-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ONKSU9knwlUAuoQsEC8oiQE1a73suNDazfn3HxuGT6iGh/2F/Cg8kKm/OApuxDAA kBjRx8srUcu4MDDRAHsLZg== 0000950130-99-006240.txt : 19991110 0000950130-99-006240.hdr.sgml : 19991110 ACCESSION NUMBER: 0000950130-99-006240 CONFORMED SUBMISSION TYPE: N-14 8C/A PUBLIC DOCUMENT COUNT: 18 FILED AS OF DATE: 19991109 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MUNIYIELD NEW YORK INSURED FUND INC CENTRAL INDEX KEY: 0000882150 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 223144223 STATE OF INCORPORATION: NJ FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: N-14 8C/A SEC ACT: SEC FILE NUMBER: 333-88423 FILM NUMBER: 99744488 BUSINESS ADDRESS: STREET 1: 800 SCUDDERS MILL RD CITY: PLAINSBORO STATE: NJ ZIP: 08536 BUSINESS PHONE: 6092822800 MAIL ADDRESS: STREET 1: PO BOX 9011 STREET 2: C/O MERRILL LYNCH ASSET MANAGEMENT CITY: PRINCETON STATE: NJ ZIP: 08543-9011 FORMER COMPANY: FORMER CONFORMED NAME: NEW YORK MUNIYIELD FUND INC DATE OF NAME CHANGE: 19600201 N-14 8C/A 1 MUNIYIELD NEW YORK INSURED FUND, INC. As filed with the Securities and Exchange Commission on November 9, 1999 Securities Act File No. 333-88423 Investment Company Act File No. 811-6500 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------------- FORM N-14 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 --------------- POST-EFFECTIVE AMENDMENT NO. [_] PRE-EFFECTIVE AMENDMENT NO. 1 [X] (check appropriate box or boxes) --------------- MuniYield New York Insured Fund, Inc. (Exact Name of Registrant as Specified in its Charter) --------------- (609) 282-2800 (Area Code and Telephone Number) --------------- 800 Scudders Mill Road Plainsboro, New Jersey 08536 (Address of Principal Executive Offices: Number, Street, City, State, Zip Code) --------------- Terry K. Glenn MuniYield New York Insured Fund, Inc. 800 Scudders Mill Road, Plainsboro, New Jersey 08536 Mailing Address: P.O. Box 9011, Princeton, New Jersey 08543-9011 (Name and Address of Agent for Service) --------------- Copies to: Michael J. Hennewinkel, Esq. Frank P. Bruno, Esq. MERRILL LYNCH ASSET MANAGEMENT, L.P. BROWN & WOOD LLP 800 Scudders Mill Road One World Trade Center Plainsboro, NJ 08536 New York, NY 10048-0557 --------------- 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 - -------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------
Proposed Proposed Maximum Maximum Amount Being Offering Price Aggregate Amount of Title of Securities Being Registered Registered(1) Per Unit(1) Offering Price(1) Registration Fee(3) - -------------------------------------------------------------------------------------------------------- Common Stock ($.10 par value)................ 29,831,900 $13.60 $405,713,840 $112,789 - -------------------------------------------------------------------------------------------------------- Auction Market Preferred Stock, Series C....... 2,800 $ 25,000(2) $ 70,000,000 $ 19,460 - -------------------------------------------------------------------------------------------------------- Auction Market Preferred Stock, Series D....... 1,960 $ 25,000(2) $ 49,000,000 $ 13,622 - -------------------------------------------------------------------------------------------------------- Auction Market Preferred Stock, Series E....... 2,200 $ 25,000(2) $ 55,000,000 $ 15,290 - -------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------
(1) Estimated solely for the purpose of calculating the filing fee. (2) Represents the liquidation preference of a share of preferred stock after the reorganization. (3) Previously paid by wire transfer to the designated lockbox of the Securities and Exchange Commission in Pittsburgh, Pennsylvania. The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- MUNIYIELD NEW YORK INSURED FUND, INC. MUNIYIELD NEW YORK INSURED FUND II, INC. P.O. Box 9011 Princeton, New Jersey 08543-9011 --------------- NOTICE OF SPECIAL MEETINGS OF STOCKHOLDERS OF MUNIYIELD NEW YORK INSURED FUND, INC. AND MUNIYIELD NEW YORK INSURED FUND II, INC. --------------- TO BE HELD ON DECEMBER 15, 1999 TO THE STOCKHOLDERS OF MUNIYIELD NEW YORK INSURED FUND, INC. MUNIYIELD NEW YORK INSURED FUND II, INC. NOTICE IS HEREBY GIVEN that the special meetings of the stockholders (the "Meetings") of MuniYield New York Insured Fund, Inc. ("New York Insured") and MuniYield New York Insured Fund II, Inc. ("New York Insured II") will be held at the offices of Merrill Lynch Asset Management, L.P., 800 Scudders Mill Road, Plainsboro, New Jersey on Wednesday, December 15, 1999 at 3:45 p.m. Eastern time (for New York Insured) and 4:00 p.m. Eastern time (for New York Insured II) 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 New York Insured II by New York Insured, in exchange solely for an equal aggregate value of newly-issued shares of Common Stock of New York Insured ("New York Insured Common Stock"), shares of three newly-created series of Auction Market Preferred Stock ("AMPS") of New York Insured to be designated Series C ("New York Insured Series C AMPS"), Series D ("New York Insured Series D AMPS") and Series E ("New York Insured Series E AMPS"); (ii) the issuance of three new series of AMPS of MuniYield New York to be designated Series C, Series D and Series E; and (iii) the distribution by New York Insured II of the New York Insured Common Stock to the holders of Common Stock of New York Insured II, such New York Insured Series C AMPS to the holders of Series A AMPS of New York Insured II, the New York Insured Series D AMPS to the holders of Series B AMPS of New York Insured II and the New York Insured Series E AMPS to the holders of Series C and Series D AMPS of New York Insured II. A vote in favor of this proposal also will constitute a vote in favor of the liquidation and dissolution of New York Insured II and the termination of its registration under the Investment Company Act of 1940; (2) To transact such other business as properly may come before the Meetings or any adjournment thereof. The Boards of Directors of New York Insured and New York Insured II have fixed the close of business on October 20, 1999 as the record date for the determination of stockholders entitled to notice of, and to vote at, the Meetings or any adjournment thereof. A complete list of the stockholders of New York Insured and New York Insured II entitled to vote at the Meetings will be available and open to the examination of any stockholder of New York Insured or New York Insured II, respectively, for any purpose germane to the Meetings during ordinary business hours from and after December 1, 1999, at the offices of New York Insured, 800 Scudders Mill Road, Plainsboro, New Jersey. You are cordially invited to attend the Meetings. Stockholders who do not expect to attend the Meetings in person are requested to complete, date and sign the enclosed form of proxy applicable to their fund and return it promptly in the envelope provided for that purpose. The enclosed proxy is being solicited on behalf of the Board of Directors of New York Insured or New York Insured II, as applicable. By Order of the Boards of Directors Alice A. Pellegrino Secretary of MuniYield New York Insured Fund, Inc. and MuniYield New York Insured Fund II, Inc. Plainsboro, New Jersey Dated: November 9, 1999 ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ + + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ PROXY STATEMENT AND PROSPECTUS MUNIYIELD NEW YORK INSURED FUND, INC. MUNIYIELD NEW YORK INSURED FUND II, INC. P.O. Box 9011, Princeton, New Jersey 08543-9011 (609) 282-2800 ----------- SPECIAL MEETINGS OF STOCKHOLDERS OF MUNIYIELD NEW YORK INSURED FUND, INC. AND MUNIYIELD NEW YORK INSURED FUND II, INC. ----------- DECEMBER 15, 1999 This Joint Proxy Statement and Prospectus is furnished to you as a stockholder of one of the funds listed above. A Special Meeting of the stockholders of each of these funds will be held on December 15, 1999 (the "Meetings") to consider the items that are listed below and discussed in greater detail elsewhere in this Proxy Statement and Prospectus. The Board of Directors of each fund is requesting its stockholders to submit a proxy to be used at the Meetings to vote the shares held by the stockholder submitting the proxy. The proposals to be considered at the Meetings are: 1.To approve or disapprove an Agreement and Plan of Reorganization between the funds; and 2.To transact such other business as may properly come before the Meetings or any adjournment thereof. The Agreement and Plan of Reorganization that you are being asked to consider involves a transaction that will be referred to in this Proxy Statement and Prospectus as the Reorganization. The Reorganization involves the combination of the two funds into one. The two funds are: MuniYield New York Insured Fund, Inc. ("New York Insured"), which will be the surviving fund; and MuniYield New York Insured Fund II, Inc. ("New York Insured II") New York Insured and New York Insured II are sometimes referred to herein collectively as the "Funds" and individually as a "Fund," each as applicable and each as the context requires. (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 New York Insured in connection with the issuance of New York Insured Common Stock and three newly-created series of New York Insured AMPS in the Reorganization. The Proxy Statement and Prospectus sets forth information about New York Insured and New York Insured II that stockholders of the Funds should know before considering the Reorganization and should be retained for future reference. Each of the Funds has authorized the solicitation of proxies in connection with the Reorganization solely on the basis of this Proxy Statement and Prospectus and the accompanying documents. The address of the principal executive offices of New York Insured and New York Insured II 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 9, 1999. In the Reorganization, New York Insured will acquire substantially all of the assets and assume substantially all of the liabilities of New York Insured II solely in exchange for shares of its common stock, par value $.10 per share ("New York Insured Common Stock"), and shares of three newly-created series of its Auction Market Preferred Stock ("AMPS"), with a par value of $.10 per share and a liquidation preference of $25,000 per share to be designated Series C ("New York Insured Series C"), Series D ("New York Insured Series D") and Series E ("New York Insured Series E") sometimes referred to herein collectively as the "New York Insured AMPS." New York Insured II will distribute New York Insured Common Stock and New York Insured AMPS received in the Reorganization to its stockholders and will then liquidate and dissolve and terminate its registration under the Investment Company Act. New York Insured will continue to operate as a registered closed-end investment company with the investment objective and policies described in this Proxy Statement and Prospectus. In the Reorganization, New York Insured will issue shares of its common stock and AMPS to New York Insured II based on the value of the assets transferred to New York Insured by New York Insured II. These shares will then be distributed by New York Insured II to its stockholders based on the value of the shares held by each stockholder just prior to the Reorganization. A holder of Common Stock of New York Insured II will receive New York Insured Common Stock and a holder of AMPS of New York Insured II will receive shares of one of the newly-created series of AMPS of New York Insured. Approval of the Reorganization by stockholders will also constitute approval of the issuance by New York Insured of the New York Insured Series C, Series D and Series E AMPS. The common stock of each of the Funds ("Common Stock") is listed on the New York Stock Exchange (the "NYSE") under the symbols "MYT" (New York Insured) and "MYY" (New York Insured II). Subsequent to the Reorganization, shares of New York Insured Common Stock will continue to be listed on the NYSE under the symbol "MYT." Reports, proxy materials and other information concerning any of the Funds may be inspected at the offices of the NYSE, 20 Broad Street, New York, New York 10005. 2 TABLE OF CONTENTS
Page ---- INTRODUCTION.............................................................. 5 ITEM 1: THE REORGANIZATION................................................ 5 SUMMARY................................................................. 5 RISK FACTORS AND SPECIAL CONSIDERATIONS................................. 14 New York Municipal Bonds.............................................. 14 Interest Rate and Credit Risk......................................... 14 Non-diversification................................................... 14 Rating Categories..................................................... 14 Private Activity Bonds................................................ 14 Portfolio Insurance................................................... 14 Leverage.............................................................. 14 Portfolio Management.................................................. 15 Inverse Floating Obligations.......................................... 16 Options and Futures Transactions...................................... 16 Antitakeover Provisions............................................... 16 Ratings Considerations................................................ 16 COMPARISON OF THE FUNDS................................................. 17 Financial Highlights.................................................. 17 Investment Objective and Policies..................................... 21 Portfolio Insurance................................................... 24 Description of New York Municipal Bonds and Municipal Bonds........... 25 Special Considerations Relating to New York Municipal Bonds........... 26 Other Investment Policies............................................. 26 Information Regarding Options and Futures Transactions................ 28 Investment Restrictions............................................... 31 AMPS Rating Agency Guidelines......................................... 32 Portfolio Composition................................................. 33 Portfolio Transactions................................................ 34 Portfolio Turnover.................................................... 35 Net Asset Value....................................................... 35 Capital Stock......................................................... 36 Management of the Funds............................................... 38 Code of Ethics........................................................ 39 Voting Rights......................................................... 40 Stockholder Inquiries................................................. 41 Dividends and Distributions........................................... 41 Automatic Dividend Reinvestment Plan.................................. 42 Mutual Fund Investment Option......................................... 44 Liquidation Rights of Holders of AMPS................................. 44 Tax Rules Applicable to the Funds and their Stockholders.............. 44 AGREEMENT AND PLAN OF REORGANIZATION.................................... 49 General............................................................... 49 Procedure............................................................. 50 Terms of the Agreement and Plan of Reorganization..................... 51 Potential Benefits to Common Stockholders of the Funds as a Result of the Reorganization................................................... 53 Surrender and Exchange of Stock Certificates.......................... 54 Tax Consequences of the Reorganization................................ 55 Capitalization........................................................ 57
3
Page ----- INFORMATION CONCERNING THE SPECIAL MEETINGS............................... 58 Date, Time and Place of Meetings...................................... 58 Solicitation, Revocation and Use of Proxies........................... 58 Record Date and Outstanding Shares.................................... 58 Security Ownership of Certain Beneficial Owners and Management........ 58 Voting Rights and Required Vote....................................... 58 Appraisal Rights...................................................... 59 ADDITIONAL INFORMATION.................................................... 60 Year 2000 Issues...................................................... 61 CUSTODIAN................................................................. 61 TRANSFER AGENT, DIVIDEND DISBURSING AGENT AND REGISTRAR................... 61 LEGAL PROCEEDINGS......................................................... 61 LEGAL OPINIONS............................................................ 61 EXPERTS................................................................... 62 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 NEW YORK.................... III-1 EXHIBIT IV--RATINGS OF MUNICIPAL BONDS AND COMMERCIAL PAPER............... IV-1 EXHIBIT V--PORTFOLIO INSURANCE............................................ V-1
4 INTRODUCTION This Proxy Statement and Prospectus is furnished in connection with the solicitation of proxies on behalf of the Boards of Directors of New York Insured and New York Insured II 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 New York Insured or New York Insured II, as applicable, at the address indicated above or by voting in person at the appropriate Meeting. All properly executed proxies received prior to the Meetings will be voted at the Meetings in accordance with the instructions marked thereon or otherwise as provided therein. Unless instructions to the contrary are marked, proxies will be voted "FOR" the proposal to approve the Agreement and Plan of Reorganization between New York Insured and New York Insured II (the "Agreement and Plan of Reorganization"). With respect to Item 1, assuming a quorum is present at the Meetings, approval of the Agreement and Plan of Reorganization will require the affirmative vote of stockholders representing (i) a majority of the outstanding shares of New York Insured Common Stock and New York Insured AMPS, voting together as a single class, and a majority of the outstanding shares of New York Insured AMPS, Series A and B, voting together as a single class, (ii) a majority of the outstanding shares of New York Insured II Common Stock and New York Insured II AMPS, voting together as a single class, and a majority of the outstanding shares of New York Insured II AMPS, Series A, B, C and D, voting together as a single class. Because of the requirement that the Agreement and Plan of Reorganization be approved by stockholders of both Funds, the Reorganization will not take place if stockholders of either Fund do not approve the Agreement and Plan of Reorganization. The Board of Directors of each of the Funds has fixed the close of business on October 20, 1999 as the record date (the "Record Date") for the determination of stockholders entitled to notice of, and to vote at, the Meetings or any adjournment thereof. Stockholders on the Record Date will be entitled to one vote for each share held, with no shares having cumulative voting rights. At the Record Date, each Fund had outstanding the number of shares of Common Stock and AMPS indicated in Exhibit I. To the knowledge of the management of each of the Funds, no person owned beneficially more than 5% of the respective outstanding shares of either class of capital stock of any Fund at the Record Date. The Boards of Directors of the Funds know of no business other than that discussed in Item 1 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. 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 New York Insured II by New York Insured and the subsequent distribution of New York Insured Common Stock to the holders of New York Insured II Common Stock, of New York Insured Series C AMPS to the holders of New York Insured II AMPS, Series A, of New York Insured Series D AMPS to the holders of New York Insured II AMPS, Series B and of New York Insured Series E AMPS to the holders of New York Insured II AMPS, Series C and D, respectively; (ii) the issuance by New York Insured of three new series of AMPS to be designated Series C,Series D and Series E; and (iii) the subsequent deregistration and dissolution of New York Insured II. 5 At meetings of the Boards of Directors of each of the Funds, the Board of Directors of each of the Funds unanimously approved the Reorganization. Subject to obtaining the necessary approvals from the stockholders of both Funds, the Board of Directors of New York Insured II also deemed advisable the deregistration of the New York Insured II under the Investment Company Act of 1940, as amended (the "Investment Company Act") and its dissolution under the laws of the State of Maryland. The Reorganization requires approval of the stockholders of both Funds. The Reorganization will not take place if the stockholders of either Fund do not approve the Agreement and the Plan of Reorganization. Each of the Funds seeks to provide stockholders with current income exempt from Federal income tax and New York State and New York City personal income taxes. Each of the Funds seeks to achieve its investment objective by investing primarily in a portfolio of long-term, investment grade municipal obligations, the interest on which, in the opinion of bond counsel to the issuer, is exempt from Federal income tax and New York State and New York City personal income taxes. 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. Each of the Funds is a non-diversified, leveraged, closed-end management investment company registered under the Investment Company Act. If the stockholders of the Funds approve the Reorganization, (i) New York Insured Common Stock and New York Insured Series C, D and E AMPS will be issued to New York Insured II in exchange for the assets of New York Insured II; and (ii) New York Insured II will distribute these shares to its stockholders as provided in the Agreement and Plan of Reorganization. After the Reorganization, New York Insured II will terminate its registration under the Investment Company Act and its incorporation under Maryland law. Based upon their evaluation of all relevant information, the Directors of each Fund have determined that the Reorganization will potentially benefit the holders of Common Stock of that Fund. Specifically, after the Reorganization, stockholders of the New York Insured II will remain invested in a closed-end fund that has an investment objective and policies substantially similar to New York Insured II's investment objective and policies and that uses substantially the same management personnel. In addition, it is anticipated that common stockholders of each of the Funds will be subject to a reduced overall operating expense ratio based on the anticipated pro forma combined total operating expenses and the combined assets of the surviving fund after the Reorganization. The Boards also considered the relative tax positions of the Funds' portfolios. It is not anticipated that the Reorganization will directly benefit the holders of shares of AMPS of either Fund; however, the Reorganization will not adversely affect the holders of shares of any series of AMPS of either Fund and the expenses of the Reorganization will not be borne by the holders of shares of AMPS of either Fund. If all of the requisite approvals are obtained, it is anticipated that the Reorganization will occur as soon as practicable after such approval, provided that the Funds have obtained prior to that time a favorable private letter ruling from the Internal Revenue Service (the "IRS") concerning the tax consequences of the Reorganization as set forth in the Agreement and Plan of Reorganization or an opinion of counsel to the same effect. Under the Agreement and Plan of Reorganization, however, the Board of Directors of either Fund may cause the Reorganization to be postponed or abandoned should such Board determine that it is in the best interests of the stockholders of that Fund to do so. The Agreement and Plan of Reorganization may be terminated, and the Reorganization abandoned, whether before or after approval by the Funds' stockholders, at any time prior to the Exchange Date (as defined below), (i) by mutual consent of the Boards of Directors of both Funds or (ii) by the Board of Directors of either Fund if any condition to that Fund's obligations has not been fulfilled or waived by such Fund's Board of Directors. 6 Pro Forma Fee Table for Common Stockholders of New York Insured, New York Insured II and Pro Forma New York Insured as of June 30, 1999 (Unaudited)(a)
Actual -------------------- Pro Forma New York New York New York Insured Insured II Insured -------- ---------- --------- Common Stockholder Transaction Expenses Maximum Sales Load (as a percentage of offering price)......................................... None(b) None(b) None(c) Dividend Reinvestment Plan Fees................. None None None Annual Expenses (as a percentage of net assets attributable to Common Stock at June 30, 1999)(d)....................................... Investment Advisory Fees(e)..................... 0.73% 0.72% 0.73% Interest Payments on Borrowed Funds............. None None None Other Expenses.................................. 0.29% 0.23% 0.20% ---- ---- ---- Total Annual Expenses........................... 1.02% 0.95% 0.93% ==== ==== ====
- -------- (a) No information is presented with respect to AMPS because no Fund's operating expenses or expenses of the Reorganization will be borne by the holders of AMPS of any of the Funds. Generally, AMPS are sold at a fixed liquidation preference of $25,000 per share and investment return is set at an auction. (b) Shares of Common Stock purchased in the secondary market may be subject to brokerage commissions or other charges. (c) No sales load will be charged on the issuance of shares in the Reorganization. Shares of Common Stock are not available for purchase from the Funds but may be purchased through a broker-dealer subject to individually negotiated commission rates. (d) The annual operating expenses for pro forma New York Insured are projections for a 12-month period. (e) Based on the net assets of each Fund and pro forma New York Insured, excluding assets attributable to AMPS. If assets attributable to AMPS are included, the Investment Advisory Fees for each Fund and pro forma New York Insured would be 0.50% and the Total Annual Expenses would be 0.70%, 0.66% and 0.64%. Example: Cumulative Expenses Paid on Shares of Common Stock for the Periods Indicated:
1 Year 3 Years 5 Years 10 Years ------ ------- ------- -------- An investor would pay the following expenses on a $1,000 investment, assuming (1) the operating expense ratio for each Fund (as a percentage of net assets attributable to Common Stock) set forth in the table above and (2) a 5% annual return throughout the period: New York Insured.............................. $10 $32 $56 $125 New York Insured II........................... $10 $30 $53 $117 Pro Forma New York Insured*................... $ 9 $30 $51 $114
- -------- * Assumes that the Reorganization had taken place on June 30, 1999. 7 The foregoing Fee Table is intended to assist investors in understanding the costs and expenses that a common stockholder of each of the Funds will bear directly or indirectly as compared to the costs and expenses that would be borne by such investors taking into account the Reorganization. The Example set forth above assumes that shares of Common Stock were purchased in the initial offerings and the reinvestment of all dividends and distributions and uses a 5% annual rate of return as mandated by Securities and Exchange Commission (the "SEC") regulations. The Example should not be considered a representation of past or future expenses or annual rates of return. Actual expenses or annual rates of return may be more or less than those assumed for purposes of the Example. See "Comparison of the Funds" and "The Reorganization--Potential Benefits to Common Stockholders of the Funds as a Result of the Reorganization." Business of New York Insured... New York Insured was incorporated under the laws of the State of Maryland on December 17, 1991 and commenced operations on February 21, 1992. New York Insured is a non-diversified, leveraged, closed-end management investment company whose investment objective is to provide stockholders with current income exempt from Federal income tax and New York State and New York City personal income taxes. New York Insured seeks to achieve its investment objective by investing primarily in a portfolio of long-term investment grade municipal obligations, the interest on which, in the opinion of bond counsel to the issuer, is exempt from Federal income taxes and New York State and New York City personal income taxes ("New York Municipal Bonds"). Under normal circumstances, at least 80% of New York Insured'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 New York Municipal Bonds and other long-term municipal obligations exempt from Federal income taxes but not from New York State or New York City personal income taxes ("Municipal Bonds") with a maturity of more than ten years. The weighted average maturity of the Fund's portfolio was 22.68 years as of September 30, 1999. The average maturity of the Fund's portfolio securities, and therefore the Fund's portfolio as a whole, will vary based upon the assessment of Fund Asset Management, L.P. ("FAM"), the Fund's investment adviser, of economic and market conditions. See "Comparison of the Funds--Investment Objectives and Policies." New York Insured has outstanding Common Stock and two series of AMPS, designated Series A and Series B, which shall be referred to herein collectively as "New York Insured AMPS." As of September 30, 1999, New York Insured had net assets of $255,860,778. Business of New York Insured New York Insured II was incorporated under II............................. the laws of the State of Maryland on May 5, 1992 and commenced operations on June 19, 1992. New York Insured II is a non- diversified, leveraged, closed-end management investment company whose investment objective is to provide stockholders with current income exempt from Federal income taxes and New York State and New York City personal income taxes. New York Insured II seeks to achieve 8 its investment objective by investing primarily in a portfolio of New York Municipal Bonds. Under normal circumstances, at least 80% of New York Insured II'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 New York Municipal Bonds and Municipal Bonds with a maturity of more than ten years. The weighted average maturity of the Fund's portfolio was 22.47 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." New York Insured II has outstanding Common Stock and four series of AMPS, designated Series A, Series B, Series C and Series D, which shall be referred to herein collectively as "New York Insured II AMPS." As of September 30, 1999, New York Insured II had net assets of $540,196,446. Comparison of the Funds........ Investment Objectives and Policies. The Funds have substantially similar investment objectives and policies. Both Funds seek to provide stockholders (including holders of AMPS) with current income exempt from Federal income tax and New York State and New York City personal income taxes and seek to maintain as much of their respective portfolios invested in New York Municipal Bonds as possible. Each Fund at all times will invest at least 65% of its total assets in New York Municipal Bonds and at least 80% of its total assets in New York Municipal Bonds and Municipal Bonds, except during interim periods pending investment of the net proceeds of public offerings of such Fund's securities and during temporary defensive periods. Each Fund is subject to the requirement that at least 80% of its assets be invested in New York Municipal Bonds with remaining maturities of one year or more that are covered by insurance guaranteeing the timely payment of principal at maturity and interest. See "Comparison of the Funds-- Investment Objectives and Policies." Capital Stock. Each Fund has outstanding both Common Stock and AMPS. The Common Stock of each of the Funds is traded on the NYSE. As of September 30, 1999 (i) the net asset value per share of New York Insured Common Stock was $13.58 and the market price per share was $13.4375; and (ii) the net asset value per share of New York Insured II Common Stock was $13.73 and the market price per share was $13.00. The AMPS of each Fund have a liquidation preference of $25,000 per share and are sold principally at auction. See "Comparison of the Funds--Capital Stock." Auctions generally have been held and will be held every seven days in the case of the New York Insured AMPS, Series B and the New York Insured II AMPS, Series A and B and every 28 9 days in the case of the New York Insured AMPS, Series A and the New York Insured II AMPS, Series C and D, unless the applicable Fund elects, subject to certain limitations to have a special dividend period. In connection with the Reorganization, it is anticipated that a holder of AMPS of New York Insured II may receive New York Insured 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 New York Insured II that he or she holds. See "Comparison of the Funds--Capital Stock." The following table provides information about the dividend rates for each series of AMPS of each of the Funds as of a recent auction.
Dividend Auction Date Fund Series Rate ------------ ---- ------ -------- October 25, 1999........ New York Insured A 3.01% October 25, 1999........ New York Insured B 3.50% October 22, 1999........ New York Insured II A 3.40% October 26, 1999........ New York Insured II B 3.45% November 3, 1999........ New York Insured II C 3.70% October 26, 1999........ New York Insured II D 2.99%
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. Companies in the Asset Management Group of Merrill Lynch & Co., Inc. ("ML & Co.") (which includes FAM) act as investment advisers for over 100 registered investment companies and also offer 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. Walter C. O'Connor serves as the portfolio manager for New York Insured; Roberto W. Roffo serves as the portfolio manager for New York Insured II. After the Reorganization, Mr. O'Connor will serve as portfolio manager of the combined fund. Pursuant to separate investment advisory agreements between each Fund and FAM, each Fund pays FAM a monthly fee at the annual rate of 0.50% of such Fund's average weekly net assets, including assets acquired from the sale of AMPS. Subsequent to the Reorganization, FAM will continue to receive compensation at the rate of 0.50% of the average weekly net assets, including assets acquired from the sale of AMPS, of the combined fund. See "Comparison of the Funds-- Management of the Funds." Other Significant Fees. The Bank of New York is the custodian, transfer agent, dividend disbursing agent and registrar for the Common Stock of New York Insured, and receives a fee for such 10 service. State Street Bank and Trust Company is the custodian, transfer agent, dividend disbursing agent and registrar for the Common Stock of New York Insured II. The Bank of New York is the transfer agent, dividend disbursing agent, registrar and auction agent for each Fund's AMPS. The principal business addresses are as follows: The Bank of New York, 90 Washington Street, New York, New York 10286 (for its custodial services) and 101 Barclay Street, New York, New York 10286 (for its transfer agency and auction agency services); State Street Bank and Trust Company, One Heritage Drive, P2N North Quincy Massachusetts 02171 (for its custodial services), 225 Franklin Street, Boston, Massachusetts 02110 for its (transfer agency services). See "Comparison of the Funds-- Management of the Funds." Overall Expense Ratio. As of June 30, 1999, the overall annualized operating expense ratio for New York Insured was 1.02%, based on net assets of approximately $182.2 million excluding AMPS, and 0.70%, based on net assets of approximately $267.2 million including AMPS; and the overall annualized operating expense ratio for New York Insured II was 0.95%, based on net assets of approximately $387.9 million excluding AMPS, and 0.66%, based on net assets of approximately $561.9 million including AMPS. If the Reorganization had taken place on June 30, 1999, the overall operating expense ratio for pro forma New York Insured would have been 0.93%, based on net assets of approximately $570.1 million excluding AMPS, and 0.64%, based on net assets of approximately $829.1million including AMPS. Purchases and Sales of Common Stock and AMPS. Purchase and sale procedures for the Common Stock of both New York Insured and New York Insured II are identical, and investors typically purchase and sell shares of Common Stock of such Funds through a registered broker-dealer on the NYSE, thereby incurring a brokerage commission set by the broker- dealer. Alternatively, investors may purchase or sell shares of Common Stock of such Funds through privately negotiated transactions with existing stockholders. Purchase and sale procedures for the New York Insured AMPS and the New York Insured II AMPS 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 may only participate in auctions through their broker- dealers. Broker-dealers submit the orders of their respective customers who are existing and potential holders of AMPS to the Auction Agent. On or prior to each auction date for the AMPS (the business day next preceding the first day of each dividend period), each holder may submit orders to buy, sell or hold AMPS to its broker-dealer. Outside of these auctions, shares 11 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 either of the Funds. Ratings of AMPS. The New York Insured AMPS and the New York Insured II AMPS have each 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. Each of the Funds has a similar policy with respect to obtaining insurance for portfolio securities. Under normal circumstances, at least 80% of each Fund's assets will be invested in municipal obligations either (i) insured under an insurance policy purchased by the Fund or (ii) insured under an insurance policy obtained by the issuer thereof or any other party. See "Comparison of the Funds-- Investment Objectives and Policies--Portfolio Insurance." Ratings of Municipal Obligations. New York Insured and New York Insured II will invest only in municipal obligations that at the time of purchase are considered investment grade. Portfolio Transactions. The portfolio transactions in which New York Insured and New York Insured II 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 New York Insured and New York Insured II, both with respect to the Common Stock and the AMPS of each Fund. See "Comparison of the Funds-- Dividends and Distributions." Net Asset Value. The net asset value per share of Common Stock of each Fund is determined after the close of business on the NYSE (generally, 4:00 p.m., Eastern time) on the last business day of each week. For purposes of determining the net asset value of a share of Common Stock of each Fund, the value of the securities held by the Fund plus any cash or other assets (including interest accrued but not yet received) minus all liabilities (including accrued expenses) and the aggregate liquidation value of the outstanding shares of AMPS of the Fund is divided by the total number of shares of Common Stock of the Fund outstanding at such time. Expenses, including fees payable to FAM, are accrued daily. See "Comparison of the Funds--Net Asset Value." Voting Rights. The corresponding voting rights of the holders of shares of New York Insured and New York Insured II Common Stock are virtually identical. Similarly, the 12 corresponding voting rights of the holders of shares of New York Insured AMPS and New York Insured II AMPS are virtually identical. See "Comparison of the Funds--Capital Stock." Stockholder Services. An automatic dividend reinvestment plan is available to holders of shares of each Fund's Common Stock. The plans are identical for the two Funds. See "Comparison of the Funds--Automatic Dividend Reinvestment Plan." Other stockholder services, including the provision of annual and semi-annual reports, are the same for the two Funds. Outstanding Securities of New York Insured and New York Insured II as of September 30, 1999
Amount Outstanding Amount Held By Exclusive of Amount Amount Fund for its Shown in Title of Class Authorized Own Account Previous Column -------------- ----------- -------------- ------------------- New York Insured Common Stock................... 199,996,000 0 12,585,427 AMPS Series A..................... 1,700 0 1,700 Series B..................... 1,700 0 1,700 New York Insured II Common Stock................... 199,993,040 0 26,668,886 AMPS Series A..................... 2,800 0 2,800 Series B..................... 1,960 0 1,960 Series C..................... 1,000 0 1,000 Series D..................... 1,200 0 1,200
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, neither Fund will recognize gain or loss on the transaction and the stockholders of New York Insured II will not recognize gain or loss on the exchange of their shares for New York Insured Common Stock (except to the extent that a common stockholder of New York Insured II receives cash representing an interest in less than a full share of New York Insured Common Stock in the Reorganization) or New York Insured 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 New York Insured as a regulated investment company (a "RIC") under the Internal Revenue Code of 1986, as amended (the "Code"). New York Insured II will liquidate pursuant to the Reorganization. See "Agreement and Plan of Reorganization--Tax Consequences of the Reorganization." 13 RISK FACTORS AND SPECIAL CONSIDERATIONS Since both Funds invest primarily in a portfolio of New York Municipal Bonds, any risks inherent in such investments apply equally to both Funds and will also be similarly pertinent to the combined fund after the Reorganization. It is expected that the Reorganization itself will not adversely affect the rights of holders of shares of Common Stock or of any series of AMPS of either Fund or create additional risks. New York Municipal Bonds New York Insured and New York Insured II invest a substantial portion of their assets in New York Municipal Bonds. As a result, each Fund is more exposed to risks affecting issuers of New York Municipal Bonds than is a municipal bond fund that invests more widely. See "Comparison of the Funds-- Special Considerations Relating to New York Municipal Bonds" and Exhibit III-- "Economic and Other Conditions in New York." 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 each 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 non- diversified funds, each Fund must still meet the diversification requirements of applicable Federal income tax laws. Rating Categories The Funds invest primarily 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. Each Fund may also invest in unrated municipal bonds that FAM believes are of comparable quality. Obligations rated in the lowest investment grade category may have certain speculative characteristics. Private Activity Bonds Each Fund may invest all or a portion of its assets in certain tax-exempt securities classified as "private activity bonds." These bonds may subject certain investors in a Fund to a Federal alternative minimum tax. Portfolio Insurance Each of the Funds is subject to certain investment restrictions imposed by guidelines of the insurance companies that issue portfolio insurance. The Funds do not believe these guidelines prevent FAM from managing the Funds' portfolios in accordance with the Funds' investment objective and policies. Leverage Use of leverage, through the issuance of AMPS, involves certain risks to holders of Common Stock of each of the Funds. For example, each Fund's issuance of AMPS may result in higher volatility of the net asset value of its Common Stock and potentially more volatility in the market value of its Common Stock. In addition, 14 changes in the short-term and medium-term dividend rates on, and the amount of taxable income allocable to, the AMPS will affect the yield to holders of Common Stock. Under certain circumstances, when 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 the allocation (an "Additional Distribution"). Leverage will allow holders of the Fund's Common Stock to realize a higher current rate of return than if the Fund were not leveraged as long as each Fund, while accounting for its costs and operating expenses, is able to realize a higher net return on its investment portfolio than the then- current dividend rate (and any Additional Distribution) paid on the AMPS. Similarly, since a pro rata portion of each Fund's net realized capital gains is generally payable to holders of the Fund's Common Stock, the use of leverage will increase the amount of such gains distributed to holders of the Fund's Common Stock. However, short-term, medium-term and long-term interest rates change from time to time as do their relationships to each other (i.e., the slope of the yield curve) depending upon such factors as supply and demand forces, monetary and tax policies and investor expectations. Changes in any or all of such factors could cause the relationship between short-term, medium- term and long-term rates to change (i.e., to flatten or to invert the slope of the yield curve) so that short-term and medium-term rates may substantially increase relative to the long-term obligations in which each Fund may be invested. To the extent that the current dividend rate (and any Additional Distribution) on the AMPS approaches the net return on a Fund's investment portfolio, the benefit of leverage to holders of Common Stock will be decreased. If the current dividend rate (and any Additional Distribution) on the AMPS were to exceed the net return on a Fund's portfolio, holders of Common Stock would receive a lower rate of return than if the Fund were not leveraged. Similarly, since both the costs of issuing AMPS and any decline in the value of a Fund's investments (including investments purchased with the proceeds from any AMPS offering) will be borne entirely by holders of the Fund's Common Stock, the effect of leverage in a declining market would result in a greater decrease in net asset value to holders of Common Stock than if the Fund were not leveraged. If a Fund is liquidated, holders of that Fund's AMPS will be entitled to receive liquidating distributions before any distribution is made to holders of Common Stock of that Fund. In an extreme case, a decline in net asset value could affect each Fund's ability to pay dividends on its Common Stock. Failure to make such dividend payments could adversely affect the Fund's qualification as a RIC under the Federal tax laws. See "Comparison of the Funds--Tax Rules Applicable to the Funds and their Stockholders." However, each Fund intends to take all measures necessary to make Common Stock dividend payments. If a Fund's current investment income is ever insufficient to meet dividend payments on either the Common Stock or the AMPS, the Fund may have to liquidate certain of its investments. In addition, each Fund has the authority to redeem its AMPS for any reason and may redeem all or part of its AMPS under the following circumstances: . if the Fund anticipates that its leveraged capital structure will result in a lower rate of return for any significant amount of time to holders of the Common Stock than the Fund can obtain if the Common Stock were not leveraged, . if the asset coverage for the AMPS declines below 200%, either as a result of a decline in the value of the Fund's portfolio investments or as a result of the repurchase of Common Stock in tender offers, or . in order to maintain the asset coverage established by the guidelines of the nationally recognized statistical rating organizations ("NRSROs") that have rated the AMPS. Redemption of the AMPS or insufficient investment income to make dividend payments, may reduce the net asset value of the Common Stock and require the Fund to liquidate a portion of its investments at a time when it may be disadvantageous to do so. Portfolio Management The portfolio management strategies of both Funds are the same. In the event of an increase in short-term or medium-term rates or other change in market conditions to the point where a Fund's leverage could adversely affect holders of Common Stock as noted above, or in anticipation of such changes, each Fund may attempt to 15 shorten the average maturity of its investment portfolio, which would tend to offset the negative impact of leverage on holders of its Common Stock. Each Fund also may attempt to reduce the degree to which it is leveraged by redeeming AMPS pursuant to the provisions of the Fund's Articles Supplementary establishing the rights and preferences of the AMPS or otherwise purchasing shares of AMPS. Purchases and sales or redemptions of AMPS, whether on the open market or in negotiated transactions, are subject to limitations under the Investment Company Act. If market conditions subsequently change, each Fund may sell previously unissued shares of AMPS or shares of AMPS that the Fund previously issued but later repurchased or redeemed. Inverse Floating Obligations A Fund's investments in "inverse floating obligations" or "residual interest bonds" provide investment leverage because their market value increases or decreases in response to market changes at a greater rate than fixed rate, long term tax exempt securities. The market values of such securities are more volatile than the market values of fixed rate, tax exempt securities. Options and Futures Transactions Each Fund may engage in certain options and futures transactions to reduce its exposure to interest rate movements. If a Fund incorrectly forecasts market values, interest rates or other factors, that Fund's performance could suffer. Each Fund also may suffer a loss if the other party to the transaction fails to meet its obligations. The Funds are not required to use hedging and may choose not to do so. Antitakeover Provisions The Articles of Incorporation of each of the Funds (in each case the "Charter") include provisions that could limit the ability of other entities or persons to acquire control of that Fund or to change the composition of its Board of Directors. Such provisions could limit the ability of stockholders to sell their shares at a premium over prevailing market prices by discouraging a third party from seeking to obtain control of the Fund. Ratings Considerations The 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 shares of AMPS, inasmuch as the ratings do not comment as to market price or suitability for a particular investor, nor do the rating agency guidelines address the likelihood that a holder of shares of AMPS will be able to sell such shares in an auction. The ratings are based on current information furnished to Moody's and S&P by the Funds and FAM and information obtained from other sources. The ratings may be changed, suspended or withdrawn as a result of changes in, or the unavailability of, such information. The Common Stock of the Funds has not been rated by a nationally recognized statistical rating organization. The Board of Directors of each of the Funds, without stockholder approval, may amend, alter or repeal certain definitions or restrictions which have been adopted by the Fund pursuant to the rating agency guidelines, in the event the Fund receives confirmation from the rating agencies that any such amendment, alteration or repeal would not impair the ratings then assigned to shares of AMPS. 16 COMPARISON OF THE FUNDS Financial Highlights New York Insured The financial information in the table below, except for the six month period ended April 30, 1999, which is unaudited and has been provided by FAM, has been audited in conjunction with the annual audits of the financial statements of the Fund by Deloitte & Touche LLP ("D&T"), independent auditors. The following per share data and ratios have been derived from information provided in the financial statements of the Fund.
For the For the Period Six Months Feb. 28, Ended For the Year Ended October 31, 1992+ to April 30, ----------------------------------------------------------- Oct. 31, 1999 1998 1997 1996 1995 1994 1993 1992 ---------- -------- -------- -------- -------- -------- -------- -------- Increase (Decrease) in Net Asset Value: Per Share Operating Performance: Net asset value, beginning of period.... $ 16.26 $ 15.89 $ 15.49 $ 15.64 $ 14.17 $ 16.85 $ 14.45 $ 14.18 -------- -------- -------- -------- -------- -------- -------- -------- Investment income--net.. .51 1.12 1.15 1.15 1.19 1.20 1.23 .75 Realized and unrealized gain (loss) on investments--net....... (.15) .61 .48 (.03) 1.58 (2.67) 2.34 .36 -------- -------- -------- -------- -------- -------- -------- -------- Total from investment operations............. .36 1.73 1.63 1.12 2.77 (1.47) 3.57 1.11 -------- -------- -------- -------- -------- -------- -------- -------- Less dividends and distributions to Common Stock shareholders: Investment income--net.. (.46) (.90) (.91) (.91) (.92) (.97) (.99) (.55) Realized gain on investments--net....... (.65) (.19) (.07) -- (.10) (.05) -- -- In excess of realized gain of investments-- net.................... -- -- -- (.10) -- -- -- -- -------- -------- -------- -------- -------- -------- -------- -------- Total dividends and distributions to Common Stock shareholders..... (1.11) (1.09) (.98) (1.01) (1.02) (1.02) (.99) (.55) -------- -------- -------- -------- -------- -------- -------- -------- Capital charge resulting from the issuance of Common Stock........... -- -- -- -- -- -- -- (.02) -------- -------- -------- -------- -------- -------- -------- -------- Effect of Preferred Stock activity++: Dividends and distributions to Preferred Stock shareholders: Investment income--net. (.04) (.19) (.23) (.23) (.26) (.18) (.18) (.12) Realized gain on investments--net...... (.10) (.08) (.02) -- (.02) (.01) -- -- In excess of realized gain on investments-- net................... -- -- -- (.03) -- -- -- -- Capital charge resulting from the issuance of Preferred Stock........ -- -- -- -- -- -- -- (.15) -------- -------- -------- -------- -------- -------- -------- -------- Total effect of Preferred Stock activity............... (.14) (.27) (.25) (.26) (.28) (.19) (.18) (.27) -------- -------- -------- -------- -------- -------- -------- -------- Net asset value, end of period................. $ 15.37 $ 16.26 $ 15.89 $ 15.49 $ 15.64 $ 14.17 $ 16.85 $ 14.45 ======== ======== ======== ======== ======== ======== ======== ======== Market price per share, end of period.......... $15.9375 $16.3125 $ 15.875 $ 14.875 $ 14.375 $ 12.25 $ 16.50 $ 14.75 ======== ======== ======== ======== ======== ======== ======== ======== Total Investment Return:** Based on market price per share.............. 4.77%# 9.99% 13.79% 10.79% 26.40% (20.49%) 19.04% 2.05%# ======== ======== ======== ======== ======== ======== ======== ======== Based on net asset value per share.............. 1.36%# 9.53% 9.37% 6.04% 18.89% (9.94%) 24.09% 5.76%# ======== ======== ======== ======== ======== ======== ======== ======== Ratios to Average Net Assets:*** Expenses, net of reimbursement.......... .69%* .68% .70% .70% .71% .70% .69% .54%* ======== ======== ======== ======== ======== ======== ======== ======== Expenses................ .69%* .68% .70% .70% .71% .70% .69% .71%* ======== ======== ======== ======== ======== ======== ======== ======== Investment income--net.. 4.65%* 4.91% 5.09% 5.11% 5.42% 5.28% 5.36% 5.56%* ======== ======== ======== ======== ======== ======== ======== ======== Supplemental Data: Net assets, net of Preferred Stock, end of period (in thousands).. $193,011 $199,582 $192,107 $186,611 $188,354 $170,670 $202,998 $171,587 ======== ======== ======== ======== ======== ======== ======== ======== Preferred Stock outstanding, end of period (in thousands).. $ 85,000 $ 85,000 $ 85,000 $ 85,000 $ 85,000 $ 85,000 $ 85,000 $ 85,000 ======== ======== ======== ======== ======== ======== ======== ======== Portfolio turnover...... 43.75% 89.76% 81.73% 80.59% 88.17% 41.26% 1.63% 18.10% ======== ======== ======== ======== ======== ======== ======== ======== Leverage: Asset coverage per $1,000................. $ 3,271 $ 3,348 $ 3,260 $ 3,195 $ 3,216 $ 3,008 $ 3,388 $ 3,019 ======== ======== ======== ======== ======== ======== ======== ======== Dividends Per Share on Preferred Stock Outstanding+++:........ Series A--Investment income--net............ $ 160 $ 695 $ 826 $ 819 $ 935 $ 673 $ 638 442 ======== ======== ======== ======== ======== ======== ======== ======== Series B--Investment income--net............ $ 171 $ 689 $ 837 $ 807 $ 904 $ 593 $ 651 426 ======== ======== ======== ======== ======== ======== ======== ========
(footnotes on following page) 17 - -------- * Annualized. ** Total investment returns based on market value, which can be significantly greater or lesser than the net asset value, may result in substantially different returns. Total investment returns exclude the effects of sales charges. *** Do not reflect the effect of dividends to Preferred Stock shareholders. # Aggregate total investment return. + Commencement of Operations. ++ The Fund's Preferred Stock was issued on September 16, 1992. +++ Dividends per share have been adjusted to reflect a two-for-one stock split that occurred on December 1, 1994. 18 New York Insured II The financial information in the table below, except for the six month period ended April 30, 1999, which is unaudited and has been provided by FAM, has been audited in conjunction with the annual audits of the financial statements of the Fund by Ernst & Young LLP ("E&Y"), independent auditors for each of the two years in the period ended October 31, 1998 and by Deloitte & Touche LLP, independent auditors, for each of the years in the four year period ended October 31, 1996 and for the period June 26, 1992 (commencement of operations) to October 31, 1992. The following per share data and ratios have been derived from information provided in the financial statements of the Fund.
For the For the Period Six Months June 26, Ended For the Year Ended October 31, 1992+ to April 30, ------------------------------------------------------------ October 31, 1999 1998 1997 1996 1995 1994 1993 1992 ---------- -------- -------- -------- -------- -------- -------- ----------- Increase (Decrease) in Net Asset Value: Per Share Operating Performance: Net asset value, beginning of period.... $ 15.82 $ 15.18 $ 14.53 $ 14.63 $ 13.13 $ 15.89 $ 13.43 $ 14.18 -------- -------- -------- -------- -------- -------- -------- -------- Investment income--net.. .51 1.05 1.08 1.04 1.07 1.07 1.11 .27 Realized and unrealized gain (loss) on investments--net....... (.25) .66 .66 (.09) 1.50 (2.76) 2.46 (.66) -------- -------- -------- -------- -------- -------- -------- -------- Total from investment operations............. .26 1.71 1.74 .95 2.57 (1.69) 3.57 (.39) -------- -------- -------- -------- -------- -------- -------- -------- Less dividends and distributions to Common Stock shareholders: Investment income--net. (.42) (.84) (.84) (.82) (.84) (.87) (.91) (.18) Realized gain on investments--net...... (.11) -- + -- -- -- (.01) -- -- -------- -------- -------- -------- -------- -------- -------- -------- Total dividends and distributions to Common Stock shareholders..... (.53) (.84) (.84) (.82) (.84) (.88) (.91) (.18) -------- -------- -------- -------- -------- -------- -------- -------- Capital charge resulting from issuance of Common Stock.................. -- (.01) (.02) -- -- -- -- (.03) -------- -------- -------- -------- -------- -------- -------- -------- Effect of Preferred Stock activity:++ Dividends and distributions to Preferred Stock shareholders: Investment income--net. (.08) (.22) (.23) (.23) (.23) (.19) (.20) (.02) Realized gain on investments--net...... (.03) -- + -- -- -- (.00)## -- -- Capital charge resulting from issuance of Preferred Stock........ -- -- -- -- -- -- -- (.13) -------- -------- -------- -------- -------- -------- -------- -------- Total effect of Preferred Stock activity............... (.11) (.22) (.23) (.23) (.23) (.19) (.20) (.15) -------- -------- -------- -------- -------- -------- -------- -------- Net asset value, end of period................. $ 15.44 $ 15.82 $ 15.18 $ 14.53 $ 14.63 $ 13.13 $ 15.89 $ 13.43 ======== ======== ======== ======== ======== ======== ======== ======== Market price per share, end of period.......... $15.3125 $15.4375 $ 14.25 $ 13.375 $ 13.25 $ 11.00 $ 15.25 $ 13.75 ======== ======== ======== ======== ======== ======== ======== ======== Total Investment Return:** Based on market price per share.............. 2.63%# 14.60% 13.15% 7.28% 28.61% (22.96%) 17.90% (7.17%)# ======== ======== ======== ======== ======== ======== ======== ======== Based on net asset value per share.............. .98%# 10.24% 10.95% 5.55% 18.96% (11.75%) 25.77% (4.09%)# ======== ======== ======== ======== ======== ======== ======== ======== Ratios to Average Net Assets:*** Expenses, net of reimbersement.......... .65%* .64% .68% .71% .74% .74% .62% .13%* ======== ======== ======== ======== ======== ======== ======== ======== Expenses................ .65%* .64% .68% .71% .74% .74% .70% .68%* ======== ======== ======== ======== ======== ======== ======== ======== Investment income--net.. 4.61%* 4.81% 5.04% 5.00% 5.27% 5.09% 5.25% 5.05%* ======== ======== ======== ======== ======== ======== ======== ======== Supplemental Data: Net assets, net of Preferred Stock, end of period (in thousands).. $411,790 $420,658 $321,752 $161,472 $162,655 $145,977 $176,595 $146,633 ======== ======== ======== ======== ======== ======== ======== ======== Preferred Stock outstanding, end of period (in thousands).. $174,000 $174,000 $144,000 $ 70,000 $ 70,000 $ 70,000 $ 70,000 $ 70,000 ======== ======== ======== ======== ======== ======== ======== ======== Portfolio turnover...... 43.55% 136.43% 121.49% 118.28% 110.76% 36.79% 3.33% 19.40% ======== ======== ======== ======== ======== ======== ======== ======== Leverage: Asset coverage per $1,000................. $ 3,367 $ 3,418 $ 3,234 $ 3,307 $ 3,324 $ 3,085 $ 3,523 $ 3,095 ======== ======== ======== ======== ======== ======== ======== ======== Dividends Per Share on Preferred Stock Outstanding+++: Series A--Investment income--net............ $ 313 $ 849 $ 865 $ 913 $ 910 $ 759 $ 809 $ 92 ======== ======== ======== ======== ======== ======== ======== ======== Series B--Investment income--net............ $ 312 $ 825 $ 643 $ -- $ -- $ -- $ -- $ -- ======== ======== ======== ======== ======== ======== ======== ======== Series C--Investment income--net............ $ 335 $ 785 $ 667 $ -- $ -- $ -- $ -- $ -- ======== ======== ======== ======== ======== ======== ======== ======== Series D--Investment income--net............ $ 296 $ 628 $ -- $ -- $ -- $ -- $ -- $ -- ======== ======== ======== ======== ======== ======== ======== ========
(footnotes on following page) 19 - -------- * Annualized. ** Total investment returns based on market value, which can be significantly greater or lesser than the net asset value, may result in substantially different returns. Total investment returns exclude the effects of sales charges. *** Do not reflect the effect of dividends to Preferred Stock shareholders. # Aggregate total investment return. ## Amount is less than $.01 per share. + Commencement of Operations. ++ The Fund's Preferred Stock was issued on September 16, 1992 (Series A); January 27, 1997 (Series B and Series C) and February 9, 1998 (Series D). +++ Dividends per share have been adjusted to reflect a two-for-one stock split that occurred on December 1, 1994. 20 Per Share Data for Common Stock* Traded on the New York Stock Exchange (unaudited) New York Insured
Premium (Discount) to Net Market Price** Net Asset Value Asset Value --------------- --------------- --------------- Quarter Ended* High Low High Low High Low -------------- ------- ------- --------------- ------- ------- January 31, 1997............... 14.875 14.625 15.45 15.22 (3.16) (5.39) April 30, 1997................. 14.875 14.125 15.16 14.93 (1.55) (5.77) July 31, 1997.................. 16.0625 15.375 16.07 15.55 (0.19) (4.85) October 31, 1997............... 16.625 15.5625 15.97 15.67 4.03 (0.71) January 31, 1998............... 16.6875 16.125 16.24 15.96 2.54 (3.72) April 30, 1998................. 16.0625 15.625 16.08 15.49 3.06 (5.53) July 31, 1998.................. 15.875 15.1875 15.99 15.90 0.18 (3.54) October 31, 1998............... 16.5625 16.0625 16.69 16.21 0.33 (2.05) January 31, 1999............... 16.4375 16.00 15.66 15.45 7.32 2.29 April 30, 1999................. 16.125 15.75 15.49 15.37 5.31 2.09 July 31, 1999.................. 14.75 14.375 14.65 14.39 4.37 (0.48) October 31, 1999............... 14.375 12.3125 14.37 12.73 1.58 (4.47) New York Insured II Premium (Discount) to Net Market Price** Net Asset Value Asset Value --------------- --------------- --------------- Quarter Ended* High Low High Low High Low -------------- ------- ------- --------------- ------- ------- January 31, 1997............... 13.00 12.625 14.60 14.31 (8.87) (12.97) April 30, 1997................. 13.625 13.00 14.32 14.07 (3.37) (12.46) July 31, 1997.................. 14.75 14.3125 15.28 14.72 (2.42) (6.12) October 31, 1997............... 15.25 14.1875 15.22 14.83 0.66 (6.13) January 31, 1998............... 16.125 15.00 15.84 15.50 (1.62) (6.11) April 30, 1998................. 14.9375 14.25 15.61 14.98 (1.08) (8.17) July 31, 1998.................. 14.875 14.50 15.54 15.42 (1.47) (5.91) October 31, 1998............... 16.00 15.3125 16.27 15.77 (2.12) (5.24) January 31, 1999............... 15.75 15.25 15.83 15.52 1.22 (3.45) April 30, 1999................. 15.4375 14.875 15.59 15.44 (0.83) (4.22) July 31, 1999.................. 13.9375 13.25 14.75 14.46 (2.79) (7.23) October 31, 1999............... 13.25 12.00 14.43 12.98 (5.15) (9.63)
- -------- *Calculations are based upon shares of Common Stock outstanding at the end of each quarter. **As reported in the consolidated transaction operating system. As indicated in the tables above, for the periods shown the Common Stock of the Funds generally has traded at prices close to net asset value, with small premiums or discounts to net asset value of generally less than 10% being reflected in the market value of the shares from time to time. Although there is no reason to believe that this pattern should be affected by the Reorganization, it is not possible to predict whether shares of the surviving fund will trade at a premium or discount to net asset value following the Reorganization, or what the extent of any such premium or discount might be. Investment Objective and Policies The structure, organization and investment policies of both Funds are substantially similar, with the differences between the two Funds set forth below. Each Fund seeks as a fundamental investment objective 21 current income exempt from Federal income tax and New York State and New York City 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 New York Municipal Bonds. At all times, at least 65% of each Fund's total assets will be invested in New York Municipal Bonds and at least 80% of each Fund's total assets will be invested in New York Municipal Bonds and in other long-term municipal obligations exempt from Federal income tax but not New York State and New York City personal income taxes ("Municipal Bonds"), except during interim periods pending investment of the net proceeds of public offerings of its securities and during temporary defensive periods. At times, each Fund may seek to hedge its portfolio through the use of futures and options transactions to reduce volatility in the net asset value of its shares of Common Stock. Ordinarily, neither Fund intends to realize significant investment income subject to Federal income tax and New York State and New York City personal income taxes. To the extent FAM considers that suitable New York 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 New York 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 New York 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 New York State and New York City personal income taxes will be considered "New York Municipal Bonds" and Non-Municipal Tax-Exempt Securities that pay interest that is exempt from Federal income taxes will be considered "Municipal Bonds." The investment grade New York Municipal Bonds and Municipal Bonds in which each Fund invests are those New York Municipal Bonds and Municipal Bonds that are rated at the date of purchase in the four highest rating categories of S&P, Moody's or Fitch or, if unrated, are considered to be of comparable quality by FAM. In the case of long-term debt, the investment grade rating categories are AAA through BBB for S&P and Fitch and Aaa through Baa for Moody's. In the case of short-term notes, the investment grade rating categories are SP-1 through SP-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-2 for Moody's and F-1+ through F-3 for Fitch. Obligations ranked in the lowest investment grade rating category (BBB, SP-3 and A-3 for S&P; Baa, MIG-3 and Prime-3 for Moody's; and BBB and F-3 for Fitch), while considered "investment grade," may have certain speculative characteristics. There may be sub-categories or gradations indicating relative standing within the rating categories set forth above. In assessing the quality of New York 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 New York 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 New York 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 22 be, even though such New York 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 New York Municipal Bonds and Municipal Bonds must also comply with the standards applied by the insurance carriers in determining eligibility for portfolio insurance. See Exhibit IV--"Ratings of Municipal Bonds and Commercial Paper" and Exhibit V--"Portfolio Insurance." Each of the Funds may invest in variable rate demand obligations ("VRDOs") and VRDOs in the form of participation interests ("Participating VRDOs") in variable rate tax-exempt obligations held by a financial institution, typically a commercial bank. The VRDOs in which each Fund may invest are tax- exempt obligations, in the opinion of counsel to the issuer, that contain a floating or variable interest rate adjustment formula and a right of demand on the part of the holder thereof to receive payment of the unpaid principal balance plus accrued interest on a short notice period not to exceed seven days. Participating VRDOs provide each Fund with a specified undivided interest (up to 100%) in the underlying obligation and the right to demand payment of the unpaid principal balance plus accrued interest on the Participating VRDOs from the financial institution on a specified number of days' notice, not to exceed seven days. There is, however, the possibility that because of default or insolvency, the demand feature of VRDOs or Participating VRDOs may not be honored. Each Fund has been advised by its counsel that the Fund should be entitled to treat the income received on Participating VRDOs as interest from tax-exempt obligations for Federal income tax purposes. The average maturity of each Fund's portfolio securities varies based upon FAM's assessment of economic and market conditions. The net asset value of the shares of common stock of a closed-end investment company, such as each Fund, which invests primarily in fixed-income securities, changes as the general levels of interest rates fluctuate. When interest rates decline, the value of a fixed income portfolio can be expected to rise. Conversely, when interest rates rise, the value of a fixed income portfolio can be expected to decline. Prices of longer-term securities generally fluctuate more in response to interest rate changes than do short-term or medium-term securities. These changes in net asset value are likely to be greater in the case of a fund having a leveraged capital structure, such as that used by the Funds. See "Risk Factors and Special Considerations--Leverage." Each Fund intends to invest primarily in long-term New York Municipal Bonds and Municipal Bonds with a maturity of more than ten years. However, each Fund may also invest in intermediate-term New York Municipal Bonds and Municipal Bonds with a maturity of between three years and ten years. 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 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. 23 Portfolio Insurance Under normal circumstances, at least 80% of the assets of New York Insured and New York Insured II will be invested in New York Municipal Bonds and Municipal Bonds either (i) insured under an insurance policy purchased by the Fund, or (ii) insured under an insurance policy obtained by the issuer thereof or any other party. The Funds will seek to limit their investments to municipal obligations insured under insurance policies issued by insurance carriers that have total admitted assets (unaudited) of at least $75,000,000 and capital and surplus (unaudited) of at least $50,000,000 and insurance claims-paying ability ratings of AAA from S&P or Fitch, or Aaa from Moody's. There can be no assurance that insurance from insurance carriers meeting these criteria will be available. See Exhibit V to this Proxy Statement and Prospectus for a brief description of insurance claims-paying ability ratings of S&P, Moody's and Fitch. Currently, it is anticipated that a majority of the insured New York Municipal Bonds and Municipal Bonds in the Fund's portfolio will be insured by the following insurance companies which satisfy the foregoing criteria: AMBAC Assurance Corporation, Financial Guaranty Insurance Company, Financial Security Assurance and Municipal Bond Investors Assurance Corporation. Each Fund also may purchase New York Municipal Bonds and Municipal Bonds covered by insurance issued by any other insurance company that satisfies the foregoing criteria. A majority of insured New York Municipal Bonds and Municipal Bonds held by each Fund will be insured under policies obtained by parties other than the Fund. Each Fund may purchase, but has no obligation to purchase, separate insurance policies (the "Policies") from insurance companies meeting the criteria set forth above that guarantee payment of principal and interest on specified eligible New York Municipal Bonds and Municipal Bonds purchased by the Funds. A New York 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 New York 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 New York Municipal Bonds and Municipal Bonds beneficially owned by a Fund. In the event of a sale of any New York Municipal Bonds and Municipal Bonds held by a Fund, the issuer of the relevant Policy will be liable only for those payments of interest and principal that are then due and owing. The Policies will not guarantee the market value of an insured New York Municipal Bond or Municipal Bond or the value of the shares of a Fund. The insurer will not have the right to withdraw coverage on securities insured by its Policies and held by a Fund so long as such securities remain in the Fund's portfolio. In addition, the insurer may not cancel its Policies for any reason except failure to pay premiums when due. The Board of Directors of each Fund reserves the right to terminate any of the Policies if it determines that the benefits to the Fund of having its portfolio insured under such Policy are not justified by the expense involved. The premiums for the Policies are paid by the Fund and the yield on its portfolio is reduced thereby. FAM estimates that the cost of the annual premiums for the Policies of each Fund currently range from approximately .02 of 1% to .15 of 1% of the principal amount of the New York Municipal Bonds and Municipal Bonds covered by such Policies. The estimate is based on the expected composition of each Fund's portfolio of New York Municipal Bonds and Municipal Bonds. Additional information regarding the Policies is set forth in Exhibit V to this Proxy Statement and Prospectus. In instances in which a Fund purchases New York Municipal Bonds and Municipal Bonds insured under policies obtained by parties other than the Fund, the Fund does not pay the premiums for such policies; rather, the cost of such policies may be reflected in the purchase price of the New York 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 24 market value of the defaulted security and its par value, is more appropriate. FAM's ability to manage the portfolio of a Fund may be limited to the extent it holds defaulted securities, which may limit its ability in certain circumstances to purchase other New York Municipal Bonds and Municipal Bonds. See "Net Asset Value" below for a more complete description of each Fund's method of valuing securities for which market quotations are not readily available. There can be no assurance that insurance with the terms and issued by insurance carriers meeting the criteria described above will continue to be available to each Fund. In the event the Board of Directors of a Fund determines that such insurance is unavailable or that the cost of such insurance outweighs the benefits to the Fund, the Fund may modify the criteria for insurance carriers or the terms of the insurance, or may discontinue its policy of maintaining insurance for all or any of the New York Municipal Bonds and Municipal Bonds held in the Fund's portfolio. Although FAM periodically reviews the financial condition of each insurer, there can be no assurance that the insurers will be able to honor their obligations under all circumstances. The portfolio insurance reduces financial or credit risk (i.e., the possibility that the owners of the insured New York Municipal Bonds or Municipal Bonds will not receive timely scheduled payments of principal or interest). However, the insured New York 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 New York Municipal Bonds and Municipal Bonds New York 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, 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 Municipal Bonds if the interest paid thereon is exempt from Federal income tax and are New York Municipal Bonds if the interest thereon is exempt from Federal income tax and from New York State and New York City personal income tax, even though such bonds may be industrial development bonds or PABs as discussed below. Also, for purposes of this Proxy Statement and Prospectus, Non-Municipal Tax-Exempt Securities as discussed above will be considered New York Municipal Bonds or Municipal Bonds. The two principal classifications of New York 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 typically secured by the issuer's pledge of faith, credit and taxing power for the repayment of principal and the payment of interest. Revenue or special obligation bonds are payable only from the revenues derived from a particular facility or class of facilities or, in some cases, from the proceeds of a special excise tax or other specific revenue source 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 principal and the payment of interest on such industrial development bonds depends solely on the ability of the user of the facility financed by the bonds to meet its financial obligations and the pledge, if any, of real and personal property so financed as security for such payment. New York Municipal Bonds and Municipal Bonds may also include "moral obligation" bonds, which are normally issued by special purpose public authorities. If an issuer of moral obligation bonds is unable to meet its obligations, the repayment of such bonds becomes a moral commitment but not a legal obligation of the state or municipality in question. Each Fund may purchase New York Municipal Bonds and Municipal Bonds classified as PABs or IDBs. 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 certain investors in the Fund. There is no limitation on 25 the percentage of a Fund's assets that may be invested in New York 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 Funds--Tax Rules Applicable to the Funds and their Stockholders." Also included within the general category of New York Municipal Bonds and/or 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 typically 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 such bonds the interest on which is excludable from income for Federal income tax purposes. Such legislation may affect the availability of New York Municipal Bonds and Municipal Bonds for investment by the Fund. Special Considerations Relating to New York Municipal Bonds Each Fund ordinarily will invest at least 65% of its total assets in New York Municipal Bonds and, therefore, it is more susceptible to factors adversely affecting issuers of New York Municipal Bonds than is a municipal bond fund that is not concentrated in issuers of New York Municipal Bonds to this degree. Because each Fund's portfolio will comprise investment grade securities, each Fund is expected to be insulated from the market and credit risks that may exist in connection with investments in non-investment grade New York Municipal Bonds. There is no assurance that a particular rating will continue for any given period of time or that 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 New York Municipal Bonds and Municipal Bonds generally may be affected by uncertainties in the municipal markets as a result of legislation or litigation changing the taxation of New York Municipal Bonds and Municipal Bonds or the rights of New York Municipal Bond and 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 New York Municipal Bonds and Municipal Bonds in which the Funds invest. FAM does not believe that current economic conditions in New York or other factors described above will have a significant adverse effect on the Fund's ability to invest in high quality New York Municipal Bonds. As of October 26, 1999, Moody's, S&P and Fitch rated New York City's general obligation bonds A3, A-, and A, respectively. As of June 15, 1999, Moody's and S&P rated New York State's outstanding general obligation bonds A2 and A, respectively. See Exhibit III-- "Economic and Other Conditions in New York," and Exhibit IV--"Ratings of Municipal Bonds." Other Investment Policies The Funds have adopted certain other policies as set forth below: Borrowings. Each Fund is authorized to borrow amounts of up to 5% of the value of its total assets at the time of such borrowings; provided, however, that each Fund is authorized to borrow moneys in amounts of up to 33 1/3% of the value of its total assets at the time of such borrowings to finance the repurchase of its own common stock pursuant to tender offers or otherwise to redeem or repurchase shares of preferred stock or for temporary, extraordinary or emergency purposes. Borrowings by each Fund 26 (commonly known, as with the issuance of preferred stock, as "leveraging") create an opportunity for greater total return since the Fund will not be required to sell portfolio securities to repurchase or redeem shares but, at the same time, increase exposure to capital risk. In addition, borrowed funds are subject to interest costs that may offset or exceed the return earned on the borrowed funds. When-Issued Securities and Delayed Delivery Transactions. Each Fund may purchase or sell New York 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 New York 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 New York 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 New York 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 New York 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 bonds will decrease when short-term rates increase, and will increase when short-term rates decrease. Such securities have the effect of providing a degree of investment leverage, since they may increase or decrease in value in response to changes, as an illustration, in market interest rates at a rate that is a multiple (typically two) of the rate at which fixed-rate, long-term, tax-exempt securities increase or decrease in response to such changes. As a result, the market values of such securities generally will be more volatile than the market values of fixed-rate tax-exempt securities. To seek to limit the volatility of these securities, a Fund may purchase inverse floating obligations with shorter- term maturities or limitations on the extent to which the interest rate may vary. FAM believes that indexed and inverse floating obligations represent a flexible portfolio management instrument for the Funds that allows FAM to vary the degree of investment leverage relatively efficiently under different market conditions. Call Rights. Each of the Funds may purchase a New York Municipal Bond or Municipal Bond issuer's rights to call all or a portion of such New York 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 New York Municipal Bonds or Municipal Bonds, subject to certain conditions. A Call Right that is not exercised prior to the maturity of the related New York Municipal Bond or Municipal Bond will expire without value. The economic effect of holding both the Call Right and the related New York Municipal Bond or Municipal Bond is identical to holding a New York 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 27 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 and New York State and New York City personal income tax purposes, repurchase agreements are treated as collateralized loans secured by the securities "sold." Therefore, amounts earned under such agreements will not be considered tax-exempt interest. Information Regarding Options and Futures Transactions Each Fund may hedge all or a portion of its portfolio investments against fluctuations in interest rates through the use of options and certain financial futures contracts and options thereon. While each Fund's use of hedging strategies is intended to reduce the volatility of the net asset value of the common stock, the net asset value of the common stock will fluctuate. There can be no assurance that a Fund's hedging transactions will be effective. In addition, because of the leveraged nature of the Common Stock, hedging transactions will result in a larger impact on the net asset value of the Common Stock than would be the case if the Common Stock were not leveraged. Furthermore, a Fund may only engage in hedging activities from time to time and may not necessarily be engaging in hedging activities when movements in interest rates occur. Neither Fund has an obligation to enter into hedging transactions and each may choose not to do so. Certain Federal income tax requirements may limit a Fund's ability to engage in hedging transactions. Gains from transactions in options and futures contracts distributed to stockholders will be taxable as ordinary income or, in certain circumstances, as long-term capital gains to stockholders. See "Comparison of the Funds--Tax Rules Applicable to the Funds and their Stockholders--Tax Treatment of Options and Futures Transactions." In addition, in order to obtain ratings of the AMPS from one or more NRSROs, a Fund may be required to limit its use of hedging techniques in accordance with the specified guidelines of such rating organizations. See "Rating Agency Guidelines" below. The following is a description of the options and futures transactions in which each Fund may engage, limitations on the Fund's use of such transactions and risks associated with these transactions. The investment policies with respect to the hedging transactions of a Fund are not fundamental policies and may be modified by the Board of Directors of the Fund without the approval of the Fund's stockholders. Writing Covered Call Options. Each Fund is authorized to write (i.e., sell) covered call options with respect to New York Municipal Bonds and Municipal Bonds it owns, thereby giving the holder of the option the right to buy the underlying security covered by the option from the Fund at the stated exercise price until the option expires. Each Fund writes only covered call options, which means that so long as the Fund is obligated as the writer of a call option, it will own the underlying securities subject to the option. The Fund may not write covered call options on underlying securities in an amount exceeding 15% of the market value of its total assets. Each Fund receives a premium from writing a call option, which increases the Fund's return on the underlying security in the event the option expires unexercised or is closed out at a profit. By writing a call, a Fund limits its opportunity to profit from an increase in the market value of the underlying security above the exercise price of the option for as long as the Fund's obligation as a writer continues. Covered call options serve as a partial hedge against a decline in the price of the underlying security. Each Fund may engage in closing transactions in order to terminate outstanding options that it has written. Purchase of Options. Each Fund may purchase put options in connection with its hedging activities. By buying a put, the Fund has a right to sell the underlying security at the exercise price, thus limiting its risk of loss through a decline in the market value of the security until the put expires. The amount of any appreciation in the value of the underlying security will be partially offset by the amount of the premium paid for the put option and any related transaction costs. Prior to its expiration, a put option may be sold in a closing sale transaction; profit or loss from the sale will depend on whether the amount received is more or less than the premium paid for the put option plus the related transaction costs. A closing sale transaction cancels out the Fund's position as the purchaser of an option by means of an offsetting sale of an identical option prior to the 28 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 New York 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 New York Municipal Bonds and Municipal Bonds that the Fund holds or anticipates purchasing against adverse changes in interest rates. Each Fund also may purchase and sell financial futures contracts on U.S. Government securities and purchase and sell put and call options on such financial futures contracts for such hedging purposes. With respect to U.S. Government securities, currently there are financial futures contracts based on long-term U.S. Treasury bonds, U.S. Treasury notes, GNMA Certificates and three-month U.S. Treasury bills. Subject to policies adopted by its Board of Directors, each Fund also may engage in transactions in other financial futures contracts, such as financial futures contracts on other municipal bond indices that may become available, if FAM should determine that there is normally sufficient correlation between the prices of such financial futures contracts and the New York 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. 29 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 New York Municipal Bonds and Municipal Bonds may be adversely affected by economic, political, legislative or other developments which have a disparate impact on the respective markets for such securities. Under regulations of the Commodity Futures Trading Commission, the futures trading activities described herein will not result in a Fund being deemed a "commodity pool," as defined under such regulations, provided that the Fund adheres to certain restrictions. In particular, the Fund may purchase and sell financial futures contracts and options thereon (i) for bona fide hedging purposes, without regard to the percentage of the Fund's assets committed to margin and option premiums, and (ii) for non-hedging purposes, if, immediately thereafter the sum of the amount of initial margin deposits on the Fund's existing futures positions and option premiums entered into for non-hedging purposes do not exceed 5% of the market value of the liquidation value of the Fund's portfolio, after taking into account unrealized profits and unrealized losses on any such transactions. Margin deposits may consist of cash or securities acceptable to the broker and the relevant contract market. When a Fund purchases a financial futures contract, or writes a put option or purchases a call option thereon, it will maintain an amount of cash, cash equivalents (e.g., commercial paper and daily tender adjustable notes) or liquid securities in a segregated account with the Fund's custodian, so that the amount so segregated plus the amount of initial and variation margin held in the account of its broker equals the market value of the financial futures contract, thereby ensuring that the use of such financial futures contract is unleveraged. Although certain risks are involved in options and futures transactions, FAM believes that, because each Fund will engage in options and futures transactions only for hedging purposes, the options and futures portfolio strategies of a Fund will not subject the Fund to the risks associated with speculation in options and futures transactions. The volume of trading in the exchange markets with respect to New York 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. 30 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, each 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 identical investment restrictions. The following are fundamental investment restrictions of each Fund and may not be changed without the approval of the holders of a majority of the outstanding shares of Common Stock and the outstanding shares of AMPS and any other preferred stock, voting together as a single class, and a majority of the outstanding shares of AMPS and any other preferred stock, voting separately as a class. (For this purpose and under the Investment Company Act, for the Common Stock and AMPS voting together, as a single class "majority" means the lesser of (i) 67% of the shares of each class of capital stock represented at a meeting at which more than 50% of the outstanding shares of each class of capital stock are represented or (ii) more than 50% of the outstanding shares of each class of capital stock, but for the AMPS voting separately as a class "majority" means more than 50% of the outstanding AMPS.) Neither Fund may: 1. Make investments for the purpose of exercising control or management. 2. Purchase securities of other investment companies, except in connection with a merger, consolidation, acquisition or reorganization, or by purchase in the open market of securities of closed-end investment companies and only if immediately thereafter not more than 10% of the Fund's total assets would be invested in such securities. 3. Purchase or sell real estate, real estate limited partnerships, commodities or commodity contracts; provided, that the Fund may invest in securities secured by real estate or interests therein or issued by companies that invest in real estate or interests therein, and the Fund may purchase and sell financial futures contracts and options thereon. 4. Issue senior securities other than preferred stock or borrow amounts in excess of 5% of its total assets taken at market value; provided, however, that the Fund is authorized to borrow moneys in excess of 5% of the value of its total assets for the purpose of repurchasing shares of Common Stock or redeeming shares of preferred stock. 5. Underwrite securities of other issuers except insofar as the Fund may be deemed an underwriter under the Securities Act of 1933 (the "Securities Act") in selling portfolio securities. 6. Make loans to other persons, except that the Fund may purchase New York Municipal Bonds, Municipal Bonds and other debt securities and enter into repurchase agreements 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 New York Municipal 31 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 or their political subdivisions applies only to tax-exempt securities issued by such entities. Additional investment restrictions adopted by each Fund, which may be changed by the Board of Directors without stockholder approval, provide that neither Fund may: a. Mortgage, pledge, hypothecate or in any manner transfer, as security for indebtedness, any securities owned or held by the Fund except as may be necessary in connection with borrowings mentioned in investment restriction (3) above or except as may be necessary in connection with transactions in financial futures contracts and options thereon. b. 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). c. 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 New York Municipal Bonds, Municipal Bonds, U.S. Government obligations and related indices or otherwise in connection with bona fide hedging activities and may purchase and sell Call Rights to require mandatory tender for the purchase of related New York Municipal Bonds and Municipal Bonds. If a percentage restriction on the investment or use of assets set forth above is adhered to at the time a transaction is effected, later changes in percentages resulting from changing values will not be considered a violation. For so long as shares of AMPS are rated by Moody's, neither Fund will change these additional investment restrictions unless it receives written confirmation from Moody's that engaging in such transactions would not impair the rating then assigned to the shares of AMPS by Moody's. FAM and Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch") are owned and controlled by Merrill Lynch & Co., Inc. ("ML & Co."). Because of the affiliation of Merrill Lynch with FAM, each Fund is prohibited from engaging in certain transactions involving Merrill Lynch except pursuant to an exemptive order or otherwise in compliance with the provisions of the Investment Company Act and the rules and regulations thereunder. Included among such restricted transactions will be purchases from or sales to Merrill Lynch of securities in transactions in which it acts as principal. An exemptive order has been obtained that permits the Funds to effect principal transactions with Merrill Lynch in high quality, short-term, tax-exempt securities subject to conditions set forth in such order. The Funds may consider in the future requesting an order permitting other principal transactions with Merrill Lynch, but there can be no assurance that such application will be made and, if made, that such order would be granted. AMPS Rating Agency Guidelines Each Fund intends that, so long as shares of its AMPS are outstanding, the composition of its portfolio will reflect guidelines established by Moody's and S&P in connection with the Fund's receipt of a rating for such shares on or prior to their date of original issue of at least "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 perceived creditworthiness of such securities. The guidelines for rating AMPS have been developed by Moody's and S&P in connection with issuances of asset- backed and similar securities, including debt obligations and variable rate preferred stock, generally on a case-by-case basis through discussions with the 32 issuers of these securities. The guidelines are designed to ensure that assets underlying outstanding debt or preferred stock will be varied sufficiently and will be of sufficient quality and amount to justify investment-grade ratings. The guidelines do not have the force of law but have been adopted by each Fund in order to satisfy current requirements necessary for Moody's and S&P to issue the above-described ratings for shares of AMPS, which ratings generally are relied upon by institutional investors in purchasing such securities. The guidelines provide a set of tests for portfolio composition and asset coverage that supplement (and in some cases are more restrictive than) the applicable requirements under the Investment Company Act. Each Fund may, but is not required to, adopt any modifications to these guidelines that hereafter may be established by Moody's or S&P. Failure to adopt any such modifications, however, may result in a change in the ratings described above or a withdrawal of the ratings altogether. In addition, any rating agency providing a rating for the shares of AMPS, at any time, may change or withdraw any such rating. As set forth in the Articles Supplementary of each Fund, the Board of Directors, without stockholder approval, may modify certain definitions or restrictions that have been adopted by the Fund pursuant to the rating agency guidelines, provided the Board of Directors has obtained written confirmation from Moody's and S&P that any such change would not impair the ratings then assigned by Moody's and S&P to the AMPS. See "The Reorganization--Risk Factors and Special Considerations--Ratings Considerations." For so long as any shares of a Fund's AMPS are rated by Moody's or S&P, as the case may be, a Fund's use of options and financial futures contracts and options thereon will be subject to certain limitations mandated by the rating agencies. Portfolio Composition There are small differences in concentration among the categories of issuers of the New York Municipal Bonds and Municipal Bonds held in the portfolios of the Funds. For New York Insured, as of August 31, 1999, the highest concentration of New York Municipal Bonds and Municipal Bonds was in Hospitals/Healthcare, Transportation and Education, accounting for 23%, 17%, and 13% of the Fund's portfolio, respectively; and for New York Insured II, the highest concentration was in Transportation, Education and Hospitals/Healthcare, accounting for 21%, 19% and 16% of the Fund's portfolio, respectively. Although the investment portfolios of both 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 two investment portfolios. The tables below set forth ratings information for the New York Municipal Bonds and Municipal Bonds held by each Fund, as of a certain date. New York Insured As of August 31, 1999, approximately 95% of the market value of New York Insured's portfolio was invested in long-term municipal obligations and approximately 5% of the market value of New York Insured's portfolio was invested in short-term municipal obligations. The following table sets forth certain information with respect to the composition of New York Insured's long-term municipal obligation investment portfolio as of August 31, 1999.
Number of Value S&P* Moody's* Issues (in thousands) Percent ---- -------- --------- -------------- ------- AAA Aaa 39 $240,767 98.3% A A 1 4,105 1.7 --- -------- ----- 40 $244,872 100.0% === ======== =====
- -------- * 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." 33 New York Insured II As of August 31, 1999 approximately 98% of the market value of New York Insured II's portfolio was invested in long-term municipal obligations and approximately 2% of the market value of New York Insured II's portfolio was invested in short-term municipal obligations. The following table sets forth certain information with respect to the composition of New York Insured II's long-term municipal obligation investment portfolio as of August 31, 1999.
