As filed with the Securities and Exchange Commission on March 9, 2004

Securities Act File No. 333-             
Investment Company Act No. 811-6540

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-14
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

Pre-Effective Amendment No.	|_|
Post-Effective Amendment No.	|_|

(Check appropriate box or boxes)

MuniYield 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 Insured Fund, Inc.
800 Scudders Mill Road, Plainsboro, New Jersey 08536
(Name and Address of Agent for Service)

Copies to:

Frank P. Bruno, Esq.
Sidley Austin Brown & Wood LLP
787 Seventh Avenue
New York, NY 10019 Andrew J. Donohue, Esq.
Fund Asset Management, L.P.
P.O. Box 9011
Plainsboro, NJ 08543-9011

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

Title of Securities Being Registered	Amount being Registered(1)	Proposed Maximum Offering Price Per Unit(1)	Proposed Maximum Aggregate Offering Price(1)	Amount of Registration Fee(2)
Common Stock (0.10 par value)	5,600,000 shares	$16.09	$90,104,000	$11,417

(1) Estimated solely for the purpose of calculating the filing fee.

(2) 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.

MUNIINSURED FUND, INC.
P.O. BOX 9011
Princeton, New Jersey 08543-9011

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

To Be Held On May 12, 2004

To the Holders of Common Stock of
      MUNIINSURED FUND, INC.

     NOTICE IS HEREBY GIVEN that an annual meeting of stockholders (the “Meeting”) of MuniInsured Fund, Inc. (“MuniInsured”), a Maryland corporation, will be held at the offices of Fund Asset Management, L.P., 800 Scudders Mill Road, Plainsboro, New Jersey on Wednesday, May 12, 2004 at 9:00 a.m. Eastern time for the following purposes:

     (1) To elect three Directors of MuniInsured to serve until the 2007 Annual Meeting of Stockholders; and

     (2) To approve or disapprove an 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 MuniInsured by MuniYield Insured Fund, Inc. (“MuniYield Insured”), a Maryland corporation, in exchange solely for newly issued shares of common stock of MuniYield Insured (the “MuniYield Insured Common Stock”) that has an aggregate net asset value equal to the aggregate net asset value of the common stock of MuniInsured (the “MuniInsured Common Stock”) and (ii) the distribution by MuniInsured, on a proportionate basis, of MuniYield Insured Common Stock (plus cash in lieu of fractional shares) to the holders MuniInsured Common Stock. A vote in favor of this proposal also will constitute a vote in favor of the liquidation and dissolution of MuniInsured under the laws of the State of Maryland and the termination of the registration of MuniInsured under the Investment Company Act of 1940, as amended;

     (3) To transact such other business as properly may come before the Meeting or any adjournment thereof.

     The Board of Directors of MuniInsured has fixed the close of business on March 12, 2004 as the record date for the determination of stockholders entitled to notice of, and to vote at, the Meeting or any adjournment(s) thereof.

     You are cordially invited to attend the Meeting. Stockholders who do not expect to attend the Meeting in person are requested to complete, date and sign the enclosed form of proxy and return it promptly in the envelope provided for that purpose. If you have been provided with the opportunity on your proxy card or voting instruction form to provide voting instructions via telephone or the Internet, please take advantage of these prompt and efficient voting options. The enclosed proxy is being solicited on behalf of the Board of Directors of MuniInsured.

     If you have any questions regarding the enclosed proxy material, please contact our proxy solicitor, Georgeson Shareholder, at 1-800-________.

By Order of the Board of Directors,

Phillip S. Gillespie
Secretary
MUNIINSURED FUND, INC.

Plainsboro, New Jersey

Dated: April __, 2004

SUBJECT TO COMPLETION
PRELIMINARY PROXY STATEMENT AND PROSPECTUS
DATED MARCH 9, 2004

PROXY STATEMENT OF MUNIINSURED FUND, INC.
FOR USE AT AN ANNUAL MEETING OF STOCKHOLDERS

To Be Held On May 12, 2004

PROSPECTUS OF
MUNIYIELD INSURED FUND, INC.
P.O. Box 9011, Princeton, New Jersey 08543-9011
(609) 282-2800

     This Proxy Statement and Prospectus is furnished to you as a stockholder of MuniInsured Fund, Inc. (“MuniInsured”). An annual meeting of stockholders of MuniInsured will be held on May 12, 2004, (the “Meeting”) to consider the items listed below and discussed in greater detail elsewhere in this Proxy Statement and Prospectus. The Board of Directors of MuniInsured is requesting stockholders to submit a proxy to be used at the Meeting to vote the shares held by the stockholder submitting such proxy.

     The proposals to be considered at the Meeting are:

     (1) To elect three Directors of MuniInsured to serve until the 2007 Annual Meeting of Stockholders; and

     (2) To approve an Agreement and Plan of Reorganization (the “Agreement and Plan”) contemplating (i) the acquisition of substantially all of the assets and the assumption of substantially all of the liabilities of MuniInsured by MuniYield Insured Fund, Inc. (“MuniYield Insured”), a Maryland corporation, in exchange solely for newly issued shares of common stock of MuniYield Insured (“MuniYield Insured Common Stock”) and (ii) the distribution by MuniInsured, on a proportionate basis, of MuniYield Insured Common Stock (plus cash in lieu of fractional shares) to the holders of common stock of MuniInsured (“MuniInsured Common Stock”). A vote in favor of this proposal also will constitute a vote in favor of the liquidation and dissolution of MuniInsured under the laws of the State of Maryland and the termination of the registration of MuniInsured under the Investment Company Act of 1940, as amended;

     (3) To transact such other business as may properly come before the Meeting or any adjournment thereof.

     The transaction set forth in Proposal 2 above is referred to in this Proxy Statement and Prospectus as the “Reorganization.”

     This Proxy Statement and Prospectus sets forth concise information about MuniYield Insured that a stockholder of MuniInsured should know before considering the Reorganization and should be retained for future reference. MuniInsured 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 Board of Directors (the “Directors”) of MuniInsured has fixed the close of business on March 12, 2004 as the record date (the “Record Date”) for the determination of stockholders entitled to notice of, and to vote at, the Meeting or any adjournment(s) thereof. Stockholders on the Record Date will be entitled to one vote for each share held, with no share having cumulative voting rights. As of the Record Date, MuniInsured had outstanding ____________ shares of common stock.

(continued on the following page)

The Securities And Exchange Commission has not approved or disapproved these securities
or passed upon the adequacy of this Proxy Statement and Prospectus.
Any representation to the contrary is a criminal offense.

     This Proxy Statement and Prospectus serves as a prospectus of MuniYield Insured in connection with the issuance of the MuniYield Insured Common Stock as part of the Reorganization.

     MuniYield Insured and MuniInsured are sometimes referred to herein individually as a “Fund” and collectively as the “Funds,” as the context requires. The fund resulting from the Reorganization is sometimes referred to herein as the “Combined Fund.”

     In the Reorganization, MuniYield Insured will acquire substantially all of the assets and assume substantially all of the liabilities of MuniInsured solely in exchange for newly issued shares of MuniYield Insured Common Stock with a par value of $.10 per share. MuniInsured will distribute the MuniYield Insured Common Stock (plus cash in lieu of fractional shares) to holders of MuniInsured Common Stock and will then liquidate and dissolve under Maryland law and terminate its registration under the Investment Company Act of 1940, as amended (the “Investment Company Act”). MuniYield Insured will continue to operate as a registered closed-end investment company with the investment objective and investment policies described in this Proxy Statement and Prospectus.

     In the Reorganization, MuniYield Insured will issue shares of its common stock to MuniInsured based on the net asset value of the assets transferred to MuniYield Insured by MuniInsured. These shares will then be distributed by MuniInsured to its stockholders based on the net asset value of the shares held by each stockholder just prior to the Reorganization. A holder of MuniInsured Common Stock will receive MuniYield Insured Common Stock (plus cash in lieu of fractional shares). All references to the MuniInsured Common Stock will include shares of common stock representing Dividend Reinvestment Plan shares held in the book deposit accounts of holders of MuniInsured Common Stock.

     The MuniYield Insured Common Stock is listed on the New York Stock Exchange (the “NYSE”) under the symbol “MYI.” The MuniInsured Common Stock is listed on the American Stock Exchange (the “AMEX”) under the symbol “MIF.” Subsequent to the Reorganization, shares of MuniYield Insured Common Stock will continue to be listed on the NYSE under the symbol “MYI.” Reports, proxy materials and other information concerning MuniYield Insured and MuniInsured may be inspected at the Public Reference Room of the Securities and Exchange Commission (the “SEC”) in Washington, D.C. Call (202) 942-8090 for information on the operation of the public reference room. This information is also available on the SEC’s Internet site at http://www.sec.gov and copies may be obtained upon payment of a duplicating fee, by electronic request at the following E-mail address: publicinfo@sec.gov or by writing the Public Reference Section of the SEC. Such information concerning MuniYield Insured may also be inspected at the offices of the NYSE, 20 Broad Street, New York, New York 10005. Such information concerning MuniInsured may also be inspected at the offices of the AMEX at 9801 Washington Boulevard, Gaithersburg, Maryland 20878.

     The address of the principal executive office of MuniYield Insured and MuniInsured is 800 Scudders Mill Road, Plainsboro, New Jersey 08536, and the telephone number is (609) 282-2800.

TABLE OF CONTENTS

		Page
INTRODUCTION		1
ITEM 1: ELECTION OF DIRECTORS		1
	Committees of the Board of Directors	2
	Stockholder Communication	2
	Director Attendance at Stockholder Meetings	2
	Independant Accountant’s Fees	2
	Compliance with Section 16(a) of the Securities Exchange Act of 1934	4
	Interested Persons	5
	Compensation of Directors	5
	Officers of MuniInsured	6
	Share Ownership	6
ITEM 2: THE REORGANIZATION		6
SUMMARY		6
	The Reorganization	6
	What will be the Results of the Reorganization?	6
	What are the Reasons for the Reorganization?	7
	Pro Forma Fee Table	8
RISK FACTORS AND SPECIAL CONSIDERATIONS		16
COMPARISON OF THE FUNDS		20
	Financial Highlights	20
	Investment Objectives and Policies	22
	Investment Restrictions	31
	Performance	34
	Code of Ethics	40
	Stockholder Inquiries	41
	Dividends and Distributions	41
AGREEMENT AND PLAN OF REORGANIZATION		48
	General	48
	Procedure	48
	Terms of the Agreement and Plan	49
	Potential Benefits to Stockholders of Growth Opportunity as a Result of the Reorganization	51
	Tax Consequences of the Reorganization	52
	Capitalization	54
INFORMATION CONCERNING THE SPECIAL MEETING		54
	Date, Time and Place of Meeting	54
	Solicitation, Revocation and Use of Proxies	54
	Record Date and Outstanding Shares	54
	Security Ownership of Certain Beneficial Owners and Management	54
	Voting Rights and Required Vote	55
	Appraisal Rights	55

.

	Page
ADDITIONAL INFORMATION	55
CUSTODIAN	56
TRANSFER, AGENT, DIVIDEND DISBURSING AGENT AND REGISTRAR	56
ACCOUNTING SERVICES PROVIDER	57
LEGAL PROCEEDINGS	57
LEGAL OPINIONS	57
EXPERTS	57
STOCKHOLDER PROPOSALS	58
INDEX TO FINANCIAL STATEMENTS	59
EXHIBIT I — INFORMATION PERTAINING TO EACH FUND	I-1
EXHIBIT II — AGREEMENT AND PLAN OF REORGANIZATION	II-1
EXHIBIT III — DESCRIPTION OF BOND RATINGS	III-1
EXHIBIT IV — PORTFOLIO INSURANCE	IV-1
EXHIBIT V — TO BE SUPPLIED BY SUBSEQUENT AMENDMENT
EXHIBIT VI — CHARTER OF THE NOMINATING COMMITTEE	VI-1

INTRODUCTION

     This Proxy Statement and Prospectus is furnished to you in connection with the solicitation of proxies on behalf of the Board of Directors of MuniInsured for use at the Meeting to be held at the offices of Fund Asset Management, L.P. (“FAM”), 800 Scudders Mill Road, Plainsboro, New Jersey on Wednesday, May 12, 2004 at 9:00 a.m. Eastern time. The mailing address for MuniInsured is P.O. Box 9011, Princeton, New Jersey 08543-9011. The approximate mailing date of this Proxy Statement and Prospectus is April __, 2004.

     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 MuniInsured at the address indicated above or by voting in person at the Meeting. All properly executed proxies received prior to the Meeting will be voted at the Meeting 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 election of Directors and “FOR” the proposal to approve the Agreement and Plan.

     With respect to Item 1, assuming a quorum is present at the Meeting, election of the three Directors to serve until the 2007 Annual Meeting of Stockholders will require the affirmative vote of the holders of a majority of the votes cast by MuniInsured’s stockholders at the Meeting, voting in person or by proxy. With respect to Item 2, assuming a quorum is present at the Meeting, approval of the Agreement and Plan will require the affirmative vote of a majority of the outstanding shares of MuniInsured Common Stock, voting in person or by proxy.

     The Board of Directors of MuniInsured has fixed the close of business on March 12, 2004 as the Record Date for the determination of stockholders entitled to notice of, and to vote at, the Meeting or any adjournment(s) thereof. Stockholders on the Record Date will be entitled to one vote for each share held, with no shares having cumulative voting rights. As of the Record Date, MuniInsured had _____ shares of Common Stock outstanding. To the knowledge of the management of MuniInsured, no person owned beneficially or of record 5% or more of the outstanding shares of common stock of MuniInsured as of the Record Date.

     The Board of Directors of MuniInsured knows of no business other than that discussed above that will be presented for consideration at the Meeting. 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. ELECTION OF DIRECTORS OF MUNIINSURED

     At the Meeting, Directors of MuniInsured will be elected to serve until their successors have been duly elected and qualified or until their earlier resignation or removal. If the stockholders of MuniInsured do not approve the Agreement and Plan as described herein, then the Board of MuniInsured, including the Class III Directors elected at the Meeting, will continue to serve as the Board of MuniInsured. If the stockholders of MuniInsured approve the Agreement and Plan as described herein, and the Reorganization is consummated, the stockholders of MuniInsured will become stockholders of MuniYield Insured. The same individuals serve as Directors of MuniYield Insured. The Board of MuniInsured is responsible for the overall supervision of the operations of the Fund and will be responsible for the overall supervision of the Combined Fund if the Reorganization is consummated.

     Pursuant to the Articles of Incorporation of MuniInsured, the Board is divided into three classes, designated Class I, Class II and Class III. Each class has a term of office of three years and each year the term of office of one class expires. A Director elected by stockholders will serve until the Annual Meeting of Stockholders in the year in which his or her term expires and until his or her successor is elected and qualified.

     It is intended that all properly executed proxies of the holders of MuniInsured Common Stock, voting together as a single class, will be voted (unless such authority has been withheld in the proxy or revoked as described herein) “FOR” Herbert I. London, André F. Perold and Robert S. Salomon, Jr. as Class III Directors to serve until the 2007 Annual Meeting.

     Certain biographical and other information relating to the nominees is set forth in Exhibit I to this Proxy Statement and Prospectus. As of the Record Date, the Directors owned [no] shares of MuniInsured Common Stock. The Board of MuniInsured knows of no reason why any of these nominees will be unable to serve, but in the event of any such unavailability, the proxies received will be voted for such substitute nominee or nominees as the Board of MuniInsured may recommend.

Committees of the Board of Directors

     MuniInsured maintains two standing board committees, the Audit Committee and the Nominating Committee, each consisting of all the Directors who are not “interested persons” of the Fund, as defined in the Investment Company Act and who are “independent” as defined in the listing standards of the American Stock Exchange (“AMEX”). Currently, Ms. Ramo and Messrs. Bodurtha, Grills, London, Perold, Salomon and Swensrud are members of MuniInsured’s Audit Committee and Nominating Committee.

Audit Committee

     The principal responsibilities of the Audit Committee are the appointment, compensation and oversight of the Fund’s independent accountants, including the resolution of disagreements regarding financial reporting between Fund management and such independent accountants. The Audit Committee’s responsibilities include, without limitation, to (i) review with the independent accountants the arrangements for and scope of annual and special audits and any other services provided by the independent accountants to the Fund’s; (ii) discuss with the independent accountants certain matters relating to the Fund’s financial statements, including any adjustment to such financial statements recommended by such independent accountants or any other results of any audit; (iii) ensure that the independent accountants submit on a periodic basis a formal written statement with respect to their independence, discuss with the independent accountants any relationships or services disclosed in the statement that may impact the objectivity and independence of the Fund’s independent accountants and recommend that the Board take appropriate action in response thereto to satisfy itself of the independent accountants’ independence; and (iv) consider the comments of the independent accountants with respect to the quality and adequacy of the Fund’s accounting and financial reporting policies and practices and internal controls and Fund management’s responses thereto. The Audit Committee has retained independent legal counsel to assist it in connection with these duties.

 

     MuniInsured adopted a revised Audit Committee Charter (the “Charter”) at a meeting held on November 21, 2003. The Board revised and reapproved the Charter on May 29, 2003. A copy of the Charter is attached as Exhibit V to this proxy statement and prospectus. The Committee also has (a) received written disclosures and the letter required by Independence Standards Board Standard No. 1 from ____________, MuniInsured’s independent auditors, and (b) discussed certain matters required to be discussed by Statements on Auditing Standards No. 61 with _________. The Committee has considered whether the provision of non-audit services by ______________ is compatible with maintaining the independence of those auditors.

     At its meeting held on _________________, the Audit Committee reviewed and discussed the audit of the Fund’s financial statements with Fund management and ______________. Had any material concerns arisen during the course of the audit and the preparation of the audited financial statements mailed to stockholders and included in MuniInsured’s Annual Report, the Committee would have been notified by Fund management or ______________. The Committee received no such notifications. The Committee recommended to the Board that the Fund’s audited financial statements should be included in the Fund’s Annual Report to Stockholders for the fiscal year ended October 31, 2003.

Nominating Committee

     The principal responsibilities of the Nominating Committee are to identify individuals qualified to serve as non-interested Directors of MuniInsured and to recommend its nominees for consideration by the full Board. While the Nominating Committee is solely responsible for the selection and nomination of the MuniInsured’s non-interested Directors, the Nominating Committee may consider nominations for the office of Director made by Fund stockholders or by Fund management as it deems appropriate. Stockholders who wish to recommend a nominee should send nominations to the Secretary of MuniInsured and include biographical information and set forth the qualifications of the proposed nominee. The Nominating Committee evaluates nominees from whatever source using the same standard. MuniInsured adopted a charter of the Nominating Committee on February 18, 2004, a copy of which is attached hereto as Exhibit VI.

     In identifying and evaluating a potential nominee to serve as an independent Director of MuniInsured, the Nominating Committee will consider, among other factors, (i) the person’s business and professional experience, education, character and integrity; (ii) whether the individual is an “interested person” as defined in the Investment Company Act and whether the person is otherwise qualified to serve as a Director under applicable laws and regulations; (iii) the nature of any business, charitable, financial or family relationships that might impair the individual’s independence; (iv) whether the individual is financially literate pursuant to the listing standards of the AMEX; (v) whether the person serves on boards of, or is otherwise affiliated with, competing financial service organizations or their related investment company complexes; (vi) the person’s willingness to serve and ability to commit the time necessary to perform the duties of a Director of MuniInsured; and (vii) whether the selection and nomination of the person is consistent with MuniInsured’s retirement policy.

Committee and Board Meetings

     During MuniInsured’s most recently completed fiscal year, the Fund held _____ Board meetings and ____ Audit Committee meetings. Each of the Directors then in office attended at least 75% of the aggregate total number of meetings of the Board held during the fiscal year and, if a member, the total number of meetings of the Audit Committee held during the period for which he or she served. The Nominating Committee is newly formed and did not meet during the Fund’s fiscal year ended October 31, 2003.

Stockholder Communications

     Stockholders may send written communications to MuniInsured’s Board of Directors or to an individual Director by mailing such correspondence to the Secretary of MuniInsured (addressed to 800 Scudders Mill Road, Plainsboro, New Jersey 08536). Such communications must be signed by the stockholder and identify the class and number of shares held by the stockholder. Properly submitted stockholder communications will, as appropriate, be forwarded to the entire Board or to the individual Director. Any stockholder proposal submitted pursuant to Rule 14a-8 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), must continue to meet all the requirements of Rule 14a-8. See “Additional Information-Stockholder Proposals” herein.

Director Attendance at Stockholder Meetings

     MuniInsured has no formal policy regarding Director attendance at stockholder meetings. None of MuniInsured’s Directors attended the 2003 Annual Meeting.

 

2

Independent Accountant’s Fees

     The SEC’s auditor independence rules require the Audit Committee of MuniInsured to pre-approve (a) all audit and permissible non-audit services provided by MuniInsured’s independent accountants directly to MuniInsured and (b) those permissible non-audit services provided by MuniInsured’s independent accountants to the Investment Adviser and any entity controlling, controlled by or under common control with the Investment Adviser that provides ongoing services to MuniInsured (the “Affiliated Service Providers”), if the services relate directly to the operations and financial reporting of MuniInsured.

     The first two tables below set forth for MuniInsured, for its two most recent fiscal years, the fees billed by its independent accountants for (a) all audit and non-audit services provided directly to MuniInsured and (b) those non-audit services provided to the MuniInsured’s Affiliated Service Providers that relate directly to the MuniInsured’s operations and financial reporting, and, therefore, require Audit Committee pre-approval. Services under the caption:

• Audit Fees are for the audit of MuniInsured’s annual financial statements included in the Fund’s reports to stockholders and in connection with statutory and regulatory filings or engagements;

• Audit-Related Fees include assurance related services reasonably related to the performance of the audit of financial statements not included in Audit Fees;

• Tax Fees include tax compliance, tax advice and tax planning; and

• All Other Fees are for other products and services provided.

     MuniInsured also is required to disclose the total non-audit fees paid to its independent accountants, for services rendered to MuniInsured and its Affiliated Service Providers, regardless of whether those fees were pre-approved by the Audit Committee.

     The fiscal year end for MuniInsured is September 30.

     Fees for audit and non-audit services provided directly to MuniInsured by __________:

Audit Fees ($)		Audit-Related Fees ($)		Tax Fees ($)		All Other Fees
2003	2002	2003	2002	2003*	2002*	2003	2002

* Primarily related to tax compliance services associated with reviewing MuniInsured’s tax returns.

     Fees for non-audit services provided to MuniInsured’s Affiliated Service Providers by __________ for which pre-approval by the Audit Committee was required:

Audit-Related Fees ($)	Tax Fees ($)	All Other Fees ($)
2003*	2003*	2003*
**

* Primarily related to examinations of internal controls and investment management performance returns at Affiliated Service Providers.

** Information is provided only for the 2003 fiscal year because the rules regarding pre-approval by the Audit Committee of services provided to Affiliated Service Providers were not in effect during the 2002 fiscal year of MuniInsured.

 

3

     Aggregate non-audit fees for services provided to MuniInsured and its Affiliated Service Providers by __________, regardless of whether pre-approval by the Audit Committee was required.

Aggregate Non-Audit Fees ($)
2003	2002

[†] [Primarily associated with project management of non-financial service systems implementations, advisory and management consulting services, and examinations of internal controls and investment management performance returns for Affiliated Service Providers.]

[††] Primarily associated with corporate tax consulting, cash flow analyses, and quality enhancement and education seminars for personnel of Affiliated Service Providers. Fees are also related to tax compliance services associated with reviewing the MuniInsured’s tax returns.]

     The Audit Committee has reviewed the non-audit services provided by __________, MuniInsured’s independent accountants, to MuniInsured’s Affiliated Service Providers that were not subject to the Audit Committee’s pre-approval and has determined that the provision of such services is compatible with maintaining the accountants’ independence.

Audit Committee’s Pre-Approval Policies and Procedures

     The Audit Committee has adopted policies and procedures with regard to the pre-approval of services. Audit, audit-related and tax compliance services provided to MuniInsured on an annual basis require specific pre-approval by the Audit Committee. As noted above, the Audit Committee also must approve other non-audit services provided to MuniInsured and those non-audit services provided to the MuniInsured’s Affiliated Service Providers that relate directly to the operations and financial reporting of MuniInsured. Certain of these non-audit services that the Audit Committee believes are (a) consistent with the SEC’s auditor independence rules and (b) routine and recurring services that will not impair the independence of the independent accountants may be approved by the Audit Committee without consideration on a specific case-by-case basis (“general pre-approval”). However, such services will only be deemed pre-approved provided that any individual project does not exceed $5,000 attributable to MuniInsured or $50,000 for the project as a whole. Any proposed services exceeding the pre-approved cost levels will require specific pre-approval by the Audit Committee, as will any other services not subject to general pre-approval (e.g. unanticipated but permissible services). The Audit Committee is informed of each service approved subject to general pre-approval at the next regularly scheduled in-person board meeting.

     Non-Audit services provided to MuniInsured’s Affiliated Service Providers that have a direct impact on the operations or financial reporting of MuniInsured must be pre-approved by the Audit Committee of ML & Co. in addition to pre-approval by the Audit Committee.

     The independent accountants annually will provide the Audit Committee with a detailed analysis of all fees paid by ML & Co. and its affiliates.

