As filed with the Securities and Exchange Commission on March 15, 2000
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 POST-EFFECTIVE AMENDMENT NO. 1 / /
(check appropriate box or boxes)
------------------------
MuniYield Pennsylvania Insured 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
------------------------
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
===============================================================================
<PAGE>
This amendment consists of the following:
(1) Facing Sheet of the Registration Statement.
(2) Part C to the Registration Statement (including signature page).
The proxy Statement and Prospectus are incorporated by reference from
Pre-Effective Amendment No. 1 to this Registration Statement (File No.
333-88395) filed on November 10, 1999.
This amendment is being filed solely to file as Exhibit Nos. 12(a) and
12(b) to this Registration Statement the private letter rulings received from
the Internal Revenue Service.
<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
1(a) --Declaration of Trust of the Registrant, dated August 24, 1992.(c)
(b) --Form of Certificate of Designation creating AMPS. (c)
(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.(c)
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).(c)
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.(c)
7(a) --Form of Purchase Agreement for the AMPS.(c)
(b) --Form of Purchase Agreement for the Common Shares.(c)
(c) --Form of Merrill Lynch Standard Dealer Agreement.(c)
8 --Not applicable.
9 --Custodian Agreement between the Registrant and State Street Bank and
Trust Company.(c)
10 --Form of Dividend Reinvestment Plan.(c)
11 --Opinion and Consent of Brown & Wood LLP, counsel for the
Registrant.(c)
12(a) --Private Letter Ruling from the Internal Revenue Service on behalf
of MuniHoldings Pennsylvania Insured Fund.
(b) --Private Letter Ruling from the Internal Revenue Service on behalf of
MuniVest Pennyslvania Insured Fund.
13(a) --Transfer Agency, Dividend Disbursing Agency and Shareholder Servicing
Agency Agreement between the Registrant and State Street Bank and
Trust Company.(c)
(b) --Form of Auction Agent Agreement between the Registrant and IBJ
Whitehall Bank & Trust Company.(c)
(c) --Form of Broker-Dealer Agreement.(c)
(d) --Form of Letter of Representations.(c)
14(a) --Consent of Deloitte & Touch LLP, independent auditors for the
Registrant.(c)
(b) --Consent of Deloitte & Touch LLP, independent auditors
for MuniVest Pennsylvania Insured Fund.(c)
15 --Not applicable.
16 --Power of Attorney (Included on the signature page of this
Registration Statement).
- ----------
(a) Filed on October 4, 1999 as an Exhibit to Registrant's Registration
Statement on Form No. 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) Filed on November 10, 1999 as an Exhibit to Pre-effective Amendment
No. 1 to the Registrant's Registration Statement on Form N-14
(File No. 333-88395).
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.
<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 the State of New Jersey, on the 15th day of March, 2000.
MUNIYIELD PENNSYLVANIA INSURED FUND
(Registrant)
By /s/ Donald C. Burke
----------------------------------------
(Donald C. Burke, Vice President
and Treasurer)
As required by the Securities Act, this Registration Statement has been
signed below by the following persons in the capacities and on the date(s)
indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
Signature Title Date
TERRY K. GLENN* President and Trustee
- ----------------------------------------
(Terry K. Glenn) (Principal Executive Officer)
DONALD C. BURKE* Vice President and Treasurer
- ----------------------------------------
(Donald C. Burke) (Principal Financial
and Accounting Officer)
LAURIE SIMON HODRICK* Trustee
- ----------------------------------------
(Laurie Simon Hodrick)
M. COLYER CRUM* Trustee
- ----------------------------------------
(M. Colyer Crum)
JACK B. SUNDERLAND* Trustee
- ----------------------------------------
(Jack B. Sunderland)
J. THOMAS TOUCHTON* Trustee
- ----------------------------------------
(J. Thomas Touchton)
FRED G. WEISS* Trustee
- ----------------------------------------
(Fred G. Weiss)
ARTHUR ZEIKEL* Trustee
- ----------------------------------------
(Arthur Zeikel)
*By: /s/ DONALD C. BURKE March 15, 2000
- ----------------------------------------
(Donald C. Burke, Attorney-in-Fact)
</TABLE>
<PAGE>
Exhibits
Exhibit
No. Description
12(a) -- Private Letter Ruling from the Internal Revenue Service on behalf of
MuniHoldings Pennsylvania Insured Fund.