Number of Value S&P* Moody's* Issues (in thousands) Percent ---- -------- --------- -------------- ------- AAA Aaa 107 $448,979 84.9% AA Aa 8 39,027 7.4 A A 7 26,832 5.1 BBB Baa 1 4,499 0.8 NR NR 1 9,776 1.8 --- -------- ----- 124 $529,113 100.0% === ======== =====
- -------- * 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." Portfolio Transactions The procedures for engaging in portfolio transactions are the same for both New York Insured and New York Insured II. Subject to policies established by the Board of Directors of each Fund, FAM is primarily responsible for the execution of each Fund's portfolio transactions. In executing such transactions, FAM seeks to obtain the best results for each Fund, taking into account such factors as price (including the applicable brokerage commission or dealer spread), size of order, difficulty of execution and operational facilities of the firm involved and the firm's risk in positioning a block of securities. While FAM generally seeks reasonably competitive commission rates, New York Insured and New York Insured II do not necessarily pay the lowest commission or spread available. Neither Fund 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. New York Insured and New York Insured II 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. 34 The Board of Directors of each Fund has considered the possibility of recapturing for the benefit of the Fund's brokerage commissions, dealer spreads and other expenses of possible portfolio transactions, such as underwriting commissions, by conducting portfolio transactions through affiliated entities, including Merrill Lynch. For example, brokerage commissions received by Merrill Lynch could be offset against the investment advisory fees paid by the Fund to FAM. After considering all factors deemed relevant, the Directors of each Fund made a determination not to seek such recapture. The Directors will reconsider this matter from time to time. Periodic auctions are conducted for the New York Insured AMPS and New York Insured II AMPS by the Auction Agent for the Funds. The auctions require the participation of one or more broker-dealers, each of whom enters into an agreement with the Auction Agent. After each auction, the Auction Agent pays a service charge, from funds provided by the issuing Fund, to each broker-dealer at the annual rate of .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, neither Fund purchases securities for short-term trading profits. However, either Fund may dispose of securities without regard to the time that they have been held when such action, for defensive or other reasons, appears advisable to FAM. (The portfolio turnover rate is calculated by dividing the lesser of purchases or sales of portfolio securities for the particular fiscal year by the monthly average of the value of the portfolio securities owned by a Fund during the particular fiscal year. For purposes of determining this rate, all securities whose maturities at the time of acquisition are one year or less are excluded.) A high portfolio turnover rate results in greater transaction costs, which are borne directly by the Fund, and also has certain tax consequences for stockholders. The portfolio turnover rate for each of the Funds for the periods indicated is set forth below:
Six Months ended Year ended 4/30/99 10/31/98 (unaudited) ---------- ---------------- New York Insured.............................. 89.76% 43.75% New York Insured II........................... 136.43% 43.55%
Net Asset Value The net asset value per share of Common Stock of each Fund is determined after the close of business on the NYSE (generally, 4:00 p.m., Eastern time) on the last business day in each week. For purposes of determining the net asset value of a share of Common Stock of each Fund, the value of the securities held by the Fund plus any cash or other assets (including interest accrued but not yet received) minus all liabilities (including accrued expenses) and the aggregate liquidation value of the outstanding shares of AMPS is divided by the total number of shares of Common Stock outstanding at such time. Expenses, including the fees payable to FAM, are accrued daily. The New York Municipal Bonds and Municipal Bonds in which each Fund invests are traded primarily in the over-the-counter markets. In determining net asset value, each Fund uses the valuations of portfolio securities furnished by a pricing service approved by its Board of Directors. The pricing service typically values portfolio securities at the bid price or the yield equivalent when quotations are readily available. New York Municipal Bonds and Municipal Bonds for which quotations are not readily available are valued at fair market value on a consistent basis as determined by the pricing service using a matrix system to determine valuations. The procedures of the pricing service and its valuations are reviewed by the officers of each Fund under the general supervision of the Board of Directors of the Fund. The Board of Directors of each Fund has determined in good faith that the use of a pricing service is a fair method of determining the valuation of portfolio securities. Positions in futures contracts are valued at closing prices for such contracts established by the exchange on which they are traded, or if market quotations are not readily available, are valued at fair value on a consistent basis using methods determined in good faith by the Board of Directors of each Fund. 35 Each Fund determines and makes available for publication the net asset value of its Common Stock weekly. Currently, the net asset values of shares of publicly traded closed-end investment companies investing in debt securities are published in Barron's, the Monday edition of The Wall Street Journal, and the Monday and Saturday editions of The New York Times. Capital Stock New York Insured and New York Insured II have outstanding both Common Stock and AMPS. New York Insured Common Stock and New York Insured II Common Stock are traded on the NYSE. The shares of New York Insured Common Stock commenced trading on the NYSE on March 16, 1992. As of September 30, 1999, the net asset value per share of New York Insured Common Stock was $13.58 and the market price per share was $13.4375. The shares of New York Insured II Common Stock commenced trading on the NYSE on July 20, 1992. As of September 30, 1999, the net asset value per share of New York Insured II Common Stock was $13.73 and the market price per share was $13.00. Each Fund is authorized to issue 200,000,000 shares of capital stock, all of which shares initially were classified as Common Stock. The Board of Directors of each Fund is authorized to classify or reclassify any unissued shares of capital stock by setting or changing the preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends, qualifications, or terms or conditions of redemption. In connection with each respective Fund's offering of shares of AMPS, New York Insured reclassified 3,400 shares of unissued capital stock as AMPS and New York Insured II reclassified 6,960 shares of unissued capital stock as AMPS. Common Stock Holders of each Fund's Common Stock are entitled to share equally in dividends declared by the Fund's Board of Directors payable to holders of the Common Stock and in the net assets of the Fund available for distribution to holders of the Common Stock after payment of the preferential amounts payable to holders of any outstanding preferred stock. See "Voting Rights" and "Liquidation Rights of Holders of AMPS" below. Holders of a Fund's Common Stock do not have preemptive or conversion rights and shares of a Fund's Common Stock are not redeemable. The outstanding shares of Common Stock of each Fund are fully paid and nonassessable. So long as any shares of a Fund's AMPS or any other preferred stock are outstanding, holders of the Fund's Common Stock will not be entitled to receive any dividends of or other distributions from the Fund unless all accumulated dividends on outstanding shares of the Fund's AMPS and any other preferred stock have been paid, and unless asset coverage (as defined in the Investment Company Act) with respect to such AMPS and any other preferred stock would be at least 200% after giving effect to such distributions. Preferred Stock New York Insured AMPS are structured identically to New York Insured II AMPS. The AMPS of both Funds have a similar structure. The AMPS of each Fund are shares of preferred stock of the Fund that entitle their holders to receive dividends when, as and if declared by the Board of Directors, out of funds legally available therefor, at a rate per annum that may vary for the successive dividend periods. New York Insured AMPS and New York Insured II AMPS both have liquidation preferences of $25,000 per share; neither 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. 36
Dividend Auction Date Fund Series Rate ------------ ------------------- ------ -------- October 25, 1999....................... New York Insured A 3.01% October 25, 1999....................... New York Insured B 3.50% October 22, 1999....................... New York Insured II A 3.40% October 26, 1999....................... New York Insured II B 3.45% November 3, 1999....................... New York Insured II C 3.70% October 26, 1999....................... New York Insured II D 2.99%
Under the Investment Company Act, each Fund is permitted to have outstanding more than one series of preferred stock as long as no single series has priority over another series as to the distribution of assets of the Fund or the payment of dividends. Holders of a Fund's preferred stock do not have preemptive rights to purchase any shares of AMPS or any other preferred stock that might be issued. The net asset value per share of a Fund's AMPS equals its liquidation preference plus accumulated dividends per share. Redemption Provisions The redemption provisions pertaining to New York Insured AMPS are identical to those pertaining to New York Insured II AMPS. 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 plus accumulated but unpaid dividends to the date of redemption plus, under certain circumstances, a redemption premium. Shares of AMPS will also be subject to mandatory redemption at a price equal to their liquidation preference plus accumulated but unpaid dividends to the date of redemption upon the occurrence of certain specified events, such as the failure of the Fund to maintain the asset coverage for the AMPS specified by Moody's and S&P in connection with their issuance of ratings on the AMPS. Certain Provisions of the Charter Each Fund's Charter includes provisions that could have the effect of limiting the ability of other entities or persons to acquire control of the Fund or to change the composition of its Board of Directors and could have the effect of depriving stockholders of an opportunity to sell their shares at a premium over prevailing market prices by discouraging a third party from seeking to obtain control of the Fund. A Director may be removed from office with or without cause by vote of the holders of at least 66 2/3% of the votes entitled to be voted on the matter. A Director elected by all of the holders of capital stock may be removed only by action of such holders, and a Director elected by the holders of AMPS and any other preferred stock may be removed only by action of the holders of AMPS and any other preferred stock. In addition, the Charter of each Fund requires the favorable vote of the holders of at least 66 2/3% of all of the Fund's shares of capital stock, then entitled to be voted, voting as a single class, to approve, adopt or authorize the following: .a merger or consolidation or statutory share exchange of the Fund with any other corporation or entity, . a sale of all or substantially all of the Fund's assets (other than in the regular course of the Fund's investment activities), or .a liquidation or dissolution of the Fund, unless such action has been approved, adopted or authorized by the affirmative vote of at least two-thirds of the total number of Directors fixed in accordance with the by-laws, in which case the affirmative vote of a majority of all of the votes entitled to be cast by stockholders of the Fund, voting as a single class, is required. Such approval, adoption or authorization of the foregoing also would require the favorable vote of at least a majority of the Fund's shares of preferred stock then entitled to be voted thereon, including the AMPS, voting as a separate class. 37 In addition, conversion of a Fund to an open-end investment company would require an amendment to the Fund's Charter. The amendment would have to be declared advisable by the Board of Directors prior to its submission to stockholders. Such an amendment would require the affirmative vote of the holders of at least 66 2/3% of the Fund's outstanding shares of capital stock (including the AMPS and any other preferred stock) entitled to be voted on the matter, voting as a single class (or a majority of such shares if the amendment was previously approved, adopted or authorized by at least two- thirds of the total number of Directors fixed in accordance with the by-laws), and the affirmative vote of at least a majority of outstanding shares of preferred stock of a Fund (including the AMPS), voting as a separate class. Such a vote also would satisfy a separate requirement in the Investment Company Act that the change be approved by the stockholders. Stockholders of an open-end investment company may require the company to redeem their shares of common stock at any time (except in certain circumstances as authorized by or under the Investment Company Act) at their net asset value, less such redemption charge, if any, as might be in effect at the time of a redemption. All redemptions will be made in cash. If the Fund is converted to an open-end investment company, it could be required to liquidate portfolio securities to meet requests for redemption and the Common Stock no longer would be listed on a stock exchange. Conversion to an open-end investment company would also require redemption of all outstanding shares of preferred stock (including the AMPS) and would require changes in certain of the Fund's investment policies and restrictions, such as those relating to the issuance of senior securities, the borrowing of money and the purchase of illiquid securities. The Board of Directors of each Fund has determined that the 66 2/3% voting requirements described above, which are greater than the minimum requirements under Maryland law or the Investment Company Act, are in the best interests of stockholders generally. Reference should be made to the Charter of each Fund on file with the SEC for the full text of these provisions. Management of the Funds Directors and Officers. The Boards of Directors of New York Insured and New York Insured II 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. Terry K. Glenn serves as a Director and President of both Funds, and Arthur Zeikel serves as a Director of both Funds. The Directors of each Fund are responsible for the overall supervision of the operations of the Fund and perform the various duties imposed on the directors of investment companies by the Investment Company Act and under applicable Maryland law. New York Insured and New York Insured II have substantially the same slate of officers. Walter C. O'Connor serves as the portfolio manager for New York Insured. Roberto W. Roffo serves as portfolio manager for New York Insured II. Mr. O'Connor will serve as the portfolio manager of the combined fund after the Reorganization. The portfolio managers are primarily responsible for the management of each Fund's portfolio. Management and Advisory Arrangements. FAM, which is owned and controlled by ML & Co., serves as the investment adviser for each of the Funds pursuant to separate investment advisory agreements that, except for their termination dates, are identical. FAM provides each Fund with the same investment advisory and management services. The Asset Management Group of ML & Co. (which includes FAM) acts as the investment adviser to more than 100 registered investment companies and offers services to individuals and institutional accounts. As of September 1999, the Asset Management Group had a total of approximately $514 billion in investment company and other portfolio assets under management (approximately $38.5 billion of which were invested in municipal securities). This amount includes assets managed for certain affiliates of FAM. FAM is a limited partnership, the partners of which are ML & Co. and Princeton Services, Inc. FAM was organized as an investment adviser in 1977 and offers investment advisory services to more than 50 registered investment companies. The principal business address of FAM is 800 Scudders Mill Road, Plainsboro, New Jersey 08536. Each Fund's investment advisory agreement with FAM provides that, subject to the supervision of the Board of Directors of the Fund, FAM is responsible for the actual management of the Fund's portfolio. The 38 responsibility for making decisions to buy, sell or hold a particular security for each Fund rests with FAM, subject to review by the Board of Directors of the Fund. FAM provides the portfolio management for each of the Funds. Such portfolio management considers analyses from various sources (including brokerage firms with which each Fund does business), makes the necessary investment decisions, and places orders for transactions accordingly. FAM also is responsible for the performance of certain administrative and management services for each Fund. For the services provided by FAM under each Fund's investment advisory agreement, each Fund pays a monthly fee at an annual rate of .50 of 1% of the Fund's average weekly net assets (i.e., the average weekly value of the total assets of the Fund, including assets acquired from the sale of preferred stock, minus the sum of accrued liabilities of the Fund and accumulated dividends on its shares of preferred stock). For purposes of this calculation, average weekly net assets are determined at the end of each month on the basis of the average net assets of the Fund for each week during the month. The assets for each weekly period are determined by averaging the net assets at the last business day of a week with the net assets at the last business day of the prior week. Each Fund's investment advisory agreement obligates FAM to provide investment advisory services and to pay all compensation of and furnish office space for officers and employees of the Fund connected with investment and economic research, trading and investment management of the Fund, as well as the compensation of all Directors of the Fund who are affiliated persons of FAM or any of its affiliates. Each Fund pays all other expenses incurred in the operation of the Fund, including, among other things, expenses for legal and auditing services, taxes, costs of printing proxies, listing fees, stock certificates and stockholder reports, charges of the custodian and the transfer agent, dividend disbursing agent and registrar, fees and expenses with respect to the issuance of AMPS, SEC fees, fees and expenses of unaffiliated Directors, accounting and pricing costs, insurance, interest, brokerage costs, litigation and other extraordinary or non-recurring expenses, mailing and other expenses properly payable by the Fund. FAM provides accounting services to each Fund, and each Fund reimburses FAM for its respective costs in connection with such services. Unless earlier terminated as described below, the investment advisory agreement between each Fund and FAM will continue from year to year if approved annually (a) by the Board of Directors of the Fund or by a majority of the outstanding shares of the Fund's Common Stock and AMPS, voting together as a single class, and (b) by a majority of the Directors of the Fund who are not parties to such contract or "interested persons," as defined in the Investment Company Act, of any such party. The contract is not assignable and it may be terminated without penalty on 60 days' written notice at the option of either party thereto or by the vote of the stockholders of the Fund. Securities held by a Fund may also be held by, or be appropriate investments for, other funds or investment advisory clients for which FAM or its affiliates act as an adviser. Because of different objectives or other factors, a particular security may be bought for an advisory client when other clients are selling the same security. If purchases or sales of securities by FAM for a Fund or other funds for which it acts as investment adviser or for advisory clients arise for consideration at or about the same time, transactions in such securities will be made, insofar as feasible, for the respective funds and clients in a manner deemed equitable to all. Transactions effected by FAM (or its affiliates) on behalf of more than one of its clients during the same period may increase the demand for securities being purchased or the supply of securities being sold, causing an adverse effect on price. Code of Ethics The Board of Directors of each of the Funds has adopted a Code of Ethics pursuant to Rule 17j-1 under the Investment Company Act that incorporates the Code of Ethics of FAM (together, the "Codes"). The Codes significantly restrict the personal investing activities of all employees of FAM and, as described below, impose additional, more onerous, restrictions on Fund investment personnel. 39 The Codes require that all employees of FAM preclear any personal securities investment (with limited exceptions, such as U.S. Government securities). The preclearance requirement and associated procedures are designed to identify any substantive prohibition or limitation applicable to the proposed investment. The substantive restrictions applicable to all employees of FAM include a ban on acquiring any securities in a "hot" initial public offering and a prohibition from profiting on short-term trading securities. In addition, no employee may purchase or sell any security that at the time is being purchased or sold (as the case may be), or to the knowledge of the employee is being considered for purchase or sale, by any fund advised by FAM. Furthermore, the Codes provide for trading "blackout periods" that prohibit trading by investment personnel of each of the Funds within periods of trading by the Fund in the same (or equivalent) security (15 or 30 days depending upon the transaction). Voting Rights Voting rights are identical for the holders of shares of New York Insured Common Stock and the holders of New York Insured II Common Stock. Holders of each Fund's Common Stock are entitled to one vote for each share held and will vote with the holders of any outstanding shares of the Fund's AMPS or other preferred stock on each matter submitted to a vote of holders of Common Stock, except as set forth below. Voting rights of the holders of each Fund's AMPS are identical. Except as otherwise indicated below, and except as otherwise required by applicable law, holders of shares of a Fund's AMPS will be entitled to one vote per share on each matter submitted to a vote of the Fund's stockholders and will vote together with the holders of shares of the Fund's Common Stock as a single class. The shares of each Fund's Common Stock, AMPS and any other preferred stock do not have cumulative voting rights, which means that the holders of more than 50% of the shares of a Fund's Common Stock, AMPS and any other preferred stock voting for the election of Directors can elect all of the Directors standing for election by such holders, and, in such event, the holders of the remaining shares of a Fund's Common Stock, AMPS and any other preferred stock will not be able to elect any of such Directors. In connection with the election of a Fund's Directors, holders of shares of a Fund's AMPS, voting separately as a class, shall be entitled at all times to elect two of the Fund's Directors, and the remaining Directors will be elected by holders of shares of the Fund's Common Stock and shares of the Fund's AMPS and any other preferred stock, voting together as a single class. In addition, if at any time dividends on outstanding shares of a Fund's AMPS shall be unpaid in an amount equal to at least two full years' dividends thereon or if at any time holders of any shares of a Fund's preferred stock are entitled, together with the holders of shares of the Fund's AMPS, to elect a majority of the Directors of the Fund under the Investment Company Act, then the number of Directors constituting the Board of Directors automatically shall be increased by the smallest number that, when added to the two Directors elected exclusively by the holders of shares of AMPS and any other preferred stock as described above, would constitute a majority of the Board of Directors as so increased by such smallest number, and at a special meeting of stockholders which will be called and held as soon as practicable, and at all subsequent meetings at which Directors are to be elected, the holders of shares of the Fund's AMPS and any other preferred stock, voting separately as a class, will be entitled to elect the smallest number of additional Directors that, together with the two Directors which such holders in any event will be entitled to elect, constitutes a majority of the total number of Directors of the Fund as so increased. The terms of office of the persons who are Directors at the time of that election will continue. If the Fund thereafter shall pay, or declare and set apart for payment in full, all dividends payable on all outstanding shares of AMPS and any other preferred stock for all past dividend periods, the additional voting rights of the holders of shares of AMPS and any other preferred stock as described above shall cease, and the terms of office of all of the additional Directors elected by the holders of shares of AMPS and any other preferred stock (but not of the Directors with respect to whose election the holders of shares of Common Stock were entitled to vote or the two Directors the holders of shares of AMPS and any other preferred stock have the right to elect in any event) will terminate automatically. 40 The affirmative vote of the holders of a majority of the outstanding shares of a Fund's AMPS, voting as a separate class, will be required to (i) authorize, create or issue, or increase the authorized or issued amount of any class or series of stock ranking prior to or on a parity with any series of preferred stock with respect to payment of dividends or the distribution of assets on liquidation, (ii) amend, alter or repeal the provisions of the Charter, whether by merger, consolidation or otherwise, so as to adversely affect any of the contract rights expressly set forth in the Charter of holders of preferred stock, (iii) approve any plan of reorganization adversely affecting such AMPS or (iv) take any action to change a Fund's investment policies requiring a vote of stockholders under Section 13(a) of the Investment Company Act. Stockholder Inquiries Stockholder inquiries with respect to New York Insured and New York Insured II may be addressed to either 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 New York Insured's current policy with respect to dividends and distributions relating to shares of New York Insured Common Stock is identical to New York Insured II's policy with respect to shares of New York Insured II Common Stock. Each Fund intends to distribute all or a portion of its net investment income monthly to holders of a Fund's Common Stock. Monthly distributions to holders of a Fund's Common Stock normally consist of all or a portion of net investment income remaining after the payment of dividends (and any Additional Distribution) on the Fund's AMPS. A Fund may at times pay out less than the entire amount of net investment income earned in any particular period and may at times pay out such accumulated undistributed income in addition to net investment income earned in other periods in order to permit the Fund to maintain a more stable level of dividends to holders of Common Stock. As a result, the dividend paid by a Fund to holders of its Common Stock for any particular period may be more or less than the amount of net investment income earned by the Funds during such period. For Federal tax purposes, the Fund is required to distribute substantially all of its net investment income for each year. All net realized long-term or short-term capital gains, if any, are distributed pro rata at least annually, to holders of shares of a Fund's Common Stock and AMPS. While any shares of a Fund's AMPS are outstanding, the Fund may not declare any cash dividend or other distribution on the Fund's Common Stock, unless at the time of such declaration (1) all accumulated dividends on the Fund's AMPS including any Additional Distribution have been paid, and (2) the net asset value of the Fund's portfolio (determined after deducting the amount of such dividend or other distribution) is at least 200% of the liquidation value of the Fund's outstanding shares of AMPS. If a Fund's ability to make distributions on its Common Stock is limited, such limitation could under certain circumstances impair the ability of the Fund to maintain its qualification for taxation as a regulated investment company, which would have adverse tax consequences for a Fund's stockholders. See "Comparison of the Funds--Tax Rules Applicable to the Fund's and their Stockholders." Similarly, New York Insured's current policy with respect to dividends and distributions on shares of New York Insured AMPS is identical to New York Insured II's policy with respect to shares of New York Insured II AMPS. The holders of shares of a Fund's AMPS are entitled to receive, when, as and if declared by the Board of Directors of the Fund, out of funds legally available therefor, cumulative cash dividends on their shares. Dividends on a Fund's shares of AMPS so declared and payable shall be paid (i) in preference to and in priority over any dividends so declared and payable on the Fund's Common Stock, and (ii) to the extent permitted under the Code and to the extent available, out of net tax-exempt income earned on the Fund's investments. Dividends for each Fund's AMPS are paid through The Depository Trust Company ("DTC") (or a successor securities depository) on each dividend payment date. DTC's normal procedures now provide for it to distribute dividends in same-day funds to agent members, who in turn are expected to distribute such dividends to the person for whom they are acting as agent in accordance with the instructions of such person. Prior to each dividend payment date, the relevant Fund is required to deposit with the Auction Agent sufficient funds for the payment of such declared dividends. Neither of the Funds intends to establish any reserves for the payment of dividends, and no 41 interest will be payable in respect of any dividend payment or payment on the shares of a Fund's AMPS which may be in arrears. Dividends paid by each Fund, to the extent paid from tax-exempt income earned on New York Municipal Bonds, are exempt from Federal income tax and New York State and New York City 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 and New York State and New York City personal income taxes, if any, proportionately between shares of its Common Stock and shares of its AMPS in accordance with the current position of the IRS described herein. See "Tax Rules Applicable to the Funds and their Stockholders" below. Each Fund notifies the Auction Agent of the amount of any net capital gains or other taxable income to be included in any dividend on shares of AMPS prior to the auction establishing the applicable rate for such dividend. The Auction Agent in turn notifies each broker-dealer whenever it receives any such notice from a Fund, and each broker-dealer then notifies its customers who are holders of the Fund's AMPS. Each Fund also may include such income in a dividend on shares of its AMPS without giving advance notice thereof if it increases the dividend by an additional amount to offset the tax effect thereof. The amount of taxable income allocable to shares of a Fund's AMPS will depend upon the amount of such income realized by the Fund and other factors, but generally is not expected to be significant. For information concerning the manner in which dividends and distributions to holders of each Fund's Common Stock may be reinvested automatically in shares of the Fund's Common Stock, see "Automatic Dividend Reinvestment Plan" below. Dividends and distributions will be subject to the tax treatment discussed below, whether they are reinvested in shares of a Fund or received in cash. If any Fund, New York Insured or New York Insured II, as the case may be, retroactively allocates any net capital gains or other income subject to regular Federal income tax and New York State and New York City 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 the outstanding shares of its AMPS or the liquidation of the Fund, the Fund will make certain payments to holders of shares of its AMPS to which such allocation was made to offset substantially the tax effect thereof. In no other instances will the Fund be required to make payments to holders of shares of its AMPS to offset the tax effect of any reallocation of net capital gains or other taxable income. Automatic Dividend Reinvestment Plan Pursuant to each Fund's Automatic Dividend Reinvestment Plan (each, a "Plan"), unless a holder of a Fund's Common Stock elects otherwise, all dividend and capital gains distributions are automatically reinvested by either The Bank of New York or State Street Bank and Trust Company, as applicable, as agent for stockholders in administering the Plan (as applicable, the "Plan Agent"), in additional shares of the Fund's Common Stock. The Bank of New York is the Plan Agent for New York Insured and will be the Plan Agent following the Reorganization. Holders of a Fund's Common Stock who elect not to participate in the Plan receive all distributions in cash paid by check mailed directly to the stockholder of record (or, if the shares are held in street or other nominee name, then to such nominee) by The Bank of New York or State Street Bank and Trust Company, as applicable, as dividend paying agent. Such stockholders may elect not to participate in the Plan and to receive all distributions of dividends and capital gains in cash by sending written instructions to The Bank of New York or 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 shares of the Fund's Common Stock. The shares are acquired by the Plan Agent 42 for the participant's account, depending upon the circumstances described below, either (i) through receipt of additional unissued but authorized shares of the Fund's Common Stock from the Fund ("newly-issued shares") or (ii) by purchase of outstanding shares of the Fund's Common Stock on the open market ("open-market purchases"), on the NYSE or elsewhere. If on the payment date for the dividend, the net asset value per share of the Fund's Common Stock is equal to or less than the market price per share of the Fund's Common Stock plus estimated brokerage commissions (such condition being referred to herein as "market premium"), the Plan Agent invests the dividend amount in newly- issued shares on behalf of the participant. The number of newly-issued shares of the Fund's Common Stock to be credited to the participant's account is determined by dividing the dollar amount of the dividend by the net asset value per share on the date the shares are issued, provided that the maximum discount from the then-current market price per share on the date of issuance may not exceed 5%. If on the dividend payment date, the net asset value per share is greater than the market value (such condition being referred to herein as "market discount"), the Plan Agent invests the dividend amount in shares acquired on behalf of the participant in open-market purchases. In the event of a market discount on the dividend payment date, the Plan Agent has until the last business day before the next date on which the shares trade on an "ex-dividend" basis or in no event more than 30 days after the dividend payment date (the "last purchase date") to invest the dividend amount in shares acquired in open-market purchases. Each Fund intends to pay monthly income dividends. Therefore, the period during which open-market purchases can be made exists only from the payment date on the dividend through the date before the next "ex-dividend" date, which typically is approximately ten days. If, before the Plan Agent has completed its open-market purchases, the market price of a share of a Fund's Common Stock exceeds the net asset value per share, the average per share purchase price paid by the Plan Agent may exceed the net asset value of the Fund's shares, resulting in the acquisition of fewer shares than if the dividend had been paid in newly-issued shares on the dividend payment date. Because of the foregoing difficulty with respect to open-market purchases, the Plan provides that if the Plan Agent is unable to invest the full dividend amount in open-market purchases during the purchase period or if the market discount shifts to a market premium during the purchase period, the Plan Agent ceases making open-market purchases and invests the uninvested portion of the dividend amount in newly-issued shares at the close of business on the last purchase date. The Plan Agent maintains all stockholders' accounts in the Plan and furnishes written confirmation of all transactions in the account, including information needed by stockholders for tax records. Shares in the account of each Plan participant are held by the Plan Agent in non-certificated form in the name of the participant, and each stockholder's proxy includes those shares purchased or received pursuant to the Plan. The Plan Agent will forward all proxy solicitation materials to participants and vote proxies for shares held pursuant to the Plan in accordance with the instructions of the participants. In the case of stockholders such as banks, brokers or nominees which hold shares for others who are the beneficial owners, the Plan Agent will administer the Plan on the basis of the number of shares certified from time to time by the record stockholders as representing the total amount registered in the record stockholder's name and held for the account of beneficial owners who are to participate in the Plan. There are no brokerage charges with respect to shares issued directly by either Fund as a result of dividends or capital gains distributions payable either in shares or in cash. However, each participant pays a pro rata share of brokerage commissions incurred with respect to the Plan Agent's open-market purchases in connection with the reinvestment of dividends. The automatic reinvestment of dividends and distributions does not relieve participants of any Federal, state or local income tax that may be payable (or required to be withheld) on such dividends. See "Comparison of the Funds--Tax Rules Applicable to the Funds and their Stockholders." Stockholders participating in the Plan may receive benefits not available to stockholders not participating in the Plan. If the market price (plus commissions) of a Fund's shares of Common Stock is higher than net asset value, participants in the Plan receive shares of the Fund's Common Stock at less than they otherwise could purchase them and have shares with a cash value greater than the value of any cash distribution they would have 43 received on their shares. If the market price plus commissions is less than net asset value, participants receive distributions of shares with a net asset value greater than the value of any cash distribution they would have received on their shares. However, there may be insufficient shares available in the market to make distributions of shares at prices below the net asset value. Also, since the Funds normally do not redeem their shares, the price on resale may be more or less than the net asset value. See "Comparison of the Funds-- Tax Rules Applicable to the Funds and their Stockholders" for a discussion of the tax consequences of the Plan. Each Fund reserves the right to amend or terminate its Plan. There is no direct service charge to participants in the Plan; however, each Fund reserves the right to amend its Plan to include a service charge payable by the participants. After the Reorganization, a holder of shares of New York Insured II who has elected to receive dividends in cash will continue to receive dividends in cash; all other holders will have their dividends automatically reinvested in shares of the combined fund. However, if a stockholder owns shares in both New York Insured II and New York Insured, after the Reorganization, the stockholder's election with respect to the dividends of New York Insured will control unless the stockholder specifically elects a different option at that time. All correspondence should be directed to the Plan Agent, The Bank of New York, at 101 Barclay Street, New York, New York 10286. Mutual Fund Investment Option A holder of New York Insured Common Stock or New York Insured II Common Stock, who purchased his or her shares through Merrill Lynch in the Fund's initial public offering, has the right to reinvest the net proceeds from a sale of such shares in Class A shares of certain Merrill Lynch-sponsored open- end funds without the imposition of an initial sales charge, if certain conditions are satisfied. A holder of New York Insured II Common Stock who qualifies for this option will have the same option with respect to the shares of New York Insured Common Stock received in the Reorganization. Liquidation Rights of Holders of AMPS Upon any liquidation, dissolution or winding up of New York Insured or New York Insured II, whether voluntary or involuntary, the holders of shares of the Fund's AMPS will be entitled to receive, out of the assets of the Fund available for distribution to stockholders, before any distribution or payment is made upon any shares of the Fund's Common Stock or any other capital stock of the Fund ranking junior in right of payment upon liquidation to AMPS, $25,000 per share together with the amount of any dividends accumulated but unpaid (whether or not earned or declared) thereon to the date of distribution, and after such payment the holders of AMPS will be entitled to no other payments except for any additional dividends. If such assets of the Fund shall be insufficient to make the full liquidation payment on the AMPS and liquidation payments on any other outstanding class or series of preferred stock of the Fund ranking on a parity with the AMPS as to payment upon liquidation, then such assets will be distributed among the holders of shares of AMPS and the holders of shares of such other class or series ratably in proportion to the respective preferential amounts to which they are entitled. After payment of the full amount of liquidation distribution to which they are entitled, the holders of shares of a Fund's AMPS will not be entitled to any further participation in any distribution of assets by the Fund except for any additional dividends. A consolidation, merger or share exchange of a Fund with or into any other entity or entities or a sale, whether for cash, shares of stock, securities or properties, of all or substantially all or any part of the assets of the Fund shall not be deemed or construed to be a liquidation, dissolution or winding up of the Fund for this purpose. Tax Rules Applicable to the Funds and their Stockholders The tax consequences of investing in shares of Common Stock or AMPS of each of the Funds are identical. New York Insured and New York Insured II 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 (but not their stockholders) are 44 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. New York Insured intends to continue to distribute substantially all of its income following the Reorganization. Each Fund is qualified to pay "exempt-interest dividends" as defined in Section 852(b)(5) of the Code. Under such section, if, at the close of each quarter of its taxable year, at least 50% of the value of a Fund's total assets consists of obligations, the interest on which is excludable from gross income for Federal income tax purposes ("tax-exempt obligations") under Section 103(a) of the Code (relating generally to obligations of a state or local governmental unit), the Fund is qualified to pay exempt-interest dividends to its stockholders. Exempt-interest dividends are dividends or any part thereof paid by a Fund which are attributable to interest on tax-exempt obligations and designated by a Fund as exempt-interest dividends in a written notice mailed to stockholders within 60 days after the close of its taxable year. To the extent that the dividends distributed to a Fund's stockholders are derived from interest income exempt from Federal income tax under Code Section 103(a) and are properly designated as exempt-interest dividends, they are excludable from a stockholder's gross income for Federal income tax purposes. Exempt-interest dividends are included, however, in determining the portion, if any, of a person's social security benefits and railroad retirement benefits subject to Federal income taxes. A tax adviser should be consulted with respect to whether exempt-interest dividends retain the exclusion under Code Section 103(a) if a stockholder would be treated as a "substantial user" or "related person" under Code Section 147(a) with respect to property financed with the proceeds from an issue of PABs or IDBs if any, held by a Fund. The portion of exempt-interest dividends paid from interest received by a Fund from New York Municipal Bonds also is exempt from New York State and New York City personal income taxes. However, exempt-interest dividends paid to a corporate stockholder are subject to New York State corporation franchise tax and New York City general corporation tax. Stockholders subject to income taxation by states other than New York and cities other than New York City realize a lower after-tax rate of return than New York State and City stockholders 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 will inform its stockholders annually as to the portion of the Fund's distributions that constitutes exempt-interest dividends and the portion that is exempt from New York State and New York City personal income taxes. To the extent attributable to exempt interest dividends, interest on indebtedness incurred or continued to purchase or carry a Fund's shares is not deductible for Federal income tax or New York State or New York City personal income tax purposes. The IRS, in a revenue ruling, held that certain AMPS would be treated as stock for Federal income tax purposes. The terms of the currently outstanding AMPS of New York Insured and New York Insured II, as well as the Series C, D and E AMPS to be issued by New York Insured Fund, are substantially similar, but not identical, to the AMPS discussed in the revenue ruling. In the opinion of Brown & Wood LLP, counsel to both Funds, the shares of each Fund's currently outstanding AMPS, as well as the Series C, D and E AMPS to be issued by New York Insured, constitute stock, and distributions with respect to shares of such AMPS (other than distributions in redemption of shares of AMPS subject to Section 302(b) of the Code) will constitute dividends to the extent of current and accumulated earnings and profits as calculated for Federal income tax purposes. Nevertheless, the IRS could take a contrary position, asserting, for example, that the shares of AMPS constitute debt. If this position were upheld, the discussion of the treatment of distributions below would not apply to holders of shares of AMPS. Instead, distributions by each Fund to holders of shares of its AMPS would constitute interest, whether or not they exceed the earnings and profits of the Fund, would be included in full in the income of the recipient and taxed as ordinary income. Counsel believes that such a position, if asserted by the IRS, would be unlikely to prevail. To the extent that a Fund's distributions are derived from interest on its taxable investments or from an excess of net short-term capital gains over net long-term capital losses ("ordinary income dividends"), such distributions are considered taxable ordinary income for Federal income tax and New York State and New York City 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 45 ("capital gain dividends") are taxable as long-term capital gains for Federal income tax purposes, regardless of the length of time the stockholder has owned Fund shares, and for New York State and New York City personal income tax purposes will be treated as capital gains which are taxed at ordinary income rates. Certain categories of capital gains are taxable at different rates for Federal income tax purposes. Generally not later than 60 days after the close of its taxable year, a Fund provides its stockholders with a written notice designating the amounts of any exempt-interest dividends and capital gain dividends, as well as any amount of capital gain dividends in the different categories of capital gain referred to above. Distributions by a Fund, whether from exempt-interest income, ordinary income or capital gains, are not eligible for the dividends received deduction for corporations under the Code. A loss realized on a sale or exchange of shares of a Fund is disallowed if other Fund shares are acquired (whether under the Automatic Dividend Reinvestment Plan or otherwise) within a 61-day period beginning 30 days before and ending 30 days after the date that the shares are disposed of. In such a case, the basis of the shares acquired will be adjusted to reflect the disallowed loss. All or a portion of a Fund's gain from the sale or redemption of tax-exempt obligations purchased at a market discount will be treated as ordinary income rather than capital gain. This rule may increase the amount of ordinary income dividends received by stockholders. Any loss upon the sale or exchange of Fund shares held for six months or less is treated as long-term capital loss to the extent of exempt-interest dividends received by the stockholder. In addition, such loss is disallowed to the extent of any capital gain dividends received by the stockholder. Distributions in excess of a Fund's earnings and profits first will reduce the adjusted tax basis of a holder's shares and, after such adjusted tax basis is reduced to zero, will constitute capital gains to such holder (assuming the shares are held as a capital asset). If a Fund pays a dividend in January which was declared in the previous October, November or December to stockholders of record on a specified date in one of such months, then such dividend is treated for tax purposes as paid by the Fund and received by its stockholders on December 31 of the year in which such dividend was declared. The IRS has taken the position in a revenue ruling that if a RIC has two or more classes of shares it may designate distributions made to each class in any year as consisting of no more than such class' proportionate share of particular types of income, including exempt-interest dividends and capital gain dividends. A class's proportionate share of a particular type of income is determined according to the percentage of total dividends paid by the RIC during such year that was paid to such class. Consequently, when Common Stock and one or more series of AMPS are outstanding, each Fund intends to designate distributions made to the classes as consisting of particular types of income in accordance with each class's proportionate share of such income. After the Reorganization, New York Insured will, likewise, so designate distributions with respect to its Common Stock and its AMPS, Series A, B, C, D and E. Each Fund may notify the Auction Agent of the amount of any net capital gains and other taxable income to be included in any dividend on shares of its AMPS prior to the auction establishing the applicable rate for such dividend. Except for the portion of any dividend that a Fund informs the Auction Agent will be treated as capital gains or other taxable income, the dividends paid on the shares of AMPS constitute exempt-interest dividends. Alternatively, each Fund may include such income in a dividend on shares of its AMPS without giving advance notice thereof if it increases the dividend by an additional amount to offset the tax effect thereof. The amount of net capital gains and ordinary income allocable to shares of a Fund's AMPS (the "taxable distribution") depends upon the amount of such gains and income realized by the Fund and the total dividends paid by the Fund on shares of its Common Stock and shares of its AMPS during a taxable year, but the taxable distribution generally is not significant. In the opinion of Brown & Wood LLP, counsel to both Funds, under current law the manner in which each Fund allocates, and New York Insured Fund will allocate, items of tax-exempt income, net capital gains, and other taxable income, if any, among shares of Common Stock and outstanding AMPS (including, for New York Insured, Series A and B AMPS and the newly issued Series C, Series D and Series E 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 46 tax-exempt income, net capital gains and other taxable income among shares of Common Stock and the series of AMPS will be respected for Federal income tax purposes, and it is possible that the IRS could disagree with counsel's opinion and attempt to reallocate a Fund's net capital gains or other taxable income. In the event of a reallocation, some of the dividends identified by a Fund as exempt-interest dividends to holders of shares of its AMPS could be recharacterized as additional capital gains or other taxable income. In the event of such recharacterization, a Fund is not required to make payments to such stockholders to offset the tax effect of such reallocation. In addition, a reallocation could cause a Fund to be liable for income tax and excise tax on all reallocated taxable income. Brown & Wood LLP has advised each Fund that, in its opinion, if the IRS were to challenge in court a Fund's allocations of income and gain, the IRS would be unlikely to prevail. The opinion of Brown & Wood LLP, however, represents only its best legal judgment and is not binding on the IRS or the courts. The Code requires a RIC to pay a nondeductible 4% excise tax to the extent it does not distribute during each calendar year 98% of its ordinary income, determined on a calendar year basis, and 98% of its capital gains, determined in general, on an October 31 year-end, plus certain undistributed amounts from previous years. The required distributions, however, are based only on the taxable income of a RIC. The excise tax, therefore, generally does not apply to the tax-exempt income of RICs, such as the Funds, that pay exempt-interest dividends. The Code subjects interest received on certain otherwise tax-exempt securities to a Federal alternative minimum tax. The alternative minimum tax applies to interest received on "private activity bonds" issued after August 7, 1986. "Private activity bonds" are bonds which, although tax-exempt, are used for purposes other than those generally performed by governmental units and which benefit non-governmental entities (e.g., bonds used for industrial development or housing purposes). Income received on such bonds is classified as an item of "tax preference" which could subject investors in such bonds, including stockholders of the Funds, to an increased Federal alternative minimum tax. Each Fund purchases such "private activity bonds" and reports to stockholders within 60 days after calendar year-end the portion of its dividends declared during the year which constitutes an item of tax preference for alternative minimum tax purposes. The Code further provides that corporations are subject to a Federal alternative minimum tax based, in part, on certain differences between taxable income as adjusted for other tax preferences and the corporation's "adjusted current earnings" which more closely reflect a corporation's economic income. Because an exempt-interest dividend paid by a Fund is included in adjusted current earnings, a corporate stockholder may be required to pay a Federal alternative minimum tax on exempt-interest dividends paid by such Fund. The Funds may invest in instruments the return on which includes nontraditional features such as indexed principal or interest payments ("nontraditional instruments"). These instruments may be subject to special tax rules under which a Fund may be required to accrue and distribute income before amounts due under the obligations are paid. In addition, it is possible that all or a portion of the interest payments on such nontraditional instruments could be recharacterized as taxable ordinary income. If at any time when shares of AMPS are outstanding a Fund does not meet the asset coverage requirements of the Investment Company Act, the Fund will be required to suspend distributions to holders of Common Stock until the asset coverage is restored. See "Dividends and Distributions." This may prevent such Fund from distributing at least 90% of its net investment income and may, therefore, jeopardize the Fund's qualification for taxation as a RIC. If a Fund were to fail to qualify as a RIC, some or all of the distributions paid by the Fund would be fully taxable for Federal income tax and New York State and New York City 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 shares of AMPS in order to maintain or restore the requisite asset coverage and avoid the adverse consequences to the Fund and its stockholders of failing to qualify as a RIC. There can be no assurance, however, that any such action would achieve such objectives. As noted above, a Fund must distribute annually at least 90% of its net taxable and tax-exempt interest income. A distribution will only be counted for this purpose if it qualifies for the dividends paid deduction under the Code. Some types of preferred stock that New York Insured contemplates issuing may raise a question as to whether distributions on such preferred stock are "preferential" under the Code and, therefore, not eligible for 47 the dividends paid deduction. Counsel has advised the Funds that the outstanding preferred stock and the preferred stock to be issued by New York Insured will not result in the payment of a preferential dividend. If a Fund ultimately relies solely on a legal opinion when it issues such preferred stock, there is no assurance that the IRS would agree that dividends on the preferred stock are not preferential. If the IRS successfully disallowed the dividends paid deduction for dividends on the preferred stock, the Funds could be disqualified as RICs. In this case, dividends paid by the Funds on the Common Stock and the AMPS would not be exempt from Federal income taxes. Additionally, the Funds would be subject to Federal alternative minimum tax. Under certain circumstances, when a Fund is required to allocate taxable income to the AMPS, it will pay Additional Distributions to holders of shares of AMPS. The Federal income tax consequences of Additional Distributions under existing law are uncertain. The Funds treat and New York Insured Fund intends to continue to treat a holder as receiving a dividend distribution in the amount of any Additional Distribution only as and when such Additional Distribution is paid. An Additional Distribution generally is designated by a Fund as an exempt-interest dividend except as otherwise required by applicable law. However, the IRS may assert that all or part of an Additional Distribution is a taxable dividend either in the taxable year for which the allocation of taxable income is made or in the taxable year in which the Additional Distribution is paid. The value of shares acquired pursuant to a Fund's dividend reinvestment plan is generally excluded from gross income to the extent that the cash amount reinvested would be excluded from gross income. If, when a Fund's shares are trading at a premium over net asset value, the Fund issues shares pursuant to the dividend reinvestment plan that have a greater fair market value than the amount of cash reinvested, it is possible that all or a portion of such discount (which may not exceed 5% of the fair market value of the Fund's shares) could be viewed as a taxable distribution. If the discount is viewed as a taxable distribution, it is also possible that the taxable character of this discount would be allocable to all of the stockholders, including stockholders who do not participate in the Fund's dividend reinvestment plan. Thus, stockholders who do not participate in the dividend reinvestment plan, as well as dividend reinvestment plan participants, might be required to report as ordinary income a portion of their distributions equal to the allocable share of the discount. Under certain provisions of the Code, some stockholders may be subject to a 31% withholding tax on certain ordinary income dividends and on capital gain dividends and redemption payments ("backup withholding"). Generally, stockholders subject to backup withholding will be those for whom no taxpayer identification number is on file with a Fund or who, to the Fund's knowledge, have furnished an incorrect number. When establishing an account, an investor must certify under penalty of perjury that such number is correct and that such stockholder is not otherwise subject to backup withholding. Ordinary income dividends paid to stockholders who are nonresident aliens or foreign entities are subject to a 30% United States withholding tax under existing provisions of the Code applicable to foreign individuals and entities unless a reduced rate of withholding or a withholding exemption is provided under applicable treaty law. Nonresident stockholders are urged to consult their own tax advisers concerning the applicability of the United States withholding tax. The Code provides that every stockholder required to file a tax return must include for information purposes on such return the amount of exempt-interest dividends received from all sources (including the Funds) during the taxable year. Each Fund may purchase or sell municipal bond index financial futures contracts and interest rate financial futures contracts on U.S. Government securities. Each Fund may also purchase and write call and put options on such financial futures contracts. In general, unless an election is available to a Fund or an exception applies, such options and financial futures contracts that are "Section 1256 contracts" will be "marked to market" for Federal income tax purposes at the end of each taxable year, i.e., each such option or financial futures contract will be treated as sold for its fair market value on the last day of the taxable year, and any gain or loss attributable to Section 1256 contracts will be 60% long-term and 40% short-term capital gain or loss. Application of these rules to Section 1256 contracts held by a Fund may alter the timing and character of distributions to stockholders. 48 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 New York State and New York City 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 New York State and New York City tax laws, are subject to change by legislative, judicial or administrative action either prospectively or retroactively. Stockholders are urged to consult their tax advisers regarding specific questions as to Federal, foreign, state or local tax consequences of an investment in a Fund. AGREEMENT AND PLAN OF REORGANIZATION General Under the Agreement and Plan of Reorganization (attached hereto as Exhibit II), (i) New York Insured will acquire substantially all of the assets, and will assume substantially all of the liabilities, of New York Insured II, in exchange solely for shares of an equal aggregate value of New York Insured Common Stock, New York Insured Series C AMPS, New York Insured Series D AMPS and New York Insured Series E AMPS to be issued by New York Insured. The number of shares of New York Insured Common Stock issued to New York Insured II will have an aggregate net asset value equal to the aggregate net asset value of the shares of New York Insured II Common Stock (except that cash will be paid in lieu of any fractional shares), and the number of shares of New York Insured Series C AMPS, New York Insured Series D AMPS and New York Insured Series E AMPS issued to New York Insured II will have an aggregate liquidation preference and value equal to the aggregate liquidation preference and value of New York Insured II's AMPS. Upon receipt by New York Insured II of such shares, New York Insured II will (i) distribute the shares of New York Insured Common Stock to the holders of New York Insured II Common Stock in exchange for their shares of Common Stock in New York Insured II and (ii) distribute the shares of New York Insured Series C AMPS to the holders of New York Insured II Series A AMPS, the shares of New York Insured Series D AMPS to the holders of New York Insured II Series B AMPS and the shares of New York Insured Series E AMPS to the holders of New York Insured II Series C and Series D AMPS, in exchange for their shares of AMPS of New York Insured II. New York Insured will file Articles Supplementary establishing the powers, rights and preferences of the New York Insured Series C AMPS, the New York Insured Series D AMPS and the New York Insured Series E AMPS with the State Department of Assessments and Taxation of Maryland (the "Maryland Department") prior to the closing of the Reorganization. As soon as practicable after the date that the Reorganization takes place (the "Exchange Date"), New York Insured II will file Articles of Dissolution with the Maryland Department to effect the formal dissolution of such Fund, and will dissolve. New York Insured II will distribute the shares of New York Insured Common Stock and the shares of New York Insured Series C AMPS, New York Insured Series D AMPS or New York Insured Series E AMPS received by it pro rata to its holders of record of Common Stock and AMPS, as applicable, in exchange for such stockholders' shares in New York Insured II. Such distribution would be accomplished by opening new accounts on the books of New York Insured in the names of the common and preferred stockholders of New York Insured II and transferring to those stockholder accounts the New York Insured Common Stock or New York Insured AMPS previously credited on those books to the accounts of New York Insured II. Each newly-opened account on the books of New York Insured for the previous holders of New York Insured II would represent the respective pro rata number of shares of New York Insured Common Stock (rounded down, in the case of 49 fractional shares, to the next largest number of whole shares) due such holder of Common Stock. No fractional shares of New York Insured Common Stock will be issued. In lieu thereof, New York Insured's transfer agent, The Bank of New York, will aggregate all fractional shares of New York Insured Common Stock and sell the resulting whole shares on the NYSE for the account of all holders of fractional interests, and each such holder will be entitled to the pro rata share of the proceeds from such sale upon surrender of the New York Insured II Common Stock certificates. Similarly, each newly-opened account on the books of New York Insured for the previous holders of New York Insured II AMPS would represent the respective pro rata number of shares of New York Insured Series C AMPS, New York Insured Series D AMPS or New York Insured Series E AMPS due such holder of AMPS. See "Surrender and Exchange of Stock Certificates" below for a description of the procedures to be followed by the stockholders of New York Insured II to obtain their New York Insured Common Stock (and cash in lieu of fractional shares, if any). Because AMPS are held in "street name" by the Depository Trust Company, all transfers are accomplished by book entry and no surrender of share certificates representing AMPS is necessary. Accordingly, as a result of the Reorganization, every holder of New York Insured II Common Stock would own shares of New York Insured Common Stock that (except for cash payments received in lieu of fractional shares) would have an aggregate net asset value immediately after the Exchange Date equal to the aggregate net asset value of that stockholder's Common Stock immediately prior to the Exchange Date. Since the New York Insured Common Stock would be issued at net asset value and the shares of Common Stock of New York Insured II would be valued at net asset value for the purposes of the exchange, the holders of Common Stock of neither Fund will be diluted as a result of the Reorganization. Similarly, since the New York Insured Series C AMPS, New York Insured Series D AMPS and New York Insured Series E AMPS would be issued at a liquidation preference and value per share equal to the liquidation preference and value per share of New York Insured II AMPS, holders of AMPS of neither Fund will be diluted as a result of the Reorganization. However, as a result of the Reorganization, a stockholder of either Fund likely will hold a reduced percentage of ownership in the larger combined entity than he or she did in either of the constituent Funds. Procedure At meetings of the Board of Directors of each of the Funds, the Board of Directors of each of the Funds, including all of the Directors who are not "interested persons," as defined in the Investment Company Act, of the applicable Fund, unanimously approved the Agreement and Plan of Reorganization and the submission of such Agreement and Plan of Reorganization to the stockholders of each of the Funds for approval. Also, the Board of Directors of New York Insured approved the filing of Articles Supplementary establishing the powers, rights and preferences of the New York Insured Series C AMPS, the New York Insured Series D AMPS and the New York Insured Series E AMPS in order that they may be distributed to holders of New York Insured II AMPS. As a result of such Board approvals, the Funds have jointly filed this proxy statement with the SEC soliciting a vote of the stockholders of each of the Funds to approve the Reorganization. The costs of such solicitation are to be paid by New York Insured after the Reorganization so as to be borne equally and exclusively on a per share basis by the holders of Common Stock of each of the Funds. It is anticipated that special meetings of stockholders of the Funds will be held on December 15, 1999. If the stockholders of both 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 rulings from the IRS concerning the tax consequences of the Reorganization as set forth in the Agreement and Plan of Reorganization or an opinion of counsel to the same effect. The Boards of Directors of New York Insured and New York Insured II recommend that the stockholders of the respective Funds approve the Agreement and Plan of Reorganization. 50 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 both Funds: net asset value per share of the Common Stock of each Fund will be determined after the close of business on the NYSE (generally, 4:00 p.m., Eastern time) on the Valuation Date. For the purpose of determining the net asset value of a share of Common Stock of each Fund, the value of the securities held by the issuing Fund plus any cash or other assets (including interest accrued but not yet received) minus all liabilities (including accrued expenses) and the aggregate liquidation value of the outstanding shares of AMPS of the issuing Fund is divided by the total number of shares of Common Stock of the issuing Fund outstanding at such time. Daily expenses, including the fees payable to FAM, will accrue on the Valuation Date. The New York Municipal Bonds and Municipal Bonds in which each Fund invests are traded primarily in the over-the-counter markets. In determining net asset value on the Valuation Date, each Fund will use the valuations of portfolio securities furnished by a pricing service approved by the Boards of Directors of the Funds. The pricing service typically values portfolio securities at the bid price or the yield equivalent when quotations are readily available. New York Municipal Bonds and Municipal Bonds for which quotations are not readily available will be valued at fair market value on a consistent basis as determined by the pricing service using a matrix system to determine valuations. The Boards of Directors of the Funds have determined in good faith that the use of a pricing service is a fair method of determining the valuation of portfolio securities. Positions in financial futures contracts will be valued on the Valuation Date at closing prices for such contracts established by the exchange on which they are traded, or if market quotations are not readily available, will be valued at fair value on a consistent basis using methods determined in good faith by the Board of Directors. Distribution of New York Insured Common Stock, New York Insured Series C AMPS, New York Insured Series D AMPS and New York Insured Series E AMPS. On the Exchange Date, New York Insured will issue to New York Insured II a number of shares of New York Insured Common Stock the aggregate net asset value of which will equal the respective aggregate net asset value of shares of New York Insured II Common Stock on the Valuation Date. Each holder of New York Insured II Common Stock will receive the number of shares of New York Insured Common Stock corresponding to his or her proportionate interest in the respective aggregate net asset value of the New York Insured II Common Stock, as applicable. On the Exchange Date, New York Insured also will issue to New York Insured II (i) a number of shares of New York Insured Series C AMPS, the aggregate liquidation preference and value of which will equal the aggregate liquidation preference and value of New York Insured II Series A AMPS on the Valuation Date, (ii) a number of shares of New York Insured Series D AMPS, the aggregate liquidation preference and value of which will equal the aggregate liquidation preference and value of New York Insured II Series B AMPS on the Valuation Date and (iii) a number of shares of New York Insured Series E AMPS, the aggregate liquidation preference and value of which will equal the aggregate liquidation preference and value of New York Insured II Series C and Series D AMPS on the Valuation Date. Each holder of AMPS of New York Insured II will receive the number of shares of New York Insured Series C AMPS, New York Insured Series D AMPS or New York Insured Series E AMPS corresponding to his or her proportionate interest in the aggregate liquidation preference and value of the AMPS of New York Insured II. No sales charge or fee of any kind will be charged to stockholders of New York Insured II in connection with their receipt of New York Insured Common Stock or AMPS in the Reorganization. Holders of certain series of AMPS of New York Insured II may find that the auction date and dividend payment date for the New York Insured AMPS received in the Reorganization fall on different days of the week than the auction date or 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 (i) the auction for New York Insured Series C AMPS will be held on Friday; New York 51 Insured II Series A AMPS are auctioned on Friday; (ii) the auction for New York Insured Series D AMPS will be held on Tuesday; New York Insured II Series B AMPS are auctioned on Tuesday; and (iii) the auction for New York Insured Series E AMPS will be held on Wednesday; the New York Insured II Series C AMPS are auctioned on Wednesday and the New York Insured II Series D AMPS are auctioned on Tuesday. 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 New York Insured II prior to the Exchange Date may be shorter than the dividend period for such AMPS determined as set forth in the applicable Articles Supplementary. Expenses. New York Insured shall pay, subsequent to the Exchange Date, all expenses incurred in connection with the Reorganization, including, but not limited to, all costs related to the preparation and distribution of materials distributed to each Fund's Board of Directors, expenses incurred in connection with the preparation of the Agreement and Plan of Reorganization, a registration statement on Form N-14 and a private letter ruling request submitted to the IRS, SEC and state securities commission filing fees and legal and audit fees in connection with the Reorganization, costs of printing and distributing this Proxy Statement and Prospectus, legal fees incurred preparing each Fund's board materials, attending each Fund's board meetings and preparing the minutes, accounting fees associated with each Fund's financial statements, stock exchange fees, rating agency fees, portfolio transfer taxes (if any) and any similar expenses incurred in connection with the Reorganization. In this regard, expenses of the Reorganization will be deducted from the assets of the combined fund so as to be borne equally and exclusively on a per share basis by the holders of Common Stock of each of the Funds. Both Funds shall pay any expenses of their stockholders arising out of or in connection with the Reorganization. Required Approvals. Under Articles of Incorporation of each Fund (as amended to date and including Articles Supplementary establishing the powers, rights and preferences of the AMPS of each Fund), relevant Maryland law and the rules of the NYSE, stockholder approval of the Agreement and Plan of Reorganization requires the affirmative vote of stockholders representing more than 50% of the outstanding shares of Common Stock and AMPS, voting together as a single class, and more than 50% of the AMPS, voting separately as a single class. Because of the requirement that the Agreement and Plan of Reorganization be approved by the stockholders of both Funds, the Reorganization will not take place if the stockholders of either Fund do not approve the Agreement and Plan of Reorganization. Deregistration and Dissolution. Following the transfer of the assets and liabilities of New York Insured II and the distribution of shares of New York Insured Common Stock, New York Insured Series C AMPS, New York Insured Series D AMPS and New York Insured Series E AMPS to stockholders of the Fund, in accordance with the foregoing, New York Insured II will terminate its registration under the Investment Company Act and its incorporation under Maryland law and will withdraw its authority to do business in any state where it is required to do so. Amendments and Conditions. The Agreement and Plan of Reorganization may be amended at any time prior to the Exchange Date with respect to any of the terms therein. The obligations of each Fund pursuant to the Agreement and Plan of Reorganization are subject to various conditions, including a registration statement on Form N-14 being declared effective by the SEC, approval by the stockholders of each of the Funds, a favorable IRS ruling or an opinion of counsel being received as to tax matters, an opinion of counsel as to securities matters being received and the continuing accuracy of various representations and warranties of the Funds being confirmed by the respective parties. Postponement, Termination. Under the Agreement and Plan of Reorganization, the Board of Directors of either Fund may cause the Reorganization to be postponed or abandoned should such Board determine that it is in the best interests of the stockholders of its respective Fund to do so. The Agreement and Plan of Reorganization may be terminated, and the Reorganization abandoned at any time (whether before or after adoption thereof by the stockholders of either Fund) prior to the Exchange Date, or the Exchange Date may be postponed: (i) by mutual consent of the Boards of Directors of both Funds or (ii) by the Board of Directors of 52 either Fund if any condition to that Fund's obligations set forth in the Agreement and Plan of Reorganization has not been fulfilled or waived by such Board. Potential Benefits to Common Stockholders of the Funds as a Result of the Reorganization In approving the Reorganization, the Board of Directors of each Fund identified certain benefits that are likely to result from the Reorganization, including lower aggregate operating expenses per share of Common Stock, greater efficiency and flexibility in portfolio management and a more liquid trading market for the shares of Common Stock of the combined fund. With respect to the New York Insured II, following the Reorganization its stockholders will remain invested in a closed-end fund that has investment objectives and policies substantially similar to those of the New York Insured II. 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 New York 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 New York Municipal Bonds and Municipal Bonds. The Boards also considered the relative tax positions of both Funds' portfolios. Based on these factors, the Boards concluded that the Reorganization will potentially benefit the stockholders of each Fund in that it (i) presents no significant risks that would outweigh the benefits discussed above and (ii) involves minimal costs (including relatively minor legal, accounting and administrative costs). The surviving fund that would result from the Reorganization would have a larger asset base than either of the Funds has currently. Based on data presented by FAM, the Board of each Fund believes that administrative expenses for a larger combined fund would be less than the aggregate expenses for the individual Funds, resulting in a lower expense ratio for common stockholders of the combined fund and higher earnings per common share. In particular, certain fixed costs, such as costs of printing stockholder reports and proxy statements, legal expenses, audit fees, mailing costs and other expenses will be spread across a larger asset base, thereby lowering the expense ratio for the combined fund. To illustrate the potential economies of scale, the table below shows the total annualized operating expense ratio of each Fund and pro forma New York Insured based on net assets both excluding and including assets attributable to AMPS as of June 30, 1999:
Total annualized Net Total annualized Net operating assets, excluding operating assets, including expense ratio, AMPS expense ratio, AMPS Fund excluding AMPS (in millions) including AMPS (in millions) ---- ---------------- ----------------- ---------------- ----------------- New York Insured........ 1.02% $182.2 0.70% $267.2 New York Insured II..... 0.95% $387.9 0.66% $561.9 Pro Forma New York Insured(1)............. 0.93% $570.1 0.64% $829.1
- -------- (1) Assumes Reorganization had taken place on June 30, 1999. Management projections estimate that New York Insured will have net assets in excess of $829.1 million including assets attributable to AMPS upon completion of the Reorganization. A larger asset base should provide benefits in portfolio management. After the Reorganization, New York Insured should be able to purchase larger amounts of New York Municipal Bonds and Municipal Bonds at more favorable prices than either of the Funds separately and, with this greater purchasing power, request improvements in the terms of the New York 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, each Fund's Board concluded that the Reorganization is in the best interests of that Fund because the Reorganization presents no significant risks or costs (including legal, accounting and administrative costs) that would outweigh the benefits discussed above. In approving the Reorganization, the Board of Directors of each Fund determined that the Reorganization is in the best interests of that Fund and, with respect to net asset value and liquidation preference, that the interests 53 of existing stockholders of that Fund would not be diluted as a result of the Reorganization. Although the Reorganization is expected to result in a reduction in net asset value per share of the combined fund after the Reorganization of approximately $.01 as a result of the estimated costs of the Reorganization, management of each Fund advised its Board that it expects that such costs would be recovered within approximately six months to 2 1/2 years after the Exchange Date due to a decrease in the operating expense ratio. It is not anticipated that the Reorganization directly would benefit the holders of shares of AMPS of either Fund; however, the Reorganization will not adversely affect the holders of shares of AMPS of either Fund and the expenses of the Reorganization will not be borne by the holders of shares of AMPS of either Fund. Surrender and Exchange of Stock Certificates After the Exchange Date, each holder of an outstanding certificate or certificates formerly representing shares of New York Insured II Common Stock will be entitled to receive, upon surrender of his or her certificate or certificates, a certificate or certificates representing the number of shares of New York Insured Common Stock distributable with respect to such holder's shares of New York Insured II Common Stock, together with cash in lieu of any fractional shares of Common Stock. Promptly after the Exchange Date, the transfer agent for the New York Insured Common Stock will mail to each holder of certificates formerly representing shares of New York Insured II Common Stock, a letter of transmittal for use in surrendering his or her certificates for certificates representing shares of New York Insured Common Stock and cash in lieu of any fractional shares of Common Stock. Shares of AMPS are held in "street name" by the Depository Trust Company, and all transfers will be accomplished by book entry. Surrender of physical certificates for AMPS is not required. After the Reorganization, you If prior to the Reorganization you held: will hold: ------------------------------ ------------------------------ New York Insured Common Stock New York Insured Common Stock New York Insured Series A AMPS New York Insured Series A AMPS New York Insured Series B AMPS New York Insured Series B AMPS New York Insured II Common Stock New York Insured Common Stock New York Insured II Series A AMPS New York Insured Series C AMPS New York Insured II Series B AMPS New York Insured Series D AMPS New York Insured II Series C AMPS New York Insured Series E AMPS New York Insured II Series D AMPS New York Insured Series E AMPS Please do not send in any stock certificates at this time. Upon consummation of the Reorganization, common stockholders of New York Insured II will be furnished with instructions for exchanging their stock certificates for New York Insured stock certificates and, if applicable, cash in lieu of fractional shares. From and after the Exchange Date, certificates formerly representing shares of New York Insured II Common Stock will be deemed for all purposes to evidence ownership of the number of full shares of New York Insured Common Stock distributable with respect to the shares of New York Insured II held before the Reorganization as described above and as shown in the table above, provided that, until such stock certificates have been so surrendered, no dividends payable to the holders of record of New York Insured II Common Stock as of any date subsequent to the Exchange Date will be paid to the holders of such outstanding stock certificates. Dividends payable to holders of record of shares of New York Insured Common Stock, as of any date after the Exchange Date and prior to the exchange of certificates by any stockholder of New York Insured II, will be paid to such stockholder, without interest, at the time such stockholder surrenders his or her stock certificates for exchange. 54 From and after the Exchange Date, there will be no transfers on the stock transfer books of New York Insured II. If, after the Exchange Date, certificates representing shares of New York Insured II Common Stock are presented to New York Insured, they will be canceled and exchanged for certificates representing New York Insured Common Stock, and cash in lieu of fractional shares of Common Stock, if any, distributable with respect to such Common Stock in the Reorganization. Tax Consequences of the Reorganization General. The Reorganization has been structured with the intention that it qualify for Federal income tax purposes as a tax-free reorganization under Section 368(a)(1)(D) of the Code. Each of the Funds has elected and qualified for the special tax treatment afforded RICs under the Code, and New York Insured 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 New York Insured II for New York Insured stock, as described, will constitute a reorganization within the meaning of Section 368(a)(1)(D) of the Code, and New York Insured and New York Insured II will each be deemed a "party" to a reorganization within the meaning of Section 368(b) of the Code; (ii) in accordance with Section 361(a) of the Code, no gain or loss will be recognized to New York Insured II as a result of the Reorganization or on the distribution of New York Insured Common Stock and New York Insured Series C AMPS, New York Insured Series D AMPS or New York Insured Series E AMPS to the respective stockholders of New York Insured II under Section 361(c)(1) of the Code; (iii) under Section 1032 of the Code, no gain or loss will be recognized to New York Insured as a result of the Reorganization; (iv) in accordance with Section 354(a)(1) of the Code, no gain or loss will be recognized to the stockholders of New York Insured II on the receipt of New York Insured Common Stock and New York Insured Series C AMPS, New York Insured Series D AMPS or New York Insured Series E AMPS in exchange for their corresponding shares of Common Stock or AMPS of New York Insured II (except to the extent that common stockholders receive cash representing an interest in fractional shares of New York Insured Common Stock in the Reorganization); (v) in accordance with Section 362(b) of the Code, the tax basis of the assets of New York Insured II in the hands of New York Insured will be the same as the tax basis of such assets in the hands of New York Insured II 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 New York Insured Common Stock, New York Insured Series C AMPS, New York Insured Series D AMPS or New York Insured Series E AMPS received by the stockholders of New York Insured II in the Reorganization will be equal to the tax basis of the Common Stock or AMPS of New York Insured II surrendered in exchange; (vii) in accordance with Section 1223 of the Code, a stockholder's holding period for the New York Insured Common Stock, New York Insured Series C AMPS, New York Insured Series D AMPS or New York Insured Series E AMPS will be determined by including the period for which such stockholder held the Common Stock or AMPS of New York Insured II exchanged therefor, provided that such shares were held as a capital asset; (viii) in accordance with Section 1223 of the Code, New York Insured's holding period with respect to the assets of New York Insured II transferred will include the period for which such assets were held by New York Insured II; (ix) the payment of cash to common stockholders of New York Insured II in lieu of fractional shares of New York Insured Common Stock will be treated as though the fractional shares were distributed as part of the Reorganization and then redeemed, with the result that such stockholders will have short-or long-term capital gain or loss to the extent that the cash distribution differs from the stockholder's basis allocable to the New York Insured fractional shares; and (x) the taxable year of New York Insured II will end on the effective date of the Reorganization and pursuant to Section 381(a) of the Code and regulations thereunder, New York Insured will succeed to and take into account certain tax attributes of New York Insured II, such as earnings and profits, capital loss carryovers and method of accounting. As noted in the discussion under "Comparison of the Funds--Tax Rules Applicable to the Funds and Their Stockholders," a Fund must distribute annually at least 90% of its net taxable and tax-exempt income. A 55 distribution only will be counted for this purpose if it qualifies for the dividends paid deduction under the Code. In the opinion of Brown & Wood LLP, the issuance of New York Insured Series C AMPS, New York Insured Series D AMPS and New York Insured Series E AMPS pursuant to the Reorganization in addition to the already existing New York Insured Series A AMPS and New York Insured Series B AMPS will not cause distributions on any series of New York Insured AMPS to be treated as preferential dividends ineligible for the dividends paid deduction. It is possible, however, that the IRS may assert that, because there are several series of AMPS, distributions on such shares are preferential under the Code and therefore not eligible for the dividends paid deduction. If the IRS successfully disallowed the dividends paid deduction for dividends on the AMPS, New York Insured could lose the special tax treatment afforded RICs. In this case, dividends on the shares of New York Insured Common Stock and AMPS would not be exempt from Federal income tax. Additionally, New York Insured would be subject to the Federal alternative minimum tax. Under Section 381(a) of the Code, New York Insured will succeed to and take into account certain tax attributes of New York Insured II, 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)(D) of the Code, which could reduce the benefit of these attributes to New York Insured. Stockholders should consult their tax advisers regarding the effect of the Reorganization in light of their individual circumstances. As the foregoing relates only to Federal income tax consequences, stockholders also should consult their tax advisers as to the foreign, state and local tax consequences of the Reorganization. Regulated Investment Company Status. The Funds have elected and qualified for taxation as RICs under Sections 851-855 of the Code, and after the Reorganization New York Insured intends to continue to so qualify. 56 Capitalization The following table sets forth as of April 30, 1999 (i) the capitalization of New York Insured, (ii) the capitalization of New York Insured II, and (iii) the capitalization of pro forma New York Insured adjusted to give effect to the Reorganization. Pro Forma Capitalization of New York Insured, New York Insured II and Pro Forma New York Insured as of April 30, 1999 (unaudited)
Pro Forma New New York New York Pro Forma York Insured as Insured Insured II Adjustment(a) adjusted (b)(c) ------------ ------------ ------------- --------------- Net Assets Net Assets Attributable to Common Stock......... $193,011,092 $411,790,011 $(6,364,631) $598,436,472 Net Assets Attributable to AMPS. 85,000,000 174,000,000 -- 259,000,000 Shares Outstanding: Common Stock.......... 12,560,647 26,668,886 502,949 39,732,482(b) AMPS.................. Series A............ 1,700 2,800 (2,800) 1,700 Series B............ 1,700 1,960 (1,960) 1,700 Series C............ N/A 1,000 1,800 2,800(b) Series D............ N/A 1,200 760 1,960(b) Series E............ N/A N/A 2,200 2,200(b) Net Asset Value Per Share: Common Stock.......... $15.37 $15.44 -- $15.06(c) AMPS.................. $25,000 $25,000 -- $25,000
- -------- (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, undistributed realized capital gains and accrual of estimated Reorganization expenses of $310,000. No assurance can be given as to how many shares of New York Insured Common Stock that stockholders of New York Insured II will receive on the Exchange Date, and the foregoing should not be relied upon to reflect the number of shares of New York Insured Common Stock that actually will be received on or after such date. (b) Assumes the issuance of 27,171,835 shares of New York Insured Common Stock and three newly-created series of AMPS consisting of 2,800 Series C shares, 1,960 Series D shares and 2,200 Series E shares, respectively, in exchange for the net assets of New York Insured II. The estimated number of shares issued was based on the net asset value of each Fund, net of distributions, on April 30, 1999. (c) Net Asset Value Per Share of Common Stock net of Reorganization-related expenses and distribution of undistributed net investment income of $3,215,494 for New York Insured and $2,325,604 for New York Insured II, and undistributed realized capital gains of $513,533 for New York Insured. 57 INFORMATION CONCERNING THE SPECIAL MEETINGS Date, Time and Place of Meetings The Meetings will be held on December 15, 1999 at the offices of MLAM, 800 Scudders Mill Road, Plainsboro, New Jersey at the times listed on Exhibit I. Solicitation, Revocation and Use of Proxies A stockholder executing and returning a proxy has the power to revoke it at any time prior to its exercise by executing a superseding proxy, by giving written notice of the revocation to the Secretary of the appropriate Fund or by voting in person at the Meeting. Although mere attendance at the Meetings will not revoke a proxy, a stockholder present at the Meetings may withdraw his or her proxy and vote in person. All shares represented by properly executed proxies, unless such proxies previously have been revoked, will be voted at the Meetings in accordance with the directions on the proxies; if no direction is indicated, the shares will be voted "FOR" the approval of the Agreement and Plan of Reorganization. It is not anticipated that any other matters will be brought before the Meetings. If, however, any other business properly is brought before the Meetings, proxies will be voted in accordance with the judgment of the persons designated on such proxies. Record Date and Outstanding Shares Only holders of record of shares of Common Stock or AMPS of either Fund at the close of business on the Record Date are entitled to vote at the Meetings or any adjournment thereof. At the close of business on the Record Date, the Funds had the number of shares outstanding indicated in Exhibit I. Security Ownership of Certain Beneficial Owners and Management To the knowledge of the Funds, at the date hereof, no person or entity owns beneficially 5% or more of the shares of the Common Stock or AMPS of either Fund. As of the Record Date, the Directors and officers of New York Insured as a group (12 persons) owned an aggregate of less than 1% of the outstanding shares of New York Insured Common Stock and owned no New York Insured AMPS. As of the Record Date, the Directors and officers of New York Insured II as a group (12 persons) owned an aggregate of less than 1% of the outstanding shares of New York Insured II Common Stock and owned no New York Insured II AMPS. On the Record Date, Mr. Glenn, a Director and an officer of each of the Funds, Mr. Zeikel, a Director of each of the Funds, and the other Directors and officers of each Fund owned an aggregate of less than 1% of the outstanding shares of Common Stock of ML & Co. Voting Rights and Required Vote For purposes of this Proxy Statement and Prospectus, each share of Common Stock and AMPS of each of the Funds is entitled to one vote. Approval of the Agreement and Plan of Reorganization requires the approval of each Fund. With respect to each Fund, approval of the Agreement and Plan of Reorganization requires the affirmative vote of stockholders representing (i) a majority of the outstanding shares of the Fund's Common Stock and AMPS, voting together as a single class, and (ii) a majority of the outstanding shares of the Fund's AMPS, voting separately as a single class. 58 For purposes of each Meeting, a quorum consists of a majority of the shares entitled to vote at the Meeting, present in person or by proxy. If, by the time scheduled for each Meeting, a quorum of the applicable Fund's stockholders is not present, or if a quorum is present but sufficient votes in favor of the Agreement and Plan of Reorganization are not received from the stockholders of the applicable Fund, the persons named as proxies may propose one or more adjournments of the Meeting to permit further solicitation of proxies from stockholders. Any such adjournment will require the affirmative vote of a majority of the shares of the applicable Fund present in person or by proxy and entitled to vote at the session of the Meeting to be adjourned. The persons named as proxies will vote in favor of any such adjournment if they determine that adjournment and additional solicitation are reasonable and in the interests of the applicable Fund's stockholders. Appraisal Rights Under Maryland law, stockholders of company whose shares are traded publicly on a national securities exchange, such as New York Insured II, are not entitled to demand the fair value of their shares upon a transfer of assets; therefore, the common stockholders of New York Insured II will be bound by the terms of the Reorganization, if approved at the Meetings. However, any common stockholder of New York Insured II may sell his or her shares of Common Stock at any time on the NYSE. Conversely, since the AMPS are not traded publicly on a national securities exchange, holders of AMPS issued by New York Insured II will be entitled to appraisal rights upon the consummation of the Reorganization. As stockholders of the corporation acquiring the assets of New York Insured II, neither holders of New York Insured Common Stock nor holders of New York Insured AMPS are entitled to appraisal rights under Maryland law. Under Maryland law, a holder of New York Insured II AMPS desiring to receive payment of the fair value of his or her stock (an "objecting stockholder") (i) must file with New York Insured II a written objection to the Reorganization at or before the Meeting, (ii) must not vote in favor of the Reorganization (although a vote against the Reorganization is not required), and (iii) must make written demand on New York Insured for payment of his or her stock, stating the number and class of shares for which he or she demands payment, within 20 days after the Maryland Department of Assessments and Taxation accepts for filing the Articles of Transfer with respect to the Reorganization (New York Insured is required promptly to give written notice to all objecting stockholders of the date that the Articles of Transfer are accepted for record). A vote against the Reorganization will not be sufficient to satisfy the requirement of a written demand described in (iii). An objecting stockholder who fails to adhere to this procedure will be bound by the terms of the Reorganization. An objecting stockholder ceases to have any rights of a stockholder except the right to receive fair value for his or her shares and has no right to receive any dividends or distribution payable to such holders on a record date after the close of business on the date on which fair value is to be determined, which, for these purposes, will be the date of the Meeting. A demand for payment of fair market value may not be withdrawn, except upon the consent of New York Insured. Within 50 days after the Articles of Transfer have been accepted for filing, an objecting stockholder who has not received payment for his or her shares may petition a court located in Baltimore, Maryland for an appraisal to determine the fair market value of his or her stock. 59 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 New York Insured, the surviving fund after the Reorganization, so as to be borne equally and exclusively on a per share basis by the holders of New York Insured Common Stock and New York Insured II Common Stock. If the Reorganization is not approved, these expenses will be allocated between the Funds according to the net asset value of the Common Stock of each Fund on the Meeting date. The Funds likewise will reimburse banks, brokers and others for their reasonable expenses in forwarding proxy solicitation materials to the beneficial owners of shares of each of the Funds and certain persons that the Funds may employ for their reasonable expenses in assisting in the solicitation of proxies from such beneficial owners of shares of capital stock of the Funds. In order to obtain the necessary quorum at the Meetings, supplementary solicitation may be made by mail, telephone, telegraph or personal interview by officers of the Funds. Each of the Funds has retained Shareholder Communications Corporation, 17 State Street, New York, New York 10004 to aid in the solicitation of proxies, at a cost to be borne by each of the Funds of approximately $7,500, plus out-of-pocket expenses. Broker-dealer firms, including Merrill Lynch, holding Fund shares in "street name" for the benefit of their customers and clients will request the instructions of such customers and clients on how to vote their shares on the Reorganization before the Meetings. With respect to shares of Common Stock of each Fund, broker-dealer firms, including Merrill Lynch, will not be permitted to grant voting authority without instructions with respect to the approval of the Agreement and Plan of Reorganization. Shares of AMPS held in "street name," however, may be voted without instructions under certain conditions by broker-dealer firms with respect to the Reorganization and counted for purposes of establishing a quorum 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. These conditions include, among others, that (i) at least 30% of the AMPS outstanding have voted on the Reorganization, (ii) less than 10% of the AMPS outstanding have voted against the Reorganization and (iii) holders of Common Stock have voted to approve the Reorganization. In such instances, the broker-dealer firm will vote those shares of AMPS on Item 1 in the same proportion as the votes cast by all holders of AMPS who voted on the Reorganization. The Funds will include shares held of record by broker-dealers as to which such authority has been granted in its tabulation of the total number of shares present for purposes of determining whether the necessary quorum of stockholders of each Fund exists. Proxies that are returned to a Fund but that are marked "abstain" or on which a broker-dealer has declined to vote on any proposal ("broker non-votes") will be counted as present for the purposes of determining a quorum. Abstentions and broker non-votes will not be counted as votes cast. Abstentions and broker non-votes will have the same effect as a vote against the Reorganization. This Proxy Statement and Prospectus does not contain all of the information set forth in the registration statement and the exhibits relating thereto which New York Insured 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 60 registrants, including the Funds, that file electronically with the SEC. Reports, proxy statements and other information concerning the Funds can also be inspected at the offices of the New York Stock Exchange, 20 Broad Street, New York, New York 10005. Year 2000 Issues Many computer systems were designed using only two digits to designate years. These systems may not be able to distinguish the Year 2000 from the Year 1900 (commonly known as the "Year 2000 Problem"). The Funds could be adversely affected if the computer systems used by FAM or other Fund service providers do not properly address this problem before January 1, 2000. FAM expects to have addressed this problem before then, and does not anticipate that the services it provides will be adversely affected. The Fund's other service providers have told FAM that they also expect to resolve the Year 2000 Problem, and FAM will continue to monitor the situation as the Year 2000 approaches. However, if the problem has not been fully addressed, the Funds could be negatively affected. The Year 2000 Problem could also have a negative impact on the issuers of securities in which the Funds invest, and this could hurt the Funds' investment returns. CUSTODIAN The Bank of New York acts as the custodian for cash and securities of New York Insured and will act as custodian for the combined fund after the Reorganization. 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 New York Insured II. The principal business address of State Street Bank and Trust Company in such capacity is One Heritage Drive, P2N, North Quincy, Massachusetts 02171. TRANSFER AGENT, DIVIDEND DISBURSING AGENT AND REGISTRAR The Bank of New York serves as the transfer agent, dividend disbursing agent and registrar with respect to the Common Stock of New York Insured, pursuant to a registrar, transfer agency, dividend disbursing agency and service agreement with New York Insured and will act as transfer agent, dividend disbursing agent with respect to the Common Stock of the combined fund after the Reorganization. The principal business address of The Bank of New York in such capacity is 101 Barclay Street, New York, New York 10286. State Street Bank and Trust Company serves as the transfer agent, dividend disbursing agent and registrar with respect to the Common Stock of New York Insured II, 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. The Bank of New York serves as the transfer agent, dividend disbursing agent, registrar and auction agent to New York Insured and New York Insured II in connection with their respective AMPS. The principal business address of The Bank of New York is 101 Barclay Street, New York, New York 10286. LEGAL PROCEEDINGS There are no material legal proceedings to which either 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. 61 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 February 28, 1992 to October 31, 1992 for New York Insured and the financial highlights for each of the years in the four-year period ended October 31, 1996 and for the period June 26, 1992 to October 31, 1992 for New York Insured II 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 the independent auditors for the combined fund after the Reorganization. Ernst & Young LLP, independent auditors, have audited the financial statements and financial highlights of New York Insured II for each of the two years in the period ended October 31, 1998, as set forth in their report which appears in this Proxy Statement and Prospectus. The financial statements and financial highlights of New York Insured II are included in reliance upon their report, given on their authority as experts in accounting and auditing. The principal business address of Ernst & Young LLP is 99 Wood Avenue South, Iselin, New Jersey 08830. By Order of the Boards of Directors Alice A. Pellegrino Secretary of MuniYield New York Insured Fund, Inc. and MuniYield New York Insured Fund II, Inc. 62 INDEX TO FINANCIAL STATEMENTS Page ---- Audited Financial Statements for MuniYield New York Insured Fund, Inc. for the fiscal year ended October 31, 1998 ............................. F-2 Unaudited Financial Statements for MuniYield New York Insured Fund, Inc. for the Six-Month Period Ended April 30, 1999 .......................... F-13 Audited Financial Statements for MuniYield New York Insured Fund II, Inc. for the fiscal year ended October 31, 1998 ............................. F-23 Unaudited Financial Statements for MuniYield New York Insured Fund II, Inc. for the Six-Month Period Ended April 30, 1999 .......................... F-35 Unaudited Financial Statements for Pro Forma New York Insured as of April 30, 1999 ................................................... F-46 F-1 Audited Financial Statements for MuniYield New York Insured Fund, Inc. for the Fiscal Year Ended October 31, 1998 F-2 INDEPENDENT AUDITORS' REPORT The Board of Directors and Shareholders of MuniYield New York Insured Fund, Inc.: We have audited the accompanying statement of assets, liabilities and capital, including the schedule of investments, of MuniYield New York Insured Fund, Inc., as of October 31, 1998, the related statements of operations for the year then ended and changes in net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended. These financial statements and the financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and the financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and the financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned at October 31, 1998 by correspondence with the custodian and 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 MuniYield New York Insured Fund, Inc. as of October 31, 1998, the results of its operations, the changes in its net assets, and the financial highlights for the respective stated periods in conformity with generally accepted accounting principles. Deloitte & Touche LLP Princeton, New Jersey December 4, 1998 F-3 MuniYield New York Insured Fund, Inc. October 31, 1998 - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS (in Thousands) - --------------------------------------------------------------------------------
S&P Moody's Face Value Ratings Ratings Amount Issue (Note 1a) - ------------------------------------------------------------------------------------------------------------------------------------ New York--99.6% - ------------------------------------------------------------------------------------------------------------------------------------ AAA Aaa $ 6,095 Albany County, New York, Airport Authority, Airport Revenue Bonds, RITR, AMT, Series RI-97-7, 8.17% due 12/15/2023 (d)(e) $ 7,199 - ------------------------------------------------------------------------------------------------------------------------------------ AAA Aaa 8,200 Buffalo, New York and Fort Erie, Ontario, Canada, Public Bridge Authority, Toll Bridge System Revenue Bonds, 5.75% due 1/01/2025 (b) 8,805 - ------------------------------------------------------------------------------------------------------------------------------------ Long Island, New York, Power Authority, Electric System Revenue Refunding Bonds, Series A: AAA Aaa 10,000 5.25% due 12/01/2026 (a) 10,235 A- Baa1 4,400 5.50% due 12/01/2029 4,544 - ------------------------------------------------------------------------------------------------------------------------------------ AAA Aaa 2,500 Metropolitan Transportation Authority, New York, Commuter Facilities Revenue Bonds, Series C-1, 5.375% due 7/01/2027 (f) 2,591 - ------------------------------------------------------------------------------------------------------------------------------------ AAA Aaa 11,000 Metropolitan Transportation Authority, New York, Transportation Facilities Revenue Bonds, Series J, 6.50% due 7/01/2002 (f)(g) 12,243 - ------------------------------------------------------------------------------------------------------------------------------------ AAA Aaa 3,000 Nassau County, New York, IDA, Civic Facility Revenue Refunding Bonds (Hofstra University Project), 5% due 7/01/2023 (b) 2,966 - ------------------------------------------------------------------------------------------------------------------------------------ A1+ VMIG1+ 2,325 New York City, New York, Cultural Resources Trust, Revenue Bonds (Carnegie Hall), VRDN, 2.70% due 12/01/2015 (c) 2,325 - ------------------------------------------------------------------------------------------------------------------------------------ A1+ VMIG1+ 2,500 New York City, New York, GO, VRDN, UT, Series B, Sub-Series B-6, 3.70% due 8/15/2005 (b)(c) 2,500 - ------------------------------------------------------------------------------------------------------------------------------------ New York City, New York, Municipal Water Finance Authority, Water and Sewer System Revenue Bonds: AAA Aaa 1,000 Refunding, Fiscal 1997-Series A, 5.375% due 6/15/2026 (e) 1,031 AAA Aaa 10,000 Series A, 4.75% due 6/15/2031 (f) 9,522 AAA Aaa 22,500 Series B, 5.75% due 6/15/2026 (b) 24,189 AAA Aaa 5,000 Series B, 5.50% due 6/15/2027 (b) 5,279 - ------------------------------------------------------------------------------------------------------------------------------------ AAA Aaa 5,000 New York City, New York, Transitional Finance Authority Revenue Bonds (Future Tax Secured), Series A, 5% due 8/15/2027 (b) 4,932 - ------------------------------------------------------------------------------------------------------------------------------------ AAA Aaa 10,000 New York, New York, RITR, Series 33, 6.94% due 8/01/2027 (b)(d) 10,700 - ------------------------------------------------------------------------------------------------------------------------------------ New York, New York, Refunding, GO, UT: A- A3 3,870 Series B, 6.375% due 8/15/2012 4,321 AAA Aaa 5,000 Series G, 5% due 8/01/2006 (b) 5,292 - ------------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- PORTFOLIO ABBREVIATIONS - -------------------------------------------------------------------------------- To simplify the listings of MuniYield New York Insured Fund, Inc.'s portfolio holdings in the Schedule of Investments, we have abbreviated the names of many of the securities according to the list below and at right. AMT Alternative Minimum Tax (subject to) COP Certificates of Participation DATES Daily Adjustable Tax-Exempt Securities GO General Obligation Bonds IDA Industrial Development Authority PCR Pollution Control Revenue Bonds RITR Residual Interest Trust Receipts UT Unlimited Tax VRDN Variable Rate Demand Notes F-4 MuniYield New York Insured Fund, Inc. October 31, 1998 - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS (continued) (in Thousands) - --------------------------------------------------------------------------------
S&P Moody's Face Value Ratings Ratings Amount Issue (Note 1a) - ------------------------------------------------------------------------------------------------------------------------------------ New York (continued) - ------------------------------------------------------------------------------------------------------------------------------------ New York State Dormitory Authority Revenue Bonds: AAA Aaa $ 4,400 (City University System), Series C, 7.50% due 7/01/2010 (f) $ 5,639 AAA Aaa 2,365 (City University System), Third Resolution, Series 1, 6.25% due 7/01/2004 (a)(g) 2,684 AAA Aaa 4,000 (City University System), Third Resolution, Series 1, 6.25% due 7/01/2004 (a)(g) 4,540 A1+ VMIG1+ 1,200 (Cornell University), VRDN, Series B, 3.70% due 7/01/2025 (c) 1,200 AAA Aaa 2,000 (Ithaca College), 5.25% due 7/01/2026 (a) 2,044 AAA Aaa 2,000 (New School Social Research), 5.75% due 7/01/2026 (b) 2,177 AAA Aaa 4,980 Refunding (City University System), Series C, 7% due 7/01/2014 (f) 5,327 AAA Aaa 3,500 Refunding (City University System), Third Generation Resources, Series 2, 5% due 7/01/2023 (a) 3,461 AAA Aaa 4,250 Refunding (Hospital Mortgage--United Health Services Hospitals), 5.375% due 8/01/2027 (a) 4,367 AAA Aaa 3,100 Refunding (Montefiore Medical Center), 5.25% due 2/01/2015 (a) 3,194 AAA Aaa 10,000 Refunding (North Shore University Hospital), 5.25% due 11/01/2019 (b) 10,242 AAA Aaa 6,000 Refunding (Siena College), 5.75% due 7/01/2026 (b) 6,530 AAA Aaa 5,850 Refunding (St. Joseph's Hospital Health Center), 5.25% due 7/01/2018 (b) 5,960 - ------------------------------------------------------------------------------------------------------------------------------------ AAA Aaa 10,250 New York State Energy Research and Development Authority, Gas Facilities Revenue Bonds (Brooklyn Union Gas Company), AMT, Series B, 6.75% due 2/01/2024 (b) 11,263 - ------------------------------------------------------------------------------------------------------------------------------------ New York State Energy Research and Development Authority, PCR (Niagara Mohawk Power Corp. Project), Series A (c): A1+ NR* 4,300 DATES, 3.70% due 7/01/2015 4,300 A1+ NR* 3,700 VRDN, 3.75% due 12/01/2023 3,700 - ------------------------------------------------------------------------------------------------------------------------------------ AAA Aaa 2,975 New York State Environmental Facilities Corporation, Special Obligation Revenue Refunding Bonds (Riverbank State Park), 5.50% due 4/01/2016 (a) 3,162 - ------------------------------------------------------------------------------------------------------------------------------------ A A2 7,715 New York State, GO, Series B, 5% due 3/01/2015 7,801 - ------------------------------------------------------------------------------------------------------------------------------------ New York State Medical Care Facilities, Finance Agency Revenue Bonds: AAA Aaa 2,790 (Health Center Project--Second Mortgage), Series A, 6.375% due 11/15/2019 (a) 3,200 AAA Aaa 1,000 (Long-Term Health Care Insured Program), Series D, 6.50% due 11/01/2015 (e) 1,105 AAA Aaa 1,865 (Long-Term Health Care), Series B, 6.45% due 11/01/2014 (e) 2,042 AAA Aaa 8,335 (Mental Health Services Facilities), Series A, 6.375% due 8/15/2017 (f) 9,099 AAA Aaa 1,000 (New York Hospital Mortgage), Series A, 6.75% due 2/15/2005 (a)(g)(h) 1,168 AAA Aaa 7,250 (New York Hospital Mortgage), Series A, 6.80% due 2/15/2005 (a)(g)(h) 8,485 AAA Aaa 10,000 Refunding (Hospital and Nursing Home), Series C, 6.375% due 8/15/2029 (b) 10,981 - ------------------------------------------------------------------------------------------------------------------------------------ NR* Aaa 7,900 New York State Mortgage Agency Revenue Bonds, RITR, AMT, Series 24, 7.72% due 10/01/2028 (d) 8,837 - ------------------------------------------------------------------------------------------------------------------------------------ New York State Thruway Authority, Highway and Bridge Trust Fund, Series B (f)(g): AAA Aaa 8,000 6.25% due 4/01/2004 9,044 AAA Aaa 3,000 UT, 6% due 4/01/2004 3,355 - ------------------------------------------------------------------------------------------------------------------------------------ AAA VMIG1+ 2,500 New York State Thruway Authority Revenue Bonds, VRDN, 3.70% due 1/01/2024 (c)(f) 2,500 - ------------------------------------------------------------------------------------------------------------------------------------ Port Authority of New York and New Jersey, Consolidated Revenue Bonds (f): AAA Aaa 5,000 116th Series, 4.25% due 10/01/2026 4,453 AAA Aaa 2,180 AMT, 97th Series, 6.50% due 7/15/2019 2,443 - ------------------------------------------------------------------------------------------------------------------------------------ AAA Aaa 5,700 Syracuse, New York, COP (Syracuse Hancock International Airport), AMT, 6.50% due 1/01/2017 (f) 6,195 - ------------------------------------------------------------------------------------------------------------------------------------
F-5 MuniYield New York Insured Fund, Inc. October 31, 1998 - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS (concluded) (in Thousands) - --------------------------------------------------------------------------------
S&P Moody's Face Value Ratings Ratings Amount Issue (Note 1a) - ------------------------------------------------------------------------------------------------------------------------------------ New York (concluded) - ------------------------------------------------------------------------------------------------------------------------------------ A1+ VMIG1+ $ 500 Syracuse, New York, IDA, Civic Facility Revenue Bonds, Multi-Modal (Syracuse University Project), VRDN, 3.70% due 3/01/2023 (c) $ 500 - ------------------------------------------------------------------------------------------------------------------------------------ AAA Aaa 4,000 Triborough Bridge and Tunnel Authority, New York, Special Obligation Revenue Refunding Bonds, Series A, 4.75% due 1/01/2024 (b) 3,841 - ------------------------------------------------------------------------------------------------------------------------------------ Total Investments (Cost--$267,022)--99.6% 283,513 Other Assets Less Liabilities--0.4% 1,069 -------- Net Assets--100.0% $284,582 ======== - ------------------------------------------------------------------------------------------------------------------------------------
(a) AMBAC Insured. (b) MBIA Insured. (c) 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. (d) 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. (e) FSA Insured. (f) FGIC Insured. (g) Prerefunded. (h) FHA Insured. + Highest short-term rating by Moody's Investors Service, Inc. * 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............................................................. 87.8% A/A................................................................. 5.8 Other*.............................................................. 6.0 - -------------------------------------------------------------------------------- * Temporary investments in short-term municipal securities. F-6 MuniYield New York Insured Fund, Inc. October 31, 1998 - -------------------------------------------------------------------------------- FINANCIAL INFORMATION - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Statement of Assets, Liabilities and Capital as of October 31, 1998 - -------------------------------------------------------------------------------- Assets: Investments, at value (identified cost--$267,022,066) (Note 1a) ......... $283,512,835 Cash .................................................................... 86,175 Receivables: Interest .............................................................. $ 4,236,184 Securities sold ....................................................... 521,970 4,758,154 ------------ Prepaid expenses and other assets ....................................... 14,053 ------------ Total assets ............................................................ 288,371,217 ------------ - --------------------------------------------------------------------------------------------------------------------- Liabilities: Payables: Securities purchased .................................................. 3,519,444 Investment adviser (Note 2) ........................................... 125,435 Dividends to shareholders (Note 1e) ................................... 50,734 3,695,613 ------------ Accrued expenses and other liabilities .................................. 93,154 ------------ Total liabilities ....................................................... 3,788,767 ------------ - --------------------------------------------------------------------------------------------------------------------- Net Assets: Net assets .............................................................. $284,582,450 ============ - --------------------------------------------------------------------------------------------------------------------- Capital: Capital Stock (200,000,000 shares authorized) (Note 4): Preferred Stock, par value $.05 per share (3,400 shares of AMPS* issued and outstanding at $25,000 per share liquidation preference) ... $ 85,000,000 Common Stock, par value $.10 per share (12,274,294 shares issued and outstanding) ...................................................... $ 1,227,429 Paid-in capital in excess of par ........................................ 171,600,056 Undistributed investment income--net .................................... 3,010,351 Undistributed realized capital gains on investments--net ................ 7,253,845 Unrealized appreciation on investments--net ............................. 16,490,769 ------------ Total--Equivalent to $16.26 net asset value per share of Common Stock (market price--$16.3125) ................................................ 199,582,450 ------------ Total capital ........................................................... $284,582,450 ============ - ---------------------------------------------------------------------------------------------------------------------
* Auction Market Preferred Stock. See Notes to Financial Statements. F-7 MuniYield New York Insured Fund, Inc. October 31, 1998 - -------------------------------------------------------------------------------- FINANCIAL INFORMATION (continued) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Statement of Operations - --------------------------------------------------------------------------------
For the Year Ended October 31, 1998 - ------------------------------------------------------------------------------------------------------------------- Investment Income Interest and amortization of premium and discount earned ........ $15,635,016 (Note 1d): - ------------------------------------------------------------------------------------------------------------------- Expenses: Investment advisory fees (Note 2) ............................... $1,399,829 Commission fees (Note 4) ........................................ 215,237 Professional fees ............................................... 73,296 Accounting services (Note 2) .................................... 54,413 Transfer agent fees ............................................. 31,764 Listing fees .................................................... 24,441 Directors' fees and expenses .................................... 23,033 Custodian fees .................................................. 21,413 Printing and shareholder reports ................................ 20,946 Pricing fees .................................................... 8,042 Other ........................................................... 25,943 ---------- Total expenses .................................................. 1,898,357 ----------- Investment income--net ........................................... 13,736,659 ----------- - ------------------------------------------------------------------------------------------------------------------- Realized & Realized gain on investments--net ............................... 9,533,983 Unrealized Gain Change in unrealized appreciation on investments--net ........... (2,168,441) (Loss) on ----------- Investments--Net Net Increase in Net Assets Resulting from Operations ............ $21,102,201 (Notes 1b, 1d & 3): =========== - -------------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements. F-8 MuniYield New York Insured Fund, Inc. October 31, 1998 - -------------------------------------------------------------------------------- FINANCIAL INFORMATION (continued) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Statements of Changes in Net Assets - --------------------------------------------------------------------------------
For the Year Ended October 31, ------------------------------ Increase (Decrease) in Net Assets: 1998 1997 - -------------------------------------------------------------------------------------------------------------------------------- Operations: Investment income--net .................................................. $ 13,736,659 $ 13,937,912 Realized gain on investments--net ....................................... 9,533,983 4,164,812 Change in unrealized appreciation on investments--net ................... (2,168,441) 1,553,036 ------------- ------------- Net increase in net assets resulting from operations .................... 21,102,201 19,655,760 ------------- ------------- - -------------------------------------------------------------------------------------------------------------------------------- Dividends & Investment income--net: Distributions to Common Stock .......................................................... (10,960,993) (10,993,544) Shareholders Preferred Stock ....................................................... (2,353,599) (2,826,998) (Note 1e): Realized gain on investments--net: Common Stock .......................................................... (2,282,779) (799,349) Preferred Stock ....................................................... (986,221) (198,679) ------------- ------------- Net decrease in net assets resulting from dividends and distributions to shareholders ......................................................... (16,583,592) (14,818,570) ------------- ------------- - -------------------------------------------------------------------------------------------------------------------------------- Capital Stock Value of shares issued to Common Stock shareholders in reinvestment Transactions of dividends and distributions .......................................... 2,957,094 658,515 (Note 4): ------------- ------------- - -------------------------------------------------------------------------------------------------------------------------------- Net Assets: Total increase in net assets ............................................ 7,475,703 5,495,705 Beginning of year ....................................................... 277,106,747 271,611,042 ------------- ------------- End of year* ............................................................ $ 284,582,450 $ 277,106,747 ============= ============= - -------------------------------------------------------------------------------------------------------------------------------- *Undistributed investment income--net (Note 1f) .......................... $ 3,010,351 $ 2,576,708 ============= ============= - --------------------------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements. F-9 MuniYield New York Insured Fund, Inc. October 31, 1998 - -------------------------------------------------------------------------------- FINANCIAL INFORMATION (concluded) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Financial Highlights - --------------------------------------------------------------------------------
The following per share data and ratios have been derived from information provided in the financial statements. For the Year Ended October 31, ---------------------------------------------------- Increase (Decrease) in Net Asset Value: 1998 1997 1996 1995 1994 - ---------------------------------------------------------------------------------------------------------------------------------- Per Share Net asset value, beginning of year ................... $ 15.89 $ 15.49 $ 15.64 $ 14.17 $ 16.85 Operating -------- -------- -------- -------- -------- Performance: Investment income--net ............................... 1.12 1.15 1.15 1.19 1.20 Realized and unrealized gain (loss) on investments--net ..................................... .61 .48 (.03) 1.58 (2.67) -------- -------- -------- -------- -------- Total from investment operations ..................... 1.73 1.63 1.12 2.77 (1.47) -------- -------- -------- -------- -------- Less dividends and distributions to Common Stock shareholders: Investment income--net ............................. (.90) (.91) (.91) (.92) (.97) Realized gain on investments--net .................. (.19) (.07) -- (.10) (.05) In excess of realized gain on investments--net ..... -- -- (.10) -- -- -------- -------- -------- -------- -------- Total dividends and distributions to Common Stock shareholders .......................... (1.09) (.98) (1.01) (1.02) (1.02) -------- -------- -------- -------- -------- Effect of Preferred Stock activity: Dividends and distributions to Preferred Stock shareholders: Investment income--net ........................... (.19) (.23) (.23) (.26) (.18) Realized gain on investments--net ................ (.08) (.02) -- (.02) (.01) In excess of realized gain on investments--net ... -- -- (.03) -- -- -------- -------- -------- -------- -------- Total effect of Preferred Stock activity ............. (.27) (.25) (.26) (.28) (.19) ======== ======== ======== ======== ======== Net asset value, end of year ......................... $ 16.26 $ 15.89 $ 15.49 $ 15.64 $ 14.17 ======== ======== ======== ======== ======== Market price per share, end of year .................. $16.3125 $ 15.875 $ 14.875 $ 14.375 $ 12.25 ======== ======== ======== ======== ======== - ---------------------------------------------------------------------------------------------------------------------------------- Total Investment Based on market price per share ...................... 9.99% 13.79% 10.79% 26.40% (20.49%) Return:* ======== ======== ======== ======== ======== Based on net asset value per share ................... 9.53% 9.37% 6.04% 18.89% (9.94%) ======== ======== ======== ======== ======== - ---------------------------------------------------------------------------------------------------------------------------------- Ratios to Average Expenses ............................................. .68% .70% .70% .71% .70% Net Assets:** ======== ======== ======== ======== ======== Investment income--net ............................... 4.91% 5.09% 5.11% 5.42% 5.28% ======== ======== ======== ======== ======== - ---------------------------------------------------------------------------------------------------------------------------------- Supplemental Net assets, net of Preferred Stock, end of year Data: (in thousands) ....................................... $199,582 $192,107 $186,611 $188,354 $170,670 ======== ======== ======== ======== ======== Preferred Stock outstanding, end of year (in thousands) ....................................... $ 85,000 $ 85,000 $ 85,000 $ 85,000 $ 85,000 ======== ======== ======== ======== ======== Portfolio turnover ................................... 89.76% 81.73% 80.59% 88.17% 41.26% ======== ======== ======== ======== ======== - ---------------------------------------------------------------------------------------------------------------------------------- Leverage: Asset coverage per $1,000 ............................ $ 3,348 $ 3,260 $ 3,195 $ 3,216 $ 3,008 ======== ======== ======== ======== ======== - ---------------------------------------------------------------------------------------------------------------------------------- Dividends Per Share Series A--Investment income--net ..................... $ 695 $ 826 $ 819 $ 935 $ 673 On Preferred Stock ======== ======== ======== ======== ======== Outstanding:+ Series B--Investment income--net ..................... $ 689 $ 837 $ 807 $ 904 $ 593 ======== ======== ======== ======== ======== - ----------------------------------------------------------------------------------------------------------------------------------
* Total investment returns based on market value, which can be significantly greater or lesser than the net asset value, may result in substantially different returns. Total investment returns exclude the effects of sales loads. ** Do not reflect the effect of dividends to Preferred Stock shareholders. + Dividends per share have been adjusted to reflect a two-for-one stock split that occurred on December 1, 1994. See Notes to Financial Statements. F-10 MuniYield New York Insured Fund, Inc. October 31, 1998 - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 1. Significant Accounting Policies: MuniYield New York Insured Fund, Inc. (the "Fund") is registered under the Investment Company Act of 1940 as a non-diversified, closed-end management investment company. The Fund determines and makes available for publication the net asset value of its Common Stock on a weekly basis. The Fund's Common Stock is listed on the New York Stock Exchange under the symbol MYN. 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 Directors of the Fund, including valuations furnished by a pricing service retained by the Fund, which may utilize a matrix system for valuations. The procedures of the pricing service and its valuations are reviewed by the officers of the Fund under the general supervision of the Board of Directors. (b) Derivative financial instruments--The Fund may engage in various portfolio strategies to seek to increase its return by hedging its portfolio against adverse movements in the debt markets. Losses may arise due to changes in the value of the contract or if the counterparty does not perform under the contract. . Financial futures contracts--The Fund may purchase or sell financial futures contracts and options on such futures contracts for the purpose of hedging the market risk on existing securities or the intended purchase of securities. Futures contracts are contracts for delayed delivery of securities at a specific future date and at a specific price or yield. Upon entering into a contract, the Fund deposits and maintains as collateral such initial margin as required by the exchange on which the transaction is effected. Pursuant to the contract, the Fund agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in value of the contract. Such receipts or payments are known as variation margin and are recorded by the Fund as unrealized gains or losses. When the contract is closed, the Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. . Options--The Fund is authorized to write covered call options and purchase put options. When the Fund writes an option, an amount equal to the premium received by the Fund is reflected as an asset and an equivalent liability. The amount of the liability is subsequently marked to market to reflect the current market value of the option written. When a security is purchased or sold through an exercise of an option, the related premium paid (or received) is added to (or deducted from) the basis of the security acquired or deducted from (or added to) the proceeds of the security sold. When an option expires (or the Fund enters into a closing transaction), the Fund realizes a gain or loss on the option to the extent of the premiums received or paid (or gain or loss to the extent the cost of the closing transaction exceeds the premium paid or received). Written and purchased options are non-income producing investments. (c) Income taxes--It is the Fund's policy to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all of its taxable income to its shareholders. Therefore, no Federal income tax provision is required. (d) Security transactions and investment income--Security transactions are recorded on the dates the transactions are entered into (the trade dates). Interest income is recognized on the accrual basis. Discounts and market premiums are amortized into interest income. Realized gains and losses on security transactions are determined on the identified cost basis. (e) Dividends and distributions--Dividends from net investment income are declared and paid F-11 MuniYield New York Insured Fund, Inc. October 31, 1998 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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 $11,576 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 Stock. Accounting services are provided to the Fund by FAM at cost. Certain officers and/or directors of the Fund are officers and/or directors of FAM, PSI, and/or ML & Co. 3. Investments: Purchases and sales of investments, excluding short-term securities, for the year ended October 31, 1998 were $242,922,560 and $240,943,452, 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 ........................... $9,372,121 $16,490,769 Financial futures contracts ..................... 161,862 -- ---------- ----------- Total ........................................... $9,533,983 $16,490,769 ========== =========== - -------------------------------------------------------------------------------- As of October 31, 1998, net unrealized appreciation for Federal income tax purposes aggregated $16,490,769, of which $16,905,881 related to appreciated securities and $415,112 related to depreciated securities. The aggregate cost of investments at October 31, 1998 for Federal income tax purposes was $267,022,066. 4. Capital Stock Transactions: The Fund is authorized to issue 200,000,000 shares of capital stock, including Preferred Stock, par value $.10 per share, all of which were initially classified as Common Stock. The Board of Directors is authorized, however, to reclassify any unissued shares of capital stock without approval of the holders of Common Stock. Common Stock Shares issued and outstanding during the years ended October 31, 1998 and October 31, 1997 increased by 185,859 and 41,692, respectively, as a result of dividend reinvestment. Preferred Stock Auction Market Preferred Stock ("AMPS") are shares of Preferred Stock of the Fund, with a par value of $.05 per share and a liquidation preference of $25,000 per share, that entitle their holders to receive cash dividends at an annual rate that may vary for the successive dividend periods. The yields in effect at October 31, 1998 were: Series A, 3.23% and Series B, 3.25%. 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 $85,619 as commissions. 5. Subsequent Event: On November 5, 1998, the Fund's Board of Directors declared an ordinary income dividend to Common Stock shareholders in the amount of $.080966 per share, payable on November 27, 1998 to shareholders of record as of November 20, 1998. F-12 Unaudited Financial Statements for MuniYield New York Insured Fund, Inc. for the Six-Month Period Ended April 30, 1999 F-13 MuniYield New York Insured Fund, Inc. April 30, 1999 - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS (in Thousands) - --------------------------------------------------------------------------------
S&P Moody's Face Value Ratings Ratings Amount Issue (Note 1a) - ------------------------------------------------------------------------------------------------------------------------------------ New York--100.1% - ------------------------------------------------------------------------------------------------------------------------------------ Albany County, New York, Airport Authority, Airport Revenue Bonds: NR* Aaa $ 6,095 RITR, Series RI-7, 7.52% due 12/15/2023 (d)(e) $ 7,188 AAA Aaa 4,565 Series B, 4.75% due 12/15/2018 (e) 4,368 - ------------------------------------------------------------------------------------------------------------------------------------ AAA Aaa 8,200 Buffalo and Fort Erie, New York, Public Bridge Authority, Toll Bridge System Revenue Bonds, 5.75% due 1/01/2025 (b) 8,725 - ------------------------------------------------------------------------------------------------------------------------------------ AAA Aaa 10,000 Long Island Power Authority, New York, Electric System Revenue Bonds, Series A, 5.25% due 12/01/2026 (a) 10,142 - ------------------------------------------------------------------------------------------------------------------------------------ A1+ VMIG1+ 850 Long Island Power Authority, New York, Electric System Revenue Bonds, VRDN, Sub-Series 7, 4.10% due 4/01/2025 (b)(c) 850 - ------------------------------------------------------------------------------------------------------------------------------------ AAA Aaa 2,500 Metropolitan Transportation Authority, New York, Commuter Facilities Revenue Bonds, Series C-1, 5.375% due 7/01/2027 (f) 2,576 - ------------------------------------------------------------------------------------------------------------------------------------ AAA Aaa 4,680 Metropolitan Transportation Authority, New York, Commuter Facilities Revenue Refunding Bonds, Series B, 4.75% due 7/01/2026 (f) 4,401 - ------------------------------------------------------------------------------------------------------------------------------------ AAA Aaa 7,370 Metropolitan Transportation Authority, New York, Transportation Facilities Revenue Refunding Bonds, Series A, 4.75% due 7/01/2024 (b) 6,946 - ------------------------------------------------------------------------------------------------------------------------------------ AAA Aaa 5,000 Nassau County, New York, GO (General Improvement), Series V, 5.25% due 3/01/2011 (a) 5,250 - ------------------------------------------------------------------------------------------------------------------------------------ New York City, New York, GO, Refunding: A- A3 3,870 Series B, 6.375% due 8/15/2012 4,281 AAA Aaa 2,500 Series D, 5.25% due 8/01/2021 (b) 2,533 - ------------------------------------------------------------------------------------------------------------------------------------ A1+ VMIG1+ 400 New York City, New York, GO, VRDN, Series B-2, Sub-Series B-5, 4.10% due 8/15/2011 (b)(c) 400 - ------------------------------------------------------------------------------------------------------------------------------------ New York City, New York, Municipal Water Finance Authority, Water and Sewer System Revenue Bonds, Series B (b): AAA Aaa 22,500 5.75% due 6/15/2026 24,161 AAA Aaa 5,000 5.50% due 6/15/2027 5,222 - ------------------------------------------------------------------------------------------------------------------------------------ New York City, New York, Municipal Water Finance Authority, Water and Sewer System Revenue Refunding Bonds: AAA Aaa 1,000 Series A, 5.375% due 6/15/2026 (e) 1,025 AAA Aaa 10,000 Series B, 5.25% due 6/15/2029 (a) 10,122 - ------------------------------------------------------------------------------------------------------------------------------------ NR* Aaa 14,585 New York City, New York, RITR, Series 33, 6.24% due 8/01/2027 (b)(d) 15,442 - ------------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- PORTFOLIO ABBREVIATIONS - -------------------------------------------------------------------------------- To simplify the listings of MuniYield New York Insured Fund, Inc.'s portfolio holdings in the Schedule of Investments, we have abbreviated the names of many of the securities according to the list below and at right. AMT Alternative Minimum Tax (subject to) COP Certificates of Participation FLOATS Floating Rate Securities GO General Obligation Bonds IDA Industrial Development Authority PCR Pollution Control Revenue Bonds RITR Residual Interest Trust Receipts VRDN Variable Rate Demand Notes F-14 MuniYield New York Insured Fund, Inc. April 30, 1999 - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS (continued) (in Thousands) - --------------------------------------------------------------------------------
