuniYield Pennsylvania Series B AMPS, the
aggregate liquidation preference and value of which will equal the aggregate
liquidation preference and value of the MuniVest Pennsylvania AMPS, determined
as set forth below.
Full shares of MuniYield Pennsylvania Common Shares and MuniYield
Pennsylvania Series B AMPS of an aggregate net asset value or liquidation
preference, as the case may be, equal (to the nearest one ten thousandth of
one cent) to the value of the assets of MuniHoldings Pennsylvania acquired in
the Reorganization determined as hereinafter provided, reduced by the amount
of liabilities of MuniHoldings Pennsylvania assumed by MuniYield Pennsylvania
to MuniHoldings Pennsylvania in the Reorganization, shall be issued by
MuniYield Pennsylvania in exchange for such assets of MuniHoldings
Pennsylvania, plus cash in lieu of fractional shares. MuniYield Pennsylvania
will issue to MuniHoldings Pennsylvania (a) a number of MuniYield Pennsylvania
Common Shares, the aggregate net asset value of which will equal the aggregate
net asset value of the shares of MuniHoldings Pennsylvania Common Shares,
determined as set forth below, and (b) a number of shares of MuniYield
Pennsylvania Series B AMPS, the aggregate liquidation preference and value of
which will equal the aggregate liquidation preference and value of the
MuniHoldings Pennsylvania AMPS, determined as set forth below.
The net asset value of each of the Funds and the liquidation preference and
value of the AMPS of each of the Funds shall be determined as of the Valuation
Time in accordance with the procedures described in (i) the final prospectus
of MuniYield Pennsylvania, dated September 11, 1992, relating to the MuniYield
Pennsylvania Common Shares and (ii) the prospectus of MuniYield Pennsylvania,
dated November 23, 1992, relating to the MuniYield Pennsylvania 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 Pennsylvania
shall be determined by MuniYield Pennsylvania pursuant to the procedures
utilized by MuniYield Pennsylvania in valuing its own assets and determining
its own liabilities for purposes of the Reorganization.
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Such valuation and determination shall be made by MuniYield Pennsylvania in
cooperation with the Acquired Funds and shall be confirmed in writing by
MuniYield Pennsylvania to the Acquired Funds. The net asset value per share of
the MuniYield Pennsylvania Common Shares and the liquidation preference and
value per share of the MuniYield Pennsylvania Series B AMPS shall be
determined in accordance with such procedures and MuniYield Pennsylvania shall
certify the computations involved. For purposes of determining the net asset
value of Common Shares 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 Shares of that Fund outstanding at such
time.
MuniYield Pennsylvania shall issue to MuniVest Pennsylvania separate
certificates or share deposit receipts for the MuniYield Pennsylvania Common
Shares and the MuniYield Pennsylvania Series B AMPS, each registered in the
name of MuniVest Pennsylvania. MuniVest Pennsylvania then shall distribute the
MuniYield Pennsylvania Common Shares and the MuniYield Pennsylvania Series B
AMPS to the holders of MuniVest Pennsylvania Common Shares and MuniVest
Pennsylvania AMPS by redelivering the certificates or share deposit receipts
evidencing ownership of (i) the MuniYield Pennsylvania Common Shares to The
Bank of New York as the transfer agent and registrar for the MuniYield
Pennsylvania Common Shares for distribution to the holders of MuniVest
Pennsylvania Common Shares on the basis of such holder's proportionate
interest in the aggregate net asset value of the Common Shares of MuniVest
Pennsylvania and (ii) the MuniYield Pennsylvania Series B AMPS to The Bank of
New York, as the transfer agent and registrar for the MuniYield Pennsylvania
Series B AMPS for distribution to the holders of MuniVest Pennsylvania AMPS on
the basis of such holder's proportionate interest in the aggregate liquidation
preference and value of the AMPS of MuniVest Pennsylvania. With respect to any
MuniVest Pennsylvania shareholder holding certificates evidencing ownership of
either MuniVest Pennsylvania Common Shares or MuniVest Pennsylvania AMPS as of
the Exchange Date, and subject to MuniYield Pennsylvania being informed
thereof in writing by MuniVest Pennsylvania, MuniYield Pennsylvania will not
permit such shareholder to receive new certificates evidencing ownership of
the MuniYield Pennsylvania Common Shares or MuniYield Pennsylvania Series B
AMPS, exchange MuniYield Pennsylvania Common Shares or MuniYield Pennsylvania
Series B AMPS credited to such shareholder's account for shares of other
investment companies managed by Merrill Lynch Asset Management, L.P. ("MLAM")
or any of its affiliates, or pledge or redeem such MuniYield Pennsylvania
Common Shares or MuniYield Pennsylvania Series B AMPS, in any case, until
notified by MuniVest Pennsylvania or its agent that such shareholder has
surrendered his or her outstanding certificates evidencing ownership of
MuniVest Pennsylvania Common Shares or MuniVest Pennsylvania AMPS or, in the
event of lost certificates, posted adequate bond. MuniVest Pennsylvania, at
its own expense, will request its shareholders to surrender their outstanding
certificates evidencing ownership of MuniVest Pennsylvania Common Shares or
MuniVest Pennsylvania AMPS, as the case may be, or post adequate bond
therefor.
MuniYield Pennsylvania shall issue to MuniHoldings Pennsylvania separate
certificates or share deposit receipts for the MuniYield Pennsylvania Common
Shares and the MuniYield Pennsylvania Series B AMPS, each registered in the
name of MuniHoldings Pennsylvania. MuniHoldings Pennsylvania then shall
distribute the MuniYield Pennsylvania Common Shares and the MuniYield
Pennsylvania Series B AMPS to the holders of MuniHoldings Pennsylvania Common
Shares and MuniHoldings Pennsylvania AMPS by redelivering the certificates or
share deposit receipts evidencing ownership of (i) the MuniYield Pennsylvania
Common Shares to The Bank of New York as the transfer agent and registrar for
the MuniYield Pennsylvania Common Shares for distribution to the holders of
MuniHoldings Pennsylvania Common Shares on the basis of such holder's
proportionate interest in the aggregate net asset value of the Common Shares
of MuniHoldings Pennsylvania and (ii) the MuniYield Pennsylvania Series B AMPS
to The Bank of New York, as the transfer agent and registrar for the MuniYield
Pennsylvania Series B AMPS for distribution to the holders of MuniHoldings
Pennsylvania AMPS on the basis of such holder's proportionate interest in the
aggregate liquidation preference and value of the AMPS of MuniHoldings
Pennsylvania. With respect to any MuniHoldings Pennsylvania shareholder
holding certificates evidencing ownership of either MuniHoldings Pennsylvania
Common Shares or MuniHoldings Pennsylvania AMPS as of the Exchange Date, and
subject to MuniYield Pennsylvania being informed thereof in
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<PAGE>
writing by MuniHoldings Pennsylvania, MuniYield Pennsylvania will not permit
such shareholder to receive new certificates evidencing ownership of MuniYield
Pennsylvania Common Shares or MuniYield Pennsylvania Series B AMPS, exchange
MuniYield Pennsylvania Common Shares or MuniYield Pennsylvania Series B AMPS
credited to such shareholder's account for shares of other investment
companies managed by MLAM or any of its affiliates, or pledge or redeem such
MuniYield Pennsylvania Common Shares or MuniYield Pennsylvania Series B AMPS,
in any case, until notified by MuniHoldings Pennsylvania or its agent that
such shareholder has surrendered his or her outstanding certificates
evidencing ownership of MuniHoldings Pennsylvania Common Shares or
MuniHoldings Pennsylvania AMPS or, in the event of lost certificates, posted
adequate bond. MuniHoldings Pennsylvania, at its own expense, will request its
shareholders to surrender their outstanding certificates evidencing ownership
of MuniHoldings Pennsylvania Common Shares or MuniHoldings Pennsylvania AMPS,
as the case may be, or post adequate bond therefor.
Dividends payable to holders of record of shares of MuniYield Pennsylvania
Common Shares or MuniYield Pennsylvania Series B AMPS, as the case may be, as
of any date after the Exchange Date and prior to the exchange of certificates
by any shareholder of an Acquired Fund shall be payable to such shareholder
without interest; however, such dividends shall not be paid unless and until
such shareholder surrenders the certificates representing Common Shares or
AMPS of the Acquired Funds, as the case may be, for exchange.
No fractional shares of MuniYield Pennsylvania Common Shares will be issued
to holders of MuniVest Pennsylvania Common Shares or MuniHoldings Pennsylvania
Common Shares. In lieu thereof, MuniYield Pennsylvania's transfer agent, The
Bank of New York, will aggregate all fractional shares of MuniYield
Pennsylvania Common Shares and sell the resulting full shares on the New York
Shares Exchange at the current market price for shares of MuniYield
Pennsylvania Common Shares 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 Pennsylvania Common Shares or MuniHoldings Pennsylvania
Common Shares.
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 Pennsylvania
shall pay, subsequent to the Exchange Date and pro rata according to each
Fund's net assets at the Valuation Time, all expenses incurred in connection
with the Reorganization, including, but not limited to, all costs related to
the preparation and distribution of the N-14 Registration Statement. Such fees
and expenses shall include the cost of preparing and filing a ruling request
with the Internal Revenue Service, legal and accounting fees, printing costs,
filing fees, shares 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) MuniYield Pennsylvania and MuniVest Pennsylvania agree to call a special
meeting of the shareholders of each fund and MuniHoldings Pennsylvania agrees
to call an annual meeting of its shareholders 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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<PAGE>
(c) Each Acquired Fund agrees that following the consummation of the
Reorganization, it will terminate in accordance with the laws of the
Commonwealth of Massachusetts and any other applicable law, it will not make
any distributions of MuniYield Pennsylvania Common Shares or MuniYield
Pennsylvania Series B AMPS, as applicable other than to its respective
shareholders and without first paying or adequately providing for the payment
of all of its respective liabilities not assumed by MuniYield Pennsylvania, if
any, and on and after the Exchange Date it shall not conduct any business
except in connection with its termination.
(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 Pennsylvania 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 Pennsylvania 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 Pennsylvania 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 shareholders of record
entitled to vote at each special or annual meeting of shareholders 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 Pennsylvania
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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<PAGE>
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
Pennsylvania Common Shares and MuniYield Pennsylvania Series B AMPS to be
issued as provided in this Agreement, shall be made at the offices of Brown &
Wood LLP, One World Trade Center, New York, New York 10048, at 10:00 a.m. on
the next full business day following the Valuation Time, or at such other
place, time and date agreed to by the Funds, the date and time upon which such
delivery is to take place being referred to herein as the "Exchange Date." To
the extent that 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 Pennsylvania's
account with The Bank of New York at the earliest practicable date thereafter.
(b) Each of the Acquired Funds will deliver to MuniYield Pennsylvania 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
Pennsylvania hereunder, certified by Deloitte & Touche LLP.
(c) As soon as practicable after the close of business on the Exchange Date,
each of the Acquired Funds shall deliver to MuniYield Pennsylvania a list of
the names and addresses of all of the shareholders of record of such Acquired
Fund on the Exchange Date and the number of Common Shares and AMPS of such
Acquired Fund owned by each such shareholder, 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 Trustees of each of the Funds and by the
affirmative vote of (i) the holders of (a) a majority of the MuniYield
Pennsylvania Common Shares and MuniYield Pennsylvania AMPS, voting together
as a single class, and (b) a majority of the MuniYield Pennsylvania 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 Pennsylvania Common Shares and MuniVest Pennsylvania AMPS, voting
together as a single class, and (b) a majority of the MuniVest Pennsylvania
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 Pennsylvania Common Shares and MuniHoldings Pennsylvania AMPS,
voting together as a single class, and (b) a majority of the MuniHoldings
Pennsylvania 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 Trustees, and (iv) a certificate
setting forth the vote of such Fund's shareholders obtained at its special
or annual meeting, each certified by the Secretary of the appropriate Fund.
(b) That each Acquired Fund shall have received from MuniYield
Pennsylvania 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 Pennsylvania shall have furnished to the Acquired
Funds a certificate signed by MuniYield Pennsylvania'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 Pennsylvania 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 Pennsylvania
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) to the best of such counsel's knowledge, no consent,
approval, authorization or order of any United States federal 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 such as may be required under state securities
laws; (ii) 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; (iii) 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; (iv) the information in the Joint Proxy
Statement and Prospectus under "Comparison of the Funds--Tax Rules
Applicable to the Funds and their Shareholders" and "Agreement and Plan of
Reorganization--Tax Consequences of the Reorganization," (other than
information related to Massachusetts law or legal conclusions involving
matters of Massachusetts 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; (v) the execution and delivery of the Agreement by the Funds
does not, and the consummation of the Reorganization will not, violate any
material provisions of 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; (vi) 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; (vii) 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 shareholders;
(viii) 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; (ix) all actions required to be taken by the
Funds to authorize this Agreement and to effect the Reorganization have
been duly authorized by all necessary actions on the part of such Fund; and
(x) such opinion is solely for the benefit of the Funds and their Trustees
and officers. Such opinion also shall state that (a) 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 (b) such counsel does not express any
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<PAGE>
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 and the opinion of Bingham Dana LLP as to
matters of Massachusetts law.
(f) That the Acquired Funds shall have received an opinion or opinions of
Bingham Dana LLP, as Massachusetts 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 trust with transferable
shares duly organized, validly existing and in good standing in conformity
with the laws of the Commonwealth or Massachusetts; (ii) the MuniYield
Pennsylvania Common Shares and MuniYield Pennsylvania Series B AMPS to be
issued pursuant to this Agreement are duly authorized and, upon delivery,
will be validly issued and outstanding and fully paid and nonassessable by
MuniYield Pennsylvania, and no shareholder of MuniYield Pennsylvania has
any preemptive right to subscription or purchase in respect thereof
(pursuant to the Declaration of Trust or the by-laws of the Funds or
Massachusetts law, 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 Massachusetts law or the Declaration of
Trust, the by-laws 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 filing or registration with, or consent,
approval, authorization or order of any Massachusetts state court or
governmental authority is required for the consummation by the Funds of the
Reorganization, except such as have been obtained from the Board of
Trustees and shareholders of the Funds and such as may be required under
Massachusetts state securities law; (vii) all actions required to be taken
by the Funds to authorize this Agreement and to effect the Reorganization
have been duly authorized by all necessary actions on the part of such
Fund; and (viii) such opinion is solely for the benefit of the Funds and
their Trustees and officers. In giving the opinion set forth above, Bingham
Dana 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.
(g) 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 Pennsylvania in exchange solely for shares of MuniYield
Pennsylvania Common Shares and MuniYield Pennsylvania Series B AMPS as
provided in this Agreement will constitute a reorganization within the
meaning of Section 368(a)(1)(C) of the Code, and the respective Funds will
each be deemed to be a "party" to a reorganization within the meaning of
Section 368(b); (ii) in accordance with Section 361(a) of the Code, no gain
or loss will be recognized to an Acquired Fund as a result of the asset
transfer solely in exchange for shares of MuniYield Pennsylvania Common
Shares and MuniYield Pennsylvania Series B AMPS, as the case may be, or on
the distribution of the MuniYield Pennsylvania shares to shareholders 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
Pennsylvania 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 shareholders of an Acquired Fund on the
receipt of Corresponding Shares of MuniYield Pennsylvania in exchange for
their shares of the Acquired Fund (except to the extent that common
shareholders receive cash representing an interest in fractional shares of
MuniYield Pennsylvania Common Shares in the Reorganization); (v) in
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<PAGE>
accordance with Section 362(b) of the Code, the tax basis of and Acquired
Fund's assets in the hands of MuniYield Pennsylvania 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 Pennsylvania received by the shareholders
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
shareholder's holding period for the shares of MuniYield Pennsylvania will
be determined by including the period for which such shareholder 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 Pennsylvania'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
shareholders of an Acquired Fund in lieu of fractional shares of MuniYield
Pennsylvania Common Shares will be treated as though the fractional shares
were distributed as part of the Reorganization and then redeemed, with the
result that such shareholders will have short- or long-term capital gain or
loss to the extent that the cash distribution differs from the
shareholder's basis allocable to the MuniYield Pennsylvania 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 Pennsylvania 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.
(h) 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.
(i) 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 Pennsylvania, be
contemplated by the Commission.
(j) That Acquired Funds shall have received from Deloitte & Touche LLP a
letter dated within three days prior to the effective date of the N-14
Registration Statement and a similar letter dated within five days prior to
the Exchange Date, in form and substance satisfactory to them, to the
effect that (i) they are independent public accountants with respect to
MuniYield Pennsylvania 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 Pennsylvania 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
Pennsylvania included in the N-14 Registration Statement, and inquiries of
certain officials of MuniYield Pennsylvania 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
Pennsylvania 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 Pennsylvania or
from schedules prepared by officials of MuniYield Pennsylvania having
responsibility for financial and reporting matters and such information is
in agreement with such records, schedules or computations made therefrom.
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<PAGE>
(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 MuniYield Pennsylvania
or would prohibit the Reorganization.
(l) 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 Pennsylvania Conditions.
The obligations of MuniYield Pennsylvania 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 Trustees and the shareholders of
each of the Funds as set forth in Section 10(a); and that each of the
Acquired Funds shall have delivered to MuniYield Pennsylvania a copy of the
resolution approving this Agreement adopted by such Acquired Fund's Board
of Trustees, and a certificate setting forth the vote of the shareholders
of such Acquired Fund obtained, each certified by its Secretary.
(b) That each Acquired Fund shall have furnished to MuniYield
Pennsylvania a statement of its assets, liabilities and capital, with
values determined as provided in Section 6 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
Pennsylvania 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
Pennsylvania a letter from Deloitte & Touche LLP, dated the Exchange Date,
stating that such firm has performed a limited review of the Federal, state
and local income tax returns of the Acquired Fund for the period ended
October 31, 1999 (for MuniVest Pennsylvania) and September 30, 1999 (for
MuniHoldings Pennsylvania) (which returns originally were prepared and
filed by the Acquired Fund), and that based on such limited review, nothing
came to their attention which caused them to believe that such returns did
not properly reflect, in all material respects, the Federal, state and
local income taxes of the Acquired Fund for the period covered thereby; and
that for the period from November 1, 1999 (for MuniVest Pennsylvania) and
October 1, 1999 (for MuniHoldings Pennsylvania), to and including the
Exchange Date and for any taxable year of the Acquired Fund ending upon the
liquidation of that Acquired Fund, such firm has performed a limited review
to ascertain the amount of applicable Federal, state and local taxes, and
has determined that either such amount has been paid or reserves have been
established for payment of such taxes, this review to be based on unaudited
financial data; and that based on such limited review, nothing has come to
their attention which caused them to believe that the taxes paid or
reserves set aside for payment of such taxes were not adequate in all
material respects for the satisfaction of Federal, state and local taxes
for the period from November 1, 1999 (for MuniVest Pennsylvania) and
October 1, 1999 (for MuniHoldings Pennsylvania), 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.
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<PAGE>
(e) That there shall not be any material litigation pending with respect
to the matters contemplated by this Agreement.
(f) That MuniYield Pennsylvania shall have received an opinion of Brown &
Wood LLP , as counsel to the Funds, in form and substance satisfactory to
MuniYield Pennsylvania and dated the Exchange Date, with respect to the
matters specified in Section 10(e) of this Agreement and such other matters
as MuniYield Pennsylvania reasonably may deem necessary or desirable.
(g) That MuniYield Pennsylvania shall have received an opinion of Bingham
Dana LLP, as Massachusetts counsel to the Funds, in form and substance
satisfactory to MuniYield Pennsylvania and dated the Exchange Date, with
respect to the matters specified in Section 10(f) of this Agreement and
such other matters as MuniYield Pennsylvania reasonably may deem necessary
or desirable.
(h) That MuniYield Pennsylvania 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 10(f) of this Agreement.
(i) That MuniYield Pennsylvania shall have received from Deloitte &
Touche LLP a letter dated within three days prior to the effective date of
the N-14 Registration Statement and a similar letter dated within five days
prior to the Exchange Date, in form and substance satisfactory to MuniYield
Pennsylvania, to the effect that (i) they are independent public
accountants with respect to each of the Acquired Funds 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 Acquired 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 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 the Acquired Fund included in the N-14 Registration
Statement, and inquiries of certain officials of the 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 each Acquired Fund 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 the Acquired Fund or from schedules prepared by officials of the
Acquired Fund having responsibility for financial and reporting matters and
such information is in agreement with such records, schedules or
computations made therefrom.
(j) That the Acquired Fund Investments to be transferred to MuniYield
Pennsylvania shall not include any assets or liabilities which MuniYield
Pennsylvania, by reason of limitations in the Declaration of Trust or
otherwise, may not properly acquire or assume.
(k) 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.
(l) 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.
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(m) That MuniYield Pennsylvania shall have received from the Commission
such orders or interpretations as Brown & Wood LLP, as counsel to MuniYield
Pennsylvania, 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.
(n) 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
Pennsylvania.
(o) 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
shareholders 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 Pennsylvania AMPS and the MuniHoldings
Pennsylvania AMPS may be shorter than the dividend period for such AMPS
determined as set forth in the applicable Certificate of Designation.
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 shareholders of the Funds)
prior to the Exchange Date, or the Exchange Date may be postponed, (i) by
mutual consent of the Boards of Trustees of the Funds, (ii) by the Board of
Trustees 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 Trustees of MuniYield
Pennsylvania if any condition of MuniYield Pennsylvania's obligations set
forth in Section 10 of this Agreement have not been fulfilled or waived by
such Board.
(b) If the transactions contemplated by this Agreement have not been
consummated by August 31, 2000, this Agreement automatically shall terminate
on that date, unless a later date is mutually agreed to by the Boards of
Trustees 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
Trustees, trustees, officers, agents or shareholders 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 Trustees 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
shareholders of their respective fund, on behalf of which such action is
taken. In addition, the Boards of Trustees 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,
Trustees, trustees, agents or shareholders shall have any liability with
respect to such representations or warranties after the Exchange Date. This
provision shall not protect any officer, Trustee, trustee, agent or
shareholder of any Fund against any liability to the entity for which that
officer, Trustee, trustee, agent or shareholder so acts or to its
shareholders, to which that officer, Trustee, trustee, agent or shareholder
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.
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(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 Trustees 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 shareholders of
the Funds unless such terms and conditions shall result in a change in the
method of computing the number of shares of MuniYield Pennsylvania Common
Shares and MuniYield Pennsylvania Series B 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
shareholders 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
shareholders 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 Pennsylvania harmless from all loss, liability and expenses
(including reasonable counsel fees and expenses in connection with the contest
of any claim) which MuniYield Pennsylvania may incur or sustain by reason of
the fact that (i) MuniYield Pennsylvania 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 Pennsylvania 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 shareholders 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 Pennsylvania.
(b) MuniYield Pennsylvania 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 Pennsylvania in this Agreement
should prove false or erroneous in any material respect, (ii) any covenant of
MuniYield Pennsylvania 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
shareholders 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 Pennsylvania by the Acquired Fund seeking
indemnification.
(c) In the event that any claim is made against MuniYield Pennsylvania in
respect of which indemnity may be sought by MuniYield Pennsylvania 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 Pennsylvania 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
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<PAGE>
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 Pennsylvania 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 13, 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 Pennsylvania 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 PENNSYLVANIA FUND (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
Pennsylvania's transfer agent with respect to such shares. Each Acquired Fund
will provide MuniYield Pennsylvania on the Exchange Date with the name of any
shareholder 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) It is expressly agreed that the obligations of the Funds hereunder shall
not be binding upon any of their respective Trustees, shareholders, nominees,
officers, agents, or employees personally, but shall bind only the trust
property of the respective Funds as provided in such Fund's Declaration of
Trust. The execution and delivery of this Agreement have been authorized by
the Trustees of each Fund and signed by authorized officers of each Fund,
acting as such, and neither such authorization by such Trustees nor such
execution and delivery by such officers shall be deemed to have been made by
any of them individually or to impose liability on any of them personally, but
shall bind only the trust property of each Fund, as provided in such Fund's
Declaration of Trust.
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<PAGE>
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.
<TABLE>
<S> <C>
Attest: MuniYield Pennsylvania Fund
/s/ Alice A. Pellegrino By /s/ Donald C. Burke
- ------------------------------------- -----------------------------------
Alice A. Pellegrino, Secretary Donald C. Burke, Vice President
and Treasurer
Attest: MuniVest Pennsylvania Insured Fund
/s/ Alice A. Pellegrino By /s/ Donald C. Burke
- ------------------------------------- -----------------------------------
Alice A. Pellegrino, Secretary Donald C. Burke, Vice President
and Treasurer
Attest: MuniHoldings Pennsylvania Insured
Fund
/s/ Alice A. Pellegrino By /s/ Donald C. Burke
- ------------------------------------- ----------------------------------
Alice A. Pellegrino, Secretary Donald C. Burke, Vice President
and Treasurer
</TABLE>
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<PAGE>
EXHIBIT III
ECONOMIC AND OTHER CONDITIONS IN PENNSYLVANIA
The following information is a brief summary of factors affecting the
economy of the Commonwealth of Pennsylvania and does not purport to be a
complete description of such factors. Other factors will affect issuers. The
summary is based upon one or more of the most recent publicly available
offering statements relating to debt offerings of Pennsylvania issuers. The
Funds have not independently verified the information.
Many factors affect the financial condition of the Commonwealth of
Pennsylvania (also referred to herein as the "Commonwealth") and its political
subdivisions, such as social, environmental and economic conditions, many of
which are not within the control of such entities. Pennsylvania and certain of
its counties, cities and school districts and public bodies (most notably the
City of Philadelphia, sometimes referred to herein as the "City") have from
time to time in the past encountered financial difficulties which have
adversely affected their respective credit standings. Such difficulties could
affect outstanding obligations of such entities, including obligations held by
the Fund.
The General Fund, the Commonwealth's largest fund, receives all tax
revenues, non-tax revenues and Federal grants and entitlements that are not
specified by law to be deposited elsewhere. The majority of the Commonwealth's
operating and administrative expenses are payable from the General Fund. Debt
service on all bonded indebtedness of the Commonwealth, except that issued for
highway purposes or for the benefit of other special revenue funds, is payable
from the General Fund.
The five-year period ending with fiscal year 1998 was a time of economic
growth with modest growth rates at the beginning of the period and faster
increases during the most recent years. Throughout the period, inflation has
remained relatively low, helping to restrain expenditure growth. Favorable
economic conditions have helped total revenues and other sources rise at an
annual average of 4.2% rate during the five-year period. The annual growth
rate for taxes of 4.3% almost matched the total revenue rate. Expenditures and
other uses during the fiscal 1994 through fiscal 1998 period rose at a 3.8%
average rate, led by a 10.2% average increase for protection of person and
property costs.
On a generally accepted accountable principles ("GAAP") basis, revenues and
other sources from fiscal 1994 through fiscal 1998 increased by an average 5%
annually. Expenditures and other uses during this period rose at an average
annual rate of 5%.
The fund balance at June 30, 1998 (determined on a "Generally Accepted
Accounting Principles" basis) totaled $1,958.9 million, a $594 million
increase over the $1,364.9 million balance at June 30, 1997.
The unappropriated balance of Commonwealth revenues increased during the
1997 fiscal year by $432.9 million to $591.4 million (prior to reserves for
transfer to the Tax Stabilization Reserve Fund) at the close of the fiscal
year. Higher than estimated revenues and slightly lower expenditures than
budgeted caused the increase. Transfers to the Tax Stabilization Reserve Fund
for fiscal 1997 operations were $188.7 million representing the normal 15% of
the ending unappropriated balance, plus an additional $100 million authorized
by the General Assembly when it enacted the fiscal 1998 budget.
Commonwealth revenues (prior to tax refunds) during the fiscal year totaled
$17,320.6 million, $576.1 million (3.4%) above the estimate made at the time
the budget was enacted. Revenue from taxes was the largest contributor to
higher than estimated receipts. Tax revenue in fiscal 1997 grew 6.1% over tax
revenues in fiscal 1996. This rate of increase is not adjusted for legislated
tax reductions that affected receipts during both of those fiscal years and
therefore understates the actual underlying rate of growth of tax revenue
during fiscal 1997. Non-tax revenues were $19.8 million (5.8%) over estimate
mostly due to higher than anticipated interest earnings.
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<PAGE>
Expenditures from Commonwealth revenues (excluding pooled financing
expenditures) during fiscal 1997 totaled $16,347.7 million. Total expenditures
represent an increase over fiscal 1996 expenditures of 1.7%. Lapses of
appropriation authority during the fiscal year totaled $200.6 million compared
to an estimate of $100 million. The higher amount of appropriation lapses was
used to support $79.8 million in fiscal 1997 supplemental appropriations over
those proposed in February 1997. Supplemental appropriations for fiscal 1997
totaled $169.3 million.
For GAAP purposes, assets increased $563.4 million and liabilities declined
$166.3 million to produce a $729.7 million increase in the fund balance at
June 30, 1997. Total revenues and other sources rose 3.5% for fiscal 1997. An
increase of 5.5% in tax revenue aided by an improving state economy was
partially offset by a $175.2 million decline in intergovernmental revenues.
Expenditures and other uses increased by 1% for the fiscal year.
Operations during the 1998 fiscal year increased the unappropriated balance
of Commonwealth revenues during that period by $86.4 million to $488.7 million
at June 30, 1998 (prior to reserves for transfer to the Tax Stabilization
Reserve Fund). Higher than estimated revenues, offset in part by increased
reserves for tax refunds, and by slightly lower expenditures than budgeted
were responsible for the increase. Transfers to the Tax Stabilization Reserve
Fund for fiscal 1998 operations total $223.3 million consisting of $73.3
million representing the required transfer of fifteen percent of the ending
unappropriated surplus balance, plus an additional $150 million authorized by
the General Assembly when it enacted the fiscal 1999 budget. With these
transfers, the balance in the Tax Stabilization Reserve Fund exceeds $668
million and represent 3.7% of fiscal 1998 revenues.
Commonwealth revenues (prior to tax refunds) during the fiscal year totaled
$18,123.2 million, $676.1 million (3.9%) above the estimate made at the time
the budget was enacted. Tax revenue received in fiscal 1998 grew 4.8% over tax
revenues received during fiscal 1997. This rate of increase includes the
effect of legislated tax reductions that affected receipts during both fiscal
years and therefore understates the actual underlying rate of growth of tax
revenue during fiscal 1998. Receipts from the personal income tax produced the
largest single component of higher revenues during fiscal 1998.
Expenditures from all fiscal 1998 appropriations of Commonwealth revenues
totaled $17,229.8 million (excluding pooled financing expenditures and net of
current year lapses). This amount represents an increase of 4.5% over fiscal
1997 appropriation expenditures. Lapses of appropriation authority during the
fiscal year totaled $161.8 million including $58.8 million from fiscal 1998
appropriations. These appropriation lapses were used to fund $120.5 million of
supplemental fiscal 1998 appropriations.
Reserves established during fiscal 1998 for tax refunds totaled $910
million. This amount is a $370 million increase over tax refund reserves for
fiscal 1997 representing an increase of 68.5%. The fiscal 1998 amount includes
a one-time addition intended to fund all fiscal 1998 tax refund liabilities,
including that portion to be paid during fiscal 1999. In prior fiscal years,
tax refunds generally were budgeted for the year in which the disbursement was
anticipated to occur. This change in the recognition of tax refund liabilities
on a budgetary basis helped eliminate the negative difference between the
budgetary basis unappropriated balance and the GAAP basis unreserved-
undesignated balance for the 1998 fiscal year.
For GAAP purposes, assets increased $705.1 million and liabilities rose by
$111.1 million during the fiscal year. These changes contributed to a $310.3
million dollar rise in the undesignated-unreserved balance for June 30, 1998
to $497.6 million, the highest level achieved since audited GAAP reporting was
instituted in 1984. Fiscal 1998 total revenues and other sources rose 4.3%.
Expenditures and other uses during fiscal 1998 rose by 4.5%.
The 1999 fiscal year ended with an unappropriated surplus (prior to the
transfer to the Tax Stabilization Reserve Fund) of $702.9 million, an increase
of $214.2 million from June 30, 1998. Transfers to the Tax Stabilization
Reserve Fund total $255.4 million for fiscal year 1999 consisting of $105.4
million representing the
III-2
<PAGE>
statutory 15% of the fiscal year-end unappropriated surplus and an additional
$150 million from the unappropriated surplus authorized by the General
Assembly. The $447.5 million balance of the unappropriated surplus was carried
over to fiscal year 2000. The higher unappropriated surplus was generated by
tax revenues that were $712.0 million (3.9%) above estimate and $61.0 million
of non-tax revenue (18.4%) above estimate. Higher than anticipated
appropriation lapses also contributed to the higher surplus. A portion of the
higher revenues and appropriation lapses were used for supplemental fiscal
1999 appropriations totaling $357.8 million. These supplemental appropriations
represent expected one-time obligations. Including the supplemental
appropriations and net of appropriation lapses, expenditures for fiscal 1999
totaled $18,144.9 million, a 5.9% increase over expenditures during fiscal
1998.
Appropriations enacted for fiscal 1999 when the budget was originally
adopted were 4.1% ($713.2 million) above the appropriations enacted for fiscal
1998 (including supplemental appropriations).
Reserves for tax refunds for fiscal 1999 were raised during the fiscal year
to $644.0 million, a $39.2 million increase over the budget as enacted.
Reserves for tax refunds for fiscal 1999 are $266.0 million below the reserve
established for fiscal 1998. The fiscal 1998 amount includes a one-time
addition intended to fund all fiscal 1998 tax refund liabilities, including
that portion to be paid during fiscal 1999.
The General Fund budget for the 2000 fiscal year was approved by the General
Assembly in May 1999. The adopted budget includes estimated spending of
$19,061.5 million and estimated revenues (net of estimated tax refunds and
enacted tax changes) of $18,699.9 million. Funds to cover the $361.6 million
difference between estimated revenues and projected spending will be obtained
from a draw down of the projected fiscal 1999 year-end balance. The level of
proposed spending represents an increase of 3.8% over revised spending
authorized for fiscal 1999 of $18,367.5 million. Enacted tax changes effective
for fiscal 2000 total a net reduction of $380.2 million for the General Fund.
The estimate of Commonwealth revenues for fiscal year 1999 is based on an
economic forecast for real gross domestic product to grow at a 1.4% rate from
the second quarter of 1999 to the second quarter of 2000. Growth of real gross
domestic product is expected to be restrained by a slowing of the rate of
consumer spending to a level consistent with personal income gains and by
smaller gains in business investment in response to falling capacity
utilization and profits. Slowing economic growth is expected to cause the
unemployment rate to rise through the fiscal year but inflation is expected to
remain moderate. Trends for the Pennsylvania economy are expected to maintain
their close association with national economic trends. Personal income growth
is anticipated to remain slightly below that of the U.S. while the
Pennsylvania unemployment rate is anticipated to be very close to the national
rate.
Commonwealth revenues (excluding the estimated cost of the enacted tax
reductions) are projected to increase by 2.8% over revised fiscal 1999
receipts. Appropriations from Commonwealth funds are budgeted to increase by
3.8% over revised fiscal 1999 appropriations.
According to a Pennsylvania Department of Revenue News Release, dated
September 30, 1999, the state collected $1.8 billion in General Fund revenues
in September, 1999, $55.2 million (3.2%) more than anticipated. Fiscal years-
to-date General Fund collections total $4.3 billion, which is $76 million
(2.1%) more than anticipated.
Pennsylvania has historically been identified as a heavy industry state
although that reputation has changed over the last thirty years as the coal,
steel and railroad industries declined and the Commonwealth's business
environment readjusted to reflect a more diversified industrial base. This
economic readjustment was a direct result of a long-term shift in jobs,
investment and workers away from the northeast part of the nation. Currently,
the major sources of growth in Pennsylvania are in the service sector,
including trade, medical and the health services, education and financial
institutions.
III-3
<PAGE>
Nonagricultural employment in Pennsylvania over the ten year period that
ended in 1998 increased at an annual rate of 0.75%. This compares to a 0.29%
rate for the Middle Atlantic region and a 1.72% rate for the United States as
a whole during the period 1989 through 1998. For the five years ended with
1998, employment in the Commonwealth has increased 7.0%. The growth in
employment during this period is higher than the 2.7% growth in the Middle
Atlantic region. The unemployment rate in Pennsylvania for August, 1999 stood
at a seasonably adjusted rate of 4.5%. The seasonably adjusted national
unemployment rate for August, 1999 was 4.2%.
The current Constitutional provisions pertaining to Commonwealth debt permit
the issuance of the following types of debt: (i) debt to suppress insurrection
or rehabilitate areas affected by disaster, (ii) electorate-approved debt,
(iii) debt for capital projects subject to an aggregate debt limit of 1.75
times the annual average tax revenues of the preceding five fiscal years and
(iv) tax anticipation notes payable in the fiscal year of issuance. All debt
except tax anticipation notes must be amortized in substantial and regular
amounts.
Debt service on all bonded indebtedness of Pennsylvania, except that issued
for highway purposes or the benefit of other special revenue funds, is payable
from Pennsylvania's General Fund, which receives all Commonwealth revenues
that are not specified by law to be deposited elsewhere. As of June 30, 1999,
the Commonwealth had $4,924.5 million of general obligation debt outstanding.
Other state-related obligations include "moral obligations." Moral
obligation indebtedness may be issued by the Pennsylvania Housing Finance
Agency (the "PHFA"), a state-created agency which provides financing for
housing for lower and moderate income families, and The Hospitals and Higher
Education Facilities Authority of Philadelphia, a municipal authority
organized by the City of Philadelphia to, among other things, acquire and
prepare various sites for use as intermediate care facilities for the mentally
retarded. PHFA's bonds, but not its notes, are partially secured by a capital
reserve fund required to be maintained by PHFA in an amount equal to the
maximum annual debt service on its outstanding bonds in any succeeding
calendar year. PHFA is not permitted to borrow additional funds as long as any
deficiency exists in the capital reserve fund.
The Commonwealth, through several of its departments and agencies, leases
real property and equipment. Some of those leases and their respective lease
payments are, with the Commonwealth's approval, pledged as security for debt
obligations issued by certain public authorities or other entities within the
state. All lease payments payable by Commonwealth departments and agencies are
subject to and dependent upon an annual spending authorization approved
through the Commonwealth's annual budget process. The Commonwealth is not
required by law to appropriate or otherwise provide monies from which the
lease payments are to be made. The obligations to be paid from such lease
payments are not bonded debt of the Commonwealth.
Certain Commonwealth-created organizations have statutory authorization to
issue debt for which Commonwealth appropriations to pay debt service thereon
are not required. The debt of these organizations is funded by assets of, or
revenues derived from, the various projects financed and is not a statutory or
moral obligation of the Commonwealth. Some of these agencies, however, are
indirectly dependent on Commonwealth operating appropriations. In addition,
the Commonwealth may choose to take action to financially assist these
organizations. The Commonwealth also maintains pension plans covering all
state employees, public school employees and employees of certain state-
related organizations.
The Pennsylvania Intergovernmental Cooperation Authority (the "PICA") was
created by Commonwealth legislation in 1991 to assist Philadelphia in
remedying fiscal emergencies. PICA is designed to provide assistance through
the issuance of funding debt and to make factual findings and recommendations
to Philadelphia concerning its budgetary and fiscal affairs. At this time,
Philadelphia is operating under a five year fiscal plan approved by PICA on
June 15, 1999.
No further bonds are to be issued by PICA for the purpose of financing a
capital project or deficit as the authority for such bond sales expired
December 31, 1994. PICA's authority to issue debt for the purpose of financing
a cash flow deficit expired on December 31, 1996. Its ability to refund
existing outstanding debt is unrestricted. PICA had $1,014.1 million in
Special Revenue bonds outstanding as of June 30, 1999.
III-4
<PAGE>
There is various litigation pending against the Commonwealth, its officers
and employees. In 1978, the Pennsylvania General Assembly approved a limited
waiver of sovereign immunity. Damages for any loss are limited to $250,000 for
each person and $1 million for each accident. The Supreme Court held that this
limitation is constitutional. Approximately 3,500 suits against the
Commonwealth remain open.
The following are among the cases with respect to which the Office of
Attorney General and the Office of General Counsel have determined that an
adverse decision may have a material effect on government operations of the
Commonwealth:
Dom Giordano v. Tom Ridge, Governor, et al.
In February 1999, Dom Giordano, filed a petition for review requesting the
Commonwealth Court declare that Chapter 5 (relating to sports facilities
financing) of the Capital Facilities Debt Enabling Act ("the Act") violates
the Pennsylvania Constitution. The Commonwealth Court dismissed the
petitioner's action with prejudice. The petitioner has appealed the
Commonwealth Court's ruling to the Supreme Court.
County of Allegheny v. Commonwealth of Pennsylvania
In December 1987, the Supreme Court of Pennsylvania held in County of
Allegheny v. Commonwealth of Pennsylvania, that the statutory scheme for
county funding of the judicial system is in conflict with the Pennsylvania
Constitution. However, the Supreme Court of Pennsylvania stayed its judgment
to afford the General Assembly an opportunity to enact appropriate funding
legislation consistent with its opinion and ordered that the prior system of
county funding shall remain in place until this is done.
The Court appointed a special master to devise and submit a plan for
implementation. The Interim Report of the Master recommended a four phase
transition to state funding of a unified judicial system, during each of which
specified court employees would transfer into the state payroll system. On
April 22, 1998, the General Assembly enacted the General Appropriation Act of
1998, including an appropriation to the Supreme Court of approximately $12
million for funding county court administrators. This appropriation was
designed to enable the Commonwealth to implement Phase I. Release of the
funding was delayed until substantive legislation could be enacted to
facilitate the employees' transfer to State employment. A similar
appropriation was made by the General Appropriation Act of 1999. Thereafter,
on June 22, 1999, the Governor approved Act 1999-12 under which approximately
165 county-level court administrators are to become employees of the
Commonwealth. Act 12 also triggered the release of the appropriations that had
been made for this purpose in 1998 and 1999.
Bank Shares Tax Litigation
In November 1989, Fidelity Bank, N.A. ("Fidelity") filed a declaratory
judgment action in the Commonwealth Court of Pennsylvania in which Fidelity
raised various challenges to the constitutional validity of the Amended Bank
Shares Act (Act No. 1989-21) and related legislation. In 1995 Fidelity and the
Commonwealth agreed to a settlement of the issues raised by Fidelity. Under a
separate Settlement Agreement the Commonwealth settled with the intervening
banks, referred to as "New Banks," in connection with issues concerning the
New Bank Tax Credit Law which were raised in an appeal to the Pennsylvania
Supreme Court.
Other banks have also filed petitions that are currently pending with the
Commonwealth Court. One of these banks, Royal Bank of Pennsylvania, filed a
Stipulation of Facts with the Court and in effect proceeded forward on behalf
of all the other banks. These appeals raise the issues that were advanced by
Fidelity, although not brought to final resolution by the Pennsylvania Supreme
Court. In January 1998, a panel of the Commonwealth Court ruled in favor of
the Commonwealth, finding no constitutional violation. Royal Bank filed
exceptions. On July 30, 1998, the Commonwealth Court, en banc, denied those
exceptions. On May 25, 1999, the Pennsylvania Supreme Court affirmed per
curium the Commonwealth Court's decision and order. No petition for certiorari
was filed. Therefore, the Royal Bank litigation has ended. However, the vast
majority of the remaining banks have exceptions pending before the
Commonwealth Court or appeals pending before the Pennsylvania Supreme Court.
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<PAGE>
Pennsylvania Association of Rural and Small Schools (PARSS) v. Ridge
In 1991, an association of rural and small schools and several parties filed
a lawsuit against the Governor and Secretary of Education, challenging the
constitutionality of the Commonwealth system for funding local school
districts. The litigation consists of two parallel cases, one in the
Commonwealth Court of Pennsylvania and one in the United States District Court
for the Middle District of Pennsylvania. The federal court case has been
indefinitely stayed pending resolution of the state court case.
Commonwealth Court held that Pennsylvania's system for funding public
schools is constitutional under both the education clause and the equal
protection clause of the Pennsylvania Constitution. On October 1, 1999, the
Pennsylvania Supreme Court affirmed the Commonwealth Court decision. The
parallel federal action remains pending.
Pennsylvania Human Relations Commission v. School District of Philadelphia,
et al. v. Commonwealth of Pennsylvania, et al.
In November 1995, the Commonwealth of Pennsylvania and the Governor of
Pennsylvania, along with the City of Philadelphia and the Mayor of
Philadelphia, were joined as additional respondents in an enforcement action
commenced in Commonwealth Court in 1973 by the Pennsylvania Human Relations
Commission against the School District of Philadelphia pursuant to the
Pennsylvania Human Relations Act. The enforcement action was pursued to remedy
unintentional conditions of segregation in the public schools of Philadelphia.
The Commonwealth and the City were joined in the "remedial phase" of the
proceeding "to determine their liability, if any, to pay additional costs
necessary to remedy the unlawful conditions found to exist in the Philadelphia
public schools."
In February 1996, the School District of Philadelphia filed a third-party
complaint against the Commonwealth of Pennsylvania asking Commonwealth Court
to require the Commonwealth to supply such funding as is necessary for full
compliance with the remedial orders of the Commonwealth Court. In addition, a
group of interveners filed a third-party complaint against the Commonwealth of
Pennsylvania and the City of Philadelphia requesting Commonwealth Court to
require the Commonwealth and the City to supply such additional funding as is
necessary for the District to comply with the orders.
On April 30, 1996, Commonwealth Court Judge Doris A. Smith overruled the
Commonwealth's and City's preliminary objections seeking dismissal of the
claims against them. The Commonwealth and the City thereafter filed answers to
the complaints, asserting numerous defenses. The Commonwealth also asserted a
cross-claim against the City of Philadelphia claiming that if any party is
liable, sole liability rests with the City; in the alternative, the
Commonwealth argued that if it is held to be liable, it has a right of
indemnity of contribution against the City.
The Supreme Court of Pennsylvania assumed extraordinary plenary
jurisdiction. In May 1999, the Supreme Court of Pennsylvania directed that the
Commonwealth, the Governor, the City of Philadelphia and the Mayor of
Philadelphia be dismissed from the case. The Court then remanded the original
matter--an enforcement action by the Pennsylvania Human Relations Commission
against the School District of Philadelphia to eliminate racial de facto
segregation in the public system--to Commonwealth Court for further
proceedings. No appeal has been filed or is expected. Thus, the Commonwealth
and the Governor are no longer parties to this case.