(b) -- Private Letter Ruling from the Internal Revenue Service on behalf of
MuniVest Pennsylvania Insured Fund.
<PAGE>
Internal Revenue Service Department of the Treasury
Index Number: 368-03-00 Washington, DC 20224
Donald C. Burke Person to Contact
Vice President and Treasurer Christopher M. Bass - 50-08512
MuniYield Pennsylvania Fund Telephone Number:
800 Scudders Mill Road (202) 622-7770
Plainsboro, NJ 08536 Refer Reply To:
CC:DOM:CORP:2-PLR-116162-99
Date:
February 17, 2000
Legend:
Acquiring = MuniYield Pennsylvania Fund
a Massachusetts Corporation
EIN: 22-3199516
Target Fund = MuniHoldings Pennsylvania Insured Fund
a Massachusetts Corporation
EIN: 22-3636380
State X = Massachusetts
State Y = Pennsylvania
Dear Mr. Burke:
This letter responds to your representative's September 24, 1999 request
for rulings under Section 368(a)(1)(C) of the Internal Revenue Code on behalf
of the above-captioned taxpayers. Additional information with respect to the
proposed transaction was submitted in letters dated December 10, 1999 and
January 12, 2000. The information submitted for consideration is summarized
below.
Acquiring is organized under the laws of State X and registered under the
Investment Company Act of 1940 (the "1940 Act") as a non-diversified,
closed-end management investment company. Acquiring has elected to be taxed as
a regulated investment company ("RIC") under Sections 851-855 of the Internal
Revenue Code (the "Code"). Acquiring's investment objective is to provide
shareholders with high income exempt from Federal income tax and State Y
personal income taxes. Acquiring 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 State Y, 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 income tax and State Y personal income taxes. Acquiring currently has
outstanding voting common stock and one series of voting preferred stock.
Target Fund was organized under the laws of State X and will elect to be
taxed as a RIC under Sections 851-855 of the Code. Like Acquiring, Target
Fund's investment objective is to provide shareholders with current income
exempt from Federal income tax and State Y personal income taxes. Target Fund
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 State Y, 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 income tax and State Y
personal income taxes. Target Fund currently has outstanding voting common
stock and one series of voting preferred stock.
Acquiring and Target Fund have entered into an agreement and plan of
reorganization for what are represented to be valid business reasons. Pursuant
to the agreement, the transaction consists of the following steps:
(1) Target Fund will transfer all of its assets and liabilities to
Acquiring in exchange for an equal value of newly issued Acquired
common voting stock and non-qualified preferred stock.
(2) Target Fund will distribute to their shareholders all of the
Acquiring stock received in the transaction. Each Target Fund
shareholder will receive shares of Acquiring on a pro rata basis.
(3) Target Fund will liquidate and dissolve in accordance with the laws
of State X, and terminate its registration under the 1940 Act.
The following representations have been made in connection with the
proposed transaction:
(a) The fair market value of the Acquiring stock received by Target Fund
shareholders will be approximately equal to the fair market value of the
Target Fund stock surrendered in the exchange.
(c) Acquiring will acquire at least 90 percent of the fair market value of the
net assets and at least 70 percent of the fair market value of the gross
assets held by Target Fund immediately prior to the Reorganization. For
purposes of this representation, amounts paid by Target Fund to dissenters,
amounts used by Target Fund to pay its reorganization expenses, amounts paid
by Target Fund to shareholders who receive cash or other property, and all
redemptions and distributions (except for redemptions in the ordinary course
of Target Fund's business as an closed-end investment company as required by
Section 22(e) of the 1940 Act pursuant to a demand of a shareholder and
regular, normal dividends) made by Target Fund immediately preceding the
transfer will be included as assets of Target Fund held immediately prior to
the transaction.
(d) Acquiring has no plan or intention to reacquire any of its stock issued
in the transaction.