Compliance with Section 16(a) of the Securities Exchange Act of 1934

     Section 16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), requires the officers and directors of the Fund and persons who own more than ten percent of a registered class of the Fund’s equity securities, to file reports of ownership and changes in ownership on Forms 3, 4 and 5 with the Commission and the AMEX. Officers, directors and greater than ten percent stockholders are required by Commission regulations to furnish the Fund with copies of all Forms 3, 4 and 5 they file.

 

4

     Based solely on MuniInsured’s review of the copies of such forms, and amendments thereto, furnished to it during or with respect to its most recent fiscal year, and written representations from certain reporting persons that they were not required to file Form 5 with respect to the most recent fiscal year, the Fund believes that all of its officers, directors, greater than ten percent beneficial owners and other persons subject to Section 16 of the Exchange Act because of the requirements of Section 30 of the Investment Company Act, (i.e., any advisory board member, investment adviser or affiliated person of the Fund’s investment adviser), have complied with all filing requirements applicable to them with respect to transactions during the Fund’s most recent fiscal year.

Interested Persons

     MuniInsured considers Mr. Glenn to be an “interested person” of the Fund within the meaning of Section 2(a)(19) of the Investment Company Act because of the positions he holds with FAM and its affiliates. Mr. Glenn is currently the President of MuniInsured and MuniYield Insured. See Exhibit I to this Joint Proxy Statement and Prospectus.

Compensation of Directors

     FAM pays all compensation to all officers of MuniInsured and all Directors of MuniInsured who are affiliated with ML & Co. or its subsidiaries. MuniInsured pays fees to each Director who is not affiliated with FAM (each, a “non-affiliated Director”) for service to MuniInsured. Each non-interested Director receives an aggregate annual retainer of $125,000 for his or her services to registered investment companies advised by FAM, MLIM or their affiliates (“MLIM/FAM-advised funds”), including the Fund. The portion of the annual retainer allocated to each MLIM/FAM-advised fund is determined quarterly based on the relative net assets of each fund. In addition, each non-interested Director receives a fee per in-person Board meeting attended and per in-person Audit Committee meeting attended. The annual per meeting fees paid to each non-interested Director aggregate $100,000 for all MLIM/FAM-advised funds for which that Director serves and are allocated equally among those funds. Each Co-Chairman of the Audit Committee receives an additional annual retainer in the amount of $25,000, which is paid quarterly and allocated to each MLIM/FAM-advised fund for which such Co-Chairman provides services based on the relative net assets of each such fund.

     The following table shows the compensation paid to the non-affiliated Directors of MuniInsured from the Fund for the fiscal year ended September 30, 2003, and the aggregate compensation paid to the Directors, including the Class III nominees, from all MLIM/FAM-advised funds, for the calendar year ended December 31, 2003.

Name	Compensation From Fund	Pension or Retirement Benefits Accrued as Part of Fund Expense	Aggregate Compensation from Fund and Other MLIM/FAM- Advised Funds*
James H. Bodurtha*	$3,264	None	$183,219
Joe Grills*	$3,264	None	$182,219
Herbert I. London	$3,230	None	$163,219
André F. Perold	$3,230	None	$162,219
Roberta Cooper Ramo	$3,230	None	$163,219
Robert S. Salomon, Jr	$3,230	None	$163,219
Melvin R. Seiden**	$3,200	None	$           0
Stephen B. Swensrud	$3,230	None	$168,218

* Co-Chairman of the Audit Committee.

** Mr. Seiden retired as a Director of the Fund and certain other MLIM/FAM-advised funds effective January 1, 2003.

 

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Officers of MuniInsured

     Information regarding the officers of the Fund is set forth in Exhibit I to this Proxy Statement and Prospectus. Officers of the Fund are elected and appointed by the Board and hold office until they resign, are removed or are otherwise disqualified to serve.

Share Ownership

     Set forth in Exhibit I to this Joint Proxy Statement and Prospectus is the following information for each Director nominee: (i) the number of shares of the Fund owned; (ii) the aggregate dollar range of equity in the Fund such share ownership represents; and (iii) the aggregate dollar range of securities in all registered funds overseen by the Director nominee in the Merrill Lynch family of funds. As of the Record Date, none of the non-interested Directors of the Fund or their immediate family members owned beneficially or of record any securities of Merrill Lynch & Co., Inc.

     As of the Record Date, the Directors and officers of MuniInsured as a group owned an aggregate of less than 1% of MuniInsured Common Stock outstanding at such date. At such date, Mr. Glenn, President and a Director of MuniInsured, and the other officers of MuniInsured, owned an aggregate of less than 1% of the outstanding shares of common stock of ML & Co.

     The Board of MuniInsured recommends that shareholders vote “FOR” the election of the Class III Director nominees.

ITEM 2: THE REORGANIZATION

SUMMARY

     The following is a summary of certain information contained elsewhere in this Proxy Statement and Prospectus (including documents incorporated by reference) 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, attached hereto as Exhibit I.

The Reorganization

     Pursuant to the Reorganization, MuniYield Insured will acquire substantially all of the assets and assume substantially all of the liabilities of MuniInsured solely in exchange for newly issued shares of MuniYield Insured Common Stock. MuniInsured will distribute the MuniYield Insured Common Stock (plus cash in lieu of fractional shares) to holders of MuniInsured Common Stock and will then liquidate and dissolve under Maryland law and terminate its registration under the Investment Company Act.

What Will Be the Results of the Reorganization?

     If the Agreement and Plan is approved and the Reorganization is completed:

• MuniYield Insured will acquire substantially all of the assets and assume substantially all of the liabilities of MuniInsured;

 

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• Stockholders of MuniInsured will become stockholders of MuniYield Insured;

• Stockholders of MuniInsured will receive full shares of MuniYield Insured Common Stock (plus cash in lieu of fractional shares) equal to the aggregate net asset value of the shares of MuniInsured Common Stock currently owned by such stockholders.

     The Reorganization will be structured as a tax-free transaction for Federal tax purposes. Neither MuniInsured nor the stockholders of MuniInsured will recognize gain or loss in the Reorganization (except to the extent that a holder of MuniInsured Common Stock receives cash representing an interest in fractional shares of MuniYield Insured Common Stock). Stockholders should consult their tax advisers regarding the effect of the Reorganization in light of their individual circumstances.

     Following the Reorganization, the Directors of MuniInsured will take action to deregister MuniInsured under the Investment Company Act and to dissolve MuniInsured under Maryland law.

What are the Reasons for the Reorganization?

     The Board of Directors of MuniInsured has determined that the Fund’s common stockholders are likely to benefit from the Reorganization. In addition, the Directors have determined that, with respect to net asset value, the interests of existing stockholders of MuniInsured will not be diluted as a result of the Reorganization. The Directors believe that the Reorganization is in the best interests of MuniInsured and its stockholders.

     In reaching its decision, the Board considered a number of factors including the following:

• After the Reorganization, MuniInsured’s stockholders will remain invested in a closed-end fund with an investment objective and policies substantially similar to MuniInsured’s current investment objective and policies but that can also use leverage through the issuance of preferred stock to seek to enhance yield to its common stockholders;

• After the Reorganization, MuniInsured’s stockholders will be invested in a fund with substantially greater net assets; and

• After the Reorganization, excluding the expenses attributable to MuniYield Insured’s preferred stock, each Fund’s common stockholders should experience lower expenses per share and economies of scale.

     Although the total operating expense ratio attributable to shares of common stock of the Combined Fund including assets acquired through the issuance of preferred stock is expected to be higher than MuniInsured’s current total operating expense ratio, this is solely as a result of the Combined Fund’s leverage through Auction Market Preferred Stock (“AMPS”). The Directors of MuniInsured determined that the potential benefits to common stockholders of the Combined Fund from the ability to use leverage to seek to enhance yield outweighed the potentially higher overall operating expense ratio.

     The Directors of MuniYield Insured also determined that the Reorganization would benefit the common stockholders of MuniYield Insured and that, with respect to net asset value, the interests of existing stockholders of MuniYield Insured would not be diluted as a result of the Reorganization. The Directors of MuniYield Insured further determined that, although the Reorganization is not expected to directly benefit the holders of shares of any series of AMPS of MuniYield Insured, the Reorganization will not adversely affect the holders of shares of any series of AMPS of MuniYield Insured. The expenses of the Reorganization will not be borne by the holders of shares of AMPS of MuniYield Insured.

     The Directors of MuniInsured unanimously approved the Reorganization at a meeting held on November 13, 2003 and recommend that you vote to approve the Agreement and Plan.

     See “Pro Forma Fee Table” below and “Agreement and Plan of Reorganization—Potential Benefits to Holders of Common Stock of the Funds as a Result of the Reorganization.”

 

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     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 opinion of counsel concerning the tax consequences of the Reorganization as set forth in the Agreement and Plan. Under the Agreement and Plan, however, the Board of Directors of either Fund may cause the Reorganization to be postponed or abandoned in certain circumstances should such Board determine that it is in the best interest of the stockholders of that Fund to do so. The Agreement and Plan may be terminated, and the Reorganization abandoned, whether before or after approval by the stockholders of MuniInsured, at any time prior to the Closing Date (as defined below), (i) by mutual consent of the Boards of Directors of the 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. The Fund’s Boards may together amend the Agreement and Plan to change the terms of the Reorganization at any time prior to the approval thereof by the stockholders of MuniInsured.

Fee Table for Common Stock of MuniYield Insured, MuniInsured and the
Pro Forma MuniYield Insured Combined Fund as of October 31, 2003
(unaudited)(a)

     The following Pro Forma Fee Table illustrates, assuming the Reorganization had taken place on October 31, 2003, the expenses to be incurred by each Fund individually and the estimated pro forma expenses to be incurred by the Pro Forma MuniYield Insured Combined Fund after the Reorganization. Future expenses may be greater or less than those indicated below.

	Actual				Pro Forma
	MuniYield Insured		MuniInsured		MuniYield Insured Combined Fund
Common Stockholder Transaction Expenses
Maximum Sales Load (as a percentage of the offering price)      imposed on purchases of Common Stock	None	(b)	None	(b)	None	(c)
Dividend Reinvestment and Cash Purchase Plan Fees	None		None		None
Annual Expenses (as a percentage of average net assets attributable to Common Stock(d)
Investment Advisory Fees(e)	0.73%		0.50%		0.71%
Interest Payments on Borrowed Funds	None		None		None
Other Expenses	0.22%		0.29%		0.21%
Total Annual Expenses(g)	0.95%	(f)	0.79%		0.92%	(f)

(a) No information is presented with respect to AMPS because no Fund’s operating expenses are, and the expenses of the Reorganization will not be, borne by the holder of AMPS. 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 commission or other charges.

(c) No sales load will be charged on the issuance of shares in the Reorganization. Shares of common stock are not available for purchase from the Funds but may be purchased through a broker-dealer subject to individually negotiated commission rates.

(d) The pro forma annual expenses for the Pro Forma MuniYield Insured Combined Fund are projections for a 12-month period.

(e) Based on average net assets of each Fund and the Pro Forma MuniYield Insured Combined Fund (excluding assets attributable to AMPS, if any). If assets attributable to AMPS, if any, are included, the Investment Advisory Fee for each Fund and the Pro Forma MuniYield Insured Combined Fund would be 0.50%.

(f) The Investment Adviser may waive a portion of the Fund’s investment advisory fee in connection with the Fund’s investment in an affiliated money market fund. After taking into account this waiver, the Total Annual Expenses for MuniYield Insured and the Pro Forma MuniYield Insured Combined Fund excluding assets attributable to AMPS are 0.94% and 0.91%, respectively and including assets attributable to AMPS are 0.64% and 0.64%, respectively.

(g) Based on average net assets as of October 31, 2003 of each Fund and the Pro Forma MuniYield Insured Combined Fund (excluding assets attributable to AMPS, if any). If assets attributable to AMPS are included, the Total Annual Expenses (excluding any fee waiver) for MuniYield Insured, MuniInsured and the Pro Forma MuniYield Insured Combined Fund would be 0.65%, 0.79%, 0.64%, respectively.

     The foregoing Fee Table and the Examples below are intended to assist investors in understanding the costs and expenses that a stockholder of each Fund will bear directly or indirectly as compared to the costs and expenses that would be borne by such investors taking into account the Reorganization.

 

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EXAMPLES:

     These examples assume that a stockholder invests $10,000 in the relevant Fund for the time periods indicated, that the investment has a 5% return each year, and that each Fund’s operating expenses remain the same. The figures shown would be the same whether a stockholder sold shares at the end of a period or kept them. Although a stockholder’s actual costs may be higher or lower, based on these assumptions your costs would be:

Cumulative Expenses Paid on Common Stock
of each Fund and the Pro Forma MuniYield Insured
Combined Fund for the Periods Indicated:

	1 Year	3 Years	5 Years	10 Years
MuniYield Insured	$10	$30	$53	$117
MuniInsured	$  8	$25	$44	$  98
Pro Forma MuniYield Insured Combined Fund(a)	$  9	$29	$51	$113

(a) Assumes that the Reorganization took place on October 31, 2003.

     The Examples set forth above assume that shares of Common Stock were purchased in the initial offerings and that all dividends and distributions were reinvested and uses a 5% annual rate of return as mandated by the regulations of the SEC. The Examples 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.”

 

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MuniYield Insured MuniYield Insured was incorporated under the laws of the State of Maryland on January 13, 1992 and commenced operations on March 27, 1992.

MuniYield Insured has outstanding shares of Common Stock and seven series of AMPS, designated Series A, Series B, Series C, Series D, Series E, Series F and Series G. As of February 27, 2004, MuniYield Insured had net assets (including assets attributable to all series of MuniYield Insured AMPS) of approximately $1.4 billion.

MuniInsured MuniInsured was incorporated under the laws of the State of Maryland on July 7, 1987 and commenced operations on October 26, 1987.

MuniInsured has outstanding shares of Common Stock. As of February 27, 2004, MuniInsured had net assets of $81.2 million.

Comparison of the Funds Investment Objectives. Each Fund is a non-diversified, closed end management investment company. The investment objectives of MuniYield Insured and MuniInsured are substantially similar. Each Fund seeks to provide stockholders with as high a level of current income exempt from Federal income taxes as is consistent with its investment policies and prudent investment management 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.

Investment Strategies. The investment strategies used by each Fund are substantially similar. Each Fund seeks to achieve its objective by investing primarily in municipal obligations issued on behalf of a state, its political subdivisions, agencies and instrumentalities and obligations of other qualifying issuers, such as issuers located in Puerto Rico, the U.S. Virgin Islands and Guam, that pay interest exempt, in the opinion of bond counsel to the issuer, from Federal income tax (“Municipal Bonds”). Each Fund invests at least 80% of its assets in Municipal Bonds and each Fund also invests at least 80% of its assets in Municipal Bonds that are covered by insurance guaranteeing the timely payment of principal at maturity and interest when due. Each Fund invests primarily in long-term, investment grade Municipal Bonds.

As of February 27, 2004, the weighted average maturities of the portfolios of MuniYield Insured and MuniInsured were 20.55 years and 21.13 years, respectively. The average maturity of each Fund’s portfolio securities, and, therefore, each Fund’s portfolio as a whole, will vary from time to time based upon FAM’s assessment of economic and market conditions. See “Comparison of the Funds — Investment Objective and Policies.”

Main Differences in Investment Strategy. The main difference in investment strategy between the Funds is that MuniYield Insured uses leverage through the issuance of AMPS to seek to enhance the yield to holders of common stock. MuniInsured does not use leverage through the issuance of AMPS. See “Risk Factors and Special Considerations — Leverage.”

Capital Stock. As set forth above, each Fund has outstanding Common Stock. MuniYield Insured also has outstanding AMPS. The Common Stock of MuniInsured is traded on the AMEX. The Common Stock of MuniYield Insured is traded on the NYSE. As of February 27, 2004, (i) the

 

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net asset value per share of MuniInsured Common Stock was $_____ and the market price per share was $_____ and (ii) the net asset value per share of MuniYield Insured Common Stock was $_____ and the market price per share was $_____. The AMPS of MuniYield Insured have a liquidation preference of $25,000 per share and are sold principally at auction. See “Comparison of the Funds —Capital Stock.”

MuniYield Insured may issue AMPS representing up to approximately 35% of its total assets. Following the Reorganization, it is anticipated that the Combined Fund will be permitted to issue AMPS representing up to approximately 35% of its total assets.

Auctions are generally held every seven or 28 days for the AMPS of MuniYield Insured unless the Fund elects, subject to certain limitations, to have a special dividend period. See “Comparison of the Funds — Capital Stock.” The following table provides information about the dividend rates for each series of MuniYield Insured’s AMPS as of a recent auction date.

Auction Date	Series	Auction Schedule	Dividend Rate
	A	28 day
	B	28 day
	C	28 day
	D	28 day
	E	7 day
	F	28 day
	G	7 day

Use of Leverage by MuniYield Insured. Under normal market conditions, the income earned on MuniYield Insured’s portfolio should exceed the dividend rate the Fund must pay to holders of AMPS. Thus, MuniYield Insured’s use of AMPS should provide common stockholders with a higher yield than they would receive if the Fund were not leveraged, although no assurance can be given that the use of AMPS will result in a higher yield or return to common stockholders.

The use of leverage by MuniYield Insured creates certain risks for common stockholders, including the greater likelihood of higher volatility of the Fund’s yield, its net asset value and the market price of its common stock. Leverage also creates the risk that the yield or return on shares of MuniYield Insured’s common stock will be reduced or eliminated to the extent the dividends paid on AMPS and other expenses of the AMPS exceed the yield or return earned by the Fund on its investments. Furthermore, since any decline in the value of the MuniYield Insured’s investments will affect only the common stockholders, in a declining market the use of leverage will cause the Fund’s net asset value to decrease more than it would if the Fund were not leveraged. This decrease in net asset value will likely also cause a decline in the market price for shares of common stock. No assurance can be given that MuniYield Insured will earn a higher yield or return on its investment portfolio than the then-current dividend rate (and any additional distribution) it pays on the AMPS. Under certain circumstances, when MuniYield Insured is required to allocate taxable income to holders of AMPS, the Fund anticipates that the terms of such preferred stock will require the Fund to make an additional distribution to such holders in an amount approximately equal to the tax liability resulting from such allocation.

 

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Under certain conditions, the benefits of leverage to common stockholders will be reduced or eliminated and MuniYield Insured’s leveraged capital structure could result in a lower yield or return to common stockholders than if the Fund were not leveraged. In particular, during times of rising interest rates, the market value of MuniYield Insured’s portfolio investments and consequently, the net asset value of its shares, may decline. MuniYield Insured’s leveraging of its portfolio through the use of AMPS may accentuate the potential decline, since both the cost of issuing the preferred stock and any decline in the value of the portfolio investments (including investments purchased with the proceeds of the preferred stock) will be borne entirely by the holders of the common stock.

Portfolio Management. The investment adviser for each Fund is FAM. FAM is responsible for the management of each Fund’s investment portfolio and for providing administrative services to each Fund. William Bock serves as the portfolio manager for each Fund and, after the Reorganization, will serve as the portfolio manager for the Combined Fund. See “Comparison of the Funds —Management of the Funds.”

Advisory Fees. FAM is an affiliate of Merrill Lynch Investment Managers, L.P. (“MLIM”). Both FAM and MLIM are owned and controlled by Merrill Lynch & Co., Inc. (“ML & Co.”). FAM was organized as an investment adviser in 1977 and offers investment advisory services to more than 50 registered investment companies. FAM and its affiliates, including MLIM, act as investment adviser for over 100 registered investment companies and also offer portfolio management and portfolio analysis services to individuals and institutional accounts. See “Comparison of the Funds — Management of the Funds.”

Pursuant to an investment advisory agreement between FAM and MuniYield Insured, MuniYield Insured pays FAM a monthly fee at the annual rate of 0.50% of the Fund’s average weekly net assets, including proceeds from the issuance of AMPS (resulting in an effective management fee to common stockholders of approximately 0.73%). Pursuant to an investment advisory agreement between FAM and MuniInsured, MuniInsured pays FAM a monthly fee at the annual rate of 0.50% of the Fund’s average weekly net assets. After the Reorganization, the Combined Fund will pay FAM a monthly fee at the annual rate of 0.50% of the Fund’s average weekly net assets, including proceeds from the issuance of AMPS (resulting in an effective management fee to common stockholders of approximately 0.71%). Solely as a result of leverage through the issuance of AMPS, the effective management fees for MuniInsured common stockholders will increase from 0.50% to 0.71% after the Reorganization although the contractual management fee will remain the same. MuniInsured stockholders, however, will potentially benefit from the Pro Forma MuniYield Insured Combined Fund’s use of leverage. See “Comparison of the Funds — Management of the Funds.”

Other Significant Fees. The custodian for each Fund is State Street Bank and Trust Company (“State Street”). The transfer agent, dividend disbursing agent and registrar for the Common Stock of each Fund is EquiServe Trust Company, I.A. (“EquiServe”). The Bank of New York (“BONY”) is the transfer agent, dividend disbursing agent, registrar and auction agent for the AMPS of MuniYield Insured (in such capacity, the “Auction Agent”).

 

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Equiserve, BONY and State Street each receive fees for providing these services.

Overall Annual Expense Ratio. The table below sets forth (i) the total annualized operating expense ratio for MuniInsured, MuniYield Insured (excluding any advisory fee waivers and/or expense reimbursements) and the Pro Forma MuniYield Insured Combined Fund (excluding any advisory fee waivers and/or expense reimbursements) based on their respective average net assets (excluding assets attributable to MuniYield Insured’s AMPS) as of October 31, 2003.

	Approximate Average Net Assets (Excluding Assets Attributable to AMPS) as of October 31, 2003		Total Annualized Operating Expense Ratio
MuniInsured	$79.6	million		0.79%
MuniYield Insured	$952.3	million		0.95%	*
Pro Forma MuniYield Insured   Combined Fund	$1.0	billion		0.92%	*

* Including the fee waivers and/or expense reimbursements, the total annualized operating expense ratio for MuniYield Insured and the Pro Forma MuniYield Insured Combined Fund would have been 0.94% and 0.91%, respectively.

The table below sets forth (i) the total annualized operating expense ratio for MuniInsured, MuniYield Insured (excluding any advisory fee waivers and/or expense reimbursements) and the Pro Forma MuniYield Insured Combined Fund (excluding any advisory fee waivers and/or expense reimbursements) based on their respective average net assets (including assets attributable to MuniYield Insured’s AMPS) as of October 31, 2003.

	Approximate Average Net Assets (Including Assets Attributable to AMPS) as of October 31, 2003		Total Annualized Operating Expense Ratio
MuniInsured	$79.6	million		0.79%
MuniYield Insured	$1.4	billion		0.65%	*
Pro Forma MuniYield Insured   Combined Fund	$1.5	billion		0.64%	*

* Including the fee waivers and/or expense reimbursements, the total annualized operating expense ratio for MuniYield Insured and the Pro Forma MuniYield Insured Combined fund would have been 0.64% and 0.64%, respectively.

Although the total operating expense ratio attributable to shares of common stock of the Combined Fund as set forth in the table above is expected to be higher than MuniInsured’s current total operating expense ratio, this is solely as a result of the Combined Fund’s leverage through AMPS. The Directors of MuniInsured determined that the potential benefits to common stockholders of the Combined Fund from the ability to use leverage to enhance yield outweighed the potentially higher overall operating expense ratio.

Purchases and Sales of Common Stock and AMPS. Purchase and sale procedures for the common stock of each Fund are substantially similar.

 

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Investors typically purchase and sell shares of common stock of each Fund through a registered broker-dealer on the NYSE (for MuniYield Insured) or AMEX (for MuniInsured), thereby incurring a brokerage commission set by such broker-dealer. Alternatively, investors may purchase or sell shares of common stock of the Funds through privately negotiated transactions with existing stockholders.

MuniYield Insured AMPS generally are purchased and sold at separate auctions conducted on a regular basis by the Auction Agent. Unless otherwise permitted by the Fund, 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 of AMPS may be purchased or sold through broker-dealers for the AMPS in a secondary trading market maintained by the broker-dealers. However, no assurance can be given that the market will provide holders with a liquid trading market for the AMPS of MuniYield Insured.

Ratings of AMPS. The AMPS of MuniYield Insured have been assigned a rating of AAA from Standard & Poor’s (“S&P”) and Aaa from Moody’s Investors Service, Inc. (“Moody’s”). See “Comparison of the Funds — Rating Agency Guidelines.”

Portfolio Insurance. Under normal circumstances, each Fund invests at least 80% of its net assets (including borrowings, if any, for investment purposes) in Municipal Bonds either (i) insured under an insurance policy obtained by the issuer thereof or any other party or (ii) insured under an insurance policy purchased by the Fund. See “Comparison of the Funds — Investment Objectives and Policies — Portfolio Insurance.”

Ratings of Municipal Obligations. Each Fund will invest only in municipal obligations that at the time of purchase are considered investment grade. See Exhibit III — “Ratings of Municipal Bonds and Commercial Paper.”

Portfolio Transactions. The portfolio transactions in which the Funds may engage and procedures for such transactions are similar. See “Comparison of the Funds— Portfolio Transactions.”

Dividends and Distributions. The methods of dividend payment and distributions with respect to common stock are substantially similar for 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 as of the close of business (generally, 4:00 p.m., Eastern time) on the last business day of each week. Each Fund computes net asset value per share in the same manner. See “Comparison of the Funds — Net Asset Value.”