Ridge v. State Employees' Retirement Board
In 1993 and in 1995, Joseph H. Ridge, a former judge of the Allegheny Court
of Common Pleas, filed suit in the Commonwealth Court alleging that the use of
gender distinct actuarial factors for benefits based upon his
III-6
<PAGE>
pre-August 1, 1983 service violates the equal protection and equal rights
clauses of the Pennsylvania Constitution. The lawsuit requests that the
petitioner's benefits be "topped up" to equal those that a similarly situated
female would be receiving. Due to the constitutional nature of the claim, it
is possible that a decision adverse to the Retirement Board would be
applicable to other members of the State Employees' Retirement System and
Public School Employees' Retirement System. The Commonwealth Court granted the
Retirement Board's preliminary objection to Judge Ridge's claims for punitive
damages, attorney's fees and compensatory damages (other than a recalculation
of his pension benefits should he prevail). In 1996, the Commonwealth Court
heard oral arguments en banc on Judge Ridge's motion for judgment on the
pleadings. On February 13, 1997, the Commonwealth Court denied Judge Ridge's
motion for judgment on the pleadings. The case is currently in discovery.
Yesenia Marrerro, et al. v. Commonwealth, et al.
In February 1997, five residents of the City of Philadelphia, on their own
behalf, and on behalf of their school-age children, joined by the City of
Philadelphia, the School District of Philadelphia, and two non-profit
organizations, filed in the Commonwealth Court a civil action for declaratory
judgment against the Commonwealth of Pennsylvania, the General Assembly of
Pennsylvania, the presiding officers of the General Assembly, the Governor of
Pennsylvania, the State Board of Education, the Department of Education, and
the Secretary of Education, claiming, among other things, that the statutory
education financing system is unconstitutional as applied to the School
District of Philadelphia and the system of funding public education violates
the constitutional mandate to provide a thorough and efficient system of
education in the City of Philadelphia. The lawsuit also alleges that the
scheme for financing public education precludes the Commonwealth from
providing the constitutionally required "thorough and efficient system of
public education" in the circumstances faced by the School District of
Philadelphia, and that the defendants have failed to provide the School
District of Philadelphia with resources and other assistance necessary to
provide all of its students with the quality of education to which they are
constitutionally entitled. In March 1998, Commonwealth Court dismissed the
case on the grounds that the issues presented are not justiciable. On October
1, 1999 the Supreme Court of Pennsylvania affirmed the Commonwealth Court's
order.
Powell v. Ridge
In March 1998, several residents of the City of Philadelphia on behalf of
themselves and their school-aged children, along with the School District of
Philadelphia, the Philadelphia Superintendent of Schools, the chairman of the
Philadelphia Board of Education, the City of Philadelphia, the Mayor of
Philadelphia, and several membership organizations interested in the
Philadelphia public schools, brought suit in the United States District Court
for the Eastern District of Pennsylvania against the Governor, the Secretary
of Education, the chairman of the State Board of Education, and the State
Treasurer. The plaintiffs claim that the Commonwealth's system for funding
public schools has the effect of discriminating on the basis of race and
violates Title VI of the Civil Rights Act of 1964. The plaintiffs asked the
court to declare the funding system to be illegal, to enjoin the defendants
from violating the regulation in the future and to award counsel fees and
costs.
The Philadelphia Federation of Teachers intervened on the side of the
plaintiffs, while several leaders of the Pennsylvania General Assembly
intervened on the side of the defendants. In addition, the U.S. Department of
Justice intervened to defend against a claim made by the legislator
intervenors that a statute waiving states' immunity under the Eleventh
Amendment to the U.S. Constitution for Title VI claims is unconstitutional.
The District Court found that the plaintiffs had failed to state a claim
under the Title VI regulation at issue or under 42 U.S.C. (S)1983 and
dismissed the action in its entirety with prejudice. The plaintiffs appealed.
In August 1999, the U.S. Court of Appeals for the Third Circuit reversed the
District Court's dismissal of the action and remanded the case for further
proceedings including the filing of an answer. The defendants and legislator
intervenors have filed petitions for writ of certiorari with the U.S. Supreme
Court.
III-7
<PAGE>
Rite Aid of Pennsylvania, Inc. v. Houstoun
In March 1997, Rite Aid of Pennsylvania, Inc. (Rite Aid) filed in the U.S.
District Court for the Eastern District of Pennsylvania a civil action against
the Secretary of Public Welfare (Secretary). In its complaint, Rite Aid
alleged that in promulgating regulations on October 1, 1995 governing payment
rates for prescription drugs and related services provided to recipients of
benefits under the Pennsylvania Medical Assistance Program (Medicaid), the
Secretary violated various provisions of Title XIX of the Social Security Act
(commonly known as the Medicaid Act) and regulations of the U.S. Department of
Health and Human Services, as well as provisions of state law and federal
constitutional due process.
In August 1998, the District Court declared that the pharmacy reimbursement
rates made effective after October 1, 1995, were adopted by the Secretary in
violation of section 1396(a)(30)(A) of the Medicaid Act and enjoined the
Secretary from using those rates to reimburse for any prescription drugs and
related services provided to Medicaid recipients on and after October 1, 1998.
The Court held that the Secretary acted arbitrarily and capriciously by
failing to consider whether the revised rates were consistent with the
statutory standards of efficiency, economy, and quality of care.
The Secretary appealed the District Court's orders. On March 22, 1999, the
U.S. Court of Appeals for the Third Circuit reversed the District Courts'
order and remanded the case for further proceedings. The Court of Appeals held
that the Secretary had not violated the Medicaid Act in adopting rates in
1995, but the Court remanded the case to allow the plaintiffs to pursue any
claim which they might have that the rates substantially do not satisfy the
statutory standard prescribed by 42 U.S.C. (S)1396(a)(30)(A).
The case is pending in the District Court. No substantial proceedings have
occurred since the remand. In addition, a case raising analogous state law
issues is pending in Commonwealth Court.
Pennsylvania general obligation bonds are currently rated AA by Standard &
Poor's, AA by Fitch and Aa3 by Moody's. There can be no assurance that the
economic conditions on which these ratings are based will continue or that
particular bond issues will not be adversely affected by changes in economic
or political conditions.
III-8
<PAGE>
EXHIBIT IV
RATINGS OF MUNICIPAL BONDS AND COMMERCIAL PAPER
Description of Moody's Investors Service, Inc.'s ("Moody's") Municipal Bond
Ratings
"Aaa"-Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes can be visualized and 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 Aa1,
Al, Baa1, Ba1 and B1.
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>
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.
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.
IV-2
<PAGE>
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, B, CCC, CC, C-Debt rated "BB," "B," "CCC," "CC", and "C" are regarded
as having significant speculative characteristics. "BB" indicates the least
degree of speculation and "C" the highest degree of speculation. While such
debt will likely 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.
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:
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.
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.
IV-3
<PAGE>
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.
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:
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.
Description of Fitch IBCA, Inc.'s ("Fitch") Investment Grade Bond Ratings
Fitch investment grade bond ratings provide a guide to investors in
determining the credit risk associated with a particular security. The rating
represents Fitch's assessment of the issuer's ability to meet the obligations
of a specific debt issue or class of debt in a timely manner.
The rating takes into consideration special features of the issue, its
relationship to other obligations of the issuer, the current and prospective
financial condition and operating performance of the issuer and any guarantor,
as well as the economic and political environment that might affect the
issuer's future financial strength and credit quality.
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
IV-4
<PAGE>
information. Ratings may be changed, suspended, or withdrawn as a result of
changes in, or the unavailability of, information or for other reasons.
AAA-Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and
repay principal, which is unlikely to be affected by reasonably foreseeable
events.
AA-Bonds considered to be investment grade and of very high credit quality.
The obligor's ability to pay interest and repay principal is very strong,
although not quite as strong as bonds rated "AAA." Because bonds rated in the
"AAA" and "AA" categories are not significantly vulnerable to foreseeable
future developments, short-term debt of these issuers is generally rated "F-
1+."
A-Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions
and circumstances than bonds with higher ratings.
BBB-Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have 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.
Plus (+) or Minus (-): Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within the rating category. Plus
and minus signs, however, are not used in the "AAA" category.
NR Indicates that Fitch does not rate the specific issue.
Conditional: A conditional rating is premised on the successful completion
of a project or the occurrence of a specific event.
Suspended: A rating is suspended when Fitch deems the amount of information
available from the issuer to be inadequate for rating purposes.
Withdrawn: A rating will be withdrawn when an issue matures or is called or
refinanced and, at Fitch's discretion, when an issuer fails to furnish proper
and timely information.
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.
IV-5
<PAGE>
The rating takes into consideration special features of the issue, its
relationship to other obligations of the issuer, the current and prospective
financial condition and operating performance of the issuer and any guarantor,
as well as the economic and political environment that might affect the
issuer's future financial strength.
Bonds that have the rating are of similar but not necessarily identical
credit quality since rating categories cannot fully reflect the differences in
degrees of credit risk.
BB-Bonds are considered speculative. The obligor's ability to pay interest
and repay principal may be affected over time by adverse economic changes.
However, business and financial alternatives can be identified which could
assist the obligor in satisfying its debt service requirements.
B-Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued
timely payment of principal and interest reflects the obligor's limited margin
of safety and the need for reasonable business and economic activity
throughout the life of the issue.
CCC-Bonds have certain identifiable characteristics which, if not remedied,
may lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC-Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C-Bonds are in imminent default in payment of interest or principal.
DDD, DD, D-Bonds are in default on interest and/or principal payments. Such
bonds are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. "DDD"
represents the highest potential for recovery on these bonds, and "D"
represents the lowest potential for recovery.
Plus (+) or Minus (-): Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within the rating category. Plus
and minus signs, however, are not used in the "DDD," "DD," or "D" categories.
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:
<TABLE>
<C> <S>
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.
</TABLE>
IV-6
<PAGE>
<TABLE>
<C> <S>
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.
</TABLE>
IV-7
<PAGE>
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 Pennsylvania 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
Pennsylvania 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 Pennsylvania
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 Pennsylvania 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
V-1
<PAGE>
cancellation penalties or the timeliness of payment; nor does it address the
ability of a company to meet nonpolicy obligations (i.e., debt contracts).
The assignment of ratings by S&P, 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>
EXHIBIT VI
SECTIONS 86 THROUGH 98 OF CHAPTER 156B
OF THE MASSACHUSETTS GENERAL LAWS
(THE MASSACHUSETTS BUSINESS CORPORATION LAW)
(S) 86. Sections applicable to appraisal; prerequisites
If a corporation proposes to take a corporate action as to which any section
of this chapter provides that a stockholder who objects to such action shall
have the right to demand payment for his shares and an appraisal thereof,
sections eighty-seven to ninety-eight, inclusive, shall apply except as
otherwise specifically provided in any section of this chapter. Except as
provided in sections eighty-two and eighty-three, no stockholder shall have
such right unless (1) he files with the corporation before taking the vote of
the shareholders on such corporate action, written objection to the proposed
action stating that he intends to demand payment for his shares if the action
is taken and (2) his shares are not voted in favor of the proposed action.
(S) 87. Statement of rights of objecting stockholders in notice of meeting;
form
The notice of the meeting of stockholders at which the approval of such
proposed action to be considered shall contain a statement of the rights of
objecting stockholders. The giving of such notice shall not be deemed to
create any rights in any stockholder receiving the same to demand payment for
his stock, and the directors may authorize the inclusion in any such notice of
a statement of opinion by the management as to the existence or non-existence
of the right of stockholders to demand payment for their stock on account of
the proposed corporate action. The notice may be in such form as the directors
or officers calling the meeting deem advisable, but the following form of
notice shall be sufficient to comply with this section:
"If the action proposed is approved by the stockholders at the meeting
and effected by the corporation, any stockholder (1) who files with the
corporation before the taking of the vote on the approval of such action,
written objection to the proposed action stating that he intends to demand
payment for his shares if the action is taken and (2) whose shares are not
voted in favor of such action has or may have the right to demand in
writing from the corporation (or, in the case of a consolidation or merger,
the name of the resulting or surviving corporation shall be inserted),
within twenty days after the date of mailing to him of notice in writing
that the corporate action has become effective, payment for his shares and
an appraisal of the value thereof. Such corporation and any such
stockholder shall in such cases have the rights and duties and shall follow
the procedure set forth in sections 88 to 98, inclusive, of chapter 156B of
the General Laws of Massachusetts."
(S) 88. Notice of effectiveness of action objected to
The corporation taking such action, or in the case of a merger or
consolidation the surviving or resulting corporation, shall, within ten days
after the date on which such corporate action became effective, notify each
stockholder who filed a written objection meeting the requirements of section
eighty-six and whose shares were not voted in favor of the approval of such
action, that the action approved at the meeting of the corporation of which he
is a stockholder has become effective. The giving of such notice shall not be
deemed to create any rights in any stockholder receiving the same to demand
payment for his stock. The notice shall be sent by registered or certified
mail, addressed to the stockholder at his last known address as it appears in
the records of the corporation.
(S) 89. Demand for payment; time for payment
If within twenty days after the date of mailing of a notice under subsection
(e) of section eighty-two, subsection (f) of section eighty-three, or section
eighty-eight, any stockholder to whom the corporation was required to give
such notice shall demand in writing from the corporation taking such action,
or in the case of a consolidation or merger from the resulting or surviving
corporation, payment for his stock, the corporation upon
VI-1
<PAGE>
which such demand is made shall pay to him the fair value of his stock within
thirty days after the expiration of the period during which such demand may be
made.
(S) 90. Demand for determination of value; bill in equity; venue
If during the period of thirty days provided for in section eighty-nine the
corporation upon which such demand is made and any such objecting stockholder
fail to agree as to the value of such stock, such corporation or any such
stockholder may within four months after the expiration of such thirty-day
period demand a determination of the value of the stock of all such objecting
stockholders by a bill in equity filed in the superior court in the county
where the corporation in which such objecting stockholder held stock had or
has its principal office in the commonwealth.
(S) 91. Parties to suit to determine value; service
If the bill is filed by the corporation, it shall name as parties respondent
all stockholders who have demanded payment for their shares and with whom the
corporation has not reached agreement as to the value thereof. If the bill is
filed by a stockholder, he shall bring the bill in his own behalf and in
behalf of all other stockholders who have demanded payment for their shares
and with whom the corporation has not reached agreement as to the value
thereof, and service of the bill shall be made upon the corporation by
subpoena with a copy of the bill annexed. The corporation shall file with its
answer a duly verified list of all such other stockholders, and such
stockholders shall thereupon be deemed to have been added as parties to the
bill. The corporation shall give notice in such form and returnable on such
date as the court shall order to each stockholder party to the bill by
registered or certified mail, addressed to the last known address of such
stockholder as shown in the records of the corporation, and the court may
order such additional notice by publication or otherwise as it deems
advisable. Each stockholder who makes demand as provided in section eighty-
nine shall be deemed to have consented to the provisions of this section
relating to notice, and the giving of notice by the corporation to any such
stockholder in compliance with the order of the court shall be sufficient
service of process on him. Failure to give notice to any stockholder making
demand shall not invalidate the proceedings as to other stockholders to whom
notice was properly given, and the court may at any time before the entry of a
final decree make supplementary orders of notice.
(S) 92. Decree determining value and ordering payment; valuation date
After hearing the court shall enter a decree determining the fair value of
the stock of those stockholders who have become entitled to the valuation of
and payment for their shares, and shall order the corporation to make payment
of such value, together with interest, if any, as hereinafter provided to the
stockholders entitled thereto upon the transfer by them to the corporation of
the certificates representing such stock if certificated or, if
uncertificated, upon receipt of the instruction transferring such stock to the
corporation. For this purpose, the value of the shares shall be determined as
of the day preceding the date of the vote approving the proposed corporate
action and shall be exclusive of any element of value arising from the
expectation or accomplishment of the proposed corporate action.
(S) 93. Reference to special master
The court in its discretion may refer the bill or any question arising
thereunder to a special master to hear the parties, make findings and report
the same to the court, all in accordance with the usual practice in suits in
equity in the superior court.
(S) 94. Notation on stock certificates of pendency of bill
On motion the court may order stockholder parties to the bill to submit
their certificates of stock to the corporation for the notation thereon of the
pendency of the bill and may order the corporation to note such pendency in
its records with respect to any uncertificated shares held by such stockholder
parties, and may on motion dismiss the bill as to any stockholder who fails to
comply with such order.
VI-2
<PAGE>
(S) 95. Costs; interest
The costs of the bill, including the reasonable compensation and expenses of
any master appointed by the court, but exclusive of fees of counsel or of
experts retained by any party, shall be determined by the court and taxed upon
the parties to the bill, or any of them, in such manner as appears to be
equitable, except that all costs of giving notice to stockholders as provided
in this chapter shall be paid by the corporation. Interest shall be paid upon
any award from the date of the vote approving the proposed corporate action,
and the court may on application of any interested party determine the amount
of interest to be paid in the case of any stockholder.
(S) 96. Dividends and voting rights after demand for payment
Any stockholder who has demanded payment for his stock as provided in this
chapter shall not thereafter be entitled to notice of any meeting of
stockholders or to vote such stock for any purpose and shall not be entitled
to the payment of dividends or other distribution on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the date of the vote, approving the proposed corporate
action) unless:
1) A bill shall not be filed within the time provided in section ninety;
2) A bill, if filed, shall be dismissed as to such stockholder; or
3) Such stockholder shall with the written approval of the corporation,
or in the case of a consolidation or merger, the resulting or surviving
corporation, deliver to it a written withdrawal of his objections to and an
acceptance of such corporate action.
Notwithstanding the provisions of clauses (1) to (3), inclusive, said
stockholder shall have only the rights of a stockholder who did not so demand
payment for his stock as provided in this chapter.
(S) 97. Status of shares paid for
The shares of the corporation paid for by the corporation pursuant to the
provisions of this chapter shall have the status of treasury stock, or in the
case of a consolidation or merger the shares or the securities of the
resulting or surviving corporation into which the shares of such objecting
stockholder would have been converted had he not objected to such
consolidation or merger shall have the status of treasury stock or securities.
(S) 98. Exclusive remedy; exception
The enforcement by a stockholder of his right to receive payment for his
shares in the manner provided in this chapter shall be an exclusive remedy
except that this chapter shall not exclude in the right of such stockholder to
bring or maintain an appropriate proceeding to obtain relief on the ground
that such corporate action will be or is illegal or fraudulent as to him.
VI-3
<PAGE>
PART C
OTHER INFORMATION
Item 15. Indemnification.
Section 5.3 of the Registrant's Declaration of Trust, Article VI of the
Registrant's By-Laws and the Investment Advisory Agreement filed as Exhibit 6
provide for indemnification.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be provided to directors, officers and controlling persons of the
Fund, pursuant to the foregoing provisions or otherwise, the Fund has been
advised that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Fund of expenses
incurred or paid by a director, officer or controlling person of the Fund 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 Fund 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 Act and will be governed by
the final adjudication of such issue.
Reference is made to Section seven of the Purchase Agreement, a form of
which is filed as Exhibit 7(a) hereto, for provisions relating to the
indemnification of the Underwriter.
Item 16. Exhibits.
<TABLE>
<C> <S>
1(a) --Declaration of Trust of the Registrant, dated August 24, 1992.
(b) --Form of Certificate of Designation creating AMPS.
(c) --Form of Amendment to Certificate of Designation.(a)
(d) --Form of Certificate of Designation creating Series B AMPS.(a)
2 --By-Laws of the Registrant.
3 --Not Applicable.
4 --Form of Agreement and Plan of Reorganization among the Registrant and
MuniVest Pennsylvania Insured Fund and MuniHoldings Pennsylvania
Insured Fund (included in Exhibit II to the Proxy Statement and
Prospectus contained in this Registration Statement).
5 --Copies of instruments defining the rights of shareholders, including
the relevant portions of the Declaration of Trust and the By-Laws of
the Registrant.(b)
6 --Form of Investment Advisory Agreement between Registrant and Fund
Asset Management, L.P.
7(a) --Form of Purchase Agreement for the Common Shares.
(b) --Form of Purchase Agreement for the AMPS.
(c) --Form of Merrill Lynch Standard Dealer Agreement.
8 --Not applicable.
9 --Custodian Agreement between the Registrant and State Street Bank and
Trust Company.
10 --Form of Dividend Reinvestment Plan.
11 --Opinion and Consent of Brown & Wood LLP, counsel for the Registrant.
12 --Private Letter Ruling from the Internal Revenue Service.(c)
13(a) --Transfer Agency, Dividend Disbursing Agency and Shareholder Servicing
Agency Agreement between the Registrant and State Street Bank and Trust
Company.
(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.
</TABLE>
C-1
<PAGE>
<TABLE>
<C> <S>
14(a) --Consent of Deloitte & Touche LLP, independent auditors for the
Registrant.
(b) --Consent of Deloitte & Touche LLP, independent auditors for MuniVest
Pennsylvania Insured Fund.
15 --Not applicable.
16 --Power of Attorney (Included on the signature page of this
Registration Statement).
</TABLE>
- --------
(a) Filed on October 4, 1999 as an Exhibit to Registrant's Registration
Statement on Form N-14 (File No. 333-88395).
(b) Reference is made to Article V (section 5.1), Article VI (sections 1, 2,
4, 5 and 7), Article VIII, Article IX, and Article X of the Registrant's
Declaration of Trust and to Article II, Article III, Article VI, Article
VII, Article XII, Article XIII and Article XIV of the Registrant's By-
Laws.
(c) To be filed by amendment.
Item 17. Undertakings.
(1) The undersigned Registrant agrees that prior to any public reoffering of
the securities registered through use of a prospectus which is part of this
Registration Statement by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c) of the Securities Act of 1933,
as amended, the reoffering prospectus will contain information called for by
the applicable registration form for reofferings by persons who may be deemed
underwriters, in addition to the information called for by other items of the
applicable form.
(2) The undersigned Registrant agrees that every prospectus that is filed
under paragraph (1) above will be filed as part of an amendment to the
registration statement and will not be used until the amendment is effective,
and that, in determining any liability under the Securities Act of 1933, as
amended, each post-effective amendment shall be deemed to be a new
registration statement for the securities offered therein, and the offering of
securities at that time shall be deemed to be the initial bona fide offering
of them.
(3) The Registrant undertakes to file, by post-effective amendment, 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>
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 9th day of November, 1999.
MuniYield Pennsylvania Fund
(Registrant)
/s/ Terry K. Glenn
By: _________________________________
(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
---------- ----- ----
<S> <C> <C>
/s/ Terry K. Glenn President and Trustee November 9, 1999
______________________________________ (Principal Executive
(Terry K. Glenn) Officer)
/s/ Donald C. Burke Vice President and November 9, 1999
______________________________________ Treasurer (Principal
(Donald C. Burke) Financial and Accounting
Officer)
/s/ Donald Cecil Trustee November 9, 1999
______________________________________
(Donald C. Cecil)
/s/ M. Colyer Crum Trustee November 9, 1999
______________________________________
(M. Colyer Crum)
Trustee
______________________________________
(Laurie Simon Hodrick)
/s/ Edward H. Meyer Trustee November 9, 1999
______________________________________
(Edward H. Meyer)
/s/ Jack B. Sunderland Trustee November 9, 1999
______________________________________
(Jack B. Sunderland)
/s/ J. Thomas Touchton Trustee November 9, 1999
______________________________________
(J. Thomas Touchton)
/s/ Fred G. Weiss Trustee November 9, 1999
______________________________________
(Fred G. Weiss)
/s/ Arthur Zeikel Trustee November 9, 1999
______________________________________
(Arthur Zeikel)
</TABLE>
C-3
<PAGE>
EXHIBITS
<TABLE>
<CAPTION>
Exhibit
No. Description
- ------- -----------
<S> <C> <C>
1(a) --Declaration of Trust.
(b) --Certificate of Designation creating AMPS.
2 --By-laws of the Registrant.
6 --Form of Investment Advisory Agreement between Registrant and Fund Asset
Management, L.P.
7(a) --Form of Purchase Agreement for the Common Shares.
7(b) --Form of Purchase Agreement for the AMPS.
7(c) --Form of Merrill Lynch Standard Dealer Agreement.
9 --Custodian Agreement between Registrant and State Street Bank and Trust
Company.
10 --Form of Dividend Reinvestment Plan.
11 --Opinion and Consent of Brown & Wood LLP, counsel for the Registrant.
13(a) --Transfer Agency, Dividend Disbursing Agency and Shareholder Servicing
Agency Agreement between Registrant and State Street Bank and Trust
Company.
13(b) --Form of Auction Agent Agreement.
13(c) --Form of Broker-Dealer Agreement.
13(d) --Letter of Representations.
14(a) --Consent of Deloitte & Touche LLP, independent auditors for the Registrant.
(b) --Consent of Deloitte & Touche LLP, independent auditors for MuniVest
Pennsylvania Insured Fund.
</TABLE>
<PAGE>
[Proxy Card Front]
COMMON SHARES
MUNIYIELD PENNSYLVANIA FUND
P.O. BOX 9011
PRINCETON, NEW JERSEY 08543-9011
P R O X Y
This proxy is solicited on behalf of the Board of Trustees
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 Shares of MuniYield
Pennsylvania Fund (the "Fund") held of record by the undersigned on October
20, 1999 at a Special Meeting of Shareholders 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 shareholder. 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>
[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 Pennsylvania Insured Fund and
MuniHoldings Pennsylvania Insured Fund.
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>
[Proxy Card Front]
AUCTION MARKET
PREFERRED SHARES
MUNIYIELD PENNSYLVANIA FUND
P.O. BOX 9011
PRINCETON, NEW JERSEY 08543-9011
P R O X Y
This proxy is solicited on behalf of the Board of Trustees
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 Shares of MuniYield
Pennsylvania Fund (the "Fund") held of record by the undersigned on October 20,
1999 at a Special Meeting of Shareholders 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 shareholder. 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>
[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 Pennsylvania Insured Fund and
MuniHoldings Pennsylvania Insured Fund.
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 Shares, in the same proportion as
votes cast by holders of Auction Market Preferred Shares, 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>
[Proxy Card Front]
COMMON SHARES
MUNIVEST PENNSYLVANIA INSURED FUND
P.O. BOX 9011
PRINCETON, NEW JERSEY 08543-9011
P R O X Y
This proxy is solicited on behalf of the Board of Trustees
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 Shares of MuniVest
Pennsylvania Insured Fund (the "Fund") held of record by the undersigned on
October 20, 1999 at a Special Meeting of Shareholders 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 shareholder. 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>
[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 Pennsylvania Fund and
MuniHoldings Pennsylvania Insured Fund.
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>
[Proxy Card Front]
AUCTION MARKET
PREFERRED SHARES
MUNIVEST PENNSYLVANIA INSURED FUND
P.O. BOX 9011
PRINCETON, NEW JERSEY 08543-9011
P R O X Y
This proxy is solicited on behalf of the Board of Trustees
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 Shares of MuniVest
Pennsylvania Insured Fund (the "Fund") held of record by the undersigned on
October 20, 1999 at a Special Meeting of Shareholders 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 shareholder. 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>
[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 Pennsylvania Fund and
MuniHoldings Pennsylvania Insured Fund.
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 Shares, in the same proportion as
votes cast by holders of Auction Market Preferred Shares, 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>
[Proxy Card Front]
COMMON SHARES
MUNIHOLDINGS PENNSYLVANIA INSURED FUND
P.O. BOX 9011
PRINCETON, NEW JERSEY 08543-9011
P R O X Y
This proxy is solicited on behalf of the Board of Trustees
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 Shares of MuniHoldings
Pennsylvania Insured Fund (the "Fund") held of record by the undersigned on
October 20, 1999 at the Annual Meeting of Shareholders 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 shareholder. 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 the 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>
[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 Pennsylvania Fund and MuniVest
Pennsylvania Insured Fund.
FOR [_] AGAINST [_] ABSTAIN [_]
2. ELECTION OF TRUSTEES
FOR all nominees listed below WITHHOLD AUTHORITY
(except as marked to the contrary below) [_] to vote for all nominees
listed below [_]
(Instruction: to withold 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,
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.
<PAGE>
Dated: ______________________________
X _____________________________________________
Signature
X _____________________________________________
Signature, if held jointly
Sign, date, and return the Proxy Card promptly using the enclosed envelope.
<PAGE>
[Proxy Card Front]
AUCTION MARKET
PREFERRED SHARES
MUNIHOLDINGS PENNSYLVANIA INSURED FUND
P.O. BOX 9011
PRINCETON, NEW JERSEY 08543-9011
P R O X Y
This proxy is solicited on behalf of the Board of Trustees
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 Shares of MuniHoldings
Pennsylvania Insured Fund (the "Fund") held of record by the undersigned on
October 20, 1999 at the Annual Meeting of Shareholders 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 shareholder. If no direction is made, this proxy
will be voted "FOR" Proposals 1, 2 and 3.
(Continued and to be signed on the reverse side)
<PAGE>
[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 Pennsylvania Fund and MuniVest
Pennsylvania Insured Fund.
FOR [_] AGAINST [_] ABSTAIN [_]
2. ELECTION OF TRUSTEES
FOR all nominees listed below WITHHOLD AUTHORITY
(except as marked to the contrary below) [_] to vote for all nominees
listed below [_]
(Instruction: to withold 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, 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 Shares, in the same proportion as
votes cast by holders of Auction Market Preferred Shares, 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
<PAGE>
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>
EXHIBIT 1(A)
DECLARATION OF TRUST
OF
MUNIYIELD PENNSYLVANIA FUND
THE DECLARATION OF TRUST of MuniYield Pennsylvania Fund is made the 24th
day of August, 1992, by the parties signatory hereto, as trustees (such persons,
so long as they shall continue in office in accordance with the terms of this
Declaration of Trust, and all other persons who at the time, in question have
been duly elected or appointed as trustees in accordance with the provisions of
this Declaration of Trust and are then in office, being hereinafter called the
"Trustees").
W I T N E S S E T H :
--------------------
WHEREAS, the Trustees desire to form a trust fund under the law of
Massachusetts for the investment and reinvestment of funds contributed thereto;
and
WHEREAS, it is proposed that the beneficial interest in the trust assets be
divided into transferable shares of beneficial interest as hereinafter provided;
NOW, THEREFORE, the Trustees hereby declare that they will hold in trust
all money and property contributed to the trust fund to manage and dispose of
the same for the benefit of the holders from time to time of the shares of
beneficial interest issued hereunder and subject to the provisions hereof, to
wit:
<PAGE>
ARTICLE I
The Trust
---------
1.1. Name. The name of the trust created hereby (the "Trust") shall be
----
"MuniYield Pennsylvania Fund", and so far as may be practicable the Trustees
shall conduct the Trust's activities, execute all documents and sue or be sued
under that name, which name (and the word "Trust" wherever hereinafter used)
shall refer to the Trustees as Trustees, and not individually, and shall not
refer to the officers, agents, employees or shareholders of the Trust. However,
should the Trustees determine that the use of such name is not advisable, they
may select such other name for the Trust as they deem proper and the Trust may
hold its property and conduct its activities under such other name. Any name
change shall become effective upon the execution by a majority of the then
Trustees of an instrument setting forth the new name. Any such instrument shall
have the status of an amendment to this Declaration.
1.2. Definitions. As used in this Declaration, the following terms shall
-----------
have the following meanings:
The terms "Affiliated Person", "Assignment", "Commission", "Interested
----------------- ---------- ---------- ----------
Person", "Majority Shareholder Vote" (the 67% or more than 50% requirement of
- ------ -------------------------
the third sentence of Section 2(a)(42) of the 1940 Act, whichever may be
applicable) and "Principal Underwriter" shall have the meanings given them in
---------------------
the 1940 Act.
"Certificate of Designation" means a certificate signed by the Secretary or
--------------------------
an Assistant Secretary of the Trust setting forth the resolution or resolutions
providing for the issuance of Preferred Shares as described in Article VI
hereof.
"Common Shareholders" means a record owner of outstanding Common Shares.
-------------------
"Common Shares" means the common shares of beneficial interest in the Trust
-------------
as described in Article VI hereof and includes fractions of Common Shares as
well as whole Common Shares.
"Declaration" shall mean this Declaration as amended from time to time.
-----------
References in this Declaration to "Declaration", "hereof", "herein" and
----------- ------ ------
"hereunder" shall be deemed to refer to the Declaration rather than the article
- ----------
or section in which such words appear.
"Fundamental Policies" shall mean the investment restrictions set forth in
--------------------
the Prospectus and designated as fundamental policies therein.
The "1940 Act" refers to the Investment Company Act of 1940, as amended
--------
from time to time, and shall include the rules and regulations and any relevant
order of exemption promulgated thereunder by the Commission.
"Person" shall mean and include individuals, corporations, partnerships,
------
trusts, associations, joint ventures and other entities, whether or not legal
entities, and governments and agencies and political subdivisions thereof.
2
<PAGE>
"Preferred Shareholders" means a record owner of outstanding Preferred
----------------------
Shares.
"Preferred Shares" means the preferred shares of beneficial interest in the
----------------
Trust as described in Article VI hereof and includes fractions of Preferred
Shares as well as whole Preferred Shares.
"Prospectus" shall mean the currently effective Prospectus of the Trust
----------
under the Securities Act of 1933, as amended.
"Registration Statement" means the Registration Statement of the Trust
----------------------
under the Securities Act of 1933 as such Registration Statement may be amended
and filed with the Commission from time to time.
"Shareholders" shall mean as of any particular time all holders of record
------------
of outstanding Shares at such time.
"Shares" shall mean the equal proportionate transferable units of interest
------
into which the beneficial interest in the Trust shall be divided from time to
time and includes fractions of Shares as well as whole Shares. As provided in
Article VI hereof, the Trust may issue separate classes of Shares; all
references to Shares shall be deemed to be Shares of a single class or all
classes as the context may require.
"Trustees" shall mean the signatories to this Declaration, so long as they
--------
shall continue in office in accordance with the terms hereof, and all other
persons who at the time in question have been duly elected or appointed and have
qualified as trustees in accordance with the provisions hereof and are then in
office, are herein referred to as the "Trustees", and reference in this
Declaration to a Trustee or Trustees shall refer to such person or persons in
their capacity as trustees hereunder.
"Trust Property" shall mean as of any particular time any and all property,
--------------
real or personal, tangible or intangible, which at such time is owned or held by
or for the account of the Trust or the Trustees.
3
<PAGE>
ARTICLE II
Trustees
--------
2.1. Number and Qualification. The number of Trustees shall be fixed from
------------------------
time to time by written instrument signed by a majority of the Trustees then in
office, provided, however, that the number of Trustees shall in no event be less
than three or more than fifteen (except prior to the first public offering of
Shares of the Trust). Any vacancy created by an increase in Trustees may, to
the extent permitted by the 1940 Act, be filled by the appointment of an
individual having the qualifications described in this Article made by a written
instrument signed by a majority of the Trustees then in office. Any such
appointment shall not become effective, however, until the individual named in
the written instrument of appointment shall have accepted in writing such
appointment and agreed in writing to be bound by the terms of this Declaration.
No reduction in the number of Trustees shall have the effect of removing any
Trustee from office prior to the expiration of this term. Whenever a vacancy in
the number of Trustees shall occur, until such vacancy is filled as provided in
Section 2.3 hereof, the Trustees in office, regardless of their number, shall
have all the powers granted to the Trustees and shall discharge all the duties
imposed upon the Trustees by this Declaration. A Trustee shall be an individual
at least 21 years of age who is not under legal disability. Trustees need not
own Shares.
2.2. Term of Office of Trustees. The term of office of all of the Trustees
--------------------------
named herein, or elected or appointed prior to the first annual meeting of
Shareholders, shall expire on the date of the first annual meeting of
Shareholders or special meeting in lieu thereof. Beginning with the Trustees
elected at the first annual meeting of Shareholders, the term of each Trustee
shall expire at the next annual meeting of Shareholders following the election
or appointment of such Trustee and upon the election and qualification of his
Successor. The Trustees shall be elected by the affirmative vote of the holders
of a majority of the Shares present in person or by proxy at an annual meeting
of Shareholders or special meeting in lieu thereof called for that purpose,
except as provided in Section 2.3 of this Article; provided, however, that the
Preferred Shareholders voting as a class at an annual meeting of the
Shareholders or special meeting in lieu thereof called for such purpose, shall
elect at least two (2) Trustees at all times, and, provided, further, that the
Preferred Shareholders voting as a class shall elect at least a majority of the
Trustees, which number of Trustees shall be increased appropriately in order to
effectuate such rights after giving effect to resignations of Trustees, (i) if
at any time the dividends on the Preferred Shares shall be unpaid in an amount
equal to two (2) full years dividends on the Preferred Shares, with such
representation to continue until all dividends in arrears shall have been paid
or otherwise provided for, or (ii) pursuant to the designations and powers,
preferences and rights and the qualifications, limitations and restrictions of
the Preferred Shares as determined in accordance with Section 6.1 hereof. Each
Trustee elected shall hold office until his successor shall have been elected
and shall have qualified or until such time as may otherwise be provided in the
By-Laws adopted or amended pursuant to Section 2.7 hereof; except that (a) any
Trustee may resign his trust (without need for prior or subsequent accounting)
by an instrument in writing signed by him or her and delivered to the other
Trustees, which shall take effect upon such delivery or upon such later date as
is specified therein; (b) any Trustee may be removed (provided the aggregate
number of Trustees after such removal shall not be less than the number required
by Section 2.1 hereof) with cause, at any time by written instrument, signed
4
<PAGE>
by the remaining Trustees, specifying the date when such removal shall become
effective, provided, however, that the Trustees elected by one class of Shares
shall have no power to so remove any Trustee elected by another class of Shares;
(c) any Trustee who requests in writing to he retired or who has become
incapacitated by illness or injury may be retired by written instrument signed
by a majority of the other Trustees, specifying the date of his retirement; and
(d) a Trustee may be removed at any meeting of Shareholders by a vote of two
thirds of the outstanding Shares of the class or classes of Shares of beneficial
interest that elected such Trustee. Upon the resignation or removal of a
Trustee, or his otherwise ceasing to be Trustee, he shall execute and deliver
such documents as the remaining Trustees shall require for the purpose of
conveying to the Trust or the remaining Trustees an Trust Property held in the
name of the resigning or removed Trustee. Upon the incapacity or death of any
Trustee, his legal representative shall execute and deliver on his behalf such
documents as the remaining Trustees shall require as provided in the preceding
sentence.
2.3. Resignation and Appointment of Trustees. In case of the declination,
---------------------------------------
death, resignation, retirement, removal or inability of any of the Trustees, or
in case a vacancy shall, by reason of an increase in number, or for any other
reason, exist, the remaining Trustees or, prior to the public offering of Shares
of the Trust, if only one Trustee shall then remain in office, the remaining
Trustee shall fill such vacancy by appointing such other person as they or he,
in their or his discretion, shall see fit. Such appointment shall be evidenced
by a written instrument signed by a majority of the remaining Trustees or by the
remaining Trustee, as the case may be. Any such appointment shall not become
effective, however, until the person named in the written instrument or
appointment shall have accepted in writing such appointment and agreed in
writing to be bound by the terms of the Declaration. Within twelve months of
such appointment, the Trustees shall cause notice of such appointment to be
mailed to each Shareholder at his address as recorded on the books of the Trust.
An appointment of a Trustee may be made by the Trustees then in office and
notice thereof mailed to Shareholders aforesaid in anticipation of a vacancy to
occur by reason of retirement, resignation or increase in number of Trustees
effective at a later date, provided that said appointment shall become effective
only at or after the effective date of said retirement, resignation or increase
in number of Trustees. The power of appointment is subject to the provisions of
Section 16(a) of the 1940 Act.
2.4. Vacancies. The death, declination, resignation, retirement, removal or
---------
incapacity of the Trustees, or any one of them, shall not operate to annul the
Trust or to revoke any existing agency created pursuant to the terms of this
Declaration. Whenever a vacancy in the number of Trustees shall occur, until
such vacancy is filled as provided in Section 2.3, the Trustees in office,
regardless of their number, shall have all the powers granted to the Trustees
and shall discharge all the duties imposed upon the Trustees by the Declaration
subject to the right of the holders of the Preferred Shares to elect a Trustee
to fill such vacancy in accordance with the terms and provisions hereof. A
written instrument certifying the existence of such vacancy signed by a majority
of the Trustees shall be conclusive evidence of the existence of such vacancy.
2.5. Meetings. Meetings of the Trustees shall be held from time to time upon
--------
the call of the Chairman, if any, the President, the Secretary or any two
Trustees. Regular meetings of the Trustees may be held without call or notice at
a time and place fixed by the By-Laws or by resolution of the Trustees. Notice
of any other meeting shall be mailed or otherwise given not
5
<PAGE>
less than 48 hours before the meeting but may be waived in writing by any
Trustee either before or after such meeting. The attendance of a Trustee at a
meeting shall constitute a waiver of notice of such meeting except where a
Trustee attends a meeting for the express purpose of objecting to the
transaction of any business on the ground that the meeting has not been lawfully
called or convened. The Trustees may act with or without a meeting. A quorum for
all meetings of the Trustees shall be a majority of the Trustees. Unless
provided otherwise in this Declaration, any action of the Trustees may be taken
at a meeting by vote of a majority of the Trustees present (a quorum being
present) or without a meeting by written consents of a majority of the Trustees.
Any committee of the Trustees, including an executive committee, if any,
may act with or without a meeting. A quorum for all meetings of any such
committee shall be a majority of the members thereof. Unless provided otherwise
in this Declaration, any action of any such committee may be taken at a meeting
by vote of a majority of the members present (a quorum being present) or without
a meeting by written consent of a majority of the members.
With respect to actions of the Trustees and any committee of the Trustees,
Trustees who are Interested Persons of the Trust within the meaning of Section
1.2 hereof or otherwise interested in any action to be taken may be counted for
quorum purposes under this Section and shall be entitled to vote to the extent
permitted by the 1940 Act.
All or any one or more Trustees may participate in a meeting of the
Trustees or any committee thereof by means of a conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other and participation in a meeting pursuant to such
communications systems shall constitute presence in person at such meeting.
2.6. Officers. The Trustees shall annually elect a President, a Secretary and
--------
a Treasurer and may elect a Chairman. The Trustees may elect or appoint or
authorize the Chairman, if any, or President to appoint such other officers or
agents with such powers as the Trustees may deem to be advisable. The Chairman
and President shall be and the Secretary and Treasurer may, but need not, be a
Trustee.
2.7. By-Laws. The Trustees may adopt and from time to time amend or repeal
-------
the By-Laws for the conduct of the business of the Trust.
6
<PAGE>
ARTICLE III
Powers of Trustees
------------------
3.1. General. The Trustees shall have exclusive and absolute control over
-------
the Trust Property and over the business of the Trust to the same extent as if
the Trustees were the sole owners of the Trust Property and business in their
own right, but with such powers of delegation as may be permitted by this
Declaration. The Trustees may perform such acts as in their sole discretion are
proper for conducting the business of the Trust. The enumeration of any specific
power herein shall not be construed as limiting the aforesaid power. Such powers
of the Trustees may be exercised without order of or resort to any court.
3.2. Investments. The Trustees shall have power, subject to the Fundamental
-----------
Policies, to:
(1) conduct, operate and carry on the business of an investment company;
(2) subscribe for, invest in, reinvest in, purchase or otherwise acquire hold,
pledge, sell, assign, transfer, exchange, distribute or otherwise deal in
or dispose of negotiable or non-negotiable instruments, obligations,
evidences of indebtedness, certificates of deposit or indebtedness,
commercial paper, repurchase agreements, reverse repurchase agreements,
options, futures contracts, options on futures contracts and other
investments, including, without limitation, those issued, guaranteed or
sponsored by any state, territory or possession of the United Sates and the
District of Columbia and their political subdivisions, agencies and
instrumentalities, or by the United States Government or its agencies or
instrumentalities, or international instrumentalities, or by any bank,
savings institution, corporation or other business entity organized under
the laws of the United States and, to the extent provided in the Prospectus
and Registration Statement and not prohibited by the Fundamental Policies,
organized under foreign laws; and to exercise any and all rights, powers
and privileges of ownership or interest in respect of any and all such
investments of every kind and description, including, without limitation,
the right to consent and otherwise act with respect thereto, with power to
designate one or more persons, firms, associations, or corporations to
exercise any of said rights, powers and privileges in respect of any of
said instrument; and the Trustees shall be deemed to have the foregoing
powers with respect to any additional securities in which the Trust may
invest should the investment policies set forth in the Prospectus and
Registration Statement or the Fundamental Policies be amended.
The Trustees shall not be limited to investing in obligations maturing
before the possible termination of the Trust, nor shall the Trustee be limited
by any law limiting the investments which may be made by fiduciaries.
3.3. Legal Title. Legal title to all the Trust Property shall be vested in
-----------
the Trustees as joint tenants except that the Trustees shall have power to cause
legal title to any Trust Property to be hold by or in the name of one or more of
the Trustees, or in the name of the Trust, or in the name of any other Person as
nominee, on such terms as the Trustees may determine, provided that the interest
of the Trust therein is appropriately protected.
7
<PAGE>
The right, title and interest of the Trustees in the Trust Property shall
vest automatically in each person who may hereafter become a Trustee upon his
due election and qualification. Upon the resignation, removal or death of a
Trustee he shall automatically, cease to have any right, title or interest in
any of the Trust Property, and the right, title and interest of such Trustee in
the Trust Property shall vest automatically in the remaining Trustees. Such
vesting and cessation of title shall be effective whether or not conveyancing
documents have been executed and delivered.
3.4. Issuance and Repurchase of Securities. The Trustees shall have the power
-------------------------------------
to issue, sell, repurchase, retire, cancel, acquire, hold, resell, reissue,
dispose of, transfer, and otherwise deal in, Shares, including shares in
fractional denominations, and, subject to the more detailed provisions set forth
in Articles VI, VIII and X, to apply to any such repurchase, retirement,
cancellation or acquisition of Shares any funds or property of the Trust whether
capital or surplus or otherwise, to the full extent now or hereafter permitted
by the laws of the Commonwealth of Massachusetts governing business
corporations.
3.5. Borrow Money. Subject to the Fundamental Policies, the Trustees shall
------------
have power to borrow money or otherwise obtain credit and to secure the same by
mortgaging, pledging or otherwise subjecting as security the assets of the
Trust, including the lending of portfolio securities, and to endorse, guarantee,
or undertake the performance of any obligation, contract or engagement of any
other person, firm, association or corporation.