(e) Acquiring has no plan or intention to sell or otherwise dispose of any of
the assets of Target Fund acquired in the transaction, except for dispositions
made in telecommunications ordinary course of business or transfers described
in section 368(a)(2)(C) of the Code.
(f) Target Fund will distribute to its shareholders the stock of Acquiring
received pursuant to the Plan of Reorganization.
(g) The liabilities of Target Fund assumed by Acquiring and any liabilities to
which the transferred assets of Target Fund are subject were incurred by
Target Fund in the ordinary course of its business.
(h) Following the Reorganization, Acquiring will continue the historic
business of Target Fund or use a significant portion of Target Fund's historic
business assets in the continuing business.
(i) Target Fund, Acquiring and the shareholders of Target Fund will pay their
respective expenses, if any, incurred in connection with the Reorganization.
(j) There is no intercorporate indebtedness existing between Target Fund and
Acquiring that was issued, acquired, or will be settled at a discount.
(k) Target Fund and Acquiring qualify as a regulated investment company as
defined in section 368(a)(2)(F)(i) and (ii) of the Code.
(l) The fair market value of the assets of Target Fund transferred to
Acquiring will equal or exceed the sum of the liabilities assumed by
Acquiring.
(m) Acquiring does not own, directly or indirectly, nor has it owned during
the past five years, directly or indirectly, any stock of Target Fund.
(n) Cash is being distributed to shareholders of Target Fund in lieu of
fractional shares of Acquiring solely to save Acquiring the expense and
inconvenience of issuing and transferring fractional shares, and such cash
does not represent separately bargained for consideration in the
Reorganization. The total cash consideration that will be paid in each
transaction between Acquiring and Target Fund to the Target Fund shareholders
instead of issuing fractional shares of Acquiring stock will not exceed one
percent of the total consideration that will be issued in the transaction to
Target Fund shareholders in exchange for their shares of Target Fund stock.
The fractional share interests of each shareholder of Target Fund will be
aggregated, and no Target shareholder will receive cash in an amount equal to
or greater than the value of one full share of Acquiring stock.
(o) Target Fund is not under the jurisdiction of a court in a Title 11 or
similar case within the meaning of section 368(a)(3)(A).
(p) Target Fund and Acquiring have elected to be taxed as RICs under Section
851, and for all of their taxable periods (including the last short taxable
period ending on the date of Reorganization for Target Fund), have qualified
for the special tax treatment afforded RICs under the Code. After the
Reorganization, Acquiring intends to continue to so qualify.
(q) There is no plan or intention by Acquiring or any person related (as
defined in Section 1.368-1(e)(3)) to Acquiring to acquire any of the stock of
Acquiring issued in the transaction either directly or through any
transaction, agreement, or arrangement with any other person.
(r) During the five-year period ending on the date of the proposed
transaction, Target Fund nor any person related to Target Fund (as defined in
Section 1.368-1(e)(3) of the Income Tax Regulations without regard to Section
1.368-1(e)(3)(i)(A)) will have directly or through any transaction, agreement,
or arrangement with any other person, (i) acquired stock of Target Fund with
consideration other than shares of Acquiring or Target Fund, or (ii) made
distributions with respect to Target Fund stock, except for (a) distributions
described in Sections 852 and 4982 of the Code, and (b) additional
distributions, to the extent such distributions do not exceed 50 percent of
the value (without giving effect to such distributions) of the proprietary
interest in Target Fund on the effective date of the proposed transaction.
(s) Prior to or in the transaction, neither Acquiring nor any person related
to Acquiring (as defined in 1.368-1(e)(3)) will have acquired directly or
through any transaction, agreement or arrangement with any other person, stock
of Target Fund with consideration other than shares of Acquiring.
(t) Acquiring and Target Fund is incorporated under the laws of State X and is
registered under the Investment Company Act of 1940 ("1940 Act") as
non-diversified, leveraged closed-end investment companies. Non-Diversified
within the meaning of the 1940 Act means that investment companies are not
limited in the proportion of assets that they may invest in the securities of
a single issuer. Acquiring and the Target Fund are, however, managed so as to
meet the diversification requirements of Section 851(b)(3) of the Code and
qualify for tax treatment as RICs.