Voting Rights. The corresponding voting rights of the holders of shares of each Fund’s common stock are substantially similar. See “Comparison of the Funds — Capital Stock.”

 

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Stockholder Services. An automatic dividend reinvestment plan is available to holders of shares of each Fund’s common stock. These plans are similar for both 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 both Funds.

Outstanding Securities of MuniInsured and
MuniYield Insured as of ________________, 2004

Title of Class	Number of Shares Authorized	Number of Shares Held by Fund for Its Own Account	Number of Shares Outstanding Exclusive of Amount Shown in Previous Column
MuniInsured
Common Stock	150,000,000	0
MuniYield Insured
Common Stock	199,982,400	0
AMPS
Series A	2,200	0	2,200
Series B	2,200	0	2,200
Series C	2,200	0	2,200
Series D	2,200	0	2,200
Series E	4,000	0	4,000
Series F	2,400	0	2,400
Series G	2,400	0	2,400

Tax Considerations The Funds will receive an opinion of counsel with respect to the Reorganization to the effect that, among other things, neither Fund will recognize gain or loss on the transaction, and no stockholder of MuniInsured will recognize gain or loss upon the exchange of his or her shares for shares of MuniYield Insured Common Stock in the Reorganization (except to the extent that exchanging common stockholders receive cash representing an interest in fractional shares of MuniYield Insured Common Stock in the Reorganization). Consummation of the Reorganization is subject to the receipt of such opinion of counsel. The Reorganization will not affect the status of MuniYield Insured as a regulated investment company (a “RIC”) under the Internal Revenue Code of 1986, as amended (the “Code”). See “Agreement and Plan of Reorganization — Tax Consequences of the Reorganization.” MuniInsured will liquidate and dissolve under the laws of the State of Maryland as part of the Reorganization

 

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RISK FACTORS AND SPECIAL CONSIDERATIONS

     The investment objective and policies of each Fund are substantially the same. For this reason, the investment risks associated with an investment in MuniYield Insured are substantially similar to the investment risks associated with an investment in MuniInsured. Such risks include, without limitation, the risks associated with investing primarily in a portfolio of Municipal Bonds. These investment risks also will apply to an investment in 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 of either Fund.

     The main difference in risk between the Funds is that MuniYield Insured uses leverage through the issuance of AMPS and is subject to the risks associated with leverage. MuniInsured does not issue AMPS and is not subject to leverage risk. See “Risk Factors and Special Considerations — Leverage.”

Municipal Bonds

     Each Fund intends to invest primarily in a portfolio of Municipal Bonds. As a result, each Fund is subject to the risks associated with investments in Municipal Bonds. See “Comparison of the Funds — Description of Municipal Bonds.”

Interest Rate and Credit Risk

     Each Fund invests primarily in long term Municipal Bonds that 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 generally 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. Changes in the credit rating of an issuer or the market’s perception of an issuer’s creditworthiness can also affect the value of a Fund’s investments in that issuer.

Trading Discount

     Shares of closed-end funds, such as the Funds, frequently trade at a market price that is lower than their net asset value. This is commonly referred to as “trading at a discount.” Shares may also trade at a price that is higher than their net asset value (a “premium”). See “Comparison of the Funds — Financial Highlights.”

Non-Diversification

     Each Fund is classified 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 either Fund may invest a relatively high percentage of its assets in a limited number of issuers, it may be more exposed to the effects of any single economic, political or regulatory occurrence than a fund that invests more widely. Even as a non-diversified fund, each Fund must still meet the diversification requirements of applicable Federal income tax law.

Rating Categories

     The Funds intend to invest in Municipal Bonds that are rated investment grade by Standard & Poor’s, Moody’s Investors Service, Inc. or Fitch Ratings or are considered by FAM to be of comparable quality. Obligations rated in the lowest investment grade category may be considered to have certain speculative characteristics. See “Comparison of the Funds — Investment Objective and Policies.”

Private Activity Bonds

     Each Fund may invest all or a portion of its assets in certain tax-exempt securities classified as “private activity bonds (“PABs”).” These bonds may subject certain investors in either Fund to a Federal alternative minimum tax. See “Comparison of the Funds — Description of Municipal Bonds.”

 

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Portfolio Insurance

     Each Fund currently is subject to certain investment restrictions imposed by guidelines of the insurance companies that issue portfolio insurance. Following the Reorganization, the Combined Fund will continue to be subject to these guidelines. The Funds do not expect these guidelines to 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 MuniYield Insured and to holders of common stock of the Combined Fund after the Reorganization. For example, MuniYield Insured’s issuance of AMPS may result in higher volatility of the net asset value of its common stock and potentially more volatility in the market value of its common stock. In addition, changes in the short term and medium term dividend rates on, and the amount of taxable income allocable to, the AMPS will affect the yield to holders of common stock. Under certain circumstances when MuniYield Insured is required to allocate taxable income to holders of AMPS, it may be required to make an additional distribution to such holders in an amount approximately equal to the tax liability resulting from that allocation (an “Additional Distribution”). Leverage will allow holders of MuniYield Insured’s common stock to realize a higher current rate of return than if the Fund were not leveraged as long as the Fund, while accounting for its costs and operating expenses, is able to realize a higher net return on its investment portfolio than the then-current dividend rate (and any Additional Distribution) paid on the AMPS. Similarly, since a pro rata portion of MuniYield Insured’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 MuniYield Insured’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 MuniYield Insured may be invested. To the extent that the current dividend rate (and any Additional Distribution) on the AMPS approaches the net return on MuniYield Insured’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 MuniYield Insured’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 MuniYield Insured’s investments (including investments purchased with the proceeds from any AMPS offering) will be borne entirely by holders of MuniYield Insured’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 MuniYield Insured is liquidated, holders of MuniYield Insured’s AMPS will be entitled to receive liquidating distributions before any distribution is made to holders of common stock of the Fund.

     In an extreme case, a decline in net asset value could affect MuniYield Insured’s ability to pay dividends on its common stock. Failure to make such dividend payments could adversely affect MuniYield Insured’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, MuniYield Insured intends to take all measures necessary to make common stock dividend payments. If MuniYield Insured’s current investment income is ever insufficient to meet dividend payments on either its common stock or its AMPS, it may have to liquidate certain of its investments. In addition, MuniYield Insured has the authority to redeem its AMPS for any reason and may redeem all or part of its AMPS under the following circumstances:

• if MuniYield Insured 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 MuniYield Insured’s portfolio investments or as a result of the repurchase of common stock in tender offers, or otherwise, or

 

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• in order to maintain the asset coverage established by Moody’s and S&P in rating the AMPS.

     Redemption of the AMPS or insufficient investment income to make dividend payments may reduce the net asset value of MuniYield Insured’s common stock and require the Fund to liquidate a portion of its investments at a time when it may be disadvantageous to do so. MuniYield Insured may issue AMPS representing up to approximately 35% of its total assets. Following the Reorganization, it is anticipated that the Combined Fund will be permitted to issue AMPS representing up to approximately 35% of its total assets.

     As discussed under “Management of the Funds— Management and Advisory Arrangements,” during periods when MuniYield Insured (or, after the Reorganization, the Combined Fund) has preferred stock outstanding, the fees paid to FAM for the investment advisory and management services will be higher than if the Fund did not issue preferred stock because the fees paid will be calculated on the basis of the Fund’s average daily net assets, including any proceeds from the issuance of preferred stock, plus the proceeds of any outstanding borrowings used for leverage.

     MuniYield Insured currently has outstanding seven series of AMPS (each series paying dividends at a rate that is adjusted every 7 or 28 days). Assuming that the AMPS represents approximately 35% of the Fund’s capital after the Reorganization at an annual weighted average dividend rate of           % payable on such AMPS based on market rates as of _____________, 2004, the annual return that the Fund’s portfolio must experience (net of expenses) in order to cover such dividend payments would be               %.

     The following table is designed to illustrate the effect of leverage on the return to a holder of common stock when AMPS represent approximately 35% of the Fund’s capital, assuming hypothetical annual returns on the Fund’s portfolio of minus 10% to plus 10%. As the table shows, leverage generally increases the return to stockholders when portfolio return is positive and generally decreases the return when portfolio return is negative. The figures appearing in the table are hypothetical and actual returns may be greater or less than those appearing in the table.

Assumed Portfolio Return      (net of expenses)	(10	)%	(5	)%	0	%	5	%	10	%
Corresponding Common Stock Return	(	)%	(	)%		%		%		%

Portfolio Management

     The portfolio management strategies of the Funds are substantially similar. In addition, with respect to MuniYield Insured, in the event of an increase in short term or medium term rates or other change in market conditions to the point where MuniYield Insured’s leverage could adversely affect holders of common stock as noted above, or in anticipation of such changes, MuniYield Insured may attempt to shorten the average maturity of its investment portfolio, which would tend to offset the negative impact of leverage on holders of its common stock. MuniYield Insured 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, MuniYield Insured may sell previously unissued shares of AMPS or shares of AMPS that the Fund previously issued but later repurchased or redeemed.

Inverse Floating Obligations

     Each 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.

 

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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. The Funds cannot guarantee that any hedging strategies they use will work.

Antitakeover Provisions

     The Articles of Incorporation of each Fund (in each case, the “Charter “) and Maryland law 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 for AMPS

     MuniYield Insured has received ratings on its AMPS of AAA from S&P and Aaa from Moody’s. In order to maintain these ratings, MuniYield Insured is required to maintain portfolio holdings meeting specified guidelines of such rating agencies. These guidelines may 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 and may prohibit or limit the use by MuniYield Insured of certain portfolio management techniques or investments. MuniYield Insured does not anticipate that these guidelines will impede FAM from managing MuniYield Insured’s portfolio in accordance with its investment objective and policies. Ratings on the AMPS Fund should not be confused with ratings on the portfolio securities held by MuniYield Insured.

     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 MuniYield Insured 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 MuniYield Insured has not been rated by a nationally recognized statistical rating organization (“NRSRO”).

     The Board of Directors of MuniYield Insured, 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.

 

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COMPARISON OF THE FUNDS

Financial Highlights

MuniYield Insured

TO BE SUPPLIED BY SUBSEQUENT AMENDMENT

 

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MuniInsured Fund

TO BE SUPPLIED BY SUBSEQUENT AMENDMENT

 

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Per share data for Common Stock* (unaudited)

MuniInsured
Traded on the American Stock Exchange

	Market Price**		Net Asset Value		Premium (Discount) To Net Asset Value
Quarter Ended*	High	Low	High	Low	High	Low
September 30, 2001
December 31, 2001
March 31, 2002
June 30, 2002
September 30, 2002
December 31, 2002
March 31, 2003
June 30, 2003
September 30, 2003
December 31, 2003
March 31, 2004

MuniYield Insured
Traded on the New York Stock Exchange

	Market Price**		Net Asset Value		Premium (Discount) To Net Asset Value
Quarter Ended*	High	Low	High	Low	High	Low
July 31, 2001
October 31, 2001
January 31, 2002
April 30, 2002
July 31, 2002
October 31, 2002
January 31, 2003
April 30, 2003
July 31, 2003
October 31, 2003
January 31, 2004

* Calculations are based upon shares of common stock outstanding at the end of each quarter.

** As reported in the consolidated transaction reporting system.

     For the periods shown, share prices for MuniYield Insured’s Common Stock have traded between a maximum premium of approximately % and a maximum discount of approximately ( %). For the periods shown, MuniInsured’s share prices for its common stock have traded between a maximum premium of approximately % and a maximum discount of approximately ( %). 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 Combined Fund will trade at a premium or discount to net asset value following the Reorganization, or what the extent of any such premium or discount might be.

Investment Objective and Policies

     The structure, organization and investment policies of the Funds are substantially similar. Each Fund seeks to provide stockhoders with as high a level of current income exempt from Federal income taxes as is consistent with its investment policies and prudent investment management. 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 Municipal Bonds. Under normal circumstances, each Fund invests at least 80% of its assets in Municipal Bonds and at least 80% of its assets in Municipal Bonds that are covered by insurance guaranteeing the timely payment of principal at maturity and interest when due. 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.

 

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     Ordinarily, neither Fund intends to realize significant investment income subject to Federal income tax. Each Fund may, however, 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 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 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 will be considered “Municipal Bonds.”

     Each Fund will invest in investment grade 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-3 for Moody’s and F-1+ through F-3 for Fitch. Obligations ranked in the lowest investment grade rating category (BBB, SP-2 and A-3 for S&P; Baa, MIG-3 and Prime-3 for Moody’s; and BBB and F-3 for Fitch), while considered “investment grade,” may have certain speculative characteristics. There may be sub-categories or gradations indicating relative standing within the rating categories set forth above. In assessing the quality of 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 Municipal Bonds are entitled and the creditworthiness of the insurance company or financial institution that provided such insurance or credit enhancements. Consequently, if Municipal Bonds are covered by insurance policies issued by insurers whose claims-paying ability is rated AAA by S&P or Fitch or Aaa by Moody’s, FAM may consider such municipal obligations to be equivalent to AAA- or Aaa- rated securities, as the case may be, even though such 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 Municipal Bonds must also comply with the standards applied by the insurance carriers in determining eligibility for portfolio insurance. See Exhibit III — “Ratings of Municipal Bonds and Commercial Paper” and Exhibit IV — “Portfolio Insurance.”

     Each Fund 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 an unconditional 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 net asset value of the shares of common stock of a closed-end investment company such as MuniYield Insured or MuniInsured, 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 MuniYield Insured. See “Risk Factors and Special Considerations — Leverage.”

 

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     The average maturity of each Fund’s portfolio securities varies from time to time based upon FAM’s assessment of economic and market conditions. Each Fund intends to invest primarily in long term Municipal Bonds with a maturity of more than ten years. However, each Fund may also invest in intermediate term 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. Investments in such short term securities or cash will not exceed 20% of a Fund’s total assets except during interim periods pending investment of the net proceeds from public offerings of that Fund’s securities or in anticipation of the repurchase or redemption of that Fund’s securities and temporary periods when, in the opinion of FAM, prevailing market or economic conditions warrant. The Funds do not ordinarily intend to realize significant interest income that is subject to Federal income taxes.

     Each Fund is classified as non-diversified within the meaning of the Investment Company Act, which means that the Fund is not limited by the Investment Company 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 and it will not own more than 10% of the outstanding voting securities of a single issuer. A fund that elects to be classified as “diversified” under the Investment Company Act must satisfy, among other requirements, the foregoing 5% and 10% requirements with respect to 75% of its total assets. To the extent that either Fund assumes large positions in the securities of a small number of issuers, its yield may fluctuate to a greater extent than that of a diversified company as a result of changes in the financial condition or in the market’s assessment of the issuers.

Portfolio Insurance

     Under normal circumstances, each Fund will invest at least 80% its assets in Municipal Bonds either (i) insured under an insurance policy obtained by the issuer thereof or any other party, or (ii) insured under an insurance policy purchased by the Fund. Each Fund will seek to limit its investments to Municipal Bonds 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 IV 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 Municipal Bonds in each 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 MBIA Insurance Corporation. Each Fund also may purchase Municipal Bonds covered by insurance issued by any other insurance company that satisfies the foregoing criteria. A majority of insured 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 when due on specified eligible Municipal Bonds that it purchases. A 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 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 Municipal Bonds beneficially owned by a Fund. In the event of a sale of any 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 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

 

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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 each 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 .05 of [1% to .40 of 1%] of the principal amount of the Municipal Bonds covered by such Policies. The estimate is based on the expected composition of each Fund’s portfolio of Municipal Bonds. Additional information regarding the Policies is set forth in Exhibit IV to this Proxy Statement and Prospectus. In instances in which a Fund purchases Municipal Bonds insured under policies obtained by parties other than the Fund, each Fund does not pay the premiums for such policies; rather, the cost of such policies may be reflected in the purchase price of the 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 that are not in default. In certain circumstances, however, FAM may determine that an alternate value for the insurance, such as the difference between the market value of the defaulted security and its par value, is more appropriate. FAM’s ability to manage the portfolio of either Fund may be limited to the extent it holds defaulted securities for which market quotations are not generally available, which may limit its ability in certain circumstances to purchase other Municipal Bonds. See “Net Asset Value” below for a more complete description of each Fund’s method of valuing securities for which market quotations are not generally available.

     No assurance can be given 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 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.

     Portfolio insurance reduces financial or credit risk (i.e., the possibility that the owners of the insured Municipal Bonds will not receive timely scheduled payments of principal or interest). However, the insured Municipal Bonds are subject to market risk (i.e., fluctuations in market value as a result of changes in prevailing interest rates and other market conditions).

Description of Municipal Bonds

     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 Joint Proxy Statement and Prospectus, such obligations are Municipal Bonds if the interest paid thereon is exempt from Federal income tax, even though such bonds may be industrial development bonds or PABs as discussed below. Also, for purposes of this Joint Proxy Statement and Prospectus, Non-Municipal Tax-Exempt Securities as discussed above will be considered Municipal Bonds.

     The two principal classifications of 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 typically 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

 

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such bonds. The repayment of principal and the payment of interest on such IDBs depends solely on the ability of the user of the facility financed by the bonds to meet its financial obligations and the pledge, if any, of real and personal property so financed as security for such payment. 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 Municipal Bonds classified as PABs. Interest received on certain PABs is treated as an item of “tax preference” for purposes of the Federal alternative minimum tax and may impact the overall tax liability of certain investors in the Fund. There is no limitation on the percentage of each Fund’s assets that may be invested in Municipal Bonds the interest on which is treated as an item of “tax preference” for purposes of the Federal alternative minimum tax. See “Comparison of the Funds — Tax Rules Applicable to the Funds and Their Stockholders.”

     Also included within the general category of 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 Municipal Bonds for investment by each Fund.

Other Investment Policies

     Each Fund has 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 excess of 5% of the value of its total assets at the time of such borrowings to finance the repurchase of its own common stock pursuant to tender offers or otherwise to redeem or repurchase shares of preferred stock or for temporary, extraordinary or emergency purposes. Borrowings by each Fund (commonly known, as with the issuance by MuniYield Insured of the AMPS, 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 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 Municipal Bonds that yield a return based on a particular index of value or interest rates. For example, each Fund may invest in Municipal Bonds that pay interest based on an index of Municipal Bond interest rates. The principal amount payable upon maturity of certain 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 Municipal Bonds will be subject to risk with respect to the value of the particular index.

 

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Also, a Fund may invest in so-called “inverse floating obligations” or “residual interest bonds” on which the interest rates typically vary inversely with a short term floating rate (which may be reset periodically by a Dutch auction, a remarketing agent, or by reference to a short term tax-exempt interest rate index). Each Fund may purchase synthetically-created inverse floating obligations evidenced by custodial or trust receipts. Generally, income on inverse floating obligations will decrease when short term rates increase, and will increase when short term rates decrease. Such securities have the effect of providing a degree of investment leverage, since they may increase or decrease in value in response to changes, as an illustration, in market interest rates at a rate that is a multiple (typically two) of the rate at which fixed-rate, long term, tax-exempt securities increase or decrease in response to such changes. As a result, the market values of such securities generally will be more volatile than the market values of fixed-rate tax-exempt securities. To seek to limit the volatility of these securities, a Fund may purchase inverse floating obligations with shorter term maturities or limitations on the extent to which the interest rate may vary. FAM believes that indexed and inverse floating obligations represent a flexible portfolio management instrument for the Funds that allows FAM to vary the degree of investment leverage relatively efficiently under different market conditions.

     Call Rights. Each Fund may purchase a Municipal Bond issuer’s rights to call all or a portion of such 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 Municipal Bonds, subject to certain conditions. A Call Right that is not exercised prior to the maturity of the related Municipal Bond will expire without value. The economic effect of holding both the Call Right and the related Municipal Bond is identical to holding a 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. In the event of default by the seller under a repurchase agreement, the Funds may suffer time delays and incur costs or possible losses in connection with the disposition of the underlying securities.

     In general, for Federal income tax purposes, repurchase agreements are treated as collateralized loans secured by the securities “sold.” Therefore, amounts earned under such agreements will not be considered tax-exempt interest.

Information Regarding Options and Futures Transactions

     Each Fund may hedge all or a portion of its portfolio investments against fluctuations in interest rates through the use of options and certain financial futures contracts and options thereon. While each Fund’s use of hedging strategies is intended to reduce the volatility of the net asset value of its common stock, the net asset value of its common stock will fluctuate. No assurance can be given 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.

     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 order to obtain ratings of the AMPS from one or more of the NRSROs, MuniYield Insured may be required to limit its use of hedging techniques in accordance with the specified guidelines of the NRSROs. 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.

 

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     Writing Covered Call Options. Each Fund is authorized to write (i.e., sell) covered call options with respect to 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. Neither Fund may write covered call options on underlying securities in an amount exceeding 15% of the market value of its total assets.

     Each Fund receives a premium from writing a call option, which increases the Fund’s return on the underlying security in the event the option expires unexercised or is closed out at a profit. By writing a call, a Fund limits its opportunity to profit from an increase in the market value of the underlying security above the exercise price of the option for as long as the Fund’s obligation as a writer continues. Covered call options serve as a partial hedge against a decline in the price of the underlying security. Each Fund may engage in closing transactions in order to terminate outstanding options that it has written.

     Purchase of Options. Each Fund may purchase put options in connection with its hedging activities. By buying a put, the Fund has a right to sell the underlying security at the exercise price, thus limiting its risk of loss through a decline in the market value of the security until the put expires. The amount of any appreciation in the value of the underlying security will be partially offset by the amount of the premium paid for the put option and any related transaction costs. Prior to its expiration, a put option may be sold in a closing sale transaction; profit or loss from the sale will depend on whether the amount received is more or less than the premium paid for the put option plus the related transaction costs. A closing sale transaction cancels out the Fund’s position as the purchaser of an option by means of an offsetting sale of an identical option prior to the expiration of the option it has purchased. In certain circumstances, the Fund may purchase call options on securities held in its portfolio on which it has written call options, or on securities which it intends to purchase. A Fund will not purchase options on securities if, as a result of such purchase, the aggregate cost of all outstanding options on securities held by the Fund would exceed 5% of the market value of the Fund’s total assets.

     Financial Futures Contracts and Options. Each Fund is authorized to purchase and sell certain financial futures contracts and options thereon solely for the purposes of hedging its investments in 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. 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 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, Government National Mortgage Association Certificates and three month U.S. Treasury bills.

 

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     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 Municipal Bonds in which the Fund invests to make such hedging appropriate.

     Over-the-Counter Options. Each Fund may engage in options and futures transactions on exchanges and in the over-the-counter markets (“OTC options”). In general, exchange-traded contracts are third-party contracts (i.e., performance of the parties’ obligations is guaranteed by an exchange or clearing corporation) with standardized strike prices and expiration dates. OTC option transactions are two-party contracts with price and terms negotiated by the buyer and seller.

     Restrictions on OTC Options. Each Fund will engage in transactions in OTC options only with banks or dealers that have capital of at least $50 million or whose obligations are guaranteed by an entity having capital of at least $50 million. Certain OTC options and assets used to cover OTC options written by the Funds are considered to be illiquid. The illiquidity of such options or assets may prevent a successful sale of such options or assets, result in a delay of sale, or reduce the amount of proceeds that otherwise might be realized.

     Risk Factors in Financial Futures Contracts and Options Thereon. Use of futures transactions involves the risk of imperfect correlation in movements in the price of financial futures contracts and movements in the price of the security that is the subject of the hedge. If the price of the financial futures contract moves more or less than the price of the security that is the subject of the hedge, a Fund will experience a gain or loss that will not be completely offset by movements in the price of such security. There is a risk of imperfect correlation where the securities underlying financial futures contracts have different maturities, ratings, geographic compositions or other characteristics different from those of the security being hedged. In addition, the correlation may be affected by additions to or deletions from the index that serves as a basis for a financial futures contract. Finally, in the case of financial futures contracts on U.S. Government securities and options on such financial futures contracts, the anticipated correlation of price movements between the U.S. Government securities underlying the futures or options and 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 “CFTC”), the futures trading activities described herein will not result in either Fund being deemed a “commodity pool” and neither Fund needs to be operated by a person registered with the CFTC as a “commodity pool operator”.

     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 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 options 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.

 

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     The liquidity of a secondary market in a financial futures contract may be adversely affected by “daily price fluctuation limits” established by commodity exchanges that limit the amount of fluctuation in a financial futures contract price during a single trading day. Once the daily limit has been reached in the contract, no trades may be entered into at a price beyond the limit, thus preventing the liquidation of open futures positions. Prices have in the past reached or exceeded the daily limit on a number of consecutive trading days.

     If it is not possible to close a financial futures position entered into by a Fund, the Fund would continue to be required to make daily cash payments of variation margin in the event of adverse price movements. In such a situation, if the Fund has insufficient cash, it may have to sell portfolio securities to meet daily variation margin requirements at a time when it may be disadvantageous to do so.

     The successful use of these transactions also depends on the ability of FAM to forecast correctly the direction and extent of interest rate movements within a given time frame. To the extent these rates remain stable during the period in which a financial futures contract is held by a Fund or move in a direction opposite to that anticipated, the Fund may realize a loss on the hedging transaction that is not fully or partially offset by an increase in the value of portfolio securities. As a result, the Fund’s total return for such period may be less than if it had not engaged in the hedging transaction. Furthermore, the Fund will only engage in hedging transactions from time to time and may not necessarily be engaging in hedging transactions when movements in interest rates occur.