S&P Moody's Face Value Ratings Ratings Amount Issue (Note 1a) - ------------------------------------------------------------------------------------------------------------------------------------ New York (continued) - ------------------------------------------------------------------------------------------------------------------------------------ AAA Aaa $10,385 New York City, New York, Transitional Finance Authority Revenue Bonds, Future Tax Secured, Series B, 4.75% due 11/15/2023 (f) $ 9,810 - ------------------------------------------------------------------------------------------------------------------------------------ AAA Aaa 8,750 New York State Dormitory Authority, Lease Revenue Bonds (Municipal Health Facilities Improvement Program), Series 1, 4.75% due 1/15/2029 (e) 8,195 - ------------------------------------------------------------------------------------------------------------------------------------ New York State Dormitory Authority Revenue Bonds: AAA Aaa 4,000 (City University System), Third Resolution, Series 1, 6.25% due 7/01/2004 (a)(g) 4,510 AAA Aaa 2,000 (Ithaca College), 5.25% due 7/01/2026 (a) 2,027 AAA Aaa 2,000 (New School Social Research), 5.75% due 7/01/2026 (b) 2,153 AAA Aaa 6,000 (Siena College), 5.75% due 7/01/2026 (b) 6,460 - ------------------------------------------------------------------------------------------------------------------------------------ New York State Dormitory Authority Revenue Refunding Bonds: AAA Aaa 4,400 (City University System), Series C, 7.50% due 7/01/2010 (f) 5,408 AAA Aaa 4,980 (City University System), Series C, 7% due 7/01/2014 (f) 5,271 AAA NR* 4,250 (Hospital Mortgage--United Health Services Hospitals), 5.375% due 8/01/2027 (a)(h) 4,356 AAA Aaa 10,000 (North Shore University Hospital), 5.25% due 11/01/2019 (b) 10,095 AAA Aaa 5,850 (Saint Joseph's Hospital Health Center), 5.25% due 7/01/2018 (b) 5,909 AAA Aaa 13,360 (State University Educational Facilities), Series A, 4.75% due 5/15/2025 (b) 12,580 - ------------------------------------------------------------------------------------------------------------------------------------ AAA Aaa 10,250 New York State Energy Research and Development Authority, Gas Facilities Revenue Bonds (Brooklyn Union Gas Company), AMT, Series B, 6.75% due 2/01/2024 (b) 11,159 - ------------------------------------------------------------------------------------------------------------------------------------ New York State Energy Research and Development Authority, PCR, Refunding (c): A1+ VMIG1+ 1,200 (New York State Electric and Gas), VRDN, Series D, 4.20% due 10/01/2029 1,200 NR* P1 4,900 (Niagara Mohawk Corporation Project), FLOATS, Series A, 4.20% due 3/01/2027 4,900 - ------------------------------------------------------------------------------------------------------------------------------------ AAA Aaa 2,975 New York State Environmental Facilities Corporation, Special Obligation Revenue Refunding Bonds (Riverbank State Park), 5.50% due 4/01/2016 (a) 3,130 - ------------------------------------------------------------------------------------------------------------------------------------ New York State Medical Care Facilities, Finance Agency Revenue Bonds: AAA Aaa 2,680 (Health Center Project--Second Mortgage), Series A, 6.375% due 11/15/2019 (a) 3,053 AAA Aaa 1,865 (Long-Term Health Care), Series B, 6.45% due 11/01/2014 (e) 2,024 AAA Aaa 1,000 (Long-Term Health Care--Insured Program), Series D, 6.50% due 11/01/2015 (e) 1,096 AAA Aaa 1,000 (New York Hospital Mortgage), Series A, 6.75% due 2/15/2005 (a)(g)(h) 1,156 AAA Aaa 7,250 (New York Hospital Mortgage), Series A, 6.80% due 2/15/2005 (a)(g)(h) 8,397 - ------------------------------------------------------------------------------------------------------------------------------------ AAA Aaa 10,000 New York State Medical Care Facilities, Finance Agency Revenue Refunding Bonds (Hospital and Nursing Home), Series C, 6.375% due 8/15/2029 (b) 10,891 - ------------------------------------------------------------------------------------------------------------------------------------ NR* NR* 7,900 New York State Mortgage Agency Revenue Bonds, RITR, Series 24, 7.07% due 10/01/2028 (d) 8,895 - ------------------------------------------------------------------------------------------------------------------------------------ A1+ VMIG1+ 800 New York State Thruway Authority, General Revenue Bonds, VRDN, 4.20% due 1/01/2024 (c)(f) 800 - ------------------------------------------------------------------------------------------------------------------------------------ New York State Thruway Authority, Highway and Bridge Trust Fund Revenue Bonds, Series B (f)(g): AAA Aaa 3,000 6% due 4/01/2004 3,335 AAA Aaa 8,000 6.25% due 4/01/2004 8,982 - ------------------------------------------------------------------------------------------------------------------------------------ AAA Aaa 6,500 New York State Urban Development Corporation, Revenue Refunding Bonds (Correctional Capital Project), Series A, 5.25% due 1/01/2021 (e) 6,561 - ------------------------------------------------------------------------------------------------------------------------------------ AAA Aaa 2,180 Port Authority of New York and New Jersey, Consolidated Revenue Bonds, AMT, 97th Series, 6.50% due 7/15/2019 (f) 2,414 - ------------------------------------------------------------------------------------------------------------------------------------ AAA Aaa 5,700 Syracuse, New York, COP (Syracuse Hancock International Airport), AMT, 6.50% due 1/01/2017 (f) 6,140 - ------------------------------------------------------------------------------------------------------------------------------------
F-15 MuniYield New York Insured Fund, Inc. April 30, 1999 - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS (concluded) (in Thousands) - --------------------------------------------------------------------------------
S&P Moody's Face Value Ratings Ratings Amount Issue (Note 1a) - ----------------------------------------------------------------------------------------------------------------------------------- New York (concluded) - ----------------------------------------------------------------------------------------------------------------------------------- AAA Aaa $ 3,000 Syracuse, New York, GO, Refunding, Series B, 5.25% due 10/01/2014 (e) $ 3,115 - ----------------------------------------------------------------------------------------------------------------------------------- A1+ VMIG1+ 500 Syracuse, New York, IDA, Civic Facility Revenue Bonds (Multi-Modal-Syracuse University Project), VRDN, 4.20% due 3/01/2023 (c) 500 - ----------------------------------------------------------------------------------------------------------------------------------- Total Investments (Cost--$266,195)--100.1% 278,154 Liabilities in Excess of Other Assets--(0.1%) (143) -------- Net Assets--100.0% $278,011 ======== - -----------------------------------------------------------------------------------------------------------------------------------
(a) AMBAC Insured. (b) MBIA Insured. (c) 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. (d) 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. (e) FSA Insured. (f) FGIC Insured. (g) Prerefunded. (h) FHA Insured. + Highest short-term rating by Moody's Investors Service, Inc. * Not Rated. See Notes to Financial Statements. F-16 MuniYield New York Insured Fund, Inc. April 30, 1999 - -------------------------------------------------------------------------------- FINANCIAL INFORMATION - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Statement of Assets, Liabilities and Capital as of April 30, 1999 - -------------------------------------------------------------------------------- Assets: Investments, at value (identified cost--$266,194,870) (Note 1a) ......... $278,154,486 Cash .................................................................... 23,465 Interest receivable ..................................................... 4,933,029 Prepaid expenses and other assets ....................................... 14,053 ------------ Total assets ............................................................ 283,125,033 ------------ - ---------------------------------------------------------------------------------------------------------------------- Liabilities: Payables: Securities purchased .................................................. $ 4,949,109 Investment adviser (Note 2) ........................................... 122,104 Dividends to shareholders (Note 1e) ................................... 26,656 5,097,869 ------------ Accrued expenses and other liabilities .................................. 16,072 ------------ Total liabilities ....................................................... 5,113,941 ------------ - ---------------------------------------------------------------------------------------------------------------------- Net Assets: Net assets .............................................................. $278,011,092 ============ - ---------------------------------------------------------------------------------------------------------------------- Capital: Capital Stock (200,000,000 shares authorized) (Note 4): Preferred Stock, par value $.05 per share (3,400 shares of AMPS* issued and outstanding at $25,000 per share liquidation preference) ... $ 85,000,000 Common Stock, par value $.10 per share (12,560,647 shares issued and outstanding) ...................................................... $ 1,256,065 Paid-in capital in excess of par ........................................ 176,066,384 Undistributed investment income--net .................................... 3,215,494 Undistributed realized capital gains on investments--net ................ 513,533 Unrealized appreciation on investments--net ............................. 11,959,616 ------------ Total--Equivalent to $15.37 net asset value per share of Common Stock (market price--$15.9375) ................................................ 193,011,092 ------------ Total capital ........................................................... $278,011,092 ============ - ----------------------------------------------------------------------------------------------------------------------
*Auction Market Preferred Stock. See Notes to Financial Statements. F-17 MuniYield New York Insured Fund, Inc. April 30, 1999 - -------------------------------------------------------------------------------- FINANCIAL INFORMATION (continued) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Statement of Operations - --------------------------------------------------------------------------------
For the Six Months Ended April 30, 1999 - -------------------------------------------------------------------------------------------------------------- Investment Income Interest and amortization of premium and discount earned ... $ 7,480,963 (Note 1d): - -------------------------------------------------------------------------------------------------------------- Expenses: Investment advisory fees (Note 2) .......................... $ 699,084 Commission fees (Note 4) ................................... 103,126 Accounting services (Note 2) ............................... 38,210 Professional fees .......................................... 34,807 Transfer agent fees ........................................ 29,056 Printing and shareholder reports ........................... 12,103 Listing fees ............................................... 11,951 Custodian fees ............................................. 11,336 Directors' fees and expenses ............................... 11,131 Pricing fees ............................................... 3,868 Other ...................................................... 16,656 ----------- Total expenses ............................................. 971,328 ----------- Investment income--net ..................................... 6,509,635 ----------- - -------------------------------------------------------------------------------------------------------------- Realized & Realized gain on investments--net .......................... 2,518,058 Unrealized Gain Change in unrealized appreciation on investments--net ...... (4,531,153) (Loss) on ----------- Investments--Net Net Increase in Net Assets Resulting from Operations ....... $ 4,496,540 (Notes 1b, 1d & 3): =========== - --------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements. F-18 MuniYield New York Insured Fund, Inc. April 30, 1999 - -------------------------------------------------------------------------------- FINANCIAL INFORMATION (continued) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Statements of Changes in Net Assets - --------------------------------------------------------------------------------
For the Six For the Months Ended Year Ended Increase (Decrease) in Net Assets: April 30, 1999 Oct. 31, 1998 - ------------------------------------------------------------------------------------------------------------------------------- Operations: Investment income--net .................................................. $ 6,509,635 $ 13,736,659 Realized gain on investments--net ....................................... 2,518,058 9,533,983 Change in unrealized appreciation on investments--net ................... (4,531,153) (2,168,441) ------------- ------------- Net increase in net assets resulting from operations .................... 4,496,540 21,102,201 ------------- ------------- - ------------------------------------------------------------------------------------------------------------------------------- Dividends & Investment income--net: Distributions to Common Stock .......................................................... (5,742,676) (10,960,993) Shareholders Preferred Stock ....................................................... (561,816) (2,353,599) (Note 1e): Realized gain on investments--net: Common Stock .......................................................... (8,008,462) (2,282,779) Preferred Stock ....................................................... (1,249,908) (986,221) ------------- ------------- Net decrease in net assets resulting from dividends and distributions to shareholders ......................................................... (15,562,862) (16,583,592) ------------- ------------- - ------------------------------------------------------------------------------------------------------------------------------- Capital Stock Value of shares issued to Common Stock shareholders in reinvestment Transactions of dividends and distributions .......................................... 4,494,964 2,957,094 (Note 4): ------------- ------------- - ------------------------------------------------------------------------------------------------------------------------------- Net Assets: Total increase (decrease) in net assets ................................. (6,571,358) 7,475,703 Beginning of period ..................................................... 284,582,450 277,106,747 ------------- ------------- End of period* .......................................................... $ 278,011,092 $ 284,582,450 ============= ============= - ------------------------------------------------------------------------------------------------------------------------------- *Undistributed investment income--net .................................... $ 3,215,494 $ 3,010,351 ============= ============= - -------------------------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements. F-19 MuniYield New York Insured Fund, Inc. April 30, 1999 - -------------------------------------------------------------------------------- FINANCIAL INFORMATION (concluded) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Financial Highlights - --------------------------------------------------------------------------------
The following per share data and ratios have been derived For the Six from information provided in the financial statements. Months Ended For the Year Ended October 31, April 30, ----------------------------------------- Increase (Decrease) in Net Asset Value: 1999 1998 1997 1996 1995 - ----------------------------------------------------------------------------------------------------------------------------------- Per Share Net asset value, beginning of period ................. $ 16.26 $ 15.89 $ 15.49 $ 15.64 $ 14.17 Operating -------- -------- -------- -------- -------- Performance: Investment income--net ............................... .51 1.12 1.15 1.15 1.19 Realized and unrealized gain (loss) on investments--net ..................................... (.15) .61 .48 (.03) 1.58 -------- -------- -------- -------- -------- Total from investment operations ..................... .36 1.73 1.63 1.12 2.77 -------- -------- -------- -------- -------- Less dividends and distributions to Common Stock shareholders: Investment income--net ............................. (.46) (.90) (.91) (.91) (.92) Realized gain on investments--net .................. (.65) (.19) (.07) -- (.10) In excess of realized gain on investments--net ..... -- -- -- (.10) -- -------- -------- -------- -------- -------- Total dividends and distributions to Common Stock shareholders ............................ (1.11) (1.09) (.98) (1.01) (1.02) -------- -------- -------- -------- -------- Effect of Preferred Stock activity: Dividends and distributions to Preferred Stock shareholders: Investment income--net ........................... (.04) (.19) (.23) (.23) (.26) Realized gain on investments--net ................ (.10) (.08) (.02) -- (.02) In excess of realized gain on investments--net ... -- -- -- (.03) -- -------- -------- -------- -------- -------- Total effect of Preferred Stock activity ............. (.14) (.27) (.25) (.26) (.28) -------- -------- -------- -------- -------- Net asset value, end of period ....................... $ 15.37 $ 16.26 $ 15.89 $ 15.49 $ 15.64 ======== ======== ======== ======== ======== Market price per share, end of period ................ $15.9375 $16.3125 $ 15.875 $ 14.875 $ 14.375 ======== ======== ======== ======== ======== - ----------------------------------------------------------------------------------------------------------------------------------- Total Investment Based on market price per share ...................... 4.77%+ 9.99% 13.79% 10.79% 26.40% Return:** ======== ======== ======== ======== ======== Based on net asset value per share ................... 1.36%+ 9.53% 9.37% 6.04% 18.89% ======== ======== ======== ======== ======== - ----------------------------------------------------------------------------------------------------------------------------------- Ratios to Average Expenses ............................................. .69%* .68% .70% .70% .71% Net Assets:*** ======== ======== ======== ======== ======== Investment income--net ............................... 4.65%* 4.91% 5.09% 5.11% 5.42% ======== ======== ======== ======== ======== - ----------------------------------------------------------------------------------------------------------------------------------- Supplemental Net assets, net of Preferred Stock, end of period Data: (in thousands) ....................................... $193,011 $199,582 $192,107 $186,611 $188,354 ======== ======== ======== ======== ======== Preferred Stock outstanding, end of period (in thousands) ....................................... $ 85,000 $ 85,000 $ 85,000 $ 85,000 $ 85,000 ======== ======== ======== ======== ======== Portfolio turnover ................................... 43.75% 89.76% 81.73% 80.59% 88.17% ======== ======== ======== ======== ======== - ----------------------------------------------------------------------------------------------------------------------------------- Leverage: Asset coverage per $1,000 ............................ $ 3,271 $ 3,348 $ 3,260 $ 3,195 $ 3,216 ======== ======== ======== ======== ======== - ----------------------------------------------------------------------------------------------------------------------------------- Dividends Per Share Series A--Investment income--net ..................... $ 160 $ 695 $ 826 $ 819 $ 935 On Preferred Stock ======== ======== ======== ======== ======== Outstanding: Series B--Investment income--net ..................... $ 171 $ 689 $ 837 $ 807 $ 904 ======== ======== ======== ======== ======== - -----------------------------------------------------------------------------------------------------------------------------------
* Annualized. ** Total investment returns based on market value, which can be significantly greater or lesser than the net asset value, may result in substantially different returns. Total investment returns exclude the effects of sales loads. *** Do not reflect the effect of dividends to Preferred Stock shareholders. + Aggregate total investment return. See Notes to Financial Statements. F-20 MuniYield New York Insured Fund, Inc. April 30, 1999 - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 1. Significant Accounting Policies: MuniYield New York Insured Fund, Inc. (the "Fund") is registered under the Investment Company Act of 1940 as a non-diversified, closed-end management investment company. The Fund's financial statements are prepared in accordance with generally accepted accounting principles which may require the use of management accruals and estimates. These unaudited financial statements reflect all adjustments which are, in the opinion of management, necessary to a fair statement of the results for the interim period presented. All such adjustments are of a normal recurring nature. The Fund determines and makes available for publication the net asset value of its Common Stock on a weekly basis. The Fund's Common Stock is listed on the New York Stock Exchange under the symbol MYN. 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 Directors of the Fund, including valuations furnished by a pricing service retained by the Fund, which may utilize a matrix system for valuations. The procedures of the pricing service and its valuations are reviewed by the officers of the Fund under the general supervision of the Board of Directors. (b) Derivative financial instruments--The Fund may engage in various portfolio strategies to seek to increase its return by hedging its portfolio against adverse movements in the debt markets. Losses may arise due to changes in the value of the contract or if the counterparty does not perform under the contract. . Financial futures contracts--The Fund may purchase or sell financial futures contracts and options on such futures contracts for the purpose of hedging the market risk on existing securities or the intended purchase of securities. Futures contracts are contracts for delayed delivery of securities at a specific future date and at a specific price or yield. Upon entering into a contract, the Fund deposits and maintains as collateral such initial margin as required by the exchange on which the transaction is effected. Pursuant to the contract, the Fund agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in value of the contract. Such receipts or payments are known as variation margin and are recorded by the Fund as unrealized gains or losses. When the contract is closed, the Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. . Options--The Fund is authorized to write covered call options and purchase put options. When the Fund writes an option, an amount equal to the premium received by the Fund is reflected as an asset and an equivalent liability. The amount of the liability is subsequently marked to market to reflect the current market value of the option written. When a security is purchased or sold through an exercise of an option, the related premium paid (or received) is added to (or deducted from) the basis of the security acquired or deducted from (or added to) the proceeds of the security sold. When an option expires (or the Fund enters into a closing transaction), the Fund realizes a gain or loss on the option to the extent of the premiums received or paid (or gain or loss to the extent the cost of the closing transaction exceeds the premium paid or received). Written and purchased options are non-income producing investments. (c) Income taxes--It is the Fund's policy to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all of its taxable income to its shareholders. Therefore, no Federal income tax provision is required. (d) Security transactions and investment income--Security transactions are recorded on the dates the transactions are entered into (the trade dates). Interest income is recognized on the accrual basis. F-21 MuniYield New York Insured Fund, Inc. April 30, 1999 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Discounts and market premiums are amortized into interest income. Realized gains and losses on security transactions are determined on the identified cost basis. (e) Dividends and distributions--Dividends from net investment income are declared and paid monthly. Distributions of capital gains are recorded on the ex-dividend dates. 2. Investment Advisory Agreement and Transactions with Affiliates: The Fund has entered into an Investment Advisory Agreement with Fund Asset Management, L.P. ("FAM"). The general partner of FAM is Princeton Services, Inc. ("PSI"), an indirect wholly-owned subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is the limited partner. FAM is responsible for the management of the Fund's portfolio and provides the necessary personnel, facilities, equipment and certain other services necessary to the operations of the Fund. For such services, the Fund pays a monthly fee at an annual rate of 0.50% of the Fund's average weekly net assets, including proceeds from the issuance of Preferred Stock. Accounting services are provided to the Fund by FAM at cost. Certain officers and/or directors of the Fund are officers and/or directors of FAM, PSI, and/or ML & Co. 3. Investments: Purchases and sales of investments, excluding short-term securities, for the six months ended April 30, 1999 were $121,958,493 and $116,833,422, 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 ........................... $2,485,868 $11,959,616 Financial futures contracts ..................... 32,190 -- ---------- ----------- Total ........................................... $2,518,058 $11,959,616 ========== =========== - -------------------------------------------------------------------------------- As of April 30, 1999, net unrealized appreciation for Federal income tax purposes aggregated $11,959,616, of which $12,507,082 related to appreciated securities and $547,466 related to depreciated securities. The aggregate cost of investments at April 30, 1999 for Federal income tax purposes was $266,194,870. 4. Capital Stock Transactions: The Fund is authorized to issue 200,000,000 shares of capital stock, including Preferred Stock, par value $.10 per share, all of which were initially classified as Common Stock. The Board of Directors is authorized, however, to reclassify any unissued shares of capital stock without approval of the holders of Common Stock. Common Stock Shares issued and outstanding during the six months ended April 30, 1999 and the year ended October 31, 1998 increased by 286,353 and 185,859, respectively, as a result of dividend reinvestment. Preferred Stock Auction Market Preferred Stock ("AMPS") are shares of Preferred Stock of the Fund, with a par value of $.05 per share and a liquidation preference of $25,000 per share, that entitle their holders to receive cash dividends at an annual rate that may vary for the successive dividend periods. The yields in effect at April 30, 1999 were: Series A, 3.25% and Series B, 3.27%. 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 $38,964 as commissions. 5. Subsequent Event: On May 6, 1999, the Fund's Board of Directors declared an ordinary income dividend to Common Stock shareholders in the amount of $.071989 per share, payable on May 27, 1999 to shareholders of record as of May 21, 1999. F-22 Audited Financial Statements for MuniYield New York Insured Fund II, Inc. for the Fiscal Year ended October 31, 1998 F-23 INDEPENDENT AUDITORS' REPORT To the Shareholders and Board of Directors, MuniYield New York Insured Fund II, Inc. We have audited the accompanying statement of assets, liabilities and capital of MuniYield New York Insured Fund II, Inc., including the schedule of investments, as of October 31, 1998, and the related statement of operations for the year then ended and the statements of changes in net assets and financial highlights for each of the two years in the period then ended. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. The financial highlights for each of the three years in the period ended October 31, 1996 of MuniYield New York Insured Fund II, Inc., were audited by other auditors whose report dated December 3, 1996, expressed an unqualified opinion on such financial highlights. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights. Our procedures included confirmation of securities owned as of October 31, 1998 by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above and audited by us present fairly, in all material respects, the financial position of MuniYield New York Insured Fund II, Inc. at October 31, 1998, the results of its operations for the year then ended, and the changes in its net assets and financial highlights for each of the two years in the period then ended, in conformity with generally accepted accounting principles. /s/ Ernst & Young LLP Princeton, New Jersey December 1, 1998 F-24 MuniYield New York Insured Fund II, Inc. October 31, 1998 - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS (in Thousands) - --------------------------------------------------------------------------------
S&P Moody's Face Value Ratings Ratings Amount Issue (Note 1a) - ------------------------------------------------------------------------------------------------------------------------------------ New York--98.6% - ------------------------------------------------------------------------------------------------------------------------------------ AAA Aaa $ 4,095 Albany County, New York, Airport Authority, Airport Revenue Bonds, RITR, AMT, Series RI-97-7, 8.17% due 12/15/2023 (c)(f) $ 4,837 - ------------------------------------------------------------------------------------------------------------------------------------ NR* Aaa 3,000 Allegany County, New York, IDA, Civic Facilities Revenue Refunding Bonds (Alfred University), 5% due 8/01/2028 (d) 2,954 - ------------------------------------------------------------------------------------------------------------------------------------ A A2 3,000 Allegany County, New York, IDA, Solid Waste Disposal Facility Revenue Bonds (Atlantic Richfield Company), AMT, 6.625% due 9/01/2016 3,267 - ------------------------------------------------------------------------------------------------------------------------------------ A A2 1,275 Battery Park City Authority, New York, Revenue Refunding Bonds, Junior--Series A, 5.80% due 11/01/2022 1,364 - ------------------------------------------------------------------------------------------------------------------------------------ AAA Aaa 4,300 Buffalo, New York, Sewer Authority Revenue Bonds, Series F, 6% due 7/01/2013 (b) 4,957 - ------------------------------------------------------------------------------------------------------------------------------------ Huntington, New York, Refunding, GO, UT (a): NR* Aaa 715 5.50% due 4/15/2010 789 NR* Aaa 485 5.50% due 4/15/2011 534 NR* Aaa 460 5.50% due 4/15/2012 507 NR* Aaa 455 5.50% due 4/15/2013 500 NR* Aaa 450 5.50% due 4/15/2014 492 NR* Aaa 450 5.50% due 4/15/2015 489 - ------------------------------------------------------------------------------------------------------------------------------------ AAA Aaa 10,800 Long Island Power Authority, New York, Electric Systems Revenue Refunding Bonds, Series A, 5.50% due 12/01/2029 (d) 11,312 - ------------------------------------------------------------------------------------------------------------------------------------ AAA Aaa 9,570 Metropolitan Transportation Authority, New York, Commuter Facilities Revenue Bonds, Series A, 6.375% due 7/01/2004 (d)(e) 10,884 - ------------------------------------------------------------------------------------------------------------------------------------ AAA Aaa 5,000 Metropolitan Transportation Authority, New York, Commuter Facilities Revenue Refunding Bonds, Series B, 4.75% due 7/01/2026 (b) 4,792 - ------------------------------------------------------------------------------------------------------------------------------------ Metropolitan Transportation Authority, New York, Dedicated Tax Fund Revenue Bonds, Series A (b): AAA Aaa 5,250 5% due 4/01/2023 5,191 AAA Aaa 7,100 4.75% due 4/01/2028 6,796 - ------------------------------------------------------------------------------------------------------------------------------------ Metropolitan Transportation Authority, New York, Transit Facilities Revenue Bonds: AAA Aaa 2,000 Series A, 6.10% due 7/01/2006 (c)(e) 2,302 AAA Aaa 2,500 Series C-1, 5.50% due 7/01/2022 (b) 2,645 - ------------------------------------------------------------------------------------------------------------------------------------ Metropolitan Transportation Authority, New York, Transit Facilities Revenue Refunding Bonds, Series A (d): AAA Aaa 3,555 4.75% due 7/01/2021 3,421 AAA Aaa 5,325 4.75% due 7/01/2024 5,111 - ------------------------------------------------------------------------------------------------------------------------------------ BBB+ Baa1 3,000 Metropolitan Transportation Authority, New York, Transit Facilities, Service Contract, Revenue Refunding Bonds, Series 5, 7% due 7/01/2012 3,281 - ------------------------------------------------------------------------------------------------------------------------------------ Metropolitan Transportation Authority, New York, Transportation Facilities Revenue Bonds (e): AAA Aaa 2,400 Series A, 6.10% due 7/01/2006 (c) 2,762 AAA Aaa 30,690 Series O, 6.375% due 7/01/2004 (d) 34,905 - ------------------------------------------------------------------------------------------------------------------------------------ AAA Aaa 1,005 Mount Sinai, New York, Union Free School District, Refunding, GO, UT, 6.20% due 2/15/2019 (a) 1,180 - ------------------------------------------------------------------------------------------------------------------------------------ Nassau County, New York, GO, UT, Series P (b)(e): AAA Aaa 3,250 6.50% due 11/01/2004 3,778 AAA Aaa 3,685 6.50% due 11/01/2004 4,283 - ------------------------------------------------------------------------------------------------------------------------------------ AAA Aaa 3,000 New York City, New York, Cultural Resources Trust, Revenue Refunding Bonds (Museum of Modern Art), Series A, 5.50% due 1/01/2021 (a) 3,175 - ------------------------------------------------------------------------------------------------------------------------------------
F-25 MuniYield New York Insured Fund II, Inc. October 31, 1998 - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS (continued) (in Thousands) - --------------------------------------------------------------------------------
S&P Moody's Face Value Ratings Ratings Amount Issue (Note 1a) - ------------------------------------------------------------------------------------------------------------------------------------ New York (continued) - ------------------------------------------------------------------------------------------------------------------------------------ New York City, New York, GO, UT: A- A3 $ 3,625 7.50% due 2/01/2006 $ 4,055 AAA Aaa 2,000 Series B, Fiscal 92, 7% due 2/01/2017 (a) 2,208 AAA Aaa 2,000 Series B, Fiscal 92, 7% due 2/01/2018 (a) 2,208 - ------------------------------------------------------------------------------------------------------------------------------------ New York City, New York, IDA, Civic Facility Revenue Bonds: NR* Aaa 885 (Anti-Defamation League Foundation), Series A, 5.50% due 6/01/2022 (d) 938 AAA Aaa 12,500 (USTA National Tennis Center Project), 6.375% due 11/15/2014 (c) 14,060 - ------------------------------------------------------------------------------------------------------------------------------------ A A 7,485 New York City, New York, IDA, Special Facility Revenue Bonds, RITR, AMT, Series RI-5, 8.195% due 1/01/2024 (f) 8,516 - ------------------------------------------------------------------------------------------------------------------------------------ New York City, New York, Municipal Water Finance Authority, Water and Sewer System Revenue Bonds: A- A2 13,000 RITR, Series 21, 7.62% due 6/15/2029 (f) 15,049 A A1 1,290 Series A, 6.75% due 6/15/2017 1,390 AAA Aaa 7,500 Series A, 4.75% due 6/15/2031 (b) 7,142 AAA Aaa 2,000 Series A-1994, 7% due 6/15/2015 (b) 2,173 AAA Aaa 1,500 Series F, 5.50% due 6/15/2023 (d) 1,574 - ------------------------------------------------------------------------------------------------------------------------------------ New York City, New York, Municipal Water Finance Authority, Water and Sewer System Revenue Refunding Bonds: AAA Aaa 5,000 Series A, 6% due 6/15/2005 (d)(e) 5,631 AAA Aaa 5,000 Series D, 4.75% due 6/15/2025 (b) 4,795 A1+ VMIG1+ 1,500 VRDN, Series A, 3.70% due 6/15/2025 (b)(g) 1,500 - ------------------------------------------------------------------------------------------------------------------------------------ New York City, New York, Transitional Finance Authority Revenue Bonds, Future Tax Secured, Series B (b): AAA Aaa 7,500 4.75% due 11/15/2023 7,203 AAA Aaa 10,000 4.50% due 11/15/2027 9,224 - ------------------------------------------------------------------------------------------------------------------------------------ A1+ VMIG1+ 300 New York, New York, GO, UT, VRDN, Series B, 3.60% due 10/01/2022 (b)(g) 300 - ------------------------------------------------------------------------------------------------------------------------------------ A- A3 3,400 New York, New York, Refunding, GO, UT, Series J, 5% due 8/01/2023 3,324 - ------------------------------------------------------------------------------------------------------------------------------------ New York State Dormitory Authority Revenue Bonds: AAA Aaa 11,165 (City University System), Third Generation Reserves, Series 2, 6.875% due 7/01/2004 (d)(e) 13,022 AAA Aaa 3,000 (City University System), Third Resolution, Series 1, 6.25% due 7/01/2004 (a)(e) 3,405 AAA Aaa 3,640 (City University System), Third Resolution, Series 1, 6.25% due 7/01/2004 (a)(e) 4,132 AAA Aaa 6,290 (City University System), Third Resolution, Series 1, 6.30% due 7/01/2024 (a) 7,049 AAA Aaa 1,375 (Consolidated City University System), Second Generation, Series A, 5.75% due 7/01/2018 (c) 1,532 A- A3 2,340 (Mental Health Services Facilities Improvement), 6% due 8/15/2016 2,637 AAA Aaa 4,350 (Mental Health Services Facilities Improvement), Series F, 4.50% due 8/15/2028 (a) 4,008 AAA Aaa 6,000 (Mount Sinai School of Medicine), Series A, 5.15% due 7/01/2024 (d) 6,244 AAA Aaa 1,105 (New School of Social Research), 5.75% due 7/01/2026 (d) 1,202 AAA Aaa 2,000 (New York University), Series A, 5.75% due 7/01/2027 (d) 2,267 NR* Aaa 8,125 RITR, Series 1, 7.885% due 7/01/2027 (f) 10,293 AAA Aaa 3,500 (Saint Barnabas Hospital), 5.45% due 8/01/2035 (a)(h) 3,617 AAA Aaa 1,050 (Saint John's University), 6.875% due 7/01/2011 (a) 1,149 AAA Aaa 12,000 (Sloan Kettering Cancer Memorial), 5.50% due 7/01/2023 (d) 13,078 BBB+ Baa1 1,000 (State University Athletic Facilities), 7.25% due 7/01/2021 1,089 AAA Aaa 12,230 (State University Educational Facilities), Series B, 6.25% due 5/15/2004 (d)(e) 13,854 AAA Aaa 2,000 (State University Educational Facilities), Series B, 5.75% due 5/15/2004 (b)(e) 2,184 - ------------------------------------------------------------------------------------------------------------------------------------
F-26 MuniYield New York Insured Fund II, Inc. October 31, 1998 - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS (continued) (in Thousands) - --------------------------------------------------------------------------------
S&P Moody's Face Value Ratings Ratings Amount Issue (Note 1a) - ------------------------------------------------------------------------------------------------------------------------------------ New York (continued) - ------------------------------------------------------------------------------------------------------------------------------------ New York State Dormitory Authority Revenue Refunding Bonds: AAA Aaa $10,000 (Mental Health Services Facilities Improvement), Series D, 4.75% due 2/15/2025 (d) $ 9,593 AAA Aaa 1,500 (New York & Presbyterian Hospital), Series A, 4.75% due 8/01/2027 (a) 1,432 AAA Aaa 4,000 (North Shore University Hospital), 5.25% due 11/01/2019 (d) 4,097 AAA Aaa 5,000 (Rockefeller University), 4.75% due 7/01/2037 4,770 AAA Aaa 4,500 (State University Educational Facilities), Series A, 5.875% due 5/15/2011 (b) 5,139 A- A3 1,500 (State University Educational Facilities), Series A, 5.50% due 5/15/2019 1,608 A- A3 2,000 (State University Educational Facilities), Series A, 5.25% due 5/15/2021 2,081 AAA Aaa 13,660 (State University Educational Facilities), Series A, 4.75% due 5/15/2025 (d) 13,103 - ------------------------------------------------------------------------------------------------------------------------------------ New York State Energy Research and Development Authority, Facilities Revenue Bonds (Consolidated Edison Company Inc.), AMT, Series A: AAA Aaa 2,000 6.75% due 1/15/2027 (d) 2,128 AAA Aaa 3,785 6.75% due 1/15/2027 (a) 4,030 - ------------------------------------------------------------------------------------------------------------------------------------ AAA Aaa 4,200 New York State Energy Research and Development Authority, Facilities Revenue Bonds, RITR, Series 19, 8.47% due 8/15/2020 (f) 5,142 - ------------------------------------------------------------------------------------------------------------------------------------ New York State Energy Research and Development Authority, Gas Facilities Revenue Bonds: AAA Aaa 12,000 (Brooklyn Union Gas Company), AMT, Series A, 6.75% due 2/01/2024 (d) 13,181 AAA Aaa 6,255 (Brooklyn Union Gas Company), AMT, Series B, 6.75% due 2/01/2024 (d) 6,873 AAA Aaa 14,355 RITR, Series 9, 7.27% due 1/01/2021 (d)(f) 15,893 - ------------------------------------------------------------------------------------------------------------------------------------ AAA Aaa 3,600 New York State Energy Research and Development Authority, PCR, Refunding (Rochester Gas and Electric Project), AMT, Series B, 6.50% due 5/15/2032 (d) 3,926 - ------------------------------------------------------------------------------------------------------------------------------------ A1+ NR* 4,900 New York State Energy Research and Development Authority, Various PCR (Niagara Power Corporation Project), VRDN, AMT, Series B, 3.75% due 7/01/2027 (g) 4,900 - ------------------------------------------------------------------------------------------------------------------------------------ A- Aa 5,000 New York State Environmental Facilities Corporation, PCR, RITR, Series RI-1, 7.895% due 6/15/2014 (f) 5,930 - ------------------------------------------------------------------------------------------------------------------------------------ AAA Aaa 1,040 New York State HFA, M/F Housing Revenue Bonds, AMT, Series A, 7.75% due 11/01/2020 (a) 1,112 - ------------------------------------------------------------------------------------------------------------------------------------ AAA Aaa 6,575 New York State Local Government Assistance Corporation, RITR, Series 22, 8.27% due 4/01/2024 (a)(f) 8,015 - ------------------------------------------------------------------------------------------------------------------------------------ New York State Medical Care Facilities, Finance Agency Revenue Bonds: AAA Aaa 5,535 (Brookdale Hospital Medical Center), Series A, 6.85% due 2/15/2005 (e) 6,493 AAA Aaa 2,790 (Health Center Project--Second Mortgage), Series A, 6.375% due 11/15/2019 (a) 3,200 AAA Aaa 3,000 (Mental Health), Series E, 6.50% due 8/15/2015 (c) 3,398 AAA Aaa 1,500 (Mental Health Services Facilities), Series A, 6% due 2/15/2025 (d) 1,662 AAA Aaa 12,250 (New York Hospital Mortgage), Series A, 6.50% due 2/15/2005 (a)(e)(h) 14,136 AAA Aaa 12,850 (New York Hospital Mortgage), Series A, 6.80% due 2/15/2005 (a)(e)(h) 15,040 AAA Aaa 3,700 Series F, 6.50% due 8/15/2002 (c)(e) 4,126 - ------------------------------------------------------------------------------------------------------------------------------------ AAA Aaa 5,200 New York State Medical Care Facilities, Finance Agency Revenue Refunding Bonds (Hospital and Nursing Home), Series C, 6.375% due 8/15/2029 (d) 5,710 - ------------------------------------------------------------------------------------------------------------------------------------ New York State Mortgage Agency, Homeowner Mortgage Revenue Bonds: NR* Aa2 3,270 AMT, Series 44, 7.50% due 4/01/2026 3,579 AAA Aaa 1,000 Series 43, 6.45% due 10/01/2017 (d) 1,088 - ------------------------------------------------------------------------------------------------------------------------------------ NR* Aaa 4,000 New York State Mortgage Agency Revenue Bonds, RITR, AMT, Series 24, 7.72% due 10/01/2028 (f) 4,474 - ------------------------------------------------------------------------------------------------------------------------------------
F-27 MuniYield New York Insured Fund II, Inc. October 31, 1998 - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS (continued) (in Thousands) - --------------------------------------------------------------------------------
S&P Moody's Face Value Ratings Ratings Amount Issue (Note 1a) - ------------------------------------------------------------------------------------------------------------------------------------ New York (continued) - ------------------------------------------------------------------------------------------------------------------------------------ AAA Aaa $ 2,050 New York State Power Authority, Revenue Refunding and General Purpose Bonds, Series CC, 5% due 1/01/2003 (d)(e) $ 2,180 - ------------------------------------------------------------------------------------------------------------------------------------ AAA Aaa 3,400 New York State Thruway Authority, General Revenue Bonds, Series C, 6% due 1/01/2005 (b)(e) 3,830 - ------------------------------------------------------------------------------------------------------------------------------------ AAA Aaa 11,000 New York State Thruway Authority, Highway and Bridge Trust Fund, Series B, 6.25% due 4/01/2004 (b)(e) 12,436 - ------------------------------------------------------------------------------------------------------------------------------------ New York State Thruway Authority, Service Contract Revenue Bonds (Local Highway and Bridge), Series A-2 (d): AAA Aaa 7,000 5.375% due 4/01/2016 7,325 AAA Aaa 5,000 5% due 4/01/2018 4,994 - ------------------------------------------------------------------------------------------------------------------------------------ AAA Aaa 2,295 New York State Urban Development Corporation, Revenue Refunding Bonds (Correctional Capital Facilities), Series A, 5.25% due 1/01/2014 (c) 2,438 - ------------------------------------------------------------------------------------------------------------------------------------ AAA Aaa 4,725 Niagara Falls, New York, Bridge Commission Toll Revenue Bonds, 6.125% due 10/01/2002 (b)(e) 5,222 - ------------------------------------------------------------------------------------------------------------------------------------ AAA Aaa 1,000 Niagara Falls, New York, Water Treatment Plant, UT, AMT, 7.25% due 11/01/2010 (d) 1,251 - ------------------------------------------------------------------------------------------------------------------------------------ AAA Aaa 1,260 North Country, New York, Development Authority, Solid Waste Management System, Revenue Refunding Bonds, 6% due 5/15/2015 (c) 1,434 - ------------------------------------------------------------------------------------------------------------------------------------ North Hempstead, New York, GO, UT, Refunding, Series B (b): AAA Aaa 1,745 6.40% due 4/01/2013 2,086 AAA Aaa 555 6.40% due 4/01/2017 662 - ------------------------------------------------------------------------------------------------------------------------------------ AAA Aaa 1,665 Oneida County, New York, IDA Revenue Bonds, Civic Facility (Mohawk Valley Network Inc.), Series A, 5.20% due 2/01/2013 (c) 1,719 - ------------------------------------------------------------------------------------------------------------------------------------ AAA Aaa 1,080 Oneida County, New York, Refunding, GO, UT, 5.50% due 3/15/2009 (b) 1,187 - ------------------------------------------------------------------------------------------------------------------------------------ Port Authority of New York and New Jersey, Consolidated Revenue Bonds: AA- A1 3,000 71st Series, 6.50% due 1/15/2026 3,205 AAA Aaa 2,000 71st Series, 6.50% due 1/15/2026 (b) 2,136 AAA Aaa 3,200 104th Series, 4.75% due 1/15/2026 (a) 3,086 AAA Aaa 6,300 116th Series, 4.50% due 10/01/2018 5,974 AAA Aaa 10,000 116th Series, 4.25% due 10/01/2026 (b) 8,905 - ------------------------------------------------------------------------------------------------------------------------------------ AAA Aaa 4,000 Port Authority of New York and New Jersey, RITR, AMT, 108th Series, 7.885% due 1/15/2017 (c)(f) 4,693 - ------------------------------------------------------------------------------------------------------------------------------------ Port Authority of New York and New Jersey, Special Obligation Revenue Refunding Bonds (Versatile Structure Obligation), VRDN (g): A1 VMIG1+ 2,000 AMT, Series 1R, 3.85% due 8/01/2028 2,000 A1+ VMIG1+ 1,100 Series 2, 3.70% due 5/01/2019 1,100 - ------------------------------------------------------------------------------------------------------------------------------------ AAA Aaa 2,500 St. Lawrence County, New York, Industrial Development Civic Facility Revenue Bonds (St. Lawrence University Project), Series A, 5.375% due 7/01/2018 (d) 2,593 - ------------------------------------------------------------------------------------------------------------------------------------ Syracuse, New York, COP (Syracuse Hancock International Airport), AMT (b): AAA Aaa 3,650 6.625% due 1/01/2012 3,989 AAA Aaa 3,120 6.50% due 1/01/2017 3,391 - ------------------------------------------------------------------------------------------------------------------------------------ BBB+ Baa1 4,000 Triborough Bridge and Tunnel Authority, New York (Convention Center Project), Series E, 7.25% due 1/01/2010 4,813 - ------------------------------------------------------------------------------------------------------------------------------------ Triborough Bridge and Tunnel Authority, New York, General Purpose Revenue Refunding Bonds: A+ Aa3 1,000 Series B, 5% due 1/01/2020 1,009 AAA Aaa 2,000 Series Y, 6.125% due 1/01/2021 (i) 2,338 - ------------------------------------------------------------------------------------------------------------------------------------
F-28 MuniYield New York Insured Fund II, Inc. October 31, 1998 - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS (concluded) (in Thousands) - --------------------------------------------------------------------------------
S&P Moody's Face Value Ratings Ratings Amount Issue (Note 1a) - ------------------------------------------------------------------------------------------------------------------------------------ New York (concluded) - ------------------------------------------------------------------------------------------------------------------------------------ Triborough Bridge and Tunnel Authority, New York, Special Obligation Revenue Refunding Bonds: AAA Aaa $ 1,030 6.25% due 1/01/2012 (a) $ 1,111 AAA Aaa 2,265 Series A, 5.125% due 1/01/2011 (d) 2,401 AAA Aaa 2,000 Series B, 6.875% due 1/01/2015 (a) 2,160 - ------------------------------------------------------------------------------------------------------------------------------------ Total Investments (Cost--$548,168)--98.6% 586,087 Other Assets Less Liabilities--1.4% 8,571 -------- Net Assets--100.0% $594,658 ======== - ------------------------------------------------------------------------------------------------------------------------------------
(a) AMBAC Insured. (b) FGIC Insured. (c) FSA Insured. (d) MBIA Insured. (e) Prerefunded. (f) The interest rate is subject to change periodically and inversely based upon prevailing market rates. The interest rate shown is the rate in effect at October 31, 1998. (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) FHA Insured. (i) CAPMAC Insured. + Highest short-term rating by Moody's Investors Service, Inc. * Not Rated. Ratings of issues shown have not been audited by Ernst & Young LLP. See Notes to Financial Statements. - -------------------------------------------------------------------------------- QUALITY PROFILE - -------------------------------------------------------------------------------- The quality ratings of securities in the Fund as of October 31, 1998 were as follows: - -------------------------------------------------------------------------------- Percent of S&P Rating/Moody's Rating Net Assets - -------------------------------------------------------------------------------- AAA/Aaa................................................................ 85.8% AA/Aa.................................................................. 2.3 A/A.................................................................... 7.3 BBB/Baa................................................................ 1.5 Other*................................................................. 1.7 - -------------------------------------------------------------------------------- * Temporary investments in short-term municipal securities. - -------------------------------------------------------------------------------- PORTFOLIO ABBREVIATIONS - -------------------------------------------------------------------------------- To simplify the listings of MuniYield New York Insured Fund II, Inc.'s portfolio holdings in the Schedule of Investments, we have abbreviated the names of many of the securities according to the list below and at right. AMT Alternative Minimum Tax (subject to) COP Certificates of Participation GO General Obligation Bonds HFA Housing Finance Agency IDA Industrial Development Authority M/F Multi-Family PCR Pollution Control Revenue Bonds RITR Residual Interest Trust Receipts UT Unlimited Tax VRDN Variable Rate Demand Notes F-29 MuniYield New York Insured Fund II, Inc. October 31, 1998 - -------------------------------------------------------------------------------- FINANCIAL INFORMATION - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Statement of Assets, Liabilities and Capital as of October 31, 1998 - -------------------------------------------------------------------------------- Assets: Investments, at value (identified cost--$548,168,254) (Note 1a) ......... $586,087,459 Cash .................................................................... 34,400 Receivables: Interest .............................................................. $ 10,249,453 Securities sold ....................................................... 9,184,466 19,433,919 ------------ Prepaid expenses and other assets ....................................... 19,427 ------------ Total assets ............................................................ 605,575,205 ------------ - ----------------------------------------------------------------------------------------------------------------------- Liabilities: Payables: Securities purchased .................................................. 10,000,265 Dividends to shareholders (Note 1f) ................................... 480,741 Investment adviser (Note 2) ........................................... 262,440 10,743,446 ------------ Accrued expenses and other liabilities .................................. 173,974 ------------ Total liabilities ....................................................... 10,917,420 ------------ - ----------------------------------------------------------------------------------------------------------------------- Net Assets: Net assets .............................................................. $594,657,785 ============ - ----------------------------------------------------------------------------------------------------------------------- Capital: Capital Stock (200,000,000 shares authorized) (Note 4): Preferred Stock, par value $.05 per share (6,960 shares of AMPS* issued and outstanding at $25,000 per share liquidation preference) ... $174,000,000 Common Stock, par value $.10 per share (26,592,191 shares issued and outstanding) ...................................................... $ 2,659,219 Paid-in capital in excess of par ........................................ 380,433,873 Undistributed investment income--net .................................... 2,000,229 Accumulated realized capital losses on investments--net ................. (2,354,741) Unrealized appreciation on investments--net ............................. 37,919,205 ------------ Total--Equivalent to $15.82 net asset value per share of Common Stock (market price--$15.4375) ................................................ 420,657,785 ------------ Total capital ........................................................... $594,657,785 ============ - -----------------------------------------------------------------------------------------------------------------------
* Auction Market Preferred Stock. See Notes to Financial Statements. F-30 MuniYield New York Insured Fund II, Inc. October 31, 1998 - -------------------------------------------------------------------------------- FINANCIAL INFORMATION (continued) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Statement of Operations - --------------------------------------------------------------------------------
For the Year Ended October 31, 1998 - -------------------------------------------------------------------------------------------------------------- Investment Income Interest and amortization of premium and discount earned ... $30,186,750 (Note 1d): - -------------------------------------------------------------------------------------------------------------- Expenses: Investment advisory fees (Note 2) .......................... $ 2,775,072 Commission fees (Note 4) ................................... 416,534 Professional fees .......................................... 105,251 Transfer agent fees ........................................ 73,492 Accounting services (Note 2) ............................... 51,834 Custodian fees ............................................. 32,293 Listing fees ............................................... 24,390 Directors' fees and expenses ............................... 23,221 Pricing fees ............................................... 19,696 Other ...................................................... 11,830 ----------- Total expenses ............................................. 3,533,613 ----------- Investment income--net ..................................... 26,653,137 ----------- - -------------------------------------------------------------------------------------------------------------- Realized & Unreal- Realized gain on investments--net .......................... 15,690,747 ized Gain (Loss) on Change in unrealized appreciation on investments--net ...... (667,130) Investments--Net ----------- (Notes 1b, 1d & 3): Net Increase in Net Assets Resulting from Operations ....... $41,676,754 =========== - --------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- Statements of Changes in Net Assets - --------------------------------------------------------------------------------
For the Year Ended October 31, ------------------------------ Increase (Decrease) in Net Assets: 1998 1997 - ---------------------------------------------------------------------------------------------------------------------------------- Operations: Investment income--net ....................................................... $ 26,653,137 $ 20,346,467 Realized gain on investments--net ............................................ 15,690,747 5,879,051 Change in unrealized appreciation on investments--net ........................ (667,130) 9,153,298 ------------ ------------ Net increase in net assets resulting from operations ......................... 41,676,754 35,378,816 ------------ ------------ - ---------------------------------------------------------------------------------------------------------------------------------- Dividends & Investment income--net: Distributions to Common Stock ............................................................... (20,787,847) (15,161,332) Shareholders Preferred Stock ............................................................ (5,533,891) (4,351,319) (Note 1f): Realized gain on investments--net: Common Stock ............................................................... (66,383) -- Preferred Stock ............................................................ (18,055) -- ------------ ------------ Net decrease in net assets resulting from dividends and distributions to shareholders .............................................................. (26,406,176) (19,512,651) ------------ ------------ - ---------------------------------------------------------------------------------------------------------------------------------- Capital Stock Proceeds from issuance of Common Stock resulting from reorganization ......... 83,897,738 144,780,654 Transactions Offering costs from issuance of Common Stock resulting from reorganization ... (262,206) (366,791) (Notes 1e & 4): Proceeds from issuance of Preferred Stock resulting from reorganization ...... 30,000,000 74,000,000 ------------ ------------ Net increase in net assets derived from capital stock transactions ........... 113,635,532 218,413,863 ------------ ------------ - ---------------------------------------------------------------------------------------------------------------------------------- Net Assets: Total increase in net assets ................................................. 128,906,110 234,280,028 Beginning of year ............................................................ 465,751,675 231,471,647 ------------ ------------ End of year* ................................................................. $594,657,785 $465,751,675 ============ ============ - ---------------------------------------------------------------------------------------------------------------------------------- *Undistributed investment income--net (Note 1g) ............................... $ 2,000,229 $ 1,657,552 ============ ============ - ----------------------------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements. F-31 MuniYield New York Insured Fund II, Inc. October 31, 1998 - -------------------------------------------------------------------------------- FINANCIAL INFORMATION (concluded) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Financial Highlights - --------------------------------------------------------------------------------
The following per share data and ratios have been derived from information provided in the financial statements. For the Year Ended October 31, ---------------------------------------------------- Increase (Decrease) in Net Asset Value: 1998 1997 1996 1995 1994 - ---------------------------------------------------------------------------------------------------------------------------------- Per Share Net asset value, beginning of year ................... $ 15.18 $ 14.53 $ 14.63 $ 13.13 $ 15.89 Operating -------- -------- -------- -------- -------- Performance: Investment income--net ............................... 1.05 1.08 1.04 1.07 1.07 Realized and unrealized gain (loss) on investments--net ..................................... .66 .66 (.09) 1.50 (2.76) -------- -------- -------- -------- -------- Total from investment operations ..................... 1.71 1.74 .95 2.57 (1.69) -------- -------- -------- -------- -------- Less dividends and distributions to Common Stock shareholders: Investment income--net ............................. (.84) (.84) (.82) (.84) (.87) Realized gain on investments--net .................. --+ -- -- -- (.01) -------- -------- -------- -------- -------- Total dividends and distributions to Common Stock shareholders ............................ (.84) (.84) (.82) (.84) (.88) -------- -------- -------- -------- -------- Capital charge resulting from issuance of Common Stock ......................................... (.01) (.02) -- -- -- -------- -------- -------- -------- -------- Effect of Preferred Stock activity:++ Dividends and distributions to Preferred Stock shareholders: Investment income--net ........................... (.22) (.23) (.23) (.23) (.19) Realized gain on investments--net ................ --+ -- -- -- --+ -------- -------- -------- -------- -------- Total effect of Preferred Stock activity ............. (.22) (.23) (.23) (.23) (.19) -------- -------- -------- -------- -------- Net asset value, end of year ......................... $ 15.82 $ 15.18 $ 14.53 $ 14.63 $ 13.13 ======== ======== ======== ======== ======== Market price per share, end of year .................. $15.4375 $ 14.25 $ 13.375 $ 13.25 $ 11.00 ======== ======== ======== ======== ======== - ---------------------------------------------------------------------------------------------------------------------------------- Total Investment Based on market price per share ...................... 14.60% 13.15% 7.28% 28.61% (22.96%) Return:* ======== ======== ======== ======== ======== Based on net asset value per share ................... 10.24% 10.95% 5.55% 18.96% (11.75%) ======== ======== ======== ======== ======== - ---------------------------------------------------------------------------------------------------------------------------------- Ratios to Average Expenses ............................................. .64% .68% .71% .74% .74% Net Assets:** ======== ======== ======== ======== ======== Investment income--net ............................... 4.81% 5.04% 5.00% 5.27% 5.09% ======== ======== ======== ======== ======== - ---------------------------------------------------------------------------------------------------------------------------------- Supplemental Net assets, net of Preferred Stock, end of year Data: (in thousands) ....................................... $420,658 $321,752 $161,472 $162,655 $145,977 ======== ======== ======== ======== ======== Preferred Stock outstanding, end of year (in thousands) ....................................... $174,000 $144,000 $ 70,000 $ 70,000 $ 70,000 ======== ======== ======== ======== ======== Portfolio turnover ................................... 136.43% 121.49% 118.28% 110.76% 36.79% ======== ======== ======== ======== ======== - ---------------------------------------------------------------------------------------------------------------------------------- Leverage: Asset coverage per $1,000 ............................ $ 3,418 $ 3,234 $ 3,307 $ 3,324 $ 3,085 ======== ======== ======== ======== ======== - ---------------------------------------------------------------------------------------------------------------------------------- Dividends Per Share Series A--Investment income--net ..................... $ 849 $ 865 $ 913 $ 910 $ 759 On Preferred Stock ======== ======== ======== ======== ======== Outstanding:+++ Series B--Investment income--net ..................... $ 825 $ 643 -- -- -- ======== ======== ======== ======== ======== Series C--Investment income--net ..................... $ 785 $ 667 -- -- -- ======== ======== ======== ======== ======== Series D--Investment income--net ..................... $ 628 -- -- -- -- ======== ======== ======== ======== ======== - ----------------------------------------------------------------------------------------------------------------------------------
* Total investment returns based on market value, which can be significantly greater or lesser than the net asset value, may result in substantially different returns. Total investment returns exclude the effects of sales loads. ** Do not reflect the effect of dividends to Preferred Stock shareholders. + Amount is less than $.01 per share. ++ The Fund's Preferred Stock was issued on September 16, 1992 (Series A), January 27, 1997 (Series B and Series C) and February 9, 1998 (Series D). +++ 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-32 MuniYield New York Insured Fund II, Inc. October 31, 1998 - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 1. Significant Accounting Policies: MuniYield New York Insured Fund II, Inc. (the "Fund") is registered under the Investment Company Act of 1940 as a non-diversified, closed-end management investment company. The Fund determines and makes available for publication the net asset value of its Common Stock on a weekly basis. The Fund's Common Stock is listed on the New York Stock Exchange under the symbol MYT. The following is a summary of significant accounting policies followed by the Fund. (a) Valuation of investments--Municipal bonds are traded primarily in the over-the-counter markets and are valued at the most recent bid price or yield equivalent as obtained by the Fund's pricing service from dealers that make markets in such securities. Financial futures contracts and options thereon, which are traded on exchanges, are valued at their closing prices as of the close of such exchanges. Options 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 Directors of the Fund, including valuations furnished by a pricing service retained by the Fund, which may utilize a matrix system for valuations. The procedures of the pricing service and its valuations are reviewed by the officers of the Fund under the general supervision of the Board of Directors. (b) Derivative financial instruments--The Fund may engage in various portfolio strategies to seek to increase its return by hedging its portfolio against adverse movements in the debt markets. Losses may arise due to changes in the value of the contract or if the counterparty does not perform under the contract. . Financial futures contracts--The Fund may purchase or sell financial futures contracts and options on such futures contracts for the purpose of hedging the market risk on existing securities or the intended purchase of securities. Futures contracts are contracts for delayed delivery of securities at a specific future date and at a specific price or yield. Upon entering into a contract, the Fund deposits and maintains as collateral such initial margin as required by the exchange on which the transaction is effected. Pursuant to the contract, the Fund agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in value of the contract. Such receipts or payments are known as variation margin and are recorded by the Fund as unrealized gains or losses. When the contract is closed, the Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. . Options--The Fund is authorized to write covered call options and purchase put options. When the Fund writes an option, an amount equal to the premium received by the Fund is reflected as an asset and an equivalent liability. The amount of the liability is subsequently marked to market to reflect the current market value of the option written. When a security is purchased or sold through an exercise of an option, the related premium paid (or received) is added to (or deducted from) the basis of the security acquired or deducted from (or added to) the proceeds of the security sold. When an option expires (or the Fund enters into a closing transaction), the Fund realizes a gain or loss on the option to the extent of the premiums received or paid (or gain or loss to the extent the cost of the closing transaction exceeds the premium paid or received). Written and purchased options are non-income producing investments. (c) Income taxes--It is the Fund's policy to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all of its taxable income to its shareholders. Therefore, no Federal income tax provision is required. (d) Security transactions and investment income--Security transactions are recorded on the dates the transactions are entered into (the trade dates). Interest income is recognized on the accrual basis. Discounts and market premiums are amortized into interest income. Realized gains and losses on security transactions are determined on the identified cost basis. (e) Offering costs--Direct expenses relating to the issuance of Common Stock resulting from reorganization were charged to capital. (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) 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 $11,278 have been reclassified between accumulated net realized capital F-33 MuniYield New York Insured Fund II, Inc. October 31, 1998 - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (concluded) - -------------------------------------------------------------------------------- losses 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 Stock. Accounting services are provided to the Fund by FAM at cost. Certain officers and/or directors of the Fund are officers and/or directors of FAM, PSI, and/or ML & Co. 3. Investments: Purchases and sales of investments, excluding short-term securities and securities acquired through the reorganization, for the year ended October 31, 1998 were $731,759,870 and $717,353,053, respectively. Net realized gains (losses) for the year ended October 31, 1998 and net unrealized gains as of October 31, 1998 were as follows: - -------------------------------------------------------------------------------- Realized Unrealized Gains (Losses) Gains - -------------------------------------------------------------------------------- Long-term investments ......................... $16,304,054 $37,919,205 Financial futures contracts ................... (613,307) -- ----------- ----------- Total ......................................... $15,690,747 $37,919,205 =========== =========== - -------------------------------------------------------------------------------- As of October 31, 1998, net unrealized appreciation for Federal income tax purposes aggregated $37,822,133, of which $38,434,217 related to appreciated securities and $612,084 related to depreciated securities. The aggregate cost of investments at October 31, 1998 for Federal income tax purposes was $548,265,326. 4. Capital Stock Transactions: The Fund is authorized to issue 200,000,000 shares of capital stock, including Preferred Stock, par value $.10 per share, all of which were initially classified as Common Stock. The Board of Directors is authorized, however, to reclassify any unissued shares of capital stock without approval of the holders of Common Stock. Common Stock Shares issued and outstanding during the years ended October 31, 1998 and October 31, 1997 increased by 5,397,154 and 10,080,205, respectively, pursuant to a plan of reorganization. Preferred Stock Auction Market Preferred Stock ("AMPS") are shares of Preferred Stock of the Fund, with a par value of $.05 per share and a liquidation preference of $25,000 per share, that entitle their holders to receive cash dividends at an annual rate that may vary for the successive dividend periods. The yields in effect at October 31, 1998 were as follows: Series A, 3.25%; Series B, 3.30%; Series C, 3.45%; and Series D, 3.35%. Shares issued and outstanding during the years ended October 31, 1998 and October 31, 1997 increased by 1,200 and 2,960, respectively, pursuant to a plan of reorganization. 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 $191,084 as commissions. 5. Acquisition of Taurus MuniNew York Holdings, Inc.: On February 9, 1998, the Fund acquired all of the net assets of Taurus MuniNew York Holdings, Inc. pursuant to a plan of reorganization. The acquisition was accomplished by a tax-free exchange of 6,782,117 Common Stock shares and 1,200 AMPS shares of Taurus MuniNew York Holdings, Inc. for 5,397,154 Common Stock shares and 1,200 AMPS shares of the Fund. Taurus MuniNew York Holdings, Inc.'s net assets on that date of $113,898,593, including $9,119,231 of unrealized appreciation and $458,687 of accumulated net realized capital losses, were combined with those of the Fund. The aggregate net assets of the Fund immediately after the acquisition amounted to $587,371,200. 6. Subsequent Event: On November 5, 1998, the Fund's Board of Directors declared an ordinary income dividend to Common Stock shareholders in the amount of $.069006 per share, payable on November 27, 1998 to shareholders of record as of November 20, 1998. F-34 Unaudited Financial Statements for MuniYield New York Insured Fund II, Inc. for the Six-Month Period Ended April 30, 1999 F-35 MuniYield New York Insured Fund II, Inc. April 30, 1999 - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS (in Thousands) - --------------------------------------------------------------------------------
S&P Moody's Face Value Ratings Ratings Amount Issue (Note 1a) - ------------------------------------------------------------------------------------------------------------------------------------ New York--98.4% - ------------------------------------------------------------------------------------------------------------------------------------ NR* Aaa $ 4,095 Albany County, New York, Airport Authority, Airport Revenue Bonds, RITR, Series RI-97-7, 7.52% due 12/15/2023 (c)(f) $ 4,829 - ------------------------------------------------------------------------------------------------------------------------------------ A A2 1,275 Battery Park City Authority, New York, Revenue Refunding Bonds, Junior Series A, 5.80% due 11/01/2022 1,355 - ------------------------------------------------------------------------------------------------------------------------------------ Buffalo, New York, GO (General Improvement), Series A (a): AAA Aaa 3,020 4.50% due 2/01/2007 3,071 AAA Aaa 1,555 4.50% due 2/01/2008 1,579 AAA Aaa 1,605 4.75% due 2/01/2009 1,650 - ------------------------------------------------------------------------------------------------------------------------------------ AAA Aaa 1,065 Buffalo, New York, GO, Refunding, Series C, 4.25% due 12/01/2007 (a) 1,067 - ------------------------------------------------------------------------------------------------------------------------------------ Buffalo, New York, GO (School), Series B (c): AAA Aaa 1,160 4.50% due 2/01/2007 1,180 AAA Aaa 605 4.50% due 2/01/2008 614 AAA Aaa 635 4.75% due 2/01/2009 653 - ------------------------------------------------------------------------------------------------------------------------------------ AAA Aaa 4,300 Buffalo, New York, Sewer Authority, Revenue Refunding Bonds, Series F, 6% due 7/01/2013 (b) 4,897 - ------------------------------------------------------------------------------------------------------------------------------------ Huntington, New York, GO, Refunding (a): NR* Aaa 715 5.50% due 4/15/2010 776 NR* Aaa 485 5.50% due 4/15/2011 526 NR* Aaa 460 5.50% due 4/15/2012 499 NR* Aaa 455 5.50% due 4/15/2013 494 NR* Aaa 450 5.50% due 4/15/2014 489 NR* Aaa 450 5.50% due 4/15/2015 489 - ------------------------------------------------------------------------------------------------------------------------------------ Long Island Power Authority, New York, Electric System Revenue Bonds: AAA Aaa 10,000 Series A, 5.50% due 12/01/2023 (d) 10,507 A- Baa1 5,000 Series A, 5.50% due 12/01/2029 5,134 AAA Aaa 14,300 Series A, 5.50% due 12/01/2029 (d) 14,747 A1+ VMIG1+ 2,600 VRDN, Sub-Series 5, 4.25% due 5/01/2033 (g) 2,600 A1+ VMIG1+ 2,800 VRDN, Sub-Series 7, 4.10% due 4/01/2025 (d)(g) 2,800 - ------------------------------------------------------------------------------------------------------------------------------------ Metropolitan Transportation Authority, New York, Commuter Facilities Revenue Bonds: AAA Aaa 9,570 Series A, 6.375% due 7/01/2004 (d)(e) 10,805 AAA Aaa 15,770 Series C-1, 5.375% due 7/01/2027 (b) 16,248 - ------------------------------------------------------------------------------------------------------------------------------------ AAA Aaa 1,680 Metropolitan Transportation Authority, New York, Commuter Facilities Revenue Refunding Bonds, Series B, 4.75% due 7/01/2026 (b) 1,580 - ------------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- PORTFOLIO ABBREVIATIONS - -------------------------------------------------------------------------------- To simplify the listings of MuniYield New York Insured Fund II, Inc.'s portfolio holdings in the Schedule of Investments, we have abbreviated the names of many of the securities according to the list below and at right. AMT Alternative Minimum Tax (subject to) COP Certificates of Participation DATES Daily Adjustable Tax-Exempt Securities GO General Obligation Bonds IDA Industrial Development Authority PCR Pollution Control Revenue Bonds RIB Residual Interest Bonds RITR Residual Interest Trust Receipts VRDN Variable Rate Demand Notes F-36 MuniYield New York Insured Fund II, Inc. April 30, 1999 - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS (continued) (in Thousands) - --------------------------------------------------------------------------------
S&P Moody's Face Value Ratings Ratings Amount Issue (Note 1a) - ------------------------------------------------------------------------------------------------------------------------------------ New York (continued) - ------------------------------------------------------------------------------------------------------------------------------------ Metropolitan Transportation Authority, New York, Transit Facilities Revenue Bonds: AAA Aaa $ 2,000 Series A, 6.10% due 7/01/2006 (c)(e) $ 2,281 AAA Aaa 2,400 Series A, 6.10% due 7/01/2006 (c)(e) 2,738 AAA Aaa 2,500 Series C-1, 5.50% due 7/01/2022 (b) 2,618 AAA Aaa 20,000 Series O, 6.375% due 7/01/2004 (d)(e) 22,582 - ------------------------------------------------------------------------------------------------------------------------------------ AAA Aaa 3,555 Metropolitan Transportation Authority, New York, Transit Facilities Revenue Refunding Bonds, Series A, 4.75% due 7/01/2021 (d) 3,377 - ------------------------------------------------------------------------------------------------------------------------------------ AAA Aaa 1,005 Mount Sinai, New York, Union Free School District, GO, Refunding, 6.20% due 2/15/2019 (a) 1,169 - ------------------------------------------------------------------------------------------------------------------------------------ Nassau County, New York, GO, Series P (b)(e): AAA Aaa 3,250 6.50% due 11/01/2004 3,751 AAA Aaa 3,685 6.50% due 11/01/2004 4,253 - ------------------------------------------------------------------------------------------------------------------------------------ AAA Aaa 3,000 New York City, New York, Cultural Resources Trust, Revenue Refunding Bonds (Museum of Modern Art), Series A, 5.50% due 1/01/2021 (a) 3,139 - ------------------------------------------------------------------------------------------------------------------------------------ New York City, New York, GO, Refunding: AAA Aaa 2,000 Series B, 7% due 2/01/2017 (a) 2,183 AAA Aaa 2,000 Series B, 7% due 2/01/2018 (a) 2,183 AAA NR* 15,000 Series F, 5.375% due 8/01/2019 (d) 15,412 - ------------------------------------------------------------------------------------------------------------------------------------ A1+ VMIG1+ 333 New York City, New York, GO, VRDN, Series B, Sub-Series B-5, 4.10% due 8/15/2022 (d)(g) 333 - ------------------------------------------------------------------------------------------------------------------------------------ AAA Aaa 5,950 New York City, New York, Health and Hospital Corporation, Revenue Refunding Bonds (Health System), Series A, 5.125% due 2/15/2014 (a) 6,116 - ------------------------------------------------------------------------------------------------------------------------------------ New York City, New York, IDA, Civic Facility Revenue Bonds: NR* Aaa 885 (Anti-Defamation League Foundation), Series A, 5.50% due 6/01/2022 (d) 928 AAA Aaa 12,500 (USTA National Tennis Center Project), 6.375% due 11/15/2014 (c) 13,958 - ------------------------------------------------------------------------------------------------------------------------------------ NR* A 7,485 New York City, New York, IDA, Special Facilities Revenue Bonds, RITR, Series RI-6, 7.545% due 1/01/2024 (f) 8,381 - ------------------------------------------------------------------------------------------------------------------------------------ New York City, New York, Municipal Water Finance Authority, Water and Sewer System Revenue Bonds: NR* A1 11,000 RITR, Series 21, 6.97% due 6/15/2029 (f) 12,611 AA Aaa 1,050 Series A, 5% due 6/15/2027 (b) 1,024 - ------------------------------------------------------------------------------------------------------------------------------------ New York City, New York, Municipal Water Finance Authority, Water and Sewer System Revenue Refunding Bonds: AAA Aaa 6,000 Series B, 5.25% due 6/15/2029 (a) 6,073 AAA NR* 15,000 Series B, 5.25% due 6/15/2029 (c) 15,183 AAA Aaa 1,750 Series D, 4.75% due 6/15/2025 (d) 1,648 AAA Aaa 1,500 Series F, 5.50% due 6/15/2023 (d) 1,553 - ------------------------------------------------------------------------------------------------------------------------------------ New York City, New York, Transitional Finance Authority Revenue Bonds (Future Tax Secured): AA Aa3 7,650 Series B, 5.125% due 11/01/2015 7,806 AAA Aaa 1,250 Series B, 4.75% due 11/15/2023 (b) 1,181 AAA Aaa 10,000 Series B, 4.50% due 11/15/2027 (b) 9,020 NR* VMIG1+ 6,400 VRDN, Series C, 4.20% due 5/01/2028 (g) 6,400 - ------------------------------------------------------------------------------------------------------------------------------------
F-37 MuniYield New York Insured Fund II, Inc. April 30, 1999 - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS (continued) (in Thousands) - --------------------------------------------------------------------------------
S&P Moody's Face Value Ratings Ratings Amount Issue (Note 1a) - ------------------------------------------------------------------------------------------------------------------------------------ New York (continued) - ------------------------------------------------------------------------------------------------------------------------------------ New York State Dormitory Authority Revenue Bonds: NR* Aaa $ 1,000 (Brooklyn Hospital Center), 5.10% due 2/01/2019 (a)(h) $ 991 AAA NR* 2,460 (Champlain Valley Physicians), 5% due 7/01/2017(j) 2,454 AAA Aaa 6,290 (City University), Third Generation Reserves, Series 1, 6.30% due 7/01/2004 (a)(e) 7,074 AAA Aaa 11,165 (City University), Third Generation Reserves, Series 2, 6.875% due 7/01/2004 (d)(e) 12,911 AAA Aaa 3,000 (City University System), Third Resolution, Series 1, 6.25% due 7/01/2004 (a)(e) 3,382 AAA Aaa 12,000 (Memorial Sloan Kettering Cancer Center), 5.50% due 7/01/2023 (d) 12,835 A- A3 2,340 (Mental Health Services Facilities Improvement), Series B, 6% due 8/15/2016 2,620 AAA Aaa 4,350 (Mental Health Services Facilities Improvement), Series F, 4.50% due 8/15/2028 (a) 3,912 AAA Aaa 6,000 (Mount Sinai School of Medicine), Series A, 5.15% due 7/01/2024 (d) 6,119 AAA Aaa 1,105 (New School of Social Research), 5.75% due 7/01/2026 (d) 1,190 AAA Aaa 2,000 (New York University), Series A, 5.75% due 7/01/2027 (d) 2,219 NR* Aaa 8,125 RIB, Series 1, 7.165% due 7/01/2027 (d)(f) 9,921 BBB- Baa1 1,000 (State University Athletic Facilities), 7.25% due 7/01/2001 (e) 1,092 AAA Aaa 2,000 (State University Educational Facilities), Series B, 5.75% due 5/15/2004 (b)(e) 2,172 AAA Aaa 5,000 (State University Educational Facilities), Series B, 4.75% due 5/15/2028 (d) 4,693 - ------------------------------------------------------------------------------------------------------------------------------------ New York State Dormitory Authority, Revenue Refunding Bonds: AAA Aaa 1,375 (Consolidated City University System), Second Generation, Series A, 5.75% due 7/01/2018 (c) 1,517 AAA Aaa 2,875 (Hamilton College), 4.75% due 7/01/2018 (d) 2,766 AAA NR* 6,270 (Mental Health Services Facilities Improvement), Series C, 5.125% due 2/15/2011 (d) 6,520 AAA NR* 4,480 (Mental Health Services Facilities Improvement), Series C, 5.125% due 8/15/2011 (d) 4,659 AAA NR* 4,710 (Mental Health Services Facilities Improvement), Series C, 5.125% due 8/15/2012 (d) 4,863 AAA Aaa 10,000 (Mental Health Services Facilities Improvement), Series D, 4.75% due 2/15/2025 (d) 9,418 AAA Aaa 1,500 (New York and Presbyterian Hospitals), 4.75% due 8/01/2027 (a)(h) 1,409 AAA Aaa 4,500 (State University Educational Facilities), Series A, 5.875% due 5/15/2011 (b) 5,048 A- A3 1,500 (State University Educational Facilities), Series A, 5.50% due 5/15/2019 1,584 A- A3 2,000 (State University Educational Facilities), Series A, 5.25% due 5/15/2021 2,045 AAA Aaa 16,160 (State University Educational Facilities), Series A, 4.75% due 5/15/2025 (d) 15,216 AAA Aaa 1,000 (Wyckoff), Series H, 5.125% due 2/15/2008 (d) 1,054 - ------------------------------------------------------------------------------------------------------------------------------------ NR* Aaa 4,200 New York State Energy Research and Development Authority, Facilities Revenue Bonds, RITR, Series 19, 7.77% due 8/15/2020 (f) 5,019 - ------------------------------------------------------------------------------------------------------------------------------------ New York State Energy Research and Development Authority, Gas Facilities Revenue Bonds: AAA Aaa 12,000 (Brooklyn Union Gas Company), AMT, Series A, 6.75% due 2/01/2024 (d) 13,060 AAA Aaa 6,255 (Brooklyn Union Gas Company), AMT, Series B, 6.75% due 2/01/2024 (d) 6,810 NR* NR* 14,355 RITR, Series 9, 6.57% due 1/01/2021 (f) 15,577 - ------------------------------------------------------------------------------------------------------------------------------------ New York State Energy Research and Development Authority, PCR (Niagara Mohawk Power Corporation Project) (g): A1+ NR* 500 DATES, Series A, 4.20% due 7/01/2015 500 A1+ NR* 100 VRDN, AMT, Series B, 4.25% due 7/01/2027 100 - ------------------------------------------------------------------------------------------------------------------------------------ AAA Aaa 3,600 New York State Energy Research and Development Authority, PCR, Refunding (Rochester Gas and Electric Project), AMT, Series B, 6.50% due 5/15/2032 (d) 3,894 - ------------------------------------------------------------------------------------------------------------------------------------ NR* Aa1 5,000 New York State Environmental Facilities Corporation, PCR, RITR, Series RI-1, 7.195% due 6/15/2014 (f) 5,795 - ------------------------------------------------------------------------------------------------------------------------------------
F-38 MuniYield New York Insured Fund II, Inc. April 30, 1999 - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS (continued) (in Thousands) - --------------------------------------------------------------------------------
S&P Moody's Face Value Ratings Ratings Amount Issue (Note 1a) - ------------------------------------------------------------------------------------------------------------------------------------ New York (continued) - ------------------------------------------------------------------------------------------------------------------------------------ NR* Aaa $ 6,575 New York State Local Government Assistance Corporation, RITR, Series 22, 7.57% due 4/01/2024 (f) $ 7,739 - ------------------------------------------------------------------------------------------------------------------------------------ New York State Medical Care Facilities, Finance Agency Revenue Bonds: AAA Aaa 5,535 (Brookdale Hospital Medical Center), Series A, 6.85% due 2/15/2005 (e) 6,425 AAA Aaa 2,695 (Health Center Project--Second Mortgage), Series A, 6.375% due 11/15/2019 (a) 3,070 AAA Aaa 1,475 (Mental Health Services), Series A, 6% due 2/15/2005 (d)(e) 1,648 AAA Aaa 25 (Mental Health Services), Series A, 6% due 2/15/2025 (d) 27 AAA NR* 2,945 (Mental Health Services), Series E, 6.50% due 8/15/2004 (c)(e) 3,356 AAA Aaa 55 (Mental Health Services), Series E, 6.50% due 8/15/2015 (c) 62 AAA Aaa 12,250 (New York Hospital Mortgage), Series A, 6.50% due 2/15/2005 (a)(e)(h) 13,999 AAA Aaa 12,850 (New York Hospital Mortgage), Series A, 6.80% due 2/15/2005 (a)(e)(h) 14,883 - ------------------------------------------------------------------------------------------------------------------------------------ AAA Aaa 5,200 New York State Medical Care Facilities, Finance Agency Revenue Refunding Bonds (Hospital and Nursing Home), Series C, 6.375% due 8/15/2029 (d)(h) 5,663 - ------------------------------------------------------------------------------------------------------------------------------------ NR* Aa2 3,270 New York State Mortgage Agency, Homeowner Mortgage Revenue Bonds, AMT, Series 44, 7.50% due 4/01/2026 3,552 - ------------------------------------------------------------------------------------------------------------------------------------ AAA Aaa 1,000 New York State Mortgage Agency, Homeowner Mortgage Revenue Refunding Bonds, Series 43, 6.45% due 10/01/2017 (d)(h) 1,081 - ------------------------------------------------------------------------------------------------------------------------------------ NR* NR* 2,000 New York State Mortgage Agency Revenue Bonds, RITR, AMT, Series 24, 7.07% due 10/01/2028 (f) 2,252 - ------------------------------------------------------------------------------------------------------------------------------------ AAA Aaa 3,400 New York State Thruway Authority, General Revenue Bonds, Series C, 6% due 1/01/2005 (b)(e) 3,792 - ------------------------------------------------------------------------------------------------------------------------------------ AAA Aaa 2,775 New York State Thruway Authority, Highway and Bridge Trust Fund Revenue Bonds, Series A, 5% due 4/01/2009 (b) 2,908 - ------------------------------------------------------------------------------------------------------------------------------------ AAA Aaa 2,000 New York State Thruway Authority, Service Contract Revenue Bonds (Local Highway and Bridge), Series A-2, 5.375% due 4/01/2016 (d) 2,083 - ------------------------------------------------------------------------------------------------------------------------------------ New York State Urban Development Corporation Revenue Bonds (Correctional Facilities Service Contract), Series B (a): AAA Aaa 6,520 4.75% due 1/01/2018 6,277 AAA Aaa 7,135 4.75% due 1/01/2028 6,699 - ------------------------------------------------------------------------------------------------------------------------------------ AAA Aaa 1,000 Niagara Falls, New York, GO (Water Treatment Plant), AMT, 7.25% due 11/01/2010 (d) 1,227 - ------------------------------------------------------------------------------------------------------------------------------------ AAA Aaa 1,260 North Country, New York, Development Authority, Solid Waste Management System, Revenue Refunding Bonds, 6% due 5/15/2015 (c) 1,419 - ------------------------------------------------------------------------------------------------------------------------------------ North Hempstead, New York, GO, Refunding, Series B (b): AAA Aaa 1,745 6.40% due 4/01/2013 2,059 AAA Aaa 555 6.40% due 4/01/2017 656 - ------------------------------------------------------------------------------------------------------------------------------------ AAA Aaa 1,080 Oneida County, New York, GO, Refunding, 5.50% due 3/15/2009 (b) 1,171 - ------------------------------------------------------------------------------------------------------------------------------------ AAA Aaa 1,665 Oneida County, New York, IDA, Civic Facilities Revenue Bonds (Mohawk Valley), Series A, 5.20% due 2/01/2013 (c) 1,712 - ------------------------------------------------------------------------------------------------------------------------------------ Port Authority of New York and New Jersey, Consolidated Revenue Bonds: AAA Aaa 2,200 104th Series, 4.75% due 1/15/2026 (a) 2,082 AAA Aaa 6,200 116th Series, 4.50% due 10/01/2018 (b) 5,788 AAA Aaa 10,000 116th Series, 4.25% due 10/01/2026 (b) 8,712 AAA Aaa 4,740 AMT, 117th Series, Second Installment, 4.75% due 11/15/2016 (b) 4,586 - ------------------------------------------------------------------------------------------------------------------------------------
F-39 MuniYield New York Insured Fund II, Inc. April 30, 1999 - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS (concluded) (in Thousands) - --------------------------------------------------------------------------------
S&P Moody's Face Value Ratings Ratings Amount Issue (Note 1a) - ------------------------------------------------------------------------------------------------------------------------------------ New York (concluded) - ------------------------------------------------------------------------------------------------------------------------------------ NR* Aaa $ 4,000 Port Authority of New York and New Jersey, RITR, AMT, 108th Series, 7.235% due 1/15/2017 (c)(f) $ 4,597 - ------------------------------------------------------------------------------------------------------------------------------------ A1+ VMIG1+ 8,700 Port Authority of New York and New Jersey, Special Obligation Revenue Refunding Bonds, Versatile Structure Obligation, VRDN, Series 2, 4.20% due 5/01/2019 (g) 8,700 - ------------------------------------------------------------------------------------------------------------------------------------ AAA Aaa 2,500 Saint Lawrence County, New York, Industrial Development Civic Facility Revenue Bonds (Saint Lawrence University Project), Series A, 5.375% due 7/01/2018 (d) 2,571 - ------------------------------------------------------------------------------------------------------------------------------------ Syracuse, New York, COP (Syracuse Hancock International Airport), AMT (b): AAA Aaa 3,650 6.625% due 1/01/2012 3,943 AAA Aaa 3,120 6.50% due 1/01/2017 3,361 - ------------------------------------------------------------------------------------------------------------------------------------ Triborough Bridge and Tunnel Authority, New York, General Purpose Revenue Refunding Bonds: A+ Aa3 1,000 Series B, 5% due 1/01/2020 997 AAA Aaa 2,000 Series Y, 6.125% due 1/01/2021 (i) 2,301 - ------------------------------------------------------------------------------------------------------------------------------------ BBB+ Baa1 4,000 Triborough Bridge and Tunnel Authority, New York, Revenue Refunding Bonds (Convention Center Project), Series E, 7.25% due 1/01/2010 4,696 - ------------------------------------------------------------------------------------------------------------------------------------ Triborough Bridge and Tunnel Authority, New York, Special Obligation Revenue Refunding Bonds: AAA Aaa 1,030 6.25% due 1/01/2012 (a) 1,101 AAA Aaa 2,265 Series A, 5.125% due 1/01/2011 (d) 2,373 - ------------------------------------------------------------------------------------------------------------------------------------ Total Investments (Cost--$551,169)--98.4% 576,497 Other Assets Less Liabilities--1.6% 9,293 -------- Net Assets--100.0% $585,790 ======== - ------------------------------------------------------------------------------------------------------------------------------------
(a) AMBAC Insured. (b) FGIC Insured. (c) FSA Insured. (d) MBIA Insured. (e) Prerefunded. (f) The interest rate is subject to change periodically and inversely based upon prevailing market rates. The interest rate shown is the rate in effect at April 30, 1999. (g) 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. (h) FHA Insured. (i) CAPMAC Insured. (j) Connie Lee Insured. * 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............................................................. 81.9% AA/Aa............................................................... 3.1 A/A................................................................. 5.7 BBB/Baa............................................................. 1.0 NR (Not Rated)...................................................... 3.0 Other+.............................................................. 3.7 - -------------------------------------------------------------------------------- + Temporary investments in short-term municipal securities. F-40 MuniYield New York Insured Fund II, Inc. April 30, 1999 - -------------------------------------------------------------------------------- FINANCIAL INFORMATION - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Statement of Assets, Liabilities and Capital as of April 30, 1999 - -------------------------------------------------------------------------------- Assets: Investments, at value (identified cost--$551,168,935) (Note 1a) ......... $576,496,907 Cash .................................................................... 24,372 Interest receivable ..................................................... 10,012,841 Prepaid expenses and other assets ....................................... 57,051 ------------ Total assets ............................................................ 586,591,171 ------------ - ------------------------------------------------------------------------------------------------------------------------ Liabilities: Payables: Dividends to shareholders (Note 1f) ................................... $ 502,502 Investment adviser (Note 2) ........................................... 257,652 760,154 ------------ Accrued expenses and other liabilities .................................. 41,006 ------------ Total liabilities ....................................................... 801,160 ------------ - ------------------------------------------------------------------------------------------------------------------------ Net Assets: Net assets .............................................................. $585,790,011 ============ - ------------------------------------------------------------------------------------------------------------------------ Capital: Capital Stock (200,000,000 shares authorized) (Note 4): Preferred Stock, par value $.05 per share (6,960 shares of AMPS* issued and outstanding at $25,000 per share liquidation preference) ... $174,000,000 Common Stock, par value $.10 per share (26,668,886 shares issued and outstanding) ...................................................... $ 2,666,889 Paid-in capital in excess of par ........................................ 381,622,646 Undistributed investment income--net .................................... 2,325,604 Accumulated realized capital losses on investments--net ................. (153,100) Unrealized appreciation on investments--net ............................. 25,327,972 ------------ Total--Equivalent to $15.44 net asset value per share of Common Stock (market price--$15.3125) ................................................ 411,790,011 ------------ Total capital ........................................................... $585,790,011 ============ - ------------------------------------------------------------------------------------------------------------------------
* Auction Market Preferred Stock. - -------------------------------------------------------------------------------- Statement of Operations - --------------------------------------------------------------------------------
For the Six Months Ended April 30, 1999 - ---------------------------------------------------------------------------------------------------------------- Investment Income Interest and amortization of premium and discount earned ... $ 15,530,179 (Note 1d): - ---------------------------------------------------------------------------------------------------------------- Expenses: Investment advisory fees (Note 2) .......................... $ 1,473,593 Commission fees (Note 4) ................................... 211,241 Transfer agent fees ........................................ 65,815 Accounting services (Note 2) ............................... 59,474 Professional fees .......................................... 38,592 Custodian fees ............................................. 16,396 Listing fees ............................................... 15,492 Printing and shareholder reports ........................... 12,651 Directors' fees and expenses ............................... 11,060 Pricing fees ............................................... 8,153 Other ...................................................... 16,733 ------------ Total expenses ............................................. 1,929,200 ------------ Investment income--net ..................................... 13,600,979 ------------ - ---------------------------------------------------------------------------------------------------------------- Realized & Unreal- Realized gain on investments--net .......................... 5,978,844 ized Gain (Loss) on Change in unrealized appreciation on investments--net ...... (12,591,233) Investments--Net ------------ (Notes 1b, 1d & 3): Net Increase in Net Assets Resulting from Operations ....... $ 6,988,590 ============ - ----------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements. F-41 MuniYield New York Insured Fund II, Inc. April 30, 1999 - -------------------------------------------------------------------------------- FINANCIAL INFORMATION (continued) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Statements of Changes in Net Assets - --------------------------------------------------------------------------------
For the Six For the Months Ended Year Ended Increase (Decrease) in Net Assets: April 30, 1999 Oct. 31, 1998 - ---------------------------------------------------------------------------------------------------------------------------------- Operations: Investment income--net ....................................................... $ 13,600,979 $ 26,653,137 Realized gain on investments--net ............................................ 5,978,844 15,690,747 Change in unrealized appreciation on investments--net ........................ (12,591,233) (667,130) ------------- ------------- Net increase in net assets resulting from operations ......................... 6,988,590 41,676,754 ------------- ------------- - ---------------------------------------------------------------------------------------------------------------------------------- Dividends & Investment income--net: Distributions to Common Stock ............................................................... (11,096,459) (20,787,847) Shareholders Preferred Stock ............................................................ (2,179,145) (5,533,891) (Note 1f): Realized gain on investments--net: Common Stock ............................................................... (2,992,978) (66,383) Preferred Stock ............................................................ (784,225) (18,055) ------------- ------------- Net decrease in net assets resulting from dividends and distributions to shareholders .............................................................. (17,052,807) (26,406,176) ------------- ------------- - ---------------------------------------------------------------------------------------------------------------------------------- Capital Stock Proceeds from issuance of Common Stock resulting from reorganization ......... -- 83,897,738 Transactions Offering costs from issuance of Common Stock resulting from reorganization ... -- (262,206) (Notes 1e & 4): Proceeds from issuance of Preferred Stock resulting from reorganization ...... -- 30,000,000 Value of shares issued to Common Stock shareholders in reinvestment of dividends and distributions .................................................. 1,196,443 -- ------------- ------------- Net increase in net assets derived from capital stock transactions ........... 1,196,443 113,635,532 ------------- ------------- - ---------------------------------------------------------------------------------------------------------------------------------- Net Assets: Total increase (decrease) in net assets ...................................... (8,867,774) 128,906,110 Beginning of period .......................................................... 594,657,785 465,751,675 ------------- ------------- End of period* ............................................................... $ 585,790,011 $ 594,657,785 ============= ============= - ---------------------------------------------------------------------------------------------------------------------------------- *Undistributed investment income--net ......................................... $ 2,325,604 $ 2,000,229 ============= ============= - ----------------------------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements. F-42 MuniYield New York Insured Fund II, Inc. April 30, 1999 - -------------------------------------------------------------------------------- FINANCIAL INFORMATION (concluded) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Financial Highlights - --------------------------------------------------------------------------------
The following per share data and ratios have been derived For the Six from information provided in the financial statements. Months Ended For the Year Ended October 31, April 30, ----------------------------------------- Increase (Decrease) in Net Asset Value: 1999 1998 1997 1996 1995 - ----------------------------------------------------------------------------------------------------------------------------------- Per Share Net asset value, beginning of period ................ $ 15.82 $ 15.18 $ 14.53 $ 14.63 $ 13.13 Operating -------- -------- -------- -------- -------- Performance: Investment income--net .............................. .51 1.05 1.08 1.04 1.07 Realized and unrealized gain (loss) on investments--net .................................... (.25) .66 .66 (.09) 1.50 -------- -------- -------- -------- -------- Total from investment operations .................... .26 1.71 1.74 .95 2.57 -------- -------- -------- -------- -------- Less dividends and distributions to Common Stock shareholders: Investment income--net ............................ (.42) (.84) (.84) (.82) (.84) Realized gain on investments--net ................. (.11) --+ -- -- -- -------- -------- -------- -------- -------- Total dividends and distributions to Common Stock shareholders ........................... (.53) (.84) (.84) (.82) (.84) -------- -------- -------- -------- -------- Capital charge resulting from issuance of Common Stock ........................................ -- (.01) (.02) -- -- -------- -------- -------- -------- -------- Effect of Preferred Stock activity:++ Dividends and distributions to Preferred Stock shareholders: Investment income--net .......................... (.08) (.22) (.23) (.23) (.23) Realized gain on investments--net ............... (.03) --+ -- -- -- -------- -------- -------- -------- -------- Total effect of Preferred Stock activity ............ (.11) (.22) (.23) (.23) (.23) -------- -------- -------- -------- -------- Net asset value, end of period ...................... $ 15.44 $ 15.82 $ 15.18 $ 14.53 $ 14.63 ======== ======== ======== ======== ======== Market price per share, end of period ............... $15.3125 $15.4375 $ 14.25 $ 13.375 $ 13.25 ======== ======== ======== ======== ======== - ----------------------------------------------------------------------------------------------------------------------------------- Total Investment Based on market price per share ..................... 2.63%+++ 14.60% 13.15% 7.28% 28.61% Return:** ======== ======== ======== ======== ======== Based on net asset value per share .................. .98%+++ 10.24% 10.95% 5.55% 18.96% ======== ======== ======== ======== ======== - ----------------------------------------------------------------------------------------------------------------------------------- Ratios to Average Expenses ............................................ .65%* .64% .68% .71% .74% Net Assets:*** ======== ======== ======== ======== ======== Investment income--net .............................. 4.61%* 4.81% 5.04% 5.00% 5.27% ======== ======== ======== ======== ======== - ----------------------------------------------------------------------------------------------------------------------------------- Supplemental Net assets, net of Preferred Stock, end of period Data: (in thousands) ...................................... $411,790 $420,658 $321,752 $161,472 $162,655 ======== ======== ======== ======== ======== Preferred Stock outstanding, end of period (in thousands) ...................................... $174,000 $174,000 $144,000 $ 70,000 $ 70,000 ======== ======== ======== ======== ======== Portfolio turnover .................................. 43.55% 136.43% 121.49% 118.28% 110.76% ======== ======== ======== ======== ======== - ----------------------------------------------------------------------------------------------------------------------------------- Leverage: Asset coverage per $1,000 ........................... $ 3,367 $ 3,418 $ 3,234 $ 3,307 $ 3,324 ======== ======== ======== ======== ======== - ----------------------------------------------------------------------------------------------------------------------------------- Dividends Per Share Series A--Investment income--net .................... $ 313 $ 849 $ 865 $ 913 $ 910 On Preferred Stock ======== ======== ======== ======== ======== Outstanding: Series B--Investment income--net .................... $ 312 $ 825 $ 643 -- -- ======== ======== ======== ======== ======== Series C--Investment income--net .................... $ 335 $ 785 $ 667 -- -- ======== ======== ======== ======== ======== Series D--Investment income--net .................... $ 296 $ 628 -- -- -- ======== ======== ======== ======== ======== - -----------------------------------------------------------------------------------------------------------------------------------
* Annualized. ** Total investment returns based on market value, which can be significantly greater or lesser than the net asset value, may result in substantially different returns. Total investment returns exclude the effects of sales loads. *** Do not reflect the effect of dividends to Preferred Stock shareholders. + Amount is less than $.01 per share. ++ The Fund's Preferred Stock was issued on September 16, 1992 (Series A), January 27, 1997 (Series B and Series C) and February 9, 1998 (Series D). +++ Aggregate total investment return. See Notes to Financial Statements. F-43 MuniYield New York Insured Fund II, Inc. April 30, 1999 - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 1. Significant Accounting Policies: MuniYield New York Insured Fund II, Inc. (the "Fund") is registered under the Investment Company Act of 1940 as a non-diversified, closed-end management investment company. The Fund's financial statements are prepared in accordance with generally accepted accounting principles which may require the use of management accruals and estimates. These unaudited financial statements reflect all adjustments which are, in the opinion of management, necessary to a fair statement of the results for the interim period presented. All such adjustments are of a normal recurring nature. The Fund determines and makes available for publication the net asset value of its Common Stock on a weekly basis. The Fund's Common Stock is listed on the New York Stock Exchange under the symbol MYT. The following is a summary of significant accounting policies followed by the Fund. (a) Valuation of investments--Municipal bonds are traded primarily in the over-the-counter markets and are valued at the most recent bid price or yield equivalent as obtained by the Fund's pricing service from dealers that make markets in such securities. Financial futures contracts and options thereon, which are traded on exchanges, are valued at their closing prices as of the close of such exchanges. Options 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 Directors of the Fund, including valuations furnished by a pricing service retained by the Fund, which may utilize a matrix system for valuations. The procedures of the pricing service and its valuations are reviewed by the officers of the Fund under the general supervision of the Board of Directors. (b) Derivative financial instruments--The Fund may engage in various portfolio strategies to seek to increase its return by hedging its portfolio against adverse movements in the debt markets. Losses may arise due to changes in the value of the contract or if the counterparty does not perform under the contract. . Financial futures contracts--The Fund may purchase or sell financial futures contracts and options on such futures contracts for the purpose of hedging the market risk on existing securities or the intended purchase of securities. Futures contracts are contracts for delayed delivery of securities at a specific future date and at a specific price or yield. Upon entering into a contract, the Fund deposits and maintains as collateral such initial margin as required by the exchange on which the transaction is effected. Pursuant to the contract, the Fund agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in value of the contract. Such receipts or payments are known as variation margin and are recorded by the Fund as unrealized gains or losses. When the contract is closed, the Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. . Options--The Fund is authorized to write covered call options and purchase put options. When the Fund writes an option, an amount equal to the premium received by the Fund is reflected as an asset and an equivalent liability. The amount of the liability is subsequently marked to market to reflect the current market value of the option written. When a security is purchased or sold through an exercise of an option, the related premium paid (or received) is added to (or deducted from) the basis of the security acquired or deducted from (or added to) the proceeds of the security sold. When an option expires (or the Fund enters into a closing transaction), the Fund realizes a gain or loss on the option to the extent of the premiums received or paid (or gain or loss to the extent the cost of the closing transaction exceeds the premium paid or received). Written and purchased options are non-income producing investments. (c) Income taxes--It is the Fund's policy to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all of its taxable income to its shareholders. Therefore, no Federal income tax provision is required. (d) Security transactions and investment income--Security transactions are recorded on the dates the transactions are entered into (the trade dates). Interest income is recognized on the accrual basis. Discounts and market premiums are amortized into interest income. Realized gains and losses on security transactions are determined on the identified cost basis. (e) Offering costs--Direct expenses relating to the issuance of Common Stock resulting from reorganization were charged to capital. F-44 MuniYield New York Insured Fund II, Inc. April 30, 1999 - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (concluded) - -------------------------------------------------------------------------------- (f) Dividends and distributions--Dividends from net investment income are declared and paid monthly. Distributions of capital gains are recorded on the ex-dividend dates. 2. Investment Advisory Agreement and Transactions with Affiliates: The Fund has entered into an Investment Advisory Agreement with Fund Asset Management, L.P. ("FAM"). The general partner of FAM is Princeton Services, Inc. ("PSI"), an indirect wholly-owned subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is the limited partner. FAM is responsible for the management of the Fund's portfolio and provides the necessary personnel, facilities, equipment and certain other services necessary to the operations of the Fund. For such services, the Fund pays a monthly fee at an annual rate of 0.50% of the Fund's average weekly net assets, including proceeds from the issuance of Preferred Stock. Accounting services are provided to the Fund by FAM at cost. Certain officers and/or directors of the Fund are officers and/or directors of FAM, PSI, and/or ML & Co. 3. Investments: Purchases and sales of investments, excluding short-term securities, for the six months ended April 30, 1999 were $245,808,461 and $259,873,073, 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 ........................... $5,978,844 $25,327,972 ---------- ----------- Total ........................................... $5,978,844 $25,327,972 ========== =========== - -------------------------------------------------------------------------------- As of April 30, 1999, net unrealized appreciation for Federal income tax purposes aggregated $25,327,972, of which $26,755,159 related to appreciated securities and $1,427,187 related to depreciated securities. The aggregate cost of investments at April 30, 1999 for Federal income tax purposes was $551,168,935. 4. Capital Stock Transactions: The Fund is authorized to issue 200,000,000 shares of capital stock, including Preferred Stock, par value $.10 per share, all of which were initially classified as Common Stock. The Board of Directors is authorized, however, to reclassify any unissued shares of capital stock without approval of the holders of Common Stock. Common Stock Shares issued and outstanding during the six months ended April 30, 1999 increased by 76,695 as a result of dividend reinvestment and during the year ended October 31, 1998 increased by 5,397,154 pursuant to a plan of reorganization. Preferred Stock Auction Market Preferred Stock ("AMPS") are shares of Preferred Stock of the Fund, with a par value of $.05 per share and a liquidation preference of $25,000 per share, that entitle their holders to receive cash dividends at an annual rate that may vary for the successive dividend periods. The yields in effect at April 30, 1999 were as follows: Series A, 3.40%; Series B, 3.50%; Series C, 3.07%; and Series D, 3.00%. Shares issued and outstanding during the six months ended April 30, 1999 remained constant and during the year ended October 31, 1998 increased by 1,200 pursuant to a plan of reorganization. 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 $95,069 as commissions. 5. Acquisition of Taurus MuniNew York Holdings, Inc.: On February 9, 1998, the Fund acquired all of the net assets of Taurus MuniNew York Holdings, Inc. pursuant to a plan of reorganization. The acquisition was accomplished by a tax-free exchange of 6,782,117 Common Stock shares and 1,200 AMPS shares of Taurus MuniNew York Holdings, Inc. for 5,397,154 Common Stock shares and 1,200 AMPS shares of the Fund. Taurus MuniNew York Holdings, Inc.'s net assets on that date of $113,898,593, including $9,119,231 of unrealized appreciation and $458,687 of accumulated net realized capital losses, were combined with those of the Fund. The aggregate net assets of the Fund immediately after the acquisition amounted to $587,371,200. 6. Subsequent Event: On May 6, 1999, the Fund's Board of Directors declared an ordinary income dividend to Common Stock shareholders in the amount of $.068090 per share, payable on May 27, 1999 to shareholders of record as of May 21, 1999. F-45 Unaudited Financial Statements for Pro Forma New York Insured as of April 30, 1999 F-46 COMBINED SCHEDULE OF INVESTMENTS FOR MUNIYIELD NEW YORK INSURED FUND, INC. AND MUNIYIELD NEW YORK INSURED FUND II, INC. APRIL 30, 1999 (Unaudited) (in Thousands) - --------------------------------------------------------------------------------
New York--99.7% - -------------------------------------------------------------------------------- Pro Forma S&P Moody's Face New York New York New York Ratings Ratings Amount Issue Insured++ Insured II++ Insured++ - -------------------------------------------------------------------------------- Albany County, New York, Airport Authority, Airport Revenue Bonds: NR* Aaa $10,190 RITR, Series RI-7, 7.52% due 12/15/2023(d)....... $ 7,188 $ 4,829 $12,017 AAA Aaa 4,565 Series B, 4.75% due 12/15/2018(e)........... 4,368 -- 4,368 A A2 1,275 Battery Park City Authority, New York, Revenue Refunding Bonds, Junior Series A, 5.80% due 11/01/2022... -- 1,355 1,355 AAA Aaa 8,200 Buffalo and Fort Erie, New York, Public Bridge Authority, Toll Bridge System Revenue Bonds, 5.75% due 1/01/2025(b). 8,725 -- 8,725 Buffalo, New York, GO (General Improvement), Series A(a): AAA Aaa 3,020 4.50% due 2/01/2007..... -- 3,071 3,071 AAA Aaa 1,555 4.50% due 2/01/2008..... -- 1,579 1,579 AAA Aaa 1,605 4.75% due 2/01/2009..... -- 1,650 1,650 AAA Aaa 1,065 Buffalo, New York, GO, Refunding, Series C, 4.25% due 12/01/2007(a).......... -- 1,067 1,067 Buffalo, New York, GO (School), Series B(e): AAA Aaa 1,160 4.50% due 2/01/2007..... -- 1,180 1,180 AAA Aaa 605 4.50% due 2/01/2008..... -- 614 614 AAA Aaa 635 4.75% due 2/01/2009..... -- 653 653 AAA Aaa 4,300 Buffalo, New York, Sewer Authority Revenue Refunding Bonds, Series F, 6% due 7/01/2013(f). -- 4,897 4,897 Huntington, New York, Refunding, GO(a): NR* Aaa 715 5.50% due 4/15/2010..... -- 776 776 NR* Aaa 485 5.50% due 4/15/2011..... -- 526 526 NR* Aaa 460 5.50% due 4/15/2012..... -- 499 499 NR* Aaa 455 5.50% due 4/15/2013..... -- 494 494 NR* Aaa 450 5.50% due 4/15/2014..... -- 489 489 NR* Aaa 450 5.50% due 4/15/2015..... -- 489 489 Long Island Power Authority, New York, Electric System Revenue Bonds: NR* NR* 10,000 Series A, 5.50% due 12/01/2023(b)........... -- 10,507 10,507 AAA Aaa 10,000 Series A, 5.25% due 12/01/2026(a)........... 10,142 -- 10,142 A- Baa1 5,000 Series A, 5.50% due 12/01/2029.............. -- 5,134 5,134 AAA Aaa 14,300 Series A, 5.50% due 12/01/2029(b)........... -- 14,747 14,747 A1+ VMIG1+ 2,600 VRDN, Sub-Series 5, 4.25% due 5/01/2033(c).. -- 2,600 2,600 A1+ VMIG1+ 3,650 VRDN, Sub-Series 7, 4.10% due 4/01/2025(b)(c)......... 850 2,800 3,650 Metropolitan Transportation Authority, New York, Commuter Facilities Revenue Bonds: AAA Aaa 9,570 Series A, 6.375% due 7/01/2004(b)(g)......... -- 10,805 10,805 AAA Aaa 18,270 Series C-1, 5.375% due 7/01/2027(f)............ 2,576 16,249 18,825 AAA- Aaa 6,360 Metropolitan Transportation Authority, New York, Commuter Facilities Revenue Refunding Bonds, Series B, 4.75% due 7/01/2026(f)....... 4,401 1,580 5,981 Metropolitan Transportation Authority, New York, Transit Facilities Revenue Bonds: AAA Aaa 2,000 Series A, 6.10% due 7/01/2006(e)(g)......... -- 2,282 2,282 AAA Aaa 2,500 Series C-1, 5.50% due 7/01/2022(f)............ -- 2,618 2,618
F-47 COMBINED SCHEDULE OF INVESTMENTS FOR MUNIYIELD NEW YORK INSURED FUND, INC. AND MUNIYIELD NEW YORK INSURED FUND II, INC. APRIL 30, 1999 (Unaudited) (continued) (in Thousands) - --------------------------------------------------------------------------------
New York (continued) - -------------------------------------------------------------------------------- Pro Forma S&P Moody's Face New York New York New York Ratings Ratings Amount Issue Insured++ Insured II++ Insured ++ - -------------------------------------------------------------------------------- AAA Aaa $ 3,555 Metropolitan Transportation Authority, New York, Transit Facilities Revenue Refunding Bonds, Series A, 4.75% due 7/01/2021(b)....... $ -- $ 3,377 $ 3,377 Metropolitan Transportation Authority, New York, Transportation Facilities Revenue Bonds(g): AAA Aaa 2,400 Series A, 6.10% due 7/01/2006(e)............ -- 2,738 2,738 AAA Aaa 20,000 Series O, 6.375% due 7/01/2004(b)............ -- 22,582 22,582 AAA Aaa 7,370 Metropolitan Transportation Authority, New York, Transportation Facilities Revenue Refunding Bonds, Series A, 4.75% due 7/01/2024(b)........... 6,946 -- 6,946 AAA Aaa 1,005 Mount Sinai, New York, Union Free School District, GO, Refunding, 6.20% due 2/15/2019(a)........... -- 1,169 1,169 Nassau County, New York, GO: AAA Aaa 3,250 Series P, 6.50% due 11/01/2004(f)(g)........ -- 3,751 3,751 AAA Aaa 3,685 Series P, 6.50% due 11/01/2004(f)(g)........ -- 4,253 4,253 AAA Aaa 5,000 Series V, 5.25% due 3/01/2011(a)............ 5,250 -- 5,250 AAA Aaa 3,000 New York City, New York, Cultural Resources -- Trust Revenue Refunding Bonds (Museum of Modern Art), Series A, 5.50% due 1/01/2021(a)....... 3,139 3,139 New York City, New York, GO, Refunding: A- A3 3,870 Series B, 6.375% due 8/15/2012............... 4,281 -- 4,281 AAA Aaa 2,000 Series B, 7% due 2/01/2017(a)............ -- 2,183 2,183 AAA Aaa 2,000 Series B, 7% due 2/01/2018(a)............ -- 2,183 2,183 AAA Aaa 2,500 Series D, 5.25% due 8/01/2021(b)............ 2,533 -- 2,533 AAA Aaa 15,000 Series F, 5.375% due 8/01/2019(b)............ -- 15,412 15,412 New York City, New York, GO, VRDN, Series B-2, Sub-Series B-5(b)(c): AAA VMIG1+ 400 4.10% due 8/15/2011..... 400 -- 400 A-1+ VMIG1+ 333 4.10% due 8/15/2022..... -- 333 333 AAA Aaa 5,950 New York City, New York, Health and Hospital Corporation Revenue Refunding Bonds (Health System), Series A, 5.125% due 2/15/2014(a)........... -- 6,116 6,116 New York City, New York, IDA, Civic Facility Revenue Bonds: NR* Aaa 885 (Anti-Defamation League Foundation), Series A, 5.50% due 6/01/2022(b).. -- 928 928 AAA Aaa 12,500 (USTA National Tennis Center Project), 6.375% due 11/15/2014(e)....... -- 13,958 13,958 NR* A 7,485 New York City, New York, IDA, Special Facilities Revenue Bonds, RITR, Series RI-6, 7.545% due 1/01/2024(d)........... -- 8,381 8,381 New York City, New York, Municipal Water Finance Authority, Water and Sewer System Revenue Bonds: NR* A-1 11,000 RITR, Series 21, 6.97% due 6/15/2029(d)........ -- 12,611 12,611 AAA Aaa 1,050 Series A, 5% due 6/15/2027(f)............ -- 1,024 1,024 AAA Aaa 22,500 Series B, 5.75% due 6/15/2026(b)............ 24,161 -- 24,161 AAA Aaa 5,000 Series B, 5.50% due 6/15/2027(b)............ 5,222 -- 5,222 New York City, New York, Municipal Water Finance Authority, Water and Sewer System Revenue Refunding Bonds: AAA Aaa 1,000 Series A, 5.375% due 6/15/2026(e)............ 1,025 -- 1,025 AAA Aaa 16,000 Series B, 5.25% due 6/15/2029(a)............ 10,122 6,073 16,195
F-48 COMBINED SCHEDULE OF INVESTMENTS FOR MUNIYIELD NEW YORK INSURED FUND, INC. AND MUNIYIELD NEW YORK INSURED FUND III, INC. APRIL 30, 1999 (Unaudited) (continued) (in Thousands) - --------------------------------------------------------------------------------
New York (continued) - -------------------------------------------------------------------------------- Pro Forma S&P Moody's Face New York New York New York Ratings Ratings Amount Issue Insured++ Insured II++ Insured ++ - -------------------------------------------------------------------------------- AAA NR* $15,000 Series B, 5.25% due 6/15/2029(e)................... $ $15,183 $15,183 AAA Aaa 1,750 Series D, 4.75% due 6/15/2025(b)................... -- 1,648 1,648 AAA Aaa 1,500 Series F, 5.50% due 6/15/2023(b)................... -- 1,553 1,553 NR* Aaa 14,585 New York City, New York, RITR, Series 33, 6.24% due 8/01/2027(b)(d)................................... 15,442 -- 15,442 New York City, New York, Transitional Finance Authority Revenue Bonds (Future Tax Secured): AA Aa3 7,650 Series B, 5.125% due 11/01/2015.................... -- 7,806 7,806 AAA Aaa 11,635 Series B, 4.75% due 11/15/2023(f).................. 9,810 1,181 10,991 AAA Aaa 10,000 Series B, 4.50% due 11/15/2027(f).................. -- 9,020 9,020 NR* VMIG1+ 6,400 VRDN, Series C, 4.20% due 5/01/2028(c)............. -- 6,400 6,400 AAA Aaa 8,750 New York State Dormitory Authority, Lease Revenue Bonds (Municipal Health Facilities Improvement Program), Series 1, 4.75% due 1/15/2029(e)........ 8,195 -- 8,195 New York State Dormitory Authority Revenue Bonds: NR* Aaa 1,000 (Brooklyn Hospital Center), 5.10% due -- 991 991 2/01/2019(a)(h).................................... AAA NR* 2,460 (Champlain Valley Physicians), 5% due 7/01/2017(j). -- 2,454 2,454 AAA Aaa 6,290 (City University), Third Generation Reserves, Series 1, 6.30% due 7/01/2004(a)(g).......................... -- 7,074 7,074 AAA Aaa 11,165 (City University), Third Generation Reserves, Series 2, 6.875% due 7/01/2004(b)(g)......................... -- 12,911 12,911 AAA Aaa 7,000 (City University System), Third Resolution, Series 1, 6.25% due 7/01/2004(a)(g).......................... 4,510 3,382 7,892 AAA Aaa 2,000 (Ithaca College), 5.25% due 7/01/2026(a)........... 2,027 -- 2,027 AAA Aaa 12,000 (Memorial Sloan Kettering Cancer Center), 5.50% due 7/01/2023(b)....................................... -- 12,835 12,835 AAA Aaa 4,350 (Mental Health Services Facilities Improvement), Series F, 4.50% due 8/15/2028(a)............................. -- 3,912 3,912 A- A3 2,340 (Mental Health Services Improvement), Series B, 6% due 8/15/2016...................................... -- 2,620 2,620 AAA Aaa 6,000 (Mount Sinai School of Medicine), Series A, 5.15% due 7/01/2024(b)................................... -- 6,119 6,119 AAA Aaa 3,105 (New School Social Research), 5.75% due 7/01/2026(b)....................................... 2,153 1,190 3,343 AAA Aaa 2,000 (New York University), Series A, 5.75% due 7/01/2027(b)....................................... -- 2,219 2,219 NR* Aaa 8,125 RIB, Series 1, 7.165% due 7/01/2027(b)(d).......... -- 9,921 9,921 AAA Aaa 6,000 (Siena College), 5.75% due 7/01/2026(b)............ 6,460 -- 6,460 BBB- Baa1 1,000 (State University Athletic Facilities), 7.25% due 7/01/2001(g)....................................... -- 1,092 1,092 AAA Aaa 2,000 (State University Educational Facilities), Series B, 5.75% due 5/15/2004(f)(g).......................... -- 2,172 2,172 AAA Aaa 5,000 (State University Educational Facilities), Series B, 4.75% due 5/15/2028(b)......................... -- 4,693 4,693 New York State Dormitory Authority Revenue Refunding Bonds: AAA Aaa 4,400 (City University System), Series C, 7.50% due 7/01/2010(f)....................................... 5,408 -- 5,408 AAA Aaa 4,980 (City University System), Series C, 7% due 7/01/2014(f)....................................... 5,271 -- 5,271 AAA Aaa 1,375 (Consolidated City University System), Second Generation, Series A, 5.75% due 7/01/2018(e)............................. -- 1,517 1,517 AAA Aaa 2,875 (Hamilton College), 4.75% due 7/01/2018(b)......... -- 2,766 2,766 AAA NR* 4,250 (Hospital Mortgage-United Health Services Hospitals), 5.375% due 8/01/2027(h)............................ 4,356 -- 4,356
F-49 COMBINED SCHEDULE OF INVESTMENTS FOR MUNIYIELD NEW YORK INSURED FUND, INC. AND MUNIYIELD NEW YORK INSURED FUND II, INC. APRIL 30, 1999 (Unaudited) (continued) (in Thousands) - --------------------------------------------------------------------------------
New York (continued) - -------------------------------------------------------------------------------- Pro Forma S&P Moody's Face New York New York New York Ratings Ratings Amount Issue Insured++ Insured II++ Insured++ - -------------------------------------------------------------------------------- AAA NR* $ 6,270 (Mental Health Services Facilities Improvement), Series C, 5.125% due 2/15/2011(b). $ -- $ 6,520 $ 6,520 AAA Aaa 4,480 (Mental Health Services Facilities Improvement), Series C, 5.125% due 8/15/2011(b). -- 4,659 4,659 AAA Aaa 4,710 (Mental Health Services Facilities Improvement), Series C, 5.125% due 8/15/2012(b). -- 4,863 4,863 AAA Aaa 10,000 (Mental Health Services Facilities Improvement), Series D, 4.75% due 2/15/2025(b).. 9,418 9,418 AAA Aaa 1,500 (New York and Presbyterian Hospitals), 4.75% due 8/01/2027(a)(h)......... -- 1,409 1,409 AAA Aaa 10,000 (North Shore University Hospital), 5.25% due 11/01/2019(b)........... 10,095 -- 10,095 AAA Aaa 5,850 (St. Joseph's Hospital Health Center), 5.25% due 7/01/2018(b)........ 5,909 -- 5,909 AAA Aaa 4,500 (State University Educational Facilities), Series A, 5.875% due 5/15/2011(f)............ -- 5,048 5,048 A- A3 1,500 (State University Educational Facilities), Series A, 5.50% due 5/15/2019(f)............ -- 1,584 1,584 A- A3 2,000 (State University Educational Facilities), Series A, 5.25% due 5/15/2021............... -- 2,045 2,045 AAA Aaa 29,520 (State University Educational Facilities), Series A, 4.75% due 5/15/2025(b). 12,580 15,216 27,796 AAA Aaa 1,000 (Wyckoff), Series H, 5.125% due 2/15/2008(b)........... -- 1,054 1,054 NR* Aaa 4,200 New York State Energy Research and Development Authority, Facilities Revenue Bonds, RITR, Series 19, 7.77% due 8/15/2020(d). -- 5,019 5,019 New York State Energy Research and Development Authority, Gas Facilities Revenue Bonds(b): AAA Aaa 12,000 (Brooklyn Union Gas Company), AMT, Series A, 6.75% due 2/01/2024. -- 13,059 13,059 AAA Aaa 16,505 (Brooklyn Union Gas Company), AMT, Series B, 6.75% due 2/01/2024. 11,159 6,810 17,969 NR* NR* 14,355 RITR, Series 9, 6.57% due 1/01/2021(d)....... -- 15,577 15,577 New York State Energy Research and Development Authority, PCR (Niagara Mohawk Power Corporation Project)(c): A-1+ NR* 500 DATES, Series A, 4.20% due 7/01/2015.......... -- 500 500 A-1+ NR* 100 VRDN, AMT, Series B, 4.25% due 7/01/2027.... -- 100 100 New York State Energy Research and Development Authority, PCR, Refunding: AA- VMIG1+ 1,200 (New York State Electric & Gas), VRDN, Series D, 4.20% due 10/01/2029(c)........... 1,200 -- 1,200 NR* P1 4,900 (Niagara Mohawk Corporation Project), FLOATS, Series A, 4.20% due 3/01/2027(c)........ 4,900 -- 4,900 AAA Aaa 3,600 (Rochester Gas and Electric Project), AMT, Series B, 6.50% due 5/15/2032(b)............ -- 3,894 3,894 NR* Aa1 5,000 New York State Environmental Facilities Corporation, PCR, RITR, Series RI-1, 7.195% due 6/15/2014(d)........... -- 5,795 5,795 AAA Aaa 2,975 New York State Environmental Facilities Corporation, Special Obligation Revenue Refunding Bonds (Riverbank State Park), 5.50% due 4/01/2016(a). 3,131 -- 3,131 NR* Aaa 6,575 New York State Local Government Assistance Corporation, RITR, Series 22, 7.57% due 4/01/2024(a)(d)........ -- 7,739 7,739 New York State Medical Care Facilities Finance Agency Revenue Bonds: AAA Aaa 5,535 (Brookdale Hospital Medical Center), Series A, 6.85% due 2/15/2005(g)........... -- 6,425 6,425 AAA Aaa 5,375 (Health Center Project- Second Mortgage), Series A, 6.375% due 11/15/2019(a)........... 3,053 3,070 6,123
F-50 COMBINED SCHEDULE OF INVESTMENTS FOR MUNIYIELD NEW YORK INSURED FUND, INC. AND MUNIYIELD NEW YORK INSURED FUND II, INC. APRIL 30, 1999 (Unaudited) (continued) (in Thousands) - --------------------------------------------------------------------------------
New York (continued) - -------------------------------------------------------------------------------- Pro Forma S&P Moody's Face New York New York New York Ratings Ratings Amount Issue Insured++ Insured II++ Insured ++ - -------------------------------------------------------------------------------- AAA Aaa $ 1,865 (Long-Term Health Care), Series B, 6.45% due 11/01/2014(e).......... $ 2,024 $ -- $ 2,024 AAA Aaa 1,000 (Long-Term Health Care Insured Program), Series D, 6.50% due 11/01/2015(e)........... 1,096 -- 1,096 AAA Aaa 1,475 (Mental Health Services), Series A, 6% due 2/15/2005(b)(g).... -- 1,648 1,648 AAA Aaa 25 (Mental Health Services), Series A, 6% due 2/15/2025(b)....... -- 27 27 AAA Aaa 2,945 (Mental Health Services), Series E, 6.50% due 8/15/2004(e)(g)........ -- 3,356 3,356 AAA Aaa 55 (Mental Health Services), Series E, 6.50% due 8/15/2015(e). -- 62 62 AAA Aaa 1,000 (New York Hospital Mortgage), Series A, 6.75% due 2/15/2005(a)(g)(h)..... 1,156 -- 1,156 AAA Aaa 12,850 (New York Hospital Mortgage), Series A, 6.80% due 2/15/2005(a)(g)(h)..... -- 14,882 14,882 AAA Aaa 19,500 (New York Hospital Mortgage), Series A, 6.50% due 2/15/2005(a)(g)(h)..... 8,397 13,999 22,396 AAA Aaa 15,200 New York State Medical Care Facilities Finance Agency Revenue Refunding Bonds (Hospital and Nursing Home), Series C, 6.375% due 8/15/2029(b)(h).... 10,891 5,663 16,554 NR* Aa2 3,270 New York State Mortgage Agency, Homeowner Mortgage Revenue Bonds, AMT, Series 44, 7.50% due 4/01/2026.......... -- 3,552 3,552 AAA Aaa 1,000 New York State Mortgage Agency, Homeowner Mortgage Revenue Refunding Bonds, Series 43, 6.45% due 10/01/2017(b)(h)....... -- 1,081 1,081 NR* Aaa 9,900 New York State Mortgage Agency Revenue Bonds, RITR, AMT, Series 24, 7.07% due 10/01/2028(d).......... 8,895 2,252 11,147 AAA Aaa 3,400 New York State Thruway Authority, General Revenue Bonds, Series C, 6% due 1/01/2005(f)(g)........ -- 3,792 3,792 A-1+ VMIG1+ 800 New York State Thruway Authority, General Revenue Bonds, VRDN, 4.20% due 1/01/2024(c)(f)........ 800 -- 800 New York State Thruway Authority, Highway and Bridge Trust Fund Revenue Bonds(f): AAA Aaa 2,775 Series A, 5% due 4/01/2009............... -- 2,908 2,908 AAA Aaa 3,000 Series B, 6% due 4/01/2004(g)............ 3,335 -- 3,335 AAA Aaa 8,000 Series B, 6.25% due 4/01/2004(g)........... 8,981 -- 8,981 AAA Aaa 2,000 New York State Thruway Authority, Service Contract Revenue Bonds (Local Highway and Bridge), Series A-2, 5.375% due 4/01/2016(b)........... -- 2,083 2,083 New York State Urban Development Corporation Revenue Bonds (Correctional Facilities Service Contract), Series B(a): AAA Aaa 6,520 4.75% due 1/01/2018..... -- 6,277 6,277 AAA Aaa 7,135 4.75% due 1/01/2028..... -- 6,699 6,699 AAA Aaa 6,500 New York State Urban Development Corporation Revenue Refunding Bonds (Correctional Capital Project), Series A, 5.25% due 1/01/2021(e). 6,561 -- 6,561 AAA Aaa 1,000 Niagara Falls, New York, GO (Water Treatment Plant), AMT, 7.25% due 11/01/2010(b).......... -- 1,227 1,227 AAA Aaa 1,260 North Country, New York, Development Authority, Solid Waste Management System Revenue Refunding Bonds, 6% due 5/15/2015(e)........... -- 1,419 1,419 North Hempstead, New York, GO, Refunding, Series B(f): AAA Aaa 1,745 6.40% due 4/01/2013..... -- 2,059 2,059 AAA Aaa 555 6.40% due 4/01/2017..... -- 656 656 AAA Aaa 1,080 Oneida County, New York, GO, Refunding, 5.50% due 3/15/2009(f)....... -- 1,171 1,171
F-51 COMBINED SCHEDULE OF INVESTMENTS FOR MUNIYIELD NEW YORK INSURED FUND, INC. AND MUNIYIELD NEW YORK INSURED FUND II, INC. APRIL 30, 1999 (Unaudited) (continued) (in Thousands) - --------------------------------------------------------------------------------
New York (concluded) - -------------------------------------------------------------------------------- Pro Forma S&P Moody's Face New York New York New York Ratings Ratings Amount Issue Insured++ Insured II++ Insured ++ - -------------------------------------------------------------------------------- AAA Aaa $ 1,665 Oneida County, New York, IDA, Civic Facilities Revenue Bonds (Mohawk Valley), Series A, 5.20% due 2/01/2013(e). $ -- $ 1,712 $ 1,712 Port Authority of New York and New Jersey, Consolidated Revenue Bonds: AAA Aaa 2,200 104th Series, 4.75% due 1/15/2026(a)............ -- 2,082 2,082 AAA Aaa 6,200 116th Series, 4.50% due 10/01/2018(f)........... -- 5,788 5,788 AAA Aaa 10,000 116th Series, 4.25% due 10/01/2026(f)........... -- 8,712 8,712 AAA Aaa 2,180 AMT, 97th Series, 6.50% due 7/15/2019(f)........ 2,414 -- 2,414 AAA Aaa 4,740 AMT, 117th Series, Second Installment, 4.75% due 11/15/2016(f). -- 4,586 4,586 NR* Aaa 4,000 Port Authority of New 4,597 4,597 York and New Jersey, RITR, AMT, 108th Series, 7.235% due 1/15/2017(d)(e)........ -- A-1+ VMIG1+ 8,700 Port Authority of New York and New Jersey, Special Obligation Revenue Refunding Bonds (Versatile Structure Obligation), VRDN, Series 2, 4.20% due 5/01/2019(g)(c)........ -- 8,700 8,700 AAA Aaa 2,500 St. Lawrence County, New 2,571 2,571 York, Industrial Development Civic Facility Revenue Bond (St. Lawrence University Project) Series A, 5.375% due 7/01/2018(b)........... -- Syracuse, New York, COP (Syracuse Hancock International Airport), AMT(f): AAA Aaa 3,650 6.625% due 1/01/2012.... -- 3,943 3,943 AAA Aaa 8,820 6.50% due 1/01/2017..... 6,140 3,361 9,501 AAA Aaa 3,000 Syracuse, New York, GO -- 3,115 Refunding, Series B, 5.25% due 10/01/2014... 3,115 Total Investments (Cost -- $817,364) -- 99.7%.... 278,154 576,497 854,651 Other Assets Less Liabilities (Liabilities in Ex- cess of Other Assets) -- 0.3%................... (143) 9,293 2,785 -------- -------- -------- Net Assets -- 100.0%............................. $278,011 $585,790 $857,436 ======== ======== ======== AA+ VMIG1+ 500 Syracuse, New York, IDA, Civic Facility Revenue Bonds (Multi-Modal- Syracuse University Project), VRDN, 4.20% due 3/01/2023(c)....... 500 -- 500 Triborough Bridge and Tunnel Authority, New York, General Purpose Revenue Refunding Bonds: A+ Aa3 1,000 Series B, 5% due 1/01/2020............... -- 997 997 AAA Aaa 2,000 Series Y, 6.125% due 1/01/2021(i)............ -- 2,301 2,301 BBB+ Baa1 4,000 Triborough Bridge and 4,696 4,696 Tunnel Authority, New York, Revenue Refunding Bonds (Convention Center Project), Series E, 7.25% due 1/01/2010. -- Triborough Bridge and Tunnel Authority, New York, Special Obligation Revenue Refunding Bonds: AAA Aaa 1,030 6.25% due 1/01/2012(a).. -- 1,101 1,101 AAA Aaa 2,265 Series A, 5.125% due 1/01/2011(b)............ -- 2,373 2,373 - --------------------------------------------------------------------------------
F-52 COMBINED SCHEDULE OF INVESTMENTS FOR MUNIYIELD NEW YORK INSURED FUND, INC. AND MUNIYIELD NEW YORK INSURED FUND II, INC. APRIL 30, 1999 (Unaudited) (concluded) (in Thousands) (a) AMBAC Insured. (b) MBIA Insured. (c) 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. (d) 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. (e) FSA Insured. (f) FGIC Insured. (g) Prerefunded. (h) FHA Insured. (i) CAPMAC Insured. (j) Connie Lee Insured. + Highest short-term rating by Moody's Investors Service, Inc. ++ Value as discussed in the Combined Notes to Financial Statements. * Not Rated.