(u) There is no plan or intention for Acquiring (the issuing corporation as
defined in Section 1.368-1(b)), or any person related (as defined in Section
1.368-1(e)(3)) to Acquiring, to acquire, during the five year period beginning
on the date of the proposed transaction, with consideration other than
Acquiring stock, Acquiring stock furnished in exchange for a proprietary
interest in Target Fund in the proposed transaction, either directly or
through any transaction, agreement, or arrangement with any other person,
except for cash distributed to the Target Fund's common shareholders in lieu
of fractional shares of Acquiring common stock.
(v) During the five year period ending on the date of the proposed
transaction: (i) neither Acquiring, nor any person related (as defined in
Section 1.368-1(e)(3)) to Acquiring, will have acquired Target Fund's stock
with consideration other than Acquiring stock; (ii) Target Fund, nor any person
related (as defined in Section1.368-1(e)(3) determined without regard to Section
1.368-1(e)(3)(i)(A)) to Target Fund, will have acquired such Target Fund's
stock with consideration other than Acquiring stock or Target Fund's stock;
and (iii) no distributions will have been made with respect to Target Fund's
stock (other than ordinary, normal, regular, dividend distributions made
pursuant to target's historic dividend paying practice), either directly or
through any transaction, agreement, or arrangement with any other person,
except for (a) cash paid to dissenters and (b) distributions described in
Sections 852 and 4982 of the Code, as required for Target Fund's tax treatment
as a RIC.
(w) The aggregate value of the acquisitions, redemptions and distributions
discussed in paragraphs (u) and (v), above, will not exceed 50 percent of the
value (without giving effect to the acquisitions, redemptions and
distributions) of the proprietary interest in Target Fund on the effective
date of the proposed transaction.
(x) The Acquiring preferred stock received by Target Fund preferred
stockholders will be substantially identical (as defined in Prop. Treas. Reg.
Section 1.356-7(b)(2), 65 Fed. Reg. 4203 (2000)) to the Target Fund preferred
stock surrendered in exchange therefor.
(y) Target Fund represents that at the time of incorporation, there was no
plan or intent to sell or otherwise dispose of its assets except in the
ordinary course of business.
Based solely upon the information and representations set forth above, we
hold as follows:
(1) The acquisition by Acquiring of substantially all of the assets of
Target Fund solely for Acquiring voting stock and the assumption by
Acquiring of the liabilities of Target Fund, as described above, will
qualify as a reorganization within the meaning of Section 368(a)(1)(C) of
the Code. "Substantially all" means at least 90% of the fair market
value of the net assets and at least 70% of the fair market value of
the gross assets of Target Fund. Acquiring and Target Fund will each
be "a party to a reorganization" within the meaning of Section 368(b).
(2) No gain or loss will be recognized by Target Fund upon the transfer
of substantially all of its assets to Acquiring solely in exchange
for Acquiring voting common stock (Section 361(a)).
(3) No gain or loss will be recognized by Target Fund upon the
distribution of such Acquiring stock to Target Fund shareholders (Section
361(c)).
(4) Acquiring will not recognize any gain or loss on the receipt of the
assets of Target Fund in exchange for voting shares of Acquiring (Section
1032(a)).
(5) The basis of Target Fund assets in the hands of Acquiring will be the
same as the basis of those assets in the hands of Target Fund
immediately prior to the exchange (Section 362(b)).
(6) The holding period of Target Fund assets in the hands of Acquiring
will include the period during which such assets were held by Target
Fund (Section 1223(2)).
(7) The common and preferred shareholders of Target Fund will not
recognize any gain or loss on their receipt of common and preferred
stock of Acquiring (including fractional share interests to which
they may be entitled) solely in exchange for their Target Fund
shares, as described above (Section354 (a)(1)).
(8) The basis of the Acquiring shares (including fractional share
interests to which they may be entitled) received by Target Fund
shareholders will be the same as the basis of the Target Fund shares
surrendered in exchange therefor (Section 358(a)(1)).