Municipal Interest Rate Swap Transactions

     In order to hedge the value of the Fund against interest rate fluctuations or to enhance the Fund’s income, each Fund may enter into interest rate swap transactions such as Municipal Market Data AAA Cash Curve swaps (“MMD Swaps”) or Bond Market Association Municipal Swap Index swaps (“BMA Swaps”). To the extent that a Fund enters into these transactions, the Fund expects to do so primarily to preserve a return or spread on a particular investment or portion of its portfolio or to protect against any increase in the price of securities the Fund anticipates purchasing at a later date. Each Fund intends to use these transactions primarily as a hedge rather than as a speculative investment. However, each Fund also may invest in MMD Swaps and BMA Swaps to enhance income or gain or to increase the Fund’s yield, for example, during periods of steep interest rate yield curves (i.e., wide differences between short term and long term interest rates).

     Each Fund may purchase and sell BMA Swaps in the BMA swap market. In a BMA Swap, a Fund exchanges with another party their respective commitments to pay or receive interest (e.g., an exchange of fixed rate payments for floating rate payments linked to the Bond Market Association Municipal Swap Index). Because the underlying index is a tax-exempt index, BMA Swaps may reduce cross-market risks incurred by a Fund and increase a Fund’s ability to hedge effectively. BMA Swaps are typically quoted for the entire yield curve, beginning with a seven day floating rate index out to 30 years. The duration of a BMA Swap is approximately equal to the duration of a fixed-rate Municipal Bond with the same attributes as the swap (e.g., coupon, maturity, call feature).

     Each Fund may also purchase and sell MMD Swaps, also known as MMD rate locks. An MMD Swap permits a Fund to lock in a specified municipal interest rate for a portion of its portfolio to preserve a return on a particular investment or a portion of its portfolio as a duration management technique or to protect against any increase in the price of securities to be purchased at a later date. By using an MMD Swap, a Fund can create a synthetic long or short position, allowing the Fund to select the most attractive part of the yield curve. An MMD Swap is a contract between a Fund and an MMD Swap provider pursuant to which the parties agree to make payments to each other on a notional amount, contingent upon whether the Municipal Market Data AAA General Obligation Scale is above or below a specified level on the expiration date of the contract. For example, if a Fund buys an MMD Swap and the Municipal Market Data AAA General Obligation Scale is below the specified level on the expiration date, the counterparty to the contract will make a payment to the Fund equal to the specified level minus the actual level, multiplied by the notional amount of the contract. If the Municipal Market Data AAA General Obligation Scale is above the specified level on the expiration date, a Fund will make a payment to the counterparty equal to the actual level minus the specified level, multiplied by the notional amount of the contract.

     In connection with investments in BMA and MMD Swaps, there is a risk that municipal yields will move in the opposite direction than anticipated by a Fund, which would cause the Fund to make payments to its counterparty in the transaction that could adversely affect the Fund’s performance. Neither Fund has any obligation to enter into BMA or MMD Swaps and may not do so.

 

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The net amount of the excess, if any, of a Fund’s obligations over its entitlements with respect to each interest rate swap will be accrued on a daily basis and an amount of cash or liquid securities having an aggregate net asset value at least equal to the accrued excess will be maintained in a segregated account by the Fund’s custodian.

Investment Restrictions

     The Funds have substantially similar investment restrictions. Certain of the investment restrictions are fundamental policies 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, with respect to MuniYield Insured, 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. These fundamental investment restrictions will also be the fundamental restrictions of the Combined Fund. (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.) For the AMPS voting separately as a single class, “majority” means more than 50% of the outstanding AMPS. Each Fund also has certain non-fundamental investment restrictions, which may be changed by each Fund’s Board of Directors without shareholder approval. After the Reorganization, the Combined Fund will be governed by MuniYield Insured’s investment restrictions.

     Under its fundamental investment restrictions, MuniYield Insured may not:

     (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 therein.

     (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 in selling portfolio securities.

     (6) Make loans to other persons, except that the Fund may purchase Municipal Bonds and other debt securities in accordance with its investment objective, policies and limitations.

     (7) Purchase any securities on margin, except that the Fund may obtain such short-term credit as may be necessary for the clearance of purchases and sales of portfolio securities (the deposit or payment by the Fund of initial or variation margin in connection with financial futures contracts and options thereon is not considered the purchase of a security on margin).

     (8) Make short sales of securities or maintain a short position or invest in put, call, straddle or spread options, except that the Fund may write, purchase and sell options and futures on 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 subdivision are not considered to be part of any industry.

 

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     An additional non-fundamental investment restriction adopted by the Fund, which may be changed by the Board of Directors, provides that the Fund may not mortgage, pledge, hypothecate or in any manner transfer, as security for indebtedness, any securities owned or held by the Fund except as may be necessary in connection with borrowings mentioned in (4) above or except as may be necessary in connection with transactions in financial futures contracts and option thereon.

     For purposes of fundamental investment restriction (9), the exception for states, municipalities and their political subdivisions applies only to tax-exempt securities issued by such entities.

     MuniInsured has fundamental investment restrictions that are substantially similar to investment restrictions (1), (2), (3), (4), (5) and (6) listed above. MuniInsured has non-fundamental investment restrictions that are substantially similar to investment restrictions (7), (8) and (9) listed above.

     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 its AMPS are rated by Moody’s, MuniYield Insured will not change its additional investment restrictions (as discussed above) unless it receives written confirmation from Moody’s that any such change 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. The Funds have received an exemptive order under which they may purchase investment grade Municipal Bonds through group orders from an underwriting syndicate of which Merrill Lynch is a member subject to conditions set forth in such order (the “Group Order Exemptive Order”). A group order is an order for securities held in an underwriting syndicate for the account of all members of the syndicate, and in proportion to their respective participation in the syndicate. An exemptive order has also 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 no assurance can be given that such application will be made and, if made, that such order would be granted.

Rating Agency Guidelines

     MuniYield Insured 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 its 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 NRSRO’s, issue ratings for various securities reflecting the perceived creditworthiness of such securities. The guidelines for rating AMPS have been developed by Moody’s and S&P in connection with issuances of asset-backed and similar securities, including debt obligations and variable rate preferred stock, generally on a case by case basis through discussions with the issuers of these securities. The guidelines are designed to ensure that assets underlying outstanding debt or preferred stock will be sufficiently varied and of sufficient quality and amount to justify investment grade ratings. The guidelines do not have the force of law but have been adopted by MuniYield Insured 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.

     MuniYield Insured 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 MuniYield Insured, the Board of Directors, without stockholder approval, may modify certain definitions or restrictions that have been adopted by the Fund pursuant to the rating

 

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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 MuniYield Insured’s AMPS are rated by Moody’s or S&P, as the case may be, the 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 differences in concentration among the types of securities held in the portfolio of each Fund. For MuniYield Insured, as of February 27, 2004, approximately 53.88%, 28.30% and 17.82% of the market value of its portfolio was invested in revenue bonds, general obligation bonds, and cash equivalents, respectively. For MuniInsured, as of February 27, 2004, approximately 21.45%, 61.80% and 16.75% of the market value of its portfolio was invested in revenue bonds, general obligation bonds, and cash equivalents, 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, there are certain differences in the composition of the two investment portfolios. The tables below set forth ratings information for the Municipal Bonds held by each Fund, as of a certain date.

     MuniYield Insured

     As of February 27, 2004, approximately 97.48% of the market value of MuniYield Insured’s portfolio was invested in long term municipal obligations and approximately 2.52% of the market value of MuniYield Insured’s portfolio was invested in short term municipal obligations and affiliated money market mutual funds. The following table sets forth certain information with respect to the composition of MuniYield Insured’s long term municipal obligation investment portfolio as of February 27, 2004.

S&P*	Moody’s*	Number of Issues	Value (in thousands)	Percent
AAA	Aaa	156	$1,210,706	86.56%
A	Aa	10	40,016	2.86%
A	A	10	44,765	3.20%
BBB	Baa	14	103,147	7.38%
	Total	190	$1,398,634	100%

* Ratings: Using the higher of S&P’s or Moody’s rating on the Fund’s municipal obligations. S&P’s rating categories may be modified further by a plus (+) or minus (-) in AA, A and BBB ratings. Moody’s rating categories may be modified further by a 1, 2 or 3 in Aa, A and Baa ratings. See Exhibit IV — “Ratings of Municipal Bonds and Commercial Paper.”

     MuniInsured

     As of February 27, 2004, approximately 96.50% of the market value of MuniInsured’s portfolio was invested in long term municipal obligations and approximately 3.50% of the market value of MuniInsured’s portfolio was invested in short term municipal obligations. The following table sets forth certain information with respect to the composition of MuniInsured’s long term municipal obligation investment portfolio as of February 27, 2004.

S&P*	Moody’s*	Number of Issues	Value (in thousands)	Percent
AAA	Aaa	48	$67,952	88.01%
AA	Aa	2	1,618	2.09%
BBB	Baa	6	7,643	9.90%
	Total	56	$77,213	100%

* Ratings: Using the higher of S&P’s or Moody’s rating on the Fund’s municipal obligations. S&P’s rating categories may be modified further by a plus (+) or minus (-) in AA, A and BBB ratings. Moody’s rating categories may be modified further by a 1, 2 or 3 in Aa, A and Baa ratings. See Exhibit IV — “Ratings of Municipal Bonds and Commercial Paper.”

 

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Performance

     The table below details for each Fund the yield and tax equivalent yield for the 30 days ended October 31, 2003 and the average annual total return for the periods shown. The performance figures for MuniYield Insured reflect the effects of the voluntary fee waivers and expense reimbursements currently in effect for that Fund and would be lower if such waivers and reimbursements were not included.

	Yield-30 days ended October 31, 2003,	Tax Equivalent Yield 30 days ended October 31, 2003†	Average Annual Total Return
			One Year ended October 31, 2003	Five Years ended October 31, 2003	Ten Years Ended October 31, 2003
MuniYield Insured	6.06%	8.36%	8.19%	5.11%	6.48%
MuniInsured	4.65%	6.41%	8.32%	4.81%	5.01%

+ Assumes a 27.5% Federal income tax rate.

     The higher yield, tax equivalent yield and average annual total return of MuniYield Insured during certain of the periods above are partially attributable to its leveraged capital structure.

Portfolio Transactions

     The procedures for engaging in portfolio transactions are the same for each Fund. Subject to policies established by the Board of Directors of each Fund, FAM is primarily responsible for the execution of each Fund’s portfolio transactions. In executing such transactions, FAM seeks to obtain the best results for each Fund, taking into account such factors as price (including the applicable brokerage commission or dealer spread), size of order, difficulty of execution and operational facilities of the firm involved and the firm’s risk in positioning a block of securities. While FAM generally seeks reasonably competitive commission rates, the Funds do not necessarily pay the lowest commission or spread available.

     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 that 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.

 

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     The Funds also may purchase tax-exempt debt instruments in individually negotiated transactions with the issuers. Because an active trading market may not exist for such securities, the prices that the Funds may pay for these securities or receive on their resale may be lower than that for similar securities with a more liquid market.

     The Board of Directors of each Fund has considered the possibility of recapturing for the benefit of the Funds brokerage commissions, dealer spreads and other expenses of possible portfolio transactions, such as underwriting commissions, by conducting portfolio transactions through affiliated entities, including Merrill Lynch. For example, brokerage commissions received by Merrill Lynch could be offset against the investment advisory fees paid by the Fund to FAM. After considering all factors deemed relevant, the Directors of each Fund made a determination not to seek such recapture. The Directors will reconsider this matter from time to time.

     Periodic auctions are conducted for the AMPS of MuniYield Insured by the Fund’s Auction Agent. 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 MuniYield Insured, to each broker-dealer at the annual rate of 0.25%, 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 Fund for the fiscal periods indicated is set forth below:

	Year Ended October 31,
	2003	2002
MuniYield Insured	114.05%	97.34%

	Year Ended September 30,
	2003	2002
MuniInsured	92.60%	50.88%

Net Asset Value

     The net asset value per share of common stock of each Fund is determined as of the close of business of 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 - for MuniYield Insured - 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 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 the Board of Directors. The pricing service typically values portfolio securities at the bid price or the yield equivalent when quotations are readily available. 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. 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. The value of interest rate swaps, caps and floors is determined in accordance with a formula and then confirmed periodically by obtaining a bank quotation. Positions in options are valued at the last sale price on the market where any such option is principally traded. Positions in futures contracts are valued at closing prices for such contracts established by the exchange or dealer market on which they are traded, or if market quotations are not readily available, are valued at fair value on a consistent basis using methods approved in good faith by each Fund’s Board of Directors. Obligations with remaining maturities of 60 days or less are valued at amortized cost unless this method no longer produces fair valuations. Repurchase agreements are valued at cost plus accrued interest.

 

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     Each Fund determines and makes available for publication weekly the net asset value of its common stock. Currently, the net asset values of shares of publicly traded closed-end investment companies investing in debt securities are published in Barron’s, the Monday edition of The Wall Street Journal, and the Monday and Saturday editions of The New York Times.

Capital Stock

     Each Fund has outstanding shares of common stock. MuniYield also has outstanding shares of AMPS. MuniYield Insured Common Stock is traded on the NYSE and MuniInsured Common Stock is traded on the AMEX. The shares of MuniYield Insured commenced trading on the NYSE on March 27, 1992. As of February 27, 2004, the net asset value per share of MuniYield Insured Common Stock was $____ and the market price per share was $_____. The shares of MuniInsured Common Stock commenced trading on the AMEX on October __, 1987. As of February 27, 2004, the net asset value per share of MuniInsured Common Stock was $_____ and the market price per share was $_____.

     MuniYield Insured is authorized to issue 200,000,000 shares of capital stock and MuniInsured is authorized to issue 150,000,000 shares of capital stock. All shares of capital stock of each Fund 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 MuniYield Insured’s offering of shares of AMPS, MuniYield Insured reclassified 17,600 shares of unissued capital stock as AMPS.

     Common Stock

     Holders of each Fund’s common stock are entitled to share equally in dividends declared by the Fund’s Board of Directors payable to holders of the Fund’s common stock and in the net assets of the Fund available for distribution to holders of the Fund’s common stock, in the case of MuniYield Insured 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 each Fund’s common stock do not have preemptive or conversion rights and shares of each 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 MuniYield Insured’s AMPS or any other preferred stock are outstanding, holders of MuniYield Insured’s common stock will not be entitled to receive any dividends 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.

     MuniYield Insured Preferred Stock

     The AMPS of MuniYield Insured 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. MuniYield Insured’s AMPS have a liquidation preference of $25,000 per share; and are not traded on any stock exchange or over-the-counter. MuniYield Insured’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 or 28 days for the AMPS of MuniYield Insured, unless the 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 MuniYield Insured as of a recent auction.

Auction Date	Series	Auction Schedule	Dividend Rate
	A	28 day
	B	28 day
	C	28 day
	D	28 day
	E	7 day
	F	28 day
	G	7 day

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     Under the Investment Company Act, MuniYield Insured 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 MuniYield Insured’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 MuniYield Insured’s AMPS equals its liquidation preference plus accumulated dividends per share.

     The redemption provisions pertaining to the AMPS of MuniYield Insured are substantially similar. It is anticipated that shares of AMPS of MuniYield Insured will generally be redeemable at the option of the Fund at a price equal to their liquidation preference of $25,000 plus accumulated but unpaid dividends (whether or not earned or declared) to the date of redemption plus, under certain circumstances, a redemption premium. Shares of AMPS will also be subject to mandatory redemption at a price equal to their liquidation preference plus accumulated but unpaid dividends to the date of redemption upon the occurrence of certain specified events, such as the failure of MuniYield Insured 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 Charters

     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 holders of common stock 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, with respect to MuniYield Insured, 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. With respect to MuniYield Insured, such approval, adoption or authorization of the foregoing also would require the favorable vote of at least a majority of the Fund’s shares of preferred stock then entitled to be voted thereon, including the AMPS, voting as a separate class.

     In addition, conversion of a Fund to an open-end investment company would require an amendment to the Fund’s Charter. The amendment would have to be declared advisable by the Board of Directors prior to its submission to stockholders. Such an amendment would require the affirmative vote of the holders of at least 66 2/3% of the Fund’s outstanding shares of capital stock (including, with respect to MuniYield Insured, 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

 

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previously approved, adopted or authorized by at least two-thirds of the total number of Directors fixed in accordance with the by-laws), and, with respect to MuniYield Insured, the affirmative vote of at least a majority of the 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 a Fund is converted to an open-end investment company, it could be required to liquidate portfolio securities to meet requests for redemptions and the Common Stock no longer would be listed on a stock exchange. Conversion to an open-end investment company would also require (i) with respect to MuniYield Insured, redemption of all outstanding shares of preferred stock (including the AMPS) and (ii) changes in certain of each 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 Commission for the full text of these provisions.

Management of the Funds

     Directors and Officers. The Boards of Directors (the “Directors”) of MuniInsured and MuniYield Insured currently consist of the same eight individuals, seven of whom are not “interested persons “of each Fund as defined in the Investment Company Act. The Directors of each Fund are responsible for the overall supervision of the operations of each Fund and perform the various duties imposed on the directors of investment companies by the Investment Company Act and under applicable Maryland law. The Funds also share the same officers. For further information regarding the Directors and officers of each Fund, see “Item 1: Election of Directors of MuniInsured Fund “and Exhibit I —“Information Pertaining to Each Fund.”

     Management and Advisory Arrangements. FAM provides each Fund with the same investment advisory and management services. FAM is a limited partnership, the partners of which are ML & Co., a financial services holding company and the parent of Merrill Lynch, and Princeton Services, Inc. (“Princeton Services”). ML & Co. and Princeton Services are “controlling persons” of FAM as defined under the Investment Company Act because of their ownership of its voting securities or their power to exercise a controlling influence over its management or policies. FAM serves as the investment adviser for each Fund pursuant to separate investment advisory agreements (each, an “Investment Advisory Agreement”) that are substantially similar.

     FAM and its affiliates, including MLIM, act as the investment adviser to more than 100 registered investment companies and offer services to individuals and institutional accounts. As of February 2004, FAM and its affiliates had a total of approximately $______ billion in investment company and other portfolio assets under management. FAM was organized as an investment adviser in 1977 and offers investment advisory services to more than 50 registered investment companies. The principal business address of FAM is 800 Scudders Mill Road, Plainsboro, New Jersey 08536.

     Each Fund ‘s Investment Advisory Agreement with FAM provides that, subject to the supervision of the Board of Directors of the Fund, FAM is responsible for the actual management of the Fund’s portfolio. The responsibility for making decisions to buy, sell or hold a particular security for each Fund rests with FAM, subject to review by the Board of Directors of that Fund.

     FAM provides the portfolio management for each Fund. 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 0.50% of its average weekly net assets plus the proceeds of any outstanding borrowings used

 

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for leverage (“average weekly net assets” means the average weekly value of the total assets of the Fund, including the amount obtained from leverage and, with respect to MuniYield Insured, any proceeds from the issuance of preferred stock, minus the sum of (i) accrued liabilities of the Fund, (ii) any accrued and unpaid interest on outstanding borrowings and (iii) accumulated dividends on 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 each 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.

     After the Reorganization, the Combined Fund will pay FAM a monthly fee at the annual rate of 0.50% of its average weekly net assets (including proceeds from the issuance of AMPS) plus the proceeds of any outstanding borrowings used for leverage as described above.

     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, listing fees, taxes, costs of printing proxies, 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 (for MuniYield Insured), Commission 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 certain accounting services to each Fund, and each Fund reimburses FAM for its respective costs in connection with such services.

     For the fiscal years ended October 31, 2003, 2002 and 2001, the fees paid by MuniYield Insured to FAM pursuant to its Investment Advisory Agreement were $7,001,333, $6,842,401, and $6,777,547, respectively (such fees based on average weekly net assets of approximately $1.4 billion, $1.4 billion and $1.4 billion, respectively). MuniYield Insured was reimbursed $33,171 and $18,726 in 2003 and 2002 in connection with certain investment advisory fees paid for its investments in affiliated money market funds. For the fiscal years ended September 30, 2003, 2002 and 2001, the fees paid by MuniInsured to FAM pursuant to its Investment Advisory Agreement were $397,725, $392,838 and $386,415, respectively (such fees based on average weekly net assets of approximately $79.6 million, $78.5 million and $77.4 million, respectively).

     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.

     Accounting Services. Each Fund entered into a separate agreement with State Street, pursuant to which State Street provides certain accounting services to each Fund. Each Fund pays a fee for these services. FAM also provides certain accounting services to each Fund and each Fund reimburses FAM for these services.

     The table below shows the amounts paid by each Fund to State Street and to FAM for accounting services the periods indicated.

     MuniYield Insured

Fiscal Year ended October 31,	Paid to State Street		Paid to FAM
2003	$314,092		$32,712
2002	$321,681		$37,893
2001	$313,440	*	$70,199

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     MuniInsured

Fiscal Year Ended September 30,	Paid to State Street		Paid to FAM
2003	$40,493		$  1,730
2002	$40,223		$  4.405
2001	$37,497	*	$26,115

* Represents payments pursuant to the agreement with State Street commencing January 1, 2001.

Code of Ethics

     The Board of Directors of each Fund has approved the same Code of Ethics under Rule 17j-l of the Investment Company Act that covers the Funds and FAM. The Code of Ethics establishes procedures for personal investing and restricts certain transactions. Employees subject to the Code of Ethics may invest in securities for their personal investment accounts, including securities that may be purchased or held by each Fund.

Voting Rights

     Voting rights are identical for the holders of shares of each Fund’s common stock. Holders of each Fund’s common stock are entitled to one vote for each share held. MuniYield Insured common stockholders 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.

     Except as otherwise indicated below, and except as otherwise required by applicable law, holders of shares of MuniYield Insured’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, MuniYield Insured’s 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, MuniYield Insured’s 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, as applicable, will not be able to elect any of such Directors.

     In connection with the election of MuniYield Insured’s Directors, holders of shares of the 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 MuniYield Insured’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 the 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 MuniYield Insured’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 MuniYield Insured as so increased. The terms of office of the persons who are Directors at the time of that election will continue. If MuniYield Insured 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.

 

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     The affirmative vote of the holders of a majority of the outstanding shares of MuniYield Insured’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 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. Additionally, holders of each series of MuniYield Insured’s AMPS will be required to vote in order for MuniYield Insured to issue any stock ranking on a parity with such series of AMPS.

Stockholder Inquiries

     Stockholder inquiries with respect to either Fund may be addressed to such Fund by telephone at (609) 282-2800 or at the address set forth on the cover page of this Proxy Statement and Prospectus.

Dividends and Distributions

     The Funds’ current policies with respect to dividends and distributions relating to shares of their common stock are substantially similar. Each Fund intends to distribute dividends equal to all or a portion of its net investment income monthly to holders of a Fund’s common stock. Monthly distributions to holders of MuniInsured’s common stock normally consist of all or a portion of its net investment income. Monthly distributions to holders of MuniYield Insured’s common stock normally consist of all or a portion of its net investment income remaining after the payment of dividends (and any Additional Distribution) on the Fund’s AMPS. Each Fund may at times pay out less than the entire amount of net investment income earned in any particular period and may at times pay out such accumulated undistributed income in addition to net investment income earned in other periods in order to permit the Fund to maintain a more stable level of dividends to holders of common stock. As a result, the dividend paid by a Fund to holders of its common stock for any particular period may be more or less than the amount of net investment income earned by the Fund during such period. For Federal tax purposes, each 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, for MuniYield Insured, AMPS. While any shares of MuniYield Insured’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 under Federal income tax law for taxation as a regulated investment company, which would have adverse tax consequences for stockholders. See “Comparison of the Funds — Tax Rules Applicable to the Funds and their Stockholders.”

     The holders of shares of MuniYield Insured’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 MuniYield Insured’s AMPS so declared and payable shall be paid (i) in preference to and in priority over any dividends so declared and payable on the Fund’s common 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 MuniYield Insured’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, MuniYield Insured is required to deposit with the Auction Agent sufficient funds for the payment of such declared dividends. MuniYield Insured intends to establish any reserves for the payment of dividends, and no interest will be payable in respect of any dividend payment or payment on the shares of the Fund’s AMPS which may be in arrears.

     Dividends paid by each Fund, to the extent paid from tax-exempt income earned on Municipal Bonds, are exempt from Federal income taxes, subject to the possible application of the Federal alternative minimum tax. However, MuniYield Insured is required to allocate net capital gains and other income subject to regular Federal income taxes,

 

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if any, proportionately among shares of its common stock and shares of each series 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. MuniYield Insured 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 a series 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 the Fund, and each broker-dealer then notifies its customers who are holders of that series of the Fund’s AMPS. MuniYield Insured 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 MuniYield Insured’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 MuniYield Insured retroactively allocates any net capital gains or other income subject to regular Federal income taxes to shares of its AMPS without having given advance notice thereof as described above, which only may happen when such allocation is made as a result of the redemption of all or a portion of its outstanding AMPS or the liquidation of the Fund, the Fund will make certain payments to holders of its AMPS to which such allocation was made to offset substantially the tax effect thereof. In no other instances will the Fund be required to make payments to holders of its AMPS to offset the tax effect of any reallocation of net capital gains or other taxable income.