See Notes to Financial Statements. PORTFOLIO ABBREVIATIONS To simplify the listings of MuniYield New York Insured Fund, Inc.'s portfolio holdings in the Schedule of Investments, we have abbreviated the names of many of the securities according to the list below. AMT Alternative Minimum Tax (subject to) COP Certificates of Participation DATES Daily Adjustable Tax-Exempt Securities FLOATS Floating Rate Securities GO General Obligation Bonds IDA Industrial Development Authority PCR Pollution Control Revenue Bonds RIB Residual Interest Bonds RITR Residual Interest Trust Receipts VRDN Variable Rate Demand Notes
F-53 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 MUNIYIELD NEW YORK INSURED FUND, INC. AND MUNIYIELD NEW YORK INSURED FUND II, INC. As of April 30, 1999 (Unaudited)
New York New York Pro Forma Insured Insured II Adjustments New York Insured ------------ ------------ ----------- ---------------- Assets: Investments, at value* (Note 1a).............. $278,154,486 $576,496,907 $854,651,393 Cash.................... 23,465 24,372 47,837 Interest receivable..... 4,933,029 10,012,841 14,945,870 Prepaid expenses and other assets 14,053 57,051 71,104 ------------ ------------ ----------- ------------ Total assets............ 283,125,033 586,591,171 869,716,204 ------------ ------------ ----------- ------------ Liabilities: Payables: Securities purchased... 4,949,109 4,949,109 Dividends to shareholders (Note 1e)................... 26,656 502,502 6,054,631(1) 6,583,789 Investment adviser (Note 2).............. 122,104 257,652 379,756 Accrued expenses and other liabilities...... 16,072 41,006 310,000(2) 367,078 ------------ ------------ ----------- ------------ Total liabilities....... 5,113,941 801,160 6,364,631 12,279,732 ------------ ------------ ----------- ------------ Net Assets: $278,011,092 $585,790,011 $(6,364,631) $857,436,472 ============ ============ =========== ============ Capital Capital Stock (200,000,000 shares of each fund authorized; 400,000,000 shares as adjusted):............. Preferred Stock, par value $.10 per share of AMPS** issued and outstanding + at $25,000 per share liquidation preference............ $ 85,000,000 $174,000,000 $259,000,000 Common Stock, par value $.10 per share issued and outstanding++..... 1,256,065 2,666,889 50,294 3,973,248 Paid-in capital in excess of par.......... 176,066,384 381,622,646 (360,294) 557,328,736 Undistributed investment income--net............ 3,215,494 2,325,604 (5,541,098) Undistributed (accumulated) realized capital gains (losses) on investments-net .... 513,533 (153,100) (513,533) (153,100) Unrealized appreciation on investments-net..... 11,959,616 25,327,972 37,287,588 ------------ ------------ ----------- ------------ Total Capital+++........ $278,011,092 $585,790,011 $(6,364,631) $857,436,472 ============ ============ =========== ============ * Identified Cost..... $266,194,870 $551,168,935 -- $817,363,805 ============ ============ =========== ============ + AMPS** issued and outstanding............ 3,400 6,960 -- 10,360 ============ ============ =========== ============ ++ Shares issued and outstanding............ 12,560,647 26,668,886 502,949 39,732,482 ============ ============ =========== ============ +++ Net asset value per Common Stock........... $ 15.37 $ 15.44 -- $ 15.06 ============ ============ =========== ============
- -------- ** Auction Market Preferred Stock. (1)Assumes the distribution of undistributed investment income and undistributed realized capital gains. (2)Reflects the charge for estimated Reorganization expenses of $310,000. See Notes to Financial Statements. F-54 The following unaudited pro forma Combined Statement of Operations has been derived from the statement of operations of the respective Funds for the six months ended 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 NEW YORK INSURED FUND, INC. AND MUNIYIELD NEW YORK INSURED FUND II, INC. For the Six Months Ended April 30, 1999 (Unaudited)
Pro Forma New York New York New York Insured Insured II Adjustment Insured ---------- ----------- ---------- ----------- Investment Income (Note 1d): Interest and amortization of premium and discount earned................... $7,480,963 $15,530,179 $ $23,011,142 ---------- ----------- ----------- Expenses: Investment advisory fees (Note 2)................. 699,084 1,473,593 2,172,677 Commission fees........... 103,126 211,241 314,367 Transfer agent fees....... 29,056 65,815 94,871 Professional fees......... 34,807 38,592 (33,399)(1) 40,000 Accounting services (Note 2)....................... 38,210 59,474 (27,458)(1) 70,226 Directors' fees and expenses................. 11,131 11,060 (11,060)(1) 11,131 Printing and shareholder reports.................. 12,103 12,651 (2,754)(1) 22,000 Custodian fees............ 11,336 16,396 27,732 Listing fees.............. 11,951 15,492 27,443 Pricing fees.............. 3,868 8,153 12,021 Other..................... 16,656 16,733 33,389 ---------- ----------- ------- ----------- Total expenses............ 971,328 1,929,200 (74,671) 2,825,857 ---------- ----------- ------- ----------- Investment income--net.... 6,509,635 13,600,979 74,671 20,185,285 ---------- ----------- ------- ----------- Realized & Unrealized Gain (Loss) on Investments-- Net (Notes 1b, 1d & 3) Realized gain on investments--net......... 2,518,058 5,978,844 8,496,902 Change in unrealized appreciation/depreciation on investments--net...... (4,531,153) (12,591,233) (17,122,386) ---------- ----------- ------- ----------- Net Increase in Net Assets Resulting from Operations............... $4,496,540 $ 6,988,590 $74,671 $11,559,801 ========== =========== ======= ===========
- -------- (1) Reflects the anticipated saving as a result of the Reorganization through fewer audits and consolidation of printing, accounting and other services. (2) This Pro Forma Combined Statement of Operations excludes non-recurring estimated Reorganization expenses of $310,000. F-55 MUNIYIELD NEW YORK INSURED FUND, INC. COMBINED NOTES TO FINANCIAL STATEMENTS 1. Significant Accounting Policies: MuniYield New York Insured Fund, Inc. (the "Fund," which term as used herein shall refer to MuniYield New York Insured Fund, Inc. after giving effect to the Reorganization) is registered under the Investment Company Act of 1940 as a non-diversified, closed-end management investment company. 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 will determine and make available for publication the net asset value of its Common Shares on a weekly basis. The Fund's Common Stock is listed on the New York Stock Exchange under the symbol MYN. The following is a summary of significant accounting policies followed by the Fund. (a) Valuation of investments -- Municipal bonds are traded primarily in the over-the-counter markets and are valued at the most recent bid price or yield equivalent as obtained by the Fund's pricing service from dealers that make markets in such securities. Financial futures contracts and options thereon, which are traded on exchanges, are valued at their closing prices as of the close of such exchanges. Options written or purchased are valued at the last sale price in the case of exchange-traded options. In the case of options traded in the over-the-counter market, valuation is the last asked price (options written) or the last bid price (options purchased). Securities with remaining maturities of sixty days or less are valued at amortized cost, which approximates market value. Securities and assets for which market quotations are not readily available are valued at fair value as determined in good faith by or under the direction of the Board of Directors of the Fund, including valuations furnished by a pricing service retained by the Fund, which may utilize a matrix system for valuations. The procedures of the pricing service and its valuations are reviewed by the officers of the Fund under the general supervision of the Board of Directors. (b) Derivative financial instruments -- The Fund may engage in various portfolio strategies to seek to increase its return by hedging its portfolio against adverse movements in the debt markets. Losses may arise due to changes in the value of the contract or if the counterparty does not perform under the contract. . Financial futures contracts -- The Fund may purchase or sell financial futures contracts and options on such futures contracts for the purpose of hedging the market risk on existing securities or the intended purchase of securities. Futures contracts are contracts for delayed delivery of securities at a specific future date and at a specific price or yield. Upon entering into a contract, the Fund deposits and maintains as collateral such initial margin as required by the exchange on which the transaction is effected. Pursuant to the contract, the Fund agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in value of the contract. Such receipts or payments are known as variation margin and are recorded by the Fund as unrealized gains or losses. When the contract is closed, the Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. . Options -- The Fund is authorized to write covered call options and purchase put options. When the Fund writes an option, an amount equal to the premium received by the Fund is reflected as an asset and an equivalent liability. The amount of the liability is subsequently marked to market to reflect the current market value of the option written. When a security is purchased or sold through an exercise of an option, the related premium paid (or received) is added to (or deducted from) the basis of the security acquired or deducted from (or added to) the proceeds of the security sold. When an option expires (or the Fund enters into a closing transaction), the Fund realizes a gain or loss on the option to the extent of the premiums received or paid (or gain or loss to the extent the cost of the closing transaction exceeds the premium paid or received). Written and purchased options are non-income producing investments. F-56 (c) Income taxes -- It is the Fund's policy to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all of its taxable income to its shareholders. Therefore, no Federal income tax provision is required. (d) Security transactions and investment income -- Security transactions are recorded on the dates the transactions are entered into (the trade dates). Interest income is recognized on the accrual basis. Discounts and market premiums are amortized into interest income. Realized gains and losses on security transactions are determined on the identified cost basis. (e) Dividends and distributions -- Dividends from net investment income are declared and paid monthly. Distributions of capital gains are recorded on the ex-dividend dates. 2. Investment Advisory Agreement and Transactions with Affiliates: The Fund has entered into an Investment Advisory Agreement with Fund Asset Management, L.P. ("FAM"). The general partner of FAM is Princeton Services, Inc. ("PSI"), an indirect wholly-owned subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is the limited partner. FAM is responsible for the management of the Fund's portfolio and provides the necessary personnel, facilities, equipment and certain other services necessary to the operations of the Fund. For such services, the Fund pays a monthly fee at an annual rate of 0.50% of the Fund's average weekly net assets, including proceeds from the issuance of Preferred Stock. Accounting services are provided to the Fund by FAM at cost. Certain officers and/or directors of the Fund are officers and/or directors of FAM, PSI, and/or ML & Co. F-57 EXHIBIT I INFORMATION PERTAINING TO EACH FUND .General Information Pertaining to the Funds
Defined Term Fiscal State of Meeting Fund Used in Exhibit I Year End Organization Time - ---- ------------------- -------- ------------ --------- MuniYield New York Insured Fund, Inc................. New York Insured 10/31 MD 3:45 p.m. MuniYield New York Insured Fund II, Inc.............. New York Insured II 10/31 MD 4:00 p.m.
Shares of Capital Stock Outstanding as of the Record Date ------------------------- Common Fund Stock AMPS - ---- -------------- ---------- New York Insured....................................... 12,585,427 -- Series A.............................................. -- 1,700 Series B.............................................. -- 1,700 New York Insured II.................................... 26,668,886 -- Series A.............................................. -- 2,800 Series B.............................................. -- 1,960 Series C.............................................. -- 1,000 Series D.............................................. -- 1,200
.Information Pertaining to Officers and Directors
Year in Which Each Director Became a Member of the Board -------------------------------------------------------------------- Fund Bodurtha Glenn London Martin May Perold Zeikel - ---- ---------- -------- -------- -------- -------- -------- -------- New York Insured........ 1995 1999 1992 1993 1992 1992 1992 New York Insured II..... 1995 1999 1992 1993 1992 1992 1992
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.
Board Audit Committee --------------------------- ------------------------- # # Per Aggregate Meetings Annual Per Meeting Meetings Annual+ Meeting Fees and Fund Held* Fee($) Fee($)** Held Fee($) Fee($)** Expenses($) - ---- -------- ------ ----------- -------- ------- -------- ----------- New York Insured........ 6 2,500 250 4 500 125 23,033 New York Insured II..... 7 2,500 250 4 500 125 32,293
- -------- * Includes meetings held via teleconferencing equipment. ** The fee is payable for each meeting attended in person. A fee is not paid for telephonic meetings. + The Chairman of the Audit Committee receives an annual fee of $1,000. Set forth in the table below is information regarding compensation paid by the Fund to the non-interested Board members for the most recently completed fiscal year.
Compensation From Fund($)* ----------------------------------- Fund Bodurtha London Martin May Perold - ---- -------- ------ ------ ----- ------ New York Insured............................ 4,500 4,500 4,500 4,500 4,500 New York Insured II......................... 4,500 4,500 4,500 4,500 4,500
- -------- * No pension or retirement benefits are accrued as part of Fund expenses. I-1 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 the Funds, to the non-interested Board members for the year ended December 31, 1998.
Aggregate Compensation From FAM/MLAM Advised Funds Name of Board Member Paid to Board members ($)(1) - -------------------- -------------------------------------------------- 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
- -------- (1) The Directors serve on the boards of FAM/MLAM Advised Funds as follows: Mr. Bodurtha (29 registered investment companies consisting of 47 portfolios); Mr. London (29 registered investment companies consisting of 47 portfolios); Mr. Martin (29 registered investment companies consisting of 47 portfolios); Mr. May (29 registered investment companies consisting of 47 portfolios); and Mr. Perold (29 registered investment companies consisting of 47 portfolios). Set forth in the table below is the information about the Directors of each of the Funds.
Principal Occupation During Past Name and Address Age Five Years and Public Directorships(1) - ---------------- --- -------------------------------------- Terry K. Glenn (1)*......... 59 Executive Vice President of FAM and MLAM (such terms P.O. Box 9011 as used herein include their corporate predecessors) Princeton, New Jersey since 1983; Executive Vice President and Director of 08543-9011 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, The China 36 Popponesset Road Business Group, Inc. since 1996; Chairman and Chief Cotuit, Massachusetts 02635 Executive Officer, China Enterprise Management Corporation from 1993 to 1996; Chairman, Berkshire Corporation since 1980; Partner, Squire, Sanders & Dempsey from 1980 to 1993; Director Gilder Group LLC and related companies since 1999. Herbert I. London (1)(2).... 60 John M. Olin Professor of Humanities, New York 2 Washington Square Village University since 1993 and Professor since 1980; New York, New York 10012 President, Hudson Institute since 1997 and Trustee thereof since 1980; Dean, Gallatin Division of New York University from 1976 to 1993; Distinguished Fellow, Herman Kahn Chair, Hudson Institute from 1984 to 1985; Director, Damon Corp. from 1991 to 1995; Overseer, Center for Naval Analyses from 1983 to 1993; Limited Partner, Hypertech LP in 1996. Robert R. Martin (1)(2)..... 72 Chairman and Chief Executive Officer, Kinnard 513 Grand Hill Investments, Inc. from 1990 to 1993; Executive Vice St. Paul, Minnesota 55103 President, Dain Bosworth from 1974 to 1989; Director, Carnegie Capital Management from 1977 to 1985 and Chairman thereof in 1979; Director, Securities Industry Association from 1981 to 1982 and Public Securities Association from 1979 to 1980; Chairman of the Board, WTC Industries, Inc. in 1994; Trustee, Northland College since 1992. Joseph L. May (1)(2)........ 70 Attorney in private practice since 1984; President, 424 Church Street May and Athens Hosiery Mills Division. Wayne-Gossard Suite 2000 Corporation from 1954 to 1983; Vice President, Nashville, Tennessee 37219 Wayne-Gossard Corporation from 1972 to 1983; Chairman, The May Corporation (personal holding company) from 1972 to 1983; Director, Signal Apparel Co. from 1972 to 1989. Andre F. Perold (1)(2)...... 47 Professor, Harvard Business School since 1989 and Morgan Hall Associate Professor from 1983 to 1989; Trustee, The Solders Field Common Fund since 1989; Director, Quantec Limited Boston, Massachusetts 02163 from 1991 to 1999; Director, TIBCO from 1994 to 1996; Director, Genbel Securities Limited and Genbel Bank since 1999. Arthur Zeikel (1)*.......... 67 Chairman of FAM and MLAM from 1997 to 1999; 300 Woodland Avenue President of FAM and MLAM from 1977 to 1997; Westfield, New Jersey 07090 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.
I-2 - -------- (1) Each of the Directors is a director, trustee or member of an advisory board of one or more additional investment companies for which FAM, MLAM or their affiliates act as investment adviser. See "Compensation of Board Members" herein. (2) Member of Audit Committee of the Board of Directors. * Interested person, as defined in the Investment Company Act, of each of the Funds. Set forth in the table below is information about the officers of each of the Funds. The address of each officer is 800 Scudders Mill Road, Plainsboro, New Jersey 08536.
New York New York Name and Biography Age Office Insured Insured II - ------------------ --- --------------------- -------- ---------- Terry K. Glenn................... 59 President 1992* 1992* Executive Vice President of MLAM and FAM since 1983; Executive Vice President and Director of Princeton Services since 1993; President of Princeton Funds Distributor, Inc. ("PFD") since 1986 and Director thereof since 1991; President of Princeton Administrators, L.P. since 1988. Vincent R. Giordano.............. 55 Senior Vice President 1992 1992 Senior Vice 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 1993 1993 First Vice President of MLAM since 1997; Vice President of MLAM from 1984 to 1997; Vice President of FAM since 1984. Donald C. Burke.................. 39 Vice President 1993 1993 Senior Vice President and Treasurer 1999 1999 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. Walter C. O'Connor............... 37 Vice President 1995 -- Director (Municipal Tax Exempt Fund Management) of MLAM since 1997; Vice President of MLAM from 1993 to 1997; Assistant Vice President of MLAM from 1991 to 1993. Roberto W. Roffo................. 33 Vice President -- 1996 Vice President of MLAM since 1996. Alice A. Pellegrino.............. 39 Secretary 1999 1999 Vice President of MLAM since 1999; Attorney associated with MLAM since 1997; Associate with Kirkpatrick & Lockhart LLP from 1992 to 1997.
- -------- * Mr. Glenn was elected President of each Fund in 1999. Prior to that he served as Executive Vice President of each Fund. I-3 EXHIBIT II AGREEMENT AND PLAN OF REORGANIZATION THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made as of the 5th day of November, 1999, by and between MuniYield New York Insured Fund, Inc., a Maryland corporation ("New York Insured") and MuniYield New York Insured Fund II, Inc., a Maryland corporation ("New York Insured II") (New York Insured and New York Insured II are sometimes referred to herein collectively as the "Funds"). PLAN OF REORGANIZATION The reorganization will comprise the following: (a)(1) the acquisition by New York Insured of substantially all of the assets, and the assumption by New York Insured of substantially all of the liabilities of New York Insured II in exchange solely for an equal aggregate value of newly issued shares of (A) common stock, with a par value of $0.10 per share, of New York Insured ("New York Insured Common Stock"), (B) auction market preferred stock of New York Insured, with a liquidation preference of $25,000 per share plus an amount equal to accumulated but unpaid dividends thereon (whether or not earned or declared) to be designated Series C ("New York Insured Series C AMPS"), (C) auction market preferred stock of New York Insured, with a liquidation preference of $25,000 per share plus an amount equal to accumulated but unpaid dividends thereon (whether or not earned or declared) to be designated Series D ("New York Insured Series D AMPS"), and (D) auction market preferred stock of New York Insured, with a liquidation preference of $25,000 per share plus an amount equal to accumulated but unpaid dividends thereon (whether or not earned or declared) to be designated Series E ("New York Insured Series E AMPS"), and (2) the subsequent distribution by New York Insured II to New York Insured II stockholders of (x) all of the New York Insured Common Stock received by New York Insured II in exchange for such stockholders' shares of common stock, with a par value of $0.10 per share, of New York Insured II ("New York Insured II Common Stock"), (y) all of the New York Insured Series C AMPS received by New York Insured II in exchange for such stockholders' shares of auction market preferred stock of New York Insured II, with a liquidation preference of $25,000 per share plus an amount equal to accumulated but unpaid dividends thereon (whether or not earned or declared) designated Series A ("New York Insured II Series A AMPS"), (z) all of the New York Insured Series D AMPS received by New York Insured II in exchange for such stockholders' shares of auction market preferred stock of New York Insured II, with a liquidation preference of $25,000 per share plus an amount equal to accumulated but unpaid dividends thereon (whether or not earned or declared) designated Series B ("New York Insured II Series B AMPS") and (xx) all of the New York Insured Series E AMPS received by New York Insured II in exchange for such stockholders' shares of auction market preferred stock, of New York Insured II, with a liquidation preference of $25,000 per share plus an amount equal to accumulated but unpaid dividends thereon (whether or not earned or declared) designated Series C ("New York Insured II Series C AMPS") and such stockholders' shares of auction market preferred stock, of New York Insured II, with a liquidation preference of $25,000 per share plus an amount equal to accumulated but unpaid dividends thereon (whether or not earned or declared) designated Series D ("New York Insured II Series D AMPS" and together with New York Insured II Series A AMPS, New York Insured II Series B AMPS and New York Insured II Series C AMPS, the "New York Insured II AMPS"); all upon and subject to the terms hereinafter set forth (collectively, the "Reorganization"). In the course of the Reorganization, New York Insured Common Stock, New York Insured Series C AMPS, New York Insured Series D AMPS and New York Insured Series E AMPS will be distributed to the stockholders of New York Insured II as follows: (a)(1) each holder of New York Insured II Common Stock will be entitled to receive a number of shares of New York Insured Common Stock equal to the aggregate net asset value of the New York Insured II-1 II Common Stock owned by such stockholder on the Exchange Date (as defined in Section 7(a) of the Agreement); (2) each holder of New York Insured II Series A AMPS will be entitled to receive a number of shares of New York Insured Series C AMPS equal to the aggregate liquidation preference (and aggregate value) of the New York Insured II Series A AMPS owned by such stockholder on the Exchange Date; (3) each holder of New York Insured II Series B AMPS will be entitled to receive a number of shares of New York Insured Series D AMPS equal to the aggregate liquidation preference (and aggregate value) of the New York Insured II Series B AMPS owned by such stockholder on the Exchange Date; and (4) each holder of New York Insured II Series C AMPS and New York Insured II Series D AMPS will be entitled to receive a number of shares of New York Insured Series E AMPS equal to the aggregate liquidation preference (and aggregate value) of the New York Insured II Series C AMPS or New York Insured II Series D AMPS owned by such stockholder on the Exchange Date. It is intended that the Reorganization described in this Plan shall be a reorganization within the meaning of Section 368(a)(1)(D) of the Internal Revenue Code of 1986, as amended (the "Code"), and any successor provision. Prior to the Exchange Date, New York Insured II shall declare a dividend or dividends which, together with all such previous dividends, shall have the effect of distributing to their respective stockholders all of their respective net investment company taxable income to and including the Exchange Date, if any (computed without regard to any deduction for dividends paid), and all of its net capital gain, if any, realized to and including the Exchange Date. In this regard and in connection with the Reorganization, the last dividend period for the New York Insured II AMPS prior to the Exchange Date may be shorter than the dividend period for such AMPS determined as set forth in the applicable Articles Supplementary. Articles Supplementary to New York Insured's Articles of Incorporation establishing the powers, rights and preferences of the New York Insured Series C AMPS, the New York Insured Series D AMPS and the New York Insured Series E AMPS will have been filed with the State Department of Assessments and Taxation of Maryland (the "Maryland Department") prior to the Exchange Date. As promptly as practicable after the consummation of the Reorganization, New York Insured II shall be dissolved in accordance with the laws of the State of Maryland and will terminate its registration under the Investment Company Act of 1940, as amended (the "1940 Act"). AGREEMENT In order to consummate the Reorganization and in consideration of the promises and the covenants and agreements hereinafter set forth, and intending to be legally bound, each of the Funds hereby agrees as follows: 1. Representations and Warranties of New York Insured. New York Insured represents and warrants to, and agrees with, New York Insured II that: (a) New York Insured is a corporation duly organized, validly existing and in good standing in conformity with the laws of the State of Maryland, and has the power to own all of its assets and to carry out this Agreement. New York Insured has all necessary Federal, state and local authorizations to carry on its business as it is now being conducted and to carry out this Agreement. (b) New York Insured is duly registered under the 1940 Act as a non- diversified, closed-end management investment company (File No. 811-6500), and such registration has not been revoked or rescinded and is in full force and effect. New York Insured has elected and qualified for the special tax treatment afforded regulated investment companies ("RICs") under Sections 851-855 of the Code at all times since its inception and intends to continue to so qualify until consummation of the Reorganization and thereafter. II-2 (c) New York Insured II has been furnished with New York Insured's Annual Report to Stockholders for the fiscal year ended October 31, 1998, and the audited financial statements appearing therein, having been audited by Deloitte & Touche LLP, independent public accountants, fairly present the financial position of New York Insured as of the respective dates indicated, in conformity with generally accepted accounting principles applied on a consistent basis. (d) New York Insured II has been furnished with New York Insured's Semi- Annual Report to Stockholders for the six months ended April 30, 1999, and the unaudited financial statements appearing therein fairly present the financial position of New York Insured 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 New York Insured and an unaudited schedule of investments of New York Insured, each as of the Valuation Time (as defined in Section 3(d) of this Agreement), will be furnished to New York Insured II, at or prior to the Exchange Date for the purpose of determining the number of shares of New York Insured Common Stock, New York Insured Series C AMPS, New York Insured Series D AMPS, and New York Insured Series E AMPS to be issued to New York Insured II pursuant to Section 4 of this Agreement; each will fairly present the financial position of New York Insured as of the Valuation Time in conformity with generally accepted accounting principles applied on a consistent basis. (f) New York Insured has full power and authority to enter into and perform its obligations under this Agreement. The execution, delivery and performance of this Agreement has been duly authorized by all necessary action of its Board of Directors, and this Agreement constitutes a valid and binding contract enforceable in accordance with its terms, subject to the effects of bankruptcy, insolvency, moratorium, fraudulent conveyance and similar laws relating to or affecting creditors' rights generally and court decisions with respect thereto. (g) There are no material legal, administrative or other proceedings pending or, to the knowledge of New York Insured, threatened against it which assert liability on the part of New York Insured or which materially affect its financial condition or its ability to consummate the Reorganization. New York Insured is not charged with or, to the best of its knowledge, threatened with any violation or investigation of any possible violation of any provisions of any Federal, state or local law or regulation or administrative ruling relating to any aspect of its business. (h) New York Insured is not obligated under any provision of its Articles of Incorporation, as amended, or its by-laws, as amended, or a party to any contract or other commitment or obligation, and is not subject to any order or decree which would be violated by its execution of or performance under this Agreement, except insofar as the Funds have mutually agreed to amend such contract or other commitment or obligation to cure any potential violation as a condition precedent to the Reorganization. (i) There are no material contracts outstanding to which New York Insured is a party that have not been disclosed in the N-14 Registration Statement (as defined in subsection (k) below) or will not otherwise be disclosed to New York Insured II prior to the Valuation Time. (j) New York Insured has no known liabilities of a material amount, contingent or otherwise, other than those shown on its statements of assets, liabilities and capital referred to above, those incurred in the ordinary course of its business as an investment company since August 31, 1999; and those incurred in connection with the Reorganization. As of the Valuation Time, New York Insured will advise New York Insured II in writing of all known liabilities, contingent or otherwise, whether or not incurred in the ordinary course of business, existing or accrued as of such time. (k) No consent, approval, authorization or order of any court or governmental authority is required for the consummation by New York Insured of the Reorganization, except such as may be required under the II-3 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 New York Insured on Form N-14 which includes the joint proxy statement of the Funds with respect to the transactions contemplated herein and the prospectus of New York Insured relating to the New York Insured Common Stock, New York Insured Series C AMPS, New York Insured Series D AMPS and New York Insured Series E AMPS to be issued pursuant to this Agreement (the "Joint Proxy Statement and Prospectus"), and any supplement or amendment thereto or to the documents therein (as amended or supplemented, the "N-14 Registration Statement"), on its effective date, at the time of the stockholders' meetings referred to in Section 6(a) of this Agreement and at the Exchange Date, insofar as it relates to New York Insured (i) complied or will comply in all material respects with the provisions of the 1933 Act, the 1934 Act and the 1940 Act and the rules and regulations thereunder and (ii) did not or will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading; and the Joint Proxy Statement and Prospectus included therein did not or will not contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that the representations and warranties in this subsection 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 New York Insured for use in the N-14 Registration Statement as provided in Section 6(e) of this Agreement. (m) New York Insured is authorized to issue 200,000,000 shares of capital stock, of which 1,700 shares have been designated as Series A AMPS, 1,700 shares have been designated as Series B AMPS and 199,996,600 have been designated as common stock, par value $.10 per share; each outstanding share of which is fully paid and nonassessable and has full voting rights. (n) The shares of New York Insured Common Stock, New York Insured Series C AMPS, New York Insured Series D AMPS and New York Insured Series E AMPS to be issued to New York Insured II pursuant to this Agreement will have been duly authorized and, when issued and delivered pursuant to this Agreement, will be legally and validly issued and will be fully paid and nonassessable and will have full voting rights, and no stockholder of New York Insured will have any preemptive right of subscription or purchase in respect thereof. (o) At or prior to the Exchange Date, the New York Insured Common Stock to be transferred to New York Insured II for distribution to the stockholders of New York Insured II 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 New York Insured Series C AMPS, New York Insured Series D AMPS and New York Insured Series E AMPS to be transferred to New York Insured II 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 New York Insured II presently are qualified, and there are a sufficient number of each series of New York Insured 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, New York Insured will have obtained any and all regulatory, Director and stockholder approvals necessary to issue the New York Insured Common Stock, New York Insured Series C AMPS, New York Insured Series D AMPS and New York Insured Series E AMPS to New York Insured II. II-4 2. Representations and Warranties of New York Insured II. New York Insured II represents and warrants to, and agrees with New York Insured that: (a) New York Insured II is a corporation duly organized, validly existing and in good standing in conformity with the laws of the State of Maryland, and has the power to own all of its assets and to carry out this Agreement. New York Insured II has all necessary Federal, state and local authorizations to carry on its business as it is now being conducted and to carry out this Agreement. (b) New York Insured II is duly registered under the 1940 Act as a non- diversified, closed-end management investment company (File No. 811-6661), and such registration has not been revoked or rescinded and is in full force and effect. New York Insured II has elected and qualified for the special tax treatment afforded RICs under Sections 851-855 of the Code at all times since its inception and intends to continue to so qualify through its taxable year ending upon liquidation. (c) As used in this Agreement, the term "New York Insured II Investments" shall mean (i) the investments of New York Insured II shown on the schedule of its investments as of the Valuation Time furnished to New York Insured; and (ii) all other assets owned by New York Insured II or liabilities incurred as of the Valuation Time. (d) New York Insured II has full power and authority to enter into and perform its obligations under this Agreement. The execution, delivery and performance of this Agreement has been duly authorized by all necessary action of its Board of Directors and this Agreement constitutes a valid and binding contract enforceable in accordance with its terms, subject to the effects of bankruptcy, insolvency, moratorium, fraudulent conveyance and similar laws relating to or affecting creditors' rights generally and court decisions with respect thereto. (e) New York Insured has been furnished with New York Insured II's Annual Report to Stockholders for the fiscal year ended October 31, 1998, and the audited financial statements appearing therein, having been examined by Ernst & Young LLP, independent public accountants, fairly present the financial position of New York Insured II as of the respective dates indicated, in conformity with generally accepted accounting principles applied on a consistent basis. (f) New York Insured has been furnished with New York Insured II's Semi- Annual Report to Stockholders for the six months ended April 30, 1999, and the unaudited financial statements appearing therein fairly present the financial position of New York Insured II as of the respective dates indicated, in conformity with generally accepted accounting principles applied on a consistent basis. (g) An unaudited statement of assets, liabilities and capital of New York Insured II and an unaudited schedule of investments of New York Insured II, each as of the Valuation Time, will be furnished to New York Insured at or prior to the Exchange Date for the purpose of determining the number of shares of New York Insured Common Stock and New York Insured Series C AMPS, New York Insured Series D AMPS and New York Insured Series E AMPS to be issued to New York Insured II pursuant to Section 4 of this Agreement; each will fairly present the financial position of New York Insured II as of the Valuation Time in conformity with generally accepted accounting principles applied on a consistent basis. (h) There are no material legal, administrative or other proceedings pending or, to the knowledge of New York Insured II, threatened against it which assert liability on the part of New York Insured II or which materially affect its financial condition or its ability to consummate the Reorganization. New York Insured II, is not charged with or, to the best of its knowledge, threatened with any violation or investigation of any possible violation of any provisions of any Federal, state or local law or regulation or administrative ruling relating to any aspect of its business. II-5 (i) There are no material contracts outstanding to which New York Insured II is a party that have not been disclosed in the N-14 Registration Statement or will not otherwise be disclosed to New York Insured prior to the Valuation Time. (j) New York Insured II is not obligated under any provision of its Articles of Incorporation, as amended, or its by-laws, as amended, or a party to any contract or other commitment or obligation, and is not subject to any order or decree which would be violated by its execution of or performance under this Agreement, except insofar as the Funds have mutually agreed to amend such contract or other commitment or obligation to cure any potential violation as a condition precedent to the Reorganization. (k) New York Insured II has no known liabilities of a material amount, contingent or otherwise, other than those shown on its statements of assets, liabilities and capital referred to above, those incurred in the ordinary course of its business as an investment company since April 30, 1999 and those incurred in connection with the Reorganization. As of the Valuation Time, New York Insured II will advise New York Insured in writing of all known liabilities, contingent or otherwise, whether or not incurred in the ordinary course of business, existing or accrued as of such time. (l) New York Insured II 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 New York Insured II have been adequately provided for on its books, and no tax deficiency or liability of New York Insured II 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, New York Insured II will have full right, power and authority to sell, assign, transfer and deliver the New York Insured II Investments. At the Exchange Date, subject only to the obligation to deliver the New York Insured II Investments as contemplated by this Agreement, New York Insured II will have good and marketable title to all of the New York Insured II Investments, and New York Insured will acquire all of the New York Insured II 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 New York Insured II 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 New York Insured II of the Reorganization, except such as may be required under the 1933 Act, the 1934 Act, the 1940 Act or state securities laws. (o) The N-14 Registration Statement, on its effective date, at the time of the stockholders' meetings referred to in Section 6(a) of this Agreement and on the Exchange Date, insofar as it relates to New York Insured II (i) complied or will comply in all material respects with the provisions of the 1933 Act, the 1934 Act and the 1940 Act and the rules and regulations thereunder, and (ii) did not or will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading; and the Joint Proxy Statement and Prospectus included therein did not or will not contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that the representations and warranties in this subsection 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 New York Insured II for use in the N-14 Registration Statement as provided in Section 6(e) of this Agreement. II-6 (p) New York Insured II is authorized to issue 200,000,000 shares of capital stock, of which 2,800 shares have been designated as Series A AMPS, 1,960 shares have been designated as Series B AMPS, 1,000 have been designated as Series C AMPS, 1,200 have been designated as Series D AMPS and 199,993,040 shares have been designated as common stock, par value $.10 per share; each outstanding share of which is fully paid and nonassessable and has full voting rights. (q) All of the issued and outstanding shares of New York Insured II Common Stock and New York Insured II AMPS were offered for sale and sold in conformity with all applicable Federal and state securities laws. (r) The books and records of New York Insured II made available to New York Insured and/or its counsel are substantially true and correct and contain no material misstatements or omissions with respect to the operations of New York Insured II. (s) New York Insured II will not sell or otherwise dispose of any of the shares of New York Insured Common Stock or New York Insured Series C AMPS, New York Insured Series D AMPS and New York Insured Series E AMPS to be received in the Reorganization, except in distribution to the stockholders of New York Insured II, as provided in Section 3 of this Agreement. 3. The Reorganization. (a) Subject to receiving the requisite approvals of the stockholders of each of the Funds, and to the other terms and conditions contained herein, (i) New York Insured II agrees to convey, transfer and deliver to New York Insured and New York Insured agrees to acquire from New York Insured II on the Exchange Date, all of the New York Insured II Investments (including interest accrued as of the Valuation Time on debt instruments) and assume substantially all of the liabilities of New York Insured II in exchange solely for that number of shares of New York Insured Common Stock and New York Insured Series C AMPS, New York Insured Series D AMPS and New York Insured Series E AMPS provided in Section 4 of this Agreement. Pursuant to this Agreement, as soon as practicable after the Exchange Date (i) New York Insured II will distribute all shares of New York Insured Common Stock and New York Insured Series C AMPS, New York Insured Series D AMPS and New York Series E AMPS received by it to its stockholders in exchange for their shares of New York Insured II Common Stock and New York Insured II AMPS. Such distributions shall be accomplished by the opening of stockholder accounts on the stock ledger records of New York Insured in the amounts due the stockholders of New York Insured II based on their respective holdings in New York Insured II as of the Valuation Time. (b) Prior to the Exchange Date, New York Insured II shall declare a dividend or dividends which, together with all such previous dividends, shall have the effect of distributing to their respective stockholders all of their respective net investment company taxable income to and including the Exchange Date, if any (computed without regard to any deduction for dividends paid), and all of its net capital gain, if any, realized to and including the Exchange Date. In this regard and in connection with the Reorganization, the last dividend period for the New York Insured II AMPS prior to the Exchange Date may be shorter than the dividend period for such AMPS determined as set forth in the applicable Articles Supplementary. (c) New York Insured II will pay or cause to be paid to New York Insured any interest New York Insured II receives on or after the Exchange Date with respect to New York Insured II Investments transferred to New York Insured 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"). (e) Recourse for liabilities assumed from New York Insured II by New York Insured in the Reorganization will be limited to the net assets of New York Insured II acquired by New York Insured. The known liabilities of II-7 New York Insured II, as of the Valuation Time, shall be confirmed in writing to New York Insured pursuant to Section 2(j) of this Agreement. (f) The Funds will jointly file Articles of Transfer with the Maryland Department and any other such instrument as may be required by the State of Maryland to effect the transfer of the New York Insured II Investments. (g) New York Insured II will be dissolved following the Exchange Date by filing Articles of Dissolution with the Maryland Department. (h) New York Insured will file with the Maryland Department Articles Supplementary to its Articles of Incorporation establishing the powers, rights and preferences of the New York Insured Series C AMPS, the New York Insured Series D AMPS and the New York Insured Series E AMPS prior to the closing of the Reorganization. (i) As promptly as practicable after the liquidation of New York Insured II pursuant to the Reorganization, New York Insured II shall terminate its respective registration under the 1940 Act. 4. Issuance and Valuation of New York Insured Common Stock, New York Insured Series C AMPS, New York Insured Series D AMPS and New York Insured Series E AMPS in the Reorganization. Full shares of New York Insured Common Stock and New York Insured Series C AMPS, New York Insured Series D AMPS and New York Insured Series E 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 New York Insured II acquired in the Reorganization determined as hereinafter provided, reduced by the amount of liabilities of New York Insured II assumed by New York Insured in the Reorganization, shall be issued to New York Insured II by New York Insured in exchange for such assets of New York Insured II, plus cash in lieu of fractional shares. New York Insured will issue to New York Insured II (a) a number of shares of New York Insured II Common Stock, the aggregate net asset value of which will equal the aggregate net asset value of the shares of New York Insured II Common Stock, determined as set forth below, (b) a number of shares of New York Insured Series C AMPS, the aggregate liquidation preference and value of which will equal the aggregate liquidation preference and value of the New York Insured II Series A AMPS, determined as set forth below; (c) a number of shares of New York Insured Series D AMPS, the aggregate liquidation preference and value of which will equal the aggregate liquidation preference and value of the New York Insured II Series B AMPS, determined as set forth below and (d) a number of shares of New York Insured Series E AMPS, the aggregate liquidation preference and value of which will equal the aggregate liquidation preference and value of the New York Insured II Series C AMPS and New York Insured II Series D 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 New York Insured, dated February 21, 1992, relating to the New York Insured Common Stock and (ii) the final prospectus of New York Insured, dated April 6, 1992, relating to the New York Insured 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 New York Insured II Investments to be transferred to New York Insured shall be determined by New York Insured pursuant to the procedures utilized by New York Insured in valuing and determining its own liabilities for purposes of the Reorganization. Such valuation and determination shall be made by New York Insured in cooperation with New York Insured II and shall be confirmed in writing by New York Insured to New York Insured II. The net asset value per share of the New York Insured Common Stock and the liquidation preference and value per share of the New York Insured Series C AMPS, the New York Insured Series D AMPS and the New York Insured Series E AMPS shall be determined in accordance with such procedures and New York Insured shall certify the computations involved. For purposes of determining the net asset value of a share of Common Stock of each Fund, the value of the securities held by the Fund plus any cash or other assets II-8 (including interest accrued but not yet received) minus all liabilities (including accrued expenses) and the aggregate liquidation value of the outstanding shares of AMPS of that Fund is divided by the total number of shares of Common Stock of that Fund outstanding at such time. New York Insured shall issue to New York Insured II separate certificates or share deposit receipts for the New York Insured Common Stock and the New York Insured Series C AMPS, the New York Insured Series D AMPS and the New York Insured Series E AMPS, each registered in the name of New York Insured II. New York Insured II then shall distribute the New York Insured Common Stock and the New York Insured Series C AMPS, the New York Insured Series D AMPS and the New York Insured Series E AMPS to the holders of New York Insured II Common Stock and New York Insured II AMPS by redelivering the certificates or share deposit receipts evidencing ownership of (i) the New York Insured Common Stock to The Bank of New York, as the transfer agent and registrar for the New York Insured Common Stock for distribution to the holders of New York Insured II Common Stock on the basis of such holder's proportionate interest in the aggregate net asset value of the Common Stock of New York Insured II and (ii) the New York Insured Series C AMPS, New York Insured Series D AMPS and the New York Insured Series E AMPS to The Bank of New York, as the transfer agent and registrar for the New York Insured Series C AMPS, the New York Insured Series D AMPS and the New York Insured Series E AMPS for distribution to the holders of New York Insured II AMPS on the basis of such holder's proportionate interest in the aggregate liquidation preference and value of the AMPS of New York Insured II. With respect to any New York Insured II stockholder holding certificates evidencing ownership of either New York Insured II Common Stock or New York Insured II AMPS as of the Exchange Date, and subject to New York Insured being informed thereof in writing by New York Insured II, New York Insured will not permit such stockholder to receive new certificates evidencing ownership of the New York Insured Common Stock or the New York Insured Series C AMPS, New York Insured Series D AMPS and New York Insured Series E AMPS, exchange New York Insured Common Stock or New York Insured Series C AMPS, New York Insured Series D AMPS or New York Insured Series E AMPS credited to such stockholder'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 New York Insured Common Stock or New York Insured Series C AMPS, New York Insured Series D AMPS or New York Insured Series E AMPS, in any case, until notified by New York Insured II or its agent that such stockholder has surrendered his or her outstanding certificates evidencing ownership of New York Insured II Common Stock or New York Insured II AMPS or, in the event of lost certificates, posted adequate bond. New York Insured II, at its own expense, will request its stockholders to surrender their outstanding certificates evidencing ownership of New York Insured II Common Stock or New York Insured II AMPS, as the case may be, or post adequate bond therefor. Dividends payable to holders of record of shares of New York Insured Common Stock, New York Insured Series C AMPS, New York Insured Series D AMPS, or New York Insured Series E AMPS, as the case may be, as of any date after the Exchange Date and prior to the exchange of certificates by any stockholder of New York Insured II shall be payable to such stockholder without interest; however, such dividends shall not be paid unless and until such stockholder surrenders the stock certificates representing shares of common stock or AMPS of New York Insured II, as the case may be, for exchange. No fractional shares of New York Insured Common Stock will be issued to holders of New York Insured II Common Stock. In lieu thereof, New York Insured's transfer agent, The Bank of New York, will aggregate all fractional shares of New York Insured Common Stock and sell the resulting full shares on the New York Stock Exchange at the current market price for shares of New York Insured Common Stock for the account of all holders of fractional interests, and each such holder will receive such holder's pro rata share of the proceeds of such sale upon surrender of such holder's certificates representing New York Insured II Common Stock. 5. 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) New York Insured 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 II-9 costs related to the preparation and distribution of the N-14 Registration Statement. Such fees and expenses shall include the cost of preparing and filing a ruling request with the Internal Revenue Service, legal and accounting fees, printing costs, filing fees, stock exchange fees, rating agency fees, portfolio transfer taxes (if any) and any similar expenses incurred in connection with the Reorganization. (b) If for any reason the Reorganization is not consummated, no party shall be liable to any other party for any damages resulting therefrom, including, without limitation, consequential damages. 6. Covenants of the Funds. (a) Each Fund agrees to call an annual meeting of its stockholders as soon as is practicable after the effective date of the N-14 Registration Statement for the purpose of considering the Reorganization as described in this Agreement. (b) Each Fund covenants to operate its business as presently conducted between the date hereof and the Exchange Date. (c) New York Insured II agrees that following the consummation of the Reorganization, it will dissolve in accordance with the laws of the State of Maryland and any other applicable law, it will not make any distributions of any shares of New York Insured Common Stock, New York Insured Series C AMPS, New York Insured Series D AMPS or New York Insured Series E AMPS, as applicable other than to its respective stockholders and without first paying or adequately providing for the payment of all of its liabilities not assumed by New York Insured, if any, and on and after the Exchange Date it shall not conduct any business except in connection with its dissolution. (d) New York Insured II 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 New York Insured II has ceased to be a registered investment company. (e) New York Insured 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) New York Insured has no plan or intention to sell or otherwise dispose of New York Insured II 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. New York Insured 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 New York Insured II for its 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, New York Insured II 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. II-10 Notwithstanding the aforementioned provisions of this subsection, any expenses incurred by New York Insured II (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 such Fund to the extent such expenses have been accrued by such Fund in the ordinary course without regard to the Reorganization; any excess expenses shall be borne by Fund Asset Management, L.P. ("FAM") at the time such tax returns and Forms 1099 are prepared. (h) The Funds each agree to mail to its respective stockholders of record entitled to vote at the annual meeting of stockholders at which action is to be considered regarding this Agreement, in sufficient time to comply with requirements as to notice thereof, a combined proxy statement and prospectus which complies in all material respects with the applicable provisions of Section 14(a) of the 1934 Act and Section 20(a) of the 1940 Act, and the rules and regulations, respectively, thereunder. (i) Following the consummation of the Reorganization, New York Insured will stay in existence and continue its business as a non-diversified, closed-end management investment company registered under the 1940 Act. 7. Exchange Date. (a) Delivery of the assets of New York Insured II to be transferred, together with any other New York Insured II Investments, and the shares of New York Insured Common Stock, New York Insured Series C AMPS, New York Insured Series D AMPS and New York Insured Series E 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 New York Insured II Investments, for any reason, are not transferable on the Exchange Date, New York Insured II shall cause New York Insured II Investments to be transferred to New York Insured's account with The Bank of New York at the earliest practicable date thereafter. (b) New York Insured II will deliver to New York Insured on the Exchange Date confirmations or other adequate evidence as to the tax basis of New York Insured II Investments delivered to New York Insured hereunder, certified by Ernst & Young LLP. (c) As soon as practicable after the close of business on the Exchange Date, New York Insured II shall deliver to New York Insured a list of the names and addresses of all of the stockholders of record of New York Insured II on the Exchange Date and the number of shares of common stock and AMPS of New York Insured II owned by each such stockholder, certified to the best of their knowledge and belief by the applicable transfer agent for New York Insured II or by its President. 8. Conditions of New York Insured II. The obligations of New York Insured II hereunder shall be subject to the following conditions: (a) That this Agreement shall have been adopted, and the Reorganization shall have been approved, by the affirmative vote of two-thirds of the members of the Board of Directors of New York Insured II and by the affirmative vote of (i) the holders of (a) a majority of the New York Insured Common Stock and New York Insured AMPS, voting together as a single class, and (b) a majority of the New York Insured AMPS, voting separately as a class, in each case issued and outstanding and entitled to vote thereon; (ii) the holders of (a) a majority of the New York Insured II Common Stock and New York Insured II AMPS, voting together as a single class, and (b) a majority of the New York Insured II AMPS, voting separately as a class, in each case issued and outstanding and entitled to vote thereon and further that each Fund shall have delivered to each other Fund a copy of the resolution approving this Agreement adopted by such Fund's Board of Directors, and a certificate setting forth the vote of such Fund's stockholders obtained at its Annual Meeting, each certified by the Secretary of the appropriate Fund. II-11 (b) That New York Insured II shall have received from New York Insured a statement of assets, liabilities and capital, with values determined as provided in Section 4 of this Agreement, together with a schedule of New York Insured'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 New York Insured'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 New York Insured since the date of New York Insured's most recent 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 New York Insured shall have furnished to New York Insured II a certificate signed by New York Insured's President (or any Vice President) and its Treasurer, dated as of the Exchange Date, certifying that, as of the Valuation Time and as of the Exchange Date all representations and warranties of New York Insured 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 New York Insured 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 New York Insured II shall have received an opinion or opinions of Brown & Wood LLP, as counsel to the Funds, in form and substance satisfactory to New York Insured II and dated the Exchange Date, to the effect that (i) each of the Funds is a corporation duly organized, validly existing and in good standing in conformity with the laws of the State of Maryland; (ii) the shares of New York Insured Common Stock, New York Insured Series C AMPS, New York Insured Series D AMPS and New York Insured Series E 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 New York Insured, and no stockholder of New York Insured has any preemptive right to subscription or purchase in respect thereof (pursuant to the Articles of Incorporation or the by-laws of New York Insured or the state law of Maryland, or to the best of such counsel's knowledge, otherwise); (iii) this Agreement has been duly authorized, executed and delivered by each of the Funds, and represents a valid and binding contract, enforceable in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization or other similar laws pertaining to the enforcement of creditors' rights generally and court decisions with respect thereto; provided, such counsel shall express no opinion with respect to the application of equitable principles in any proceeding, whether at law or in equity; (iv) the execution and delivery of this Agreement does not, and the consummation of the Reorganization will not, violate any material provisions of Maryland law or the Articles of Incorporation, as amended, the by-laws, as amended, or any agreement (known to such counsel) to which either Fund is a party or by which either Fund is bound, except insofar as the parties have agreed to amend such provision as a condition precedent to the Reorganization; (v) New York Insured II 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, New York Insured II will have duly transferred such assets and liabilities in accordance with this Agreement; (vi) to the best of such counsel's knowledge, no consent, approval, authorization or order of any United States federal court, Maryland state court or governmental authority is required for the consummation by the Funds of the Reorganization, except such as have been obtained under the 1933 Act, the 1934 Act and the 1940 Act and the published rules and regulations of the Commission thereunder and under Maryland law and such as may be required under state securities laws; (vii) the N-14 Registration Statement has become effective under the 1933 Act, no stop order suspending the effectiveness of the N-14 Registration Statement has been issued and no proceedings for that purpose have been instituted or are pending or contemplated under the 1933 Act, and the N-14 Registration Statement, and each amendment or supplement thereto, as of their respective effective dates, appear on their face to be appropriately responsive in all material respects to the requirements of the 1933 Act, the 1934 Act and the 1940 Act and the published rules and regulations of the II-12 Commission thereunder; (viii) the descriptions in the N-14 Registration Statement of statutes, legal and governmental proceedings and contracts and other documents are accurate and fairly present the information required to be shown; (ix) the information in the Joint Proxy Statement and Prospectus under "Comparison of the Funds--Tax Rules Applicable to the Funds and their Stockholders" and "Agreement and Plan of Reorganization--Tax Consequences of the Reorganization," to the extent that it constitutes matters of law, summaries of legal matters or legal conclusions, has been reviewed by such counsel and is correct in all material respects as of the date of the Joint Proxy Statement and Prospectus; (x) such counsel does not know of any statutes, legal or governmental proceedings or contracts or other documents related to the Reorganization of a character required to be described in the N-14 Registration Statement which are not described therein or, if required to be filed, filed as required; (xi) no Fund, to the knowledge of such counsel, is required to qualify to do business as a foreign corporation in any jurisdiction except as may be required by state securities laws, and except where each has so qualified or the failure so to qualify would not have a material adverse effect on such Fund or its respective stockholders; (xii) such counsel does not have actual knowledge of any material suit, action or legal or administrative proceeding pending or threatened against any of the Funds, the unfavorable outcome of which would materially and adversely affect such Fund; (xiii) all corporate actions required to be taken by the Funds to authorize this Agreement and to effect the Reorganization have been duly authorized by all necessary corporate actions on the part of such Fund; and (xiv) such opinion is solely for the benefit of the Funds and their Directors and officers. Such opinion also shall state that (x) while such counsel cannot make any representation as to the accuracy or completeness of statements of fact in the N-14 Registration Statement or any amendment or supplement thereto, nothing has come to their attention that would lead them to believe that, on the respective effective dates of the N-14 Registration Statement and any amendment or supplement thereto, (1) the N-14 Registration Statement or any amendment or supplement thereto contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements therein not misleading; and (2) the prospectus included in the N-14 Registration Statement contained any untrue statement of a material fact or omitted to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; and (y) such counsel does not express any opinion or belief as to the financial statements or other financial or statistical data relating to any Fund contained or incorporated by reference in the N-14 Registration Statement. In giving the opinion set forth above, Brown & Wood LLP may state that it is relying on certificates of officers of a Fund with regard to matters of fact and certain certificates and written statements of governmental officials with respect to the good standing of a Fund. (f) That New York Insured II 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 New York Insured II of substantially all of its assets to New York Insured in exchange solely for shares of New York Insured Common Stock and New York Insured Series C AMPS, New York Insured Series D AMPS or New York Insured Series E AMPS as provided in this Agreement will constitute a reorganization within the meaning of Section 368(a)(1)(D) 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 New York Insured II as a result of the asset transfer solely in exchange for shares of New York Insured Common Stock and New York Insured Series C AMPS, New York Insured Series D AMPS or New York Insured Series E AMPS, as the case may be, or on the distribution of the New York Insured stock to stockholders of New York Insured II under Section 361(c)(1); (iii) under Section 1032 of the Code, no gain or loss will be recognized to New York Insured on the receipt of assets of New York Insured II in exchange for its shares; (iv) in accordance with Section 354(a)(1) of the Code, no gain or loss will be recognized to the stockholders of New York Insured II on the receipt of shares of New York Insured in exchange for their shares of New York Insured II (except to the extent that common stockholders receive cash representing an interest in fractional shares of New York Insured Common Stock in the Reorganization); (v) in accordance with Section 362(b) of the Code, the tax basis of New York Insured II's assets in the hands of New York Insured will be the same as the tax basis of such assets in the hands of New York Insured II immediately prior to the consummation of the II-13 Reorganization; (vi) in accordance with Section 358 of the Code, immediately after the Reorganization, the tax basis of the shares of New York Insured received by the stockholders of New York Insured II in the Reorganization will be equal, in the aggregate, to the tax basis of the shares of New York Insured II surrendered in exchange; (vii) in accordance with Section 1223 of the Code, a stockholder's holding period for the shares of New York Insured will be determined by including the period for which such stockholder held New York Insured II shares exchanged therefor, provided that such shares were held as a capital asset; (viii) in accordance with Section 1223 of the Code, New York Insured's holding period with respect to New York Insured II's assets transferred will include the period for which such assets were held by New York Insured II; (ix) the payment of cash to common stockholders of New York Insured II in lieu of fractional shares of New York Insured Common Stock will be treated as though the fractional shares were distributed as part of the Reorganization and then redeemed, with the result that such stockholders will have short- or long-term capital gain or loss to the extent that the cash distribution differs from the stockholder's basis allocable to the New York Insured fractional shares; and (x) the taxable year of New York Insured II will end on the effective date of the Reorganization and pursuant to Section 381(a) of the Code and regulations thereunder, New York Insured will succeed to and take into account certain tax attributes of New York Insured II, such as earnings and profits, capital loss carryovers and method of accounting. (g) That all proceedings taken by each of the Funds and its counsel in connection with the Reorganization and all documents incidental thereto shall be satisfactory in form and substance to the other. (h) That the N-14 Registration Statement shall have become effective under the 1933 Act, and no stop order suspending such effectiveness shall have been instituted or, to the knowledge of New York Insured, be contemplated by the Commission. (i) That New York Insured II 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 New York Insured II, to the effect that (i) they are independent public accountants with respect to New York Insured 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 New York Insured included or incorporated by reference in the N-14 Registration Statement and reported on by them comply as to form in all material respects with the applicable accounting requirements of the 1933 Act and the published rules and regulations thereunder; (iii) on the basis of limited procedures agreed upon by 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 New York Insured included in the N-14 Registration Statement, and inquiries of certain officials of New York Insured responsible for financial and accounting matters, nothing came to their attention that caused them to believe that (a) such unaudited financial statements and related unaudited supplementary information do not comply as to form in all material respects with the applicable accounting requirements of the 1933 Act and the published rules and regulations thereunder, (b) such unaudited financial statements are not fairly presented in conformity with generally accepted accounting principles, applied on a basis substantially consistent with that of the audited financial statements, or (c) such unaudited supplementary information is not fairly stated in all material respects in relation to the unaudited financial statements taken as a whole; and (iv) on the basis of limited procedures agreed upon by the Funds and described in such letter (but not an examination in accordance with generally accepted auditing standards), the information relating to New York Insured 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 New York Insured or from schedules prepared by officials of New York Insured having responsibility for financial and reporting matters and such information is in agreement with such records, schedules or computations made therefrom. (j) That 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 II-14 shall be instituted or threatened which would materially affect the financial condition of New York Insured or would prohibit the Reorganization. (k) That New York Insured II shall have received from the Commission such orders or interpretations as Brown & Wood LLP, as its 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. 9. New York Insured Conditions. The obligations of New York Insured hereunder shall be subject to the following conditions: (a) That this Agreement shall have been adopted, and the Reorganization shall have been approved, by the Board of Directors and the stockholders of each of the Funds as set forth in Section 8(a); and that New York Insured II shall have delivered to New York Insured a copy of the resolution approving this Agreement adopted by New York Insured II's Board of Directors, and a certificate setting forth the vote of the stockholders of New York Insured II obtained, each certified by its Secretary. (b) That New York Insured II shall have furnished to New York Insured a statement of its assets, liabilities and capital, with values determined as provided in Section 4 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 New York Insured II since the date of such Fund's most recent Semi-Annual Report, as applicable, other than changes in New York Insured II Investments since that date or changes in the market value of New York Insured II Investments. (c) That New York Insured II shall have furnished to New York Insured 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 New York Insured II 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 New York Insured II 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 New York Insured II shall have delivered to New York Insured a letter from Ernst & Young LLP, dated the Exchange Date, stating that such firm has performed a limited review of the Federal, state and local income tax returns of New York Insured II for the period ended October 31, 1999 (which returns originally were prepared and filed by New York Insured II), 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 New York Insured II for the period covered thereby; and that for the period from November 1, 1999, to and including the Exchange Date and for any taxable year of New York Insured II ending upon the liquidation of New York Insured II, 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, to and including the Exchange Date and for any taxable year of New York Insured II, 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. II-15 (e) That there shall not be any material litigation pending with respect to the matters contemplated by this Agreement. (f) That New York Insured shall have received an opinion of Brown & Wood LLP, as counsel to the Funds, in form and substance satisfactory to New York Insured and dated the Exchange Date, with respect to the matters specified in Section 8(e) of this Agreement and such other matters as New York Insured reasonably may deem necessary or desirable. (g) That New York Insured 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 8(f) of this Agreement. (h) That New York Insured shall have received from Ernst & Young LLP a letter dated within three days prior to the effective date of the N-14 Registration Statement and a similar letter dated within five days prior to the Exchange Date, in form and substance satisfactory to New York Insured, to the effect that (i) they are independent public accountants with respect to New York Insured II within the meaning of the 1933 Act and the applicable published rules and regulations thereunder; (ii) in their opinion, the financial statements and supplementary information of New York Insured II included or incorporated by reference in the N-14 Registration Statement and reported on by them comply as to form in all material respects with the applicable accounting requirements of the 1933 Act and the published rules and regulations thereunder; (iii) on the basis of limited procedures agreed upon by 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 New York Insured II included in the N-14 Registration Statement, and inquiries of certain officials of New York Insured II responsible for financial and accounting matters, nothing came to their attention that caused them to believe that (a) such unaudited financial statements and related unaudited supplementary information do not comply as to form in all material respects with the applicable accounting requirements of 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 New York Insured II 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 New York Insured II or from schedules prepared by officials of New York Insured II having responsibility for financial and reporting matters and such information is in agreement with such records, schedules or computations made therefrom. (i) That New York Insured II Investments to be transferred to New York Insured shall not include any assets or liabilities which New York Insured, by reason of charter limitations or otherwise, may not properly acquire or assume. (j) That the N-14 Registration Statement shall have become effective under the 1933 Act and no stop order suspending such effectiveness shall have been instituted or, to the knowledge of New York Insured II, be contemplated by the Commission. (k) That the Commission shall not have issued an unfavorable advisory report under Section 25(b) of the 1940 Act, nor instituted or threatened to institute any proceeding seeking to enjoin consummation of the Reorganization under Section 25(c) of the 1940 Act, and no other legal, administrative or other proceeding shall be instituted or threatened which would materially affect the financial condition of New York Insured II or would prohibit the Reorganization. II-16 (l) That New York Insured shall have received from the Commission such orders or interpretations as Brown & Wood LLP, as counsel to New York Insured, deems reasonably necessary or desirable under the 1933 Act and the 1940 Act in connection with the Reorganization, provided, that such counsel shall have requested such orders as promptly as practicable, and all such orders shall be in full force and effect. (m) That all proceedings taken by New York Insured II and its counsel in connection with the Reorganization and all documents incidental thereto shall be satisfactory in form and substance to New York Insured. (n) That prior to the Exchange Date, New York Insured II shall have declared a dividend or dividends which, together with all such previous dividends, shall have the effect of distributing to its stockholders all of its net investment company taxable income for the period to and including the Exchange Date, if any (computed without regard to any deduction for dividends paid), and all of its net capital gain, if any, realized to and including the Exchange Date. In this regard, the last dividend period for the New York Insured II AMPS may be shorter than the dividend period for such AMPS determined as set forth in the applicable Articles Supplementary. 10. Indemnification. (a) New York Insured II hereby agrees to indemnify and hold New York Insured harmless from all loss, liability and expenses (including reasonable counsel fees and expenses in connection with the contest of any claim) which New York Insured may incur or sustain by reason of the fact that (i) New York Insured shall be required to pay any corporate obligation of New York Insured II, whether consisting of tax deficiencies or otherwise, based upon a claim or claims against New York Insured II which were omitted or not fairly reflected in the financial statements to be delivered to New York Insured in connection with the Reorganization; (ii) any representations or warranties made by New York Insured II in this Agreement should prove to be false or erroneous in any material respect; (iii) any covenant of New York Insured II has been breached in any material respect; or (iv) any claim is made alleging that (a) the N-14 Registration Statement included any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements therein attributable to such Fund not misleading or (b) the Joint Proxy Statement and Prospectus delivered to the stockholders of the Funds and forming a part of the N-14 Registration Statement included any untrue statement of a material fact or omitted to state any material fact necessary to make the statements therein attributable to such Fund, in the light of the circumstances under which they were made, not misleading, except with respect to (iv)(a) and (b) herein insofar as such claim is based on written information furnished to New York Insured II by New York Insured. (b) New York Insured hereby agrees to indemnify and hold New York Insured II harmless from all loss, liability and expenses (including reasonable counsel fees and expenses in connection with the contest of any claim) which New York Insured II may incur or sustain by reason of the fact that (i) any representations or warranties made by New York Insured in this Agreement should prove false or erroneous in any material respect, (ii) any covenant of New York Insured has been breached in any material respect, or (iii) any claim is made alleging that (a) the N-14 Registration Statement included any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements therein, not misleading or (b) the Joint Proxy Statement and Prospectus delivered to stockholders of the Funds and forming a part of the N-14 Registration Statement included any untrue statement of a material fact or omitted to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, except with respect to (ii)(a) and (b) herein insofar as such claim is based on written information furnished to New York Insured by New York Insured II. (c) In the event that any claim is made against New York Insured in respect of which indemnity may be sought by New York Insured from New York Insured II under Section 10(a) of this Agreement, or in the event that any claim is made against New York Insured II in respect of which indemnity may be sought by New York Insured II from New York Insured under Section 10(b) of this Agreement, then the party seeking indemnification II-17 (the "Indemnified Party"), with reasonable promptness and before payment of such claim, shall give written notice of such claim to the other party (the "Indemnifying Party"). If no objection as to the validity of the claim is made in writing to the Indemnified Party by the Indemnifying Party within thirty (30) days after the giving of notice hereunder, then the Indemnified Party may pay such claim and shall be entitled to reimbursement therefor, pursuant to this Agreement. If, prior to the termination of such thirty-day period, objection in writing as to the validity of such claim is made to the Indemnified Party, the Indemnified Party shall withhold payment thereof until the validity of such claim is established (i) to the satisfaction of the Indemnifying Party, or (ii) by a final determination of a court of competent jurisdiction, whereupon the Indemnified Party may pay such claim and shall be entitled to reimbursement thereof, pursuant to this Agreement, or (iii) with respect to any tax claims, within seven (7) calendar days following the earlier of (A) an agreement between New York Insured and New York Insured II 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 10, 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. 11. Termination, Postponement and Waivers. (a) Notwithstanding anything contained in this Agreement to the contrary, this Agreement may be terminated and the Reorganization abandoned at any time (whether before or after adoption thereof by the stockholders of the Funds) prior to the Exchange Date, or the Exchange Date may be postponed, (i) by mutual consent of the Boards of Directors of the Funds, (ii) by the Board of Directors of New York Insured II if any condition of New York Insured II's obligations set forth in Section 8 of this Agreement has not been fulfilled or waived by such Board; or (iii) by the Board of Directors of New York Insured if any condition of New York Insured's obligations set forth in Section 9 of this Agreement has not been fulfilled or waived by such Board. (b) If the transactions contemplated by this Agreement have not been consummated by August 31, 2000, this Agreement automatically shall terminate on that date, unless a later date is mutually agreed to by the Boards of Directors of the Funds. (c) In the event of termination of this Agreement pursuant to the provisions hereof, the same shall become void and have no further effect, and there shall not be any liability on the part of any Fund or persons who are their directors, trustees, officers, agents or stockholders in respect of this Agreement. (d) At any time prior to the Exchange Date, any of the terms or conditions of this Agreement may be waived by the Board of Directors of either Fund (whichever is entitled to the benefit thereof), if, in the judgment of such Board after consultation with its counsel, such action or waiver will not have a material adverse effect on the benefits intended under this Agreement to the stockholders of their respective fund, on behalf of which such action is taken. In addition, the Boards of Directors of the Funds have delegated to FAM the ability to make non-material changes to the transaction if it deems it to be in the best interests of the Funds to do so. (e) The respective representations and warranties contained in Sections 1 and 2 of this Agreement shall expire with, and be terminated by, the consummation of the Reorganization, and neither Fund nor any of its officers, directors, trustees, agents or stockholders shall have any liability with respect to such representations or warranties after the Exchange Date. This provision shall not protect any officer, director, trustee, agent or stockholder of either Fund against any liability to the entity for which that officer, director, trustee, agent or stockholder so acts or to its stockholders, to which that officer, director, trustee, agent or stockholder otherwise would be subject by reason of willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties in the conduct of such office. II-18 (f) If any order or orders of the Commission with respect to this Agreement shall be issued prior to the Exchange Date and shall impose any terms or conditions which are determined by action of the Boards of Directors of the Funds to be acceptable, such terms and conditions shall be binding as if a part of this Agreement without further vote or approval of the stockholders of the Funds unless such terms and conditions shall result in a change in the method of computing the number of shares of New York Insured Common Stock, New York Insured Series C AMPS, New York Insured Series D AMPS and New York Insured Series E AMPS to be issued to New York Insured II, as applicable, in which event, unless such terms and conditions shall have been included in the proxy solicitation materials furnished to the stockholders of the Funds prior to the meetings at which the Reorganization shall have been approved, this Agreement shall not be consummated and shall terminate unless the Funds promptly shall call a special meeting of stockholders at which such conditions so imposed shall be submitted for approval. 12. 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), New York Insured will cause to be affixed upon the certificate(s) issued to such person (if any) a legend as follows: THESE SHARES ARE SUBJECT TO RESTRICTIONS ON TRANSFER UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED EXCEPT TO MUNIYIELD NEW YORK INSURED FUND, INC. (OR ITS STATUTORY SUCCESSOR), OR ITS PRINCIPAL UNDERWRITER UNLESS (I) A REGISTRATION STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE SECURITIES ACT OF 1933 OR (II) IN THE OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE FUND, SUCH REGISTRATION IS NOT REQUIRED. and, further, that stop transfer instructions will be issued to New York Insured's transfer agent with respect to such shares. New York Insured II will provide New York Insured on the Exchange Date with the name of any stockholder of New York Insured II who is to the knowledge of New York Insured II an affiliate of New York Insured II on such date. (b) All covenants, agreements, representations and warranties made under this Agreement and any certificates delivered pursuant to this Agreement shall be deemed to have been material and relied upon by each of the parties, notwithstanding any investigation made by them or on their behalf. (c) Any notice, report or demand required or permitted by any provision of this Agreement shall be in writing and shall be made by hand delivery, prepaid certified mail or overnight service, addressed to any Fund, at 800 Scudders Mill Road, Plainsboro, New Jersey 08536, Attn: Terry K. Glenn, President. (d) This Agreement supersedes all previous correspondence and oral communications between the parties regarding the Reorganization, constitutes the only understanding with respect to the Reorganization, may not be changed except by a letter of agreement signed by each party and shall be governed by and construed in accordance with the laws of the State of New York applicable to agreements made and to be performed in said state. (e) Copies of the Articles of Incorporation, as amended, and Articles Supplementary of each Fund are on file with the Maryland Department and notice is hereby given that this instrument is executed on behalf of the Directors of each Fund. II-19 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. Attest: MuniYield New York Insured Fund, Inc. /s/ Alice A. Pellegrino _____________________________________ By: /s/ Donald C. Burke ----------------------------------- Alice A. Pellegrino, Secretary Donald C. Burke, Vice President and Treasurer Attest: MuniYield New York Insured Fund II, Inc. /s/ Alice A. Pellegrino _____________________________________ By: /s/ Donald C. Burke ----------------------------------- Alice A. Pellegrino, Secretary Donald C. Burke, Vice President and Treasurer II-20 EXHIBIT III ECONOMIC AND OTHER CONDITIONS IN NEW YORK The following information is a brief summary of factors affecting the economy of New York City (the "City") or New York State (the "State" or "New York"). Other factors will affect issuers. The summary is based primarily upon one or more of the most recent publicly available offering statements relating to debt offerings of State issuers, however, it has not been updated. The Funds have not independently verified this information. The State, some of its agencies, instrumentalities and public authorities and certain of its municipalities have sometimes faced serious financial difficulties that could have an adverse effect on the sources of payment for or the market value of the New York Municipal Bonds in which the Fund invests. New York City General. More than any other municipality, the fiscal health of the City has a significant effect on the fiscal health of the State. The City's current financial plan assumes that, after strong growth in 1998-1999, moderate economic growth will exist through calendar year 2003, with moderating job growth and wage increases. For each of the 1981 through 1998 fiscal years, the City had an operating surplus, before discretionary and other transfers, and achieved balanced operating results as reported in accordance with generally accepted accounting principles ("GAAP"), after discretionary and other transfers. The City has been required to close substantial gaps between forecast revenues and forecast expenditures in order to maintain balanced operating results. There can be no assurance that the City will continue to maintain balanced operating results as required by State law without tax or other revenue increases or reductions in City services or entitlement programs, which could adversely affect the City's economic base. The Mayor is responsible for preparing the City's financial plan, including the City's current financial plan for the 2000 through 2003 fiscal years (the "2000-2003 Financial Plan", "Financial Plan" or "City Financial Plan"). The City's projections set forth in the City Financial Plan are based on various assumptions and contingencies that are uncertain and may not materialize. Changes in major assumptions could significantly affect the City's ability to balance its budget as required by State law and to meet its annual cash flow and financing requirements. As required by law, the City prepares a four-year annual financial plan, which is reviewed and revised on a quarterly basis which includes the City's capital, revenue and expense projections and outlines proposed gap-closing programs for years with projected budget gaps. The City's current financial plan projects a surplus in the 1999 and 2000 fiscal years, before discretionary transfers, and budget gaps for each of the 2001, 2002 and 2003 fiscal years. This pattern of current years surplus operating results and projected subsequent year budget gaps has been consistent through the entire period since 1982, during which the City has achieved surplus operating results, before discretionary transfers, for each fiscal year. City's Financing Program. Implementation of the City Financial Plan is also dependent upon the City's ability to market its securities successfully. The City's program for financing capital projects for fiscal years 2000 through 2003 contemplates the issuance of $7.449 billion of general obligation bonds and $3.35 billion of bonds to be issued by the New York City Transitional Finance Authority (the "Transitional Finance Authority"). In addition, the Financial Plan anticipates access to approximately $2.4 billion in Financing Capacity of the Tobacco Settlement Asset Securitization Corporation ("TSASC") which is expected to issue debt secured by revenues derived from the settlement of litigation with tobacco companies selling cigarettes in the United States. The Transitional Finance Authority and TSASC were created to assist the City in financing its capital program while keeping City indebtedness within the forecast level of the constitutional restrictions on the amount of debt the City is authorized to incur. III-1 Without additional borrowing capacity, under current projections the City would reach the limit of its capacity to enter into new contractual commitments in fiscal year 2000. In order to provide financing for the City's current capital plan during and after fiscal year 2000, the Transitional Finance Authority's debt-incurring capacity will need to be increased, some other financing mechanism will need to be established or the City's general obligation debt limit will need to be increased. An amendment to the State Constitution would be necessary to change the methodology used to calculate the debt limit to increase the City's general obligation debt limit. A proposed amendment to the State Constitution may be considered by the State Legislature and, if approved in two consecutive legislative sessions and by voter referendum, could have an effective date in the year 2002. Even if the Constitution were so amended, legislative action to increase the financing capacity of the Transitional Finance Authority or creation of some other financing mechanism would be necessary to permit the City to continue its capital program until the constitutional amendment took effect in 2002. Accordingly, the Financial Plan anticipates access to approximately $2.4 billion in financing capacity of TSASC. Even with TSASC's ability to provide approximately $2.4 billion of financing capacity, the City expects that it will be required to postpone a substantial part of its capital program from the latter part of fiscal year 2001 to fiscal year 2002. In addition, the City issues revenue notes and tax anticipation notes to finance its seasonal working capital requirements (See "Seasonal Financing Requirements" within). The success of projected public sales of City bonds and notes, New York City Municipal Water Finance Authority (the "Water Authority") bonds and Transitional Finance Authority and other bonds will be subject to prevailing market conditions. The City's planned capital and operating expenditures are dependent upon the sale of its general obligation bonds and notes, as well as Water Authority, Transitional Finance Authority and TSASC bonds. 1998 Fiscal Year. For the 1998 fiscal year, the City had an operating surplus, before discretionary and other transfers, and achieved balanced operating results, after discretionary and other transfers, in accordance with GAAP. The 1998 fiscal year is the eighteenth year that the City has achieved an operating surplus, before discretionary and other transfers, and balanced operating results, after discretionary and other transfers. 1999 Modification and 2000-2003 Financial Plan. The most recent quarterly modification to the City's financial plan for the 1999 fiscal year (July 1, 1998-June 30, 1999) submitted to the New York State Financial Control Board (the "Control Board") on June 14, 1999 (the "1999 Modification"), projects a balanced budget in accordance with GAAP for the 1999 fiscal year. On June 14, 1999, the City released the Financial Plan for the 2000 through 2003 fiscal years, which relates to the City and certain entities which receive funds from the City. The Financial Plan projects revenues and expenditures for the 2000 fiscal year balanced in accordance with GAAP, and project gaps of $1.8 billion, $1.9 billion and $1.8 billion for fiscal years 2001 through 2003, respectively. The 1999 Modification and the 2000-2003 Financial Plan include a discretionary transfer in the 1999 fiscal year of $2.6 billion to pay debt service due in fiscal year 2000, for budget stabilization purposes, a proposed discretionary transfer in fiscal year 2000 to pay debt service due in fiscal year 2001 totaling $429 million, and a proposed discretionary transfer in fiscal year 2001 to pay debt service due in fiscal year 2002 totaling $345 million. In addition, the Financial Plan sets forth gap-closing actions to eliminate a previously projected gap for the 2000 fiscal year and to reduce projected gaps for fiscal years 2001 through 2003. The gap-closing actions for the 2000 through 2003 fiscal years include: (i) additional City agency actions totaling $502 million, $371 million, $293 million and $283 million for fiscal years 2000 through 2003, respectively; (ii) additional Federal aid of $75 million in each of fiscal years 2000 through 2003, which include the proposed restoration of $25 million of Federal revenue sharing and $50 million of increased Federal Medicaid aid; and (iii) additional State actions totaling approximately $125 million in each of fiscal years 2000 through 2003. The Financial Plan also reflects a tax reduction program, which includes the elimination of the City's non-residents earning tax, the proposed extension of current tax reductions for owners of cooperative and condominium apartments and a proposed income tax credit for low income wage earners. III-2 Assumptions. The 2000-2003 Financial Plan is based on numerous assumptions, including the condition of the City's and the region's economies and modest employment growth and the concomitant receipt of economically sensitive tax revenues in the amounts projected. The 2000-2003 Financial Plan is subject to various other uncertainties and contingencies relating to, among other factors, the extent, if any, to which wage increases for City employees exceed the annual wage costs assumed for the 1999 through 2003 fiscal years; continuation of projected interest earnings assumptions for pension fund assets and current assumptions with respect to wages for City employees affecting the City's required pension fund contributions; the willingness and ability of the State to provide the aid contemplated by the Financial Plan and to take various other actions to assist the City; the ability of Health and Hospitals Corporation (the "HHC"), the Board of Education (the "BOE") and other such agencies to maintain balanced budgets; the willingness of the Federal government to provide the amount of Federal aid contemplated in the Financial Plan; the impact on City revenues and expenditures of Federal and State welfare reform and any future legislation affecting Medicare or other entitlement programs; adoption of the City's budgets by the City Council in substantially the forms submitted by the Mayor; the ability of the City to implement cost reduction initiatives, and the success with which the City controls expenditures; the impact of conditions in the real estate market on real estate tax revenues; and unanticipated expenditures that may be incurred as a result of the need to maintain the City's infrastructure. Certain of these assumptions have been questioned by the City Comptroller and other public officials. The Financial Plan assumes: (i) approval by the Governor and the State Legislature of the extension of the 14% personal income tax surcharge, which has subsequently been extended to December 31, 2001 through enacted legislation, and which is projected to provide revenue of $572 million, $585 million, $600 million and $638 million in the 2000 through 2003 fiscal years, respectively; (ii) collection of projected rent payments for the City's airports, totaling $365 million, $185 million and $155 million in the 2001 through 2003 fiscal years, respectively, a substantial portion of which may depend on the successful completion of negotiations with The Port Authority of New York and New Jersey (the "Port Authority") or the enforcement of the City's rights under the existing leases through pending legal action; (iii) State and Federal approval of the State and Federal gap-closing actions proposed by the City in the Financial Plan; and (iv) receipt of the tobacco settlement funds providing revenues or expenditure offsets in annual amounts ranging between $250 million and $300 million. In addition, the economic and financial condition of the City may be affected by various financial, social, economic and political factors which could have a material effect on the City. Municipal Unions. The Financial Plan reflects the costs of the settlements and arbitration awards with certain municipal unions and other bargaining units, which together represent approximately 98% of the City's workforce, and assumes that the City will reach agreement with its remaining municipal unions under terms which are generally consistent with such settlements and arbitration awards. These contracts are approximately five years in length and have a total cumulative net increase of 13%. Assuming the City reaches similar settlements with its remaining municipal unions, the cost of all settlements for all City-funded employees would exceed $2 billion after the 1999 fiscal year and exceed $2 billion thereafter. The Financial Plan provides no additional wage increases for City employees after their contracts expire in fiscal years 2000 and 2001. Intergovernmental Aid. The City depends on aid from the State both to enable the City to balance its budget and to meet its cash requirements. There can be no assurance that there will not be reductions in State aid to the City from amounts projected; that State budgets will be adopted by the April 1 statutory deadline, or interim appropriations enacted; or that any such reductions or delays will not have adverse effects on the City's cash flow or expenditures. In addition, the Federal budget negotiation process could result in reductions or delays in the receipt of Federal grants which could have additional adverse effects on the City's cash flow or revenues. Year 2000 Computer Matters. The year 2000 presents potential operational problems for computerized data files and computer programs which may recognize the year 2000 as the year 1900, resulting in possible system failures or miscalculations. In November 1996, the City's Year 2000 Project Office was established to develop a project methodology, coordinate the efforts of City agencies, review plans and oversee implementation of year 2000 projects. At that time, the City also evaluated the capabilities of the City's Integrated Financial Management System and Capital Projects Information System, which are the City's central accounting, III-3 budgeting and payroll systems, identified the potential impact of the year 2000 on these systems, and developed a plan to replace these systems with a new system which is expected to be year 2000 compliant prior to December 31, 1999. The City has also performed an assessment of its other mission-critical and high priority computer systems in connection with making them year 2000 compliant, and the City's agencies have developed and are implementing both strategic and operational plans for non-compliant application systems. In addition, the City Comptroller is conducting audits of the progress of City agencies in achieving year 2000 compliance. While these efforts may involve additional costs beyond those assumed in the Financial Plan, the City believes, based on currently available information, that such additional costs will not be material. The Mayor's Office of Operations has stated that work has been completed, and all or part of the necessary testing has been performed, on approximately 99% (current as of October 26, 1999) of the mission-critical and high priority systems of Mayoral agencies. The City's computer systems may not all be year 2000 compliant in a timely manner and there could be an adverse impact on City operations or revenues as a result. The City is in the process of developing contingency plans for all mission-critical and high priority systems of Mayoral agencies, if such systems are not year 2000 compliant. During the month of November and December, the Mayor's office of Emergency Management will coordinate drills to test the contingency plans. The City is also in the process of contacting its significant third party vendors regarding the status of their compliance. Such compliance is not within the City's control, and therefore the City cannot assure that there will not be any adverse effects on the City resulting from any failure of these third parties. Certain Reports. The City's financial plans have been the subject of extensive public comment and criticism. From time to time, the Control Board staff, the Office of the State Deputy Comptroller (the "OSDC"), the City Comptroller, the City's Independent Budget Office (the "IBO") and others issue reports and make public statements regarding the City's financial condition, commenting on, among other matters, the City's financial plans, projected revenues and expenditures and actions by the City to eliminate projected operating deficits. Some of these reports and statements have warned that the City may have underestimated certain expenditures and overestimated certain revenues and have suggested that the City may not have adequately provided for future contingencies. Certain of these reports have analyzed the City's future economic and social conditions and have questioned whether the City has the capacity to generate sufficient revenues in the future to meet the costs of its expenditure increases and to provide necessary services. On July 14, 1999, the City Comptroller issued a report on the adopted budget for fiscal year 2000 and the Financial Plan. Taking into account the risks and additional resources identified in the report, the report projected a surplus for fiscal year 2000 of between $223 million and $891 million, including the $429 million surplus allocated to the Budget Stabilization Account. In addition, taking into account the risks and additional resources identified in the report and the budget gaps projected in the April Financial Plan, the report projected budget gaps of between $1.8 billion and $3.5 billion, $1.7 billion and $3.6 billion, and $1.7 billion and $4.1 billion in fiscal years 2001 through 2003, respectively. With respect to fiscal years 2000 through 2003, the report identified baseline risks of between $338 million and $998 million, $654 million and $2.4 billion, $600 million and $2.4 billion, and $719 million and $2.9 billion, respectively, depending upon whether (i) the State approves the extension of the 14% personal income tax surcharge; (ii) the City incurs additional labor costs as a result of the expiration of labor contracts starting in fiscal year 2001 which, if settled at the current forecast level of inflation, would result in additional costs totaling $345 million in fiscal year 2001, $713 million in fiscal year 2002 and $1.1 billion in fiscal year 2003; (iii) the State approves the continuation in fiscal years 2000 through 2003 of temporary State Medicaid cost containment; and (iv) the City receives $300 million, $250 million, $300 million and $300 million in fiscal years 2000 through 2003, respectively, from the tobacco settlement. Additional risks identified in the report for fiscal years 2000 through 2003 include payments from the Port Authority relating to the City's claim for back rentals, which are the subject of arbitration; State and Federal gap-closing actions proposed in the Financial Plan; possible increased overtime expenditures; the sale of the New York City Coliseum in fiscal year 2001; the write-down of outstanding education aid receivables of approximately $100 million in each of fiscal years 2002 and 2003; and III-4 a possible $149 million shortfall in tax revenues in fiscal year 2003. The report noted that these risks may be offset by additional resources of between $659 million and $873 million in fiscal years 2000 through 2003 due to the potential for higher than forecast tax revenues, lower than forecast payables for prior years, possible debt service savings, additional State education aid, the possible failure to spend funds for the construction of three sports facilities and lower pension costs resulting from excess earnings on pension assets in the 1999 fiscal year. In his report, the City Comptroller also noted that possible changes to the assumptions and methods used to compute actuarial liabilities, including changes in the mortality, disability, investment return and wage assumptions, could increase the City's pension expenditures by up to $600 million annually, and that the Financial Plan has provided reserves of $65 million, $250 million, $300 million and $260 million in fiscal years 2000 through 2003 to absorb some of the anticipated costs increases. The report further noted that the City Comptroller's forecast is contingent on the continued growth of the City economy and that the fear of renewed inflationary pressures has created uncertainty in the bond market which may dampen economic growth in the future. The report also indicated that a possible negotiated settlement of a class action, filed on behalf of approximately 65,000 persons challenging the Department of Corrections policy of strip searching detainees arrested for nonfelony offenses, may expose the City to substantial costs from the settlement of litigation. The report noted that, while settlement negotiations with representatives of the class are being conducted and, therefore, estimates of the potential cost of this litigation cannot be determined, the City has recently settled four cases for $25,000 each. On August 25, 1998, the City Comptroller issued a report reviewing the current condition of the City's major physical assets and the capital expenditures required to bring them to a state of good repair. The report's findings relate only to current infrastructure and do not address future capacity or technology needs. The report estimated that the expenditure of approximately $91.83 billion would be required over the next decade to bring the City's infrastructure to a systematic state of good repair and address new capital needs already identified. The report stated that the City's current Ten-Year Capital Strategy, together with funding received from other sources, is projected to provide approximately $52.08 billion. The report noted that the City's ability to meet all capital obligations is limited by law, as well as funding capacity, and that the issue for the City is how best to set priorities and manage limited resources. On July 15, 1999, the staff of the OSDC issued a report on the Financial Plan. With respect to fiscal year 2000, the report identified a possible gap of $13 million, reflecting revenues which could exceed projections in the Financial Plan by $290 million, a $200 million shortfall in anticipated Federal and State assistance, a possible $70 million increase in overtime costs and the writedown of approximately $33 million of outstanding education aid receivables. With respect to fiscal years 2001 through 2003, the report identified net risks of $530 million, $447 million and $266 million which, when added to gaps projected in the Financial Plan, would result in gaps of $2.4 billion, $2.3 billion and $2.1 billion in fiscal years 2001 through 2003, respectively. The risks identified in the report included a $200 million shortfall in anticipated Federal and State assistance in each of fiscal years 2001 through 2003, the potential for increased overtime costs, the writedown of outstanding State education aid receivables of approximately $100 million in each of fiscal years 2002 and 2003, $100 million of unspecified asset sales in fiscal 2002 and delays in the receipt of Port Authority lease payments assumed in the Financial Plan. However, the report noted that tax revenues could be greater than forecast by the City by $155 million, $210 million and $255 million in fiscal years 2001 through 2003, respectively. The report also identified a number of other issues, including a possible delay in the receipt of the City's share of the proceeds under the settlement with the nation's tobacco companies; the extension of the 14% personal income surcharge; the possibility of pension costs being $250 million greater than assumed in the Financial Plan in each of fiscal years 2001 through 2003, as a result of changed actuarial assumptions; and the potential for wage increases which, at the projected inflation rate, would increase gaps by $285 million, $635 million and $1.0 billion in fiscal years 2001 through 2003, respectively. The report also noted the possibility that the Federal Reserve will raise interest rates and slow the economy, which could depress Wall Street profits below the levels projects by the City and have the potential to seriously impact the City's nonproperty tax revenue forecasts. On July 15, 1999, the staff of the Control Board issued a report reviewing the Financial Plan. The report noted that the City is likely to end fiscal year 2000 in balance. However, the report identified risks of $562 III-5 million, $293 million, $640 million and $499 million for fiscal years 2000 through 2003, respectively, which, when combined with the City's projected gaps, results in estimated gaps of $562 million, $2.1 billion, $2.5 billion and $2.3 billion for fiscal years 2000 through 2003, respectively, before making provision for any increased labor costs which may occur when the current contracts with City employees expire in calendar year 2000. The report noted the possibility that non-property taxes in fiscal year 2000 could be $250 million greater than forecast in the Financial Plan. However, the report also identified risks for fiscal years 2000 through 2003, which include (i) the possibility that the City may decide to fund the $63 million annual cost of teachers' salary supplementation for fiscal years 2000 through 2003, which the State failed to fund in the 1999 fiscal year, and an additional risk of approximately $100 million in each of fiscal years 2002, and 2003 for BOE resulting from the write-down of funds owed to BOE by the State which have been outstanding for ten or more years; (ii) the receipt of assumed rental payments from the Port Authority relating to the City's claim for back rents, which are the subject of arbitration; (iii) a possible delay in the receipt of $300 million from the tobacco settlement in fiscal years 2000 and 2001; (iv) $200 million of Federal and State gap-closing actions assumed in the Financial plan for each of fiscal years 2000 through 2003; and (v) $177 million in fiscal year 2000 from the lapse of State Medicaid cost containment, which has been extended subsequent to the report. In its report, the staff of the Control Board noted that total debt service is expected to increase from 9.2% of total revenues and 15.8% of tax revenues in the 1999 fiscal year to 11.6% of total revenues and 19% of tax revenues in fiscal year 2003, and that the City's capital plant will require additional resources at the same time that a rising debt service burden must be contained. With respect to HHC, the report noted that HHC revenues are expected to fall during the Financial Plan period, primarily due to falling Medicaid receipts, that HHC will face increasing financial pressure when the State implements mandatory Medicaid managed care beginning in fiscal year 2000 and that the eventual size of the projected gaps for HHC in fiscal years 2002 and 2003 may change substantially from current projections, as the revenue impact of proposed State and Federal reforms, growth in managed care and shifting utilization patterns remain largely uncertain. Finally, the report noted that, given the length of the current expansion, there is an increasing probability that a recession related to the end of the long bull market will occur by the end of the Financial Plan period, and it is likely that the next downturn, if and when it occurs, will have a disproportionately great impact on the City because of its dependence on income flows from financial services. Seasonal Financing Requirements. The City since 1981 has fully satisfied its seasonal financing needs in the public credit markets, repaying all short-term obligations within their fiscal year of issuance. It is expected that the City will issue $750 million in short-term obligations in the 2000 fiscal year to finance the City's cash flow needs for the 2000 fiscal year. The City issued $500 million of short-term obligations in the 1999 fiscal year to finance the City's cash flow needs for the 1999 fiscal year. The City issued $1.075 billion in short-term obligations in fiscal year 1998 to finance the City's projected cash flow needs for the 1998 fiscal year. The City issued $2.4 billion of short-term obligations in fiscal year 1997. Seasonal financing requirements for the 1996 fiscal year increased to $2.4 billion from $2.2 billion and $1.75 billion in the 1995 and 1994 fiscal years, respectively. The delay in the adoption of the State's budget in certain past fiscal years has required the City to issue short-term notes in amounts exceeding those expected early in such fiscal years. Ratings. As of October 26, 1999, Moody's rated the City's outstanding general obligation bonds A3, Standard & Poor's rated such bonds A- and Fitch rated such bonds A. In July 1995, Standard & Poor's revised downward its ratings on outstanding general obligation bonds of the City from A- to BBB+. In July 1998, Standard & Poor's revised its rating of City bonds upward to A-. Moody's rating of City bonds was revised in February 1998 to A3 from Baa1. On March 8, 1999, Fitch revised its rating of City bonds upward to A. Such ratings reflect only the view of Moody's, Standard & Poor's and Fitch, from which an explanation of the significance of such ratings may be obtained. There is no assurance that such ratings will continue for any given period of time or that they will not be revised downward or withdrawn entirely. Any such downward revision or withdrawal could have an adverse effect on the market prices of City bonds. Outstanding Indebtedness. As of June 30, 1999, the City and the Municipal Assistance Corporation for the City of New York had respectively approximately $26.8 and $3.2 billion of outstanding net long-term debt. III-6 As of May 19, 1999, the Water Authority had approximately $8.7 billion aggregate principal amount of outstanding bonds, inclusive of subordinate second resolution bonds, and a $600 million commercial paper program. Water, Sewer and Waste. Debt service on Water Authority obligations is secured by fees and charges collected from the users of the City's water and sewer system. State and Federal regulations require the City's water supply to meet certain standards to avoid filtration. The City's water supply now meets all technical standards and the City has taken the position that increased regulatory, enforcement and other efforts to protect its water supply will prevent the need for filtration. On May 6, 1997, the U.S. Environmental Protection Agency granted the City a filtration avoidance waiver through April 15, 2002 in response to the City's adoption of certain watershed regulations. The estimated incremental cost to the City of implementing this Watershed Memorandum of Agreement, beyond investments in the watershed which were planned independently, is approximately $400 million. The City has estimated that if filtration of the upstate water supply system is ultimately required, the construction expenditures required could be between $4 billion and $5 billion. Legislation has been passed by the State which prohibits the disposal of solid waste in any landfill located within the City after December 31, 2001. The Financial Plan includes the estimated costs of phasing out the use of landfills located within the City. A suit has been commenced against the City by private individuals under the Resource Conservation and Recovery Act seeking to compel the City to take certain measures or, alternatively, to close the Fresh Kills landfill. If as a result of such litigation, the City is required to close the landfill earlier than required by State legislation, the City could incur additional costs during the Financial Plan period. Pursuant to court order, the City is currently required to recycle 3,400 tons per day of solid waste and is required to recycle 4,250 tons per day by July 2001. The City as of October 26, 1999 was recycling slightly over 2,600 tons per day of solid waste. The City may seek to obtain amendments to Local Law No. 19 to modify this requirement. If the City is unable to obtain such amendments and is required to fully implement Local Law No. 19, the City may incur substantial costs. Litigation. The City is a defendant in a significant number of lawsuits. Such litigation includes, but is not limited to, routine litigation incidental to the performance of its governmental and other functions, actions commenced and claims asserted against the City arising out of alleged constitutional violations, alleged torts, alleged breaches of contracts and other alleged violations of law and condemnation proceedings and other tax and miscellaneous actions. While the ultimate outcome and fiscal impact, if any, on the City of the proceedings and claims are not currently predictable, adverse determination in certain of them might have a material adverse effect upon the City's ability to carry out the City Financial Plan. The City has estimated that its potential future liability on account of outstanding claims against it as of June 30, 1998 amounted to approximately $3.5 billion. New York State Current Economic Outlook. The State's 1999-2000 Financial Plan is based upon a June 1999 projection by the State Division of Budget of national and State economic activity. The information in this section, obtained from the State's Annual Information Statement, dated August 24, 1999, summarizes the national and State economic situation and outlook upon which projections of receipts and certain disbursements were made for the State's 1999-2000 Financial Plan. The State Division of Budget expects that national economic growth will be quite robust throughout calendar year 1999. Real Gross Domestic Product ("GDP") growth is projected to be 4.0 percent in 1999, above the 1998 growth rate of 3.9 percent. In 2000, real GDP growth is expected to be 2.4 percent. The forecast of the State's economy shows continued expansion during the 1999 calendar year, with employment growth gradually slowing as the year progresses. The financial and business service sectors are expected to continue to do well, while employment in the manufacturing sector is expected to post a modest decline. On an average annual basis, the employment growth rate in the State is expected to be somewhat lower than in 1998 and the unemployment rate is expected to drop further to 5.1 percent. Personal income is expected to record moderate gains in 1999. Wage growth in 1999 is expected to be slower than in the previous year as the recent robust growth rate in bonus payments moderates. III-7 Overall employment growth in the State was 2.0 percent in 1998, but is expected to drop to 1.7 percent in 1999 and to 1.3 percent in 2000. On the national level, employment growth was 2.6 percent for 1998 and is projected to be 2.1 percent and 1.8 percent for 1999 and 2000, respectively. On an average annual basis, the State unemployment rate was 5.6 percent in 1998 and is projected to be 5.1 percent and 5.0 percent for 1999 and 2000, respectively. For the nation as a whole, the unemployment rate was 4.5 percent for 1998, and is projected to be 4.2 percent in 1999 and 4.1 percent in 2000. Personal income in the State grew by 5.3 percent in 1998, and is projected to grow by 4.7 percent in 1999 and 4.1 percent in 2000. For the nation, personal income grew by 5.0 percent in 1998, and is projected to grow by 5.1 percent and 4.8 percent, respectively, for 1999 and 2000. The forecast for continued growth, and any resultant impact on the State's 1999-2000 Financial Plan, contains some uncertainties. Stronger-than-expected gains in employment and wages or in stock market prices could lead to unanticipated strong growth in consumer spending. Inventory investment dues to year 2000 computer matters may be significantly stronger than expected towards the end of 1999 possibly followed by significant weakness early in 2000. Also, improvements in foreign economies may be weaker-than-expected and therefore may have unanticipated effects on the domestic economy. The inflation rate may differ significantly from expectations due to the conflicting impacts of a tight labor market and improved productivity growth as well as to the direction and magnitude of fluctuations in oil prices. In addition, the State economic forecast could over- or underestimate the level of future bonus payments, financial sector profits or inflation growth, resulting in unexpected economic impacts. Similarly, the State forecast could fail to correctly estimate the amount of employment change in the banking, financial and other business service sectors as well as the direction of employment change that is likely to accompany telecommunications and energy deregulation. The New York Economy. New York is the third most populous state in the nation and has a relatively high level of personal wealth. The State's economy is diverse, with a comparatively large share of the nation's finance, insurance, transportation, communications and services employment, and a very small share of the nation's farming and mining activity. The services sector accounts for more than three of every ten nonagricultural jobs in New York and has a noticeably higher proportion of total jobs than does the rest of the nation. Manufacturing employment continues to decline in importance in New York, as in most other states, and New York's economy is less reliant on this sector than is the nation. Wholesale and retail trade is the second largest sector in terms of nonagricultural jobs in New York but is considerably smaller when measured by income share. The finance, insurance and real estate sector is far more important in the State than in the nation as a whole. Although this sector accounts for under one-tenth of all nonagricultural jobs in the State, it contributes about one-fifth of all nonfarm labor and proprietors' income. Farming is an important part of large regions of the State, although it constitutes a very minor part of total State output. Federal, State and local government together are the third largest sector in terms of nonagricultural jobs, with the bulk of the employment accounted for by local governments. The State is likely to be less affected than the nation as a whole during an economic recession that is concentrated in manufacturing and construction, but likely to be more affected during a recession that is concentrated in the service-producing sector. The 1999-2000 Fiscal Year. The State's 1999-2000 fiscal year began on April 1, 1999 and ends on March 31, 2000. On March 31, 1999, the State adopted the debt service portion of the State budget for the 1999-2000 fiscal year; four months later, on August 4, 1999, it enacted the remainder of the budget. The Governor approved the budget as passed by the Legislature. Prior to passing the budget in its entirety for the 1999-2000 fiscal year, the State enacted appropriations that permitted the State to continue its operations. Following the enactment of the budget, the State prepared a Financial Plan for the 1999- 2000 fiscal year (the "1999-2000 Financial Plan" or the "State Financial Plan") that sets forth projected receipts and disbursements based on the actions taken by the Legislature. General Fund receipts, including transfers from other funds, are projected to be $39.31 billion, an increase of $2.57 billion from the $36.74 billion recorded in the 1998-1999 fiscal year. General Fund disbursements, III-8 including transfers to other funds, are estimated at $37.36 billion, an increase of $868 million or 2.38 percent over the 1998-1999 fiscal year. The 1999-2000 Financial Plan projects the State to close the 1999-2000 fiscal year with a closing balance of $2.85 billion in the General Fund. Receipts. The $39.31 billion in total General Fund receipts includes $35.93 billion in tax receipts, $1.36 billion in miscellaneous receipts and $2.02 billion in transfers from other funds. The transfer of the $1.82 billion surplus recorded in the 1998-1999 fiscal year to the 1999-2000 fiscal period has the effect of exaggerating the growth in State receipts from year to year by depressing reported 1998-1999 figures and inflating 1999-2000 projections. Personal income taxes are imposed on the income of individuals, estates and trusts and are based, with certain modifications, on Federal definitions of income and deductions. Potential changes to Federal tax law could alter the Federal definitions of income on which certain State taxes rely. Such changes could have a significant impact on State revenues in the future. Net General Fund personal income tax collections are projected to reach $22.95 billion in the 1999-2000 fiscal year, well over half of all General Fund receipts and nearly $2.87 billion above the reported 1998-1999 fiscal year collection total. Much of this growth is associated with the $1.82 billion net impact of the transfer of the surplus from 1998-1999 to 1999-2000 as partially offset by the diversion of an additional $661 million in income tax receipts to the School Tax Relief (STAR) fund. The STAR program was created in 1997 as a State-funded local property tax relief program funded through the use of personal income tax receipts. Adjusted for these transactions, the growth in net income tax receipts is roughly $1.8 billion, an increase of almost 9 percent. User taxes and fees are comprised of three-quarters of the State's four percent sales and use tax, cigarette, alcoholic beverage, container, and auto rental taxes, and a portion of the motor fuel excise levies. This category also includes receipts from the motor vehicle registration fees and alcoholic beverage license fees. Dedicated transportation funds outside of the General Fund receive a portion of motor fuel tax and motor vehicle registration fees and all of the highway use taxes. User taxes and fees are projected to total $7.35 billion in 1999-2000, an increase of $105 million from reported collection in the 1998-1999 fiscal year. The sales tax component of this category accounts for virtually all of the 1999-2000 fiscal year growth. Business taxes include franchise taxes based generally on net income of general business, bank and insurance corporations, as well as gross-receipts- based taxes on utilities and gallonage-based petroleum business taxes. Business tax receipts are expected to total approximately $4.63 billion in 1999-2000, $230 million below 1998-1999 results. The year-over-year decline