(9) The holding period of the Acquiring shares (including fractional
share interests to which they may be entitled) received by Target
Fund shareholders in exchange for their Target Fund shares will
include the period during which the exchanged Target Fund shares were
held, provided that the Target Fund shares are held as a capital
asset in the hands of the Target Fund shareholders on the date of the
exchange (Section 1223(l)).
(10) The payment of cash to Target Fund shareholders in lieu of fractional
shares of Acquiring will be treated as though the fractional shares
were distributed as part of the Reorganization and then redeemed by
Acquiring. The cash payment will be treated as a distribution in full
payment for the fractional shares deemed redeemed under Section 302(a),
with the result that Target Fund shareholders will have short-term or
long-term capital gain or loss to the extent that the cash
distribution differs from the basis allocable to their fractional
shares.
(11) Pursuant to Section 381(b) of the Code and Section 1.381(a)-1 of the
Income Tax Regulations, the tax year of Target Fund will end on the
effective date of the transfer.
(12) Acquiring will succeed to and take into account the items of Target
Fund described in Section 381(c) of the Code, subject to the provisions
and limitations specified in Sections 381, 382, 383 and 384 of the
Code and the regulations thereunder.
No opinion is expressed about the federal income tax treatment of the
proposed transaction under other provisions of the Code and regulations or
about the tax treatment of any conditions existing at the time of, or effects
resulting from, the proposed transaction that are not specifically covered by
the above rulings.
Except as expressly provided herein, no opinion is expressed or implied
concerning the tax consequences of any aspect of any transaction or item
discussed or referenced in this letter. Specifically, no opinion was
requested, and none is expressed, about whether Acquiring or Target Fund
qualify as RICs that are taxable under Subchapter M, Part I of the Code.
This ruling is directed only to the taxpayer(s) requesting it. Section
6110(k)(3) of the Code provides that it may not be used or cited as precedent.
In accordance with the Power of Attorney on file with this office, a copy
of this letter is being sent to your authorized representative.
A copy of this letter must be attached to any income tax return to which
it is relevant.
Sincerely,
Assistant Chief Counsel (Corporate)
By: /s/ Lewis K. Brickater
-----------------------------------------
Lewis K Brickates
Assistant to Chief, Branch 2
<PAGE>
PLR-116161-990
cc: Thomas A. Humphreys
Brown & Wood LLP
1 World Trade Center
New York, NY 10048
District Director, New Jersey
Chief, Examinations Division
<PAGE>
Internal Revenue Service Department of the Treasury
Index Number: 368-03-00 Washington, DC 20224
Donald C. Burke Person to Contact
Vice President and Treasurer Christopher M. Bass - 50-08512
MuniYield Pennsylvania Fund Telephone Number:
800 Scudders Mill Road (202) 622-7770
Plainsboro, NJ 08536 Refer Reply To:
CC:DOM:CORP:2-PLR-116161-99
Date:
February 17, 2000
Legend:
Acquiring = MuniYield Pennsylvania Fund
a Massachusetts Corporation
EIN: 22-3199516
Target Fund = MuniVest Pennsylvania Insured Fund
a Massachusetts Corporation
EIN: 22-3246525
State X = Massachusetts
State Y = Pennsylvania
Dear Mr. Burke:
This letter responds to your representative's September 24, 1999 request
for rulings under Section368(a)(1)(C) of the Internal Revenue Code on behalf
of the above-captioned taxpayers. Additional information with respect to the
proposed transaction was submitted in letters dated December 10, 1999 and
January 12, 2000. The information submitted for consideration is summarized
below.
Acquiring is organized under the laws of State X and registered under the
Investment Company Act of 1940 (the "1940 Act") as a non-diversified,
closed-end management investment company. Acquiring has elected to be taxed as
a regulated investment company ("RIC") under Sections 851-855 of the Internal
Revenue Code (the "Code"). Acquiring's investment objective is to provide
shareholders with high income exempt from Federal income tax and State Y
personal income taxes. Acquiring 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 State Y, 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 income tax and State Y personal income taxes. Acquiring currently has
outstanding voting common stock and one series of voting preferred stock.