3.6. Delegation; Committees. The Trustees shall have power, consistent with
----------------------
their continuing exclusive authority over the management of the Trust and the
Trust Property, to delegate from time to time to such of their number or to
officers, employees or agents of the Trust the doing of such things and the
execution of such instruments either in the name of the Trust or the names of
the Trustees or otherwise as the Trustees may deem expedient, to the same extent
as such delegation is permitted to directors of a Massachusetts business
corporation and is permitted by the 1940 Act.
3.7. Collection and Payment. The Trustees shall have power to collect all
----------------------
property due to the Trust; to pay all claims including taxes, against the Trust
Property; to prosecute, defend, compromise or abandon any claim relating to the
Trust Property; to foreclose any security interest securing any obligation, by
virtue of which any property is owed to the Trust; and to enter into releases,
agreements and other instruments.
3.8. Expenses. The Trustees shall have power to incur and pay any expenses
--------
which in the opinion of the Trustees are necessary or incidental to carry out
any of the purposes of this Declaration, and to pay reasonable compensation from
the funds of the Trust to themselves as Trustees. The Trustees shall fix the
compensation of all officers, employees and Trustees. The Trustee may pay
themselves such compensation for special services, including legal,
underwriting, syndicating and brokerage services, as they in good faith may deem
reasonable and reimbursement for expenses reasonably incurred by themselves on
behalf of the Trust.
3.9. Miscellaneous Powers. The Trustees shall have the power to: (a) employ
--------------------
or contract with such Persons as the Trustees may deem desirable for the
transaction of the business of the Trust; (b) enter into joint ventures,
partnerships and any other combinations or
8
<PAGE>
associations; (c) purchase, and pay for out of Trust Property, insurance
policies insuring the Shareholders, Trustees, officers, employees, agents,
investment advisers, distributors, selected dealers or independent contractors
of the Trust against all claims arising by reason of holding any such position
or by reason of any action taken or omitted by any such Person in such capacity,
whether or not constituting negligence, or whether or not the Trust would have
the power to indemnify such Person against such liability; (d) establish
pension, profit-sharing, share purchase, and other retirement, incentive and
benefit plans for any Trustees officers, employees and agents of the Trust; (e)
make donations, irrespective of benefit to the Trust, for charitable, religious,
educational, scientific, civic or law, indemnify any similar purposes; (f) to
the extent permitted by Person with whom the Trust has dealings, including any
advisor, administrator, manager, distributor and selected dealers, to such
extent as the Trustees shall determine; (g) guarantee indebtedness or
contractual obligations of others; (h) determine and change the fiscal year of
the Trust and the method by which its accounts shall be kept; and (i) adopt a
seal for the Trust, but the absence of such seal shall not impair the validity
of any instrument executed on behalf of the Trust.
3.10. Further Power. The Trustees shall have power to conduct the business
-------------
of the Trust and carry on its operations in any and all of its branches and
maintain offices both within and without the Commonwealth of Massachusetts, in
any and all states of the United States of America, in the District of Columbia,
and in any and all commonwealths, territories, dependencies, colonies,
possessions, agencies or instrumentalities of the United States of America and
of foreign governments, and to do all such other things and execute all such
instruments as they deem necessary, proper or desirable in order to promote the
interests of the Trust although such things are not herein specifically
mentioned. Any determination as to what is in the interests of the Trust made by
the Trustees in good faith shall be conclusive. In construing the provisions of
this Declaration, the presumption shall be in favor of a grant of power to the
Trustees. The Trustees will not be required to obtain any court order to deal
with the Trust Property.
9
<PAGE>
ARTICLE IV
Management and Distribution Arrangements
----------------------------------------
4.1. Management Arrangements. Subject to a Majority Shareholder Vote, as
-----------------------
required by the 1940 Act, the Trustees may in their discretion from time to time
enter into advisory or management contracts whereby the other party to such
contract shall undertake to furnish the Trustees such advisory and management
services as the Trustees shall from time to time consider desirable and all upon
such terms and conditions as the Trustees may in their discretion determine.
Notwithstanding any provisions of this Declaration, the Trustees may authorize
any adviser or manager (subject to such general or specific instructions as the
Trustees may from time to time adopt) to effect purchases, sales, loans or
exchanges of portfolio securities of the Trust on behalf of the Trustees or may
authorize any officer, employee or Trustee to effect such purchases, sales,
loans or exchanges pursuant to recommendations of any such adviser or manager
(and all without further action by the Trustees). Any such purchases, sales,
loans and exchanges shall be deemed to have been authorized by all of the
Trustees.
4.2. Distribution Arrangements. The Trustees may in their discretion from
-------------------------
time to time enter into a contract, providing for the sale of the Shares of the
Trust to net the Trust not less than the par value per share, whereby the Trust
may either agree to sell the Shares to the other party to the contract or
appoint such other party its sales agent for such Shares. In either case, the
contract shall be on such terms and conditions as the Trustees may in their
discretion determine not inconsistent with the provisions of this Article IV or
the By-Laws; and such contract may also provide for the repurchase or sale of
Shares by such other party as principal or as agent of the Trust and may provide
that such other party may enter into selected dealer agreements with registered
securities dealers to further the purpose of the distribution or repurchase of
the Shares.
4.3. Parties to Contract. Any contract of the character described in Section
-------------------
4.1 and 4.2 of this Article IV or in Article VII hereof may be entered into with
any corporation, firm, trust or association, although one or more of the
Trustees or officers of the Trust may be an officer, director, Trustee,
shareholder, or member of such other party to the contract, and no such contract
shall be invalidated or rendered voidable by reason of the existence of any such
relationship, nor shall any person holding such relationship be liable merely by
reason of such relationship for any loss or expense to the Trust under or by
reason of said contract or accountable for any profit realized directly or
indirectly therefrom, provided that the contract when entered into was
reasonable and fair and not inconsistent with the provisions of this Article IV
or the By-Laws. The same person (including a, firm, corporation, trust, or
association) may be the other party to contracts entered into pursuant to
Sections 4.1 and 4.2 above or Article VII, and any individual may be financially
interested or otherwise affiliated with persons who are parties to any or all of
the contracts mentioned in this Section 4.3.
4.4. Provisions and Amendments. Any contract entered into pursuant to Section
-------------------------
4.1 and 4.2 of this Article IV shall be consistent with and subject to the
requirements of Section 15 of the 1940 Act with respect to its continuance in
effect, its termination, and the method of authorization and approval of such
contract or renewal thereof, and no amendment to any contract, entered into
pursuant to Section 4.1 shall be effective unless assented to by a Majority
Shareholder Vote.
10
<PAGE>
ARTICLE V
Limitations of Liability of Shareholders,
Trustees and Others
-------------------
5.1. No Personal Liability of Shareholders, Trustees, etc. No shareholder
-----------------------------------------------------
shall be subject to any personal liability whatsoever to any Person in
connection with Trust Property or the acts, obligations or affairs of the Trust.
No Trustee, officer, employee or agent of the Trust shall be subject to any
personal liability whatsoever to any Person, other than the Trust or its
Shareholders, in connection with Trust Property or the affairs of the Trust,
save only that arising from his bad faith, willful misfeasance, gross negligence
or reckless disregard of his duty to such Person; and all such Persons shall
look solely to the Trust Property for satisfaction of claims of any nature
arising in connection with the affairs of the Trust. If any Shareholder,
Trustee, officer, employee, or agent, as such, of the Trust, is made a party to
any suit or proceeding to enforce any such liability, he shall not on account
thereof, be held to any personal liability. The Trust shall indemnify and hold
each Shareholder harmless from and against all claims and liabilities, to which
such Shareholder may become subject by reason of his being or having been a
Shareholder, and shall reimburse such Shareholder for all legal and other
expenses reasonably incurred by him in connection with any such claim or
liability. The rights accruing to a Shareholder under this Section 5.1 shall
not exclude any other right to which such Shareholder may be lawfully entitled,
nor shall anything herein contained restrict the right of the Trust to indemnify
or reimburse a Shareholder in any appropriate situation even though not
specifically provided herein.
5.2. Non-Liability of Trustees, etc. No Trustee, officer, employee or agent
-------------------------------
of the Trust shall be liable to the Trust, its Shareholders, or to any
Shareholder, Trustee, officer, employee, or agent thereof for any action or
failure to act (including without limitation the failure to compel in any way
any former or acting Trustee to redress any breach of trust) except for his own
bad faith, willful misfeasance, gross negligence or reckless disregard of his
duties.
5.3. Mandatory Indemnification. The Trust shall indemnify each of its
-------------------------
Trustees, officers, employees, and agents (including persons who serve at its
requests as directors, officers or trustees of another organization in which it
has any interest, as a shareholder, creditor or otherwise) against all
liabilities and expenses (including amounts paid in satisfaction of judgments,
in compromise, as fines and penalties, and as counsel fees) reasonably incurred
by him in connection with the defense or disposition of any action, suit or
other proceeding, whether civil or criminal, in which he may be involved or with
which he may be threatened, while in office or thereafter, by reason of his
being or having been such a Trustee, officer, employee or agent, except with
respect to any matter as to which he shall have been adjudicated to have acted
in bad faith, willful misfeasance, gross negligence or reckless disregard of his
duties; provided, however, that as to any matter disposed of by a compromise
payment by such person, pursuant to a consent decree or otherwise, no
indemnification either for said payment or for any other expenses shall be
provided unless the Trust shall have received a written opinion from independent
legal counsel approved by the Trustees to the effect that if either the matter
of willful misfeasance, gross negligence or reckless disregard of duty, or the
matter of good faith and reasonable belief as to the best interests of the
Trust, had been adjudicated, it would have been adjudicated in favor of such
person. The rights accruing to any Person under these
11
<PAGE>
provisions shall not exclude any other right to which he may be lawfully
entitled; provided that no Person may satisfy any right of indemnity or
reimbursement granted herein or in Section 5.1 or to which he may be otherwise
entitled except out of the property of the Trust, and no Shareholder shall be
personally liable to any Person with respect to any claim for indemnity or
reimbursement or otherwise. The Trustees may make advance payments in connection
with indemnification under this Section 5.3, provided that the indemnified
person shall have given a written undertaking to reimburse the Trust in the
event it is subsequently determined that he is not entitled to such
indemnification.
5.4. No Bond Required of Trustees. No Trustee shall, as such, be obligated
----------------------------
to give any bond or surety or other security for the performance of any of his
duties hereunder.
5.5. No Duty of Investigation; Notice in Trust Instruments, etc. No
-----------------------------------------------------------
purchaser, lender, transfer agent or other person dealing with the Trustees or
any officer, employee or agent of the Trust shall be bound to make any inquiry
concerning the validity of any transaction purporting to be made by the Trustees
or by said officer, employee or agent or be liable for the application of money
or property paid, loaned, or delivered to or on the order of the Trustees or of
said officer, employee or agent. Every obligation, contract, instrument,
certificate, Share, other security of the Trust or undertaking, and every other
act or thing whatsoever executed in connection with the Trust shall be
conclusively taken to have been executed or done by the executors thereof only
in their capacity as Trustees under this Declaration or in their capacity as
officers, employees or agents of the Trust. Every written obligation, contract,
instrument, certificate, Share, other security of the Trust or undertaking made
or issued by the Trustees or by any officers, employees or agents of the Trust,
in their capacity as such, shall contain an appropriate recital to the effect
that the Shareholders, Trustees, officers, employees and agents of the Trust
shall not personally be bound by or liable thereunder, nor shall resort be had
to their private property for the satisfaction of any obligation or claim
thereunder, and appropriate references shall be made therein to the Declaration,
and may contain any further recital which they may deem appropriate, but the
omission of such recital shall not operate to impose personal liability on any
of the Trustees, Shareholders, officers, employees or agents of the Trust. The
Trustees may maintain insurance for the protection of the Trust Property, its
Shareholders, Trustees, officers, employees and agents in such amount as the
Trustees shall deem adequate to cover possible tort liability, and such other
insurance as the Trustees in their sole judgment shall deem advisable.
5.6. Reliance on Experts, etc. Each Trustee and officer or employee of the
-------------------------
Trust shall, in the performance of his duties, be fully and completely justified
and protected with regard to any act or any failure to act resulting from
reliance in good faith upon the books of account or other records of the Trust,
upon an opinion of counsel, or upon reports made to the Trust by any of its
officers or employees or by any investment adviser, distributor, selected
dealers, accountants, appraisers or other experts or consultants elected with
reasonable care by the Trustees, officers or employees of the, Trust, regardless
of whether such counsel or expert may also be a Trustee.
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ARTICLE VI
Shares of Beneficial Interest
-----------------------------
6.1. Beneficial Interest. The interest of the beneficiaries hereunder shall
-------------------
be divided into transferable shares of beneficial interest of $0.10 par value.
The Trustees of the Trust may authorize separate classes of shares together with
such designations and powers, preferences and rights, qualifications,
limitations and restrictions as may be determined from time to time by the
Trustees. The number of such shares of beneficial interest authorized hereunder
is unlimited. All Shares issued hereunder including, without limitation, Shares
issued in connection with a dividend in Shares or a split in Shares, shall be
fully, paid and nonassessable.
Pursuant to the powers vested in the Trustees by this Section 6.1, the
Trustees hereby authorize the issuance of an unlimited number of common shares
of beneficial interest, par value $0.10 per share (the "Common Shares"),
together with 1,000,000 preferred shares of beneficial interest, par value of
$0.10 per share (the "Preferred Shares").
The designations and powers, preferences and rights, and the
qualifications, limitations and restrictions of the Common Shares are as set
forth in this Declaration of Trust.
The designations and powers, preferences and rights, and the
qualifications, limitations and restrictions of the Preferred Shares are as
follows:
The Preferred Shares shall be issued from time to time in one or more
series with such distinctive serial designations and (i) may have such voting
powers, full or limited; (ii) may be subject to redemption at such time or times
and at such price or prices; (iii) may be entitled to receive dividends (which
may be cumulative or noncumulative) at such rate or rates, on such conditions,
and at such times, and payable in preference to, or in such relation to, the
dividends payable on any other class or classes of shares; (iv) may have such
preferences or other rights upon the dissolution of, or upon any distribution of
the assets of, the Trust; (v) may be made convertible into, or exchangeable for,
shares of any other class or classes of shares of the Trust, at such price or
prices or at such rates of exchange and with such adjustments; (vi) shall have
such other relative, participating, optional or other special rights,
qualifications, limitations or restrictions thereof, all as shall hereafter be
stated and expressed in, the resolution or resolutions providing for the issue
of such Preferred Shares from time to time adopted by the Trustees pursuant to
authority so to do which is hereby expressly vested in the Board; and are as
further set out in this Declaration of Trust. A certificate signed by the
Secretary or an Assistant Secretary of the Trust setting forth the resolution or
resolutions providing for such issuance of Preferred Shares and reciting that
such resolution was or such resolutions were duly adopted by the Trustees (the
"Certificate of Designation") shall be conclusive evidence of the action
providing for the issuance of such Preferred Shares when lodged among the
records of the Trust.
6.2. Rights of Shareholders. The ownership of the Trust Property of every
----------------------
description and the right to conduct any business hereinbefore described are
vested exclusively in the Trustees, and the Shareholders shall have no interest
therein other than the beneficial interest conferred by their Shares, and they
shall have no right to call for any partition or division of any property,
profits, rights or interests of the Trust nor can they be called upon to share
or assume
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any losses of the Trust or suffer an assessment of any kind by virtue of their
ownership of Shares. The Shares shall be personal property giving only the
rights in this Declaration specifically set forth. The Shares shall not entitle
the holder to preference, preemptive, appraisal, conversion or exchange rights,
except for rights or appraisal specified in Section 10.4 and except as the
Trustees may determine with respect to any class or series of Shares.
6.3. Trust Only. It is the intention of the Trustees to create only the
----------
relationship of Trustee and beneficiary between the Trustees and each
Shareholder from time to time. It is not the intention of the Trustees to create
a general partnership, limited partnership, joint stock association,
corporation, bailment or any form of legal relationship other than a trust.
Nothing in this Declaration shall be construed to make the Shareholders, either
by themselves or with the Trustees, partners or members of a joint stock
association.
6.4. Issuance of Shares. The Trustees, in their discretion, may from time to
------------------
time without a vote of the Shareholders issue Shares, in addition to the then
issued and outstanding Shares and Shares held in the treasury, to such party or
parties and for such amount not less than par value and type of consideration,
including cash or property, at such time or times, and on such terms as the
Trustees may deem best, and may in such manner acquire other assets (including
the acquisition of assets subject to, and in connection with the assumption of,
liabilities) and businesses. In connection with any issuance of Shares, the
Trustees may issue fractional Shares. The Trustees may from time to time divide
or combine the Shares into a greater or lesser number without thereby changing
the proportionate beneficial interests in the Trust. Contributions to the Trust
may be accepted for, and Shares shall be redeemed as whole Shares and/or
1/1,000ths of a Share or multiples thereof.
6.5. Register of Shares. A register shall be kept at the Trust or a transfer
------------------
agent duly appointed by the Trustees under the direction of the Trustees which
shall contain the names and addresses of the Shareholders and the number of
Shares held by them respectively and a record of all transfers thereof. Such
register shall be conclusive as to who are the holders of the Shares and who
shall be entitled to receive dividends or distributions or otherwise to exercise
or enjoy the rights of Shareholders. No Shareholder shall be entitled to receive
payment of any dividend or distribution, nor to have notice given to him as
herein provided, until he has given his address to a transfer agent or such
other officer or agent of the Trustees as shall keep the said register for entry
thereon. It is not contemplated that certificates will be issued for the Shares;
however, the Trustees, in their discretion, may authorize the issuance of share
certificates and promulgate appropriate rules and regulations as to their use.
6.6. Transfer Agent and Registrar. The Trustee shall have power to employ a
----------------------------
transfer agent or transfer agents, and a registrar or registrars. The transfer
agent or transfer agents may keep the said register and record therein the
original issues and transfers, if any, of the said shares. Any such transfer
agent and registrar shall perform the duties usually performed by transfer
agents and registrars of certificates of stock in a corporation, except as
modified by the Trustees.
6.7. Transfer of Shares. Shares shall be transferable on the records of the
------------------
Trust only by the record holder thereof or by his agent thereto duly authorized
in writing, upon delivery to the Trustees or a transfer agent of the Trust of a
duly executed instrument of transfer, together
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with such evidence of the genuineness of each such execution and authorization
and of other matters as may reasonably be required. Upon such delivery the
transfer shall be recorded on the register of the Trust. Until such record is
made, the Shareholder of record shall be deemed to be the holder of such Shares
for all purposes hereof and neither the Trustees nor any transfer agent or
registrar nor any officer, employee or agent of the Trust shall be affected by
any notice of the proposed transfer.
Any person becoming entitled to any Shares in consequence of the death,
bankruptcy, or incompetence of any Shareholder, or otherwise by operation of
law, shall be recorded on the register of Shares as the holder of such Shares
upon production of the proper evidence thereof to the Trustees or a transfer
agent of the Trust, but until such record is made, the Shareholder of record
shall be deemed to be the holder of such Shares for all purposes hereof and
neither the Trustees nor any transfer agent or registrar nor any officer or
agent of the Trust shall be affected by any notice of such death, bankruptcy or
incompetence, or other operation of law.
6.8. Notices. Any and all notices to which any Shareholder hereunder may be
-------
entitled and any and all communications shall be deemed duly served or given if
mailed, postage prepaid, addressed to any Shareholder of record, at his last
known address as recorded on the register of the Trust.
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<PAGE>
ARTICLE VII
Custodian
---------
7.1. Appointment and Duties. The Trustees shall at all times employ
----------------------
custodian or custodians, meeting the qualifications for custodians for portfolio
securities of investment companies contained in the 1940 Act, as custodian with
authority as its agent, but subject to such restrictions, limitations and other
requirements, if any, as may be contained in the By-Laws of the Trust and the
1940 Act:
(1) to hold the securities owned by the Trust and deliver the same upon
written order;
(2) to receive and receipt for any moneys due to the Trust and deposit the
same in its own banking department or elsewhere as the Trustees may direct;
(3) to disburse such funds upon orders or vouchers;
(4) if authorized by the Trustees, to keep the books and accounts of the Trust
and furnish clerical and accounting services; and
(5) if authorized to do so by the Trustees, to compute the net income of the
Trust;
all upon such basis of compensation as may be agreed upon between the Trustees
and the custodian. If so directed by a majority Shareholder Vote, the custodian
shall deliver and pay over all property of the Trust held by it as specified in
such vote.
The Trustees may also authorize the custodian to employ one or more sub-
custodians from time to time to perform such of the acts and services of the
custodian and upon such terms and conditions, as may be agreed upon between the
custodian and such sub-custodian and approved by the Trustees, provided that in
every case such sub-custodian shall meet the qualifications for custodians
contained in the 1940 Act.
7.2. Central Certificate System. Subject to such rules, regulations and
--------------------------
orders as the Commission may adopt, the Trustees may direct the custodian to
deposit all or any part of the securities owned by the Trust in a system for the
central handling of securities established by a national securities exchange or
a national securities association registered with the Commission under the
Securities Exchange Act of 1934, or such other person as may be permitted by the
Commission, or otherwise in accordance with the 1940 Act, pursuant to which
system all securities of any particular class or series of any issuer deposited
within the system are treated as fungible and may be transferred or pledged by
bookkeeping entry without physical delivery of such securities, provided that
all such deposits shall be subject to withdrawal only upon the order of the
Trust.
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ARTICLE VIII
Determination of Net Asset Value,
Net Income and Distributions
----------------------------
8.1. Net Asset Value. The net asset value of each outstanding Share of the
---------------
Trust shall be determined at such time or times on such days as the Trustees may
determine, in accordance with the 1940 Act. The method of determination of net
asset value of Shares of each class shall be determined by the Trustees and
shall be as set forth in the Prospectus and Registration Statement with any
expenses being borne solely by a class of Shares being reflected in the net
asset value of such Shares. The power and duty to make the daily calculations
may be delegated by the Trustees to the adviser, administrator, manager,
custodian, transfer agent or such other person as the Trustees may determine.
The Trustees may suspend the daily determination of net asset value to the
extent permitted by the 1940 Act.
8.2. Distributions to Shareholders. The Trustees shall from time to time
-----------------------------
distribute ratably among the Shareholders such proportion of the net profits,
surplus (including paid-in surplus), capital, or assets held by the Trustees as
they deem proper with any expenses being borne solely by a class of Shares being
reflected in the net profits or other assets being distributed to such class.
Such distribution may be made in cash or property (including without limitation
any type of obligations of the Trust or any assets thereof), and the Trustees
may distribute ratably among the Shareholders additional Shares issuable
hereunder in such manner, at such times, and on such terms as the Trustee; may
deem proper. Such distributions may be among the Shareholders of record at the
time of declaring a distribution or among the Shareholders of record at such
later date as the Trustees shall determine. The Trustees may always retain from
the net profits such amounts as they may deem necessary to pay the debts or
expenses of the Trust or to meet obligations of the Trust, or as they deem
desirable to use in the conduct of its affairs or to retain for future
requirements or extensions of the business. The Trustees may adopt and offer to
Shareholders such dividend reinvestment plans, cash dividend payout plans or
related plans as the Trustees shall deem appropriate.
Inasmuch as the computation of net income and gains for federal income tax
purposes may vary from the computation thereof on the books, the above
provisions shall be interpreted to give the Trustees the power in their
discretion to distribute for any fiscal year as ordinary dividends and as
capital gains distributions, respectively, additional amounts sufficient to
enable the Trust to avoid or reduce liability for taxes.
8.3. Power to Modify Foregoing Procedures. Notwithstanding any of the
------------------------------------
foregoing provisions of this Article VIII, the Trustees may prescribe, in their
absolute discretion, such other bases and times for determining the per share
net asset value of the Trust's Shares or net income, or the declaration and
payment of dividends and distributions as they deem necessary or desirable or to
enable the Trust to comply with any provision of the 1940 Act, including any
rule or regulation adopted pursuant to the 1940 Act by the Commission or any
securities association registered under the Securities Exchange Act of 1934, all
as in effect now or hereafter amended or modified.
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ARTICLE IX
Shareholders
------------
9.1. Voting Powers. The Shareholders shall have power to vote only (i) for
-------------
the election of Trustees as provided in Section 2.2 hereof, (ii) for the removal
of Trustees as provided in Section 2.2 hereof, (iii) with respect to any
investment advisory or management contract as provided in Section 4.1, (iv) with
respect to the termination of the Trust as provided in Section 10.2, (v) with
respect to any amendment of the Declaration to the extent and as provided in
Section 10.3, (vi) with respect to any merger, consolidation or sale of assets
as provided in Section 10.4, (vii) with respect to any conversion to an "open-
end" company as provided in Section 10.5, (viii) with respect to incorporation
or reorganization of the Trust to the extent and as provided in Section 10.6,
(ix) to the same extent as the stockholders of a Massachusetts business
corporation as to whether or not a court action, proceeding or claim should or
should not be brought or maintained derivatively or as a class action on behalf
of the Trust or the Shareholders, (x) with respect to such additional matters
relating to the Trust as may be required by law, the Declaration, the By-Laws or
any registration of the Trust with the Commission (or any successor agency) or
any state, or as and when the Trustees may consider necessary or desirable, and
(xi) with respect to those matters set forth in the designations and powers,
preferences and rights and the qualifications, limitations and restrictions of
the Preferred Shares, as determined in accordance with Section 6.1 hereof. Each
whole share shall be entitled to one vote as to any matter on which it is
entitled to vote and each fractional Share shall be entitled to a proportionate
fractional vote, except that Shares held in the treasury of the Trust as of the
record date, as determined in accordance with the By-Laws, shall not be voted.
There shall be no cumulative voting in the election of Trustees. Until Shares
are issued, the Trustees may exercise all rights of Shareholders and may take
any action required by law, the Declaration or the By-Laws to be taken by
Shareholders. The By-Laws may include further provisions for Shareholder's votes
and meetings and related matters.
9.2. Meetings of Shareholders.
------------------------
(a) Annual Meetings. Annual meetings of the Shareholders shall be held at
---------------
such place within or without the Commonwealth of Massachusetts on such day
and at such time as the Trustees shall designate.
(b) Special Meetings. Special meetings of the Shareholders may be called at
----------------
any time by a majority of the, Trustees and shall be called by any Trustee
upon written request of Shareholders holding in the aggregate not less than
10% of the outstanding Shares having voting rights, such request specifying
the purpose or purposes for which such meeting is to be called. Any such
meeting shall be held within or without the Commonwealth of Massachusetts
on such day and at such time as the Trustees shall designate.
The holders of a majority of the outstanding Shares present in person or by
proxy shall constitute a quorum at any annual or special meeting for the
transaction of any business, except as may otherwise be required by the 1940
Act, the laws of the Commonwealth of Massachusetts or other applicable law or by
this Declaration or the By-Laws of the Trust. If a quorum is present at a
meeting, the affirmative vote of a majority of the Shares represented at the
meeting
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constitutes the action of the Shareholders, unless the 1940 Act, the laws of the
Commonwealth of Massachusetts or other applicable law, the Declaration or the
By-Laws of the Trust requires a greater number of affirmative votes. If the
Shares shall be divided into classes with a class having exclusive voting rights
with respect to certain matters, the aforesaid quorum and voting requirements
with respect to action to be taken by the Shareholders of the class on such
matters shall be applicable only to the Shares of such class.
9.3. Notice of Meetings. Notice of all meetings of the Shareholders, stating
------------------
the time, place and purposes of the meeting, shall be given by the Trustees by
mail to each Shareholder at his registered address, mailed at least 10 days and
not more than 60 days before the meeting. Only the business stated in the notice
of the meeting shall be considered at such meeting. Any adjourned meeting may be
held as adjourned without further notice.
9.4. Record Date for Meetings. For the purpose of determining the
------------------------
Shareholders who are entitled to notice of and to vote at any meeting, or to
participate in any distribution, or for the purposes of any other action, the
Trustees may from time to time close the transfer books for such period, not
exceeding 30 days, as the Trustees may determine; or without closing the
transfer books the Trustees may fix a date not more than 60 days prior to the
date of any meeting of Shareholders or daily dividends or other action as a
record date for the determination of the Persons to be treated as Shareholders
of record for such purposes, except for dividend payments which shall be
governed by Section 8.2 hereof.
9.5. Proxies, etc. At any meeting of Shareholders, any holder of Shares
-------------
entitled to vote thereat may vote by proxy, provided that no proxy shall be
voted at any meeting unless it shall have been placed on file with the
Secretary, or with such other officer or agent of the Trust as the Secretary may
direct, for verification prior to the time at which such vote shall be taken.
Pursuant to a resolution of a majority of the Trustees, proxies may be solicited
in the name of one or more Trustees or one or more of the officers of the Trust.
Only Shareholders of record shall be entitled to vote. Each full Share shall be
entitled to one vote and fractional Shares shall be entitled to a vote of such
fraction. When any Share is held jointly by several persons, any one of them may
vote at any meeting in person or by proxy in respect of such Share, but if more
than one of them shall be present at such meeting in person by proxy, and such
joint owners or their proxies so present disagree as to any vote to be cast,
such vote shall not be received in respect of such Share. A proxy purporting to
be executed by or on behalf of a shareholder shall be deemed valid unless
challenged at or prior to its exercise, and the burden of proving invalidity
shall rest on the challenger. If the holder of any such Share is a minor or a
person of unsound mind, and subject to guardianship or to the legal control of
any other person as regards the charge or management of such Share, he may vote
by his guardian or such other person appointed or having such control, and such
vote may be given in person or by proxy.
9.6. Reports. The Trustees shall cause to be prepared at least annually a
-------
report of operations containing a balance sheet and statement of income and
undistributed income of the Trust prepared in conformity with generally accepted
accounting principles and an opinion of an independent public accountant or such
financial statements. Copies of such reports shall be mailed to all Shareholders
of record within the time required by the 1940 Act, and in any event within a
reasonable period preceding the annual meeting of Shareholders. The Trustees
shall, in addition, furnish to the Shareholders at least semi-annually interim
reports containing an
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unaudited balance sheet of the Trust as of the end of such period and an
unaudited statement of income and surplus for the period from the beginning of
the current fiscal year to the end of such period.
9.7. Inspection of Records. The records of the Trust shall be open to
---------------------
inspection by Shareholders to the same extent as is permitted shareholders of a
Massachusetts business corporation.
9.8. Shareholder Action by Written Consent. Any action which may be taken by
-------------------------------------
Shareholders may be taken without a meeting if a majority of Shareholders
entitled to vote on the matter (or such larger proportion thereof as shall be
required by any express provision of this Declaration) consent to the action in
writing and the written consents are filed with the records of the meetings of
Shareholders. Such consent shall be treated for all purposes as a vote taken at
a meeting of Shareholders.
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ARTICLE X
Duration; Termination of Trust;
Amendment; Mergers, Etc.
------------------------
10.1. Duration. Subject to possible termination in accordance with the
--------
provisions of Section 10.2 hereof, the Trust created hereby shall continue
without limitation of time.
10.2. Termination of Trust.
--------------------
(a) The Trust may be terminated by the affirmative of the holders of not less
than two-thirds of the Shares at any meeting of Shareholders or if such
termination has been approved by the affirmative vote of at least two
thirds of the Trustees, in which case the affirmative vote of the holders
of not less than a majority of such Shares. Upon the termination of the
Trust,
(i) The Trust shall carry on no business except for the purpose of winding up
its affairs.
(ii) The Trustees shall proceed to wind up the affairs of the Trust and all of
the powers of the Trustees under this Declaration shall continue until the
affairs of the Trust shall have been wound up, including the power to
fulfill or discharge the contracts of the Trust, collect its assets, sell,
convey, assign, exchange, transfer or otherwise dispose of all or any part
of the remaining Trust Property to one or more persons at public or
private sale for consideration which may consist in whole or in part of
cash, securities or other property of any kind, discharge or pay its
liabilities, and do all other acts appropriate to liquidate its business.
(iii) After paying or adequately providing for the payment of all liabilities,
and upon receipt of such releases, indemnities and refunding agreements,
as they deem necessary for their protection, the Trustees may distribute
the remaining Trust Property, in cash or in kind or partly each, among the
Shareholders of each class, according to the respective rights taking into
account the proper allocation of expenses being borne solely by any class
of Shares.
(b) After termination of the Trust and distribution to the Shareholders as
herein provided, a majority of the Trustees shall execute and lodge among
the records of the Trust an instrument in writing setting forth the fact
of such termination, and the Trustees shall thereupon be discharged from
all further liabilities and duties hereunder, and the rights and interests
of all Shareholders shall thereupon cease.
10.3. Amendment Procedure.
-------------------
(a) Except as provided in paragraph (b) of this Section 10.3, this Declaration
may be amended by a vote of a majority of the Shares at a meeting of
Shareholders, or by an instrument in writing, without a meeting signed by
a majority of the Trustees and consented to by the holders of not less
than a majority of such Shares. The Trustees may also amend this
Declaration without the vote or consent of Shareholders (i) to change the
name of the Trust,
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(ii) to supply any omission, or cure, correct or supplement any ambiguous,
defective or inconsistent provision hereof, (iii) if they deem it
necessary to conform this Declaration to the requirements of applicable
federal or state laws or regulations or the requirements of the Internal
Revenue Code, or to eliminate or reduce any federal, state or local taxes
which are or may be payable by the Trust or the Shareholders, but the
Trustee shall not be liable for failing to do so, (iv) to make any changes
deemed necessary to effectuate the designations and powers, preferences
and rights, and the qualifications, limitations and restrictions adopted
by the Trustees with respect to the Preferred Shares pursuant to Section
6.1 hereof, or (v) for any other purpose which does not adversely affect
the rights of any Shareholder with respect to which the amendment is or
purports to be applicable.
(b) No amendment may be made, under Section 10.3(a) above, which would change
any rights with respect to any Shares of the Trust by reducing the amount
payable thereon upon liquidation of the Trust or by diminishing or
eliminating any voting rights pertaining thereto, except with the vote or
consent of the holders of two-thirds of the Shares of the Trust so
affected outstanding and entitled to vote. Nothing contained in this
Declaration shall permit the amendment of this Declaration to impair the
exemption from personal liability of the Shareholders, Trustees, officers,
employees and agents of the Trust or to permit assessments upon
Shareholders.
(c) A certification in recordable form signed by a majority of the Trustees or
by the Secretary or any Assistant Secretary of the Trust setting forth an
amendment and reciting that it was duly adopted by the Shareholders or by
the Trustees as aforesaid or a copy of the Declaration, as amended, in
recordable form, and executed by a majority of the Trustees or certified
by the Secretary or any Assistant Secretary of the Trust, shall be
conclusive evidence of such amendment when lodged among the records of the
Trust.
Notwithstanding any other provision hereof, until such time as a
Registration Statement under the Securities Act of 1933, as amended, covering
the first public offering of Shares of the Trust shall have become effective,
this Declaration may be terminated or amended in any respect by the affirmative
vote of a majority of the Trustees or by an instrument signed by a majority of
the Trustees.
10.4. Merger, Consolidation and Sale of Assets. Notwithstanding any other
----------------------------------------
provisions of this Declaration or the By-Laws of the Trust, a favorable vote of
the holders of at least two-thirds of the outstanding Shares of the Trust
entitled to be voted on the matter shall be required to approve, adopt or
authorize (i) a merger or consolidation or share exchange of the Trust with any
other entity, or (ii) a sale or exchange of all or substantially all of the
assets of the Trust (other than in the regular course of its investment
activities), unless such action has previously been approved, adopted or
authorized by the affirmative vote of at least two-thirds of the total number of
Trustees fixed in accordance with this Declaration, in which case the
affirmative vote of the holders of a majority of the outstanding Shares of the
Trust entitled to vote thereon shall be required. In respect of any such
merger, consolidation, sale or exchange of assets, any Shareholder shall be
entitled to rights of appraisal of his Shares to the same extent as a
shareholder of a Massachusetts business corporation in respect of a merger,
consolidation, sale or exchange of assets of a Massachusetts business
corporation, and such right shall be his exclusive remedy in respect of his
dissent from any such action.
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10.5. Conversion to Open-End Company. Notwithstanding any other provisions
------------------------------
of this Declaration or the By-Laws of the Trust, a favorable vote of the holders
of two-thirds of the outstanding Shares of the Trust entitled to be voted on the
matter shall be required to approve, adopt or authorize an amendment to this
Declaration that makes the Common Shares a "redeemable security" (as that term
is defined in section 2(a)(32) the Investment Company Act of 1940, as amended)
unless such action has previously been approved, adopted or authorized by the
affirmative vote of at least two-thirds of the total number of Trustees fixed in
accordance with this Declaration, in which case the affirmative vote of the
holders of a majority of the outstanding Shares of the Trust entitled to vote
thereon shall be required.
10.6. Incorporation. With the approval of the holders of a majority of the
-------------
Shares, the Trustees may cause to be organized or assist in organizing a
corporation or corporations under the laws of any jurisdiction or any other
trust, partnership, association or other organization to take over all of the
Trust Property or to carry on any business in which the Trust shall directly or
indirectly have any interest, and to sell, convey and transfer the Trust
Property to any such corporation, trust, association or organization in exchange
for the Shares or securities thereof or otherwise, and to lend money to,
subscribe for the Shares or securities of, and enter into any contracts with any
such corporation, trust, partnership, association or organization, or any
corporation, partnership, trust, association or organization in which the Trust
holds or is about to acquire shares or any other interest. The Trustees may also
cause merger or consolidation between the Trust or any successor thereto and any
such corporation, trust, partnership, association or other organization if and
to the extent permitted by law, as provided under the law then in effect.
Nothing contained herein shall be construed as requiring approval of
Shareholders for the Trustees to organize or assist in organizing one or more
corporations, trusts, partnerships, associations or other organizations and
selling, conveying or transferring a portion of the Trust Property to such
organizations or entities.
23
<PAGE>
ARTICLE XI
Miscellaneous
-------------
11.1. Filing. This Declaration, any amendment hereto or any Certificate of
------
Designation shall be filed in the office of the Secretary of the Commonwealth of
Massachusetts and in such other places as may be required under the laws of
Massachusetts and may also be filed or recorded in such other places as the
Trustees deem appropriate. Each amendment so filed shall be accompanied by a
certificate signed and acknowledged by a Trustee or the Secretary or any
Assistant Secretary stating that such action was duly taken in a manner provided
herein. Unless an amendment or certificate or Certificate of Designation sets
forth some later time for the effectiveness thereof, such amendment or
certificate or Certificate of Designation shall be effective upon its filing. A
restated Declaration, containing the original Declaration and all amendments
theretofore made, may be executed from time to time by a majority of the
Trustees and shall, upon filing with a the Secretary of the Commonwealth of
Massachusetts, be conclusive evidence of all amendments contained therein and
may thereafter be referred to in lieu of the original Declaration and the
various amendments thereto.
11.2. Resident Agent. The Trust shall maintain a resident agent in the
--------------
Commonwealth of Massachusetts, which agent shall initially be CT Corporation
System, 2 Oliver Street Boston, Massachusetts 02109. The Trustees may designate
a successor resident agent, provided, however, that such appointment shall not
become effective until written notice thereof is delivered to the office of the
Secretary of the Commonwealth.
11.3. Governing Law. This Declaration is executed by the Trustees and
-------------
delivered in the Commonwealth of Massachusetts and with reference to the laws
thereof, and the rights of all parties and the validity and construction of
every provision hereof shall be subject to and construed according to the laws
of said State and reference shall be specifically made to the business
corporation law of the Commonwealth of Massachusetts as to the construction of
matters not specifically covered herein or as to which an ambiguity exists.
11.4. Counterparts. This Declaration may be simultaneously executed in
------------
several counterparts, each of which shall be deemed to be an original, and such
counterparts, together, shall constitute one and the same instrument, which
shall be sufficiently evidenced by any such original counterpart.
11.5. Reliance by Third Parties. Any certificate executed by an individual
-------------------------
who, according to the records of the Trust, or of any recording office in which
this Declaration may be recorded, appears to be a Trustee hereunder, or
Secretary or Assistant Secretary of the Trust, certifying to: (a) the number or
identity of Trustees or Shareholders, (b) the due authorization of the execution
of any instrument or writing, (c) the form of any vote passed at a meeting of
Trustees or Shareholders, (d) the fact that the number of Trustees or
Shareholders present at any meeting or executing any written instrument
satisfies the requirements of this Declaration, (e) the form of any By-Laws
adopted by or the identity of any officers elected by the Trustees, or (f) the
existence of any fact or facts which in any manner relate to the affairs of the
Trust, shall be conclusive evidence as to the matters so certified in favor of
any person dealing with the Trustees and their successors.
24
<PAGE>
11.6. Provisions in Conflict with Law or Regulations.
----------------------------------------------
(a) The provisions of this Declaration are severable, and if the Trustees
shall determine, with the advice of counsel, that any of such provisions
is in conflict with the 1940 Act, the regulated investment company
provisions of the Internal Revenue Code or with other applicable laws and
regulations, the conflicting provision shall be deemed never to have
constituted a part of this Declaration; provided, however, that such
determination shall not affect any of the remaining provisions of this
Declaration or render invalid or improper any action taken or omitted
prior to such determination.
(b) If any provision of this Declaration shall be held invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability
shall attach only to such provision in such jurisdiction and shall not in
any manner affect such provision in any other jurisdiction or any other
provision of this Declaration in any jurisdiction.
The principal office of the Trust is 800 Scudders Mill Road, Plainsboro,
NJ 08536.
25
<PAGE>
IN WITNESS WHEREOF, the undersigned have caused these presents executed as
of the day and year first above written.
-----------------------------------------------
Jerry Weiss
13 Bayberry Road
Princeton, New Jersey 08540
-----------------------------------------------
Mark B. Goldfus
509 Bergen Street
Lawrenceville, New Jersey 08648
-----------------------------------------------
Robert E. Putney, III
12131 Taylor Court
Lawrenceville, New Jersey 08648
-----------------------------------------------
William E. Aldrich
___ Windsor Road
Needham, Massachusetts 02192
26
<PAGE>
Exhibit 99.1(b)
MUNIYIELD PENNSYLVANIA FUND
CERTIFICATE
The undersigned hereby certifies that he is the Secretary of MuniYield
Pennsylvania Fund, an unincorporated business trust organized and existing under
the laws of the Commonwealth of Massachusetts (the "Trust"), that annexed hereto
is the Certificate of Designation dated November 23, 1992, establishing the
powers, qualifications, rights and preferences of the Auction Market Preferred
Shares of the Trust, wh1ph Certificate has been adopted by the Board of Trustees
of the Trust in a manner provided in the Trust's Declaration of Trust.
Dated this 23rd day of November, 1992.
_____________________________
Mark B Goldfus
Secretary
<PAGE>
MUNIYIELD PENNSYLVANIA FUND
CERTIFICATE OF DESIGNATION DATED NOVEMBER 23, 1992
ESTABLISHING POWERS, QUALIFICATIONS, RIGHTS
AND PREFERENCES OF THE AUCTION MARKET
PREFERRED SHARES ("AMPS(R)")
WHEREAS the Board of Trustees of MuniYield Pennsylvania Fund (the "Trust")
is expressly empowered pursuant to Section 6.1 of the Trust's Declaration of
Trust to authorize the issuance of preferred shares of the Trust in one or more
series, with such preferences, powers, restrictions, limitations or
qualifications as determined by the Board of Trustees and as set forth in the
resolution or resolutions providing for the issuance of such preferred shares.
AND WHEREAS the Board of Trustees has determined that it is in the best
interests of the Trust to issue such preferred shares.
NOW, THEREFORE, the Board of Trustees does hereby authorize the issuance of
a series of 800 preferred shares, par value $0.10 per share, liquidation
preference $50,000 per share plus an amount equal to accumulated but unpaid
dividends thereon (whether or not earned or declared), designated Auction Market
Preferred Shares.
The preferences, voting powers, restrictions, limitations as to dividends,
qualifications, and terms and conditions of redemption, of the preferred shares
are as follows:
- -----------------------------------
(R) Registered trademark of Merrill Lynch & Co., Inc.
2
<PAGE>
DESIGNATION
A series of 800 shares of preferred 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) thereon, is hereby
designated "Auction Market Preferred Shares". Each Auction Market Preferred
Share (sometimes referred to herein as "AMPS") shall be issued on November 30,
1992; have an Initial Dividend Rate equal to 3.15% 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 this Certificate of Designation.
The Auction Market Preferred Shares shall constitute a separate series of
preferred shares of the Trust, and each Auction Market Preferred Share shall be
identical.
1. Definitions. (a) Unless the context or use indicates another or
-----------
different meaning or intent, in this Certificate of Designation 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
3
<PAGE>
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 Trust to provide such rate
or rates not being supplied by the Commercial Paper Dealer. If the number of
Dividend Period Days shall be (i) 7 or more but fewer than 49 days, such rate
shall be the Interest Equivalent of the 30-day rate on such commercial paper;
(ii) 49 or more but fewer than 70 days, such rate shall be the Interest
Equivalent of the 60-day rate on such commercial paper; (iii) 70 or more days
but fewer than 85 days, such rate shall be the arithmetic average of the
Interest Equivalent on the 60-day and 90-day rates on such commercial paper;
(iv) 85 or more days but fewer than 99 days, such rate shall be the Interest
Equivalent of the 90-day rate on such commercial paper; (v) 99 or more days but
fewer than 120 days, such rate shall be the arithmetic average of the Interest
Equivalent of the 90-day and 120-day rates on such commercial paper; (vi) 120 or
more days but fewer than 141 days, such rate shall be the Interest Equivalent of
the 120-day rate on such commercial paper; (vii) 141 or more days but fewer than
162 days, such rate shall be the arithmetic average of the Interest Equivalent
of the 120-day and 180-day rates on such commercial paper; and (viii) 162 or
more days but fewer than 183 days, such rate shall be the Interest Equivalent of
the 180-day rate on such commercial paper.
"Accountant's Confirmation" has the meaning set forth in paragraph 7(c) of
this Certificate of Designation.
"Additional Dividend" has the meaning set forth in paragraph 2(e) of this
Certificate of Designation.
4
<PAGE>
"Adviser" means the Trust'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 Trust.
"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 Shares.
"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 Trust for the
5
<PAGE>
90 days subsequent to such Valuation Date; (E) the amount of the Trust'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 Trust pursuant to repurchase
agreements and any payables for Pennsylvania Municipal Bonds or Municipal Bonds
purchased as of such Valuation Date) less (ii) either (A) the Discounted Value
of any of the Trust's assets, or (B) the face value of any of the Trust'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-1 or MIG-1 and, with respect to S&P, at least AAA, SP-1+ or A-1+, in both
cases irrevocably deposited by the Trust for the payment of the amount needed to
redeem shares of AMPS subject to redemption or any of (i)(B) through (i)(F).