in projected receipts in this category is largely attributable to statutory changes. Transfers from other funds to the General Fund consists primarily of tax revenues in excess of debt service requirements, including the one percent sales tax used to support payments to Local Government Assistance Corporation (see Local Government Assistance Corporation within). Transfers from other funds are expected to total $2.02 billion, or $99 million more than total receipts from this category during 1998-1999. Total transfers of sale taxes in excess of LGAC debt service requirements are expected to increase by approximately $93 million, while transfers from all other funds are expected to increase by $6 million. Miscellaneous receipts include investment income, abandoned property receipts, medical provider assessments, minor federal grants, receipts from public authorities, and certain other license and fee revenues. Miscellaneous receipts are expected to total $1.36 billion in the 1999-2000 fiscal year, down $142 million from the prior year amount. This reflects the loss of non- recurring receipts received in the 1998-1999 fiscal year and the growing effects of the phase-out of the medical provider assessments, scheduled to be eliminated in January 2000. Other taxes include the estate and gift tax, the real property gains tax and pari-mutuel taxes. Taxes in this category are projected to total $1 billion for 1999-2000, $137 million below the 1998-1999 level. The primary factors accounting for most of the expected decline include: an adverse tax tribunal decision resulting in III-9 significant refunds of the now repealed real property gains tax; pari-mutuel tax reductions enacted with the 1999-2000 budget; and the effects of already enacted reductions in the estate and gift taxes. Non-recurring Resources. The State Division of the Budget estimates that the 1999-2000 State Financial Plan contains actions that provide non-recurring resources or savings totaling approximately $500 million, or 1.3 percent of General Fund resources, the largest of which is the first phase of the privatization of the Medical Malpractice Insurance Association. To the greatest extent possible, one-time resources are expected to be utilized to finance one-time costs, including Year 2000 compliance costs and certain capital spending. Disbursements. Grants to Local Governments is projected to constitute approximately 68.5 percent of all 1999-2000 fiscal year General Fund disbursements, and include payments to local governments, non-profit providers and entitlement benefits to individuals. It is projected to be approximately $25.60 billion for the 1999-2000 fiscal year, an increase of $910 million or 3.68 percent from the level for the 1998-1999 fiscal year. Under the 1999-2000 enacted budget, General Fund spending on school aid is projected at $10.52 billion on a State fiscal year basis, an increase of $831 million from the prior year. Spending for Medicaid in 1999-2000 is projected to total $5.54 billion, essentially unchanged from the 1998-1999 fiscal year. Disbursements for all other health and social welfare programs are projected to total $2.70 billion, a decrease of $252 million. Lower welfare spending, driven by State and federal reforms and a robust economy, accounts for most of the decline. State Operations is projected to constitute approximately 18.4 percent of all 1999-2000 fiscal year General Fund disbursements. State Operations reflects the costs of running the Executive, Legislative and Judicial branches of government, including the prison system, mental hygiene institutions, and the State University system (SUNY). It is projected to be approximately $6.89 billion for the 1999-2000 fiscal year. Personal service costs account for approximately 73 percent of spending in this category. Spending in this category is projected to increase by $207 million or 3.1 percent above 1998- 1999. The growth reflects $100 million in projected spending for new collective bargaining agreements that the State expects to be ratified during the 1999-2000 fiscal year. The annualized costs of current collective bargaining agreements, growth in the Legislative and Judiciary budgets, and staffing costs for the State's Year 2000 compliance programs also contribute to the year-to-year growth in spending. The State's overall workforce is projected to remain stable at approximately 191,300 persons. General State Charges is projected to constitute approximately 5.5 percent of all 1999-2000 fiscal year General Fund disbursements. This category accounts primarily for the costs of providing fringe benefits to State employees and retirees of the Executive, Legislature and Judiciary. It includes employer contributions for pensions, social security, health insurance, workers' compensation and unemployment insurance. This category also covers State payments-in-lieu of-taxes to local governments for certain State-owned lands, and the costs of defending lawsuits against the State and its public officers. Disbursements in this category are estimated at $2.04 billion for the 1999-2000 fiscal year, a decrease of $222 million from the 1998-1999 fiscal year. Transfers to Other Funds from the General Fund are made primarily to finance certain portions of State capital projects spending and debt service on long- term bonds where these costs are not funded from other sources. State Debt Service is projected to constitute approximately 6.1 percent of all 1999-2000 fiscal year General Fund disbursements. Capital/Other is projected to constitute approximately 1.5 percent of all such General Fund disbursements. Long-term debt service transfers are projected at $2.27 billion in the 1999- 2000 fiscal year, an increase of $183 million from 1998-1999. Transfers for capital projects are projected to total $168 million in 1999-2000, a decline of $78 million from the 1998-1999 fiscal year which is primarily due to the delay of the receipt of payment of certain reimbursements in the 1998-1999 fiscal year. Future Fiscal Years. State law requires the Governor to propose a balanced budget each year. Preliminary analysis by the State Division of the Budget indicates that the State will have a 2000-2001 fiscal year budget gap of approximately $1.9 billion, or about $300 million above the 1999-2000 Executive Budget estimate (after adjusting for the projected costs of collective bargaining). This estimate includes an assumption of the projected costs of new collective bargaining agreements, $500 million in assumed operating efficiencies, as well as the III-10 planned application of approximately $615 million of the $1.82 billion tax reduction reserve. In recent years, the State has closed projected budget gaps which the State Division of the Budget estimates at $5.0 billion (1995-96), $3.9 billion (1996-97), $2.3 billion (1997-98), and less than $1 billion (1998-99). The State and the United University Professionals (UUP) union have reached a tentative agreement on a new four-year labor contract. The State is continuing negotiations with other unions representing State employees, the largest of which is the Civil Service Employees Association (CSEA). CSEA previously failed to ratify a tentative agreement on a new four-year contract earlier in 1999. The 1999-2000 Financial Plan has reserved $100 million for possible collective bargaining agreements, and reserves are contained in the preliminary outyear projection for 2000-2001 to cover the recurring costs of any new agreements. To the extent these reserves are inadequate to finance such agreements, the costs of new labor contracts could increase the size of future budget gaps. Sustained growth in the State's economy could contribute to closing projected budget gaps over the next several years, both in terms of higher- than-projected tax receipts and in lower-than-expected entitlement spending. The State assumes that the 2000-2001 Financial Plan will achieve $500 million in savings from initiatives by state agencies to deliver services more efficiently, workforce management efforts, maximization of Federal and non- General Fund spending offsets, and other actions necessary to help bring projected disbursements and receipts into balance. The projections do not assume any gap-closing benefit from the potential settlement of State claims against the tobacco industry. Special Considerations. Many complex political, social and economic forces influence the State's economy and finances, which may in turn affect the State's Financial Plan. These forces may affect the State unpredictably from fiscal year to fiscal year and are influenced by governments, institutions, and events that are not subject to the State's control. The Financial Plan is also necessarily based upon forecasts of national and State economic activity. Economic forecasts have frequently failed to predict accurately the timing and magnitude of changes in the national and State economies. The State Financial Plan is based upon forecasts of national and State economic activity. Many uncertainties exist in forecasts of both the national and the State economies, including consumer attitudes toward spending, the extent of corporate and governmental restructuring, the condition of the financial sector, Federal fiscal and monetary policies, the level of interest rates, and the condition of the world economy, which could have an adverse effect on the State. There can be no assurance that the State economy will not experience results in the current or any future fiscal year that are worse than predicted, with corresponding material and adverse effects on the State's projections of receipts and disbursements. Projections of total State receipts in the State Financial Plan are based on the State tax structure in effect during the fiscal year and on assumptions relating to basic economic factors and their historical relationships to State tax receipts. Projections of total State disbursements are based on assumptions relating to economic and demographic factors, potential collective bargaining agreements, levels of disbursements for various services provided by local governments (where the cost is partially reimbursed by the State), and the results of various administrative and statutory mechanisms in controlling disbursements for State operations. An additional risk to the State Financial Plan arises from the potential impact of certain litigation and of federal disallowances now pending against the State, which could adversely affect the State's projections of receipts and disbursements. The State Financial Plan assumes no significant litigation or federal disallowance or other federal actions that could affect State finances, but has significant reserves in the event of such an action. The Personal Responsibility and Work Opportunity Reconciliation Act of 1996 created a new Temporary Assistance to Needy Families program (TANF) partially funded with a fixed federal block grant to states. States are required to meet work activity participation targets for their TANF caseload and conform with certain other federal standards or face potential sanctions in the form of a reduced federal block grant and increased State/local funding requirements. Any future reduction could have an adverse impact on the State's Financial Plan. III-11 However, the State has been able to demonstrate compliance with TANF work requirements to date and does not now expect to be subject to associated federal fiscal penalties. Despite recent budgetary surpluses recorded by the State, actions affecting the level of receipts and disbursements, the relative strength of the State and regional economy, and actions by the Federal Government could impact projected budget gaps for the State. To address a potential imbalance in any given fiscal year, the State would be required to take actions to increase receipts and/or reduce disbursements as it enacts the budget for that year, and under the State Constitution, the Governor is required to propose a balanced budget each year. There can be no assurance, however, that the State Legislature will enact the Governor's proposals or that the State's actions will be sufficient to preserve budgetary balance in any given fiscal year or to align recurring receipts and disbursements in any given fiscal year. To help guard against these risks, the State has projected reserves of $2.4 billion in the 1999-2000 fiscal year. Year 2000 Computer Matters. New York State is currently addressing "Year 2000" ("Y2K") data processing compliance issues. Since its inception, the computer industry has used a two-digit date convention to represent the year. In the year 2000, the date field will contain "00" and, as a result, many computer systems and equipment may not be able to process dates properly or may fail since they may not be able to distinguish between the years 1900 and 2000. The Y2K issue not only affects computer programs, but also the hardware, software and networks on which they operate. In addition, any system or equipment that is dependent on an embedded chip, such as telecommunication equipment and security systems, may also be adversely affected. In April 1999 the State Comptroller released an audit on the State's Y2K compliance. The audit, which reviewed the State's Y2K compliance activities through October 1998, found that the State had made progress in achieving Y2K compliance, but needed to improve its activities in several areas, including data interchanges and contingency planning. The Office for Technology ("OFT") will continue to monitor compliance progress for the State's mission-critical and high-priority systems and is reporting compliance progress to the Governor's office on a quarterly basis. Mission-critical systems are those that may impact the public health, safety and welfare of the State and its citizens, and for which failure could have a material and adverse impact on State operations. High-priority systems are critical for a State agency to fulfill its mission or deliver services. OFT reported that as of June 1999, the State had completed over 98 percent of the overall compliance effort for its mission-critical systems; 55 of the 56 systems are now Y2K compliant. As of June 1999, the State had completed 87 percent of the overall compliance effort on the high-priority systems; 236 systems are now Y2K compliant. The State has also procured independent validation and verification services from a qualified vendor to perform an automated review of code that has been fixed and a testing review process for all mission-critical systems which is scheduled to be completed by September 1999. The State is also addressing a number of issues related to bringing its mission-critical systems into compliance, including: testing throughout 1999 of over 800 data exchange interfaces with Federal, State, local and private data partners; completing an inventory of priority equipment and systems that may depend on embedded chips and may therefore need remediation in 1999; and contacting critical vendors and supply partners to obtain Y2K compliance status information and assurances. Since problems could be identified during the compliance testing phase that could produce compliance delays, the State agencies were required to complete contingency plans for priority systems and business processes by the first quarter of calendar year 1999. These plans have been completed and tested as of June 1999 and are being integrated into the State Emergency Response Plan under the direction of the State Emergency Management Office. In addition, the State Public Service Commission has ordered that all State-regulated utilities complete Y2K activities for mission-critical systems, including contingency plans, by July 1, 1999. The Public Service Commission is currently reviewing these plans as part of their Y2K regulatory and oversight role. The State has also been working with local governments since December 1996 to raise awareness, promote action and provide assistance with Y2K compliance. III-12 While the State is taking what it believes to be appropriate action to address Y2K compliance, there can be no guarantee that all of the State's systems and equipment will be Y2K compliant and that there will not be an adverse impact upon State operations or finances as a result. Since Y2K compliance by outside parties is beyond the State's control to remediate, the failure of outside parties to achieve Y2K compliance could have an adverse impact on State operations or finances as well. Prior Fiscal Years (GAAP-Basis). GAAP requires fund accounting for all government resources and the modified accrual basis of accounting for measuring the financial position and changes therein of governmental funds. The modified accrual basis of accounting recognizes revenues when they become measurable and available to finance expenditures, and expenditures when a liability to pay for goods or services is incurred or a commitment to make aid payments is made, regardless of when actually paid. There are four GAAP- defined Governmental Fund types. The General Fund is the major operating fund of the State and receives all receipts that are not required by law to be deposited in another fund. Debt Service Funds account for the accumulation of resources for the payment of general long-term debt service and related costs and payments under lease-purchase and contractual-obligation financing arrangements. Capital Project Funds account for financial resources of the State to be used for the acquisition or construction of major capital facilities (other than those financed by Special Revenue Funds, Proprietary Funds and Fiduciary Funds). Special Revenue Funds account for the proceeds of specific revenue sources (other than expendable trusts or major capital projects), such as Federal grants, that are legally restricted to specified purposes. The State completed its 1998-1999 fiscal year with a combined governmental funds operating surplus of $1.32 billion, which included operating surpluses in the General Fund ($1.078 billion), in the Debt Service Funds ($209 million) and in the Capital Projects Funds ($154 million) offset, in part, by an operating deficit in Special Revenue Funds ($117 million). The State reported an accumulated surplus of $1.645 billion in the General Fund. The State completed its 1997-1998 fiscal year with a combined Governmental Funds operating surplus of $1.80 billion, which included an operating surplus in the General Fund of $1.56 billion, in Capital Projects Funds of $232 million and in Special Revenue Funds of $49 million, offset in part by an operating deficit of $43 million in Debt Service Funds. The State reported an accumulated surplus of $567 million in the General Fund for the first time since it began reporting its operations on a GAAP-basis. The State completed its 1996-1997 fiscal year with a combined Governmental Funds operating surplus of $2.1 billion, which included an operating surplus in the General Fund of $1.9 billion, in the Capital Projects Funds of $98 million and in the Special Revenue Funds of $65 million, offset in part by an operating deficit of $37 million in the Debt Service Funds. The State reported an accumulated deficit of $995 million in the General Fund. Prior Fiscal Years (Cash Basis). Cash basis accounting results in the recording of receipts at the time money or checks are deposited in the State Treasury and the recording of disbursements at the time a check is drawn, regardless of the fiscal period to which the receipts or disbursements relate. The State ended its 1998-1999 fiscal year on March 31, 1999 in balance on a cash basis, with a General Fund cash surplus as reported by the State Division of the Budget of $1.82 billion. The cash surplus was derived primarily from higher-than-projected tax collections as a result of continued economic growth, particularly in the financial markets and the securities industries. General Fund receipts and transfers from other funds (net of tax refund reserve account activity) for the 1998-1999 fiscal year totaled $36.74 billion, an increase of 6.34 percent from the 1997-1998 fiscal year levels. General Fund disbursements and transfers to other funds totaled $36.49 billion for the 1998-1999 fiscal year, an increase of 6.23 percent from the 1997-1998 fiscal year levels. The State reported a General Fund closing cash balance of $892 million. The closing fund balance excludes $2.31 billion that the State deposited into the tax refund reserve account at the close of the 1998-1999 fiscal year to pay for tax refunds in the 1999-2000 fiscal year. The tax refund reserve account transaction has the effect of decreasing reported personal income tax receipts in the 1998-1999 fiscal year, while increasing reported receipts in the 1999- 2000 fiscal year. III-13 The State ended its 1997-1998 fiscal year balanced on a cash basis, with a reported General Fund cash surplus of $2.04 billion resulting from revenue growth and lower spending on welfare, Medicaid, and other entitlement programs. General Fund receipts and transfers from other funds for the 1997- 1998 fiscal year (including net tax refund reserve account activity) totaled $34.55 billion, an annual increase of $1.51 billion, or 4.57 percent over the 1996-1997 fiscal year. General Fund disbursements and transfers to other funds were $34.35 billion, an annual increase of $1.45 billion or 4.41 percent. The State closed a budget gap of approximately $2.3 billion for the 1997-1998 fiscal year. Gap-closing actions included cost containment in State Medicaid, the use of the $1.4 billion 1996-1997 fiscal year budget surplus to finance 1997-1998 fiscal year spending, control on State agency spending and other actions. The State ended its 1996-1997 fiscal year balanced on a cash basis, with a 1996-1997 General Fund cash surplus as reported by the State Division of the Budget of approximately $1.4 billion that was used to finance the 1997-1998 Financial Plan. The surplus resulted primarily from higher-than-expected revenues and lower-than-expected spending for social service programs. General Fund receipts and transfers from other funds for the 1996-1997 fiscal year totaled $33.04 billion, an increase of 0.7 percent from the 1995-1996 fiscal year (excluding deposits into the tax refund reserve account). General Fund disbursements and transfers to other funds totaled $32.90 billion for the 1996-1997 fiscal year, an increase of 0.7 percent from the 1995-1996 fiscal year. Local Government Assistance Corporation. In 1990, as part of a State fiscal reform program, legislation was enacted creating the Local Government Assistance Corporation (the "LGAC"), a public benefit corporation empowered to issue long-term obligations to fund certain payments to local governments traditionally funded through the State's annual seasonal borrowing. The legislation imposed a cap on the annual seasonal borrowing of the State at $4.7 billion, except in cases where the Governor and the legislative leaders have certified the need for additional borrowing and provided a schedule for reducing it to the cap. If borrowing above the cap is thus permitted in any fiscal year, it is required by law to be reduced to the cap by the fourth fiscal year after the limit was first exceeded. This provision capping the seasonal borrowing was included as a covenant with LGAC's bondholders in the resolutions authorizing such bonds. As of June 1995, LGAC had issued bonds to provide net proceeds of $4.7 billion, completing the program. The impact of LGAC's borrowing, as well as other changes in revenue and spending patterns, is that the State has been able to meet its cash flow needs throughout the fiscal year without relying on short-term seasonal borrowing. Financing Activities. State financing activities include general obligation debt of the State and State-guaranteed debt, to which the full faith and credit of the State has been pledged, as well as lease-purchase and contractual-obligation financings, moral obligation financings and other financings through public authorities and municipalities, where the State's obligation to make payments for debt service is generally subject to annual appropriation by the State Legislature. As of March 31, 1999, the total amount of outstanding general obligation debt was approximately $4.825 billion, including $185 million in bond anticipation notes. The total amount of moral obligation debt was $629 million (down from $1.39 billion as of March 31, 1998). $25.902 billion of bonds issued primarily in connection with lease-purchase and contractual-obligation financing of State capital programs were outstanding. For purposes of analyzing the financial condition of the State, debt of the State and of certain public authorities may be classified as State-supported debt, which includes general obligation debt of the State, LGAC debt and lease purchase and contractual obligations of public authorities (and municipalities) where debt service is paid from State appropriations (including dedicated tax sources, and other revenues such as patient charges and dormitory facilities rentals). In addition, a broader classification, referred to as State-related debt, includes State-supported debt, as well as certain types of contingent obligations, including moral obligation financing, certain contingent contractual-obligation financing arrangements, and State- guaranteed debt, where debt service is expected to be paid from other sources and State appropriations are contingent in that they may be made and used only under certain circumstances. The total amount of State-supported debt outstanding grew from 3.48 percent of personal income in the State in the 1989-1990 fiscal year to 6.21 percent for the 1998-1999 fiscal year while State-related debt III-14 outstanding remained relatively stable at 6.53 percent of personal income for the same period. Thus, State-supported debt grew at a faster rate than personal income while State-related obligations grew at a slightly slower rate. At the end of the 1998-1999 fiscal year, there was $37.74 billion of outstanding State-related debt and $35.84 billion of outstanding State- supported debt. During the prior ten years, State-supported long-term debt service increased on an average annual basis by 8.8 percent to $3.39 billion by the 1998-1999 fiscal year while all governmental funds receipts increased on an average annual basis of 5.3 percent. This resulted in a general trend of increases in the ratio of debt service to receipts from fiscal year 1989-1990 to fiscal year 1998-1999. Public Authorities. The fiscal stability of the State is related, in part, to the fiscal stability of its public authorities. Public authorities are not subject to the constitutional restrictions on the incurring of debt which apply to the State itself, and may issue bonds and notes within the amounts of, and as otherwise restricted by, their legislative authorization. As of December 31, 1998, there were 17 public authorities that had outstanding debt of $100 million or more, and the aggregate outstanding debt, including refunding bonds, of all State public authorities was $94 billion, up from $84 billion as of December 31, 1997. The State's access to the public credit markets could be impaired and the market price of its outstanding debt may be adversely affected if any of its public authorities were to default on their respective obligations. Ratings. As of June 15, 1999, Moody's and Standard & Poor's rated the State's outstanding general obligation bonds A2 and A, respectively. Standard & Poor's revised its ratings upward from A- to A on August 28, 1997. Ratings reflect only the respective views of such organizations, and explanation of the significance of such ratings must be obtained from the rating agency furnishing the same. There is no assurance that a particular rating will continue for any given period of time or that any such rating will not be revised downward or withdrawn entirely if, in the judgment of the agency originally establishing the rating, circumstances so warrant. A downward revision or withdrawal of such ratings may have an effect on the market price of the New York Municipal Bonds in which the Fund invests. Litigation. The State is a defendant in numerous legal proceedings including, but not limited to, claims asserted against the State arising from alleged torts, alleged breaches of contracts, condemnation proceedings and other alleged violations of State and Federal laws. State programs are frequently challenged on State and Federal constitutional grounds. Adverse developments in legal proceedings or the initiation of new proceedings could affect the ability of the State to maintain a balanced State Financial Plan in any given fiscal year. There can be no assurance that an adverse decision in one or more legal proceedings would not exceed the amount the State reserves for the payment of judgments or materially impair the State's financial operations. In its audited financial statements for the fiscal year ended March 31, 1999, the State reported its estimated liability for awarded and anticipated unfavorable judgments at $895 million. Other Localities. Certain localities outside the City have experienced financial problems and have requested and received additional State assistance during the last several State fiscal years. The potential impact on the State of such actions by localities is not included in the projections of the State receipts and disbursements for the State's 1999-2000 fiscal year. In 1997, the total indebtedness of all localities in the State, other than the City, was approximately $21.0 billion. A small portion (approximately $80 million) of that indebtedness represented borrowing to finance budgetary deficits and was issued pursuant to enabling State legislation. III-15 EXHIBIT IV RATINGS OF MUNICIPAL BONDS 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 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 arc rated C are the lowest rated class of bonds and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing. Note: These bonds in the Aa, A, Baa, Ba and B groups which Moody's believes possess the strongest investment attributes are designated by the symbols Aal, Al, Baal, Bal and Bl. Short-term Notes: The three ratings of Moody's for short-term notes are MIG 1/VMIG 1, MIG 2/VMIG 2, and MIG 3/VMIG 3; MIG 1 /VMIG 1 denotes "best quality, enjoying strong protection from established cash flows"; MIG 2/VMIG 2 denotes "high quality" with "ample margins of protection"; MIG 3/VMIG 3 instruments are of "favorable quality . . . but . . . lacking the undeniable strength of the preceding grades." IV-1 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 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 due date even if the applicable grace period has not expired, unless Standard & Poors 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 IV-3 on the likelihood of or the risk of default upon failure of such completion. The investor should exercise his own judgment with respect to such likelihood and risk. Continuance of the ratings is contingent upon Standard & Poor's receipt of an executed copy of the escrow agreement or closing documentation confirming investments and cash flows. r-The "r" highlights derivative, hybrid, and certain other obligations that Standard & Poor's believes may experience high volatility or high variability in expected returns as a result of noncredit risks. Examples of such obligations are securities with principal or interest return indexed to equities, commodities, or currencies; certain swaps and options; and interest-only and principal-only mortgage securities. The absence of an "r" symbol should not be taken as an indication that an obligation will exhibit no volatility or variability in total return. 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. IV-4 Fitch ratings are not recommendations to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect of any security. Fitch ratings are based on information obtained from issuers, other obligors, underwriters, their experts, and other sources Fitch believes to be reliable. Fitch does not audit or verify the truth or accuracy of such information. Ratings may be changed, suspended, or withdrawn as a result of changes in, or the unavailability of, information or for other reasons. 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. IV-5 Ratings Outlook An outlook is used to describe the most likely direction of any rating change over the intermediate term. It is described as "Positive" or "Negative." The absence of a designation indicates a stable outlook. Description of Fitch's Speculative Grade Bond Ratings Fitch speculative grade bond ratings provide a guide to investors in determining the credit risk associated with a particular security. The ratings ("BB" to "C") represent Fitch's assessment of the likelihood of timely payment of principal and interest in accordance with the terms of obligation for bond issues not in default. For defaulted bonds, the rating ("DDD" to "D") is an assessment of the ultimate recovery value through reorganization or liquidation. The rating takes into consideration special features of the issue, its relationship to other obligations of the issuer, the current and prospective financial condition and operating performance of the issuer and any guarantor, as well as the economic and political environment that might affect the issuer's future financial strength. Bonds that have the rating are of similar but not necessarily identical credit quality since rating categories cannot fully reflect the differences in degrees of credit risk. BB--Bonds are considered speculative. The obligor's ability to pay interest and repay principal may be affected over time by adverse economic changes. However, business and financial alternatives can be identified which could assist the obligor in satisfying its debt service requirements. B--Bonds are considered highly speculative. While bonds in this class are currently meeting debt service requirements, the probability of continued timely payment of principal and interest reflects the obligor's limited margin of safety and the need for reasonable business and economic activity throughout the life of the issue. CCC--Bonds have certain identifiable characteristics which, if not remedied, may lead to default. The ability to meet obligations requires an advantageous business and economic environment. CC--Bonds are minimally protected. Default in payment of interest and/or principal seems probable over time. C--Bonds are in imminent default in payment of interest or principal. DDD, DD, D--Bonds are in default on interest and/or principal payments. Such bonds are extremely speculative and should be valued on the basis of their ultimate recovery value in liquidation or reorganization of the obligor. "DDD" represents the highest potential for recovery on these bonds, and "D" represents the lowest potential for recovery. 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. IV-6 Fitch short-term ratings are as follows: F-1+ Exceptionally Strong Credit Quality. Issues assigned this rating are regarded as having the strongest degree of assurance for timely payment. F-1 Very Strong Credit Quality. Issues assigned this rating reflect an assurance of timely payment only slightly less in degree than issues rated "F-l+". F-2 Good Credit Quality. Issues assigned this rating have a satisfactory degree of assurance for timely payment, but the margin of safety is not as great as for issues assigned "F-1+" and "F-l" ratings. F-3 Fair Credit Quality. Issues assigned this rating have characteristics suggesting that the degree of assurance for timely payment is adequate; however, near-term adverse changes could cause these securities to be rated below investment grade. F-S Weak Credit Quality. Issues assigned this rating have characteristics suggesting a minimal degree of assurance for timely payment and are vulnerable to near-term adverse changes in financial and economic conditions. D Default. Issues assigned this rating are in actual or imminent payment default. LOC The symbol "LOC" indicates that the rating is based on a letter of credit issued by a commercial bank. IV-7 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 New York 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 New York 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 New York 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 New York 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 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 PART C OTHER INFORMATION Item 15. Indemnification. Section 2-418 of the General Corporation Law of the State of Maryland, Article VI of the Registrant's Amended and Restated Articles of Incorporation, a form of which was previously filed as an exhibit to the Common Stock Registration Statement (defined below); Article VI of the Registrant's By- Laws, which was previously filed as an exhibit to the Common Stock Registration Statement, and the Investment Advisory Agreement, a form of which was previously filed as an exhibit to the Common Stock Registration Statement, provide for indemnification. Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended (the "1933 Act"), may be provided to directors, officers and controlling persons of the Registrant, pursuant to the foregoing provisions or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the 1933 Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in connection with any successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the 1933 Act and will be governed by the final adjudication of such issue. Reference is made to (i) Section 6 of the Purchase Agreement relating to the Registrant's Common Stock, a form of which was filed as an exhibit to the Common Stock Registration Statement, and (ii) Section 7 of the Purchase Agreement relating to the Registrant's AMPS, a form of which was filed as an exhibit to the AMPS Registration Statement (defined below), for provisions relating to the indemnification of the underwriter. Item 16. Exhibits. 1(a) --Articles of Incorporation of the Registrant, dated December 17, 1991. (b) --Articles of Amendment relating to name change. (c) --Form of Articles Supplementary creating the Series A AMPS and the Series B AMPS. (d) --Form of Articles Supplementary creating the Series C AMPS, the Series D AMPS and the Series E AMPS.(b) 2 --By-Laws of the Registrant. 3 --Not Applicable. 4 --Form of Agreement and Plan of Reorganization among the Registrant and MuniYield New York Insured Fund II, Inc. (included in Exhibit II to the Proxy Statement and Prospectus contained in this Registration Statement). 5(a) --Copies of instruments defining the rights of stockholders, including the relevant portions of the Articles of Incorporation and the By-Laws of the Registrant.(a) 6 --Form of Investment Advisory Agreement between the Registrant and Fund Asset Management, L.P. 7(a) --Form of Purchase Agreement for the Common Stock. (b) --Form of Purchase Agreement for the AMPS. (c) --Form of Merrill Lynch Standard Dealer Agreement. 8 --Not applicable. 9 --Custodian Contract between the Registrant and The Bank of New York.
C-1 10 --Not applicable. 11 --Opinion and Consent of Brown & Wood LLP, counsel for the Registrant. 12 --Private Letter Ruling from the Internal Revenue Service.* 13(a) --Transfer Agency, Dividend Disbursing Agency and Shareholder Servicing Agency Agreement between the Registrant and The Bank of New York. (b) --Form of Auction Agent Agreement between the Registrant and IBJ Whitehall Bank & Trust Company. (c) --Form of Broker-Dealer Agreement. (d) --Form of Letter of Representations. 14(a) --Consent of Deloitte & Touche LLP, independent auditors for the Registrant. (b) --Consent of Deloitte & Touche LLP, independent auditors for MuniYield New York Insured Fund II, Inc. for each of the years in the four-year period ended October 31, 1996 and the period June 26, 1992 to October 31, 1992. (c) --Consent of Ernst & Young LLP, independent auditors for MuniYield New York Insured Fund II, Inc. for each of the two years in the period ended October 31, 1998. 15 --Not applicable. 16 --Power of Attorney (Included on the signature page of this Registration Statement).
- -------- * To be filed by amendment. (a) Reference is made to Article V, Article VI (sections 2, 3, 4, 5 and 6), Article VII, Article VIII, Article X, Article XI, Article XII and Article XIII of the Registrant's Articles of Incorporation, previously filed as Exhibit (1) to the Common Stock Registration Statement, and to Article II, Article III (sections 1, 2, 3, 5 and 17), Article VI, Article VII, Article XII, Article XIII and Article XIV of the Registrant's By-Laws previously filed as Exhibit (2) to the Common Stock Registration Statement. Reference is also made to the Form of Articles Supplementary filed as Exhibit 1(d) to the AMPS Registration Statement and as Exhibit 1(e) hereto. (b) Filed on October 4, 1999 as an Exhibit to the Registrant's Registration Statement on Form N-14 (File No. 333-88423). 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, either a copy of the Internal Revenue Service private letter ruling applied for or an opinion of counsel as to certain tax matters, within a reasonable time after receipt of such ruling or opinion. C-2 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 New York Insured Fund, Inc. (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.
Signatures Title Date ---------- ----- ---- /s/ Terry K. Glenn President and Director November 9, 1999 ______________________________________ (Principal Executive (Terry K. Glenn) Officer) /s/ Donald C. Burke Treasurer (Principal November 9, 1999 ______________________________________ Financial and Accounting (Donald C. Burke) Officer) /s/ James H. Bodurtha Director November 9, 1999 ______________________________________ (James H. Bodurtha) /s/ Herbert I. London Director November 9, 1999 ______________________________________ (Herbert I. London) /s/ Robert R. Martin Director November 9, 1999 ______________________________________ (Robert R. Martin) /s/ Joseph L. May Director November 9, 1999 ______________________________________ (Joseph L. May) /s/ Andre F. Perold Director November 9, 1999 ______________________________________ (Andre F. Perold) /s/ Arthur Zeikel Director November 9, 1999 ______________________________________ (Arthur Zeikel)
C-3 EXHIBIT INDEX
Exhibit Numbers Description ------- ----------- 1(a) --Articles of Incorporation of the Registrant. (b) --Articles of Amendment relating to name change. (c) --Form of Articles Supplementary creating the Series A AMPS and the Series B 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 Stock. (b) --Form of Purchase Agreement for the AMPS. (c) --Form of Merrill Lynch Standard Dealer Agreement. 9 --Custodian Contract between the Registrant and The Bank of New York. 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 the Registrant and The Bank of New York. (b) --Form of Auction Agent Agreement between the Registrant and IBJ Whitehall Bank and Trust Company. (c) --Form of Broker-Dealer Agreement. (d) --Form of Letter of Representations. 14(a) --Consent of Deloitte & Touche LLP, independent auditors for the Registrant. (b) --Consent of Deloitte & Touche LLP, independent auditors for MuniYield New York Insured Fund II, Inc. for each of the years in the four-year period ended October 31, 1996 and the period June 26, 1992 to October 31, 1992. (c) --Consent of Ernst & Young LLP, independent auditors for MuniYield New York Insured Fund II, Inc. for each of the two years in the period ended October 31, 1998.
[Proxy Card Front] COMMON STOCK MUNIYIELD NEW YORK INSURED FUND, INC. P.O. BOX 9011 PRINCETON, NEW JERSEY 08543-9011 PROXY This proxy is solicited on behalf of the Board of Directors The undersigned hereby appoints Terry K. Glenn, Donald C. Burke and Alice A. Pellegrino as proxies, each with the power to appoint his or her substitute, and hereby authorizes each of them to represent and to vote, as designated on the reverse hereof, all of the Common Stock of MuniYield New York Insured Fund, Inc. (the "Fund") held of record by the undersigned on October 20, 1999 at the Special Meeting of Stockholders of the Fund to be held on December 15, 1999, or any adjournment thereof. This proxy when properly executed will be voted in the manner herein directed by the undersigned stockholder. If no direction is made, this proxy will be voted "FOR" Proposal 1. By signing and dating the reverse side of this card, you authorize the proxies to vote this proposal as marked, or if not marked, to vote "FOR" this proposal, and to use their discretion to vote for any other matter as may properly come before the meeting on 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) [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 between the Fund and MuniYield New York Insured Fund II, Inc. FOR [_] AGAINST [_] ABSTAIN [_] 2. In the discretion of such proxies, upon such other business as properly may come before the meeting or any adjournment thereof. Please sign exactly as name appears hereon. When shares are held by joint tenants, both should sign. When signing as attorney or as executor, administrator, trustee or guardian, please give full title as such. If a corporation, please sign in full corporate name by president or other authorized officer. If a partnership, please sign in partnership name by authorized persons. Dated: ______________________________ X _____________________________________________ Signature X _____________________________________________ Signature, if held jointly Sign, date, and return the Proxy Card promptly using the enclosed envelope. [Proxy Card Front] AUCTION MARKET PREFERRED STOCK MUNIYIELD NEW YORK INSURED FUND, INC. P.O. BOX 9011 PRINCETON, NEW JERSEY 08543-9011 PROXY This proxy is solicited on behalf of the Board of Directors The undersigned hereby appoints Terry K. Glenn, Donald C. Burke and Alice A. Pellegrino as proxies, each with the power to appoint his or her substitute, and hereby authorizes each of them to represent and to vote, as designated on the reverse hereof, all the Auction Market Preferred Stock of MuniYield New York Insured Fund, Inc. (the "Fund") held of record by the undersigned on October 20, 1999 at the Special Meeting of Stockholders of the Fund to be held on December 15, 1999, or any adjournment thereof. This proxy when properly executed will be voted in the manner herein directed by the undersigned stockholder. If no direction is made, this proxy will be voted "FOR" Proposal 1. By signing and dating the reverse side of this card, you authorize the proxies to vote this proposal as marked, or if not marked, to vote "FOR" this 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) [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 between the Fund and MuniYield New York Insured Fund II, Inc. FOR [_] AGAINST [_] ABSTAIN [_] 2. In the discretion of such proxies, upon such other business as properly may come before the meeting or any adjournment thereof. If the undersigned is a broker-dealer, it hereby instructs the proxies, pursuant to Rule 452 of the New York Stock Exchange, to vote any uninstructed Auction Market Preferred Stock, in the same proportion as votes cast by holders of Auction Market Preferred Stock, who have responded to this proxy solicitation. Please sign exactly as name appears hereon. When shares are held by joint tenants, both should sign. When signing as attorney or as executor, administrator, trustee or guardian, please give full title as such. If a corporation, please sign in full corporate name by president or other authorized officer. If a partnership, please sign in partnership name by authorized persons. Dated: ______________________________ X _____________________________________________ Signature X _____________________________________________ Signature, if held jointly Sign, date, and return the Proxy Card promptly using the enclosed envelope. [Proxy Card Front] COMMON STOCK MUNIYIELD NEW YORK INSURED FUND II, INC. P.O. BOX 9011 PRINCETON, NEW JERSEY 08543-9011 PROXY This proxy is solicited on behalf of the Board of Directors The undersigned hereby appoints Terry K. Glenn, Donald C. Burke and Alice A. Pellegrino as proxies, each with the power to appoint his or her substitute, and hereby authorizes each of them to represent and to vote, as designated on the reverse hereof, all of the Common Stock of MuniYield New York Insured Fund II, Inc. (the "Fund") held of record by the undersigned on October 20, 1999 at the Special Meeting of Stockholders of the Fund to be held on December 15, 1999, or any adjournment thereof. This proxy when properly executed will be voted in the manner herein directed by the undersigned stockholder. If no direction is made, this proxy will be voted "FOR" Proposal 1. By signing and dating the reverse side of this card, you authorize the proxies to vote this proposal as marked, or if not marked, to vote "FOR" this 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) [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 between the Fund and MuniYield New York Insured Fund, Inc. FOR [_] AGAINST [_] ABSTAIN [_] 2. In the discretion of such proxies, upon such other business as properly may come before the meeting or any adjournment thereof. Please sign exactly as name appears hereon. When shares are held by joint tenants, both should sign. When signing as attorney or as executor, administrator, trustee or guardian, please give full title as such. If a corporation, please sign in full corporate name by president or other authorized officer. If a partnership, please sign in partnership name by authorized persons. Dated: ______________________________ X _____________________________________________ Signature X _____________________________________________ Signature, if held jointly Sign, date, and return the Proxy Card promptly using the enclosed envelope. [Proxy Card Front] AUCTION MARKET PREFERRED STOCK MUNIYIELD NEW YORK INSURED FUND II, INC. P.O. BOX 9011 PRINCETON, NEW JERSEY 08543-9011 PROXY This proxy is solicited on behalf of the Board of Directors The undersigned hereby appoints Terry K. Glenn, Donald C. Burke and Alice A. Pellegrino as proxies, each with the power to appoint his or her substitute, and hereby authorizes each of them to represent and to vote, as designated on the reverse hereof, all the Auction Market Preferred Stock of MuniYield New York Insured Fund II, Inc. (the "Fund") held of record by the undersigned on October 20, 1999 at the Special Meeting of Stockholders of the Fund to be held on December 15, 1999, or any adjournment thereof. This proxy when properly executed will be voted in the manner herein directed by the undersigned stockholder. If no direction is made, this proxy will be voted "FOR" Proposal 1. By signing and dating the reverse side of this card, you authorize the proxies to vote this proposal as marked, or if not marked, to vote "FOR" this 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) [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 between the Fund and MuniYield New York Insured Fund, Inc. FOR [_] AGAINST [_] ABSTAIN [_] 2. In the discretion of such proxies, upon such other business as properly may come before the meeting or any adjournment thereof. If the undersigned is a broker-dealer, it hereby instructs the proxies, pursuant to Rule 452 of the New York Stock Exchange, to vote any uninstructed Auction Market Preferred Stock, in the same proportion as votes cast by holders of Auction Market Preferred Stock, who have responded to this proxy solicitation. Please sign exactly as name appears hereon. When shares are held by joint tenants, both should sign. When signing as attorney or as executor, administrator, trustee or guardian, please give full title as such. If a corporation, please sign in full corporate name by president or other authorized officer. If a partnership, please sign in partnership name by authorized persons. Dated: ______________________________ X _____________________________________________ Signature X _____________________________________________ Signature, if held jointly Sign, date, and return the Proxy Card promptly using the enclosed envelope. EX-99.1A 2 ARTICLES OF INCORPORATION OF THE REGISTRANT Exhibit 1(a) ARTICLES OF INCORPORATION OF NEW YORK MUNIYIELD FUND, INC. ARTICLE I THE UNDERSIGNED, M. ROSALIE BUENAVENTURA, Whose post-office address is One World Trade Center, Now York, Now York 100480557, being at least eighteen (18) years of age, does hereby act as an incorporator, under and by virtue of the General Laws of the State of Maryland authorizing the formation of corporations and with the intention of forming a corporation. ARTICLE II NAME ---- The name of the corporation is NEW YORK MUNIYIELD FUND, INC. (the "Corporation"). ARTICLE III PURPOSES AND POWERS ------------------- The purpose or purposes for which the Corporation is formed is to act as a closed-end, management investment company under the federal Investment Company Act of 1940, as amended, and to exercise and enjoy all of the powers, rights and privileges granted to, or conferred upon, corporations by the General Laws of the State of Maryland now or hereafter in force. ARTICLE IV PRINCIPAL OFFICE AND RESIDENT AGENT ----------------------------------- The post-office address of the principal office of the Corporation in the State of Maryland is c/o The Corporation Trust Incorporated, 32 South Street, Baltimore, Maryland 21202. The name of the resident agent of the Corporation in this State is The Corporation Trust Incorporated, a corporation of this State, and the post-office address of the resident agent is The Corporation Trust Incorporated, 32 South Street, Baltimore, Maryland 21202. ARTICLE V CAPITAL STOCK ------------- (1) The total number of shares of capital stock which the Corporation shall have authority to issue is Two Hundred Million (200,000,000) shares, all of one class called Common Stock, of the par value of Ten Cents ($0.10) per share and of the aggregate par value of Twenty Million Dollars ($20,000,000). (2) The Board of Directors may classify and reclassify any unissued shares of capital stock into one or more additional or other classes or series as may be established from time to time by setting or changing in any one or more respects the designations, preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends, qualifications or terms or conditions of redemption of such shares of stock and pursuant to such classification or reclassification to increase or decrease the number of authorized shares of any existing class or series. (3) Unless otherwise expressly provided in the charter of the Corporation, including any Articles Supplementary creating any class or series of capital stock, the holders of each class or series of capital stock shall be entitled to dividends and distributions in such amounts and at such times as may be determined by the Board of Directors, and the dividends and distributions paid with respect to the various classes or series of capital stock may vary among such classes and series. 2 (4) Unless otherwise expressly provided in the charter of the Corporation, including any Articles Supplementary creating any class or series of capital stock, on each matter submitted to vote of stockholders, each holder of a share of capital stock of the Corporation shall be entitled to one vote for each share standing in such holders name on the books of the Corporation, irrespective of the class or series thereof, and all shares of all classes and series shall vote together as a single class; provided, however, that as to any matter with respect to which a separate vote of any class or series is required by the Investment Company Act of 1940, as amended, and in effect from time to time, or any rules, regulations or orders issued thereunder, or by the Maryland General Corporation Law, such requirement as to a separate vote by that class or series shall apply in lieu of a general vote of all classes and series as described above. (5) Notwithstanding any provision of the Maryland General Corporation Law requiring a greater proportion than a majority of the votes of all classes or series of capital stock of the Corporation (or of any class or series entitled to vote thereon as a separate class or series) to take or authorize any action, the Corporation is hereby authorized (subject to the requirements of the Investment Company Act of 1940, as amended, and in effect from time to time, and any rules, regulations and orders issued thereunder) to take such action upon the concurrence of a majority of the aggregate number of shares of capital stock of the Corporation entitled to vote thereon (or a majority of the aggregate number of shares of a class or series entitled to vote thereon as a separate class or series). (6) Unless otherwise expressly provided in the charter of the Corporation, including any Articles Supplementary creating any class or series of capital stock, in the event of any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, the holders of all classes and series of capital stock of the Corporation shall be entitled, after 3 payment or provision for payment of the debts and other liabilities of the Corporation, to share ratably in the remaining net assets of the Corporation. (7) Any fractional shares shall carry proportionately all the rights of a whole share, excepting any right to receive a certificate evidencing such fractional share, but including, without limitation, the right to vote and the right to receive dividends. (8) All persons who shall acquire stock in the Corporation shall acquire the same subject to the provisions of the charter and By-Laws of the Corporation. As used in the charter of the Corporation, the terms "charter" and "Articles of Incorporation" shall mean and include the Articles of Incorporation of the Corporation as amended, supplemented and restated from time to time by Articles of Amendment, Articles Supplementary, Articles of Restatement or otherwise. ARTICLE VI PROVISIONS FOR DEFINING, LIMITING AND REGULATING CERTAIN POWERS OF THE CORPORATION AND OF THE DIRECTORS AND STOCKHOLDERS ------------------------------------- (1) The number of directors of the Corporation shall be three (3), which number may be changed pursuant to the By-Laws of the Corporation but shall never be less than three (3). The names of the directors who shall act until the first annual meeting or until their successors are duly elected and qualify are: Philip L. Kirstein Mark B. Goldfus Susan B. Baker (2) The Board of Directors of the Corporation is hereby empowered to authorize the issuance from time to time of shares of capital stock, whether now or hereafter authorized, for such consideration an the Board of Directors may deem advisable, subject to such limitations as 4 may be set forth in these Articles of Incorporation or in the By-Laws of the Corporation or in the General Laws of the State of Maryland. (3) Each director and each officer of the Corporation shall be indemnified by the Corporation to the full extent permitted by the General Laws of the State of Maryland, subject to the requirements of the Investment Company Act of 1940, as amended. No amendment of these Articles of Incorporation or repeal of any provision hereof shall limit or eliminate the benefits provided to directors and officers under this provision in connection with any act or omission that occurred prior to such amendment or repeal. (4) To the fullest extent permitted by the General Laws of the State of Maryland, subject to the requirements of the Investment Company Act of 1940, as amended, no director or officer of the Corporation shall be personally liable to the Corporation or its security holders for money damages. No amendment of these Articles of Incorporation or repeal of any provision hereof shall limit or eliminate the benefits provided to directors and officers under this provision in connection with any act or omission that occurred prior to such amendment or repeal. (5) The Board of Directors of the Corporation may make, alter or repeal from time to time any of the By-Laws of the Corporation except any particular By-Law which is specified as not subject to alteration or repeal by the Board of Directors, subject to the requirements of the Investment Company Act of 1940, as amended. (6) A director elected by the holders of capital stock may be removed (with or without cause), but only by action taken by the holders of at least sixty- six and two-thirds percent (66 2/3%) of the shares of capital stock then entitled to vote in an election to fill that directorship. 5 ARTICLE VII DENIAL OF PREEMPTIVE RIGHTS --------------------------- No shareholder of the Corporation shall by reason of his holding shares of capital stock have any preemptive or preferential right to purchase or subscribe to any shares of capital stock of the Corporation, now or hereafter to be authorized, or any notes, debentures, bonds or other securities convertible into shares of capital stock, now or hereafter to be authorized, whether or not the issuance of any such shares, or notes, debentures, bonds or other securities would adversely affect the dividend or voting rights of such shareholder; and the Board of Directors may issue shares of any class of the Corporation, or any notes, debentures, bonds, other securities convertible into shares of any class, either whole or in part, to the existing shareholders. ARTICLE VIII DETERMINATION BINDING --------------------- Any determination made in good faith, so far as accounting matters are involved, in accordance with accepted accounting practice by or pursuant to the direction of the Board of Directors, as to the amount of assets, obligations or liabilities of the Corporation, as to the amount of net income of the Corporation from dividends and interest for any period or amounts at any time legally available for the payment of dividends, as to the amount of any reserves or charges set up and the propriety thereof, as to the time of or purpose for creating reserves or as to the use, alteration or cancellation of any reserves or charges (whether or not any obligation or liability for which such reserves or charges shall have been created, shall have been paid or discharged or shall be then or thereafter required to be paid or discharged), as to the price of any security owned by the Corporation or as to any other matters relating to the issuance, sale, 6 redemption or other acquisition or disposition of securities or shares of capital stock of the Corporation, and any reasonable determination made in good faith by the Board of Directors as to whether any transaction constitutes a purchase of securities on "margin," a sale of securities "short," or an underwriting of the sale of, or a participation in any underwriting or selling group in connection with the public distribution of, any securities, shall be final and conclusive, and shall be binding upon the Corporation and all holders of its capital stock, past, present and future, and shares of the capital stock of the Corporation are issued and sold on the condition and understanding, evidenced by the purchase of shares of capital stock or acceptance of share certificates, that any and all such determinations shall be binding as aforesaid. No provision of these Articles of Incorporation shall be effective to (a) require a waiver of compliance with any provision of the Securities Act of 1933, as amended, or the Investment Company Act of 1940, as amended, or of any valid rule, regulation or order of the Securities and Exchange Commission thereunder or (b) protect or purport to protect any director or officer of the Corporation against any liability to the corporation or its security holders to which he would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office. ARTICLE IX PERPETUAL EXISTENCE ------------------- The duration of the Corporation shall be perpetual. ARTICLE X PRIVATE PROPERTY OF STOCKHOLDERS -------------------------------- The private property of shareholders shall not be subject to the payment of corporate debts to any extent whatsoever. 7 ARTICLE XI CONVERSION TO OPEN-END COMPANY ------------------------------ Notwithstanding any other provisions of these Articles of Incorporation or the By-Laws of the Corporation, a favorable vote of the holders of at least sixty-six and two-thirds percent (66 2/3%) of the outstanding shares of capital stock of the Corporation entitled to be voted on the matter shall be required to approve, adopt or authorize an amendment to these Articles of Incorporation of the Corporation that makes the Common Stock a "redeemable security" (as that term is defined in section 2(a)(32) the Investment Company Act of 1940, as amended) unless such action has previously been approved, adopted or authorized by the affirmative vote of at least two-thirds of the total number of directors fixed in accordance with the By-Laws of the Corporation, in which case the affirmative vote of the holders of a majority of the outstanding shares of capital stock of the Corporation entitled to vote thereon shall be required. ARTICLE XII MERGER, SALE OF ASSETS, LIQUIDATION ----------------------------------- Notwithstanding any other provisions of these Articles of Incorporation or the By-Laws of the Corporation, a favorable vote of the holders of at least sixty-six and two-thirds percent (66 2/3%) of the outstanding shares of capital stock of the Corporation entitled to be voted on the matter shall be required to approve, adopt or authorize (i) a merger or consolidation or statutory share exchange of the Corporation with any other corporation, (ii) a sale of all or substantially all of the assets of the Corporation (other than in the regular course of its investment activities), or (iii) a liquidation or dissolution of the Corporation, unless such action has previously been approved, adopted or authorized by the affirmative vote of at least two-thirds of the total number of directors fixed in accordance with the By-Laws of the Corporation, in which case the 8 affirmative vote of the holders of a majority of the outstanding shares of capital stock of the Corporation entitled to vote thereon shall be required. ARTICLE XIII ------------ AMENDMENT --------- The Corporation reserves the right to amend, alter, change or repeal any provision contained in these Articles of Incorporation, in the manner now or hereafter prescribed by statute, including any amendment which alters the contract rights, as expressly set forth in the charter, of any outstanding stock and substantially adversely affects the stockholders' rights and all rights conferred upon stockholders herein are granted subject to this reservation. Notwithstanding any other provisions of these Articles of Incorporation or the By-Laws of the Corporation (and notwithstanding the fact that a lesser percentage may be specified by law, these Articles of Incorporation or the By- Laws of the Corporation) the amendment or repeal of section (5) of Article V, Section (1), Section (3), Section (4), Section (5) and Section (6) of Article VI, Article IX, Article X, Article XI, Article XII, or this Article XIII, of these Articles of Incorporation shall require the affirmative vote of the holders of at least sixty-six and two-thirds percent (66 2/3%) of the outstanding shares of capital stock of the Corporation entitled to be voted on the matter. 9 IN WITNESS WHEREOF, the undersigned incorporator of New York MuniYield Fund, Inc. hereby executes the foregoing Articles of Incorporation and acknowledges the same to be her act and further acknowledges that, to the best of her knowledge, the matters and facts set forth therein are true in all material respects under the penalties of perjury. Dated the 16th day of December 1991. ____________________________ M. Rosalie Buenaventura 10 EX-99.1B 3 ARTICLES OF AMENDMENT RELATING TO NAME CHANGE Exhibit 1(b) NEW YORK MUNIYIELD FUND, INC. ARTICLES OF AMENDMENT NEW YORK MUNIYIELD FUND, INC., a Maryland corporation having its principal office c/o The Corporation Trust Incorporated, 32 South Street, Baltimore, Maryland 21202 (hereinafter called the Corporation), hereby certifies to the State Department of Assessments and Taxation of Maryland, that: FIRST: The charter of the Corporation is hereby amended by striking out Article II of the Articles of Incorporation and inserting in lieu thereof the following: ARTICLE XIV NAME ---- The name of the corporation is MUNIYIELD NEW YORK INSURED FUND, INC. (the "Corporation"). SECOND: The foregoing amendments to the charter of the Corporation have been duly approved by the entire Board of Directors at a meeting thereof held on January 6, 1992, and at the time of the approval by the Directors there were no shares of stock of the Corporation entitled to vote on the matter either outstanding or subscribed for. The President acknowledges these Articles of Amendment to be the corporate act of the Corporation and states that to the best of his knowledge, information and belief the matters and facts set forth in these Articles with respect to the authorization and approval of the amendment of the Corporation's charter are true in all material respects, and that this statement is made under the penalties of perjury. IN WITNESS WHEREOF, New York MuniYield Fund, Inc. has caused these Articles to be signed in its name and on its behalf by its President and attested by its Secretary on January 7, 1992. NEW YORK MUNIYIELD FUND, INC. By: ----------------------------------- Philip L. Kirstein, President Attest: By: ------------------------------------ Mark B. Goldfus, Secretary 2 EX-99.1C 4 FORM OF ARTICLES SUPPLEMENTARY Exhibit 1(c) MUNIYIELD NEW YORK INSURED FUND, INC. Articles Supplementary creating two series of Auction Market Preferred Stock/R/ MUNIYIELD NEW YORK INSURED FUND, INC., a Maryland corporation having its principal Maryland office in the City of Baltimore (the "Corporation"), certifies to the State Department of Assessments and Taxation of Maryland that: FIRST: Pursuant to authority expressly vested in the Board of Directors of the Corporation by article fifth of its Charter, the Board of Directors has reclassified 1,700 authorized and unissued shares of common stock of the Corporation as preferred stock of the Corporation and has authorized the issuance of a series of preferred stock, par value $.10 per share, liquidation preference $50,000 per share plus an amount equal to accumulated but unpaid dividends (whether or not earned or declared) thereon, to be designated respectively Auction Market Preferred Stock Series A; and Auction Market Preferred Stock, Series B. SECOND: The preferences, voting powers, restrictions, limitations as to dividends, qualifications, and terms and conditions of redemption, of the shares of each such series of preferred stock are as follows: - ---------------------------- (R) Registered trademark of Merrill Lynch & Co., Inc. - -------------------------------------------------------------------------------- STATE OF MARYLAND ----------------- I hereby certify that this is a true, and complete copy of the________________ page document on file in this office. DATED:__________________________________ STATE DEPARTMENT OF ASSESSMENTS AND TAXATION BY:___________________________________________________________________________ This stamp replaces our previous certification system. Effective 10/84 - -------------------------------------------------------------------------------- DESIGNATION SERIES A: A series of 850 shares of preferred stock, par value $.10 per share, liquidation preference $50,000 per share plus an amount equal to accumulated but unpaid dividends (whether or not earned or declared) thereon, is hereby designated "Auction Market Preferred Stock, Series A." Each share of Auction Market Preferred Stock, Series A (sometimes referred to herein as "Series A AMPS") shall be issued on a date to be determined by the Board of Directors of the Corporation; have an Initial Dividend Rate and Initial Dividend Payment Date as shall be determined in advance of the issuance thereof by the Board of Directors of the Corporation; and have such other preferences, voting powers, limitations as to dividends, qualifications and terms and conditions of redemption as are set forth in these Articles Supplementary. The Auction Market Preferred Stock, Series A shall constitute a separate series of preferred stock of the corporation, and each share of Auction Market Preferred Stock, Series A shall be identical. SERIES B: A series of 850 shares of preferred stock, par value $.10 per share, liquidation preference $50,000 per share plus an amount equal to accumulated but unpaid dividends (whether or not earned or declared) thereon, is hereby designated "Auction Market Preferred Stock, Series B." Each share of Auction Market Preferred Stock, Series B (sometimes referred to herein as "Series B AMPS") shall be issued on a date to be determined by the Board of Directors of the Corporation; have an Initial Dividend Rate and Initial Dividend Payment Date as shall be determined in advance of the issuance thereof by the Board of Directors of the Corporation; and have such other preferences, voting powers, limitations as to dividends, qualifications and terms and conditions of redemption as are set forth in these Articles Supplementary. The Auction Market Preferred Stock, Series B shall constitute a separate series 2 of preferred stock of the Corporation, and each share of Auction Market Preferred Stock, Series B shall be identical. 1. Definitions. (a) Unless the context or use indicates another or ----------- different meaning or intent, in these Articles Supplementary the following terms have the following meanings, whether used in the singular or plural: "'AA' Composite Commercial Paper Rate," on any date of determination, means (i) the Interest Equivalent of the rate on commercial paper placed on behalf of issuers whose corporate bonds are rated "AA" by S&P or "Aa" by Moody's or the equivalent of such rating by another nationally recognized rating agency, as such rate is made available on a discount basis or otherwise by the Federal Reserve Bank of New York for the Business Day immediately preceding such date, or (ii) in the event that the Federal Reserve Bank of New York does not make available such a rate, then the arithmetic average of the Interest Equivalent of the rate on commercial paper placed on behalf of such issuers, as quoted on a discount basis or otherwise by Merrill Lynch, Pierce, Fenner & Smith Incorporated or its successors that are Commercial Paper Dealers, to the Auction Agent for the close of business on the Business Day immediately preceding such date. If one of the Commercial Paper Dealers does not quote a rate required to determine the "AA" Composite commercial Paper Rate, the "AA" Composite Commercial Paper Rate will be determined on the basis of the quotation or quotations furnished by any Substitute Commercial Paper Dealer or Substitute Commercial Paper Dealers selected by the Corporation to provide such rate or rates not being supplied by the Commercial Paper Dealer. If the number of Dividend Period Days shall be (i) 7 or more but fewer than 49 days, such rate shall 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; 3 (iii) 70 or more days but fewer than 85 days, such rate shall be the arithmetic average of the Interest Equivalent on the 60-day and 90-day rates on such commercial paper; (iv) 85 or more days but fewer than 99 days, such rate shall be the Interest Equivalent of the 90-day rate on such commercial paper; (v) 99 or more days but fewer than 120 days, such rate shall be the arithmetic average of the Interest Equivalent of the 90-day and 120-day rates on such commercial paper; (vi) 120 or more days, but fewer than 141 days, such rate shall be the Interest Equivalent of the 120-day rate on such commercial paper; (vii) 141 or more days but fewer than 162 days, such rate shall be the arithmetic average of the Interest Equivalent of the 120-day and 180-day rates on such commercial paper; and (viii) 162 or more days but fewer than 183 days, such rate shall be the interest Equivalent of the 180-day rate on such commercial paper. "Accountant's Confirmation" has the meaning set forth in paragraph 7(c) of these Articles Supplementary. "Additional Dividend" has the meaning set forth in paragraph 2(e) of these Articles Supplementary. "Adviser" means the Corporation's investment adviser which initially shall be Fund Asset Management, Inc. "Affiliate" shall mean any Person, other than Merrill Lynch, Pierce, Fenner & Smith Incorporated or its successors, known to the Auction Agent to be controlled by, in control of, or under common control with, the Corporation. "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. 4 "AMPS" means, as the case may be, means the Auction Market Preferred Stock, Series A; or the Auction Market Preferred Stock, Series B. "AMPS Basic Maintenance Amount," as of any Valuation Date, means the dollar amount equal to (i) the sum of (A) the product of the number of shares of AMPS of each series and Other AMPS Outstanding on such Valuation Date multiplied by the sum of (a) $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 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 potential dividend rate increase factors (currently 304%) determined from time to time by Moody's and S&P (except that if such Valuation Date occurs during a Non-Payment Period, the cash dividend for purposes of calculation would accumulate at the then current Non- Payment Period Rate); (D) the amount of anticipated expenses of the Corporation for the 90 days subsequent to such Valuation Date (including any premiums payable with respect to a Policy); (E) the amount of the Corporation's Maximum Potential Additional Dividend Liability as of such Valuation Date; and (F) any current liabilities as of such Valuation Date to the extent not reflected in any of (i)(A) through (i)(E) (including, without limitation, and immediately upon determination, any amounts due and payable by the corporation pursuant to repurchase agreements and any payables for New York Municipal Bonds or Municipal Bonds purchased as of such Valuation Date) less (ii) the sum of (A) the lesser of (1) the aggregate of (a) the book 5 value of receivables for New York Municipal Bonds or Municipal Bonds sold as of or prior to such Valuation Date if such receivables are due within five business days of such Valuation Date, and if the trades which generated such receivables are (x) settled through clearing house firms with respect to which the Corporation has received prior written authorization from Moody's or (y) with counter parties having a Moody's long-term debt rating of at least Baa3, and (b) the Discounted Value of New York Municipal Bonds or Municipal Bonds sold as of or prior to such Valuation Date which generated receivables calculated using the Moody's Discount Factor applicable to such New York Municipal Bonds or Municipal Bonds, 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 (a) and (2) the Discounted Value of such New York Municipal Bonds or Municipal Bonds calculated using the higher of the S&P Discount Factor and the Moody's Discount Factor applicable to such New York Municipal Bonds or Municipal Bonds and (B) the Discounted Value of any of the Corporation's assets irrevocably deposited by the Corporation for the payment of the amount needed to redeem shares of AMPS subject to redemption or any of (i)(B) through (i)(F). For Moody's, the corporation shall include as a liability an amount calculated semi- annually equal to 150% of the estimated cost of obtaining other insurance guaranteeing the timely payment of interest on a Moody's Eligible Asset and principal thereof to maturity with respect to Moody's Eligible Assets that (i) are covered by a Policy which provides the Corporation with the option to obtain such other insurance and (ii) are discounted by a Moody's Discount Factor determined by reference to the insurance claims-paying ability rating of the issuer of such Policy. "AMPS Basic Maintenance Cure Date," with respect to the failure by the corporation to satisfy the AMPS Basic Maintenance Amount (as required by paragraph 7(a) of these Articles 6 Supplementary) as of a given Valuation Date, means the sixth Business Day following such Valuation Date. "AMPS Basic Maintenance Report" means a report signed by any of the President, Treasurer, any Senior Vice President or any Vice President of the Corporation which sets forth, as of the related Valuation Date, the assets of the Corporation, the Market Value and the Discounted Value thereof (seriatim and in aggregate), and the AMPS Basic Maintenance Amount. "Anticipation Notes" shall mean the following New York Municipal Bonds: revenue anticipation notes, tax anticipation notes, tax and revenue anticipation notes, grant anticipation notes and bond anticipation notes. "Applicable Percentage" has the meaning set forth in paragraph 11(a)(vii) of these Articles Supplementary. "Applicable Rate" means the rate per annum at which cash dividends are payable on the AMPS or Other AMPS, as the case may be, for any Dividend Period. "Auction" means a periodic operation of the Auction Procedures. "Auction Agent" means IBJ Schroder Bank & Trust Company unless and until another commercial bank, trust company or other financial institution appointed by a resolution of the Board of Directors of the Corporation or a duly authorized committee thereof enters into an agreement with the corporation to follow the Auction Procedures for the purpose of determining the Applicable Rate and to act as transfer agent, registrar, dividend disbursing agent and redemption agent for the AMPS and Other AMPS. "Auction Procedures" means the procedures for conducting Auctions set forth in paragraph 11 of these Articles Supplementary. 7 "Broker-Dealer" shall mean any broker-dealer, or other entity permitted by law to perform the functions required of a Broker-Dealer in paragraph 11 of these Articles Supplementary, that has been selected by the Corporation and has entered into a Broker-Dealer Agreement with the Auction Agent that remains effective. "Broker-Dealer Agreement" shall mean an agreement between the Auction Agent and a Broker-Dealer pursuant to which such Broker-Dealer agrees to follow the procedures specified in paragraph 11 of these Articles Supplementary. "Business Day" means a day on which the New York Stock Exchange, Inc. is open for trading and which is not a Saturday, Sunday or other day on which banks in The City of New York are authorized or obligated by law to close. "Charter" means the Articles of Incorporation, as amended and supplemented (including these Articles Supplementary), of the Corporation on file in the State Department of Assessments and Taxation of Maryland. "Code" means the Internal Revenue Code of 1986, as amended. "Commercial Paper Dealers" means Merrill Lynch, Pierce, Fenner & Smith Incorporated and such other commercial paper dealer or dealers as the Corporation may from time to time appoint, or, in lieu of any thereof, their respective affiliates or successors. "Common Stock" means the common stock, par value $.10 per share, of the Corporation. "Corporation" means MuniYield New York Insured Fund, Inc., a Maryland corporation. "Date of Original Issue" means, with respect to any share of AMPS or Other AMPS, the date on which the corporation originally issues such share. "Deposit Securities" means cash and New York Municipal Bonds and Municipal Bonds rated at least AAA, A-I+ or SP-l+ by S&P. 8 "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 that follows such Valuation Date plus (ii) the aggregate amount of all liabilities existing on such Valuation Date which are payable on or prior to such next Dividend Payment Date less (B) the sum of (i) the combined Market Value of Deposit Securities irrevocably deposited with the Auction Agent for the payment of cash dividends on all shares of AMPS and Other AMPS, (ii) the book value of receivables for New York Municipal Bonds and Municipals 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 in New York Municipal Bonds and Municipal Bonds which is scheduled to be paid on or prior to such next Dividend Payment Date. "Dividend Coverage Assets," as of any Valuation Date, means, in the case of shares of AMPS and other AMPS, Deposit Securities with maturity or tender payment dates not later in each case than the Dividend Payment Date therefor that follows such Valuation Date. "Dividend Payment Date," with respect to AMPS, has the meaning set forth in paragraph 2(b)(i) of these Articles Supplementary and, with respect to Other AMPS, has the equivalent meaning. 9 "Dividend Period" means the Initial Dividend Period, any 7-day Dividend Period, any 28-day Dividend Period and any special Dividend Period. "Existing Holder" means a Person who has signed a Purchaser's Letter and is listed as the holder of record of shares of AMPS in the Stock Books. "Forward Commitment" has the meaning set forth in paragraph 9(c) of these Articles Supplementary. "Holder" means a Person identified as a holder of record of shares of AMPS in the Stock Register. "Independent Accountant" means a nationally recognized accountant, or firm of accountants, that is, with respect to the corporation, an independent public accountant or firm of independent public accountants under the Securities Act of 1933, as amended. "Initial Dividend Payment Date" means the Initial Dividend Payment Date as determined by the Board of Directors of the Corporation with respect to each series of AMPS or Other AMPS, as the case may be. "Initial Dividend Period," with respect to each series of AMPS, has the meaning set forth in paragraph 2(c)(i) of these Articles Supplementary and, with respect to other AMPS, has the equivalent meaning. "Initial Dividend Rate," with respect to each series of AMPS, means the rate per annum applicable to the Initial Dividend Period for such series of AMPS and, with respect to Other AMPS, has the equivalent meaning. "Initial Margin" means the amount of cash or securities deposited with a broker as a margin payment at the time of purchase or sale of a futures contract. 10 "Interest Equivalent" means a yield on a 360-day basis of a discount basis security which is equal to the yield on an equivalent interest-bearing security. "Long Term Dividend Period" means a Special Dividend Period consisting of a specified period of whole years 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. "Market Value" of any asset of the Corporation shall be the market value thereof determined by the Pricing service. Market Value of any asset shall include any interest accrued thereon. The Pricing Service shall value portfolio securities at the quoted bid prices or the mean between the quoted bid and asked price or the yield equivalent when quotations are not readily available. Securities for which quotations are not readily available shall be valued at fair value as determined by the Pricing service using methods which include consideration of: yields or prices of municipal bonds of comparable quality, type of issue, coupon, maturity and rating; indications as to value from dealers; and general market conditions. The Pricing Service may employ electronic data processing techniques and/or a matrix system to determine valuations. In the event the Pricing Service is unable to value a security, the security shall be valued at the lower of two dealer bids obtained by the Corporation, 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. 11 "Maximum Applicable Rate," with respect to AMPS, has the meaning set forth in paragraph 11(a)(vii) of these Articles Supplementary and, with respect to Other AMPS, has the equivalent meaning. "Maximum Potential Additional Dividend Liability," as of any Valuation Date, means the aggregate amount of Additional Dividends that would be due if the Corporation were to make Retroactive Taxable Allocations, with respect to any fiscal year, estimated based upon dividends paid and the amount of undistributed realized net capital gains and other taxable income earned by the corporation, as of the end of the calendar month immediately preceding such Valuation Date and assuming such Additional Dividends are fully taxable. "Minimum Liquidity Level" means, as of any Valuation Date, an aggregate Market Value of the Corporation's Dividend Coverage Assets not less than the Dividend Coverage Amount. "Moody's" means Moody's Investors Service or its successors. "Moody's Discount Factor" means, for purposes of determining the Discounted Value of any New York Municipal Bond or Municipal Bond which constitutes a Moody's Eligible Asset, the percentage determined by reference to (a)(i) the rating by Moody's or S&P on such Bond or (ii) in the event the Moody's Eligible Asset is insured under a Policy and the terms of the Policy permit the Corporation, at its option, to obtain other insurance guaranteeing the timely payment of interest on such Moody's Eligible Asset and principal thereof to maturity, the Moody's insurance claims-paying ability rating of the issuer of the Policy or (iii) in the event the Moody's Eligible Asset is insured under an insurance policy which guarantees the timely payment of interest on such Moody's Eligible Asset and principal thereof to maturity, the Moody's insurance claims- paying ability rating of the issuer of the insurance policy (provided that for purposes of clauses (ii) and (iii) if the insurance claims-paying ability of an issuer of a Policy or insurance; 12 policy is not rated by Moody's but is rated by S&P, such issuer shall be deemed to have a Moody's insurance claims-paying ability rating which is one full category lower than the S&P insurance claims-paying ability rating) and (b) the Moody's Exposure Period, in accordance with the table set forth below:
Rating Category --------------------------------------------------- Moody's Exposure Period Aaa* Aa* A* Baa* Other** VM1G-1*** SP-1+*** - --------------------------- --- --- -- ---- ------- --------- -------- 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
- ---------------- * Moody's rating. ** New York Municipal Bonds and Municipal Bonds not rated by Moody's but rated BBB or BBB+ by S&P. *** New York Municipal Bonds and Municipal Bonds rated MIG-1 or VMIG-l or, if not rated by Moody's, rated SP-l+ by S&P which do not mature or have a demand feature at par exercisable within the Moody's Exposure Period and which do not have a long-term rating. For the purposes of the definition of Moody's Eligible Assets, these securities will have an assumed rating of "A" by Moody's. provided, however, in the event a Moody's Discount Factor applicable to a Moody's Eligible Asset is determined by reference to an insurance claims-paying ability rating in accordance with clause (a)(ii) or (a)(iii), such Moody's Discount Factor shall be increased by an amount equal to 50% of the difference between (a) the percentage set forth in the foregoing table under the applicable rating category and (b) the percentage set forth in the foregoing table under the rating category which is one category lower than the applicable rating category. Notwithstanding the foregoing, (i) no Moody's Discount Factor will be applied to short-term New York Municipal Bonds and short-term Municipal Bonds so long as such New York Municipal Bonds and Municipal Bonds are rated at least MIG-1, VMIG-I 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-I+ or SP-l+ 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 13 applied to cash or to Receivables for New York Municipal Bonds or Municipal Bonds Sold. "Receivables for New York Municipal Bonds or Municipal Bonds Sold," for purposes of calculating Moody's Eligible Assets as of any Valuation Date, means no more than the aggregate of the following: (i) the book value of receivables for New York Municipal Bonds or Municipal Bonds sold as of or prior to such Valuation Date if such receivables are due within five business days of such Valuation Date, and if the trades which generated such receivables are (x) settled through clearing house firms with respect to which the Corporation has received prior written authorization from Moody's or (y) with counterparties having a Moody's long-term debt rating of at least Baa3; and (ii) the Moody's Discounted Value of New York Municipal Bonds or municipal Bonds sold as of or prior to such Valuation Date which generated receivables, if such receivables are due within five business days of such Valuation Date but do not comply with either of conditions (x) or (y) of the preceding clause (i). "Moody's Eligible Asset" means cash, Receivables for New York Municipal Bonds or Municipal Bonds sold (as defined for purposes of calculating Moody's Eligible Assets), a New York Municipal Bond or a Municipal Bond that (i) pays interest in cash, (ii) is publicly rated Baa or higher by Moody's or, if not rated by Moody's but rated by S&P, is rated at least BBB by S&P (provided that, for purposes of determining the Moody's Discount Factor applicable to any such S&P-rated New York Municipal Bond or S&P-rated Municipal Bond, such New York Municipal Bond or Municipal Bond (excluding any short-term New York Municipal Bond or Municipal Bond) will be deemed to have a Moody's rating which is one full rating category lower than its S&P rating),(iii) does not have its Moody's rating suspended by Moody's; and (iv) is part of an issue of New York Municipal Bonds or Municipal Bonds of at least $10,000,000. In addition, New York Municipal Bonds and Municipal Bonds in the Corporation's portfolio must be within 14 the following diversification requirements in order to be included within Moody's Eligible Assets:
Minimum Maximum Maximum Maximum Maximum Issue Size Underlying Issue Type County State Rating ($ Millions) Obligor (%)(1) Concentration (%)(1)(3) Concentration (%)(1)(4) Concentration (1)(5) - ------ ------------ --------------- ----------------------- ----------------------- -------------------- Aaa.................. 10 100 100 100 100 Aa................... 10 20 60 60 60 A.................... 10 10 40 40 40 Baa.................. 10 6 20 20 20 Other(2)............. 10 4 12 12 12
- ----------------- (1) The referenced percentages represent maximum cumulative totals for the related rating category and each lower rating category. (2) New York Municipal Bonds and Municipal Bonds not rated by Moody's but rated BBB or BBB+ by S&P. (3) Does not apply to general obligation bonds. (4) Applicable to general obligation bonds only. (5) Does not apply to Now York Municipal Bonds. For purposes of the maximum underlying obligor requirement described above, any such Bond backed by the guaranty, letter of credit or insurance issued by a third party will be deemed to be issued by such third party if the issuance of such third party credit is the sole determinant of the rating on such Bond. For purposes of the issue type concentration requirement described above, New York Municipal Bonds and Municipal Bonds will be 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 lot of Moody's Eligible Assets consist of resource recovery issues or (c) more than 10% of Moody's Eligible Assets 15 consist of Other Issues. For purposes of the maximum county concentration requirement described above, the five counties comprising New York City will be treated as a single county. When the Corporation sells a New York Municipal Bond or Municipal Bond and agrees to repurchase it at a future date, the Discounted Value of such Bond will constitute a Moody's Eligible Asset and the amount the Corporation is required to pay upon repurchase of such Bond will count as a liability for purposes of calculating the AMPS Basic Maintenance Amount. When the corporation purchases a New York Municipal Bond or Municipal Bond and agrees to sell it at a future date to another party, cash receivable by the Corporation thereby will constitute a Moody's Eligible Asset if the long-term debt of such other party is rated at least A2 by Moody's and such agreement has a term of 30 days or less; otherwise the Discounted Value of such Bond will constitute a Moody's Eligible Asset. Notwithstanding the foregoing, an asset will not be considered a Moody's Eligible Asset if it is (i) held in a margin account, (ii) subject to any material lien, mortgage, pledge, security interest or security agreement of any kind, (iii) held for the purchase of a security pursuant to a Forward Commitment or (iv) irrevocably deposited by the Corporation for the payment of dividends or redemption. "Moody's Exposure Period" means a period that is the same length or longer than the number of days used in calculating the cash dividend component of the AMPS Basic Maintenance Amount and shall initially be the period commencing on and including a given Valuation Date and ending 48 days thereafter. "Moody's Hedging Transaction" has the meaning set forth in paragraph 9(b) of these Articles Supplementary. 16 "Municipal Bonds" means "Municipal Bonds" as defined in the corporation's Registration Statement on Form N-2 (File No. 33-45621) on file with the Securities and Exchange Commission, as such Registration Statement may be amended from time to time, as well as short-term municipal obligations. "Municipal Index" has the meaning set forth in paragraph 9(a) of these Articles Supplementary. "New York Municipal Bonds" means municipal obligations issued by or on behalf of the State of New York, its political subdivisions, agencies and instrumentalities and by other qualifying issuers that pay interest which, in the opinion of bond counsel to the issuer, is exempt from Federal and New York income taxes. "1940 Act" means the Investment Company Act of 1940, as amended from time to time. "1940 Act AMPS Asset Coverage" means asset coverage, as defined in section 18(h) of the 1940 Act, of at least 200% with respect to all outstanding senior securities of the Corporation which are stock, including all outstanding shares of AMPS and Other AMPS (or such other asset coverage as may in the future be specified in or under the 1940 Act as the minimum asset coverage for senior securities which are stock of a closed-end investment company as a condition of paying dividends on its common stock). "1940 Act Cure Date," with respect to the failure by the corporation to maintain the 1940 Act AMPS Asset Coverage (as required by paragraph 6 of these Articles Supplementary) as of the last Business Day of each month, means the last Business Day of the following month. "Non-Call Period" has the meaning set forth under the definition of "Specific Redemption Provisions". 17 "Non-Payment Period" means, with respect to the AMPS, any period commencing on and including the day on which the Corporation shall fail to (i) declare, prior to the close of business on the second Business Day preceding any Dividend Payment Date, for payment on or (to the extent permitted by paragraph 2(c)(i) of these Articles Supplementary) within three Business Days after such Dividend Payment Date to the Holders as of 12:00 noon, New York City time, on the Business Day preceding such Dividend Payment Date, the full amount of any dividend on shares of AMPS payable on such Dividend Payment Date or (ii) deposit, irrevocably in trust, in same-day funds, with the Auction Agent by 12:00 noon, New York City time, (A) on such Dividend Payment Date the full amount of any cash dividend on such shares payable (if declared) on such Dividend Payment Date or (B) on any redemption date for any shares of AMPS called for redemption, the Mandatory Redemption Price per share of such AMPS or, in the case of an optional redemption, the optional Redemption Price per share, and ending on and including the Business Day on which, by 12:00 noon, New York City time, all unpaid cash dividends and unpaid redemption prices shall have been so deposited or shall have otherwise been made available to Holders in same-day funds; provided that, a Non-Payment Period shall not end unless the Corporation shall have given at least five days' but no more than 30 days' written notice of such deposit or availability to the Auction Agent, all Existing Holders (at their addresses appearing in the Stock Books) and the Securities Depository. Notwithstanding the foregoing, the failure by the Corporation to deposit funds as provided for by clauses (ii)(A) or (ii)(B) above within three Business Days after any Dividend Payment Date or redemption date, as the case may be, in each case to the extent contemplated by paragraph 2(c)(i) of these Articles Supplementary, shall not constitute a "Non-Payment Period." 18 "Non-Payment Period Rate" means, initially, 200% of the applicable Reference Rate (or 275% of such rate if the Corporation has provided notification to the Auction Agent prior to the Auction establishing the Applicable Rate for any dividend pursuant to paragraph 2(f) hereof that net capital gains or other taxable income will be included in such dividend on shares of AMPS), provided that the Board of Directors of the Corporation shall have the authority to adjust, modify, alter or change from time to time the initial Non-Payment Period Rate if the Board of Directors of the Corporation determines and Moody's and S&P (and any Substitute Rating Agency in lieu of Moody's or S&P in the event either of such parties shall not rate the AMPS) advise the corporation in writing that such adjustment, modification, alteration or change will not adversely affect their then-current ratings on the AMPS. "Normal Dividend Payment Date" has the meaning set forth in paragraph 2(b)(1) of these Articles Supplementary. "Notice of Redemption" means any notice with respect to the redemption of shares of AMPS pursuant to paragraph 4 of these Articles Supplementary. "Notice of Revocation" has the meaning set forth in paragraph 2(c)(iii) of these Articles Supplementary. "Notice of Special Dividend Period" has the meaning set forth in paragraph 2(c)(iii) of these Articles Supplementary. "Optional Redemption Price" shall mean $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. 19 "Other AMPS" means the auction rate preferred stock of the Corporation, other than the AMPS. "Outstanding" means, as of any date (i) with respect to AMPS, shares of AMPS theretofore issued by the Corporation except, without duplication, (A) any shares of AMPS theretofore cancelled or delivered to the Auction Agent for cancellation, or redeemed by the Corporation, or as to which a Notice of Redemption shall have been given and moneys shall have been deposited in trust by the Corporation pursuant to paragraph 4(c) and (B) any shares of AMPS as to which the Corporation or any Affiliate thereof shall be an Existing Holder, provided that shares of AMPS held by an Affiliate shall be deemed outstanding for purposes of calculating the AMPS Basic Maintenance Amount and (ii) with respect to shares of other Preferred Stock, has the equivalent meaning. "Parity Stock" means the AMPS and each other outstanding series of Preferred Stock the holders of which, together with the holders of the AMPS, shall be entitled to the receipt of dividends or of amounts distributable upon liquidation, dissolution or winding up, as the case may be, in proportion to the full respective preferential amounts to which they are entitled, without preference or priority one over the other. "Person" shall mean and include an individual, a partnership, a corporation, a trust, an unincorporated association, a joint venture or other entity or a government or any agency or political subdivision thereof. "Policy" means an insurance policy purchased by the Corporation which guarantees the payment of principal and interest on specified New York Municipal Bonds or Municipal Bonds during the period in which such New York Municipal Bonds or Municipal Bonds are owned by the corporation; provided, however, that the Corporation will not obtain any Policy unless 20 Moody's advises the Corporation in writing that the purchase of such Policy will not adversely affect their then-current rating on the AMPS. "Potential Holder" shall mean any Person, including any Existing Holder, (A) who shall have executed a Purchaser's Letter and (B) who may be interested in acquiring shares of AMPS (or, in the case of an Existing Holder, additional shares of AMPS). "Preferred Stock" means the preferred stock of the Corporation, and includes AMPS and Other AMPS. "Premium Call Period" has the meaning set forth under the definition of "Specific Redemption Provisions". "Pricing Service" shall mean J.J. Kenney or any pricing service designated by the Board of Directors of the corporation provided the Corporation obtains written assurance from S&P and Moody's that such designation will not impair the rating then assigned by S&P and Moody's to the AMPS. "Purchaser's Letter" means a letter addressed to the Corporation, the Auction Agent and a Broker-Dealer in which a Person agrees, among other things, to offer to purchase, purchase, offer to sell and/or sell shares of AMPS as set forth in paragraph 11 of these Articles Supplementary. "Quarterly Valuation Date" means the twenty-first day of the last month of each fiscal quarter of the Corporation (or, if such day is not a Business Day, the next succeeding Business Day) in each fiscal year of the Corporation, commencing April 30, 1992. "Receivables for New York Municipal Bonds Sold" has the meaning set forth under the definition of S&P Discount Factor. "Receivables for New York Municipal Bonds or Municipal Bonds Sold" has the meaning set forth under the definition of Moody's Discount Factor. 21 "Reference Rate" means: (i) with respect to a Dividend Period or a Short Term Dividend Period having fewer than 35 days, the applicable "AA" Composite Commercial Paper Rate; provided that, if Moody's and S&P (or any such Substitute Rating Agency in lieu of Moody's or S&P in the event either of such parties shall not rate the AMPS) advise the corporation in writing that use of the following will not adversely affect their then-current rating on the AMPS, 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 35 or more but fewer than 183 days, the applicable "AA" Composite Commercial Paper Rate, (iii) with respect to any Short Term Dividend Period having 183 or more but fewer than 364 days, the applicable U.S. Treasury Bill Rate and (iv) with respect to any Long Term Dividend Period, the applicable U.S. Treasury Note Rate. "Request for Special Dividend Period" has the meaning set forth in paragraph 2(c)(iii) of these Articles Supplementary. "Response" has the meaning set forth in paragraph 2(c)(iii) of these Articles Supplementary. "Retroactive Taxable Allocation" has the meaning set forth in paragraph 2(e) of these Articles Supplementary. "Right," with respect to AMPS, has the meaning set forth in paragraph 2(e) of these Articles Supplementary and, with respect to other AMPS, has the equivalent meaning. "S&P" means Standard & Poor's Corporation or its successors. "S&P Discount Factor" means, for purposes of determining the Discounted Value of any New York Municipal Bond which constitutes an S&P Eligible Asset, the percentage determined by reference to (a) (i) the rating by S&P or Moody's on such Bond or (ii) in the event the New 22 York Municipal Bond is insured under a Policy and the terms of the Policy permit the Corporation, at its option, to obtain other permanent insurance guaranteeing the timely payment of interest on such New York Municipal Bond and principal thereof to maturity, the S&P insurance claims-paying ability rating of the issuer of the Policy or (iii) in the event the New York Municipal Bond is insured under an insurance policy which guarantees the timely payment of interest on such New York Municipal Bond and principal thereof to maturity, the S&P insurance claims-paying ability rating of the issuer of the insurance policy and (b) the S&P Exposure Period, in accordance with the tables set forth below: For New York Municipal Bonds: - ---------------------------- Rating Category --------------------------------------------- S&P Exposure Period AAA* AA* A* BBB* - ------------------- --------------------------------------------- 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 __________________ * S&P rating. Notwithstanding the foregoing, (i) the S&P Discount Factor for short-term New York Municipal Bonds will be 115%, so long as such New York Municipal Bonds are rated A-1+ or SP-I+ by S&P and mature or have a demand feature exercisable in 30 days or less, or 125% if such New York Municipal Bonds are not rated by S&P but are rated VMIG-I, P-1 or MIG-1 by Moody's; provided, however, that if such short-term New York Municipal Bonds are backed by any letter of credit, liquidity facility or guarantee from a bank or other financial institution, such bank or institution must have a short-term rating of at least A-1+ from S&P; and further provided that such short-term New York Municipal Bonds rated by Moody's but not rated by S&P may comprise no more than 50% of short-term New York Municipal Bonds that qualify as S&P 23 Eligible Assets and (ii) no S&P Discount Factor will be applied to cash or to Receivables for New York Municipal Bonds Sold. "Receivables for New York Municipal Bonds Sold," for purposes of calculating S&P's Eligible Assets as of any Valuation Date, means the book value of receivables for New York Municipal Bonds sold as of or prior to such Valuation Date if such receivables are due within five business days of such Valuation Date. The Corporation may adopt S&P Discount Factors for Municipal Bonds provided that S&P advises the Corporation in writing that such action will not adversely affect its then current rating on the AMPS. For purposes of the foregoing, Anticipation Notes rated SP-1+ or, if not rated by S&P, rated VMIG-I by Moody's, which need not mature or have a demand feature exercisable in 30 days and which do not have a long-term rating, shall be considered to be short-term New York Municipal Bonds. "S&P Eligible Asset" means cash or a New York Municipal Bond that (i) is interest bearing and pays interest at least semiannually; (ii) is payable with respect to principal and interest in United States Dollars; (iii) is publicly rated BBB or higher by S&P or, if not rated by S&P but rated by Moody's, is rated at least A by Moody's (provided that such Moody's-rated New York Municipal Bonds will be included in S&P Eligible Assets only to the extent the Market Value of such New York Municipal Bonds does not exceed 50% of the aggregate Market Value of the S&P Eligible Assets; and further provided that, for purposes of determining the S&P Discount Factor applicable to any such Moody's-rated New York Municipal Bond, such New York Municipal Bond will be deemed to have an S&P rating which is one full rating category lower than its Moody's rating); (iv) is not subject to a covered call or covered put option written by the Corporation; (v) is not part of a private placement of New York Municipal Bonds; and (vi) is part of an issue of New York Municipal Bonds with an original issue size of at least $20 million or, if of an issue with an original issue size below $20 million (but in no event below 24 $10 million), is issued by an issuer with a total of at least $50 million of securities outstanding. Notwithstanding the foregoing: (1) New York Municipal Bonds of any one issuer or guarantor (excluding bond insurers) will be considered S&P Eligible Assets only to the extent the Market Value of such New York Municipal Bonds does not exceed 10% of the aggregate Market Value of the S&P Eligible Assets, provided that 2% is added to the applicable S&P Discount Factor for every 1% by which the Market Value of such New York Municipal Bonds exceeds 5% of the aggregate Market Value of the S&P Eligible Assets; and (2) New York Municipal Bonds of any one issue type category (as described below) will be considered S&P Eligible Assets only to the extent the fair market value of such Bonds does not exceed 20% of the aggregate fair market value of S&P Eligible Assets, except that New York Municipal Bonds falling within the utility issue type category will be broken down into three sub-categories (as described below) and such New York Municipal Bonds will be considered S&P Eligible Assets to the extent the fair market value of such Bonds in each such sub-category does not exceed 20% of the aggregate fair market value of S&P Eligible Assets. For purposes of the issue type category requirement described above, New York Municipal Bonds will be classified within one of the following categories: health care issues, housing issues, educational facilities issues, student loan issues, transportation issues, industrial development bond issues, utility issues, general obligation issues, lease obligations, escrowed bonds and other issues not falling within one of the aforementioned categories. For purposes of the issue type category requirement described above, New York Municipal Bonds in the utility issue type category will be classified within one of the three following sub- 25 categories: (i) electric, gas and combination issues (if the combination issue includes an electric issue), (ii) water and sewer utilities and combination issues (if the combination issue does not include an electric issue), and (iii) irrigation, resource recovery, solid waste and other utilities, provided that New York Municipal Bonds included in this sub- category (iii) must be rated by S&P in order to be included in S&P Eligible Assets. The Corporation may include Municipal Bonds as S&P Eligible Assets pursuant to guidelines and restrictions to be established by S&P provided that S&P advises the corporation in writing that such action will not adversely affect its then current rating on the AMPS. "S&P Exposure Period" means the maximum period of time following a Valuation Date, including the Valuation Date and the AMPS Basic Maintenance Cure Date, that the Corporation has under these Articles Supplementary to cure any failure to maintain, as of such Valuation Date, the Discounted Value for its portfolio at least equal to the AMPS Basic Maintenance Amount (as described in paragraph 7(a) of these Articles Supplementary). "S&P Hedging Transactions" has the meaning set forth in paragraph 9(a) of these Articles Supplementary. "Securities Depository" means The Depository Trust Company or any successor company or other entities elected by the corporation as securities depository for the shares of AMPS that agrees to follow the procedures required to be followed by such securities depository in connection with the shares of AMPS. "Service" means the United States Internal Revenue Service. "7-day Dividend Period" means, with respect to Series B AMPS a Dividend Period consisting of seven days. 26 "Short Term Dividend Period" means a Dividend Period consisting of a specified number of days (other than 28 in the case of Series A AMPS and other than seven in the case of Series B AMPS), evenly divisible by seven and not fewer than seven or more than 364. "Special Dividend Period" means a Dividend Period consisting of (i) a specified number of days (other than 28 in the case of Series A AMPS and other than seven in the case of Series B AMPS), evenly divisible by seven and not fewer than seven nor more than 364 or (ii) a specified number of whole years not greater than five years (in each case subject to adjustment as provided in paragraph 2(b)(i)). "Specific Redemption Provisions" means, with respect to a Special Dividend Period either, or any combination of, (i) a period (a "Non-Call Period") determined by the Board of Directors of the Corporation, after consultation with the Auction Agent and the Broker-Dealers, during which the shares of AMPS subject to such Dividend Period shall not be subject to redemption at the option of the Corporation and (ii) a period (a "Premium Call Period"), consisting of a number of whole years and determined by the Board of Directors of the Corporation, after consultation with the Auction Agent and the Broker-Dealers, during each year of which the shares of AMPS subject to such Dividend Period shall be redeemable at the Corporation's option at a price per share equal to $50,000 plus accumulated but unpaid dividends plus a premium expressed as a percentage of $50,000, as determined by the Board of Directors of the Corporation after consultation with the Auction Agent and the Broker-Dealers. "Stock Books" means the books maintained by the Auction Agent setting forth at all times a current list, as determined by the Auction Agent, of Existing Holders of the AMPS. "Stock Register" means the register of Holders maintained on behalf of the Corporation by the Auction Agent in its capacity as transfer agent and registrar for the AMPS. 27 "Subsequent Dividend Period," with respect to AMPS, has the meaning set forth in paragraph 2(c)(i) of these Articles Supplementary and, with respect to Other AMPS, has the equivalent meaning. "Substitute Commercial Paper Dealers" means such Substitute Commercial Paper Dealer or Dealers as the Corporation may from time to time appoint or, in lieu of any thereof, their respective affiliates or successors. "Substitute Rating Agency" and "Substitute Rating Agencies" mean a nationally recognized statistical rating organization or two nationally recognized statistical rating organizations, respectively, selected by Merrill Lynch, Pierce, Fenner & Smith Incorporated or its affiliates and successors, after consultation with the Corporation, to act as the substitute rating agency or substitute rating agencies, as the case may be, to determine the credit ratings of the shares of AMPS. "Taxable Equivalent of the Short-Term Municipal Bond Rate" on any date means 90% of the quotient of (A) the per annum rate expressed on an interest equivalent basis equal to the Kenny S&P 30 day High Grade Index 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 28 "alternative minimum tax," divided by (B) 1.00 minus the maximum marginal regular Federal individual income tax rate applicable to ordinary income or the maximum marginal regular Federal corporate income tax rate (in each case expressed as a decimal), whichever is greater; 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 maximum marginal regular Federal individual income tax rate applicable to ordinary income or the maximum marginal regular Federal corporate income tax rate (in each case expressed as a decimal), whichever is greater. "Treasury Bonds" shall have the meaning set forth in paragraph 9(a) of these Articles Supplementary. "28-day Dividend Period" means, with respect to Series A AMPS, a Dividend Period consisting of 28 days. "U.S. Treasury Bill Rate" on any date means (i) the Interest Equivalent of the rate on the actively traded Treasury Bill with a maturity most nearly comparable to the length of the related Dividend Period, as such rate is made available on a discount basis or otherwise by the Federal Reserve Bank of New York in its Composite 3:30 P.M. Quotations for U.S. Government Securities report for such Business Day, or (ii) if such yield as so calculated is not available, the Alternate Treasury Bill Rate on such date. "Alternate Treasury Bill Rate" on any date means the Interest Equivalent of the yield as calculated by reference to the arithmetic average of the bid price quotations of the actively traded Treasury Bill with a maturity most nearly comparable to 29 the length of the related Dividend Period, as determined by bid price quotations as of any time on the Business Day immediately preceding such date, obtained from at least three recognized primary U.S. Government securities dealers selected by the Auction Agent. "U.S. Treasury Note Rate" on any date means (i) the yield as calculated by reference to the bid price quotation of the actively traded, current coupon Treasury Note with a maturity most nearly comparable to the length of the related Dividend Period, as such bid price quotation is published on the Business Day immediately preceding such date by the Federal Reserve Bank of New York in its Composite 3:30 P.M. Quotations for U.S. Government Securities report for such Business Day, or (ii) if such yield as so calculated is not available, the Alternate Treasury Note Rate on such date. "Alternate Treasury Note Rate" on any date means the yield as calculated by reference to the arithmetic average of the bid price quotations of the actively traded, current coupon Treasury Note with a maturity most nearly comparable to the length of the related Dividend Period, as determined by the bid price quotations as of any time on the Business Day immediately preceding such date, obtained from at least three recognized primary U.S. Government securities dealers selected by the Auction Agent. "Valuation Date" means, for purposes of determining whether the Corporation is maintaining the AMPS Basic Maintenance Amount and the Minimum Liquidity Level, each Business Day commencing with the Date of Original Issue. "Variation Margin" means, in connection with an outstanding futures contract owned or sold by the Corporation, the amount of cash or securities paid to or received from a broker (subsequent to the Initial Margin payment) from time to time as the price of such futures contract fluctuates. 30 (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, S&P Discount Factor, S&P Eligible Asset, S&P Exposure Period, S&P Hedging Transactions, Valuation Date and Variation Margin have been determined by the Board of Directors of the Corporation in order to obtain a "aaa" rating from Moody's and a AAA rating from S&P on the AMPS on their Date of Original Issue; and the Board of Directors of the Corporation shall have the authority to adjust, modify, alter or change from time to time the foregoing definitions and the restrictions and guidelines set forth thereunder if Moody's and S&P or any Substitute Rating Agency advises the Corporation in writing that such adjustment, modification, alteration or change will not adversely affect their then-current ratings on the AMPS. 2. Dividends. (a) The Holders shall be entitled to receive, when, as and if declared by the Board of Directors of the Corporation, out of funds legally available therefor, cumulative dividends each consisting of (i) cash at the Applicable Rate and (ii) a Right to receive cash as set forth in paragraph 2(e) below, and no more, payable on the respective dates set forth below. Dividends on the shares of AMPS so declared and payable shall be paid (i) in preference to and in priority over any dividends declared and payable on the Common Stock, and (ii) to the extent permitted under the Code and to the extent available, out of net tax-exempt income earned on the Corporation's investments. To the extent permitted under the Code, dividends on shares of 31 AMPS will be designated as exempt-interest dividends. For the purposes of this section, the term "net tax-exempt income" shall exclude capital gains of the Corporation. (b) (i) Cash dividends on shares of AMPS shall accumulate from the Date of Original Issue and shall be payable, when, as and if declared by the Board of Directors, out of funds legally available therefor, commencing on the Initial Dividend Payment Date with respect to each series of AMPS. Following the Initial Dividend Payment Date for each series of AMPS, dividends on each series of AMPS will be payable, at the option of the Corporation, either (i) with respect to any 7-day Dividend Period, 28-day Dividend Period and any Short Term Dividend Period of 91 or fewer days on the day next succeeding the last day thereof, (ii) with respect to any Short Term Dividend Period of more than 91 and fewer than 365 days, on the 92nd day thereof, the 183rd day thereof, if any, the 274th day thereof, if any, and on the day next succeeding the last day thereof and (iii) with respect to any Long Term Dividend Period, quarterly on the first day of each January, April, July and October during such Long Term Dividend Period and on the day next succeeding the last day thereof (each such date referred to in clause (i), (ii) or (iii) being herein referred to as a "Normal Dividend Payment Date"), except that (i) if such Normal Dividend Payment Date is not a Business Day, then the Dividend Payment Date shall be the next succeeding date if both such dates following the Normal Dividend Payment Date are Business Days, or (ii) if the date following such Normal Dividend Payment Date is not a Business Day, then the Dividend Payment Date will be the date next preceding such Normal Dividend Payment Date if both such date and such Normal Dividend Payment Date are Business Days or (iii) if such Normal Dividend Payment Date and either the preceding date or the succeeding date are not Business Days, then the Dividend Payment Date shall be the first Business Day next preceding such Normal Dividend Payment Date that is next 32 succeeded by a Business Day. Although any particular Dividend Payment Date may not occur on the originally scheduled date because of the exceptions discussed above, the next succeeding Dividend Payment Date, subject to such exceptions, will occur on the next following originally scheduled date. If for any reason a Dividend Payment Date cannot be fixed as described above, then the Board of Directors shall fix the Dividend Payment Date. The initial Dividend Period, 7- day Dividend Periods, 28-day Dividend Periods and Special Dividend Periods are hereinafter sometimes referred to as Dividend Periods. Each dividend payment date determined as provided above is hereinafter referred to as a "Dividend Payment Date." (ii) Each dividend shall be paid to the Holders as they appear in the Stock Register as of 12:00 noon, New York City time, on the Business Day preceding the Dividend Payment Date. Dividends in arrears for any past Dividend Period may be declared and paid at any time, without reference to any regular Dividend Payment Date, to the Holders as they appear on the Stock Register on a date, not exceeding 15 days prior to the payment date therefor, as may be fixed by the Board of Directors of the Corporation. (c) (i) During the period from and including the Date of Original Issue to but excluding the Initial Dividend Payment Date (the "Initial Dividend Period"), the Applicable Rate shall be the Initial Dividend Rate. Commencing on the 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, shall be equal to the rate per annum that results from implementation of the Auction Procedures. 33 The Applicable Dividend Rate for each Dividend Period commencing during a Non-Payment Period shall be equal to the Non-Payment Period Rate; and each Dividend Period, commencing after the first day of, and during, a Non-Payment Period shall be a 28-day Dividend Period in the case of Series A AMPS and a 7- day Dividend Period in the case of Series B AMPS. Except in the case of the willful failure of the Corporation to pay a Dividend on a Dividend Payment Date or to redeem any shares of AMPS on the date set for such redemption, any amount of any dividend due on any Dividend Payment Date (if, prior to the close of business on the second Business Day preceding such Dividend Payment Date, the Corporation has declared such dividend payable on such Dividend Payment Date to the Holders of such shares of AMPS as of 12:00 noon, New York City time, on the Business Day preceding such Dividend Payment Date) or redemption price with respect to any shares of AMPS not paid to such Holders when due may be paid to such Holders in the same form of funds by 12:00 noon, New York City time, on any of the first three Business Days after such Dividend Payment Date or due date, as the case may be, provided that, such amount is accompanied by a late charge calculated for such period of non-payment at the Non-Payment Period Rate applied to the amount of such non-payment based on the actual number of days comprising such period divided by 365. In the case of a willful failure of the Corporation to pay a dividend on a Dividend Payment Date or to redeem any shares of AMPS on the date set for such redemption, the preceding sentence shall not apply and the Applicable Dividend Rate for the Dividend Period commencing during the Non- Payment Period resulting from such failure shall be the Non-Payment Period Rate. For the purposes of the foregoing, payment to a person in same-day funds on any Business Day at any time shall be considered equivalent to payment to such person in New York Clearing House (next-day) funds at the same time on the preceding Business Day, and any payment made after 12:00 noon, New 34 York City time, on any Business Day shall be considered to have been made instead in the same form of funds and to the same person before 12:00 noon, New York City time, on the next Business Day. (ii) The amount of cash dividends per share of AMPS payable (if declared) on each Dividend Payment Date of each 7-day Dividend Period, 28-day Dividend Period and 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 Corporation may, at its sole option and to the extent permitted by law, by telephonic and written notice (a "Request for Special Dividend Period") to the Auction Agent and to each Broker-Dealer, request that the next succeeding Dividend Period for a series of AMPS be the number of days (other than 28 in the case of Series A AMPS and other than seven in the case of Series B AMPS) evenly divisible by seven, and not fewer than seven or 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 for any Auction occurring after the initial Auction, the Corporation may not give a Request for Special Dividend Period of greater than 28 days (and any such request shall be null and void) unless the Corporation has received written confirmation from Moody's and S&P that such action would not impair the ratings then assigned to the AMPS by Moody's and S&P and unless Sufficient Clearing Bids 35 were made in the last occurring Auction and unless full cumulative dividends, any amounts due with respect to redemptions, and any Additional Dividends payable prior to such date have been paid in full. Such Request for Special Dividend Period, in the case of a Short Term Dividend Period, shall be given on or prior to the fourth day but not more than seven 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 an Auction Date for the AMPS. Upon receiving such Request for special Dividend Period, the Broker- Dealer(s) shall jointly determine whether, given the factors set forth below, it is advisable that the Corporation issue a Notice of Special Dividend Period for the series of AMPS as contemplated by such Request for Special Dividend Period and the Optional Redemption Price of the AMPS during such Special Dividend Period and the Specific Redemption Provisions and shall give the Corporation and the Auction Agent written notice (a "Response") of such determination by no later than the third day prior to such Auction Date. In making such determination the Broker-Dealer(s) will consider (1) existing short-term and long-term market rates and indices of such short-term and long-term rates, (2) existing market supply and demand for short-term and long-term securities, (3) existing yield curves for short-term and long-term securities comparable to the AMPS, (4) industry and financial conditions which may affect the AMPS, (5) the investment objective of the Corporation, and (6) the Dividend Periods and dividend rates at which current and potential beneficial holders of the AMPS would remain or become beneficial holders. If the Broker-Dealer(s) shall not give the Corporation and the Auction Agent a Response by such third day or if the Response states that given the factors set forth above it is not advisable that the Corporation give a Notice of Special Dividend Period for the series of AMPS, the Corporation may not give a Notice of Special Dividend Period in respect of such Request for Special 36 Dividend Period. In the event the Response indicates that it is advisable that the Corporation give a Notice of Special Dividend Period for the series of AMPS, the Corporation may by no later than the second day prior to such Auction Date give a notice (a "Notice of Special Dividend Period") to the Auction Agent, the Securities Depository and each Broker-Dealer which notice will specify (i) the duration of the Special Dividend Period, (ii) the Optional Redemption Price as specified in the related Response and (iii) the specific Redemption Provisions, if any, as specified in the related Response. The Corporation shall not give a Notice of Special Dividend Period and, if the Corporation has given a Notice of Special Dividend Period, the Corporation is required to give telephonic and written notice (a "Notice of Revocation") to the Auction Agent, each Broker- Dealer, and the Securities Depository on or prior to the Business Day prior to the relevant Auction Date if (x) either the 1940 Act AMPS Asset Coverage is not satisfied or the Corporation shall fail to maintain S&P Eligible Assets and Moody's Eligible Assets each with an aggregate Discounted Value at least equal to the AMPS Basic Maintenance Amount, in each case on each of the two Valuation Dates immediately preceding the Business Day prior to the relevant Auction Date on an actual basis and on a pro forma basis giving effect to the proposed Special Dividend Period (using as a pro forma dividend rate with respect to such Special Dividend Period the dividend rate which the Broker-Dealers shall advise the Corporation is an approximately equal rate for securities similar to the AMPS with an equal dividend period), provided that, in calculating the aggregate Discounted Value of Moody's Eligible Assets for this purpose, the Moody's Exposure Period shall be deemed to be one week longer, (y) sufficient funds for the payment of dividends payable on the immediately succeeding Dividend Payment Date have not been irrevocably deposited with the Auction Agent by the close of business on the third Business Day preceding the related Auction Date or (z) the Broker-Dealer(s) jointly advise 37 the Corporation that after consideration of the factors listed above they have concluded that it is advisable to give a Notice of Revocation. If the corporation is prohibited from giving a Notice of Special Dividend Period as a result of any of the factors enumerated in clause (x), (y) or (z) of the prior sentence or if the Corporation gives a Notice of Revocation with respect to a Notice of Special Dividend Period for any series of AMPS, the next succeeding Dividend Period for that series will be a 28-day Dividend Period in the case of Series A AMPS and a 7-day Dividend Period in the case of Series B AMPS, provided that if the then current Dividend Period is a Special Dividend Period for Series A AMPS of less than 28 days, the next succeeding Dividend Period for such series of AMPS will be the same length as the current Dividend Period. In addition, in the event Sufficient Clearing Bids are not made in the applicable Auction or such Auction is not held for any reason, such next succeeding Dividend Period will be a 28-day Dividend Period (in the case of Series A AMPS) and a 7-day Dividend Period (in the case of Series B AMPS) and the Corporation may not again give a Notice of Special Dividend Period for the AMPS (and any such attempted notice shall be null and void) until Sufficient Clearing Bids have been made in an Auction with respect to a 28-day Dividend Period (in the case of Series A AMPS) and a 7-day Dividend Period (in the case of Series B AMPS). (d) (i) Holders shall not be entitled to any dividends, whether payable in cash, property or stock, in excess of full cumulative dividends and applicable late 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. 