Target Fund is organized under the laws of State X and registered under
the Investment Company Act of 1940 (the "1940 Act") as a non-diversified,
closed-end management investment company. Target Fund has elected to be taxed
as a RIC under Sections 851-855 of the Code. Like Acquiring, Target Fund's
investment objective is to provide shareholders with current income exempt
from Federal income tax and State Y personal income taxes. Target Fund 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
State Y, 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 income tax and State Y personal
income taxes. Target Fund currently has outstanding voting common stock and
one series of voting preferred stock.
Acquiring and Target Fund have entered into an agreement and plan of
reorganization for what are represented to be valid business reasons. Pursuant
to the agreement, the transaction consists of the following steps:
(1) Target Fund will transfer all of its assets and liabilities to
Acquiring in exchange for an equal value of newly issued Acquired
common voting stock and nonqualified preferred stock.
(2) Target Fund will distribute to their shareholders all of the
Acquiring stock received in the transaction. Each Target Fund
shareholder will receive shares of Acquiring on a pro rata basis.
(3) Target Fund will liquidate and dissolve in accordance with the laws
of State X, and terminate its registration under the 1940 Act.
The following representations have been made in connection with the
proposed transaction:
(a) The fair market value of the Acquiring stock received by Target Fund
shareholders will be approximately equal to the fair market value of the
Target Fund stock surrendered in the exchange.
(c) Acquiring will acquire at least 90 percent of the fair market value of the
net assets and at least 70 percent of the fair market value of the gross
assets held by Target Fund immediately prior to the Reorganization. For
purposes of this representation, amounts paid by Target Fund to dissenters,
amounts used by Target Fund to pay its reorganization expenses, amounts paid
by Target Fund to shareholders who receive cash or other property, and all
redemptions and distributions (except for redemptions in the ordinary course
of Target Fund's business as an closed-end investment company as required by
Section22(e) of the 1940 Act pursuant to a demand of a shareholder and regular,
normal dividends) made by Target Fund immediately preceding the transfer will
be included as assets of Target Fund held immediately prior to the
transaction.
(d) Acquiring has no plan or intention to reacquire any of its stock issued in
the transaction.
(e) Acquiring has no plan or intention to sell or otherwise dispose of any of
the assets of Target Fund acquired in the transaction, except for dispositions
made in the ordinary course of business or transfers described in section
368(a)(2)(C) of the Code.
(f) Target Fund will distribute to its shareholders the stock of Acquiring
received pursuant to the Plan of Reorganization.
(g) The liabilities of Target Fund assumed by Acquiring and any liabilities to
which the transferred assets of Target Fund are subject were incurred by
Target Fund in the ordinary course of its business.
(h) Following the Reorganization, Acquiring will continue the historic
business of Target Fund or use a significant portion of Target Fund's historic
business assets in the continuing business.
(i) Target Fund, Acquiring and the shareholders of Target Fund will pay their
respective expenses, if any, incurred in connection with the Reorganization.
(j) There is no intercorporate indebtedness existing between Target Fund and
Acquiring that was issued, acquired, or will be settled at a discount.
(k) Target Fund and Acquiring qualify as a regulated investment companies as
defined in section 368(a)(2)(F)(i) and (ii) of the Code.
(l) The fair market value of the assets of Target Fund transferred to
Acquiring will equal or exceed the sum of the liabilities assumed by
Acquiring,
(m) Acquiring does not own, directly or indirectly, nor has it owned during
the past five years, directly or indirectly, any stock of Target Fund.
(n) Cash is being distributed to shareholders of Target Fund in lieu of
fractional shares of Acquiring solely to save Acquiring the expense and
inconvenience of issuing and transferring fractional shares, and such cash
does not represent separately bargained for consideration in the
Reorganization. The total cash consideration that will be paid in each
transaction between Acquiring and Target Fund to the Target Fund shareholders
instead of issuing fractional shares of Acquiring stock will not exceed one
percent of the total consideration that will be issued in the transaction to
Target Fund shareholders in exchange for their shares of Target Fund stock.
The fractional share interests of each shareholder of Target Fund will be
aggregated, and no Target shareholder will receive cash in an amount equal to
or greater than the value of one full share of Acquiring stock.
(o) Target Fund is not under the jurisdiction of a court in a Title 11 or
similar case within the meaning of section 368(a)(3)(A).