"AMPS Basic Maintenance Cure Date," with respect to the failure by the
Trust to satisfy the AMPS Basic Maintenance Amount (as required by paragraph
7(a) of this Certificate of Designation) 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
Trust which sets forth, as of the related Valuation Date, the assets of the
Trust, the Market Value and the Discounted Value thereof (seriatim and in
aggregate), and the AMPS Basic Maintenance Amount.
"Anticipation Notes" shall mean the following Pennsylvania Municipal Bonds:
revenue anticipation notes, tax anticipation notes, tax and revenue anticipation
notes, grant anticipation notes and bond anticipation notes.
6
<PAGE>
"Applicable Percentage" has the meaning set forth in paragraph 11(a)(vii)
of this Certificate of Designation.
"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 Trust or a duly authorized
committee thereof enters into an agreement with the Trust 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 this Certificate of Designation.
"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 this
Certificate of Designation, that has been selected by the Trust 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 this Certificate of Designation.
"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.
7
<PAGE>
"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 Trust may
from time to time appoint, or, in lieu of any thereof, their respective
affiliates or successors.
"Common Shares" means the common shares, par value $.10 per share, of the
Trust.
"Date of Original Issue" means, with respect to any share of AMPS or Other
AMPS, the date on which the Trust originally issues such share.
"Declaration" means the Declaration of Trust, as amended and supplemented
(including this Certificate of Designation), of the Trust on file in the office
of the Secretary of State of the Commonwealth of Massachusetts.
"Deposit Securities" means cash and Pennsylvania 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 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,
8
<PAGE>
(ii) the book value of receivables for Pennsylvania 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 Pennsylvania
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 this Certificate of Designation 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 Share Books.
"First Initial Dividend Payment Date" means December 31, 1992.
"Forward Commitment" has the meaning set forth in paragraph 9(c) of this
Certificate of Designation.
"Holder" means a Person identified as a holder of record of shares of AMPS
in the Share Register.
"Independent Accountant" means a nationally recognized accountant, or firm
of accountants, that is, with respect to the Trust, an independent public
accountant or firm of independent public accountants under the Securities Act of
1933, as amended.
9
<PAGE>
"Initial Dividend Payment Date" means each of the First Initial Dividend
Payment Date and the Last Initial Payment Date.
"Initial Dividend Period," with respect to the AMPS, has the meaning set
forth in paragraph 2(c)(i) of this Certificate of Designation 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 January 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.
"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 Trust shall be the market value thereof
determined by the Pricing service. Market Value of any asset shall include any
interest accrued thereon. The
10
<PAGE>
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 Trust from dealers who are members of the National Association
of Securities Dealers, Inc. and make a market in the security, at least one of
which shall be in writing. Futures contracts and options are valued at closing
prices for such instruments established by the exchange or board of trade on
which they are traded, or if market quotations are not readily available, are
valued at fair value on a consistent basis using methods determined in good
faith by the Board of Directors.
"Maximum Applicable Rate," with respect to AMPS, has the meaning set forth
in paragraph 11(a)(vii) of this Certificate of Designation 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 Trust 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 Trust, as of
the end of the calendar month immediately preceding such Valuation Date and
assuming such Additional Dividends are fully taxable.
11
<PAGE>
"Minimum Liquidity Level" means, as of any Valuation Date, an aggregate
Market Value of the Trust'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 Pennsylvania Municipal Bond or Municipal Bond which constitutes a
Moody's Eligible Asset, the percentage determined by reference to (a) the rating
by Moody's or S&P on such Bond and (b) the Moody's Exposure Period, in
accordance with the table set forth below:
<TABLE>
<CAPTION>
Rating Category
--------------------------------------------------
Moody's Exposure Period Aaa* Aa* A* Baa* Other** VM1G-1*** SP-1+***
- ------------------------------------------------------------- ----- ----- ---- ------ ------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
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.
** Pennsylvania Municipal Bonds and Municipal Bonds not rated by Moody's
but rated BBB or BBB+ by S&P.
*** Pennsylvania Municipal Bonds and Municipal Bonds rated MIG-1 VMIG-1 or
P-1 or, if not rated by Moody's, rated SP-1+ or A-1+ by S&P which do not
mature or have a demand feature at par exercisable within the Moody's
Exposure Period and which do not have a long-term rating. For the
purposes of the definition of Moody's Eligible Assets, these securities
will have an assumed rating of "A" by Moody's.
Notwithstanding the foregoing, (i) no Moody's Discount Factor will be
applied to short-term Pennsylvania Municipal Bonds and short-term Municipal
Bonds, so long as such Pennsylvania Municipal Bonds and Municipal Bonds are
rated at least MIG-1, VMIG-l 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
Pennsylvania Municipal Bonds or Municipal Bonds Sold. "Receivables for
Pennsylvania Municipal Bonds or Municipal Bonds Sold," for purposes of
calculating Moody's Eligible Assets as of any Valuation Date, means no more than
12
<PAGE>
the aggregate of the following: (i) the book value of receivables for
Pennsylvania 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 Trust 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 Pennsylvania 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 Pennsylvania Municipal
Bonds or Municipal Bonds Sold, a Pennsylvania Municipal Bond or a Municipal Bond
that (i) pays interest in cash, (ii) is publicly rated Baa or higher by Moody's
or, if not rated by Moody's but rated by S&P, is rated at least BBB by S&P
(provided that, for purposes of determining the Moody's Discount Factor
applicable to any such S&P-rated Pennsylvania Municipal Bond or S&P-rated
Municipal Bond, such Pennsylvania Municipal Bond or Municipal Bond (excluding
any short-term Pennsylvania 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 Pennsylvania Municipal Bonds or Municipal Bonds of at
least $10,000,000. In addition, Pennsylvania Municipal Bonds and Municipal
Bonds in the Trust's portfolio must be within the following diversification
requirements in order to be included within Moody's Eligible Assets:
13
<PAGE>
<TABLE>
<CAPTION>
Minimum Maximum Maximum Maximum
Issue Size Underlying Issue Type County
Rating ($ Millions) Obligor (%)(1) Concentration (%)(1)(3) Concentration (%)(1)(4)
- ------ --------------- ----------------- ------------------------ -------------------------
<S> <C> <C> <C> <C>
Aaa...................... 10 100 100 100
Aa....................... 10 20 60 60
A........................ 10 10 40 40
Baa...................... 10 6 20 20
Other (2)................ 10 4 12 12
Maximum
State
Rating Concentration (1)(5)
- ------ --------------------
<S> <C>
Aaa...................... 100
Aa....................... 60
A........................ 40
Baa...................... 20
Other (2)................ 12
</TABLE>
____________________
(1) The referenced percentages represent maximum cumulative totals for the
related rating category and each lower rating category.
(2) Pennsylvania 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 Pennsylvania 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,
Pennsylvania Municipal Bonds and Municipal Bonds will be classified within one
of the following categories: health care issues (teaching and non-teaching
hospitals, public and private), housing issues (single- and multi-family),
educational facilities issues (public and private schools), student loan issues,
resource recovery issues, transportation issues (mass transit, airport and
highway bonds), industrial revenue/pollution control bond issues, utility issues
(including water, sewer and electricity), general obligation issues, lease
obligations/certificates of participation, escrowed bonds and other issues
("Other Issues") not falling within one of the aforementioned categories
(includes special obligations to crossover, excise and sales tax revenue,
recreation revenue, special assessment and telephone revenue bonds). In no
event shall (a) more than 10% of Moody's Eligible Assets consist of student loan
issues, (b) more than 10% of Moody's Eligible Assets consist of resource
recovery issues or (c) more than 10% of Moody's Eligible Assets consist of Other
Issues.
14
<PAGE>
When the Trust sells a Pennsylvania 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 Trust 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 Trust purchases a
Pennsylvania Municipal Bond or Municipal Bond and agrees to sell it at a future
date to another party, cash receivable by the Trust 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 Trust for the payment of dividends or
redemption.
"Moody's Exposure Period" means a period that is the same length or longer
than the number of days used in calculating the cash dividend component of the
AMPS Basic Maintenance Amount and shall initially be the period commencing on
and including a given Valuation Date and ending 48 days thereafter.
"Moody's Hedging Transaction" has the meaning set forth in paragraph 9(b)
of these Certificate of Designation.
"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
15
<PAGE>
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>
less than or equal to 5% 292%
greater than 5% but less than or equal to 10% 313%
greater than 10% but less than or equal to 15% 338%
greater than 15% but less than or equal to 20% 364%
greater than 20% but less than or equal to 25% 396%
greater than 25% but less than or equal to 30% 432%
greater than 30% but less than or equal to 35% 472%
greater than 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 Trust in writing
is applicable.
"Municipal Bonds" means "Municipal Bonds" as defined in the Trust's
Registration Statement on Form N-2 (File No. 33-53616) 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 this
Certificate of Designation.
"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 Trust which are stock, including all outstanding shares of
AMPS and Other AMPS (or such other asset coverage as may in the future be
specified in or under the 1940 Act as the minimum asset coverage for senior
securities which are stock of a closed-end investment company as a condition of
paying dividends on its common stock).
16
<PAGE>
"1940 Act Cure Date," with respect to the failure by the Trust to maintain
the 1940 Act AMPS Asset Coverage (as required by paragraph 6 of this Certificate
of Designation) 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 Trust 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 this
Certificate of Designation) within three Business Days after such Dividend
Payment Date to the Holders as of 12:00 noon, New York City time, on the
Business Day preceding such Dividend Payment Date, the full amount of any
dividend on shares of AMPS payable on such Dividend Payment Date or (ii)
deposit, irrevocably in trust, in same-day funds, with the Auction Agent by
12:00 noon, New York City time, (A) on such Dividend Payment Date the full
amount of any cash dividend on such shares payable (if declared) on such
Dividend Payment Date or (B) on any redemption date for any shares of AMPS
called for redemption, the Mandatory Redemption Price per share of such AMPS or,
in the case of an optional redemption, the optional Redemption Price per share,
and ending on and including the Business Day on which, by 12:00 noon, New York
City time, all unpaid cash dividends and unpaid redemption prices shall have
been so deposited or shall have otherwise been made available to Holders in
same-day funds; provided that, a Non-Payment Period shall not end unless the
Trust 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 Share Books) and the Securities
Depository. Notwithstanding the
17
<PAGE>
foregoing, the failure by the Trust 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 this Certificate of Designation, 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 Trust 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 Trustees of the Trust shall have the authority to adjust,
modify, alter or change from time to time the initial Non-Payment Period Rate if
the Board of Trustees of the Trust 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 Trust 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 this Certificate of Designation.
"Notice of Redemption" means any notice with respect to the redemption of
shares of AMPS pursuant to paragraph 4 of this Certificate of Designation.
"Notice of Revocation" has the meaning set forth in paragraph 2(c)(iii) of
this Certificate of Designation.
"Notice of Special Dividend Period" has the meaning set forth in paragraph
2(c)(iii) of this Certificate of Designation.
18
<PAGE>
"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 shares of the Trust, other
than the AMPS.
"Outstanding" means, as of any date (i) with respect to AMPS, shares of
AMPS theretofore issued by the Trust except, without duplication, (A) any shares
of AMPS theretofore cancelled or delivered to the Auction Agent for
cancellation, or redeemed by the Trust, or as to which a Notice of Redemption
shall have been given and moneys shall have been deposited in trust by the Trust
pursuant to paragraph 4(c) and (B) any shares of AMPS as to which the Trust 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 other Preferred Shares,
has the equivalent meaning.
"Parity Shares" means the AMPS and each other outstanding series of
Preferred Shares 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.
"Pennsylvania Municipal Bonds" means municipal obligations issued by or on
behalf of the Commonwealth of Pennsylvania, 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
Pennsylvania income taxes.
19
<PAGE>
"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.
"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 Shares" means the preferred shares, par value $.10 per share, of
the Trust, 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 Trustees of the Trust provided the Trust obtains written
assurance from S&P and Moody's that such designation will not impair the rating
then assigned by S&P and Moody's to the AMPS.
"Purchaser's Letter" means a letter addressed to the Trust, 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 this Certificate of Designation.
"Quarterly Valuation Date" means the twenty-fifth day of the last month of
each fiscal quarter of the Trust (or, if such day is not a Business Day, the
next succeeding Business Day) in each fiscal year of the Trust, commencing
January 25, 1993.
"Receivables for Pennsylvania Municipal Bonds Sold" has the meaning set
forth under the definition of S&P Discount Factor.
"Receivables for Pennsylvania Municipal Bonds or Municipal Bonds Sold" has
the meaning set forth under the definition of Moody's Discount Factor.
20
<PAGE>
"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 this Certificate of Designation.
"Response" has the meaning set forth in paragraph 2(c)(iii) of this
Certificate of Designation.
"Retroactive Taxable Allocation" has the meaning set forth in paragraph
2(e) of this Certificate of Designation.
"Right," with respect to the AMPS, has the meaning set forth in paragraph
2(e) of this Certificate of Designation 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 Pennsylvania Municipal Bond which constitutes an S&P Eligible
Asset, the percentage determined by reference to (a) the rating by S&P or
Moody's on such Bond and (b) the S&P Exposure Period, in accordance with the
tables set forth below:
21
<PAGE>
<TABLE>
<CAPTION>
For Pennsylvania Municipal Bonds:
- --------------------------------- Rating Category
-----------------------------------------------------------
S&P Exposure Period AAA* AA* A* BBB*
- ------------------- -----------------------------------------------------------
<S> <C> <C> <C> <C>
40 Business Days........................... 210% 215% 230% 270%
22 Business Days........................... 190 195 210 250
10 Business Days........................... 175 180 195 235
7 Business Days............................ 170 175 190 230
3 Business Days............................ 150 155 170 210
</TABLE>
___________________
* S&P rating.
Notwithstanding the foregoing, (i) the S&P Discount Factor for short-term
Pennsylvania Municipal Bonds will be 115%, so long as such Pennsylvania
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 Pennsylvania 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 Pennsylvania 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 Pennsylvania Municipal Bonds
rated by Moody's but not rated by S&P may comprise no more than 50% of short-
term Pennsylvania 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
Pennsylvania Municipal Bonds Sold. "Receivables for Pennsylvania Municipal
Bonds Sold," for purposes of calculating S&P Eligible Assets as of any Valuation
Date, means the book value of receivables for Pennsylvania Municipal Bonds sold
as of or prior to such Valuation Date if such receivables are due within five
Business D4ys of such Valuation Date. The Trust may adopt S&P Discount Factors
for Municipal Bonds provided that S&P advises the Trust in writing that
22
<PAGE>
such action will not adversely affect its then current rating on the AMPS. For
purposes of the foregoing, Anticipation Notes rated SP-1+ or, if not rated by
S&P, rated VMIG-1 by Moody's, which do not mature or have a demand feature
exercisable in 30 days and which do not have a long-term rating, shall be
considered to be short-term Pennsylvania Municipal Bonds.
"S&P Eligible Asset" means cash, Receivables for Pennsylvania Municipal
Bonds Sold or a Pennsylvania Municipal Bond that (i) is interest bearing and
pays interest at least semi-annually; (ii) is payable with respect to principal
and interest in United States Dollars; (iii) is publicly rated BBB or higher by
S&P or, except in the case of Anticipation Notes that are grant anticipation
notes or bond anticipation notes which must be rated by S&P to be included in
S&P Eligible Assets, if not rated by S&P but rated by Moody's, is rated at least
A by Moody's (provided that such Moody's-rated Pennsylvania Municipal Bonds will
be included in S&P Eligible Assets only to the extent the Market Value of such
Pennsylvania 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
Pennsylvania Municipal Bond, such Pennsylvania 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 Trust; (v) is not part of a private placement of Pennsylvania Municipal
Bonds; and (vi) is part of an issue of Pennsylvania 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) Pennsylvania Municipal Bonds of any one issuer or guarantor (excluding bond
insurers) will be considered S&P Eligible Assets only to the extent the
Market
23
<PAGE>
Value of such Pennsylvania 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 Pennsylvania Municipal Bonds exceeds 5% of the
aggregate Market Value of the S&P Eligible Assets;
(2) Pennsylvania Municipal Bonds guaranteed or insured by any one bond insurer
will be considered S&P Eligible Assets only to the extent the fair market
value of such Pennsylvania Municipal Bonds does not exceed 25% of the
aggregate fair market value of the S&P Eligible Assets; and
(3) Pennsylvania Municipal Bonds of any one issue type category (as described
below) will be considered S&P Eligible Assets only to the extent the Market
Value of such Bonds does not exceed 20% of the aggregate Market Value of
S&P Eligible Assets, except that Pennsylvania Municipal Bonds falling
within the utility issue type category will be broken down into three sub-
categories (as described below) and such Pennsylvania 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, Pennsylvania 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,
Pennsylvania Municipal Bonds in the utility issue type category will be
classified within one of the three following sub-categories: (i)
24
<PAGE>
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 Pennsylvania Municipal Bonds included in this sub-category (iii) must
be rated by S&P in order to be included in S&P Eligible Assets.
The Trust may include Municipal Bonds as S&P Eligible Assets pursuant to
guidelines and restrictions to be established by S&P provided that S&P advises
the Trust 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 Trust has under this Certificate of Designation 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 this Certificate of Designation).
"S&P Hedging Transactions" has the meaning set forth in paragraph 9(a) of
this Certificate of Designation.
"S&P Volatility Factor" means 228% during the Initial Dividend Period for
the AMPS. Thereafter, "S&P Volatility Factor" means, depending on the
applicable Reference Rate, the following:
Reference Rate
--------------
Taxable Equivalent of the Short-Term
Municipal Bond Rate................................ 277%
30-day "AA" Composite
Commercial Paper Rate.............................. 228%
60-day "AA" Composite
Commercial Paper Rate.............................. 228%
90-day "AA" Composite
Commercial Paper Rate.............................. 222%
25
<PAGE>
Reference Rate
--------------
180-day "AA" Composite
Commercial Paper Rate.............................. 217%
1-year U.S. Treasury
Bill Rate.......................................... 198%
2-year U.S. Treasury
Note Rate.......................................... 185%
3-year U.S. Treasury
Note Rate.......................................... 178%
4-year U.S. Treasury
Note Rate.......................................... 171%
5-year U.S. Treasury
Note Rate.......................................... 169%
Notwithstanding the foregoing, the S&P Volatility Factor may mean such other
potential dividend rate increase factor as S&P advises the Trust in writing is
applicable.
"Securities Depository" means The Depository Trust Company or any successor
company or other entities elected by the Trust 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.
"Share 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.
"Share Register" means the register of Holders maintained on behalf of the
Trust by the Auction Agent in its capacity as transfer agent and registrar for
the AMPS.
"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.
26
<PAGE>
"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 Trustees of the Trust, 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
Trust and (ii) a period (a "Premium Call Period"), consisting of a number of
whole years and determined by the Board of Trustees of the Trust, 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 Trust'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 Trustees of the Trust after consultation with the
Auction Agent and the Broker-Dealers.
"Subsequent Dividend Period," with respect to AMPS, has the meaning set
forth in paragraph 2(c)(i) of this Certificate of Designation and, with respect
to Other AMPS, has the equivalent meaning.
"Substitute Commercial Paper Dealers" means such Substitute Commercial
Paper Dealer or Dealers as the Trust 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
27
<PAGE>
organizations, respectively, selected by Merrill Lynch, Pierce, Fenner & Smith
Incorporated or its affiliates and successors, after consultation with the
Trust, to act as the substitute rating agency or substitute rating agencies, as
the case may be, to determine the credit ratings of the shares of AMPS.
"Taxable Equivalent of the Short-Term Municipal Bond Rate" on any date
means 90% of the quotient of (A) the per annum rate expressed on an interest
equivalent basis equal to the Kenny S&P 30-day High Grade Index or any successor
index (the "Kenny Index"), made available for the Business Day immediately
preceding such date but in any event not later than 8:30 A.M., New York City
time, on such date by Kenny Information Systems Inc. or any successor thereto,
based upon 30-day yield evaluations at par of bonds the interest on which is
excludable for regular Federal income tax purposes under the Code of "high
grade" component issuers selected by Kenny Information Systems Inc. or any such
successor from time to time in its discretion, which component issuers shall
include, without limitation, issuers of general obligation bonds but shall
exclude any bonds the interest on which constitutes an item of tax preference
under Section 57(a)(5) of the Code, or successor provisions, for purposes of the
"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).
28
<PAGE>
"Treasury Bonds" shall have the meaning set forth in paragraph 9(a) of this
Certificate of Designation.
"Trust" means MuniYield Pennsylvania Fund, a Massachusetts business trust.
"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
29
<PAGE>
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 Trust is
maintaining the AMPS Basic Maintenance Amount and the Minimum Liquidity Level,
each Business Day commencing with the Date of Original Issue.
"Variation Margin" means, in connection with an outstanding futures
contract owned or sold by the Trust, 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 Trust 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
Trustees of the Trust 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 Trust in writing that such adjustment, modification,
alteration or change will not adversely affect their then-current ratings on the
AMPS.
30
<PAGE>
2. Dividends. (a) The Holders shall be entitled to receive, when, as
---------
and if declared by the Board of Trustees of the Trust, 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 Shares, and (ii)
to the extent permitted under the Code and to the extent available, out of net
tax-exempt income earned on the Trust'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 Trust.
(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
Trustees, 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
31
<PAGE>
dividends on such Initial Dividend Payment Dates (and the Securities Depository
shall have so advised the Trust), 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 AMPS will be payable, at
the option of the Trust, 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 Trust), 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
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exceptions, will occur on the next following originally scheduled date. If for
any reason a Dividend Payment Date cannot be fixed as described above, then the
Board of Directors shall fix the Dividend Payment Date. The Initial Dividend
Period, 7-day Dividend Periods and Special Dividend Periods are hereinafter
sometimes referred to as Dividend Periods. Each dividend payment date determined
as provided above is hereinafter referred to as a "Dividend Payment Date."
(ii) Each dividend shall be paid to the Holders as they appear in the
Stock Register as of 12:00 noon, New York City time, on the Business Day
preceding the Dividend Payment Date. Dividends in arrears for any past Dividend
Period may be declared and paid at any time, without reference to any regular
Dividend Payment Date, to the Holders as they appear on the Share Register on a
date, not exceeding 15 days prior to the payment date therefor, as may be fixed
by the Board of Trustees of the Trust.
(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,
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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 Trust 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 Trust 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 Trust 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.
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<PAGE>
(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 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 Trust 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 7) 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 Trust 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
Trust 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
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<PAGE>
Period, in the case of a Short Term Dividend Period, shall be given on or prior
to the fourth Business Day but not more than seven Business Days prior to an
Auction Date for AMPS and, in the case of a Long Term Dividend Period, shall be
given on or prior to the 14th day but not more than 28 days prior to an Auction
Date for the AMPS. Upon receiving such Request for Special Dividend Period, the
Broker-Dealer(s) shall jointly determine whether, given the factors set forth
below, it is advisable that the Trust 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 Trust 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 Trust, 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 Trust 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 Trust give a
Notice of Special Dividend Period for the AMPS, the Trust 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 Trust
give a Notice of special Dividend Period for the AMPS, the Trust may by no later
than the second Business Day prior to such Auction Date give a notice of its
revocation (a "Notice of
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<PAGE>
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 Trust shall not give a Notice of Special Dividend
Period and, if the Trust has given a Notice of Special Dividend Period, the
Trust 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 Trust 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 Trust 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 Trust that after consideration of the factors
listed above they have concluded that it is advisable to give a Notice of
Revocation. If the Trust is prohibited from giving a Notice of Special Dividend
Period as a result of any of the factors enumerated in clause
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(x), (y) or (z) of the prior sentence or if the Trust 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 Trust 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 shares of beneficial interest, 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 Trust 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 Shares or other shares of
beneficial interest, if any, ranking junior to the shares of AMPS as to
dividends or upon liquidation) in respect of the Common Shares or any other
shares of beneficial interest of the Trust 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 of the Common Shares
or any other such junior shares of beneficial interest (except by conversion
into or exchange for shares of the Trust ranking junior to the shares of AMPS as
to dividends and upon liquidation) or any other such Parity Shares (except by
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<PAGE>
conversion into or exchange for shares of beneficial interest of the Trust
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 Trust
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 Trust 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 Trust 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 Trust 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 Trust 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 Trust (the amount of such
allocation referred to herein as a "Retroactive Taxable Allocation"), the Trust
will, within 90 days (and generally within 60 days) after the end of the Trust's
fiscal year for which a
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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 Share Books
of the Trust. The Trust 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 Pennsylvania 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 Trust; 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 Pennsylvania individual income tax rate
applicable to ordinary income; or (y) the maximum combined marginal regular
Federal and Pennsylvania corporate income tax rate
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<PAGE>
(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 Trust intends to include any net
capital gains or other income subject to regular Federal income taxes in any
dividend on shares of AMPS, the Trust 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 Trust
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 Trust 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 Trust, whether voluntary or involuntary, the Holders shall be entitled to
receive, out of the assets of the Trust available for distribution to
shareholders, before any distribution or payment is made upon any Common Shares
or any other shares of beneficial interest ranking junior in right of payment
upon liquidation to the AMPS, the sum of $50,000 per share plus accumulated but
unpaid dividends (whether or not earned or declared) thereon to date of
distribution, and after such payment the holders of AMPS will be entitled to no
other payments other than Additional Dividends as provided in paragraph 2(e)
hereof. If upon any liquidation, dissolution or winding up of the Trust, the
amounts payable with respect to the AMPS and any other outstanding class or
series of Preferred Shares of the Trust ranking on a parity with the AMPS as to
payment upon
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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 Trust except for any Additional Dividends. A
consolidation, merger or share exchange of the Trust with or into any other
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 Trust shall not be
deemed or construed to be a liquidation, dissolution or winding up of the Trust.
4. Redemption. (a) Shares of AMPS shall be redeemable by the Trust as
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provided below:
(i) To the extent permitted under the 1940 Act, upon giving a Notice of
Redemption, the Trust 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 Trust 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 Trust 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
Trust 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.
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(ii) The Trust 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, on a date fixed by the Board of Trustees, if the
Trust 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 Shares
subject to redemption or retirement, would result in the Trust 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 other
Preferred Shares the redemption of which would have such result, all shares of
AMPS and other Preferred Shares then Outstanding shall be redeemed), and (ii)
the maximum number of shares of AMPS, together with all other Preferred Shares
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 Trust shall allocate the number required to be redeemed which
would result in the Trust having S&P Eligible Assets and Moody's Eligible Assets
each
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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
Shares 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 Trust 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 Trust shall effect
such redemption on a Business Day which is not later than 35 days after such
Cure Date, except that if the Trust does not have funds legally available for
the redemption of all of the required number of shares of AMPS and other
Preferred Shares which are subject to mandatory redemption or the Trust
otherwise is unable to effect such redemption on or prior to 35 days after such
Cure Date, the Trust 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 this Certificate of
Designation (i) unless all dividends in arrears on all remaining outstanding
Parity Shares shall have been or are being contemporaneously paid or declared
and set apart for payment and (ii) if redemption thereof would result in the
Trust'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
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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 Trust shall deem fair and equitable.
(c) Whenever shares of AMPS are to be redeemed, the Trust, 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 Trust
shall cause the Notice of Redemption to also be published in the eastern and
national editions of The Wall Street Journal. The Notice of Redemption shall set
forth (i) the redemption date, (ii) the amount of the redemption price, (iii)
the aggregate number of shares of AMPS to be redeemed, (iv) the place or places
where shares of AMPS are to be surrendered for payment of the redemption price,
(v) a statement that dividends on the shares to be redeemed shall cease to
accumulate on such redemption date (except that holders may be entitled to
Additional Dividends) and (vi) the provision of this Certificate of Designation
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 Trust 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 Trust shall default in making
the redemption payment), all rights of the Holders of such shares as
shareholders of the Trust by reason of the ownership of
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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 Trust
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 Trust 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 Trust for the redemption payment.
5. Voting Rights. (a) General. Except as otherwise provided in the
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Declaration 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 Trust, and the holders of outstanding Preferred Shares, including AMPS, and
of Common Shares shall vote together as a single class; provided that, at any
meeting of the shareholders of the Trust held for the election of trustees, the
holders of outstanding Preferred Shares, including AMPS, shall be entitled, as a
class, to the exclusion of the holders of all other securities and classes of
shares of beneficial interest of the Trust, to elect two trustees of the Trust.
Subject to paragraph 5(b) hereof, the holders of outstanding shares of
beneficial interest of the Trust, including the holders of outstanding Preferred
Shares, including AMPS, voting as a single class, shall elect the balance of the
trustees.
(b) Right to Elect Majority of Board of Trustees. During any period in
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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 trustees
constituting the Board of Trustees shall be
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automatically increased by the smallest number that, when added to the two
trustees elected exclusively by the holders of Preferred Shares, would
constitute a majority of the Board of Trustees as so increased by such smallest
number; and the holders of Preferred Shares shall be entitled, voting separately
as one class (to the exclusion of the holders of all other securities and
classes of shares of beneficial interest of the Trust), to elect such smallest
number of additional trustees, together with the two trustees 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 Preferred Shares are entitled
to elect a majority of the trustees of the Trust 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 Trust shall not, without the affirmative
vote of the holders of a majority of the Preferred Shares 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 shares
ranking prior to or on a parity with any series of Preferred Shares with respect
to payment of dividends or the distribution of assets on liquidation, or
increase the authorized amount of
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AMPS or any other Preferred Shares, or (ii) amend, alter or repeal the
provisions of the Declaration, whether by merger, consolidation or otherwise, so
as to adversely affect any of the contract rights expressly set forth in the
Declaration of holders of shares of AMPS or any other Preferred Shares. To the
extent permitted under the 1940 Act, in the event shares of more than one series
of AMPS are outstanding, the Trust 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 Declaration 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 Trust 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 Declaration, the
affirmative vote of the holders of a majority of the outstanding Preferred
Shares, 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 Preferred Shares,
including AMPS, described above will in each case be in addition to a separate
vote of the requisite percentage of Common Shares and Preferred Shares,
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 Preferred Shares to elect additional trustees as described in
paragraph 5(b) above, the Trust shall call a special meeting of such holders and
instruct the Auction Agent to mail a notice of such
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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 Trust fails
to send such notice to the Auction Agent or if the Trust 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 shares of beneficial interest of the Trust), shall be entitled to elect the
number of trustees 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 this Certificate of Designation, by the other provisions of
the Declaration, 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 trustees of the Trust
at the time of a special meeting of Holders and holders of other Preferred
Shares to elect trustees shall continue, notwithstanding the election at such
meeting by the Holders and such other holders of the number of trustees that
they are entitled to elect, and the persons so elected by the Holders and such
other holders, together with the two incumbent trustees elected by the Holders
and such other holders of Preferred Shares and the remaining incumbent trustees
elected by the holders of the Common Shares and Preferred Shares, shall
constitute the duly elected trustees of the Trust.
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(iv) Simultaneously with the expiration of a Voting Period, the terms
of office of the additional trustees elected by the Holders and holders of other
Preferred Shares pursuant to paragraph 5(b) above shall terminate, the remaining
trustees shall constitute the trustee's of the Trust and the voting rights of
the Holders and such other holders to elect additional trustees pursuant to
paragraph 5(b) above shall cease, subject to the provisions of the last sentence
of paragraph 5(b)(ii).
(e) Exclusive Remedy. Unless otherwise required by law, the Holders of
----------------
shares of AMPS shall not have any rights or preferences other than those
specifically set forth herein. The Holders of shares of AMPS shall have no
preemptive rights or rights to cumulative voting. In the event that the Trust
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
Trust 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 Trust 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 Trust shall maintain, on each
-----------------------------
Valuation Date, and shall verify to its satisfaction that it is maintaining on
such Valuation Date,
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(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 Trust 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 Trust fails to satisfy the AMPS Basic
Maintenance Amount, the Trust 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 Trust
mails to the Auction Agent for delivery on the next Business Day the complete
AMPS Basic Maintenance Report. The Trust 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 Trust 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 Trust 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 Trust 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
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first day of a Special Dividend Period, the Trust will deliver an AMPS Basic
Maintenance Report to S&P and the Auction Agent. Whenever the Trust 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 Trust 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
Trust 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
Trust 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 Trust 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 Trust correctly determined the assets of the Trust which constitute
S&P Eligible Assets or Moody's Eligible Assets, as the case may be, at such
Quarterly Valuation Date in accordance with this Certificate of Designation,
(iii) that, in such Report (and in such randomly selected Report), the Trust
determined whether the Trust had, at such Quarterly Valuation Date (and at the
Valuation Date addressed in such randomly-selected Report) in accordance with
this Certificate of Designation, S&P Eligible Assets of an aggregate Discounted
Value at least equal to the AMPS
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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 Trust determined
the Minimum Liquidity Level and the Trust's Deposit Securities in
accordance with this Certificate of Designation, including maturity or
tender date, (v) with respect to the S&P rating on Pennsylvania Municipal
Bonds or Municipal Bonds, the issuer name, issue size and coupon rate
listed in such Report and (with respect to S&P only) such Certificate, that
the Independent Accountant has requested that S&P verify such information
and the Independent Accountant shall provide a listing in its letter of any
differences, (vi) with respect to the Moody's ratings on Pennsylvania
Municipal Bonds or Municipal Bonds, the issuer name, issue size and coupon
rate listed in such Report and (with respect to S&P only) such Certificate,
that such information has been verified by Moody's (in the event such
information is not verified by Moody's, the Independent Accountant will
inquire of Moody's what such information is, and provide a listing in its
letter of any differences), (vii) with respect to the bid or mean price (or
such alternative permissible factor used in calculating the Market Value)
provided by the custodian of the Trust's assets to the Trust for purposes
of valuing securities in the Trust'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 Trust and verified
that such information agrees (in the event such information does not agree,
the Independent Accountant will provide a listing in its letter of such
differences) and (viii) with respect to such confirmation to Moody's, that
the Trust has satisfied the requirements of paragraph 9(b) of this
Certificate of Designation (such confirmation is herein called the
"Accountant's Confirmation").
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(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 Trust 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 Trust 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
Trust, and the Trust shall accordingly amend and deliver the AMPS Basic
Maintenance Report to the Auction Agent, S&P and Moody's promptly following
receipt by the Trust 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 Trust 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
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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 Common Shares are repurchased by the Trust, the Trust 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 Shares are repurchased.
(g) For so long as shares of AMPS are rated by Moody's, in managing the
Trust's portfolio, the Adviser will not alter the composition of the Trust's
portfolio if, in the reasonable belief of the Adviser, the effect of any such
alteration would be to cause the Trust 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 Trust's portfolio in a manner reasonably expected to reduce
the aggregate Discounted Value of Moody's Eligible Assets unless the Trust 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 Trust 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 Trust shall determine (i) the Market Value of the Dividend Coverage
Assets owned by the Trust
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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 Trust shall cause the Certificate of
Minimum Liquidity to be delivered to S&P not later than the close of business on
the third Business Day after the Valuation Date applicable to such Certificate
pursuant to paragraph 7(b). The Minimum Liquidity Level shall be deemed to be
met as of any date of determination if the Trust 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 Trust 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 Trust 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 Trust's assets
confirming the amount of the Trust's Dividend Coverage Assets as of such fifth
Business Day.
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9. Certain Other Restrictions.
--------------------------
(a) For so long as any shares of AMPS are rated by S&P, the Trust 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 Trust 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 or 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 Trust 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 Trust by the Trust's taking an opposite
position thereto ("Closing Transactions")), which would cause the Trust 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 Trust'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 Trust will not engage in any S&P Hedging Transaction based on
Treasury Bonds (other than Closing Transactions) which would cause the
Trust at the
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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% or the quotient of the Market Value of the Trust's
total assets divided by $100,000 or (B) outstanding futures contracts based
on Treasury Bonds exceeding in number 10% of the average number of daily
traded futures contracts based on Treasury Bonds in the 30 days preceding
the time of effecting such transaction as reported by The Wall Street
---------------
Journal;
-------
(iii) the Trust will engage in Closing Transactions to close out any
outstanding futures contract which the Trust owns or has sold or any
outstanding option thereon owned by the Trust in the event (A) the Trust
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 Trust is required to pay Variation Margin on
the second such Valuation Date;
(iv) the Trust 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 Trust holds the securities deliverable under such terms; and
(v) when the Trust 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 Trust'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 Trust'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 Trust writes a futures
contract or option
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thereon which requires delivery of an underlying security, it shall hold
such underlying security in its portfolio.
For purposes of determining whether the Trust 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 Trust 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 Trust.
(b) For so long as any shares of AMPS are rated by Moody's, the Trust 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 Trust 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 Trust will not engage in any Moody's Hedging Transaction based
on the Municipal Index (other than Closing Transactions) which would cause
the Trust 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
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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 Trust (other than Moody's Eligible Assets already
subject to a Moody's Hedging Transaction);
(ii) the Trust will not engage in any Moody's Hedging Transaction based
on Treasury Bonds (other than Closing Transactions) which would cause the
Trust 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 Trust 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 Trust
(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 Trust shall be deemed to own the number of futures
contracts that underlie any outstanding options written by the Trust);
(iii) the Trust 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 Trust 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
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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 Trust 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 Trust 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 Trust 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 Trust will not enter into an option or futures transaction
unless, after giving effect thereto, the Trust 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 Trust 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
Trust 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 Trust 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
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lesser of (a) Discounted Value and (b) the exercise price of the call option
written by the Trust; (ii) assets subject to call options written by the Trust
not meeting the requirements of clause (i) of this sentence shall have no value;
(iii) assets subject to put options written by the Trust 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 Trust is the seller the contract may be valued at the settlement
price and where the Trust 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 Trust with any security of a class of securities, the Trust shall assume
that it will take delivery of the security with the lowest Discounted Value.
For purposes of determining whether the Trust 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 Trust: (i) 10% of
the exercise price of a written call option; (ii) the exercise price of any
written put option; (iii) where the Trust is the seller under a futures
contract, 10% of the settlement price of the futures contract; (iv) where the
Trust 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 Trust writes put options on a futures
contract; and (vi) 105% of the Market Value of the underlying futures contracts
if the Trust 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 Trust will
not enter into any contract to purchase securities for a fixed price at a future
date beyond customary
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settlement time (other than such contracts that constitute Moody's Hedging
Transactions that are permitted under paragraph 9(b) of these Certificate of
Designation), except that the Trust 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 Trust 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
Trust'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 Trust's obligations under
any Forward Commitment to which it is from time to time a party; and
(ii) the Trust will not enter into a Forward Commitment unless, after
giving effect thereto the Trust 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 Trust 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
Trust is a party and of all securities deliverable to the Trust 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 Trust
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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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 Trust'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 Trust, (v) reissue any AMPS previously purchased or
redeemed by the Trust, (vi) merge or consolidate into or with any other entity,
(vii) change the Pricing Service or (viii) engage in reverse repurchase
agreements.
10. Notice. All notices or communications, unless otherwise specified in
------
the By-Laws of the Trust or this Certificate of Designation, 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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<PAGE>
(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 Trust 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:
Applicable Applicable
Credit Ratings Percentage of Percentage of
- ------------------------------------ Reference Rate - Reference Rate -
Moody's S&P No Notification Notification
- --------------------- ------------ -------------------- ------------------
"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%
The Trust 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 Trust, shall select a
nationally recognized statistical rating organization or two nationally
recognized statistical rating
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<PAGE>
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>
(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 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
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<PAGE>
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
(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.
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<PAGE>
(C) A Bid by a Potential Holder shall constitute an irrevocable offer
to purchase:
(1) the number of Outstanding shares of AMPS specified in such Bid
if the Applicable Rate determined on such Auction Date shall be higher
than the rate per annum specified in such Bid; or
(2) such number or a lesser number of Outstanding shares of AMPS
to be determined as set forth in paragraph 11(e)(i)(E) if the
Applicable Rate determined on such Auction Date shall be equal to the
rate per annum specified therein.
(c) Submission of Orders by Broker-Dealers to Auction Agent.
-------------------------------------------------------
(i) Each Broker-Dealer shall submit in writing or through the Auction
Agent's Auction Processing System to the Auction Agent prior to the Submission
Deadline on each Auction Date all orders obtained by such Broker-Dealer and
specifying with respect to each Order:
(A) the name of the Bidder placing such Order;
(B) the aggregate number of Outstanding shares of AMPS that are the
subject of such Order;
(C) to the extent that such Bidder is an Existing Holder:
(1) the number of Outstanding shares, if any, of AMPS subject to
any Hold Order placed by such Existing Holder;
(2) the number of Outstanding shares, if any, of AMPS subject to
any Bid placed by such Existing Holder and the rate per annum specified
in such Bid; and
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<PAGE>
(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 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
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<PAGE>
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 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
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<PAGE>
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:
(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
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<PAGE>
(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 Trust of the
Maximum Applicable Rate and, based on such determinations, the Applicable Rate
for the next succeeding Dividend Period as follows:
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<PAGE>
(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 Trust 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 shall be accepted or rejected in the following order of
priority and all other Submitted Bids shall be rejected:
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<PAGE>
(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) 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)
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<PAGE>
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 entitling such Existing Holder to continue to hold the
Outstanding shares of AMPS that are the subject of such Submitted Bid;
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<PAGE>
(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 by any Existing Holder or
Potential Holder on such Auction Date so that each Outstanding share of AMPS
purchased or
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<PAGE>
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 Board of Trustees may interpret the provisions
-------------
of this paragraph 11 to resolve any inconsistency or ambiguity, remedy any
formal defect or make any other change or modification that does not
substantially adversely affect the rights of Existing Holders of AMPS. An
Existing Holder (A) may sell, transfer or otherwise dispose of shares of
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<PAGE>
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
Trust 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 Trust. 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 Trust'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; Share 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 of a series contained in this Certificate of Designation and
each
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<PAGE>
Purchaser's Letter. Unless the Trust shall have elected, during a Non-Payment
Period, to waive this requirement, the Trust 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 Trust 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.
13. Personal Liability. The Declaration of Trust establishing MuniYield
------------------
Pennsylvania Fund, dated August 26, 1992, a copy of which, together with all
amendments thereto, is on file in the office of the Secretary of the
Commonwealth of Massachusetts, provides that the name "MuniYield Pennsylvania
Fund" refers to the Trustees under the Declaration collectively as Trustees, but
not as individuals or personally; and no Trustee, shareholder, officer, employee
or agent of the Trust shall be held to any personal liability, nor shall resort
be had to their private property for the satisfaction of any obligation or claim
or otherwise in connection with the affairs of the Trust, but the "Trust
Property" only shall be liable.
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The Reference Portfolio will, taken as a whole, have the following attributes:
Weighted Average Moody's Rating: At least Baa3
Maximum aggregate Reference Security
Notional Amount: U.S.$1,000,000,000
Maximum share of aggregate Reference Security
Notional Amount
(i) attributable to any single arranger or
(ii) originally issued within any three-month period: 33%
Each Reference Security must also (a) have a legal final maturity no later
than * 2012, (b) have been arranged by a different arranger than that of each
other Reference Security and (c) not, on the day of designation as part of the
Reference Portfolio, be in default (however defined in the relevant governing
documentation) or be on watch for downgrade as to its rating by Moody's.
The Reference Portfolio will further be divided into two parts or groups
("Group I and "Group II" and each a "Group").
Group I (or each Reference Security in Group I, as appropriate) will have the
following attributes:
Moody's Rating: Aaa
Share of aggregate Reference Security
Notional Amount on and after
. 2000: At least 70%
Minimum number of Reference Securities: 20
Maximum Reference Security
Notional Amount: U.S.$40,000,000
Maximum number of Insured Securities: 4
(of which two may be insured by the same bond
insurer)
Maximum number of EMGI Securities: 5
where:
"Insured Securities" means Reference Securities whose Aaa Mood's ratings are
based on bond insurance;
"EMGI Securities" means Reference Securities having more than 35 per cent.
of their underlying credit exposure to loans or securities having ultimate
obligors in Emerging Market Countries;
<PAGE>
and "Emerging Market Countries" means countries that are [not members of the
Organisation for Economic Cooperation and Development].
Group II (or each Reference Security in Group II, as appropriate) will have
the following attributes:
Weighted Average Moody's Rating: Baa2
Share of aggregate Reference Security
Notional Amount on and after
. 2000: 30% or less
Minimum number of Reference Securities: 15
Maximum Reference Security Notional Amount:
U.S. $25,000,000
Maximum number of EMGII Securities: 33% of
Group II
number of Reference Securities
where:
"EMGII Securities" means Reference Securities having more than 0 per cent. and
7 per cent. or less of their underlying credit exposure to loans or securities
having ultimate obligors in Emerging Market Countries; and "Emerging Market
Countries" has the meaning given with respect to Group I; provided, that no
Reference Security in Group II may have any underlying credit exposure to such
loans or securities unless such Reference Security is an EMGII Security.
2
<PAGE>
and "Emerging Market Countries" means countries that are [not members of the
Organisation for Economic Cooperation and Development].
Group II (or each Reference Security in Group II, as appropriate) will have
the following attributes:
Weighted Average Moody's Rating: Baa2
Share of aggregate Reference Security
Notional Amount on and after
. 2000: 30% or less
Minimum number of Reference Securities: 15
Maximum Reference Security Notional Amount:
U.S. $25,000,000
Maximum number of EMGII Securities: 33% of
Group II
number of Reference Securities
where:
"EMGII Securities" means Reference Securities having more than 0 per cent. and
7 per cent. or less of their underlying credit exposure to loans or securities
having ultimate obligors in Emerging Market Countries; and "Emerging Market
Countries" has the meaning given with respect to Group I; provided, that no
Reference Security in Group II may have any underlying credit exposure to such
loans or securities unless such Reference Security is an EMGII Security.
2
<PAGE>
EXHIBIT 2
- --------------------------------------------------------------------------------
BY-LAWS
OF
MUNIYIELD PENNSYLVANIA FUND
- --------------------------------------------------------------------------------
<PAGE>
MUNIYIELD PENNSYLVANIA FUND
---------------------------
BY-LAWS
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These By-Laws are made and adopted pursuant to Section 2.7 of the
Declaration of Trust establishing MUNIYIELD PENNSYLVANIA FUND, dated July 24,
1992, as from time to time amended (hereinafter called the "Declaration"). All
words and terms capitalized in these By-Laws shall have the meaning or meanings
set forth for such words or terms in the Declaration.