38 (ii) For so long as any share of AMPS is Outstanding, the Corporation shall not declare, pay or set apart for payment any dividend or other distribution (other than a dividend or distribution paid in shares of, or options, warrants or rights to subscribe for or purchase, Common Stock or other stock, if any, ranking junior to the shares of AMPS as to dividends or upon liquidation) in respect of the Common Stock or any other stock of the Corporation ranking junior to or on a parity with the shares of AMPS as to dividends or upon liquidation, or call for redemption, redeem, purchase or otherwise acquire for consideration any shares of the Common Stock or any other such junior stock (except by conversion into or exchange for stock of the Corporation ranking junior to the shares of AMPS as to dividends and upon liquidation) or any other such Parity Stock (except by conversion into or exchange for stock of the Corporation ranking junior to or on a parity with the shares of Amps as to dividends and upon liquidation), unless (A) immediately after such transaction, the Corporation shall have S&P Eligible Assets and Moody's Eligible Assets each with an aggregate Discounted Value equal to or greater than the AMPS Basic Maintenance Amount and the Corporation shall maintain the 1940 Act AMPS Asset Coverage, (B) full cumulative dividends on shares of AMPS and shares of Other AMPS due on or prior to the date of the transaction have been declared and paid or shall have been declared and sufficient funds for the payment thereof deposited with the Auction Agent, (C) any Additional Dividend required to be paid under paragraph 2(e) below on or before the date of such declaration or payment has been paid and (D) the Corporation has redeemed the full number of shares of AMPS required to be redeemed by any provision for mandatory redemption contained herein. (e) Each dividend shall consist of (i) cash at the Applicable Dividend Rate and (ii) an uncertificated right (a "Right") to receive an Additional Dividend (as defined below). Each 39 Right shall thereafter be independent of the share or shares of AMPS on which the dividend was paid. The Corporation shall cause to be maintained a record of each Right received by the respective Holders. A Right may not be transferred other than by operation of law. If the Corporation retroactively allocates any net capital gains or other taxable income to shares of AMPS without having given advance notice thereof to the Auction Agent as described in paragraph 2(f) hereof solely by reason of the fact that such allocation is made as a result of the redemption of all or a portion of the outstanding shares of AMPS or the liquidation of the Corporation (the amount of such allocation referred to herein as a "Retroactive Taxable Allocation"), the Corporation will, within 90 days (and generally within 60 days) after the end of the Corporation's fiscal year for which a Retroactive Taxable Allocation is made, provide notice thereof to the Auction Agent and to each holder of a Right applicable to such shares of AMPS (initially Cede & Co. as nominee of the Depository Trust Company) during such fiscal year at such holder's address as the same appears or last appeared on the stock books of the Corporation. The Corporation will, within 30 days after such notice is given to the Auction Agent, pay to the Auction Agent (who will then distribute to such holders of Rights), out of funds legally available therefor, an amount equal to the aggregate Additional Dividend with respect to all Retroactive Taxable Allocations made to such holders during the fiscal year in question. An "Additional Dividend" means payment to a present or former holder of shares of AMPS of an amount which, when taken together with the aggregate amount of Retroactive Taxable Allocations made to such holder with respect to the fiscal year in question, would cause such holder's dividends in dollars (after Federal and New York State and New York City 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 40 received by such holder if the amount of the aggregate Retroactive Taxable Allocations would have been excludable from the gross income of such holder. Such Additional Dividend shall be calculated (i) without consideration being given to the time value of money; (ii) assuming that no holder of shares of AMPS is subject to the Federal alternative minimum tax with respect to dividends received from the Corporation; and (iii) assuming that each Retroactive Taxable Allocation would be taxable in the hands of each holder of shares of AMPS at the maximum marginal regular Federal, New York State and New York City income tax rate (taking into account the Federal income tax deductibility of state taxes paid or incurred) applicable to individuals or corporations, whichever is greater, in effect during the fiscal year in question. (f) Except as provided below, whenever the Corporation intends to include any net capital gains or other taxable income in any dividend on shares of AMPS, the Corporation will notify the Auction Agent of the amount to be so included at least five Business Days prior to the Auction Date on which the Applicable Rate for such dividend is to be established. The corporation may also include such income in a dividend on shares of AMPS without giving advance notice thereof if it increases the dividend by an additional amount calculated as if such income was a Retroactive Taxable Allocation and the additional amount was an Additional Dividend. (g) No fractional shares of AMPS shall be issued. 3. Liquidation Rights. Upon any liquidation, dissolution or winding up of ------------------ the Corporation, whether voluntary or involuntary, the Holders shall be entitled to receive, out of the assets of the Corporation available for distribution to shareholders, before any distribution or payment is made upon any Common Stock or any other capital stock ranking junior in right of payment upon liquidation to the AMPS, the sum of $50,000 per share plus accumulated but 41 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 Corporation, the amounts payable with respect to the AMPS and any other Outstanding class or series of Preferred Stock of the Corporation ranking on a parity with the AMPS as to payment upon liquidation are not paid in full, the Holders and the holders of such other class or series will share ratably in any such distribution of assets in proportion to the respective preferential amounts to which they are entitled. After payment of the full amount of the liquidating distribution to which they are entitled, the Holders will not be entitled to any further participation in any distribution of assets by the Corporation except for any Additional Dividends. A consolidation, merger or statutory share exchange of the Corporation with or into any other corporation or entity or a sale, whether for cash, shares of stock, securities or properties, of all or substantially all or any part of the assets of the Corporation shall not be deemed or construed to be a liquidation, dissolution or winding up of the Corporation. 4. Redemption. (a) Shares of AMPS shall be redeemable by the Corporation as ---------- provided below: (i) To the extent permitted under the 1940 Act and Maryland law, upon giving a Notice of Redemption, the Corporation at its option may redeem shares of AMPS, in whole or in part, out of funds legally available therefor, at the Optional Redemption Price per share, on any Dividend Payment Date; provided that no share of AMPS may be redeemed at the option of the Corporation during a Non-Call Period to which such share is subject. In addition, holders of AMPS which are redeemed shall be entitled to receive Additional Dividends to the extent provided herein. The Corporation may not give a Notice of Redemption relating to an optional 42 redemption as described in this paragraph 4(a)(i) unless, at the time of giving such Notice of Redemption, the corporation has available Deposit Securities with maturity or tender dates not later than the day preceding the applicable redemption date and having a value not less than the amount due to Holders by reason of the redemption of their shares of AMPS on such redemption date. (ii) The Corporation shall redeem, out of funds legally available therefor, at the Mandatory Redemption Price per share, shares of AMPS to the extent permitted under the 1940 Act and Maryland law, on a date fixed by the Board of Directors, if the Corporation fails to maintain S&P Eligible Assets and Moody's Eligible Assets each with an aggregate Discounted Value equal to or greater than the AMPS Basic Maintenance Amount as provided in paragraph 7(a) or to satisfy the 1940 Act AMPS Asset Coverage as provided in paragraph 6 and such failure is not cured on or before the AMPS Basic Maintenance Cure Date or the 1940 Act Cure Date (herein respectively referred to as a "Cure Date"), as the case may be. In addition, holders of AMPS so redeemed shall be entitled to receive Additional Dividends to the extent provided herein. The number of shares of AMPS to be redeemed shall be equal to the lesser of (i) the minimum number of shares of AMPS the redemption of which, if deemed to have occurred immediately prior to the opening of business on the Cure Date, together with all shares of other Preferred Stock subject to redemption or retirement, would result in the Corporation having S&P Eligible Assets and Moody's Eligible Assets each with an aggregate Discounted Value equal to or greater than the AMPS Basic Maintenance Amount or satisfaction of the 1940 Act AMPS Asset Coverage, as the case say be, on such Cure Date (provided that, if there is no such minimum number of shares of AMPS and shares of other Preferred Stock the redemption of which would have such result, all shares of AMPS and shares of other Preferred Stock then 43 Outstanding shall be redeemed), and (ii) the maximum number of shares of AMPS, together with all shares of other Preferred Stock subject to redemption or retirement, that can be redeemed out of funds expected to be legally available therefor on such redemption date. In determining the number of shares of AMPS required to be redeemed in accordance with the foregoing, the Corporation shall allocate the number required to be redeemed which would result in the corporation having S&P Eligible Assets and Moody's Eligible Assets each with an aggregate Discounted Value equal to or greater than the AMPS Basic Maintenance Amount or satisfaction of the 1940 Act AMPS Asset Coverage, as the case may be, pro rata among shares of AMPS of all series, Other AMPS and other Preferred Stock subject to redemption pursuant to provisions similar to those contained in this paragraph 4(a)(ii); provided that, shares of AMPS which may not be redeemed at the option of the Corporation due to the designation of a Non-Call Period applicable to such shares (A) will be subject to mandatory redemption only to the extent that other shares are not available to satisfy the number of shares required to be redeemed and (B) will be selected for redemption in an ascending order of outstanding number of days in the Non-Call Period (with shares with the lowest number of days to be redeemed first) and by lot in the event of shares having an equal number of days in such Non-Call Period. The corporation shall effect such redemption on a Business Day which is not later than 35 days after such Cure Date, except that if the Corporation does not have funds legally available for the redemption of all of the required number of shares of AMPS and shares of other Preferred Stock which are subject to mandatory redemption or the Corporation otherwise is unable to effect such redemption on or prior to 35 days after such Cure Date, the Corporation shall redeem those shares of AMPS which it is unable to redeem on the earliest practicable date on which it is able to effect such redemption out of funds legally available therefor. 44 (b) Notwithstanding any other provision of this paragraph 4, no shares of AMPS may be redeemed pursuant to paragraph 4(a)(i) of these Articles Supplementary (i) unless all dividends in arrears on all remaining outstanding shares of Parity Stock shall have been or are being contemporaneously paid or declared and set apart for payment and (ii) if redemption thereof would result in the Corporation's failure to maintain Moody's Eligible Assets with an aggregate Discounted Value equal to or greater than the AMPS Basic Maintenance Amount. In the event that less than all the outstanding shares of a series of AMPS are to be redeemed and there is more than one Holder, the shares of that series of AMPS to be redeemed shall be selected by lot or such other method as the Corporation shall deems fair and equitable. (c) Whenever shares of AMPS are to be redeemed, the Corporation, not less than 10 nor more than 30 days prior to the date fixed for redemption, shall mail a notice ("Notice of Redemption") by first-class mail, postage prepaid, to each Holder of shares of AMPS to be redeemed and to the Auction Agent. The Corporation shall cause the Notice of Redemption to also be published in the eastern and national editions of The Wall Street Journal. The Notice of ----------------------- Redemption shall set forth (i) the redemption date, (ii) the amount of the redemption price, (iii) the aggregate number of shares of AMPS to be redeemed, (iv) the place or places where shares of AMPS are to be surrendered for payment of the redemption price, (v) a statement that dividends on the shares to the redeemed shall cease to accumulate on such redemption date (except that holders may be entitled to Additional Dividends) and (vi) the provision of these Articles Supplementary pursuant to which such shares are being redeemed. No defect in the Notice of Redemption or in the mailing or publication thereof shall affect the validity of the redemption proceedings, except as required by applicable law. 45 If the Notice of Redemption shall have been given as aforesaid and, concurrently or thereafter, the Corporation shall have deposited iii trust with the Auction Agent a cash amount equal to the redemption payment for the shares of AMPS as to which such Notice of Redemption has been given with irrevocable instructions and authority to pay the redemption price to the Holders of such shares, then upon the date of such deposit or, if no such deposit is made, then upon such date fixed for redemption (unless the Corporation shall default in making the redemption payment), all rights of the Holders of such shares as shareholders of the Corporation by reason of the ownership of such shares will cease and terminate (except their right to receive the redemption price in respect thereof and any Additional Dividends, but without interest), and such shares shall no longer be deemed outstanding. The Corporation shall be entitled to receive, from time to time, from the Auction Agent the interest, if any, on such moneys deposited with it and the Holders of any shares so redeemed shall have no claim to any of such interest. In case the Holder of any shares so called for redemption shall not claim the redemption payment for his shares within one year after the date of redemption, the Auction Agent shall, upon demand, pay over to the Corporation such amount remaining on deposit and the Auction Agent shall thereupon be relieved of all responsibility to the Holder of such shares called for redemption and such Holder thereafter shall look only to the corporation for the redemption payment. 5. Voting Rights. (a) General. Except as otherwise provided in the Charter ------------- ------- or By-Laws, each Holder of shares of AMPS shall be entitled to one vote for each share held on each matter submitted to a vote of shareholders of the Corporation, and the holders of outstanding shares of Preferred Stock, including AMPS, and of shares of Common Stock shall vote together as a single class; provided that, at any meeting of the shareholders of the Corporation held for the election of directors, the holders of outstanding shares of Preferred Stock, including AMPS, shall 46 be entitled, as a class, to the exclusion of the holders of all other securities and classes of capital stock of the Corporation, to elect two directors of the corporation. subject to paragraph 5(b) hereof, the holders of outstanding shares of capital stock of the Corporation, including the holders of outstanding shares of Preferred Stock, including AMPS, voting as a single class, shall elect the balance of the directors. (b) Right to Elect Majority of Board of Directors. During any period in --------------------------------------------- which any one or more of the conditions described below shall exist (such period being referred to herein as a "Voting Period"), the number of directors constituting the Board of Directors shall be automatically increased by the smallest number that, when added to the two directors elected exclusively by the holders of shares of Preferred Stock, would constitute a majority of the Board of Directors as so increased by such smallest number; and the holders of shares of Preferred Stock shall be entitled, voting separately as one class (to the exclusion of the holders of all other securities and classes of capital stock of the Corporation), to elect such smallest number of additional directors, together with the two directors that such-holders are in any event entitled to elect. A Voting Period shall commence: (i) if at any time accumulated dividends (whether or not earned or declared, and whether or not funds are then legally available in an amount sufficient therefor) on the outstanding shares of AMPS equal to at least two full years' dividends shall be due and unpaid and sufficient cash or specified securities shall not have been deposited with the Auction Agent for the payment of such accumulated dividends; or (ii) if at any time holders of any other shares of Preferred Stock are entitled to elect a majority of the directors of the Corporation under the 1940 Act. 47 Upon the termination of a Voting Period, the voting rights described in this paragraph 5(b) shall cease, subject always, however, to the reverting of such voting rights in the Holders upon the further occurrence of any of the events described in this paragraph 5(b). (c) Right to Vote with Respect to Certain Other Matters. So long as any --------------------------------------------------- shares of AMPS are outstanding, the Corporation shall not, without the affirmative vote of the holders of a majority of the shares of Preferred Stock Outstanding at the time, voting separately as one class: (i) authorize, create or issue, or increase the authorized or issued amount of, any class or series of stock ranking prior to or on a parity with any series of Preferred Stock with respect to payment of dividends or the distribution of assets on liquidation, or increase the authorized amount of AMPS or any other Preferred Stock, or (ii) amend, alter or repeal the provisions of the Charter, whether by merger, consolidation or otherwise, so as to adversely affect any of the contract rights expressly set forth in the Charter of holders of shares of AMPS or any other Preferred Stock. To the extent permitted under the 1940 Act, in the event shares of more than one series of AMPS are outstanding, the Corporation shall not approve any of the actions set forth in clause (i) or (ii) which adversely affects the contract rights expressly set forth in the Charter of a Holder of shares of a series of AMPS differently than those of a Holder of shares of any other series of AMPS without the affirmative vote of the holders of at least a majority of the shares of AMPS of each series adversely affected and outstanding at such time (each such adversely affected series voting separately as a class). The Corporation shall notify Moody's and S&P 10 Business Days prior to any such vote described in clause (i) or (ii). Unless a higher percentage is provided for under the Charter, the affirmative vote of the holders of a majority of the outstanding shares of Preferred Stock, including AMPS, voting together as a single class, will be required to approve any plan of reorganization (including bankruptcy proceedings) adversely affecting such shares or any action 48 requiring a vote of security holders under Section 13(a) of the 1940 Act. The class vote of holders of shares of Preferred Stock, including AMPS, described above will in each case be in addition to a separate vote of the requisite percentage of shares of Common Stock and shares of Preferred Stock, including AMPS, voting together as a single class necessary to authorize the action in question. (d) Voting Procedures. ----------------- (i) As soon as practicable after the accrual of any right of the holders of shares of Preferred Stock to elect additional directors as described in paragraph 5(b) above, the Corporation shall call a special meeting of such holders and instruct the Auction Agent to mail a notice of such special meeting to such holders, such meeting to be held not less than 10 nor more than 20 days after the date of mailing of such notice. If the Corporation fails to send such notice to the Auction Agent or if the Corporation does not call such a special meeting, it may be called by any such holder on like notice. The record date for determining the holders entitled to notice of and to vote at such special meeting shall be the close of business on the fifth Business Day preceding the day on which such notice is mailed. At any such special meeting and at each meeting held during a Voting Period, such Holders, voting together as a class (to the exclusion of the holders of all other securities and classes of capital stock of the Corporation), shall be entitled to elect the number of directors prescribed in paragraph 5(b) above. At any such meeting or adjournment thereof in the absence of a quorum, a majority of such holders present in person or by proxy shall have the power to adjourn the meeting without notice, other than by an announcement at the meeting, to a date not more than 120 days after the original record date. (ii) For purposes of determining any rights of the Holders to vote on any matter or the number of shares required to constitute a quorum, whether such right is created by these 49 Articles Supplementary, by the other provisions of the Charter, by statute or otherwise, a share of AMPS which is not Outstanding shall not be counted. (iii) The terms of office of all persons who are directors of the Corporation at the time of a special meeting of Holders and holders of other Preferred Stock to elect directors shall continue, notwithstanding the election at such meeting by the Holders and such other holders of the number of directors that they are entitled to elect, and the persons so elected by the Holders and such other holders, together with the two incumbent directors elected by the Holders and such other holders of Preferred Stock and the remaining incumbent directors elected by the holders of the Common Stock and Preferred Stock, shall constitute the duly elected directors of the Corporation. (iv) Simultaneously with the expiration of a Voting Period, the terms of office of the additional directors elected by the Holders and holders of other Preferred Stock pursuant to paragraph 5(b) above shall terminate, the remaining directors shall constitute the directors of the Corporation and the voting rights of the Holders and such other holders to elect additional directors pursuant to paragraph 5(b) above shall cease, subject to the provisions of the last sentence of paragraph 5(b)(ii). (e) Exclusive Remedy. Unless otherwise required by law, the Holders of ---------------- shares of AMPS shall not have any rights or preferences other than those specifically set forth herein. The Holders of shares of AMPS shall have no preemptive rights or rights to cumulative voting. In the event that the Corporation fails to pay any dividends on the shares of AMPS, the exclusive remedy of the Holders shall be the right to vote for directors pursuant to the provisions of this paragraph 5. 50 (f) Notification to S&P and Moody's. In the event a vote of Holders of AMPS ------------------------------- is required pursuant to the provisions of Section 13(a) of the 1940 Act, the Corporation shall, not later than ten Business Days prior to the date on which such vote is to be taken, notify S&P and Moody's that such vote is to be taken and the nature of the action with respect to which such vote is to be taken and, not later than ten Business Days after the date on which such vote is taken, notify S&P and Moody's of the result of such vote. 6. 1940 Act AMPS Asset Coverage. The Corporation shall maintain, as of the ---------------------------- last Business Day of each month in which any share of AMPS is outstanding, the 1940 Act AMPS Asset Coverage. 7. AMPS Basic Maintenance Amount. (a) The Corporation shall maintain, on ----------------------------- each Valuation Date, and shall verify to its satisfaction that it is maintaining on such Valuation Date, (i) S&P Eligible Assets having an aggregate Discounted Value equal to or greater than the AMPS Basic Maintenance Amount and (ii) Moody's Eligible Assets having an aggregate Discounted Value equal to or greater than the AMPS Basic Maintenance Amount. Upon any failure to maintain the required Discounted Value, the Corporation will use its best efforts to alter the composition of its portfolio to reattain the AMPS Basic Maintenance Amount on or prior to the AMPS Basic Maintenance Cure Date. (b) On or before 5:00 p.m., New York City time, on the third Business Day after a Valuation Date on which the Corporation fails to satisfy the AMPS Basic Maintenance Amount, the Corporation shall complete and deliver to the Auction Agent, Moody's and S&P a complete AMPS Basic Maintenance Report as of the date of such failure, which will be deemed to have been delivered to the Auction Agent if the Auction Agent receives a copy or telecopy, telex or other electronic transcription thereof and on the same day the Corporation mails to the Auction 51 Agent for delivery on the next Business Day the complete AMPS Basic Maintenance Report. The Corporation will deliver an AMPS Basic Maintenance Report to Moody's on or before 5:00 p.m., New York City time, on the third Business Day after a Valuation Date on which the Corporation cures its failure to maintain Moody's Eligible Assets with an aggregate Discounted Value equal to or greater than the AMPS Basic Maintenance Amounts or on which the Corporation fails to maintain Moody's Eligible Assets with an aggregate Discounted Value which exceeds that AMPS Basic Maintenance Amount by 5% or more. As long as required by S&P, the corporation will also deliver an AMPS Basic maintenance Report to the Auction Agent and S&P and a Certificate of Minimum Liquidity to S&P as of (i) the seventh day of each month (or, if such day is not a Business Day, the next succeeding Business Day) and (ii) the twenty-first day of each month (or, if such day is not a Business Day, the next succeeding Business Day), in each case on or before the third Business Day after such day. A failure by the Corporation to deliver an AMPS Basic Maintenance Report under this paragraph 7(b) shall be deemed to be delivery of an AMPS Basic Maintenance Report indicating the Discounted Value for S&P Eligible Assets and Moody's Eligible Assets of the corporation is less than the AMPS Basic Maintenance Amount, as of the relevant Valuation Date. (c) Within ten Business Days after the date of delivery of an AMPS Basic Maintenance Report and a Certificate of Minimum Liquidity in accordance with paragraph 7(b) above relating to a Quarterly Valuation Date, the Independent Accountant will confirm in writing to the Auction Agent, S&P and Moody's (i) the mathematical accuracy of the calculations reflected in such Report (and in any other AMPS Basic Maintenance Report, randomly selected by the Independent Accountant, that was delivered by the Corporation during the quarter ending on such Quarterly Valuation Date) and (with respect to S&P only while S&P is rating the AMPS) 52 such Certificate, (ii) that, in such Report (and in such randomly selected Report), the Corporation correctly determined the assets of the Corporation which constitute S&P Eligible Assets or Moody's Eligible Assets, as the case may be, at such Quarterly Valuation Date in accordance with these Articles supplementary, (iii) that, in such Report (and in such randomly selected Report), the Corporation determined whether the Corporation had, at such Quarterly Valuation Date (and at the Valuation Date addressed in such randomly- selected Report) in accordance with these Articles Supplementary, S&P Eligible Assets of an aggregate Discounted Value at least equal to the AMPS Basic Maintenance amount and Moody's Eligible Assets of an aggregate Discounted Value at least equal to the AMPS Basic Maintenance Amount, (iv) that (with respect to S&P only) in such Certificate, the Corporation determined the Minimum Liquidity Level and the Corporation's Deposit Securities in accordance with these Articles Supplementary, including maturity or tender date, (v) with respect to the S&P rating on New York 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 New York 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 Corporation's assets to the Corporation for purposes of valuing securities in the Corporation's portfolio, the Independent Accountant has 53 traced the price used in such Report and (with respect to S&P only) such Certificate to the bid or mean price listed in such Report and (with respect to S&P only) such Certificate as provided to the Corporation and verified that such information agrees (in the event such information does not agree, the Independent Accountant will provide a listing in its letter of such differences) and (viii) with respect to such confirmation to Moody's, that the Corporation has satisfied the requirements of paragraph 9(b) of these Articles Supplementary (such confirmation is herein called the "Accountant's Confirmation"). (d) Within ten Business Days after the date of delivery to the Auction Agent, S&P and Moody's of an AMPS Basic Maintenance Report in accordance with paragraph 7(b) above relating to any Valuation Date on which the Corporation failed to maintain S&P Eligible Assets with an aggregate Discounted Value and Moody's Eligible Assets with an aggregate Discounted Value equal to or greater than the AMPS Basic Maintenance Amount, and relating to the AMPS Basic Maintenance Cure Date with respect to such failure, the Independent Accountant will provide to the Auction Agent, S&P and Moody's an Accountant's Confirmation as to such AMPS Basic Maintenance Report. (e) If any Accountant's Confirmation delivered pursuant to subparagraph (c) or (d) of this paragraph 7 shows that an error was made in the AMPS Basic Maintenance Report for a particular Valuation Date for which such Accountant's Confirmation as required to be delivered, or shows that a lower aggregate Discounted Value for the aggregate of all S&P Eligible Assets or Moody's Eligible Assets, as the case may be, of the Corporation was determined by the Independent Accountant, the calculation or determination made by such Independent Accountant shall be final and conclusive and shall be binding on the Corporation, and the Corporation shall 54 accordingly amend and deliver the AMPS Basic Maintenance Report to the Auction Agent, S&P and Moody's promptly following receipt by the Corporation of such Accountant's Confirmation. (f) On or before 5:00 p.m., New York City time, on the first Business Day after the Date of Original Issue of the shares of AMPS, the Corporation will complete and deliver to S&P and Moody's an AMPS Basic Maintenance Report as of the close of business on such Date of original Issue. Within five Business Days of such Date of original Issue, the Independent Accountant will confirm in writing to S&P and Moody's (i) the mathematical accuracy of the calculations reflected in such Report and (ii) that the aggregate Discounted Value of S&P Eligible Assets and the aggregate Discounted Value of Moody's Eligible Assets reflected thereon equals or exceeds the AMPS Basic Maintenance Amount reflected thereon. Also, on or before 5:00 p.m., New York City time, on the first Business Day after shares of Common Stock are repurchased by the Corporation, the corporation will complete and deliver to S&P and Moody's an AMPS Basic Maintenance Report as of the close of business on such date that Common Stock is repurchased. (g) For so long as shares of AMPS are rated by Moody's, in managing the Corporation's portfolio, the Adviser will not alter the composition of the corporation's portfolio if, in the reasonable belief of the Adviser, the effect of any such alteration would be to cause the Corporation to have Moody's Eligible Assets with an aggregate Discounted Value, as of the immediately preceding Valuation Date, less than the AMPS Basic Maintenance Amount as of such Valuation Date; provided, however, that in the event that, as of the immediately preceding Valuation Date, the aggregate Discounted Value of Moody's Eligible Assets exceeded the AMPS Basic Maintenance Amount by five percent or less, the Adviser will not alter the composition of the Corporation's portfolio in a manner reasonably expected to reduce the aggregate Discounted 55 Value of Moody's Eligible Assets unless the Corporation shall have confirmed that, after giving effect to such alteration, the aggregate Discounted Value of Moody's Eligible Assets would exceed the AMPS Basic Maintenance Amount. 8. Minimum Liquidity Level. (a) For so long as any shares of AMPS are rated ----------------------- by S&P, the Corporation shall be required to have, as of each Valuation Date, Dividend Coverage Assets having in the aggregate a Market Value not less than the Dividend Coverage Amount. (b) As of each Valuation Date, as long as any shares of AMPS are rated by S&P, the Corporation shall determine (i) the Market Value of the Dividend Coverage Assets owned by the Corporation as of that Valuation Date, (ii) the Dividend Coverage Amount on that Valuation Date, and (iii) whether the Minimum Liquidity Level is met as of that Valuation Date. The calculations of the Dividend Coverage Assets, the Dividend Coverage Amount and whether the Minimum Liquidity Level is met shall be set forth in a certificate (a "Certificate of Minimum Liquidity") dated as of the Valuation Date. The AMPS Basic Maintenance Report and the Certificate of Minimum Liquidity may be combined in one certificate. The Corporation shall cause the Certificate of Minimum Liquidity to be delivered to S&P not later than the close of business on the third Business Day after the Valuation Date applicable to such Certificate pursuant to paragraph 7(b). The Minimum Liquidity Level shall be deemed to be met as of any date of determination if the Corporation has timely delivered a certificate of minimum Liquidity relating to such date which states that the same has been met and which is not manifestly inaccurate. In the event that a Certificate of Minimum Liquidity is not delivered to S&P when required, the Minimum Liquidity Level shall be deemed not to have been met as of the applicable date. 56 (c) If the Minimum Liquidity Level is not met as of any Valuation Date, then the Corporation shall purchase or otherwise acquire Dividend Coverage Assets to the extent necessary so that the Minimum Liquidity Level is met as of the fifth Business Day following such Valuation Date. The Corporation shall, by such fifth Business Day, provide to S&P a Certificate of Minimum Liquidity setting forth the calculations of the Dividend Coverage Assets and the Dividend Coverage Amount and showing that the Minimum Liquidity Level is met as of such fifth Business Day together with a report of the custodian of the Corporation's assets confirming the amount of the Corporation's Dividend Coverage Assets as of such fifth Business Day. 9. Certain Other Restrictions. -------------------------- (a) For so long as any shares of AMPS are rated by S&P, the Corporation will not purchase or sell futures contracts, write, purchase or sell options on futures contracts or write put options (except covered put options) or call options (except covered call options) on portfolio securities unless it receives written confirmation from S&P that engaging in such transactions will not impair the ratings then assigned to the shares of AMPS by S&P, except that the Corporation may purchase or sell futures contracts based on the Bond Buyer Municipal Bond Index (the "Municipal Index") or United States Treasury Bonds with remaining maturities of ten years of more ("Treasury Bonds") and write, purchase or sell put and call options on such contracts (collectively "S&P Hedging Transactions"), subject to the following limitations: (i) the Corporation will not engage in any S&P Hedging Transaction based on the Municipal Index (other than transactions which terminate a futures contract or option held by the Corporation by the Corporation's taking an opposite position thereto ("Closing Transactions")), which would cause the Corporation at the time of such transaction to own or have sold the least 57 of (A) more than 1,000 outstanding futures contracts based on the Municipal Index, (B) outstanding futures contracts based on the Municipal Index exceeding in number 25% of the quotient of the Market Value of the Corporation's total assets divided by $100,000 or (C) outstanding futures contracts based on the Municipal Index exceeding in number 10% of the average number of daily traded futures contracts based on the Municipal Index in the thirty days preceding the time of effecting such transaction as reported by The Wall Street Journal; ----------------------- (ii) the Corporation will not engage in any S&P Hedging Transaction based on Treasury Bonds (other than Closing Transactions) which would cause the Corporation at the time of such transaction to own or have sold the lesser of (A) outstanding futures contracts based on Treasury Bonds and on the Municipal Index exceeding in number 25% of the quotient of the Market Value of the Corporation's total assets divided by $100,000 or (B) outstanding futures contracts based on Treasury Bonds exceeding in number 10% of the average number of daily traded futures contracts based on Treasury Bonds in the thirty days preceding the time of effecting such transaction as reported by The Wall Street --------------- Journal; - ------- (iii) the Corporation will engage in closing Transactions to close out any outstanding futures contract which the Corporation owns or has sold or any outstanding option thereon owned by the Corporation in the event (A) the Corporation does not have S&P Eligible Assets with an aggregate Discounted Value equal to or greater than the AMPS Basic Maintenance Amount on two consecutive Valuation Dates and (B) the Corporation is required to pay Variation Margin on the second such Valuation Date; (iv) the Corporation will engage in a closing Transaction to close out any outstanding futures contract or option thereon in the month prior to the delivery month under the 58 terms of such futures contract or option thereon unless the corporation holds the securities deliverable under such terms; and (v) when the Corporation writes a futures contract or option thereon, it will either maintain an amount of cash, cash equivalents or short- term, fixed-income securities in a segregated account with the Corporation's custodian, so that the amount so segregated plus the amount of Initial Margin and Variation Margin held in the account of or on behalf of the Corporation's broker with respect to such futures contract or option equals the Market Value of the futures contract or option, or, in the event the corporation writes a futures contract or option thereon which requires delivery of an underlying security, it shall hold such underlying security in its portfolio. For purposes of determining whether the Corporation has S&P Eligible Assets with a Discounted Value that equals or exceeds the AMPS Basic Maintenance Amount, the Discounted Value of cash or securities held for the payment of Initial Margin or Variation Margin shall be zero and the aggregate Discounted Value of S&P Eligible Assets shall be reduced by an amount equal to (i) 30% of the aggregate settlement value, as marked to market, of any outstanding futures contracts based on the Municipal Index which are owned by the Corporation plus (ii) 25% of the aggregate settlement value, as marked to market, of any outstanding futures contracts based on Treasury Bonds which contracts are owned by the Corporation. (b) For so long as any shares of AMPS are rated by Moody's, the Corporation will not buy or sell futures contracts, write, purchase or sell call options on futures contracts or purchase put options on futures contracts or write call options (except covered call options) on portfolio securities unless it receives written confirmation from Moody's that engaging in such transactions would not impair the ratings then assigned to the shares of AMPS by Moody's, 59 except that the Corporation may purchase or sell exchange-traded futures contracts based on the Municipal Index or Treasury Bonds and purchase, write or sell exchange-traded put options on such futures contracts and purchase, write or sell exchange-traded call options on such futures contracts (collectively "Moody's Hedging Transactions"), subject to the following limitations: (i) the Corporation will not engage in any Moody's Hedging Transaction based on the Municipal Index (other than Closing Transactions) which would cause the Corporation at the time of such transaction to own or have sold (A) outstanding futures contracts based on the Municipal Index exceeding in number 10% of the average number of daily traded futures contracts based on the Municipal Index in the thirty 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 the Market Value of all Moody's Eligible Assets owned by the Corporation (other than Moody's Eligible Assets already subject to a Moody's Hedging Transaction); (ii) the Corporation will not engage in any Moody's Hedging Transaction based on Treasury Bonds (other than Closing Transactions) which would cause the Corporation at the time of such transaction to own or have sold (A) outstanding futures contracts based on Treasury Bonds having an aggregate Market Value exceeding 40% of the aggregate Market Value of Moody's Eligible Assets owned by the Corporation and rated Aa by Moody's (or, if not rated by Moody's but rated by S&P, rated AAA by S&P) or (B) outstanding futures contracts based on Treasury Bonds having an aggregate Market Value exceeding 80% of the aggregate Market Value of all Moody's Eligible Assets owned by the Corporation (other than Moody's Eligible Assets already subject to a Moody's Hedging Transaction) and rated Baa or A by Moody's (or, if not rated by Moody's but rated by S&P, rated A or AA by S&P) (for purposes of the foregoing 60 clauses (i) and (ii), the Corporation shall be deemed to own the number of futures contracts that underlie any outstanding options written by the Corporation); (iii) the Corporation will engage in Closing Transactions to close out any outstanding futures contract based on the Municipal Index if the amount of open interest in the Municipal Index as reported by The Wall Street Journal is ----------------------- less than 5,000; (iv) the Corporation will engage in a Closing Transaction to close out any outstanding futures contract by no later than the fifth Business Day of the month in which such contract expires and will engage in a Closing Transaction to close out any outstanding option on a futures contract by no later than the first Business Day of the month in which such option expires; (v) the Corporation will engage in Moody's Hedging Transactions only with respect to futures contracts or options thereon having the next settlement date or the settlement date immediately thereafter; (vi) in the event the corporation writes a futures contract or option thereon which requires delivery of an underlying security, it shall hold such underlying security in its portfolio; (vii) the Corporation will not engage in options and futures transactions for leveraging or speculative purposes and will not write any call options or sell any futures contracts for the purpose of hedging the anticipated purchase of an asset prior to completion of such purchase; and (viii) the Corporation will not enter into an option or futures transaction unless, after giving effect thereto, the Corporation would continue to have Moody's Eligible Assets with an aggregate Discounted Value equal to or greater than the AMPS Basic Maintenance Amount. 61 For purposes of determining whether the Corporation has Moody's Eligible Assets with an aggregate Discounted Value that equals or exceeds the AMPS Basic Maintenance Amount, the Discounted Value of Moody's Eligible Assets which the Corporation is obligated to deliver or receive pursuant to an outstanding futures contract or option shall be as follows: (i) assets subject to call options written by the Corporation which are either exchange-traded and "readily reversible" or which expire within 49 days after the date as of which such valuation is made shall be valued at the lesser of (a) Discounted Value and (b) the exercise price of the call option written by the Corporation; (ii) assets subject to call options written by the Corporation not meeting the requirements of clause (i) of this sentence shall have no value; (iii) assets subject to put options written by the Corporation shall be valued at the lesser of (A) the exercise price and (B) the Discounted Value of the subject security; (iv) futures contracts shall be valued at the lesser of (A) settlement price and (B) the Discounted Value of the subject security, provided that, if a contract matures within 49 days after the date as of which such valuation is made, where the Corporation is the seller the contract be valued at the settlement price and where the Corporation is the buyer the contract may be valued at the Discounted Value of the subject securities and (v) where delivery may be made to the Corporation with any security of a class of securities, the Corporation shall assume that it will take delivery of the security with the lowest Discounted Value. For purposes of determining whether the Corporation has Moody's Eligible Assets with an aggregate Discounted Value that equals or exceeds the AMPS Basic Maintenance Amount, the following amounts shall be subtracted from the aggregate Discounted Value of the Moody's Eligible Assets held by the corporation: (i) 10% of the exercise price of a written call option; (ii) the exercise price of any written put option; (iii) where the Corporation is the seller under a 62 futures contract, 10% of the settlement price of the futures contract; (iv) where the corporation is the purchaser under a futures contract, the settlement price of assets purchased under such futures contract; (v) the settlement price of the underlying futures contract if the corporation writes put options on a futures contract; and (vi) 105% of the Market Value of the underlying futures contracts if the corporation writes call options on a futures contract and does not own the underlying contract. (c) For so long as any shares of AMPS are rated by Moody's, the Corporation will not enter into any contract to purchase securities for a fixed price at a future date beyond customary settlement time (other than such contracts that constitute Moody's Hedging Transactions that are permitted under paragraph 9(b) of these Articles Supplementary), except that the Corporation may enter into such contracts to purchase newly-issued securities on the date such securities are issued ("Forward Commitments"), subject to the following limitations: (i) the Corporation will maintain in a segregated account with its custodian cash, cash equivalents or short-term, fixed-income securities rated P-1, MIG-I or VMIG-1 by Moody's and maturing prior to the date of the Forward commitment with a Market Value that equals or exceeds the amount of the Corporation's obligations under any Forward Commitments to which it is from time to time a party or long-term fixed income securities with a Discounted Value that equals or exceeds the amount of the Corporation's obligations under any Forward Commitment to which it is from time to time a party; and (ii) the Corporation will not enter into a Forward commitment unless, after giving effect thereto the Corporation would continue to have Moody's Eligible Assets with an aggregate Discounted Value equal to or greater than the AMPS Basic Maintenance Account. 63 For purposes of determining whether the Corporation has Moody's Eligible Assets with an aggregate Discounted Value that equals or exceeds the AMPS Basic Maintenance Amount, the Discounted Value of all Forward Commitments to which the corporation is a party and of all securities deliverable to the corporation pursuant to such Forward Commitments shall be zero. (d) For so long as shares of AMPS are rated by S&P or Moody's, the Corporation will not, unless it has received written confirmation from S&P and/or Moody's, as the case may be, that such action would not impair the ratings then assigned to shares of AMPS by S&P and/or Moody's, as the case may be, (i) borrow money except for the purpose of clearing transactions in portfolio securities (which borrowings shall under any circumstances be limited to the lesser of $10 million and an amount equal to 5% of the Market Value of the Corporation's assets at the time of such borrowings), (ii) engage in short sales of securities, (iii) lend any securities, (iv) issue any class or series of stock ranking prior to or on a parity with the AMPS with respect to the payment of dividends or the distribution of assets upon dissolution, liquidation or winding up of the corporation, (v) reissue any AMPS previously purchased or redeemed by the Corporation, (vi) merge or consolidate into or with any other corporation or entity, (vii) change the Pricing service or (viii) engage in reverse repurchase agreements. 10. Notice. All notices or communications, unless otherwise specified in ------ the By-Laws of the Corporation or these Articles Supplementary, shall be sufficiently given if in writing and delivered in person or mailed by first-class mail, postage prepaid. Notice shall be deemed given on the earlier of the date received or the date seven days after which such notice is mailed. 11. Auction Procedures. (a) Certain definitions. As used in this paragraph ------------------ ------------------- 11, the following terms shall have the following meanings, unless the context otherwise requires: 64 (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. (vi) "Hold Order" shall have the meaning specified in paragraph 11(b)(i) below. (vii) "Maximum Applicable Rate" for any Dividend Period will be the Applicable Percentage of the Reference Rate. The Applicable Percentage will be determined based on (i) the lower of the credit rating or ratings assigned on such date to such shares by Moody's and S&P (or if Moody's or S&P or both shall not make such rating available, the equivalent of either or both of such ratings by a Substitute Rating Agency or two Substitute Rating Agencies or, in the event that only one such rating shall be available, such rating) and (ii) whether the Corporation has provided notification to the Auction Agent prior to the Auction establishing the Applicable Rate for any dividend pursuant to paragraph 2(f) hereof that net capital gains or other taxable income will be included in such dividend on shares of AMPS as follows: Applicable Applicable Percentage of Percentage of Credit Ratings Reference Reference - --------------------------------------- Rate - 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% 65 Applicable Applicable Percentage of Percentage of Credit Ratings Reference Reference - --------------------------------------- Rate - Rate - Moody's S&P No Notification Notification - ------------------- ------------------ ------------------- ----------------- Below "baa3" Below BBB- 200% 275% The Corporation shall take all reasonable action necessary to enable S&P and Moody's to provide a rating for the AMPS. If either S&P or Moody's shall not make such a rating available, or neither S&P nor Moody's shall make such a rating available, Merrill Lynch, Pierce, Fenner & Smith Incorporated or its affiliates and successors, after consultation with the Corporation, shall select a nationally recognized statistical rating organization or two nationally recognized statistical rating organizations to act as a Substitute Rating Agency or Substitute Rating Agencies, as the case may be. (viii) "Order" shall have the meaning specified in paragraph 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. 66 (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: (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 67 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 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) of 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: 68 (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. (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: 69 (1) the number of Outstanding shares, if any, of AMPS subject to any Hold order placed by such Existing Holder; (2) the number of Outstanding shares, if any, of AMPS subject to any Bid placed by such Existing Holder and the rate per annum specified in such Bid; and (3) the number of outstanding shares, if any, of AMPS subject to any Sell order placed by such Existing Holder; and (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: 70 (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 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 71 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 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: 72 (1) the number of Outstanding shares of AMPS that are the subject of Submitted Bids by Existing Holders specifying one or more rates per annum higher than the Maximum Applicable Rate, and (2) the number of Outstanding shares of AMPS that are subject to Submitted Sell Orders (if such excess or such equality exists (other than because the number of Outstanding shares of AMPS in clauses (1) and (2) above are each zero because all of the Outstanding shares of AMPS are the subject of Submitted Hold Orders), such Submitted Bids by Potential Holders being hereinafter referred to collectively as "Sufficient Clearing Bids"); and (C) if Sufficient Clearing Bids exist, the lowest rate per annum specified in the Submitted Bids (the "Winning Bid Rate") that if: (1) each Submitted Bid from Existing Holders specifying the Winning Bid Rate and all other Submitted Bids from Existing Holders specifying lower rates per annum were rejected, thus entitling such Existing Holders to continue to hold the shares of AMPS that are the subject of such Submitted Bids, and (2) each Submitted Bid from Potential Holders specifying the Winning Bid Rate and all other Submitted Bids from Potential Holders specifying lower rates per annum were accepted, thus entitling the Potential Holders to purchase the shares of AMPS that are the subject of such Submitted Bids, would result in the number of shares subject to all Submitted Bids specifying the Winning Bid Rate or a lower rate per annum being at least equal to the Available AMPS. (ii) Promptly after the Auction Agent has made the determinations pursuant to paragraph 11(d)(i), the Auction Agent shall advise the Corporation of the Maximum Applicable 73 Rate and, based on such determinations, the Applicable Rate for the next succeeding Dividend Period as follows: (A) if Sufficient Clearing Bids exist, that the Applicable Rate for the next succeeding Dividend Period shall be equal to the Winning Bid Rate; (B) if Sufficient Clearing Bids do not exist (other than because all of the Outstanding shares of AMPS are the subject of Submitted Hold Orders), that the Applicable Rate for the next succeeding Dividend Period shall be equal to the Maximum Applicable Rate; or (C) if all of the Outstanding shares of AMPS are the subject of Submitted Hold Orders, that the Dividend Period next succeeding the Auction shall automatically be the same length as the immediately preceding Dividend Period and the Applicable Rate for the next succeeding Dividend Period shall be equal to 59% of the Reference Rate (or 90% of such rate if the Corporation has provided notification to the Auction Agent prior to the Auction establishing the Applicable Rate for any dividend pursuant to paragraph 2(f) hereof that net capital gains or other taxable income will be included in such dividend on shares of AMPS) on the date of the Auction. (e) Acceptance and Rejection of Submitted Bids and Submitted Sell Orders -------------------------------------------------------------------- and Allocation of Shares. Based on the determinations made pursuant to paragraph - ------------------------ 11(d)(i), the Submitted Bids and Submitted Sell Orders shall be accepted or rejected and the Auction Agent shall take such other action as set forth below: (i) If Sufficient Clearing Bids have been made, subject to the provisions of paragraph 11(e)(iii) and paragraph 11(e)(iv), Submitted Bids and Submitted Sell Orders shall be 74 accepted or rejected in the following order of priority and all other Submitted Bids shall be rejected: (A) the Submitted Sell orders of Existing Holders shall be accepted and the Submitted Bid of each of the Existing Holders specifying any rate per annum that is higher than the Winning Bid Rate shall be accepted, thus requiring each such Existing Holder to sell the Outstanding shares of AMPS that are the subject of such Submitted Sell order or Submitted Bid; (B) the Submitted Bid of each of the Existing Holders specifying any rate per annum that is lower than the winning Bid Rate shall be rejected, thus entitling each such Existing Holder to continue to hold the Outstanding shares of AMPS that are the subject of such Submitted Bid; (C) the Submitted Bid of each of the Potential Holders specifying any rate per annum that is lower than the Winning Bid Rate shall be accepted; (D) the Submitted Bid of each of the Existing Holders specifying a rate per annum that is equal to the Winning Bid Rate shall be rejected, thus entitling each such Existing Holder to continue to hold the Outstanding shares of AMPS that are the subject of such Submitted Bid, unless the number of Outstanding shares of AMPS subject to all such Submitted Bids shall be greater than the number of outstanding shares of AMPS ("Remaining Shares") equal to the excess of the Available AMPS over the number of Outstanding shares of AMPS subject to Submitted Bids described in paragraph 11(e)(i)(B) and paragraph 11(e)(i)(C), in which event the Submitted Bids of each such Existing Holder shall be accepted, and each such Existing Holder shall be required to sell outstanding shares of AMPS, but only in an amount equal to the difference between 75 (1) the number of outstanding shares of AMPS then held by such Existing Holder subject to such Submitted Bid and (2) the number of shares of AMPS obtained by multiplying (x) the number of Remaining Shares by (y) a fraction the numerator of which shall be the number of outstanding shares of AMPS held by such Existing Holder subject to such Submitted Bid and the denominator of which shall be the sum of the numbers of Outstanding shares of AMPS subject to such Submitted Bids made by all such Existing Holders that specified a rate per annum equal to the Winning Bid Rate; and (E) the Submitted Bid of each of the Potential Holders specifying a rate per annum that is equal to the Winning Bid Rate shall be accepted but only in an amount equal to the number of outstanding shares of AMPS obtained by multiplying (x) the difference between the Available AMPS and the number 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 76 such Existing Holder to continue to hold the Outstanding shares of AMPS that are the subject of such Submitted Bid; (B) the Submitted Bid of each Potential Holder specifying any rate per annum that is equal to or lower than the Maximum Applicable Rate shall be accepted, thus requiring such Potential Holder to purchase the Outstanding shares of AMPS that are the subject of such Submitted Bid; and (C) the Submitted Bids of each Existing Holder specifying any rate per annum that is higher than the Maximum Applicable Rate shall be accepted and the Submitted Sell Orders of each Existing Holder shall be accepted, in both cases only in an amount equal to the difference between (1) the number of Outstanding shares of AMPS then held by such Existing Holder subject to such Submitted Bid or Submitted Sell Order and (2) the number of shares of AMPS obtained by multiplying (x) the difference between the Available AMPS and the aggregate number of Outstanding shares of AMPS subject to Submitted Bids described in paragraph 11(e)(ii)(A) and paragraph 11(e)(ii)(B) by (y) a fraction the numerator of which shall be the number of outstanding shares of AMPS held by such Existing Holder subject to such Submitted Bid or Submitted Sell Order and the denominator of which shall be the number of Outstanding shares of AMPS subject to all such Submitted Bids and Submitted Sell Orders. (iii) If, as a result of the procedures described in paragraph 11(e)(i) or paragraph 11(e)(ii), any Existing Holder would be entitled or required to sell, or any potential Holder would be entitled or required to purchase, a traction 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 Exiting Holder or Potential 77 Holder on such Auction Date so that each Outstanding share of AMPS purchased or sold by each Existing Holder or Potential Holder on such Auction Date shall be a whole share of AMPS. (iv) If, as a result of the procedures described in paragraph 11(e)(i), any Potential Holder would be entitled or required to purchase less than a whole share of AMPS on any Auction Date, the Auction Agent shall, in such manner as in its sole discretion it shall determine, allocate shares of AMPS for purchase among Potential Holders so that only whole shares of AMPS are purchased on such Auction Date by any Potential Holder, even if such allocation results in one or more of such Potential Holders not purchasing any shares of AMPS on such Auction Date. (v) Based on the results of each Auction, the Auction Agent shall determine, with respect to each Broker-Dealer that submitted Bids or Sell orders on behalf of Existing Holders or Potential Holders, the aggregate number of Outstanding shares of AMPS to be purchased and the aggregate number of the Outstanding shares of AMPS to be sold by such Potential Holders and Existing Holders and, to the extent that such aggregate number of outstanding shares to be purchased and such aggregate number of Outstanding shares to be sold differ, the Auction Agent shall determine to which other Broker-Dealer or Broker-Dealers acting for one or more purchasers such Broker-Dealer shall deliver, or from which other Broker-Dealer or Broker-Dealers acting for one or more sellers such Broker-Dealer shall receive, as the case may be, Outstanding shares of AMPS. (f) Miscellaneous. The Corporation may interpret the provisions of this paragraph 11 to resolve any inconsistency or ambiguity, remedy any formal defect or make any other change or modification that does not substantially adversely affect the rights of Existing Holders of AMPS. An Existing Holder (A) may sell, transfer or otherwise dispose of shares of AMPS only pursuant 78 to a Bid or Sell Order in accordance with the procedures described in this paragraph 11 or to or through a Broker-Dealer or to a Person that has delivered a signed copy of a Purchaser's Letter to the Auction Agent, provided that in the case of all transfers other than pursuant to Auctions such Existing Holder, its Broker-Dealer or its Agent Member advises the Auction Agent of such transfer and (B) except as otherwise required by law, shall have the ownership of the shares of AMPS held by it maintained in book entry form by the Securities Depository in the account of its Agent Member, which in turn will maintain records of such Existing Holder's beneficial ownership. Neither the Corporation nor any affiliate shall submit an order in any Auction. Any Existing Holder that is an Affiliate shall not sell, transfer or otherwise dispose of shares of AMPS to any Person other than the Corporation. All of the Outstanding shares of AMPS shall be represented by a single certificate registered in the name of the nominee of the Securities Depository unless otherwise required by law or unless there is no Securities Depository. If there is no securities Depository, at the Corporation's option and upon its receipt of such documents as it deems appropriate, any shares of AMPS may be registered in the Stock Register in the name of the Existing Holder thereof and such Existing Holder thereupon will be entitled to receive certificates therefor and required to deliver certificates therefor upon transfer or exchange thereof. 12. Securities Depository; Stock Certificates. (a) If there is a Securities ----------------------------------------- Depository, one certificate for all of the shares of AMPS of each series shall be issued to the Securities Depository and registered in the name of the Securities Depository or its nominee. Additional certificates may be issued as necessary to represent shares of AMPS. All such certificates shall bear a legend to the effect that such certificates are issued subject to the provisions restricting the transfer of shares of AMPS contained in these Articles Supplementary and each Purchaser's 79 Letter. Unless the Corporation shall have elected, during a Non-Payment Period, to waive this requirement, the Corporation will also issue stop-transfer instructions to the Auction Agent for the shares of AMPS. Except as provided in paragraph (b) below, the Securities Depository or its nominee will be the Holder, and no Existing Holder shall receive certificates representing its ownership interest in such shares. (b) If the Applicable Rate applicable to all shares of AMPS of a series shall be the Non-Payment Period Rate or there is no Securities Depository, the Corporation may at its option issue one or more new certificates with respect to such shares (without 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. 80 IN WITNESS WHEREOF, MUNIYIELD NEW YORK INSURED FUND, INC. has caused these presents to be signed in its name and on its behalf by a duly authorized officer, and its corporate seal to be hereunto affixed and attested by its Secretary, and the said officers of the Corporation further acknowledge said instrument to be the corporate act of the Corporation, and state under the penalties of perjury that to the best of their knowledge, information and belief the matters and facts herein set forth with respect to approval are true in all material respects, all on April 6th , 1992. MUNIYIELD NEW YORK INSURED FUND, INC. By ------------------------------------------- Name: Terry K. Glenn Title: Executive Vice President Attest: - ------------------------- Mark Goldfus Secretary 81 EX-99.2 5 BY-LAWS OF THE REGISTRANT Exhibit 2 BY-LAWS OF MUNIYIELD NEW YORK INSURED FUND, INC. ARTICLE I Offices ------- Section 1. Principal Office. The principal office of the Corporation shall ---------------- be in the City of Baltimore, State of Maryland. Section 2. Principal Executive Office. The principal executive office of -------------------------- the Corporation shall be at 800 Scudders Mill Road, Plainsboro, New Jersey 08536. Section 3. Other Offices. The Corporation may have such other offices in ------------- such places as the Board of Directors may from time to time determine. ARTICLE II Meetings of Stockholders ------------------------ Section 1. Annual Meeting. The annual meeting of the stockholders of the -------------- Corporation for the election of directors and for the transaction of such other business as may properly be brought before the meeting shall be held on such day in May of each year as shall be designated annually by the Board of Directors. Section 2. Special Meetings. Special meetings of the stockholders, unless ---------------- otherwise provided by law or by the Charter, may be called for any purpose or purposes by a majority of the Board of Directors, the President, or on the written request of the holders of the outstanding shares of capital stock of the Corporation entitled to vote at such meeting to the extent permitted by Maryland law. Section 3. Place of Meetings. The annual meeting and any special meeting of ----------------- the stockholders shall be held at such place within the United States as the Board of Directors may from time to time determine. Section 4. Notice of Meetings; Waiver of Notice. Notice of the place, date ------------------------------------ and time of the holding of each annual and special meeting of the stockholders and the purpose or purposes of each special meeting shall be given personally or by mail, not less than ten nor more than ninety days before the date of such meeting, to each stockholder entitled to vote at such meeting and to each other stockholder entitled to notice of the meeting. Notice by mail shall be deemed to be duly given when deposited in the United States mail addressed to the stockholder at his address as it appears on the records of the Corporation, with postage thereon prepaid. Notice of any meeting of stockholders shall be deemed waived by any stockholder who shall attend such meeting in person or by proxy, or who shall, either before or after the meeting, submit a signed waiver of notice which is filed with the records of the meeting. When a meeting is adjourned to another time and place, unless the Board of Directors, after the adjournment, shall fix a new record date for an adjourned meeting, or the adjournment is for more than one hundred and twenty days after the original record date, notice of such adjourned meeting need not be given if the time and place to which the meeting shall be adjourned were announced at the meeting at which the adjournment is taken. Section 5. Quorum. At all meetings of the stockholders, the holders of a ------ majority of the shares of stock of the Corporation entitled to vote at the meeting, present in person or by 2 proxy, shall constitute a quorum for the transaction of any business, except as otherwise provided by statute or by the Charter. In the absence of a quorum no business may be transacted, except that the holders of a majority of the shares of stock present in person or by proxy and entitled to vote may adjourn the meeting from time to time, without notice other than announcement thereat except as otherwise required by these By-Laws, until the holders of the requisite amount of shares of stock shall be so present. At any such adjourned meeting at which a quorum may be present any business may be transacted which might have been transacted at the meeting as originally called. The absence from any meeting, in person or by proxy, of holders of the number of shares of stock of the Corporation in excess of a majority thereof which may be required by the laws of the State of Maryland, the Investment Company Act of 1940, as amended, or other applicable statute, the Charter, or these By-Laws, for action upon any given matter shall not prevent action at such meeting upon any other matter or matters which may properly come before the meeting, if there shall be present thereat, in person or by proxy, holders of the number of shares of stock of the Corporation required for action in respect of such other matter or matters. Section 6. Organization. At each meeting of the stockholders, the Chairman ------------ of the Board (if one has been designated by the Board), or in his absence or inability to act, the President, or in the absence or inability to act of the Chairman of the Board and the President, a Vice President, shall act as chairman of the meeting. The Secretary, or in his absence or inability to act, any person appointed by the chairman of the meeting, shall act as secretary of the meeting and keep the minutes thereof. 3 Section 7. Order of Business. The order of business at all meetings of the ----------------- stockholders shall be as determined by the chairman of the meeting. Section 8. Voting. Except as otherwise provided by statute or the Charter, ------ each holder of record of shares of stock of the Corporation having voting power shall be entitled at each meeting of the stockholders to one vote for every share of such stock standing in his name on the record of stockholders of the Corporation as of the record date determined pursuant to Section 9 of this Article or if such record date shall not have been so fixed, then at the later of (i) the close of business on the day on which notice of the meeting is mailed or (ii) the thirtieth day before the meeting. Each stockholder entitled to vote at any meeting of stockholders may authorize another person or persons to act for him by a proxy signed by such stockholder or his attorney-in-fact. No proxy shall be valid after the expiration of eleven months from the date thereof, unless otherwise provided in the proxy. Every proxy shall be revocable at the pleasure of the stockholder executing it, except in those cases where such proxy states that it is irrevocable and where an irrevocable proxy is permitted by law. Except as otherwise provided by statute, the Charter or these By-Laws, any corporate action to be taken by vote of the stockholders shall be authorized by a majority of the total votes cast at a meeting of stockholders by the holders of shares present in person or represented by proxy and entitled to vote on such action. If a vote shall be taken on any question other than the election of directors, which shall be by written ballot, then unless required by statute or these By-Laws, or determined by the chairman of the meeting to be advisable, any such vote need not be by ballot. On a vote by 4 ballot, each ballot shall be signed by the stockholder voting, or by his proxy, if there be such proxy, and shall state the number of shares voted. Section 9. Fixing of Record Date. The Board of Directors may set a record --------------------- date for the purpose of determining stockholders entitled to vote at any meeting of the stockholders. The record date, which may not be prior to the close of business on the day the record date is fixed, shall be not more than ninety nor less than ten days before the date of the meeting of the stockholders. All persons who were holders of record of shares at such time, and not others, shall be entitled to vote at such meeting and any adjournment thereof. Section 10. Inspectors. The Board may, in advance of any meeting of ---------- stockholders, appoint one or more inspectors to act at such meeting or any adjournment thereof. If the inspectors shall not be so appointed or if any of them shall fail to appear or act, the chairman of the meeting may, and on the request of any stockholder entitled to vote thereat shall, appoint inspectors. Each inspector, before entering upon the discharge of his duties, shall take and sign an oath to execute faithfully the duties of inspector at such meeting with strict impartiality and according to the best of his ability. The inspectors shall determine the number of shares outstanding and the voting powers of each, the number of shares represented at the meeting, the existence of a quorum, the validity and effect of proxies, and shall receive votes, ballots or consents, hear and determine all challenges and questions arising in connection with the right to vote, count and tabulate all votes, ballots or consents, determine the result, and do such acts as are proper to conduct the election or vote with fairness to all stockholders on request of the chairman of the meeting or any stockholder entitled to vote thereat, the inspectors shall make a report in writing of any challenge, request or matter determined by them and shall execute a 5 certificate of any fact found by them. No director or candidate for the office of director shall act as inspector of an election of directors. Inspectors need not be stockholders. Section 11. Consent of Stockholders in Lieu of Meeting. Except as otherwise ------------------------------------------ provided by statute or the Charter, any action required to be taken at any annual or special meeting of stockholders, or any action which may be taken at any annual or special meeting of such stockholders, may be taken without a meeting, without prior notice and without a vote, if the following are filed with the records of stockholders meetings: (i) a unanimous written consent which sets forth the action and is signed by each stockholder entitled to vote on the matter and (ii) a written waiver of any right to dissent signed by each stockholder entitled to notice of the meeting but not entitled to vote thereat. ARTICLE III Board of Directors ------------------ Section 1. General Powers. Except as otherwise provided in the Charter, the -------------- business and affairs of the Corporation shall be managed under the direction of the Board of Directors. All powers of the Corporation may be exercised by or under authority of the Board of Directors except as conferred on or reserved to the stockholders by law or by the Charter or these By-Laws. Section 2. Number of Directors. The number of directors shall be fixed ------------------- from time to time by resolution of the Board of Directors adopted by a majority of the Directors then in office; provided, however, that the number of directors shall in no event be less than three nor more than fifteen. Any vacancy created by an increase in Directors may be filled in accordance with Section 6 of this Article III. No reduction in the number of directors shall have the effect of 6 removing any director from office prior to the expiration of his term unless such director is specifically removed pursuant to Section 5 of this Article III at the time of such decrease. Directors need not be stockholders. As long as any preferred stock of the Corporation is outstanding, the number of Directors shall be not less than five. Section 3. Election and Term of Directors. Directors shall be elected ------------------------------ annually, by written ballot at the annual meeting of stockholders, or a special meeting held for that purpose. The term of office of each director shall be from the time of his election and qualification until the annual election of directors next succeeding his election and until his successor shall have been elected and shall have qualified, or until his death, or until he shall have resigned, or have been removed as hereinafter provided in these By-Laws, or as otherwise provided by statute or the Charter. Section 4. Resignation. A director of the Corporation may resign at any ----------- time by giving written notice of his resignation to the Board or the Chairman of the Board or the President or the Secretary. Any such resignation shall take effect at the time specified therein or, if the time when it shall become effective shall not be specified therein, immediately upon its receipt; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. Section 5. Removal of Directors. Any director of the Corporation may be -------------------- removed (with or without cause) by the stockholders by a vote of sixty-six and two-thirds percent (66 2/3%) of the outstanding shares of capital stock then entitled to vote in the election of such director. 7 Section 6. Vacancies. Subject to the provisions of the Investment Company --------- Act of 1940, as amended, any vacancies in the Board, whether arising from death, resignation, removal, an increase in the number of directors or any other cause, shall be filled by a vote of the Board of Directors in accordance with the Charter. Section 7. Place of Meetings. Meetings of the Board may be held at such ----------------- place as the Board may from time to time determine or as shall be specified in the notice of such meeting. Section 8. Regular Meeting. Regular meetings of the Board may be held --------------- without notice at such time and place as may be determined by the Board of Directors. Section 9. Special Meetings. Special meetings of the Board may be called by ---------------- two or more directors of the Corporation or by the Chairman of the Board or the President. Section 10. Telephone Meetings. Members of the Board of Directors or of any ------------------ committee thereof may participate in a meeting by means of a conference telephone or similar communications equipment if all persons participating in the meeting can hear each other at the same time. Subject to the provisions of the Investment Company Act of 1940, as amended, participation in a meeting by these means constitutes presence in person at the meeting. Section 11. Notice of Special Meetings. Notice of each special meeting of -------------------------- the Board shall be given by the Secretary as hereinafter provided, in which notice shall be stated the time and place of the meeting. Notice of each such meeting shall be delivered to each director, either personally or by telephone or any standard form of telecommunication, at least twenty-four hours before the time at which such meeting is to be held, or by first-class mail, postage prepaid, 8 addressed to him at his residence or usual place of business, at least three days before the day on which such meeting is to be held. Section 12. Waiver of Notice of Meetings. Notice of any special meeting ---------------------------- need not be given to any director who shall, either before or after the meeting, sign a written waiver of notice which is filed with the records of the meeting or who shall attend such meeting. Except as otherwise specifically required by these By-Laws, a notice or waiver or notice of any meeting need not state the purposes of such meeting. Section 13. Quorum and Voting. One-third, but not less than two, of the ----------------- members of the entire Board shall be present in person at any meeting of the Board in order to constitute a quorum for the transaction of business at such meeting, and except as otherwise expressly required by statute, the Charter, these By-Laws, the Investment Company Act of 1940, as amended, or other applicable statute, the act of a majority of the directors present at any meeting at which a quorum is present shall be the act of the Board. In the absence of a quorum at any meeting of the Board, a majority of the directors present thereat may adjourn such meeting to another time and place until a quorum shall be present thereat. Notice of the time and place of any such adjourned meeting shall be given to the directors who were not present at the time of the adjournment and, unless such time and place were announced at the meeting at which the adjournment was taken, to the other directors. At any adjourned meeting at which a quorum is present, any business may be transacted which might have been transacted at the meeting as originally called. Section 14. Organization. The Board may, by resolution adopted by a ------------ majority of the entire Board, designate a Chairman of the Board, who shall preside at each meeting of the Board. 9 In the absence or inability of the Chairman of the Board to preside at a meeting, the President or, in his absence of inability to act, another director chosen by a majority of the directors present, shall act as chairman of the meeting and preside thereat. The Secretary (or, in his absence or inability to act, any person appointed by the Chairman) shall act as secretary of the meeting and keep the minutes thereof. Section 15. Written Consent of Directors in Lieu of a Meeting. Subject to ------------------------------------------------- the provisions of the Investment Company Act of 1940, as amended, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting if all members of the Board or committee, as the case may be, consent thereto in writing, and the writings or writing are filed with the minutes of the proceedings of the Board or committee. Section 16. Compensation. Directors may receive compensation for services ------------ to the Corporation in their capacities as directors or otherwise in such manner and in such amounts as may be fixed from time to time by the Board. Section 17. Investment Policies. It shall be the duty of the Board of ------------------- Directors to direct that the purchase, sale, retention and disposal of portfolio securities and the other investment practices of the Corporation are at all times consistent with the investment policies and restrictions with respect to securities investments and otherwise of the Corporation, as recited in the Prospectus of the Corporation included in the registration statement of the Corporation relating to the initial public offering of its capital stock, as filed with the Securities and Exchange Commission (or as such investment policies and restrictions may be modified by the Board of Directors, or, if required, by majority vote of the stockholders of the corporation in accordance 10 with the Investment Company Act of 1940, as amended) and as required by the Investment Company Act of 1940, as amended. The Board however, may delegate the duty of management of the assets and the administration of its day to day operations to an individual or corporate management company and/or investment adviser pursuant to a written contract or contracts which have obtained the requisite approvals, including the requisite approvals of renewals thereof, of the Board of Directors and/or the stockholders of the Corporation in accordance with the provisions of the Investment Company Act of 1940, as amended. ARTICLE IV Committees ---------- Section 1. Executive Committee. The Board may, by resolution adopted by a ------------------- majority of the entire board, designate an Executive Committee consisting of two or more of the directors of the Corporation, which committee shall have and may exercise all the powers and authority of the Board with respect to all matters other than: (a) the submission to stockholders of any action requiring authorization of stockholders pursuant to statute or the Charter; (b) the filling of vacancies on the Board of Directors; (c) the fixing of compensation of the directors for serving on the Board or on any committee of the Board, including the Executive Committee; (d) the approval or termination of any contract with an investment adviser or principal underwriter, as such terms are defined in the Investment Company Act of 1940, as 11 amended, or the taking of any other action required to be taken by the Board of Directors by the Investment Company Act of 1940, as amended; (e) the amendment or repeal of these By-Laws or the adoption of new By-Laws; (f) the amendment or repeal of any resolution of the Board which by its terms may be amended or repealed only by the Board; (g) the declaration of dividends and the issuance of capital stock of the Corporation; and (h) the approval of any merger or share exchange which does not require stockholder approval. The Executive Committee shall keep written minutes of its proceedings and shall report such minutes to the Board. All such proceedings shall be subject to revision or alteration by the Board; provided, however, that third parties shall not be prejudiced by such revision or alteration. Section 2. Other Committees of the Board. The Board of Directors may from ----------------------------- time to time, by resolution adopted by a majority of the whole Board, designate one or more other committees of the Board, each such committee to consist of two or more directors and to have such powers and duties as the Board of Directors may, by resolution, prescribe. Section 3. General. One-third, but not less than two, of the members of any ------- committee shall be present in person at any meeting of such committee in order to constitute a quorum for the transaction of business at such meeting, and the act of a majority present shall be 12 the act of such committee. The Board may designate a chairman of any committee and such chairman or any two members of any committee may fix the time and place of its meetings unless the Board shall otherwise provide. In the absence or disqualification of any member of any committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. The Board shall have the power at any time to change the membership of any committee, to fill all vacancies, to designate alternate members to replace any absent or disqualified member, or to dissolve any such committee. Nothing herein shall be deemed to prevent the Board from appointing one or more committees consisting in whole or in part of persons who are not directors of the Corporation; provided, however, that no such committee shall have or may exercise any authority or power of the Board in the management of the business or affairs of the Corporation. ARTICLE V Officers, Agents and Employees ------------------------------ Section 1. Number of Qualifications. The officers of the Corporation shall ------------------------ be a President, who shall be a director of the Corporation, a Secretary and a Treasurer, each of whom shall be elected by the Board of Directors. The Board of Directors may elect or appoint one or more Vice Presidents and may also appoint such other officers, agents and employees as it may deem necessary or proper. Any two or more offices may be held by the same person, except the offices of President and Vice President, but no officer shall execute, acknowledge or verify any instrument in more than one capacity. Such officers shall be elected by the Board of Directors each year at its first meeting held after the annual meeting of stockholders, each to hold office 13 until the next meeting of the stockholders and until his successor shall have been duly elected and shall have qualified, or until his death, or until he shall have resigned, or have been removed, as hereinafter provided in these By- Laws. The Board may from time to time elect, or delegate to the President the power to appoint, such officers (including one or more Assistant Vice Presidents, one or more Assistant Treasurers and one or more Assistant Secretaries) and such agents, as may be necessary or desirable for the business of the Corporation. Such officers and agents shall have such duties and shall hold their offices for such terms as may be prescribed by the Board or by the appointing authority. Section 2. Resignations. Any officer of the Corporation may resign at any ------------ time by giving written notice of resignation to the Board, the Chairman of the Board, President or the Secretary. Any such resignation shall take effect at the time specified therein or, if the time when it shall become effective shall not be specified therein, immediately upon its receipt; and, unless otherwise specified therein, the acceptance of such resignation shall be necessary to make it effective. Section 3. Removal of Officer, Agent or Employee. Any officer, agent or ------------------------------------- employee of the Corporation may be removed by the Board of Directors with or without cause at any time, and the Board may delegate such power of removal as to agents and employees not elected or appointed by the Board of Directors. Such removal shall be without prejudice to such person's contract rights, if any, but the appointment of any person as an officer, agent or employee of the Corporation shall not of itself create contract rights. Section 4. Vacancies. A vacancy in any office, whether arising from death, --------- resignation, removal or any other cause, may be filled for the unexpired portion of the term of 14 the office which shall be vacant, in the manner prescribed in these By-Laws for the regular election or appointment to such office. Section 5. Compensation. The compensation of the officers of the ------------ Corporation shall be fixed by the Board of Directors, but this power may be delegated to any officer in respect of other officers under his control. Section 6. Bonds or Other Security. If required by the Board, any officer, ----------------------- agent or employee of the Corporation shall give a bond or other security for the faithful performance of his duties, in such amount and with such surety or sureties as the Board may require. Section 7. President. The President shall be the chief executive officer of --------- the Corporation. In the absence of the Chairman of the Board (or if there be none), he shall preside at all meetings of the stockholders and of the Board of Directors. He shall have, subject to the control of the Board of Directors, general charge of the business and affairs of the Corporation. He may employ and discharge employees and agents of the Corporation, except such as shall be appointed by the Board, and he may delegate these powers. Section 8. Vice President. Each Vice President shall have such powers and -------------- perform such duties as the Board of Directors or the President may from time to time prescribe. Section 9. Treasurer. The Treasurer shall: --------- (a) have charge and custody of, and be responsible for, all the funds and securities of the Corporation, except those which the Corporation has placed in the custody of a bank or trust company or member of a national securities exchange (as that term is defined in the Securities Exchange Act of 1934, as amended) pursuant to a written agreement designating such bank or 15 trust company or member of a national securities exchange as custodian of the property of the Corporation; (b) keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation; (c) cause all moneys and other valuables to be deposited to the credit of the Corporation; (d) receive, and give receipts for, moneys due and payable, to the Corporation from any source whatsoever; (e) disburse the funds of the Corporation and supervise the investment of its funds as ordered or authorized by the Board, taking proper vouchers therefor; and (f) in general, perform all the duties incident to the office of Treasurer and such other duties as from time to time may be assigned to him by the Board or the President. Section 10. Secretary. The Secretary shall: --------- (a) keep or cause to be kept in one or more books provided for the purpose, the minutes of all meetings of the Board, the committees of the Board and the stockholders; (b) see that all notices are duly given in accordance with the provisions of these By-Laws and as required by law; (c) be custodian of the records and the seal of the Corporation and affix and attest the seal to all stock certificates of the Corporation (unless the seal of the Corporation on such 16 certificates shall be a facsimile, as hereinafter provided) and affix and attest the seal to all other documents to be executed on behalf of the Corporation, under its seal; (d) see that the books, reports, statements, certificates and other documents and records required by law to be kept and filed are properly kept and filed; and (e) in general, perform all the duties incident to the office of Secretary and such other duties as from time to time may be assigned to him by the Board or the President. Section 11. Delegation of Duties. In case of the absence of any officer of -------------------- the Corporation, or for any other reason that the Board may deem sufficient, the Board may confer for the time being the powers or duties, or any of them, of such officer upon any other officer or upon any director. ARTICLE VI Indemnification --------------- Each officer and director of the Corporation shall be indemnified by the Corporation to the full extent permitted under the General Laws of the State of Maryland, except that such indemnity shall not protect any such person against any liability to the Corporation or any stockholder thereof to which such person would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office. Absent a court determination that an officer or director seeking indemnification was not liable on the merits or guilty of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office, the decision by the Corporation to indemnify such person must be based upon the reasonable determination of independent legal counsel or the vote of a majority of a quorum of the directors who are neither 17 "interested persons," as defined in Section 2(a)(19) of the Investment Company Act of 1940, as amended, nor parties to the proceeding ("non-party independent directors"), after review of the facts, that such officer or director is not guilty of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office. Each officer and director of the Corporation claiming indemnification within the scope of this Article VI shall be entitled to advances from the Corporation for payment of the reasonable expenses incurred by him in connection with proceedings to which he is a party in the manner and to the full extent permitted under the General Laws of the State of Maryland; provided, however, that the person seeking indemnification shall provide to the Corporation a written affirmation of his good faith belief that the standard of conduct necessary for indemnification by the Corporation has been met and a written undertaking to repay any such advance, if it should ultimately be determined that the standard of conduct has not been met, and provided further that at least one of the following additional conditions is met: (a) the person seeking indemnification shall provide a security in form and amount acceptable to the Corporation for his undertaking; (b) the Corporation is insured against losses arising by reason of the advance; (c) a majority of a quorum of non-party independent directors, or independent legal counsel in a written opinion, shall determine, based on a review of facts readily available to the Corporation at the time the advance is proposed to be made, that there is reason to believe that the person seeking indemnification will ultimately be found to be entitled to indemnification. The Corporation may purchase insurance on behalf of an officer or director protecting such person to the full extent permitted under the General Laws of the State of Maryland, from liability arising from his activities as officer or director of the Corporation. The Corporation, 18 however, may not purchase insurance on behalf of any officer or director of the Corporation that protects or purports to protect such person from liability to the Corporation or to its stockholders to which such officer or director would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties involved in the conduct of his office. The Corporation may indemnify or purchase insurance to the extent provided in this Article VI on behalf of an employee or agent who is not an officer or director of the Corporation. ARTICLE VII Capital Stock ------------- Section 1. Stock Certificates. Each holder of stock of the Corporation ------------------ shall be entitled upon request to have a certificate or certificates, in such form as shall be approved by the Board, representing the number of shares of stock of the Corporation owned by him, provided, however, that certificates for fractional shares will not be delivered in any case. The certificates representing shares of stock shall be signed by or in the name of the Corporation by the President or a Vice President and by the Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer and sealed with the seal of the Corporation. Any or all of the signatures or the seal on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate shall be issued, it may be issued by the Corporation with the same effect as if such officer, transfer agent or registrar were still in office at the date of issue. 19 Section 2. Books of Account and Record of Stockholders. There shall be kept ------------------------------------------- at the principal executive office of the Corporation correct and complete books and records of account of all the business and transactions of the Corporation. There shall be made available upon request of any stockholder, in accordance with Maryland law, a record containing the number of shares of stock issued during a specified period not to exceed twelve months and the consideration received by the Corporation for each such share. Section 3. Transfers of Shares. Transfers of shares of stock of the ------------------- Corporation shall be made on the stock records of the Corporation only by the registered holder thereof, or by his attorney thereunto authorized by power of attorney duly executed and filed with the Secretary or with a transfer agent or transfer clerk, and on surrender of the certificate or certificates, if issued, for such shares properly endorsed or accompanied by a duly executed stock transfer power and the payment of all taxes thereon. Except as otherwise provided by law, the Corporation shall be entitled to recognize the exclusive right of a person in whose name any share or shares stand on the record of stockholders as the owner of such share or shares for all purposes, including, without limitation, the rights to receive dividends or other distributions, and to vote as such owner, and the Corporation shall not be bound to recognize any equitable or legal claim to or interest in any such share or shares on the part of any other person. Section 4. Regulations. The Board may make such additional rules and ----------- regulations, not inconsistent with these By-Laws, as it may deem expedient concerning the issue, transfer and registration of certificates for shares of stock of the Corporation. It may appoint, or authorize any officer or officers to appoint, one or more transfer agents or one or more transfer clerks and one 20 or more registrars and may require all certificates for shares of stock to bear the signature or signatures of any of them. Section 5. Lost, Destroyed or Mutilated Certificates. The holder of any ----------------------------------------- certificates representing shares of stock of the Corporation shall immediately notify the Corporation of any loss, destruction or mutilation of such certificate, and the Corporation may issue a new certificate of stock in the place of any certificate theretofore issued by it which the owner thereof shall allege to have been lost or destroyed or which shall have been mutilated, and the Board may, in its discretion, require such owner or his legal representatives to give to the Corporation a bond in such sum, limited or unlimited, and in such form and with such surety or sureties, as the Board in its absolute discretion shall determine, to indemnify the Corporation against any claim that may be made against it on account of the alleged loss or destruction of any such certificate, or issuance of a new certificate. Anything herein to the contrary notwithstanding, the Board, in its absolute discretion, may refuse to issue any such new certificate, except pursuant to legal proceedings under the laws of the State of Maryland. Section 6. Fixing of a Record Date for Dividends and Distributions. The ------------------------------------------------------- Board may fix, in advance, a date not more than ninety days preceding the date fixed for the payment of any dividend or the making of any distribution or the allotment of rights to subscribe for securities of the Corporation, or for the delivery of evidences of rights or evidences of interests arising out of any change, conversion or exchange of common stock or other securities, as the record date for the determination of the stockholders entitled to receive any such dividend, distribution, allotment, rights or interests, and in such case only the stockholders of record at the time so fixed shall be entitled to receive such dividend, distribution, allotment, rights or interests. 21 Section 7. Information to Stockholders and Others. Any stockholder of the -------------------------------------- Corporation or his agent may inspect and copy during usual business hours the Corporation's By-Laws, minutes of the proceedings of its stockholders, annual statements of its affairs, and voting trust agreements on file at its principal office. ARTICLE VIII Seal ---- The seal of the Corporation shall be circular in form and shall bear, in addition to any other emblem or device approved by the Board of Directors, the name of the Corporation, the year of its incorporation and the words "Corporate Seal" and "Maryland". Said seal may be used by causing it or a facsimile thereof to be impressed or affixed or in any other manner reproduced. ARTICLE IX Fiscal Year ----------- Unless otherwise determined by the Board, the fiscal year of the Corporation shall end on the 31st day of October. ARTICLE X Depositories and Custodians --------------------------- Section 1. Depositories. The funds of the Corporation shall be deposited ------------ with such banks or other depositories as the Board of Directors of the Corporation may from time to time determine. Section 2. Custodians. All securities and other investments shall be ---------- deposited in the safekeeping of such banks or other companies as the Board of Directors of the Corporation may from time to time determine. Every arrangement entered into with any bank or other company 22 for the safekeeping of the securities and investments of the Corporation shall contain provisions complying with the Investment Company Act of 1940, as amended, and the general rules and regulations thereunder. ARTICLE XI Execution of Instruments ------------------------ Section 1. Checks, Notes, Drafts, etc. Checks, notes, drafts, acceptances, -------------------------- bills of exchange and other orders or obligations for the payment of money shall be signed by such officer or officers or person or persons as the Board of Directors by resolution shall from time to time designate. Section 2. Sale or Transfer of Securities. Stock certificates, bonds or ------------------------------ other securities at any time owned by the Corporation may be held on behalf of the Corporation or sold, transferred or otherwise disposed of subject to any limits imposed by these By-Laws and pursuant to authorization by the Board and, when so authorized to be held on behalf of the Corporation or sold, transferred or otherwise disposed of, may be transferred from the name of the Corporation by the signature of the President or a Vice President or the Treasurer or pursuant to any procedure approved by the Board of Directors, subject to applicable law. ARTICLE XII Independent Public Accountants ------------------------------ The firm of independent public accountants which shall sign or certify the financial statements of the Corporation which are filed with the Securities and Exchange Commission shall be selected annually by the Board of Directors and ratified by the stockholders in accordance with the provisions of the Investment Company Act of 1940, as amended. 23 ARTICLE XIII Annual Statement ---------------- The books of account of the Corporation shall be examined by an independent firm of public accountants at the close of each annual period of the Corporation and at such other times as may be directed by the Board. A report to the stockholders based upon each such examination shall be mailed to each stockholder of record of the Corporation on such date with respect to each report as may be determined by the Board, at his address as the same appears on the books of the Corporation. Such annual statement shall also be available at the annual meeting of stockholders and be placed on file at the Corporation's principal office in the State of Maryland. Each such report shall show the assets and liabilities of the Corporation as of the close of the annual or quarterly period covered by the report and the securities in which the funds of the Corporation were then invested. Such report shall also show the Corporation's income and expenses for the period from the end of the Corporation's preceding fiscal year to the close of the annual or quarterly period covered by the report and any other information required by the Investment Company Act of 1940, as amended, and shall set forth such other matters as the Board or such firm of independent public accountants shall determine. ARTICLE XIV Amendments ---------- These By-Laws or any of them may be amended, altered or repealed at any regular meeting of the stockholders or at any special meeting of the stockholders by a favorable vote of the holders of at least sixty-six and two- thirds percent (66 2/3%) of the outstanding shares of capital stock of the Corporation entitled to be voted on the matter, provided that notice of the proposed amendment, alteration or repeal be contained in the notice of such special meeting. 24 These By-Laws may also be amended, altered or repealed by the affirmative vote of a majority of the Board of Directors at any regular or special meeting of the Board of Directors, except any particular By-Law which is specified as not subject to alteration or repeal by the Board of Directors, subject to the requirements of the Investment Company Act of 1940, as amended. 25 EX-99.6 6 FORM OF INVESTMENT ADVISORY AGREEMENT Exhibit 6 INVESTMENT ADVISORY AGREEMENT AGREEMENT made this day of , 1992, by and between NEW YORK MUNIYIELD FUND, INC., a Maryland corporation (hereinafter referred to as the "Fund"), and FUND ASSET MANAGEMENT, INC., a Delaware corporation (hereinafter referred to as the "Investment Adviser"). W I T N E S S E T H: ------------------- WHEREAS, the Fund is engaged in business as a closed-end management investment company registered under the Investment Company Act of 1940, as amended (hereinafter referred to as the "Investment Company Act"); and WHEREAS, the Investment Adviser is engaged principally in rendering management and investment advisory services and is registered as an investment adviser under the Investment Adviser's Act of 1940; and WHEREAS, the Fund desires to retain the Investment Adviser to provide management and investment advisory services to the Fund in the manner and on the terms hereinafter set forth; and WHEREAS, the Investment Adviser is willing to provide management and investment advisory services to the Fund on the terms and conditions hereinafter set forth; NOW, THEREFORE, in consideration of the premises and the covenants hereinafter contained, the Fund and the Investment Adviser hereby agree as follows: ARTICLE I --------- Duties of the Investment Adviser -------------------------------- The Fund hereby employs the Investment Adviser to act as a 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 Directors of the Fund, for the period and on the terms and conditions set forth in this Agreement. The Investment Adviser hereby accepts such employment and agrees during such period, at its own expense, to render, or arrange for the rendering of, such services and to assume the obligations herein set forth for the compensation provided for herein. The Investment Adviser and its affiliates shall for all purposes herein be deemed to be independent contractors and shall, unless otherwise expressly provided or authorized, have no authority to act for or represent the Fund in any way or otherwise be deemed agents of the Fund. (a) Investment Advisory Services. The Investment Adviser shall perform (or ---------------------------- arrange for the performance by affiliates of) the management and administrative services necessary for the operation of the Fund including administering shareholder accounts and handling shareholder relations. The Investment Adviser shall provide the Fund with office space, facilities, equipment and necessary personnel and such other services as the Investment Adviser, subject to review by the Board of Directors, shall from time to time determine to be necessary or useful to perform its obligations under this Agreement. The Investment Adviser shall also, on behalf of the Fund, conduct relations with custodians, depositories, transfer agents, pricing agents, dividend disbursing agents, other shareholder servicing agents, accountants, attorneys, underwriters, brokers and dealers, corporate fiduciaries, insurers, banks and such other persons in any such other capacity deemed to be necessary or desirable. The Investment Adviser shall generally 2 monitor the Fund's compliance with investment policies and restrictions as set forth in filings made by the Fund under the Federal securities laws. The Investment Adviser shall make reports to the Board of Directors of its performance of obligations hereunder and furnish advice and recommendations with respect to such other aspects of the business and affairs of the Fund as it shall determine to be desirable. (b) Investment Advisory Services. The Investment Adviser shall provide (or ---------------------------- arrange for affiliates to provide) the Fund with such investment research, advice and supervision as the latter may from time to time consider necessary for the proper supervision of the assets of the Fund, shall furnish continuously an investment program for the Fund and shall determine from time to time which securities shall be purchased, sold or exchanged and what portion of the assets of the Fund shall be held in the various securities in which the Fund invests, options, futures, options on futures or cash, subject always to the restrictions of the Articles of Incorporation and By-Laws of the Fund, as amended from time to time, the provisions of the Investment Company Act and the statements relating to the Fund's investment 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 Directors at any time, however, make any definite determination as to investment policy and notify the Investment Adviser thereof in writing, the Investment Adviser shall be bound by such determination for the period, if any, 3 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 Directors and set forth in filings made by the Fund under the Federal securities laws. Subject to this requirement and the provisions of the Investment Company Act, the Securities Exchange Act of 1934, as amended, and other applicable provisions of law, the Investment Adviser may select brokers or dealers with which it or the Fund is affiliated. ARTICLE II ---------- Allocation of Charges and Expenses ---------------------------------- (a) The Investment Adviser. The Investment Adviser assumes and shall pay ---------------------- for maintaining the staff and personnel necessary to perform its obligations under this Agreement, and shall at its own expense, provide the office space, facilities, equipment and necessary personnel which it is obligated to provide under Article I hereof, and shall pay all compensation of officers of the Fund and all Directors of the Fund who are affiliated persons of the Investment Adviser. 4 (b) The Fund. The Fund assumes and shall pay or cause to be paid all other -------- expenses of the Fund including, without limitation: taxes, expenses for legal and auditing services, costs of printing proxies, stock certificates, shareholder reports, prospectuses, charges of the custodian, any sub-custodian and transfer agent, expenses of portfolio transactions, Securities and Exchange Commission fees, expenses of registering the shares under Federal, state and foreign laws, fees and actual out-of-pocket expenses of Directors who are not affiliated persons of the Investment Adviser, accounting and pricing costs (including the daily calculation of the net asset value), insurance, interest, brokerage costs, litigation and other extraordinary or non-recurring expenses, and other expenses properly payable by the Fund. It is also understood that the Fund will reimburse the Investment Adviser for its costs in providing accounting services to the Fund. ARTICLE III ----------- Compensation of the Investment Adviser -------------------------------------- (a) Investment Advisory Fee. For the services rendered, the facilities ----------------------- furnished and expenses assumed by the Investment Adviser, the Fund shall pay to the Investment Adviser at the end of each calendar month a fee based upon the average weekly value of the net assets of the Fund at the annual rate of _____ of 1.0% (____%) of the average weekly net assets of the Fund (i.e., the average ---- weekly value of the total assets of the Fund, minus the sum of accrued liabilities of the Fund and accumulated dividends on shares of outstanding preferred stock), commencing on the day following effectiveness hereof. For purposes of this calculation, average weekly net assets is determined at the end of each month on the basis of the average net assets of the Fund for each week during the month. The assets for each weekly period are determined by averaging the net assets at the last business day of a week with the net assets at the last business day of the prior week. It is understood that the liquidation preference of any outstanding 5 preferred stock (other than accumulated dividends) is not considered a liability in determining the Fund's average weekly net assets. If this Agreement becomes effective subsequent to the first day of a month or shall terminate before the last day of a month, compensation for that part of the month this Agreement is in effect shall be prorated in a manner consistent with the calculation of the fee as set forth above. Subject to the provisions of subsection (b) hereof, payment of the Investment Adviser's compensation for the preceding month shall be made as promptly as possible after completion of the computations contemplated by subsection (b) hereof. During any period when the determination of net asset value is suspended by the Board of Directors, the average net asset value of a share for the last week prior to such suspension shall for this purpose be deemed to be the net asset value at the close of each succeeding week until it is again determined. (b) Expense Limitations. In the event the operating expenses of the Fund, ------------------- including amounts payable to the Investment Adviser pursuant to subsection (a) hereof, for any fiscal year ending on a date on which this Agreement is in effect exceed the expense limitations applicable to the Fund imposed by applicable state securities laws or regulations thereunder, as such limitations may be raised or lowered from time to time, the Investment Adviser shall reduce its management and investment advisory fee by the extent of such excess and, if required pursuant to any such laws or regulations, will reimburse the Fund in the amount of such excess; provided, however, to the extent permitted by law, there shall be excluded from such expenses the amount of any interest, taxes, brokerage fees and commissions and extraordinary expenses (including but not limited to legal claims and liabilities and litigation costs and any indemnification related thereto) paid or payable by the Fund. Whenever the expenses of the Fund exceed a pro rata portion of the applicable annual expense limitations, the estimated amount of reimbursement 6 under such limitations shall be applicable as an offset against the monthly payment of the fee due to the Investment Adviser. Should two or more such 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 ---------- Limitation of Liability of the Investment Adviser ------------------------------------------------- The Investment Adviser shall not be liable for any error of judgment or mistake of law or for any loss arising out of any investment or for any act or omission in the management of the Fund, except for willful misfeasance, bad faith or gross negligence in the performance of its duties, or by reason of reckless disregard of its obligations and duties hereunder. As used in this Article IV, the term "Investment Adviser" shall include any affiliates of the Investment Adviser performing services for the Fund contemplated hereby and directors, officers and employees of the Investment Adviser and such affiliates. ARTICLE V --------- Activities of the Investment Adviser ------------------------------------ The services of the Investment Adviser to the Fund are not to be deemed to be exclusive: the Investment Adviser and any person controlled by or under common control with the Investment Adviser (for purposes of this Article V referred to as "affiliates") are free to render services to others. It is understood that Directors, officers, employees and shareholders of the Fund are or may become interested in the Investment Adviser and its affiliates, as directors, officers, employees, partners and shareholders or otherwise, and that directors, officers, employees, partners and shareholders of the Investment Adviser and its affiliates are or may 7 become similarly interested in the Fund, and that the Investment Adviser and directors, officers, employees, partners and shareholders of its affiliates may become interested in the Fund as shareholder or otherwise. 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 , 1993 and thereafter, but only so long as such continuance is specifically approved at least annually by (i) the Board of Directors of the Fund, or by the vote of a majority of the outstanding voting securities of the Fund, and (ii) a majority of those Directors who are not parties to this Agreement or interested persons of any such party cast in person at a meeting called for the purpose of voting on such approval. This Agreement may be terminated at any time, without the payment of any penalty, by the Board of Directors or by vote of a majority of the outstanding voting securities of the Fund, or by the Investment Adviser, on sixty days' written notice to the other party. This Agreement shall automatically terminate in the event of its assignment. ARTICLE VII ----------- Amendments of this Agreement ---------------------------- This Agreement may be amended by the parties only if such amendment is specifically approved by (i) the vote of a majority of outstanding voting securities of the Fund, and (ii) a majority of those Directors who are not parties to this Agreement or interested persons of any such party cast in person at a meeting called for the purpose of voting on such approval. 8 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. IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement as of the date first above written. NEW YORK MUNIYIELD FUND, INC. By_______________________________ (Authorized Signatory) FUND ASSET MANAGEMENT, INC. By_______________________________ (Authorized Signatory) 9 EX-99.7A 7 FORM OF PURCHASE AGREEMENT FOR THE COMMON STOCK Exhibit 7(a) Shares MuniYield New York Insured Fund, Inc. (a Maryland corporation) Common Stock (Par Value $0.10 Per Share) PURCHASE AGREEMENT ------------------ February __, 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 New York Insured Fund, Inc., a Maryland corporation (the "Fund"), and Fund Asset Management, Inc., a Delaware corporation (the "Adviser"), each confirms its agreement with Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated (the "Underwriter"), with respect to the sale by the Fund and the purchase by the Underwriter of shares of common stock, par value $.10 per share, of the Fund (the "Common Stock") and, with respect to the grant by the Fund to the Underwriter of the option described in Section 2 hereof to purchase all or any part of additional shares of Common Stock to cover over- allotments. The aforesaid shares (the "Initial Shares"), together with all or any part of the additional shares of Common Stock subject to the option described in Section 2 hereof (the "Option Shares"), are collectively hereinafter called the "Shares". Prior to the purchase and public offering of the Shares by the Underwriter, the Fund and the Underwriter shall enter into an agreement substantially in the form of Exhibit A hereto (the "Pricing Agreement"). The Pricing Agreement may take the form of an exchange of any standard form of written telecommunication between the Fund and the Underwriter and shall specify such applicable information as is indicated in Exhibit A hereto. The offering of the Shares will be governed by this Agreement, as supplemented by the Pricing Agreement. From and after the date of the execution and delivery of the Pricing Agreement, this Agreement shall be deemed to incorporate the Pricing Agreement. The Fund has filed with the Securities and Exchange Commission (the "Commission") a registration statement on Form N-2 (No. 33-44443) and a related preliminary prospectus for the registration of the Shares under the Securities Act of 1933, as amended (the "1933 Act"), and 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 the rules and regulations of the Commission under the 1940 Act (together with the rules and regulations under the 1933 Act, the "Rules and Regulations") and has filed such amendments to such registration statement on Form N-2, if any, and such amended preliminary prospectuses as may have been required to the date hereof. The Fund will prepare and file such additional amendments thereto and such amended prospectuses as may hereafter be required. Such registration statement (as amended, if applicable) and the prospectus constituting a part thereof (including in each case the information, if any, deemed to be part thereof pursuant to Rule 430A(b) of the Rules and Regulations), as from time to time amended or supplemented pursuant to the 1933 Act, are hereinafter referred to as the "Registration Statement" and the "Prospectus", respectively, except that if any revised prospectus shall be provided to the Underwriter by the Fund for use in connection with the offering of the Shares which differs from the Prospectus on file at the Commission at the time the Registration Statement becomes effective (whether such revised prospectus is required to be filed by the Fund pursuant to Rule 497(b) or Rule 497(h) of the Rules and Regulations), the term "Prospectus" shall refer to each such revised prospectus from and after the time it is first provided to the Underwriter for such use. The Fund understands that the Underwriter proposes to make a public offering of the Shares as soon as the Underwriter deems advisable after the Registration Statement becomes effective and the Pricing Agreement has been executed and delivered. SECTION 1. Representations and Warranties. (a) The Fund and the Adviser each severally represents and warrants to the Underwriter as of the date hereof and as of the date of the Pricing Agreement (such later date being hereinafter referred to as the "Representation Date") as follows: (i) At the time the Registration Statement becomes effective and at the Representation Date, the Registration Statement will comply in all material respects with the requirements of the 1933 Act, the 1940 Act and the Rules and Regulations and will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading. At the time the Registration Statement becomes effective, at the Representation Date and at Closing Time referred to in Section 2, the Prospectus (unless the term "Prospectus" refers to a prospectus which has been provided to the Underwriter by the Fund for use in connection with the offering of the Shares which differs from the Prospectus on file with the Commission at the time the Registration Statement becomes effective, in which case at the time such prospectus is first provided to the Underwriter for such use) will not contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that the representations and warranties in this subsection shall not apply to statements in or omissions from the Registration 2 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. (iii) The statement of assets and liabilities included in the Registration Statement presents fairly the financial position of the Fund as at the date indicated and said statement has been prepared in conformity with generally accepted accounted principles. (iv) Since the respective dates as of which information is given in the Registration Statement and the Prospectus, except as otherwise stated therein, (A) there has been no material adverse change in the condition, financial or otherwise, of the Fund, or in the earnings, business affairs or business prospects of the Fund, whether or not arising in the ordinary course of business, (B) there have been no transactions entered into by the Fund which are material to the Fund other than those in the ordinary course of business, and (C) there has been no dividend or distribution of any kind declared, paid or made by the Fund on any class of its capital stock. (v) The Fund has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Maryland with corporate power and authority to own, lease and operate its properties and conduct its business as described in the Registration Statement; the Fund is duly qualified as a foreign corporation to transact business and is in good standing in each jurisdiction in which such qualification is required; and the Fund has no subsidiaries. (vi) The Fund is registered with the Commission under the 194 0 Act as a closed-end non-diversified management investment company, and no order of suspension or revocation of such registration has been issued or proceedings therefor initiated or threatened by the Commission. (vii) The authorized, issued and outstanding capital stock of the Fund is as set forth in the Prospectus under the caption "Description of Capital Stock"; the Shares have been duly authorized for issuance and sale to the Underwriter pursuant to this Agreement and, when issued and delivered by the Fund pursuant to this Agreement against payment of the consideration set forth in the Pricing Agreement, will be validly issued and fully paid and nonassessable; the Shares conform in all material respects to all statements relating thereto contained in the Registration Statement; and the issuance of the Shares is not subject to preemptive rights. (viii) The Fund is not in violation of its articles of incorporation, as amended (the "Charter") or in default in the performance or observance of any material obligation, agreement, covenant or condition contained in any material contract, indenture, mortgage, loan agreement, note, lease or other instrument to which it is a party or by 3 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 corporate action and will not conflict with or constitute a breach of, or default under, or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Fund pursuant to any material contract, indenture, mortgage, loan agreement, note, lease or other instrument to which the Fund is a party or by which it may be bound or to which any of the property or assets of the Fund is subject, nor will such action result in any violation of the provisions of the Charter or by-laws, as amended, of the Fund (the "By-Laws") or, to the best knowledge of the Fund and the Adviser, any law, administrative regulation or administrative or court decree; and no consent, approval, authorization or order of any court or governmental authority or agency is required for the consummation by the Fund of the transactions contemplated by this Agreement, the Pricing Agreement, the Advisory Agreement and the Custody Agreement, except such as has been obtained under the 1940 Act or as may be required under the 1933 Act, state securities or Blue Sky laws or foreign securities laws in connection with the purchase and distribution of the Shares by the Underwriter. (ix) The Fund owns or possesses or has obtained all material governmental licenses, permits, consents, orders, approvals and other authorizations necessary to lease or own, as the case may be, and to operate its properties and to carry on its businesses as contemplated in the Prospectus. (x) There is no action, suit or proceeding before or by any court or governmental agency or body, domestic or foreign, now pending, or, to the knowledge of the Fund, threatened against or affecting, the Fund, which might result in any material adverse change in the condition, financial or otherwise, business affairs or business prospects of the Fund, or might materially and adversely affect the properties or assets of the Fund; and there are no material contracts or documents of the Fund which are required to be filed as exhibits to the Registration Statement by the 1933 Act, the 1940 Act or by the Rules and Regulations which have not been so filed. (xi) The Fund owns or possesses, or can acquire on reasonable terms, adequate trademarks, service marks and trade names necessary to conduct its business as described in the Registration Statement, and the Fund has not received any notice of infringement of or conflict with asserted rights of others with respect to any trademarks, service marks or trade names which, singly or in the aggregate, if the subject of an unfavorable decision, ruling or finding, would materially adversely affect the conduct of the business, operations, financial condition or income of the Fund. (xii) The Shares have been approved for listing on the New York Stock Exchange upon notice of issuance. 