(p) Target Fund and Acquiring have elected to be taxed as RICs under Section
851, and for all of their taxable periods (including the last short taxable
period ending on the date of Reorganization for Target Fund), have qualified
for the special tax treatment afforded RICs under the Code. After the
Reorganization, Acquiring intends to continue to so qualify.
(q) There is no plan or intention by Acquiring or any person related (as
defined in Section1.368-1 (e)(3)) to Acquiring to acquire any of the stock of
Acquiring issued in the transaction either directly or through any
transaction, agreement, or arrangement with any other person.
(r) During the five-year period ending on the date of the proposed
transaction, Target Fund nor any person related to Target Fund (as defined in
Section1.368-1(e)(3) of the Income Tax Regulations without regard to section
1.368-1(e)(3)(i)(A)) will have directly or through any transaction, agreement,
or arrangement with any other person, (i) acquired stock of Target Fund with
consideration other than shares of Acquiring or Target Fund, or (ii) made
distributions with respect to Target Fund stock, except for (a) distributions
described in Sections 852 and 4982 of the Code, and (b) additional
distributions, to the extent such distributions do not exceed 50 percent of
the value (without giving effect to such distributions) of the proprietary
interest in Target Fund on the effective date of the proposed transaction.
(s) Prior to or in the transaction, neither Acquiring nor any person related
to Acquiring (as defined in 1.368-1(e)(3)) will have acquired directly or
through any transaction, agreement or arrangement with any other person, stock
of Target Fund with consideration other than shares of Acquiring.
(t) Acquiring and Target Fund is incorporated under the laws of State X and is
registered under the Investment Company Act of 1940 (" 1940 Act") as
non-diversified, leveraged closed-and investment companies. Non-Diversified
within the meaning of the 1940 Act means that investment companies are not
limited in the proportion of assets that they may invest in the securities of
a single issuer. Acquiring and the Target Fund are, however, managed so as to
meet the diversification requirements of Section 851(b)(3) of the Code and
qualify for tax treatment as RICs.
Target Funds and Acquiring have elected to be taxed as RICs under Section 851,
and for all of their taxable periods (including the last short taxable period
ending on the date of Reorganization, for each Target Fund), have qualified
for the special tax treatment afforded RICs under the Code. After the
Reorganization, Acquiring intends to continue to so qualify.
There is no plan or intention by Acquiring or any person related (as defined
in Section 1.368-1(e)(3)) to Acquiring to acquire any of the stock of Acquiring
issued in the transaction either directly or through any transaction,
agreement, or arrangement with any other person.
During the five-year period ending on the date of the proposed transaction, no
Target Fund nor any person related to a Target Fund (as defined in ss.
1.368-1(e)(3) of the Income Tax Regulations without regard to section
1.368-1(e)(3)(i)(A)) will have directly or through any transaction, agreement,
or arrangement with any other person, (i) acquired stock of a Target Fund with
consideration other than shares of Acquiring or the respective Target Fund, or
(ii) made distributions with respect to Target Fund stock, except for (a)
distributions described in Sections 852 and 4982 of the Code, and (b)
additional distributions, to the extent such distribution do not exceed 50
percent of the value (without giving effect to such distributions) of the
proprietary interest in the particular Target Fund on the effective date of
the proposed transaction.
Prior to or in the transaction, neither Acquiring nor any person related to
Acquiring (as defined in 1.368-1(e)(3)) will have acquired directly or through
any transaction, agreement or arrangement with any other person, stock of a
Target Fund with consideration other than shares of Acquiring.
Acquiring and Target Funds are incorporated under the laws of State X and are
registered under the Investment Company Act of 1940 ("1940 Act") as
non-diversified, leveraged closed-end investment companies. Non-Diversified
within the meaning of the 1940 Act means that Funds are not limited in the
proportion of assets that they may invested in the securities of a single
issuer. Acquiring and the Target Funds are, however, managed so as to meet the
diversification requirements of Section851(b)(3) of the Code and qualify for
tax treatment as RICs
There is no plan or intention for Acquiring (the issuing corporation as
defined in Section 1.368-1(b)), or any person related (as defined in Section
1.368-1(e)(3)) to Acquiring, to acquire, during the five year period beginning
on the date of the proposed transaction, with consideration other than
Acquiring stock, Acquiring stock furnished in exchange for a proprietary
interest in a Target Fund in the proposed transaction, either directly or
through any transaction, agreement, or arrangement with any other person,
except for cash distributed to the Target Fund's common shareholders in lieu
of fractional shares common stock (Section 361(a)).