ARTICLE I
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Shareholder Meetings
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Section 1.1 Chairman. The Chairman, if any, shall act as chairman at all
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meetings of the Shareholders; in his absence, the President shall act as
chairman; and in the absence of the Chairman and President, the Trustee or
Trustees present at each meeting may elect a temporary chairman for the meeting,
who may be one of themselves.
Section 1.2 Proxies; Voting. Shareholders may vote either in person or by duly
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executed proxy and each full share represented at the meeting shall have one
vote, all as provided in Article IX of the Declaration. No proxy shall be valid
after eleven (11) months from the date of its execution, unless a longer period
is expressly stated in such proxy.
Section 1.3 Closing of Transfer Books and Fixing Record Dates. For the purpose
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of determining the Shareholders who are entitled to notice of or to vote or act
at any meeting, including any adjournment thereof, or who are entitled to
participate in from time to time close the transfer books or fix a record date
in the manner provided in Section 9.4 of the Declaration. If the Trustees do not
prior to any meeting of Shareholders so fix a record date or close the transfer
books, then the date of mailing notice of the meeting or the date upon which the
dividend resolution is adopted, as the case may be, shall be the record date.
Section 1.4 Inspectors of Election. In advance of any meeting of Shareholders,
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the Trustees may appoint Inspectors of Election to act at the meeting or any
adjournment thereof. If Inspectors of Election are not so appointed, the
Chairman, if any, of any meeting of Shareholders may, and on the request of any
Shareholder or his proxy shall, appoint Inspectors of Election of the meeting.
The number of Inspectors shall be either one or three. If appointed at the
meeting on
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the request of one or more Shareholders or proxies, a majority of Shares present
shall determine whether one or three Inspectors are to be appointed, but failure
to allow such determination by the shareholders shall not affect the validity of
the appointment of Inspectors of Election. in case any person appointed as
Inspector fails to appear or fails or refuses to act, the vacancy may be filled
by appointment made by the Trustees in advance of the convening of the meeting
or at the meeting by the person acting as chairman. The Inspectors of Election
shall determine the number of Shares outstanding, the Shares represented at the
meeting, the existence of a quorum, the authenticity, validity and effect of
proxies, shall receive votes, ballots or consents, shall hear and determine all
challenges and questions in any way arising in connection with the right to
vote, shall count and tabulate all votes or consents, determine the results, and
do such other acts as may be proper to conduct the election or vote with
fairness to all Shareholders. If there are three Inspectors of Election, the
decision, act or certificate of a majority is effective in all respects as the
decision, act or certificate of all. On request of the Chairman, if any, of the
meeting, or of any Shareholder or his proxy, the Inspectors of Election shall
make a report in writing of any challenge or question or matter determined by
them and shall execute a certificate of any facts found by them.
Section 1.5 Records at Shareholder Meetings. At each meeting of the
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Shareholders there shall be open for inspection the minutes of the last previous
Shareholder Meeting of the Trust and a list of the Shareholders of the Trust,
certified to be true and correct by the Secretary or other proper agent of the
Trust, as of the record date of the meeting or the date of closing of transfer
books, as the case may be. Such list of Shareholders shall contain the name of
each Shareholder in alphabetical order and the address of and number of Shares
owned by such Shareholder. Shareholders shall have such other rights and
procedures of inspection of the books and records of the Trust as are granted to
shareholders of a Massachusetts business corporation.
ARTICLE II
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Trustees
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Section 2.1 Annual and Regular Meetings. The Trustees shall hold an annual
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meeting for the election of officers and the transaction of other business which
may come before such meeting, on such date as shall be fixed by the Trustees
from time to time. Regular meetings of
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the Trustees may be held without call or notice at such place or places and
times as the Trustees may by resolution provide from time to time.
Section 2.2 Special Meetings. Special Meetings of the Trustees shall be held
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upon the call of the Chairman, if any, the President, the Secretary or any two
Trustees, at such time, on such day, and at such place, as shall be designated
in the notice of the meeting.
Section 2.3 Notice. Notice of a meeting shall be given by mail or by telegram
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(which term shall include a cablegram) or delivered personally. If notice is
given by mail, it shall be mailed not later than 48 hours preceding the meeting
and if given by telegram or personally, such telegram shall be sent or delivery
made not later than 48 hours preceding the meeting. Notice by telephone shall
constitute personal delivery for these purposes. Notice of a meeting of Trustees
may be waived before or after any meeting by signed written waiver. Neither the
business to be transacted at, nor the purpose of, any meeting of the Board of
Trustees need be stated in the notice or waiver of notice of such meeting, and
no notice need be given of action proposed to be taken by unanimous written
consent. The attendance of a Trustee at a meeting shall constitute a waiver of
notice of such meeting except where a Trustee attends a meeting for the express
purpose of objecting to the transaction of any business on the ground that the
meeting has not been lawfully called or convened.
Section 2.4 Chairman; Records. The Chairman, if any, shall act as chairman at
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all meetings of the Trustees; in his absence, the President shall act as
chairman; and, in the absence of the Chairman and the President, the Trustees
present shall elect one of their number to act as temporary chairman. The
results of all actions taken at a meeting of the Trustees, or by unanimous
written consent of the Trustees, shall be recorded by the Secretary.
Section 2.5 Retirement. Each Trustee's term of office shall expire as of
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December 31 of the year in which such Trustee reaches seventy-two years of age.
ARTICLE III
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Officers
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Section 3.1 Officers of the Trust. The officers of the Trust shall consist of
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a Chairman, if any, a President, a Secretary, a Treasurer and such other
officers or assistant officers, including Vice Presidents, as may be elected by
the Trustees. Any two or more of the offices may be held
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by the same person, except that the same person may not be both President and
Secretary. The Trustees may designate a Vice President as an Executive Vice
President and may designate the order in which the other Vice Presidents may
act. The Chairman and the President shall be Trustees, but no other officer of
the Trust need be a Trustee.
Section 3.2 Election and Tenure. At the initial organizational meeting and
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thereafter at each annual meeting of the Trustees, the Trustees shall elect the
Chairman, if any, President, Secretary, Treasurer and such other officers as the
Trustees shall deem necessary or appropriate in order to carry out the business
of the Trust. Such officers shall hold office until the next annual meeting of
the Trustees and until their successors have been duly elected and qualified.
The Trustees may fill any vacancy in office or add any additional officers at
any time.
Section 3.3 Removal of Officer. Any officer May be removed at any time, with
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or without cause, by action of a majority of the Trustees. This provision shall
not prevent the making of a contract of employment for a definite term with any
officer and shall have no effect upon any cause of action which any officer may
have as a result of removal in breach of a contract of employment. Any officer
may resign at any time by notice in writing signed by such officer and delivered
or mailed to the Chairman, if any, President, or Secretary, and such resignation
shall take effect immediately upon receipt by the Chairman, if any, President,
or Secretary, or at a later date according to the terms of such notice in
writing.
Section 3.4 Bonds and Surety. Any officer may be required by the Trustees to
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be bonded for the faithful performance of his duties in such amount and with
such sureties as the Trustees may determine.
Section 3.5 Chairman, President, and Vice Presidents. The Chairman, if any,
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shall, if present, preside at all meetings of the Shareholders and of the
Trustees and shall exercise and perform such other powers and duties as may from
time to time be assigned to him by the Trustees. Subject to such supervisory
powers, if any, as may be given by the Trustees to the Chairman, if any, the
President shall be the chief executive officer of the Trust and, subject to the
control of the Trustees, shall have general supervision, direction and control
of the business of the Trust and of its employees and shall exercise such
general powers of management as are usually vested in the office of President of
a corporation. In the absence of the Chairman, if any, the President shall
preside at all meetings of the Shareholders and the Trustees. The President
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shall be, ex-officio, a member of all standing committees, except as otherwise
provided in the resolutions or instruments creating any such committees. Subject
to direction of the Trustees, the Chairman, if any, and the President shall each
have power in the name and on behalf of the Trust to execute any and all loan
documents, contracts, agreements, deeds, mortgages, and other instruments in
writing, and to employ and discharge employees and agents of the Trust. Unless
otherwise directed by the Trustees, the Chairman, if any, and the President
shall each have full authority and power, on behalf of all of the Trustees, to
attend and to act and to vote, on behalf of the Trust at any meetings of
business organizations in which the Trust holds an interest, or to confer such
powers upon any other persons, by executing any proxies duly authorizing such
persons. The Chairman, if any, and the President shall have such further
authorities and duties as the Trustees shall from time to time determine. In the
absence or disability of the President, the Vice Presidents in order of their
rank as fixed by the Trustees or, if more than one and not ranked, the Vice
President designated by the Trustees, shall perform all of the duties of the
President, and when so acting shall have all the powers of and be subject to all
of the restrictions upon the President. Subject to the direction of the
Trustees, and of the President, each Vice President shall have the power in the
name and on behalf of the Trust to execute any and all loan documents,
contracts, agreements, deeds, mortgages and other instruments in writing, and,
in addition, shall have such other duties and powers as shall be designated from
time to time by the Trustees or by the President.
Section 3.6 Secretary. The Secretary shall keep the minutes of all meetings
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of, and record all votes of, Shareholders, Trustees and the Executive Committee,
if any. He shall be custodian of the seal of the Trust, if any, and he (and any
other person so authorized by the Trustees) shall affix the seal or, if
permitted, a facsimile thereof, to any instrument executed by the Trust which
would be sealed by a Massachusetts corporation executing the same or a similar
instrument and shall attest the seal and the signature or signatures of the
officer or officers executing such instrument on behalf of the Trust. The
Secretary shall also perform any other duties commonly incident to such office
in a Massachusetts business corporation, and shall have such other authorities
and duties as the Trustees shall from time to time determine.
Section 3.7 Treasurer. Except as otherwise directed by the Trustees, the
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Treasurer shall have the general supervision of the monies, funds, securities,
notes receivable and other valuable papers and documents of the Trust, and shall
have and exercise under the supervision of the
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Trustees and of the President all powers and duties normally incident to his
office. He may endorse for deposit or collection all notes, checks and other
instruments payable to the Trust or to its order. He shall deposit all funds of
the Trust in such depositories as the Trustees shall designate. He shall be
responsible for such disbursement of the funds of the Trust as may be ordered by
the Trustees or the President. He shall keep accurate account of the books of
the Trust's transactions which shall be the property of the Trust, and which
together with all other property of the Trust in his possession, shall be
subject at all times to the inspection and control of the Trustees. Unless the
Trustees shall otherwise determine, the Treasurer shall be the principal
accounting officer of the Trust and shall also be the principal financial
officer of the Trust. He shall have such other duties and authorities as the
Trustees shall from time to time determine. Notwithstanding anything to the
contrary herein contained, the Trustees may authorize any adviser,
administrator, manager or transfer agent to maintain bank accounts and deposit
and disburse funds of the Trust.
Section 3.8 Other Officers and Duties. The Trustees may elect such other
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officers and assistant officers as they shall from time to time determine to be
necessary or desirable in order to conduct the business of the Trust. Assistant
officers shall act generally in the absence of the officer whom they assist and
shall assist that officer in the duties of his office. Each officer, employee
and agent of the Trust shall have such other duties and authority as may be
conferred upon him by the Trustees or delegated to him by the President.
ARTICLE IV
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Miscellaneous
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Section 4.1 Custodians. In accordance with Section 7.1 of the Declaration, the
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funds of the Trust shall be deposited with such custodian or custodians as the
Trustees shall designate and shall be drawn out on checks, drafts or other
orders signed by such officer, officers, agent or agents (including any adviser,
administrator or manager), as the Trustees may from time to time authorize.
Section 4.2 Signatures. All contracts and other instruments shall be executed
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on behalf of the Trust by such officer, officers, agent or agents, as provided
in these By-Laws or as the Trustees may from time to time by resolution provide.
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Section 4.3 Seal. The seal of the Trust, if any, may be affixed to any
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document, and the seal and its attestation may be lithographed, engraved or
otherwise printed on any document with the same force and effect as if it had
been imprinted and attested manually in the same manner and with the same effect
as if done by a Massachusetts business corporation..
ARTICLE V
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Share Certificates and Share Transfers
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Section 5.1 Share Certificates. Each holder of Shares of the Trust shall be
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entitled upon request to have a certificate or certificates, in such form as
shall be approved by the Trustees, representing the number of Shares owned by
him, provided, however, that certificates for fractional shares shall not be
delivered in any case. The certificates representing Shares shall be signed by
or in the name of the Trust 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 Trust. Any or all of the signatures on 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 Trust with the
same effect as if such officer, transfer agent or registrar were still in office
at the date of issue.
Section 5.2 Transfer Agents, Registrars and the Like. As provided in Section
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6.6 of the Declaration, the Trustees shall have authority to employ and
compensate such transfer agents and registrars with respect to the Shares of the
Trust as the Trustees shall deem necessary or desirable. In addition, the
Trustees shall have power to employ and compensate such dividend disbursing
agents, warrant agents and agents for the reinvestment of dividends as they
shall deem necessary or desirable. Any of such agents shall have such power and
authority as is delegated to any of them by the Trustees.
Section 5.3 Transfer of Shares. The Shares of the Trust shall be transferable
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on the books of the Trust only upon delivery to the Trustees or a transfer agent
of the Trust of proper documentation as provided in Section 6.7 of the
Declaration, 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. The Trust, or its transfer agents,
shall
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be authorized to refuse any transfer unless and until presentation of such
evidence as may be reasonably required to show that the requested transfer is
proper.
Section 5.4 Registered Shareholders. The Trust may deem and treat the holder
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of record of any Share as the absolute owner thereof for all purposes and shall
not be required to take any notice of any right or claim of right of any other
person.
Section 5.5 Regulations. The Trustees may make such additional rules and
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regulations, not inconsistent with these By-Laws, as it may deem expedient
concerning the issue, transfer and registration of Shares of the Trust.
Section 5.6 Lost, Destroyed or Mutilated Certificates. The holder of any
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certificate representing Shares of the Trust shall immediately notify the Trust
of any loss, destruction or mutilation of such certificate, and the Trust may
issue a new certificate 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 Trustees may, in their discretion, require
such owner or his legal representatives to give the Trust a bond in such sum,
limited or unlimited, and in such form and with such surety or sureties, as the
Trustees in their absolute discretion shall determine, to indemnify the Trust
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 Trustees in their absolute
discretion, may refuse to issue any such new certificates, except pursuant to
legal proceedings under the laws of the Commonwealth of Massachusetts.
ARTICLE VI
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Advancement of Indemnification Moneys
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Section 6.1 Conditions to Advancement. Insofar as the conditional advancing of
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indemnification moneys to Trustees, officers, employees or agents of the Trust
pursuant to Section 5.3 of the Declaration for actions based upon the Investment
Company Act of 1940 may be concerned, such payments will be made only on the
following conditions: (i) the advances must be limited to amounts used, or to be
used, for the preparation or presentation of a defense to the action, including
costs connected with the preparation of a settlement; (ii) advances may be made
only upon receipt of a written promise by, or on behalf of, the recipient to
repay that
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amount of the advance which exceeds the amount to which it is ultimately
determined that he is entitled to receive from the Trust by reason of
indemnification; and (iii) (a) such promise must be secured by a surety bond,
other suitable insurance or an equivalent form of security which assures that
any repayments may be obtained by the Trust without delay or litigation, which
bond, insurance or other form of security must be provided by the recipient of
the advance, or (b) a majority of a quorum of the Trust's disinterested, non-
party Trustees, or an independent legal counsel in a written opinion, shall
determine, based upon a review of readily available facts, that the recipient of
the advance ultimately will be found entitled to indemnification.
ARTICLE VII
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Amendment of By-Laws
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Section 7.1 Amendment and Repeal of By-Laws. In accordance with Section 2.7 of
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the Declaration, the Trustees shall have the power to alter, amend or repeal the
By-Laws or adopt new By-laws at any time. Action by the Trustees with respect to
the By-Laws shall be taken by an affirmative vote of a majority of the Trustees.
The Trustees shall in no event adopt By-Laws which are in conflict with the
Declaration, and any apparent inconsistency shall be construed in favor of the
related provisions in the Declaration.
The Declaration establishing MuniYield Pennsylvania Fund, a copy of which,
together with all amendments thereto, is on file in the office of the Secretary
of the Commonwealth of Massachusetts, provides that the name "MuniYield
Pennsylvania Fund" refers to the Trustees under the Declaration collectively as
Trustees, but not as individuals or personally; and no Trustee, shareholder,
officer, employee or agent of MuniYield Pennsylvania Fund shall be held to any
personal liability, nor shall resort be had to their private property for the
satisfaction of any obligation or claim or otherwise in connection with the
affairs of said MuniYield Pennsylvania Fund but the "Trust Property" only shall
be liable.
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EXHIBIT 6
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made this 12th day of October, 1992, by and between MUNIYIELD
PENNSYLVANIA FUND, a Massachusetts business trust (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:
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WHEREAS, the Fund is engaged in business as a closed-end management
investment company registered under the Investment Company Act of 1940, as
amended (hereinafter referred to as the "Investment Company Act"); and
WHEREAS, the Investment Adviser is engaged principally in rendering
management and investment advisory services and is registered as an investment
adviser under the Investment Adviser's Act of 1940; and
WHEREAS, the Fund desires to retain the Investment Adviser to provide
management and investment advisory services to the Fund in the manner and on the
terms hereinafter set forth; and
WHEREAS, the Investment Adviser is willing to provide management and
investment advisory services to the Fund on the terms and conditions hereinafter
set forth;
NOW, THEREFORE, in consideration of the premises and the covenants
hereinafter contained, the Fund and the Investment Adviser hereby agree as
follows:
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ARTICLE I
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Duties of the Investment Adviser
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The Fund hereby employs the Investment Adviser to act as manager and
investment adviser of the Fund and to furnish, or arrange for affiliates to
furnish, the management and investment advisory services described below,
subject to the policies of, review by and overall control of the Board of
Trustees 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
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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 Trustees, 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
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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
Trustees of its performance of obligations hereunder and furnish advice and
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
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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 Declaration of Trust and
By-Laws of the Fund, as amended from time to time, the provisions of the
Investment Company Act and the statements relating to the Fund's investment
objectives, investment policies and investment restrictions as the same are
set forth in filings made by the Fund under the Federal securities laws.
The Investment Adviser shall make decisions for the Fund as to foreign
currency matters and make determinations as to foreign exchange contracts,
foreign currency options, foreign currency futures and related options on
foreign currency futures. The Investment Adviser shall make decisions for
the Fund as to the manner in which voting rights, rights to consent to
corporate action and any other rights pertaining to the Fund's portfolio
securities shall be exercised. Should the Trustees at any time, however,
make any definite determination as to investment policy and notify the
Investment Adviser thereof in writing, the
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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 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 Trustees 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
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Allocation of Charges and Expenses
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(a) The Investment Adviser. The Investment Adviser assumes and shall pay for
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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 Trustees of the Fund who are affiliated
persons of the Investment Adviser.
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(b) The Fund. The Fund assumes and shall pay or cause to be paid all other
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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 and actual out-of-pocket
expenses of Trustees 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
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Compensation of the Investment Adviser
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(a) Investment Advisory Fee. For the services rendered, the facilities
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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
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sun of accrued liabilities of the Fund and accumulated dividends on
outstanding preferred shares), 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 shares (other
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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 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 Trustees,
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,
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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
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to the Investment Adviser. Should two or more such expenses 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.
ARTICLE IV
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Limitation of Liability of the Investment Adviser
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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 Trustees, 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,
7
<PAGE>
employees, partners and shareholders of its affiliates may become interested in
the Fund as shareholder or otherwise.
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 January 31, 1994 and thereafter, but only so
long as such continuance is specifically approved at least annually by (i) the
Board of Trustees of the Fund, or by the vote of a majority of the outstanding
voting securities of the Fund, and (ii) a majority of those Trustees 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 Trustees 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 Trustees 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.
8
<PAGE>
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 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.
ARTICLE X
---------
Personal Liability
------------------
The Declaration of Trust establishing MuniYield Pennsylvania Fund, dated
August 24, 1992, a copy of which, together with all amendments thereto (the
"Declaration"), is on file in the office of the Secretary of the Commonwealth of
Massachusetts, provides that the name "MuniYield Pennsylvania Fund" refers to
the Trustees under the Declaration collectively as Trustees, but not as
individuals of personally; and no Trustee, shareholder, officer, employee or
agent of the Fund shall be held to any personal liability, nor shall resort be
had to their private
9
<PAGE>
property for the satisfaction of any obligation or claim or otherwise in
connection with the affairs of the Fund, but the "Trust Property" only shall be
liable.
10
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written.
MUNIYIELD PENNSYLVANIA FUND
By ________________________________
(Authorized Signatory)
FUND ASSET MANAGEMENT, INC.
By ________________________________
(Authorized Signatory)
11
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of' the date first above written.
MUNIYIELD PENNSYLVANIA FUND
By ________________________________
(Authorized Signatory)
FUND ASSET MANAGEMENT, INC.
By ________________________________
(Authorized Signatory)
<PAGE>
SUPPLEMENT TO INVESTMENT ADVISORY AGREEMENT
WITH
FUND ASSET MANAGEMENT
As of January 1, 1994 Fund Asset Management was reorganized as a limited
partnership, formally known as Fund Asset Management, L.P. ("FAM"). The general
partner of FAM is Princeton Services, Inc. and the limited partners are Fund
Asset Management, Inc. and Merrill Lynch & Co. Inc. Pursuant to Rule 202(a)(l)-
l under the Investment Advisers Act of 1940 and Rule 2a-6 under the Investment
Company Act of 1940 such reorganization did not constitute an assignment of this
investment advisory agreement since it did not involve a change of control or
management of the investment adviser. Pursuant to the requirements of Section
205 of the Investment Advisers Act of 1940, however, Fund Asset Management
hereby supplements this investment advisory agreement by undertaking to advise
you of any change in the membership of the partnership within a reasonable time
after any such change occurs.
By _________________________________________
Dated: January 3, 1994
<PAGE>
Exhibit 99.7(a)
5,321,088 Shares
MuniYield Pennsylvania Fund
(a Massachusetts business trust)
Common Shares
(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 Pennsylvania Fund, a Massachusetts business trust (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 5,321,088 common shares of beneficial
interest, par value $.10 per share, of the Fund (the "Common Shares") 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 212,844 additional Common Shares
to cover overallotments. The aforesaid 5,321,088 shares (the "Initial Shares"),
together with all or any part of the 212,844 additional Common Shares 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. 33-51410) and a related
preliminary prospectus for the registration of the Shares under the Securities
Act of 1933, as amended (the 111933 Act"), and a notification on Form N-BA 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
<PAGE>
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 N2, if any, and such amended preliminary
prospectuses as may have been required to the date hereof. The Fund will prepare
and file such additional amendments thereto and such amended prospectuses as may
hereafter be required. Such registration statement (as amended, if applicable)
and the prospectus constituting a part thereof (including in each case the
information, if any, deemed to be part thereof pursuant to Rule 430A(b) of the
Rules and Regulations), as from time to time amended or supplemented pursuant to
the 1933 Act, are hereinafter referred to as the "Registration Statement" and
the "Prospectus", respectively, except that if any revised prospectus shall be
provided to the Underwriter by the Fund for use in connection with the offering
of the Shares which differs from the Prospectus on file at the Commission at the
time the Registration Statement becomes effective (whether such revised
prospectus is required to be filed by the Fund pursuant to Rule 497 (b) or Rule
497 (h) of the Rules and Regulations) , the term "Prospectus" shall refer to
each such revised prospectus from and after the time it is first provided to the
Underwriter for such use.
The Fund understands that the Underwriter proposes to make a public
offering of the Shares as soon as the Underwriter deems advisable after the
Registration Statement becomes effective and the Pricing Agreement has been
executed and delivered.
SECTION 1. Representations and Warranties. (a) The Fund and the Adviser
each severally represents and warrants to the Underwriter as of the date hereof
and as of the date of the Pricing Agreement (such later date being hereinafter
referred to as the "Representation Date") as follows:
(i) At the time the Registration Statement becomes effective and at the
Representation Date, the Registration Statement will comply in all material
respects with the requirements of the 1933 Act, the 1940 Act and the Rules
and Regulations and will not contain an untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary
to make the statements therein not misleading. At the time the
Registration Statement becomes effective, at the Representation Date and at
Closing Time referred to in Section 2, the Prospectus (unless the term
"Prospectus" refers to a prospectus which has been provided to the
Underwriter by the Fund for use in connection with the offering of the
Shares which differs from the Prospectus on file with the Commission at the
time the Registration Statement becomes effective, in which case at the
time such prospectus is first provided to the Underwriter for such use)
will not contain an untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading;
provided, however, that the representations and warranties in this
subsection shall not apply to statements in or omissions from the
Registration Statement or Prospectus made in reliance upon and in
conformity with information furnished to the Fund in writing by the
Underwriter expressly for use in the Registration Statement or Prospectus.
(ii) The accountants who certified the statement of assets and
liabilities included in the Registration Statement are independent public
accountants as required by the 1933 Act and the Rules and Regulations.
2
<PAGE>
(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 accounting 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 organized and is validly existing as a
voluntary association (commonly referred to as a business trust) in good
standing under the laws of the Commonwealth of Massachusetts with 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 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 shares of beneficial
interest of the Fund are as set forth in the Prospectus under the caption
"Description of Shares"; 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 Declaration of Trust or its
By-laws (the "By-Laws") or in default in the performance or observance of
any material obligation, agreement, covenant or condition contained in any
material contract, indenture, mortgage, loan agreement, note, lease or
other instrument to which it is a party or by which it or its properties
may be bound; and the execution and delivery of this Agreement, the Pricing
Agreement and the Investment Advisory Agreement and the Custodial Agreement
referred to in the Registration Statement (as used herein, the "Advisory
Agreement" and the "Custody Agreement", respectively) and the consummation
of the transactions contemplated herein and therein have been duly
authorized by all necessary Fund 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,
3
<PAGE>
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 Declaration of Trust or By-Laws,
as amended, 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 and the Custody Agreement, except such as
has been obtained under the 1940 Act or as may be required under the 1933
Act, state securities or Blue Sky laws or foreign securities laws in
connection with the purchase and distribution of the Shares by the
Underwriter.
(ix) The Fund owns or possesses or has obtained all material
governmental licenses, permits, consents, orders, approvals and other
authorizations necessary to lease or own, as the case may be, and to
operate its properties and to carry on its businesses as contemplated in
the Prospectus.
(x) There is no action, suit or proceeding before or by any court or
governmental agency or body, domestic or foreign, now pending, or, to the
knowledge of the Fund, threatened against or affecting, the Fund, which
might result in any material adverse change in the condition, financial or
otherwise, business affairs or business prospects of the Fund, or might
materially and Adversely affect the properties or assets of the Fund; and
there are no material contracts or documents of the Fund which are required
to be filed as exhibits to the Registration Statement by the 1933 Act, the
1940 Act or by the Rules and Regulations which have not been so filed.
(xi) The Fund owns or possesses, or can acquire on reasonable terms,
adequate trademarks, service marks and trade names necessary to conduct its
business as described in the Registration Statement, and the Fund has not
received any notice of infringement of or conflict with asserted rights of
others with respect to any trademarks, service marks or trade names which,
singly or in the aggregate, if the subject of an unfavorable decision,
ruling or finding, would materially adversely affect the conduct of the
business, operations, financial condition or income of the Fund.
(b) The Adviser represents and warrants to the Underwriter as of the date
hereof and as of the Representation Date as follows:
(i) The Adviser has been duly incorporated as a corporation under the
laws of the State of Delaware with corporate power and authority to conduct
its business as described in the Prospectus.
(ii) The Adviser is duly registered as an investment adviser under the
Investment Advisers Act of 1940, as amended (the "Advisers Act") , and is
not prohibited by the Advisers Act or the 1940 Act, or the rules and
regulations under such acts, from acting under the Advisory Agreement for
the Fund as contemplated by the Prospectus.
4
<PAGE>
(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 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
5
<PAGE>
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 f ifth business day
after execution of the Pricing Agreement), or such other time not later than ten
business days after such date as shall be agreed upon by the Underwriter and the
Fund (such time and date of payment and delivery being herein called "Closing
Time"). In addition, in the event that any or all of the option Shares are
purchased by the Underwriter, payment of the purchase price for, and delivery of
certificates for, such Option Shares shall be made at the above-mentioned office
of Brown & Wood, or at such other place as shall be mutually agreed upon by the
Fund and the Underwriter, on each Date of Delivery as specified in the notice
from the Underwriter to the Fund. Payment shall be made to the Fund by check or
checks drawn in New York Clearing House or similar next day funds and payable to
the order of the Fund, against delivery to the Underwriter of certificates for
the Shares to be purchased by it. Certificates for the Initial Shares and Option
Shares shall be in such denominations and registered in such names as the
Underwriter may request in writing at least two business days before Closing
Time or the Date of Delivery, as the case may be. The certificates for the
Initial Shares and the Option Shares will be made available by the Fund for
examination and packaging by the Underwriter not later than 10:00 A.M. on the
last business day prior to Closing Time or the Date of Delivery, as the case may
be.
SECTION 3. Covenants of the Fund. The Fund covenants with the Underwriter
as follows:
(a) The Fund will use its best efforts to cause the Registration Statement
to become effective under the 1933 Act, and will advise the Underwriter promptly
as to the time at which
6
<PAGE>
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.
(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
7
<PAGE>
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 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 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 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
8
<PAGE>
amendments or supplements thereto, (vii) the printing and delivery to the
Underwriter of copies of the Blue Sky Survey, (viii) the fees and expenses
incurred with respect to the filing with the National Association of Securities
Dealers, Inc. and (ix) the fees and expenses incurred with respect to the
listing of the Shares on the New York Stock Exchange.
If this Agreement is terminated by the Underwriter in accordance with the
provisions of Section 5 or Section 9 (a) (i) , the Fund or the Adviser shall
reimburse the Underwriter for all of their reasonable out-of-pocket expenses,
including the reasonable fees and disbursements of counsel for the Underwriter.
In the event the transactions contemplated hereunder are not consummated, the
Adviser agrees to pay all of the costs and expenses set forth in the first
paragraph of this Section 4 which the Fund would have paid if such transactions
were consummated.
SECTION 5. Conditions of Underwriter's Obligations. The obligations of the
Underwriter hereunder are subject to the accuracy of the representations and
warranties of the Fund and the Adviser herein contained, to the performance by
the Fund and the Adviser of their respective obligations hereunder, and to the
following further conditions:
(a) The Registration Statement shall have become effective not later than
5:30 P.M., New York City time, on the date of this Agreement, or at a later time
and date not later, however, than 5:30 P.M. on the first business day following
the date hereof, or at such later time and date as may be approved by the
Underwriter, and at Closing Time no stop order suspending the effectiveness of
the Registration Statement shall have been issued under the 1933 Act or
proceedings therefor initiated or threatened by the Commission. If the Fund has
elected to rely upon Rule 430A of the Rules and Regulations, the prices of the
Shares and any price-related information previously omitted from the effective
Registration Statement pursuant to such Rule 430A shall have been transmitted to
the Commission for filing pursuant to Rule 497 (h) of the Rules and Regulations
within the prescribed time period, and prior to Closing Time the Fund shall have
provided evidence satisfactory to the Underwriter of such timely filing, or a
post-effective amendment providing such information shall have been promptly
filed and declared effective in accordance with the requirements of Rule 430A of
the Rules and Regulations.
(b) At Closing Time, the Underwriter shall have received:
(1) The favorable opinion, dated as of Closing Time, of Brown &
Wood, counsel for the Fund and the Underwriter, to the effect that:
(i) The Fund has been duly organized and is validly
existing as a voluntary association (commonly referred to as a
business trust) in good standing under the laws of the
Commonwealth of Massachusetts.
(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 to transact business
and is in good standing in each jurisdiction in which such
qualification is required.
9
<PAGE>
(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 (except for certain possible liability of
shareholders described in the Prospectus under "Description of
Shares"); the issuance of the Shares is not subject to
preemptive rights; and the authorized shares of beneficial
interest conform as to legal matters in all material respects to
the description thereof in the Registration Statement under the
caption "Description of Shares".
(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 obligation, agreement, covenant or
condition contained in any contract, indenture, mortgage, loan
agreement, note, lease or other instrument 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
10
<PAGE>
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 Declaration of Trust 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
Declaration of Trust 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 Pennsylvania
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
Stradley, Ronon, Stevens & Young, Special Counsel for the Fund, to the
effect that:
(i) The information in the Prospectus under the caption
"Taxes", to the extent that it constitutes matters of
Pennsylvania law or legal conclusions involving matters of
Pennsylvania law, has been reviewed by them and is correct in
all material respects.
11
<PAGE>
(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 Pennsylvania Municipal Bonds"
and in Appendix I entitled "Economic Conditions in
Pennsylvania", 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 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,
12
<PAGE>
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 Commonwealth of Massachusetts upon the opinion of Bingham, Dana
& Gould. Bingham, Dana & Gould 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 the Prospectus shall 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, 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>
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 Deloitte & Touche a letter, dated such date in form and substance
satisfactory to the Underwriter, to the effect that:
(i) they are independent accountants with respect to the Fund
within the meaning of the 1933 Act and the Rules and Regulations;
(ii) in their opinion, the statement of assets and liabilities
examined by them and included in the Registration Statement complies as
to form in all material respects with the applicable accounting
requirements of the 1933 Act and the 1940 Act and the Rules and
Regulations; and
(iii) they have performed specified procedures, not
constituting an audit, including a reading of the latest available
interim financial statements of the Fund, a reading of the minute books
of the Fund, inquiries of officials of the Fund responsible for
financial accounting matters and such other inquiries and procedures as
may be specified in such letter, and on the basis of such inquiries and
procedures nothing came to their attention that caused them to believe
that at the date of the latest available statement of assets and
liabilities read by such accountants, or at a subsequent specified date
not more than five days prior to the date of this Agreement, there was
any change in the capital stock or net assets of the Fund as compared
with amounts shown on the statement of net assets included in the
Prospectus.
(f) At Closing Time, the Underwriter shall have received from Deloitte &
Touche a letter, dated as of Closing Time, to the effect that they reaffirm the
statements made in the letter furnished pursuant to subsection (e) of this
Section, except that the "specified date" referred to shall be a date not more
than five days prior to Closing Time.
14
<PAGE>
(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 LLP, counsel for the
Fund, Stradley, Ronon, Stevens & Young, special Pennslyvania 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 Deloitte & Touche, in form and substance
satisfactory to the Underwriter and dated such Date of Delivery,
substantially the same in scope and substance as the letter furnished to
the Underwriter pursuant to Section 5(e), except that the "specified
date" in the letter furnished pursuant to this Section 5(h)(3) shall be
a date not more than five days prior to such Date of Delivery.
If any condition specified in this Section shall not have been fulfilled
when and as required to be fulfilled, this Agreement may be terminated by the
Underwriter by notice to the Fund at any time at or prior to Closing Time, and
such termination shall be without liability of any party to any other party
except as provided in Section 4.
SECTION 6. Indemnification. (a) The Fund and the Adviser, jointly and
severally, agree to indemnify and hold harmless the Underwriter and each person,
if any, who controls the Underwriter within the meaning of Section 15 of the
1933 Act as follows:
(i) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, arising out of any untrue statement or
alleged untrue statement of a material fact contained in the
Registration Statement (or any amendment thereto), including the
information deemed to be part of the Registration Statement pursuant to
Rule 430A of the Rules and Regulations, if applicable, or the omission
or alleged omission therefrom of a material fact required to be stated
therein or necessary to make the statements therein not misleading or
arising out of any untrue statement or alleged untrue statement of a
15
<PAGE>
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 trustees and directors,
each of the Fund's officers who signed the Registration Statement, and each
person, if any, who controls the Fund or the Adviser within the meaning of
Section 15 of the 1933 Act, against any and all loss, liability, claim, damage
and expense described in the indemnity contained in subsection (a) of this
Section, as incurred, but only with respect to untrue statements or omissions,
or alleged untrue statements or omissions, made in the Registration Statement
(or any amendment thereto) or any preliminary prospectus or the Prospectus (or
any amendment or supplement thereto) in reliance upon and in conformity with
written information furnished to the Fund by the Underwriter expressly for use
in the Registration Statement (or any amendment thereto) or any preliminary
prospectus or the Prospectus (or any amendment or supplement thereto).
(c) In addition to the foregoing indemnification, the Adviser also agrees
to indemnify and hold harmless the Underwriter and each person, if any, who
controls the Underwriter within the meaning of Section 15 of the 1933 Act,
against any and all loss, liability, claim, damage and expense described in the
indemnity contained in subsection (a) of this Section, with respect to any
Omitting Prospectus or any advertising materials approved by the Adviser for use
in connection with the public offering of the Shares.
(d) Each indemnified party shall give notice as promptly as reasonably
practicable to each indemnifying party of any action commenced against it in
respect of which indemnity may
16
<PAGE>
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 pride 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 trustee and
director of the Fund and the Adviser, respectively, each officer of the Fund who
signed the Registration Statement, and each person, if any, who controls the
Fund or the Adviser within the meaning of Section 15 of the 1933 Act shall have
the same rights to contribution as the Fund and the Adviser, respectively.
SECTION 8. Representations, Warranties and Agreements to Survive Delivery.
All representations, warranties and agreements contained in this Agreement or
the Pricing Agreement, or contained in certificates of officers of the Fund or
the Adviser submitted pursuant hereto, shall remain operative and in full force
and effect, regardless of any investigation made by or on behalf of the
Underwriter or controlling person, or by or on behalf of the Fund or the Adviser
and shall survive delivery of the Shares to the Underwriter.
SECTION 9. Termination of Agreement. (a) The Underwriter, by notice to the
Fund, may terminate this Agreement at any time at or prior to Closing Time (i)
if there has been, since the date of this Agreement or since the respective
dates as of which information is given in the Registration Statement, any
material adverse change in the condition, financial or otherwise, or in the
earnings, business affairs or business prospects of the Fund or the Adviser,
whether or not arising in the ordinary course of business, or (ii) if there has
occurred any material adverse change in the financial markets in the United
States or elsewhere or any outbreak of hostilities or other calamity or crisis
or any escalation of existing hostilities the effect of which is such as to make
it, in the Underwriter's judgment, impracticable to market the Shares or enforce
contracts for the sale of the Shares, or (iii) if trading in the Common Stock
has been suspended by the Commission or if trading generally on either the
American Stock Exchange or the New York Stock Exchange has been suspended, or
minimum or maximum prices for trading have been fixed, or maximum ranges for
prices for securities have been required, by either of said
17
<PAGE>
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, directors and trustees 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
benef it of the parties hereto and thereto and their respective successors, and
said controlling persons and officers, directors and trustees 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. Liability of Shareholders, Trustees and Officers. This
Agreement is executed by or on behalf of the trustees of the Fund solely in
their capacity as such trustees, and shall not constitute their personal
obligation either jointly or severally in their individual capacities. No
trustee, officer or shareholder of the Fund shall be liable for any obligations
of the Fund under this instrument and the Fund shall be solely liable therefor;
all parties hereto shall look solely to the Fund property for the payment of any
claim, or the performance of any obligation, hereunder.
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>
Exhibit A
5,321,088 Shares
MuniYield Pennsylvania Fund
(a Massachusetts business trust)
Common Shares
(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 February 21, 1992 (the
"Purchase Agreement") , relating to the purchase by Merrill Lynch & Co., Merrill
Lynch, Pierce, Fenner & Smith Incorporated, (the "Underwriter"), of the above
common shares of beneficial interest, par value $. 10 per share (the "Initial
Shares") , of MuniYield Pennsylvania Fund (the "Fund") and relating to the
option granted to the Underwriter to purchase up to an additional 212,844 common
shares of beneficial interest, 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>
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.
This Agreement is executed by or on behalf of the trustees of the Fund
solely in their capacity as such trustees, and shall not constitute their
personal obligation either jointly or severally in their individual capacities.
No trustee, officer or shareholder of the Fund shall be liable for any
obligations of the Fund under this instrument and the Fund shall be solely
liable therefor; all parties hereto shall look solely to the Fund property for
the payment of any claim, or the performance of any obligation, hereunder.
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 PENNSYLVANIA FUND
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
A-2
<PAGE>
Exhibit 7(b)
$40,000,000
MUNIYIELD PENNSYLVANIA FUND
(a Massachusetts business trust)
AUCTION MARKET PREFERRED SHARES(R) ["AMPS"(R)]
800 Shares
Liquidation Preference $50,000 Per Share
PURCHASE AGREEMENT
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November 20, 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 Pennsylvania Fund, a Massachusetts business trust (the "Trust"),
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 800 shares of auction market preferred shares
(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.
______________________
(R) Registered trademark of Merrill Lynch & Co., Inc.
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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. 33-53616) 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 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
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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,
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however, that the representations and warranties in this subsection shall
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not apply to statements in or omissions from the Registration Statement or
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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.
(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 Shares" 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 beneficial interest, 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 on any class of its shares of beneficial
interest.
(v) The Fund has been duly organized and is validly existing as a
voluntary association (commonly referred to as a business trust) in good
standing under the laws of The Commonwealth of Massachusetts with 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 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 shares of beneficial
interest of the Fund are as set forth in the Prospectus under the caption
"Description of Shares"; 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
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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 Declaration of Trust 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 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 Declaration of Trust 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.
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(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 ("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
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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.
SECTION 2. Sale and Delivery to the Underwriter; Closing.
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(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 pet 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
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to the Fund by Federal fund check or checks or similar same-day funds and
payable to the order of the Fund, against delivery to the Underwriter of
the certificate for the Shares to be purchased by it. The Shares shall be
represented by a certificate registered in the name of Cede & Co., as
nominee for The Depository Trust Company. The certificate for the Shares
will be made available for examination by the Underwriter not later than
10:00 A.M. on the last business day prior to Closing Time.
SECTION 3. Covenants of the Fund. The Fund covenants with the Underwriter as
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follows:
(a) The Fund will use its best efforts (i) to cause the Registration
Statement to become effective under the 1933 Act and will advise the
Underwriter promptly as to the time at which the Registration Statement and
any amendments thereto (including any post-effective amendment) becomes so
effective and (ii) if required, to cause the issuance of any orders
exempting the Fund from any provisions of the 1940 Act and will advise the
Underwriter promptly as to the time at which any such orders are granted.
(b) The Fund will notify the Underwriter immediately, and confirm the notice
in writing, (i) of the effectiveness of the Registration Statement and any
amendments thereto (including any post-effective amendment), (ii) of the
receipt of any comments from the Commission, (iii) of any request by the
Commission for any amendment to the Registration Statement or any amendment
or supplement to the Prospectus or for additional information, (iv) of the
issuance by the Commission of any stop order suspending the effectiveness
of the Registration Statement or the initiation of any proceedings for that
purpose and (v) of the issuance by the Commission of an order of suspension
or revocation of the notification on Form N-8A of registration of the Fund
as an investment company under the 1940 Act or initiation of any proceeding
for that purpose. The Fund will make every reasonable effort to prevent the
issuance of any stop order described in subsection (iv) hereunder or any
order of suspension or revocation described in subsection (v) hereunder
and, if any stop order or order of suspension or revocation is issued, to
obtain the lifting thereof at the earliest possible moment.
(c) The Fund will give the Underwriter notice of its intention to file any
amendment to the Registration Statement (including any post-effective
amendment) or any amendment or supplement to the Prospectus (including any
revised prospectus which the Fund proposes for use by the Underwriter in
connection with the offering of the Shares which differs from the
prospectus on file at the Commission at the time the Registration Statement
becomes effective, whether such revised prospectus is required to be filed
pursuant to Rule 497(b) or Rule 497(h) of the Rules and Regulations)
whether pursuant to the 1940 Act, the 1933 Act, or otherwise, and will
furnish the Underwriter with copies of any such amendment or supplement a
reasonable amount of time prior to such proposed filing or use, as the case
may be, and will not file any such amendment or supplement to which the
Underwriter or counsel for the Underwriter shall reasonably object.
(d) The Fund will deliver to the Underwriter, as soon as practicable, two
signed copies of the registration statement as originally filed and of each
amendment thereto, in each case with two sets of the exhibits filed
therewith, and will also deliver to the Underwriter a
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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 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.
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(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
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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 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
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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
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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:
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(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
LLP, counsel for the Fund and the Underwriter, to the effect that:
(1) The Fund has been duly organized and is validly existing as an
unincorporated association commonly referred to as a business trust under
the laws of The Commonwealth of Massachusetts.
(2) The Fund has 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 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 shares of beneficial interest
conform 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.
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(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 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 Declaration of Trust 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.
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(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
Declaration of Trust 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 Pennsylvania 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.
(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.
(ii) The favorable opinion, dated as of Closing Time, of Stradley,
Ronon, Stevens & Young 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 Pennsylvania 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 Pennsylvania Municipal Bonds" and in Appendix A entitled
"Economic Conditions in Pennsylvania", 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.
12
<PAGE>
(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 fully 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 giving notice of 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 regulations 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
13
<PAGE>
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
Commonwealth of Massachusetts, upon the opinion of Bingham, Dana & Gould, 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 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.
14
<PAGE>
(e) At the time of execution of this Agreement, the Underwriter shall
have received from Deloitte & Touche a letter, dated the date hereof, in
form and substance satisfactory to the Underwriter, to the effect that:
(i) they are independent accountants with 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 included in registration statements or are not in conformity with
generally accepted accounting principles applied on a basis substantially
consistent with that of the audited 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 shares of beneficial interest or net assets of the
Fund or any increase in the long-term debt of the Fund, as compared with amounts
shown on the unaudited financial statements included in the Registration
Statement, except for changes which the Registration Statement 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 Deloitte
& Touche a letter, dated as of Closing Time, to the effect that they
reaffirm the statements made in the letter furnished pursuant to subsection
(e) of this Section, except that the "specified date" referred to shall be
a date not more than five days prior to closing Time.
(g) At Closing Time, counsel for the Underwriter shall have been
furnished with such documents and opinions as they may reasonably require
for the purpose of enabling them to pass upon the issuance and sale of the
Shares as herein contemplated and to pass upon related
15
<PAGE>
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 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
16
<PAGE>
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 its
trustees and the Adviser, and its 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.