Automatic Dividend Reinvestment Plan

     Pursuant to each Fund’s Automatic Dividend Reinvestment Plan (each, a “Plan”), unless a holder of a Fund’s common stock elects otherwise, all dividend and capital gains distributions are automatically reinvested by Equiserve, as agent for each Fund’s common stockholders, in additional shares of a Fund’s common stock. Equiserve will continue to be the Plan Agent for the Combined Fund after 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 Equiserve, as dividend paying agent. Such stockholders may elect not to participate in a Plan and to receive all distributions of dividends and capital gains in cash by sending written instructions to Equiserve, as dividend paying agent, at the address set forth below. Participation in each 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 any dividend payable either in shares or in cash, non-participants in a Plan receive cash, and participants in the Plan receive the equivalent in shares of the Fund’s common stock. The shares are acquired by the Plan Agent for the participant’s account, depending upon the circumstances described below, either (i) through receipt of additional unissued but authorized shares of the Fund’s common stock from the Fund (“newly issued shares”) or (ii) by purchase of outstanding shares of the Fund’s common stock in the open market (“open-market purchases”), on the NYSE, AMEX 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

 

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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, each 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 a 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 a Plan. The Plan Agent will forward all proxy solicitation materials to participants and vote proxies for shares held pursuant to a 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 a 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 that 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 a Plan may receive benefits not available to stockholders not participating in a Plan. If the market price (plus commissions) of a Fund’s shares of common stock is higher than the net asset value of such shares, participants in a Plan receive shares of the Fund’s common stock at less than they otherwise could purchase them and have shares with a cash value greater than the value of any cash distribution they would have received on their shares. If the market price plus commissions is lower than the net asset value of such shares, 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 certain tax consequences of each fund’s Plan.

     Each Fund reserves the right to amend or terminate its Plan. There is no direct service charge to participants in a 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 MuniInsured 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 MuniInsured and in MuniYield Insured, after the Reorganization, the stockholder’s election with respect to the dividends of MuniYield Insured will control unless the stockholder specifically elects a different option at that time. Following the Reorganization, all correspondence should be directed to the Plan Agent of MuniYield Insured, Equiserve Trust Company, I.A., at P.O. Box 43011, Providence, Rhode Island 02940-3011.

 

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Mutual Fund Investment Option

     A holder of common stock of either Fund, who purchased his or her shares through Merrill Lynch in either Fund’s initial public offering, has the right to reinvest the net proceeds from a sale of such shares in Class I 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 MuniInsured Common Stock who qualifies for this option will have the same option with respect to the shares of MuniYield Insured Common Stock received in the Reorganization.

Liquidation Rights of Holders of AMPS

     Upon any liquidation, dissolution or winding up of MuniYield Insured, whether voluntary or involuntary, the holders of MuniYield Insured 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 MuniYield Insured 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 MuniYield Insured’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 MuniYield Insured 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 of each Fund are identical. The Funds have elected and qualified since inception for the special tax treatment afforded RICs under the Code. MuniYield Insured intends to continue to so qualify after the Reorganization. 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 not subject to Federal income tax to the extent that they distribute their net investment income and net realized capital gains. In all taxable years through the taxable year of the Reorganization, each Fund has distributed substantially all of its income. MuniYield Insured intends to continue to distribute substantially all of its income following the Reorganization. If, in any taxable year, a Fund were to fail to qualify as a RIC under the Code, such Fund would be taxed in the same manner as an ordinary corporation and all distributions from earnings and profits to its shareholders would be taxable as ordinary income, whether or not derived from interest on tax-exempt obligations.

     Each Fund is qualified to pay “exempt-interest dividends” as defined in Section 852(b)(5) of the Code. Under such section, if, at the close of each quarter of its taxable year, at least 50% of the value of a Fund’s total assets consists of obligations exempt from Federal income tax (“tax-exempt obligations”) under Section 103(a) of the Code (relating generally to obligations of a state or local governmental unit), the Fund is qualified to pay exempt-interest dividends to its stockholders. Exempt-interest dividends are dividends or any part thereof paid by a Fund which are attributable to interest on tax-exempt obligations and designated by 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 “industrial development bonds” or “private activity bonds,” if any, held by a Fund.

 

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     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 series of AMPS of MuniYield Insured are substantially similar, but not identical, to the AMPS discussed in the revenue ruling. In the opinion of Sidley Austin Brown & Wood LLP, counsel to each Fund, the shares of MuniYield Insured’s currently outstanding AMPS 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 MuniYield Insured 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 purposes. Distributions, if any, from an excess of net long term capital gains over net short term capital losses derived from the sale of securities or from certain transactions in futures or options (“capital gain dividends”) are taxable as long term capital gains for Federal income tax purposes, regardless of the length of time the stockholder has owned Fund shares. Recently enacted legislation reduces the tax rate on certain dividend income and long-term capital gain applicable to individuals. However, to the extent a Fund’s distributions are derived from income on debt securities and short term capital gain, the Fund’s distributions will not be eligible for this reduced dividend tax rate. 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. Generally not later than 60 days after the close of its taxable year, each Fund provides its stockholders with a written notice designating the amounts of any exempt-interest dividends and capital gain dividends.

     A loss realized on a sale or exchange of shares of a Fund is disallowed if other Fund shares are acquired (whether under a Fund’s 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 capital gain dividends received by the stockholder. In addition, such loss is disallowed to the extent of any exempt-interest 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, MuniYield Insured intends to designate distributions made to the classes as consisting of particular types of income in accordance with each class’s proportionate share of such income. After the Reorganization, MuniYield Insured will, likewise, so designate distributions with respect to its common stock and its series of AMPS. MuniYield Insured 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 a series of its AMPS prior to the auction establishing the applicable rate for such dividend. Except for the portion of any dividend that MuniYield Insured informs the Auction Agent will be treated as capital gains or other taxable income, the dividends paid on the shares of AMPS

 

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constitute exempt-interest dividends. Alternatively, MuniYield Insured 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 MuniYield Insured’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 Sidley Austin Brown & Wood LLP, counsel to each Fund, under current law the manner in which MuniYield Insured allocates items of tax-exempt income, net capital gains, and other taxable income, if any, among shares of common stock and outstanding AMPS will be respected for Federal income tax purposes. However, the tax treatment of additional dividends may affect MuniYield Insured’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 MuniYield Insured’s method for allocating tax-exempt income, net capital gains and other taxable income among shares of common stock and the outstanding series of AMPS will be respected for Federal income tax purposes, and it is possible that the IRS could disagree with counsel’s opinion and attempt to reallocate the Fund’s net capital gains or other taxable income. In the event of a reallocation, some of the dividends identified by MuniYield Insured 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, MuniYield Insured is not required to make payments to the affected stockholders to offset the tax effect of such reallocation. In addition, a reallocation could cause MuniYield Insured to be liable for income tax and excise tax on all reallocated taxable income. Sidley Austin Brown & Wood LLP has advised MuniYield Insured that, in its opinion, if the IRS were to challenge in court the Fund’s allocations of income and gain, the IRS would be unlikely to prevail. The opinion of Sidley Austin 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 MuniYield Insured AMPS are outstanding, the 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 MuniYield Insured from distributing at least 90% of its net investment income and may, therefore, jeopardize the Fund’s

 

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qualification for taxation as a RIC. If MuniYield Insured were to fail to qualify as a RIC, some or all of the distributions paid by the Fund would be fully taxable to stockholders for Federal income tax purposes. Upon any failure to meet the asset coverage requirements of the Investment Company Act, MuniYield Insured, 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. No assurance can be given, however, that any such action would achieve such objectives.

     As noted above, each 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 MuniYield Insured has issued and that the Combined Fund may issue may raise a question as to whether distributions on such preferred stock are “preferential” under the Code and, therefore, not eligible for the dividends paid deduction. Counsel has advised MuniYield Insured that the outstanding preferred stock issued by MuniYield Insured will not result in the payment of a preferential dividend. If MuniYield Insured ultimately relies solely on a legal opinion when it issues such preferred stock, no assurance can be given 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 MuniYield Insured paid on the preferred stock, the Fund could be disqualified as RICs. In this case, dividends paid by MuniYield Insured on the common stock and the AMPS would not be exempt from Federal income tax. Additionally, MuniYield Insured would be subject to a Federal alternative minimum tax.

     Under certain circumstances when MuniYield Insured 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. MuniYield Insured treats and 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 MuniYield Insured 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 each Fund’s 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 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 Plan. Thus, stockholders who do not participate in a Fund’s Plan, as well as 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 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.

 

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     The transactions of the Funds are subject to special tax rules of the Code that may, among other things, (a) affect the character of gains and losses realized (with capital gains generally subject to tax at lower rates than ordinary income), (b) disallow, suspend or otherwise limit the allowance of certain losses or deductions, and (c) accelerate the recognition of income without a corresponding receipt of cash (with which to make the necessary distributions to satisfy distribution requirements applicable to RICs). Operation of these rules could, therefore, affect the character, amount and timing of distributions to shareholders. Special tax rules also will require a Fund to mark to market certain types of positions in its portfolio (i.e., treat them as sold on the last day of the taxable year), and may result in the recognition of income without a corresponding receipt of cash. The Funds intend to monitor their transactions, make appropriate tax elections and make appropriate entries in their books and records to lessen the effect of these tax rules and avoid any possible disqualification for the special treatment afforded RIC’s under the Code.

     The foregoing is a general and abbreviated summary of the applicable provisions of the Code and Treasury regulations presently in effect. For the complete provisions, reference should be made to the pertinent Code sections, the Treasury regulations promulgated thereunder. The Code and the Treasury regulation 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 (attached hereto as Exhibit II), MuniYield Insured will acquire substantially all of the assets, and will assume substantially all of the liabilities, of MuniInsured, in exchange solely for shares of MuniYield Insured Common Stock. The shares of MuniYield Insured Common Stock issued to MuniInsured will have an aggregate net asset value equal to the aggregate net asset value of the outstanding shares of MuniInsured Common Stock (except that cash will be paid in lieu of any fractional shares) at the close of business on the business day immediately prior to the date on which the Reorganization occurs. Upon receipt by MuniInsured of such shares, MuniInsured will distribute pro rata the shares of MuniYield Insured Common Stock (and cash in lieu of fractional shares, as applicable) to the holders of MuniInsured Common Stock in exchange for their shares of MuniInsured Common Stock. As soon as practicable after the effective date of the Reorganization (the “Closing Date”), MuniInsured will file Articles of Dissolution with the State Department of Assessments and Taxation of Maryland (the “Maryland Department”) to effect the formal dissolution of such Fund, and will dissolve. Accordingly, as a result of the Reorganization, each holder of MuniInsured Common Stock will own shares of MuniYield Insured Common Stock that (except for cash payments received in lieu of fractional shares) would have an aggregate net asset value immediately after the Closing Date equal to the aggregate net asset value of that stockholder’s MuniInsured Common Stock immediately prior to the Closing Date. Since MuniYield Insured Common Stock would be issued at net asset value and the shares of MuniInsured Common Stock 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. However, as a result of the Reorganization, a stockholder of either Fund likely will hold a reduced percentage of ownership in the Combined Fund after the Reorganization than he or she did in either of the constituent Funds.

Procedure

     At meetings of the Board of Directors of each Fund, the Directors of each Fund, including all the Directors who are not “interested persons,” as defined in the Investment Company Act, of each Fund, unanimously approved the Agreement and Plan. The Board of MuniInsured also approved the submission of the Agreement and Plan to the stockholders of MuniInsured for approval as described herein. In addition, the Board of MuniYield Insured approved the issuance of additional shares of MuniYield Insured Common Stock in connection with the Reorganization.

     The Boards of Directors of the Funds considered numerous factors in arriving at their determination to approve the Agreement and Plan. Among these factors, which are discussed in greater detail elsewhere in this Proxy Statement

 

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and Prospectus, were the similarity of investment objectives and policies of the Funds, their use of substantially the same management personnel, the size of the Funds, the effect the Reorganization would have on each Fund’s operating expenses (including and excluding leverage) and stockholder services, whether or not stockholders would be diluted as a result of the Reorganization, the expenses of the Reorganization that would be borne by the Funds and the tax consequences to stockholders including the fact that the Reorganization is structured as a tax-free reorganization. The Boards of Directors also considered the possible risks of combining the Funds, and examined the relative mix of type, purpose and yield of the Fund’s portfolios. The Boards also considered the relative tax positions of each Fund’s portfolio.

     As a result of such Board approvals, the Funds have jointly filed this Proxy Statement and Prospectus with the Commission soliciting the vote of the stockholders of MuniInsured to approve the Reorganization. If stockholders of MuniInsured 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 an opinion of counsel concerning the tax consequences of the Reorganization as set forth in the Agreement and Plan.

The Board of Directors of MuniInsured recommends that the stockholders of MuniInsured approve the Agreement and Plan.

Terms of the Agreement and Plan of Reorganization

     The following is a summary of the significant terms of the Agreement and Plan. This summary is qualified in its entirety by reference to the Agreement and Plan, attached hereto as Exhibit II.

     Valuation of Assets and Liabilities. The respective assets of each Fund will be valued the same way for both Funds: the net asset value per share of the common stock of each Fund will be determined as of the close of business on the NYSE (generally, 4:00 p.m., Eastern time) on the business day prior to the Closing Date (the “Valuation Time”). 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 Fund plus any cash or other assets (including interest accrued but not yet received) minus all liabilities (including accrued expenses), and for MuniYield Insured the aggregate liquidation value of 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. Daily expenses, including the fees payable to FAM, will accrue at the Valuation Time.

     The Municipal Bonds in which each Fund invests are traded primarily in the over-the-counter markets. In determining net asset value at the Valuation Time, each Fund will use the valuations of portfolio securities furnished by a pricing service approved by the Boards of Directors of each Fund. The pricing service typically values portfolio securities at the bid price or the yield equivalent when quotations are readily available. 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 at the Valuation Time 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. See “Nest Asset Value”.

     Distribution of MuniYield Insured Common Stock. On the Closing Date, MuniYield Insured will issue to MuniInsured a number of shares of MuniYield Insured Common Stock the aggregate net asset value of which will equal the aggregate net asset value of shares of common stock of MuniInsured at the Valuation Time. Each holder of MuniInsured Common Stock will receive the number of shares of MuniYield Insured Common Stock corresponding to his or her proportionate interest in the aggregate net asset value of the MuniInsured Common Stock plus cash in lieu of fractional shares.

     The distribution of shares described in the preceding paragraph will be accomplished by opening new accounts on the books of MuniYield Insured in the names of the holders of MuniInsured Common Stock and transferring to those stockholder accounts the MuniYield Insured Common Stock representing such stockholders’ interests in MuniInsured. Each newly-opened account on the books of MuniYield Insured for the previous holders of MuniInsured Common Stock would represent the respective pro rata number of shares of MuniYield Insured Common Stock (rounded down, in the case of fractional shares, to the next largest number of whole shares) due such holder of common stock.

 

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No fractional shares of MuniYield Insured Common Stock will be issued. In lieu thereof, MuniYield Insured’s transfer agent, EquiServe, will aggregate all fractional shares of MuniYield 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 common stock certificates of MuniInsured. See “Surrender and Exchange of Stock Certificates” below for a description of the procedures to be followed by the stockholders of MuniInsured to obtain their shares of MuniYield Insured Common Stock (and cash in lieu of fractional shares, if any).

     No sales charge or fee of any kind will be charged to stockholders of MuniInsured in connection with their receipt of MuniYield Insured Common Stock in the Reorganization.

     Expenses. The expenses of the Reorganization that are directly attributable to MuniInsured are expected to include the expenses incurred in preparing, printing and mailing the proxy materials to be used in connection with the annual meeting of the stockholders of MuniInsured to consider the Reorganization, the expenses related to the solicitation of proxies to be voted at that meeting and a portion of the expenses incurred in printing the Proxy Statement and Prospectus contained in the N-14 Registration Statement. The expenses of the Reorganization that are directly attributable to MuniYield Insured will be paid by FAM. These expenses are expected to include the expenses incurred in printing sufficient copies of MuniYield Insured’s Annual Report that will accompany the mailing of the Proxy Statement and Prospectus. Certain other expenses of the Reorganization, including expenses in connection with obtaining an opinion of counsel as to certain tax matters, the preparation of the Agreement and Plan, Commission fees, stock exchange fees, rating agency fees, transfer agent fees, legal fees and audit fees, will be borne equally by MuniInsured and FAM. The expenses of the Reorganization attributable to MuniInsured are currently estimated to be $146,000. The expenses of the Reorganization attributable to MuniYield Insured are currently estimated to be $117,000.

     Required Approvals. Under the Articles of Incorporation of each Fund (as amended to date), relevant Maryland law and the rules of the NYSE or AMEX, as applicable, stockholder approval of the Agreement and Plan requires the affirmative vote of the holders of a majority of the shares of MuniInsured Common Stock issued and outstanding and entitled to vote thereon; no vote of the stockholders of MuniYield Insured is required.

     Deregistration and Dissolution. Following the transfer of substantially all of the assets and substantially all of the liabilities of MuniInsured to MuniYield Insured and the distribution of shares of MuniYield Insured Common Stock to stockholders of MuniInsured, in accordance with the foregoing, MuniInsured will terminate its registration under the Investment Company Act, will be dissolved 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 may be amended, modified, superseded, canceled, renewed or extended, and the terms or covenants thereof may be waived, at any time prior to the Closing Date with respect to any of the terms therein by written agreement of MuniYield Insured and MuniInsured. The obligations of each Fund pursuant to the Agreement and Plan are subject to various conditions, including a registration statement on Form N-14 being declared effective by the Commission, approval by the stockholders of MuniInsured as described herein, an opinion of counsel being received with respect to certain tax matters, an opinion of counsel being received as to securities matters 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, the Board of Directors of either Fund may cause the Reorganization to be postponed or abandoned under certain circumstances should such Board determine that it is in the best interests of the stockholders of its respective Fund to do so. The Agreement and Plan 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 Closing Date, or the Closing Date may be postponed: (i) by mutual consent of the Boards of Directors of both Funds and (ii) by the Board of Directors of either Fund if any condition to that Fund ‘s obligations set forth in the Agreement and Plan has not been fulfilled or waived by such Board.

 

50

Potential Benefits to Stockholders of the Funds as a Result of the Reorganization

     In approving the Reorganization, the Board of Directors of MuniInsured identified certain potential benefits for stockholders of that Fund that are likely to result from the Reorganization, including lower aggregate operating expenses per share for stockholders of MuniInsured (excluding the expenses resulting from MuniYield Insured’s AMPS), greater efficiency and flexibility in portfolio management and a more liquid trading market for the common stock of the Pro Forma MuniYield Insured Combined Fund. Following the Reorganization, MuniInsured stockholders will remain invested in a closed-end fund that has investment objectives and policies substantially similar to those of MuniInsured that, unlike MuniInsured, may use leverage to enhance the yield to the common stock. Although the total operating expense ratio attributable to shares of common stock of the Pro Forma MuniYield Insured Combined Fund is expected to be higher than MuniInsured’s current total operating expense ratio, this is solely as a result of the Pro Forma MuniYield Insured Combined Fund’s leverage through AMPS. The Directors of MuniInsured determined that the potential benefits to common stockholders of the Combined Fund from the ability to use leverage to enhance yield outweighed the potentially higher overall operating expense ratio.

     In their deliberations, the Board of Directors of MuniYield Insured observed that although MuniYield Insured stockholders are not expected to experience a significant decrease in its total operating expense ratio after the Reorganization, the Board concluded that MuniYield Insured stockholders will not be adversely affected by the Reorganization and the Fund may otherwise benefit from an increase in the Pro Forma MuniYield Insured Combined Fund’s level of net assets. See “Risk Factors and Special Considerations —Net Asset Value; Interest Rate Sensitivity; Credit Quality and Other Market Conditions.”

     The Pro Forma MuniYield Insured Combined Fund that would result from the Reorganization would have a larger asset base than either Fund has currently. FAM estimates that the Pro Forma MuniYield Insured Combined Fund will have net assets of approximately $1.5 billion upon completion of the Reorganization. A larger asset base should provide benefits in portfolio management. For example, after the Reorganization the Pro Forma MuniYield Insured Combined Fund may be able to purchase larger amounts of Municipal Bonds at more favorable prices than could either Fund separately and, with this greater purchasing power, request improvements in the terms of the Municipal Bonds (e.g., added indenture provisions covering call protection, sinking funds and audits for the benefit of large holders) prior to purchase. In addition, based on data presented by FAM, the Board of each Fund believes that administrative expenses for a larger Pro Forma MuniYield Insured Combined Fund are likely to be less than the aggregate expenses for each Fund, resulting in a lower expense ratio for common stockholders of the Pro Forma MuniYield Insured 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 Pro Forma MuniYield Insured Combined Fund.

     To illustrate the potential economies of scale, the table below sets forth the total annualized operating expense ratio of each Fund and the Pro Forma MuniYield Insured Combined Fund, both including and excluding AMPS leverage, based on their average net assets as of October 31, 2003.

	Approximate Average Net Assets (excluding Assets Attributable to AMPS) as of October 31, 2003	Total Annualized Operating Expense Ratio (excluding Assets Attributable to AMPS)		Approximate Average Net Assets (including Assets Attributable to AMPS) as of October 31, 2003	Total Annualized Operating Expense Ratio (including Assets Attributable to AMPS)
MuniInsured	$79.6 million	0.79%		$79.6 million	0.79%
MuniYield Insured	$952.3 million	0.95%	*	$1.4 billion	0.65%	**
Combined Fund	$1.0 billion	0.92%	*	$1.5 billion	0.64%	**

* Including any fee waiver and/or expense reimbursements, the total annualized operating expense ratio for MuniYield Insured and the Pro Forma MuniYield Insured Combined Fund would have been 0.94%, and 0.91%, respectively.

** Including any fee waiver and/or expense reimbursements, the total annualized operating expense ratio for MuniYield Insured and the Pro Forma MuniYield Insured Combined Fund would have been 0.64%, and 0.64%, respectively.

 

51

     After the Reorganization, on a pro forma basis, the total annualized operating expenses of the Pro Forma MuniYield Insured Combined Fund as a percent of average net assets as of October 31, 2003 would be: (a) 0.13% higher than MuniInsured’s total annualized operating expense ratio excluding assets attributable to AMPS and 0.15% lower than MuniInsured’s total annualized operating expense ratio including assets attributable to AMPS; and (b) 0.03% lower than MuniYield Insured’s total annualized operating expense ratio excluding assets attributable to AMPS and 0.01% lower than MuniYield Insured’s total annualized operating expense ratio including assets attributable to AMPS.

     In approving the Reorganization, the Board of Directors of each Fund determined that the Reorganization is in the best interests of the stockholders of that Fund because the Reorganization presents no significant risks or costs (including legal, accounting and administrative costs) that would outweigh the potential benefits discussed above and because the interests of existing stockholders of that Fund would not be diluted with respect to net asset value as a result of the Reorganization.

     It is not anticipated that the Reorganization directly would benefit the holders of shares of AMPS of MuniYield Insured; however, the Reorganization will not adversely affect the holders of shares of AMPS of MuniYield Insured and the expenses of the Reorganization will not be borne by the holders of shares of AMPS of MuniYield Insured.

Surrender and Exchange of Stock Certificates

     After the Closing Date, each holder of an outstanding certificate or certificates formerly representing shares of MuniInsured 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 MuniYield Insured Common Stock distributable with respect to such holder’s shares of MuniInsured Common Stock, together with cash in lieu of any fractional shares of MuniYield Insured Common Stock. Promptly after the Closing Date, the transfer agent for the MuniYield Insured Common Stock will mail to each holder of certificates formerly representing shares of MuniInsured Common Stock a letter of transmittal for use in effecting this exchange.

If prior to the Reorganization you held:	After the Reorganization, you will hold:
MuniInsured Common Stock	MuniYield Insured Common Stock
MuniYield Insured Common Stock	MuniYield Insured Common Stock

     Please do not send in any stock certificates at this time. Upon consummation of the Reorganization, holders of MuniInsured Common Stock will be furnished with instructions for exchanging their stock certificates for MuniYield Insured stock certificates and, if applicable, cash in lieu of fractional shares of MuniYield Insured Common Stock.

     From and after the Closing Date, certificates formerly representing shares of MuniInsured Common Stock will be deemed for all purposes to evidence ownership of the number of full shares of MuniYield Insured Common Stock distributable with respect to the shares of MuniInsured Common Stock 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 MuniInsured Common Stock as of any date subsequent to the Closing Date will be paid to the holders of such outstanding stock certificates. Dividends payable to holders of record of shares of MuniYield Insured Common Stock, as of any date after the Closing Date and prior to the exchange of certificates by any holder of MuniInsured Common Stock, will be paid to such stockholder, without interest, at the time such stockholder surrenders his or her stock certificates for exchange.

     From and after the Closing Date, there will be no transfers on the stock transfer books of MuniInsured. If, after the Closing Date, certificates representing shares of MuniInsured Common Stock are presented to MuniYield Insured, they will be canceled and exchanged for certificates representing MuniYield Insured Common Stock and cash in lieu of fractional shares of MuniYield Insured Common Stock, if any, distributable with respect to such MuniInsured Common Stock in the Reorganization.

Tax Consequences of the Reorganization

     Summary. MuniYield Insured and MuniInsured will receive an opinion of counsel with respect to the Reorganization to the effect that, among other things, neither Fund will recognize any gain or loss on the transaction, and no stockholder of MuniInsured will recognize any gain or loss upon the receipt of shares of MuniYield Insured

 

52

in the Reorganization (except to the extent a holder of MuniInsured Common Stock receives cash representing an interest in fractional shares of MuniYield Insured Common Stock in the Reorganization).