4 (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. (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 5 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 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. The option hereby granted will expire 45 days after the date hereof (or, if the Fund has elected to rely upon Rule 430A under the Rules and Regulations, 45 days after the execution of the Pricing Agreement) and may be exercised only for the purpose of covering over-allotments which may be made in connection with the offering and distribution of the Initial Shares upon notice by the Underwriter to the Fund setting forth the number of Option Shares as to which the Underwriter is then exercising the option and the time, date and place of payment and delivery for such Option Shares. Any such time and date of delivery (a "Date of Delivery") shall be determined by the Underwriter but shall not be later than seven full business days after the exercise of said option, nor in any event prior to Closing Time, as hereinafter defined, unless otherwise agreed upon by the Underwriter and the Fund. Payment of the purchase price for, and delivery of certificates for, the Initial Shares shall be made at the office of Brown & Wood, One World Trade Center, New York, New York 10048-0557, or at such other place as shall be agreed upon by the Underwriter and the Fund, at 10:00 A.M. on the fifth business day (unless postponed in accordance with the provisions of Section 10) following the date the Registration Statement becomes effective (or, if the Fund has elected to rely upon Rule 430A under the Rules and Regulations, the fifth business day after execution of the Pricing Agreement), or such other time not later than ten business days after such date as shall be agreed upon by the Underwriter and the Fund (such time and date of payment and delivery being herein called "Closing Time"). In addition, in the event that any or all of the Option Shares are purchased by the Underwriter, payment of the purchase price for, and delivery of certificates for, such Option Shares shall be made at the above-mentioned office of Brown & Wood, or at such other place as shall be mutually agreed upon by the Fund and the Underwriter, on each Date of Delivery as specified in the notice from the Underwriter to the Fund. Payment shall be made to the Fund by check or checks drawn in New York Clearing 6 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 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. 7 (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 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. 8 (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) Trading of the Shares on the New York Stock Exchange will begin no later than four 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 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 f or 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 9 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 incorporated and is validly existing as a corporation in good standing under the laws of the State of Maryland. (ii) The Fund has corporate power and authority to own, lease and operate its properties and conduct its business as described in the Registration Statement and the Prospectus. (iii) The Fund is duly qualified as a foreign corporation to transact business and is in good standing in each jurisdiction in which such qualification is required. (iv) The Shares have been duly authorized for issuance and sale to the Underwriter pursuant to this Agreement and, when issued and delivered by the Fund pursuant to this Agreement against payment of the consideration set forth in the Pricing Agreement, will be validly issued and fully paid and nonassessable; the issuance of the Shares is not subject to preemptive rights; and the authorized capital stock conforms as to legal matters in all material respects to the description thereof in the Registration Statement under the caption "Description of Capital Stock". (v) This Agreement and the Pricing Agreement have each been duly authorized, executed and delivered by the Fund and each complies with all applicable provisions of the 1940 Act. (vi) The Registration Statement is effective under the 1933 Act and, to the best of their knowledge and information, no stop order suspending the effectiveness of the Registration Statement has been issued under the 1933 Act or proceedings therefor initiated or threatened by the commission. 10 (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 the 1933 Act, the 1940 Act or the Rules and Regulations or such as may be required under state or foreign securities laws; and to the best of their knowledge and information, the execution and delivery of this Agreement, the Pricing Agreement, the Advisory Agreement and the Custody Agreement and the consummation of the transactions contemplated herein and therein will not conflict with or constitute a breach of, or default under, or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Fund pursuant to, any contract, indenture, mortgage, loan agreement, note, lease or other instrument to which the Fund is a party or by which it may be bound or to which any of the property or assets of the Fund is subject, nor will such action result in any violation of the provisions of the Charter or By-Laws of the Fund, or any law or administrative regulation, or, to the best of their knowledge and information, administrative or court decree. (xi) The Advisory Agreement and the Custody Agreement have each been duly authorized and approved by the Fund and comply as to form in all material respects with all applicable provisions of the 1940 Act, and both have been duly executed by the Fund. 11 (xii) The Fund is registered with the Commission under the 1940 Act as a closed-end non-diversified management investment company, and all required action has been taken by the Fund under the 1933 Act, the 1940 Act and the Rules and Regulations to make the public offering and consummate the sale of the Shares pursuant to this Agreement; the provisions of the Charter and By-Laws of the Fund comply as to form in all material respects with the requirements of the 1940 Act; and, to the best of their knowledge and information, no order of suspension or revocation of such registration under the 1940 Act, pursuant to Section 8(e) 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", 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 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, administrative agency or other governmental body, stock exchange or 12 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. (3) 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 f act 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 f or such use) or at Closing Time, included an untrue statement of a material fact or omitted to state a material f act necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. In giving their opinion, Brown & Wood may rely as to matters involving the laws of the State of Maryland upon the opinion of Venable, Baetjer and Howard. Venable, Baetjer and Howard 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 13 Prospectus, (iii) the Adviser shall have the financial resources available to it necessary for the performance of its services and obligations as contemplated in the Registration Statement and the Prospectus and (iv) no proceedings shall be pending or, to the knowledge of the Fund or the Adviser, threatened against the Fund or the Adviser before or by any Federal, state or other commission, board or administrative agency wherein an unfavorable decision, ruling or finding would materially and adversely affect the business, property, financial condition or income of either the Fund or the Adviser other than as set forth in the Registration Statement and the Prospectus; and the Underwriter shall have received, at Closing Time, a certificate of the President or Treasurer of the Fund and of the President or a Vice President of the Adviser dated as of Closing Time, evidencing compliance with the appropriate provisions of this subsection (c). (d) At Closing Time, the Underwriter shall have received certificates, dated as of Closing Time, (i) of the President or Treasurer of the Fund to the effect that the representations and warranties of the Fund contained in Section 1(a) are true and correct with the same force and effect as though expressly made at and as of Closing Time and, (ii) of the President or a Vice President of the Adviser to the effect that the representations and warranties of the Adviser contained in Sections 1(a) and (b) are true and correct with the same force and effect as though expressly made at and as of Closing Time. (e) At the time of execution of this Agreement, the Underwriter shall have received from 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. 14 (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, all proceedings taken by the Fund and the Adviser in connection with the organization and registration of the Fund under the 1940 Act and, the issuance and sale of the Shares as herein and therein contemplated shall be satisfactory in form and substance to the Underwriter. (h) In the event the Underwriter exercises its option provided in Section 2 hereof to purchase all or any portion of the Option Shares, the representations and warranties of the Fund and the Adviser contained herein and the statements in any certificate furnished by the Fund and the Adviser hereunder shall be true and correct as of each Date of Delivery, and the Underwriter shall have received: (1) Certificates, dated the Date of Delivery, of the President or Treasurer of the Fund and of the President or a Vice President of the Adviser confirming that the information contained in the certificate delivered by each of them at Closing Time pursuant to Sections 5(c) and (d), as the case may be, remains true as of such Date of Delivery. (2) The favorable opinion of Brown & Wood, counsel for the Fund 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) and (2), 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 15 contained in the Registration Statement (or any amendment thereto), including the information deemed to be part of the Registration Statement pursuant to Rule 430A of the Rules and Regulations, if applicable, or the omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the statements therein not misleading or arising out of any untrue statement or alleged untrue statement of a material fact contained in any preliminary prospectus or the Prospectus (or any amendment or supplement thereto) or the omission or alleged omission therefrom of a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; (ii) against any and all loss, liability, claim, damage and expense whatsoever as incurred to the extent of the aggregate amount paid in settlement of any litigation, or investigation or proceeding by any governmental agency or body, commenced or threatened, or of any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission, if such settlement is effected with the written consent of the indemnifying party; and (iii) against any and all expense whatsoever (including the fees and disbursements of counsel chosen by the Underwriter) reasonably incurred in investigating, preparing or defending against any litigation, or investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission, to the extent that any such expense is not paid under (i) or (ii) above; provided, however, that this indemnity agreement does not apply to any loss, liability, claim, damage or expense to the extent arising out of any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with written information furnished to the Fund by the Underwriter expressly for use in the Registration Statement (or any amendment thereto) or any preliminary prospectus or the Prospectus (or any amendment or supplement thereto). (b) The Underwriter agrees, severally and not jointly, to indemnify and hold harmless the Fund and the Adviser, their respective directors, each of the Fund's officers who signed the Registration Statement, and each person, if any, who controls the Fund or the Adviser within the meaning of Section 15 of the 1933 Act, against any and all loss, liability, claim, damage and expense described in the indemnity contained in subsection (a) of this Section, as incurred, but only with respect to untrue statements or omissions, or alleged untrue statements or omissions, made in the Registration Statement (or any amendment thereto) or any preliminary prospectus or the Prospectus (or any amendment or supplement thereto) in reliance upon and in conformity with written information furnished to the Fund by the Underwriter expressly for use in the Registration Statement (or any amendment thereto) or any preliminary prospectus or the Prospectus (or any amendment or supplement thereto). (c) In addition to the foregoing indemnification, the Adviser also agrees to indemnify and hold harmless the Underwriter and each person, if any, who controls the Underwriter within the meaning of Section 15 of the 1933 Act, against any and all loss, liability, claim, damage and 16 expense described in the indemnity contained in subsection (a) of this Section, with respect to any omitting Prospectus or any advertising materials approved by the Adviser for use in connection with the public offering of the Shares. (d) Each indemnified party shall give notice as promptly as reasonably practicable to each indemnifying party of any action commenced against it in respect of which indemnity may be sought hereunder, but failure to so notify an indemnifying party shall not relieve it from any liability which it may have otherwise than on account of this indemnity agreement. An indemnifying party may participate at its own expense in the defense of any such action. In no event shall the indemnifying parties be liable for the fees and expenses of more than one counsel (in addition to any local counsel) separate from their own counsel for all indemnified parties in connection with any one action or separate but similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances. SECTION 7. Contribution. In order to provide for just and equitable contribution in circumstances in which the indemnity agreement provided for in Section 6 is for any reason held to be unenforceable by the indemnified parties although applicable in accordance with its terms, the Fund, the Adviser and the Underwriter shall contribute to the aggregate losses, liabilities, claims, damages and expenses of the nature contemplated by said indemnity agreement as incurred by the Fund, the Adviser and the Underwriter, as incurred, in such proportion that the Underwriter is responsible for that portion represented by the percentage that the aggregate underwriting compensation payable pursuant to Section 2 hereof bears to the aggregate initial public offering price of the Shares sold under this Agreement and the Fund and the Adviser are responsible for the balance; provided, however, that no person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this Section, each person, if any, who controls the Underwriter within the meaning of Section 15 of the 1933 Act shall have the same rights to contribution as the Underwriter, and each director of the Fund and the Adviser, respectively, each officer of the Fund who signed the Registration Statement, and each person, if any, who controls the Fund or the Adviser within the meaning of Section 15 of the 1933 Act shall have the same rights to contribution as the Fund and the Adviser, respectively. SECTION 8. Representations, Warranties and Agreements to Survive Delivery. All representations, warranties and agreements contained in this Agreement or the Pricing Agreement, or contained in certificates of officers of the Fund or the Adviser submitted pursuant hereto, shall remain operative and in full force and effect, regardless of any investigation made by or on behalf of the Underwriter or controlling person, or by or on behalf of the Fund or the Adviser and shall survive delivery of the Shares to the Underwriter. SECTION 9. Termination of Agreement. (a) The Underwriter, by notice to the Fund, may terminate this Agreement at any time at or prior to Closing Time (i) if there has been, since the date of this Agreement or since the respective dates as of which information is given in the Registration Statement, any material adverse change in the condition, financial or otherwise, or in the earnings, business affairs or business prospects of the Fund or the Adviser, whether or not 17 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 exchanges or by order of the commission or any other governmental authority, or if a banking moratorium has been declared by Federal or New York authorities. (b) If this Agreement is terminated pursuant to this Section, such termination shall be without liability of any party to any other party except as provided in Section 4. SECTION 10. Notices. All notices and other communications hereunder shall be in writing and shall be deemed to have been duly given if mailed or transmitted by any standard form, of written telecommunication. Notices to the Underwriter shall be directed to Merrill Lynch World Headquarters, North Tower, World Financial Center, New York, New York 10281, Attention: Theresa Lang, Director; notices to the Fund or the Adviser shall be directed to each of them at 800 Scudders Mill Road, Plainsboro, New Jersey 08536, Attention: Arthur Zeikel, President. SECTION 11. Parties. This Agreement and the Pricing Agreement shall inure to the benefit of and be binding upon the Underwriter, the Fund, the Adviser and their respective successors. Nothing expressed or mentioned in this Agreement or the Pricing Agreement is intended or shall be construed to give any person, firm or corporation, other than the parties hereto and their respective successors and the controlling persons and officers and directors referred to in Sections 6 and 7 and their heirs and legal representatives, any legal or equitable right, remedy or claim under or in respect of this Agreement or any provision herein contained. This Agreement and the Pricing Agreement and all conditions and provisions hereof are intended to be for the sole and exclusive benefit of the parties hereto and thereto and their respective successors, and said controlling persons and officers and directors and their heirs and legal representatives, and for the benefit of no other person, firm or corporation. No purchaser of Shares from the Underwriter shall be deemed to be a successor by reason merely of such purchase. SECTION 12. Governing Law and Time. This Agreement and the Pricing Agreement shall be governed by the laws of the State of New York applicable to agreements made and to be performed in said State. Specified times of day refer to New York City time. 18 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 single binding agreement among the Underwriter, the Fund and the Adviser in accordance with its terms. Very truly yours, MUNIYIELD NEW YORK INSURED FUND, INC. By: -------------------------------------------- (Authorized officer) FUND ASSET MANAGEMENT, INC. By: -------------------------------------------- (Authorized Officer) Confirmed and Accepted, as of the date first above written: MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED By: ---------------------------------- Vice President Investment Banking Group 19 Exhibit A Shares MuniYield New York Insured Fund, Inc. (a Maryland corporation) Common Stock (Par Value $.10 Per Share) PRICING AGREEMENT ----------------- February __, 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 1992 (the "Purchase Agreement"), relating to the purchase by Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated, (the "Underwriter"), of the above shares of Common Stock, par value $.10 per share (the "Initial Shares"), of MuniYield New York Insured fund, Inc. (the "Fund") and relating to the option granted to the Underwriter to purchase up to an additional shares of Common Stock, par value $.10 per share, of the Fund to cover over-allotments in connection with the sale of the Initial Shares (the "Option Shares"). The Initial shares and all or any part of the Option Shares are collectively herein referred to as the "Shares". Pursuant to Section 2 of the Purchase Agreement the Fund agrees with the Underwriter as follows: 1. The applicable initial public offering price per share for the Shares, determined as provided in said Section 2, shall be as follows: (a) $15.00 for purchases in single transactions of less than 3,500 Shares; (b) $14.85 for purchases in single transactions of 3,500 or more Shares but less than 7,000 Shares; and (c) $14.70 for purchases in single transactions of 7,000 or more Shares A-1 EX-99.7B 8 FORM OF PURCHASE AGREEMENT FOR THE AMPS Exhibit 7(b) $80,000,000 MUNIYIELD NEW YORK INSURED FUND, INC. (a Maryland corporation) AUCTION MARKET PREFERRED STOCK ["AMPS116] 850 Shares Series A 850 Shares Series B Liquidation Preference $50,000 Per Share PURCHASE AGREEMENT ------------------ April 3, 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 New York Insured Fund, Inc., a Maryland corporation (the "Fund"), and Fund Asset Management, Inc., a Delaware corporation (the "Adviser"), each confirms its agreement with Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated (the "Underwriter") with respect to the sale by the Fund and the purchase by the Underwriter of 850 shares of auction market preferred stock, Series A, of the Fund (the "Series A AMPS") and 850 shares of auction market preferred stock, series B, of the Fund (the "Series B AMPS") (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. The Fund has filed with the Securities and Exchange Commission (the "Commission") a notification on Form N-SA of registration of the Fund as an investment company under the Investment Company Act of 1940, as amended (the 111940 Act") and a registration statement on Form N-2 (No. 33-45621) 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 ------------------------------ each severally represents and warrants to the Underwriter as of the date hereof and as of the date of the Pricing Agreement (such later date being hereinafter referred to as the "Representation Date") as follows: (i) At the time the Registration Statement becomes effective and at the Representation Date, the Registration Statement will comply in all material respects with the requirements of the 1933 Act, the 1940 Act and the Rules and Regulations and will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading. At the time the Registration Statement becomes effective, at the Representation Date and at Closing Time as defined in Section 2, the Prospectus (unless the term "Prospectus" refers to a prospectus which has been provided to the Underwriter by the Fund for use in connection with the offering of the Shares which differs from the Prospectus on file with the Commission at the time the Registration Statement becomes effective, in which case at the time it is first provided to the Underwriter for such use) will not contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that the representations and warranties in this subsection shall not apply to statements in or omissions from the Registration Statement or Prospectus made in -reliance upon and in conformity with information furnished to the 2 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. (iii) The financial statements included in the Registration Statement present fairly the financial position of the Fund as at the date indicated and the results of its operations for the period specified; such financial statements have been prepared in conformity with generally accepted accounting principles; and the information in the Prospectus under the headings "Description of Capital Stock" and "Portfolio Composition" has been fairly presented. (iv) Since the respective dates as of which information is given in the Registration Statement and the Prospectus, except as otherwise stated therein, (A) there has been no material adverse change in the condition, financial or otherwise, of the Fund, or in the earnings, business affairs or business prospects of the Fund, whether or not arising in the ordinary course of business, (B) there have been no transactions entered into by the Fund which are material to the Fund other than those in the ordinary course of business and (C) except for regular monthly dividends on the outstanding shares of common stock, par value $.10 per share ("Common Shares") of the Fund, there has been no dividend or distribution of any kind declared, paid or made by the Fund or any class of its capital stock. (v) The Fund has been duly organized and is validly existing as a corporation in good standing under the laws of the State of Maryland, with corporate power and authority to own, lease and operate its properties and conduct its business as described in the Registration Statement; the Fund is duly qualified as a foreign corporation to transact business and is in good standing in each jurisdiction in which such qualification is required; and the Fund has no subsidiaries. (vi) The Fund is registered with the Commission under the 1940 Act as a closed-end, non-diversified management investment company, and no order of suspension or revocation of such registration has been issued or proceedings therefor initiated or threatened by the Commission. (vii) The authorized, issued and outstanding capital stock of the Fund is as set forth in the Prospectus under the caption "Description of Capital Stock"; the outstanding Common Shares have been duly authorized and validly issued and are fully paid and non-assessable; the Shares have been duly authorized for issuance and sale to the Underwriter pursuant to this Agreement and, when issued and delivered by the Fund pursuant to this Agreement against payment of the consideration set forth in the Pricing Agreement, will be validly issued and fully paid and nonassessable; the Common Shares and the Shares conform in all material respects to all statements relating thereto contained in the Registration Statement; and the issuance of the Shares to be purchased by the Underwriter is not subject to preemptive rights. 3 (viii) The Fund is not in violation of its charter, as amended (the "Charter") or by-laws, as amended (the "ByLaws") 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 Charter or By-laws of the Fund or, to the best knowledge of the Fund and the Adviser, any law, administrative regulation or administrative or court decree; and no consent, approval, authorization or order of any court or governmental authority or agency is required for the consummation by the Fund of the transactions contemplated by this Agreement, the Pricing Agreement, the Advisory Agreement, the Custodian Agreement, the Auction Agreement and the Depository Agreement, except such as has been obtained under the 1940 Act or as may be required under the 1933 Act or state securities or Blue Sky laws in connection with the purchase and distribution of the Shares by the Underwriter. (ix) The Fund owns or possesses or has obtained all material governmental licenses, permits, consents, orders, approvals and other authorizations necessary to lease or own, as the case may be, and to operate its properties and to carry on its businesses as contemplated in the Prospectus and the Fund has not received any notice of proceedings relating to the revocation or modification of any such licenses, permits, covenants, orders, approvals or authorizations. (x) There is no action, suit or proceeding before or by any court or governmental agency or body, domestic or foreign, now pending, or, to the knowledge of the Fund or the Adviser, threatened against or affecting, the Fund, which might result in any material adverse change in the condition, financial or otherwise, business affairs or business prospects of the Fund, or might materially and adversely affect the properties or assets of the Fund; and there are no material contracts or documents of the Fund which are required to be filed as exhibits to the Registration Statement by the 1933 Act, the 1940 Act or by the Rules and Regulations which have not been so filed. (xi) The Fund owns or possesses, or can acquire on reasonable terms, adequate trademarks, service marks and trade names necessary to conduct the business now operated by it, and the Fund has not received any notice of infringement of or conflict with asserted rights of others with respect to any trademarks, service marks and trade names which, singly or in the aggregate, if the subject of an unfavorable decision, ruling 4 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 N 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 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. 5 (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. --------------------------------------------- (a) On the basis of the representations and warranties herein contained and subject to the terms and conditions herein set forth, the Fund agrees to sell the Shares to the Underwriter and the Underwriter agrees to purchase the Shares from the Fund, at the price per share set forth in the Pricing Agreement. (i) If the Fund has elected not to rely upon rule 430A under the Rules and Regulations, the initial public offering price and the purchase price per share to be paid by the Underwriter for the Shares each has been determined and set forth in the Pricing Agreement, dated the date hereof, and an amendment to the Registration Statement and the Prospectus will be filed before the Registration Statement becomes effective. (ii) If the Fund has elected to rely upon rule 430A under the Rules and Regulations, the purchase price per share to be paid by the Underwriter for the Shares shall be an amount equal to the initial public offering price, less an amount per share to be determined by agreement between the Underwriter and the Fund. The initial public offering price per share shall be a fixed price to be determined by agreement between the Underwriter and the Fund. The initial public offering price and the purchase price, when so determined, shall be set forth in the Pricing Agreement. In the event that such prices have not been agreed upon and the Pricing Agreement has not been executed and delivered by all parties thereto by the close of business on the fourth business day following the date of this Agreement, this Agreement shall terminate forthwith, without liability of any party to any other party, except as provided in Section 5, unless otherwise agreed to by the Fund, the Adviser and the Underwriter. (b) Payment of the purchase price for, and delivery of certificates for, the Shares shall be made at the office of Brown & Wood, One World Trade Center, New York, New York 10048-0557, or at such other place as shall be agreed upon by the Underwriter and the Fund, at 10:00 A.M. on the fifth business day following the date the Registration Statement becomes effective (or, if the Fund has elected to rely upon rule 430A under the Rules and Regulations, the fifth business day after execution of the Pricing Agreement), or such other time not later than ten business days after such date as shall be agreed upon by the Underwriter and the Fund (such time and date of payment and delivery being herein called "Closing Time"). Payment shall be made to the Fund by Federal fund check or checks or similar same- day funds and payable to the order of the Fund, against delivery to the Underwriter of the certificates for the Shares to be purchased by it. The Series A Shares and the Series B Shares shall each be represented by a certificate registered in the name of Cede & Co., as nominee for The Depository Trust Company. The certificates for the Shares will be made available for examination by the Underwriter not later than 10:00 A.M. on the last business day prior to Closing Time. SECTION 3. Covenants of the Fund. The Fund covenants with the Underwriter -------------------------------------------------------------- as follows: - ---------- 6 (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 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 7 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 f6ct or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances existing at the time the Prospectus is delivered to a purchaser, not misleading. (g) The Fund will endeavor, in cooperation with the Underwriter, to qualify the Shares for offering and sale under the applicable securities laws of such states and other jurisdictions of the United States as the Underwriter may designate, and will maintain such qualifications in effect for a period of not less than one year after the date hereof. The Fund will file such statements and reports as may be required by the laws of each jurisdiction in which the Shares have been qualified as above provided. (h) The Fund will make generally available to its security holders as soon as practicable, but not later than 60 days after the close of the period covered thereby, an earnings statement (in form complying with the provisions of Rule 158 of the Rules and Regulations) covering a twelve- month period beginning not later than the first day of the Fund's fiscal quarter next following the "effective" date (as defined in said Rule 158) of the Registration Statement. (i) Between the date of this Agreement and the termination of any trading restrictions or Closing Time, whichever is later the Fund will not, without your prior consent, offer or sell or enter into any agreement to sell any equity or equity related securities of the Fund other than the Shares and Common Shares issued in reinvestment of dividends or distributions. (j) If, at the time that the Registration Statement becomes effective, any information shall have been omitted therefrom in reliance upon Rule 430A of the Rules and Regulations, then immediately following the execution of the Pricing Agreement, the Fund will prepare and file or transmit for filing with the commission in accordance with such Rule 430A and Rule 497(h) of the Rules and Regulations, copies of an amended Prospectus, or, if required by such Rule 430A, a post-effective amendment to the Registration Statement (including an amended Prospectus) containing all information so omitted. (k) The Fund will use its best efforts to maintain its qualification as a regulated investment company under Subchapter M of the Code. SECTION 4. Covenants of the Underwriter. The Underwriter covenants and ---------------------------- agrees with the Fund as follows: (a) It will sell Shares only to a person who has agreed to execute and deliver 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. 8 (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 ------------------- the performance of its obligations under this Agreement, including, but not limited to, expenses relating to (i) the printing and filing of the registration statement as originally filed and of each amendment thereto, (ii) the preparation, issuance and delivery of the certificates for the Shares to the Underwriter, (iii) the fees and disbursements of the Fund's counsel and accountants, (iv) the qualification of the Shares under securities laws in accordance with the provisions of Section 3(g) of this Agreement, including filing fees and any fees or disbursements of counsel for the Underwriter in connection therewith and in connection with the preparation of the Blue Sky Survey, (v) the printing and delivery to the Underwriter of copies of the registration statement as originally filed and of each amendment thereto, of the preliminary prospectuses, and of the Prospectus and any amendments or supplements thereto, (vi) the printing and delivery to the Underwriter of copies of the Blue Sky Survey and (vii) the fees charged by rating agencies for the rating of the Shares. If this Agreement is terminated by the Underwriter in accordance with the provisions of Section 6 or Section 10(a)(i), the Fund or the Adviser shall reimburse the Underwriter for all of their out-of-pocket expenses, including the reasonable fees and disbursements of counsel for the Underwriter. In the event the transactions contemplated hereunder are not consummated, the Adviser agrees to pay all of the costs and expenses set forth in the first paragraph of this Section 5 which the Fund would have paid if such transactions had been consummated. SECTION 6. Conditions of Underwriter's Obligations. The obligations of the --------------------------------------- Underwriter hereunder are subject to the accuracy of the representations and warranties of the Fund and the Adviser herein contained, to the performance by the Fund and the Adviser of their respective obligations hereunder, and to the following further conditions: (a) The Registration Statement shall have become effective not later than 5:30 P.M., New York City time, on the date hereof or at such later time and date as may be approved by the Underwriter, and at Closing Time no stop order suspending the effectiveness of the Registration Statement shall have been issued under the 1933 Act or proceedings therefor initiated or threatened by the Commission. If the Fund has elected to rely upon Rule 430A of the Rules and Regulations, the price of the Shares and any price-related information previously omitted from the effective Registration Statement pursuant to such Rule 430A shall have been transmitted to the Commission for filing pursuant to Rule 497(h) of the Rules and Regulations within the prescribed time period, and prior to Closing Time the Fund shall have provided evidence satisfactory to the Underwriter of-such timely filing, or a post-effective amendment providing such information shall have been promptly filed and declared effective in accordance with the requirements of Rule 430A of the Rules and Regulations. (b) At Closing Time, the Underwriter shall have received: 9 (i) The favorable opinion, dated as of Closing Time, of Brown & Wood, counsel for the Fund and the Underwriter, to the effect that: (1) The Fund has been duly organized and is validly existing as a corporation in good standing under the laws of the State of Maryland. (2) The Fund has corporate power and authority to own, lease and operate its properties and conduct its business as described in the Prospectus. (3) The Fund is duly qualified as a foreign corporation to transact business and is in good standing in each jurisdiction in which such qualification is required, except where the failure to so qualify would not have a material adverse effect on the condition, financial or otherwise, business affairs or business prospects of the Fund. (4) The outstanding Common Shares have been duly authorized and validly issued and are fully paid and non-assessable. (5) The Shares have been duly authorized for issuance and sale to the Underwriter pursuant to this Agreement and, when issued and delivered by the Fund pursuant to this Agreement against payment of the consideration set forth in the Pricing Agreement, will be validly issued and fully paid and non-assessable; the issuance of the Shares is not subject to preemptive or other similar rights; and the authorized capital stock conforms in all material respects to the description thereof in the Registration Statement. (6) This Agreement and the Pricing Agreement each has been duly authorized, executed and delivered by the Fund and each complies with all applicable provisions of the 1940 Act. (7) The Registration Statement is effective under the 1933 Act and, to the best of their knowledge and information, no stop order suspending the effectiveness of the Registration Statement has been issued under the 1933 Act and no proceedings for that purpose have been instituted, are pending or are contemplated. (8) At the time the Registration Statement became effective and at the Representation Date, the Registration Statement (other than the financial statements included therein, as to which no opinion need be rendered) complied as to form in all material respects with the requirements of the 1933 Act, the 1940 Act and the Rules and Regulations. (9) To the best of their knowledge and information, there are no legal or governmental proceedings pending or threatened against the Fund which are required to be disclosed in the Registration Statement, other than those disclosed therein. 10 (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 Charter or By-Laws of the Fund, or any law, administrative regulation or administrative or court decree. (12) The Advisory Agreement and the Custodian Agreement have each been duly authorized, executed and delivered by the Fund and each complies with all applicable provisions of the 1940 Act. (13) The Fund is registered with the Commission under the 1940 Act as a closed-end non-diversified management investment company, and all required action has been taken by the Fund under the 1933 Act, the 1940 Act and the Rules and Regulations to make the public offering and consummate the sale of the Shares pursuant to this Agreement; the provisions of the Charter and By-Laws of the Fund comply as to form in all material respects with the requirements of the 1940 Act; and, to the best of their knowledge and information, no order of suspension or revocation of such registration under the 1940 Act, pursuant to Section 8(e) thereof, has been issued or proceedings therefor initiated or threatened by the Commission. (14) The information in the Prospectus under the caption "Taxes" 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 11 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 Philip L. Kirstein, Esq., General Counsel to the Adviser, in form and substance satisfactory to counsel for the Underwriter, to the effect that: (1) The Adviser has been duly organized as a corporation under the laws of the State of Delaware with corporate power and authority to conduct its business as described in the Registration Statement and the Prospectus. (2) The Adviser is duly registered as an investment adviser under the Advisers Act and is not prohibited by the Advisers Act or the 1940 Act or the rules and regulations under such Acts from acting under the Advisory Agreement for the Fund as contemplated by the Prospectus. (3) This Agreement has been duly authorized, executed and delivered by the Adviser; the Advisory Agreement is in full force and effect and constitutes a valid and binding obligation of the Adviser, enforceable in accordance with its terms, subject, as to enforcement, to bankruptcy, insolvency, reorganization or other laws relating to or affecting creditors' rights and to general equity principles; and, to the best of his knowledge and information, neither the execution and delivery of this Agreement or the Advisory Agreement nor the performance by the Adviser of its obligations hereunder or thereunder will conflict with, or result in a breach of, any of the terms and provisions of, or constitute, with or without giving notice or lapse of time or both, a default under, any agreement or instrument to which it is a party or by which the Adviser is bound, or any law, order, rule or regulation applicable to the Adviser of any jurisdiction, court, Federal or state regulatory body, administrative agency or the governmental body, stock exchange or securities association have 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. (iii) 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 12 connection with the offering of the Shares which differs from the Prospectus on file at the Commission at the time the Registration Statement becomes effective, in which case at the time it is first provided to the Underwriter for such use) or at Closing Time, included an untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. In giving their opinion, Brown & Wood may rely, as to all matters governed by the law of the State of Maryland, upon the opinion of Venable, Baetjer and Howard 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 oI7, 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 V'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 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. 13 (e) At the time of execution of this Agreement, the Underwriters 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 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 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 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 (A) the unaudited financial statements as of March 6, 1992 and for the period from February 13, 1992 to March 6, 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 financed statements included in the Registration Statement and (B) at the date of the latest available financial statements 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 (other than by reason of the issuance of Common Shares in connection with the exercise by the Underwriter of the Common Shares of the over-allotment option relating to the initial public offering of the Common Shares, as specified in such letter) as compared with amounts shown on the statement of net assets included in the Prospectus; 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 f"or the purpose of enabling them to 14 pass upon the issuance and sale of the Shares as herein contemplated and to pass upon related proceedings, or in order to evidence the accuracy of any of the representations or warranties, or the fulfillment of any of the conditions, herein contained; and all proceedings taken by the Fund and the Adviser in connection with the organization and registration of the Fund under the 1940 Act and the issuance and sale of the shares as herein contemplated shall be satisfactory in form and substance to the Underwriter and counsel for the Underwriter. If any condition specified in this Section shall not have been fulfilled when and as required to be fulfilled, this Agreement may be terminated by the Underwriter by notice to the Fund at any time at or prior to Closing Time, and such termination shall be without liability of any party to any other party except as provided in Section 5. SECTION 7. Indemnification. (a) The Fund and the Adviser, jointly and --------------- severally, agree to indemnify and hold harmless the Underwriter and each person, if any, who controls the Underwriter within the meaning of Section 15 of the 1933 Act as follows: (i) against any and all loss, liability, claim, damage and expense whatsoever, as incurred, arising out of any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement (or any amendment thereto), including the information deemed to be part of the Registration Statement pursuant to Rule 430A of the Rules and Regulations, if applicable, or the omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the statements therein not misleading or arising out of any untrue statement or alleged untrue statement of a material fact contained in any preliminary prospectus or the Prospectus (or any amendment or supplement thereto) or the omission or alleged omission therefrom of a 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, to the extent 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 15 amendment thereto) or any preliminary prospectus or the Prospectus (or any amendment or supplement thereto). (b) The Underwriter severally agrees to indemnify and hold harmless the Fund and the Adviser, their respective directors, each of the Fund's officers who signed the Registration Statement, and each person, if any, who controls the Fund or the Adviser within the meaning of Section 15 of the 1933 Act, against any and all loss, liability, claim, damage and expense described in the indemnity contained in subsection (a) of this Section, as incurred, but only with respect to untrue statements or omissions, or alleged untrue statements or omissions, made in the Registration Statement (or any amendment or supplement thereto) or any preliminary prospectus or the Prospectus (or any amendment or supplement thereto) in reliance upon and in conformity with written information furnished to the Fund by the Underwriter expressly for use in the Registration Statement (or any amendment thereto) or any preliminary prospectus or the Prospectus (or any amendment or supplement thereto). (c) Each indemnified party shall give notice as promptly as reasonably practicable to each indemnifying party of any action commenced against it in respect of which indemnity may be sought hereunder, but failure to so notify an indemnifying party shall not relieve it from any liability which it may have otherwise than on account of this indemnity agreement. An indemnifying party may participate at its own expense in the defense of such action. In no event shall the indemnifying parties be liable for the fees and expenses of more than one counsel (in addition to any local counsel) separate from their own counsel for all indemnified parties in connection with any one action or separate but similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances. 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 enforceable 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 provisions of this Section 8, no Underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the Shares underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages which such Underwriter has otherwise been required to pay in respect of such losses, liabilities, claims, damages and expenses. For purposes of this Section, each person, if any, who controls the Underwriter within the meaning of Section 15 of the 1933 Act shall have the same rights to contribution as the Underwriter, and each director of the Fund, each officer of the Fund who signed the Registration Statement, and each person, if any, who controls the Fund within the meaning of Section 15 of the 1933 Act shall have the same rights to contribution as the Underwriter, and each director of the Fund, each officer of the Fund who signed the Registration 16 Statement, and each person, if any, who controls the Fund within the meaning of Section 15 of the 1933 Act shall have the same rights to contribution as the Fund. SECTION 9. Representations, Warranties and Agreements to Survive Delivery. -------------------------------------------------------------- All representations, warranties and agreements contained in this Agreement and the Pricing Agreement, or contained in certificates of officers of the Fund or the Adviser submitted pursuant hereto, shall remain operative and in full force and effect, regardless of any investigation made by or on behalf of the Underwriter or 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: 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. SECTION 12. Parties. This Agreement and the Pricing Agreement shall inure ------- to the benefit of and be binding upon the Underwriter, the Fund, the Adviser and their respective successors. Nothing expressed or mentioned in this Agreement or the Pricing Agreement is intended or shall be construed to give any person, firm or corporation, other than the parties hereto and their respective successors and the controlling persons and officers and directors referred to in sections 7 and 8 and their heirs and legal representatives, any legal or equitable right, remedy or claim under or in respect of this Agreement or any provision herein contained. This Agreement and the Pricing Agreement and all conditions and provisions hereof are intended to be for the sole and exclusive benefit of the parties hereto and thereto and their respective successors, and said controlling persons and officers and directors and their heirs and legal 17 representatives, and for the benefit of no other person, firm or corporation. No purchaser of Shares from the Underwriter shall be deemed to be a successor by reason merely of such purchase. SECTION 13. Governing Law and Time. This Agreement and the Pricing ---------------------- Agreement shall be governed by the laws of the State of New York applicable to agreement made and to be performed in said State. Specified times of day refer to New York City time. 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, MUNTYIELD NEW YORK INSURED FUND, INC. By:________________________________ Authorized Officer FUND ASSET MANAGEMENT, INC. By:_______________________________ Authorized Officer CONFIRMED AND ACCEPTED, as of the date first above written: By: Merrill Lynch, Pierce, Fenner & Smith Incorporated By: _____________________________________ Vice President Investment Banking 18 EXHIBIT A $80,000,000 MUNIYIELD NEW YORK INSURED FUND, INC. (a Maryland corporation) AUCTION MARKET PREFERRED STOCK (AMPS(R)] 850 Shares Series A 850 Shares Series B Liquidation Preference $50,000 Per Share PRICING AGREEMENT ----------------- April 6,1992 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 April 3, 1992 (the "Purchase Agreement"), relating to the purchase by Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner Smith Incorporated (the "Underwriter") of 850 shares of auction market preferred stock, Series A, of the Fund (the "Series A AMPS") and 850 shares of auction market preferred stock, Series B, of the Fund (the "Series B AMPS"), both with a 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 New York Insured Fund, Inc. (the "Fund"). Pursuant to Section 2 of the Purchase Agreement, the Fund agrees with the Underwriter as follows: 1. The initial public offering price per share for the Shares, determined as provided in said Section 2, shall be $50,000. _______________ (R)Registered trademark of Merrill Lynch & Co., Inc. 19 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 Series A AMPS for the Initial Dividend Period ending May 4, 1992 will be 3.375% and the dividend rate for the Series B AMPS for the Initial Dividend Period ending April 20, 1992 will be 3.35%. 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 NEW YORK INSURED FUND, INC. By: ____________________________________ Authorized Officer CONFIRMED AND ACCEPTED, as of the date first above written: By: Merrill Lynch, Pierce, Fenner and Smith Incorporated By: _________________________________ Vice President Investment Banking 20 EX-99.7C 9 FORM OF MERRILL LYNCH STANDARD DEALER AGREEMENT Exhibit 7(c) 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 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 where we are acting as Representative of the Underwriters, in accepting a reallowance from us whether or not we are acting as such 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 2 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. 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, 3 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 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 EX-99.9 10 CUSTODIAN CONTRACT Exhibit 9 CUSTODY AGREEMENT ----------------- Agreement made as of this ____ day of 1992, between MuniYield New York Insured Fund, Inc., a corporation organized and existing under the laws of the State of Maryland having. its principal office and place of business at 800 Scudders Mill Road, Plainsboro, New Jersey 08536 (hereinafter called the "Fund"), and THE BANK OF NEW YORK, a New York corporation authorized to do a banking business, having its principal office and place of business at 48 Wall Street, New York, New York 10286 (hereinafter called the "Custodian"). W I T N E S S E T H : that for and in consideration of the mutual promises hereinafter set forth, the Fund and the Custodian agree as follows: ARTICLE I DEFINITIONS Whenever used in this Agreement, the following words and phrases, unless the context otherwise requires, shall have the following meanings: 1. "Authorized Person" shall be deemed to include any person, whether or not such person is an Officer or employee of the Fund, duly authorized by the Board of Directors of the Fund to give Oral Instructions and Written Instructions on behalf of the Fund and listed in the Certificate annexed hereto as Appendix A or such other Certificate as may be received by the Custodian from time to time. 2. "Book-Entry System" shall mean the Federal Reserve/Treasury book-entry system for United States and federal agency securities, its successor or successors and its nominee or nominees. 3. "Call option" shall mean an exchange traded option with respect to Securities other than Stock Index Options, Futures Contracts, and Futures Contract Options entitling the holder, upon timely exercise and payment of the exercise price, as specified therein, to purchase from the writer thereof the specified underlying Securities. 4. "Certificate" shall mean any notice, instruction, or other instrument in writing, authorized or required by this Agreement to be given to the Custodian which is actually received by the Custodian and signed on behalf of the Fund by any two Officers. 5. "Clearing Member" shall mean a registered broker-dealer which is a clearing member under the rules of O.C.C. and a member of a national securities exchange qualified to act as a custodian for an investment company, or any broker-dealer reasonably believed by the Custodian to be such a clearing member. 6. "Collateral Account" shall mean a segregated account so denominated which is specifically allocated to a Series and pledged to the Custodian as security for, and in consideration of, the Custodian's issuance of (a) any Put Option guarantee letter or similar 1 document described in paragraph 8 of Article V herein, or (b) any receipt described in Article V or VIII herein. 7. "Covered Call Option" shall mean an exchange traded option entitling the holder, upon timely exercise and payment of the exercise price, as specified therein, to purchase from the writer thereof the specified underlying Securities (excluding Futures Contracts) which are owned by the writer thereof and subject to appropriate restrictions. 8. "Depository" shall mean The Depository Trust Company ("DTC"), a clearing agency registered with the Securities and Exchange Commission, its successor or successors and its nominee or nominees. The term "Depository" shall further mean and include any other person authorized to act as a depository under the Investment Company Act of 1940, its successor or successors and its nominee or nominees, specifically identified in a certified copy of a resolution of the Fund's Board of Directors specifically approving deposits therein by the Custodian. 9. "Financial Futures Contract" shall mean the firm commitment to buy or sell fixed income securities including, without limitation, U.S. Treasury Bills, U.S. Treasury Notes, U.S. Treasury Bonds, domestic bank certificates of deposit, and Eurodollar certificates of deposit, during a specified month at an agreed upon price. 10. "Futures Contract" shall mean a Financial Futures Contract and/or Stock Index Futures Contracts. 11. "Futures Contract Option" shall mean an option with respect to a Futures Contract. 12. "Margin Account" shall mean a segregated account in the name of a broker, dealer, futures commission merchant, or a Clearing Member, or in the name of the Fund for the benefit of a broker, dealer, futures commission merchant, or Clearing Member, or otherwise, in accordance with an agreement between the Fund, the Custodian and a broker, dealer, futures commission merchant or a Clearing Member (a "Margin Account Agreement"), separate and distinct from the custody account, in which certain Securities and/or money of the Fund shall be deposited and withdrawn from time to time in connection with such transactions as the Fund may from time to time determine. Securities held in the Book-Entry System or the Depository shall be deemed to have been deposited in, or withdrawn from, a Margin Account upon the Custodian's effecting an appropriate entry in its books and records. 13. "Money Market Security" shall be deemed to include, without limitation, certain Reverse Repurchase Agreements, debt obligations issued or guaranteed as to interest and principal by the government of the United States or agencies or instrumentalities thereof, any tax, bond or revenue anticipation note issued by any state or municipal government or public authority, commercial paper, certificates of deposit and bankers' acceptances, repurchase agreements with respect to the same and bank time deposits, where the purchase and sale of such securities normally requires settlement in federal funds on the same day as such purchase or sale. 2 14. "O.C.C." shall mean the Options Clearing Corporation, a clearing agency registered under Section 17A of the Securities Exchange Act of 1934, its successor or successors, and its nominee or nominees. 15. "Officers" shall be deemed to include the President, any Vice President, the Secretary, the Treasurer, the Controller, any Assistant Secretary, any Assistant Treasurer, and any other person or persons, whether or not any such other person is an officer of the Fund, duly authorized by the Board of Directors of the Fund to execute any Certificate, instruction, notice or other instrument on behalf of the Fund and listed in the Certificate annexed hereto as Appendix B or such other Certificate as may be received by the Custodian from time to time. 16. "Option" shall mean a Call Option, Covered Call Option, Stock Index Option and/or a Put Option. 17. "Oral Instructions" shall mean verbal instructions actually received by the Custodian from an Authorized Person or from a person reasonably believed by the Custodian to be an Authorized Person. 18. "Put Option" shall mean an exchange traded option with respect to Securities other than Stock Index Options, Futures Contracts, and Futures Contract Options entitling the holder, upon timely exercise and tender of the specified underlying Securities, to sell such Securities to the writer thereof for the exercise price. 19. "Reverse Repurchase Agreement" shall mean an agreement pursuant to which the Fund sells Securities and agrees to repurchase such Securities at a described or specified date and price. 20. "Security" shall be deemed to include, without limitation, Money Market Securities, Call Options, Put Options, Stock Index Options, Stock Index Futures Contracts, Stock Index Futures Contract Options, Financial Futures Contracts, Financial Futures Contract Options, Reverse Repurchase Agreements, common stocks and other securities having characteristics similar to common stocks, preferred stocks, debt obligations issued by state or municipal governments and by public authorities, (including, without limitation, general obligation bonds, revenue bonds, industrial bonds and industrial development bonds), bonds, debentures, notes, mortgages or other obligations, and any certificates, receipts, warrants or other instruments representing rights to receive, purchase, sell or subscribe for the same, or evidencing or representing any other rights or interest therein, or any property or assets. 21. "Senior Security Account" shall mean an account maintained and specifically allocated to a Series under the terms of this Agreement as a segregated account, by recordation or otherwise, within the custody account in which certain Securities and/or other assets of the Fund specifically allocated to such Series shall be deposited and withdrawn from time to time in accordance with Certificates received by the Custodian in connection with such transactions as the Fund may from time to time determine. 22. "Series" shall mean the various portfolios, if any, of the Fund as described from time to time in the current and effective prospectus for the Fund. 3 23. "Shares" shall mean the shares of capital stock of the Fund, each of which is, in the case of a Fund having Series, allocated to a particular Series. 24. "Stock Index Futures Contract" shall mean a bilateral agreement pursuant to which the parties agree to take or make delivery of an amount of cash equal to a specified dollar amount times the difference between the value of a particular stock index at the close of the last business day of the contract and the price at which the futures contract is originally struck. 25. "Stock Index option" shall mean an exchange traded option entitling the holder, upon timely exercise, to receive an amount of cash determined by reference to the difference between the exercise price and the value of the index on the date of exercise. 26. "Written Instructions" shall mean written communications actually received by the Custodian from an Authorized Person or from a person reasonably believed by the Custodian to be an Authorized Person by telex or any other such system whereby the receiver of such communications is able to verify by codes or otherwise with a reasonable degree of certainty the identity of the sender of such communication. ARTICLE II APPOINTMENT OF CUSTODIAN 1. The Fund hereby constitutes and appoints the Custodian as custodian of the Securities and moneys at any time owned by the Fund during the period of this Agreement. 2. The Custodian hereby accepts appointment as such custodian and agrees to perform the duties thereof as hereinafter set forth. ARTICLE III CUSTODY OF CASH AND SECURITIES 1. Except as otherwise provided in paragraph 7 of this Article and in Article VIII, the Fund will deliver or cause to be delivered to the Custodian all Securities and all moneys owned by it, at any time during the period of this Agreement, and shall specify with respect to such Securities and money the Series to which the same are specifically allocated. The Custodian shall segregate, keep and maintain the assets of the Series separate and apart. The Custodian will not be responsible for any Securities and moneys not actually received by it. The Custodian will be entitled to reverse any credits made on the Fund's behalf where such credits have been previously made and moneys are not finally collected. The Fund shall deliver to the Custodian a certified resolution of the Board of Directors of the Fund, substantially in the form of Exhibit A hereto, approving, authorizing and instructing the Custodian on a continuous and on-going basis to deposit in the Book-Entry System all Securities eligible for deposit therein, regardless of the Series to which the same are specifically allocated and to utilize the Book-Entry System to the extent possible in connection with its performance hereunder, including, without limitation, in connection with settlements of purchases and sales of Securities, loans of Securities and deliveries and returns of Securities collateral. Prior to a deposit of Securities specifically allocated to a Series in the Depository, the Fund shall deliver to the Custodian a certified 4 resolution of the Board of Directors of the Fund, substantially in the form of Exhibit B hereto, approving, authorizing and instructing the Custodian on a continuous and ongoing basis until instructed to the contrary by a Certificate actually received by the Custodian to deposit in the Depository all Securities specifically allocated to such Series eligible for deposit therein, and to utilize the Depository to the extent possible with respect to such Securities in connection with its performance hereunder, including, without limitation, in connection with settlements of purchases and sales of Securities, loans of Securities, and deliveries and returns of Securities collateral. Securities and moneys deposited in either the Book-Entry System or the Depository will be represented in accounts which include only assets held by the Custodian for customers, including, but not limited to, accounts in which the Custodian acts in a fiduciary or representative capacity and will be specifically allocated on the Custodian's books to the separate account for the applicable Series. Prior to the Custodian's accepting, utilizing and acting with respect to Clearing Member confirmations for Options and transactions in Options for a Series as provided in this Agreement, the Custodian shall have received a certified resolution of the Fund's Board of Directors, substantially in the form of Exhibit C hereto, approving, authorizing and instructing the Custodian on a continuous and on-going basis, until instructed to the contrary by a Certificate actually received by the Custodian, to accept, utilize and act in accordance with such confirmations as provided in this Agreement with respect to such Series. 2. The Custodian shall establish and maintain separate accounts, in the name of each Series, and shall credit to the separate account for each Series all moneys received by it for the account of the Fund with respect to such Series. Money credited to a separate account for a Series shall be disbursed by the Custodian only: (a) As hereinafter provided; (b) Pursuant to Certificates setting forth the name and address of the person to whom the payment is to be made, the Series account from which payment is to be made and the purpose for which payment is to be made; or (c) In payment of the fees and in reimbursement of the expenses and liabilities of the Custodian attributable to such Series. 3. Promptly after the close of business on each day, the Custodian shall furnish the Fund with confirmations and a summary, on a per series basis, of all transfers to or from the account of the Fund for a Series, either hereunder or with any co-custodian or sub-custodian appointed in accordance with this Agreement during said day. Where Securities are transferred to the account of the Fund for a Series, the Custodian shall also by book-entry or otherwise identify as belonging to such Series a quantity of Securities in a fungible bulk of Securities registered in the name of the Custodian (or its nominee) or shown on the Custodian's account on the books of the Book-Entry System or the Depository. At least monthly and from time to time, the Custodian shall furnish the Fund with a detailed statement, on a per Series basis, of the Securities and moneys held by the Custodian for the Fund. 4. Except as otherwise provided in paragraph 7 of this Article and in Article VIII, all Securities held by the Custodian hereunder, which are issued or issuable only in bearer form, except such Securities as are held in the Book- Entry System, shall be held by the Custodian in 5 that form; all other Securities held hereunder may be registered in the name of the Fund, in the name of any duly appointed registered nominee of the Custodian as the Custodian may from time to time determine, or in the name of the Book- Entry System or the Depository or their successor or successors, or their nominee or nominees. The Fund agrees to furnish to the Custodian appropriate instruments to enable the Custodian to hold or deliver in proper form for transfer, or to register in the name of its registered nominee or in the name of the Book-Entry System or the Depository any Securities which it may hold hereunder and which may from time to time be registered in the name of the Fund. The Custodian shall hold all such Securities specifically allocated to a Series which are not held in the Book-Entry System or in the Depository in a separate account in the name of such Series physically segregated at all times from those of any other person or persons. 5. Except as otherwise provided in this Agreement and unless otherwise instructed to the contrary by a Certificate, the Custodian by itself, or through the use of the Book-Entry System or the Depository with respect to Securities held hereunder and therein deposited, shall with respect to all Securities held for the Fund hereunder in accordance with preceding paragraph 4: (a) Collect all income due or payable; (b) Present for payment and collect the amount payable upon such Securities which are called, but only if either (i) the Custodian receives a written notice of such call, or (ii) notice of such call appears in one or more of the publications listed in Appendix C annexed hereto, which may be amended at any time by the Custodian without the prior notification or consent of the Fund; (c) Present for payment and collect the amount payable upon all Securities which mature; (d) Surrender Securities in temporary form for definitive Securities; (e) Execute, as custodian, any necessary declarations or certificates of ownership under the Federal Income Tax Laws or the laws or regulations of any other taxing authority now or hereafter in effect; and (f) Hold directly, or through the Book-Entry System or the Depository with respect to Securities therein deposited, for the account of a Series, all rights and similar securities issued with respect to any Securities held by the Custodian for such Series hereunder. 6. Upon receipt of a Certificate and not otherwise, the Custodian, directly or through the use of the Book-Entry System or the Depository, shall: (a) Execute and deliver to such persons as may be designated in such Certificate proxies, consents, authorizations, and any other instruments whereby the authority of the Fund as owner of any Securities held by the Custodian hereunder for the Series specified in such Certificate may be exercised; 6 (b) Deliver any Securities held by the Custodian hereunder for the Series specified in such Certificate in exchange for other Securities or cash issued or paid in connection with the liquidation, reorganization, refinancing, merger, consolidation or recapitalization of any corporation, or the exercise of any conversion privilege and receive and hold hereunder specifically allocated to such Series any cash or other Securities received in exchange; (c) Deliver any Securities held by the Custodian hereunder for the Series specified in such Certificate to any protective committee, reorganization committee or other person in connection with the reorganization, refinancing, merger consolidation, recapitalization or sale of assets of any corporation, and receive and hold hereunder specifically allocated to such Series such certificates of deposit, interim receipts or other instruments or documents as may be issued to it to evidence such delivery; (d) Make such transfers or exchanges of the' assets of the Series specified in such Certificate, and take such other steps as shall be stated in such Certificate to be for the purpose of effectuating any duly authorized plan of liquidation, reorganization, merger, consolidation or recapitalization of the Fund; and (e) Present for payment and collect the amount payable upon Securities not described in preceding paragraph 5(b) of this Article which may be called as specified in the Certificate. 7. Notwithstanding any provision elsewhere contained herein, the Custodian shall not be required to obtain possession of any instrument or certificate representing any Futures Contract, any option, or any Futures Contract Option until after it shall have determined, or shall have received a Certificate from the Fund stating, that any such instruments or certificates are available. The Fund shall deliver to the Custodian such a Certificate no later than the business day preceding the availability of any such instrument or certificate. Prior to such availability, the Custodian shall comply with Section 17(f) of the Investment Company Act of 1940, as amended, in connection with the purchase, sale, settlement, closing out or writing of Futures Contracts, Options, or Futures Contract options by making payments or deliveries specified in Certificates received by the Custodian in connection with any such purchase, sale, writing, settlement or closing out upon its receipt from a broker, dealer, or futures commission merchant of a statement or confirmation reasonably believed by the Custodian to be in the form customarily used by brokers, dealers, or future commission merchants with respect to such Futures Contracts, Options, or Futures Contract Options, as the case may be, confirming that such Security is held by such broker, dealer or futures commission merchant, in book- entry form or otherwise, in the name of the Custodian (or any nominee of the Custodian) as custodian for the Fund, provided, however, that notwithstanding the foregoing, payments to or deliveries from the Margin Account, and payments with respect to Securities to which a Margin Account relates, shall be made in accordance with the terms and conditions of the Margin Account Agreement. Whenever any such instruments or certificates are available, the Custodian shall, notwithstanding any provision in this Agreement to the contrary, make payment for any Futures Contract, Option, or Futures Contract Option for which such instruments or such certificates are available only against the delivery to the Custodian of such instrument or such certificate, and deliver any Futures Contract, Option or Futures Contract option for which such instruments or such certificates are available only against receipt by the Custodian of payment therefor. Any such 7 instrument or certificate delivered to the Custodian shall be held by the Custodian hereunder in accordance with, and subject to, the provisions of this Agreement. ARTICLE IV PURCHASE AND SALE OF INVESTMENTS OF THE FUND OTHER THAN OPTIONS, FUTURES CONTRACTS AND FUTURES CONTRACT OPTIONS 1. Promptly after each purchase of Securities by the Fund, other than a purchase of an option, a Futures Contract, or a Futures Contract Option, the Fund shall deliver to the Custodian (i) with respect to each purchase of Securities which are not Money Market Securities, a Certificate, and (ii) with respect to each purchase of Money Market Securities, a Certificate, Oral Instructions or Written Instructions, specifying with respect to each such purchase: (a) the Series to which such Securities are to be specifically allocated; (b) the name of the issuer and the title of the Securities; (c) the number of shares or the principal amount purchased and accrued interest, if any; (d) the date of purchase and settlement; (e) the purchase price per unit; (f) the total amount payable upon such purchase; (g) the name of the person from whom or the broker through whom the purchase was made, and the name of the clearing broker, if any; and (h) the name of the broker to whom payment is to be made. The Custodian shall, upon receipt of Securities purchased by or for the Fund, pay to the broker specified in the Certificate out of the moneys held for the account of such Series the total amount payable upon such purchase, provided that the same conforms to the total amount payable as set forth in such Certificate, Oral Instructions or Written Instructions. 2. Promptly after each sale of Securities by the Fund, other than a sale of any Option, Futures Contract, Futures Contract Option, or any Reverse Repurchase Agreement, the Fund shall deliver to the Custodian (i) with respect to each sale of Securities which are not Money Market Securities, a Certificate, and (ii) with respect to each sale of Money Market Securities, a Certificate, Oral Instructions or Written Instructions, specifying with respect to each such sale: (a) the Series to which such securities were specifically allocated; (b) the name of the issuer and the title of the Security; (c) the number of shares or principal amount sold, and accrued interest, if any; (d) the date of sale; (e) the sale price per unit; (f) the total amount payable to the Fund upon such sale; (g) the name of the broker through whom or the person to whom the sale was made, and the name of the clearing broker, if any; and (h) the name of the broker to whom the Securities are to be delivered. The Custodian shall deliver the Securities specifically allocated to such Series to the broker specified in the Certificate against payment of the total amount payable to the Fund upon such sale, provided that the same conforms to the total amount payable as set forth in such Certificate, Oral Instructions or Written Instructions. ARTICLE V OPTIONS 1. Promptly after the purchase of any Option by the Fund, the Fund shall deliver to the Custodian a Certificate specifying with respect to each option purchased: (a) the Series to which such Option is specifically allocated; (b) the type of option (put or call); (c) the name of 8 the issuer and the title and number of shares subject to such option or, in the case of a Stock Index Option, the stock index to which such Option relates and the number of Stock Index Options purchased; (d) the expiration date; (e) the exercise price; (f) the dates of purchase and settlement; (g) the total amount payable by the Fund in connection with such purchase; (h) the name of the Clearing Member through whom such Option was purchased; and (i) the name of the broker to whom payment is to be made. The Custodian shall pay, upon receipt of a Clearing Member's statement confirming the purchase of such Option held by such Clearing Member for the account of the Custodian (or any duly appointed and registered nominee of the Custodian) as custodian for the Fund, out of moneys held for the account of the Series to which such Option is to be specifically allocated, the total amount payable upon such purchase to the Clearing Member through whom the purchase was made, provided that the same conforms to the total amount payable as set forth in such Certificate. 2. Promptly after the sale of any Option purchased by the Fund pursuant to paragraph 1 hereof, the Fund shall deliver to the Custodian a Certificate specifying with respect to each such sale: (a) the Series to which such Option was specifically allocated; (b) the type of Option (put or call); (c) the name of the issuer and the title and number of shares subject to such Option or, in the case of a Stock Index Option, the stock index to which such Option relates and the number of Stock Index Options sold; (d) the date of sale; (e) the sale price; (f) the date of settlement; (g) the total amount payable to the Fund upon such sale; and (h) the name of the Clearing Member through whom the sale was made. The Custodian shall consent to the delivery of the Option sold by the Clearing Member which previously supplied the confirmation described in preceding paragraph 1 of this Article with respect to such Option against payment to the Custodian of the total amount payable to the Fund, provided that the same conforms to the total amount payable as set forth in such Certificate. 3. Promptly after the exercise by the Fund of any Call Option purchased by the Fund pursuant to paragraph 1 hereof, the Fund shall deliver to the Custodian a Certificate specifying with respect to such Call Option: (a) the Series to which such Call Option was specifically allocated; (b) the name of the issuer and the title and number of shares subject to the Call Option; (c) the expiration date; (d) the date of exercise and settlement; (e) the exercise price per share; (f) the total amount to be paid by the Fund upon such exercise; and (g) the name of the Clearing Member through whom such Call Option was exercised. The Custodian shall, upon receipt of the Securities underlying the Call Option which was exercised, pay out of the moneys held for the account of the Series to which such Call option was specifically allocated the total amount payable to the Clearing Member through whom the Call option was exercised, provided that the same conforms to the total amount payable as set forth in such Certificate. 4. Promptly after the exercise by the Fund of any Put Option purchased by the Fund pursuant to paragraph 1 hereof, the Fund shall deliver to the Custodian a Certificate specifying with respect to such Put Option: (a) the Series to which such Put Option was specifically allocated; (b) the name of the issuer and the title and number of shares subject to the Put Option; (c) the expiration date; (d) the date of exercise and settlement; (e) the exercise price per share; (f) the total amount to be paid to the Fund upon such exercise; and (g) the name of the Clearing Member through whom such Put Option was exercised. The Custodian shall, upon receipt of the amount payable upon the exercise of the Put Option, deliver or direct the Depository to deliver 9 the Securities specifically allocated to such Series, provided the same conforms to the amount payable to the Fund as set forth in such Certificate. 5. Promptly after the exercise by the Fund of any Stock Index option purchased by the Fund pursuant to paragraph I hereof, the Fund shall deliver to the Custodian a Certificate specifying with respect to such Stock Index Option: (a) the Series to which such Stock Index option was specifically allocated; (b) the type of Stock Index Option (put or call); (c) the number of Options being exercised; (d) the stock index to which such Option relates; (e) the expiration date; (f) the exercise price; (g) the total amount to be received by the Fund in connection with such exercise; and (h) the Clearing Member from whom such payment is to be received. 6. Whenever the Fund writes a Covered Call option, the Fund shall promptly deliver to the Custodian a Certificate specifying with respect to such Covered Call Option: (a) the Series for which such Covered Call Option was written; (b) the name of the issuer and the title and number of shares for which the Covered Call Option was written and which underlie the same; (c) the expiration date; (d) the exercise price; (e) the premium to be received by the Fund; (f) the date such Covered Call Option was written; and (g) the name of the Clearing Member through whom the premium is to be received. The Custodian shall deliver or cause to be delivered, in exchange for receipt of the premium specified in the Certificate with respect to such Covered Call option, such receipts as are required in accordance with the customs prevailing among Clearing Members dealing in Covered Call options and shall impose, or direct the Depository to impose, upon the underlying Securities specified in the Certificate specifically allocated to such Series such restrictions as may be required by such receipts. Notwithstanding the foregoing, the Custodian has the right, upon prior written notification to the Fund, at any time to refuse to issue any receipts for Securities in the possession of the Custodian and not deposited with the Depository underlying a Covered Call Option. 7. Whenever a Covered Call Option written by the Fund and described in the preceding paragraph of this Article is exercised, the Fund shall promptly deliver to the Custodian a Certificate instructing the Custodian to deliver, or to direct the Depository to deliver, the Securities subject to such Covered Call Option and specifying: (a) the Series for which such Covered Call Option was written; (b) the name of the issuer and the title and number of shares subject to the Covered Call Option; (c) the Clearing Member to whom the underlying Securities are to be delivered; and (d) the total amount payable to the Fund upon such delivery. Upon the return and/or cancellation of any receipts delivered pursuant to paragraph 6 of this Article, the Custodian shall deliver, or direct the Depository to deliver, the underlying securities as specified in the Certificate against payment of the amount to be received as set forth in such Certificate. 8. Whenever the Fund writes a Put Option, the Fund shall promptly deliver to the Custodian a Certificate specifying with respect to such Put Option: (a) the Series for which such Put Option was written; (b) the name of the issuer and the title and number of shares for which the Put Option is written and which underlie the same; (c) the expiration date; (d) the exercise price; (e) the premium to be received by the Fund; (f) the date such Put Option is written; (g) the name of the Clearing Member through whom the premium is to be received and to whom a Put Option guarantee letter is to be delivered; (h) the amount of cash, and/or the amount and kind of Securities, if any, specifically allocated to such Series to be deposited in the Senior Security Account for such Series; and (i) the amount of cash and/or the amount and kind of Securities 10 specifically allocated to such Series to be deposited into the Collateral Account for such Series. The Custodian shall, after making the deposits into the Collateral Account specified in the Certificate, issue a Put Option guarantee letter substantially in the form utilized by the Custodian on the date hereof, and deliver the same to the Clearing Member specified in the Certificate against receipt of the premium specified in said Certificate. Notwithstanding the foregoing, the Custodian shall be under no obligation to issue any Put Option guarantee letter or similar document if it is unable to make any of the representations contained therein. 9. Whenever a Put Option written by the Fund and described in the preceding paragraph is exercised, the Fund shall promptly deliver to the Custodian a Certificate specifying: (a) the Series to which such Put option was written; (b) the name of the issuer and title and number of shares subject to the Put Option; (c) the Clearing Member from whom the underlying Securities are to be received; (d) the total amount payable by the Fund upon such delivery; (e) the amount of cash and/or the amount and kind of Securities specifically allocated to such Series to be withdrawn from the Collateral Account for such Series and (f) the amount of cash and/or the amount and kind of Securities, specifically allocated to such Series, if any, to be withdrawn from the Senior Security Account. Upon the return and/or cancellation of any Put Option guarantee letter or similar document issued by the Custodian in connection with such Put Option, the Custodian shall pay out of the moneys held for the account of the Series to which such Put Option was specifically allocated the total amount payable to the Clearing Member specified in the Certificate as set forth in such Certificate against delivery of such Securities, and shall make the withdrawals specified in such Certificate. 10. Whenever the Fund writes a Stock Index Option, the Fund shall promptly deliver to the Custodian a Certificate specifying with respect to such Stock Index option: (a) the Series for which such Stock Index Option was written; (b) whether such Stock Index Option is a put or a call; (c) the number of options written; (d) the stock index to which such Option relates; (e) the expiration date; (f) the exercise price; (g) the Clearing Member through whom such option was written; (h) the premium to be received by the Fund; (i) the amount of cash and/or the amount and kind of Securities, if any, specifically allocated to such Series to be deposited in the Senior Security Account for such Series; (j) the amount of cash and/or the amount and kind of Securities, if any, specifically allocated to such Series to be deposited in the Collateral Account for such Series; and (k) the amount of cash and/or the amount and kind of Securities, if any, specifically allocated to such Series to be deposited in a Margin Account, and the name in which such account is to be or has been established. The Custodian shall, upon receipt of the premium specified in the Certificate, make the deposits, if any, into the Senior Security Account specified in the Certificate, and either (1) deliver such receipts, if any, which the Custodian has specifically agreed to issue, which are in accordance with the customs prevailing among Clearing Members in Stock Index options and make the deposits into the Collateral Account specified in the Certificate, or (2) make the deposits into the Margin Account specified in the Certificate. 11. Whenever a Stock Index Option written by the Fund and described in the preceding paragraph of this Article is exercised, the Fund shall promptly deliver to the Custodian a Certificate specifying with respect to such Stock Index Option: (a) the Series for which such Stock Index option was written; (b) such information as may be necessary to identify the Stock Index option being exercised; (c) the Clearing Member through whom such Stock Index Option is being exercised; (d) the total amount payable upon such exercise, and whether such amount is 11 to be paid by or to the Fund; (e) the amount of cash and/or amount and kind of Securities, if any, to be withdrawn from the Margin Account; and (f) the amount of cash and/or amount and kind of Securities, if any, to be withdrawn from the Senior Security Account for such Series; and the amount of cash and/or the amount and kind of Securities, if any, to be withdrawn from the Collateral Account for such Series. Upon the return and/or cancellation of the receipt, if any, delivered pursuant to the preceding paragraph of this Article, the Custodian shall pay out of the moneys held for the account of the Series to which such Stock Index Option was specifically allocated to the Clearing Member specified in the Certificate the total amount payable, if any, as specified therein. 12. Whenever the Fund purchases any Option identical to a previously written Option described in paragraphs, 6, 8 or 10 of this Article in a transaction expressly designated as a "Closing Purchase Transaction" in order to liquidate its position as a writer of an Option, the Fund shall promptly deliver to the Custodian a Certificate specifying with respect to the Option being purchased: (a) that the transaction is a Closing Purchase Transaction; (b) the Series for which the Option was written; (c) the name of the issuer and the title and number of shares subject to the Option, or, in the case of a Stock Index option, the stock index to which such Option relates and the number of Options held; (d) the exercise price; (e) the premium to be paid by the Fund; (f) the expiration date; (g) the type of Option (put or call); (h) the date of such purchase; (i) the name of the Clearing Member to whom the premium is to be paid; and (j) the amount of cash and/or the amount and kind of Securities, if any, to be withdrawn from the Collateral Account, a specified Margin Account, or the Senior Security Account for such Series. Upon the Custodian's payment of the premium and the return and/or cancellation of any receipt issued pursuant to paragraphs 6, 8 or 10 of this Article with respect to the Option being liquidated through the Closing Purchase Transaction, the Custodian shall remove, or direct the Depository to remove, the previously imposed restrictions on the Securities underlying the Call Option. 13. Upon the expiration, exercise or consummation of a closing Purchase Transaction with respect to any Option purchased or written by the Fund and described in this Article, the Custodian shall delete such Option from the statements delivered to the Fund pursuant to paragraph 3 Article III herein, and upon the return and/or cancellation of any receipts issued by the Custodian, shall make such withdrawals from the Collateral Account, and the Margin Account and/or the Senior Security Account as may be specified in a Certificate received in connection with such expiration, exercise, or consummation. ARTICLE VI FUTURES CONTRACTS 1. Whenever the Fund shall enter into a Futures Contract, the Fund shall deliver to the Custodian a Certificate specifying with respect to such Futures Contract, (or with respect to any number of identical Futures Contract(s)): (a) the Series for which the Futures Contract is being entered; (b) the category of Futures Contract (the name of the underlying stock index or financial instrument); (c) the number of identical Futures Contracts entered into; (d) the delivery or settlement date of the Futures Contract(s); (e) the date the Futures Contract(s) was (were) entered into and the maturity date; (f) whether the Fund is buying (going long) or selling (going 12 short) on such Futures Contract(s); (g) the amount of cash and/or the amount and kind of Securities, if any, to be deposited in the Senior Security Account for such Series; (h) the name of the broker, dealer, or futures commission merchant through whom the Futures Contract was entered into; and (i) the amount of fee or commission, if any, to be paid and the name of the broker, dealer, or futures commission merchant to whom such amount is to be paid. The Custodian shall make the deposits, if any, to the Margin Account in accordance with the terms and conditions of the Margin Account Agreement. The Custodian shall make payment out of the moneys specifically allocated to such Series of the fee or commission, if any, specified in the Certificate and deposit in the Senior Security Account for such Series the amount of cash and/or the amount and kind of Securities specified in said Certificate. 2. (a) Any variation margin payment or similar payment required to be made by the Fund to a broker, dealer, or futures commission merchant with respect to an outstanding Futures Contract, shall be made by the Custodian in accordance with the terms and conditions of the Margin Account Agreement. (b) Any variation margin payment or similar payment from a broker, dealer, or futures commission merchant to the Fund with respect to an outstanding Futures Contract, shall be received and dealt with by the Custodian in accordance with the terms and conditions of the Margin Account Agreement. 3. Whenever a Futures Contract held by the Custodian hereunder is retained by the Fund until delivery or settlement is made on such Futures Contract, the Fund shall deliver to the Custodian a Certificate specifying: (a) the Futures Contract and the Series to which the same relates; (b) with respect to a Stock Index Futures Contract, the total cash settlement amount to be paid or received, and with respect to a Financial Futures Contract, the Securities and/or amount of cash to be delivered or received; (c) the broker, dealer, or futures commission merchant to or from whom payment or delivery is to be made or received; and (d) the amount of cash and/or Securities to be withdrawn from the Senior Security Account for such Series. The Custodian shall make the payment or delivery specified in the Certificate, and delete such Futures Contract from the statements delivered to the Fund pursuant to paragraph 3 of Article III herein. 4. Whenever the Fund shall enter into a Futures Contract to offset a Futures Contract held by the Custodian hereunder, the Fund shall deliver to the Custodian a Certificate specifying: (a) the items of information required in a Certificate described in paragraph 1 of this Article, and (b) the Futures Contract being offset. The Custodian shall make payment out of the money specifically allocated to such Series of the fee or commission, if any, specified in the Certificate and delete the Futures Contract being offset from the statements delivered to the Fund pursuant to paragraph 3 of Article III herein, and make such withdrawals from the Senior Security Account for such Series as may be specified in such Certificate. The withdrawals, if any, to be made from the Margin Account shall be made by the Custodian in accordance with the terms and conditions of the Margin Account Agreement. 13 ARTICLE VII FUTURES CONTRACT OPTIONS 1. Promptly after the purchase of any Futures Contract Option by the Fund, the Fund shall promptly deliver to the Custodian a Certificate specifying with respect to such Futures Contract Option: (a) the Series to which such option is specifically allocated; (b) the type of Futures Contract Option (put or call); (c) the type of Futures Contract and such other information as may be necessary to identify the Futures Contract underlying the Futures Contract Option purchased; (d) the expiration date; (e) the exercise price; (f) the dates of purchase and settlement; (g) the amount of premium to be paid by the Fund upon such purchase; (h) the name of the broker or futures commission merchant through whom such option was purchased; and (i) the name of the broker, or futures commission merchant, to whom payment is to be made. The Custodian shall pay out of the moneys specifically allocated to such Series, the total amount to be paid upon such purchase to the broker or futures commissions merchant through whom the purchase was made, provided that the same conforms to the amount set forth in such Certificate. 2. Promptly after the sale of any Futures Contract Option purchased by the Fund pursuant to paragraph 1 hereof, the Fund shall promptly deliver to the Custodian a Certificate specifying with respect to each such sale: (a) Series to which such Futures Contract Option was specifically allocated; (b) the type of Future Contract Option (put or call); (c) the type of Futures Contract and such other information as may be necessary to identify the Futures Contract underlying the Futures Contract Option; (d) the date of sale; (e) the sale price; (f) the date of settlement; (g) the total amount payable to the Fund upon such sale; and (h) the name of the broker of futures commission merchant through whom the sale was made. The Custodian shall consent to the cancellation of the Futures Contract Option being closed against payment to the Custodian of the total amount payable to the Fund, provided the same conforms to the total amount payable as set forth in such Certificate. 3. Whenever a Futures Contract Option purchased by the Fund pursuant to paragraph 1 is exercised by the Fund, the Fund shall promptly deliver to the Custodian a Certificate specifying: (a) the Series to which such Futures Contract Option was specifically allocated; (b) the particular Futures Contract Option (put or call) being exercised; (c) the type of Futures Contract underlying the Futures Contract Option; (d) the date of exercise; (e) the name of the broker or futures commission merchant through whom the Futures Contract Option is exercised; (f) the net total amount, if any, payable by the Fund; (g) the amount, if any, to be received by the Fund; and (h) the amount of cash and/or the amount and kind of Securities to be deposited in the Senior Security Account for such Series. The Custodian shall make, out of the moneys and Securities specifically allocated to such Series, the payments, if any, and the deposits, if any, into the Senior Security Account as specified in the Certificate. The deposits, if any, to be made to the Margin Account shall be made by the Custodian in accordance with the terms and conditions of the Margin Account Agreement. 4. Whenever the Fund writes a Futures Contract Option, the Fund shall promptly deliver to the Custodian a Certificate specifying with respect to such Futures Contract option: (a) the Series for which such Futures Contract Option was written; (b) the type of Futures Contract Option (put or call); (c) the type of Futures Contract and such other information as may be neces- 14 sary to identify the Futures Contract underlying the Futures Contract Option; (d) the expiration date; (e) the exercise price; (f) the premium to be received by the Fund; (g) the name of the broker or futures commission merchant through whom the premium is to be received; and (h) the amount of cash and/or the amount and kind of Securities, if any, to be deposited in the Senior Security Account for such Series. The Custodian shall, upon receipt of the premium specified in the Certificate, make out of the moneys and Securities specifically allocated to, such Series the deposits into the Senior Security Account, if any, as specified in the Certificate. The deposits, if any, to be made to the Margin Account shall be made by the Custodian in accordance with the terms and conditions of the Margin Account Agreement. 5. Whenever a Futures Contract Option written by the Fund which is a call is exercised, the Fund shall promptly deliver to the Custodian a Certificate specifying: (a) the Series to which such Futures Contract Option was specifically allocated; (b) the particular Futures Contract Option exercised; (c) the type of Futures Contract underlying the Futures Contract Option; (d) the name of the broker or futures commission merchant through whom such Futures Contract option was exercised; (e) the net total amount, if any, payable to the Fund upon such exercise; (f) the net total amount, if any, payable by the Fund upon such exercise; and (g) the amount of cash and/or the amount and kind of Securities to be deposited in the Senior Security Account for such Series. The Custodian shall, upon its receipt of the net total amount payable to the Fund, if any, specified in such Certificate make the payments, if any, and the deposits, if any, into the Senior Security Account as specified in the Certificate. The deposits, if any, to be made to the Margin Account shall be made by the Custodian in accordance with the terms and conditions of the Margin Account Agreement. 6. Whenever a Futures Contract Option which is written by the Fund and which is a put is exercised, the Fund shall promptly deliver to the Custodian a Certificate specifying: (a) the Series to which such Option was specifically allocated; (b) the particular Futures Contract option exercised; (c) the type of Futures Contract underlying such Futures Contract Option; (d) the name of the broker or futures commission merchant through whom such Futures Contract Option is exercised; (e) the net total amount, if any, payable to the Fund upon such exercise; (f) the net total amount, if any, payable by the Fund upon such exercise; and (g) the amount and kind of Securities and/or cash to be withdrawn from or deposited in, the Senior Security Account for such Series, if any. The Custodian shall, upon its receipt of the net total amount payable to the Fund, if any, specified in the Certificate, make out of the moneys and Securities specifically allocated to such Series, the payments, if any, and the deposits, if any, into the Senior Security Account as specified in the Certificate. The deposits to and/or withdrawals from the Margin Account, if any, shall be made by the Custodian in accordance with the terms and conditions of the Margin Account Agreement. 7. Whenever the Fund purchases any Futures Contract Option identical to a previously written Futures Contract Option described in this Article in order to liquidate its position as a writer of such Futures Contract Option, the Fund shall promptly deliver to the Custodian a Certificate specifying with respect to the Futures Contract Option being purchased: (a) the Series to which such option is specifically allocated; (b) that the transaction is a closing transaction; (c) the type of Future Contract and such other information as may be necessary to identify the Futures Contract underlying the Futures Option Contract; (d) the exercise price; (e) the premium to be paid by the Fund; (f) the expiration date; (g) the name of the broker or futures 15 commission merchant to whom the premium is to be paid; and (h) the amount of cash and/or the amount and kind of Securities, if any, to be withdrawn from the Senior Security Account for such Series. The Custodian shall effect the withdrawals from the Senior Security Account specified in the Certificate. The withdrawals, if any, to be made from the Margin Account shall be made by the Custodian in accordance with the terms and conditions of the Margin Account Agreement. 8. Upon the expiration, exercise, or consummation of a closing transaction with respect to, any Futures Contract Option written or purchased by the Fund and described in this Article, the Custodian shall (a) delete such Futures Contract Option from the statements delivered to the Fund pursuant to paragraph 3 of Article III herein and, (b) make such withdrawals from and/or in the case of an exercise such deposits into the Senior Security Account as may be specified in a Certificate. The deposits to and/or withdrawals from the Margin Account, if any, shall be made by the Custodian in accordance with the terms and conditions of the Margin Account Agreement. 9. Futures Contracts acquired by the Fund through the exercise of a Futures Contract Option described in this Article shall be subject to Article VI hereof. ARTICLE VIII SHORT SALES 1. Promptly after any short sales by any Series of the Fund, the Fund shall promptly deliver to the Custodian a Certificate specifying: (a) the Series for which such short sale was made; (b) the name of the issuer and the title of the Security; (c) the number of shares or principal amount sold, and accrued interest or dividends, if any; (d) the dates of the sale and settlement; (e) the sale price per unit; (f) the total amount credited to the Fund upon such sale, if any, (g) the amount of cash and/or the amount and kind of Securities, if any, which are to be deposited in a Margin Account and the name in which such Margin Account has been or is to be established; (h) the amount of cash and/or the amount and kind of Securities, if any, to be deposited in a Senior Security Account, and (i) the name of the broker through whom such short sale was made. The Custodian shall upon its receipt of a statement from such broker confirming such sale and that the total amount credited to the Fund upon such sale, if any, as specified in the Certificate is held by such broker for the account of the Custodian (or any nominee of the Custodian) as custodian of the Fund, issue a receipt or make the deposits into the Margin Account and the Senior Security Account specified in the Certificate. 2. In connection with the closing-out of any short sale, the Fund shall promptly deliver to the Custodian a Certificate specifying with respect to each such closing out: (a) the Series for which such transaction is being made; (b) the name of the issuer and the title of the Security; (c) the number of shares or the principal amount, and accrued interest or dividends, if any, required to effect such closing-out to be delivered to the broker; (d) the dates of closing- out and settlement; (e) the purchase price per unit; (f) the net total amount payable to the Fund upon such closing-out; (g) the net total amount payable to the broker upon such closing-out; (h) the amount of cash and the amount and kind of Securities to be withdrawn, if any, from the Margin Account; (i) the amount of cash and/or the amount and kind of Securities, if any, to be 16 withdrawn from the Senior Security Account; and (j) the name. of the broker through whom the Fund is effecting such closing-out. The Custodian shall, upon receipt of the net total amount payable to the Fund upon such closing-out, and the return and/ or cancellation of the receipts, if any, issued by the Custodian with respect to the short sale being closed-out, pay out of the moneys held for the account of the Fund to the broker the net total amount payable to the broker, and make the withdrawals from the Margin Account and the Senior Security Account, as the same are specified in the Certificate. ARTICLE IX REVERSE REPURCHASE AGREEMENTS 1. Promptly after the Fund enters a Reverse Repurchase Agreement with respect to Securities and money held by the Custodian hereunder, the Fund shall deliver to the Custodian a Certificate, or in the event such Reverse Repurchase Agreement is a Money Market Security, a Certificate, Oral Instructions, or Written Instructions specifying: (a) the Series for which the Reverse Repurchase Agreement is entered; (b) the total amount payable to the Fund in connection with such Reverse Repurchase Agreement and specifically allocated to such Series; (c) the broker or dealer through or with whom the Reverse Repurchase Agreement is entered; (d) the amount and kind of Securities to be delivered by the Fund to such broker or dealer; (e) the date of such Reverse Repurchase Agreement; and (f) the amount of cash and/or the amount and kind of Securities, if any, specifically allocated to such Series to be deposited in a Senior Security Account for such Series in connection with such Reverse Repurchase Agreement. The Custodian shall, upon receipt of the total amount payable to the Fund specified in the Certificate, Oral Instructions, or Written Instructions make the delivery to the broker or dealer, and the deposits, if any, to the Senior Security Account, specified in such Certificate, Oral Instructions, or Written Instructions. 2. Upon the termination of a Reverse Repurchase Agreement described in preceding paragraph 1 of this Article, the Fund shall promptly deliver a Certificate or, in the event such Reverse Repurchase Agreement is a Money Market Security, a Certificate, Oral Instructions, or Written Instructions to the Custodian specifying: (a) the Reverse Repurchase Agreement being terminated and the Series for which same was entered; (b) the total amount payable by the Fund in connection with such termination; (c) the amount and kind of securities to be received by the Fund and specifically allocated to such Series in connection with such termination; (d) the date of termination; (e) the name of the broker or dealer with or through whom the Reverse Repurchase Agreement is to be terminated; and (f) the amount of cash and/or the amount and kind of Securities to be withdrawn from the Senior securities Account for such series. The Custodian shall, upon receipt of the amount and kind of Securities to be received by the Fund specified in the Certificate, Oral Instructions, or Written Instructions, make the payment to the broker or dealer, and the withdrawals, if any, from the Senior Security Account, specified in such Certificate, Oral Instructions, or Written Instructions. 17 ARTICLE X LOAN OF PORTFOLIO SECURITIES OF THE FUND 1. Promptly after each loan of portfolio Securities specifically allocated to a Series held by the Custodian hereunder, the Fund shall deliver or cause to be delivered to the Custodian a Certificate specifying with respect to each such loan: (a) the Series to which the loaned Securities are specifically allocated; (b) the name of the issuer and the title of the Securities, (c) the number of shares or the principal amount loaned, (d) the date of loan and delivery, (e) the total amount to be delivered to the Custodian against the loan of the Securities, including the amount of cash collateral and the premium, if any, separately identified, and (f) the name of the broker, dealer, or financial institution to which the loan was made. The Custodian shall deliver the Securities thus designated to the broker, dealer or financial institution to which the loan was made upon receipt of the total amount designated as to be delivered against the loan of Securities. The Custodian may accept payment in connection with a delivery otherwise than through the Book-Entry System or Depository only in the form of a certified or bank cashier's check payable to the order of the Fund or the Custodian drawn on New York Clearing House funds and may deliver Securities in accordance with the customs prevailing among dealers in securities. 2. Promptly after each termination of the loan of Securities by the Fund, the Fund shall deliver or cause to be delivered to the Custodian a Certificate specifying with respect to each such loan termination and return of Securities: (a) the Series to which the loaned Securities are specifically allocated; (b) the name of the issuer and the title of the Securities to be returned, (c) the number of shares or the principal amount to be returned, (d) the date of termination, (e) the total amount to be delivered by the Custodian (including the cash collateral for such Securities minus any offsetting credits as described in said Certificate), and (f) the name of the broker, dealer, or financial institution from which the Securities will be returned. The Custodian shall receive all Securities returned from the broker, dealer, or financial institution to which such Securities were loaned and upon receipt thereof shall pay, out of the moneys held for the account of the Fund, the total amount payable upon such return of Securities as set forth in the Certificate. ARTICLE XI CONCERNING MARGIN ACCOUNTS, SENIOR SECURITY ACCOUNTS, AND COLLATERAL ACCOUNTS 1. The Custodian shall, from time to time, make such deposits to, or withdrawals from, a Senior Security Account as specified in a Certificate received by the Custodian. Such Certificate shall specify the Series for which such deposit or withdrawal is to be made and the amount of cash and/or the amount and kind of Securities specifically allocated to such Series to be deposited in, or withdrawn from, such Senior Security Account for such Series. In the event that the Fund fails to specify in a Certificate the Series, the name of the issuer, the title and the number of shares or the principal amount of any particular Securities to be deposited by the Custodian into, or withdrawn from, a Senior Securities Account, the Custodian shall be under no obligation to make any such deposit or withdrawal and shall so notify the Fund. 18 2. The Custodian shall make deliveries or payments from a Margin Account to the broker, dealer, futures commission merchant or Clearing Member in whose name, or for whose benefit, the account was established as specified in the Margin Account Agreement. 3. Amounts received by the Custodian as payments or distributions with respect to Securities deposited in any margin Account shall be dealt with in accordance with the terms and conditions of the Margin Account Agreement. 4. The Custodian shall have a continuing lien and security interest in and to any property at any time held by the Custodian in any Collateral Account described herein. In accordance with applicable law the Custodian may enforce its lien and realize on any such property whenever the Custodian has made payment or delivery pursuant to any Put Option guarantee letter or similar document or any receipt issued hereunder by the Custodian. In the event the Custodian should realize on any such property net proceeds which are less than the Custodian's obligations under any Put Option guarantee letter or similar document or any receipt, such deficiency shall be a debt owed the Custodian by the Fund within the scope of Article XIV herein. 5. On each business day the Custodian shall furnish the Fund with a statement with respect to each Margin Account in which money or Securities are held specifying as of the close of business on the previous business day: (a) the name of the Margin Account; (b) the amount and kind of Securities held therein; and (c) the amount of money held therein. The Custodian shall make available upon request to any broker, dealer, or futures commission merchant specified in the name of a Margin Account a copy of the statement furnished the Fund with respect to such Margin Account. 6. Promptly after the close of business on each business day in which cash and/or Securities are maintained in a Collateral Account for any Series, the Custodian shall furnish the Fund with a statement with respect to such Collateral Account specifying the amount of cash and/or the amount and kind of Securities held therein. No later than the close of business next succeeding the delivery to the Fund of such statement, the Fund shall furnish to the Custodian a Certificate or Written Instructions specifying the then market value of the Securities described in such statement. In the event such then market value is indicated to be less than the Custodian's obligation with respect to any outstanding Put Option guarantee letter or similar document, the Fund shall promptly specify in a Certificate the additional cash and/or Securities to be deposited in such Collateral Account to eliminate such deficiency. ARTICLE XII PAYMENT OF DIVIDENDS OR DISTRIBUTIONS 1. The Fund shall furnish to the Custodian a copy of the resolution of the Board of Directors of the Fund, certified by the Secretary or any Assistant Secretary, either (i) setting forth with respect to the Series specified therein the date of the declaration of a dividend or distribution, the date of payment thereof, the record date as of which shareholders entitled to payment shall be determined, the amount payable per Share of such Series to the shareholders of record as of that date and the total amount payable to the Dividend Agent and any sub-dividend 19 agent or co-dividend agent of the Fund on the payment date, or (ii) authorizing with respect to the Series specified therein the declaration of dividends and distributions on a daily basis and authorizing the Custodian to rely on Oral Instructions, Written Instructions or a Certificate setting forth the date of the declaration of such dividend or distribution, the date of payment thereof, the record date as of which shareholders entitled to payment shall be determined, the amount payable per Share of such Series to the shareholders of record as of that date and the total amount payable to the Dividend Agent on the payment date. 2. Upon the payment date specified in such resolution, Oral Instructions, Written Instructions or Certificate, as the case may be, the Custodian shall pay out of the moneys held for the account of each Series the total amount payable to the Dividend Agent and any sub-dividend agent or co-dividend agent of the Fund with respect to such Series. ARTICLE XIII SALE AND REDEMPTION OF SHARES 1. Whenever the Fund shall sell any Shares, it shall deliver to the Custodian a Certificate duly specifying: (a) The Series, the number of Shares sold, trade date, and price; and (b) The amount of money to be received by the Custodian for the sale of such Shares and specifically allocated to the separate account in the name of such Series. 2. Upon receipt of such money from the Transfer Agent, the Custodian shall credit such money to the separate account in the name of the Series for which such money was received. 3. Upon issuance of any Shares of any Series described in the foregoing provisions of this Article, the Custodian shall pay, out of the money held for the account of such Series, all original issue or other taxes required to be paid by the Fund in connection with such issuance 'Upon the receipt of a Certificate specifying the amount to be paid. 4. Except as provided hereinafter, whenever the Fund desires the Custodian to make payment out of the money held by the Custodian hereunder in connection with a redemption of any Shares, it shall furnish to the Custodian a Certificate specifying: (a) The number and Series of Shares redeemed; and (b) The amount to be paid for such Shares. 5. Upon receipt from the Transfer Agent of an advice setting forth the Series and number of Shares received by the Transfer Agent for redemption and that such Shares are in good form for redemption, the Custodian shall make payment to the Transfer Agent out of the moneys held in the separate account in the name of the Series the total amount specified in the Certificate issued pursuant to the foregoing paragraph 4 of this Article. 20 6. Notwithstanding the above provisions regarding the redemption of any Shares, whenever any Shares are redeemed pursuant to any check redemption privilege which may from time to time be offered by the Fund, the Custodian, unless otherwise instructed by a Certificate, shall, upon receipt of an advice from the Fund or its agent setting forth that the redemption is in good form for redemption in accordance with the check redemption procedure, honor the check presented as part of such check redemption privilege out of the moneys held in the separate account of the Series of the Shares being redeemed. ARTICLE XIV OVERDRAFTS OR INDEBTEDNESS 1. If the Custodian, should in its sole discretion advance funds on behalf of any Series which results in an overdraft because the moneys held by the Custodian in the separate account for such Series shall be insufficient to pay the total amount payable upon a purchase of Securities specifically allocated to such Series, as set forth in a Certificate, Oral Instructions, or Written Instructions or which results in an overdraft in the separate account of such Series for some other reason, or if the Fund is for any other reason indebted to the Custodian with respect to a Series, including any indebtedness to The Bank of New York under the Fund's Cash Management and Related Services Agreement, (except a borrowing for investment or for temporary or emergency purposes using Securities as collateral pursuant to a separate agreement and subject to the provisions of paragraph 2 of this Article), such overdraft or indebtedness shall be deemed to be a loan made by the Custodian to the Fund for such Series payable on demand and shall bear interest from the date incurred at a rate per annum (based on a 360-day year for the actual number of days involved) equal to 1/2% over Custodian's prime commercial lending rate in effect from time to time, such rate to be adjusted on the effective date of any change in such prime commercial lending rate but in no event to be less than 6% per annum. In addition, the Fund hereby agrees that the Custodian shall have a continuing lien and security interest in and to any property specifically allocated to such Series at any time held by it for the benefit of such Series or in which the Fund may have an interest which is then in the Custodian's possession or control or in possession or control of any third party acting in the Custodian's behalf. The Fund authorizes the Custodian, in its sole discretion, at any time to charge any such overdraft or indebtedness together with interest due thereon against any balance of account standing to such Series' credit on the Custodian's books. In addition, the Fund hereby covenants that on each Business Day on which either it intends to enter a Reverse Repurchase Agreement and/or otherwise borrow from a third party, or which next succeeds a Business Day on which at the close of business the Fund had outstanding a Reverse Repurchase Agreement or such a borrowing, it shall prior to 9 a.m., New York City time, advise the Custodian, in writing, of each such borrowing, shall specify the Series to which the same relates, and shall not incur any indebtedness not so specified other than from the Custodian. 2. The Fund will cause to be delivered to the Custodian by any bank (including, if the borrowing is pursuant to a separate agreement, the Custodian) from which it borrows money for investment or for temporary or emergency purposes using Securities held by the Custodian hereunder as collateral for such borrowings, a notice or undertaking in the form currently employed by any such bank setting forth the amount which such bank will loan to the Fund against delivery of a stated amount of collateral. The Fund shall promptly deliver to the 21 Custodian a Certificate specifying with respect to each such borrowing: (a) the Series to which such borrowing relates; (b) the name of the bank, (c) the amount and terms of the borrowing, which may be set forth by incorporating by reference an attached promissory note, duly endorsed by the Fund, or other loan agreement, (d) the time and date, if known, on which the loan is to be entered into, (e) the date on which the loan becomes due and payable, (f) the total amount payable to the Fund on the borrowing date, (g) the market value of Securities to be delivered as collateral for such loan, including the name of the issuer, the title and the number of shares or the principal amount of any particular Securities, and (h) a statement specifying whether such loan is for investment purposes or for temporary or emergency purposes and that such loan is in conformance with the Investment Company Act of 1940 and the Fund's prospectus. The Custodian shall deliver on the borrowing date specified in a Certificate the specified collateral and the executed promissory note, if any, against delivery by the lending bank of the total amount of the loan payable, provided that the same conforms to the total amount payable as set forth in the Certificate. The Custodian may, at the option of the lending bank, keep such collateral in its possession, but such collateral shall be subject to all rights therein given the lending bank by virtue of any promissory note or loan agreement. The Custodian shall, deliver such Securities as additional collateral as may be specified in a Certificate to collateralize further any transaction described in this paragraph. The Fund shall cause all Securities released from collateral status to be returned directly to the Custodian, and the Custodian shall receive from time to time such return of collateral as may be tendered to it. In the event that the Fund fails to specify in a Certificate the Series, the name of the issuer, the title and number of shares or the principal amount of any particular Securities to be delivered as collateral by the Custodian, the Custodian shall not be under any obligation to deliver any Securities. ARTICLE XV CONCERNING THE CUSTODIAN 1. Except as hereinafter provided, neither the Custodian nor its nominee shall be liable for any loss or damage, including counsel fees, resulting from its action or omission to act or otherwise, either hereunder or under any Margin Account Agreement, except for any such loss or damage arising out of its own negligence or willful misconduct. In no event shall the Custodian be liable to the Fund or any third party for special, indirect or consequential damages or lost profits or loss of business, arising under or in connection with this Agreement, even if previously informed of the possibility of such damages and regardless of the form of action. The Custodian may, with respect to questions of law arising hereunder or under any Margin Account Agreement, apply for and obtain the advice and opinion of counsel to the Fund or of its own counsel, at the expense of the Fund, and shall be fully protected with respect to anything done or omitted by it in good faith in conformity with such advice or opinion. The Custodian shall be liable to the Fund for any loss or damage resulting from the use of the Book-Entry System or any Depository arising by reason of any negligence or willful misconduct on the part of the Custodian or any of its employees or agents. 2. Without limiting the generality of the foregoing, the Custodian shall be under no obligation to inquire into, and shall not be liable for: 22 (a) The validity of the issue of any Securities purchased, sold, or written by or for the Fund, the legality of the purchase, sale or writing thereof, or the propriety of the amount paid or received therefor; (b) The legality of the sale or redemption of any Shares, or the propriety of the amount to be received or paid therefor; (c) The legality of the declaration or payment of any dividend by the Fund; (d) The legality of any borrowing by the Fund using Securities as collateral; (e) The legality of any loan of portfolio Securities, nor shall the Custodian be under any duty or obligation to see to it that any cash collateral delivered to it by a broker, dealer, or financial institution or held by it at any time as a result of such loan of portfolio Securities of the Fund is adequate collateral for the Fund against any loss it might sustain as a result of such loan. The Custodian specifically, but not by way of limitation, shall not be under any duty or obligation periodically to check or notify the Fund that the amount of such cash collateral held by it for the Fund is sufficient collateral for the Fund, but such duty or obligation shall be the sole responsibility of the Fund. In addition, the Custodian shall be under no duty or obligation to see that any broker, dealer or financial institution to which portfolio Securities of the Fund are lent pursuant to Article XIV of this Agreement makes payment to it of any dividends or interest which are payable to or for the account of the Fund during the period of such loan or at the termination of such loan, provided, however, that the Custodian shall promptly notify the Fund in the event that such dividends or interest are not paid and received when due; or (f) The sufficiency or value of any amounts of money and/or Securities held in any Margin Account, Senior Security Account or Collateral Account in connection with transactions by the Fund. In addition, the Custodian shall be under no duty or obligation to see that any broker, dealer, futures commission merchant or Clearing Member makes payment to the Fund of any variation margin payment or similar payment which the Fund may be entitled to receive from such broker, dealer, futures commission merchant or Clearing Member, to see that any payment received by the Custodian from any broker, dealer, futures commission merchant or Clearing Member is the amount the Fund is entitled to receive, or to notify the Fund of the Custodian's receipt or non-receipt of any such payment. 3. The Custodian shall not be liable for, or considered to be the Custodian of, any money, whether or not represented by any check, draft, or other instrument for the payment of money, received by it on behalf of the Fund until the Custodian actually receives and collects such money directly or by the final crediting of the account representing the Fund's interest at the Book-Entry System or the Depository. 4. The Custodian shall have no responsibility and shall not be liable for ascertaining or acting upon any calls, conversions, exchange offers, tenders, interest rate changes or similar matters relating to Securities held in the Depository, unless the Custodian shall have actually received timely notice from the Depository. In no event shall the Custodian have any responsibility or liability for the failure of the Depository to collect, or for the late collection or 23 late crediting by the Depository of any amount payable upon Securities deposited in the Depository which may mature or be redeemed, retired, called or otherwise become payable. However, upon receipt of a Certificate from the Fund of an overdue amount on Securities held in the Depository the Custodian shall make a claim against the Depository on behalf of the Fund, except that the Custodian shall not be under any obligation to appear in, prosecute or defend any action suit or proceeding in respect to any Securities held by the Depository which in its opinion may involve it in expense or liability, unless indemnity satisfactory to it against all expense and liability be furnished as often as may be required. 5. The Custodian shall not be under any duty or obligation to take action to effect collection of any amount due to the Fund from the Transfer Agent of the Fund nor to take any action to effect payment or distribution by the Transfer Agent of the Fund of any amount paid by the Custodian to the Transfer Agent of the Fund in accordance with this Agreement. 