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 payable pursuant to Section 2 hereof bears to the
initial public offering price appearing on the cover page of the Prospectus, and
the Fund is responsible for the balance; provided, however, that no person
-------- -------
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the 1933 Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. Notwithstanding 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
tights to contribution as the Underwriter, and each trustee of the Fund, each
officer of the Fund who signed the Registration Statement, and each person, if
any, who controls the Fund
17
<PAGE>
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.
(b) If this Agreement is terminated pursuant to this Section, such
termination shall be without liability of any party to any other party
except as provided in Section 5.
SECTION 11. Notices. All notices and other communications hereunder shall be
-------
in writing and shall be deemed to have been duly given if mailed or transmitted
by any standard form of written telecommunication. Notices to the Underwriter
shall be directed to Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated at Merrill Lynch World Headquarters, North Tower, World Financial
Center, New York, New York 10281-1201, Attention: Richard 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
18
<PAGE>
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 or trustees 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. Liability of Shareholders, Trustees and Officers. A copy of the
------------------------------------------------
Agreement and Declaration of Trust of the Fund is on file with the Secretary of
State of The Commonwealth of Massachusetts and notice is hereby given that this
Agreement has been executed on behalf of the Fund by an officer of the Fund as
an officer and not individually and the obligations of the Fund arising out of
this Agreement are not binding upon any of the trustees, officers or
shareholders of the Fund individually but are binding only upon the assets and
property of the Fund.
SECTION 14. 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.
19
<PAGE>
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 PENNSYLVANIA FUND
By:
------------------------------------
Authorized Officer
FUND ASSET MANAGEMENT, INC.
By:
------------------------------------
Authorized Officer
CONFIRMED AND ACCEPTED,
as of the date first above written:
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
By: Merrill Lynch, Pierce, Fenner & Smith
Incorporated
By:
-------------------------------------------
Vice President
Investment Banking
20
<PAGE>
EXHIBIT A
$40,000,000
MUNIYIELD PENNSYLVANIA FUND
(a Massachusetts business trust)
AUCTION MARKET PREFERRED SHARES(R) [AMPS(R)]
800 Shares
Liquidation Preference, $50,000 Per Share
PRICING AGREEMENT
-----------------
November 23, 1992
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Merrill Lynch World Headquarters
World Financial Center
North Tower
New York, New York 10281-1201
Dear Sirs:
Reference is made to the Purchase Agreement, dated November 20, 1992
(the "Purchase Agreement"), relating to the purchase by Merrill Lynch & Co.,
Merrill Lynch, Pierce, Fenner & Smith Incorporated (the "Underwriter") of 800
shares of auction market preferred shares 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 Pennsylvania Fund (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>
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 January 11, 1993 will be 3.15%.
2
<PAGE>
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 PENNSYLVANIA FUND
By:
----------------------------------
Authorized Officer
CONFIRMED AND ACCEPTED,
as of the date first above written:
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
By: Merrill Lynch, Pierce, Fenner and Smith
Incorporated
By:
----------------------------------
Vice President
Investment Banking
3
<PAGE>
EXHIBIT 7(C)
Revised October 29, 1990
Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
Merrill Lynch World Headquarters
North Tower
World Financial Center
New York, N.Y. 10281-1305
STANDARD DEALER AGREEMENT
-------------------------
Dear Sirs:
In connection with public offerings of securities underwritten by us, or by
a group of underwriters (the "Underwriters") represented by us, you may be
offered the opportunity to purchase a portion of such securities, as principal,
at a discount from the offering price representing a selling concession or
reallowance granted as consideration for services rendered by you in the sale of
such securities. We request that you agree to the following terms and
provisions, and make the following representations, which, together with any
additional terms and provisions set forth in any wire or letter sent to you in
connection with a particular offering, will govern all such purchases of
securities and the reoffering thereof by you.
Your subscription to, or purchase of, such securities will constitute your
reaffirmation of this Agreement.
1. When we are acting as representative (the "Representative") of the
Underwriters in offering securities to you, it should be understood that all
offers are made subject to prior sale of the subject securities, when, as and if
such securities are delivered to and accepted by the Underwriters and subject to
the approval of legal matters by their counsel. In such cases, any order from
you for securities will be strictly subject to confirmation and we reserve the
right in our uncontrolled discretion to reject any order in whole or in part.
Upon release by us; you may reoffer such securities at the offering price fixed
by us. With our consent, you may allow a discount, not in excess of the
reallowance fixed by us, in selling such securities to other dealers, provided
that in doing so you comply with the Rules of Fair Practice of the National
Association of Securities Dealers, Inc. (the "NASD"). Upon our request, you will
advise us of the identity of any dealer to whom you allow such a discount and
any Underwriter or dealer from whom you receive such a discount. After the
securities are released for sale to the public, we may vary the offering price
and other selling terms.
2. You represent that you are a dealer actually engaged in the investment
banking or securities business and that you are either (i) a member in good
standing of the NASD or (ii) a dealer with its principal place of business
located outside the United States, its territories or possessions and not
registered under the Securities Exchange Act of 1934 (a "non-member foreign
dealer") or (iii) a bank not eligible for membership in the NASD. If you are a
non-member foreign dealer, you agree to make no sales of securities within the
United States, its territories or its possessions or to persons who are
nationals thereof or residents therein. Non-member foreign dealers and banks
agree, in making any sales, to comply with the NASD's interpretation with
respect to free-riding and withholding. In accepting a selling concession
<PAGE>
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,
One Liberty Plaza, 165 Broadway, New York, N.Y. 10006 (or at such other place as
we may advise), at the offering price less the concession allowed to you, on
such date as we may advise, by certified or official bank check in New York
Clearing House funds (or such other funds as we may advise), payable to our
order, against delivery of the securities to be purchased by you. We shall have
authority to make appropriate arrangements for payment for and/or delivery
through the facility of The Depository Trust Company or any such other
depository or similar facility for the securities.
6. In the event that, prior to the completion of the distribution of
securities covered by this Agreement, we purchase in the open market or
otherwise any securities, delivered to you, if we are acting as Representative
of the Underwriters, you agree to repay to us for the accounts of the
Underwriters the amount of the concession allowed to you plus brokerage
commissions and any transfer taxes paid in connection with such purchase.
7. At any time prior to the completion of the distribution of securities
covered by this Agreement you will, upon our request as Representative of the
Underwriters, report to us the amount of securities purchased by you which then
remains unsold and will, upon our request, sell to us for the account of one or
more of the Underwriters such amount of such unsold securities as we may
designate, at the offering price less an amount to be determined by us not in
excess of the concession allowed to you.
2
<PAGE>
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.
Please confirm your agreement hereto by signing the enclosed duplicate copy
hereof in the place provided below and returning such signed duplicate copy to
us at World Headquarters, North Tower, World Financial Center, New York, N.Y.
10281-1305, Attention: Corporate Syndicate. Upon receipt thereof, this
instrument and such signed duplicate copy will evidence the agreement between
us.
Very truly yours,
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By: _______________________________
Name: Fred F. Hessinger
3
<PAGE>
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>
Exhibit 99.9
CUSTODIAN CONTRACT
Between
MUNIYIELD PENNSYLVANIA FUND
and
STATE STREET BANK AND TRUST COMPANY
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
-----------------
Page
----
<S> <C> <C>
1. Employment of Custodian and Property to be Held by It........................ 1
2. Duties of the Custodian with Respect to Property of the Fund Held By the
Custodian.................................................................... 2
2.1 Holding Securities.................................................... 2
2.2 Delivery of Securities................................................ 2
2.3 Registration of Securities............................................ 6
2.4 Bank Accounts......................................................... 6
2.5 Availability of Federal Funds......................................... 7
2.6 Collection of Income.................................................. 7
2.7 Payment of Fund Monies................................................ 8
2.8 Liability for Payment in Advance of Receipt of Securities Purchased... 10
2.9 Appointment of Agents................................................. 10
2.10 Deposit of Fund Assets in Securities Systems.......................... 11
2.10A Fund Assets Held in the Custodian's Direct Paper System............... 13
2.11 Segregated Account.................................................... 14
2.12 Ownership Certificates for Tax Purposes............................... 15
2.13 Proxies............................................................... 15
2.14 Communications Relating to Fund Portfolio Securities.................. 16
2.15 Proper Instructions................................................... 16
2.16 Actions Permitted without Express Authority........................... 17
2.17 Evidence of Authority................................................. 17
3. Duties of Custodian with Respect to the Books of Account and Calculation of
Net Asset Value and Net Income............................................... 18
4. Records...................................................................... 18
5. Opinion of Fund's Independent Accountant..................................... 19
6. Reports to Fund by Independent Public Accountants............................ 19
7. Compensation of Custodian.................................................... 20
8. Responsibility of Custodian.................................................. 20
9. Effective Period Termination and Amendment................................... 21
10. Successor Custodian.......................................................... 22
11. Interpretive and Additional Provisions....................................... 24
12. Massachusetts Law to Apply................................................... 24
13. Prior Contracts.............................................................. 24
</TABLE>
<PAGE>
CUSTODIAN CONTRACT
------------------
This Contract between MuniYield Pennsylvania Fund a corporation organized
and existing under the laws of Massachusetts having its principal place of
business at 800 Scudders Mill Road, Plainsboro, New Jersey 08536, hereinafter
called the "Fund", and State Street Bank and Trust Company, a Massachusetts
trust company, having its principal place of business at 225 Franklin Street,
Boston, Massachusetts, 02110, hereinafter called the "Custodian",
WITNESSETH: That in consideration of the mutual covenants and agreements
hereinafter contained, the parties hereto agree as follows:
1. Employment of Custodian and Property to be Held by It
-----------------------------------------------------
The Fund hereby employs the Custodian as the custodian of its assets
pursuant to the provisions of the Articles of Incorporation. The Fund agrees to
deliver to the Custodian all securities and cash owned by it, and all payments
of income, payments of principal or capital distributions received by it with
respect to all securities owned by the Fund from time to time, and the cash
consideration received by it for such new or treasury shares of capital stock,
$.10 par value, ("Shares") of the Fund as may be issued or sold from time to
time. The Custodian shall not be responsible for any property of the Fund held
or received by the Fund and not delivered to the Custodian.
Upon receipt of "Proper Instructions" (within the meaning of Section 2.15),
the Custodian shall from time to time employ one or more sub-custodians, but
only in accordance with an applicable vote by the Board of Directors of the
Fund, and provided that the Custodian shall have
<PAGE>
no more or less responsibility or liability to the Fund on account of any
actions or omissions of any sub-custodian so employed than any such sub-
custodian has to the Custodian.
2. Duties of the Custodian with Respect to Property of the Fund Held By the
------------------------------------------------------------------------
Custodian
---------
2.1 Holding Securities. The Custodian shall hold and physically segregate for
------------------
the account of the Fund all non-cash property, including all securities
owned by the Fund, other than (a) securities which are maintained pursuant
to Section 2.10 in a clearing agency which acts as a securities depository
or in a book-entry system authorized by the U.S. Department of the
Treasury, collectively referred to herein as "Securities System" and (b)
commercial paper of an issuer for which State Street Bank and Trust Company
acts as issuing and paying agent ("Direct Paper") which is deposited and/or
maintained in the Direct Paper System of the Custodian pursuant to Section
2.10A.
2.2 Delivery of Securities. The Custodian shall release and deliver securities
----------------------
owned by the Fund held by the Custodian or in a Securities System account
of the Custodian or in the Custodian's Direct Paper book entry system
account ("Direct Paper System Account") only upon receipt of Proper
Instructions, which may be continuing instructions when deemed appropriate
by the parties, and only in the following cases:
1) Upon sale of such securities for the account of the Fund and receipt
of payment therefor;
2) Upon the receipt of payment in connection with any repurchase
agreement related to such securities entered into by the Fund;
-2-
<PAGE>
3) In the case of a sale effected through a Securities System, in
accordance with the provisions of Section 2.10 hereof;
4) To the depository agent in connection with tender or other similar
offers for portfolio securities of the Fund;
5) To the issuer thereof or its agent when such securities are called,
redeemed, retired or otherwise become payable; provided that, in any
such case, the cash or other consideration is to be delivered to the
Custodian;
6) To the issuer thereof, or its agent, for transfer into the name of
the Fund or into the name of any nominee or nominees of the
Custodian or into the name or nominee name of any agent appointed
pursuant to Section 2.9 or into the name or nominee name of any sub-
custodian appointed pursuant to Article 1; or for exchange for a
different number of bonds, certificates or other evidence
representing the same aggregate face amount or number of units;
provided that, in any such case, the new securities are to be
--------
delivered to the Custodian;
7) Upon the sale of such securities for the account of the Fund, to the
broker or its clearing agent, against a receipt, for examination in
accordance with "street delivery" custom; provided that in any such
case, the Custodian shall have no responsibility or liability for
any loss arising from the delivery of such securities prior to
receiving payment for such securities except as may arise from the
Custodian's own negligence or willful misconduct;
-3-
<PAGE>
8) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or readjustment of
the securities of the issuer of such securities, or pursuant to
provisions for conversion contained in such securities, or pursuant
to any deposit agreement; provided that, in any such case, the new
securities and cash, if any, are to be delivered to the Custodian;
9) In the case of warrants, rights or similar securities, the surrender
thereof in the exercise of such warrants, rights or similar
securities or the surrender of interim receipts or temporary
securities for definitive securities; provided that, in any such
case, the new securities and cash, if any, are to be delivered to
the Custodian;
10) For delivery in connection with any loans of securities made by the
Fund, but only against receipt of adequate collateral as agreed upon
--------
from time to time by the Custodian and the Fund, which may be in the
form of cash or obligations issued by the United States government,
its agencies or instrumentalities, except that in connection with
any loans for which collateral is to be credited to the Custodian's
account in the book-entry system authorized by the U.S. Department
of the Treasury, the Custodian will not be held liable or
responsible for the delivery of securities owned by the Fund prior
to the receipt of such collateral;
-4-
<PAGE>
11) For delivery as security in connection with any borrowings by the
Fund requiring a pledge of assets by the Fund, but only against
--------
receipt of amounts borrowed;
12) For delivery in accordance with the provisions of any agreement
among the Fund, the Custodian and a broker-dealer registered under
the Securities Exchange Act of 1934 (the "Exchange Act") and a
member of The National Association of Securities Dealers, Inc.
("NASD"), relating to compliance with the rules of The Options
Clearing Corporation and of any registered national securities
exchange, or of any similar organization or organizations, regarding
escrow or other arrangements in connection with transactions by the
Fund;
13) For delivery in accordance with the provisions of any agreement
among the Fund, the Custodian, and a Futures Commission Merchant
registered under the Commodity Exchange Act, relating to compliance
with the rules of the Commodity Futures Trading Commission and/or
any Contract Market, or any similar organization or organizations,
regarding account deposits in connection with transactions by the
Fund; and
14) For any other proper corporate purpose, but only upon receipt of, in
--------
addition to Proper Instructions, a certified copy of a resolution of
the Board of Directors or of the Executive Committee signed by an
officer of the Fund and certified by the Secretary or an Assistant
Secretary, specifying the securities to be delivered, setting forth
the purpose for
-5-
<PAGE>
which such delivery is to be made, declaring such purpose to be a
proper corporate purpose, and naming the person or persons to whom
delivery of such securities shall be made.
2.3 Registration of Securities. Securities held by the Custodian (other than
--------------------------
bearer securities) shall be registered in the name of the Fund or in the
name of any nominee of the Fund or of any nominee of the Custodian which
nominee shall be assigned exclusively to the Fund, unless the Fund has
------
authorized in writing the appointment of a nominee to be used in common
with other registered investment companies having the same investment
adviser as the Fund, or in the name or nominee name of any agent appointed
pursuant to Section 2.9 or in the name or nominee name of any sub-custodian
appointed pursuant to Article 1. All securities accepted by the Custodian
on behalf of the Fund under the terms of this Contract shall be in "street
name" or other good delivery form. If, however, the Fund directs the
Custodian to maintain securities in "street name", the Custodian shall
utilize its best efforts only to timely collect income due the Fund on such
securities and to notify the Fund on a best efforts basis only of relevant
corporate actions including, without limitation, pendency of calls,
maturities, tender or exchange offers.
2.4 Bank Accounts. The Custodian shall open and maintain a separate bank
-------------
account or accounts in the name of the Fund, subject only to draft or order
by the Custodian acting pursuant to the terms of this Contract, and shall
hold in such account or accounts, subject to the provisions hereof, all
cash received by it from or for the account of the Fund, other than cash
maintained by the Fund in a bank account established and used in accordance
with Rule 17f-3 under the Investment Company Act of 1940. Funds held by the
-6-
<PAGE>
Custodian for the Fund may be deposited by it to its credit as Custodian in
the Banking Department of the Custodian or in such other banks or trust
companies as it may in its discretion deem necessary or desirable;
provided, however, that every such bank or trust company shall be qualified
--------
to act as a custodian under the Investment Company Act of 1940 and that
each such bank or trust company and the funds to be deposited with each
such bank or trust company shall be approved by vote of a majority of the
Board of Directors of the Fund. Such funds shall be deposited by the
Custodian in its capacity as Custodian and shall be withdrawable by the
Custodian only in that capacity.
2.5 Availability of Federal Funds. Upon mutual agreement between the Fund and
-----------------------------
the Custodian, the Custodian shall, upon the receipt of Proper
Instructions, make federal funds available to the Fund as of specified
times agreed upon from time to time by the Fund and the Custodian in the
amount of checks received in payment for Shares of the Fund which are
deposited into the Fund's account.
2.6 Collection of Income. Subject to the provisions of Section 2.3, the
--------------------
Custodian shall collect on a timely basis all income and other payments
with respect to registered securities held hereunder to which the Fund
shall be entitled either by law or pursuant to custom in the securities
business, and shall collect on a timely basis all income and other payments
with respect to bearer securities if, on the date of payment by the issuer,
such securities are held by the Custodian or its agent thereof and shall
credit such income, as collected, to the Fund's custodian account. Without
limiting the generality of the foregoing, the Custodian shall detach and
present for payment all coupons and other income items requiring
presentation as and when they become due and shall collect
-7-
<PAGE>
interest when due on securities held hereunder. Income due the Fund on
securities loaned pursuant to the provisions of Section 2.2 (10) shall be
the responsibility of the Fund. The Custodian will have no duty or
responsibility in connection therewith, other than to provide the Fund with
such information or data as may be necessary to assist the Fund in
arranging for the timely delivery to the Custodian of the income to which
the Fund is properly entitled.
2.7 Payment of Fund Monies. Upon receipt of Proper Instructions, which may be
----------------------
continuing instructions when deemed appropriate by the parties, the
Custodian shall pay out monies of the Fund in the following cases only:
1) Upon the purchase of securities, options, futures contracts or
options on futures contracts for the account of the Fund but only
(a) against the delivery of such securities or evidence of title to
such options, futures contracts or options on futures contracts to
the Custodian (or any bank, banking firm or trust company doing
business in the United States or abroad which is qualified under the
Investment Company Act of 1940, as amended, to act as a custodian
and has been designated by the Custodian as its agent for this
purpose) registered in the name of the Fund or in the name of a
nominee of the Custodian referred to in Section 2.3 hereof or in
proper form for transfer; (b) in the case of a purchase effected
through a Securities System, in accordance with the conditions set
forth in Section 2.10 hereof; (c) in the case of a purchase
involving the Direct Paper System, in accordance with the conditions
set forth in Section 2.10A;
-8-
<PAGE>
(d) in the case of repurchase agreements entered into between the
Fund and the Custodian, or another bank, or a broker-dealer which is
a member of NASD, (i) against delivery of the securities either in
certificate form or through an entry crediting the Custodian's
account at the Federal Reserve Bank with such securities or (ii)
against delivery of the receipt evidencing purchase by the Fund of
securities owned by the Custodian along with written evidence of the
agreement by the Custodian to repurchase such securities from the
Fund or (e) for transfer to a time deposit account of the Fund in
any bank, whether domestic or foreign; such transfer may be effected
prior to receipt of a confirmation from a broker and/or the
applicable bank pursuant to Proper Instructions from the Fund as
defined in Section 2.15;
2) In connection with conversion, exchange or surrender of securities
owned by the Fund as set forth in Section 2.2 hereof;
3) For the payment of any expense or liability incurred by the Fund,
including but not limited to the following payments for the account
of the Fund: interest, taxes, management, accounting, transfer agent
and legal fees, and operating expenses of the Fund whether or not
such expenses are to be in whole or part capitalized or treated as
deferred expenses;
4) For the payment of any dividends declared pursuant to the governing
documents of the Fund;
-9-
<PAGE>
5) For payment of the amount of dividends received in respect of
securities sold short;
6) For any other proper purpose, but only upon receipt of, in addition
--------
to Proper Instructions, a certified copy of a resolution of the
Board of Directors or of the Executive Committee of the Fund signed
by an officer of the Fund and certified by its Secretary or an
Assistant Secretary, specifying the amount of such payment, setting
forth the purpose for which such payment is to be made, declaring
such purpose to be a proper purpose, and naming the person or
persons to whom such payment is to be made.
2.8 Liability for Payment in Advance of Receipt of Securities Purchased.
-------------------------------------------------------------------
Except as specifically stated otherwise in this Contract, in any and every
case where payment for purchase of securities for the account of the Fund
is made by the Custodian in advance of receipt of the securities purchased
in the absence of specific written instructions from the Fund to so pay in
advance, the Custodian shall be absolutely liable to the Fund for such
securities to the same extent as if the securities had been received by the
Custodian.
2.9 Appointment of Agents. The Custodian may at any time or times in its
---------------------
discretion appoint (and may at any time remove) any other bank or trust
company which is itself qualified under the Investment Company Act of 1940,
as amended, to act as a custodian, as its agent to carry out such of the
provisions of this Article 2 as the Custodian may from time to time direct;
provided, however, that the appointment of any agent shall not relieve the
--------
Custodian of its responsibilities or liabilities hereunder.
-10-
<PAGE>
2.10 Deposit of Fund Assets in Securities Systems. The Custodian may deposit
--------------------------------------------
and/or maintain securities owned by the Fund in a clearing agency
registered with the Securities and Exchange Commission under Section 17A
of the Securities Exchange Act of 1934, which acts as a securities
depository, or in the book-entry system authorized by the U.S. Department
of the Treasury and certain federal agencies, collectively referred to
herein as "Securities System" in accordance with applicable Federal
Reserve Board and Securities and Exchange Commission rules and
regulations, if any, and subject to the following provisions:
1) The Custodian may keep securities of the Fund in a Securities System
provided that such securities are represented in an account
("Account") of the Custodian in the Securities System which shall
not include any assets of the Custodian other than assets held as a
fiduciary, custodian or otherwise for customers;
2) The records of the Custodian with respect to securities of the Fund
which are maintained in a Securities System shall identify by book-
entry those securities belonging to the Fund;
3) The Custodian shall pay for securities purchased for the account of
the Fund upon (i) receipt of advice from the Securities System that
such securities have been transferred to the Account, and (ii) the
making of an entry on the records of the Custodian to reflect such
payment and transfer for the account of the Fund. The Custodian
shall transfer securities sold for the account of the Fund upon (i)
receipt of advice from the Securities
-11-
<PAGE>
System that payment for such securities has been transferred to the
Account, and (ii) the making of an entry on the records of the
Custodian to reflect such transfer and payment for the account of
the Fund. Copies of all advices from the Securities System of
transfers of securities for the account of the Fund shall identify
the Fund, be maintained for the Fund by the Custodian and be
provided to the Fund at its request. Upon request, the Custodian
shall furnish the Fund confirmation of each transfer to or from the
account of the Fund in the form of a written advice or notice and
shall furnish to the Fund copies of daily transaction sheets
reflecting each day's transactions in the Securities System for the
account of the Fund.
4) The Custodian shall provide the Fund with any report obtained by the
Custodian on the Securities System's accounting system, internal
accounting control and procedures for safeguarding securities
deposited in the Securities System;
5) The Custodian shall have received the initial or annual certificate,
as the case may be, required by Article 9 hereof;
6) Anything to the contrary in this Contract notwithstanding, the
Custodian shall be liable to the Fund for any loss or damage to the
Fund resulting from use of the Securities System by reason of any
negligence, misfeasance or misconduct of the Custodian or any of its
agents or of any of its or their employees or from failure of the
Custodian or any such agent to enforce effectively such rights as it
may have against the Securities
-12-
<PAGE>
System; at the election of the Fund, it shall be entitled to be
subrogated to the rights of the Custodian with respect to any claim
against the Securities System or any other person which the
Custodian may have as a consequence of any such loss or damage if
and to the extent that the Fund has not been made whole for any such
loss or damage.
2.10A Fund Assets Held in the Custodian's Direct Paper System. The Custodian
-------------------------------------------------------
may deposit and/or maintain securities owned by the Fund in the Direct
Paper System of the Custodian subject to the following provisions:
1) No transaction relating to securities in the Direct Paper System
will be effected in the absence of Proper Instructions;
2) The Custodian may keep securities of the Fund in the Direct Paper
System only if such securities are represented in an account
("Account") of the Custodian in the Direct Paper System which shall
not include any assets of the Custodian other than assets held as a
fiduciary, custodian or otherwise for customers;
3) The records of the Custodian with respect to securities of the Fund
which are maintained in the Direct Paper System shall identify by
book-entry those securities belonging to the Fund;
4) The Custodian shall pay for securities purchased for the account of
the Fund upon the making of an entry on the records of the Custodian
to reflect such payment and transfer of securities to the account of
the Fund.
-13-
<PAGE>
The Custodian shall transfer securities sold for the account of the
Fund upon the making of an entry on the records of the Custodian to
reflect such transfer and receipt of payment for the account of the
Fund;
5) The Custodian shall furnish the Fund confirmation of each transfer
to or from the account of the Fund, in the form of a written advice
or notice, of Direct Paper on the next business day following such
transfer and shall furnish to the Fund copies of daily transaction
sheets reflecting each day's transaction in the Securities System
for the account of the Fund;
6) The Custodian shall provide the Fund with any report on its system
of internal accounting control as the Fund may reasonably request
from time to time.
2.11 Segregated Account. The Custodian shall upon receipt of Proper
------------------
Instructions establish and maintain a segregated account or accounts for
and on behalf of the Fund, into which account or accounts may be
transferred cash and/or securities, including securities maintained in an
account by the Custodian pursuant to Section 2.10 hereof, (i) in
accordance with the provisions of any agreement among the Fund, the
Custodian and a broker-dealer registered under the Exchange Act and a
member of the NASD (or any futures commission merchant registered under
the Commodity Exchange Act), relating to compliance with the rules of The
Options Clearing Corporation and of any registered national securities
exchange (or the Commodity Futures Trading Commission or any registered
contract market), or of any similar organization or organizations,
regarding escrow or other arrangements in connection with transactions by
the Fund, (ii) for
-14-
<PAGE>
purposes of segregating cash or government securities in connection with
options purchased, sold or written by the Fund or commodity futures
contracts or options thereon purchased or sold by the Fund, (iii) for the
purposes of compliance by the Fund with the procedures required by
Investment Company Act Release No. 10666, or any subsequent release or
releases of the Securities and Exchange Commission relating to the
maintenance of segregated accounts by registered investment companies and
(iv) for other proper corporate purposes, but only, in the case of clause
--- ----
(iv), upon receipt of, in addition to Proper Instructions, a certified
copy of a resolution of the Board of Directors or of the Executive
Committee signed by an officer of the Fund and certified by the Secretary
or an Assistant Secretary, setting forth the purpose or purposes of such
segregated account and declaring such purposes to be proper corporate
purposes.
2.12 Ownership Certificates for Tax Purposes. The Custodian shall execute
---------------------------------------
ownership and other certificates and affidavits for all federal and state
tax purposes in connection with receipt of income or other payments with
respect to securities of the Fund held by it and in connection with
transfers of securities.
2.13 Proxies. The Custodian shall, with respect to the securities held
-------
hereunder, cause to be promptly executed by the registered holder of such
securities, if the securities are registered otherwise than in the name of
the Fund or a nominee of the Fund, all proxies, without indication of the
manner in which such proxies are to be voted, and shall promptly deliver
to the Fund such proxies, all proxy soliciting materials and all notices
relating to such securities.
-15-
<PAGE>
2.14 Communications Relating to Fund Portfolio Securities. Subject to the
----------------------------------------------------
provisions of Section 2.3, the Custodian shall transmit promptly to the
Fund all written information (including, without limitation, pendency of
calls and maturities of securities and expirations of rights in connection
therewith and notices of exercise of call and put options written by the
Fund and the maturity of futures contracts purchased or sold by the Fund)
received by the Custodian from issuers of the securities being held for
the Fund. With respect to tender or exchange offers, the Custodian shall
transmit promptly to the Fund all written information received by the
Custodian from issuers of the securities whose tender or exchange is
sought and from the party (or his agents) making the tender or exchange
offer. If the Fund desires to take action with respect to any tender
offer, exchange offer or any other similar transaction, the Fund shall
notify the Custodian at least three business days prior to the date on
which the Custodian is to take such action.
2.15 Proper Instructions. Proper Instructions as used throughout this Article
-------------------
2 means a writing signed or initialed by one or more person or persons as
the Board of Directors shall have from time to time authorized. Each such
writing shall set forth the specific transaction or type of transaction
involved, including a specific statement of the purpose for which such
action is requested. Oral instructions will be considered Proper
Instructions if the Custodian reasonably believes them to have been given
by a person authorized to give such instructions with respect to the
transaction involved. The Fund shall cause all oral instructions to be
confirmed in writing. Upon receipt of a certificate of the Secretary or an
Assistant Secretary as to the authorization by the Board of Directors of
the Fund accompanied by a detailed description of procedures approved by
the Board of Directors,
-16-
<PAGE>
Proper Instructions may include communications effected directly between
electro-mechanical or electronic devices provided that the Board of
Directors and the Custodian are satisfied that such procedures afford
adequate safeguards for the Fund's assets. For purposes of this Section,
Proper Instructions shall include instructions received by the Custodian
pursuant to any three-party agreement which requires a segregated asset
account in accordance with Section 2.11.
2.16 Actions Permitted without Express Authority. The Custodian may in its
-------------------------------------------
discretion, without express authority from the Fund:
1) make payments to itself or others for minor expenses of handling
securities or other similar items relating to its duties under this
Contract, provided that all such payments shall be accounted for to
--------
the Fund;
2) surrender securities in temporary form for securities in definitive
form;
3) endorse for collection, in the name of the Fund, checks, drafts and
other negotiable instruments; and
4) in general, attend to all non-discretionary details in connection
with the sale, exchange, substitution, purchase, transfer and other
dealings with the securities and property of the Fund except as
otherwise directed by the Board of Directors of the Fund.
2.17 Evidence of Authority. The Custodian shall be protected in acting upon
---------------------
any instructions, notice, request, consent, certificate or other
instrument or paper believed by it to be genuine and to have been properly
executed by or on behalf of the Fund. The Custodian
-17-
<PAGE>
may receive and accept a certified copy of a vote of the Board of
Directors of the Fund as conclusive evidence (a) of the authority of any
person to act in accordance with such vote or (b) of any determination or
of any action by the Board of Directors pursuant to the Articles of
Incorporation as described in such vote, and such vote may be considered
as in full force and effect until receipt by the Custodian of written
notice to the contrary.
3. Duties of Custodian with Respect to the Books of Account and Calculation
------------------------------------------------------------------------
of Net Asset Value and Net Income
---------------------------------
The Custodian shall cooperate with and supply necessary information to the
entity or entities appointed by the Board of Directors of the Fund to keep the
books of account of the Fund and/or compute the net asset value per share of the
outstanding shares of the Fund or, if directed in writing to do so by the Fund,
shall itself keep such books of account and/or compute such net asset value per
share. If so directed, the Custodian shall also calculate weekly the net income
of the Fund as described in the Fund's currently effective prospectus and shall
advise the Fund and the Transfer Agent weekly of the total amounts of such net
income and, if instructed in writing by an officer of the Fund to do so, shall
advise the Transfer Agent periodically of the division of such net income among
its various components. The calculations of the net asset value per share and
the weekly income of the Fund shall be made at the time or times described from
time to time in the Fund's currently effective prospectus.
4. Records
-------
The Custodian shall create and maintain all records relating to its
activities and obligations under this Contract in such manner as will meet the
obligations of the Fund under the Investment Company Act of 1940, with
particular attention to Section 31 thereof and Rules 3la-1
-18-
<PAGE>
and 3la-2 thereunder. All such records shall be the property of the Fund and
shall at all times during the regular business hours of the Custodian be open
for inspection by duly authorized officers, employees or agents of the Fund and
employees and agents of the Securities and Exchange Commission. The Custodian
shall, at the Fund's request, supply the Fund with a tabulation of securities
owned by the Fund and held by the Custodian and shall, when requested to do so
by the Fund and for such compensation as shall be agreed upon between the Fund
and the Custodian, include certificate numbers in such tabulations.
5. Opinion of Fund's Independent Accountant
----------------------------------------
The Custodian shall take all reasonable action, as the Fund may from time
to time request, to obtain from year to year favorable opinions from the Fund's
independent accountants with respect to its activities hereunder in connection
with the preparation of the Fund's Form N-2, and Form N-SAR or other annual
reports to the Securities and Exchange Commission and with respect to any other
requirements of such Commission.
6. Reports to Fund by Independent Public Accountants
-------------------------------------------------
The Custodian shall provide the Fund, at such times as the Fund may
reasonably require, with reports by independent public accountants on the
accounting system, internal accounting control and procedures for safeguarding
securities, futures contracts and options on futures contracts, including
securities deposited and/or maintained in a Securities System, relating to the
services provided by the Custodian under this Contract; such reports, shall be
of sufficient scope and in sufficient detail, as may reasonably be required by
the Fund to provide reasonable assurance that any material inadequacies would be
disclosed by such examination, and, if there are no such inadequacies, the
reports shall so state.
-19-
<PAGE>
7. Compensation of Custodian
-------------------------
The Custodian shall be entitled to reasonable compensation for its
services and expenses as Custodian, as agreed upon from time to time between the
Fund and the Custodian.
8. Responsibility of Custodian
---------------------------
So long as and to the extent that it is in the exercise of reasonable
care, the Custodian shall not be responsible for the title, validity or
genuineness of any property or evidence of title thereto received by it or
delivered by it pursuant to this Contract and shall be held harmless in acting
upon any notice, request, consent, certificate or other instrument reasonably
believed by it to be genuine and to be signed by the proper party or parties,
including any futures commission merchant acting pursuant to the terms of a
three-party futures or options agreement. The Custodian shall be held to the
exercise of reasonable care in carrying out the provisions of this Contract; but
shall be kept indemnified by and shall be without liability to the Fund for any
action taken or omitted by it in good faith without negligence. It shall be
entitled to rely on and may act upon advice of counsel (who may be counsel for
the Fund) on all matters, and shall be without liability for any action
reasonably taken or omitted pursuant to such advice.
If the Fund requires the Custodian to take any action with respect to
securities, which action involves the payment of money or which action may, in
the opinion of the Custodian, result in the Custodian or its nominee assigned to
the Fund being liable for the payment of money or incurring liability of some
other form, the Fund, as a prerequisite to requiring the Custodian to take such
action, shall provide indemnity to the Custodian in an amount and form
satisfactory to it.
-20-
<PAGE>
If the Fund requires the Custodian, its affiliates, subsidiaries or agents,
to advance cash or securities for any purpose (including but not limited to
securities settlements, foreign exchange contracts and assumed settlement) or in
the event that the Custodian or its nominee shall incur or be assessed any
taxes, charges, expenses, assessments, claims or liabilities in connection with
the performance of this Contract, except such as may arise from its or its
nominee's own negligent action, negligent failure to act or willful misconduct,
any property at any time held for the account of the Fund shall be security
therefor and should the Fund fail to repay the Custodian promptly, the Custodian
shall be entitled to utilize available cash and to dispose of the Fund assets to
the extent necessary to obtain reimbursement.
9. Effective Period, Termination and Amendment
-------------------------------------------
This Contract shall become effective as of its execution, shall continue in
full force and effect until terminated as hereinafter provided, may be amended
at any time by mutual agreement of the parties hereto and may be terminated by
either party by an instrument in writing delivered or mailed, postage prepaid to
the other party, such termination to take effect not sooner than thirty (30)
days after the date of such delivery or mailing; provided, however that the
--------
Custodian shall not act under Section 2.10 hereof in the absence of receipt of
an initial certificate of the Secretary or an Assistant Secretary that the Board
of Directors of the Fund has approved the initial use of a particular Securities
System and the receipt of an annual certificate of the Secretary or an Assistant
Secretary that the Board of Directors has reviewed the use by the Fund of such
Securities System, as required in each case by Rule 17f-4 under the Investment
Company Act of 1940, as amended and that the Custodian shall not act under
Section 2.10A hereof in the absence of receipt of an initial certificate of the
Secretary or an Assistant Secretary that the
-21-
<PAGE>
Board of Directors has approved the initial use of the Direct Paper System and
the receipt of an annual certificate of the Secretary or an Assistant Secretary
that the Board of Directors has reviewed the use by the Fund of the Direct Paper
System; provided further, however, that the Fund shall not amend or terminate
----------------
this Contract in contravention of any applicable federal or state regulations,
or any provision of the Articles of Incorporation, and further provided, that
the Fund may at any time by action of its Board of Directors (i) substitute
another bank or trust company for the Custodian by giving notice as described
above to the Custodian, or (ii) immediately terminate this Contract in the event
of the appointment of a conservator or receiver for the Custodian by the
Comptroller of the Currency or upon the happening of a like event at the
direction of an appropriate regulatory agency or court of competent
jurisdiction.
Upon termination of the Contract, the Fund shall pay to the Custodian such
compensation as may be due as of the date of such termination and shall likewise
reimburse the Custodian for its costs, expenses and disbursements.
10. Successor Custodian
-------------------
If a successor custodian shall be appointed by the Board of Directors of
the Fund, the Custodian shall, upon termination, deliver to such successor
custodian at the office of the Custodian, duly endorsed and in the form for
transfer, all securities then held by it hereunder and shall transfer to an
account of the successor custodian all of the Fund's securities held in a
Securities System.
If no such successor custodian shall be appointed, the Custodian shall, in
like manner, upon receipt of a certified copy of a vote of the Board of
Directors of the Fund, deliver at the
-22-
<PAGE>
office of the Custodian and transfer such securities, funds and other properties
in accordance with such vote.
In the event that no written order designating a successor custodian or
certified copy of a vote of the Board of Directors shall have been delivered to
the Custodian on or before the date when such termination shall become
effective, then the Custodian shall have the right to deliver to a bank or trust
company, which is a "bank" as defined in the Investment Company Act of 1940,
doing business in Boston, Massachusetts, of its own selection, having an
aggregate capital, surplus, and undivided profits, as shown by its last
published report, of not less than $25,000,000, all securities, funds and other
properties held by the Custodian and all instruments held by the Custodian
relative thereto and all other property held by it under this Contract and to
transfer to an account of such successor custodian all of the Fund's securities
held in any Securities System. Thereafter, such bank or trust company shall be
the successor of the Custodian under this Contract.
In the event that securities, funds and other properties remain in the
possession of the Custodian after the date of termination hereof owing to
failure of the Fund to procure the certified copy of the vote referred to or of
the Board of Directors to appoint a successor custodian, the Custodian shall be
entitled to fair compensation for its services during such period as the
Custodian retains possession of such securities, funds and other properties and
the provisions of this Contract relating to the duties and obligations of the
Custodian shall remain in full force and effect.
-23-
<PAGE>
11. Interpretive and Additional Provisions
--------------------------------------
In connection with the operation of this Contract, the Custodian and the
Fund may from time to time agree on such provisions interpretive of or in
addition to the provisions of this Contract as may in their joint opinion be
consistent with the general tenor of this Contract. Any such interpretive or
additional provisions shall be in a writing signed by both parties and shall be
annexed hereto, provided that no such interpretive or additional provisions
--------
shall contravene any applicable federal or state regulations or any provision of
the Articles of Incorporation of the Fund. No interpretive or additional
provisions made as provided in the preceding sentence shall be deemed to be an
amendment of this Contract.
12. Massachusetts Law to Apply
--------------------------
This Contract shall be construed and the provisions thereof interpreted
under and in accordance with laws of The Commonwealth of Massachusetts.
13. Prior Contracts
---------------
This Contract supersedes and terminates, as of the date hereof, all prior
contracts between the Fund and the Custodian relating to the custody of the
Fund's assets.
-24-
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this instrument to be
executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed as of the 12th day of October, 1992.
ATTEST MUNIYIELD PENNSYLVANIA FUND
By
- ----------------------------------- -----------------------------------
Gerald M. Richard, Treasurer
ATTEST STATE STREET BANK AND TRUST COMPANY
By
- ----------------------------------- -----------------------------------
Assistant Secretary Senior Vice President
-25-
<PAGE>
EXHIBIT 10
MUNIYIELD PENNSYLVANIA FUND
TERMS AND CONDITIONS OF
AUTOMATIC DIVIDEND REINVESTMENT PLAN
1. Appointment of Agent. You, _________________, will act as Agent for
--------------------
me, and will open an account for me under the Dividend Reinvestment Plan (the
"Plan") in the same name as my present shares of Beneficial Interest, par value
$.10 per share ("Common Stock"), of MUNIYIELD PENNSYLVANIA FUND (the "Fund") are
registered, and will automatically put into effect for me the dividend
reinvestment option of the Plan as of the first record date for a dividend or
capital gains distribution (collectively referred to herein as a "dividend"),
payable at the election of shareholders in cash or shares of Beneficial
Interest.
2. Dividends Payable in Common Shares. My participation in the Plan
----------------------------------
constitutes an election by me to receive dividends in shares of Beneficial
Interest whenever the Fund declares a dividend. In such event, the dividend
amount shall automatically be made payable to me entirely in shares of
Beneficial Interest which shall be acquired by the Agent for my account,
depending upon the circumstances described in paragraph 3, either (i) through
receipt of additional shares of unissued but authorized shares of Beneficial
Interest from the Fund ("newly issued shares") as described in paragraph 6 or
(ii) by purchase of outstanding shares of Beneficial Interest on the open market
("open-market purchases") as described in paragraph 7.
3. Determination of Whether Newly-Issued Shares or Open Market Purchases.
---------------------------------------------------------------------
If on the payment date for the dividend (the "valuation date"), the net asset
value per share of the Common Shares, as defined in paragraph 8, is equal to or
less than the market price per share of the Common Shares, as defined in
paragraph 8, plus estimated brokerage commissions (such condition being referred
to herein as "market premium"), the Agent shall invest the dividend amount in
newly issued shares on my behalf as described in paragraph 6. If on the
valuation date, the net asset value per share is greater than the market value
(such condition being referred to herein as "market discount"), the Agent shall
invest the dividend amount in shares acquired on my behalf in open-market
purchases as described in paragraph 7.
4. Purchase Period for open-Market Purchases. In the event of a market
-----------------------------------------
discount on the valuation date, the Agent shall have until the last business day
before the next ex-dividend date with respect to the shares of Beneficial
Interest or in no event more than 30 days after the valuation date (the "last
purchase date") to invest the dividend amount in shares acquired in open-market
purchases except where temporary curtailment or suspension of purchases is
necessary to comply with applicable provisions of federal securities laws.
5. Failure to Complete Open-Market Purchases During Purchase Period. If
----------------------------------------------------------------
the Agent is unable to invest the full dividend amount in open-market purchases
during tne purchase period because the market discount has shifted to a market
premium or otherwise, the Agent will invest the uninvested poftion of the
dividend amount in newly issued shares at the close of business on the last
purchase date as described in paragraph 4; except that the Agent may not
<PAGE>
acquire newly issued shares after the valuation date under the foregoing
circumstances unless it has received a legal opinion that registration of such
shares is not required under the Securities Act of 1933 or unless the shares to
be issued are registered under such Act.
6. Acquisition of Newly-Issued Shares. In the event that all or part of
----------------------------------
the dividend amount is to be invested in newly issued shares, you shall
automatically receive such newly-issued shares of Beneficial Interest, including
fractions, for my account and the number of additional newly-issued shares of
Beneficial Interest to be credited to my account shall be determined by dividing
the dollar amount of the dividend on my shares to be invested in newly-issued
shares by the net asset value per share of Common Shares on the date the shares
are issued (the valuation date in the case of an initial market premium or the
last purchase date in case the Agent is unable to complete open-market purchases
during the purchase period); provided, that the maximum discount from the then
current market price per share on the date of issuance shall not exceed 5%.
7. Manner of Making Open-Market Purchases. In the event that the dividend
--------------------------------------
amount is to be invested in shares of Beneficial Interest acquired in open-
market purchases, you shall apply the amount of such dividend on my shares (less
my pro rata share of brokerage commissions incurred with respect to your open-
market purchases) to the purchase on the open-market of shares of the Common
Stock for my account. Open-market purchases may be made on any securities
exchange where the Common Shares are traded, in the over-the-counter market or
in negotiated transactions and may be on such terms as to price, delivery and
otherwise as you shall determine. My funds held by you uninvested will not bear
interest, and it is understood that, in any event, you shall have no liability
in connection with any inability to purchase shares within 30 days after the
initial date of such purchase as herein provided, or with the timing of any
purchases affected. You shall have no responsibility as to the value of the
Common Shares acquired for my account. For the purposes of cash investments you
may commingle my funds with those of other shareholders of the Fund for whom you
similarly act as Agent, and the average price (including brokerage commissions)
of all shares purchased by you as Agent in the open market shall be the price
per share allocable to me in connection with open-market purchases.
8. Meaning of Market Price and Net Asset Value. For all purposes of the
-------------------------------------------
Plan: (a) the market price of the Common Shares on a particular date shall be
the last sales price on the Stock Exchange (the "Exchange") on that date, or, if
there is no sale on the Exchange on that date, then the mean between the closing
bid and asked quotations for such stock on the Exchange on such date and (b) net
asset value per share of the Common Shares on a particular date shall be as
determined by or on behalf of the Fund.
9. Registration of Shares Acquired Pursuant to the Plan. You may hold my
----------------------------------------------------
shares of Beneficial Interest acquired pursuant to the Plan, together with the
shares of other shareholders of the Fund acquired pursuant to the Plan, in
noncertificated form in your name or that of your nominee. You will forward to
me any proxy solicitation material and will vote any shares so held for me only
in accordance with the proxy returned by me to the Fund. Upon my written
request, you will deliver to me, without charge, a certificate or certificates
for the full shares held by you for my account.
2
<PAGE>
10. Confirmations. You will confirm to me each acquisition made for my
-------------
account as soon as practicable but not later than 60 days after the date
thereof.