     General. The Reorganization has been structured with the intention that it qualify for Federal income tax purposes as a tax-free reorganization under Section 368(a)(1)(C) of the Code. MuniInsured and MuniYield Insured have elected and qualified for the special tax treatment afforded “regulated investment companies” under the Code, and MuniYield Insured intends to continue to so qualify after the Reorganization. MuniInsured and MuniYield Insured have requested an opinion of Sidley Austin Brown &Wood LLP, counsel to MuniYield Insured and MuniInsured, to the effect that for Federal income tax purposes: (i) the transfer of all of the assets of MuniInsured to MuniYield Insured in return solely for shares of MuniYield Insured as provided in the Agreement and Plan will constitute a reorganization within the meaning of Section 368(a)(1)(C) of the Code, and MuniInsured and MuniYield Insured will each be deemed to be 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 MuniInsured as a result of the asset transfer or on the distribution of shares of MuniYield Insured to MuniInsured stockholders under Section 361(c)(1) of the Code; (iii) under Section 1032 of the Code, no gain or loss will be recognized to MuniYield 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 MuniInsured on the receipt of shares of MuniYield Insured in return for their shares of MuniInsured (except to the extent that holders of MuniInsured Common Stock receive cash representing an interest in fractional shares of MuniYield Insured Common Stock in the Reorganization); (v) in accordance with Section 362(b) of the Code, the tax basis of MuniInsured’s assets in the hands of MuniYield Insured will be the same as the tax basis of such assets in the hands of MuniInsured immediately prior to the consummation of the Reorganization; (vi) in accordance with Section 358 of the Code, immediately after the Reorganization, the tax basis of the shares of MuniYield Insured received by the stockholders of MuniInsured in the Reorganization will be equal to the tax basis of the shares of MuniInsured surrendered; (vii) in accordance with Section 1223 of the Code, a stockholder’s holding period for the shares of MuniYield Insured will be determined by including the period for which such stockholder held the shares of MuniInsured exchanged therefor provided that such MuniInsured shares were held as a capital asset; (viii) in accordance with Section 1223 of the Code, MuniYield Insured’s holding period with respect to the MuniInsured assets transferred will include the period for which such assets were held by MuniInsured; (ix) the payment of cash to holders of MuniInsured Common Stock in lieu of fractional shares of MuniYield 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 each such stockholder will have short-or long term capital gain or loss to the extent that the cash distribution differs from his or her basis allocable to the MuniYield Insured fractional shares; and (x) the taxable year of MuniInsured will end on the effective date of the Reorganization, and pursuant to Section 381(a) of the Code and regulations thereunder, MuniYield Insured will succeed to and take into account certain tax attributes of MuniInsured, such as earnings and profits, capital loss carryovers and method of accounting.

     Under Section 381(a) of the Code, MuniYield Insured will succeed to and take into account certain tax attributes of MuniInsured, including, but not limited to, earnings and profits, any capital loss carryovers and method of accounting. The Code, however, contains special limitations with regard to the use of capital losses and other similar items in the context of certain reorganizations, including tax-free reorganizations pursuant to Section 368(a)(1)(C) of the Code, which could reduce the benefit of these attributes to MuniYield Insured. As of September 30, 2003, MuniInsured had net realized capital losses and both Funds had unrealized appreciation. As a result of the Reorganization, and subject to certain limitations, the stockholders of each Fund may benefit from the ability of the Combined Fund to use the capital losses of MuniInsured to offset any realized capital gain.

     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 since inception for taxation as RICs under Sections 851-855 of the Code, and, after the Reorganization, MuniYield Insured intends to continue to so qualify.

 

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Capitalization

     The following table sets forth as of ________________ (i) the capitalization of MuniYield Insured, (ii) the capitalization of MuniInsured and (iii) the capitalization of the MuniYield Insured Pro Forma Combined Fund, as adjusted to give effect to the Reorganization.

Capitalization of MuniYield Insured, MuniInsured
and the MuniYield Insured Pro Forma Combined Fund as of _________ (unaudited)

	MuniYield Insured	MuniInsured	Pro Forma Adjustment	Combined Fund as Adjusted
Net Assets:
Net Assets Attributable to Common Stock
Shares of Common Stock Outstanding
Net Asset Value Per Share:
Common Stock.
Net Assets Attributable to AMPS
Share of AMPS Outstanding
Liquidation Preference Per Share: AMPS

INFORMATION CONCERNING THE MEETING

Date, Time and Place of the Meeting

     The Meeting will be held on Wednesday, May 12, 2004 at the offices of FAM, 800 Scudders Mill Road, Plainsboro, New Jersey at 9:00 a.m. Eastern time.

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 (unless the proxy states that it is irrevocable and it is coupled with an interest) 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 Meeting will not revoke a proxy, a stockholder present at the Meeting 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 Meeting in accordance with the directions on the proxies; if no direction is indicated on a properly executed proxy, such shares will be voted “FOR” (i) Item 1, the election of the Class III Directors of MuniInsured and (ii) Item 2, the approval of the Agreement and Plan. It is not anticipated that any other matters will be brought before the Meeting. If, however, any other business properly is brought before the Meeting, proxies will be voted in accordance with the judgment of the persons designated on such proxies.

Record Date and Outstanding Shares

     Only stockholders of record of shares of MuniInsured at the close of business on the Record Date are entitled to vote at the Meeting or any adjournment thereof. At the close of business on the Record Date, ________ shares of MuniInsured Common Stock were outstanding.

Security Ownership of Certain Beneficial Owners and Management

     To the knowledge of the Funds, at the Record Date, no person or entity owns beneficially or of record 5% or more of the shares of the common stock of either Fund.

 

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     As of the Record Date, the Directors and officers of MuniInsured as a group owned an aggregate of less than 1% of the outstanding shares of MuniInsured Common Stock.

     As of the Record Date, the Directors and officers of MuniYield Insured as a group owned an aggregate of less than 1% of the outstanding shares of MuniYield Insured Common Stock.

     On the Record Date, Mr. Glenn, a Director and an officer of each Fund, and the other 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 MuniInsured Common Stock is entitled to one vote.

     Assuming the required quorum is present at the Meeting, the election of the Class III Directors of MuniInsured will require the affirmative vote of a majority of all votes cast by the holders of MuniInsured Common Stock.

     Assuming the required quorum is present at the Meeting, approval of the Agreement and Plan requires the affirmative vote of stockholders representing a majority of the outstanding shares of MuniInsured Common Stock entitled to vote thereon.

     For purposes of the Meeting, a quorum consists of a majority of stockholders present in person or by proxy entitled to vote at the meeting. If, by the time scheduled for the Meeting, a quorum of the stockholders of MuniInsured is not present, or if a quorum is present but sufficient votes to take action with respect to any Item are not received from the stockholders of the applicable Fund, the persons named as proxies may propose one or more adjournments of the Meeting with respect to that Item to permit further solicitation of proxies from stockholders. Any such adjournment will require the affirmative vote of a majority of the shares of MuniInsured 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 MuniInsured’s stockholders.

Appraisal Rights

     Under Maryland law, stockholders of a company whose shares are listed on a national securities exchange, such as the common stock of MuniInsured, are not entitled to demand the fair value of their shares upon a transfer of assets; therefore, the holders of MuniInsured Common Stock will be bound by the terms of the Reorganization, if approved at the Meeting. However, any holder of MuniInsured Common Stock may sell his or her shares of MuniInsured Common Stock at any time prior to the Reorganization on the AMEX. As stockholders of the corporation acquiring the assets of MuniInsured, stockholders of MuniYield Insured are not entitled to appraisal rights under Maryland law.

ADDITIONAL INFORMATION

     The expenses of preparing, printing and mailing the proxy materials to be used in connection with the Meeting, and the expenses related to the solicitation of proxies to be voted at the Meeting, will be paid by MuniInsured. See “Agreement and Plan of Reorganization —Terms of the Agreement and Plan of Reorganization —Expenses.”

     MuniInsured will reimburse banks, brokers and others for their reasonable expenses in forwarding proxy solicitation materials to the beneficial owners of shares of the Fund and certain persons that the Fund 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 Meeting, supplementary solicitation may be made by mail, telephone, telegraph or personal interview by officers of MuniInsured. MuniInsured has retained Georgeson Shareholder, 17 State Street, New York, New York 10004,to aid in the solicitation of proxies, at a cost to be borne by MuniInsured of approximately $3,500, plus out-of-pocket expenses estimated to be approximately $_______.

 

55

     Broker-dealer firms, including Merrill Lynch, holding MuniInsured shares in “street name” for the benefit of their customers and clients will request the instructions of such customers and clients on how to vote their shares on each proposal before the Meeting. MuniInsured understands that under the rules of the AMEX, such broker- dealer firms may, without instructions from their customers and clients, grant authority to the proxies designated to vote on the election of Directors (Item 1) if no instructions have been received prior to the date specified in the broker-dealer firm’s request for voting instructions. With respect to shares of MuniInsured Common Stock, 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 (Item 2). MuniInsured 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 MuniInsured exists. Proxies that are returned to the Fund but that are marked “abstain” or on which a broker-dealer has declined to vote on any non-routine proposal (“broker non-votes”) will be counted as present for the purposes of determining a quorum.

     Merrill Lynch has advised MuniInsured that if it votes shares held in its name for which no instructions are received, except as limited by agreement or applicable law, on the election of Directors it will do so in the same proportion as the votes received from beneficial owners of those shares for which instructions have been received, whether or not held in nominee name. Abstentions and broker non-votes are not counted as votes cast. Therefore, abstentions and broker non-votes will have no effect on the election of the Class III Directors of MuniInsured (Item 1). However, an abstention or broker non-vote will have the same effect as a vote against approval of the Agreement and Plan (Item 2).

     This Proxy Statement and Prospectus does not contain all of the information set forth in the registration statement and the exhibits relating thereto that MuniYield Insured has filed with the Commission under the Securities Act of 1933, as amended, 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 Commission. Any such reports, proxy statements and other information can be inspected and copied at the public reference facilities of the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the following regional offices of the Commission: Pacific Regional Office, at 5670 Wilshire Boulevard, 11th Floor, Los Angeles, California 90036; and Midwest Regional Office, at Citicorp 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 Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The Commission maintains a Web site at http://www.sec.gov containing reports, proxy and information statements and other information regarding registrants, including the Funds, that file electronically with the Commission. Reports, proxy statements and other information concerning MuniYield Insured can also be inspected at the offices of the NYSE, 20 Broad Street, New York, New York 10005 and concerning MuniInsured can also be inspected at the offices of the AMEX at 9801 Washington Boulevard, Gaithersburg, Maryland 20878.

CUSTODIAN

     State Street acts as the custodian for the cash and securities of MuniInsured and MuniYield Insured. The principal business address of State Street in such capacity is One Heritage Drive, P2N, North Quincy, Massachusetts 02171. It is anticipated that State Street will continue to act as custodian for the Combined Fund.

TRANSFER AGENT, DIVIDEND DISBURSING AGENT AND REGISTRAR

     EquiServe serves as the transfer agent, dividend disbursing agent and registrar with respect to each Fund. The principal business address of EquiServe in such capacity is 150 Royall Street, Canton, Massachusetts 02021. It is anticipated that EquiServe will continue to provide these services to the Combined Fund after the Reorganization.

 

56

ACCOUNTING SERVICES PROVIDER

     State Street provides certain accounting services for MuniYield Insured and MuniInsured and will provide the same services to the Combined Fund after the Reorganization. The principal business address of State Street in such capacity is 500 College Road East, Princeton, New Jersey 08540.

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 each Fund by Sidley Austin Brown &Wood LLP, New York, New York.

EXPERTS

     _____________, independent auditors, have audited the financial statements and financial highlights of MuniYield Insured, as of ___________, as set forth in their report which appears in this Proxy Statement and Prospectus. _____________, independent auditors, have audited the financial statements and financial highlights of MuniInsured, as of ___________, as set forth in their report which appears in this Proxy Statement and Prospectus. The audited financial statements and financial highlights of the Funds are included in reliance upon these reports, given on ___ and the authority of _____________ as experts in accounting and auditing.

     _________________, will serve as the independent auditors for the Combined Fund after the Reorganization. The principal business address of _________________ is _______________________________________________.

STOCKHOLDER PROPOSALS

     MuniInsured (if the Reorganization is not approved) expects to hold its next Annual Meeting of Stockholders in April 2005. Proposals of stockholders intended to be presented at the Meeting must be received by MuniInsured by __________ for inclusion in the Fund’s Proxy Statement and form of Proxy for that Meeting. The persons named as proxies in the proxy materials for the 2005 Annual Meeting of Stockholders for MuniInsured may exercise discretionary authority with respect to any stockholder proposal presented at such meeting if written notice of such proposal has not been received by MuniInsured by February __, 2005. Written proposals and notices should be sent to the Secretary of the Fund, 800 Scudders Mill Road, Plainsboro, New Jersey 08536.

By Order of the Boards of Directors

Phillip S. Gillespie
Secretary
MuniInsured Fund, Inc.

Plainsboro, New Jersey
Dated:

 

57

INDEX TO FINANCIAL STATEMENTS

Audited Financial Statements for MuniInsured Fund, Inc. for the Period from __________________      (commencement of operations) to _____________	Page
Audited Financial Statements for MuniYield Insured, Inc. for the Period from _____________       (commencement of operations) to ________________
Pro Forma Unaudited Financial Statements for the Combined Fund as of _________________

58

EXHIBIT I

INFORMATION PERTAINING TO MUNIYIELD INSURED

     Set forth below is certain biographical and other information relating to the Director nominee who is an “interested person,” as defined in the Investment Company Act, of the Fund:

Name, Address and
Age of Director Position(s) Held
with the Fund Term of Office
and Length of
Time Served Principal Occupation
During Past Five Years Number of
MLIM/FAM-
Advised Funds
Overseen Public
Directorships

To be supplied by subsequent amendment

*

     Set forth below is certain biographical and other information relating to each non-interested Director nominee of the Fund:

Name, Address and
Age of Director Position(s) Held
with the Fund Term of Office
and Length of
Time Served Principal Occupation
During Past Five Years Number of
MLIM/FAM-
Advised Funds
Overseen Public
Directorships

To be supplied by subsequent amendment

     Information relating to the share ownership by the Directors as of the Record Date is set forth in the chart below:

Director
Dollar Range of
Equity Securities in
MuniYield Insured Fund Aggregate Dollar Range of
Equity Securities in All
Registered Funds Overseen by
Director in MLIM/FAM-advised Funds

To be supplied by subsequent amendment

 

I-1

INFORMATION PERTAINING TO MUNIINSURED FUND

     Set forth below is certain biographical and other information relating to the Director nominee who is an “interested person,” as defined in the Investment Company Act, of the Fund:

Name, Address and
Age of Director Position(s) Held
with the Fund Term of Office
and Length of
Time Served Principal Occupation
During Past Five Years Number of
MLIM/FAM-
Advised Funds
Overseen Public
Directorships

To be supplied by subsequent amendment

*

     Set forth below is certain biographical and other information relating to each non-interested Director nominee of the Fund:

Name, Address and
Age of Director Position(s) Held
with the Fund Term of Office
and Length of
Time Served Principal Occupation
During Past Five Years Number of
MLIM/FAM-
Advised Funds
Overseen Public
Directorships

To be supplied by subsequent amendment

     Information relating to the share ownership by the Directors as of the Record Date is set forth in the chart below:

Director
Dollar Range of
Equity Securities in
MuniInsured Fund Aggregate Dollar Range of
Equity Securities in All
Registered Funds Overseen by
Director in MLIM/FAM-advised Funds

To be supplied by subsequent amendment

 

I-2

Exhibit II

AGREEMENT AND PLAN OF REORGANIZATION

     THIS AGREEMENT AND PLAN OF REORGANIZATION (“Agreement”) is made as of the      day of             , 2004, by and between MuniYield Insured Fund, Inc., a Maryland corporation (“MuniYield Insured”), and MuniInsured Fund, Inc., a Maryland corporation (“MuniInsured”).

PLAN OF REORGANIZATION

     The reorganization is comprised of the following transactions: (1) MuniYield Insured will acquire substantially all of the assets and assume substantially all of the liabilities of MuniInsured in exchange solely for an equal aggregate value of newly issued shares of common stock, with a par value of $.10 per share, of MuniYield Insured and (2) the subsequent distribution of Corresponding Shares (defined in the following paragraph) of MuniYield Insured to MuniInsured stockholders in exchange for their shares of common stock, with a par value of $.10 per share, of MuniInsured, including shares of common stock of MuniInsured representing the Dividend Reinvestment Plan (“DRIP”) shares held in book deposit accounts of the holders of common stock of MuniInsured (“MuniInsured Common Stock”). The transactions described in this paragraph are collectively referred to as the “Reorganization.” MuniYield Insured together with MuniInsured are collectively referred to as the “Funds”. The Boards of Directors of MuniInsured and MuniYield Insured are referred to collectively herein as the “Boards” or singularly as the “Board” where applicable.

     In the course of the Reorganization, shares of MuniYield Insured will be distributed to stockholders of MuniInsured as follows: stockholders of MuniInsured as of the Valuation Time (as defined in Section 3(c) of this Agreement) will be entitled to receive shares of common stock of MuniYield Insured (“Corresponding Shares”). The aggregate net asset value of the Corresponding Shares of MuniYield Insured to be received by each stockholder of MuniInsured will equal the aggregate net asset value of the shares of MuniInsured owned by such stockholder as of the Valuation Time. In consideration therefor, on the Closing Date (as defined in Section 7 of this Agreement), MuniYield Insured shall acquire substantially all of the assets of MuniInsured and assume substantially all of MuniInsured’s liabilities then existing, whether absolute, accrued, contingent or otherwise. It is intended that the Reorganization described in this Agreement shall be a reorganization within the meaning of Section 368(a)(1)(C) of the Internal Revenue Code of 1986, as amended (the “Code”), and any successor provision.

     Prior to the Closing Date, MuniInsured shall declare 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 to and including the Closing 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 Closing Date.

 

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     As promptly as practicable after the consummation of the Reorganization, the Board of MuniInsured shall take or shall cause such officers of MuniInsured to take such action as may be necessary to dissolve MuniInsured in accordance with the laws of the State of Maryland and to terminate MuniInsured’s 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 premises and the covenants and agreements hereinafter set forth, and intending to be legally bound, MuniYield Insured and MuniInsured hereby agree as follows:

     1.  Representations and Warranties of MuniInsured.

     MuniInsured represents and warrants to, and agrees with MuniYield Insured that:

     (a) MuniInsured 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, to transfer the assets and liabilities of MuniInsured to MuniYield Insured and to carry out this Agreement. MuniInsured 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) MuniInsured is duly registered under the 1940 Act, as a closed-end management investment company (File No. 811-5190), and such registration has not been revoked or rescinded and is in full force and effect. MuniInsured has elected and qualified at all times since its inception for the special tax treatment afforded regulated investment companies (“RICs”) under Sections 851-855 of the Code and intends to continue to so qualify through its taxable year ending on the Closing Date.

     (c) As used in this Agreement, the term “MuniInsured Investments” shall mean (i) the investments of MuniInsured shown on the schedule of its investments as of the Valuation Time (as defined in Section 3(c) of this Agreement) furnished to MuniYield Insured pursuant to Section 9(b); and (ii) all other assets owned by MuniInsured or liabilities incurred by MuniInsured existing as of the Valuation Time.

     (d) MuniInsured 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, 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.

 

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     (e) MuniYield Insured has been furnished with MuniInsured’s Annual Report to Stockholders for the year ended September 30, 2003. The financial statements appearing in such report, having been examined by Deloitte & Touche, LLP , independent public accountants, fairly present the financial position of MuniInsured as of the respective dates indicated, in conformity with accounting principles generally accepted in the United States of America.

     (f) An unaudited statement of assets, liabilities and capital and an unaudited schedule of investments of MuniInsured, each as of the Valuation Time, will be furnished to MuniYield Insured at or prior to the Closing Date for the purpose of determining the number of shares of MuniYield Insured to be issued pursuant to Section 4 of this Agreement; and each will fairly present the financial position of MuniInsured as of the Valuation Time in conformity with accounting principles generally accepted in the United States of America.

     (g) There are no material legal, administrative or other proceedings pending or, to the knowledge of MuniInsured, threatened against it which assert liability on the part of MuniInsured, which materially affect its financial condition or its ability to consummate the Reorganization. MuniInsured is neither charged with nor, to the best of the knowledge of MuniInsured, threatened with any violation or investigation of any possible violation of any provisions of any Federal, state or local law or regulation or administrative ruling relating to any aspect of its business.

     (h) There are no material contracts outstanding to which MuniInsured is a party that have not been disclosed in the N-14 Registration Statement (as defined in subsection (n) below) or will not otherwise be disclosed to MuniYield Insured prior to the Valuation Time.

     (i) MuniInsured is not obligated under any provision of its Articles of Incorporation, as amended, restated and supplemented, or its by-laws, as amended, or a party to any contract or other commitment or obligation, and is not subject to any order or decree, which would be violated by its execution of or performance under this Agreement, except insofar as the Funds have mutually agreed to amend such contract or other commitment or obligation to cure any potential violation as a condition precedent to the Reorganization.

     (j) MuniInsured 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 the date of its most recent Annual or Semi-Annual Report, and those incurred in connection with the Reorganization. As of the Valuation Time, MuniInsured will advise MuniYield 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 with respect to MuniInsured.

     (k) MuniInsured has filed, or has obtained extensions to file, all Federal, state and local tax returns that are required to be filed by it, and has paid or has obtained extensions

 

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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 Closing Date occurs. All tax liabilities of MuniInsured have been adequately provided for on its books, and no tax deficiency or liability of MuniInsured 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 Closing Date occurs.

     (l) At both the Valuation Time and the Closing Date, MuniInsured will have full right, power and authority to sell, assign, transfer and deliver the MuniInsured Investments. At the Closing Date, subject only to the delivery of the MuniInsured Investments as contemplated by this Agreement, MuniInsured will have good and marketable title to all of the MuniInsured Investments, and MuniYield Insured will acquire all of the MuniInsured 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 MuniInsured Investments or materially affect title thereto).

     (m) No consent, approval, authorization or order of any court or governmental authority is required for the consummation by MuniInsured of the Reorganization, except such as may be required under the Securities Act of 1933, as amended (the “1933 Act”), the Securities Exchange Act of 1934, as amended (the “1934 Act”), and the 1940 Act or state securities laws (which term as used herein shall include the laws of the District of Columbia and Puerto Rico).

     (n) The registration statement filed by MuniYield Insured on Form N-14 relating to the shares of MuniYield Insured to be issued pursuant to this Agreement, which includes the proxy statement of MuniInsured with respect to the transactions contemplated herein and the prospectus of MuniYield Insured (together, the “Proxy Statement and Prospectus”), and any supplement or amendment thereto or to the documents therein (as amended, collectively the “N-14 Registration Statement”), on its effective date, at the time of the stockholders meeting referred to in Section 6(a) of this Agreement and on the Closing Date, insofar as it relates to MuniInsured (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 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 MuniInsured for use in the N-14 Registration Statement as provided in Section 6(d) of this Agreement.

 

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     (o) MuniInsured is authorized to issue 150,000,000 shares of common stock, par value $0.10 per share, each outstanding share of which is fully paid and nonassessable and has full voting rights.

     (p) All of the issued and outstanding shares of MuniInsured Common Stock were offered for sale and sold in conformity with all applicable Federal and state securities laws.

     (q) The books and records of MuniInsured made available to MuniYield Insured and/or its counsel are substantially true and correct and contain no material misstatements or omissions with respect to the operations of MuniInsured.

     (r) MuniInsured will not sell or otherwise dispose of any of the Corresponding Shares of MuniYield Insured to be received in the Reorganization, except in distribution to its stockholders as provided herein.

     (s) MuniInsured has no plan or intention to sell or otherwise dispose of its assets to be acquired in the Reorganization, except for dispositions made in the ordinary course of business.

     (t) At or prior to the Closing Date, MuniInsured will have obtained any and all regulatory, Board, stockholder and other approvals necessary to effect the Reorganization as set forth herein.

     2.  Representations and Warranties of MuniYield Insured.

     MuniYield Insured represents and warrants to, and agrees with, MuniInsured that:

     (a) MuniYield 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. MuniYield 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) MuniYield Insured is duly registered under the 1940 Act as a closed-end management investment company (File No. 811-6540), and such registration has not been revoked or rescinded and is in full force and effect. MuniYield Insured 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 both until consummation of the Reorganization and thereafter.

     (c) MuniInsured has been furnished with MuniYield Insured’s Annual Report to Stockholders for the year ended October 31, 2003. The financial statements appearing therein, having been examined by Ernst & Young, LLP , independent public accountants, fairly present the financial position of MuniYield Insured as of the dates indicated, in conformity with accounting principles generally accepted in the United States of America.

 

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     (d) An unaudited statement of assets, liabilities and capital of MuniYield Insured and an unaudited schedule of investments of MuniYield Insured, each as of the Valuation Time, will be furnished to MuniInsured at or prior to the Closing Date for the purpose of determining the number of shares of MuniYield Insured to be issued pursuant to Section 4 of this Agreement; and each will fairly present the financial position of MuniYield Insured as of the Valuation Time in conformity with generally accepted accounting principles applied on a consistent basis.