(3) No gain or loss will be recognized by Target Fund upon the
distribution of such Acquiring stock to Target Fund shareholders (Section
361(c)).
(4) Acquiring will not recognize any gain or loss on the receipt of the
assets of Target Fund in exchange for voting shares of Acquiring (Section
1032(a)).
(5) The basis of Target Fund assets in the hands of Acquiring will be the
same as the basis of those assets in the hands of Target Fund
immediately prior to the exchange (Section 362(b)).
(6) The holding period of Target Fund assets in the hands of Acquiring
will include the period during which such assets were held by Target
Fund (Section 1223(2)).
(7) The common and preferred shareholders of Target Fund will not
recognize any gain or loss on their receipt of common and preferred
stock of Acquiring (including fractional share interests to which
they may be entitled) solely in exchange for their Target Fund
shares, as described above (Section 354(a)(1)).
(8) The basis of the Acquiring shares (including fractional share
interest's to which they may be entitled) received by Target Fund
shareholders will be the same as the basis of the Target Fund shares
surrendered in exchange therefor (Section 358(a)(1)).
(9) The holding period of the Acquiring shares (including fractional
share interests to which they may be entitled) received by Target
Fund shareholders in exchange for their Target Fund shares will
include the period during which the exchanged Target Fund shares were
held, provided that the Target Fund shares are held as a capital
asset in the hands of the Target Fund shareholders on the date of the
exchange (Section 1223(l)).
(10) The payment of cash to Target Fund shareholders in lieu of fractional
shares of Acquiring will be treated as though the fractional shares
were distributed as part of the Reorganization and then redeemed by
Acquiring. The cash payment will be treated as a distribution in full
payment for the fractional shares deemed redeemed under Section302(a)
with the result that Target Fund shareholders will have short-term or
long-term capital gain or loss to the extent that the cash
distribution differs from the basis allocable to their fractional
shares.
(11) Pursuant to Section 381(b) of the Code and Section 1.381(a)-1 of the
Income Tax Regulations, the tax year of Target Fund will end on the
effective date of the transfer.
(12) Acquiring will succeed to and take into account the items of Target
Fund described in Section 381(c) of the Code, subject to the provisions
and limitations specified in Sections 381, 382, 383 and 384 of the
Code and the regulations thereunder.
No opinion is expressed about the federal income tax treatment of the
proposed transaction under other provisions of the Code and regulations or
about the tax treatment of any conditions existing at the time of, or effects
resulting from, the proposed transaction that are not specifically covered by
the above rulings.
Except as expressly provided herein, no opinion is expressed or implied
concerning the tax consequences of any aspect of any transaction or item
discussed or referenced in this letter. Specifically, no opinion was
requested, and none is expressed, about whether Acquiring or Target Fund
qualify as RICs that are taxable under Subchapter M, Part I of the Code.
This ruling is directed only to the taxpayer(s) requesting it. Section
6110(k)(3) of the Code provides that it may not be used or cited as precedent.
In accordance with the Power of Attorney on file with this office, a copy
of this letter is being sent to your authorized representative.
A copy of this letter must be attached to any income tax return to which
it is relevant.
Sincerely,
Assistant Chief Counsel (Corporate)
By: /s/ Lewis K. Brickates
----------------------------------------
Lewis K Brickates
Assistant to Chief, Branch 2
PLR-116161-990
cc: Thomas A. Humphreys
Brown & Wood LLP
1 World Trade Center
New York, NY 10048
District Director, New Jersey
Chief, Examinations Division
<PAGE>
cc: Thomas A. Humphreys
Brown & Wood LLP
1 World Trade Center
New York, NY 10048
District Director, New Jersey
Chief, Examinations Division