11. Fractional Interests. Although I may from time to time have an
--------------------
undivided fractional interest (computed to three decimal places) in a share of
the Fund, no certificates for a fractional share will be issued. However,
dividends and distributions on fractional shares will be credited to my account.
In the event of termination of my account under the Plan, you will adjust for
any such undivided fractional interest in cash at the market value of the Fund's
shares at the time of termination less the pro rata expense of any sale required
to make such an adjustment.
12. Stock Dividends or Share Purchase Rights. Any stock dividends or
----------------------------------------
split shares distributed by the Fund on shares held by you for me will be
credited to my account. In the event that the Fund makes available to its
shareholders rights to purchase additional shares or other securities, the
shares held for me under the Plan will be added to other shares held by me in
calculating the number of rights to be issued to me.
13. Service Fee. Your service fee for handling capital gains
-----------
distributions or income dividends will be paid by the Fund. I will be charged
for my pro rata share of brokerage commissions on all open market purchases.
14. Termination of Account. I may terminate my account under the Plan by
----------------------
notifying you in writing. Such termination will be effective immediately if my
notice is received by you not less than ten days prior to any dividend or
distribution record date; otherwise such termination will be effective on the
first trading day after the payment date for such dividend or distribution with
respect to any subseqaent dividend or distribution. The Plan may be terminated
by you or the Fund upon notice in writing mailed to me at least 90 days prior to
any record date for the payment of any dividend or distribution by the Fund.
Upon any termination you will cause a certificate or certificates for the full
shares held for me under the Plan and cash adjustment for any fraction to be
delivered to me without charge. If I elect by notice to you in writing in
advance of such termination to have you sell part or all of my shares and remit
the proceeds to me, you are authorized to deduct brokerage commissions for this
transaction from the proceeds.
15. Amendment of Plan. These terms and conditions may be amended or
-----------------
supplemented by you or the Fund at any time or times but, except when necessary
or appropriate to comply with applicable law or the rules or policies of the
Securities and Exchange Commission or any other regulatory authority, only by
mailing to me appropriate written notice at least 90 days prior to the effective
date thereof. The amendment or supplement shall be deemed to be accepted by me
unless, prior to the effective date, thereof, you receive written notice of the
termination of my account under the Plan. Any such amendment may include an
appointment by you in your place and stead of a successor Agent under these
terms and conditions, with full power and authority to perform all or any of the
acts to be performed by the Agent under these terms and conditions. Upon any
such appointment of an Agent for the purpose of receiving dividends and
distributions, the Fund will be authorized to pay to such successor Agent, for
my account, all dividends and distributions payable on Common Shares of the Fund
held in my name or under the Plan for retention or application by such successor
Agent as provided in these terms and conditions.
3
<PAGE>
16. Extent of Responsibility of Agent. You shall at all times act in good
---------------------------------
faith and agree to use your best efforts within reasonable limits to insure the
accuracy of all services performed under this Agreement and to comply with
applicable law, but assume no responsibility and shall not be liable for loss or
damage due to errors unless such error is caused by your negligence, bad faith,
or willful misconduct or that of your employees.
17. Governing Law. These terms and conditions shall be governed by the
-------------
laws of the State of New York without regard to its conflicts of laws
provisions.
4
<PAGE>
EXHIBIT 99.11
BROWN & WOOD LLP
ONE WORLD TRADE CENTER
NEW YORK, NEW YORK 10048-0557
TELEPHONE: 212-839-5300
FACSIMILE: 212-839-5599
November 9, 1999
MuniYield Pennsylvania Fund
800 Scudders Mill Road
Plainsboro, New Jersey 08536
Ladies and Gentlemen:
We have acted as counsel for MuniYield Pennsylvania Fund (the "Fund") in
connection with the proposed acquisition by the Fund of substantially all of the
assets and the assumption by the Fund of substantially all of the liabilities of
MuniVest Pennsylvania Insured Fund ("MuniVest Pennsylvania") and MuniHoldings
Pennsylvania Insured Fund ("MuniHoldings Pennsylvania"), in exchange for newly-
issued common shares of beneficial interest and auction market preferred shares
of the Fund (collectively the "Reorganization"). This opinion is furnished in
connection with the Fund's Registration Statement on Form N-14 under the
Securities Act of 1933, as amended (File No. 333-88395) (the "Registration
Statement"), relating to common shares of beneficial interest, par value $.10
per share, and auction market preferred shares of the Fund, par value
$0.05 per share (the "Shares"), to be issued in the Reorganization.
As counsel for the Fund, we are familiar with the proceedings taken by it
and to be taken by it in connection with the authorization, issuance and sale of
the Shares. In addition, we have examined and are familiar with the Declaration
of Trust of the Fund, as amended, the By-Laws of the Fund, as
amended, and such other documents as we have deemed relevant to the matters
referred to in this opinion.
Based upon the foregoing, we are of the opinion that subsequent to the
approval of the Agreement and Plan of Reorganization between the Fund, MuniVest
Pennsylvania and
<PAGE>
MuniHoldings Pennsylvania set forth in the joint proxy statement and prospectus
constituting a part of the Registration Statement (the "Proxy Statement and
Prospectus"), the Shares, upon issuance in the manner referred to in the
Registration Statement, for consideration not less than the par value thereof,
will be legally issued, fully paid and non-assessable common shares or auction
market preferred shares, as the case may be, of the Fund (except for certain
possible liability of shareholders described in the Proxy Statement and
Prospectus under "Item 1. The Reorganization - Comparison of the Funds - Capital
Shares").
In rendering the foregoing opinions, we have relied, without independent
investigation or verification, as to all matters involving the laws of the
Commonwealth of Massachusetts, upon the opinion of Bingham Dana LLP.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name in the Proxy Statement and
Prospectus constituting a part thereof.
Very truly yours,
/s/ Brown & Wood LLP
2
<PAGE>
REGISTRAR,
TRANSFER AGENCY AND SERVICE AGREEMENT
between
MUNIYIELD PENNSYLVANIA FUND
and
STATE STREET BANK AND TRUST COMPANY
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
Article 1 Terms of Appointment; Duties of the Bank.. 1
Article 2 Fees and Expenses......................... 3
Article 3 Representations and Warranties of the Bank 4
Article 4 Representations and Warranties of the Fund 5
Article 5 Data Access and Proprietary Information... 5
Article 6 Indemnification........................... 8
Article 7 Standard of Care.......................... 10
Article 8 Covenants of the Fund and the Bank........ 10
Article 9 Termination of Agreement.................. 11
Article 10 Assignment................................ 12
Article 11 Amendment................................. 12
Article 12 Massachusetts Law to Apply................ 12
Article 13 Force Majeure............................. 13
Article 14 Consequential Damages..................... 13
Article 15 Merger of Agreement....................... 13
i
<PAGE>
REGISTRAR, TRANSFER AGENCY AND SERVICE AGREEMENT
------------------------------------------------
AGREEMENT made as of 12th day of October, 1992, and between MUNIYIELD
PENNSYLVANIA FUND, a Massachusetts corporation , having its principal office and
place of business at 800 Scudders Mill Road, Plainsboro, New Jersey 08536, (the
"Fund"), and STATE STREET BANK AND TRUST COMPANY, a Massachusetts trust company
having its principal office and place of business at 225 Franklin Street,
Boston, Massachusetts 02110 (the "Bank").
WHEREAS, the Fund desires to appoint the Bank as its registrar, transfer
agent, dividend disbursing agent, custodian of certain retirement plans and
agent in connection with certain other activities and the Bank desires to accept
such appointment;
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
the parties hereto agree as follows:
Article 1 Terms of Appointment; Duties of the Bank
----------------------------------------
1.01. Subject to the terms and conditions set forth in this Agreement, the
Fund hereby employs and appoints the Bank to act as, and the Bank agrees to act
as registrar, transfer agent for the Fund's authorized and issued shares of its
common stock ("Shares"), dividend disbursing agent, custodian of certain
retirement plans and agent in connection with any dividend reinvestment plan as
set out in the prospectus of the Fund, corresponding to the date of this
Agreement.
<PAGE>
1.02. The Bank agrees that it will perform the following services:
(a) In accordance with procedures established from time to time by agreement
between the Fund and the Bank, the Bank shall:
(i) Issue and record the appropriate number of Shares as authorized and hold
such Shares in the appropriate Shareholder account;
(ii) Effect transfers of Shares by the registered owners thereof upon receipt
of appropriate documentation;
(iii) Execute transactions directly with broker-dealers authorized by the Fund
who shall thereby be deemed to be acting on behalf of the Fund;
(iv) Prepare and transmit payments for dividends and distributions declared by
the Fund;
(v) Act as agent for Shareholders pursuant to the dividend reinvestment and
cash purchase plan as amended from time to time in accordance with the
terms of the agreement to be entered into between the Shareholders and the
Bank in substantially the form attached as Exhibit A hereto;
(vi) Issue replacement certificates for those certificates alleged to have been
lost, stolen or destroyed upon receipt by the Bank of indemnification
satisfactory to the Bank and protecting the Bank and the Fund, and the
Bank as its option, may issue replacement certificates in place of
mutilated stock certificates upon presentation thereof and without such
indemnity.
2
<PAGE>
(b) In addition to and neither in lieu nor in contravention of the services set
forth in the above paragraph (a), the Bank shall: (i) perform all of the
customary services of a registrar, transfer agent, dividend disbursing
agent, custodian of certain retirement plans and agent of the dividend
reinvestment and cash purchase plan as described in Article 1 consistent
with those requirements in effect as at the date of this Agreement. The
detailed definition, frequency, limitations and associated costs (if any)
set out in the attached fee schedule, include but are not limited to:
maintaining all Shareholder accounts, preparing Shareholder meeting lists,
mailing proxies, and mailing Shareholder reports to current Shareholders,
withholding taxes on U.S. resident and non-resident alien accounts where
applicable, preparing and filing U.S. Treasury Department Forms 1099 and
other appropriate forms required with respect to dividends and
distributions by federal authorities for all registered Shareholders.
(c) The Bank shall provide additional services on behalf of the Fund (i.e.,
escheatment services) which may be agreed upon in writing between the Fund
and the Bank.
Article 2 Fees and Expenses
-----------------
2.01. For the performance by the Bank pursuant to this Agreement, the Fund
agrees to pay the Bank an annual maintenance fee as set out in the initial fee
schedule attached hereto. Such fees and out-of-pocket expenses and advances
identified under Section 2.02 below may be changed from time to time subject to
mutual written agreement between the Fund and the Bank.
2.02. In addition to the fee paid under Section 2.01 above, the Fund agrees to
reimburse the Bank for out-of-pocket expenses, including but not limited to
confirmation production, postage forms, telephone, microfilm, microfiche,
tabulating proxies, records storage, or advances incurred by the Bank for the
items set out in the fee schedule attached hereto. In addition, any
3
<PAGE>
other expenses incurred by the Bank at the request or with the consent of the
Fund, will be reimbursed by the Fund.
2.03. The Fund agrees to pay all fees and reimbursable expenses within five
days following the receipt of the respective billing notice. Postage and the
cost of materials for mailing of dividends, proxies, Fund reports and other
mailings to all Shareholder accounts shall be advanced to the Bank by the Fund
at least seven (7) days prior to the mailing date of such materials.
Article 3 Representations and Warranties of the Bank
------------------------------------------
The Bank represents and warrants to the Fund that:
3.01. It is a trust company duly organized and existing and in good standing
under the laws of the Commonwealth of Massachusetts.
3.02. It is duly qualified to carry on its business in the Commonwealth of
Massachusetts.
3.03. It is empowered under applicable laws and by its Charter and By-Laws to
enter into and perform this Agreement.
3.04. All requisite corporate proceedings have been taken to authorize it to
enter into and perform this Agreement.
3.05. It has and will continue to have access to the necessary facilities,
equipment and personnel to perform its duties and obligations under this
Agreement.
4
<PAGE>
Article 4 Representations and Warranties of the Fund
------------------------------------------
The Fund represents and warrants to the Bank that:
4.01. It is a corporation duly organized and existing and in good standing
under the laws of Maryland.
4.02. It is empowered under applicable laws and by its Articles of
Incorporation and By-Laws to enter into and perform this Agreement.
4.03. All corporate proceedings required by said Articles of Incorporation and
By-Laws have been taken to authorize it to enter into and perform this
Agreement.
4.04. It is a closed-end, diversified investment company registered under the
Investment Company Act of 1940, as amended.
4.05. To the extent required by federal securities laws a registration
statement under the Securities Act of 1933, as amended, is currently effective
and appropriate state securities law filings have been made with respect to all
Shares of the Fund being offered for sale; information to the contrary will
result in immediate notification to the Bank.
4.06. It shall make all required filings under federal and state securities
laws.
Article 5 Data Access and Proprietary Information
---------------------------------------
5.01. The Fund acknowledges that the data bases, computer programs, screen
formats, report formats, interactive design techniques, and documentation
manuals furnished to the Fund by the Bank as part of the Fund's ability to
access certain Fund-related data ("Customer Data") maintained by the Bank on
data bases under the control and ownership of the Bank ("Data
5
<PAGE>
Access Services") constitute copyrighted, trade secret, or other proprietary
information (collectively, "Proprietary Information") of substantial value to
the Bank. The Fund agrees to treat all Proprietary Information as proprietary to
the Bank and further agrees that it shall not divulge any Proprietary
Information to any person or organization except as may be provided hereunder.
Without limiting the foregoing, the Fund agrees for itself and its employees and
agents:
(a) to access Customer Data solely from locations as may be designated in
writing by the Bank and solely in accordance with the Bank's applicable
user documentation
(b) to refrain from copying or duplicating in any way the Proprietary
Information;
(c) to refrain from obtaining unauthorized access to any portion of the
Proprietary Information, and if such access is inadvertently obtained, to
inform in a timely manner of such fact and dispose of such information in
accordance with the Bank's instructions;
(d) to refrain from causing or allowing third-party data acquired hereunder
from being retransmitted to any other computer facility or other location,
except with the prior written consent of the Bank;
(e) that the Fund shall have access only to those authorized transactions
agreed upon by the parties;
(f) to honor all reasonable written requests made by the Bank to protect at the
Bank's expense the rights of the Bank in Proprietary Information at common
law, under federal copyright law and under other federal or state law.
6
<PAGE>
Each party shall take reasonable efforts to advise its employees of their
obligations pursuant to this Article 5. The obligations of this Article shall
survive any earlier termination of this Agreement.
5.02. If the Fund notifies the Bank that any of the Data Access Services do
not operate in material compliance with the most recently issued user
documentation for such services, the Bank shall endeavor in a timely manner to
correct such failure. Organizations from which the Bank may obtain certain data
included in the Data Access Services are solely responsible for the contents of
such data and the Fund agrees to make no claim against the Bank arising out of
the contents of such third-party data, including, but not limited to, the
accuracy thereof. DATA ACCESS SERVICES AND ALL COMPUTER PROGRAMS AND SOFTWARE
SPECIFICATIONS USED IN CONNECTION THEREWITH ARE PROVIDED ON AN AS IS, AS
AVAILABLE BASIS. THE BANK EXPRESSLY DISCLAIMS ALL WARRANTIES EXCEPT THOSE
EXPRESSLY STATED HEREIN INCLUDING, BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
5.03. If the transactions available to the Fund include the ability to
originate electronic instructions to the Bank in order to (i) effect the
transfer or movement of cash or Shares or (ii) transmit Shareholder information
or other information (such transactions constituting a "COEFI") , then in such
event the Bank shall be entitled to rely on the validity and authenticity of
such instruction without undertaking any further inquiry as long as such
instruction is undertaken in conformity with security procedures established by
the Bank from time to time.
7
<PAGE>
Article 6 Indemnification
---------------
6.01. The Bank shall not be responsible for, and the Fund shall indemnify and
hold the Bank harmless from and against, any and all losses, damages, costs,
charges, counsel fees, payments, expenses and liability arising out of or
attributable to:
(a) All actions of the Bank or its agents or subcontractors required to be
taken pursuant to this Agreement, provided that such actions are taken in
good faith and without negligence or willful misconduct.
(b) The Fund's lack of good faith, negligence or willful misconduct which arise
out of the breach of any representation or warranty of the Fund hereunder.
(c) The reliance on or use by the Bank or its agents or subcontractors of
information, records, documents or services which (i) are received by the
Bank or its agents or subcontractors, and (ii) have been prepared,
maintained or performed by the Fund or any other person or firm on behalf
of the Fund including but not limited to any previous transfer agent or
registrar.
(d) The reliance on, or the carrying out by the Bank or its agents or
subcontractors of any instructions or requests of the Fund.
(e) The offer or sale of Shares in violation of any requirement under the
federal securities laws or regulations or the securities laws or
regulations of any state that such Shares be registered in such state or
the violation of any stop order or other determination or ruling by any
federal agency or any state with respect to the offer or sale of such
Shares in such state.
8
<PAGE>
6.02. At any time the Bank may apply to any officer of the Fund for
instructions, and may consult with legal counsel with respect to any matter
arising in connection with the services to be performed by the Bank under this
Agreement, and the Bank and its agents or subcontractors shall not be liable and
shall be indemnified by the Fund for any action taken or omitted by it in
reliance upon such instructions or upon the opinion of such counsel. The Bank,
its agents and subcontractors shall be protected and indemnified in acting upon
any paper or document furnished by or on behalf of the Fund, reasonably believed
to be genuine and to have been signed by the proper person or persons, or upon
any instruction, information, data, records or documents provided the Bank or
its agents or subcontractors by telephone, in person, machine readable input,
telex, CRT data entry or other similar means authorized by the Fund, and shall
not be held to have notice of any change of authority of any person, until
receipt of written notice thereof from the Fund. The Bank, its agents and
subcontractors shall also be protected and indemnified in recognizing stock
certificates which are reasonably believed to bear the proper manual or
facsimile signatures of the officers of the Fund, and the proper
countersignature of any former transfer agent or former registrar, or of a co-
transfer agent or co-registrar.
6.03. In order that the indemnification provisions contained in this Article 6
shall apply, upon the assertion of a claim for which the Fund may be required to
indemnify the Bank, the Bank shall promptly notify the Fund of such assertion,
and shall keep the Fund advised with respect to all developments concerning such
claim. The Fund shall have the option to participate with the Bank in the
defense of such claim or to defend against said claim in its own name or in the
name of the Bank. The Bank shall in no case confess any claim or make any
compromise in any case in which the Fund may be required to indemnify the Bank
except with the Fund's prior written consent.
9
<PAGE>
Article 7 Standard of Care
----------------
7.01. The Bank shall at all times act in good faith and agrees to use its best
efforts within reasonable limits to insure the accuracy of all services
performed under this Agreement, but assumes no responsibility and shall not be
liable for loss or damage due to errors unless said errors are caused by its
negligence, bad faith, or willful misconduct or that of its employees.
Article 8 Covenants of the Fund and the Bank
----------------------------------
8.01. The Fund shall promptly furnish to the Bank the following:
(a) A certified copy of the resolution of the Board of Directors of the Fund
authorizing the appointment of the Bank and the execution and delivery of
this Agreement.
(b) A copy of the Articles of Incorporation and By-Laws of the Fund and all
amendments thereto.
8.02. The Bank hereby agrees to establish and maintain facilities and
procedures reasonably acceptable to the Fund for safekeeping of stock
certificates, check forms and facsimile signature imprinting devices, if any;
and for the preparation or use, and for keeping account of, such certificates,
forms and devices.
8.03. The Bank shall keep records relating to the services to be performed
hereunder, in the form and manner as it may deem advisable. To the extent
required by Section 31 of the Investment Company Act of 1940, as amended, and
the Rules thereunder, the Bank agrees that all such records prepared or
maintained by the Bank relating to the services to be performed by the Bank
hereunder are the property of the Fund and will be preserved, maintained and
made
10
<PAGE>
available in accordance with such Section and Rules, and will be surrendered
promptly to the Fund on and in accordance with its request.
8.04. The Bank and the Fund agree that all books, records, information and
data pertaining to the business of the other party which are exchanged or
received pursuant to the negotiation or the carrying out of this Agreement shall
remain confidential, and shall not be voluntarily disclosed to any other person,
except as may be required by law.
8.05. In cases of any requests or demands for the inspection of the
Shareholder records of the Fund, the Bank will endeavor to notify the Fund and
to secure instructions from an authorized officer of the Fund 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 it may be held
liable for the failure to exhibit the Shareholder records to such person.
Article 9 Termination of Agreement
------------------------
9.01. This Agreement may be terminated by either party upon one hundred twenty
(120) days written notice to the other.
9.02. Should the Fund exercise its right to terminate, all out-of-pocket
expenses associated with the movement of records and material will be borne by
the Fund. Additionally, the Bank reserves the right to charge for any other
reasonable expenses associated with such termination and/or a charge equivalent
to the average of three (3) month's fees.
11
<PAGE>
Article 10 Assignment
----------
10.01. Except as provided in Section 10-03 below, neither this Agreement nor
any rights or obligations hereunder may be assigned by either party without the
written consent of the other party.
10.02. This Agreement shall inure to the benefit of and be binding upon the
parties and their respective permitted successors and assigns.
10.03. The Bank may, without further consent on the part of the Fund,
subcontract for the performance hereof with (i) Boston Financial Data Services,
Inc., a Massachusetts corporation ("BFDS") which is duly registered as a
transfer agent pursuant to Section 17A(c)(1) of the Securities Exchange Act of
1934, as amended ("Section 17A(c)(l)"), (ii) a BFDS subsidiary duly registered
as a transfer agent pursuant to Section 17A(c)(1) or (iii) a BFDS affiliate;
provided, however, that the Bank shall be as fully responsible to the Fund for
the acts and omissions of any subcontractor as it is for its own acts and
omissions.
Article 11 Amendment
---------
11.01. This Agreement may be amended or modified by a written agreement
executed by both parties and authorized or approved by a resolution of the Board
of Directors of the Fund.
Article 12 Massachusetts Law to Apply
--------------------------
12.01. This Agreement shall be construed and the provisions thereof
interpreted under and in accordance with the laws of the Commonwealth of
Massachusetts.
12
<PAGE>
Article 13 Force Majeure
-------------
13.01. In the event either party is unable to perform its obligations under
the terms of this Agreement because of acts of God, strikes, equipment or
transmission failure or damage reasonably beyond its control, or other causes
reasonably beyond its control, such party shall not be liable for damages to the
other for any damages resulting from such failure to perform or otherwise from
such causes.
Article 14 Consequential Damages
---------------------
14.01. Neither party to this Agreement shall be liable to the other party for
consequential damages under any provision of this Agreement or for any
consequential damages arising out of any act or failure to act hereunder.
Article 15 Merger of Agreement
-------------------
15.01. This Agreement constitutes the entire agreement between the parties
hereto and supersedes any prior agreement with respect to the subject hereof
whether oral or written.
13
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in their names and on their behalf by and through their duly authorized
officers, as of the day and year first above written.
MUNIYIELD PENNSYLVANIA
By:_____________________________
GERALD M. RICHARD, TREASURER
ATTEST:
______________________
STATE STREET BANK AND TRUST COMPANY
BY:_______________________________
ATTEST:
________________________
14
<PAGE>
- -------------------------------------------------------------------------------
AUCTION AGENT AGREEMENT
between
MUNIYIELD PENNSYLVANIA FUND
and
IBJ SCHRODER BANK & TRUST COMPANY
Dated as of November 30, 1992
Relating to
Auction Market Preferred Shares(R)
("AMPS"(R))
of
MUNIYIELD PENNSYLVANIA FUND
- -------------------------------------------------------------------------------
(R) Registered trademark of Merrill Lynch & Co., Inc.
<PAGE>
THIS AUCTION AGENT AGREEMENT dated as of November 30, 1992, between
MUNIYIELD PENNSYLVANIA FUND, a Massachusetts business trust (the "Trust"), and
IBJ SCHRODER BANK & TRUST COMPANY, a New York banking corporation.
The Trust proposes to duly authorize and issue 800 shares of Auction Market
Preferred Shares(R), (with a par value of $.10 per share and a liquidation
preference of $50,000 per share plus an amount equal to accumulated but unpaid
dividends (whether or not earned or declared)) pursuant to the Trust's
Certificate of Designation (as defined below). The shares are sometimes referred
to together herein as "AMPS." An Auction (as defined below) will be conducted
for the AMPS. The Trust desires that IBJ Schroder Bank & Trust Company perform
certain duties as agent in connection with each Auction of shares of AMPS (the
"Auction Agent") and as the transfer agent, registrar, dividend disbursing agent
and redemption agent with respect to the shares of AMPS (the "Paying Agent")
upon the terms and conditions of this Agreement, and hereby appoints IBJ
Schroder Bank & Trust Company as said Auction Agent and Paying Agent in
accordance with those terms and conditions (hereinafter generally referred to as
the "Auction Agent" except in Sections 3 and 4 below).
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein, the Trust and the Auction Agent agree as follows:
1. Definitions and Rules of Construction.
--------------------------------------
1.1 Terms Defined by Reference to
Certificate of Designation.
---------------------------
Capitalized terms not defined herein shall have the respective meanings
specified in the Certificate of Designation.
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 Trust, or its successors.
(b) "Agent Member" of any Person shall mean such Person's agent member of the
Securities Depository who is identified as such in such Person's
Purchaser's Letter.
(c) "Auction" shall have the meaning specified in Section 2.1 hereof.
(d) "Auction Procedures" shall mean the Auction Procedures that are set forth
in Paragraph 11 of the Certificate of Designation.
- --------------
(R) Registered trademark of Merrill Lynch & Co., Inc.
2
<PAGE>
(e) "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 Trust.
(f) "Broker-Dealer Agreement" shall mean each agreement between the Auction
Agent and a Broker-Dealer substantially in the form attached hereto as
Exhibit A.
(g) "Certificate of Designation" shall mean the Certificate of Designation of
the Trust, establishing the powers, preferences and rights of the AMPS,
filed on November 24, 1992, in the Office of the Secretary of State of The
Commonwealth of Massachusetts.
(h) "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.
(i) "Purchaser's Letter" shall mean a letter addressed to the Trust, the
Auction Agent and a Broker-Dealer, substantially in the form attached to
the Broker-Dealer Agreement as Exhibit A.
(j) "Settlement Procedures" shall mean the Settlement Procedures attached to
the Broker-Dealer Agreement as Exhibit B.
(k) "Trust 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 Trust and every other officer or employee of the Trust
designated as a "Trust Officer" for purposes hereof in a notice from the
Trust to the Auction Agent.
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.
3
<PAGE>
(d) All references herein to a particular time of day shall be to New York City
time.
2. The Auction.
------------
2.1 Purpose; Incorporation by Reference of Auction
Procedures and Settlement Procedures.
-------------------------------------
(a) The Certificate of Designation provides that the Applicable Rate on shares
of AMPS, for each Dividend Period therefor after the Initial Dividend
Period shall be the rate per annum that a commercial bank, trust company,
or other financial institution appointed by the Trust advises results from
implementation of the Auction Procedures. The Board of Trustees of the
Trust has adopted a resolution appointing IBJ Schroder Bank & Trust Company
as Auction Agent for purposes of the Auction Procedures. The Auction Agent
hereby accepts such appointment and agrees that, on each Auction Date, it
shall follow the procedures set forth in this Section 2 and the Auction
Procedures for the purpose of determining the Applicable Rate for the AMPS
for the next Dividend Period therefor. Each periodic operation of such
procedures is hereinafter referred to as an "Auction."
(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 hereof to the same extent as if
such provisions were fully set forth herein.
2.2 Preparation for Each Auction; Maintenance
of Registry of Beneficial Owners.
---------------------------------
(a) Pursuant to Section 2.5 hereof, the Trust shall not designate any Person to
act as a Broker-Dealer without prior written approval of the Auction Agent
(which approval shall not be withheld unreasonably). At the time of
closing of the initial issuance and sale of the AMPS (the "Closing"), the
Trust shall provide the Auction Agent with a list of the Broker-Dealers
previously approved by the Auction Agent and shall cause to be delivered to
the Auction Agent for execution by the Auction Agent a Broker-Dealer
Agreement signed by each such Broker-Dealer. The Auction Agent shall keep
such list current and accurate and shall indicate thereon, or on a separate
list, the identity of each Existing Holder, if any, whose most recent Order
was submitted by a Broker-Dealer on such list and resulted in such Existing
Holder continuing to hold or purchasing shares of AMPS. Not later than five
days prior to any Auction Date for which any change in such list of Broker-
Dealers is to be effective, the Trust 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 Trust 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.
4
<PAGE>
(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) With respect to each Dividend Period that is a Special Dividend Period, the
Trust may, at its sole option and to the extent permitted by law, by
telephonic and written notice (a "Request for Special Dividend Period") to
the Auction Agent and to each Broker-Dealer, request that the next
succeeding Dividend Period for the AMPS will be a number of days (other
than seven), evenly divisible by seven, and not fewer than seven nor more
than 364 in the case of a Short Term Dividend Period or a number of whole
years not greater than five years in the case of a Long Term Dividend
Period, specified in such notice, provided that, the Trust 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 Trust has given written notice
thereof to S&P and received written confirmation from Moody's that such
action would not impair the rating 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 mandatory redemptions
and any Additional Dividends payable prior to such date have been paid in
full. Such Request for Special Dividend Period, in the case of a Short Term
Dividend Period, shall be given on or prior to the fourth Business Day but
not more than seven Business Days prior to an Auction Date for the AMPS
and, in the case of a Long Term Dividend Period, shall be given on or prior
to the 14th day but not more than 28 days prior to the Auction Date for the
AMPS. Upon receiving such Request for Special Dividend Period, the Broker-
Dealers shall jointly determine whether given the factors set forth in
paragraph 2(c)(iii) of the Certificate of Designation it is advisable that
the Trust 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 Trust and the Auction
Agent written notice (a "Response") of such determination by no later than
the third Business Day prior to such Auction Date. If the Broker-Dealers
shall not give the Trust and the Auction Agent a Response by such third
Business Day or if the Response states that given the factors referred to
above it is not advisable that the Trust give a Notice of Special Dividend
Period (as defined below) for the AMPS, the Trust 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
Trust give a Notice of Special Dividend Period for the AMPS, the Trust 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
Trust shall not give a Notice of Special Dividend Period, or, if such
Notice of Special Dividend Period shall have already been given, shall give
telephonic and written notice of its revocation (a "Notice of Revocation")
to the Auction Agent, each Broker-Dealer, and the Securities Depository
5
<PAGE>
on or prior to the Business Day prior to the relevant Auction Date if (x)
either the 1940 Act AMPS Coverage is not satisfied or the Trust 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 Trust 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 Trust that after consideration of the factors referred to above
they have concluded that it is advisable to give a Notice of Revocation. If
the Trust is prohibited from giving a Notice of Special Dividend Period as
a result of the factors enumerated in clause (x), (y) or (z) of the
preceding sentence or if the Trust gives a Notice of Revocation with
respect to a Notice of Special Dividend Period, the next succeeding
Dividend Period will be a 7-day Dividend Period. In addition, in the event
sufficient Clearing Bids are not made in any Auction or an Auction is not
held for any reason, the next succeeding Dividend Period will be a 7-day
Dividend Period, and the Trust may not again give a Notice of Special
Dividend Period (and any such attempted notice shall be null and void)
until sufficient Clearing Bids have been made in an Auction with respect to
a 7-day Dividend Period.
(d) (i) Except as otherwise provided in paragraph 2(f) of the Certificate of
Designation, whenever the Trust intends to include any net capital gains or
other income subject to regular Federal income tax in any dividend on
shares of AMPS, the Trust 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 Trust, it will in turn notify
each Broker-Dealer, who, on or prior to such Auction Date, in accordance
with its Broker-Dealer Agreement, will notify its Existing Holders and
Potential Holders believed to be interested in submitting an order in the
Auction to be held on such Auction Date. Whenever the Trust includes any
additional amounts in a dividend as provided in paragraph 2(f) of the
Certificate of Designation, the Trust 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 Trust it will in turn 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 Existing Holders.
(ii) If the Trust makes a Retroactive Taxable allocation, the Trust will, within
90 days (and generally within 60 days) after the end of its fiscal year for
which a Retroactive Taxable Allocation is made provide notice thereof to
the Auction Agent and to each holder of shares (initially the Securities
Depository) during such fiscal year at
6
<PAGE>
such holder's address as the same appears or last appeared on the share
books of the Trust. The Trust will, within 30 days after such notice is
given to the Auction Agent, pay to the Auction Agent (who will then
distribute to such holders of shares of AMPS), out of funds legally
available therefor, a cash amount equal to the aggregate Additional
Dividend with respect to all Retroactive Taxable Allocations made to such
holders during the fiscal year in question.
(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 Certificate of Designation; 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 Trust as to the method of such conversion. Not later
than 9:30 A.M. on each Auction Date, the Auction Agent shall notify the
Trust and the Broker-Dealers of the Reference Rate so determined and the
Maximum Applicable Rate.
(ii) If the Reference Rate is the applicable "AA" Composite Commercial Paper
Rate and such rate is to be based on rates supplied by Commercial Paper
Dealers and one or more of the Commercial Paper Dealers shall not provide a
quotation for the determination of the applicable "AA" Composite Commercial
Paper Rate, the Auction Agent shall immediately notify the Trust so that
the Trust 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 Trust shall promptly advise the Auction Agent of any
such selection. If the Trust 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 Trust 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 11(a)(vii) of the Certificate
of Designation. The Auction Agent shall be entitled to rely on the last
Percentage of which it has received notice from the Trust (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 beneficial
owners of the shares of the AMPS who shall constitute the Existing Holders
for purposes of each Auction. The Trust shall use its best efforts to
provide or cause to be provided to the Auction Agent within ten days
following the date of Closing a list of the initial Existing Holders of the
AMPS, and the Broker-Dealer of each such Existing
7
<PAGE>
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 shares of AMPS, upon notice
by the Trust to the Auction Agent of such partial redemption, the Auction
Agent shall promptly request the Securities Depository to notify the
Auction Agent of the identities of the Agent Members (and the respective
numbers of shares) from the accounts of which shares have been called for
redemption and the person or department at such Agent Member to contact
regarding such redemption, and at least two Business Days prior to the .
Auction preceding the date of redemption with respect to the shares being
partially redeemed, the Auction Agent shall request each Agent Member so
identified to disclose to the Auction Agent (upon selection by such Agent
Member of the Existing Holders whose shares are to be redeemed) the number
of shares of the AMPS of each such Existing Holder, if any, to be redeemed
by the Trust; provided the Auction Agent has been furnished with the name
and telephone number of a person or department at such Agent Member from
which it is to request such information. If necessary to procure such
information, the Auction Agent shall deliver to each Agent Member a
facsimile copy of the Purchaser's Letter of each Existing Holder
represented by such Agent Member, which authorizes and instructs such Agent
Member to release such information to the Auction Agent. In the absence of
receiving any such information with respect to an Existing Holder, from
such Existing Holder's Agent Member or otherwise, the Auction Agent may
continue to treat such Existing Holder as the beneficial owner of the
number of shares of the AMPS shown in the Auction Agent's registry of
beneficial owners.
(iii) The Auction Agent shall register a transfer of the beneficial ownership of
shares of the AMPS from an Existing Holder to another Person only if such
transfer is made to a Person that has delivered a signed Purchaser's Letter
to the Auction Agent and only if (A) such transfer is pursuant to an
Auction or (B) if such transfer is made other than pursuant to an Auction,
the Auction Agent has been notified in writing in a notice substantially in
the form of Exhibit D to the Broker-Dealer Agreement, by such Existing
Holder, the Agent Member of such Existing Holder, or the Broker-Dealer of
such Existing Holder of such transfer. The Auction Agent is not required to
accept any notice of transfer delivered for an Auction unless it is
received by the Auction Agent by 3:00 P.M. on the Business Day next
preceding the applicable Auction Date. The Auction Agent shall rescind a
transfer made on the registry of the beneficial owners of any shares of
AMPS if the Auction Agent has been notified in writing in a notice
substantially in the form of Exhibit E to the Broker-Dealer Agreement by
the Agent Member or the Broker-Dealer of any Person that (i) purchased any
shares of AMPS and the seller failed to deliver such shares or (ii) sold
any shares of AMPS and the purchaser failed to make payment to such Person
upon delivery to the purchaser of such shares.
8
<PAGE>
(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 Existing Holders of shares of AMPS. The Auction Agent shall keep
confidential any such information and shall not disclose any such
information so provided to any Person other than the relevant Broker-Dealer
and the Trust, 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 Trust, which consent shall not be unreasonably withheld. The
Auction Agent shall give notice of any such change to each Broker-Dealer. Such
notice shall be received prior to the first Auction Date on which any such
change shall be effective.
Time Event
---- -----
By 9:30 A.M. Auction Agent advises the Trust and the
Broker-Dealers of the Reference Rate and the
Maximum Applicable Rate as set forth in
Section 2.2(e)(i) hereof.
9:30 A.M. - 1:00 P.M. Auction Agent assembles information
communicated to it by Broker-Dealers as
provided in Paragraph 11(c)(i) of the
Certificate of Designation. Submission
deadline is 1:00 P.M.
Not earlier than Auction Agent makes determinations pursuant to
1:00 P.M. Paragraph 11(d)(i) of the Certificate of
Designation.
By approximately Auction Agent makes determinations pursuant to
3:00 P.M. Paragraph 11(d)(i) of the Certificate of
Designation.
Submitted Bids and Submitted Sell Orders are
accepted and rejected in whole or in part and
shares of AMPS allocated as provided in
Paragraph 11(e) of the Certificate of
Designation.
By approximately 10:00 Auction Agent gives notice of Auction results
A.M. on the next as set forth in Section 2.4 hereof.
succeeding Business Day
9
<PAGE>
2.4 Notice of Auction Results.
-------------------------
On each Auction Date, the Auction Agent shall notify Broker-Dealers of the
results of the Auction held on such date by telephone or through the Auction
Agent's Auction Processing System as set forth in Paragraph (a) of the
Settlement Procedures.
2.5 Broker-Dealers.
--------------
(a) Not later than 12:00 noon on each Auction Date, the Trust shall pay to the
Auction Agent in New York Clearing House or similar next-day funds an
amount in cash equal to (i) in the case of any Auction Date immediately
preceding a 7-day Dividend Period, the product of (A) a fraction the
numerator of which is the number of days in such Dividend Period
(calculated by counting the first day of such Dividend Period but excluding
the last day thereof) and the denominator of which is 360, times (B) 1/4 of
1%, times (C) $50,000, times (D) the sum of the aggregate number of
Outstanding shares of AMPS for which the Auction is conducted and (ii) in
the case of any Special Dividend Period, the amount determined by mutual
consent of the Trust and the Broker-Dealers pursuant to Section 3.5 of the
Broker-Dealer Agreements. In lieu of making such payment in New York
Clearing House or similar next-day funds, the Trust may make such payment
by noon on the Business Day immediately following the Auction Date in the
form of Federal funds or similar same-day funds. The Auction Agent shall
apply such moneys as set forth in Section 3.5 of the Broker-Dealer
Agreements and shall thereafter remit to the Trust any remaining funds paid
to the Auction Agent pursuant to this Section 2.5(a).
(b) The Trust shall not designate any Person to act as a Broker-Dealer without
the prior written approval of the Auction Agent, which written approval
shall not be unreasonably withheld. The Trust may designate an Affiliate
and Merrill Lynch, Pierce, Fenner & Smith Incorporated to act as a Broker-
Dealer.
(c) The Auction Agent shall terminate any Broker-Dealer Agreement as set forth
therein if so directed by the Trust.
(d) Subject to Section 2.5(b) hereof, the Auction Agent shall from time to time
enter into such Broker-Dealer Agreements as the Trust 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 Trust and Affiliates.
------------------------
Neither the Trust nor any Affiliate of the Trust may submit any Sell Order
or Bid, directly or indirectly, in any Auction, except that an Affiliate of the
Trust that is a Broker-Dealer may submit a Sell Order or Bid on behalf of an
Existing Holder or Potential Holder. The Trust shall notify the Auction Agent if
the Trust or, to the best of the Trust's knowledge, any Affiliate of the Trust
becomes an Existing Holder of any shares of AMPS. Any shares of AMPS redeemed,
purchased or otherwise acquired (i) by the Trust shall not be reissued or (ii)
by its Affiliates shall not be transferred (other than to the Trust).
10
<PAGE>
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 Trust, its agents, independent public
accountants and counsel, access at reasonable times during normal business hours
to review and make extracts or copies (at the Trust'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 Trust 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 Trust to maintain such records for such longer period
not in excess of four years, then for such longer period), and such records
shall, in reasonable detail, accurately and fairly reflect the actions taken by
the Auction Agent hereunder. The Trust agrees to keep any information regarding
the customers of any Broker-Dealer received from the Auction Agent in connection
with this Agreement or any Auction confidential and shall not disclose such
information or permit the disclosure of such information without the prior
written consent of the 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 Trust 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 Trust. Any
such agent, accountant or counsel, before having access to such information,
shall agree to keep such information confidential and not to disclose such
information or permit disclosure of such information without the prior written
consent of the applicable Broker-Dealer; provided that such agent, accountant or
counsel may reserve the right to disclose any such information if it is advised
by its counsel that its failure to do so would (i) be unlawful or (ii) expose it
to liability, unless the Broker-Dealer shall have offered indemnification
satisfactory to such agent, accountant or counsel.
3. The Auction Agent as Paying Agent.
----------------------------------
3.1 Paying Agent.
------------
The Board of Trustees of the Trust has adopted a resolution appointing IBJ
Schroder Bank & Trust Company as transfer agent, registrar, dividend disbursing
agent and redemption agent for the Trust in connection with any shares of AMPS
(the "Paying Agent"). The Paying Agent hereby accepts such appointment and
agrees to act in accordance with its standard procedures and the provisions of
the Certificate of Designation which are specified herein with respect to the
shares of AMPS and as set forth in this section 3.
3.2 The Trust's Notices to Paying Agent.
-----------------------------------
Whenever any shares of AMPS are to be redeemed, the Trust shall promptly
deliver to the Paying Agent the Notice of Redemption, which will be mailed by
the Trust to each Holder, at least five days prior to the date such Notice of
Redemption is required to be mailed by the
11
<PAGE>
Certificate of Designation. The Paying Agent shall have no responsibility to
confirm or verify the accuracy of any such notice.
3.3 Trust to Provide Funds for Dividends,
Redemptions and Additional Dividends.
------------------------------------
(a) Not later than noon, on the Business Day immediately preceding each
Dividend Payment Date, the Trust shall deposit with the Paying Agent an
aggregate amount of New York Clearing House or similar next-day funds equal
to the declared dividends to be paid to Holders on such Dividend Payment
Date and shall give the Paying Agent irrevocable instructions to apply such
funds to the payment of such dividends on such Dividend. Payment Date. In
lieu of making such deposit in New York Clearing House or similar next-day
funds, the Trust may make such deposit by noon on each Dividend Payment
Date in the form of Federal funds or similar same-day funds.
(b) If the Trust shall give the Notice of Redemption then, by noon of the
Business Day immediately preceding the date fixed for redemption, the Trust
shall deposit in trust with the Paying Agent an aggregate amount of New
York Clearing House or similar next-day funds sufficient to redeem such
shares of AMPS called for redemption and shall give the Paying Agent
irrevocable instructions and authority to pay the redemption price to the
Holders of shares of AMPS called for redemption upon surrender of the
certificate or certificates therefor. In lieu of making such deposit in New
York Clearing House or similar next-day funds, the Trust may make such
deposit by noon on the date fixed for redemption in the form of Federal
funds or similar same-day funds.
(c) If the Trust provides notice to the Auction Agent of a Retroactive Taxable
Allocation, the Trust shall, within 30 days after such notice is given and
by noon of the Business Day immediately preceding the date fixed for
payment of an Additional Dividend, deposit in trust with the Paying Agent
an aggregate amount of New York Clearing House or similar next-day funds
equal to such Additional Dividend and shall give the Paying Agent
irrevocable instructions and authority to pay the Additional Dividends to
Holders (or former Holders) of AMPS entitled thereto. In lieu of making
such deposit in New York Clearing House or similar next-day funds, the
Trust may make such deposit by noon on the date fixed for payment of an
Additional Dividend in the form of Federal funds or similar same-day funds.
3.4 Disbursing Dividends, Redemption Price
and Additional Dividends.
-------------------------
After receipt of the New York Clearing House or similar next-day funds (or
Federal funds or similar same-day funds) and instructions from the Trust
described in sections 3.3(a), (b) and (c) above, the Paying Agent shall pay to
the Holders (or former Holders) entitled thereto (i) on each corresponding
Dividend Payment Date, dividends on the AMPS, (ii) on any date fixed for
redemption, the redemption price of any shares of AMPS called for redemption and
(iii) on the date fixed for payment of an Additional Dividend, such Additional
Dividend. The amount of dividends for any Dividend Period to be paid by the
Paying Agent to Holders will be
12
<PAGE>
determined by the Trust as set forth in Paragraph 2 of the Certificate of
Designation. 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 Certificate of Designation. 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 Trust pursuant to paragraph 2(e)
of the Certificate of Designation. The Trust 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 Trust to the Paying Agent
shall contain the information required to be stated in the Notice of Redemption
required to be mailed by the Trust to such Holders. The Paying Agent shall have
no duty to determine the redemption price and may rely on the amount thereof set
forth in the Notice of Redemption.
4. The Paying Agent as Transfer Agent and Registrar.
-------------------------------------------------
4.1 Original Issue of Share Certificate.
-----------------------------------
On the Date of Original Issue, one certificate for the AMPS shall be issued
by the Trust and registered in the name of Cede & Co., as nominee of the
Securities Depository, and countersigned by the Paying Agent.
4.2 Registration of Transfer or Exchange of Shares.
----------------------------------------------
Except as provided in this Section 4.2, the shares of the AMPS shall be
registered solely in the name of the Securities Depository or its nominee. If
the Securities Depository shall give notice of its intention to resign as such,
and if the Trust shall not have selected a substitute Securities Depository
acceptable to the Paying Agent prior to such resignation, then upon such
resignation, the shares of AMPS may, at the Trust's request, be registered for
transfer or exchange, and new certificates thereupon shall be issued in the name
of the designated transferee or transferees, upon surrender of the old
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 and 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 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 transferred
free of the restriction described in such legend, said opinion to be delivered
under cover of a letter from a Trust Officer authorizing the Paying Agent to
remove the legend on the basis of said opinion.