6. The Custodian shall not be under any duty or obligation to take action to effect collection of any amount, if the securities upon which such amount is payable are in default, or if payment is refused after due demand or presentation, unless and until (i) it shall be directed to take such action by a Certificate and (ii) it shall be assured to its satisfaction of reimbursement of its costs and expenses in connection with any such action. 7. The Custodian may appoint one or more banking institutions as Depository or Depositories, as Sub-Custodian or Sub-Custodians, or as Co-Custodian or Co- Custodians including, but not limited to, banking institutions located in foreign countries, of Securities and moneys at any time owned by the Fund, upon such terms and conditions as may be approved in a Certificate or contained in an agreement executed by the Custodian, the Fund and the appointed institution. 8. The Custodian shall not be under any duty or obligation (a) to ascertain whether any Securities at any time delivered to, or held by it, for the account of the Fund and specifically allocated to a Series are such as properly may be held by the Fund or such Series under the provisions of its then current prospectus, or (b) to ascertain whether any transactions by the Fund, whether or not involving the. Custodian, are such transactions as may properly be engaged in by the Fund. 9. The Custodian shall be entitled to receive and the Fund agrees to pay to the Custodian all out-of-pocket expenses and such compensation as may be agreed upon from time to time between the Custodian and the Fund. The Custodian may charge such compensation and any expenses with respect to a Series incurred by the Custodian in the performance of its duties pursuant to such agreement against any money specifically allocated to such Series. Unless and until the Fund instructs the Custodian by a Certificate to apportion any loss, damage, liability or expense among the Series in a specified manner, the Custodian shall also be entitled to charge against any money held by it for the account of a Series such Series' pro rata share (based on such Series net asset value at the time of the charge to the aggregate net asset value of all Series at that time) of the amount of any loss, damage, liability or expense, including counsel fees, for which it shall be entitled to reimbursement under the provisions of this Agreement. The expenses for which the Custodian shall be entitled to reimbursement hereunder shall include, but are not limited to, the expenses of sub-custodians and foreign branches of the Custodian incurred in 24 settling outside of New York City transactions involving the purchase and sale of Securities of the Fund. 10. The Custodian shall be entitled to rely upon any Certificate, notice or other instrument in writing received by the Custodian and reasonably believed by the Custodian to be a Certificate. The Custodian shall be entitled to rely upon any Oral Instructions and any Written Instructions actually received by the Custodian hereinabove provided for. The Fund agrees to forward to the Custodian a Certificate or facsimile thereof confirming such Oral Instructions or Written Instructions in such manner so that such Certificate or facsimile thereof is received by the Custodian, whether by hand delivery, telecopier or other similar device, or otherwise, by the close of business of the same day that such Oral Instructions or Written Instructions are given to the Custodian. The Fund agrees that the fact that such confirming instructions are not received by the Custodian shall in no way affect the validity of the transactions or enforceability of the transactions hereby authorized by the Fund. The Fund agrees that the Custodian shall incur no liability to the Fund in acting upon Oral Instructions or Written Instructions given to the Custodian hereunder concerning such transactions provided such instructions reasonably appear to have been received from an Authorized Person. 11. The Custodian shall be entitled to rely upon any instrument, instruction or notice received by the Custodian and reasonably believed by the Custodian to be given in accordance with the terms and conditions of any Margin Account Agreement. Without limiting the generality of the foregoing, the Custodian shall be under no duty to inquire into, and shall not be liable for, the accuracy of any statements or representations contained in any such instrument or other notice including, without limitation, any specification of any amount to be paid to a broker, dealer, futures commission merchant or Clearing Member. 12. The books and records pertaining to the Fund which are in the possession of the Custodian shall be the property of the Fund. Such books and records shall be prepared and maintained as required by the Investment Company Act of 1940, as amended, and other applicable securities laws and rules and regulations. The Fund, or the Fund's authorized representatives, shall have access to such books and records during the Custodian's normal business hours. Upon the reasonable request of the Fund, copies of any such books and records shall be Provided by the Custodian to the Fund or the Fund's authorized representative, and the Fund shall reimburse the Custodian its expenses of providing such copies. Upon reasonable request of the Fund, the Custodian shall provide in hard copy or on microfilm, whichever the Custodian elects, any records included in any such delivery which are maintained by the Custodian on a computer disc, or are similarly maintained, and the Fund shall reimburse the Custodian for its expenses of providing such hard copy or micro-film. 13. The Custodian shall provide the Fund with any report obtained by the Custodian on the system of internal accounting control of the Book-Entry System, the Depository or O.C.C., and with such reports on its own systems of internal accounting control as the Fund may reasonably request from time to time. 14. The Fund agrees to indemnify the Custodian against and save the Custodian harmless from all liability, claims, losses and demands whatsoever, including attorney's fees, howsoever arising or incurred because of or in connection with this Agreement except for any 25 such liability, claim, loss and demand arising out of the Custodian's own negligence or willful misconduct. 15. Subject to the foregoing provisions of this Agreement, the Custodian may deliver and receive Securities, and receipts with respect to such Securities, and arrange for payments to be made and received by the Custodian in accordance with the customs prevailing from time to time among brokers or dealers in such Securities. When the Custodian is instructed to deliver Securities against payment, delivery of such Securities and receipt of payment therefor may not be completed simultaneously. The Fund assumes all responsibility and liability for all credit risks involved in connection with the Custodian's delivery of securities pursuant to instructions of the Fund, which responsibility and liability shall continue until final payment in full has been received by the Custodian. 16. The Custodian shall have no duties or responsibilities whatsoever except such duties and responsibilities as are specifically set forth in this Agreement, and no covenant or obligation shall be implied in this Agreement against the Custodian. ARTICLE XVI TERMINATION 1. Either of the parties hereto may terminate this Agreement by giving to the other party a notice in writing specifying the date of such termination, which shall be not less than ninety (90) days after the date of giving of such notice. In the event such notice is given by the Fund, it shall be accompanied by a copy of a resolution of the Board of Directors of the Fund, certified by the Secretary or any Assistant Secretary, electing to terminate this Agreement and designating a successor custodian or custodians, each of which shall be a bank or trust company having not less than $2,000,000 aggregate capital, surplus and undivided profits. In the event such notice. is given by the Custodian, the Fund shall, on or before the termination date, deliver to the Custodian a copy of a resolution of the Board of Directors of the Fund, certified by the Secretary or any Assistant Secretary, designating a successor custodian or custodians. In the absence of such designation by the Fund, the Custodian may designate a successor custodian which shall be a bank or trust company having not less than $2,000,000 aggregate capital, surplus and undivided profits. Upon the date set forth in such notice this Agreement shall terminate, and the Custodian shall upon receipt of a notice of acceptance by the successor custodian. on that date deliver directly to the successor custodian all Securities and moneys then owned by the Fund and held by it as Custodian, after deducting all fees, expenses and other amounts for the payment or reimbursement of which it shall then be entitled. 2. If a successor custodian is not designated by the Fund or the Custodian in accordance with the preceding paragraph, the Fund shall upon the date specified in the notice of termination of this Agreement and upon the delivery by the Custodian of all Securities (other than Securities held in the Book-Entry System which cannot be delivered to the Fund) and moneys then owned by the Fund be deemed to be its own custodian and the Custodian shall thereby be relieved of all duties and responsibilities pursuant to this Agreement, other than the duty with respect to Securities held in the Book Entry System which cannot be delivered to the Fund to hold such Securities hereunder in accordance with this Agreement. 26 ARTICLE XVII MISCELLANEOUS 1. Annexed hereto as Appendix A is a certificate signed by two of the present Officers of the Fund under its corporate seal, setting forth the names and the signatures of the present Authorized Persons. The Fund agrees to furnish to the Custodian a new Certificate in similar form in the event that any such present Authorized Person ceases to be an Authorized Person or in the event that other or additional Authorized Persons are elected or appointed. Until such new Certificate shall be received, the Custodian shall be fully protected in acting under the provisions of this Agreement upon Oral Instructions or signatures of the present Authorized Persons as set forth in the last delivered Certificate. 2. Annexed hereto as Appendix B is a Certificate signed by two of the present Officers of the Fund under its corporate seal, setting forth the names and the signatures of the present Officers of the Fund. The Fund agrees to furnish to the Custodian a new Certificate in similar form in the event any such present Officer ceases to be an Officer of the Fund, or in the event that other or additional Officers are elected or appointed. Until such new Certificate shall be received, the Custodian shall be fully protected in acting under the provisions of this Agreement upon the signatures of the Officers as set forth in the last delivered Certificate. 3. Any notice or other instrument in writing, authorized or required by this Agreement to be given to the Custodian, shall be sufficiently given if addressed to the Custodian and mailed or delivered to it at its offices at 90 Washington Street, New York, New York 10286, or at such other place as the Custodian may from time to time designate in writing. 4. Any notice or other instrument in writing, authorized or required by this Agreement to be given to the Fund shall be sufficiently given if addressed to the Fund and mailed or delivered to it at its office at the address for the Fund first above written, or at such other place as the Fund may from time to time designate in writing. 5. This Agreement may not be amended or modified in any manner except by a written agreement executed by both parties with the same formality as this Agreement and approved by a resolution of the Board of Directors of the Fund. 6. This Agreement shall extend to and shall be binding upon the parties hereto, and their respective successors and assigns; provided, however, that this Agreement shall not be assignable by the Fund without the written consent of the Custodian, or by the Custodian without the written consent of the Fund, authorized or approved by a resolution of the Fund's Board of Directors. 7. This Agreement shall be construed in accordance with the laws of the State of New York without giving effect to conflict of laws principles thereof. Each party hereby consents to the jurisdiction of a state or federal court situated in New York City, New York in connection with any dispute arising hereunder and hereby waives its right to trial by jury. 27 8. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but such counterparts shall, together, constitute only one instrument. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective corporate officers, thereunto duly authorized and their respective corporate seals to be hereunto affixed, as of the day and year first above written. MuniYield New York Insured Fund, Inc. [SEAL] By: ______________________________ Attest: ___________________________ THE BANK OF NEW YORK [SEAL] By: ______________________________ Attest: ___________________________ 28 APPENDIX A I, ________________ of MuniYield New York Insured Fund, Inc., a Maryland corporation do hereby certify that: The following individuals have been duly authorized by the Board of Directors of the Fund in conformity with the Fund's Articles of Incorporation and By-Laws to give Oral Instructions and Written Instructions on behalf of the Fund, and the . signatures set forth opposite their respective names are their true and correct signatures: Name Signature __________________________ _____________________________________ 29 APPENDIX B I, ____________________, and I, ____________________, of MuniYield New York Insured Fund, Inc., a Maryland corporation (the "Fund"), do hereby certify that: The following individuals serve in the following positions with the Fund and each has been duly elected or appointed by the Board of Directors of the Fund to each such position and qualified therefor in conformity with the Fund's Articles of Incorporation and By-Laws, and the signatures set forth opposite their respective names are their true and correct signatures: Name Position Signature __________________ ____________________ ________________________ 30 APPENDIX C I, _____________________, a Vice President with THE BANK OF NEW YORK do hereby designate the following publications: The Bond Buyer Depository Trust Company Notices Financial Daily Card Service JJ Kenney Municipal Bond Service London Financial Times New York Times Standard & Poor's Called Bond Record Wall Street Journal 31 EXHIBIT A CERTIFICATION The undersigned, _________________________, hereby certifies that he is the duly elected and acting _______________ of MuniYield New York Insured Fund, Inc., a Maryland corporation (the "Fund"), and further certifies that the following resolution was adopted by the Board of Directors of the Fund at a meeting duly held on ____________ __, 1992, at which a quorum was at all times present and that such resolution has not been modified or rescinded and is in full force and effect as of the date hereof. RESOLVED, that The Bank of New York, as Custodian pursuant to a Custody Agreement between The Bank of New York and the Fund dated as of ____________ __, 1992, (the "Custody Agreement") is authorized and instructed on a continuous and ongoing basis to deposit in the Book-Entry System, as defined in the Custody Agreement, all securities eligible for deposit therein, regardless of the Series to which the same are specifically allocated, and to utilize the Book-Entry System to the extent possible in connection with its performance thereunder, including, without limitation, in connection with settlements of purchases and sales of securities, loans of securities, and deliveries and returns of securities collateral. IN WITNESS WHEREOF, I have hereunto set my hand and the seal of __________, as of the ____ day of January, 1992. _______________________ [SEAL] 32 EXHIBIT B CERTIFICATION The undersigned, _________________, I hereby certifies that he is the duly elected and acting ________________ of MuniYield New York Insured Fund, Inc., a Maryland corporation (the "Fund"), and further certifies that the following resolution was adopted by the Board of Directors of the Fund at a meeting duly held on __________ __, 1992, at which a quorum was at all times present and that such resolution has not been modified or rescinded and is in full force and effect as of the date hereof. RESOLVED, that The Bank of New York, as Custodian pursuant to a Custody Agreement between The Bank of New York and the Fund dated as of ____________ __, 1992, (the "Custody Agreement") is authorized and instructed on a continuous and ongoing basis until such time as it receives a Certificate, as defined in the Custody Agreement, to the contrary to deposit in the Depository, as defined in the Custody Agreement, all securities eligible for deposit therein, regardless of the Series to which the same are specifically allocated, and to utilize the Depository to the extent possible in connection with its performance thereunder, including, without limitation, in connection with settlements of purchases and sales of securities, loans of securities, and deliveries and returns of securities collateral. IN WITNESS WHEREOF, I have hereunto set my hand and the seal of ____________, as of the __ day of ____________, 1992. _______________________ [SEAL] 33 EXHIBIT B-1 CERTIFICATION The undersigned, ______________, hereby certifies that he or she is the duly elected and acting _______________ of MuniYield New York Insured Fund, Inc., a Maryland corporation, (the "Fund"), and further certifies that the following resolution was adopted by the Board of Trustees of the Fund at a meeting duly held on ________________, __, 1992, at which a quorum was at all times present and that such resolution has not been modified or rescinded and is in full force and effect as of the date hereof. RESOLVED, that The Bank of New York, as Custodian pursuant to a Custody Agreement between The Bank of New York and the Fund dated as of __________ __, 1992, (the "Custody Agreement") is authorized and instructed on a continuous and ongoing basis until such time as it receives a Certificate, as defined in the Custody Agreement, to the contrary to deposit in the Participants Trust Company as Depository, as defined in the Custody Agreement, all securities eligible for deposit therein, regardless of the Series to which the same are specifically allocated, and to utilize the Participants Trust Company to the extent possible in connection with its performance thereunder, including, without limitation, in connection with settlements of purchases and sales of securities, loans of securities, and deliveries and returns of securities collateral. IN WITNESS WHEREOF, I have hereunto set my hand and the seal of __________, as of the ___ day of ___________, 1992. _______________________ [SEAL] 34 EXHIBIT C CERTIFICATION The undersigned, ______________, hereby certifies that he is the duly elected and acting ________________ of MuniYield New York Insured Fund, Inc., a Maryland corporation (the "Fund"), and further certifies that the following resolution was adopted by the Board of Directors of the Fund at a meeting duly held on _________________ __, 1992, at which a quorum was at all times present and that such resolution has not been modified or rescinded and is in full force and effect as of the date hereof. RESOLVED, that The Bank of Mew York, as Custodian pursuant to a Custody Agreement between The Bank of New York and the Fund dated as of __________ __, 1992, (the "Custody Agreement") is authorized and instructed on a continuous and ongoing basis until such time as it receives a Certificate, as defined in the Custody Agreement, to the contrary, to accept, utilize and act with respect to Clearing Member confirmations for options and transaction in Options, regardless of the Series to which the same are specifically allocated, as such terms are defined in the Custody Agreement, as provided in the Custody Agreement. IN WITNESS WHEREOF, I have hereunto set my hand and the seal of __________, as of the __ day of ____________, 1992. _______________________ [SEAL] 35 EX-99.11 11 OPINION AND CONSENT OF BROWN & WOOD LLP EXHIBIT 11 BROWN & WOOD LLP ONE WORLD TRADE CENTER NEW YORK, N.Y. 10048-0557 TELEPHONE: 212-839-5300 FACSIMILE: 212-839-5599 November 9, 1999 MuniYield New York Insured Fund, Inc. 800 Scudders Mill Road Plainsboro, New Jersey 08536 Ladies and Gentlemen: We have acted as counsel for MuniYield New York Insured Fund, Inc. (the "Fund") in connection with the proposed acquisition by the Fund of substantially all of the assets and the assumption by the Fund of substantially all of the liabilities of MuniYield New York Insured Fund II, Inc. ("New York Insured II"), in exchange for newly-issued shares of common stock and auction market preferred stock of the Fund (collectively the "Reorganization"). This opinion is furnished in connection with the Fund's Registration Statement on Form N-14 under the Securities Act of 1933, as amended (File No. 333-88423) (the "Registration Statement"), relating to shares of common stock and auction market preferred stock of the Fund, each par value $0.10 per share (the "Shares"), to be issued in the Reorganization. As counsel for the Fund, we are familiar with the proceedings taken by it and to be taken by it in connection with the authorization, issuance and sale of the Shares. In addition, we have examined and are familiar with the Articles of Incorporation of the Fund, as amended and supplemented, the By-Laws of the Fund, as amended, and such other documents as we have deemed relevant to the matters referred to in this opinion. Based upon the foregoing, we are of the opinion that subsequent to the approval of the Agreement and Plan of Reorganization between the Fund and New York Insured II set forth in the joint proxy statement and prospectus constituting a part of the Registration Statement (the "Proxy Statement and Prospectus"), the Shares, upon issuance in the manner referred to in the Registration Statement, for consideration not less than the par value thereof, will be legally issued, fully paid and non-assessable shares of common stock or auction market preferred stock, as the case may be, of the Fund. LOS ANGELES . SAN FRANCISCO . WASHINGTON . BEIJING . TOKYO REPRESENTATIVE OFFICE AFFILIATED WITH BROWN & WOOD, A MULTINATIONAL PARTNERSHIP WITH OFFICES IN LONDON AND HONG KONG 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 EX-99.13A 12 TRANSFER AGENCY, DIVIDEND DISBURSING AGENCY AGREEMENT, made as of ___________, between MuniYield New York Insured Fund, Inc. a corporation organized and existing under the laws of the state of Massachusetts (hereinafter referred to as the "Customer"), and The Bank of New York, a New York trust company (hereinafter referred to as the "Bank"). W I T N E S S E T H: That for and in consideration of the mutual promises hereinafter set forth, the parties hereto covenant and agree as follows: ARTICLE I DEFINITIONS ----------- Whenever used in this Agreement, the following words and phrases shall have the following meanings: 1. "Business Day" shall be deemed to be each day on which the Bank is open for business. 2. "Certificate" shall mean any notice, instruction, or other instrument in writing, authorized or required by this Agreement to be given to the Bank by the Customer which is signed by any Officer, as hereinafter defined, and actually received by the Bank. 3. "Officer" shall be deemed to be the Customer's Chief Executive Officer, President, any Vice President, the Secretary, the Treasurer, the Controller, any Assistant Treasurer and any Assistant Secretary duly authorized by the Board of Directors of the Customer to execute any Certificate, instruction, notice or other instrument on behalf of the Customer and named in a Certificate, as such Certificate may be amended from time to time. 4. "Prospectus" shall mean the last Customer prospectus actually received by the Bank from the Customer with respect to which the Customer has indicated a registration statement under the Securities Act of 1933, as amended, has become effective, including the statement of Additional Information incorporated by reference therein. 5. "Shares" shall mean all or any part of each class of the shares of capital stock of the Customer which from time to time are authorized and/or issued by the Customer and identified in a Certificate of the Secretary of the Customer under corporate seal, as such Certificate may be amended from time to time. ARTICLE II APPOINTMENT OF BANK ------------------- 1. The Customer hereby constitutes and appoints the Bank as its agent to perform the services described herein and as more particularly described in Schedule I attached hereto (the "Services"), and the Bank hereby accepts appointment as such agent and agrees to perform the Services in accordance with the terms hereinafter set forth. 2. In connection with such appointment, the Customer shall deliver the following documents to the Bank on or about the closing date of the initial public offering: (a) A certified copy of the Certificate of Incorporation or other document evidencing the Customer's form of organization (the "Charter") and all amendments thereto; (b) A certified copy of the By-Laws of the Customer; (c) A certified copy of a resolution of the Board of Directors of the Customer appointing the Bank to perform the Services and authorizing the execution and delivery of this Agreement; (d) A Certificate signed by the Secretary of the Customer specifying: the number of authorized Shares, the number of such authorized Shares issued and currently outstanding, and the names and specimen signatures of all persons duly authorized by the Board of Directors of the Customer to execute any Certificate on behalf of the Customer, which Certificate may be amended from time to time; (e) A Specimen Share certificate for each class of Shares in the form approved by the Board of Directors of the Customer, together with a Certificate signed by the Secretary of the Customer as to such approval; (f) A copy of the Customer's Registration Statement, filed by the Customer with the Securities and Exchange Commission under the Securities Act of 1933, as amended. (g) An opinion of counsel for the Customer with respect to the validity of the authorized and outstanding Shares, whether such Shares are fully paid and non-assessable and the status of such Shares under the Securities Act of 1933, as amended, and any other applicable law or regulation (i.e. if subject to registration, that they have been registered and that the Registration Statement has become effective or, if exempt, the specific grounds therefor). 3. The Customer shall furnish the Bank with a sufficient supply of blank Share certificates and from time to time will renew such supply upon request of the Bank. Such blank Share certificates shall be properly signed, by facsimile or otherwise, by officers of the Customer authorized by law or by the By-Laws to sign Share certificates, and, if required, shall bear the corporate seal or a facsimile thereof. ARTICLE III AUTHORIZATION AND ISSUANCE OF SHARES ------------------------------------ 1. The Customer shall deliver to the Bank a certified copy of the amendment to the Charter giving effect to such increase, decrease or change, on or before the effective date of any increase, decrease or other change in the total number of Shares authorized to be issued. (a) A certified copy of the amendment to the Charter giving effect to such increase, decrease or change; (b) An opinion of counsel for the Customer with respect to the validity of the Shares and the status of such Shares under the Securities Act of 1933, as amended, and any other applicable federal law or regulations (i.e., if subject --- to registration, that they have been registered and specific grounds therefor); and 2 (c) In the case of an increase, if the appointment of the Bank was theretofore expressly limited, a certified copy of a resolution of the Board of Directors of the Customer increasing the authority of the Bank. 2. Prior to the issuance of any additional Shares pursuant to stock dividends, stock splits or otherwise, and prior to any reduction in the number of Shares outstanding, the Customer shall deliver the following documents to the Bank: (a) A certified copy of the resolutions adopted by the Board of Directors and/or the shareholders of the Customer authorizing such issuance of additional Shares of the Customer or such reduction, as the case may be; (b) A certified copy of the order or consent, if applicable, of each governmental or regulatory authority required by law as a prerequisite to the issuance or reduction of such Shares; and (c) An opinion of counsel for the Customer with respect to the validity of the Shares and the status of such the Shares under the Securities Act of 1933, as amended, and any other applicable law or regulation (i.e., if subject to --- registration, that they have been registered and that the Registration Statement has become effective, or, if exempt, the specific grounds therefor). ARTICLE IV RECAPITALIZATION OR CAPITAL ADJUSTMENT -------------------------------------- 1. In the case of any negative stock split, recapitalization or other capital adjustment requiring a change in the form of Share certificates, the Bank will issue Share certificates in the new form in exchange for, or upon transfer of, outstanding Share certificates in the old form, upon receiving: (a) A Certificate authorizing the issuance of Share certificates in the new form; (b) A certified copy of any amendment to the Charter with respect to the change; (c) Specimen Share certificates for each class of Shares in the new form approved by the Board of Directors of the Customer, with a Certificate signed by the Secretary of the Customer as to such approval; (d) A certified copy of the order or consent of each governmental or regulatory authority required by law as a prerequisite to the issuance of the Shares in the new form, and an opinion of counsel for the Customer that the order or consent of no other governmental or regulatory authority is required; and (e) An opinion of counsel for the Customer with respect to the validity of the Shares in the new form and the status of such Shares under the Securities Act of 1933, as amended, and any other applicable law or regulation (i.e., if --- subject to registration that the Shares have been registered and that the Registration Statement has become effective or, if exempt, the specific grounds therefor). 3 2. The Customer shall furnish the Bank with a sufficient supply of blank Share certificates in the new form, and from time to time will replenish such supply upon the request of the Bank. Such blank Share certificates shall be properly signed, by facsimile or otherwise, by Officers of the Customer authorized by law or by the By-Laws to sign Share Certificates and, if required, shall bear the corporate seal or a facsimile thereof. ARTICLE V ISSUANCE AND TRANSFER OF SHARES ------------------------------- 1. (a) The Bank will issue Share certificates upon receipt of a Certificate from an Officer, but shall not be required to issue Share certificates after it has received from an appropriate federal or state authority written notification that the sale of Shares has been suspended or discontinued, and the Bank shall be entitled to rely upon such written notification. The Bank shall not be responsible for the payment of any original issue or other taxes required to be paid by the Customer in connection with the issuance of any shares. (b) Shares will be transferred upon presentation to the Bank of Share certificates in form deemed by the Bank properly endorsed for transfer, accompanied by such documents as the Bank deems necessary to evidence the authority of the person making such transfer, and bearing satisfactory evidence of the payment of applicable stock transfer taxes. In the case of small estates where no administration is contemplated, the Bank may, when furnished with an appropriate surety bond, and without further approval of the Customer, transfer Shares registered in the name of the decedent where the current market value of the Shares being transferred does not exceed such amount as may from time to time be prescribed by the various states. The Bank reserves the right to refuse to transfer Shares until it is satisfied that the endorsements on Share certificates are valid and genuine, and for that purpose it may require, unless otherwise instructed by an Officer of the Customer, a guaranty of signature by a member firm of the New York Stock Exchange or by a bank or trust company acceptable to the Bank. The Bank also reserves the right to refuse to transfer Shares until it is satisfied that the requested transfer is legally authorized, and it shall incur no liability for the refusal in good faith to make transfers which the Bank, in its judgment, deems improper or unauthorized, or until it is satisfied that there is no basis to any claims adverse to such transfer. The Bank may, in effecting transfers of Shares, rely upon those provisions of the Uniform Act for the Simplification of Fiduciary Security Transfers or the Uniform Commercial Code, as the same may be amended from time to time, applicable to the transfer of securities, and the Customer shall indemnify the Bank for any act done or omitted by it in good faith in reliance upon such laws. (c) All certificates representing Shares that are subject to restrictions on transfer (pg. securities acquired pursuant to an investment representation, securities held by controlling persons, securities subject to stockholders' agreements, etc.), other than the general restrictions on the transferability of the Shares described in the Prospectus, shall be stamped with a legend describing the extent and conditions of the restrictions or referring to the source of such restrictions. The Bank assumes no responsibility with respect to the transfer of restricted securities where counsel for the Customer advises that such transfer may be properly effected. (d) Notwithstanding the foregoing or any other provision contained in this Agreement to the contrary, the Bank shall be fully protected by the Customer in not requiring any instruments, 4 documents, assurances, endorsements or guarantees, including, without limitation; any signature guarantees, in connection with a transfer of Shires whenever the Bank reasonably believes that requiring the same would be inconsistent with the transfer procedures as described in the Prospectus. ARTICLE VI DIVIDENDS AND DISTRIBUTIONS --------------------------- 1. The Customer shall furnish to the Bank a copy of a resolution of its Board of Directors, certified by the Secretary or any Assistant Secretary, either (i) setting forth the date of the declaration of a dividend or distribution, the date of accrual or payment, as the case may be, the record date as of which shareholders entitled to payment, or accrual, as the case may be, shall be determined, the amount per Share of such dividend or distribution, the payment date on which all previously accrued and unpaid dividends are to be paid, and the total amount, if any, payable to the Bank on such payment date, or (ii) authorizing the declaration of dividends and distributions on a periodic basis and authorizing the Bank to rely on a Certificate setting forth the information described in subsection (i) of this paragraph. 2. Prior to the payment date specified in such Certificate or resolution, as the case may be, the Customer shall, in the case of a cash dividend or distribution, pay to the Bank an amount of cash, sufficient for the Bank to make the payment, specified in such Certificate or resolution, to the shareholders of record as of such payment date. The Bank will, upon receipt of any such cash, (i) in the case of shareholders who are participants in a dividend reinvestment and/or cash purchase plan of the Customer, reinvest such cash dividends or distributions in accordance with the terms of such plan, and (ii) in the case of shareholders who are not participants in any such plan, make payment of such cash dividends or distributions to the shareholders of record as of the record date by mailing a check, payable to the registered shareholder, to the address of record or dividend mailing address. The Bank shall not be liable for any improper payment made in accordance with a Certificate or resolution described in the preceding paragraph. If the Bank shall not receive sufficient cash prior to the payment date to make payments of any cash dividend or distribution pursuant to subsections (i) and (ii) above to all shareholders of the Customer as of the record date, the Bank shall, upon notifying the Customer, withhold payment to all shareholders of the Customer as of the record date until sufficient cash is provided to the Bank. 3. It is understood that the Bank shall in no way be responsible for the determination of the rate or form of dividends or distributions due to the shareholders. 4. It is understood that the Bank shall file such appropriate information returns concerning the payment of dividends and distributions with the proper federal, state and local authorities as are required by law to be filed by the Customer but shall in no way be responsible for the collection or withholding of taxes due on such dividends or distributions due to shareholders, except and only to the extent required of it by applicable law. 5 ARTICLE VII CONCERNING THE CUSTOMER ----------------------- 1. Customer shall promptly deliver to the Bank written notice of any change in the Officers authorized to sign Share certificates, Certificates, notifications or requests, together with a specimen signature of each new Officer. In the event any Officer who shall have signed manually or whose facsimile signature shall have been affixed to blank Share certificates shall die, resign or be removed prior to issuance of such Share certificates, the Bank may issue such Share certificates as the Share certificates of the Customer notwithstanding such death, resignation or removal, and the Customer shall promptly deliver to the Bank such approvals, adoptions or ratifications as may be required by law. 2. Each copy of the Charter of the Customer and copies of all amendments thereto shall be certified by the Secretary of State (or other appropriate official) of the state of incorporation, and if such Charter and/or amendments are required by law also to be filed with a county or other officer or official body, a certificate of such filing shall be filed with a certified copy submitted to the Bank. Each copy of the By-Laws and copies of all amendments thereto, and copies of resolutions of the Board of Directors of the Customer, shall be certified by the Secretary or an Assistant Secretary of the Customer under the corporate seal. 3. It shall be the sole responsibility of the Customer to deliver to the Bank the Customer's currently effective Prospectus and, for purposes of this Agreement, the Bank shall not be deemed to have notice of any information contained in such Prospectus until it is actually received by the Bank. ARTICLE VIII CONCERNING THE BANK ------------------- 1. The Bank shall not be liable and shall be fully protected in acting upon any oral instruction, writing or document reasonably believed by it to be genuine and to have been given, signed or made by the proper person or persons and shall not be held to have any notice of any change of authority of any person until receipt of written notice thereof from an Officer of the Customer. It shall also be protected in processing Share certificates which it reasonably believes to bear the proper manual or facsimile signatures of the duly authorized officers of the Customer and the proper countersignature of the Bank. 2. The Bank may establish such additional procedures, rules and regulations governing the transfer or registration of Share certificates as it may deem advisable and consistent with such rules and regulations generally adopted by bank transfer agents. 3. The Bank may keep such records as it deems advisable but not inconsistent with resolutions adopted by the Board of Directors of the Customer. The Bank may deliver to the Customer from time to time at its discretion, for safekeeping or disposition by the Customer in accordance with law, such records, papers, Share certificates which have been cancelled in transfer or exchange and other documents accumulated in the execution of its duties hereunder as the Bank may deem expedient, other than those which the Bank is itself required to maintain pursuant to applicable laws and regulations, and the Customer shall assume all responsibility for any failure thereafter 6 to produce any record, paper, cancelled Share certificate or other document so returned, if and when required. The records maintained by the Bank pursuant to this paragraph which have not been previously delivered to the Customer pursuant to the foregoing provisions of this paragraph shall be considered to be the property of the Customer, shall be made available upon request for inspection by the Officers, employees and auditors of the Customer, and shall be delivered to the Customer upon request and in any event upon the date of termination of this Agreement, as specified in Article IX of this Agreement, in the form and manner kept by the Bank on such date of termination or such earlier date as may be requested by the Customer. 4. The Bank may employ agents or attorneys-in-fact at the reasonable expense of the Customer, and shall not be liable for any loss or expense arising out of, or in connection with, the actions or omissions to act of its agents or attorneys-in-fact, so long as the Bank acts in good faith and without negligence or willful misconduct in connection with the selection of such agents or attorneys-in-fact. 5. The Bank shall not be liable for any loss or damage, including reasonable attorney's fees, resulting from its actions or omissions to act or otherwise, except for any loss or damage arising out of its own negligence or willful misconduct. 6. The Customer shall indemnify and hold harmless the Bank from and against any and all claims (whether with or without basis in fact or law), costs, demands, expenses and liabilities, including reasonable attorney's fees, which the Bank may sustain or incur or which may be asserted against the Bank by reason of or as a result of any action taken or omitted to be taken by the Bank without its own negligence or willful misconduct in reliance upon (i) any provision of this agreement, (ii) the Prospectus, (iii) any instrument, order or Share certificate reasonably believed by it to be genuine and to be signed, countersigned or executed by any duly authorized Officer of the Customer, (iv) any Certificate or other instructions of an Officer, (v) any opinion of legal counsel for the Customer or the Bank, or (vi) any law, act, regulation or any interpretation of the same even though such law, act or regulation may thereafter have been altered, changed, amended or repealed. 7. Specifically, but not by way of limitation, the Customer shall indemnify and hold harmless the Bank from and against any and all claims (whether with or without basis in fact or law), costs, demands, expenses and liabilities, including reasonable attorney's fees, of any and every nature which the Bank may sustain or incur or which may be asserted against the Bank in connection with the genuineness of a Share certificate, the Bank's capacity and authorization to issue Shares and the form and amount of authorized Shares. 8. At any time the Bank may apply to an Officer of the Customer for written instructions with respect to any matter arising in connection with the Bank's duties and obligations under this Agreement, and the Bank shall not be liable for any action taken or omitted to be taken by the Bank in good faith in accordance with such instructions. Such application by the Bank for instructions from an Officer of the Customer may, at the option of the Bank, set forth in writing any action proposed to be taken or omitted to be taken by the Bank with respect to its duties or obligations under this Agreement and the date on and/or after which such action shall be taken, and the Bank shall not be liable for any action taken or omitted to be taken in accordance with a proposal included in any such application on or after the date specified therein unless, prior to 7 taking or omitting to take any such action, the Bank has received written instructions in response to such application specifying the action to be taken or omitted. The Bank may consult counsel to the Customer or its own counsel, at the expense of the Customer, and shall be fully protected with respect to anything done or omitted by it in good faith in accordance with the advice or opinion of such counsel. 9. When mail is used for delivery of non-negotiable Share certificates, the value of which does not exceed the limits of the Bank's Blanket Bond, the Bank shall send such non-negotiable Share certificates by first class mail, and such deliveries will be covered while in transit by the Bank's Blanket Bond. Nonnegotiable Share certificates, the value of which exceed the limits of the Bank's Blanket Bond, will be sent by insured registered mail. Negotiable Share certificates win be sent by insured registered mail. The Bank shall advise the Customer of any Share certificates returned as undeliverable after being mailed as herein provided for. 10. The Bank may issue new Share certificates in place of Share certificates represented to have been lost, stolen or destroyed upon receiving instructions in writing from an Officer and indemnity satisfactory to the Bank. Such instructions from the Customer shall be in such form as approved by the Board of Directors of the Customer in accordance with applicable law or the By-Laws of the Customer governing such matters. If the Bank receives written notification from the owner of the lost, stolen or destroyed Share certificate within a reasonable time after he has notice of it, the Bank shall promptly notify the Customer and shall act pursuant to written instructions signed by an Officer. If the Customer receives such written notification from the owner of the lost, stolen or destroyed Share certificate within a reasonable time after he has notice of it, the Customer shall promptly notify the Bank and the Bank shall act pursuant to written instructions signed by an Officer. The Bank shall not be liable for any act done or omitted by it pursuant to the written instructions described herein. The Bank may issue new Share certificates in exchange for, and upon surrender of, mutilated Share certificates. 11. The Bank will issue and mail subscription warrants for Shares, Shares representing stock dividends, exchanges or splits, or act as conversion agent upon receiving written instructions from an Officer and such other documents as the Bank may deem necessary. 12. The Bank will supply shareholder lists to the Customer from time to time upon receiving a request therefor from an Officer of the Customer. 13. In case of any requests or demands for the inspection of the shareholder records of the Customer, the Bank will notify the Customer and endeavor to secure instructions from an officer as to such inspection. The Bank reserves the right, however, to exhibit the shareholder records to any person whenever it is advised by its counsel that there is a reasonable likelihood that the Bank will be held liable for the failure to exhibit the shareholder records to such person. 14. At the request of an Officer, the Bank will address and mail such appropriate notices to shareholders as the Customer may direct. 15. Notwithstanding any provisions of this Agreement to the contrary, the Bank shall be under no duty or obligation to inquire into, and shall not be liable for: 8 (a) The legality of the issue, sale or transfer of any Shares, the sufficiency of the amount to be received in connection therewith, or the authority of the Customer to request such issuance, sale or transfer; (b) The legality of the purchase of any Shares, the sufficiency of the amount to be paid in connection therewith, or the authority of the Customer to request such purchase; (c) The legality of the declaration of any dividend by the Customer, or the legality of the issue of any Shares in payment of any stock dividend; or (d) The legality of any recapitalization or readjustment of the Shares. 16. The Bank shall be entitled to receive and the Customer hereby agrees to pay to the Bank for its performance hereunder (i) out-of-pocket expenses (including reasonable attorney's fees and expenses) incurred in connection with this Agreement and its performance hereunder, and (ii) the compensation for services as set forth in Schedule 1. 17. The Bank shall not be responsible for any money, whether or not represented by any check, draft or other instrument for the payment of money, received by it on behalf of the Customer, until the Bank actually receives and collects such funds. 18. The Bank shall have no duties or responsibilities whatsoever except such duties and responsibilities as are specifically set forth in this Agreement, and no covenant or obligation shall be implied against the Bank in connection with this Agreement. ARTICLE IX TERMINATION ----------- Either of the parties hereto may terminate this Agreement by giving to the other party a notice in writing specifying the date of such termination, which shall be not less than 60 days after the date of receipt of such notice. In the event such notice is given by the Customer, it shall be accompanied by a copy of a resolution of the Board of Directors of the Customer, certified by the Secretary electing to terminate this Agreement and designating a successor transfer agent or transfer agents. In the event such notice is given by the Bank, the Customer shall, on or before the termination date, deliver to the Bank a copy of a resolution of its Board of Directors certified by the Secretary designating a successor transfer agent or transfer agents. In the absence of such designation by the Customer, the Bank may designate a successor transfer agent. If the Customer fails to designate a successor transfer agent and if the Bank is unable to find a successor transfer agent, the Customer shall, upon the date specified in the notice of termination of this Agreement and delivery of the records maintained hereunder, be deemed to be its own transfer agent and the Bank shall thereafter be relieved of all duties and responsibilities hereunder. Upon termination hereof, the Customer shall pay to the Bank such compensation as may be due to the Bank as of the date of such termination, and shall reimburse the Bank for any disbursements and expenses made or incurred by the Bank and payable or reimbursable hereunder. 9 ARTICLE X MISCELLANEOUS ------------- 1. The Customer agrees that prior to effecting any change in the Prospectus which would increase or alter the duties and obligations of the Bank hereunder, it shall advise the Bank of such proposed change at least ten business days prior to the intended date of the same, and shall proceed with such change only if it shall have received the written consent of the Bank thereto. 2. The indemnities contained herein shall be continuing obligations of the Customer, its successors and assigns, notwithstanding the termination of this Agreement. 3. Any notice or other instrument in writing, authorized or required by this Agreement to be given to the Customer shall be sufficiently given if addressed to the Customer and mailed or delivered to it at 800 Scudders Mill. Road, Plainsboro, NJ 08536 or at such place as the Customer may from time to time designate in writing. 4. Any notice or other instrument in writing, authorized or required by this Agreement to be given to the Bank shall be sufficiently given if addressed to the Bank and mailed or delivered to it at its office at 101 Barclay Street (22W), New York, New York 10286 or at such other place as the Bank may from time to time designate in writing. 5. This Agreement may not be amended or modified in any manner except by a written agreement duly authorized and executed by both parties. Any duly authorized Officer may amend any Certificate naming Officers authorized to execute and deliver Certificates, instructions, notices or other instruments, and the Secretary or any Assistant Secretary may amend any Certificate listing the shares of capital stock of the Customer for which the Bank performs Services hereunder. 6. This Agreement shall extend to and shall be binding upon the parties hereto and their respective successors and assigns; provided however, that this Agreement shall not be assignable by either party without the prior written consent of the other party. 7. This Agreement shall be governed by and construed in accordance with the laws of the State of New York. 8. This Agreement may be executed in any number of counterparts each of which shall be deemed to be an original; but such counterparts, together, shall constitute only one instrument. 9. The provisions of this Agreement are intended to benefit only the Bank and the Customer, and no rights shall be granted to any other person, by virtue of this Agreement. 10 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective corporate officer, thereunto duly authorized and their respective corporate seals. to be hereunto affixed, as of the day and year first above written. Attest: MUNIYIELD NEW YORK INSURED FUND, INC. BY: - --------------------- ----------------------- Title: TREASURER --------------------- Attest: THE BANK OF NEW YORK BY: - --------------------- ----------------------- Title: -------------------- 11 MUNIYIELD NEW YORK INSURED FUND, INC. STOCK TRANSFER FEE SCHEDULE Account Maintenance Fee, (per account).. $2.64 Certificate Issuance (per certificate).. $1.20 Check Issuance Fee, (per check)......... $0.25 Fees will be billed monthly and include all services, as illustrated below. Fees will remain in effect for a period of 2 years from the date of our appointment. Account Maintenance: We will: . Maintain all shareholder name and address records and process all changes. . Issue and register all certificates. . Record all certificate transactions. . Answer shareholder inquiries, including written correspondence. . Provide hard-copy or microfiche reports of daily transfer activity. . Address, insert and mail up to three quarterly reports and one annual report. (The material must be adaptable to automatic equipment.) . Address, insert and mail proxy cards and standard proxy material for annual meeting. (The material must be adaptable to automatic equipment.) . Tabulate proxies and provide terminal access to our database for your annual meeting. . Provide a secondary proxy mailing to shareholders who have not voted. . Provide a shareholder list and a final voted and unvoted list as of the annual meeting date. . Mail W-9 certifications. . Solicit taxpayer identification numbers on new accounts. . Issue, enclose and reconcile each dividend check. . File IRS Forms 1099 and 1096 covering dividends paid, plus Forms 1042S and 1042 NRA Tax (for foreign holders). 12 . Initiate mailings to shareholders with uncashed dividend checks over one year old. . Cease delivery of checks to undeliverable accounts. . Provide escheatment reporting. . Provide arrangements for handling restricted stock. . Process all stock options. . Place, remove and maintain all stop transfers. . Process all legal transfers. . Replace all lost, stolen or destroyed checks and certificates. . Provide three analytical reports as follows: 1 Geographical Analysis 1 Class Code Analysis 1 Share Range Analysis . Install and provide access via company terminal to The Bank of New York database. Training will be completed on site at your offices by personnel from by The Bank of New York. Dividend Reinvestment Plan Account Maintenance Fee................. $3.00 This account maintenance fee will be billed monthly at a rate of $0.25 per dividend reinvestment account record. We will: . Reinvest each dividend . Process terminations . Process optional cash payments and send acknowledgements . Provide an efficient way of purchasing and selling shares through our Discount Brokerage services. This service is affiliated with our Trust Sector and will be provided at a discounted rate. 13 TERMS OF PROPOSAL . The Bank of New York does not levy a conversion charge or setup fee for assumption of records in an automated tape format in connection with our appointment as Transfer Agent and Registrar. Any charges made by your existing agent in connection with our assumption of your shareholder records in an automated tape format would be passed through to your account. . Out-of-pocket expenses are defined as costs paid by The Bank of New York for the purchase of goods or services required to fulfill our obligations under our agreement. These expenses may include, but not be limited to, postage, insurance on physical transfer items, and costs for obtaining prices for security valuations. These expenses are billed at our cost, on a pro-rata basis for goods and services received. . There will not be a usage charge applied for utilizing the Bank's Stock Transfer Inquiry System. Connect time will be billed at cost, based on a dedicated line or dial-up expense. . For issuing purchase warrants, stock dividends and splits, the handling of tenders & exchanges of stock, subscriptions, preparing state information returns, and any other services not covered by this fee schedule, charges will be based on an analysis and appraisal of the services rendered. . All fees are based upon the use of automatic equipment. Any services requiring manual processing and/or overtime, will result in a special or higher charge. . The Bank of New York's minimum charge is $10,000. If at the end of each year (12 months from appointment date) the total fees are less than the minimum, the difference will be billed to your account. The fees are charged on a monthly basis. . In the event that we do not enter into a written agreement within three months of the date of this proposal, this offer will be subject to revision. Proposal Submitted by:___________________________ Mr. David J. May Assistant Treasurer The Bank of New York January 3, 1992 Proposal Accepted by: _________________________________ MuniYield New York Insured Fund, Inc. Date: __________________________________ 14 SECRETARY'S CERTIFICATE The undersigned, ________________, hereby certifies that he or she is the duly elected and acting Secretary of ________________________, a corporation (the "Corporation"), and further certifies that the following resolutions were adopted by the Board of Directors of the Corporation at a meeting duly held on ___________, at which a quorum was at all times present and that such resolutions have not been modified or rescinded and are in full force and effect as of the date hereof. RESOLVED, that The Bank of New York, a New York Trust company with its principal offices located at 48 Wall Street, New York, New York 10286, be and it hereby is appointed Transfer Agent/Registrar for all of the shares of the _____________________________________________________ stock (Class of Stock) of the _____________________________________________________ stock (Class of Stock) of the _____________________________________________________ stock (Class of Stock) of the _____________________________________________________ stock (Class of Stock) of the Corporation; and further Resolved that the following individuals have been duly authorized by the Board of Directors of the Corporation in conformity with the Corporation's Articles of Incorporation and By-Laws to execute any certificate, instruction, notice or other instrument, including an amendment hereto, or to give oral instruction on behalf of the Corporation, and the signatures set forth opposite their respective names are their true and correct signatures. Name and Title Signature -------------- --------- - -------------------------------------- --------------------------------- - -------------------------------------- --------------------------------- - -------------------------------------- --------------------------------- - -------------------------------------- --------------------------------- - -------------------------------------- --------------------------------- - -------------------------------------- --------------------------------- - -------------------------------------- --------------------------------- 15 Name and Title Signature -------------- --------- - -------------------------------------- --------------------------------- - -------------------------------------- --------------------------------- - -------------------------------------- --------------------------------- RESOLVED, that the President, any Vice President, or any other proper officer of the Corporation, and each of them individually is hereby authorized on behalf of the Corporation to execute and deliver a Transfer Agency Agreement with The Bank of New York substantially in the form attached hereto; and further RESOLVED, that The Bank of New York, be and is hereby authorized and directed to issue and register respectively from time to time, without further action or approval by or on behalf of the Corporation, a new certificate or certificates of stock of the Corporation to replace a certificate or certificates reported lost, stolen or destroyed, upon receipt by The Bank of New York of an Affidavit of Loss and surety company Open Penalty Bond of Indemnity, in which the Corporation is an Obligee, or is included as an Obligee to the same extent as though its name was set forth in full therein, in form satisfactory to The Bank of New York in each instance; and further RESOLVED, that said Bond of Indemnity may be a blanket bond and said Affidavit of Loss may be an affidavit relating to the non-receipt by an addressee of a certificate or certificates for such stock mailed by The Bank of New York. The undersigned hereby certifies the following facts: 1. The authorized and outstanding stock of the Corporation are as follows (List shares outstanding in any old names and their value for exchange. (If none, so state): Number of Shares ----------------- Authorized by Certificate of Authorized Total Issued Class Par Value Incorporation For Issue Treasury Outstanding - ----- --------- ------------- --------- -------- ----------- 2. Set forth below are the number of authorized but unissued shares of said stock of this Corporation reserved for the purposes indicated: 16 3. The name and address of legal counsel for the Corporation is ___________________________________ ___________________________________ ___________________________________ ___________________________________ 4. The names and addresses of all of the Transfer Agents and Registrars of the Stock of the Corporation other than The Bank of New York as follows (If none, so state): Class of Stock Transfer Agent(s) Registrar(s) -------------- ----------------- ------------ - --------------------------- -------------------------- ---------------- - --------------------------- -------------------------- ---------------- 5. The consolidated records of all stockholders accounts showing shares held and a complete record of all stock certificates outstanding is to be maintained by the Transfer Agent. IN WITNESS WHEREOF, I have hereunto set my hand and the seal of the Corporation as of the _________ day of _____________. _________________________ Secretary 17 EX-99.13B 13 FORM OF AUCTION AGENT AGREEMENT ================================================================================ Exhibit 13(b) AUCTION AGENT AGREEMENT between MUNIYIELD NEW YORK INSURED FUND, INC. and IBJ SCHRODER BANK & TRUST COMPANY Dated as of April 10, 1992 Relating to Auction Market Preferred Stock(R) ("AMPS"(R)) Series A and Series B of MUNIYIELD NEW YORK INSURED FUND, INC. ================================================================================ THIS AUCTION AGENT AGREEMENT dated as of April 10, 1992, between MUNIYIELD NEW YORK INSURED FUND, INC., a Maryland corporation (the "Company"), and IBJ SCHRODER BANK & TRUST COMPANY, a New York banking corporation. The Company proposes to duly authorize and issue 850 shares of Auction Market Preferred Stock(R), Series A ("Series A AMPS") and 850 shares of Auction Market Preferred Stock, Series B ("Series B AMPS") (both 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 Company's Articles Supplementary (as defined below). The Series A AMPS and Series B AMPS are sometimes referred to together herein as "AMPS". A separate Auction (as defined below) will be conducted for each series of AMPS. The Company 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 Company and the Auction Agent agree as follows: 1. Definitions and Rules of Construction. ------------------------------------- 1.1 Terms Defined by Reference to Articles Supplementary. ----------------------------- Capitalized terms not defined herein shall have the respective meanings specified in the Articles Supplementary. 1.2 Terms Defined Herein. -------------------- As used herein and in the Settlement Procedures (as defined below), the following terms shall have the following meanings, unless the context otherwise requires: (a) "Affiliate" shall mean any Person, other than Merrill Lynch, Pierce, Fenner & Smith Incorporated, made known to the Auction Agent to be controlled by, in control of or under common control with, the Company, or its successors. (b) "Agent Member" of any Person shall mean such Person's agent member of the Securities Depository who is identified as such in such Person's Purchaser's Letter. (c) "Articles Supplementary" shall mean the Articles Supplementary of the Company, establishing the powers, preferences and rights of the AMPS, filed on April 7, - ---------------------- (R) Registered trademark of Merrill Lynch & Co., Inc. 2 1992, in the office of the State Department of Assessments and Taxation of the State of Maryland. (d) "Auction" shall have the meaning specified in Section 2.1 hereof. (e) "Auction Procedures" shall mean the Auction Procedures that are set forth in Paragraph 11 of the Articles Supplementary. (f) "Authorized Officer" shall mean each Senior Vice President, Vice President, Assistant Vice President, Trust Officer, and Assistant Secretary and Assistant Treasurer of the Auction Agent assigned to its Corporate Trust and Agency Group and every other officer or employee of the Auction Agent designated as an "Authorized officer" for purposes hereof in a communication to the Company. (g) "Broker-Dealer Agreement" shall mean each agreement between the Auction Agent and a Broker-Dealer substantially in the form attached hereto as Exhibit A. (h) "Company Officer" shall mean the Chairman and Chief Executive officer, the President, each Vice President (whether or not designated by a number or word or words added before or after the title "Vice President"), the Secretary, the Treasurer, each Assistant Secretary and each Assistant Treasurer of the Company and every other officer or employee of the Company designated as a "Company Officer" for purposes hereof in a notice from the Company to the Auction Agent. (i) "Holder" shall be a holder of record of one or more shares of AMPS, listed as such in the stock register maintained by the Paying Agent pursuant to Section 4.6. (j) "Purchaser's Letter" shall mean a letter addressed to the Company, the Auction Agent and a Broker-Dealer, substantially in the form attached to the Broker-Dealer Agreement as Exhibit A. (k) "Settlement Procedures" shall mean the Settlement Procedures attached to the Broker-Dealer Agreement 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. (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. 3 (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. The Auction. ----------- 2.1 Purpose; Incorporation by Reference of Auction Procedures and Settlement Procedures. ---------------------------------------------- (a) The Articles Supplementary provide that the Applicable Rate on shares of Series A AMPS or Series B AMPS, as the case may be, for each Dividend Period therefor after the Initial Dividend Period shall be the rate per annum that a commercial bank, trust company, or other financial institution appointed by the Company advises results from implementation of the Auction Procedures. The Board of Directors of the Company has adopted a resolution appointing IBJ 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 Company 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 Company shall provide the Auction Agent with a list of the Broker-Dealers previously approved by the Auction Agent and shall cause to be delivered to the Auction Agent for 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 Company shall notify the Auction Agent in writing of such change and, if any such change is the addition of a Broker-Dealer to such list, the Company shall cause to be delivered to the Auction Agent for execution by the Auction Agent a Broker-Dealer Agreement signed by such Broker-Dealer. The Auction Agent shall have entered into a Broker-Dealer Agreement 4 with each Broker-Dealer prior to the participation of any such Broker- Dealer in any Auction. (b) In the event that the Auction Date for any Auction shall be changed after the Auction Agent shall have given the notice referred to in clause (vii) of Paragraph (a) of the Settlement Procedures, the Auction Agent, by such means as the Auction Agent deems practicable, shall give notice of such change to the Broker-Dealers not later than the earlier of 9:15 A.M. on the new Auction Date or 9:15 A.M. on the old Auction Date. (c) With respect to each Dividend Period that is a Special Dividend Period, the Company may, at its sole option and to the extent permitted by law, by telephonic and written notice (a "Request for Special Dividend Period") to the Auction Agent and to each Broker-Dealer, request that the next succeeding Dividend Period for a series of AMPS will be a number of days (other than 28 in the case of Series A AMPS and other than 7 in the case of Series B), 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 for any Auction occurring after the initial Auction, the Company may not give a Request for Special Dividend Period (and any such request shall be null and void) unless the Company has received written confirmation from S&P that such action would not impair the rating then assigned to the AMPS by S&P and unless 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 day but not more than seven days prior to an Auction Date for a series of AMPS and, in the case of a Long Term Dividend Period, shall be given on or prior to the 14th day but not more than 28 days prior to the Auction Date for a series of 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 Articles Supplementary it is advisable that the Company 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 Company and the Auction Agent written notice (a "Response") of such determination by no later than the third day prior to such Auction Date. If the Broker-Dealers shall not give the Company and the Auction Agent a Response by such third day or if the Response states that given the factors referred to above it is not advisable that the Company give a Notice of special Dividend Period (as defined below) for the series of AMPS, the Company 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 Company give a Notice of Special Dividend Period for the series of AMPS, the Company may by no later than the second 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 Company 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 (a "Notice of Revocation") to the Auction Agent, each 5 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 Coverage is not satisfied or the Company 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 Company 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 Company that after consideration of the factors referred to above they have concluded that it is advisable to give a Notice of Revocation. If the Company 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 Company gives a Notice of Revocation with respect to a Notice of Special Dividend Period, the next succeeding Dividend Period will be a 28- day Dividend Period in the case of Series A AMPS and a 7-day Dividend Period in the case of Series B AMPS, provided that if the then-current Dividend Period for Series A AMPS or Series B AMPS is a Special Dividend Period of less than 28 days, the next succeeding Dividend Period will be the same length as the current 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 28-day Dividend Period (in the case of Series A AMPS) or a 7-day Dividend Period (in the case of Series B AMPS) and the Company 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 28-day Dividend Period (in the case of Series A AMPS) or a 7- day Dividend Period (in the case of Series-B AMPS). (d) (i) Whenever the Company intends to include any net capital gains or other taxable income in any dividend on shares of AMPS, the Company will notify the Auction Agent of the amount to be so included at least five Business Days prior to the Auction Date on which the Applicable Rate for such dividend is to be established. Whenever the Auction Agent receives such notice from the Company, 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. (ii) If the Company makes-a Retroactive Taxable allocation, the Company 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 such holder's address as the same appears or last appeared on the stock books of the Company. The Company 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 6 Additional Dividend with respect to all Retroactive Taxable Allocations made to such holders during the fiscal year in question. (e) (i) On each Auction Date, the Auction Agent shall determine the Reference Rate and the Maximum Applicable Rate. If the Reference Rate is not quoted on an interest basis but is quoted on a discount basis, the Auction Agent shall convert the quoted rate to an Interest Equivalent, as set forth in paragraph 1 of the Articles Supplementary; or, if the rate obtained by the Auction Agent is not quoted on an interest or discount basis, the Auction Agent shall convert the quoted rate to an interest rate after consultation with the Company as to the method of such conversion. Not later than 9:30 A.M. on each Auction Date, the Auction Agent shall notify the Company and the Broker-Dealers of the Reference Rate so determined and the Maximum Applicable Rate. (ii) Upon receipt by the Company of the written advice contemplated by subsection (i) of the definition of "Reference Rate" in section 1(a) of the Articles Supplementary, the Company shall as soon as practicable, and in no event later than the day next preceding the next Auction Date, forward a copy of such written advice to the Auction Agent. (iii) If the Reference Rate is the applicable 11AA11 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 11AA11 Composite Commercial Paper Rate, the Auction Agent shall immediately notify the Company so that the Company can determine whether to select a Substitute Commercial Paper Dealer or Substitute Commercial Paper Dealers to provide the quotation or quotations not being supplied by any Commercial Paper Dealer or Commercial Paper Dealers. The Company shall promptly advise the Auction Agent of any such selection. If the Company does not select any such Substitute Commercial Paper Dealer or Substitute Commercial Paper Dealers, then the rates shall be supplied by the remaining Commercial Paper Dealer or Commercial Paper Dealers. (iv) If, after the date of this Agreement, there is any change in the prevailing rating of AMPS by either of the rating agencies (or substitute or successor rating agencies) referred to in the definition of the Maximum Applicable Rate, thereby resulting in any change in the corresponding applicable percentage for the AMPS, as set forth in said definition (the "Percentage"), the Company shall notify the Auction Agent in writing of such change in the Percentage prior to 9:00 A.M. on the Auction Date for AMPS next succeeding such change. The Percentage for the AMPS on the date of this Agreement is as specified in paragraph 11(a)(vii) of the Articles Supplementary. The Auction Agent shall be entitled to rely on the last Percentage of which it has received notice from the Company (or, in the absence of such notice, the Percentage set forth in the preceding sentence) in determining the Maximum Applicable Rate as set forth in Section 2.2(e)(i) hereof. (f) (i) The Auction Agent shall maintain a current registry of the beneficial owners of the shares of each series of AMPS who shall constitute the Existing Holders for purposes of each Auction. The Company 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 each series of AMPS, and the Broker-Dealer of each 7 such Existing Holder through which such Existing Holder purchased such shares. The Auction Agent may rely upon, as evidence of the identities of the Existing Holders, such list, the results of each Auction and notices from any Existing Holder, the Agent Member of any Existing Holder or the Broker-Dealer of any Existing Holder with respect to such Existing Holder's transfer of any shares of AMPS to another Person. (ii) In the event of any partial redemption of any series of AMPS, upon notice by the Company to the Auction Agent of such partial redemption, the Auction Agent 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 shares of the series being partially redeemed, the Auction Agent shall request each Agent Member so identified to disclose to the Auction Agent (upon selection by such Agent Member of the Existing Holders whose shares are to be redeemed) the number of shares of such series of AMPS of each such Existing Holder, if any, to be redeemed by the Company; provided 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 series of 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 a series of 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 Agreements, 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. (g) The Auction Agent may request that the BrokerDealers, 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 8 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 Company, provided that the Auction Agent reserves the right to disclose any such information if it is advised by its counsel that its failure to do so would be unlawful. 2.3 Auction Schedule. ---------------- The Auction Agent shall conduct Auctions in accordance with the schedule set forth below. Such schedule may be changed by the Auction Agent with the consent of the Company, which consent shall not be 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 Company and the Broker-Dealers of the Reference Rate and the Maximum Applicable Rate as set forth in Section 2.2(e)(i) hereof. 9:30 A.M. - 1:00 P.M. Auction Agent assembles information communicated to it by Broker-Dealers as provided in Paragraph 11(c)(i) of the Articles Supplementary. 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 Articles Supplementary. By approximately Auction Agent advises Company of results of 3:00 P.M. Auction as provided in Paragraph 11(d)(ii) of the Articles Supplementary. Submitted Bids and Submitted Sell Orders are accepted and rejected in whole or in part and shares of AMPS allocated as provided in Paragraph 11(e) of the Articles Supplementary. By approximately 10:00 Auction Agent gives notice of Auction results as A.M. set forth in Section 2.4 hereof. on the next succeeding Business Day 9 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 Company 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, 28-day Dividend Period or Short-Term 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 Long Term Dividend Period, the amount determined by mutual consent of the Company and the Broker-Dealers pursuant to Section 3.5 of the Broker-Dealer Agreements. In lieu of making such payment in New York Clearing House or similar next-day funds, the Company 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 Company any remaining funds paid to the Auction Agent pursuant to this Section 2.5(a). (b) The Company shall not designate any Person to act as a Broker-Dealer without the prior written approval of the Auction Agent, which written approval shall not be unreasonably withheld. The Company 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 Company. (d) Subject to Section 2.5(b) hereof, the Auction Agent shall from time to time enter into such Broker-Dealer Agreements as the Company shall request. (e) The Auction Agent shall maintain a list of Broker-Dealers. 2.6 Ownership of Shares of AMPS and Submission of Bids by Company and Affiliates. -------------------------------------------------- Neither the Company nor any Affiliate of the Company may submit any Sell Order or Bid, directly or indirectly, in any Auction, except that an Affiliate of the Company that is a Broker-Dealer may submit a Sell Order or Bid on behalf of an Existing Holder or Potential Holder. The Company shall notify the Auction Agent if the Company or, to the best of the Company's knowledge, any Affiliate of the Company becomes an Existing Holder of any shares of AMPS. Any shares of AMPS redeemed, purchased or otherwise acquired (i) by the Company 10 shall not be reissued or (ii) by its Affiliates shall not be transferred (other than to the Company). The Auction Agent shall have no duty or liability with respect to enforcement of this Section 2.6. 2.7 Access to and Maintenance of Auction Records. -------------------------------------------- The Auction Agent shall afford to the Company, its agents, independent public accountants and counsel, access at reasonable times during normal business hours to review and make extracts or copies (at the Company's sole cost and expense) of all books, records, documents and other information concerning the conduct and results of Auctions, provided that any such agent, accountant, or counsel shall furnish the Auction Agent with a letter from the Company requesting that the Auction Agent afford such person access. The Auction Agent shall maintain records relating to any Auction for a period of two years after such Auction (unless requested by the Company to maintain such records for such longer period not in excess of four years, then for such longer period), and such records shall, in reasonable detail, accurately and fairly reflect the actions taken by the Auction Agent hereunder. The Company 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. 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. 3. The Auction Agent as Paying Agent. --------------------------------- 3.1 Paying Agent. ------------ The Board of Directors of the Company has adopted a resolution appointing IBJ Schroder Bank & Trust Company as transfer agent, registrar, dividend disbursing agent and redemption agent for the Company 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 Articles Supplementary which are specified herein as Paying Agent with respect to the shares of AMPS and as set forth in this Section 3. 3.2 The Company's Notices to Paying Agent. ------------------------------------- Whenever any shares of AMPS are to be redeemed, the Company shall promptly deliver to the Paying Agent the Notice of Redemption, which will be mailed by the Company to each Holder, at least five days prior to the date such Notice of Redemption is required to be mailed by the Articles Supplementary. The Paying Agent shall have no responsibility to confirm or verify the accuracy of any such notice. 11 3.3 Company 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 Company 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 Company 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 Company shall give the Notice of Redemption then, by noon of the Business Day immediately preceding the date fixed for redemption, the Company 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 Company 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 Company provides notice to the Auction Agent of a Retroactive Taxable Allocation, the Company 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 Company 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 Company described in Sections 3.3(a), (b) and (c) above, the Paying Agent shall pay to the Holders (or former Holders) entitled thereto (i) on each corresponding Dividend Payment Date, dividends on the Series A AMPS or Series B AMPS, as the case may be, (ii) on any date fixed for redemption, the redemption price of any shares of AMPS called for redemption and (iii) on the date fixed for payment of an Additional Dividend, such Additional Dividend. The amount of dividends for any Dividend Period to be paid by the Paying Agent to Holders will be determined by the Company as set forth in Paragraph 2 of the Articles Supplementary. The redemption price to be paid by the Paying Agent to the Holders of any shares of AMPS called for redemption will be determined as 12 set forth in Paragraph 4 of the Articles Supplementary. The amount of Additional Dividends to be paid by the Paying Agent in the event of a Retroactive Taxable Allocation to Holders will be determined by the Company pursuant to paragraph 2(e) of the Articles Supplementary. The Company shall notify the Paying Agent in writing of a decision to redeem any shares of AMPS on or prior to the date specified in Section 3.2 above, and such notice by the Company to the Paying Agent shall contain the information required to be stated in the Notice of Redemption required to be mailed by the Company to such Holders. The Paying Agent shall have no duty to determine the redemption price and may rely on the amount thereof set forth in the Notice of Redemption. 4. The Paying Agent as Transfer Agent and Registrar. ------------------------------------------------ 4.1 Original Issue of Stock Certificates. ------------------------------------ On the Date of Original Issue, one certificate for each series of AMPS shall be issued by the Company 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 each series of AMPS shall be registered solely in the name of the Securities Depository or its nominee. If the Securities Depository shall give notice of its intention to resign as such, and if the Company shall not have selected a substitute Securities Depository acceptable to the Paying Agent prior to such resignation, then upon such resignation, the shares of each series of AMPS may, at the Company'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 a series 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 Company Officer authorizing the Paying Agent to remove the legend on the basis of said opinion. 13 4.4 Lost Stock Certificates. ----------------------- The Paying Agent shall issue and register replacement certificates for certificates represented to have been lost, stolen or destroyed, upon the fulfillment of such requirements as shall be deemed appropriate by the Company and the Paying Agent, subject at all times to provisions of law, the By-Laws of the Company governing such matters and resolutions adopted by the Company with respect to lost securities. The Paying Agent may issue new certificates in exchange for and upon the cancellation of mutilated certificates. Any request by the Company to the Paying Agent to issue a replacement or new certificate pursuant to this Section 4.4 shall be deemed to be a representation and warranty by the Company to the Paying Agent that such issuance will comply with such provisions of applicable law and the By-Laws and resolutions of the Company. 4.5 Disposition of Cancelled Certificates; Record Retention. -------------------------------------- The Paying Agent shall retain stock 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 Company, afford to the Company, its agents and counsel access at reasonable times during normal business hours to review and make extracts or copies (at the Company's sole cost and expense) of such certificates and accompanying documentation. Upon request by the Company at any time after the expiration of this two-year period, the Paying Agent shall deliver to the Company the cancelled certificates and accompanying documentation. The Company 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 Company and shall make such records available during this period at any time, or from time to time, for reasonable periodic, special, or other examinations by representatives of the Securities and Exchange Commission. The Company 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 Company without the approval of the Paying Agent, which shall not be unreasonably withheld, but will be safely stored for possible future reference. 4.6 Stock Register. -------------- The Paying Agent shall maintain the stock register, which shall contain a list of the Holders, the number of shares held by each Holder and the address of each Holder. The Paying Agent shall record in the stock register any change of address of a Holder upon notice by such Holder. In case of any written request or demand for the inspection of the stock register or any other books of the Company in the possession of the Paying Agent, the Paying Agent will notify the Company and secure instructions as to permitting or refusing such inspection. The Paying Agent reserves the right, however, to exhibit the stock register or other records to any person in case it is advised by its counsel that its failure to do so would (i) be unlawful or (ii) expose it to liability, unless the Company shall have offered indemnification satisfactory to the Paying Agent. 14 4.7 Return of Funds. --------------- Any funds deposited with the Paying Agent by the Company for any reason under this Agreement, including for the payment of dividends or the redemption of shares of any series of AMPS, that remain with the Paying Agent after 12 months shall be repaid to the Company upon the written request of the Company. 5. Representations and Warranties. ------------------------------ (a) The Company represents and warrants to the Auction Agent that: (i) the Company is a duly incorporated and validly existing corporation in good standing under the laws of the State of Maryland and has full power to execute and deliver this Agreement and to authorize, create and issue the shares of AMPS; (ii) the Company is registered with the Securities and Exchange Commission under the Investment Company Act of 1940, as amended, as a closed-end non-diversified management investment company; (iii) this Agreement has been duly and validly authorized, executed and delivered by the Company and constitutes the legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, subject as to such enforceability to bankruptcy, insolvency, reorganization and other laws of general applicability relating to or affecting creditors' rights and to general equitable principles; (iv) the form of certificate evidencing the shares of each series of AMPS complies with all applicable laws of the State of Maryland; (v) the shares of each series of AMPS have been duly and validly authorized by the Company and, upon completion of the initial sale of the shares of such series of AMPS and receipt of payment therefor, will be validly issued, fully paid and nonassessable; (vi) the offering of the shares of each series 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 as 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 each series of AMPS do not and will not conflict with, violate, or result in a breach of, the terms, conditions or provisions of, or constitute a default under, the Charter or the By-Laws of the Company, any law or regulation applicable to the Company, any order or decree of any court or public authority having jurisdiction over the Company, or any mortgage, indenture, contract, agreement or undertaking to which the Company is a party or by which it is bound; and 15 (viii) no taxes are payable upon or in respect of the execution of this Agreement or the issuance of the shares of each series of AMPS. (b) The Auction Agent represents and warrants to the Company that the Auction Agent is duly organized and is validly existing as a banking corporation in good standing under the laws of the State of New York and has the corporate power to enter into and perform its obligations under this Agreement. 6. The Auction Agent. ----------------- 6.1 Duties and Responsibilities. --------------------------- (a) The Auction Agent is acting solely as agent for the Company hereunder and owes no fiduciary duties to any Person except as provided by this Agreement. (b) The Auction Agent undertakes to perform such duties and only such duties as are 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 Company or by a Broker-Dealer. The Auction Agent may record telephone communications with the Company 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 Company. (d) The Auction Agent may perform its duties and exercise its rights hereunder either directly or by or through agents or attorneys. 16 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 Company 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. (b) The Company shall reimburse the Auction Agent upon its request for all reasonable expenses, disbursements and advances incurred or made by the Auction Agent in accordance with any provision of this Agreement and 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 Company shall indemnify the Auction Agent for, and hold it harmless against, any loss, liability or expense incurred without negligence or bad faith on its part arising out of or in connection with its agency under this Agreement and 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 Company may terminate this Agreement at any time by so notifying the Auction Agent, provided that if any AMPS remain outstanding the Company 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 Company 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 Company shall use its best efforts to enter into an agreement with a successor auction agent containing substantially the same terms and conditions as this Agreement. (b) Except as otherwise provided in this Section 7.1(b), the respective rights and duties of the Company and the Auction Agent under this Agreement shall cease upon termination of this Agreement. The Company's representations, warranties, covenants and obligations to the Auction Agent under Sections 5 and 6.4 hereof shall survive the termination hereof. Upon termination of this Agreement, the Auction Agent shall (i) resign as Auction Agent under the Broker-Dealer Agreements, (ii) at the Company's request, promptly deliver to the Company copies of all books and records maintained by it in connection with its duties hereunder, and (iii) at the request of the Company, promptly 17 transfer to the Company or any successor auction agent any funds deposited by the Company 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 Company, MuniYield New York Insured Fund, Inc. 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 Company by a Company Officer and on behalf of the Auction Agent by an Authorized Officer. 7.3 Entire Agreement. ---------------- This Agreement contains the entire agreement between the parties relating to the subject matter hereof, and there are no other representations, endorsements, promises, agreements or understandings, oral, written or inferred between the parties relating to the subject matter hereof except for agreements relating to the compensation of the Auction Agent. 7.4 Benefits. -------- Nothing herein, express or implied, shall give to any Person, other than the Company, the Auction Agent and their respective successors and assigns, any benefit of any legal or equitable right, remedy or claim hereunder. 18 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 Company shall notify the Auction Agent of any change in the Articles Supplementary prior to the effective date of any 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 Successor and Assigns. --------------------- This Agreement shall be binding upon, inure to the benefit of, and be enforceable by, the respective successors and permitted assigns of each of the Company and the Auction Agent. This Agreement may not be assigned by either party hereto absent the prior written consent of the other party, which consent shall not be 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. 7.9 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. 19 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their proper and duly authorized officers as of the date first above written. MUNIYIELD NEW YORK INSURED FUND, INC. By: __________________________________________ Title: IBJ SCHRODER BANK & TRUST COMPANY By: __________________________________________ Title: 20 EX-99.13C 14 FORM OF BROKER-DEALER AGREEMENT - -------------------------------------------------------------------------------- Exhibit 13(c) BROKER-DEALER AGREEMENT between IBJ SCHRODER BANK & TRUST COMPANY and MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED Dated as of April 10, 1992 Relating to AUCTION MARKET PREFERRED STOCK(R) ("AMPS"(R)) Series A and Series B of MUNIYIELD NEW YORK INSURED FUND, INC. - -------------------------------------------------------------------------------- (R) Registered trademark of Merrill Lynch & Co., Inc. BROKER-DEALER AGREEMENT dated as of April 10, 1992 between IBJ Schroder Bank & Trust Company, a New York banking corporation (the "Auction Agent") (not in its individual capacity but solely as agent of MuniYield New York Insured Fund, Inc., a Maryland corporation (the "Company"), pursuant to authority granted to it in the Auction Agent Agreement dated as of April 10, 1992, between the Company and the Auction Agent (the "Auction Agent Agreement")) and Merrill Lynch, Pierce, Fenner & Smith Incorporated (together with its successors and assigns hereinafter referred to as "BD"). The Company has duly authorized and issued 850 shares of Auction Market Preferred Stock(R), Series A ("Series A AMPS") and 850 shares of Auction Market Preferred Stock, Series B ("Series B AMPS"), both 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 Company's Articles Supplementary (as defined below). The Series A AMPS and Series B AMPS are sometimes referred to together herein as "AMPS". The Company's Articles Supplementary provide that the dividend rate on each series of AMPS for each Dividend Period therefor after the Initial Dividend Period shall be the Applicable Rate therefor, which in each case, in general, shall be the rate per annum that a commercial bank, trust company or other financial institution appointed by the Company advises results from implementation of the Auction Procedures (as defined below). The Board of Directors of the Company has adopted a resolution appointing IBJ 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 Company has requested and directed the Auction Agent to execute and deliver this Agreement. The Auction Procedures require the participation of one or more Broker-Dealers. - ---------- (R) Registered trademark of Merrill Lynch & Co., Inc. 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 Articles Supplementary. Capitalized -------------------------------------------------------- terms not defined herein shall have the respective meanings specified in the Articles Supplementary of the Company. 1.2 Terms Defined Herein. As used herein and in the Settlement Procedures (as defined below), the following terms shall have the following meanings, unless the context otherwise requires: (a) "Articles Supplementary" shall mean the Articles Supplementary, as amended, of the Company, establishing the powers, preferences and rights of the AMPS filed on April 7, 1992 in the office of the State Department of Assessments and Taxation of the State of Maryland. (b) "Auction" shall have the meaning specified in Section 3.1 hereof. (c) "Auction Procedures" shall mean the Auction Procedures that are set forth in Paragraph 11 of the Articles Supplementary. (d) "Authorized Officer" shall mean each Senior Vice President, Vice President, Assistant Vice President, Trust Officer, Assistant Secretary and Assistant Treasurer of the Auction Agent assigned to its Corporate Trust and Agency Group and every other officer or employee of the Auction Agent designated as an "Authorized Officer" for purposes of this Agreement in a communication to BD. (e) "BD Officer" shall mean each officer or employee of BD designated as a "BD Officer" for purposes of this Agreement in a communication to the Auction Agent. (f) "Broker-Dealer Agreement" shall mean this Agreement and any substantially similar agreement between the Auction Agent and a Broker-Dealer. (g) "Purchaser's Letter" shall mean a letter addressed to the Company, 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. 2 (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 Articles Supplementary concerning the notification of a Special Dividend Period will be followed by the Auction Agent and BD and the provisions contained therein are incorporated herein by reference in their entirety and shall be deemed to be a part of this Agreement to the same extent as if such provisions were fully set forth herein. (b) Whenever the Company intends to include any net capital gains or other taxable income in any dividend on shares of any series of AMPS, the Company will notify the Auction Agent of the amount to be so included at least five Business Days prior to the Auction Date on which the Applicable Rate for such dividend is to be established. Whenever the Auction Agent receives such notice from the Company, 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. 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 each series of AMPS, for the next Dividend Period therefor. Each periodic operation of such procedures is hereinafter referred to as an "Auction." (b) All of the provisions contained in the Auction Procedures and the Settlement Procedures are incorporated herein by reference in their entirety and shall be deemed to be a part of this Agreement to the same extent as if such provisions were. fully set forth herein. (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 each series of AMPS, the number of shares of each series 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 I of the 3 Articles Supplementary 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 BrokerDealers, as the case may be, has executed a Purchaser's Letter. However, the Company 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 each series of AMPS. BD shall comply with any such request, and the Auction Agent shall keep confidential any such information, including information received as to the identity of Bidders in any Auction, and shall not disclose any such information so provided to any Person other than the Company; and such information shall not be used by the Auction Agent or its officers, employees, agents or representatives for any purpose other than such purposes as are described herein. The Auction Agent shall transmit any list of customers BD believes are Existing Holders of shares of each series of AMPS and information related thereto only to its officers, employees, agents or representatives in the Corporate Trust and Agency Group who need to know such information for the purposes of acting in accordance with this Agreement and 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. (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 Company and the Auction Agent shall conduct Auctions for each series of AMPS in accordance with the schedule set forth below. Such schedule may be changed at any time by the Auction Agent with the consent of the Company, which consent shall not be unreasonably withheld. The Auction Agent shall give notice of any such change to BD. Such 4 notice shall be received prior to the first Auction Date on which any such change shall be effective. Time Event ---- ----- By 9:30 A.M. Auction Agent advises the Company and 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 Articles Supplementary. 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 Articles Supplementary. By approximately Auction Agent advises Company of results of Auction 3:00 P.M. as provided in Paragraph 11(d)(ii) of the Articles Supplementary. Submitted Bids and Submitted Sell Orders are accepted and rejected in whole or in part and shares of AMPS are allocated as provided in Paragraph 11(e) of the Articles, Supplementary. By approximately 10:00 Auction Agent gives notice of Auction results as set A.M. on the next forth in Section 3.4(a) hereof. succeeding 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 Articles Supplementary. (c) BD agrees not to sell, assign or dispose of any shares of any series of AMPS, to any Person who has not delivered a signed Purchaser's Letter to the Auction Agent. (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. 5 (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 any series of AMPS, made through BD by an Existing Holder to another Person other than pursuant to an Auction, and (ii) a written notice, substantially in the form attached hereto as Exhibit E, of the failure of shares of any series of AMPS to be transferred to or by any Person that purchased or sold shares of any series 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 any series of AMPS in an Auction fails to deliver such shares, the BD of any Person that was to have purchased shares of such series of AMPS in such Auction may deliver to such Person a number of whole shares of such series of AMPS that is less than the number of shares that otherwise was to be purchased by such Person. In such event, the number of shares of such series of AMPS to be so delivered shall be determined by such BD. Delivery of such lesser number of shares shall constitute good delivery. Upon the occurrence of any such failure to deliver shares, such BD shall deliver to the Auction Agent the notice required by Section 3.3(e)(ii) hereof. Notwithstanding the foregoing terms of this Section 3.4(b), any delivery or non-delivery of shares of any series of AMPS which represents any departure from the results of an Auction, as determined by the Auction Agent, shall be of no effect unless and until the Auction Agent shall have been notified of such delivery or non-delivery in accordance with the terms of Section 3.3(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 Company an amount equal to: (a) in the case of any Auction Date immediately preceding a 7-day Dividend Period, a 28-day Dividend Period or Short Term 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 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 Articles 6 Supplementary) 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 Articles Supplementary that were acquired by such Existing Holders through BD and (b) in the case of any Auction Date immediately preceding a Long Term Dividend Period, that amount as mutually agreed upon by the Company and BD, based on the selling concession that would be applicable to an underwriting of fixed or variable rate preferred shares with a similar final maturity or variable rate dividend period, at the commencement of such Long Term Dividend Period. For purposes of subclause (a)(iv)(C) of the foregoing sentence, if any Existing Holder who acquired shares of any series of AMPS through BD transfers those shares to another Person other than pursuant to an Auction, then the Broker-Dealer for the shares so transferred shall continue to be BD, provided, however, that if the transfer was effected by,, or if the transferee is, a Broker-Dealer other than BD, then such Broker-Dealer shall be the Broker-Dealer for such shares. 4. The Auction Agent. ----------------- 4.1 Duties and Responsibilities. --------------------------- (a) The Auction Agent is acting solely as agent for the Company hereunder and owes no fiduciary duties to any other Person by reason of this Agreement. (b) The Auction Agent undertakes to perform such duties and only such duties as are 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 Company or by a Broker-Dealer. The Auction Agent may record telephone communications with the Broker-Dealers. (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. 7 (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 Company 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 Merrill Lynch, Pierce, Fenner & Smith addressed: Incorporated Merrill Lynch World Headquarters World Financial Center - North Tower New York, New York 10281-1205 Attention: Richard N. Doyle Telecopier No.: (212) 449-2760 Telephone No.: (212) 449-4940 8 If to the Auction IBJ Schroder 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 Company, the Auction Agent and BD and their respective successors and assigns, any benefit of any legal or equitable right, remedy or claim under this Agreement. 5.7 Amendment; Waiver. ----------------- (a) This Agreement shall not be deemed or construed to be modified, amended, rescinded, 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 Company without the consent of BD. 5.9 Severability. If any clause, provision or section of this Agreement ------------ shall be ruled invalid or unenforceable by any court of competent jurisdiction, the invalidity or unenforceability of such clause, provision or section shall not affect any remaining clause, provision or section hereof. 5.10 Execution in Counterparts. This Agreement may be executed in several ------------------------- counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument. 9 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. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their proper and duly authorized officers as of the date first above written. IBJ SCHRODER BANK & TRUST COMPANY By: ---------------------------------------- Title: Assistant Vice President MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED By: ---------------------------------------- Title: 10 EXHIBIT A --------- TO BE SUBMITTED TO YOUR BROKER-DEALER WHO WILL THEN DELIVER COPIES ON YOUR BEHALF TO THE RESPECTIVE TRUST COMPANY OR RETMARKETING AGENT MASTER PURCHASER'S LETTER Relating to Securities Involving Rate Settings Through Auctions or Remarketings THE COMPANY A REMARKETING AGENT THE TRUST COMPANY BROKER-DEALER AN AGENT MEMBER OTHER PERSONS Dear Sirs: 1. This letter is designed to apply to publicly or privately offered debt or equity securities ("Securities") of any issuer ("Company") which are described in any final prospectus or other offering materials relating to such Securities as the same may be amended or supplemented (collectively, with respect to the particular Securities concerned, the "Prospectus") and which involve periodic rate settings through auctions ("Auctions") or remarketing procedures ("Remarketings"). This letter shall be for the benefit of any Company and of any trust company, auction agent, paying agent (collectively, "trust company"), remarketing agent, broker-dealer, agent member, securities depository or other interested person in connection with any Securities and related Auctions or Remarketings (it being understood that such persons may be required to execute specified agreements and nothing herein shall alter such requirements). The terminology used herein is intended to be general in its application and not to exclude any Securities in respect of which (in the Prospectus or otherwise) alternative terminology is used. 2. We may from time to time offer to purchase, purchase, offer to sell and/or sell Securities of any Company as described in the Prospectus relating thereto. We agree that this letter shall apply to all such purchases, sales and offers and to Securities owned by us. We understand that the dividend/interest rate on Securities may be based from time to time on the results of Auctions or Remarketings as set forth in the Prospectus. 3. We agree that any bid or sell order placed by us in an Auction or a Remarketing shall constitute an irrevocable offer (except is otherwise described in the Prospectus) by us to purchase or sell the Securities subject to such bid or sell order, or such lesser amount of Securities as we shall be required to sell or purchase as a result of such Auction or Remarketing, at the applicable price, all as set forth in the Prospectus, and that if we fail to place a bid or sell order with respect to Securities owned by us with a broker-dealer on any Auction or Remarketing date, or a broker-dealer to which we communicate a bid or sell order fails to submit such bid or sell order to the trust company or remarketing agent concerned, we shall be deemed to have placed a hold order with respect to such Securities as described in the Prospectus. We authorize any broker-dealer that submits a bid or sell order as our agent in Auctions or Remarketings to execute contracts for the sale of Securities covered by such bid or sell order. We recognize that the payment by such broker-dealer for Securities purchased on our behalf shall not relieve us of any liability to such broker-dealer for payment for such Securities. 4. We understand that in a Remarketing, the dividend or interest rate or rates on the Securities and the allocation of Securities tendered for sale between dividend or interest periods of different lengths will be based from time to time on the determinations of one or more remarketing agents, and we agree to be conclusively bound by such determinations. We further agree to the payment of different dividend or interest rates to different holders of Securities depending on the length of the dividend or interest period elected by such holders. We agree that any notice given by us to a remarketing agent (or to a broker-dealer for transmission to a remarketing agent) of our desire to under Securities in a Remarketing shall constitute an irrevocable (except to the limited extent set forth I n the Prospectus) offer by us to sell the Securities specified in such notice, or such lesser number of Securities as we shall be required to sell as a result of such Remarketing, in accordance with the terms set forth in the Prospectus. and we authorize the remarketing agent to sell, transfer or otherwise dispose of such Securities as set forth in the Prospectus. 5. We agree that, during the applicable period as described in the Prospectus, dispositions of Securities can be made only in the denominations set forth in the Prospectus and we will sell, transfer or otherwise dispose of any Securities held by us from time to time only pursuant to a bid or sell order placed in an Auction, in a Remarketing', to or through a broker-dealer or, when permitted in the Prospectus, to a person that has signed and delivered to the applicable trust company or a remarketing agent a letter substantially in the form of this letter (or other applicable purchaser's letter), provided that in the case of all transfers other than pursuant to Auctions or Remarketings we or our broker-dealer or our agent member shall advise such trust company or a remarketing agent of such transfer. We understand that a restrictive legend will be placed on certificates representing the Securities and stop-transfer instructions will be issued to the transfer agent and/or registrar, all as set forth 1-11 the Prospectus. 6. We agree that, during the applicable period as described in the Prospectus, ownership of Securities shall be represented by one or more global certificates registered in the name of the applicable securities depository or its nominee, that we will not be entitled to receive any certificate representing the Securities and that our ownership of any Securities will be maintained in book entry form by the securities depository for the account of our agent member, which in turn will maintain records of our beneficial ownership. We authorize and instruct our agent member to disclose to the applicable trust company or remarketing agent such information concerning our beneficial ownership of Securities as such trust company or remarketing agent shall request. 7. We acknowledge that partial deliveries of Securities purchased in Auctions or Remarketings may be made to us and such deliveries shall constitute good delivery as set forth in the Prospectus. 8. This letter is not a commitment by us to purchase any Securities. 2 9. This letter supersedes any prior-dated version of this master purchaser's letter, and supplements any prior or post-dated purchaser's letter specific to particular Securities, and this letter may only be revoked by a signed writing delivered to the original recipients hereof. 10. The descriptions of Auction or Remarketing procedures set forth in each applicable Prospectus are incorporated by reference herein and in case of any conflict between this letter, any purchaser's letter specific to particular Securities and any such description, such description shall control. 11. Any xerographic or other copy of this letter shall be deemed of equal effect as a signed original. 12. Our agent member of The Depository Trust Company currently is 13. Our personnel authorized to place orders with broker-dealers for the purposes set forth in the Prospectus in Auctions or Remarketings currently is/are _______________ telephone number ( ) . 14. Our taxpayer identification number is 15. In the case of each offer to purchase, purchase, offer to sell or sale by us of Securities not registered under the Securities Act of 1933, as amended (the "Act"), we represent and agree as follows: A. We understand and expressly acknowledge that. the Securities have not been and will not be registered under the Act and, accordingly, that the Securities may not be reoffered, resold or otherwise pledged, hypothecated or transferred unless an applicable exemption from the registration requirements of the Act is available. B. We hereby confirm that any purchase of Securities made by us will be for our own account, or for the account of one or more parties for which we are acting as trustee or agent with complete investment discretion and with authority to bind such parties, and not with a view to any public resale or distribution thereof. We and each other party for which we are acting which will acquire Securities will be "accredited investors" within the meaning of Regulation D under the Act with respect to the Securities to be purchased by us or such party, as the case may be, will have previously invested in similar types of instruments and will be able and prepared to bear the economic risk of investing in and holding such Securities. C. We acknowledge that prior to purchasing any Securities we shall have received a Prospectus (or private placement memorandum) with respect thereto and acknowledge that we will have had access to such financial and other information, and have been afforded the opportunity to ask such questions of representatives of the Company and receive answers thereto, as we deem necessary in connection with our decision to purchase Securities. D. We recognize that the Company and broker-dealers will rely upon the truth and accuracy of the foregoing investment representations and agreements, and we 3 agree that each of our purchases of Securities now or in the future shall be deemed to constitute our concurrence in all of the foregoing which shall be binding on us and each party for which we are acting as set forth in Subparagraph B above. --------------------------------------- (Name of Purchaser) By ------------------------------------- Printed Name: Title: Dated: ---------------------- Mailing Address of Purchaser - ---------------------------- - ---------------------------- - ---------------------------- - ---------------------------- 4 EXHIBIT B --------- SETTLEMENT PROCEDURES The following summary of Settlement Procedures sets forth the procedures expected to be followed in connection with the settlement of each Auction and will be incorporated by reference in the Auction Agent Agreement and each Broker-Dealer Agreement. Nothing contained in this Appendix C constitutes a representation by the Fund that in each Auction each party referred to herein will actually perform the procedures described herein to be performed by such party. Capitalized terms used herein shall have the respective meanings specified in the glossary of this Prospectus or Appendix D hereto, as the case may be. (a) On each Auction Date, the Auction Agent shall notify by telephone or through the Auction Agent's Processing System the Broker-Dealers that participated in the Auction held on such Auction Date and submitted an Order on behalf of any Existing Holder or Potential Holder of: (i) the Applicable Rate fixed for the next succeeding Dividend Period; (ii) whether Sufficient Clearing Bids existed for the determination of the Applicable Rate; (iii) if such Broker-Dealer (a "Seller's Broker-Dealer") submitted a Bid or a Sell Order on behalf of an Existing Holder, the number of shares, if any, of AMPS to be sold by such Existing Holder; (iv) if such Broker-Dealer (a "Buyer's Broker-Dealer") submitted a Bid on behalf of a Potential Holder. the number of shares, if any, of AMPS to be purchased by such Potential Holder; (v) if the aggregate number of shares of AMPS to be sold by all Existing Holders on whose behalf such Broker-Dealer submitted a Bid or a Sell Order exceeds the aggregate number of shares of AMPS to be purchased by all potential Holders on whose behalf such Broker-Dealer submitted a Bid, the name or names of one or more Buyer's Broker-Dealers (and the name of the Agent Member, if any, of each such Buyer's Broker-Dealer) acting for one or more purchasers of such excess number of shares of AMPS and the number of such shares to be purchased from one or more Existing Holders on whose behalf such Broker-Dealer acted by one or more Potential Holders on whose behalf each of such Buyer's Broker-Dealers acted; (vi) if the aggregate number of shares of AMPS to be purchased by all Potential Holders on whose behalf such Broker-Dealer submitted a Bid exceeds the aggregate number of shares of AMPS to be sold by all Existing Holders on whose behalf such Broker-Dealer submitted a Bid or a Sell Order, the name or names of one or more Seller's Broker-Dealers (and the name of the Agent Member, if any, of each such Seller's Broker-Dealer) acting for one or more sellers of such excess number of shares of AMPS and the number of such shares to be sold to one or more Potential Holders on whose behalf such BrokerDealer acted by one or more Existing Holders on whose behalf each of such Seller's Broker-Dealers acted; and (vii) the Auction Date of the next succeeding Auction with respect to the AMPS. (b) On each Auction Date, each Broker-Dealer that submitted an Order on behalf of any Existing Holder or Potential Holder shall: (i) in the case of a Broker-Dealer that is a Buyer's Broker-Dealer, instruct each Potential Holder on whose behalf such Broker-Dealer submitted a Bid that was accepted, in whole or in part to instruct such Potential Holder's Agent Member to pay to such Broker-Dealer (or its Agent Member) through the Securities Depository the amount necessary to purchase the number of shares of AMPS to be purchased pursuant to such Bid against receipt of such shares and advise such Potential Holder of the Applicable Rate for the next succeeding Dividend Period; I . (ii) in the case of a Broker-Dealer that is a Seller's Broker-Dealer, instruct each Existing Holder on whose behalf such Broker-Dealer submitted a Sell Order that was accepted, in whole or in part, or a Bid that was accepted, in whole or in part, to instruct such Existing Holder's Agent Member to deliver to such Broker-Dealer (or its Agent Member) through the Securities Depository the number of shares of AMPS to be sold pursuant to such Order against payment therefor and advise any such Existing Holder that will continue to hold shares of AMPS of the Applicable Rate for the next succeeding Dividend Period; (iii) advise each Existing Holder on whose behalf such Broker-Dealer submitted a Hold Order of the Applicable Rate for the next succeeding Dividend Period; (iv) advise each Existing Holder on whose behalf such Broker-Dealer submitted an Order of the Auction Date for the next succeeding Auction; and (v) advise each Potential Holder on whose behalf such Broker-Dealer submitted a Bid that was accepted, in whole or in part, of the Auction Date for the next succeeding Action. (c) On the basis of the information provided to it pursuant to (a) above, each Broker-Dealer that submitted a Bid or a Sell Order on behalf of a Potential Holder or an Existing Holder shall, in such manner and at such time or times as in its sole discretion it may determine, allocate any funds received by it pursuant to (b)(i) above and any shares of AMPS received by it pursuant to (b)(ii) above among the Potential Holders, if any, on whose behalf such Broker-Dealer submitted Bids, the Existing Holders, if any, on whose behalf such Broker-Dealer submitted Bids that were accepted or Sell Orders, and any Broker-Dealer or BrokerDealers identified to it by the Auction Agent pursuant to (a)(v) or (a)(vi) above. (d) On each Auction Date: (i) each Potential Holder and Existing Holder shall instruct its Agent Member as provided in (b)(i) or (ii) above, as he case may be; 2 (ii) each Seller's Broker-Dealer which is not an Agent Member of the Securities Depository shall instruct its Agent Member to (A) pay through the Securities Depository to the Agent Member of the Existing Holder delivering shares to such Broker-Dealer pursuant to (b)(ii) above the amount necessary to purchase such shares against receipt of such shares, and (B) deliver such shares through the Securities Depository to a Buyer's Broker-Dealer (or its Agent Member) identified to such Seller's Broker-Dealer pursuant to (a)(v) above against payment therefor; and (iii) each Buyer's Broker-Dealer which is not an Agent Member of the Securities Depository shall instruct its Agent Member to (A) pay through the Securities Depository to a Seller's Broker-Dealer (or its Agent Member) identified pursuant to (a)(vi) above the amount necessary to purchase the shares to be purchased pursuant to (b)(i) above against receipt of such shares, and (B) deliver such shares through the Securities Depository to the Agent Member of the purchaser thereof against payment therefor. (e) On the day after the Auction Date: (i) each Bidder's Agent Member referred to in (d)(i) above shall instruct the Securities Depository to execute the transactions described under (b)(i) or (ii) above, and the Securities Depository shall execute such transactions, (ii) each Seller's Broker-Dealer or its Agent Member shall instruct the Securities Depository to execute the transactions described in (d)(ii) above, and the Securities Depository shall execute such transactions; and (iii) each Buyer's Broker-Dealer or its Agent Member shall instruct the Securities Depository to execute the transactions described in (d)(iii) above, and the Securities Depository shall execute such transactions. (f) If an Existing Holder selling shares of AMPS in an Auction fails to deliver such shares (by authorized book-entry), a Broker-Dealer may deliver to the Potential Holder on behalf of which it submitted a Bid that was accepted a number of whole shares of AMPS that is less than the number of shares that otherwise was to be purchased by such Potential Holder. In such event, the number of shares of AMPS to be so delivered shall be determined solely by such Broker-Dealer. Delivery of such lesser number of shares shall constitute good delivery. Notwithstanding the foregoing terms of this paragraph (0, any delivery or non-delivery of shares which shall represent 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 provisions of the Auction Agent Agreement and the Broker-Dealer Agreements. 3 EXHIBIT C --------- IBJ SCHRODER BANK & TRUST COMPANY AUCTION BID FORM Submit To: IBJ Schroder Bank & Trust Co. Issue ___________________ Securities Transfer Department Series ___________________ One State Street Auction Date _____________ 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 __________________ EXHIBIT D --------- (To be used only for transfers made other than pursuant to an Auction.) TRANSFER FORM Re: MuniYield New York Insured Fund, Inc. Auction Market Preferred Stock, Series _ ("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 Series _______ AMPS to ___________. ---------------------------------------- (Name of Existing Holder) ---------------------------------------- (Name of Broker-Dealer) ---------------------------------------- (Name of Agent Member) By: ------------------------------------- Printed Name: Title: 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 Series AMPS of MuniYield New York Insured Fund, Inc. in the Auction held on _______________ from the seller of such shares. II. We are a Broker-Dealer for (the "Seller"), which sold shares of Series AMPS of MuniYield New York Insured Fund, Inc. 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: EX-99.13D 15 FORM OF LETTER OF REPRESENTATIONS Exhibit 13(d) LETTER OF REPRESENTATIONS MUNIYIELD NEW YORK INSURED FUND, INC. and IBJ SCHRODER BANK & TRUST COMPANY April 10, 1992 The Depository Trust Company 55 Water Street New York, New York 10041 Attention: General Counsel's Office Re: MuniYield New York Insured Fund, Inc. Issuance of Auction Market Preferred Stock ["AMPS"(R)] ------------------------------------------------------ Ladies and Gentlemen: The purpose of this letter is to set forth certain matters relating to the issuance and sale by MuniYield New York Insured Fund, Inc., a Maryland corporation (the "Issuer"), of 850 shares of Auction Market Preferred Stock, Series A (the "Series A AMPS") and 850 shares of Auction Market Preferred Stock, Series B (the "Series B AMPS"). The Series A AMPS and the Series B AMPS are sometimes herein together called the "AMPS". 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: ___________________ (R) Registered Trademark of Merrill Lynch & Co., Inc. 1. Prior to the issuance of the shares of AMPS on April 10, 1992 the Issuer shall cause the Underwriter to deposit with DTC one 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. 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 30 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 30 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 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 2 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 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 13 hereof, to receive certificates evidencing such shares of AMPS if such certificates are to be issued in accordance with the Issuer's Charter (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 taxable income 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 each 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 number set forth on the share certificate representing the AMPS. 3 9. 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. 10. All notices and payment advices sent to DTC shall contain the CUSIP number set forth on the share certificate representing the AMPS. 11. 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 12. 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 13. 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. 14. 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. 4 15. 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 a new share certificate representing the remaining outstanding shares of AMPS or (b) may make appropriate notations on the certificate indicating the date and amounts of such reductions. In the case of redemption of all of the shares, DTC will surrender the certificate to the Auction Agent for cancellation if required. 16. 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. 17. 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 or 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 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. 18. 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 upon request, 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. Nothing herein shall be deemed to require the Auction Agent to advance funds on behalf of the Issuer. 5 Very truly yours, MUNIYIELD NEW YORK INSURED FUND, INC. as Issuer By: ------------------------------------------- Title: Vice President IBJ SCHRODER BANK & TRUST COMPANY as Auction Agent By: ------------------------------------------- Title: Assistant Vice President Received and Accepted: THE DEPOSITORY TRUST COMPANY By: ------------------------- Title cc: Merrill Lynch & Co. Merrill Lynch, Pierce, Fenner & Smith Incorporated 6 EX-99.14A 16 CONSENT OF DELOITTE & TOUCHE LLP EXHIBIT (14)(A) INDEPENDENT AUDITORS' CONSENT MuniYield New York Insured Fund, Inc.: We consent to the use in this Pre-Effective Amendment No. 1 to Registration Statement No. 333-88423 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. /s/ Deloitte & Touche LLP Princeton, New Jersey November 8, 1999 EX-99.14B 17 CONSENT OF DELOITTE & TOUCHE LLP EXHIBIT 14(b) INDEPENDENT AUDITORS' CONSENT MuniYield New York Insured Fund II, Inc.: We consent to the reference to us under the captions "Comparison of the Funds- Financial Highlights" and "Experts" appearing in the Proxy Statement and Prospectus, which is a part of this Pre-Effective Amendment No. 1 to Registration Statement No. 333-88423 on Form N-14. /s/ Deloitte & Touche LLP Deloitte & Touche LLP Princeton, New Jersey November 8, 1999 EX-99.14C 18 CONSENT OF ERNST & YOUNG LLP EXHIBIT (14)(C) CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the captions "The Reorganization- Comparison of the Funds-Financial Highlights", "Selection of Independent Auditors" and "Experts" and to the use of our report dated December 1, 1998 for MuniYield New York Insured Fund II, Inc. included in the Registration Statement (Form N-14 No. 333-88423) and related combined Proxy Statement and Prospectus of MuniYield New York Insured Fund, Inc. and MuniYield New York Insured Fund II, Inc. filed with the Securities and Exchange Commission. /s/ Ernst & Young LLP MetroPark, New Jersey November 5, 1999 -----END PRIVACY-ENHANCED MESSAGE-----