     (e) MuniYield Insured has full power and authority to enter into and perform its obligations under this Agreement. Stockholders of MuniYield Insured are not required to approve the Reorganization. The execution, delivery and performance of this Agreement has been duly authorized by all necessary action of its Board 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.

     (f) There are no material legal, administrative or other proceedings pending or, to the knowledge of MuniYield Insured, threatened against it which assert liability on the part of MuniYield Insured or which materially affect its financial condition or its ability to consummate the Reorganization. MuniYield 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.

     (g) There are no material contracts outstanding to which MuniYield Insured is a party that have not been disclosed in the N-14 Registration Statement or will not otherwise be disclosed to MuniInsured prior to the Valuation Time.

     (h) MuniYield Insured is not obligated under any provision of its Articles of Incorporation, as amended, restated and supplemented, 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) MuniYield 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 the date of its most recent Annual or Semi-Annual Report and those incurred in connection with the Reorganization. As of the Valuation Time, MuniYield Insured will advise MuniInsured 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 with respect to MuniYield Insured.

 

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     (j) No consent, approval, authorization or order of any court or governmental authority is required for the consummation by MuniYield Insured of the Reorganization, except such as may be required under the 1933 Act, the 1934 Act, the 1940 Act or state securities laws.

     (k) The N-14 Registration Statement, on its effective date, at the time of the stockholders meeting referred to in Section 6(a) of this Agreement and on the Closing Date, insofar as it relates to MuniYield 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 Proxy Statement and Prospectus included therein did not or will not contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that the representations and warranties in this subsection only shall apply to statements in or omissions from the N-14 Registration Statement made in reliance upon and in conformity with information furnished by MuniYield Insured for use in the N-14 Registration Statement as provided in Section 6(d) of this Agreement.

     (l) MuniYield Insured is authorized to issue 200,000,000 shares of capital stock, of which 2,200 shares have been designated as Series A Auction Market Preferred Stock (“AMPS”), 2,200 shares have been designated as Series B AMPS, 2,200 shares have been designated as Series C AMPS, 2,200 shares have been designated as Series D AMPS, 4,000 shares have been designated as Series E AMPS, 2,400 shares have been designated as Series F AMPS and 2,400 shares have been designated as Series G AMPS, and 199,982,400 shares have been designated as common stock, par value $0.10 per share, each outstanding share of which is fully paid, nonassessable and has full voting rights.

     (m) The MuniYield Insured shares to be issued to MuniInsured and distributed to stockholders of MuniInsured pursuant to this Agreement will have been duly authorized and, when issued and delivered pursuant to this Agreement, will be legally and validly issued and will be fully paid and nonassessable and will have full voting rights, and no stockholder of MuniYield Insured will have any preemptive right of subscription or purchase in respect thereof.

     (n) At or prior to the Closing Date, the MuniYield Insured shares to be issued to MuniInsured and distributed to stockholders of MuniInsured on the Closing Date will be duly qualified for offer and sale to the public in all states of the United States in which the sale of shares of MuniInsured presently are qualified, and there shall 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.

 

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     (o) At or prior to the Closing Date, MuniYield Insured will have obtained any and all regulatory, Board and other approvals, necessary to issue the Corresponding Shares of MuniYield Insured to MuniInsured for distribution to the stockholders of MuniInsured.

     (p) The books and records of MuniYield Insured made available to MuniInsured and/or its counsel are substantially true and correct and contain no material misstatements or omissions with respect to the operations of MuniYield Insured.

     3. The Reorganization.

     (a) Subject to receiving the requisite approval of the stockholders of MuniInsured, and to the other terms and conditions contained herein, MuniInsured agrees to convey, transfer and deliver to MuniYield Insured, and MuniYield Insured agrees to acquire from MuniInsured, on the Closing Date all of the MuniInsured Investments (including interest accrued as of the Valuation Time on debt instruments), and assume substantially all of the liabilities of MuniInsured, in exchange solely for that number of shares of MuniYield Insured calculated in accordance with Section 4 of this Agreement. Pursuant to this Agreement, on the Closing Date or as soon as practicable thereafter, MuniInsured will distribute all Corresponding Shares of MuniYield Insured received by it to its stockholders in exchange for their corresponding shares of MuniInsured. Such distribution shall be accomplished by the opening of stockholder accounts on the stock ledger records of MuniYield Insured in the amounts due the stockholders of MuniInsured based on their respective holdings in MuniInsured as of the Valuation Time.

     (b) Prior to the Closing Date, MuniInsured shall declare 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 to and including the Closing 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 Closing Date.

     (c) MuniInsured will pay or cause to be paid to MuniYield Insured any interest or dividends it receives on or after the Closing Date with respect to the MuniInsured Investments transferred to MuniYield Insured hereunder.

     (d) The Valuation Time shall be 4:00 p.m. New York time, on [ ], 2004, or such earlier or later day and time as may be mutually agreed upon in writing (the “Valuation Time”).

     (e) MuniYield Insured will acquire substantially all of the assets of, and will assume substantially all of the liabilities of, MuniInsured. The known liabilities of MuniInsured as of the Valuation Time shall be confirmed in writing to MuniYield Insured by MuniInsured pursuant to Section 1(j) of this Agreement.

     (f) MuniYield Insured and MuniInsured, will jointly file any and all such other instruments, including Articles of Transfer, as may be required by the State Department of Assessments and Taxation of Maryland to effect the transfer of the MuniInsured Investments to MuniYield Insured.

 

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     (g) Following the distribution referred to in subparagraph 3(a) above, MuniInsured shall be dissolved by such action as may be necessary in accordance with the laws of the State of Maryland and will terminate its registration under the 1940 Act by filing a Form N-8F application for an order under Section 8(f) of the 1940 Act.

     4. Issuance and Valuation of MuniYield Insured Shares in the Reorganization.

     Full shares of MuniYield Insured, plus cash in lieu of fractional shares of common stock, of an aggregate net asset value equal (to the nearest one ten thousandth of one cent) to the value of the assets of MuniInsured acquired, determined as hereinafter provided, reduced by the amount of liabilities of MuniInsured assumed by MuniYield Insured, shall be issued by MuniYield Insured in exchange for such assets of MuniInsured. The net asset value of MuniInsured and MuniYield Insured shall be determined as of the Valuation Time in accordance with the procedures described in the Proxy Statement and Prospectus 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. Such valuation and determination shall be made by MuniYield Insured in cooperation with MuniInsured and shall be confirmed in writing by MuniYield Insured to MuniInsured. 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) of that Fund and for MuniYield Insured the aggregate liquidation value of outstanding shares of AMPS is divided by the total number of shares of common stock of that Fund outstanding at such time.

     MuniYield Insured shall issue its shares of common stock to MuniInsured by the opening of a stockholder account on the stock ledger records of MuniYield Insured registered in the name of MuniInsured. MuniInsured shall distribute Corresponding Shares of MuniYield Insured to its stockholders by indicating the registration of such shares in the name of MuniInsured’s stockholders in the amounts due such stockholders based on their respective holdings in MuniInsured as of the Valuation Time.

     MuniYield Insured shall issue to MuniInsured separate certificates or share deposit receipts for the MuniYield Insured common stock, registered in the name of MuniInsured. MuniInsured then shall distribute the MuniYield Insured common stock to the holders of MuniInsured Common Stock by redelivering the certificates or share deposit receipts evidencing ownership of MuniYield Insured common stock to EquiServe Trust Company I.A., as the transfer agent and registrar for the MuniYield Insured common stock, for distribution to the holders of MuniInsured Common Stock on the basis of such holder’s proportionate interest in the aggregate net asset value of the common stock of MuniInsured. With respect to any MuniInsured stockholder holding certificates evidencing ownership of MuniInsured Common Stock as of the Closing Date and subject to MuniYield Insured being informed thereof in writing by MuniInsured, MuniYield Insured will not permit such stockholder to receive new certificates

 

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evidencing ownership to MuniYield Insured common stock, exchange MuniYield Insured common stock credited to such stockholder’s account for share of other investment companies managed by FAM or any of its affiliates or pledge to redeem such MuniYield Insured common stock in any case, until notified by MuniInsured or its agent that such stockholder has surrendered his or her outstanding certificates evidencing ownership of MuniInsured Common Stock or, in the event of lost certificates, posted adequate bond. MuniInsured, at its own expense, will request its stockholders to surrender their outstanding certificates evidencing ownership of MuniInsured Common Stock or post adequate bond therefor.

     Dividends payable to holders of record of shares of MuniYield Insured common stock, as of any date after the Closing Date and prior to exchange of certificates by any stockholder of MuniInsured shall be payable to such stockholder without interest; however, such dividends shall not be paid unless until such stockholder surrenders the stock certificates representing shares of common stock of MuniInsured for exchange.

     No fractional shares of MuniYield Insured common stock will be issued to holders of MuniInsured Common Stock. In lieu thereof, MuniYield Insured’s transfer agent, EquiServe Trust Company I.A., will aggregate all fractional shares of MuniYield Insured common stock and sell the resulting full shares on the New York Stock Exchange at the current market price for shares of MuniYield 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 MuniInsured Common Stock.

     5. Payment of Expenses.

     (a) The expenses of the Reorganization that are directly attributable to MuniInsured will be deducted from the assets of MuniInsured as of the Valuation Time. These expenses are expected to include the expenses incurred in preparing, printing and mailing the proxy materials to be used in connection with the meeting of stockholders of MuniInsured to consider the Reorganization and the expenses related to the solicitation of proxies to be voted at that meeting. The expenses directly attributable to MuniYield Insured are expected to include the expenses incurred in printing sufficient copies of MuniYield Insured’s Annual Report that will accompany the mailing of the Proxy Statement and Prospectus. The expenses of the Reorganization that are directly attributable to MuniYield Insured will be borne by its investment adviser, Fund Asset Management, L.P. (“FAM”). Certain other expenses of the Reorganization, including expenses in connection with obtaining the opinion of counsel with respect to certain tax matters, the preparation of this Agreement, legal, transfer agent and audit fees, will be borne equally by MuniInsured and FAM.

     (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.

 

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     6. Covenants of the Funds.

     (a) MuniInsured agrees to call a special meeting of its stockholders to be held as soon as is practicable after the effective date of the N-14 Registration Statement for the purpose of considering the approval of this Agreement, and it shall be a condition to the obligations of MuniYield Insured and MuniInsured that the holders of a majority of the shares of MuniInsured issued and outstanding and entitled to vote thereon, shall have approved this Agreement at such special meeting at or prior to the Valuation Time.

     (b) Each Fund covenants to operate its respective business as presently conducted between the date hereof and the Closing Date.

     (c) (i) MuniInsured agrees that following the Closing Date it will take such action as may be necessary to dissolve in accordance with the laws of the State of Maryland and will file an application pursuant to Section 8(f) of the 1940 Act for an order declaring that MuniInsured has ceased to be a registered investment company, and (ii) MuniInsured will not make any distributions of any Corresponding Shares of MuniYield Insured other than to its stockholders and without first paying or adequately providing for the payment of all of its liabilities not assumed by MuniYield Insured, if any, and on and after the Closing Date shall not conduct any business except in connection with its termination.

     (d) MuniYield 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. MuniInsured and MuniYield Insured agree to cooperate fully with each other, and each will furnish to the other 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.

     (e) MuniInsured and MuniYield Insured each agree that by the Closing Date all of their 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, MuniYield Insured and MuniInsured agree to cooperate with each other in filing any tax return, amended return or claim for refund, determining a liability for taxes or a right to a refund of taxes or participating in or conducting any audit or other proceeding in respect of taxes. MuniYield Insured agrees to retain for a period of ten (10) years following the Closing Date all returns, schedules and work papers and all material records or other documents relating to tax matters of MuniInsured for its taxable period first ending after the Closing 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 Closing Date, MuniInsured shall prepare, or cause its agents to prepare, any Federal, state or local tax returns, including any Forms 1099, required to be filed by or with respect to MuniInsured with respect to its final taxable year ending with its complete liquidation and for any prior periods or taxable years and further shall cause such tax returns and Forms 1099 to be duly filed with the appropriate taxing authorities. Notwithstanding the aforementioned provisions of this subsection, MuniInsured shall bear any expenses incurred by it (other than for

 

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payment of taxes) in connection with the preparation and filing of said tax returns and Forms 1099 after the Closing Date to the extent that MuniInsured accrued such expenses in the ordinary course without regard to the Reorganization; any excess expenses shall be borne by FAM at the time such tax returns and Forms 1099 are prepared.

     (f) MuniInsured agrees to mail to its stockholders of record entitled to vote at the special meeting of stockholders at which action is to be considered regarding this Agreement, in sufficient time to comply with applicable notice requirements, 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.

     (g) Following the consummation of the Reorganization, MuniYield Insured expects to stay in existence and continue its business as a closed-end management investment company registered under the 1940 Act.

     (h) MuniYield Insured agrees to comply with the record keeping requirements of Rule 17a-8(a)(5) under the 1940 Act after the Reorganization.

     (i) MuniYield Insured has no plan or intention to sell or otherwise dispose of the MuniInsured Investments, except for dispositions made in the ordinary course of business.

     7. Closing Date.

     (a) Delivery of the assets of MuniInsured to be transferred, together with any other MuniInsured Investments, and the Corresponding Shares of MuniYield Insured to be issued to MuniInsured, shall be made at the offices of Sidley Austin Brown & Wood LLP , 787 Seventh Avenue, New York, New York 10019, 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 MuniInsured and MuniYield Insured, the date and time upon which such delivery is to take place being referred to herein as the “Closing Date.” To the extent that any MuniInsured Investments, for any reason, are not transferable on the Closing Date, MuniInsured shall cause such MuniInsured Investments to be transferred to MuniYield Insured’s account with State Street Bank and Trust Company at the earliest practicable date thereafter.

     (b) MuniInsured will deliver to MuniYield Insured on the Closing Date confirmations or other adequate evidence as to the tax basis of each of the MuniInsured Investments delivered to MuniYield Insured hereunder.

     (c) As soon as practicable after the close of business on the Closing Date, MuniInsured shall deliver to MuniYield Insured a list of the names and addresses of all of the stockholders of record of MuniInsured on the Closing Date and the number of shares of common stock of MuniInsured owned by each such stockholder, certified to the best of its knowledge and belief by the transfer agent for MuniInsured or by its President.

 

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     8. Conditions of MuniInsured.

     The obligations of MuniInsured hereunder shall be subject to the following conditions:

     (a) That this Agreement shall have been adopted, and the Reorganization shall have been approved, by (i) the affirmative vote of the holders of a majority of the shares of common stock of MuniInsured issued, outstanding and entitled to vote thereon, and (ii) the Boards of Directors of MuniYield Insured and MuniInsured, including in each case a majority of the independent Directors; and that MuniYield Insured shall have delivered to MuniInsured a copy of the resolution approving this Agreement adopted by MuniYield Insured’s Board, certified by the Secretary of MuniYield Insured.

     (b) That MuniYield Insured shall have furnished to MuniInsured a statement of MuniYield Insured’s assets, liabilities and capital, with values determined as provided in Section 4 of this Agreement, together with a schedule of its investments, all as of the Valuation Time, certified on MuniYield Insured’s behalf by its President (or any Vice President) and its Treasurer, and a certificate signed by MuniYield Insured’s President (or any Vice President) and its Treasurer, dated as of the Closing Date, certifying that as of the Valuation Time and as of the Closing Date there has been no material adverse change in the financial position of MuniYield Insured since the date of MuniYield Insured’s most recent Annual or Semi-Annual Report as applicable, other than changes in its portfolio securities since that date or changes in the market value of its portfolio securities.

     (c) That MuniYield Insured shall have furnished to MuniInsured a certificate signed by MuniYield Insured’s President (or any Vice President) and its Treasurer, dated as of the Closing Date, certifying that, as of the Valuation Time and as of the Closing Date, all representations and warranties of MuniYield 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 MuniYield 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 MuniInsured shall have received an opinion or opinions of Sidley Austin Brown & Wood LLP , as counsel to MuniInsured and MuniYield Insured, in form and substance satisfactory to MuniInsured and dated the Closing Date, to the effect that (i) MuniYield Insured and MuniInsured are each corporations duly incorporated, validly existing and in good standing in conformity with the laws of the State of Maryland; (ii) the Corresponding Shares of MuniYield Insured to be issued pursuant to this Agreement are duly authorized and, when issued and delivered pursuant to this Agreement against payment of the consideration set forth in the Agreement, will be validly issued and fully paid and nonassessable by MuniYield Insured, and no stockholder of MuniYield Insured has any preemptive right to subscription or purchase in respect thereof (pursuant to the Articles of Incorporation, as amended and supplemented, of MuniYield Insured, or the by-laws, as amended, of MuniYield Insured or, to the best of such counsel’s knowledge, otherwise); (iii) this Agreement has been duly authorized, executed and delivered by MuniYield Insured and MuniInsured, and represents a valid and binding contract,

 

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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 (A) any material provisions of the Articles of Incorporation, as amended and supplemented, of MuniYield Insured or of MuniInsured, the by-laws, as amended, of MuniYield Insured or of MuniInsured, or to the best of such counsel’s knowledge, Maryland law; or (B) any material provision of agreement (known to such counsel) to which either MuniYield Insured or MuniInsured is a party or by which either MuniYield Insured or MuniInsured is bound, except insofar as the parties have agreed to amend such provision as a condition precedent to the Reorganization; (v) MuniInsured 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, MuniInsured 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 MuniYield Insured or MuniInsured 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, if any; (vii) to such counsel’s knowledge, the N-14 Registration Statement has been declared 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, as of its effective date, appears on its face to be appropriately responsive in all material respects to the requirements of the 1933 Act, the 1934 Act and the 1940 Act and the published rules and regulations of the Commission thereunder (other than the financial statements and supporting schedules included or incorporated by reference therein or omitted therefrom as to which such counsel need to express no opinion); (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 by the 1933 Act and the rules promulgated thereunder; (ix) 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; (x) neither MuniYield Insured nor MuniInsured, 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 such Fund has so qualified or the failure so to qualify would not have a material adverse effect on such Fund or its respective stockholders; (xi) such counsel does not have actual knowledge of any material suit, action or legal or administrative proceeding pending or threatened against MuniYield Insured or MuniInsured, the unfavorable outcome of which would materially and adversely affect MuniYield Insured or MuniInsured; (xii) all corporate actions required to be taken by

 

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MuniYield Insured or MuniInsured to authorize this Agreement and to effect the Reorganization have been duly authorized by all necessary actions on the part of MuniYield Insured or MuniInsured; and (xiii) such opinion is solely for the benefit of MuniYield Insured and MuniInsured and their respective Directors and officers. In giving the opinion set forth above, Sidley Austin Brown & Wood LLP may state that they are relying on certificates of officers of MuniYield Insured or MuniInsured with regard to matters of fact and certain certificates and written statements of governmental officials with respect to the due incorporation, valid existence and good standing of MuniYield Insured and MuniInsured.

     (f) That MuniInsured shall have received a letter from Sidley Austin Brown & Wood LLP , as counsel to MuniYield Insured, in form and substance satisfactory to MuniInsured and dated the Closing Date, to the effect that (i) 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 caused them to believe that, on the effective date of the N-14 Registration Statement, (1) the N-14 Registration Statement contained any untrue statement of a material fact or omitted to state any material fact relating to MuniYield Insured or MuniInsured required to be stated therein or necessary to make the statements therein not misleading; and (2) the Proxy Statement and Prospectus included in the N-14 Registration Statement contained any untrue statement of a material fact or omitted to state any material fact relating to MuniYield Insured or MuniInsured necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; (ii) such counsel does not express any opinion or belief as to the financial statements or other financial or statistical data relating to MuniYield Insured or MuniInsured contained or incorporated by reference in the N-14 Registration Statement or omitted therefrom; and (iii) such letter is solely for the benefit of the Directors and officers of MuniInsured and MuniYield Insured. In giving the letter set forth above, Sidley Austin Brown & Wood LLP may state that they are relying on certificates of officers of MuniYield Insured and MuniInsured with regard to matters of fact.

     (g) That MuniInsured shall have received an opinion of Sidley Austin Brown & Wood LLP to the effect that for Federal income tax purposes (i) the transfer by MuniInsured of substantially all of the MuniInsured Investments to MuniYield Insured in exchange solely for Corresponding Shares of MuniYield Insured as provided in this Agreement will constitute a reorganization within the meaning of Section 368(a)(1)(C) of the Code and each of MuniInsured and MuniYield Insured will be deemed to be 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 MuniInsured as a result of the transfer of its assets solely in exchange for Corresponding Shares of MuniYield Insured or on the distribution of these shares to its stockholders under Section 361(c)(1) of the Code; (iii) under Section 1032 of the Code, no gain or loss will be recognized to MuniYield Insured on the receipt of assets of MuniInsured in exchange for MuniYield Insured shares; (iv) in accordance with Section 354(a)(1) of the Code, no gain or loss will be recognized to the stockholders of MuniInsured on the receipt of Corresponding Shares of MuniYield Insured in exchange for their shares of MuniInsured, except to the extent that a stockholder receives cash in lieu of fractional shares of

 

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MuniYield Insured’s common stock; (v) in accordance with Section 362(b) of the Code, the tax basis of MuniInsured’s assets in the hands of MuniYield Insured will be the same as the tax basis of such assets in the hands of MuniInsured 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 Corresponding Shares of MuniYield Insured received by the stockholders of MuniInsured in the Reorganization will be equal, to the tax basis of the shares of MuniInsured surrendered in exchange; (vii) in accordance with Section 1223 of the Code, a stockholder’s holding period for the Corresponding Shares of MuniYield Insured will be determined by including the period for which such stockholder held the shares of MuniInsured exchanged therefor, provided, that such MuniInsured shares were held as a capital asset; (viii) in accordance with Section 1223 of the Code, MuniYield Insured’s holding period with respect to MuniInsured’s assets transferred will include the period for which such assets were held by MuniInsured; (ix) the payment of cash to common stockholders of MuniInsured in lieu of fractional shares of MuniYield 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 each common stockholder will have the short- or long- term capital gain or loss to the extent that the cash distribution received differs from the stockholder’s basis allocable to the MuniYield Insured fractional shares; (x) the taxable year of MuniInsured will end on the Closing Date and (xi) pursuant to Section 381(a) of the Code and regulations thereunder, MuniYield Insured will succeed to and take into account certain tax attributes of MuniInsured, such as earnings and profits, capital loss carryovers and method of accounting.

     (h) That all proceedings taken by MuniYield Insured and its counsel in connection with the Reorganization and all documents incidental thereto shall be satisfactory in form and substance to MuniInsured and its counsel.

     (i) That the N-14 Registration Statement shall have been declared effective under the 1933 Act, and no stop order suspending such effectiveness shall have been instituted or, to the knowledge of MuniYield Insured or MuniInsured, be contemplated by the Commission.

     (j) That MuniInsured shall have received from a letter dated as of or within three days prior to the effective date of the N-14 Registration Statement and a similar letter dated as of or within five days prior to the Closing Date, in form and substance satisfactory to MuniInsured, to the effect that (i) they are independent public accountants with respect to MuniYield 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 MuniYield 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; and (iii) on the basis of limited procedures agreed upon by MuniInsured and described in such letter (but not an examination in accordance with auditing standards generally accepted in the United States of America) consisting of a reading of any unaudited interim financial statements and unaudited supplementary information of MuniYield Insured included in the N-14

 

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Registration Statement, and inquiries of certain officials of MuniYield 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 accounting principles generally accepted in the United States of America, 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 MuniInsured and described in such letter (but not an examination in accordance with auditing standards generally accepted in the United States of America), the information relating to MuniYield 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), has been obtained from the accounting records of MuniYield Insured or from schedules prepared by officials of MuniYield Insured having responsibility for financial and reporting matters and such information is in agreement with such records, schedules or computations made therefrom.

     (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 with respect to MuniInsured under Section 25(c) of the 1940 Act, and no other legal, administrative or other proceeding shall be instituted or threatened which would materially affect the financial condition of MuniYield Insured or would prohibit the Reorganization.

     (l) That MuniInsured shall have received from the Commission such orders or interpretations as Sidley Austin Brown & Wood LLP , as counsel to MuniInsured, 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. Conditions of MuniYield Insured.

     The obligations of MuniYield 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 (i) the Boards of Directors of MuniYield Insured and MuniInsured, in each case including a majority of the independent Directors and (ii) by the affirmative vote of the holders of a majority of the shares of common stock of MuniInsured issued, outstanding and entitled to vote thereon, and that MuniInsured shall have delivered to MuniYield Insured a copy of the resolution approving this Agreement adopted by MuniInsured’s Board, and a certificate setting forth the vote that MuniInsured’s stockholders obtained, each certified by the Secretary of MuniInsured.

 

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     (b) That MuniInsured shall have furnished to MuniYield 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 MuniInsured’s behalf by MuniInsured’s President (or any Vice President) and its Treasurer, and a certificate signed by MuniInsured’s President (or any Vice President) and its Treasurer, dated the Closing Date, certifying that as of the Valuation Time and as of the Closing Date there has been no material adverse change in the financial position of MuniInsured since the date of MuniInsured’s most recent annual or semi-annual report to stockholders, as applicable, other than changes in the MuniInsured Investments since the date of such report or changes in the market value of the MuniInsured Investments.