13
<PAGE>
4.4 Lost Share 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 Trust and
the Paying Agent, subject at all times to provisions of law, the By-Laws of the
Trust governing such matters and resolutions adopted by the Trust with respect
to lost securities. The Paying Agent may issue new certificates in exchange for
and upon the cancellation of mutilated certificates. Any request by the Trust 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 Trust to
the Paying Agent that such issuance will comply with such provisions of
applicable law and the By-Laws and resolutions of the Trust.
4.5 Disposition of Cancelled Certificates;
Record Retention.
-----------------
The Paying Agent shall retain share certificates which have been cancelled
in transfer or in exchange and accompanying documentation in accordance with
applicable rules and regulations of the Securities and Exchange Commission for
two calendar years from the date of such cancellation. The Paying Agent shall,
upon written request from the Trust, afford to the Trust, its agents and counsel
access at reasonable times during normal business hours to review and make
extracts or copies (at the Trust's sole cost and expense) of such certificates
and accompanying documentation. Upon request by the Trust at any time after the
expiration of this two-year period, the Paying Agent shall deliver to the Trust
the cancelled certificates and accompanying documentation. The Trust shall, at
its expense, retain such records for a minimum additional period of four
calendar years from the date of delivery of the records to the Trust 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 Trust shall also undertake to
furnish to the Securities and Exchange commission, upon demand, at either the
principal office or at any regional office, complete, correct and current hard
copies of any and all such records. Thereafter such records shall not be
destroyed by the Trust without the approval of the Paying Agent, which shall not
be unreasonably withheld, but will be safely stored for possible future
reference.
4.6 Share Register.
--------------
The Paying Agent shall maintain the share 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 share 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 share register or any other books of the
Trust in the possession of the Paying Agent, the Paying Agent will notify the
Trust and secure instructions as to permitting or refusing such inspection. The
Paying Agent reserves the right, however, to exhibit the share 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 Trust
shall have offered indemnification satisfactory to the Paying Agent.
14
<PAGE>
4.7 Return of Funds.
---------------
Any funds deposited with the Paying Agent by the Trust for any reason under
this Agreement, including for the payment of dividends or the redemption of
shares of AMPS, that remain with the Paying Agent after 12 months shall be
repaid to the Trust upon the written request of the Trust.
5. Representations and Warranties.
------------------------------
(a) The Trust represents and warrants to the Auction Agent that:
(i) the Trust is a duly incorporated and validly existing trust in good
standing under the laws of The Commonwealth of Massachusetts and has full
power to execute and deliver this Agreement and to authorize, create and
issue the shares of AMPS,
(ii) the Trust 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 Trust and constitutes the legal, valid and binding
obligation of the Trust, enforceable against the Trust 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 form of certificate evidencing the shares of AMPS complies with all
applicable laws of The Commonwealth of Massachusetts;
(v) the shares of AMPS have been duly and validly authorized by the Trust and,
upon completion of the initial sale of the shares of such AMPS and receipt
of payment therefor, will be validly issued, fully paid and nonassessable;
(vi) the offering of the shares of AMPS has been registered under the Securities
Act of 1933, as amended, and no further action by or before any
governmental body or authority of the United States or of any state thereof
is required in connection with the execution and delivery of this Agreement
or the issuance of the shares of AMPS except as required by applicable
state securities or insurance laws, all of which have been taken;
(vii) the execution and delivery of this Agreement and the issuance and delivery
of the shares of AMPS do not and will not conflict with, violate, or result
in a breach of the terms, conditions or provisions of, or constitute a
default under, the Declaration of Trust or the By-Laws of the Trust, any
law or regulation applicable to the Trust, any order or decree of any court
or public authority having jurisdiction over the Trust, or any mortgage,
indenture, contract, agreement or undertaking to which the Trust is a party
or by which it is bound; and
15
<PAGE>
(viii) no taxes are payable upon or in respect of the execution of this
Agreement or the issuance of the shares of AMPS.
(b) The Auction Agent represents and warrants to the Trust that the Auction
Agent is duly organized and is validly existing as a banking corporation in
good standing under the laws of the State of New York and has the corporate
power to enter into and perform its obligations under this Agreement.
6. The Auction Agent.
-----------------
6.1 Duties and Responsibilities.
---------------------------
(a) The Auction Agent is acting solely as agent for the Trust hereunder and
owes no fiduciary duties to any Person except as provided by this
Agreement.
(b) The Auction Agent undertakes to perform such duties and only such duties as
are specifically set forth in this Agreement, and no implied covenants or
obligations shall be read into this Agreement against the Auction Agent.
(c) In the absence of bad faith or negligence on its part, the Auction Agent
shall not be liable for any action taken, suffered or omitted or for any
error of judgment made by it in the performance of its duties under this
Agreement. The Auction Agent shall not be liable for any error of judgment
made in good faith unless the Auction Agent shall have been negligent in
ascertaining (or failing to ascertain) the pertinent facts.
6.2 Rights of the Auction Agent.
---------------------------
(a) The Auction Agent may rely and shall be protected in acting or refraining
from acting upon any communication authorized hereby and upon any written
instruction, notice, request, direction, consent, report, certificate,
share certificate or other instrument, paper or document reasonably
believed by it to be genuine. The Auction Agent shall not be liable for
acting upon any telephone communication authorized hereby which the Auction
Agent believes in good faith to have been given by the Trust or by a
Broker-Dealer. The Auction Agent may record telephone communications with
the Trust or with the Broker-Dealers or both.
(b) The Auction Agent may consult with counsel of its choice, and the written
advice of such counsel shall be full and complete authorization and
protection in respect of any action taken, suffered or omitted by it
hereunder in good faith and in reliance thereon.
(c) The Auction Agent shall not be required to advance, expend or risk its own
funds or otherwise incur or become exposed to financial liability in the
performance of its duties hereunder. The Auction Agent shall be under no
liability for interest on any money received by it hereunder except as
otherwise agreed in writing with the Trust.
(d) The Auction Agent may perform its duties and exercise its rights hereunder
either directly or by or through agents or attorneys.
16
<PAGE>
6.3 Auction Agent's Disclaimer.
--------------------------
The Auction Agent makes no representation as to the validity or adequacy of
this Agreement, the Broker-Dealer Agreements or the AMPS.
6.4 Compensation, Expenses and Indemnification.
------------------------------------------
(a) The Trust shall pay the Auction Agent from time to time reasonable
compensation for all services rendered by it under this Agreement and the
Broker-Dealer Agreements as shall be set forth in a separate writing signed
by the Trust and the Auction Agent, subject to adjustments if the AMPS are
no longer held of record by the Securities Depository or its nominee or if
there shall be such other change as shall materially increase the Auction
Agent's obligations hereunder or under the Broker-Dealer Agreements.
(b) The Trust shall reimburse the Auction Agent upon its request for all
reasonable expenses, disbursements and advances incurred or made by the
Auction Agent in accordance with any provision of this Agreement and the
Broker-Dealer Agreements (including the reasonable compensation, expenses
and disbursements of its agents and counsel), except any expense,
disbursement and advances attributable to its negligence or bad faith.
(c) The Trust shall indemnify the Auction Agent for, and hold it harmless
against, any loss, liability or expense incurred without negligence or bad
faith on its part arising out of or in connection with its agency under
this Agreement and the Broker-Dealer Agreements, including the costs and
expenses of defending itself against any claim or liability in connection
with its exercise or performance of any of its duties hereunder and
thereunder, except such as may result from its negligence or bad faith.
7. Miscellaneous.
-------------
7.1 Term of Agreement.
-----------------
(a) The term of this Agreement is unlimited unless it shall be terminated as
provided in this Section 7.1. The Trust may terminate this Agreement at any
time by so notifying the Auction, Agent, provided that if any AMPS remain
outstanding the Trust has entered into an agreement in substantially the
form of this Agreement with a successor auction agent. The Auction Agent
may terminate this Agreement upon prior notice to the Trust on the date
specified in such notice, which shall be no earlier than 60 days after
delivery of such notice. If the Auction Agent resigns while any shares of
AMPS remain outstanding, the Trust 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 Trust and the Auction Agent under this Agreement shall
cease upon termination of this Agreement. The Trust's representations,
warranties, covenants and obligations to the Auction Agent under Sections 5
and 6.4 hereof shall survive the
17
<PAGE>
termination hereof. Upon termination of this Agreement, the Auction Agent
shall (i) resign as Auction Agent under the Broker-Dealer Agreements, (ii)
at the Trust's request, promptly deliver to the Trust copies of all books
and records maintained by it in connection with its duties hereunder, and
(iii) at the request of the Trust, promptly transfer to the Trust or any
successor auction agent any funds deposited by the Trust with the Auction
Agent (whether in its capacity as Auction Agent or Paying Agent) pursuant
to this Agreement which have not previously been distributed by the Auction
Agent in accordance with this Agreement.
7.2 Communications.
--------------
Except for (i) communications authorized to be made by telephone pursuant
to this Agreement or the Auction Procedures and (ii) communications in
connection with Auctions (other than those expressly required to be in writing),
all notices, requests and other communications to any party hereunder shall be
in writing (including telecopy or similar writing) and shall be given to such
party addressed to it at its address or telecopy number set forth below:
- -------------------------------------------------------------------------------
If to the Trust, MuniYield Pennsylvania Fund
addressed: 800 Scudders Mill Road
Plainsboro, New Jersey 08536
Attention: Treasurer
Telephone No.: (609) 282-2800
Telecopier No.: (609) 282-3472
- -------------------------------------------------------------------------------
If to the Auction IBJ Schroder Bank & Trust Company
Agent, addressed: One State Street
New York, New York 10004
Attention: Auction Window
Subcellar 1
Telephone No.: (212) 858-2272
Telecopier No.: (212) 797-1148
- -------------------------------------------------------------------------------
or such other address or telecopy number as such party may hereafter specify for
such purpose by notice to the other party. Each such notice, request or
communication shall be effective when delivered at the address specified herein.
Communications shall be given on behalf of the Trust by a Trust 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.
18
<PAGE>
7.4 Benefits.
--------
Nothing herein, express or implied, shall give to any Person, other than
the Trust, the Auction Agent and their respective successors and assigns, any
benefit of any legal or equitable right, remedy or claim hereunder.
7.5 Amendment; Waiver.
-----------------
(a) This Agreement shall not be deemed or construed to be modified, amended,
rescinded, cancelled or waived, in whole or in part, except by a written
instrument signed by a duly authorized representative of the party to be
charged. The Trust shall notify the Auction Agent of any change in the
Certificate of Designation prior to the effective date of any such change.
If any such change in the Certificate of Designation materially increases
the Auction Agent's obligations hereunder, the Trust 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
Trust and the Auction Agent. This Agreement may not be assigned by either party
hereto absent the prior written consent of the other party, which consent shall
not be unreasonably withheld.
7.7 Severability.
------------
If any clause, provision or section hereof shall be ruled invalid or
unenforceable by any court of competent jurisdiction, the invalidity or
unenforceability of such clause, provision or section shall not affect any of
the remaining clauses, provisions or sections hereof.
7.8 Execution in Counterparts.
-------------------------
This Agreement may be executed in several counterparts, each of which shall
be an original and all of which shall constitute but one and the same
instrument.
7.8(A) Liability of Shareholders, Trustees and Officers.
------------------------------------------------
A copy of the Agreement and Declaration of Trust of the Trust is on file
with the Secretary of State of The Commonwealth of Massachusetts and notice is
hereby given that this Agreement has been executed on behalf of the Trust by an
officer of the Trust as an officer and not individually and the obligations of
the Trust arising out of this Agreement are not binding upon any of the
trustees, officers or shareholders of the Trust individually but are binding
only upon the assets and property of the Trust.
19
<PAGE>
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.
20
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their proper and duly authorized officers as of
the date first above written.
MUNIYIELD PENNSYLVANIA FUND
By: _________________________________
Title:
IBJ SCHRODER BANK & TRUST COMPANY
By: _________________________________
Title: Assistant Vice President
21
<PAGE>
EXHIBIT 13(D)
- -------------------------------------------------------------------------------
Form of
BROKER-DEALER AGREEMENT
between
_________ BANK & TRUST COMPANY
and
_________________________________
Dated as of November 19, 1992
Relating to
AUCTION MARKET PREFERRED SHARES(R)
("AMPS"(R))
of
MUNIYIELD PENNSYLVANIA FUND
- -------------------------------------------------------------------------------
(R) Registered trademark of Merrill Lynch & Co., Inc.
<PAGE>
BROKER-DEALER AGREEMENT dated as of November 19, 1992 between ____________
Bank & Trust Company, a New York banking corporation (the "Auction Agent") (not
in its individual capacity but solely as agent of MuniYield Pennsylvania Fund, a
Massachusetts business trust (the "Trust"), pursuant to authority granted to it
in the Auction Agent Agreement dated as of November 19, 1992, between the
Company and the Auction Agent (the "Auction Agent Agreement")) and ______
__________________________ (together with its successors and assigns hereinafter
referred to as "BD").
The Trust has duly authorized and issued 800 shares of Auction Market
Preferred Shares(R), with a par value $.10 per share, liquidation preference
$50,000 per share plus accumulated but unpaid dividends (whether or not earned
or declared), each pursuant to the Trust's Certificate of Designation (as
defined below). The shares are sometimes referred to together herein as "AMPS."
The Trust's Certificate of Designation provides that the dividend rate on
the AMPS for each Dividend Period therefor after the Initial Dividend Period
shall be the Applicable Rate therefor, which in each case, in general, shall be
the rate per annum that a commercial bank, trust company or other financial
institution appointed by the Trust advises results from implementation of the
Auction Procedures (as defined below). The Board of Trustees of the Trust has
adopted a resolution appointing IBJ Schroder Bank & Trust Company as Auction
Agent for purposes of the Auction Procedures, and pursuant to Section 2.5(d) of
the Auction Agent Agreement, the Trust has requested and directed the Auction
Agent to execute and deliver this Agreement.
The Auction Procedures require the participation of one or more Broker-
Dealers.
__________
(R) Registered trademark of Merrill Lynch & Co., Inc.
2
<PAGE>
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
the Auction Agent and BD agree as follows:
1. Definitions and Rules of Construction.
-------------------------------------
1.1 Terms Defined by Reference to the Certificate of Designation. Capitalized
------------------------------------------------------------
terms not defined herein shall have the respective meanings specified in the
Certificate of Designation of the Trust.
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) "Auction" shall have the meaning specified in Section 2.1 hereof.
(b) "Auction Procedures" shall mean the Auction Procedures that are set forth
in Paragraph 11 of the Certificate of Designation.
(c) "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.
(d) "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.
(e) "Broker-Dealer Agreement" shall mean this Agreement and any substantially
similar agreement between the Auction Agent and a Broker-Dealer.
(f) "Certificate of Designation" shall mean the Certificate of Designation, as
amended, of the Trust, establishing the powers, preferences and rights of
the AMPS filed on November 17, 1992 in the Office of the Secretary of State
of The Commonwealth of Massachusetts.
(g) "Purchaser's Letter" shall mean a letter addressed to the Trust, the
Auction Agent and a Broker-Dealer, substantially in the form attached
hereto as Exhibit A.
(h) "Settlement Procedures" shall mean the Settlement Procedures attached
hereto as Exhibit B.
1.3 Rules of Construction. Unless the context or use indicates another or
---------------------
different meaning or intent, the following rules shall apply to the construction
of this Agreement:
(a) Words importing the singular number shall include the plural number and
vice versa.
3
<PAGE>
(b) The captions and headings herein are solely for convenience of reference
and shall not constitute a part of this Agreement nor shall they affect its
meaning, construction or effect.
(c) The words "hereof," "herein," "hereto," and other words of similar import
refer to this Agreement as a whole.
(d) All references herein to a particular time of day shall be to New York City
time.
2. Notification of Dividend Period and Advance Notice of Allocation of Taxable
---------------------------------------------------------------------------
Income.
------
(a) The provisions contained in paragraph 2 of the Certificate of Designation
concerning the notification of a Special Dividend Period will be followed
by the Auction Agent and BD, and the provisions contained therein are
incorporated herein by reference in their entirety and shall be deemed to
be a part of this Agreement to the same extent as if such provisions were
fully set forth herein.
(b) Except as otherwise provided in paragraph 2(f) of the Certificate of
Designation, whenever the Trust intends to include any net capital gains or
other income subject to regular Federal income tax in any dividend on
shares of any AMPS, the Trust 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 Trust, it will in turn
notify BD, who, on or prior to such Auction Date, will notify its Existing
Holders and Potential Holders believed to be interested in submitting an
Order in the Auction to be held on such Auction Date. Whenever the Trust
intends to include any additional amounts in a dividend as provided in
paragraph 2(f) of the Certificate of Designation, the Trust 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 Trust it will in
turn notify the Securities Depository and BD, who, on or prior to the
applicable Dividend Payment Date, will notify its Existing Holders.
3. The Auction.
-----------
3.1 Purpose; Incorporation by Reference of Auction Procedures and Settlement
------------------------------------------------------------------------
Procedures.
----------
(a) On each Auction Date, the provisions of the Auction Procedures will be
followed by the Auction Agent for the purpose of determining the Applicable
Rate for the AMPS, for the next Dividend Period therefor. Each periodic
operation of such procedures is hereinafter referred to as an "Auction."
(b) All of the provisions contained in the Auction Procedures and the
Settlement Procedures are incorporated herein by reference in their
entirety and shall be deemed to be a part of this Agreement to the same
extent as if such provisions were fully set forth herein.
4
<PAGE>
(c) BD is delivering herewith a Purchaser's Letter executed by BD and, in the
case of Merrill Lynch, Pierce, Fenner & Smith Incorporated, a list of
persons to whom BD will initially sell the shares of AMPS, the number of
shares of AMPS BD will sell to each such person and the number of shares of
each series of AMPS BD will hold for its own account. BD agrees to act as,
and assumes the obligations of and limitations and restrictions placed
upon, a Broker-Dealer under this Agreement. BD understands that other
Persons meeting the requirements specified in the definition of "Broker-
Dealer" contained in Paragraph 1 of the Certificate of Designation may
execute a Broker-Dealer Agreement and a Purchaser's Letter and participate
as Broker-Dealers in Auctions.
(d) BD and other Broker-Dealers may participate in Auctions for their own
accounts, provided that BD or such other Broker-Dealers, as the case may
be, has executed a Purchaser's Letter. However, the Trust may by notice to
BD and all other Broker-Dealers prohibit all Broker-Dealers from submitting
Bids in Auctions for their own accounts, provided that Broker-Dealers may
continue to submit Hold Orders and Sell Orders.
3.2 Preparation for Each Auction.
-------------------------------
(a) Not later than 9:30 A.M. on each Auction Date for the AMPS, the Auction
Agent shall advise BD by-telephone of the Reference Rate and the Maximum
Applicable Rate in effect on such Auction Date.
(b) In the event that the Auction Date for any Auction shall be changed after
the Auction Agent has given the notice referred to in clause (vii) of
paragraph (a) of the Settlement Procedures, the Auction Agent, by such
means as the Auction Agent deems practicable, shall give notice of such
change to BD not later than the earlier of 9:15 A.M. on the new Auction
Date or 9:15 A.M. on the old Auction Date. Thereafter, BD shall promptly
notify customers of BD that BD believes are Existing Holders of shares of
AMPS of such change in the Auction Date.
(c) The Auction Agent from time to time may request BD to provide it with a
list of the respective customers BD believes are Existing Holders of shares
of AMPS. BD shall comply with any such request, and the Auction Agent shall
keep confidential any such information, including information received as
to the identity of Bidders in any Auction, and shall not disclose any such
information so provided to any Person other than the Trust; and such
information shall not be used by the Auction Agent or its officers,
employees, agents or representatives for any purpose other than such
purposes as are described herein. The Auction Agent shall transmit any list
of customers BD believes are Existing Holders of shares of AMPS and
information related thereto only to its officers, employees, agents or
representatives in the Corporate Trust and Agency Group who need to know
such information for the purposes of acting in accordance with this
Agreement and shall prevent the transmission of such information to others
and shall cause its officers, employees, agents and representatives to
abide by the foregoing confidentiality restrictions; provided, however,
that the Auction Agent shall have no responsibility or liability for the
actions of any of its officers, employees, agents or representatives after
they have left the employ of the Auction Agent.
5
<PAGE>
(d) The Auction Agent is not required to accept the Purchaser's Letter for any
Potential Holder for an Auction unless it is received by the Auction Agent
by 3:00 P.M. on the Business Day next preceding such Auction.
3.3 Auction Schedule; Method of Submission of orders.
---------------------------------------------------
(a) The Trust and the Auction Agent shall conduct Auctions for the AMPS in
accordance with the schedule set forth below. Such schedule may be changed
at any time by the Auction Agent with the consent of the Trust, which
consent shall not be unreasonably withheld. The Auction Agent shall give
notice of any such change to BD. Such notice shall be received prior to the
first Auction Date on which any such change shall be effective.
Time Event
By 9:30 A.M. Auction Agent advises the Trust and Broker-Dealers
of Reference Rate and the Maximum Applicable Rate
as set forth in Section 3.2(a) hereof.
9:30 A.M. - 1:00 P.M. Auction Agent assembles information communicated to
it by Broker-Dealers as provided in Paragraph
11(c)(i) of the Certificate of Designation.
Submission Deadline is 1:00 P.M.
Not earlier than 1:00 P.M. Auction Agent makes determinations pursuant to
Paragraph 11(d)(i) of the Certificate of
Designation.
By approximately 3:00 P.M. Auction Agent advises Trust of results of Auction
as provided in Paragraph 11(d)(ii) of the
Certificate of Designation.
Submitted Bids and Submitted Sell Orders are
accepted and rejected in whole or in part and
shares of AMPS are allocated as provided in
Paragraph 11(e) of the Certificate of Designation
By approximately 10:00 A.M. Auction Agent gives notice of Auction results as
on the next succeeding set forth in Section 3.4(a) hereof.
Business Day
(b) BD agrees to maintain a list of Potential Holders and to contact the
Potential Holders on such list on or prior to each Auction Date for the
purposes set forth in Paragraph 11 of the Certificate of Designation.
(c) BD agrees not to sell, assign or dispose of any shares of AMPS to any
Person who has not delivered a signed Purchaser's Letter to the Auction
Agent, unless BD submits orders for such Person listing BD as the Existing
Holder or the Potential Holder.
6
<PAGE>
(d) BD shall submit Orders to the Auction Agent in writing in substantially the
form attached hereto as Exhibit C. BD shall submit separate Orders to the
Auction Agent for each Potential Holder or Existing Holder on whose behalf
BD is submitting an order and shall not net or aggregate the Orders of
Potential Holders or Existing Holders on whose behalf BD is submitting
Orders.
(e) BD shall deliver to the Auction Agent (i) a written notice, substantially
in the form attached hereto as Exhibit D, of transfers of shares of AMPS,
made through BD by an Existing Holder to another Person other than pursuant
to an Auction, and (ii) a written notice, substantially in the form
attached hereto as Exhibit E, of the failure of shares of AMPS to be
transferred to or by any Person that purchased or sold shares of AMPS or
through BD pursuant to an Auction. The Auction Agent is not required to
accept any notice delivered pursuant to the terms of the foregoing sentence
with respect to an Auction unless it is received by the Auction Agent by
3:00 P.M. on the Business Day next preceding the applicable Auction Date.
3.4 Notice of Auction Results.
----------------------------
(a) On each Auction Date, the Auction Agent shall notify BD by telephone as set
forth in paragraph (a) of the Settlement Procedures. On the Business Day
next succeeding such Auction Date, the Auction Agent shall notify BD in
writing of the disposition of all Orders submitted by BD in the Auction
held on such Auction Date.
(b) BD shall notify each Existing Holder or Potential Holder on whose behalf BD
has submitted an Order as set forth in paragraph (b) of the Settlement
Procedures and take such other action as is required of BD pursuant to the
Settlement Procedures.
If any Existing Holder selling shares of AMPS in an Auction fails to deliver
such shares, the BD of any Person that was to have purchased shares of AMPS in
such Auction may deliver to such Person, a number of whole shares of such AMPS
that is less than the number of shares that otherwise was to be purchased by
such Person. In such event, the number of shares of AMPS to be so delivered
shall be determined by such BD. Delivery of such lesser number of shares shall
constitute good delivery. Upon the occurrence of any such failure to deliver
shares, such BD shall deliver to the Auction Agent the notice required by
Section 3.3(e)(ii) hereof. Notwithstanding the foregoing terms of this Section
3.4(b), any delivery or non-delivery of shares of AMPS which represents any
departure from the results of an Auction, as determined by the Auction Agent,
shall be of no effect unless and until the Auction Agent shall have been
notified of such delivery or non-delivery in accordance with the terms of
Section 3.3(e) hereof. The Auction Agent shall have no duty or liability with
respect to enforcement of this Section 3.4(b).
3.5 Service Charge to Be Paid to BD. On the Business Day next succeeding each
-------------------------------
Auction Date, the Auction Agent shall pay to BD from moneys received from the
Trust an amount equal to: (a) in the case of any Auction Date immediately
preceding a 7-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) $50,000,
times (iv) the sum of (A) the aggregate number of AMPS placed by BD in the
applicable
7
<PAGE>
Auction that were (x) the subject of a Submitted Bid of an Existing Holder
submitted by BD and continued to be held as a result of such submission and (y)
the subject of a Submitted Bid of a Potential Holder submitted by BD and were
purchased as a result of such submission plus (B) the aggregate number of AMPS
subject to valid Hold Orders (determined in accordance with Paragraph 11 of the
Certificate of Designation) submitted to the Auction Agent by BD plus (C) the
number of AMPS deemed to be subject to Hold Orders by Existing Holders pursuant
to Paragraph 11 of the Certificate of Designation that were acquired by such
Existing Holders 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
Trust and BD, based on the selling concession that would be applicable to an
underwriting of fixed or variable rate preferred shares with a similar final
maturity or variable rate dividend period, at the commencement of such Long Term
Dividend Period.
For purposes of subclause (a)(iv)(C) of the foregoing sentence, if any Existing
Holder who acquired shares of AMPS through BD transfers those shares to another
Person other than pursuant to an Auction, then the Broker-Dealer for the shares
so transferred shall continue to be BD, provided, however, that if the transfer
was effected by, or if the transferee is, a Broker-Dealer other than BD, then
such Broker-Dealer shall be the Broker-Dealer for such shares.
4. The Auction Agent.
-----------------
4.1 Duties and Responsibilities.
---------------------------
(a) The Auction Agent is acting solely as agent for the Trust hereunder and
owes no fiduciary duties to any other Person by reason of this Agreement.
(b) The Auction Agent undertakes to perform such duties and only such duties as
are specifically set forth in this Agreement, and no implied covenants or
obligations shall be read into this Agreement against the Auction Agent.
(c) In the absence of bad faith or negligence on its part, the Auction Agent
shall not be liable for any action taken, suffered, or omitted or for any
error of judgment made by it in the performance of its duties under this
Agreement. The Auction Agent shall not be liable for any error of judgment
made in good faith unless the Auction Agent shall have been negligent in
ascertaining (or failing to ascertain) the pertinent facts.
4.2 Rights of the Auction Agent.
---------------------------
(a) The Auction Agent may rely and shall be protected in acting or refraining
from acting upon any communication authorized by this Agreement and upon
any written instruction, notice, request, direction, consent, report,
certificate, share certificate or other instrument, paper or document
believed by it to be genuine. The Auction Agent shall not be liable for
acting upon any telephone communication authorized by this Agreement which
the Auction Agent believes in good faith to have been given by the Trust or
by a Broker-Dealer. The Auction Agent may record telephone communications
with the Broker-Dealers.
8
<PAGE>
(b) The Auction Agent may consult with counsel of its own choice, and the
advice of such counsel shall be full and complete authorization and
protection in respect of any action taken, suffered or omitted by it
hereunder in good faith and in reliance thereon.
(c) The Auction Agent shall not be required to advance, expend or risk its own
funds or otherwise incur or become exposed to financial liability in the
performance of its duties hereunder.
(d) The Auction Agent may perform its duties and exercise its rights hereunder
either directly or by or through agents or attorneys.
4.3 Auction Agent's Disclaimer. The Auction Agent makes no representation as to
--------------------------
the validity or adequacy of this Agreement or the AMPS.
5. Miscellaneous.
-------------
5.1 Termination. Any party may terminate this Agreement at any time upon five
-----------
days' prior notice to the other party; provided, however, that if BD is
Merrill Lynch, Pierce, Fenner & Smith Incorporated, neither BD nor the
Auction Agent may terminate this Agreement without first-obtaining prior
written consent of the Trust of such termination, which consent shall not
be unreasonably withheld.
5.2 Participant in Securities Depository; Payment of Dividends in Same-Day
----------------------------------------------------------------------
Funds.
-----
(a) BD is, and shall remain for the term of this Agreement, a member of, or
participant in, the Securities Depository (or an affiliate of such a member
or participant).
(b) BD represents that it (or if such BD does not act as Agent Member, one of
its affiliates) shall make all dividend payments on the AMPS available in
same-day funds on each Dividend Payment Date to customers that use such BD
or affiliate as Agent Member.
5.3 Agent Member. At the date hereof, BD is a participant of the Securities
-----------------------------------------------------------------------
Depository.
----------
5.4 Communications. Except for (i) communications authorized to be made by
--------------
telephone pursuant to this Agreement or the Auction Procedures and (ii)
communications in connection with the Auctions (other than those expressly
required to be in writing), all notices, requests and other communications to
any party hereunder shall be in writing (including telecopy or similar writing)
and shall be given to such party, addressed to it, at its address or telecopy
number set forth below:
If to BD 60 Broad Street, 5th Floor
addressed: New York, New York 10004
Attention:
Telecopier No.: (212) 656-1154
Telephone No.: (212) 656-1156
9
<PAGE>
If to the Auction ____________ Bank & Trust Company
Agent, addressed: One State Street
New York, New York 10004
Attention: Auction Window Subcellar 1
Telecopier No.: (212) 797-1148
Telephone No.: (212) 858-2272
or such other address or telecopy number as such party may hereafter specify for
such purpose by notice to the other party. Each such notice, request or
communication shall be effective when delivered at the address specified herein.
Communications shall be given on behalf of BD by a BD Officer and on behalf of
the Auction Agent by an Authorized officer. BD may record telephone
communications with the Auction Agent.
5.5 Entire Agreement. This Agreement contains the entire agreement between the
----------------
parties relating to the subject matter hereof, and there are no other
representations, endorsements, promises, agreements or understandings, oral,
written or inferred, between the parties relating to the subject matter hereof.
5.6 Benefits. Nothing in this Agreement, express or implied, shall give to any
--------
person, other than the Trust, the Auction Agent and BD and their respective
successors and assigns, any benefit of any legal or equitable right, remedy or
claim under this Agreement.
5.7 Amendment; Waiver.
-----------------
(a) This Agreement shall not be deemed or construed to be modified, amended,
rescinded, cancelled or waived, in whole or in part, except by a written
instrument signed by a duly authorized representative of the party to be
charged.
(b) Failure of either party to this Agreement to exercise any right or remedy
hereunder in the event of a breach of this Agreement by the other party
shall not constitute a waiver of any such right or remedy with respect to
any subsequent breach.
5.8 Successors and Assigns. This Agreement shall be binding upon, inure to the
----------------------
benefit of, and be enforceable by, the respective successors and permitted
assigns of each of BD and the Auction Agent. This Agreement may not be assigned
by either party hereto absent the prior written consent of the other party;
provided, however, that this Agreement may be assigned by the Auction Agent to a
successor Auction Agent selected by the Trust 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.
10
<PAGE>
5.10 Execution in Counterparts. This Agreement may be executed in several
-------------------------
counterparts, each of which shall be an original and all of which shall
constitute but one and the same instrument.
6. Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of New York applicable to agreements made
and to be performed in said State.
11
<PAGE>
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.
__________ BANK & TRUST COMPANY
By: ____________________________________
Title: Assistant Vice President
_________________________________
By: ____________________________________
Title:
12
<PAGE>
EXHIBIT C
---------
AUCTION BID FORM
Submit To: IBJ Schroder Bank & Trust Co. Issue _______________________
Securities Transfer Department Auction Date ________________
One State Street
New York, New York 10004
Telephone: (212) 858-2272
Attention: Auction Window Facsimile: (212) 797-1148
The undersigned Broker-Dealer submits the following order on behalf of the
Bidder listed below:
Name of Bidder: _________________
EXISTING HOLDER
Shares now held _____________ HOLD __________
BID at rate of __________
SELL __________
POTENTIAL HOLDER
# 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 Existing Holder 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 may be placed only by an Existing Holder covering a number
of shares not greater than the number of shares currently held.
(4) Potential Holders may make only Bids, each of which must specify a rate. If
more than one Bid is submitted on behalf of any Potential Holder, 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>
EXHIBIT D
---------
(To be used only for transfers made other than pursuant to an Auction.)
TRANSFER FORM
Re: MuniYield Pennsylvania Fund
Auction Market Preferred Shares(R) ("AMPS")
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 Existing Holder has transferred
________ shares of AMPS to ____________.
___________________________
(Name of Existing Holder)
___________________________
(Name of Broker-Dealer)
___________________________
(Name of Agent Member)
By: _______________________
Printed Name:
Title:
<PAGE>
EXHIBIT E
---------
(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 of MuniYield Pennsylvania Fund 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 of MuniYield Pennsylvania Fund 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>
Exhibit 99.13(d)
LETTER OF REPRESENTATIONS
MUNIYIELD PENNSYLVANIA FUND
and
IBJ SCHRODER BANK & TRUST COMPANY
November 30, 1992
The Depository Trust Company
55 Water Street
New York, New York 10041
Attention: General Counsel's Office
Re: MuniYield Pennsylvania Fund Issuance
of Auction Market Preferred Shares(R) ["AMPS" (R)]
--------------------------------------------------
Ladies and Gentlemen:
The purpose of this letter is to set forth certain matters relating to the
issuance and sale by MuniYield Pennsylvania Fund, a Massachusetts business trust
(the "Issuer"), of 800 shares of Auction Market Preferred Shares. The shares are
sometimes herein together called the "AMPS." A description of the AMPS and the
related offering are contained in a prospectus, dated November 23, 1992 (the
"Prospectus"). IBJ Schroder Bank & Trust Company, in its capacity as Auction
Agent (as defined in the Prospectus), will act as the transfer agent, registrar,
dividend disbursing agent and redemption agent with respect to the shares of
AMPS. The shares of AMPS are being distributed through The Depository Trust
Company ("DTC") by Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated (the "Underwriter").
To induce DTC to accept the shares of AMPS as eligible for deposit at DTC
and to act in accordance with its rules (the "DTC Rules") with respect to the
shares of AMPS, the Issuer and the Auction Agent make the following
representations to DTC:
1. Prior to the issuance of the shares of AMPS on November 30, 1992
the Issuer shall cause the Underwriter to deposit with DTC a
share certificate representing the AMPS, registered in the name
of DTC's nominee, Cede & Co., which will respectively represent
the total number of shares of AMPS, and said certificate shall
remain in DTC's custody.
2. The Prospectus describes provisions for the solicitation of
consents from, and voting by, holders of the shares of AMPS
under certain circumstances. The Issuer shall establish a record
date or record dates for such purposes and give DTC notice of
such record date or dates not less than 15 calendar days in
advance of such record date or dates to the extent practicable.
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3. In the event of a full or partial redemption of outstanding
shares of AMPS, the Issuer or the Auction Agent shall give DTC
notice of such event not less than 20 days prior to the
redemption date.
4. In the event of a partial redemption of shares of AMPS
outstanding, the Issuer or the Auction Agent shall send DTC a
notice specifying: the number of shares of AMPS to be redeemed
and the date such notice is to be mailed to shareholders of the
Issuer or published by the Issuer ("Publication Date"). Such
notice shall be sent to DTC by a secure means (e.g., legible
facsimile transmission, registered or certified mail, overnight
express delivery or hand delivery) in a timely manner designed
to assure that such notice is in DTC's possession no later than
the close of business on the Business Day (as defined in the
Prospectus) before the Publication Date. (The Issuer or the
Auction Agent sending such notice shall have a method to verify
subsequently the use of such means and timeliness of the
notice.) In the event of a partial redemption, the Publication
Date shall not be less than 20 days prior to the redemption
date.
5. The Prospectus indicates that the dividend rate for the shares
of AMPS may vary from time to time. Absent other existing
arrangements with DTC, the Issuer or.the Auction Agent shall
give DTC notice of each such change in the dividend rate on the
same day the new rate is determined by telephone to the
Supervisor of the Dividend Announcement Section at (212) 709-
1270, and such notice shall be followed by prompt written
confirmation sent by a secure means as described in paragraph 4
above to:
Manager, Announcements, Dividend Department
The Depository Trust Company
7 Hanover Square, 22nd Floor
New York, New York 10004
6. The Prospectus indicates that each purchaser of shares of AMPS
or its Broker-Dealer will be required to sign a Purchaser's
Letter (as defined in the Prospectus) that contains provisions
restricting transfer of the shares of AMPS purchased. The Issuer
and the Auction Agent acknowledge that as long as Cede & Co. is
the sole record owner of the shares of AMPS, Cede & Co. shall be
entitled to all voting rights applicable to the shares of AMPS
and to receive the full amount of all dividends, Additional
Dividends, liquidation proceeds and redemption proceeds payable
with respect to the shares of AMPS. The Issuer and the Auction
Agent acknowledge that DTC shall treat any DTC Participant
(defined in the DTC Rules to mean, generally, securities brokers
and dealers, banks, trust companies, clearing corporations and
certain other organizations for whom DTC, directly or
indirectly, holds securities) having shares of AMPS credited to
its DTC account as entitled to the full benefits of ownership of
such shares even if the credits of shares of AMPS to the DTC
account of such DTC Participant result from transfers or
failures to transfer in violation of the provisions of the
Purchaser's Letter. Without limiting the generality of the
preceding sentence, the Issuer and the Auction Agent acknowledge
that DTC shall
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<PAGE>
treat any DTC Participant having shares of AMPS credited to its
account as entitled to receive dividends, distributions and
voting rights, if any, in respect of such shares and, subject to
Section 17 hereof, to receive certificates evidencing such
shares of AMPS if such certificates are to be issued in
accordance with the Issuer's Declaration of Trust (as defined in
the Prospectus). (The treatment by DTC of the effects of the
crediting by it of shares of AMPS to the accounts of DTC
Participants described in the preceding two sentences shall not
affect the rights of the Issuer, participants in Auctions (as
defined in the Prospectus) relating to the shares of AMPS,
purchasers, sellers or holders of shares of AMPS against any DTC
Participant). DTC shall have no responsibility to ascertain that
any transfer of shares of AMPS is made in accordance with the
provisions of the Purchaser's Letter.
7. The Prospectus indicates that in the event the Issuer
retroactively allocates any net capital gains or other 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 outstanding shares of AMPS or the liquidation
of the Issuer (the amount of such allocation referred to herein
as a "Retroactive Taxable Allocation"), the Issuer will, within
90 days (and generally within 60 days) after the end of the
Issuer's fiscal year for which a Retroactive Taxable Allocation
is made, provide notice thereof to the Auction Agent and to each
holder of shares of 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 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 AMPS), out of funds legally
available therefor, an amount equal to the aggregate Additional
Dividend (as defined in the Prospectus) with respect to all
Retroactive Taxable Allocations made to such holders during the
fiscal year in question.
8. The Issuer will notify DTC, at least 10 Business Days prior to
the payment date for any Additional Dividends, of (i) the record
date for holders of shares of AMPS entitled to receive
Additional Dividends, (ii) the amount of Additional Dividends
payable on a per share basis to such holders and (iii) the CUSIP
numbers set forth on the share certificates representing such
shares of AMPS.
9. The Prospectus indicates that if the Issuer does not give
advance notice of the amount of 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 was a Retroactive Taxable Allocation and the
additional amount was 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.
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<PAGE>
10. The Prospectus indicates that in the event a Response (as
defined in the Prospectus) indicates that it is advisable that
the Issuer give a Notice of Special Dividend Period (as defined
in the Prospectus) for the AMPS, the Issuer may by no later than
the second day prior to such Auction Date give a Notice of
Special Dividend Period (as defined in the Prospectus) to the
Auction Agent, DTC and each Broker-Dealer, which notice will
specify (i) the duration of the Special Dividend Period, (ii)
the Optional Redemption Price as specified in the Related
Response and (iii) the specific Redemption Provisions, if any,
as specified in the related response. The Issuer is required to
give telephonic and written notice (a "Notice of Revocation") to
the Auction Agent, each Broker-Dealer, and DTC on or prior to
the Business Day prior to the relevant Auction Date under the
circumstances specified in the Prospectus.
11. All notices and payment advices sent to DTC shall contain the
CUSIP numbers set forth on the share certificates representing
the AMPS.
12. Notices to DTC by facsimile transmission shall be sent to (212)
709-1093 or (212) 709-1094. The Issuer or Auction Agent shall
call (212) 709-6884 to confirm such receipt of notice. Except as
provided in paragraph 5 hereof, notices to DTC by any other
means shall be sent to:
Manager, Reorganization Department
Reorganization Window
The Depository Trust Company
7 Hanover Square, 23rd Floor
New York, New York 10004
13. Dividend payments shall be received by Cede Co., as nominee of
DTC, or its registered assigns in same-day funds on each payment
date or the equivalent as agreed between the Issuer or the
Auction Agent and DTC ("Fed-Funds"). Such payment shall be made
payable to the order of "Cede & Co." Absent any other agreement
between the Issuer or the Auction Agent and DTC, such payments
shall be addressed as- follows:
Manager, Cash Receipts, Dividends
The Depository Trust Company
7 Hanover Square, 24th Floor
New York, New York 10004
14. Redemption payments shall be made in Fed-Funds in the manner set
forth in the SDFS Paying Agent Operating Procedures, a copy of
which has previously been provided to the Auction Agent.
15. DTC may direct the Issuer or the Auction Agent to use any other
telephone number for facsimile transmission, address, or
department of DTC as the number, address or department to which
payments of dividends, redemption proceeds or notices may be
sent.
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16. In the event of a redemption necessitating a reduction in the
number of shares of AMPS outstanding, DTC in its discretion may
(a) request the Issuer to execute and deliver new share
certificates representing the remaining outstanding shares of
AMPS or (b) may make appropriate notations on the certificates
indicating the date and amounts of such reductions. In the case
of redemption of all of the shares, DTC will surrender the
certificates to the Auction Agent for cancellation if required.
17. In the event the Issuer determines that beneficial owners of the
shares of AMPS of any series (generally, the Existing Holders as
defined in the Issuer's Charter) shall be able to obtain
certificates representing such shares of AMPS (as provided for
in the Issuer's Charter), the Issuer or the Auction Agent shall
notify DTC of the availability of share certificates
representing such shares of AMPS, as the case may be, and shall
issue, transfer and exchange such certificates as required by
DTC and others in appropriate amounts.
18. DTC may determine to discontinue providing its services as
securities depository with respect to the shares of AMPS at any
time by giving reasonable notice to the Issuer and the Auction
Agent (at which time DTC will confirm with the Auction Agent the
aggregate amount of the respective shares of AMPS outstanding).
Under such circumstances the Issuer and the Auction Agent will
cooperate with DTC in taking appropriate action to provide for a
substitute or successor securities depository or to make
available one or more separate certificates evidencing the
shares of AMPS to any DTC Participant having such shares
credited to its DTC account.
19. The Issuer hereby authorizes DTC to provide to the Auction Agent
position listings of its DTC Participants with respect to the
shares of AMPS from time to time at the request of the Auction
Agent and at DTC's customary fee, and also authorizes DTC, in
the event of a partial redemption of shares of AMPS, to provide,
and DTC hereby agrees to provide the Auction Agent, upon
request, with the names of those DTC Participants whose
positions in such shares of AMPS have been selected for
redemption by DTC. DTC agrees to use its best efforts to notify
the Auction Agent of those DTC Participants whose positions in
the shares of AMPS have been selected for redemption by DTC. The
Issuer authorizes the Auction Agent to provide DTC with such
signatures, exemplars of signatures and authorizations to act as
may be deemed necessary by DTC to permit DTC to discharge its
obligations to its DTC Participants and appropriate regulatory
authorities.
This authorization, unless revoked by the Issuer, shall continue
with respect to the shares of AMPS while any such shares are on
deposit at DTC, until and unless the Auction Agent shall no
longer be acting. In such event, the Issuer shall provide DTC
with similar evidence of the authorization of any successor
thereto so to act.
20. Nothing herein shall be deemed to require the Auction Agent to
advance funds on behalf of the Issuer.
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<PAGE>
21. A copy of the Agreement and Declaration of Trust of the Issuer
is on file with the Secretary of State of The Commonwealth of
Massachusetts and notice is hereby given that this letter has
been executed on behalf of the Issuer by an officer of the
Issuer as an officer and not individually and the obligations of
the Issuer arising out of this letter are not binding upon any
of the trustees, officers or shareholders of the Issuer
individually but are binding only upon the assets and property
of the Issuer.
Very truly yours,
MUNIYIELD PENNSYLVANIA FUND
as Issuer
By:____________________________
Title:
IBJ SCHRODER BANK & TRUST COMPANY
as Auction Agent
By:____________________________
Title:
Received and Accepted:
THE DEPOSITORY TRUST COMPANY
By:________________________________
Title:
cc: Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
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<PAGE>
EXHIBIT 14(a)
INDEPENDENT AUDITORS' CONSENT
MuniYield Pennsylvania Fund:
We consent to the use in this Pre-Effective Amendment No. 1 to Registration
Statement No. 333-88395 on Form N-14 of our report dated December 7, 1998
appearing in the Proxy Statement and Prospectus, which is a part of such
Registration Statement, and to the reference to us under the captions
"Comparison of the Funds - Financial Highlights" and "Experts" also appearing in
such Proxy Statement and Prospectus.
Deloitte & Touche LLP
Princeton, New Jersey
November 9, 1999
<PAGE>
EXHIBIT 14(b)
INDEPENDENT AUDITORS' CONSENT
MuniVest Pennsylvania Insured Fund:
We consent to the use in this Pre-Effective Amendment No. 1 to Registration
Statement No. 333-88395 on Form N-14 of our report dated December 4, 1998
appearing in the Proxy Statement and Prospectus, which is a part of such
Registration Statement, and to the reference to us under the captions
"Comparison of the Funds - Financial Highlights" and "Experts" also appearing in
such Proxy Statement and Prospectus.
Deloitte & Touche LLP
Princeton, New Jersey
November 9, 1999