     (c) That MuniInsured shall have furnished to MuniYield Insured a certificate signed by MuniInsured’s President (or any Vice President) and its Treasurer, dated the Closing Date, certifying that as of the Valuation Time and as of the Closing Date all representations and warranties of MuniInsured 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 MuniInsured 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 there shall not be any material litigation pending with respect to the matters contemplated by this Agreement.

     (e) That MuniYield Insured shall have received an opinion of Sidley Austin Brown & Wood LLP , as counsel to MuniInsured, in form and substance satisfactory to MuniYield Insured and dated the Closing Date, with respect to the matters specified in Section 8(e) of this Agreement and such other matters as MuniYield Insured reasonably may deem necessary or desirable.

     (f) That MuniYield Insured shall have received a letter from Sidley Austin Brown & Wood LLP , as counsel to MuniInsured, in form and substance satisfactory to MuniYield Insured and dated the Closing Date, with respect to the matters specified in Section 8(f) of this Agreement and such other matters as MuniYield Insured reasonably may deem necessary or desirable.

     (g) That MuniYield Insured shall have received an opinion of Sidley Austin Brown & Wood LLP with respect to the matters specified in Section 8(g) of this Agreement.

     (h) That MuniYield Insured shall have received from a letter dated as of or within three days prior to the effective date of the N-14 Registration Statement and a similar letter dated as of or within five days prior to the Closing Date, in form and substance satisfactory to MuniYield Insured, to the effect that (i) they are independent public accountants with respect to MuniInsured 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 MuniInsured 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

 

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the 1933 Act and the published rules and regulations thereunder; (iii) on the basis of limited procedures agreed upon by MuniYield Insured and described in such letter (but not an examination in accordance with auditing standards generally accepted in the United States of America) consisting of a reading of any unaudited interim financial statements and unaudited supplementary information of MuniInsured included in the N-14 Registration Statement, and inquiries of certain officials of MuniInsured 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 accounting principles generally accepted in the United States of America, 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 MuniYield Insured and MuniInsured and described in such letter (but not an examination in accordance with generally accepted auditing standards), the information relating to MuniInsured 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), has been obtained from the accounting records of MuniInsured or from schedules prepared by officials of MuniInsured having responsibility for financial and reporting matters and such information is in agreement with such records, schedules or computations made therefrom.

     (h) That the assets to be transferred to MuniYield Insured shall not include any assets or liabilities which MuniYield Insured by reason of charter limitations, investment policies or otherwise may not properly acquire or assume.

     (i) That the N-14 Registration Statement shall have become effective under the 1933 Act and no stop order suspending such effectiveness shall have been instituted or, to the knowledge of MuniInsured or MuniYield Insured, be contemplated by the Commission.

     (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 with respect to MuniInsured 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 MuniInsured or would prohibit the Reorganization with respect to MuniInsured.

     (k) That MuniYield Insured shall have received from the Commission such orders or interpretations as Sidley Austin Brown & Wood LLP , as counsel to MuniYield 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.

 

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     (l) That all proceedings taken by MuniInsured and its counsel in connection with the Reorganization and all documents incidental thereto shall be satisfactory in form and substance to MuniYield Insured.

     (m) That prior to the Closing Date, MuniInsured 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 investment company taxable income for the period to and including the Closing 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 Closing Date.

     10. 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 MuniInsured) prior to the Closing Date, or the Closing Date may be postponed, (i) by mutual consent of the Boards of MuniYield Insured and MuniInsured; (ii) by the Board of MuniInsured if any condition of MuniInsured’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 MuniYield Insured if any condition of MuniYield 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 June 30, 2004, this Agreement automatically shall terminate on that date, unless a later date is mutually agreed to by the Boards of MuniYield Insured and MuniInsured.

     (c) In the event of termination of this Agreement pursuant to the provisions hereof, this Agreement shall become void and have no further effect, and there shall not be any liability on the part of either MuniYield Insured and MuniInsured or persons who are their directors, trustees, officers, agents or stockholders in respect of this Agreement, except for the obligation of each Fund to bear the expenses of the Reorganization as provided in Section 5(a).

     (d) At any time prior to the Closing Date, any of the terms or conditions of this Agreement may be waived by the Board 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 the applicable Fund, on behalf of which such action is taken. In addition, the Board of Directors of each Fund has delegated to FAM the ability to make non-material changes to the transaction contemplated hereby if FAM 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 relating to MuniYield Insured and MuniInsured shall expire and terminate on the Closing Date and neither MuniYield Insured, MuniInsured nor any of their officers, directors or trustees, agents or stockholders shall have any liability with respect to such

 

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representations or warranties after the Closing Date. This provision shall not protect any officer, director or trustee, agent or stockholder of either Fund against any liability to the entity for which that officer, director or trustee, agent or stockholder so acts or to its stockholders, to which that officer, director or trustee, agent or stockholder otherwise would be subject by reason of willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties in the conduct of such office.

     (f) If any order or orders of the Commission with respect to this Agreement shall be issued prior to the Closing Date and shall impose any terms or conditions which are determined by action of the Boards of MuniYield Insured and MuniInsured 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 MuniInsured unless such terms and conditions shall result in a change in the method of computing the number of shares of MuniYield Insured to be issued to MuniInsured in which event, unless such terms and conditions shall have been included in the proxy solicitation materials furnished to the stockholders of MuniInsured prior to the meeting at which the Reorganization shall have been approved, this Agreement shall not be consummated and shall terminate unless MuniInsured promptly shall call a special meeting of stockholders at which such conditions so imposed shall be submitted for approval.

     (g) Prior to stockholder approval of the Reorganization, this Agreement may be amended, modified, superseded, canceled, renewed or extended, and the terms or covenants hereof may be waived, by a written instrument executed by the Funds or, in the case of a waiver, by the Fund waiving compliance. After stockholder approval of the Reorganization, this Agreement may be modified and any terms or conditions waived only as provided in (d) above.

     11. Other Matters.

     (a) Pursuant to Rule 145 under the 1933 Act, and in connection with the issuance of any shares to any person who at the time of the Reorganization is, to its knowledge, an affiliate of a party to the Reorganization pursuant to Rule 145(c), MuniYield 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 Insured FUND, Inc. (OR ITS STATUTORY SUCCESSOR) (THE “FUND”) OR ITS PRINCIPAL UNDERWRITER UNLESS (1) A REGISTRATION STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE SECURITIES ACT OF 1933 OR (2) IN THE OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE FUND, SUCH REGISTRATION IS NOT REQUIRED.

and, further, that stop transfer instructions will be issued to MuniYield Insured’s transfer agent with respect to such shares. MuniInsured will provide MuniYield Insured on the

 

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Closing Date with the name of any stockholder who is, to the knowledge of MuniInsured, an affiliate of MuniInsured 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 either Fund, in each case 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 other than 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, restated and supplemented, as applicable, of each of MuniYield Insured and MuniInsured are on file with the State Department of Assessments and Taxation of the State of Maryland and notice is hereby given that this instrument is executed on behalf of the Directors of each of MuniYield Insured and MuniInsured.

 

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     This Agreement may be executed in any number of counterparts, each of which, when executed and delivered, shall be deemed to be an original but all such counterparts together shall constitute but one instrument.

	MUNIYIELD INSURED FUND , INC .
	By:
Attest:
Secretary
	MUNI INSURED FUND , INC .
	By:
Attest:
Secretary

 

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Exhibit III

Description Of Bond Ratings

Description of Moody’s Investors Service, Inc.’s (“Moody’s”) Bond Ratings

Aaa Bonds which are rated Aaa are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as “gilt edge.” Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues.

Aa Bonds which are rated Aa are judged to be of high quality by all standards. Together with the Aaa group they comprise what are generally known as high grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long-term risks appear somewhat larger than in Aaa securities.

A Bonds which are rated A possess many favorable investment attributes and are to be considered as upper medium grade obligations. Factors giving security to principal and interest are considered adequate, but elements may be present which suggest a susceptibility to impairment sometime 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 the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small.

Caa Bonds which are rated Caa are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest.

Ca Bonds which are rated Ca represent obligations which are speculative in a high degree. Such issues are often in default or have other marked shortcomings.

C Bonds which are rated C are the lowest rated class of bonds and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing.

Note: Moody’s applies numerical modifiers 1, 2, and 3 in each generic rating classification from Aa through Caa. The modifier 1 indicates that the obligation ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a ranking in the lower end of that generic rating category.

 

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Description of Moody’s U.S. Short-Term Ratings

MIG 1/VMIG 1 This designation denotes superior credit quality. Excellent protection is afforded by established cash flows, highly reliable liquidity support, or demonstrated broad-based access to the market for refinancing.

MIG 2/VMIG 2 This designation denotes strong credit quality. Margins of protection are ample, although not as large as in the preceding group.

MIG 3/VMIG 3 This designation denotes acceptable credit quality. Liquidity and cash-flow protection may be narrow, and market access for refinancing is likely to be less well-established.

SG This designation denotes speculative-grade credit quality. Debt instruments in this category may lack sufficient margins of protection.

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 ability will often be evidenced by many of 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 well 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, may 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 may require 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”), Debt Ratings

     A Standard & Poor’s issue credit rating is a current opinion 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 issue credit 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 issue credit ratings are based on current information furnished by the obligors 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.

 

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     The issue credit ratings are based, in varying degrees, on the following considerations:

     I. Likelihood of payment—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.

Long Term Issue Credit Ratings

AAA An obligation rated “AAA” has the highest rating assigned by Standard & Poor’s. Capacity to meet its financial commitment on the obligation is extremely strong.

AA An obligation 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 An obligation 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 An obligation 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 An obligation 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 An obligation rated “D” is in payment default. The “D” rating category is used when payments on an obligation are not made on the date due even if the applicable grace period has not expired, unless Standard & Poor’s believes that such payments will be made during such grace period. The “D” rating also will be used upon the filing of a bankruptcy petition or the taking of similar action if payments on an obligation are jeopardized.

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 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 the completion of the project, makes no comment on the likelihood of or the risk of default upon failure of such completion. The investor should exercise his own judgment with respect to such likelihood and risk.

* Continuance of the ratings is contingent upon Standard & Poor’s receipt of an executed copy of the escrow agreement or closing documentation confirming investments and cash flows.

r This symbol is attached to the ratings of instruments with significant noncredit risks. It highlights risks to principal or volatility of expected returns which are not addressed in the credit rating.

 

III-3

N.R. This indicates that no rating has been requested, that there is insufficient information on which to base a rating, or that Standard & Poor’s does not rate a particular obligation as a matter of policy.

     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 A short-term obligation rated “A-1” is rated in the highest category by Standard & Poor’s. The obligor’s capacity to meet its financial commitment on the obligation is strong. Within this category, certain obligations are designated with a plus sign (+). This indicates that the obligor’s capacity to meet its financial commitment on these obligations is extremely strong.

A-2 A short-term obligation rated “A-2” is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher rating categories. However, the obligor’s capacity to meet its financial commitment on the obligation is satisfactory.

A-3 A short-term obligation rated “A-3” 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.

B A short-term obligation rated “B” is regarded as having significant speculative characteristics. The obligor currently has the capacity to meet its financial commitment on the obligation; however, it faces major ongoing uncertainties which could lead to the obligor’s inadequate capacity to meet its financial commitment on the obligation.

C A short-term obligation rated “C” is currently vulnerable to nonpayment and is dependent upon favorable business, financial and economic conditions for the obligor to meet its financial commitment on the obligation.

D A short-term obligation 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. The “D” rating will also be used upon the filing of a bankruptcy petition or the taking of a similar action if payments on an obligation are jeopardized.

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 debt service requirements is largely or entirely dependent upon the successful, timely completion of the project. This rating, however, while addressing credit quality subsequent to completion of the project, makes no comment on the likelihood of or the risk of default upon failure of such completion. The investor should exercise his own judgment with respect to such likelihood and risk.

* Continuance of the ratings is contingent upon Standard & Poor’s receipt of an executed copy of the escrow agreement or closing

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

 

III-4

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 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 Ratings’ (“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 carrying the same rating are of similar but not necessarily identical credit quality since the rating categories do not fully reflect small differences in the degrees of credit risk.

     Fitch ratings are not recommendations to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect of any security.

     Fitch ratings are based on information obtained from issuers, other obligors, underwriters, their experts, and other sources Fitch believes to be reliable. Fitch does not audit or verify the truth or accuracy of such information. Ratings may be changed, suspended, or withdrawn as a result of changes in, or the unavailability of, information or for other reasons.

 

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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 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.

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.

 

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D
DD
DDD 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 investment notes.

     The short term rating places greater emphasis than a long term rating on the existence of liquidity necessary to meet the issuer’s obligations in a timely manner.

     Fitch short term ratings are as follows:

F-1+ Exceptionally Strong Credit Quality. Issues assigned this rating are regarded as having the strongest degree of assurance for timely payment.

F-1 Very Strong Credit Quality. Issues assigned this rating reflect an assurance of timely payment only slightly less in degree than issues rated “F-1+.”

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-1” 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.

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.

 

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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 12 months.

     Ratings Outlook: An outlook is used to describe the most likely direction of any rating change over the intermediate term. It is described as “Positive” or “Negative.” The absence of a designation indicates a stable outlook.

 

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EXHIBIT IV

PORTFOLIO INSURANCE

     Set forth below is further information with respect to the insurance policies (the “Policies”) that MuniYield Insured Fund, Inc. and MuniInsured Fund, Inc. (each, a “Fund” and collectively, the “Funds”) may obtain from several insurance companies with respect to insured Municipal Bonds held by the Fund. The Funds have 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 Municipal Bonds and are not necessarily the criteria that would be used in regard to the purchase of such bonds by a Fund. The Policies do not insure (i) municipal securities ineligible for insurance and (ii) municipal securities no longer owned by a Fund.

     The Policies do not guarantee the market value of the insured Municipal Bonds or the value of the shares of a 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 a Fund notify the insurance company as to all Municipal Bonds in a Fund’s portfolio and permit the insurance company to audit their records. The insurance premiums will be payable monthly by a 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 Funds will seek to utilize insurance companies that have insurance claims-paying ability ratings of AAA from Standard & Poor’s (“S&P”) or Fitch, Inc. (“Fitch”) or Aaa from Moody’s Investors Service, Inc. (“Moody’s”). No assurance can be given, however, that insurance from insurance carriers meeting these criteria will be at all times available.

     An S&P insurance claims-paying ability rating is an assessment of an operating insurance company’s financial capacity to meet obligations under an insurance policy in accordance with the terms. An insurer with an insurance claims-paying ability rating of AAA has the highest rating assigned by S&P. Capacity to honor insurance contracts is considered by S&P to be extremely strong and highly likely to remain so over a long period of time. A Fitch insurance claims-paying ability rating provides an assessment of an insurance company’s financial strength and, therefore, its ability to pay policy and contract claims under the terms indicated. An insurer with an insurance claims-paying ability rating of AAA has the highest rating assigned by Fitch. The ability to pay claims is adjudged by Fitch to be extremely strong for insurance companies with this highest rating. In the opinion of Fitch, foreseeable business and economic risk factors should not have any material adverse impact on the ability of these insurers to pay claims. In Fitch’s opinion, profitability, overall balance sheet strength, capitalization and liquidity are all at very secure levels and are unlikely to be affected by potential adverse underwriting, investment or cyclical events. A Moody’s insurance claims-paying ability rating is an opinion of the ability of an insurance company to repay punctually senior policyholder obligations and claims. An insurer with an insurance claims-paying ability rating of Aaa is considered by Moody’s to be of the best quality. In the opinion of Moody’s, the policy obligations of an insurance company with an insurance claims-paying ability rating of Aaa carry the smallest degree of credit risk and, while the financial strength of these companies is likely to change, such changes as can be visualized are most unlikely to impair the company’s fundamentally strong position.

     An insurance claims-paying ability rating of S&P, Fitch or Moody’s does not constitute an opinion on any specific contract in that such an opinion can only be rendered upon the review of the specific insurance contract. Furthermore, an insurance claims-paying ability rating does not take into account deductibles, surrender or cancellation penalties or the timeliness of payment; nor does it address the ability of a company to meet nonpolicy obligations (i.e., debt contracts).

 

IV-1

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.

 

IV-2

Exhibit VI

CHARTER OF THE NOMINATING COMMITTEE

ORGANIZATION

     The Nominating Committee (the “Committee”) of the Board of Directors/Trustees for the registered investment companies (each a “Fund” and collectively, the “Funds”) listed on Exhibit A attached hereto shall be composed solely of Directors/Trustees who are not “interested persons” of the Fund as defined in Section 2(a)(19) of the Investment Company Act of 1940, as amended (the “1940 Act”), and who are “independent” as defined in the New York Stock Exchange and the American Stock Exchange (each, an “Exchange”) listing standards (if applicable) (“Independent Directors”). The Board of Directors/Trustees of the Fund (the “Board”) shall appoint the members of the Committee (which may or may not be all of the Independent Directors) and shall designate the Chairman of the Committee. The Committee shall have authority to retain outside counsel and other advisors the Committee deems appropriate and shall have the sole authority to approve the compensation and other terms of their retention.

RESPONSIBILITIES

     The Committee shall identify individuals qualified to serve as Independent Directors of the Fund and shall recommend its nominees for consideration by the full Board.

IDENTIFICATION AND EVALUATION OF POTENTIAL NOMINEES

     In identifying and evaluating a person as a potential nominee to serve as an Independent Director of the Fund, the Committee should consider among other factors it may deem relevant:

• the contribution which the person can make to the Board, with consideration being given to the person’s business and professional experience, education and such other factors as the Committee may consider relevant;

• the character and integrity of the person;

• whether or not the person is an “interested person” as defined in the 1940 Act and whether the person is otherwise qualified under applicable laws and regulations to serve as a Director or Independent Director of the Fund;

• whether or not the person has any relationships that might impair his or her independence, such as any business, charitable, financial or family relationships with Fund management, the investment adviser or manager of the Fund, Fund service providers or their affiliates;

• whether or not the person is financially literate pursuant to the applicable Exchange’s audit committee membership standards;

 

VI-1

 

• whether or not the person serves on boards of, or is otherwise affiliated with, competing financial service organizations or their related investment company complexes;

• whether or not the person is willing to serve, and willing and able to commit the time necessary for the performance of the duties of a Director of the Fund;

• whether or not the selection and nomination of the person would be consistent with the requirements of the Fund’s retirement policy.

     While the Committee is solely responsible for the selection and nomination of the Fund’s Independent Directors, the Committee may consider nominations for the office of Director made by Fund stockholders or by management as it deems appropriate. Stockholders who wish to recommend a nominee should send nominations to the Secretary of the Fund which include biographical information and set forth the qualifications of the proposed nominee.

QUORUM

     A majority of the members of the Committee shall constitute a quorum for the transaction of business, and the act of a majority of the members of the Committee present at any meeting at which there is quorum shall be the act of the Committee.

NOMINATION OF DIRECTORS

     After a determination by the Committee that a person should be nominated as an Independent Director of the Fund, the Committee shall present its recommendation to the full Board for its consideration and, where appropriate, to the Independent Directors.

MEETINGS

     The Committee may meet either on its own or in conjunction with meetings of the Board. Meetings of the Committee may be held in person, video conference or by conference telephone. The Committee may take action by unanimous written consent in lieu of a meeting.

Adopted: _________, 2004

 

VI-2

COMMON STOCK

MUNIINSURED 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 Phillip S. Gillespie as proxies, each with the power to appoint his substitute, and hereby authorizes each of them to represent and to vote, as designated on the reverse hereof, all of the shares of common stock of MuniInsured Fund, Inc. (the “Fund”) held of record by the undersigned on March 12, 2004 at the Annual Meeting of Stockholders of the Fund to be held on May 12, 2004, 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” Item 1 and Item 2.

By signing and dating the reverse side of this card, you authorize the proxies to vote the proposals as marked, or if not marked, to vote “FOR” the proposals, 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 the card at once in the enclosed envelope.

You may also vote your shares by touch-tone phone by calling 1-800-________ or through the Internet at www.proxyvote.com.

(Continued and to be signed on the reverse side)

Please mark boxes • or |X| in blue or black ink.

1. Election of Class III Directors to Serve
until the 2007 Annual Meeting For All
|_| Withhold All
|_| For All Except
|_|

To withhold authority to vote for certain nominees only, mark “For All Except” and write each such nominee’s number on the line below.

Director Nominee

01) Herbert I. London

02) André F. Perold

03) Robert S. Salomon, Jr. __________________________________

2.	To consider and act upon a proposal to approve the Agreement and Plan of Reorganization between the Fund and MuniYield Insured Fund, Inc.
	FOR   |_|     AGAINST   |_|     ABSTAIN  |_|

 3. 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 person.

Dated:_________________________________________________

X _____________________________________________________
                               Signature


X _____________________________________________________
                               Signature, if held jointly

Sign, Date, and Return the Proxy Card Promptly Using the Enclosed Envelope.

PART C

OTHER INFORMATION

Item 15. Indemnification.

     Section 2-418 of the General Corporation Law of the State of Maryland, Article VI of the Registrant’s Articles of Incorporation, filed as Exhibit 1(a) hereto; Article VI of the Registrant’s By-Laws, filed as Exhibit 2 hereto, and the Investment Advisory Agreement, a form of which is filed as Exhibit 6 hereto, 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 Securities 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 is filed as Exhibit 7(a) hereto, and (ii) Section 7 of the Purchase Agreement relating to the Registrant’s AMPS, a form of which is filed as an Exhibit 7(b) hereto, for provisions relating to the indemnification of the underwriter.

Item 16. Exhibits.

1(a) — Articles of Incorporation of the Registrant, dated _________________.(b)

  (b) — Articles of Amendment to the Articles of Incorporation of the Registrant, dated _________________.(b)

2     — By-Laws of the Registrant.(b)

3     — Not Applicable.

4     — Form of Agreement and Plan of Reorganization between the Registrant and MuniYield Insured Fund, Inc.(included in Exhibit II to the Joint Proxy Statement and Prospectus contained in this Registration Statement)

5(a) — Copies of instruments defining the rights of stockholders, including the relevant portions of the Articles of Incorporation and the By-Laws of the Registrant.(a)

  (b) — Form of specimen certificate for the common stock of the Registrant.(b)

6     — Form of Investment Advisory Agreement between Registrant and Fund Asset Management, L.P.(b)

7(a) — Form of Purchase Agreement for the common stock.(b)

  (b) — Form of Merrill Lynch Standard Dealer Agreement.(b)

8     — Not applicable.

9     — Custody Agreement between the Registrant and State Street Bank and Trust Company (“State Street”).(b)

10     — Not applicable.

11     — Opinion of Sidley Austin Brown & Wood LLP , counsel for the Registrant.(b)

12      — Tax Opinion of Sidley Austin Brown & Wood LLP , tax counsel for the Registrant.(b)

13(a) — Form of Registrar, Transfer Agency and Service Agreement between the Registrant and Equiserve Trust Company, I.A.(c)

    (b) — Form of Agreement of Resignation, Appointment and Acceptance among the Registrant, IBJ Whitehall Banks Trust Company and BONY.(c)

    (c) — Form of Broker-Dealer Agreement.(b)

 

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    (d) — Form of Letter of Representations.(b)

14(a) — Consent of                             , independent auditors for the Registrant. (b)

    (b) — Consent of                           , independent auditors for MuniYield Insured Fund, Inc. (b)

15      — Not applicable.

16     — Power of Attorney.

17     — None.

(a) Reference is made to Article V, Article VI (sections 2, 3, 4, 5 and 6), Article VII, Article VIII, Article X, Article XI, Article XII and Article XIII of the Registrant’s Articles of Incorporation, filed as Exhibit 1(a) hereto, and to Article II, Article III (sections 1, 2, 3, 5 and 17), Article VI, Article VII, Article XII, Article XIII and Article XIV of the Registrant’s By-Laws filed as Exhibit 2 hereto.

(b) To be filed by amendment to this Registration Statement.

(c) Incorporated by reference to Exhibit 13(c) to the Registration Statement on Form N-14 of MuniYield Fund, Inc. (File No. 333-65242), filed on September 14, 2001.

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, an opinion of counsel as to certain tax matters within a reasonable time after receipt of such opinion.

 

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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 March, 2004.

MUNIYIELD INSURED FUND , INC . (Registrant)
By:	/s/ DONALD C. BURKE (Donald C. Burke, Vice President and Treasurer)

     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
TERRY K. GLENN * (Terry K. Glenn)	President (Principal Executive    Officer) and Director
DONALD C. BURKE * (Donald C. Burke)	Vice President and Treasurer (Principal     Financial and Accounting Officer)
JAMES H. BODURTHA * (James H. Bodurtha)	Director
JOE GRILLS * (Joe Grills)	Director
HERBERT I. LONDON * (Herbert I. London)	Director
ANDRÉ F. PEROLD * (André F. Perold)	Director
ROBERTA C. RAMO * (Roberta C. Ramo)	Director
ROBERT S. SALOMON , JR .* (Robert S. Salomon, Jr.)	Director
STEPHEN B. SWENSRUD * (Stephen B. Swensrud)	Director
*By:           /s/ DONALD C. BURKE                    (Donald C. Burke, Attorney-in-Fact)		March 9, 2004

 

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EXHIBIT INDEX

Description
16	—	Power of Attorney.